The directors present the strategic report for the year ended 28 February 2023.
First Priority Housing Association Limited made a profit of £9.5k in the year ended 28th February 2023. While this is relatively small based on our turnover of £5.7m, it is better than our target for 2022/23 which was to break even.
Our turnover increased 13.8% to £5.7m reflecting a combination of increase in number of units in management as well as increase in occupancy. Income from void charges continues to decline reflecting increased level of occupancy.
During the year we secured an additional 63 beds replacing some 34 beds lost through a combination of end of lease, asset disposals and closure of services. As the changes occurred throughout the year the full year impact of these properties is not reflected in the numbers. Roughly 50% of the new units is from an existing landlord replacing units disposed of in previous years.
Operational Performance
The below table sets our Operational Key Performance Indicators for 2021/22, 2022/23 and comparison to average of our peers based on their published performance.
Description | 2022 | 2023 | Target |
Rent Collection | 100.95% | 96.8% | 99.0% |
Arrears as % of Rent Charged | 6.65% | 7.68% | <=8% |
Repairs completed within timescales |
|
|
|
Emergency | 98.7% | 98.0% | 100.0% |
Urgent | 96.8% | 95.0% | 97.5% |
Routine | 99.4% | 94.3% | 100.0% |
Building Safety |
|
|
|
Compliance – Fire | 91.6% | 100% | 100.0% |
Compliance – Gas | 100.0% | 99.3% | 100.0% |
Compliance – Water | 98.9% | 100% | 100.0% |
Compliance – Asbestos | 100% | 100% | 100.0% |
Compliance – Electricity | 100% | 100% | 100.0% |
Property Usage |
|
|
|
Occupancy | 84.8% | 87.9% | 87.5% |
Unlettable Beds | 16 | 3 | 0 |
Rent Collection
Income collection is down on previous year and on target for the year. Just under half of the shortfall relates to a single scheme where we had delays in getting the scheme into payment due to lack of resources in the local authority. We have subsequently got this and the other new schemes into payment.
Repairs
The level of repairs activity increased significantly in 2022/23 with over 30% increase in the volume of jobs on the previous year. This put a strain on our supply chain and consequently performance within timescales was lower than targeted.
There was only one gas safety check outstanding at the end of the year due access issues with the property. The check was completed after the year end.
Compliance with the HCA Governance and Viability Standard
The Board are not in a position to confirm First Priority has met the Governance & Viability Standard and continue to engage proactively with the Regulator with our stated aim of achieving compliance as soon as is possible.
Compliance with NHF Code of Governance
The Board has adopted the NHF Code of governance and following a review can confirm it is compliant with the Code.
Risks
The Board carried out regular reviews throughout the year to ensure it has appropriate mitigation and management in place to manage the risk it faces. In addition, after year end the Board carried out a comprehensive review of the risks to First Priority the outcome of which is reflected in the risk register set out below.
Risk | Risk Category | Short Description | Net Risk Score |
1 | Sustainability of business | Ability to achieve growth to establish critical mass | 16 |
2 | Sustainability of business | Lack of management capacity to manage growth | 16 |
3 | Sustainability of business | Poor Quality of Service to Customers | 16 |
4 | Health & Safety | Compliance with all statutory | 12 |
5 | Counterparty risk | Reliant on third parties for delivery of services to properties and to tenants, not all of which is within our control | 12 |
6 | Asset Management | Appropriateness of properties in management | 12 |
7 | Key person risk | Organisation is heavily dependent on single employee | 12 |
8 | Sustainability of business | Break Clause with largest senior landlords | 12 |
9 | Regulatory risk | Regulatory compliance | 12 |
10 | Reputational Risk | Rebuilding trust in First Priority's ability to deliver services following Creditor Voluntary Agreement | 6 |
Post year end
Since the financial year end, we have secured a further 18 beds with 3 new counterparties and are in negotiations to manage a further 100 units which we hope to secure before the year end.
To address management capacity we have recruited a Head of Operations whose main focus will be to improve tenant engagement and ensure our services are delivered at a high standard.
Value for Money
The value for money standard 2018 sets out the required outcomes for registered providers, as well several specific expectations including requirements to publish value for money metrics in the annual accounts.
This strategy also considers specifically that First Priority has appropriate targets in place for measuring value for money in delivering strategic objectives and that these are regularly monitored, and performance is reported against these targets.
On an annual basis, First Priority will: -
• Review its approach to VfM
• Report progress against the key VfM metrics and
• Report progress towards corporate improvement targets.
We have calculated the metrics and will use this information to set out the priority that First Priority now places on VFM and on its future priorities. We are determined to meet this current and any future standard and to evidence this to tenants and other stakeholders.
The table below sets out our performance for 2022/23 against prior years and budget together with targets for 2023/24.
Metric | 2021 | 2022 | 2023 | Targets for 2023 | Targets for 2024 (Budget) |
Reinvestment % of Lease Liability | 0.20% | 0.27% | 0.24% | 0.25% | 0.25% |
New Supply | 12 | 1 | 63 | 35 | 20 |
New Supply Delivered | 2.9% | 0.0% | 15.4% | 8.3% | 5.0% |
Gearing % | 100% | 100% | 100% | 100% | 100% |
Operating Surplus before Lease costs as % Lease Costs | 101.18% | 101.57% | 100.33% | >=100% | >=100% |
Headline Social Housing Cost per unit £k | 11.56 | 12.93 | 13.7 | 13.95 | 16.54 |
Operating Margin % | 0.67% | 0.79% | 0.16% | >=0% | >=0% |
Return on Capital Employed | 6.6% | 7% | 2% | >=0% | >=0% |
Occupancy Rate | 83% | 85% | 87.70% | >=87.5% | >=90% |
Overhead as % of Turnover | 5.74% | 5.96% | 4.94% | 6.20% | 7.11% |
As First Priority leases all of its stock we have amended some of the calculations to reflect the spirit of the VfM standard and establish a comparable figure against other similarly financed Housing Associations.
Reinvestment as % of lease liability is the total expenditure on major repairs expressed as a % of lease liability. Given the nature of the lease agreements this typically equates with 0.25% of lease liability at outset and grows over time as the average number of years reduces.
As First Priority leases all of its properties it is effectively operating at 100% gearing. We have used this figure instead of the one outlined in the standard as we believe this more accurately reflects the financing arrangement for the properties we manage.
Typically Housing Association’s measure Earnings before Interest, Taxation, Depreciation, Amortisation and Major repairs as a measure of cash generation. As First Priority leases all of its stock the measure is not relevant. Consequently, we have chosen to use Operating Surplus before Lease Costs as a reasonable proxy for this figure.
Our headline cost per unit was up on last year and reflects a significant increase in the level of repairs expenditure experienced within the year. As some of the cost, notably lease cost, is a function of occupancy levels we expect the overall cost per unit to increase in 23/24 to reflect higher occupancy.
Due to the nature of our business model, we do not expect to make significant surpluses and consequently we continue to budget based on a break-even position, which in turn means very low Return on Capital Employed.
VFM target 2022/23 | Results |
Increase occupancy on all lettable properties to 87.5% | We achieved 87.9%. We will retain the target of 87.5% as we expect to grow in 2023/24. |
Reduce Cost of management to reflect number of tenancies in management | We renegotiated our management contract and reduced the overall cost of management from £1683 in 2021/22 to £1425 in 2022/23, a 15% reduction in the cost of management |
Build on work to date in the Specialised Supported Housing Network (SSHN) on benchmarking costs | This proved difficult to achieve given the relatively high inflation and time instead was spent on managing tenant exposure to increase in utility costs. |
VFM targets for 2023/24
Recruit Head of Operations to focus on improving tenant engagement and quality of service.
Achieve growth to reduce the overheads % to current level, below the budget.
Reintroduce handyman services, where possible, to manage repair cost and deliver a better service.
Comparison to peers
The table below compares our performance against peers with less than 1000 units in management.
Metric | First Priority | Average of 4 Peers (members of SSHN) |
Units in Management | 408 | 736 |
New Supply Delivered | 15.4% | 0.6% |
Headline Social Housing Cost per unit £000 | 12.9 | 15.1 |
Headline Social Housing Cost per unit £000 (excluding Lease Costs) | 7.2 | 5.8 |
Operating Margin | 0.16% | 0.61% |
Operating Surplus before lease costs as % Lease Costs | 100.33% | 101.07% |
Return on Capital Employed | 1.7% | 14.3% |
We have taken the results of 4 of our peers within the Specialist Social Housing Network (SSHN) who operate similar business model to us and have, on average, less than 1,000 units in management.
Operating margin before lease costs excludes non-housing income/expenditure to isolate the cash generated covering the lease. Unlike other we do not expect to be much higher than 100% as a result of the way we structured our business.
On behalf of the board
The directors present their annual report and financial statements for the year ended 28 February 2023.
The results for the year are set out on page 11.
As this is a non-profit organization no dividends are payable.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Objectives and policies
The Company holds or issues financial instruments in order to achieve three main objectives, being:
i) to finance its operations;
ii) to manage its exposure to interest, credit and liquidity risks arising from its operations and from its sources of finance; and
iii) for trading purposes.
In addition, various financial instruments (e.g. accounts receivable, accounts payable, accruals and prepayments) arise directly from the Company's operations.
Transactions in financial instruments result in the Company assuming or transferring to another party one or more of the financial risks described below.
Price risk, credit risk, liquidity risk and cash flow risk
Credit risk
The Company has no significant concentrations of credit risk. Amounts shown in the balance sheet best represent the maximum credit risk exposure in the event other parties fail to perform their obligations under financial instruments.
The Company is also potentially subject to concentration of credit risk in its accounts receivable, with significant balances due from a number of local authorities and care operators. The Company has made suitable provisions reflecting the collectability of these receivables.
Liquidity risk
Working capital and liquidity is managed as part of day to day business routines of the Company.
We will continue to drive improvement on performance and key to this is to grow the total number of homes we manage. We will ensure that any growth is undertaken on a sustainable basis. We are already in discussions on a number of schemes which we hope to complete by end of 23/24.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
First Priority Housing Association Limited is a private company limited by shares incorporated in England and Wales. The registered office is The Innovation Centre, Hornbeam Park, Hookstone Road, Harrogate, UK, HG2 8QT.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Borrowings
Interest-bearing borrowings are initially recorded at fair value, net of transaction costs. Interest-bearing borrowings are subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to the Income Statement over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in interest payable and similar charges.
Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefit from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis.
The analysis of the company's social housing split of turnover and costs for the year are as follows:
All fees above in relation to the Auditor are stated inclusive of VAT.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The Director who is on the payroll for the company is Mr John Higgins (CEO).
The number of directors for whom retirement benefits are accruing under defined contribution schemes is 1 (2022 - 1).
The Director who pension contributions were made for was Mr John Higgins (CEO).
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The company measures units under management at each balance sheet date, as at 28 February 2023 there were 408 (2022: 387).
Contributions totaling £1,005 (2022 - £1,005) were payable to the scheme at the end of the year and are included in creditors.
The amount of non-cancellable operating lease payments recognised as an expense during the year was £2,887,801 (2022 - £2,528,300).
The variation of the leases under the CVA has made quantification of minimum payment subjective and volatile dependent on assumptions. Consequently, we have maintained the basis of calculation as using the original lease terms.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: