Hampshire County Council

Buildings, Land and Procurement Panel Item 14

11 July 2006

Business Services Group - Report and Accounts 2005/06

Report by the Director of Property, Business and Regulatory Services

How the conclusion in this report fits with the Corporate Strategy

This scheme will impact on the delivery of the following Corporate Aims

Aim 3 - achieving economic prosperity - by developing 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 & Regulatory Services Department during 2005/06. The businesses are:

· Hampshire County Council Catering Services (HC3S)

· Hampshire Transport Management

· Cleaning Services

· Hampshire Printing Services

· County Supplies

Another good financial year needs to be balanced by significant future potential business risk that comes from Pay and Benefits issues.

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 £33.34 million in 2003/04, £34.98 million in 2004/05 and £35.39 million in 2005/06. On this turnover, the businesses recorded a total trading surplus of £262,000. This is in line with the average surplus achieved over the previous seven years of £300,000 and compares very favourably with a planned surplus of £171,000 (December 2005). The original forecast for 2005/06 made in December 2004 was £287,000. This represents another successful year for the group as a whole and the financial position of the PBRS business units continues to be sound.

2.2

As previously reported to the Panel, HC3S is currently in the middle of a period of significant change for school meals services and these factors resulted in a deficit of £124,000. This was slightly more (£15,000) than was forecast when the current business plan was prepared. The deficit is equivalent to less than 1% of the income of HC3S. Cash paybacks returned to secondary schools and corporate departments under existing trading agreements also totalled £124,000 in 2005/06. Hampshire Transport Management and County Supplies both returned results that were significantly better than forecast and the Cleaning Services unit continued its improvement with a second year of financial surplus. The results of the individual businesses are summarised in the table below:

Table 1: Summary Financial Performance (£000s)

Business Unit

Actual

2002/03

Actual

2003/4

Actual

2004/5

Plan

2005/6

Actual

2005/6

+/-

Catering

160

134

20

(109)

(124)

(15)

Transport

154

145

176

148

213

65

Cleaning

(69)

(37)

7

10

25

15

Printing

9

59

34

38

32

(6)

Supplies

156

197

146

84

116

32

TOTAL Surplus/(Deficit)

409

497

383

171

262

91

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 31/3/05 2,038

Trading surpluses 2005/06 262

Depreciation 171

Interest (Winnall premises) 61

Spending from surpluses -

Closing balance at 31/3/06 2,532

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 improving services. The report presented to the Panel in January 2006 indicated that expenditure from the surpluses was likely to be some £82,000 in 2005/06 with a further £398,000 in 2006/07. The final total for 2005/06 for spending on improvements was around £70,000, but it was possible to absorb the full amount of this within the trading accounts of the businesses (principally HTM). As a result, no spending from the accumulated surplus was recorded in 2005/06. The combination of a higher trading surplus with low outgoings means that the closing balance on the accumulated surplus was £2,532 million against a previous forecast of £2.444 million. A technical adjustment of £83,000 will be made by the County Treasurer during 2006/07 and this will take the accumulated surplus to £2.615 million.

2.5

HC3S manages delegated catering budgets on behalf of schools through a Service Level Agreement and surpluses on these budgets are re-invested in the form of improvement projects, and new equipment. Projects with a value of around £125,000 were completed by this means in 2005/06. The surplus in hand on these budgets at the end of March 2006 was £71,000.

2.6

The plans for expenditure in 2006/07 include £208,000 for radio data terminals and electronic trading at Supplies, £100,000 for investment in school kitchen and dining area improvements (in support of tender exercises and business development) and £90,000 for system and workshop improvements for HTM. Other potential calls on the surplus have been identified previously and include the development of HTM's workshop facilities at Bishop's Waltham, the implementation of the corporate review of pay and benefits and the relocation of supplies.

2.7

Implementation of the new pay and benefits framework is expected to increase payroll costs within HC3S. 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. This remains the largest single business risk and will require the deployment of our surpluses over several years.

2.8

The trends in these accounts provide grounds for optimism that the trading forecasts contained in the business plans for 2006/07 will be achieved. The overall surplus is expected to be relatively low at £21,000, but the financial pressure on HC3S will be contained by the overall performance of the group.

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

Around 5.7 million meals were served in the County Council's primary schools in 2005/06 and 22% of these were to pupils eligible for free meals. Total sales income was a little over 4% down on 2004/05 at £14.83 million. This reflects both lower levels of take-up and the conclusion in July 2005 of our two-year agreement to provide a service to schools in West Berkshire. However, the reduction in income was partially offset by government grant funding for the school meals improvement programme and total income was just 2% down (£316,000) overall. Income from secondary school contracts and non-education sites continued to grow (up £549,000 or 13%) and reached £4.76 million in 2005/06. Total direct costs were 5% down on the previous financial year.

3.3

After a period in which a range of improvements has been made to the service, further very significant change was introduced in September 2005. The new menus featured less choice and more healthy options and positioned the Council to meet the challenge of the new food based and nutrient standards for school meals. Although these changes have met with widespread approval from schools and health professionals, they have increased costs and have not proved universally popular with pupils. The regulations require further change for primary meals in September 2006 (for example, the regular availability of oily fish and daily availability of bread) and in September 2008 the final, combined food and nutrient standards come into force. HC3S is already well placed to meet these requirements and has already implemented the availability of bread with lunch so that bigger children can `fill up'. From September, children will also be able to choose an extra portion of vegetables or salad and this should help to relieve the concern of some parents that the current standards- driven portion sizes are too small for older children. A pricing strategy has already been agreed with Children's Services to offset the majority of the additional costs associated with the new standards.

3.4

While the business appears to be well placed to return to a trading surplus at the end of this period of turbulence, this is contingent on the level of pupil uptake and our ability to manage the delivery of an enhanced service which fully meets the requirements of the new standards. Current projections make no allowance for the financial impact of the County Council's Pay and Benefits review, but the trading position will be kept under close review during 2006/07 to ensure that overall targets are met and that the future strategy for income, costs and funding is appropriate.

Hampshire Transport Management (HTM)

3.6

2005/06 was another good year for HTM with increases in income in all areas of activity taking the total to £7.59 million. The financial position of the courier service also improved and it recovered its costs in full in 2005/06.

3.7

Positive relationships with key external customers have been maintained and the potential for further such work is being examined. An estimate for a project to redevelop the Bishops Waltham facility to include a new workshop similar to that constructed at Totton has been received. At some £371,000, this is substantially more expensive than the cost of a simple extension but is likely to provide better overall value-for-money. Initial work on the business case is positive and a proposal will be brought forward for consideration by the Panel if further investigation confirms this position.

3.8

The healthy trading position has afforded funds for infrastructure improvements that are intended to secure the future success of the business. The fuel facilities at Micheldever were replaced with new tanks and ancillary equipment and the replacement of the vehicle management records system is in progress. This process will continue in 2006/07.

Hampshire Printing Services

3.9

Total income fell by around £190,000 in 2005/06 as a result of lower volume through the main print works. However, the costs of outwork (sourced from the private sector), paper and equipment were also lower and the businesses returned a surplus of £32,000, which was similar to the previous year

3.10

New manual handling equipment capable of turning stacks of paper on pallets was purchased at a cost of around £15,000 and HPS continues to have an excellent record on Health and Safety issues. HPS also has a better than average performance on attendance with just 2.6% of staff hours lost to sickness (6.3 days per full time employee). Work to replace the existing press with modern printing equipment on an operational lease is in progress. This is expected to be in place by the end of the year.

County Supplies and the Corporate Procurement Unit

3.11

Total income grew by around 2% with most of this coming from growth in the volume of business handled through the warehouse. The overall surplus for Supplies was somewhat higher than anticipated at £116,000 and low catalogue production costs played a key role in this (£20,000 down on costs in 2004/05). The value of the contracts managed by County Supplies is now estimated to be around £92 million and the participation of external customers continues to be strong. Income from retrospective rebates is claimed on contracts with a total value of around £74 million at an average fee of 1.9%. Some £350,000 (25%) of the rebate income is generated from the expenditure of the external customers. A breakdown of the contract portfolio is shown in Appendix Two.

3.12

County Supplies has continued to be an active member of the Central Buying Consortium (CBC) and commits over £25 million annually to joint purchasing arrangements with other member authorities. This involvement with CBC continues to deliver real value to the County Council. The work of the South East's Regional Centre of Excellence and the Centre for Procurement Performance (managed by the Department for Education and Skills) has also been fully supported during 2005/06 and this will continue in 2006/07.

3.13

The Corporate Procurement role has continued to develop over the last year and regular progress reports have been made to the Panel. A corporate mechanism has been established to fund an expansion of work with departments and two new contract managers were appointed in December 2005. In the light of the favourable financial performance of County Supplies the costs of the new employees were funded from the trading account in 2005/06 and were not recovered from departments.

3.14

The previous annual report commented on a mixed experience of inflationary pressure during 2004 and this continued in 2005/06. Very substantial price rises have been necessary for electricity and oil, but for office and educational supplies, inflationary pressure was again very weak. Conditions in this market are illustrated below:

Table 3: Inflation Index

Based on the catalogue prices of 317 stock lines multiplied by the volume of issues made in 2002/03

Date Index Value

1996

100.0

£4,432,983

1998

85.9

£3,809,100

2000

79.4

£3,517,400

2002

83.0

£3,677,700

2004

81.2

£3,598,700

2005

80.6

£3,573,900

2006

79.9

£3,543,800

3.15

Total issues from the warehouse operation to internal customers are approaching £5 million each year and, once again, the overall level of prices in the new 2006/07 catalogue have been held at the previous level. Over the last ten years, general inflation (RPI-X) has increased prices by 22.4% in the economy as a whole, but warehouse prices are on average 20% lower than they were in 1996.

3.16

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 offers customers good overall value-for-money.

4

Summary

4.1

In overall terms, the businesses achieved a very positive financial performance in 2005/6 with a total surplus of £262,000. At the end of March 2006, the accumulated surplus was £2.53 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

Members may wish to make more public the significant efficiency gains achieved by the corporate procurement programme.

Recommendation

That the Buildings, Land and Procurement Panel advises the Executive Member for Policy and Resources that the 2005/06 report and final accounts for the Business Services Group be approved and that consideration be given to more appropriate media coverage to the business efficiencies gained through corporate procurement.

£'000s

Plan

Actual

Change on plan

Income

36,097

35,390

-706

Direct Costs

29,889

29,296

-593

Contribution

6,208

6,094

-114

Overheads

6,038

5,832

-205

Surplus/(Deficit)

170

262

91

Hampshire County Council Catering Services (HC3S)

2005/06 Final Accounts

Income

HCC Primaries

HCC Secondaries

West Berkshire

Other

Government Grant

Target

£'000

10,220

2,986

433

2,163

367

Actual

£'000

9,635

2,853

433

1,905

366

Difference

£'000

-585

-133

0

-258

-1

Total Income

16,169

15,192

-977

Direct Costs

Staff

Provisions

Other

Directly attributable overheads

Payback to customers

7,933

5,030

564

876

170

7,745

4,711

480

831

124

-188

-319

-84

-45

-46

Total Direct Costs

14,573

13,891

-682

Contribution to overheads

Overheads

1,596

1,705

1,301

1,425

-295

-280

Surplus/(Deficit)

-109

-124

-15

Hampshire Transport Management (HTM)

2005/06 Final Accounts

Income

Contract Hire

Spot Hire

Courier Service

Fuel

Workshops

Target

£'000

3,701

300

385

1,097

1,593

Actual

£'000

3,884

353

406

1,241

1,710

Difference

£'000

183

53

21

144

117

Total Income

7,076

7,594

518

Direct Costs

Contract Hire

Spot Hire

Courier Service

Fuel

Workshops

3,267

273

399

1,064

931

3,264

316

398

1,257

1,052

-3

43

-1

193

121

Total Direct Costs

5,934

6,287

353

Contribution to overheads

Overheads

1,142

994

1,307

1,094

165

100

Surplus/(Deficit)

148

213

65

PBRS Cleaning Services

2005/06 Final Accounts

Income

All Sites

Target

£'000

557

Actual

£'000

559

Difference

£'000

2

Total Income

557

559

2

Direct Costs

Staff

Supplies

383

10

374

5

-9

05

Total Direct Costs

393

379

-14

Contribution to overheads

Overheads

164

154

180

155

16

1

Surplus/(Deficit)

10

25

15

Hampshire Printing Services (HPS)

2005/06 Final Accounts

Income

Main Printworks

Internal Print Room

Variable Data Printing

Target

£'000

2,031

360

113

Actual

£'000

1,871

371

103

Difference

£'000

-160

11

-9

Total Income

2,504

2,345

-158

Direct Costs

Paper

Outwork

Repro materials

Photocopiers

288

600

78

231

259

508

57

238

-29

-92

-21

7

Total Direct Costs

1,197

1,062

-135

Contribution to overheads

Overheads

1,306

1,269

1,283

1,251

-23

-17

Surplus/(Deficit)

38

32

-6

Hampshire County Supplies

2005/06 Final Accounts

Income

Stores turnover

Retrospective rebates

Other

Target

£'000

7,857

1,363

571

Actual

£'000

7,730

1,388

582

Difference

£'000

-127

25

11

Total Income

9,791

9,700

-91

Direct Costs

Staff

Transport

Supplies and services

1,408

224

6,160

1,398

236

6,043

-10

12

-117

Total Direct Costs

7,792

7,677

-115

Contribution to overheads

Overheads

1,999

1,916

2,023

1,907

24

-9

Surplus/(Deficit)

84

116

32

Commodity Group

STOCK

Supplied from

County Supplies

Warehouse

CALL-OFF

Ordered from suppliers against

Purchasing Arrangements made by

County Supplies

(£'000)

(£'000)

1

Stationery Buying Team

- stationery, paper, art & craft

- maths, science & technology

3,576

825

2

Hardware Buying Team

- hardware, electrical, cleaning materials

- laundry & catering equipment
- first aid, paper disposables

,916

2,014

3

Furniture Buying Team

- furniture, furnishings

- early years equipment

50

5,636

4

Technology Buying Team

- office equipment, audio visual, music

- computers, telecoms and photographic

- sport

275

16,861

5

6

7

8

9

10

10a

11

12

13

14

15

16

17

18

Photocopying

Books

Food

Oil Fuels

Gas

Electricity

Street Lighting

Maintenance & Repair Contracts, Asbestos

Catering Contracts

Cleaning Contracts

Grounds Maintenance Contracts

Recruitment, Public Notice Advertising

Coroners' Disposals, Research, Cash Collection, Transport, Waste Collection, Banking, Vehicle Purchases, Photography, Sale of Advert. Space, Physician, Pension Fund, Venues, etc.

Staff Agency/Temporary Workers

Security

TOTALS

GRAND TOTAL

5,818

4,700

1,255

7,764

5,900

6,200

6,800

3,000

1,300

5,700

4,700

1,800

1,700

4,360

5,500

345

86,360

92,178