Hampshire County Council

Buildings, Land and Procurement Panel Item 15

Business Services Group - Report and Accounts 2004/05

30 June 2005

Report by the Director of Property, Business and Regulatory Services

How the conclusion in this report fits with the Corporate Strategy

This report will impact on the delivery of the following Corporate Aims:

Aim 3 - achieving economic prosperity - by developing the business units and

responding to market and competitive pressures

Aim 5 - improving services - by continuing to develop and invest in the Business

units and react to customer needs

1.

Introduction

1.1

The main purpose of this report is to provide the Panel with a broad summary of the financial performance of the self-funding business units within the Property, Business and Regulatory Services Department during 2004/05. The businesses are:

· Hampshire County Council Catering Services (HC3S)

· Hampshire Transport Management

· Cleaning Services

· Hampshire Printing Services

· County Supplies

2.

Financial Performance

2.1

The accounts for each business are shown in Appendix One together with a summary for the whole of the Business Services Group. Total income was £31.92 million in 2002/03, £33.34 million in 2003/04 and £34.98 million in 2004/05. On this turnover, the businesses recorded a total trading surplus of £383,000 or just over 1%. This compares very favourably with a planned surplus of £305,000 (December 2004) and an original forecast of £264,000 (December 2003). This represents another successful year for the group as a whole and the financial position of the PBRS business units continues to be very sound.

2.2

All the businesses returned better performance than the forecasts made in the current business plans. The most significant improvement was recorded by County Supplies, but perhaps the most pleasing feature of the results was the return of the Cleaning Services team to a surplus position after the completion of a major re-organisation of this business. The results of the individual businesses are summarised below:

2.3

The impact of these results on the accumulated surpluses of the PBRS businesses is shown below:

Table 2: Accumulated Surpluses (£000's)

Surplus at 31/3/04

1,542

Trading surpluses 2004/05 *1

384

Depreciation & interest

246

Spending from surpluses

Closing balance at 31/3/05

(51)

2,121

*1 includes a surplus of £1,000 for 2004/05 on the residual Hampshire Works account.

2.4

The accumulated surpluses of the businesses provide a strategic reserve that will protect the County Council from financial risk in the event of unforeseen adverse trading conditions and make it possible for the businesses to invest in developing business and service improvement. The current business plans identify the potential for substantial expenditure from surpluses, including the carry forward of several projects from 2004/05. As always these plans will be revisited and revised during the course of the year. Actual commitments will also be heavily influenced by the level of success enjoyed by HC3S when tendering for further secondary school business and by the ability of the businesses to absorb some projects into their trading accounts during the year. The impact of Pay and Benefits on HC3S will be significant.

2.5

The level of expenditure from the accumulated surpluses in 2004/05 was lower than previously forecast - £51,000 against an earlier projection of £351,000. Part of the planned expenditure will be carried forward into 2005/06, but expenditure of around £90,000 was achieved through the trading accounts of the businesses. The combination of this lower spending together with the very positive trading results means that the closing balance on the accumulated surplus is substantially higher than forecast at £2.12 million.

2.6

The current business plans identify investment projects with a total value of £646,000. However, further detailed work on one of these (Radio Data Terminals for County Supplies) suggests that the return on investment is not sufficiently attractive and the project will be reduced in scale. HPS was also able to achieve an early implementation of part of the networked digital printing project. These reductions in the programme are, however, more than offset by the carry forward of the improvements to the Bishops Waltham workshop and the completion of work at Portchester and Cove by HC3S. The package of improvements at Bishops Waltham is expected to have a total cost of around £200,000, but commencement on site has been delayed so that consideration can be given to the replacement of the workshop with a new building (similar in scope to the project completed at Totton about five years ago). A new five year lease on County Supplies' main warehouse building was concluded in 2004 with the intention that options to move out of the leasehold accommodation will be explored over the next two to three years. Any project of this nature would require a substantial contribution from the surpluses of the business units. The existing four-colour press used by HPS is now around 12 years old and features much less automation than modern equipment. A study is underway to establish the costs, benefits and financing options for an investment in a more up-to-date press. Implementation of the new pay framework is expected to increase payroll costs within HC3S. While there is general agreement that this needs to be both fair and affordable, the impact of the new scheme is not yet clear and the possibility remains that some transitional arrangements will need to be funded through the accumulated surpluses of the businesses. In these circumstances, it is considered that the current level of the surplus is not inappropriate.

2.7

The school catering budgets that are managed through Service Level Agreements (SLAs) by HC3S were underspent by £5,100 in 2004/05. This surplus will be carried forward in a separate account for the benefit of the school meals service. The new balance on this account is now some £196,400. In line with the principles set out in the SLAs, HC3S is working on a number of improvement projects and funding will be drawn from this source as appropriate.

2.8

The accumulated surplus shown for the businesses includes the residual account for Hampshire Works.

2.9

The trends in these accounts provide grounds for optimism that a trading surplus of £286,000 will be achieved in 2005/06 and that the group will maintain a substantial aggregate surplus.

3.

Business Performance and Issues

3.1

Business issues and the recent achievements of the businesses were reviewed by the Panel earlier this year when the new Business Plans were considered and only the most significant items are described below.

Catering Services

3.2

Total turnover was in line with the overall target at £15.51 million. Income from secondary schools and `other' contracts grew by around 20%, which was largely based on the increase in site numbers that was achieved during 2004. Income from schools in West Berkshire was £1.24 million (£0.89 m in 2003/04). A revised proposal has been submitted as part of a tender process for the provision of the service beyond September 2005. Turnover in Hampshire primary schools was 1.5% below the forecast made in the current business plan.

3.3

A favourable combination of trading days and pay periods falls in 2005/06 due to the dates of the Easter break and the current projection for the new financial year is a surplus of £123,000. There are two main risks to the achievement of this target; the first is the financial impact and funding of the County Council's review of Pay and Benefits and the second is the dip in meal take-up that has been associated with national publicity about the quality of school meals. HC3S has invested much time and effort in improving the service in primary schools over recent years and has improved its menu by removing heavily processed products and introducing items such as the organic beef burger. This trend is planned to continue and the availability of further funding from September 2005 to support these measures will accelerate these improvements. A separate report on initiatives by HC3S is included elsewhere on the Panel's agenda.

Hampshire Transport Management (HTM)

3.4

2004/5 was an excellent year for HTM with an increase of around 10% in the income received from the hire of vehicles and plant to customers to £3.89 million. The financial position of the courier service was also improved and it is now expected to cover its costs in 2005/6.

3.5

The healthy trading position is currently being translated into a range of infrastructure improvements that are intended to secure the future success of the business. These projects include investment in the physical environments of the workshops, the fuel facilities and the vehicle management records system.

Cleaning Services

3.6

Implementation of the agreed changes in 2003 resulted in a much smaller business, but it is pleasing to report that the service achieved a small surplus of £7,000 in 2004/05. Good progress has been made on achieving a more stable and better rewarded workforce and surveys of customer satisfaction continue to show improved results. However, there are some signs that sickness absence has increased and this may be related to the improvements made to the employment package. The operations team will seek to manage this issue proactively during 2005/6.

Hampshire Printing Services

3.7

Total income rose by around 10% to £2.53 million in 2004/05. This more than reversed the decline that was recorded in 2003/4 (5%) and enabled HPS to post a surplus of £34,000.

3.8

The Internal Print Room was relaunched as Castle Copy Services, digital networked printing equipment was upgraded at a cost of around £32,000 and new electronic facilities were developed for customers to raise work instructions more effectively. A key task for 2005/6 will be to develop plans to modernise the equipment at the main `factory' in order to maintain the competitive position of the business over the next 5-7 years. This work will take place in parallel to the wider project that is expected to develop HPS' role as the corporate manager of print and introduce corporate procurement arrangements for all externally supplied print.

County Supplies and the Corporate Procurement Unit

3.9

Income from retrospective rebates paid to the County Council by suppliers were stronger than anticipated at £1.41 million and this contributed to the higher than forecast trading surplus of £146,000. The value of the contracts managed by County Supplies is now estimated to be around £88 million and the participation of external customers has continued to be strong. Some £350,000 or 25% of the rebate income is generated from the expenditure of these external customers. A breakdown of the contract portfolio is shown in Appendix Two for the information of the Panel.

3.10

County Supplies has continued to be an active member of the Central Buying Consortium and commits some £25 million annually to joint purchasing arrangements with other member authorities. This involvement with CBC is also facilitating the early adoption of new techniques and processes such as reverse electronic auctions and electronic tendering. Staff have also supported the work of the South East's Regional Centre of Excellence during 2004/05, but it is expected to be some time before this investment results in a range of initiatives that will produce practical savings or efficiencies for the County Council.

3.11

The Corporate Procurement role of the unit has continued to develop over the last year and detailed progress reports were made to the Panel in both October 2004 and April 2005. These activities were supported by the trading account of County Supplies in 2004/5, but a corporate mechanism has been established to fund an expansion of work with departments over the next four years.

3.12

Of particular concern in 2004 was the upward pressure on energy prices, particularly for gas. Experience in this market was in marked contrast to that for office and educational supplies where inflationary pressure was again very weak throughout 2004/5. Conditions is this supplies market are illustrated in the table below:

3.13

County Supplies' issue prices for stock are regularly compared with a range

of public and private sector organisations and this information continues to

show that the warehouse activity offers customers good overall value-for-

money. The volume of issues in 2004/5 was static, but there are some early signs that the introduction last year of a second delivery each week for colleges and secondary schools is beginning to attract additional business. Discussions are also in progress with Dorset County Council about the provision of a supplies service to schools.

4

Summary

4.1

The businesses achieved a very positive financial performance during 2004/05 with an overall surplus of £383,000 and have established an accumulated surplus of £2.12 million. This surplus provides an opportunity for the businesses to undertake further investment and protects the County Council from any foreseeable financial risk.

4.2

The businesses made good progress on implementation of their business plans during 2004/05 and there is a substantial body of improvement initiatives that will be carried forward into 2005/06 and beyond.

Recommendation(s)

That the Buildings, Land and Contracts Panel advise the Executive Member for Policy and Resources that:

1

The 2004/05 report and final accounts for the Business Services Group be approved.

PBRS Business Services Group

Final Accounts 2004/05

Plan

Actual

Difference

£'000

£'000

£'000

Income

34,299

34,984

685

Direct Costs

28,976

29,500

524

Contribution

5,323

5,484

161

Overheads

5,018

5,102

84

Surplus/(Deficit)

305

383

77

Hampshire County Council Catering Services (HC3S)

2004/05 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

HCC Primaries

10,212

10,060

-153

HCC Secondaries

2,525

2,502

-23

West Berkshire

1,301

1,240

-62

Other

1,485

1,707

222

Total Income

15,524

15,508

-16

Direct Costs

Staff

8,887

9,011

125

Provisions

4,769

4,845

76

Other

611

667

56

Payback to customers

129

141

12

Total Direct Costs

14,395

14,664

269

Contribution to overheads

1,128

844

-285

Overheads

1,111

824

-287

Surplus/(Deficit)

18

20

2

Hampshire Transport Management (HTM)

2004/05 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Contract Hire

3,470

3,534

64

Spot Hire

312

351

39

Courier Service

355

377

22

Fuel

975

1,083

108

Workshops

1,511

1,563

52

Total Income

6,623

6,908

285

Contract Hire

3,032

3,050

18

Spot Hire

292

336

44

Courier Service

385

390

5

Fuel

942

1,044

102

Workshops

907

896

-11

Total Direct Costs

5,558

5,716

158

Contribution to overheads

1,065

1,192

127

Overheads

906

1,017

111

Surplus/(Deficit)

159

175

16

PBRS Cleaning Services

2004/05 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

All sites

526

531

5

Total Income

526

531

5

Direct Costs

Staff

394

387

-7

Supplies

11

12

1

Total Direct Costs

405

399

-6

Contribution to overheads

121

132

11

Overheads

127

125

-2

Surplus/(Deficit)

-6

7

13

Hampshire Printing Services (HPS)

2004/05 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Main Printworks

1,902

2,108

206

Internal Print Room

320

363

43

Variable Data Printing

50

61

11

Total Income

2,272

2,531

259

Direct Costs

Paper

272

277

5

Outwork

515

664

149

Repro materials

76

65

-11

Photocopiers

182

195

13

Total Direct Costs

1,045

1,201

156

Contribution to overheads

1,227

1,330

103

Overheads

1,210

1,296

86

Surplus/(Deficit)

17

34

17

Hampshire County Supplies

2004/05 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Stores turnover

7,560

7,539

-21

Retrospective rebates

1,307

1,412

105

Other

487

555

68

Total Income

9,354

9,506

151

Direct Costs

Staff

1,344

1,315

-28

Transport

215

185

-30

Supplies and Services

6,015

6,019

5

Total Direct Costs

7,573

7,519

-53

Contribution to overheads

1,782

1,986

205

Overheads

1,664

1,840

176

Surplus/(Deficit)

117

146

29

COUNTY SUPPLIES : APPROXIMATE PURCHASING TURNOVER 2004/05

Commodity Group

STOCK

Supplied from

County Supplies

Warehouse

CALL-OFF

Ordered from suppliers against Purchasing Arrangements made

by County Supplies

1

Stationery Buying Team

(£000)

(£000)

- stationery, paper, art & craft

3,629

763

- maths, science & technology

2

Hardware Buying Team

1,789

1,300

- hardware, electrical, cleaning materials

- laundry & catering equipment

- first aid, paper disposables

- textiles, clothing

3

Furniture Buying Team

46

5,167

- furniture, furnishings

- early years equipment

4

Technology Buying Team

294

19,000

- office equipment, audio visual, music

- computers, telecoms and photographic

- sport

5

Photocopying

5,000

6

Books

1,175

7

Food

7,839

8

Oil Fuels

5,500

9

Gas

5,500

10

Electricity

5,600

11

Maintenance & Repair Contracts, Asbestos

1,300

12

Catering Contracts

5,400

13

Cleaning Contracts

4,700

14

Ground Maintenance Contracts

1,700

15

Recruitment, Public Notice Advertising

2,300

16

Coroners' Disposals, Research, Cash Collection, Waste Collection, Banking, Vehicles, Photography, Sale of Advertising, Physician Srvcs, Pension Fund, Venues etc.

4,200

17

Staff Agency/Temporary Workers

5,500

18

Security

630

TOTALS

5,758

82,574

GRAND TOTAL

88,332