Archived decisions

Decision Maker

Buildings, Land and Procurement Panel

Date of Decision

30 June 2009

Decision Title

Business Services Group - Report and Accounts 2008/09

Decision Reference

685

Report From:

Director of Property, Business and Regulatory Services

Contact name

Neil Jones

Tel

01962 846180

Email

[email protected]

1.1

This report seeks approval to the 2008/09 financial performance and final accounts for the self-funding business units within Property, Business and Regulatory Services, including an overview of accumulated surpluses.

2.1.

This report provides a broad summary of the financial performance of the self-funding business units within Property, Business and Regulatory Services during 2008/09. The businesses are:

· Hampshire County Council Catering Services (HC3S)

· Hampshire Transport Management

· Cleaning Services

· Hampshire Printing Services

· Corporate Procurement and County Supplies

2.2.

The report describes an annual trading surplus for the group as a whole of £655,000 and a further increase in the overall accumulated surpluses retained by the businesses. With the exception of Hampshire Transport Management, all the businesses returned a better financial performance than planned and the report identifies the key factors in these results. Overall 2008/09 has been another successful year with early evidence already pointing to a positive outcome for 2009/10.

3.1.

The accounts for each business are shown in Appendix 1 together with a summary for the whole of the Business Services Group. Total income over the last six years was:

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

£33.34m

£34.98m

£35.39m

£36.81m

£37.81m

£39.08m

On this turnover, the businesses recorded a total trading surplus of £655,000 (1.7%) for 2008/09. This is substantially more than the average surplus reported in revised previous years and compares favourably with the forecast of £578,000 made in December 2008. This represents another good result for the group as a whole and the overall financial position of the business units continues to be sound.

3.2.

As previously reported to the Panel, HC3S (Catering) was expected to return a surplus of £268,000 for 2008/09. This forecast was achieved with a further slight increase to £284,000. Cash paybacks returned to secondary schools and corporate departments (including the Sir Harold Hillier Gardens and Arboretum) under existing trading agreements totalled £127,700 in 2008/09. The remaining business units recorded a combined improvement of £151,000 with County Supplies in particular returning results that were significantly better than forecast. The results of all the individual businesses are summarised in the table overleaf:

Table 1: Summary Financial Performance (£000s)

Business Unit

Surplus/(Deficit)

Actual

2003/4

Actual

2004/5Actual

2005/6Actual

2006/7Actual 2007/8Plan

Catering

134

Transport

145

Cleaning

(37)

7

25

31

22

3

15

Printing

59

34

32

6

61

58

73

Supplies

197

146

116

160

174

159

205

Total

497

383

263

337

438

578

655

3.3

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 31/3/08 3,117

Trading surpluses 2008/09 655

Depreciation, interest and finance 198

Spending from surpluses (125)

Closing balance at 31/3/09 3,845

3.4

The accumulated surpluses of the businesses provide a strategic reserve that will protect the County Council from financial risk in the event of adverse trading conditions and make it possible for the businesses to invest in new activities and improving services. The accumulated surplus may also be called upon in the event that any liabilities arise from claims submitted by employees in connection with the implementation in February 2008 of the corporate Pay and Benefits project.

3.5

Actual spending for 2008/09 from the accumulated surpluses was £125,000. The re-development of the vehicle workshop at Bishops Waltham has not yet been completed, but further preliminary costs have been incurred. Total commitments made from the surpluses to this project now amount to £183,000 but the main works will now take place during 2009/10. As a result, the draw on the surpluses in 2008/09 by Hampshire Transport Management was £125,000. The combined effect of the surpluses achieved, expenditure and funding means that the closing balance on the accumulated surplus was £3.85 million against a previous forecast of £3.89 million.

3.6

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 at the end of the 2008/09 financial year is £211,000.

3.7

As has been reported previously, implementation of the new pay and benefits framework in February 2008 increased payroll costs within HC3S 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 was confirmed as £1.3 million for 2008/09 and the same arrangements will apply in 2009/10. This will help to provide an aggregate surplus of around £0.5 million over the two years that can be taken forward in the financial plans of the business.

3.8

These accounts lend support to the belief that performance in the new financial year will at least be in line with the business plans that were approved at the March 2009 meeting of the Panel (a planned surplus of £422,000). A revised forecast for 2009/10 will be reported to the Panel during the course of the year.

4.1

Detailed Business Plans for 2009/10 were reviewed by the Panel in March and only the most significant items are described below.

Catering Services (HC3S)

4.2

Nearly 6 million meals were served in the County Council's primary schools in 2008/09 and 21% of these were to pupils eligible for free meals. Total income rose to £18.1 million reflecting the combined impact of the 10 pence price increase in April 2008, a modest increase in uptake in primaries, trading days and school closures, grant allocation and income from other contracts and Adult Services in respect of several care homes. The grant allocation to HC3S increased to £1.3 million from £574,000 in 2007/08 (2006/07: £592,000). The increase in income (excluding grant) was lower than projected in the revised forecast, but this was more than offset by lower costs and the final results for HC3S were some £16,000 better at £284,000.

4.3

In terms of meal numbers in primary schools, the overall picture for 2008/09 was positive, although there was a notable fall in February 2009 due to school closures following the heavy snow falls. The average number of meals provided each day remains some 15% below the level achieved between 2002 and early 2005. Careful preparation for the period after March 2011 when the current grant period ends is still very much required and HC3S has commenced implementation of the plans reported to the Panel in March.

4.4

HC3S has worked in conjunction with Children's Services and Property Services during 2008/09 on the conversion of a further eleven servery units to production kitchens and played a central role in the scheme to improve dining facilities at Applemore. Investment totalling £25,000 was made through the trading account in the cashless payment systems at two further secondary schools.

Hampshire Transport Management (HTM)

4.5

Total income for HTM was slightly above target at £7.26 million. This represents a reduction of £257,000 on 2007/8 and reflects both lower charges for the hire of vehicles and plant to internal customers (the 2.5% decrease previously reported) and a sharp reduction in the value of ad-hoc maintenance (some £144,000 lower than in 2007/8).  The latter is associated with the fleet of new vehicles that has been introduced by AMEY on the Council's Highways Term Maintenance Contract and it is anticipated that this workload will gradually increase over time.  Reduced income in this area was offset by a combined reduction of £172,000 in the cost to HTM of parts, consumables and the use of third party maintenance.

4.6

Charges for fuel supplied from the County Council's in-house facilities amounted to £1.67 million and the value of income from short-term hire and the courier service increased by 5% from £0.92 million to £0.97 million.  Lease payments made on the vehicle fleet were higher than forecast, but direct costs and overheads were in total £126,000 below the total reported last year.

4.7

The overall trading surplus achieved by HTM was £78,000, which is just £12,000 below the revised forecast that was reported to the Panel. The good performance of HTM over many years has afforded funds for improvements that are intended to secure the future of the business.  The main focus of the current improvement programme is the re-development of the Bishops Waltham workshop, but the upgrading of systems and facilities has continued  in line with the principles set out in the annual business plans. Tenders have recently been invited to upgrade the fuel facilities at Totton and Hook with modern above-ground storage tanks, improved environmental protection and telecommunication links to allow usage data and stock levels to be monitored centrally.  The total cost for both sites is some £66,899 and it is now proposed that one of these installations should be funded from the accumulated surplus of the Business Services Group.  

Cleaning Services

4.8

The cleaning service returned a larger than forecast surplus of £15,000. The team has continued to work closely with Property Services in support of the refurbishment of Ashburton Court and the formation of the Facilities Management team. Charges for 2009/10 are being set with the objective of achieving a break-even position.

Hampshire Printing Services (HPS)

4.9

Total income rose by nearly 15% to £2.765 million (and by a total of 20% in the two years since the new KOMORI press was commissioned). Over 80% of total income is linked to the main print works, but this includes works bought in from the private sector on behalf of customers by HPS. This "outwork" increased in value by some £246,000 to £798,000 in 2008/09.

4.10

During the course of the year, HPS undertook a range of minor improvement projects at a total cost of some £58,000 to the trading account. These included work in support of HPS Online, upgrades to pre-press software and new folding equipment.

County Supplies and the Corporate Procurement Unit

4.11

Total income was £0.25 million higher than in 2007/08 at £10.39 million and £138,000 higher than the revised forecast. The overall surplus for Supplies was £205,000. Turnover through the warehouse was key to this additional income and total sales increased to some £8.3 million. It cost £75,000 to complete work on the radio data project and these costs were absorbed within the trading account. Total expenditure on the project over two years was £209,000. The value of the contracts undertaken by County Supplies is estimated to be some £120 million annually (including the participation of external customers). Income from retrospective rebates on contracts was £1.4 million with a significant proportion of this total coming from the expenditure of external customers.

4.12

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 joint procurement with other public sector consortia, particularly the Eastern Shires Purchasing Organisation, continues to develop. This collaboration is supported by the Regional Improvement and Efficiency Partnerships, the Centre for Procurement Performance (managed by the Department for Children, Schools and Families) and the Office of Government Commerce (OGC). County Supplies continues to work with the Hampshire and Isle of Wight Procurement Partnership and facilitates access to the consortia contracts by other local authorities.

4.13

Total issues from the warehouse operation to internal customers were nearly £5.75 million and £2.56 million to external customers. Inflationary pressure on purchase costs appeared during 2006/07 for the first time in several years and this has continued. As a result, prices in the new 2009/10 catalogue have increased by around 4% overall. Since 1996, general inflation (RPI-X) has increased prices by around 35% in the economy as a whole, but prices for goods supplied through the warehouse are still on average almost 9% lower than they were at the start of the period. Conditions in this particular market are illustrated in the table and graph 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

2008

87.8

£3,575,191

2009

91.3

£3,717,854

4.14

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 overall price for a `basket' of goods worth £2.3 million or 28% of total sales. Non-contracted suppliers continue to be very active particularly in the schools market and expenditure with sixteen organisations monitored by County Supplies rose by around 2%.

Sickness Absence and Staff Turnover

4.15

Absence levels within the businesses are on average higher than in the department as a whole. Over recent years, the percentage of time lost due to absence is as follows:

2005/06 - 4.6%

2006/07 - 3.7%

2007/08 - 3.9%

2008/09 - 3.9%

4.16

Against an average headcount of 1,650 staff, over 300 "leavers" were recorded in 2008/09. Employee turnover was, as always, highest in HC3S where the figure approached 19%, but turnover was over 10% in each of the businesses.

Customer Feedback

4.17

A short summary of recent feedback obtained from customers is contained in Appendix 2 for the information of the Panel.

5.1

The businesses achieved an overall surplus of £655,000 against a plan of £578,000 and at the end of March 2009, the accumulated surplus was £3.845 million. The results are better than the forecasts reported to the Panel at its meeting in April 2009 and the final position gives confidence that the businesses will be well placed to self-fund further investment and deal with any currently unforeseen trading issues. As has been the case for some time, the principal uncertainties relate to the trading outlook for HC3S over the medium-term and to the scale of any liabilities associated with the implementation of the corporate Pay and Benefits project. The outlook for 2009/10 is positive and the surplus planned for the new financial year (£422,000) appears to be secure.

6.1

That the Panel advises the Executive Member for Policy and Resources that the 2008/09 report and final accounts for the Business Services Group by approved.

Hampshire safer and more secure for all:

No

Corporate Business plan link number (if appropriate):

Maximising well-being:

No

Corporate Business plan link number (if appropriate):

Enhancing our quality of place:

No

Corporate Business plan link number (if appropriate):

OR

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.

Links to previous Member decisions:

Title

Reference

Date

Direct links to specific legislation or Government Directives

Title

Date

Section 100 D - Local Government Act 1972 - background documents

The following documents disclose facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report. (NB: the list excludes published works and any documents which disclose exempt or confidential information as defined in the Act.)

Document

Location

None

PBRS Business Services Group

Final Accounts 2008/09

Target

Actual

Difference

£'000

£'000

£'000

Income

39,115

39,084

-31

Direct Costs

32,413

32,589

176

Contribution to overheads

6,702

6,495

-207

Overheads

6,124

5,840

-284

Surplus/(Deficit)

578

655

77

Hampshire County Council Catering Services (HC3S)

2008/09 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Sale of meals

16,962

16,768

-194

Government grant

1,305

1,305

0

Total Income

18,267

18,073

-194

Direct Costs

16,359

16,228

-131

Contribution to overheads

1,908

1,845

-63

Overheads

1,640

1,561

-79

Surplus/(Deficit)

268

284

16

Hampshire Transport Management (HTM)

2008/09 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Contract Hire

3,739

3,791

52

Other

3,498

3,468

-30

Total Income

7,237

7,259

22

Direct Costs

5,967

6,244

277

Contribution to overheads

1,270

1,015

-255

Overheads

1,180

937

-243

Surplus/(Deficit)

90

78

-12

PBRS Cleaning Services

2008/09 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

All sites

598

598

0

Total Income

598

598

0

Direct Costs

419

400

-19

Contribution to overheads

179

198

19

Overheads

176

183

7

Surplus/(Deficit)

3

15

12

Hampshire Printing Services (HPS)

2008/09 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Main Printworks

2,301

2,295

-6

Other

461

470

9

Total Income

2,762

2,765

3

Direct Costs

1,473

1,507

34

Contribution to overheads

1,289

1,258

-31

Overheads

1,231

1,185

-46

Surplus/(Deficit)

58

73

15

Hampshire County Supplies

2008/09 Final Accounts

Target

Actual

Difference

£'000

£'000

£'000

Income

Stores turnover

8,134

8,306

172

Retrospective rebates

1,438

1,390

-48

Other

679

693

14

Total Income

10,251

10,389

138

Direct Costs

8,195

8,210

15

Contribution to overheads

2,056

2,179

123

Overheads

1,897

1,974

77

Surplus/(Deficit)

159

205

46