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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