The THFC Group made further loans during the year and the portfolio now stands at £1,467 million with a further £435 million under management. New loan facilities of £31.35 million, not all of which was drawn at the year end, were put in place and a fifth tranche of the 8.625% debenture stock 2023 was issued generating gross proceeds of £27.3 million. The amount of new lending was less than last year, reflecting the absence of any major transaction similar to the Sunderland financing which was initiated during March 2001. However the cost of funds to borrowers in the social housing sector dropped to a record low level. The fifth tranche of the 8.625% Debenture Stock 2023 was issued at a price which allowed THFC to make funds available to Housing Associations at a fixed rate of 5.65%, the lowest such rate ever achieved by an issuer in this sector.

New financing opportunities have been limited owing to the competitive environment for THFC that is continuing as a result of the combined effect of aggressive bank lending and a sterling domestic bond market where margins widened markedly during the year. Until the cost of capital from the capital markets moves more closely into line with the cost of funds provided by banks, THFC's new issue activity will be suppressed. Nevertheless we finished the year with a comfortable surplus to add to our reserves.

During the year the Royal Bank of Canada arranged the refinancing of the bank loans that funded the transfer of Sunderland City Council's housing stock to Sunderland Housing Group last year. Those loans were routed through T.H.F.C.(Capital) PLC and the partial refinancing, which was achieved by a bond issue made by Sunderland (SHG) Finance PLC, was routed similarly.

Education Capital Finance PLC, an independent intermediary which lends capital finance to Colleges of Further Education, made its first loans to colleges during the year. T.H.F.C. (Services) Limited provides the marketing and loan administration services to the new company. ECF is an independent company, chaired by Christopher Jonas with a board consisting of representatives from Colleges of Further Education and the Association of Colleges. We are pleased to be providing support to this initiative which has introduced forceful competition into the market, bringing about a substantial reduction in the margins on loans to colleges from competitor banks. Nevertheless the slow growth in loans advanced has caused the ECF board to review its business position, as a result of which ECF is likely to withdraw from the market during the Summer of 2002.

THFC has been providing input to research into the feasibility of setting up a new financial wholesaling intermediary for Community Development Finance Institutions. The work was carried out by Barbara Ainger on our behalf, together with the New Economics Foundation and the Local Investment Fund, with the benefit of a DTI Phoenix Fund grant. The initiative is well supported, but it will be some while before all the conditions will be in place to make a new financial intermediary an economic proposition.

In March this year George Dennis, our Chairman for nine years, and Stephen Wood, both founder Board members, retired from the Board, having reached the 15 year term maximum for service as a director set by the Board's governance arrangements. Their tremendous contribution to the success of THFC since its foundation in 1987 cannot be overstated. Their guidance was a critical element, both in establishing THFC and in developing its position today as one of the pre-eminent providers of funds to the social housing sector. I would like to add my thanks to those of my fellow Directors for the commitment and enthusiasm that they brought to the Board and to wish them well in a long and happy retirement.

As a result of the Board vacancies we made two appointments to the Board at the beginning of April. Pam Alexander and Sadru Visram have joined us and bring a wealth of practical experience in the management and needs of Housing Associations.

Last year George Dennis thanked Barbara Ainger for her work over many years as our Chief Executive and I was pleased see that she was awarded the O.B.E. in the Queen's Birthday Honours list last year. We were fortunate to be able to call on her experience again during the year after Deanne Cooke-Yarborough decided not to take up a permanent appointment with THFC. At the Board's request, and after difficulties in finding a suitable replacement for Deanne, I took over provisional executive responsibility for THFC in early January this year. The Board expects to appoint a new Chief Executive by the end of 2002, after which my position will be that of non-executive Chairman, thus enabling THFC to meet good governance guidelines through the separation of the two roles.

My thanks go to the members of the Board and the staff who met the demands of a difficult year with determination and initiative.

David Creed
Executive Chairman