North Yorkshire Council
Shareholder Committee
16th July 2024
Brierley Group 2023/24 Outturn
Financial Performance report.
Report of the Assistant Director
– Commercial, Property and Procurement
1.0
Purpose of the
Report
1.1 To
provide Shareholder Committee with:
·
an update on the Brierley
Group’s Outturn (Q4) Financial Performance.
2.0
RECOMMENDATION
2.1
For the Shareholder Committee to note the report and the Brierley
Group Financial Performance for the 2023/24 year.
3 Brierley
Group Headlines
2.0
3.0
3.1
The performance across the Brierley Group shows strong performance
in most areas, with most organisations reporting higher pre-tax
profits than budgeted. Overall, the 2023/24 group outturn shows a
pre-tax profit of
£3.934m against a
budget of £3.775m; representing a positive variance of
£159k and a healthy commercial return across the Group for
the year. The overall outturn pre-tax profit position
represents an increase of £399m against Q3 projections
largely due to improved performance for NYES. This improvement was
partially offset by slippage in the delivery of profit for Brierley
Homes, predominantly due to the delay of some house sales into the
2024/25 financial year.
3.2 Align Property Partners
(APP), Yorwaste and Bracewell Homes showed strong financial
performance for the year and have each delivered pre-tax profits in
excess of £1m; with outturn losses reported for Brierley
Homes and Brimhams Active.
3.3 The outturn position for Brierley
Homes has principally arisen due to ongoing challenges which have
resulted in delays and additional costs being incurred at the
Marton cum Grafton site (as reported in Q3), and a number of house
sales which were forecast to be completed during the final quarter
of the year but have been delayed into the 24/25 financial year.
The issues at the Marton cum Grafton site have played a significant
part in the 23/24 outturn position, with the delays and additional
work needed on that site impacting on the completion of homes and
sales on other sites. The consolidated development plan for
Brierley Homes continues to be refined, but forecasts demonstrate
significant pre-tax profit projections for the two years commencing
2024/25.
3.4 The 23/24 reported loss for
Brimham Active is primarily due to significant uncontrollable
delays in the facility development programme, which delayed the
date at which increased levels of income could be achieved. This
has been partially offset by savings on staff costs and some
improved performance on other specific income lines. Brimham
Active’s trading operations relate solely to running council
owned leisure facilities in return for a financial subsidy,
therefore this reported ‘loss’ should be seen as a cost
of operating Council owned leisure facilities as opposed to being a
true commercial loss.
3.5 Yorwaste continued to benefit
from healthy landfill gas revenues and have delivered a pre-tax
profit relating to NYC’s % shareholding of £1.050m,
which is £972k higher than budgeted. Tight cost control has
also helped to drive financial performance for the business.
3.6 North
Yorkshire Highways (NYH) and NYC continue to work together to
ensure efficiencies are maximised particularly in relation to road
surface dressing works, filling potholes and treating roads for
winter.
3.7 The projected profit before
tax for Bracewell homes stands at £1.69m for the year; driven
through the sale of shared ownership properties within the
Company’s ownership, and the receipt of rental income on the
share retained within the Company.
3.8 The high
Bank Rate continues to impact on trading projections within the
Group. This acts to increase the interest payable within several of
the loan-financed companies, with £3.32m loan financing
interest payable across the Group companies in the 23/24 year, most
of which delivers shareholder value back to NYC in the
Council’s capacity as lender.
3.9 The Brierley Group companies continue
to present strong shareholder value to NYC, with £12.897m
deliverable in 2023/24 through group profitability, surpluses
achieved via Service Level Agreements, loan interest and the
financial benefit of the Allerton Waste Recovery Park contractual
agreement. Additional shareholder value is driven through the
delivery of affordable homes by Brierley Homes and financial
efficiencies delivered to NYC by works undertaken by NYH.
3.10 Further narrative on each
organisation’s trading performance is provided within
Appendix A of the report.
4.
Current Challenges
4.1 The
main challenges within the Group relate to resourcing, recruitment
and retention of professional staff, and inflationary cost
pressures.
4.2 The labour market continues
to be very difficult in all sectors, limiting a lot of businesses
ability to expand, with a significant rise in the number of
economically inactive people, leading to vacancies across the
portfolio.
4.3 Resourcing issues within
the Brierley Group are exacerbated by the ongoing workload
pressures arising from Local Government Reorganisation and a lack
of capacity within the Council’s professional support service
teams to assist with the development of growth plans across the
Group.
4.4 Yorwaste
has had a strong financial performance in 2023/24, largely driven
by increases in revenue due to landfill gas revenues. It is
expected that prices will return to more “normal”
levels in 2024/25 as electricity prices reduce, which will have a
significant negative effect on future year revenue projections for
the Company, estimated at £1.7m. This, along with a number of
other challenges will result in a significant forward challenge for
the company from 2024/25 onwards.
4.5 Brierley
Homes has adopted a flexible procurement approach that allows the
business to manage construction costs and appoint best-fit
contractors. Previous viability challenges presented by cost
inflation in the Construction sector have been successfully
mitigated by a move to a direct contracting model for the sites
presently under active construction. The expansion of the current
development pipeline to four active sites, with the potential for a
further five, will bring its own challenges across a range of
areas, including the commissioning and active management of
multiple sub-contractors, coupled with a substantial increase in
transaction volumes.
4.6
General inflation (RPI) is
currently 3%, down from highs of 14% in November 2022. Inflation
has had substantial impacts across all companies with particularly
impacts on loan interest, utilities, and overheads.
5
Current and future
areas of development
5.1
During the year NYH has achieved MOT test
centre status and compliance to ISO standards. This will provide
NYH with opportunities to tender for other public sector and
commercial opportunities as well as pursue further options to
generate cost savings for NYC. Other achievements during the year
include returned revenue of £1.989m back to NYC during the
2023/24 year following a review of the schedule of rates, a
reduction in insurance claims by volume due to fixing identified
defects within priority times, cleaning over 100,000 gullies,
delivery of £2 million pounds of NYC capital schemes at
£700k less than order value, attending approximately 6,000
street lighting defects and 2069 emergency call outs to make the
highway network safe and over completing 1.5 million square meters
of surface dressing and patching.
5.2 Yorwaste continues to explore
options to maximise current year landfill gas revenues through
continued investment in well optimisation and to review the
potential for investment in solar to mitigate the impact of the
future increases in electricity costs. The Company’s in-house
sales team has been strengthened to mitigate attrition in the
current challenging market conditions and also drive revenue
growth. Several options are also being progressed to optimise asset
maintenance and servicing to improve uptime and reduce costs.
5.3 Many
companies are undertaking initiatives to drive cost efficiencies
and address recruitment issues as well as development of future
sales pipelines.
6
2023/24 Q3
Brierley Group Financial Summary
6.1 The
following tables set out the 2023/24 outturn financial position for
North Yorkshire Council’s share of the Brierley Group, and
the total value to NYC as shareholder of the Brierley Group
companies.
Table 1 – Brierley Group: Forecast Variance to
Budget
Table 2 –
Forecast Variance to Budget by organisation.
APPENDIX A
North Yorkshire Education Services (NYES)
NYES has realised a gross profit of
£2.6m in FYE 2024, which is offset by operating expenses
totalling £1.75m (comprising hub costs of £0.81m and
overheads £0.94m). Consequently, the net profit stands at
£0.85m. The significant positive movement of £749k
between outturn and Q3 is due to several one-off savings in Q4 that
were not anticipated plus improved income performance across
several services. Catering and cleaning saw significantly improved
performance which demonstrates excellent recovery from the prior
year loss making position.
The UK’s
unemployment rate increased to 4.2% in the 3 months to February
2024. Vacancies continue to fall but remain above pre-pandemic
levels. There are tentative signs that the labour market is
beginning to cool, potentially easing the challenge of workforce
recruitment and retention for our services that has been a
persistent obstacle in delivering a sustainable and high-quality
offering.
UK inflation has continued to fall back towards the Bank of
England’s 2% target level - the Consumer Prices Index rose by
3.2% in the 12 months to March 2024, marking a decline from a
recent peak of 11.1% in October 2022. However, the fall in this
headline rate seems to be slowing down, and as the main driver for
most of our services’ input costs is wages, its growth rate
will be a key point to be monitored in FYE
2025.
LGR has had an impact on internal services which fulfil core
council duties as well as commercial functions. Combined with the
difficulties in recruiting staff, resources are having to be
diverted to supporting the ongoing transition to the new authority,
and this is likely to continue for the next 6
months.
The NYES hub has undergone
a restructure to produce a leaner structure, with an expenditure of
£0.8m (slightly lower than last year). Given the significant
level of pay inflation, this has been achieved by holding staff
vacancies wherever possible, in addition to a reduced spend on
physical sales and marketing activity, car allowances, event
marketing and conference
fees.
The focus of NYES
will remain on keeping a tight control of costs (external and
internal) and concentrating development on key areas where there is
a strategic and/or financial advantage to the council.
NYnet
The Draft 23-24
outturn indicates a £404k profit before tax, an increase of
£10k from Q3 and an increase of £38.9k compared to the
budget for the year. Connectivity remains the largest contributor
to revenue, but diversification plans are coming to fruition. NYnet
have seen a steady increase in orders from private sector
customers
Higher than
budgeted sales on the diversified portfolio have resulted in
additional costs as these sales are at lower profit margin. Budget
for the financial year included operating cost rises based on the
inflation index at the time, but lower than anticipated inflation
has resulted in savings for the year. Internet coverage is still
on-going with new locations and solutions identified. Trials are
on-going at a few
schools.
NYnet continues to
work on diversification of its product offering to the private
sector. It is a difficult market to capture but the sales team have
seen some promising leads. Rising costs in line with inflation,
still represent the biggest
challenge.
NYnet has
continued its work with NYC to productise its IoT network through
trials. New cost saving avenues are being considered wherever
possible, through diversifying equipment used on different orders
and using our own network for new orders.
First North Law
First North Law
(FNL) reported a profit for the third successive year. Whilst it
remains a micro-company, it has ambitions to grow now that Local
Government Reorganisation has occurred, and the Legal Team
restructure is complete. Growth is the main focus of the company
this year with ambitious growth plans documented for the next 3
years.
Recruitment and
growth have been the main challenges faced by FNL. The company
operates on a fully seconded basis and resource available has been
scarce during LGR and the implementation thereafter. However,
the recruitment market is changing with several new solicitors
appointed to NYC during a recent recruitment drive. These
appointments will assist FNL and support its growth ambitions.
FNL implemented
various efficiency savings over the past 12 months to drive down
external spend and ensure that it remained profitable despite a
slightly reduced turnover. It is envisaged that turnover will
increase in 2024/25 with a 30% increase forecast. That will be
delivered using the additional resource available from NYC and
addition of dedicated FNL staff wherever possible.
Brierley Homes
Following a successful year in 2022/23 where a net profit of
£0.3m was achieved, the company reports a draft net loss of
£1.3m for the year ended 31 March 2024. Shareholder value
however continues to be demonstrated by Brierley Homes for 23/24
and beyond with a positive shareholder value of £0.1m
estimated for the year and a cumulative shareholder value delivered
of £1.3m since the company started.
The loss in the
current year has arisen due to ongoing challenges which have
resulted in delays and additional costs being incurred at the Marton cum Grafton site (as reported at
Q3) and also a number of house sales which were forecast to
complete in March 2024 but have been delayed until the 24/25
financial year. The issues at the Marton cum Grafton site have
played a significant part in the 23/24 outturn position, with the
delays and additional work needed on that site impacting on the
completion of homes and sales on other sites. As a consequence of
the delays the financing costs for the scheme have increased
significantly, which is a cost to Brierley Homes but benefits North
Yorkshire Council as shareholder through increased income relating
to interest payments and hence increased shareholder value.
Shareholder value
continues to be demonstrated by Brierley Homes for 23/24 and beyond
with a positive shareholder value of £0.1m estimated for the
year, despite the loss in profit; driven through both loan interest
and service level agreements.
Additional
shareholder value is facilitated by Brierley Homes through the
provision of affordable housing, and through the progression of
problematic Council owned sites to ensure the value and use of
these sites is maximised in line with wider Council objectives. In
addition to market sales, 46 affordable homes have been delivered
by Brierley Homes during 23/24 with a further 163 affordable homes
in the plan to be delivered over the next 4 years.
A large proportion
of the loss for 2023/24 represents a timing change to revenues
rather than a reduction to underlying profitability across the full
Brierley Homes development pipeline with sales, and therefore
profits, which were due to be achieved in 23/24 now forecast for
24/25. Additional developments have improved the projected
profit across the consolidated development plan, with forecasts of
a profitable position along with positive Shareholder Value being
delivered across the 2 financial years commencing 2024/25.
There is a risk
that if sales do not materialise at the value forecast the company
could see a reduction in projected future profits however this risk
is mitigated through a strong sales strategy and control of costs.
Brierley Homes chooses to develop sites in areas with a stronger
demand for properties that are more insulated from financial
headwinds. In the event that sale values were compromised then this
would be further mitigated via refinement of the forward
development pipeline and the site viability assessment criteria
used by the Company.
The Principal
Contractor method of delivery used on the Marton cum Grafton site
has demonstrated the risk of that approach and the impact it can
have on the company as a whole. Following a move to direct
contracting as the main delivery method, the model is now being
used for all sites presently under active construction. Combined
with the expansion of the current development pipeline to four
active sites and a further six in the extended pipeline, this
brings several challenges across a range of areas. These include
the commissioning and active management of multiple sub-contractors
(the majority of which are employed on a freelance basis so as to
minimise any overhead risk if programmes needed to be amended or
changed) as well as enhanced responsibilities around CIS, coupled
with a substantial increase to transaction volumes. Whilst this
approach creates additional management costs and associated risk,
it is a construction approach which provides better value for money
which offsets those additional costs and it provides greater
flexibility to avoid the risks of a single contractor approach,
with Brierley Homes retaining control (and therefore all the risks
and rewards) of the sites.
The scaling up of
the development pipeline and move to a hybrid development model
featuring direct contracting has necessitated the expansion of
Brierley Homes. Additional Project Managers with the appropriate
skill set have been brought in to manage the development of the
sites, while back-office staff have also been recruited. In terms
of increased CIS responsibilities and transactional volumes, the
Finance and Accounting resource available to Brierley Homes has
also been increased.
Align Property Partners (APP) and
Align Property Services (APS)
A new company, Align Property Services Ltd. (APS), commenced
operations on 01 December 2023. This was set up to address a
growing concern with the existing company, Align Property Partners
Ltd. (APP), which faced limitations on its turnover growth. As a
single entity, APP was restricted to undertake no more than 20%
trading with third parties outside its parent local authority to
remain Teckal compliant. The ‘Teckal’ contract has been
transferred to the new company APS, enabling APP to relinquish its
Teckal status and pursue its commercial aspirations without
constraint. The financial results for Q4 in this report encompass
the combined performance of both companies.
Align’s
unaudited outturn Profit before Tax stands at £1.22m,
exceeding the £0.7m target that was originally set out in its
Business Plan. Contract volumes remained strong for the year,
leading to higher income generation that is partially offset by
higher survey passthrough and other direct Costs of Sale that are
required to service the elevated workload. As a result of its
recent strong financial performance, two dividend payments were
made to NYC during the 2023 calendar year, totalling
£1.25m.
Recruitment and
retention of appropriately skilled staff in a competitive
marketplace continues to be a challenge. Significant progress has
been made in this area, with the utilisation of agency staff and
external consultants more than halving in 2023/24 as the company
continues to operate in newer markets.
While the novation
of the ‘Teckal’ contract from APP to APS is complete,
some post-launch actions remain to finalise the split of ongoing
revenue and costs between the two companies. This process is nearly
complete; however, the result will need to be reviewed during the
companies’ year end audit.
Yorwaste
The draft outturn position for 23-24 shows a profit before tax
attributable to NYC of £1.05m which was higher than budgeted
and slightly lower than Q3 forecast.
Landfill gas revenues have been at an all-time high and this
supported both the 2023/24 year and prior year actuals. In the
coming 2024/25 budget year these revenues will return to more
normal levels as electricity prices reduce, which combined with the
underlying decline in gas volumes will result in an estimated fall
in income of £1.7m for Yorwaste. Whilst rates will decrease
on the income side costs for energy usage will increase when
current fixed rates expire, giving a significant forward challenge
for 24/25 onwards, with most of the impact being felt in 25/26. To
combat some of the pressures Yorwaste continues to explore options
to maximise current year landfill gas revenues through continued
investment in gas well optimisation.
The development of commercial initiatives to
develop growth continue to be pursued, as is tight cost
control.
Yorwaste finished the year having
zero RIDDORS (reportable incidents), and a 50% reduction in time
lost Injuries (LTI’s).
Veritau
The outturn
results for Veritau were in line with budget expectations. Total
revenue was 3.3% above budget due to gaining several new contracts
but the pay award was higher than expected and additional costs
were also incurred because of the investment in a new audit
management system. The NYC portion of profit before interest and
tax was £20k compared to the budget of £14k.
The key priorities during the year have been to complete the
implementation of the new audit management system before 1/4/24 and
to develop the business case for the corporate restructure (which
has resulted in the creation of a new Teckal company limited by
guarantee). The main challenge has continued to be the recruitment
and retention of experienced and qualified staff. This has led to
workforce pressures and has limited the group’s ability to
take on new work.
The priority for
2024/25 is to complete the corporate restructure and to onboard the
new member councils / public bodies. Veritau also proposes some
limited changes to the pay and grading structure to help reduce the
recruitment and retention risks.
North Yorkshire
Highways (NYH)
The year end
position for NYH for 23/24 was a profit before tax of £113k,
which was predominantly due to the company achieving over double
the external sales originally budgeted and a profit of £101k
from core work activities.
A key business
plan aim of NYH is to deliver efficiencies back to NYC as
shareholder. NYH has successfully delivered this aim and, in
addition to the profit generated by the company, has returned
£1.989m of revenue back to NYC during the 2023/24 year
following a review of the schedule of rates charges claimed in the
year. Savings include 19% savings from efficiencies on the rate
charged for inlay patching, cost reductions for non-programmed
clearance of Gully’s, cost savings for Winter Gritting and
salt heap/bin refills and a labour rate charge reduction which was
possible due to the actual costs being lower than budgeted.
Not only has a
tangible financial return been delivered, but the Company have also
delivered the most productive year in terms of maintaining the
highway infrastructure and meeting every business plan objective
set.
During the period NYH has achieved MOT test centre status; allowing
the business to generate further income and cost savings for NYC in
addition to maintaining its own fleet of 216 vehicles and 192 NYC
vehicles. This has been the start of expected growth with the fleet
department with plans to bring inhouse more NYC vehicles in the
future.
Other achievements during the year include a reduction in insurance
claims by volume due to fixing identified defects within priority
times, cleaning over 100,000 gullies, delivery of £2 million
pounds of NYC capital schemes at £700k less than order value,
attending circa 6,000 street lighting defects and 2,069 emergency
call outs to make the highway network safe, and completing over 1.5
million square meters of surface dressing and patching. NYH is
delivering on the advantages envisaged by the Teckal arrangement
and will continue to build on this performance for the next
financial year.
Volume of works
has increased this financial year with an increased delivery
volume. Resourcing the increased volume of works has been
challenging on occasion due to recruitment market pressures.
Careful management of internal and external NYH workload will be
required to ensure that risk is managed and organic growth is
maintained by the company.
Bracewell Homes
The FY23/24 draft
outturn profit before tax equals £1.693 which is £174k
higher than budget and £136k higher than the Q3 projection.
The variance between the Q3 forecast and the draft outturn position
is due to property sales not materialising and Bracewell retaining
the full value of the asset and associated rental income.
Maple Park
The draft outturn profit before tax for 2023/24 is £356k,
which represents a significant £284k outperformance of the
full-year budget and is £123k higher than Q3 forecast.
The Crematorium is still developing and becoming established, with
the original budget reflecting a prudent target as it was a new
facility. During 2023/24 it has gained a very good reputation and
with the large catchment area has seen the volume of cremations
increase.
Electricity costs
were not as high as expected when the budget was set, resulting in
an underspend for the year and the movement in the outturn variance
between Q3 and Q4. Energy price volatility may mean this benefit is
not replicated in future years.
Ancillary memorial sales are expected to increase
as the site matures and more land is made suitable for
memorialisation.
The Maple Park
operation will be brought wholly in-house within North Yorkshire
Council during the 2024/25 year.
Brimhams Active
The forecasted loss before tax in this financial year of
£491k is primarily due to uncontrollable construction delays
to the facility development programme that delayed the date at
which increased levels of income could be achieved. These delays
involved Harrogate and Knaresborough Leisure and Wellness
Centres.
Central Northallerton
Development Company (CNDCL)
Central Northallerton Development Company (CNDCL) is a 50:50 Joint
Venture partnership between NYC (formerly Hambleton District
Council) and Wykeland Property, which was established to redevelop
the old Northallerton Prison site. The mixed-use site called
Treadmills is now complete, but several units are still to be let.
The Council owns the site with CNDCL acting as Development Manager.
CNDCL also leases Crosby Road car park from the Council.
The trading activity at CNDCL relates solely to the income
generated from the car park.
The Council is in discussion with CNDCL regarding the car parking
arrangement, with a view to reviewing the operation in order to
allow the Joint Venture to be dissolved.
