Gentoo to 'refocus on core social housing activities' after HCA downgrade
Published by Anonymous for 24dash.com in Housing
Gentoo to "refocus on core social housing activities" after HCA downgrade
Housing group Gentoo has pledged to refocus on core social housing activities after it was downgraded by the Homes and Communities Agency over concerns surrounding the commercial side of the business.
In a regulatory judgement published today, the HCA said the Sunderland-based group's major house sales programme had failed to deliver the expected returns and posed a "key risk".
The judgement stated: "The major housing sales programme included in the business plan (is) expected to generate significant receipts and to provide a majority of the group’s forecast surplus over the next five years.
"Its projections appear to be optimistic in light of its recent performance in this area, which showed receipts well below forecast and a small overall net deficit from sales activity.
"While there is some evidence of an improvement in the housing market, this is likely to continue to be uneven in its impact, and market conditions in the North East may remain difficult for some time to come. The group recognises that failure to achieve budgeted sales targets remains a key risk."
The HCA also raised concern over the "nature and scale" of the group’s non-social housing activities, where a combination of market and operational factors have led to substantial losses being incurred in some of the unregistered subsidiaries.
The judgement stated: "Although some businesses have seen an improvement in their results, non-social housing activity as a whole has produced a substantial net deficit. Gentoo’s board has recently decided to scale back the group’s involvement in commercial activities."
A third concern was raised over contributions made by Gentoo to address a deficit in the Tyne and Wear Pension Fund.
The judgement stated: "The group’s membership of the Tyne and Wear Pension Fund has resulted in on-going annual capital contributions to address the fund’s deficit.
"These substantial additional payments, over and above the already high employer contribution rate incurred by Gentoo, place material pressure on the group’s management costs. The admission agreement requires annual valuations to be made and additional contributions may be required as an outcome of this, further adding to overall cost pressures."
Gentoo was also downgraded for failing to address the requirements of the HCA's value for money standard in a timely and transparent way. This, in turn, has raised some regulatory concern about the effectiveness of aspects of its internal controls.
The judgement stated: "To support continued compliance Gentoo needs to demonstrate that controls around meeting wider core regulatory requirements are fit for purpose and demonstrate it is meeting the requirements of the value for money standard."
HCA Regulatory Judgement:
Gentoo Group Ltd – to re-focus on the core social housing business. At this early stage, the timing and impact of implementing this revised strategy remain to be seen.
• Properly Governed: G2
The provider meets the requirements on governance set out in the Governance and Financial Viability Standard, but needs to improve some aspects of its governance arrangements to support continued compliance.
• Viable: V2
The provider meets the requirements on viability set out in the Governance and Financial Viability standard but needs to manage material financial exposures to support continued compliance.