Hampshire County Council

Buildings, Land and Procurement Panel

14 July 2008

Business Services Group - Report and Accounts 2007/08

Report by the Acting Director of Property, Business and Regulatory

Services

1

Introductory Summary

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 2007/08. The businesses are:

· Hampshire County Council Catering Services (HC3S)

· Hampshire Transport Management

· Cleaning Services

· Hampshire Printing Services

· Corporate Procurement and County Supplies

1.2

The report describes an annual trading surplus for the group as a whole of £438,000 and a further increase in the overall accumulated surpluses retained by the businesses. It is pleasing to be able to report that all the businesses returned a better financial performance than planned and the report identifies the key factors in these results. 2007/08 has been another successful year with evidence pointing already to a positive outcome for 2008/09.

1.3

This report does not make any direct link to the Corporate Strategy, but a formal decision on the recommendation is an important element in the governance arrangements for the businesses and supports their operation within the County Council's financial regulations as self funding business units.

Recommendation

That the Buildings, Land and Procurement Panel advises the Executive Member for Policy and Resources that the 2007/08 report and final accounts for the Business Services Group be approved.

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 over the last five years was:

2003/04

2004/05

2005/06

2006/07

2007/08

£33.34m

£34.98m

£35.39m

£36.81m

£37.81m

On this turnover, the businesses recorded a total trading surplus of £438,000 (1.2%) for 2007/08. This is around £100,000 greater than the average surplus achieved over previous years and compares very favourably with the planned surplus of £85,000 (December 2007). This represents another very good result for the group as a whole and the overall financial position of the PBRS business units continues to be sound.

2.2

As reported to the Panel in January 2008, HC3S was expected to return a deficit of £193,000, but this was reduced to £28,000 at the end of the financial year. Cash paybacks returned to secondary schools and corporate departments (including the Sir Harold Hillier Gardens and Arboretum) under existing trading agreements totalled £145,000 in 2007/08 with further commitments through the trading account to three secondary schools amounting to £89,000. The remaining business units recorded a combined improvement of £188,000 against the forecast (around 0.91% on income of £20.7 million). Hampshire Transport Management and County Supplies both returned results that were significantly better than forecast and the results of all the individual businesses are summarised in the table below:

Table 1: Summary Financial Performance (£000s)

Business Unit

Surplus/(Deficit)

Actual

2003/4

Actual

2004/5

Actual

2005/6

Actual

2006/7

Plan

2007/8

Actual 2007/8

Catering

134

20

(123)

(149)

(193)

(28)

Transport

145

176

213

289

146

209

Cleaning

(37)

7

25

31

6

22

Printing

59

34

32

6

46

61

Supplies

197

146

116

160

80

174

TOTAL

497

383

263

337

85

438

2.3

The impact of these results on the accumulated surpluses of the PBRS businesses is shown in Table 2 below:

Table 2: Accumulated Surpluses (£000's)

Surplus at 31/3/07 2,637

Trading surpluses 2007/08 438

Depreciation, interest and finance 162

Spending from surpluses (97)

Closing balance at 31/3/08 3,140

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 new activities and improving services. The accumulated surplus is also likely to be called upon in the event that any liabilities arise from claims submitted by employees in connection with the implementation of the corporate Pay and Benefits project.

2.5

The report presented to the Panel in January 2008 indicated that re-investment from the surpluses was likely to be £807,000 in 2007/08, and only £50,000 in 2008/09. Actual spending for 2007/08 from the accumulated surpluses was just £97,000. The re-development of the vehicle workshop at Bishops Waltham was expected to account for £607,000 of the expenditure planned in 2007/08. Although some preliminary costs have been incurred, the main works and, therefore, the expenditure will now take place during 2008/09. As a result, the draw on the surpluses in 2007/08 by Hampshire Transport Management was just £58,000. The project to equip staff in the County Supplies warehouse with hand-held radio-data terminals is substantially complete. Total costs are in line with the £200,000 that was earmarked for this project, but only £39,000 (relating to the equipment) has been charged to the accumulated surplus while £138,000 for implementation services has been met through the trading account. The combined effect of these changes means that the closing balance on the accumulated surplus was £3.14 million against a previous forecast of £2.14 million.

2.6

HC3S manages delegated catering budgets on behalf of schools through a Service Level Agreement (SLA). The SLA provides a commitment that any surpluses on these budgets will be used for the benefit of the service in the form of improvement projects, and new equipment. The surplus in hand on these budgets increased from £270,000 to £452,000.

2.7

As has previously been reported, implementation of the new pay and benefits framework in February 2008 has increased payroll costs within HC3S with further costs expected in 2008/09 and 2009/10 and had an impact on income through the withdrawal of paid meals for lunchtime supervisory assistants (employed and paid by schools). However, HC3S' share of the Government's School Meal Grant has now been confirmed as £1.3 million for 2008/09. This is well ahead of the assumption made in the preparation of the current business plan and will provide a surplus from 2008/09 that can be taken into account in the forward financial plans of the business.

2.8

These accounts provide further grounds for optimism that performance in the new financial year will exceed the business plan target that was approved at the January 2008 meeting of the Panel. The scale of the improvement against the planned surplus of £198,000 will depend on a number of factors that will be monitored throughout the year, but will be reflected in the revised forecast.

3

Business Performance and Issues

3.1

Detailed Business Plans for 2008/09 were reviewed by the Panel in January and only the most significant items are described below.

Catering Services

3.2

Around 5.8 million meals were served in the County Council's primary schools in 2007/08 and 21% of these were to pupils eligible for free meals. Total income rose to £17.1 million from £16.1 million. This reflects the combined impact of the 10 pence price increase in April 2007, an increase in uptake in primaries, the number of trading days, grant allocation and income of £2.4 million from other contracts and Adult Services in respect of several care homes. Towards the end of the year, it became possible for Children's Services to increase the grant allocation to HC3S by some £65,000 to £574,000 (2006/07 total: £592,000). Core income in schools was some £373,000 above forecast and a further £91,000 in non-schools contracts. This increase was partly driven by additional sites not included in the original forecast (Winchester Discovery Centre, four Hampshire secondary schools and several schools in Wiltshire).

3.3

In terms of meal numbers in primary schools, the overall picture for 2007/08 was positive. The increase in numbers that began in October 2006 continued through most of the year and resulted in an increase in the average number of meals supplied per day of 3.1% on the previous year. A downturn was recorded in March 2008, but early results for the new financial year (April and May) show an encouraging return to growth. However, it must be remembered that meal numbers are still around 15% below the level achieved between 2002 and early 2005 and that careful preparation for the period after March 2011 when the grant period ends is still very much required.

3.4

In support of the `Hampshire Year of Food and Farming', and as part of its business development activities, HC3S produced 92,000 DVDs showing the food trail from farm to fork as it relates to school meals in Hampshire. The DVD, introduced by Chris Packham, a Hampshire TV celebrity, shows the benefits of having a school meal and the links with the local farming community. The costs of producing the DVD were met by the South East England Development Agency and from the School Meal Grant with support from Hampshire Fare, the South East Food Group and Lyburn Cheesemakers. The DVD was distributed to every child in a Hampshire primary school with an opportunity for parents to answer a questionnaire to help shape school meals in the future. Some 400 replies were received.

Hampshire Transport Management (HTM)

3.5

2007/08 was another very good year for HTM. Total income was slightly below target at £7.5 million and hire income from vehicle and plant rentals was £167,000 lower than in 2006/07. This was due in large measure to the nett price reduction of around 2.5% that was implemented for vehicles supplied to departments of the County Council and schools last year. The reduction in this area was offset by the fact that the value of fuel issued to customers was sharply higher at £1.7 million while short-term hire and the courier service advanced 10% to £0.9 million. As a result, total income on a like-for-like basis was up around 4%. The surplus of £209,000 is some £63,000 better than planned. Lease payments on the vehicle fleet were again lower than forecast while spending on parts, central staffing and insurance was lower by £101,000 than in the previous year. Work is currently being undertaken to establish whether there is an opportunity to reduce the contract hire rates again in 2008/09.

3.6

HTM is currently working with Children's Services and the Environment department to improve the quality and accessibility of information relating to vehicles for schools. This should have the benefit of increasing business with this sector - HTM currently supplies 84 vehicles to school and provides servicing and repair for a further 25 schools.

3.7

As previously reported, the healthy trading position of HTM has afforded funds for infrastructure improvements that are intended to secure the future success of the business. The main focus of the current improvement programme is at Bishops Waltham but the programme of upgrading facilities has continued and the fuel facilities at Petersfield have been replaced with a modern above-ground storage tank, new pumps and improved environmental protection.

Cleaning Services

3.8

The cleaning service returned a larger than forecast surplus of £22,000. The team has continued to work closely with Property Services in support of the refurbishment of Ashburton Court and the opening of the Winchester Discovery Centre. Charges for 2008/09 are being set with the objective of achieving a near break-even position.

Hampshire Printing Services (HPS)

3.9

Total income rose by some 4% to £2.4 million with over 80% of this being linked to the main print works. Total costs were £62,000 higher at £2.35 million and HPS returned a trading surplus of £61,000 for the year. The new KOMORI printing press has now been in operation for a full 12 months and has proved to be highly successful as expected.

3.10

However, the value of work sub-contracted to the private sector was higher than anticipated at £550,000 and the requirement for this support remains under review. HPS has been involved in further significant change during 2007/08, such as the switch of payslip production to black-printed, pressure seal stationery, the re-alignment of graphic design services and the promotion of the new HPS Online service.

County Supplies and the Corporate Procurement Unit

3.11

Total income rose by a little over £430,000 to £10.1 million, which was £200,000 higher than the revised forecast. The overall surplus for Supplies was £94,000 higher than anticipated at £174,000 driven by the extra income. Additional costs of £134,000 associated with the radio-data project were absorbed within the trading account. The value of the contracts undertaken by County Supplies is now estimated to be more than £120 million (including the participation of external customers). Income from retrospective rebates of £1.44 million was received on contracts with a significant proportion of this total coming from the expenditure of external customers. A breakdown of the contract portfolio is shown in Appendix Two.

3.12

County Supplies is 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 the CBC continues to deliver value for the County Council and there has been an increasing trend towards joint procurement with the other public sector consortia, particularly the Eastern Shires Purchasing Organisation. This collaboration is supported by the Regional Improvement and Efficiency Partnerships and the Centre for Procurement Performance (managed by the Department for Children, Schools and Families). Examples of successful collaboration during 2007/08 include contracts for library books, photocopying and IT equipment and agency staff. Further information on these is included in the report on `Corporate Procurement' that appears elsewhere on the Panel's agenda.

3.13

Total issues from the warehouse operation to internal customers were nearly £5.5 million and over £2.4 million to external customers. Inflationary pressure on purchase costs began to appear during 2006/07 for the first time in several years and this continued in 2007/08. As a result prices in the new 2008/09 catalogue have increased by around 6% overall. Over the last 12 years, general inflation (RPI-X) has increased prices by around 33% in the economy as a whole, but prices for goods supplied through the warehouse are still on average 12% lower than they were in 1996. Conditions in this particular market are illustrated in the table below:

Table 3: Inflation Index (for Educational Supplies) (Based on the catalogue prices of 280 stock lines multiplied by the volume of issues made in 2002/03)

Date Index Sales value

1996

100.0

£4,077,139

1998

85.3

£3,475,845

2000

78.6

£3,202,418

2002

82.5

£3,363,876

2004

80.4

£3,277,743

2006

78.9

£3,218,462

2007

82.8

£3,375,155

2008

87.8

£3,578,413

3.14

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. Comparisons based on the new catalogue and five similar organisations (three public, two private) indicate that County Supplies continues to offer the lowest prices for a sample `basket' of goods worth £2.1 million or 27% of total sales. Competitor activity continues to be strong and expenditure with sixteen organisations monitored by County Supplies rose by 8.7% in 2007/08, compared with 2006/07, but the total (£1.5 million) is 2.2% lower than the figure five years ago in 2002/03.

Sickness Absence

3.15

Absence levels within the businesses are on average higher than across the department as a whole. However, the improvement reported last year when the percentage of hours lost fell from 4.6% in 2005/06 to 3.7% in 2006/07 has been maintained with 3.6% of hours lost in 2007/08.

4

Conclusion

4.1

The businesses achieved an overall surplus of £438,000 against a plan of £85,000 and at the end of March 2008, the accumulated surplus was £3.185 million. The results are better than the forecasts reported to the Panel in January 2008 and the resulting position gives confidence that the businesses will be well placed to self-fund further investment and deal with any currently unforeseeable trading issues. The principal uncertainties relate to the trading outlook for HC3S in the medium-term and to the scale of any liabilities associated with the implementation of the corporate Pay and Benefits project. The outlook for 2008/09 is very positive and the revised forecast that will be prepared later this year is likely to indicate a higher surplus than the £198,000 currently anticipated.

LINK(S) TO CORPORATE STRATEGY

Yes

No

Hampshire safer and more secure for all

X

Maximising well-being

X

Enhancing our quality of place

X

This proposal does not link to the Corporate Strategy but, nevertheless, requires a decision to enable the business units to demonstrate appropriate reporting mechanisms and operate on a self-funding basis within the County Council's financial regulations.

PBRS Business Services Group

Final Accounts 2007/08

Target

Actual

Difference

£'000

£'000

£'000

Income

37,123

37,808

684

Direct Costs

30,770

31,310

540

Contribution to overheads

6,353

6,498

145

Overheads

6,268

6,060

(208)

Surplus/(Deficit)

85

438

353

Hampshire County Council Catering Services (HC3S)

2007/08 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Sale of meals

16,153

16,575

421

Government grant

509

574

65

Total Income

16,662

17,149

486

Direct Costs

15,053

15,556

503

Contribution to overheads

1,609

1,593

(17)

Overheads

1,802

1,620

(182)

Surplus/(Deficit)

(193)

(28)

165

Hampshire Transport Management (HTM)

2007/08 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Contract Hire

3,925

3,889

(36)

Other

3,652

3,627

(25)

Total Income

7,577

7,516

(61)

Direct Costs

6,168

6,080

(88)

Contribution to overheads

1,409

1,436

27

Overheads

1,263

1,227

(36)

Surplus/(Deficit)

146

209

63

PBRS Cleaning Services

2007/08 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

All sites

580

599

19

Total Income

580

599

19

Direct Costs

407

407

0

Contribution to overheads

173

192

19

Overheads

167

170

3

Surplus/(Deficit)

6

22

22

Hampshire Printing Services (HPS)

2007/08 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Main Printworks

1,942

1,995

53

Other

430

415

(15)

Total Income

2,372

2,410

38

Direct Costs

1,096

1,249

153

Contribution to overheads

1,276

1,161

(115)

Overheads

1,230

1,101

(129)

Surplus/(Deficit)

46

61

15

Hampshire County Supplies

2007/08 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Stores turnover

7,774

7,926

152

Retrospective rebates

1,482

1,444

(38)

Other

676

764

88

Total Income

9,932

10,134

202

Direct Costs

8,047

8,019

(28)

Contribution to overheads

1,886

2,116

230

Overheads

1,806

1,941

136

Surplus/(Deficit)

80

174

94

COUNTY SUPPLIES : APPROX. PURCHASING TURNOVER 2007/2008

incl. external customers

Commodity Group

STOCK

CALL-OFF

Supplied from

County Supplies Warehouse

Ordered from suppliers against Purchasing Arrangements made by County Supplies

(£000)

(£000)

1

Stationery

3,545

1,438

- stationery, paper, art & craft

- maths, science & technology

2

Hardware

2,078

3,078

- hardware, electrical, cleaning materials

- laundry & catering equipment

- first aid, paper disposables

3

Furniture

55

5,438

- furniture, furnishings

- early years equipment

4

Technology

213

16,541

- general office equipment, audio visual, music

- computers, telecoms and photographic

- sports goods

5

Photocopying & printing

5,026

6

Books

1,623

7

Food

9,479

8

Oil Fuels

8,800

9

Gas

6,300

10i

Electricity (buildings)

9,000

10ii

Street Lighting (Environment Department)

3,000

11

Maintenance & Repair Contracts etc

1,500

12

Catering Contracts

5,568

13

Cleaning Contracts

5,190

14

Grounds Maintenance Contracts

1,837

15

Recruitment, Public Notice Advertising

1,500

16

Coroners' Disposals, Research, Cash Collection, Transport, Waste Collection, Banking, Vehicles, Photography, Physician Services, Pension Fund Management, Venues.

12,541

17

Staff Agency/Temporary Workers

16,700

18

Security

345

TOTALS

5,891

114,904

GRAND TOTAL

120,795