Sector Scorecard. Proposed indicators for measuring efficiency within the sector have been developed for the following areas:

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1 Registered Providers Working Group on Efficiency Sector Scorecard Proposed indicators for measuring efficiency within the sector have been developed for the following areas: A. Business Health B. Development capacity and supply C. Outcomes delivered D. Effective asset management E. Operating efficiencies There are 15 proposed indicators in total, plus suggested optional indicators (shown in square brackets). The definitions have been developed to use existing data as much as possible, to aid with consistent measurement. Some contextual information will also be collected and we expect that providers will want to include further narrative around the measures suggestions have been made in this document as to what this could cover.

2 Context Contextual information to present an overview of the provider and assist with selection of peer groups Turnover Stock (managed) Geographical spread (eg. regions stock is concentrated in, number of LA areas operating across etc.) Number of persons housed Split by activity general needs, supported housing, market rent, property sales etc. General needs Housing for older people Supported housing Affordable home ownership Care homes Provides an indicator of what locations and types of area (eg. urban/rural) the provider operates in. Provides an indicator of the reach and impact of the sector as a whole. To provide context on the size of the provider and range of activities undertaken. To provide context on the size of the provider and range of activities undertaken. Providers with the majority of stock in a condensed area may wish to provide additional information on the local issues faced; providers with a wider spread of stock may face different logistical issues. Number of persons who are provided with support services 1 A Business Health Indicator Measure Narrative 1. Operating margin 2. Increase/decrease in operating margin 3. EBITDA MRI (as a percentage of interest) Measures the amount of surplus generated from turnover on a provider s day-to-day activities; indicator of operating efficiency and business health. Increase/decrease in operating margin shows trend. EBITDA MRI is an approximation of cash generated, and presenting it as a percentage of interest shows the level of headroom on meeting interest payments on outstanding debt. Narrative could include the operating margin split by different activities, to show the extent to which different business streams impact the overall margin. Trend could also be presented over a number of years. Trend over recent years could be presented along with context; for example increasing debt levels to fund development could cause this ratio to decrease, but this does not necessarily reflect a decline in financial health. Gearing Included as a measure of development capacity, but could equally be used as an indicator of business health. 1 Housing-related, to enable someone to live independently or support them in day-to-day living, ie. money advice or employment skills etc. not included. This should include those living in accommodation where there are communal facilities and an on-site warden or manager, and those where a contract is in place to deliver support services (including floating and domiciliary support). Page 2 of 12

3 B Development capacity and supply Indicator Measure Narrative 4. Units developed (absolute) 5. Units developed (as a percentage of units owned) [Tenure split] Demonstrates contribution of the sector to the supply of new homes (all tenures). It should be recognised that the phasing of development programmes may result in peaks and troughs, particularly for smaller providers. Units developed in the year can be put into context by presenting a trend or average over recent years. 6. Gearing This ratio shows the proportion of borrowing in relation to the size of a provider s asset base. If the ratio is low, this could indicate that a provider has capacity to leverage its existing assets to provide funds for development or new services. However a high ratio could indicate that a provider has taken on too much borrowing, which could put its assets at risk. Each provider will have an optimal gearing ratio, informed to some extent by its appetite for risk. Narrative could provide some indication of whether the current gearing level is considered appropriate. Caution should be applied when comparing different providers, as higher debt levels are associated with recent stock transfers. C Outcomes delivered Indicator Measure Narrative 7. Customers satisfied that their rent provides value for money s invested for every generated from operations 8. in new housing supply 9. in communities - [other] [Other social return measure - eg. SROI, social housing dividend] [Wider social return from procurement or partnership working] Brings in the customer s perspective; what is their definition of value and to what extent do they feel that their landlord is providing value for money? Demonstrates the extent to which providers are investing their own money in new supply, or in other priority areas which generate a social return. It was considered important that the framework of measures provide a balanced view, including evidence of the sector s achievements and social impact, however it would be difficult to apply a consistent measure across all providers. Providers may wish to provide other customer satisfaction measures. Narrative in this area could indicate what the organisation s priority areas for investment are. Providers may wish to use different measures to demonstrate the value added by different parts of the business, and draw out their areas of focus depending on strategy. Page 3 of 12

4 D Effective asset management Indicator Measure Narrative 10. Return on capital employed (ROCE) Shows how well a provider is using both its capital and debt to generate a financial return. It is a commonly used ratio to compare the efficiency of capital usage of different businesses in the same sector. Caution should be applied when comparing different providers, as recent stock transfers may result in a lower ROCE as there has been less time in which to depreciate the asset base. It would also be possible to deliver an improvement due to increasing depreciation unless assets are constantly refreshed by capital spend. In order to demonstrate the effectiveness of the asset management policy, this should be considered together with recent levels of repairs and maintenance spend. It should also be recognised that this measure only considers financial return. Narrative could link this measure to indicators of social return. 11. Occupancy Demonstrates how efficient providers are at turning around void stock. Provides a more positive perspective; people housed, as opposed to void loss/empty properties. This is measured at a point in time, therefore may not be representative of usual levels of performance. Measure could be placed in context by providing more information on average occupancy levels during the year, or improvement in void turnaround times. 12. Ratio of responsive repairs to planned maintenance spend (link this measure to unit cost) [Proportion of properties with a positive NPV / Average NPV] Effective planning based on detailed stock condition surveys should allow the sector to reduce spend on responsive repairs in favour of planned maintenance. Discounted cash flow model factors in both income and cost, and eliminates fluctuation from year to year. It should be noted that the level of spend may vary from year to year depending on the timing of planned maintenance programmes, and it may be necessary to present a trend or average for context. Narrative could include detail on asset management policy, and consideration of social value alongside the financial return. Page 4 of 12

5 E Operating efficiencies Indicator Measure Narrative 13. Headline social housing cost per unit Split into: - Management cost per unit - Service charge cost per unit - Maintenance cost per unit - Major repairs cost per unit - Other social housing costs cost per unit This is the measure used by the HCA in the unit cost analysis; using this rather than a different cost measure will avoid confusion. The unit cost analysis findings can also be used to inform the narrative. A split of the headline social cost per unit into components, or adjusted unit costs can be used to support the narrative. Providers with a large supported housing provision may wish to present the headline unit cost split by general needs and supported housing. Explain how costs relate to performance higher costs may reflect a conscious choice to invest in an area with greater social value. 14. Rent collected Demonstrates the effectiveness of the income management function in collecting rent due and managing arrears levels. Narrative can provide context around changing performance; for example if arrears figures are worsening due to the impact of universal credit, and plans for mitigating the impact. 15. Overheads as a percentage of adjusted turnover [Efficiency savings] Shows the proportion of turnover which is required to pay for overheads. If the ratio is high, this could indicate potential cost savings from improving the efficiency of back office functions (likewise a reduction in the ratio will indicate improvements have already been made). Quantitative measure of efficiencies delivered during the year. It would be useful to present a trend over recent years to demonstrate efficiency savings already made. Also useful to link to overall unit cost to demonstrate whether high or low cost overall. Narrative could link to how the efficiency gains/savings have been reinvested, for example in the development of new units, community resources etc. Context could also be included on how efficiency gains have been achieved, or future expected efficiency gains following investment in the year. Page 5 of 12

6 Appendix 1: Definitions Operating margin Source: Definition: Guidance: 1. Operating margin FVA Operating surplus/(deficit) Turnover x 100 Based on the FVA template, gain/loss on disposal of property, Tab B; Cell C13 plant and equipment is not included in operating surplus. Tab B; Cell C9 Similarly, results of JVs are not included in either turnover or operating surplus. 2. Increase/decrease in operating margin FVA [(Current year operating surplus/(deficit) Current year turnover) - (Prior year operating surplus/(deficit) Prior year turnover)] x 100 In line with the definition above and using restated prior year figures. 3. EBITDA MRI % interest Source: Definition: Guidance: FVA EBITDA MRI Gross interest payable x 100 Operating surplus/(deficit) as above. Tab B; Cell C13 Tab B; Cell C19 Tab F; Cell C10 Tab F; Cell C9 Tab D; Cell F10 "EBITDA MRI" = Add: Less: Operating surplus/(deficit) Interest receivable and other income Total depreciation Capitalised major repairs Amortised government grants "Gross interest payable" = Tab B; Cell C20 Interest payable and financing costs Interest and other charges relating to defined benefit pension Add: schemes should be excluded (not split out in FVA). Tab F; Cell C8 Capitalised interest Page 6 of 12

7 Units developed Source: Definition: Guidance: 4. Absolute Units completed in the year; all tenures Align with NHF collection of supply data. 5. As % of units owned Units completed in the year; all tenures Total units owned DCLG definition of completion: In principle, a dwelling is regarded as completed when it becomes ready for occupation or when a completion certificate is issued whether it is in fact occupied or not. In practice, there are instances where the timing could be delayed and some completions are missed for example as no completion certificate was requested by the owner. 6. Gearing Source: Definition: Guidance: FVA Net debt Equity (adjusted for revaluation) x 100 Adjusting the equity figure to exclude the revaluation reserve "Net debt" = means that providers who operate a revaluation policy are more comparable to those who hold properties at depreciated Tab C; Cell C30 Short term loans cost. Add: Tab C; Cell C31 Tab C; Cell C40 Tab C; Cell C41 Tab C; Cell C42 Tab C; Cell C24 Tab C; Cell C25 Tab C; Cell C55 Tab C; Cell C57 Tab C; Cell C58 Less: Bank overdrafts Long term loans Amounts owed to group undertakings Finance lease obligations Cash and cash equivalents Short term investments "Equity" = Add: Income and expenditure reserve Restricted reserves Other reserves Page 7 of 12

8 7. Customer satisfaction (VfM) Source: Definition: Guidance: HouseMark Percentage of respondents very or fairly satisfied that their rent provides value for money In line with HouseMark definitions and guidance s invested for every generated Source: Definition: Guidance: 8. In new supply Financial statements (Cash flow statement) Cash paid for housing purchase and construction Net cash generated from operating activities Assumes government grant receipts are treated as an investing cash flow if these are included in operating cash flows, they should be stripped out. 9. In communities Cash paid for community investment activities Net cash generated from operating activities Community investment activities not identified within the cash flow statement - expenditure within the Income Statement could be used as an approximation. [Other] Cash paid for [other] Net cash generated from operating activities Community investment is net spend (ie. net of any grant or other funding income received) on community or neighbourhood activities, eg. employment skills training, money advice, community groups etc. "Other" is provided as a category in case any provider considers that there is another area where they invest for social value purposes which does not fit into either new supply or communities. 10. ROCE Source: Definition: Guidance: FVA Tab B; Cell C13 Tab C; Cell C19 Tab C; Cell C27 Tab C; Cell C34 Operating surplus/(deficit) (Total fixed assets + Total current assets Total creditors: amounts falling due within one year) x 100 Based on the FVA template, gain/loss on disposal of property, plant and equipment is not included in operating surplus. Similarly, results of JVs are not included in either turnover or operating surplus. Page 8 of 12

9 11. Occupancy Source: Definition: Guidance: SDR (Total general needs self-contained units owned and managed - General needs self-contained units vacant and available for letting - General needs self-contained units vacant and not available for letting) (Total general needs self-contained units owned and managed - General needs self-contained units vacant and not available for letting) Metrics can also be presented for other housing types if these are significant to the provider (eg. supported housing). 12. Ratio of responsive repairs to planned maintenance Source: Definition: Guidance: FVA Tab D; Cell F19 Tab D; Cell F20 Tab D; Cell F21 Tab F; Cell C9 Routine maintenance (Planned maintenance + Major repairs expenditure + Capitalised major repairs and reimprovements expenditure) Page 9 of 12

10 13. Headline social housing cost per unit Headline social housing cost per unit Source: Definition: Guidance: FVA Social housing costs Closing social housing units managed x 1,000 Tab D; Cell F17 Tab D; Cell F18 Tab D; Cell F19 Tab D; Cell F20 Tab D; Cell F21 Tab D; Cell F25 "Social housing costs" = Add: Management Service charge costs Routine maintenance Planned maintenance Major repairs expenditure Other costs Tab E; Cell E11 Charges for support services - Operating expenditure Tab E; Cell E12 Tab F; Cell C9 Tab E; Cell H34 Other - Operating expenditure Capitalised major repairs and re-improvements expenditure "Closing social housing units managed" Management cost per unit FVA Management costs Closing social housing units managed x 1,000 Service charge cost per unit FVA Tab D; Cell F17 Management Service charge costs Closing social housing units managed x 1,000 Tab D; Cell F18 Service charge costs Maintenance cost per unit FVA Routine and planned maintenance costs Closing social housing units managed x 1,000 Tab D; Cell F19 Tab D; Cell F20 Routine maintenance Planned maintenance Page 10 of 12

11 Major repairs cost per unit FVA Major repairs and capitalised costs Closing social housing units managed x 1,000 Tab D; Cell F21 Tab F; Cell C9 Major repairs expenditure Capitalised major repairs and re-improvements expenditure Other social housing costs cost per unit FVA Tab D; Cell F25 Other social housing costs Closing social housing units managed x 1,000 Other costs Tab E; Cell E11 Charges for support services - Operating expenditure Tab E; Cell E12 Other - Operating expenditure 14. Rent collected Source: Definition: Guidance: HouseMark Rent collected Rent and service charge due for the period x 100 HouseMark definition of rent collected: (A B + F + I G J K) A = Rent and service charge due for the period B = Rent loss due to empty properties F = Current Tenant Arrears start of year I = Former Tenant Arrears start of year G = Current Tenant Arrears end of year J = Former Tenant Arrears end of year K = Total rent and service charge written off as unrecoverable Page 11 of 12

12 15. Overheads as a % adjusted turnover Source: Definition: Guidance: HouseMark HouseMark measure and definitions: Overheads Adjusted turnover x 100 Turnover Less: Grant amortisation Turnover from activities not managed Turnover relating to the sale of housing properties (including first tranche shared ownership) Add: DLO internal turnover 2 Development administration costs 3 Overheads: Any costs not relating to direct activities (repairs, maintenance, housing management, supported housing, development, estate services, leasehold, shared ownership, other social housing, costs eligible for service charges, property insurance, community investment, costs relating to property sales or non-social activities). Overheads should only include staff costs (including travel and subsistence) for staff where time is not spent on any of the above direct functions. [Efficiency savings] Source: Definition: Guidance: n/a Difficult to measure consistently across the sector - use individual means of calculating. These should only reflect real cost savings achieved by the organisation during the year. Not annualised expected future savings, and not savings made on behalf of tenants or notional savings through avoidance of cost. Would be useful to split into reoccurring savings and those newly established in the year. 2 Whether or not you have an in-house maintenance DLO could significantly affect this indicator; there will be associated overheads but no corresponding turnover. An adjustment is therefore made for the notional turnover generated by this business, being the schedule of rates or equivalent value of the repairs carried out for your own organisation. As a rough check, we would expect the internal turnover to be in the region of % of the corresponding staff costs of the internal workforce. This adjustment should only be made if the DLO is part of the entity being benchmarked. 3 If you employ development staff, there will be associated overheads, but no corresponding turnover. This adjustment is therefore made to include a notional turnover figure for the development function. Note that if you carry out a significant amount of development services for third parties, there may be "true" turnover already included. If this is the case, please adjust to avoid double counting. Page 12 of 12