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1 |
Introduction |
1.1 |
Papers submitted to the Policy and Resources Select Committee (PRSC) on 1st February 2007 included a revised trading forecast for 2006/07 for the County Council's in-house catering unit, HC3S, and a forecast for 2007/08 that was taken from the current business plan. The chairman of the PRSC has recently requested a short briefing paper on the trading position described in those forecasts. |
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1.2 |
The annual report and accounts for the business units within the Property, Business and Regulatory Services (PBRS) department are reported to the Buildings, Land and Procurement Panel (BLPP) in June or July each year. Business plans for these units are reviewed by BLPP in January each year. The key trading issues for HC3S are set out in those documents and only a brief overview of the issues is attempted in this report. |
2 |
Trading Position |
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2.1 |
The PBRS Business Services Group as a whole returned a trading surplus of £337,000 in 2006/07. This figure is in line with the average surplus that has been achieved over previous years and, after a transfer of £511,000 to corporate reserves, the accumulated surpluses of the businesses were £2.64 million at the end of March 2007. |
2.2 |
HC3S has a good record of making trading surpluses and has made a strong contribution to the overall position of the group. However, since the beginning of 2005, the financial performance of HC3S has come under pressure. Results for the last five years and further detail for 2006/07 are set out in the tables below: Table 1: Financial Performance from April 2002 (£000s): |
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2002/03 2003/04 2004/05 2005/06 2006/07 160 134 20 (123) (149) |
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Table 2: Financial Outcome 2006/07 (£s): Income Grant Expenditure Outcome Revised F'cast 15,486,405 511,000 16,239,415 (242,010) Actual 15,425,750 591,957 16,166,976 (149,271) |
2.3 |
In addition to the delivery of school meals, HC3S has service level agreements (SLAs) with around 98% of schools at primary level to manage delegated budgets with a value of around £4 million. These SLAs are managed by the Catering Support Team and enable schools to pool their budgets for free school meals and facilities (e.g. the maintenance of kitchen equipment). Any surplus on these funds is rolled forward for the benefit of the provision of school meals. The current surplus carried forward into 2007/08 stands at £260,000. A list of schools at which kitchen improvements have recently been funded from this source is included in the appendices for information. |
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2.4 |
The principal factors behind the current trading position are issues that have had an impact on school meals at a national level: · A sharp decline in the number of meals served (after January 2005) · The financial impact of a move towards healthier meals (higher costs driven by more demanding standards) · The availability of specific grant funding from government over the period from 2005/06 to 2007/08.
These issues are explored in more detail in the section below. |
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3 |
Business Environment |
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3.1 |
School meals have been the subject of renewed interest from central government over recent years, particularly following the showing of Jamie Oliver's programme on school meals early in 2005. The then Department for Education and Skills (DfES) announced that £220million would be made available to help "transform school meals" and that new legislation would bring about changes to both the food offered and the nutritional content of school meals. The timetable for the changes was: |
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· Interim food-based standards to be introduced in all schools by September 2006 · Food-based standards for school food other than lunch to be introduced in all schools by September 2007 (schools were recommended to adopt these from September 2006) · Nutrient-based standards and new food-based standards for school lunches to be primary schools by September 2008 at the latest and secondary schools by September 2009
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with the Education (Nutritional Standards and Requirements for School Food) (England) Regulations 2007, becoming law from 10 September 2007. |
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3.2 |
In Hampshire, HC3S has always paid close attention to the nutritional content of the school meal and has worked on this with a nutritionist at the Royal Hampshire County Hospital. HC3S started other improvements in 2003 such as the removal of certain foods from lunch menus in both primary and secondary schools and further action was taken as a result of growing concerns that certain additives caused some children behavioural difficulties or even health problems. HC3S ensures that over 70 additives are not included in any school food and in August 2005 achieved the Highest Award For Excellence from the Hyperactive Children's Support Group - the only school meals organisation in the country to hold this award. |
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3.3 |
In anticipation of the new food standards, HC3S launched new healthier menus in September 2005, some 12 months earlier than required by government. The changes made at this point included a shift to a simplified service that offered children a choice between meat and vegetarian meal options with portions of vegetables being automatically served on the plate. These changes received widespread praise from head teachers, concerned parents and colleagues working on the `Healthy Schools' agenda, but did not prove popular with pupils. As a result, the number of meals served continued to drop in comparison with previous years. |
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3.4 |
In January 2006, the menus were adjusted to be more child `friendly' and in October that year meal numbers began a slow recovery. For the last 10 months, average daily sales have shown an increase on the level of take-up recorded in the same month between October 2005 and July 2006. Between April and July 2007, the average increase was around 5%. However, the level of uptake remains close to 31% of primary pupils against previous figures of around 35% and at the present time daily meal numbers are still considerably below the volume achieved in previous years. |
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3.5 |
During this same period of lower up-take, the average cost of the ingredients in each meal (the food-on-the-plate) has been increased by more than 25%. |
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3.6 |
Staff and management costs have been reviewed in response to the current level of activity, but the net effect of lower demand and higher costs has been to tighten the financial position. Two practical solutions for HC3S are to work on restoring meal numbers to their previous level and to set the meal price at an `economic' level. The need to increase the selling price is reduced over the short to medium term by the availability of financial support from the surpluses previously earned by the business and from the school meals grant. |
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School Meals Grant |
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3.7 |
This grant was announced by the DfES in August 2005 and is in two parts: |
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· Grant 5B allocated by formula to schools with the intention of assisting schools in transforming school meals, but not ring-fenced.· Part 5A initially allocated to local authorities and ring-fenced to the requirement to secure the delivery and improvement of the service.
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3.8 |
One of the government's key aims for the grant was to ensure the provision of a universal hot meal service at lunchtimes (and the reintroduction of such a service by September 2008 in areas where it had been phased out). Already starting from a strong position, the County Council developed a three-year strategy to make use of the grant funding and this was endorsed by the Schools' Forum at a meeting on 23 November 2005. A breakdown of the grant over three years is included in Appendix One. This shows a total allocation of nearly £5million over the three year period with over £2million of this going straight to schools. The `direct' allocation to HC3S of around £1.4million over three years has provided support for additional food costs and for other elements of the agreed strategy. A list of the kitchen improvements funded by Children's Services using the grant is included in Appendix Two for information. |
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3.9 |
The availability of the grant has also enabled improvements to be made that go beyond simply meeting the food and nutrient requirements of the new standards. This includes putting local organic beef and pork and locally sourced fruit and vegetables onto the menu. HC3S has an effective relationship with the Economic Development Office and Hampshire Fare and has made great progress on this agenda. The grant has also been an enabler for additional training with over 1,200 catering assistants currently in a programme to achieve vocational qualifications. |
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3.10 |
Key features of the current trading environment for HC3S are, therefore, reduced uptake and increased food costs alongside an improved and `healthier' product. This has created upward pressure on the price of school meals (currently £1.80), but this is itself somewhat in conflict with the desire to foster growth in meal numbers. With this in mind and in view of the surpluses previously achieved by HC3S, it was felt that the meal price should be held down as far as is practically possible and Members have approved plans for the business that include running a temporary trading deficit. |
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3.11 |
Initial discussions with representative head teachers and Children's Services about the options to return the business to a surplus position have been started, but the scale of the task and the options that need to be pursued are significantly affected by the implementation of the Council's Pay and Benefits project and the ongoing availability of the `school meals' grant. |
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3.12 |
In simple terms, a delay of 12 months in the implementation of Pay and Benefits would mean that HC3S could be expected to break-even in 2007/08 instead of returning the planned-for deficit of £341,000. The costs to HC3S of the Pay and Benefits project are made up of the direct increase in salary payments to staff and the loss of contribution that will result if the lunchtime supervisory assistants employed by schools lose their entitlement to a paid-for (free) meal. |
3.13 |
On the subject of the grant monies, it is now understood that the government is likely to announce a commitment to funding for a further three years. The detail of the new arrangements is still unknown, but the Government has recognized the adverse pupil reaction to the introduction of healthier school meals and is committed to provide further support from 2008 to 2011 for the direct costs of the school meals service, i.e. food and service costs (not capital improvements). Due to national concerns relating to the use made of the grant money that was channeled direct to schools, it seems likely that the new grant will come entirely to Children's Services departments. |
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3.14 |
As the economic environment surrounding the school meals service develops further, attention will need to be given to the overall service package in order to ensure that all costs and cost-recovery mechanisms are appropriate. However, the best guarantee of a stable future for the business is for there to be an increase in the level of pupil uptake and this remains the primary focus of the team's efforts. |
4. |
Summary |
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4.1 |
HC3S has a strong record as a successful provider of school meals and over many years has made a significant contribution to the accumulated surplus of the PBRS business units (some £2.64 million at the end of 2006/07). |
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4.2 |
The operating environment of HC3S has changed considerably since the beginning of 2005. This has been associated with the introduction of new national food and nutritional standards and the adoption of healthier menus. Across the country, these changes have generally resulted in lower levels of uptake and higher food costs. This in turn has created financial pressures within school meals services, which have been mitigated in part by grant funding made available to support the "transformation" of school meals. |
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4.3 |
Further grant funding is likely to be available beyond 2007/08 and the business plans of HC3S are being developed to take account of these issues and the implications of the Council's Pay and Benefits Strategy. Reports on the financial performance and business strategy of HC3S are typically made twice a year to the Buildings, Land and Procurement Panel with the next business plan due to be submitted in January 2008. |
The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.
2 Documents which disclose exempt or confidential information as defined in the Act
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