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Southern sees 14% slide in surplus as fire safety checks increase
Southern Housing Group has reported a 14% fall in annual surplus as the landlord hikes its spending on fire safety.
The 28,000-home association reported a post-tax surplus of £38.6m in the year to the end of March 2019, compared with £44.9m the prior year. Revenue increased 15% to £230.5m and its fixed debt stood at £739m.
The group, which last week was downgraded to a rating of A3 by Moody’s, said “increasing investment” in fire safety risk assessments and works had been a “key feature”, which is continuing in the current year.
A programme to replace external fire doors in its properties is “speeded up and ongoing”, the group said in its annual report.
Fellow G15 members have also felt the impact of dealing with extra fire safety measures. In April, L&Q reported its surplus had nearly halved partly due to rising fire safety costs.
Southern, which has hired two new key executives in the past month, has also introduced dedicated building managers for its high-rise blocks, it revealed. It is expected that all housing associations will be required to do this under legislation from the post-Grenfell Hackitt Review.
In the year, Southern made a provision of £1.2m for fire safety costs.
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The group is replacing combustible cladding on a high-rise block in Reading, which is due to complete next month.
Southern’s chair Arthur Merchant and chief executive Alan Townshend said lessons for the sector from the Grenfell fire were “still coming into focus”.
They added: “Overall, the plan is to invest over five times our surplus in 2019/20.”
In its 2018/19 financial year, Southern reported a drop in operating margin for its social housing division, from 25.6% to 23.1%. The group pointed to it being the “third of four years of the imposed 1% rent reduction and this was coupled with a conscious decision to invest in our existing stock”.
Its overall operating margin was 31%, but Southern said it expects to see this increase to 33% in the current financial year.
Income from social housing lettings remained the largest proportion of Southern’s turnover, the group said. However, this fell from 78% of total turnover to 70%.
Southern reported a fivefold increase in income from open market sales to £35.4m. Half of its remaining turnover was from this tenure, compared with 22% the prior year.
However, the group revealed it had decided to convert 22 unsold properties in London and Brighton to private rented units “for a short term while the marketplace recovers”.
Last week, Moody’s said the association’s downgrade to A3 was due to “the group’s growing risk appetite and strategic shift, which will result in a significant growth in debt, capital expenditure (capex) and market sales over the next three years”.
However, the ratings agency moved its outlook for Southern from ‘negative’ to ‘stable’ as its “borrowing and consequent impact on debt and interest cover ratios is balanced by the organisation’s large size and resilient balance sheet”.
The group reported that 315 new homes were handed over in the year and 1,266 were under construction. Its customer satisfaction was 73%.
Housing association financial statements 2018/19
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