Decision

Withdrawn regulatory judgement: Southern Housing Group Limited (17 April 2020)

Updated 25 January 2023

This decision was withdrawn on 26 July 2023

Southern Housing Group Limited and Optivo amalgamated to form Southern Housing.

Applies to England

Withdrawn on 25 January 2023: Southern Housing Group Limited amalgamated with Optivo to form Southern Housing on 16 December 2022.

RSH Narrative Regulatory Judgement

• Provider: Southern Housing Group Limited
• Regulatory code: L4628
• Publication date: 17 April 2020
• Governance grade: G2
• Viability grade: V2
• Reason for publication: Viability regrade and governance downgrade
• Regulatory route: In Depth Assessment

This regulatory judgement downgrades our previous published assessment of SHGL’s governance from G1 to G2 and regrades our assessment of financial viability from V1 to V2.

SHGL continues to meet the requirements on governance set out in the Governance and Financial Viability Standard. However, following an IDA, we have concluded that it needs to improve some aspects of its governance arrangements to support continued compliance.

The group has not evidenced that it has effective systems to monitor and accurately report on delivery of its plans. A limited range of targets in both internal and external reporting restricts the ability of the board and other stakeholders to assess SHGL’s strategic and operational performance, including its record on delivering value for money.

SHGL’s audit and risk committee has not consistently ensured adequate oversight of the implementation of internal and external audit recommendations. The board needs to strengthen its assurance framework and ensure that its committees’ terms of reference are operating effectively in practice. The IDA work also concluded that SHGL needs to improve communication with the regulator in line with co-regulation. The board has recognised these issues and is starting to strengthen its overall control, compliance and reporting systems.

SHGL needs to improve aspects of its stress testing. Further work is required to develop mitigation strategies and to complete the group’s assets and liabilities records. This will support the board’s ability to respond to emerging risks in a timely and effective manner.

Based on evidence gained from carrying out the IDA, the regulator has assurance that SHGL meets the requirements of the viability element of the Governance and Financial Viability Standard. Its financial plans are consistent with, and support, its financial strategy. It has an adequately funded business plan, sufficient security and forecasts to continue meeting its financial covenants.

SHGL has material financial risks which it needs to manage. It retains a clear strategic commitment to the development of homes for shared ownership and outright sale. Consequently, its ability to generate liquidity is subject to the volatility of the housing market. The scale of this reliance is reflected in key financial metrics which indicate that the group has limited capacity to service its debt from margins generated solely from social housing letting activity. The group’s financial performance will also be impacted by significant investment in existing stock including fire safety works.

Other providers included in the judgement

• Southern Home Ownership Limited LH1662

About the provider

Origins

Southern Housing Group Limited (SHGL) is a charitable registered provider of social housing and the parent entity of Southern Housing Group.

Registered Entities

There are two registered entities in the group: SHGL and Southern Home Ownership Limited.

Unregistered Entities

SHGL has 100% ownership of four active unregistered entities:

• Southern Development Services Limited provides project delivery services to the group;
• Southern Housing Construction Limited provides construction services;
• Spruce Homes Limited provides homes for private rent;
• Southern Space Limited is a market facing development company. It has a 33% interest in Triathlon Homes Limited Liability Partnership which owns and manages over 1,300 homes at East Village, the former Olympic Park.

SHGL has a 50% interest in Affinity (Reading) Holdings Limited which in turn holds 100% of Affinity (Reading) Limited which has been set up to operate a Private Finance Initiative contract to deliver refurbishment, management and maintenance of 1,300 Reading Borough Council Homes.

SHGL is also the sole corporate trustee of the Samuel Lewis Foundation which is a registered charity.

Geographic Spread and Scale

The group operates in the South East of England and the Isle of Wight.

It owns and manages around 28,000 homes. The majority of its homes are for general needs but it also provides homes for shared ownership, for older people, for intermediate and affordable rent, and for private rent

Staffing and Turnover

The group employs the full time equivalent of 922 staff. Its turnover for the year ended 31 March 2019 was £230m.

Development

In its latest corporate plan, the group set out its intention to develop 7,000 homes of various tenures over a nine-year period.

About our judgements

Key to Grades

Governance:

• G1 (Compliant): The provider meets our governance requirements.
• G2 (Compliant): The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance.
• G3 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.
• G4 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

Viability:

• V1 (Compliant): The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
• V2 (Compliant): The provider meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.
• V3 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.
• V4 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

Definitions of Regulatory Processes

In Depth Assessment (IDA): An IDA is a bespoke assessment of a provider’s viability and governance, including its approach to value for money. It involves on-site work and considers in detail a provider’s ability to meet its financial obligations and the effectiveness of its governance structures and processes.

Stability Checks: Based primarily on information supplied through regulatory returns, a Stability Check is an annual review of a provider’s financial position and its latest business plan. The review is focused on determining if there is evidence to indicate a provider’s current judgements merit reconsideration.

Reactive Engagement: Reactive engagement is unplanned work which is triggered by new information or a developing situation which may have implications for a provider’s current regulatory judgement.

Stability Checks and Reactive Engagement: In some cases, we will publish narrative regulatory judgements which combine evidence gained from both Stability Checks and Reactive Engagement.

For further details about these processes, please see ‘Regulating the Standards’.