London housing association found non-compliant over ‘poor-quality’ financial data

Harold Brown, senior assistant director for investigations and enforcement at the RSH, said: “We found significant issues with Octavia’s financial planning, as well as a failure by its board to have appropriate oversight of the organisation.

“We expect Octavia to address these issues promptly and return to compliance with our standards.”

Since 2020-21, Octavia’s business plans have been built on the assumption that a significant efficiency savings programme will be delivered over the five-year period from 2020 to 2025. However, progress to date in delivering that target has been slow.

The regulator said it lacks assurance that Octavia has a “robust financial plan” that it is capable of delivering.

Octavia’s actual financial performance has been “significantly worse” than budget for the previous two financial years, the judgement noted. It said that this has led to the implementation of reactive non-permanent in-year savings programmes in those years.

In addition, Octavia did not have an approved mitigation plan in place from which it could select and implement the “substantial savings” required to maintain covenant compliance for 2022-23.

The RSH said: “Octavia continues to be exposed to material risks and although there is no immediate solvency issue, it has adapted its latest business plan to maintain its viability, following an external appraisal of the business at the beginning of 2023 in response to these challenges. 

“It is progressing key actions, including disposals, resizing and temporarily pausing new commitments relating to development.”

Octavia’s business plan also requires a “substantial programme” of permanent savings and material receipts from the sale of high-value housing assets.

However, the RSH does not have the assurance that the plan will be delivered sufficiently to ensure its future financial health.

It said: “Given Octavia’s poor record of delivering against plans, that not all of the savings required have been identified and that the sales assumptions are not derived from a considered stock rationalisation strategy, we do not have the assurance that the plan will be delivered to ensure long-term financial viability.”

Octavia has acknowledged the regulator’s concerns and a governance improvement plan is being drafted, the judgement noted.

The housing association is working with the regulator to ensure it has the capacity and capability, and in conjunction with external advisors, the support to make the required changes and improvements.

A spokesperson from Octavia said: “We accept the outcome of the review and have welcomed the opportunity to work closely with the regulator throughout the process to address the concerns raised.

 
“Our board and leadership team have already taken a number of steps to enhance our governance and improve the way our organisation is run; however, we remain fully committed to taking further steps to return the organisation to a stronger financial position.

“This will enable us to deliver on our strategic goals whilst ensuring that we continue to provide high-quality services to the residents and communities we serve.”

Octavia was placed on the regulator’s ‘gradings under review’ list at the end of March while its governance was investigated.

This came after the RSH confirmed Octavia’s previous G1/V2 grades in November. Prior to this, the provider was downgraded to V2 in November 2019.

In its most recently published financial results, Octavia revealed that its overall surplus increased from £1.3m in 2020-21 to £1.7m in 2021-22, after net interest charges of £8.4m and gain on investment in 2021-22 of £700,000.