North Yorkshire Council
Shareholder Committee
17
September 2024
Brierley Group 2024/25 Quarter 1 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 Q1 Financial
Performance.
2.0 RECOMMENDATION
2.1 For the Shareholder Committee to note
the report and the Brierley Group Q1 Financial Performance for the
2024/25 year.
3
Brierley Group Headlines
3.1 The performance across the
Brierley Group shows strong performance in most areas, with most
organisations forecasting the achievement of budgeted pre-tax
profits. Overall, the 2024/25 group outturn forecasts a
pre-tax profit of £3.287m
against a budget of £2.875m; representing a positive variance
of £412k.
3.2 Align Property Partners and Align
Property Services performance at Q1 indicates that the strong
trading position seen in recent years will be sustained and
projections assume that their £1.455m budgeted profit will be
achieved.
3.3 The Q1 position for
Yorwaste reflects a £305k favourable variance driven by
commercial activities, with commercial collections and the
retention of the third-party recyclate processing being the main
contributors to the surplus. This performance is expected to be
sustained within the remainder of the year, with a forecast surplus
of £499k projected for the year.
3.4 NYES is forecasting a
£218k favourable variance for the year following a positive
first quarter. Vacancy savings in the cleaning, employment and HR
services are driving the current forecast, plus improved turnover
performance. Projections will be further refined in Q2 when
structure changes and recruitment to vacant posts become
clearer.
3.5 NY Highways are on track to
deliver budget. Recruitment remains challenging for the company and
the policy of ‘grow your own’ will continue through
maximising the apprenticeship levy and work with resourcing
solutions to fill open positions.
3.6 The Q1 position for Brimhams
Active reflects a £98k adverse variance predominantly driven
by Turkish Baths income being below its increased 2024/25 target.
Challenges in this area and Learn to Swim income are expected to
continue through the year. Health Suite and Corporate Membership
income is performing well, however surpluses are not sufficient to
offset these income shortfalls; resulting in a £323k adverse
projected variance position for the full year.
3.7 The Q1 figures for Veritau show a
negative variance against budget of £394k due to a
restructuring of the company which has involved the creation of a
new company (limited by guarantee) called Veritau Public Sector
Limited (VPS). The new company started trading on 1 August. One of
the consequences of these changes were delays in billing (from
Veritau Limited) due to the need to obtain a new VAT number. The Q1
shortfall is merely an accounting timing difference and the
position will correct itself in the remainder of the year.
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. 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.
4.3
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.
4.4
General inflation (RPI) is
currently 2.25%, 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.
5.0 Current and future
areas of development
5.1
North Yorkshire Highways (NYH); The
standard of fleet and operational facilities at Pickering and
Finkalls Way have been improved to allow continued operation of the
sites and deliver improvements to meet the growth of the fleet
business. This work has been a good example of NYC property and NYH
working together to deliver a benefit for both.
5.2 NYH has registered on
several portals to identify external trading opportunities and have
been successful in working with APP to secure certain contracts
works. They have also been successful in the delivery of smaller
scale and value works to build up capabilities and create
confidence with the operational teams.
5.3 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.
5.4 Many
companies are undertaking initiatives to drive cost efficiencies
and address recruitment issues as well as development of future
sales pipelines.
6.0 2024/21 Q4 Brierley
Group Financial Summary
6.1 The
following tables set out the 2024/25 Q1 position and Forecast
Variance to budget 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
Table 3 – Brierley Group Shareholder
Value
6.2
Tables 1 and 2 above highlight a
2024/25 full year forecast outturn pre-tax profit of £3.287m
for the Brierley Group (£2.981m excluding performance on
General Fund related operations), compared to a budget of
£2.875m; representing a projected favourable forecast
variance for the year of £412k.
6.3
All entities are currently
forecasting a 2024/25 profit except Brimhams Active. Brimhams
Active purely operate services on behalf of the Council so the
‘loss’ reported within the Brierley Group summary
relates to the subsidy associated with running a Council service as
opposed to a true commercial loss.
6.4 Yorwaste
and NYES are showing a predicted stronger positive outturn than
budget.
6.5
Details by entity can be found in
Appendix A.
APPENDICES:
Appendix A –
Detailed Company by Company Update
Kerry Metcalfe
Assistant Director, Commercial, Property and Procurement
Corporate Director - Resources
Date: 9 September 2024
Presenter of Report
– Kerry
Metcalfe - Assistant Director (kerry.metcalfe@northyorks.gov,uk)
Note:
Members are invited to contact the author in advance of the meeting
with any detailed queries or questions.
APPENDIX A
North Yorkshire Education Services (NYES)
NYES is projected to
realise a gross profit of £2.26m in FYE 24/25, which will be
offset by operating expenses totalling £1.85m (comprising hub
costs of £0.92m and overheads £0.93m). Consequently,
the forecast net profit stands at £0.41m. Services that have
projected a higher profit (as compared to the full year budget)
include Cleaning, Employment Support, and HR Advisory Service,
mainly due to anticipated underspends from staff vacancies. The
impact of this will be monitored and updated in future quarterly
reports as any proposed structure changes and timing of recruitment
becomes clearer.
Customer attrition due to
academisation poses a significant long-term threat to the business
model of some of our services. Increasingly, schools are joining
MATs that already have their own provisions for professional
support services. While bidding for and winning such MAT contracts
presents a growth opportunity, accommodating the typical size of
these MAT contracts may require extra service capacity building and
further development of our own contract management expertise.
Workforce recruitment and
retention for our services has been a persistent recent obstacle to
delivering a sustainable and high-quality offering. LGR has had an
impact on internal services which fulfil core council duties as
well as commercial functions. As the first round of service
transformation programmes draws to a close, some services may have
freed up additional capacity to trade following efficiency
improvements.
NYnet
Quarter 1’s
draft position for the 24/25 outturn indicates a forecast outturn
profit of £400k, which is in line with budget. Connectivity
remains the largest contributor to the revenue. NYnet have seen
steady increase in orders from private sector customers as well as
on diverse portfolio.
Higher than
budgeted sales on diversified portfolio have contributed additional
costs as these sales are at lower profit margin, therefore gross
profit margin is lower than the year-to-date budgeted level.
Internet and sensor trials are on-going with new locations and
solutions.
NYnet is
continuing to work on diversification of product offering to the
private sector. It is a difficult market to capture but the sales
team have seen some promising leads.
First North Law
First North Law (FNL) is trading broadly in line
with budget at the end of Q1. FNL has increased its target
for profit this year by 30% to account for the ambitions of the
company to grow significantly over the next 3
years.
At present recruitment and meeting client demand
are issues for FNL.
Brierley Homes
Q1 2024/25 income of £1,769k was a combination of Sales
Revenue of £1,562k and a VAT repayment of £207k. The
Sales Revenue was a result of further sales completions at the
Company’s Yew Tree Farm (Marton cum Grafton) development as
well as the Whorlton Meadows site. These sales were originally
expected during March 24. Further sales completions (estimated at
£1.7m) are expected during Q2.
Construction costs incurred during Q1 mainly related to Leven
Pastures and Branton Lane. Yew Tree Farm has continued to incur
additional development and finishing costs as the site approaches
completion.
During April 24, the land purchase for the site at Kirkby Malzeard
took place.
The expectation is that budget will be met, with no major variances
identified at Q1. The profiling of sales and construction at new
sites, along with profit projections will be reviewed and updated
for Q2.
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 as well as enhanced responsibilities
around CIS, coupled with a substantial increase to transaction
volumes.
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. This delivery model is well developed in terms of
procedures, management and administrative resources and following a
recent internal audit, further procedures are being developed in
line with the new delivery model for Brierley Homes to ensure
robust governance is in place – this is being developed over
the coming months.
Brierley Homes
looks to mitigate wider economic pressures via the core strategy of
choosing only to develop in higher demand, more affluent areas,
where the housing market is more robust and better insulated from
economic headwinds. This is achieved via diligent site appraisal;
incorporating up to date and comprehensive market intelligence
aimed at ensuring sites with high house values and regular sales
turnover are matched with appropriate developments.
Align Property Partners (APP) and
Align Property Services (APS)
A new company, Align
Property Services Ltd. (APS), commenced operations on 1 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 associated with its legal
status. The financial results in this report encompass the combined
performance of both companies.
Align’s projected
profit for the year of £1.46m is broadly in line with its
£1.45m target. A £0.5m dividend payment is expected to
be approved and made to NYC later this year, in recognition of the
companies’ recent strong financial performance.
Recruitment and retention
of appropriately skilled staff in a competitive marketplace
continues to be a challenge as Align continues to operate in newer
markets.
Yorwaste
Yorwaste made a profit before tax in Q1 of
£379k, being £392k favourable to budget. To date the
company has had zero reports of Injuries Diseases and Dangerous
Occurrences Regulations and no Lost Time Injuries. Q1 saw net
revenue ahead of budget; driven by the commercial activities, with
commercial collections and the retention of the third-party
recyclate processing being the main elements.
Total operating costs were favourable to budget
with tight staff cost controls and effective asset management
continuing as in previous years. The underlying asset quality,
including vehicles and buildings, is now of a good standard which
has improved fuel economy, reduced reactive maintenance costs, and
improved asset uptime. The quarter saw the delivery of a number of owned replacement
vehicles.
Q1 has seen very strong performance and gives
significant weight to the Company ending the year in a reasonable
positive profit position. Whilst there is much room for optimism
based on the Q1 performance, it should be recognised that most of
the current fiscal year is still to occur.
Veritau
Veritau Q1
negative results (£394k) is a timing delay in invoicing due
to a restructuring of the company which has involved the creation
of a new company (limited by guarantee) called Veritau Public
Sector Limited (VPS). The new company started trading on 1 August.
One of the consequences of these changes were delays in billing
(from Veritau Limited) due to the need to obtain a new VAT number.
The impact of this has not been accrued at Q1, so it is expected
that the revenue figure will correct itself at the end of Q2.
The corporate
restructure has been necessary to maintain Veritau’s Teckal
position and to make it easier for other councils to join as member
councils.
Recruitment and
retention remain a key risk, along with the completion of the
corporate restructure.
North Yorkshire Highways
(NYH)
NYH are on track to
deliver profits in line with budget for the year.
Recruiting to NYH
to meet retirement, attrition and growth continues to be an ongoing
issue. NYH has benchmarked their terms and conditions against other
Highway Teckals in the UK and found there is negligible difference,
and has offered recruitment incentives for harder to fill
positions. Despite these actions recruitment remains an issue, and
NYH will continue to “grow their own” through
maximising our apprenticeship levy and work with resourcing
solutions to fill open positions.
The standard of
fleet facilities at Pickering and Finkalls Way have been improved
to allow continued operation of the site and widen fleet
opportunities. Further work to improve the office accommodation is
taking place in partnership with property.
Bracewell Homes
The forecasted
outturn position at Q1 projects that the 24/25 budgeted profit
before tax position of £244k will be achieved.
It is currently
not expected that any properties will wholly be taken into stock in
the 24/25 financial year. To date a deposit had been paid for
properties at Yew Tree Lane, Harrogate however it is not expected
that these will be completed until 25/26.
There are
currently three properties on the market at Burton Leonard. It is
expected that these will sell in 24/25.
Maple Park
The draft forecast
profit before tax for 2024/25 is £223k, which is in line with
the full-year budget.
The Crematorium is
still developing and becoming established. During 2023/24 it has
gained a very good reputation and with the large catchment area has
seen the volume of cremations increase.
Energy price
volatility continues and is currently being contained within budget
but could affect future profits. 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, with Hambleton Holdings and Maple
Park LLP being wound up and the assets being transferred into the
Environment Directorate.
Brimhams Active
Year to date
Brimhams Active have a budget deficit of £98k.
Income is down
£209k against budget as at the end of June 2024, primarily
as a result of an increased income
target for growth in admissions, which hasn’t been achieved
during Q1. Key variations relate to Turkish Baths admissions and
treatment income. Pay as you go swim admissions income was also
below target in Q1, however difficulty in recruiting swim teachers
has been the main driver in not achieving the increased
targets.
As at Q1 Brimhams
Active are forecasting an overall year-end deficit of £323k.
Areas forecasting significantly below budget are Turkish Bath
admissions and treatment income, and learn to swim income. Health
Suite Memberships and Corporate Memberships are performing
particularly strongly, however these surpluses are not sufficient
to cover the aforementioned shortfalls.
Brimham’s
run leisure services on behalf of NYC and receive an annual
management fee from the Council. The management fee payable to
Brimhams from NYC was reduced to £600k in 24/25, compared to
£1,672k in 23/24. The ‘loss’ reflected in this
report reflects that the reduction in management fee will not be
fully realised in the year, as opposed to representing a true
commercial loss.
The challenge
regarding learn to swim income targets relates to difficulties in
recruiting qualified swim teachers. Two intensive swimming teacher
courses are being held in July and August and as soon as these have
taken place new learn to swim places will be released.
Additional
marketing is being provided for the Turkish Baths to try to
mitigate the income shortfalls at the venue.