8 February 2016
Investor Update
Strategic and Operational
Review
Carol Matthews
Group Chief Executive
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About Riverside
• Owning and managing 53,000 properties
• Turnover £316m, surplus £45m
• A conservative business model, non-
social activity only accounts for 9% of
Group turnover
• Aa3 Moody’s rating, confirmed Oct 2015
• Low debt to revenue and strong interest
coverage
• A steadily improving operating margin
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2014 -2015 Highlights2014-17 Corporate Plan – One year on
• Stock Densification - 393 units acquired in Kent
and Halton, 405 disposed of across all divisions
• Grant funding for 750 new homes secured
• £1.9m savings made by procurement
• Evolve’s coverage increased from 16,000
homes to 34,000. Now providing in-house
repairs and maintenance services to 69% of
properties in England
• Financial close on the Hull Extra Care PFI
project providing 316 homes primarily for older
people
• Own name bond issued. £150m raised and
£100m retained
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For the year ended 31 March2010/11
Restated
2011/12
Actual
2012/13
Actual
2013/14
Actual
2014/15
Actual
Turnover (£‘m) 256.8 270.8 291.9 303.9 316.0
Operating Costs 213.9 230.7 233.1 235.6 237.8
Operating Surplus
(before property sales)42.9 40.1 58.8 68.3 78.2
Operating Margin 17% 15% 20% 23% 25%
Surplus for the Year 18.4 22.5 32.7 49.1 45.1
2014/15
Operating margin continues to grow in corporate strategy
Headroom on interest cover £48m
Headroom on gearing £349m
2014-15 Highlights
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How we did in 2015 and 2016 Forecast
Cash Leakage KPIs
• 2015 below target although re-let period and voids were better than
the previous year
• 2016 YTD – All cash leakage indicators are ahead of target and last
year
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Target Actual Target Forecast
1. Aggregate scores
Top 10 KPIs 80.0% 86.9% 77.0% 93.1%
Customer service KPIs 87.0% 100.0% 87.0% 100.0%
2. Cash leakage
Re-let period (days) 28.6 29.8 27.3 25.2
Arrears 4.26% 4.52% 3.88% 3.60%
Stock void 2.29% 2.48% 2.16% 2.00%
3. Processes & people
Staff attendance 96.5% 96.2% 96.6% 96.6%
Voluntary leavers 7.70% 7.22% 8.50% 8.13%
RIDDOR accidents reported 446 400 324 320
2015 2016
Performance indicators
How are we doing in 2016
Steady improvement in all cash leakage KPI’s over last 12 months
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Regulation
•A “trusted friend” of the Regulator – Riverside continues to be used
as a sounding board by the HCA investor, as well as by DCLG and
DWP
•Riverside continues to be awarded G1/V1 rating
•Changes to the regulatory regime, April 2016
•Self certification with compliance - June 2016
•In depth assessment (IDA) expected 2016
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A majority government!
Government Policy
•Extension of Right to Buy – Manifesto Promise
•Summer Budget
─ 1% Rent Reduction
─ Living Wage
─ Pay to Stay
─ Benefit Cap
─ Devolution
•Local Housing Allowance
- Increased counterparty risk -
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Shaping the world
Riverside’s response
•Lobbying and Influencing
─ Evidence provided to Parliamentary select committees
─ Discussions with DCLG
─ Working with National Housing Federation (NHF) to shape
the sector’s response
•Participation on the Voluntary RTB pilot
• Key player in Housing for the
North group and city region
debate
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Riverside’s response
•October rework of the business plan
─ A response to increased risk and uncertainty that preserves
the financial strength of the business
─ The plan focuses People, Procurement, Pensions,
Properties, Programmes, and Personal Responsibility
•Extension of the Think Forward change programme and Target
Operating Model to the whole Group
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A revised business model
Target Operating Model is Riverside’s biggest review of activities taking
place in the business.
It has been accelerated after the Summer Budget announcement.
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Geographic Shared Services (always present within the regions) eg service delivery, Asset
Management and local office based support
Target Operating Model - TOM
National shared services
C&S – Front Line
Delivery & Operational
Performance
Management
Social Housing – Front
Line Delivery &
Operational Performance
Management
Non-Social Housing –
Front Line Delivery &
Operational Performance
Management
National Shared Services e.g. processing, CSC
C&S Business
Management
General Needs Business
Management
RHO Business
Management
National Shared Services – Mobile (i.e. operate in the regions when required) eg
training delivery, IT help, internal audits
Group Strategic Management e.g. Strategy & Policy, Business PlanningStrategic direction &
overall management
Commercial Management
Business specific activities
Activities that need to be done
in areas where our customers
live
Shared services delivered by
fully mobile fully mobile roles
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Governance – a year of continuity
Max Steinberg CBE
Chair
Philip Raw
Vice Chair
Susan Jee
Group Treasurer
Paul Forster-Jones
Jonathan Dale
Philip Han
Group Audit Committee
Chair
Mike Little
Sally Trueman
Carol Matthews Joy Baggaley
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Governance – A year of continuity
•Continuity in Group Board
•Continuity on Committees and Committee Membership
•Continuity in Executive Team
While also managing change:
Succession planning for new Board and Committee
appointments
A review of governance also underway
Stability, experience and knowledge supporting large
scale change
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Financial Review
Joy Baggaley
Chief Finance Officer
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Budget changes1% Rent reduction
•The impact on revenue of
the reversal of CPI+1%
formula between 16-17 and
19-20 is estimated as:
• Yr1 16-17: £7m
• Yr2 17-18: £15m
• Yr3 18-19: £24m
• Yr4 19-20: £34m
In total lost income of £81m
over the next 4 years of the
plan
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Budget changesRTB for housing associations’ tenants
• Currently have 7,800 tenants with preserved RTB. Manifesto promises
means 19,000 more tenants potentially eligible for RTB
• Based on age and affordability criteria and length of time in tenancy we
expect 15%, 2,850 will exercise their right to buy at an average proceeds
per sales of £79k with tenant discount of £43k
£’m 2016/17 2017/18 2018/19 2019/20
Sales Proceeds 88.8 56.6 34.6 23.6
I&E Surplus 42.2 29.4 18.2 12.7
Net cash inflow 58.4 37.8 22.3 23.1
Units sold 1,139 712 427 285
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Budget changesLiving Wage, Benefit Cap and Pay to Stay
£’m 2016/17 2017/18 2018/19 2019/20 2020/21 Beyond
Living Wage - - - 0.1 0.4
Benefit Cap 0.2 0.2 0.2 0.2 0.2
Pay to Stay - 0.2 0.2 0.3 0.3
Total 0.2 0.4 0.4 0.6 0.9 +2.5%
The other budget changes have a relatively minor impact
Link to LHA is a different matter
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Impact on Riverside – before mitigation
Breaches
Interest cover Year 23
Gearing n/a
Asset Cover Year 24
Surplus Year 26
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Riverside’s responseBusiness plan savings
£’000 2016/17 2017/18 2018/19 2019/20
Properties 2,850 3,900 5,835 8,438
People 2,725 4,875 6,900 9,249
Places 1,265 1,973 2,275 1,611
Operating cost 2,329 2,329 6,229 6,229
Implementation costs (2,019) (1,935) (2,097) (506)
Total 7,150 11,142 19,142 25,021
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Riverside’s responseComponents of Revenue
• Lower risk social housing letting income will continue as major source of
income
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£’m
Riverside’s response
Prudent business plan assumptions
2015/16 2016/17 2017/18 2018/19 2019/20
Rents 2.2% -1.0% -1.0% -1.0% -1.0%
Voids 1.75% 1.75% 1.75% 1.75% 1.75%
Bad debts 3.0% 3.0% 3.0% 3.0% 3.0%
Salaries 1.2% 1.0% 2.0% 2.0% 2.0%
Repairs 2.3% 3.0% 3.0% 3.0% 3.0%
Interest (unhedged & future) 7.1% 7.1% 7.1% 7.1% 7.1%
Rent reduction included, salary increase limited to 1% 2016/17
No change to other assumptions including interest rate
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Riverside’s responseDevelopment assumptions
A modest development programme relative to Riverside’s size
• After 2019/20 the usual 500 unit pa programme reduces to 300 units
• No grant after the current HCA agreements have been delivered.
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Riverside’s responseSubstantial headroom on covenants
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Riverside’s responseInterest Cover
• Social Housing Interest cover and cash cover ratios all grow steadily over
the life of the plan
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Riverside’s responseSummary – measured and prudent
• Objectives
Return to target operating margin (25%) – projected 19/20
30 years covenant compliance
• Robust
No increased reliance on commercial activities
No reliance on property sales
Planned provisions in early years
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Debt and Liquidity
Andy Gladwin
Group Financial Controller
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Debt and LiquidityTreasury Activity 2014/15
• Nov 2014 TRGL borrowed £35m from AHF
• Nov 2014 restructured bank facilities, removing a syndicated loan
and changing all gearing covenants to a 60% cost of properties
basis
• Dec 2014 TRGL raised £150m via an own name bond (£100m
retained facility which is fully secured)
• Dec 2014 Riverside Estuary Ltd finalised a £67.6m Aviva facility
The bond produced a step change in the level of available funds
2014 £95m 2016 £206m
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Debt and LiquidityReducing levels of debt
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Debt and LiquidityReducing levels of debt
The rent reduction delays the fall in debt ratios but does not change the
direction of travel
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Treasury Policy
• Cash, borrowing and derivative
counterparty limits are based on credit
ratings. Exceptions to the policy must
be reported to Group Board;
• Sufficient committed facilities capable
of immediate drawdown to cover 12
months cash requirements. Current
position £169m, 65 months;
• Sufficient committed facilities (whether
or not capable of immediate
drawdown) to cover the higher of
committed development spend and 18
months cash requirements. Current
position £206m, 90 months.
1Based on cancellable fixes, the percentage of debt that is variable potentially rises to 13%
Interest Rate Management
• 7%1 variable interest rate, 93%
fixed;
• All stand alone swaps are
matched to liabilities. Derivatives
are not for speculative purposes
• Market to market exposure of
£27m covered by thresholds,
property and cash collateral
Liquidity Management
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Unencumbered stock
•The £100m retained bond is fully secured
•There is a significant amount of unsecured stock available
• 2,025 unallocated properties with an EUV-SH valuation of £69m
are charged to the security trust
• 13,167 unencumbered properties remain with an estimated EUV-
SH valuation of £450m
• The majority of existing debt is secured on an EUV-SH basis with
the ability to switch to MV if required
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SUMMARY
Carol Matthews
Group Chief Executive
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• Aa3 rating from Moody’s and G1 / V1 rating from HCA
• £316m turnover, £78m operating surplus
• A prudently managed organisation characterised by:
─ high levels of interest cover
─ low debt to revenue and assets
─ low levels of development and property sales
─ Majority of revenues driven by lower risk social housing lettings
─ Minimal commercial operations
• A measured and achievable response to the budget
• Social purpose and prudent approach not compromised
SUMMARY
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SUMMARYHolding a steady course through uncertain seas
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Q&A
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