Over the last twelve months, we've completed two significant changes which are important in providing a solid base for Spectrum to move forward.

Spectrum Housing Group Spectrum Housing Group Moving Forward

Moving Forward

www.spectrumhousing.co.uk

www.spectrumhousing.co.uk

Richard Hill, Group Chief Executive

We are proud of what we do at Spectrum. We continue to deliver high quality services to our residents while growing and developing as an organisation.

We're in good financial health. Last year our underlying surplus was £9 million. We've built a strong balance sheet and we are well placed to continue to invest in maintaining and improving our residents’ homes, developing new homes to meet the housing needs of future residents and building strong communities.

Over the last twelve months, we've completed two significant changes which are important in providing a solid base for Spectrum to move forward.

First, with the agreement of our lenders and our residents, we amalgamated our Group structure to form a single housing association, Spectrum Housing Group, with a single Board. This change delivered £250,000 of savings annually and, by consolidating our funding arrangements, generates £230 million of capacity within our thirty year business plan; money that we can invest in our future. It also means that we have a governance structure which is effective and agile.

Second, we have concluded a series of stock swaps with other housing associations which also operate in the south and south west. The effect of the changes is to ensure that we have a coherent geography concentrated in Dorset, Hampshire, Devon, South Wiltshire and the Isle of Wight where we can deliver high quality, cost effective services for our residents.

But this plan is not about what we have achieved - it's about what we can and will do to provide housing to those who need it.

This plan sets out how we will grow and develop as an organisation to 2018; continuing to develop and entering new markets such as the private rented sector; improving our services to residents; investing in communities and working harder to understand the social value of that investment; helping our residents into work; and growing our staff.

We understand the risks and have identified in this plan the steps that we will take to reduce them, but

fundamentally we believe that the next few years will present many opportunities for Spectrum and we intend to take advantage of them.

We think that the plan is ambitious and stretching. However, a key part of our culture at Spectrum is delivering what we promise.

Introduction Introduction

Richard Organ, Group Chairman

1. Our plan in the context of the economy 2. Our plan in the context of our Company 3. Vision and values

4. The Spectrum Way 5. Aims and objectives 6. Group Financial Framework

7. Risks

8. Conclusion

Contents

Contents

A key part of our planning process has been to analyse the external environment in which we work.

The economy and the housing market

The last few years have been turbulent ones as a period of strong house price growth through to 2008 was ended by the credit crunch and a consequent fall in the availability of mortgages. The impact of the credit crunch on the public finances has resulted in a period of austerity in public spending including a large reduction in the amount of public funding for building affordable housing. During that difficult time, Spectrum has continued to provide good services and to develop new housing supply.

Despite this turbulence, some of the underlying fundamentals of housing in the UK have remained

largely unchanged. We continue to build too few houses - in good years as well as in bad - to match the growth in population and demand. And, even during a period of relative price falls, the cost of housing in relation to incomes continues to be a big issue in the areas in which Spectrum operates across the south and south west.

The Government has recently launched a number of schemes to boost demand within the housing market, particu- larly the Help to Buy scheme. However, we expect that the consequences of the financial crisis will be with us for most of the period of this plan and that we will need to continue to innovate if we want to continue to develop and grow. This will include serving new markets, for example the private rented sector, and working in new ways such as in partnership with local authorities to find different ways of sharing risk.

Rent certainty and welfare reform

The majority of Spectrum’s income comes from the rents that our tenants pay. It is important that we understand the Government's position on rents in the long term and the announcement at the Spending Review that rents will increase by Consumer Price Index (CPI) + 1% for the ten years from 2015 was welcome. This will help us to generate the private investment into affordable housing that is so important.

We are, however, strongly aware of the changes that the Government is making to the welfare benefit system. We house many people who are not in employment or who have jobs with low incomes. The cumulative changes to the benefit system - the welfare benefit cap, changes to council tax benefit, the change to benefit uprating from Retail Price Index (RPI) to CPI – will make it harder for our residents to pay their rent.

The major change so far has been the 'bedroom tax' which has affected over 1,000 of our residents. Our staff have been working hard to make sure that our residents understand the changes and can continue to pay their rent. So far we have been successful in doing this but we will have to work equally hard to ensure that future changes - such as Universal Credit - do not put our residents or our business at risk.

1. Our plan in the context of the economy

1. Our plan in the context of the economy

The context for our plan is not just set by the wider environment. It is also set by the work that we have done and the relationships that we have.

We completed our amalgamation process and collapsed our group structure in April 2013. This followed a long period of negotiation with our lenders and active consultation with and support from our residents. Amalgamation releases £230m of capacity over the life of our business plan. A single Group Board of eleven also gives us a lean and agile governance structure.

We have three subsidiary companies that are focused on particular activities:

Spectrum Premier Homes Limited – we develop new homes across all tenures through Spectrum Premier Homes.

Spectrum Property Care – our repairs and maintenance business.

Signpost Homes Limited – develop our student housing portfolio. In September 2013 the group achieved the disposal of the first tranche of its student portfolio and the sale of the remaining stock is scheduled for 2014.

Each of these companies set out their strategies annually for agreement with the Group Board.

The consolidation of our stock - following deals with Sovereign, Knightstone and Hyde Housing Associations - in our core areas of Dorset, Hampshire, Devon, South Wiltshire and the Isle of Wight means that we work in specific areas so that we can deliver high quality and value for money services to our residents. We now work across 28 local authority areas. A key priority for us going forward will be to continue to work closely with our local authority partners.

2. Our plan in the context of our Company

2. Our plan in the context of our Company

We know that Spectrum will continue to grow and thrive in this time of change because we are clear about our vision and comfortable with our values.

Our vision is:

Great neighbourhoods, homes and services and a great place to work Great neighbourhoods, homes and services and a great place to work

Our values are:

One Organisation

Spectrum has been created through the merger over time of a number of organisations and we have recently completed a full amalgamation process. We operate as one organisation, reflecting the vision of the Group and living up to the values and behaviours that we agree together. As we move forward as a group we will work hard to ensure that we operate as one organisation, looking to make the most of opportunities that we have to work more closely across the Group so, for example, we involve Spectrum Property Care in the development of our new homes.

Residents at the Heart

We invest time and effort in our co-regulation structures so that we involve residents fully in our decision-making.

We believe that the model we have of scrutiny (though our Spectrum Residents Group) and local accountability (through locally based Community Forums) represents good practice for the sector and we want to build on this strong base.

We also want to ensure that the concerns of residents feature strongly in our priorities. We know, for example, that the rising cost of fuel bills mean that some of our residents will face issues of fuel poverty in the coming years. By focusing on heating and environmental performance in our asset management strategy we seek to ensure that our residents can have warm and affordable homes.

Working Communities

As a landlord, we know that we have an obligation to do the basics well; to ensure that our homes are well maintained, warm and safe. Unlike private developers we have a stake in our communities, not just for today, but for the long term. If we fail to create vibrant neighbourhoods where people enjoy their lives and feel safe and secure, we will see increasing levels of vacant homes, arrears and anti-social behaviour. In the longer term it may cost us and our partners more to put things right. That is why investing in communities and neighbourhoods makes good business sense - in short we cannot build houses without building resilient communities.

We target our resources to where we identify they are most needed through estate strategies and other

programmes all aimed at improving the employment prospects, finances, health and wellbeing of residents. One of our priorities over the next year is to quantify more clearly the impact of this investment.

3. Vision and values

3. Vision and values

At Spectrum, we know that the way that we do things is as important as what we do. This approach runs through the organisation including our frontline staff in housing management, the Contact Centre and income recovery team, and our operatives in Spectrum Property Care. We know that when we are in a resident’s home carrying out a repair, or speaking to a resident on the phone, that we have to try and resolve their problem in a helpful and a professional way. For us it’s about providing a really good service – not simply ticking a box to say that the problem is resolved. Getting this right is central to the way in which we want to do business.

We also want to make sure that we treat our residents, and other people we deal with, fairly and with dignity, making sure that we accomodate any needs that they have. We work hard at our approach to equality, diversity and inclusion so that it is embedded in everything that we do.

Spectrum Housing Group is committed to providing great neighbourhoods, homes and services and a great place to work, while providing a safe environment and minimising our impact on the environment in a way that means that the Spectrum business is sustainable.

Our mission is to provide housing for those who need it. Our commercial companies generate money to do this.

Through Spectrum Premier Homes we are developing homes for private sale and also homes for market rent where there is a clear and unmet need for those who can’t afford to buy. We are also expanding our maintenance and repairs business, Spectrum Property Care, by winning external contracts. These activities will provide cross-subsidy to our core business; they create profit with a purpose. We know that for these businesses to succeed we need to operate effectively and commercially.

We have set some stretching targets in this plan including, for example, improving the quality of our services to residents. We know that we can't achieve all of these targets simply by working harder. Nor can we simply throw money at places where we hope to get better. We know that we will need to innovate – effectively prioritising our resources, continuing to make smart use of new technology and growing the skills of our people to achieve these targets. We know that we need to focus on managing that change effectively and embedding it within our business.

Finally, we know that our ability to do things in the future relies on our reputation with our residents, our partners and our staff. We are an organisation that delivers what it promises. We also recognise that to build our brand across a large geography and a number of business strands we need to communicate effectively and well. This means setting out what we intend to do and saying when we have achieved it. It also means acknowledging areas where we need to do more, and listening to our residents, partners and staff and their suggestions for change.

4. The Spectrum Way

4. The Spectrum Way

On the next page we have set out our top level aims and objectives for the period from 2013 to 2018. We think that it is important to set this out on one page so that we are clear with our staff residents and partners about what we are aiming to achieve. We expect these aims and objectives to underpin our annual business plan and budgeting processes and to form a strong base for our performance management process.

Sustained growth

In the plan we set strong growth objectives for Spectrum Premier Homes – to build 2,500 homes over the period – and for Spectrum Property Care – to grow its turnover to £40 million. We shall focus on value and the need to generate profit whilst creating positive legacies for our design and performance.

A key change from previous plans is to develop a market rented offer which will meet a strong housing need for significant groups of people who can’t afford to buy, whilst creating income for the group. Now, for the first time, we are on site developing for all four tenures.

High quality services

In this section we set stretching targets for our customer facing services – (housing services, estate management, repairs and property conditions) – to be a top performer amongst our housing association peer group. We think that achieving these targets will drive customer satisfaction. We have focused on the areas which impact directly on residents in our corporate targets but we expect all of our corporate functions to achieve similar benchmarks on quality and value.

Spectrum people

We retain a strong focus on making Spectrum a great place to work and achieving Times Top 100 Company accreditation. This is because we believe that our people are incredibly important and success here will drive the overall performance of our business.

We have a stretching target for our Pathway Programme where we provide work experience to help people into work. In 2013, we have 30 Pathways trainees, 17 of whom are our residents, and we are seeing the benefits of the programme both for those people and for energising our own staff teams.

Create Value

To grow and develop we absolutely need to drive value in our business. In a time of change we need to retain a strong balance sheet and we need to make sure that we deliver across the range of our activities with a strong focus on value for money.

This means making sure that our commercial businesses maximise profits that we can invest in core activities.

It also means a strong focus on budgeting and cost control across the whole organisation. This includes stretching targets to improve our procurement and our operating margin.

5. Aims and objectives

5. Aims and objectives

The strategic context

In April 2013 the five registered providers within the group successfully amalgamated to form one company. This produced a more efficient governance structure and significantly increased financial capacity. In recent years the Group has also successfully delivered its geographic stock rationalisation programme, producing financial and operational benefits to the business and its customers. In September 2013 the Group achieved the disposal of the first tranche of its student portfolio and the sale of the remaining stock is scheduled for 2014. This has considerably reduced the Group’s risk exposures and provided funds for future investment.

Financial projections

Spectrum maintains thirty year financial projections for each organisation within the group and these are

consolidated to form a group financial plan. Year one of the plan (the base year) is driven by the Board-approved budget. This is used to forecast future income and costs using prudent economic assumptions relating to inflation, interest rates etc. The latest plan demonstrates Spectrum’s robust financial position and ability to meet funding covenants and maintain the regulator’s top viability rating.

The plan shows increasing margins and sustained strong cash flows throughout the period of the Corporate Plan.

Key issues and risks

The key issues and risks related to the plan include the following:

The external economic environment is uncertain with significant change stemming from government policy flowing through to our business (e.g. welfare reform). Prudent assumptions have been incorporated into the plan (e.g. increased voids, bad debts and collection costs) to reflect this uncertainty.

The headline economic indicators – inflation and interest rates – are currently favourable to the financial plans. Our projections prudently assume these indicators tighten in the medium term.

No development is included within the base plan after 2016-17 due to the uncertainty of future funding.

This is a common planning assumption within the sector. However, we have modelled a range of future development scenarios and the related projections demonstrate Spectrum’s capacity to develop new homes in the longer term. In particular the medium term development targets included within this Corporate Plan are achievable.

The base plan is fully funded with undrawn facilities currently totalling £75m following the completion of the

£22m European Investment Bank “green” facility in September 2013. The Treasury Committee is reviewing the Group’s longer term funding strategy.

6. Group Financial Framework

6. Group Financial Framework

Sensitivity analysis

The financial projections have been tested under different scenarios and changes in the key assumptions.

This analysis demonstrates a robust position in the face of various stresses.

The greatest risk stems from a sustained reduction in rental inflation (e.g. through a change in the regulatory regime). The other major impact is from a prolonged period of interest rates significantly above the 4% real rate assumed in the plan, although the risk of this is considered remote. There is capacity within the plan to absorb significant short/medium term shocks and interest rate management is a key part of treasury policy.

Treasury

The Group is a major borrower of private finance with facilities totalling around £450m, of which £375m is currently drawn. The committed development programme is fully funded by the current facilities.

The amalgamation has enabled treasury arrangements to be consolidated to deliver financial, administrative and strategic efficiencies. In particular, Spectrum has moved away from annual business plan approval by our funders to corporate loan covenants which allow us much greater flexibility in managing the business.

With continued appetite and capacity for on-going development there will be a requirement for additional borrowing. Whilst there is currently no lack of appetite from investors to the sector, limited future grant funding will increase our gearing risk. This will drive the need for prioritising the allocation of resources and accentuate the need for additional wealth creation and efficiency which is a key part of the Corporate Plan.

6. Group Financial Framework

6. Group Financial Framework

Spectrum seeks to identify and manage key risk exposures that could threaten the Group’s ability to deliver the Corporate Plan objectives. As part of our risk management approach we scan our wider environment, using

documents such as the Homes and Communities Agency’s CA’s Sector Risk Profile, to highlight key risks. We identify risk mitigation strategies which we stress test and review carefully through our management structures and the Board’s Audit and Risk Committee.

7. Risk Management 7. Risk Management

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

High Quality Services & Create Value High Quality Services & Create Value Controls

Controls Welfare benefit reforms

lead to increased rental losses and drives higher void rates.

Utilising welfare benefit advisors to support residents and protect income streams.

Strong rental income management through a central Income Recovery Team.

Rent management policy and procedures and performance management reviewed in context of benefit changes.

Training front line staff on welfare reform.

Involvement with key stakeholders such as local authorities.

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

Sustained Growth & Create Value Sustained Growth & Create Value Controls

Controls Loan covenant or lease

conditions affect business viability.

Treasury Committee development of Group financial strategy and funding strategy.

Strong Corporate Plan focus on value for money, operating surplus and growing balance sheet capacity.

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

Sustained Growth, High Quality Services, Spectrum People & Create Value Sustained Growth, High Quality Services, Spectrum People & Create Value Controls

Controls Growth objectives

affected by lack of skills and capacity within the Group.

Work on developing Group behaviours and competencies.

Achievement of the Learning and Development plan.

Corporate Plan commitment to review remuneration policies.

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

Sustained Growth, High Quality Services & Create Value Sustained Growth, High Quality Services & Create Value Controls

Controls Rising interest rates

increase our debt servicing costs

Financial framework and business plan sensitivities based on prudent variable rate assumptions.

Financial plan includes 50% fixed requirement in business plan.

Daily rates review.

7. Risk Management 7. Risk Management

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

Sustained Growth, High Quality Services, Spectrum People & Create Value Sustained Growth, High Quality Services, Spectrum People & Create Value Controls

Controls Spectrum’s reputation is

damaged by negative publicity.

Communications strategy focused around core messages.

Proactive approach to media relations.

Active stakeholder management.

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

Sustained Growth, High Quality Services & Create Value Sustained Growth, High Quality Services & Create Value Controls

Controls New homes for sale and

rent do not achieve planned growth or revenue levels.

Clear targets and hurdle rates for investment in homes for sale and rent.

Options to flex between rent and disposal depending on market conditions.

Strong focus on Sales and Marketing both in terms of strategy and capacity.

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

Sustained Growth, High Quality Services, Spectrum People & Create Value Sustained Growth, High Quality Services, Spectrum People & Create Value Controls

Controls Serious health, safety or

environmental failure.

Regular Board level review of health and safety policy and serious incidents.

Prioritising health and safety investment.

Spectrum Property Care’s Safety, Health, Environment and Quality (SHEQ) arrangements.

Strategic Goal(s):

Strategic Goal(s):

Risk:

Risk:

Sustained Growth, High Quality Services & Create Value Sustained Growth, High Quality Services & Create Value Controls

Controls Spectrum Property Care

turnover reduced through lost renewal business.

New business tender process and marketing strategy focused on renewals and obtaining additional business.

Increased capacity with commercial management focus.

8. Conclusion 8. Conclusion

Having examined our strategies and worked on how these can be achieved, we understand that we have much to do over the coming years. Supporting and being supported by our staff and residents throughout this period is crucial to our achievements and we have outlined the ways in which each of our objectives will be measured.

At the core of all of our objectives and strategies for tackling these will always be our vision:

Great neighbourhoods, homes and services and a great place to work

Great neighbourhoods, homes and services and a great place to work

Spectrum Housing Group Ltd | Spectrum House | Grange Road | Christchurch | BH23 4GE Spectrum Housing Group Ltd | Spectrum House | Grange Road | Christchurch | BH23 4GE

Telephone: 0300 111 3600 www.spectrumhousing.co.uk

Telephone: 0300 111 3600 www.spectrumhousing.co.uk