Flagship told to improve governance by regulator

Flagship Housing Group has had its governance rating downgraded by the Regulator of Social Housing (RSH).

The group, which owns 32,000 homes and is based in Norfolk, has been told it must make improvements to its governance to ensure it can manage risk “in line with its appetite”.

Flagship was downgraded from the top governance score of ‘G1’ to ‘G2’, which means it still complies with the standard but must improve to ensure it remains so.

In a regulator judgement published today, RSH said: “We have concluded that Flagship needs to improve the effectiveness of its risk management and internal controls assurance framework and aspects of its financial governance arrangements.

“Board oversight of business and financial planning, including stress testing, requires improvement. Flagship needs to ensure clarity and transparency in its reporting to board, particularly in respect of financial performance and funders’ covenants. Flagship’s board needs to strengthen its oversight and assurance to ensure that it can manage risk in line with its risk appetite.”

RSH also said Flagship remains at ‘V2’ for financial viability, meaning it is compliant but needs to improve. RSH said Flagship has an adequately funded business plan, sufficient security and is forecast to continue to meet its financial covenants.

However, it said: “Flagship has material risks and exposures that it needs to manage. It is increasing investment in its existing homes while delivering a significant development and sales programme and is reliant on shared ownership sales surpluses to remain compliant with covenants.

“Delivery of this investment reduces Flagship’s covenant headroom and coupled with economic uncertainty in relation to inflation and interest rates, impacts its capacity to respond to adverse events.”

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The judgement comes as Flagship today publishes a trading update showing it completed 635 affordable homes in 2022/23, up from 564 the previous year. It said its turnover increased by 8.2% to £250.9m, while its operating surplus remains at around £83m.

Flagship has signed a strategic partnership deal with Homes England, under which it secured £92m of grant funding to develop 1,500 homes.

The association said it “will be focussed on returning back to a G1 rating.”

Jonathan McManus, interim chief financial officer at Flagship, said: “The past financial year has seen a number of challenges with high levels of cost inflation and increased expenditure on repairs and maintenance to ensure we maintain compliant high-quality affordable homes. Despite these challenges we have delivered a really strong set of financial results which continues to be underpinned by our healthy liquidity position