Group Accounts 2006

GROUP FINANCIAL STATEMENTS 2005-06

ContentsBoard members, senior staff and 3advisorsReport of the Board 4-6Operating and financial review 6-11Statement of the responsibilities of 12the BoardReport of the auditors 13Consolidated income and 14expenditure accountConsolidated balance sheet 15Consolidated cash flow statement 16Parent income and expenditure account 17Parent balance sheet 18Parent cash flow statement 18Notes to the financial statements 19-41Mission, key aims and values 43

EAST THAMES GROUP LIMITED

Financial StatementsFOR THE YEAR ENDED 31 MARCH 2006

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East Thames Group Limited Board members, senior staff and advisors

BoardChairman – Mr R. Chilton

Vice-Chair – Mr J. Mallender

Treasurer – Mr C. Villiers

Other membersMr O. Olanrewaju

Mr B. Robertson

Mr J. Norman

Mr G. McLeary

Mr C. Dankwa

Mr D. Edwards

Mr D. Goodman

Mr A. Bridgwater (resigned January 2006)

Mrs L. Perham (appointed March 2006)

Senior staffGroup Chief Executive – Ms J. Barnes

Deputy Chief Executive – Mr M. Heys

Group Director of Development – Mr S. Tarry (resigned April 2006)

Group Director of Corporate Services – Ms D. Boakye

Group Director of Business Services – Ms J. Kutner

Group Company Secretary – Mr H. Potter

Registered office3 Tramway Avenue, Stratford, London E15 4PN

AuditorsRSM Robson Rhodes LLP,Daedalus House, Station Road,Cambridge CB1 2RE

SolicitorsDevonshires,Salisbury House, London Wall,London EC2M 5QY

Trowers and Hamlins,Sceptre Court, 40 Tower Hill,London EC3N 4DX

BankersBarclays Bank plc,Business Banking, PO Box 544,1st Floor, 54 Lombard Street,London EC3V 9EX

Registered Charity 1084952Registered under the Companies Act 1985 4091100Registered by the Housing Corporation No. LH 4309

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The Board presents its report and auditedfinancial statements for the year ended31 March 2006.

Legal statusEast Thames Group Limited is a charity, registeredunder the Companies Act 1985 and is a RegisteredSocial Landlord under the Housing Act 1996. On 1 April 2001 it assumed responsibility as the parentcompany for four main operating subsidiaries, EastHomes Limited, East Living Limited, East ChoiceLimited, and East Potential. On 31 December 2001,it assumed responsibility as the parent company for East Street Services Limited, a companyestablished to undertake the Group’s non-charitableactivities. On 10 February 2003 East Regen Limitedand East Treasury Limited were incorporated aswholly-owned subsidiaries within the Group. EastRegen Limited commenced trading on 1 April 2005and East Treasury Limited on 18 March 2006. On 6 April 2006 East Choice Limited transferred itsassets and liabilities to East Homes Limited.

Principal activitiesThe parent company’s principal activities are the provision of central services to its operatingsubsidiaries. The four main operationalsubsidiaries are East Homes Limited whichprovides social housing, East Choice Limitedwhich provides low-cost home ownership, EastLiving Limited which provides care and supportedhousing and East Potential which manages foyerson behalf of the Group. Three other subsidiariesprovide services for the Group. East StreetServices Limited undertakes commercial activities,East Regen Limited provides management anddevelopment services and East Treasury Limited

raises finance and provides treasury services.

Review of the yearThe year again saw significant growth. During the year the Group has added 357 units ofaccommodation to its portfolio of properties which at 31 March 2006 totalled 11,658 units.

During the year, the Group spent £101.2 millionacquiring and developing its housing stock and anadditional £5.2 million (including improvements onhousing for rent, aids and adaptations and estateimprovements) on its continuing substantialprogramme of rehabilitating, modernising andrepairing its housing stock. It is the intention to fullyupgrade each property at least every 25 years.

Performance for the yearThe Group achieved a surplus for the year of£4.0 million (2005: £4.3 million) before breakagecosts of £2.3 million (2005: £ Nil) incurred inrefinancing the loans portfolio. This has resultedin a surplus for the year of £1.7 million (2005: £4.3million) which following transfers from therevaluation and designated reserves of £1.9 million(2005: £0.4 million) has resulted in increasingrevenue reserves to £53.8 million (2005: £50.2million). Restricted, designated, and consolidatedreserves total £5.1 million (2005: £5.5 million).Following the revaluation of the Group’s propertiesthe revaluation reserve now stands at £220.6 million(2005: £209.3 million).

Post balance sheet events Apart from the transfer of assets, mentioned above,there have been no other events since the year endthat have had a significant effect on the Group’s orcompany’s financial position.

Going concernThe Board has a reasonable expectation that theGroup and the company has adequate resources to continue in operational existence for theforeseeable future, being a period of 12 monthsfrom the date on which the report and financialstatements were signed.

Disabled employeesApplications for employment from disabled personsare given full and fair consideration for all vacancies,having regard to their particular aptitude andabilities. In the event of employees becomingdisabled, every effort is made to retain them in orderthat their employment within the organisation maycontinue. It is the policy of the Group that training,career development and promotion opportunitiesshould be available to all employees.

Health and safetyThe Group takes its responsibilities for Health andSafety very seriously and has established a trainingand implementation programme, led by a healthand safety committee dedicated to this topic.

Employee involvementOne of the strengths of the Group lies in the qualityof its employees. One of the key factors in its abilityto meet its objectives and its commitments to itstenants in an effective and efficient manner is thecontribution of its employees. The Group hascontinued its practice of consulting and keepingemployees informed on matters affecting them andon the progress of the Group. This is carried out in anumber of ways including a formal forum forconsultation, departmental meetings and a varietyof newsletters.

Report of the Board

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DonationsThe Group made charitable donations during theyear of £4,306. No donations were given to charitiesof which Board members are Trustees.

PensionsThe Chief Executive is an ordinary member of thepension scheme and has a contractual arrangementcovering additional voluntary contributions (AVCs).There are no other enhanced pension arrangementsto which East Thames Group Limited or anymembers of the Group make a contribution.

Internal controlsThe Board has overall responsibility for establishingand maintaining the whole system of internal controland for reviewing its effectiveness. This applies to allcompanies within the East Thames Group.

The Board recognises that no system ofinternal control can provide absolute assuranceor eliminate all risk. The system of internal controlis designed to manage risk and to providereasonable assurance that key business objectivesand expected outcomes will be achieved.It also exists to give reasonable assurance aboutthe preparation and reliability of financial andoperational information and the safeguardingof the Group’s assets and interests.

In meeting its responsibilities, the Board hasadopted a risk-based approach to internal controlswhich are embedded within the normalmanagement and governance process. Thisapproach includes the regular evaluation of thenature and extent of risks to which the Group isexposed and is consistent with Turnbull principlesas incorporated in the Housing Corporation’scircular R2-25/01: Internal Controls Assurance.

The process adopted by the Board in reviewing theeffectiveness of the system of internal control,together with some of the key elements of thecontrol framework includes:

Identification and evaluation of key risksManagement responsibility has been clearly definedfor the identification, evaluation and control ofsignificant risks. The Group has an overall riskmanagement strategy which is reviewed annuallyand produces Group and individual subsidiary riskmaps which identify key risks linked to our strategicplan. These risks are scored in terms of impact(including reputational image) and probability bothin terms of the initial risk and the residual risk onceadequate control measures are in place.

There is a formal and ongoing process ofmanagement review in each area of the Group’s activities. The process is co-ordinatedthrough a quarterly reporting framework to theGroup Risk Management and Audit Committee/Boards which review changes to the risk map on an ongoing basis.

The Group Executive and Officer Risk ManagementPanel regularly consider reports on significant risksfacing the Group. The Group Chief Executive/relevant Managing Director is responsible forreporting to the respective Board(s) any significantchanges affecting key risks.

Monitoring and corrective actionA process of control self-assessment and regularmanagement reporting on control issues provideshierarchical assurance to successive levels ofmanagement and to the Board. This processcontinues to be developed to ensure a rigorousapproach and includes action for ensuring that

corrective action is taken in relation to anysignificant control issues.

Control environment and control proceduresThe Board retains responsibility for a defined rangeof issues covering strategic, operational, financialand compliance issues including treasury strategyand new investment projects. The Board hasadopted the National Housing Federation 2004Code of Governance – ‘Competence andAccountability’. This is used as a basis for theGroup’s policies with regard to quality, integrity andethics. It is supported by a framework of policiesand procedures, with which employees mustcomply. These cover issues such as delegatedauthority, segregation of duties, accounting, treasurymanagement, health and safety, data and assetprotection and fraud prevention and detection.

Information and financial reporting systemsFinancial reporting procedures include detailedbudgets for the year ahead and forecasts forsubsequent years. These are reviewed andapproved by the Board. The Board also regularlyreviews key performance indicators to assessprogress towards the achievement of key businessobjectives, targets and outcomes. There has been areview of performance management informationduring 2005–06 which has seen the implementationof new systems, including the introduction of abalanced scorecard approach, designed tomeasure the critical success factors of the business.The internal control framework and the riskmanagement process are subject to regular reviewby Internal Audit who are responsible for providingindependent assurance to the Board via its GroupRisk Management and Audit Committee. The

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ActivitiesEast Thames Group Limited is a large housingand regeneration group based in east Londonproviding a range of accommodation includinggeneral needs, low-cost home ownership,supported housing and regeneration services.As at 31 March 2006 the Group consisted of:

• East Thames Group Limited – a RegisteredSocial Landlord and a registered charity;

• East Homes Limited – a Registered SocialLandlord and a charitable Industrial andProvident Society;

• East Choice Limited – a Registered SocialLandlord and a charitable Industrial andProvident Society. East Choice Limited mergedwith East Homes Limited on 6 April 2006following a transfer of engagements;

• East Living Limited – a charitable Industrialand Provident Society;

• East Potential – a registered charity; and

• East Street Services Limited – a non-charitable company.

There are also a number of smaller companiesin the Group.

East Thames Group Limited was formed in 1979following a merger of three housing associationsoperating in east London. Its first subsidiary, EastChoice Limited (then known as Boleyn and ForestHousing Society Limited), was formed in 1981.Two further subsidiaries, East Living Limited (thenCare and Support Services Limited) and EastPotential (then Network East Foyers), becamesubsidiaries in 1995 and 1997 respectively.

East Thames Group Limited was formed in 2001 as a new Group parent, with the formerparent becoming what is today known as EastHomes Limited.

East Homes Limited operates two mainbusinesses, long-term housing for families andsingle people and temporary short-term housingfor those who would otherwise be homeless.

East Choice Limited specialised in the provisionof low-cost home ownership homes, particularlyshared ownership, an arrangement wherebyresidents own a share of equity in their homeand rent the rest from East Choice Limited. This activity is now incorporated within EastHomes Limited.

East Living Limited provides supported housingand care for those who need additional housingrelated support, or additional care.

East Potential provides housing management,training and information services to youngpeople. This is achieved through managingfive foyers in east London and Essex.

As well as owning and managing over 11,600units the Group is a major developer of newaffordable housing and is one of theassociations selected by the HousingCorporation as development partners.

Operating and financial review

committee considers internal control and riskregularly during the year.

Sources of assuranceThere are a number of internal and externalsources of assurance which have been used incompiling this statement some of which arementioned above. In summary these sources are:

• Board/Group Risk Management and Audit Committee oversight of the organisation’s business;

• Management assurances;

• Management reports on operational and financial matters;

• Risk management activity;

• Internal audit;

• Quality management systems such as Charter Mark and Investors in People; and

• Key performance indicators linked to business plans.

The Board has received the Group ChiefExecutive’s annual report, has conducted its annualreview of the effectiveness of the system of internalcontrol and has taken account of any changesneeded to maintain the effectiveness of the riskmanagement control process.

The Board confirms that there is an ongoingprocess for identifying, evaluating and managingsignificant risks faced by the Group. This processhas been in place throughout the year under review,up to the date of the annual report, and is regularlyreviewed by the Board.

Report of the Board (continued)

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Objectives and strategiesOur mission is: “to make a positive and lasting contribution to the neighbourhoods in which we work”. We have five key aims underpinning this mission and keyactions have been developed to ensure that we are able to deliver against this strategic plan.

Strategies

• Continue to find innovative solutions to meet specific customer and housing needs and to improve thequality of our current services

• Deliver sustainability in the neighbourhoods in which we operate• Help meet the needs of the large and growing child and youth population in east London• Continue to develop a wide range of housing for different income groups, including giving our existing

residents more opportunities to move to new homes as their needs change• Identify and pursue strategic opportunities for growth and stock transfer across east London and Essex

• We will improve our performance by giving opportunities to residents to define service standards andpriorities, provide better value for money in all our services, set development standards for new homesand the improvement of existing homes, influence our community and economic programmes and makeour neighbourhoods a better place to live

• Actively seek ways of getting feedback from our residents and service users whose voices are notnormally heard

• Work with strategic and local agencies to help them achieve their objectives in the neighbourhoods inwhich we work

• Continue to develop effective partnerships, achieving more as a result of these

• We will contribute to key local partnerships and planning forums• Target and shape regional and national agendas to benefit our neighbourhoods• Build local community networks to inform, shape, and reinforce local agendas• Promote innovative solutions using flagship projects, services and research• Develop staff and Board members as ambassadors

• We will communicate effectively so staff understand and are aware of what we do, share our future plansand the issues that affect our business

• Further develop staff to maximise their skills and creativity in an organisation with a culture of integrity,to be positive agents for change, promote the advantages of working in a multi-cultural area, and learnand innovate using internal and external knowledge and experience

• Create a workplace culture that makes staff feel as special as the Group expects them to make ourcustomers feel

• Maintain a working environment conducive to attracting and retaining the highest quality staff

Key aims

• To provide high quality homes and services thatmeet the needs of our customers

• To ensure that our customers can shape ourservices

• To influence local, regional and national thinking,policies and strategies

• Developing well-informed, committed andenthusiastic staff

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Strategies

• Optimise the use of Group assets and revenue streams to ensure the most effective investment in newdevelopment, our existing stock and services

• Improve the manner in which we manage risk while continuing to be risk aware• Exploit the knowledge, skills and experiences from across the Group to deliver our mission• Continue to improve business performance and efficiency • Continue to review our governance structures as appropriate to ensure that they are utilised to best effect• Use our organisational strength to contribute to the success of the 2012 Olympics and its legacy

Key aims

• Actively using our financial and organisationalstrength

Operating and financial review (continued)

Performance, development and continuousimprovementThe Group Executive and the Board have put inplace a comprehensive process to monitor theperformance of the Group against a set of keyresults, critical success factors and keyperformance indicators. The results aresummarised on a Group ‘Master PerformanceDashboard.’ The Board agrees targets each yearthat are designed to manage development anddeliver continuous service improvement. TheBoard receives a performance management packmonthly which indicates the Group’s performanceagainst targets and simply and effectivelyhighlights the current performance and the trend,giving each area a “green”, “amber”, or “red”assessment. Those areas assessed as “red” aremonitored closely and are subject to a detailedreview by the Board each quarter.

Risks and uncertaintiesThe Group Board and the Group RiskManagement and Audit Committee’s oversightof the organisation’s businessThe Group Board and Group Risk Managementand Audit Committee use a number of internaland external processes to manage risk.

Management assurances Annually senior managers complete an internalcontrols sign off memorandum confirming theirunderstanding of their objectives and compliancewith internal control procedures.

Management reports on operational andfinancial mattersBoards and the Committee receive regular reportson business planning incorporating long-termfinancial plans and forecasts, treasury managementpolicies and strategies, including cash flowmonitoring and control, and interest management.Policies and strategies have also been consideredon a range of issues ranging from human resourcesand diversity issues to risk management.Satisfaction survey information derived fromresidents and employees has also been considered.

Risk management activityDuring the year the Board considered ourcomprehensive Group Risk Management Strategy,a Group-wide risk map and individual subsidiaryrisk maps. The risk maps assess risk on the basisof impact (including reputational risk) andprobability. A system of measuring residual riskscores is used (i.e. those scores after controls arein place) and all scores over 100 are reviewed by

the Group Risk Management and Audit Committeeand individual Boards on a quarterly basis.

Officer Risk Management PanelAn Officer Risk Management Panel is also inplace which considers all items of risk in terms ofnew activity and also any development schemeswhich fall outside the agreed template.

Financial positionResults

The results of the key operations are set out below:

OperatingTurnover surplus

2006 2005 2006 2005£m £m £m £m

General needs 35.8 34.9 11.6 11.8Special needs accommodation 17.2 14.9 0.2 1.0Shared ownership accommodation 4.7 4.6 0.7 0.3Temporary accommodation 16.1 16.7 (0.1) 0.1Other 1.6 1.5 (2.8) (3.6)

Total 75.4 72.6 9.6 9.6

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The Group income and expenditure account andbalance sheet are summarised in the table onpage 10 and the following paragraphs highlightkey features of the Group’s financial position at 31 March 2006.

Accounting policiesThe Group’s principal accounting policies are set outon pages 19 to 20 of the financial statements. Thepolicies that are most critical to the financial resultsrelate to accounting for housing properties andinclude: capitalisation of interest and developmentadministration costs; deduction of capital grant fromthe cost of assets; housing property depreciation;and treatment of shared ownership properties.Each of these policies has remained unchangedduring the period under review.

Housing propertiesAt 31 March 2006 the Group owned or managed11,658 housing properties (2005: 11,301). Thevaluation shown in the balance sheet of propertiesowned by us (after depreciation and capital grant)was £517,734 million (2005: £445,943 million). TheBoard appointed professional valuers to value theGroup’s housing properties as at 31 March 2006.

Our investment in housing properties this yearwas funded through a mixture of Social HousingGrant, loan finance and working capital.The Group treasury management arrangementsare considered below.

Pension costsThe Group participates in two pension schemes,the Social Housing Pension Scheme (SHPS) andthe NHS pension scheme for England and Wales.Both of these are final salary schemes, offeringgood benefits for our staff. The Group has

contributed to the schemes in accordance with therequired levels set by actuaries of 11.7% and 14%of salaries respectively.

The last actuarial valuation of the SHPS wascarried out as at 30 September 2005. The resultsof the valuation show a deficit of £283 million.Although the value of scheme assets hasincreased as anticipated in the last valuation,salary increases in excess of expectations andchanges in actuarial assumptions have beencontributory factors to higher scheme liabilitiesand we anticipate that our contributions to thescheme will increase significantly based onpresent benefits.

The last actuarial valuation of the NHS pensionscheme took place on 31 March 2003.

Capital structure and treasury policyDuring the year new loan arrangements betweenEast Treasury Limited (a member of East ThamesGroup Limited), Nationwide, Barclays and BarclaysSyndicate totalling £400 million were agreed. Thefacility has been used to refinance our existingloans portfolio and provide significant funds fordevelopment and other new business initiatives.

At 31 March 2006 East Homes Limited hadborrowed £161 million from East Treasury Limitedfor this purpose. Interest is payable on the newfacility borrowings of £161 million at fixed ratesvarying from 4.02% to 4.135% on £31 million and at rates linked to LIBOR on the remaining£130 million.

A consolidated loan from the Royal Bank ofScotland is repaid in half-yearly instalments overthe estimated life of the scheme on which the loanis secured, at a fixed interest rate of 10.65%.

The final instalments are due for repayment in theperiod 2006 to 2037.

A HACO £25 million bond is due to be repaid in2006-07 as part of the refinancing of existingloans. Interest is fixed at 10.625%.

THFC loans totalling £20 million are due to berepaid in 2006-07 as part of the refinancing ofexisting loans, the interest rates payable rangefrom 5.05% to 5.57%.

A £1.25 million THFC Bond is fixed at 12.97%and is due to be repaid in 2019.

2006 2005

Maturity £m £m

Within one year 0.7 13.5Between one and two years 1.3 1.6Between two and five years 2.5 19.2After five years 246.2 147.1

Total 250.7 181.4

Statement of complianceIn preparing this Operating and Financial Review,the Board has followed the principles set out inPart 3 of the SORP ‘Accounting by RegisteredSocial Landlords’ (Update 2005).

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For the year ended 31 March 2006 2005 2004 2003 2002

Group income and expenditure account (£’000)Total turnover 75,409 72,584 66,700 55,521 49,414Income from lettings 73,837 71,071 63,758 53,550 43,210Operating surplus 9,574 9,563 10,555 11,896 14,677Exceptional item – Breakage costs (2,340) – – – –

Surplus for the year transferred to reserves 1,703 4,269 8,128 4,644 5,834

Group balance sheet (£’000)Housing properties, net of depreciation 966,025 885,217 828,183 696,464 621,554SHG and other capital grants (448,291) (439,274) (424,544) (411,860) (380,491)

Housing properties, net of depreciation and grants 517,734 445,943 403,639 284,604 241,063Other fixed assets 15,158 11,709 8,515 5,806 6,132

Fixed assets net of capital grants and depreciation 532,892 457,652 412,154 290,410 247,195

Net current assets/(liabilities) 9,593 (14,909) (4,495) 17,726 22,218

Total assets less current liabilities 542,485 442,743 407,659 308,136 269,413

Loans (due over one year) 249,115 167,361 153,734 165,513 165,891Provision for liabilities and charges 100 100 100 100 197Other long- term liabilities 13,828 10,234 11,045 7,792 7,302

Reserves : restricted 1,784 1,791 2,912 3,240 3,772: designated 3,011 3,492 1,953 2,069 2,084: revenue 54,031 50,432 45,779 37,185 29,673: revaluation 220,616 209,333 192,136 92,237 60,494: total 279,442 265,048 242,780 134,731 96,023

542,485 442,743 407,659 308,136 269,413

Group highlights, five-year summary

Operating and financial review (continued)

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For the year ended 31 March 2006 2005 2004 2003 2002

Total housing stock owned or managed at year end (number of dwellings):

Social housing 10,064 9,798 9,769 9,551 9,178Non-social housing 1,594 1,503 1,421 1,436 1,415

11,658 11,301 11,190 10,987 10,593

Surplus for the year as % of turnover 5.4% 6.5% 12.2% 8.4% 11.8%Surplus for the year as % of income from lettings 5.5% 6.6% 12.7% 8.7% 13.5%Rent losses (voids and bad debts as % of rent and service charges receivable) 3.4% 3.8% 3.7% 5.5% 3.6%Rent arrears (gross arrears as % of rent and service charges receivable) 6.5% 6.6% 7.6% 11.5% 9.3%Interest cover (surplus before interest payable divided by interest payable and capitalised interest) 1.4 1.3 1.9 1.4 1.5Liquidity (current assets divided by current liabilities) 1.4 0.6 0.8 2.0 2.4Gearing (total loans as % of capital grants plus reserves) 34.4% 25.7% 23.0% 28.4% 29.5%

Total reserves per home owned £30,267 £27,517 £24,903 £13,775 £9,757

Accommodation figures

Statistics

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The Board is responsible for preparing the reportand financial statements in accordance withapplicable law and United Kingdom GenerallyAccepted Accounting Practice.

The Companies Act 1985 and Registered SocialLandlord legislation in the United Kingdom requirethe Board to prepare financial statements foreach financial year which give a true and fairview of the state of affairs of the Group and thecompany at the end of the year and of the surplusor deficit of the Group and the company for theyear then ended.

In preparing those financial statements the Boardis required to:

• select suitable accounting policies and applythem consistently;

• make judgements and estimates that arereasonable and prudent;

• follow applicable United Kingdom AccountingStandards and the Statement of RecommendedPractice: “Accounting by registered sociallandlords” (Update 2005), subject to any materialdepartures disclosed and explained in thefinancial statements; and

• prepare the financial statements on the goingconcern basis unless it is inappropriate topresume that the company will continue inbusiness.

The Board is responsible for keeping properaccounting records which disclose withreasonable accuracy at any time the financialposition of the Group and the company and

enable it to ensure that the financial statementscomply with the Companies Act 1985, paragraph16 of Schedule 1 to the Housing Act 1996 andthe Accounting Requirements for RegisteredSocial Landlords General Determination 2000. Itis also responsible for safeguarding the assets ofthe Group and the company and hence for takingreasonable steps for the prevention and detectionof fraud and other irregularities.

The Board is responsible for ensuring that theReport of the Board is prepared in accordancewith the Statement of Recommended Practice:“Accounting by registered social landlords”(Update 2005).

The Board is responsible for the maintenance andintegrity of the corporate and financial informationon the Group’s website. Legislation in the UnitedKingdom governing the preparation anddissemination of the financial statements andother information included in annual reports maydiffer from legislation in other jurisdictions.

Disclosure of information to auditorsAt the date of making this report the membersand directors, as set out on page 3, confirm thefollowing:

• so far as each member and director is aware,there is no relevant information needed by theGroup's auditors in connection with preparingtheir report of which the Group's auditors areunaware; and

• each member and director has taken all thesteps that they ought to have taken as amember or director in order to make themselves

aware of any relevant information needed bythe Group’s auditors in connection withpreparing their report and to establish that theGroup's auditors are aware of that information.

AuditorsRSM Robson Rhodes LLP were appointed auditorsduring the year and a resolution to re-appoint themwill be proposed at the forthcoming Annual GeneralMeeting.

The report of the Board was approved by the Boardon 1 August 2006 and signed on its behalf by

Henry PotterGroup Company Secretary

Statement of the responsibilities of the Board

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We have audited the financial statements onpages 14 to 41. These financial statements havebeen prepared under the accounting policies setout therein.

This report is made solely to the company’smembers, as a body, in accordance with Section235 of the Companies Act 1985. Our audit workhas been undertaken so that we might state to thecompany’s members those matters we arerequired to state to them in an auditors' report andfor no other purpose. To the fullest extent permittedby law, we do not accept or assume responsibilityto anyone other than the company and thecompany’s members as a body, for our audit work,for this report, or for the opinions we have formed.

Respective responsibilities of the Board and AuditorsThe Board’s responsibilities for preparing thefinancial statements in accordance with applicablelaw and United Kingdom Accounting Standardsare set out in the statement of the responsibilitiesof the Board.

Our responsibility is to audit the financialstatements in accordance with relevant legal andregulatory requirements and InternationalStandards on Auditing (UK and Ireland).

We report to you our opinion as to whether thefinancial statements give a true and fair view andare properly prepared in accordance with theCompanies Act 1985. We also report to you if, inour opinion, the report of the Board is notconsistent with the financial statements, if thecompany has not kept proper accounting records,if we have not received all the information and

explanations we require for our audit, or ifinformation specified by law regarding directors’remuneration is not disclosed.

We read the other information accompanying thefinancial statements and consider whether it isconsistent with the audited financial statements.The other information comprises only the Reportof the Board and the Operating and FinancialReview. We consider the implications for our reportif we become aware of any apparentmisstatements or material inconsistencies with thefinancial statements. Our responsibilities do notextend to any other information.

We report to you whether in our opinion theinformation given in the Report of the Board isconsistent with the financial statements.

Basis of audit opinionWe conducted our audit in accordance withInternational Standards on Auditing (UK andIreland) issued by the Auditing Practices Board. Anaudit includes examination, on a test basis, ofevidence relevant to the amounts and disclosuresin the financial statements. It also includes anassessment of the significant estimates andjudgements made by the Board in the preparationof the financial statements, and of whether theaccounting policies are appropriate to the Group'sand the company's circumstances, consistentlyapplied and adequately disclosed.

We planned and performed our audit so as toobtain all the information and explanations whichwe considered necessary in order to provide uswith sufficient evidence to give reasonableassurance that the financial statements are free

from material misstatement, whether caused byfraud or other irregularity or error. In forming ouropinion we also evaluated the overall adequacy ofthe presentation of information in the financialstatements.

OpinionIn our opinion:

• the financial statements give a true and fair view,in accordance with United Kingdom GenerallyAccepted Accounting Practice, of the state ofaffairs of the Group and parent company as at31 March 2006 and of the surplus of the Groupfor the year then ended and have been properlyprepared in accordance with the Companies Act1985, the Housing Act 1996 and the AccountingRequirements for registered social landlordsGeneral Determination 2000; and

• the information given in the Report of the Boardis consistent with the financial statements.

RSM Robson Rhodes LLP

Chartered Accountants and RegisteredAuditors

Cambridge, England

Independent auditors’ report to the members of East Thames Group Limited

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2006 2005Note £’000 £’000

Turnover: continuing activities 2 75,409 72,584Operating costs 2 (65,835) (63,021)

Operating surplus: continuing activities 9,574 9,563Surplus on property disposals 4 4,357 4,156Net interest payable and similar charges 7 (9,888) (9,450)

Surplus for the year before exceptional item 4,043 4,269Exceptional item – Breakage costs 7 (2,340) –

Surplus for the year after exceptional item 1,703 4,269Transfer from revaluation reserve 22 1,408 801Transfer to restricted reserves 22 (58) –Transfer from/(to) designated reserves 22 546 (1,538)Transfer from restricted reserves 22 – 1,121Unallocated surplus 3,599 4,653Revenue reserves brought forward 50,169 45,516Revenue reserves carried forward 53,768 50,169

Consolidated income andexpenditure accountfor the year ended 31 March 2006

2006 2005£’000 £’000

Surplus for the year 1,703 4,269Unrealised surplus on revaluation of housing properties 22 12,691 17,999Total recognised surpluses for the year 14,394 22,268

2006 2005£’000 £’000

Reported surplus on ordinary activities 1,703 4,269Excess of actual depreciation over historical cost depreciation 488 255Realisation of property revaluation surpluses 920 546Historical cost surplus on ordinary activities before taxation 3,111 5,070Historical cost surplus for the year after taxation and Gift Aid 3,111 5,070

Consolidated statement of total recognisedsurpluses and deficitsfor the year ended 31 March 2006

Note of historical cost surpluses and deficitsfor the year ended 31 March 2006

Reconciliation of movements in Group’s fundsfor the year ended 31 March 2006

Restated

Restated

Restated

Restated2006 2005£’000 £’000

Opening total funds 265,048 242,780Total recognised surpluses and deficits relating to the year 14,394 22,268Closing total funds 279,442 265,048

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2006 2005Note £’000 £’000

Tangible fixed assetsHousing properties at valuation 10 517,734 445,943Other fixed assets 11 15,158 11,709

532,892 457,652

InvestmentsCost of HomeBuy 10 39,290 38,766Less: Social Housing Grant (39,290) (38,766)

– –

Current assetsInvestments 12 1,685 1,724Stock 13 18,924 11,409Debtors 14 6,662 7,805Cash at bank and in hand 7,634 4,398

34,905 25,336

Creditors: amounts falling due within one year 16 (25,312) (40,245)Net current assets/(liabilities) 9,593 (14,909)Total assets less current liabilities 542,485 442,743

Creditors: amounts falling due after more than one year 17 262,943 177,595Provision for liabilities and charges 20 100 100

263,043 177,695Capital and reservesShare capital 21 – –Revenue reserve 22 53,768 50,169Designated reserve 22 3,011 3,492Restricted reserve 22 1,784 1,791Consolidation reserve 22 263 263Revaluation reserve 22 220,616 209,333Consolidated funds 279,442 265,048

542,485 442,743

The financial statements were approved by the Board on 1 August 2006 and signed on its behalf by:

Robert Chilton Charles Villiers Henry PotterChairman Treasurer Group Company Secretary

Consolidated balance sheetat 31 March 2006

16

2006 2005Note £’000 £’000

Net cash flow from operating activities 25 5,277 4,972

Returns on investments and servicing of financeInterest received 1,105 169Interest paid (13,614) (10,153)Breakage costs paid (2,340) –Net cash outflow on servicing of finance (14,849) (9,984)

Capital expenditure and financial investmentsPurchase and construction of housing properties (101,629) (59,179)Purchase of other fixed assets (4,852) (4,206)Social Housing Grant received 26,643 12,769Other capital grants received 381 –Other capital grants repaid – (1,679)Proceeds of first tranche sales 11,056 18,187Proceeds of HomeBuy – 1,072Sales of housing properties 11,459 8,629Sales of other fixed assets – 34Sales of investments – 2,784Cash outflow from investing activities (56,942) (21,589)

Cash outflow before financing (66,514) (26,601)

FinancingHousing loans received 197,342 31,489Housing loans repaid (128,032) (5,906)Cash inflow from financing 26 69,310 25,583

Corporation tax 2 –Increase/(decrease) in cash in the period 26 2,798 (1,018)

Consolidated cash flow statementfor the year ended 31 March 2006

17

2006 2005Note £’000 £’000

Turnover: continuing activities 2 14,764 12,427Operating costs 2 (12,595) (11,865)Operating surplus: continuing activities 2,169 562Net interest receivable 7 – –Surplus on ordinary activities 2,169 562Transfer from designated reserves 22 546 (529)Unallocated surplus 2,715 33Revenue reserves brought forward 713 680Revenue reserves carried forward 3,428 713



Parent income and expenditure accountfor the year ended 31 March 2006

Parent cash flow statementfor the year ended 31 March 2006

18

2006 2005Note £’000 £’000

Net cash flow from operating activities 25 2,424 (727)

Capital expenditure and financial investments

Purchase of fixed assets (2,939) (3,397)Capital grant received 381 –

(2,558) (3,397)

(Decrease) in cash in the period 26 (134) (4,124)

2006 2005Note £’000 £’000

Tangible fixed assets 11 12,483 3,676

Current assetsDebtors 14 38,289 7,420Creditors: amounts falling due within one year 16 (45,659) (8,152)

(7,370) (732)Total assets less current liabilities 5,113 2,944

Capital and reservesRevenue reserves 22 3,428 713Restricted reserves 22 1,685 1,750Designated reserves 22 – 481

5,113 2,944



Parent balance sheetat 31 March 2006

19

(a) Basis of accounting

The financial statements of the parent companyand the Group are prepared under the historicalcost convention (as amended by the revaluation ofthe Group’s housing assets) in accordance withthe Companies Act 1985 and the Housing Act1996 and comply with Accounting Requirementsfor Registered Social Landlords GeneralDetermination 2000. Applicable accountingstandards and statements of recommendedpractice have been followed.

Basis of consolidation

The Group financial statements consolidate the financial statements of East Thames GroupLimited and its operating subsidiaries: East Homes Limited, East Choice Limited, East Street Services Limited, East Living Limited,East Potential, East Regen Limited and EastTreasury Limited.

(b) Turnover

Turnover represents rental and service chargeincome from tenants, management fees, sales ofproperties developed for other registered sociallandlords and certain revenue grants.

(c) Housing properties

Housing properties represent the Group’sinvestment in properties for rent and propertiessubject to shared ownership leases.

Completed housing properties held for letting arestated at Existing Use Value for Social Housing(EUV-SH). Shared ownership properties arestated at Existing Use Value for Social Housing(EUV-SH) less the Net Present Liability to repaySocial Housing Grant (SHG). Housing properties

under construction are stated at cost less relatedSHG and other capital grants.

Cost comprises the cost of acquiring land andbuildings, development costs, rehabilitation costs,attributable interest charges incurred during thedevelopment period and the capital element ofexpenditure incurred in respect of the major repair programmes of stock modernisation andestate improvement.

Development and modernisation costs include thecapitalisation of the Group’s own directly relatedemployee costs from the direct labour forceinvolved in the development process and directlyattributable development management costs andother direct costs. The cost of shared ownershipproperties is stated net of proceeds of firsttranche sales. Land donated by public authoritiesis brought into cost at market value at the time ofthe donation.

(d) Depreciation of housing properties

Freehold land, shared ownership properties andassets held in the course of completion are notdepreciated. Depreciation is charged so as towrite down the value of freehold housingproperties other than freehold land to theirestimated residual value on a straight line basisover their remaining expected useful economiclives as follows:

Houses 100 to 150 yearsLow level flats 100 to 150 yearsBlocks over four floors 60 years

These useful economic lives apply equally to theGroup’s rented, shared ownership and care stockof housing properties.

(e) Social Housing Grant

Social Housing Grant (SHG) is payable by theHousing Corporation and is utilised to reducethe capital costs of a scheme to a value whichmay be supported by rental income. Where SHGis received in advance of aggregate expenditureit is disclosed as a short-term creditor.

When the SHG is retained following the disposalof property, it is shown under the disposalproceeds or recycled capital grant funds increditors. SHG is repayable in certaincircumstances. When SHG becomes repayable itis included as a current liability until it is repaid.The repayment of SHG is generally subordinatedto the repayment of housing loans, as agreed withthe Housing Corporation.

(f) Other grants

Other grants include grants from local authoritiesand other organisations, primarily the LondonDocklands Development Corporation. Capitalgrants are treated in the same way as SHG andinclude amounts attributable to land donated bypublic authorities. Grants in respect of revenueexpenditure are included in the income andexpenditure account in the same period as theexpenditure to which they relate.

(g) Stock

Stock is valued at the lower of cost and netrealisable value.

(h) Other tangible fixed assets

Service charge assets and other fixed assets,such as office buildings, are stated at cost lessdepreciation. Depreciation is provided evenly onthe cost of service charge assets and other

1. Accounting policies

Notes to the financial statements 31 March 2006

20

tangible fixed assets to write them down to theirestimated residual values over their expecteduseful lives on a straight line basis at the followingrates:

Freehold offices 4%

Lifts 4%

Office furniture and improvements 14.3%

Service equipment 20%

Motor vehicles 25%

Computer equipment 33.3%

Major software 10%

(i) Pensions

The Group participates in the Social HousingPension Scheme which is a final salary pensionscheme and retirement benefits to Groupemployees are funded by contributions from allparticipating employers and employees in the

scheme. Payments are made to a fund operatedby the Pensions Trust, an independent trustproviding superannuation benefits for employeesof voluntary organisations. These payments aremade in accordance with periodic calculations byconsulting actuaries and are based on pensionscosts applicable across the various participatingassociations taken as a whole.

(j) Agency managed hostels

The Group has brought into its financialstatements only income and expenditure under itsdirect control in respect of agency managedhostels.

(k) Taxation

East Thames Group Limited is a registered charityand is registered under the Companies Act 1985and is not generally subject to corporation tax.

(l) HomeBuy

A subsidiary of the Group, East Choice Limitedparticipates in the HomeBuy scheme. Purchasersare given a grant of 25% of the value of theirhome by the company which is in turn reimbursedby the Housing Corporation by way of SocialHousing Grant. No rent is payable to the company.The company receives an allowance for handlingthe transaction, paid by way of further grant.

(m) Restatement of revaluation surplus onproperty disposals

Last year’s comparative figures for the realisationof the revaluation surplus on property disposalshave been restated. The impact of the restatementis to decrease the reported surplus for the periodby £429k with a corresponding increase in therevaluation surplus for the period. There is noimpact on the Group’s reported funds or the cashflow statement.

1. Accounting policies (continued)


21

Restated2006 2005

Operating operatingOperating surplus/ surplus/

GROUP Turnover costs (deficit) (deficit)£’000 £’000 £’000 £’000

Income and expenditure from lettingsHousing accommodation 35,836 24,201 11,635 11,839Special needs accommodation 17,241 17,013 228 977Temporary social housing 16,052 16,161 (109) 41Shared ownership accommodation 4,708 4,058 650 345

73,837 61,433 12,404 13,202

Other income and expenditureRegeneration and development services 411 292 119 (37)Grants received – – – 123Other 1,161 4,110 (2,949) (3,725)

1,572 4,402 (2,830) (3,639)Total 75,409 65,835 9,574 9,563

2006 2005Operating Operating

Operating surplus/ surplus/PARENT Turnover costs (deficit) (deficit)

£’000 £’000 £’000 £’000

Other income and expenditureRegeneration and development services – – – (36)Grant from subsidiary – – – 123Group recharge 11,056 12,462 (1,406) (1,763)Donation received from Group member 3,000 – 3,000 1,770Other donations 6 – 6 –Other 702 133 569 468Total 14,764 12,595 2,169 562

2. Particulars of turnover, cost ofsales, operating costs andoperating surplus

From 2005-06, Group Overheads have been allocated over the operating areas rather than being shownas Other Expenditure. The figures for the year to 31 March 2005 have been restated on the same basis.

*

*

22


3. Particulars of income andexpenditure from lettings

Care and supportedhousing

GROUP TemporaryHousing Supported Residential social Shared Restated

accommodation housing care homes housing ownership 2006 2005

£’000 £’000 £’000 £’000 £’000 £’000 £’000Income from lettingsRent receivable net of identifiable service charges 30,880 2,204 448 14,486 3,614 51,632 49,506Service charges receivable 1,477 4,137 – – 690 6,304 6,249Gross rents receivable 32,357 6,341 448 14,486 4,304 57,936 55,755

Less: Rent losses from voids (769) (209) (23) (430) – (1,431) (1,595)

Net rents receivable 31,588 6,132 425 14,056 4,304 56,505 54,160

Revenue grants from local authorities and other agencies 3,992 1,506 6,241 – – 11,739 10,559Support charges – fixed contract – 1,898 171 – – 2,069 1,725Other grants 3 – – 480 – 483 911Other income 253 868 – 1,516 404 3,041 3,716Total income from lettings 35,836 10,404 6,837 16,052 4,708 73,837 71,071

Expenditure on letting activitiesServices 1,364 1,054 527 8 63 3,016 2,909Management 7,699 4,994 6,798 13,932 541 33,964 30,425Overhead allocation 5,163 2,278 – 1,078 2,251 10,770 10,952Routine maintenance 4,122 1,039 204 1,029 342 6,736 6,992Planned maintenance 3,613 – – – – 3,613 2,719Rent losses from bad debts 413 (27) 21 114 – 521 524Revenue element of major repairs expenditure 827 – – – – 827 1,107Housing properties depreciation 1,000 – – – – 1,000 1,000Other costs – 1 124 – 861 986 1,241Total expenditure on lettings 24,201 9,339 7,674 16,161 4,058 61,433 57,869

Operating surplus on letting activities 11,635 1,065 (837) (109) 650 12,404 13,202

*

From 2005-06, Group Overheads have been allocated over the operating areas rather than being shownas Other Expenditure. The figures for the year to 31 March 2005 have been restated on the same basis.

*

23

GROUPSales Cost 2006 2005

proceeds of sales surplus surplus£’000 £’000 £’000 £’000

Sales of older and shared ownership properties 10,198 6,212 3,986 3,842

HomeBuy 1,165 794 371 314

Sales of properties developed for sale 11,152 11,152 – –

22,515 18,158 4,357 4,156

4. Surplus on property sales

Total

1 April 2005 11,301 7,114 392 159 180 265 291 21 1,376 1,503

31 March 2006 11,658 7,920 271 162 199 252 87 21 1,152 1,594

5. Units of accommodation in management

GROUP Self contained rental stock Hostels and sharedhousing

Managed for others

Managed byEast Thames

Managed by others

Supportedhousing

stockManaged by

East ThamesManaged by others

Self-contained

units

Hostels/shared

housingbedspaces

Temporarysocial

housingShared

ownership

24

Group Group Parent Parent2006 2005 2006 2005

This is arrived at after charging: £’000 £’000 £’000 £’000

Depreciation of housing properties 1,000 1,000 – –Depreciation of tangible fixed assets 1,022 946 946 462Profit or loss on sale of other fixed assets – 31 – –Operating leases on land and buildings 13,150 13,582 – –Auditors’ remuneration– for audit services 58 63 9 9– for non audit services 2 20 – –

6. Operating surplus

Group Group Parent Parent2006 2005 2006 2005£’000 £’000 £’000 £’000

Interest receivable 127 169 – –Interest payable on loans and leases:– repayable wholly within five years – – – –– repayable in more than five years (12,966) (11,094) – –

(12,839) (10,925) – –Interest recoverable from other RSLs 329 479 – –Interest payable capitalised on housing properties under construction 3,232 1,548 – –Interest receivable transferred to the capital grant recycling fund (610) (552) – –

(9,888) (9,450) – –

Exceptional itemBreakage costs on refinancing the loans portfolioDuring the year the Group refinanced £197 million out of the total of £251 million of the loans portfolioand incurred £2.3 million of breakage costs which have been charged to the income and expenditureaccount in the current year.

7. Net interest payable andsimilar charges


25


Average number of employeesAdministration 511 446 141 154Care staff 429 317 – –Direct labour 51 54 – –Wardens, caretakers, cleaners 4 6 – –

995 823 141 154


Number of employees expressed in full time equivalentsAdministration 517 446 122 151Care staff 450 368 – –Direct labour 47 56 – –Wardens, caretakers, cleaners 3 3 – –

1,017 873 122 151


Staff costsWages and salaries 24,111 21,491 4,033 5,269Social security costs 2,242 1,899 389 496Other pension costs 1,093 993 246 374

27,446 24,383 4,668 6,139

8. Employees

26

Social Housing Pension Scheme (SHPS)East Thames Group Limited participates in theSocial Housing Pension Scheme (SHPS). SHPSis a multi-employer defined benefit scheme.The Scheme is funded and is contracted outof the state scheme.

The Trustee commissions an actuarial valuation ofthe Scheme every three years. The main purposeof the valuation is to determine the financialposition of the Scheme in order to determinethe level of future contributions required so thatthe Scheme can meet its pension obligations asthey fall due.

The actuarial valuation assesses whether theScheme’s assets at the valuation date are likely tobe sufficient to pay the pension benefits accruedby members as at the valuation date. Asset valuesare calculated by reference to market levels.

Accrued pension benefits are valued bydiscounting expected future benefit paymentsusing a discount rate calculated by reference tothe expected future investment returns.

During the accounting period East Thames GroupLimited paid contributions at the rate of 11.7%.Group contributions to the scheme in the periodamounted to £1,093k (2005: £993k). Membercontributions varied between 3.1% and 6.1%depending on their age.

At the balance sheet date there were 311 activemembers of the Scheme employed by EastThames Group Limited and it continues to offermembership of the Scheme to its employees.

It is not possible in the normal course of events toidentify the share of underlying assets and liabilitiesbelonging to individual participating employers.

Accordingly, due to the nature of the Plan, theaccounting charge for the period under FRS17represents the employer contribution payable.

The last formal valuation of the Scheme wasperformed as at 30 September 2002 by aprofessionally qualified actuary using the“projected unit credit” method. The market value ofthe Scheme’s assets at the valuation date was£650 million. The valuation revealed a shortfall ofassets compared to liabilities of £117 million(equivalent to past service funding level of 85%).

East Thames Group Limited has subsequentlybeen notified of the preliminary results of thetriennial valuation carried out on 30 September2005. This indicates an increase in the assets ofthe Scheme to £1,278 million and an increase inthe shortfall of assets compared with liabilities to£283 million. This valuation, and any consequentalteration to future contribution rates, is currentlythe subject of consultation with participatingemployers and members. The outcome of theconsultation will be made known in September2006, and any consequent changes to contributionrates applied from 1 April 2007. The followingnotes therefore relate to the formal valuation ofSeptember 2002.

The financial assumptions underlying the valuationas at 30 September 2002 were as follows:

% paRate of return on future contributions 6.6Rate of return on accumulated assets 7.2Rate of salary increases 4.5Rate of pension increases 2.5Rate of price inflation 2.5

The long-term joint contribution rate requiredfrom employers and members to meet the costof future benefit accrual was assessed at 15.0%of pensionable salaries.

Following consideration of the results of theactuarial valuation it was agreed that, with effectfrom 1 April 2004:

a) The standard employer contribution rate wouldbe increased from 10.6% to 11.7% ofpensionable salaries.

b) Member contributions would also be increasedby 1.1% from 2.0-5.0% to 3.1-6.1% ofpensionable salaries depending on age.

Employers that participate in the Scheme on anon-contributory basis pay a joint contribution rate(i.e. a combined employer and employee rate).This rate was increased from 15.0% to 17.3% ofpensionable salaries with effect from 1 April 2004.

Employers that have closed the Scheme to newmembers are required to pay an additionalemployer contribution loading of 3.0% to reflectthe higher costs of a closed arrangement.

A small number of employers are requiredto contribute at a different rate to reflect theamortisation of a surplus or deficit on the transferof assets and past service liabilities from anotherpension scheme into the SHPS Scheme.

New employers that joined the Scheme after30 September 2002 without any past service liabilitypay an employer contribution rate of 9.4% ofpensionable salaries. This rate will apply until 1 April2007, after which it will change to the standardemployer contribution rate per the actuarial valuationdue to take place as at 30 September 2005.

8. Employees (continued)


27

Following a change in legislation in September2005 there is a potential debt on the employerthat could be levied by the Trustee of the Scheme.The debt is due in the event of the employerceasing to participate in the Scheme or theScheme winding up.

The debt for the Scheme as a whole is calculatedby comparing the liabilities for the Scheme(calculated on a buyout basis i.e. the cost ofsecuring benefits by purchasing annuity policiesfrom an insurer, plus an allowance for expenses)with the assets of the Scheme. If the liabilitiesexceed assets there is a buy-out debt.

The leaving employer’s share of the buy-out debtis the proportion of the Scheme’s liabilityattributable to employment with the leavingemployer compared to the total amount of theScheme’s liabilities (relating to employment withall the currently participating employers). Theleaving employer’s debt therefore includes a shareof any ‘orphan’ liabilities in respect of previouslyparticipating employers. The amount of the debttherefore depends on many factors including totalScheme liabilities, Scheme investmentperformance, the liabilities in respect of current andformer employees of the employer, financialconditions at the time of the cessation event andthe insurance buy-out market. The amounts of debtcan therefore be volatile over time.

East Thames Group Limited has not been notifiedby the Pensions Trust of the estimated employerdebt on withdrawal from the Plan based on thefinancial position of the Scheme as at 30September 2005. As of this date the estimatedemployer debt for East Thames Group is yet to beascertained by the Pensions Trust.

Pension Trust – Growth Plan

East Thames Group Limited participates in thePensions Trust’s Growth Plan. The Growth Plan isa multi-employer pension plan which is in mostrespects a money purchase arrangement but ithas some guarantees. Contributions paid into theGrowth Plan up to and including September 2001were converted to defined amounts of pensionpayable from Normal Retirement Date. FromOctober 2001 contributions were invested inpersonal funds which have a capital guaranteeand which are converted to pension on retirement,either within the Growth Plan or by the purchaseof an annuity.

The Plan is funded and is not contracted out ofthe state scheme. The rules of the Growth Planallow for the declaration of bonuses and/orinvestment credits if this is within the financialcapacity of the Plan assessed on a prudent basis.Bonuses/investment credits are not guaranteed andare declared at the discretion of the Plan’s Trustee.

The Trustee commissions an actuarial valuationof the Growth Plan every three years. The mainpurpose of the valuation is to determine thefinancial position of the Plan and so determine thefuture prospects for discretionary bonuses and/orinvestment credits.

The actuarial valuation assesses whether thePlan’s assets at the valuation date are likely to besufficient to pay the pension benefits accrued bymembers as at the valuation date. Asset valuesare calculated by reference to market levels.Accrued pension benefits are valued bydiscounting expected future benefit paymentsusing a discount rate calculated by reference to

the expected future investment returns.

East Thames Group Limited offers the GrowthPlan as an AVC investment option for membersof the Social Housing Pension Scheme. Themembers pay contributions at a rate of theirchoice. East Thames Group Limited does notnormally pay any contributions to the Growth Plan.

It is not possible in the normal course of events toidentify the share of underlying assets and liabilitiesbelonging to individual participating employers.Accordingly, due to the nature of the Plan, theaccounting charge for the period under FRS17represents the employer contribution payable.

The last formal valuation of the Plan wasperformed at 30 September 2002 by aprofessionally qualified actuary. The market valueof the Plan’s assets at the valuation date was£418 million. The financial assumptions underlyingthe valuation were as follows:

% paRate of return on accumulated assets 6.7Bonuses on accrued benefits 0Rate of price inflation 2.5

The valuation revealed that the assets of the Planbroadly equalled the accrued liabilities as at thevaluation date.

The next actuarial valuation will be carried out as at30 September 2005. The results of the valuationwill be available before the end of September 2006.

East Thames Group Limited has not been notifiedby the Pensions Trust of the estimated employerdebt on withdrawal from the Plan based on thefinancial position of the Plan as at 31 March 2005.As of this date the estimated employer debt for

28

East Thames Group Limited is yet to beascertained by the Pensions Trust.

NHS Pension Scheme

The NHS Pension Scheme is an unfunded,defined benefit scheme that covers NHSemployers, General Practices and other bodies,allowed under the direction of Secretary of State,in England and Wales. As a consequence it is notpossible for East Thames Group Limited toidentify its share of the underlying schemeliabilities. Therefore, the scheme is accounted foras a defined contribution scheme and the cost ofthe scheme is equal to the contributions payableto the scheme for the accounting period.

Employers pension costs contributions are chargedto operating expenses as and when they becomedue. Employer contribution rates are reviewedevery four years following a scheme valuationcarried out by the Government Actuary. On advicefrom the actuary the contribution may be variedfrom time to time to reflect changes in thescheme’s liabilities. At the last valuation on whichcontribution rates were based (31 March 1999)employer contribution rates from 2003–04 were setat 14% of pensionable pay. (Until 2002–03 HMTpaid the Retail Price Indexation costs of the NHSPension scheme direct but as part of the SpendingReview Settlement, these costs have beendevolved in full. For 2003–04 the additional fundingwas retained as a Central Budget by DH and waspaid direct to the NHS Pension Scheme, whilst theemployers’ contribution remained at 7%. From2004-05 this funding was devolved in full to NHSPension Scheme employers and the employers’contribution rate rose to 14%.) The 2004 valuationof the Scheme is currently being prepared.

The total employer contribution payable in 2005-06 was £784k (£602k for 2004-05). In additionemployees who are members of the Scheme paycontributions of 6% (manual staff 5%) of theirpensionable pay.

In addition the Scheme is subject to a full valuationfor FRS17 accounting purposes every four years.The last valuation on this basis took place as at 31March 2003. Between valuations, the GovernmentActuary provides an update of the scheme liabilitieson an annual basis. The latest assessment of theliabilities of the Scheme is contained in the SchemeActuary report, which forms part of the NHSPension Scheme (England and Wales) ResourceAccount, published annually.

The Scheme is a “final salary” scheme. Annualpensions are normally based on 1/80th of the bestof the last three years pensionable pay for each yearof service. A lump sum normally equivalent to threeyears pension is payable on retirement. Annualincreases are applied to pension payments at ratesdefined by the Pensions (Increase) Act 1971, andare based on changes in retail prices in the twelvemonths ending 30 September in the previouscalendar year. On death, a pension of 50% of themember’s pension is normally payable to thesurviving spouse.

Early payment of a pension, with enhancement,is available to members of the Scheme who arepermanently incapable of fulfilling their dutieseffectively through illness or infirmity.

The Scheme also provides for death benefits, witha death gratuity of twice final year pensionablepay for death in service, and up to five times theannual pension for death after retirement payable.

The Scheme provides the opportunity to membersto increase their benefits through money purchaseAdditional Voluntary Contributions (AVCs)provided by an approved panel of life companies.Under the arrangement the employee can makecontributions to enhance their pension benefits.The benefits payable relate directly to the valueof the investments made.

Except for where the retirement is due to ill-health, additional pension liabilities arising fromearly retirements are met by the Scheme andrecharged to the employees former employer.The full amount of the liability for the additionalcosts is charged to the Operating Cost Statementat the time the Authority commits itself to theretirement, regardless of the method of payment.

8. Employees (continued)


29

The Directors of the parent company as defined under the Accounting Requirements for RegisteredSocial Landlords General Determination 2000 are its Management Board, the Chief Executive andany other person who is a member of the senior management team.

Basic Benefits Pension Total Totalsalary in kind contributions 2006 2005£’000 £’000 £’000 £’000 £’000

Chief ExecutiveJune Barnes 123 1 14 138 130

Deputy Chief ExecutiveMartin Heys 102 1 – 103 99

Managing Director – East Homes Ltd Victor da Cunha 88 – 10 98 89

Managing Director – East Living LtdMartin Van Tol 80 1 9 90 85

Managing Director – East PotentialDavid Chesterton 72 – 9 81 62

Group Director – DevelopmentSteven Tarry 87 1 10 98 39Frank Vickery – – – – 96Keith Carter – – – – 99

Group Director – Corporate Services Davina Boakye 73 1 8 82 77

Group Director – Business Services Jacky Kutner 72 1 8 81 73

Company SecretaryHenry Potter 50 – 6 56 51

The Chief Executive is an ordinary member of the pension scheme and has a contractualarrangement with East Thames Group Limited covering additional voluntary contributions (AVC's).

There are no other enhanced pensionarrangements to which East Thames Group or any of its subsidiaries make a contribution.

Remuneration paid to committee members forthe year amounts to £122,000 (2005: £ Nil).

Expenses paid during the year to members ofthe Board amounts to £54,937 (2005: £38,804).

No payments of benefits, other than thosepermitted, were made to the persons referred to in Part 1, Schedule 1 of the Housing Act 1996.

9. Directors, members and senior staffemoluments

30

Housing Housing Shared Sharedproperties properties ownership ownership

held for under properties propertiesletting construction held for under

letting construction TotalValuation £’000 £’000 £’000 £’000 £’000At 1 April 2005 334,113 42,450 69,971 41,696 488,230Additions 6,124 43,611 6,050 38,476 94,261Improvements 7,252 – – – 7,252Interest capitalised 50 1,484 (127) 1,773 3,180Schemes completed 14,699 (14,699) 24,013 (24,013) –Disposals (1,527) – (18,671) – (20,198)Valuation adjustment 3,571 – (2,958) – 613At 31 March 2006 364,282 72,846 78,278 57,932 573,338

Depreciation and impairmentAt 1 April 2005 – – – – –Depreciation charged in year 1,065 – – – 1,065 Valuation adjustment (1,065) – – – (1,065)At 31 March 2006 – – – – –

Social housing and other grantsAt 1 April 2005 – 33,477 – 8,810 42,287Additions 3,330 14,130 (474) 10,510 27,496Schemes completed 6,337 (6,337) 4,986 (4,986) –Disposals (449) – (2,717) – (3,166)Valuation adjustment (9,218) – (1,795) – (11,013)At 31 March 2006 – 41,270 – 14,334 55,604 Net book valueAt 31 March 2006 364,282 31,576 78,278 43,598 517,734At 31 March 2005 334,113 8,973 69,971 32,886 445,943

2006 2005Expenditure on works to existing properties £’000 £’000Amount capitalised 7,252 3,768Amounts charged to income and expenditure account 827 1,107

8,079 4,875

Total accumulated capital and revenue social grant receivableCapital grants 448,291 439,274Revenue grants – –

448,291 439,274

Housing properties comprise:Freehold land and buildings 517,379 445,588Long leasehold land and buildings 355 355

517,734 445,943

10. Tangible fixed assets –housing properties


£’000

Completed properties at valuationEast Homes Limited 360,260East Choice Limited 82,580

442,840

Housing properties under construction at costEast Homes Limited 51,259East Choice Limited 79,239

573,338

In the valuing of housing properties, discounted cash flow methodology was adopted and key assumptions includedDiscount rate 6.0%Annual inflation rate 2.5%Level of annual rent increase 0.5%

The carrying value of the housing properties that would have been in the financial statements had theassets been carried forward at historical costs less SHG and depreciation is as follows:

2006 2005£’000 £’000

Historical cost 703,592 680,245Social Housing Grant (397,011) (389,386)Other capital grants (51,280) (49,888)Depreciation and impairment (4,874) (4,362)

250,427 236,609

Investment in HomeBuy: 2006 2005£’000 £’000

Long term investment in properties (HomeBuy) 40,794 39,498Less Grants received (40,794) (39,498)Grants recycled 1,504 732Decrease in investment in properties (1,504) (732)

– –

31

Completed housing properties held for letting arestated at Existing Use Value for Social Housing(EUV-SH) and shared ownership properties arestated at EUV-SH less the Net Present Liability torepay Social Housing Grant. Housing propertieshave been valued by professional valuers, FPD

Savills, Chartered Surveyors. The last valuation ofcompleted housing properties was prepared as at31 March 2006 in accordance with the Appraisaland Valuation Manual of the Royal Institution ofChartered Surveyors. This has resulted in apositive valuation adjustment as follows:

32

GROUP PlantFreehold equipment Motor

office & furniture vehicles Total£’000 £’000 £’000 £’000

CostAt 1 April 2005 11,421 7,381 131 18,933Additions 3,600 1,252 – 4,852Capital grants received (381) – – (381)

14,640 8,633 131 23,404

DepreciationAt 1 April 2005 (3,002) (4,105) (117) (7,224)Charged in year (368) (650) (4) (1,022)At 31 March 2006 (3,370) (4,755) (121) (8,246)

Net book valueAt 31 March 2006 11,270 3,878 10 15,158At 31 March 2005 8,419 3,276 14 11,709

PARENT

CostAt 1 April 2005 1,319 2,819 – 4,138Transferred from East Homes Limited 9,599 3,808 – 13,407Additions 1,789 1,151 – 2,940Capital grants received (381) – – (381)At 31 March 2006 12,326 7,778 – 20,104

DepreciationAt 1 April 2005 – (462) – (462)Transfer from East Homes Limited (2,942) (3,271) – (6,213)Charged in year (364) (582) – (946)At 31 March 2006 (3,306) (4,315) – (7,621)

Net book valueAt 31 March 2006 9,020 3,463 – 12,483At 31 March 2005 1,319 2,357 – 3,676

11. Tangible fixed assets – other


East Homes Limited, together with three otherregistered social landlords and the LondonBorough of Newham, has invested in PassmoreUrban Renewal Limited. This Industrial andProvident Society has been set up for thepromotion of urban regeneration in the LondonBorough of Newham. At 31 March 2002, EastHomes Limited had invested £450,000 in thisproject. Following the declared intention of theLondon Borough of Newham to acquire PassmoreUrban Renewal Limited and repay the outstandinginvestment to the other parties at par theinvestment has been shown at cost.

The parent company owns one £1 nominal sharein East Choice Limited whose main activity isdeveloping and managing shared ownershipschemes. The parent company has entered intotrust arrangements with the members of EastChoice Limited which require it to classify it asa subsidiary. East Choice Limited is a registeredsocial landlord with charitable status, registeredwith the Housing Corporation.

The parent company has a 100% shareholding inEast Street Services Limited whose main activityis to undertake property management services forother associations and to deal with other non-charitable housing activities.

The parent company owns one £1 nominal share inEast Living Limited whose main activity is providingcare and housing management for supported

housing and residential care homes. The parentcompany has entered into trust arrangements withthe members of East Living Limited which require it to classify it as a subsidiary.

The parent company has entered into trustarrangements with the members of East Potentialwhich require it to classify it as a subsidiary. Theprincipal activity of East Potential is the provisionof housing management services at the Stratford(Focus E15), Harlow, Redbridge and DrapersFoyers and First Step Assessment Centre andrelated training and information services to youngpeople in east London and Harlow.

East Treasury Limited was incorporated on10 February 2003 to be used as a vehicle forraising Group finance. It commenced trading on18 March 2006 and has borrowed £197 millionon behalf of the Group.

East Regen Limited commenced trading on1 April 2005 and has provided management anddevelopment services for the Group during the year.

East Homes Limited has entered into a lease andleaseback arrangement for the Stratford (FocusE15) Foyer with East Potential, a fellow subsidiary,for a period of 25 years. The net margin passingto East Potential amounts to £5,000 per annum.

33

2006 2005£’000 £’000

Passmore Urban Renewal Limited 450 450Fixed term treasury deposit 1,235 1,274Total 1,685 1,724

12. Investments and relatedparty transactions

34

Group Group2006 2005£’000 £’000

Completed properties for sale to other Registered Social Landlords 4,700 8,385Properties for sale to other Registered Social Landlords under construction net of Social Housing Grant 14,224 3,024

18,924 11,409

13. Stock and work in progress


Due within one year:Arrears of rent and service charges 3,762 3,672 – –Less: Provision for bad and doubtful debts (1,934) (1,827) – –

1,828 1,845 – –Other debtors 3,717 4,495 677 497Prepayments and accrued income 1,117 1,465 172 184Amounts due from group companies (net of provisions) – – 37,440 6,739

6,662 7,805 38,289 7,420

14. Debtors

Included in cash at bank and in hand are amounts totalling Group: £200,000 (Parent Company: £ Nil)2005 Group: £200,000 (Parent Company: £ Nil) which are subject to restrictions and are not freely available for general use.

15. Cash at bank and in hand


Group Group2006 2005£’000 £’000

Loans (note 18) 249,115 167,361Deferred income 1,281 1,344Capital Grant Recycling Fund 9,883 6,148Disposal Proceeds Fund 932 1,213Other 1,732 1,529

262,943 177,595

Deferred income represents the premium on the HACO loan, net of issue costs.

17. Creditors: Amounts falling dueafter more than one year

35


Loans (note 18) 666 13,546 – –Bank overdraft 3,580 3,142 3,276 3,142Rent and service charges received in advance 1,906 1,272 – –Social Housing Grants received in advance 2,739 – – –Amount due to group companies – – 39,526 –Taxation and social security 170 396 (352) (75)Accruals and deferred income 9,905 4,352 502 789Other creditors 5,661 12,440 2,707 4,296Capital Grant Recycling Fund – 3,997 – –Disposal Proceeds Fund 685 1,100 – –

25,312 40,245 45,659 8,152

Social Housing Grant received in advance will be utilised against capital expenditure in 2006-07.

Payments to creditorsThe Group’s policy is to pay invoices within 30 days of receipt, or earlier if alternative payment terms havebeen agreed. The following information has been extracted from the Group’s creditor payment system.

Group Group2006 2005

Average number of days between receipt and payment of purchase invoices 9 13

16. Creditors: Amounts fallingdue within one year

36


Due within one year:Bank overdraft 3,580 3,142 3,276 3,142Bank loans – 908 – –Royal Bank of Scotland (originally the Housing Corporation) loans 28 29 – –Other loans 638 12,609 – –

4,246 16,688 3,276 3,142


Due after more than one year:Bank loans 260 114,717 – –Royal Bank of Scotland (originally the Housing Corporation) loans 5,812 5,839 – –Barclays Bank 80,884 – – –Nationwide Building Society 116,458 – – –HACO 25,000 25,000 – –Other loans 21,614 22,281 – –Capitalised costs (913) (476) – –

249,115 167,361 – –


Loans are repayable as follows:Within one year 4,246 16,688 3,276 3,142Between one and two years 1,309 1,603 – –Between two and five years 2,501 19,161 – –After more than five years 246,217 147,073 – –

254,273 184,525 3,276 3,142

18. Debt analysis


Group Group2006 2005£’000 £’000

Operating leases on land and buildings which expire:Within one year 2,040 4,184In the second to fifth years inclusive 4,109 7,301Over five years 479 1,638

19 Annual obligations underoperating leases

Group Group2006 2005£’000 £’000

Dilapidation repair provision 100 100

This provision is the estimated cost of restoring properties leased from private landlords to their original condition.

20. Provision for liabilitiesand charges

37

During the year new loan arrangements betweenEast Treasury Limited (a member of East ThamesGroup Limited), Nationwide, Barclays and BarclaysSyndicate totalling £400 million were agreed. Thisfacility has been used to refinance our existing loanportfolio and provide significant additional funds fordevelopment and other new business initiatives.

At 31 March 2006 East Homes Limited hadborrowed £161 million from East Treasury Limitedfor this purpose. Interest is payable on the newfacility borrowings of £161million at fixed ratesvarying from 4.02% to 4.135% on £31 million and at rates linked to LIBOR on the remaining£130 million.

The consolidated loan from Royal Bank ofScotland is repaid in half-yearly instalments over

the estimated life of the scheme on which theloan is secured, at fixed interest rate of 10.65%.The final instalments are due for repayment in theperiod 2006 to 2037.

The HACO £25 million bond is due to be repaidin 2006-07 as part of the refinancing of existingloans. The interest is fixed at 10.625%.

THFC loans totalling £20 million are due to berepaid in 2006-07 as part of the refinancing ofexisting loans. The interest rates payable rangefrom 5.05% to 5.57%.

The £1.25 million THFC Bond is fixed at 12.97%and is due to be repaid in 2019.

All loans are secured by a combination of fixedand variable charges on individual properties.

18. Debt analysis (continued)

38

2006 2005£ £

Shares of £1 each issued and fully paidAt 1 April 2005 49 49Shares issued during the year 2 –Shares surrendered during the year (4) –

At 31 March 2006 47 49

The shares provide members with the right to vote at general meetings, but do not provide any rights todividends, redemption of share capital or distribution on winding up.

21. Non-equity share capital


39

GROUP Revaluation Restricted Designated Consolidated Revenue Total£’000 £’000 £’000 £’000 £’000 £’000

At 1 April 2005 209,333 1,791 3,492 263 50,169 265,048Surplus for the year – – – – 1,703 1,703Property revaluation adjustment 12,691 – – – – 12,691Transfers (1,108) 58 (546) – 1,596 –Utilisations (300) (65) 65 – 300 –At 31 March 2006 220,616 1,784 3,011 263 53,768 279,442

PARENT Restricted Designated Revenue Total£’000 £’000 £’000 £’000

At 1 April 2005 1,750 481 713 2,944Surplus for the year – – 2,169 2,169Transfers – (546) 546 –Utilisations (65) 65 – –At 31 March 2006 1,685 – 3,428 5,113


Restricted reserves comprise: £’000 £’000 £’000 £’000Donations 25 25 – –Gift Aid from East Choice Limited to Parent Company 1,685 1,750 1,685 1,750East Potential 74 16 – –

1,784 1,791 1,685 1,750


Designated reserves comprise: £’000 £’000 £’000 £’000Major repairs schemes funded under 1988 legislation 2,068 2,068 – –Recycled Capital Grant Fund and Disposals Proceeds Fund 911 911 – –Gift Aid 32 513 – 481

3,011 3,492 – 481

22. Reserves

The Group plans its financial affairs to ensure that each year revenue incomeexceeds revenue expenditure. This policy ensures that the Group has a margin of safety to manage unexpected expenditure or shortfalls in income. The annualsurpluses ensure that East Thames Group Limited is able to meet its commitmentto providers of private finance and continue to provide social housing.

In the year ended 31 March 2006 the Group refinanced £197 million out of a totalloan portfolio of £251 million. This refinancing was undertaken to secure the futurefinancing needs of the Group on favourable terms over the next 35 years. Thebreakage costs of this refinancing arrangement totalling £2.3 million were charged

to the income and expenditure account in the current year. The resulting surpluson ordinary activities of £1.7 million and the positive movement on reserves of£1.9 million were added to the reserves brought forward of £50.2 million resultingin £53.8 million being carried forward. The benefits of this refinancing package willbe reflected in lower interest and administration costs in future years.

Unlike commercial organisations the Group's rules prevent the distribution ofreserves. Instead these are applied to furthering our aims and objectives.At 31 March 2006 the Group's reserves were all used in financing investmentsin social housing.

40

Group Group2006 2005£’000 £’000

Capital CommitmentsExpenditure contracted for but not provided in the accounts 105,860 50,649Expenditure authorised by the Board but not contracted for 90,448 12,515

196,308 63,164

23. Financial commitments

The Group had no contingent liabilities at 31 March 2006 (2005: £ Nil)24. Contingent liabilities


Operating surplus 9,573 9,564 2,169 562 Depreciation of fixed assets 2,088 1,946 946 462Surplus on sale of other fixed assets – 31 – –Cost of property sales (10) – – –Net increase/(decrease) in provisions 107 (522) – –

11,758 11,019 3,115 1,024

Movement in Working CapitalDecrease in investments 39 – – –Increase in stock (7,515) (3,991) – –Decrease/(increase) in debtors 1,036 1,101 (30,869) (6,394)Increase/(decrease) in creditors (41) (3,157) 30,178 4,643Net cash inflow from operating activities 5,277 4,972 2,424 (727)

25. Reconciliation of operatingsurplus to operating cash flows


41


Increase/(decrease) in cash in the period 2,798 (1,018) (134) (4,124)Cash inflow from increase in debt and lease financing (69,310) (25,583) – –Change in net debt resulting from cash flows (66,512) (26,601) (134) (4,124)

Net debt at the start of the period (180,127) (153,526) (3,142) 982Net debt at the end of the period (246,639) (180,127) (3,276) (3,142)

26. Reconciliation of netcash flow to movementin net debt


Cash at bank and in hand 7,634 4,398 – –Bank overdraft (3,580) (3,142) (3,276) (3,142)Loans due within one year (666) (13,546) – –Loans due after more than one year (250,027) (167,837) – –

(246,639) (180,127) (3,276) (3,142)

27. Analysis of net debt

42

43

Our values We will be customer focused:• responding to what our customers say;• providing excellent and reliable services; and• enabling customer choice.

We will be ambitious:• creating new approaches to service delivery;• producing excellent outcomes; and• striving for excellence in everything we do.

We will be professional:• being straightforward in everything we do;• adopting a flexible approach to

delivering services;• demonstrating a respectful approach

to our customers; and• being open, reliable and consistent.

We will be leaders:• empowering our staff to act responsibly;• showing creativity in service provision;• inspiring those who work with us; and• campaigning on key issues.

Our key aims We deliver on our mission by:1 providing high quality homes and services

that meet the needs of our customers;2 ensuring that our customers can influence

our services;3 influencing local, regional and national

thinking, policies and strategies;4 developing well-informed, committed

and enthusiastic staff; and5 actively using our financial and

organisational strength.

To make a positive and lasting contribution to theneighbourhoods in which we work.

Our mission

Our mission, key aims and values

Registered Office:3 Tramway Avenue

StratfordLondon E15 4PN

Switchboard: 020 8522 2000Customer Contact Centre: 0845 600 0830

Minicom: 020 8522 2006Fax: 020 8522 2001

www.east-thames.co.uk

Registered by the Housing Corporation, No. LH4309Registered under the Companies Act 1985, No 4091100

Registered charity 1084952Member of the National Housing Federation

Documents

Group Accounts 2006