North Yorkshire Council
Shareholder Committee
21st January
2025
Brierley Group 2024/25 Quarter 2
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 Q2 Financial
Performance.
2.0 RECOMMENDATION
2.1 For the Shareholder Committee to note
the report and the Brierley Group Q2 Financial Performance for the
2024/25 year.
3.0
Brierley Group Headlines
3.1 The performance across the
Brierley Group shows strong performance in most areas, with most
organisations continuing to forecast the achievement of budgeted
pre-tax profits. Overall, the 2024/25 group outturn forecasts a
pre-tax profit of
£4.45m, which
represents a positive variance of £1.560m against budget for
the year, and an improvement of £1.163m in comparison to the
forecast reported at Q1.
3.2
The Group continues to deliver
significant Shareholder Value for the Council, with a
Shareholder Value of c£14m projected for the
year.
3.3
Align Property Partners and Align
Property Services performance at Q2 continues to indicate that the
strong trading position seen in recent years will be sustained,
with a pre-tax profit of £1.394m projected for the year.
Yorwaste, NYES and NYnet also continue to deliver strong returns
with NYC’s share of outturn profits projected at
£1.573m, £551k and £400k respectively.
3.4
The Q2 position for Brimhams Active
shows a forecast outturn ‘loss’ of £161k for the
year, predominantly due to Turkish Baths income being below its
increased 2024/25 target. It is however pleasing to note
that the company’s overall projected deficit for the year has
reduced by £162k in comparison to the position reported at Q1.
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.
3.5
The services operated by Brimhams
Active were transferred back to NYC in December 24, therefore these
services are now managed within the Council’s General Fund as
opposed to being managed via a separate commercial entity.
The services previously delivered through the Maple
Park commercial entity have also now transferred back to
NYC.
3.6 Brierley Homes forecast outturn
position shows a projected profit of £107k for the year (a
£75k negative variance against budget), as a result of significant income from sales to
be realised later in the year.
2.
Current Challenges
2.1 The
main challenges within the Group relate to resourcing, recruitment
and retention of professional staff, and inflationary cost
pressures.
2.2 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.
2.3 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.
2.4
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.
2.5
General inflation (RPI) is
currently 2.7% (Sept 24), 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.
3
Current and future
areas of development
3.1
North Yorkshire Highways (NYH): Fleet
facilities at Pickering have been brought to an acceptable standard
to allow continued operation. Further work to improve the office
accommodation is taking place in partnership with property.
Finkills Way planning and building regulation approvals is well
underway and so is securing contractors to deliver the improvements
to meet the growth of the fleet business. This has been a good
example of NYC property and NYH working together to deliver a
benefit for both.
NYH has registered
on several portals to identify opportunities and have been
successful in working with APP in doing so for works in Teesside.
They have also been successful in delivery of smaller scale and
value works to build up capabilities and create confidence with the
operational teams.
3.2 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.
3.3 Many
companies are undertaking initiatives to drive cost efficiencies
and address recruitment issues as well as development of future
sales pipelines.
4
2024/21 Q4
Brierley Group Financial Summary
4.1
The following tables set out the
2024/25 Q2 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
4.2
Tables 1 and 2 above highlight a
2024-25 full year forecast outturn pre-tax profit of £4.450m
for the Brierley Group entities (£3,837k excluding performance
on General Fund related operations. Details by entity can be found
in Appendix A.
4.3
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.
4.4 A total Shareholder Value of
£13.946m is forecast for NYC in the 24-25 year. This is
categorised by group profitability, margins on support service
contracts and loan financing arrangements, along with other
Shareholder Value in the form of financial benefits and cost
savings which the Council derives from the trading and operational
arrangements that are in place with the Brierley Board
entities.
Kerry Metcalfe
Assistant Director, Commercial,
Property and Procurement
Corporate Director -
Resources
Date: 08/01/2025
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.
APPENDICES:
Appendix A – Detailed Company by Company
Update
APPENDIX A
North Yorkshire Education Services (NYES)
NYES is projecting a
profit of £550k for the year (after allowing for hub costs and
centrally allocated overheads of £1.855k), and a shareholder
value to NYC of £644k. This position represents a significant
turnaround against the trading loss reported in 2022/23.
Customer attrition due to
academisation poses a significant long-term threat to the business
model of some of NYES’ services. Increasingly, schools are
joining Multi Academy Trusts
(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
Given the significant
changes in the UK academy market, particularly with the growth of
Multi-Academy Trusts (MATs) and the centralisation of services, the
business must adapt to these trends. Strengthening relationships
with key decision-makers within MATs and tailoring services to meet
their specific needs will be crucial. Developing packages that
cater to centralised procurement processes, enhancing digital
presence, leveraging data and feedback, and offering training and
support are essential steps. Staying informed on policy changes
will also help anticipate and adapt to market shifts. These actions
will close communication gaps and position the business for
sustained growth and increased profitability in the competitive
education sector.
NYES has prioritised
maximising training income, focusing on high-volume, low-cost sales
with significant profit potential. The new website - NYES Training
- facilitates instant sign-up and credit card payment, enhancing
the user experience. The initial website, NYES Info, drives traffic
to the new platform, boosting customer engagement.
Future developments
include optimising the website for search engine visibility,
enhancing social media campaigns, and refining customer feedback
processes. These actions will further close communication gaps and
position the business for sustained growth and increased
profitability in the competitive education sector.
NYnet
NYnet’s
Q2’s draft position for the 24-25 outturn indicates a
forecast outturn profit of £378k, representing a small
downturn of £22k from Q1. Although higher than budgeted
sales/income is reported, it has resulted in a lower profit margin
due to general increased costs across the board in delivering these
new sales. New cost saving avenues are considered, wherever
possible, through diversifying equipment’s used on different
orders and using the own Local Full Fibre Network (LFFN) network
for new orders.
Internet and
sensor trials are on-going with new locations and solutions
identified. NYnet continues 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 projecting a profit of
£41k for the year which is broadly in line with budget and the
Q1 forecast.
FNL has addressed two issues which
had limited historic growth. Firstly, FNL has appointed a further
dedicated resource from November 2024 ending a long search for
additional resource and secondly FNL has been awarded a place on a
YPO Wider Public Sector legal framework. FNL had bid for eleven
lots and succeeded in being awarded a place on all eleven lots.
This removes a significant barrier to market for a lot of
FNL’s target clients.
FNL has targeted year on year growth of 30% for
this year and the next two financial years. It is on track to
exceed this target in the current year and with a significant
additional route to market in the form of the YPO framework, FNL is
confident that future growth can also be achieved. Further
recruitment exercises will need to be undertaken but as evidenced
by the recent appointment, the legal recruitment market is changing
for the better and should assist FNL with its growth
aspirations.
Brierley Homes
The full year forecast as at Q2 anticipates a gross profit of
£3,100k and a net profit of £100k after taking account of
£2,100k financing costs and £900k overheads. This
forecast is reliant on a significant number of sales in the second
half of the year and so the forecast will be further revised at Q3
once more detailed information is known on the construction and
sales profiles of all active sites. Sales within the financial year
are assumed at the following sites: Marton cum Grafton; The
Paddocks, Great Ouseburn, Stokesley and North Road, Ripon. Further
sites will be released for sale during Q3 for sales completions
forecast for during the 25/26 financial year.
The profiling of sales and construction at new sites continues to
be refined to determine the optimum profile for new developments,
ensuring returns are maximised whilst staying within the agreed
loan facility.
Significant shareholder value continues to be achieved by Brierley
Homes which is predominantly derived from the interest payable on
the loan from the Council.
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 will be 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.
The result of this approach is borne out by 50%+ of Brierley Homes
customers being cash buyers, with mortgage rates having a to-date
very limited impact upon sales interest and pricing. Each project
is provided a 2-phase base case for approval, including assessed
sales values and construction costs with contingencies to both.
Brierley Homes has also recently being the recipient of an award
for the sites at Marton Cum Grafton and Swainby from the UK
Property and the Housebuilder Awards.
Align Property Partners (APP) and
Align Property Services (APS)
A new company, (Align Property Services Ltd APS), commenced
operations on 01 December 2023, to address the turnover growth
limitation faced by Align Property Partners Ltd. (APP). As a single
entity, APP was restricted to undertake no more than 20% trading
with third parties outside its parent local authority to maintain
Teckal compliance. The Teckal contract has now been transferred to
the new company APS, allowing APP to shed its Teckal status and be
free to fully pursue its commercial aspirations. The financial
results in this report encompass the combined performance of both
companies. The split of revenue and costs between the two companies
is all but now complete, pending review during the audit
process.
Align are
projecting a profit of £1.39m and a shareholder value to NYC
of £1.527m for the year. A £1.0m dividend payment is
expected to be approved and made to NYC later this year, in
recognition of this 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 is
projecting a pre-tax profit of £2,025k for the year;
£1,573k of which relates to NYC’s share of the company,
and a shareholder value to NYC of £6,503k. The projected
pre-tax profit position is in line, if not slightly ahead of the
prior year outturn position.
At the mid-year
point Yorwaste’s underlying net revenues were slightly ahead
of expectations with reductions in landfill gas revenues from the
sharp fall in wholesale energy prices and the long-term volume
decline of the gas curve offset by its wider commercial activities
including increased commercial collections and continuing
third-party recyclate processing.
Total operating
costs were lower in real terms compared to the same period last
year driven by cost efficiency measures and increased asset
optimisation which has improved significantly over the past few
years, so the company is now carrying greater volumes on fewer
vehicles.
Whilst commercial
collections have performed well, wider market conditions are
expected to see increasing price challenges arising against the
backdrop of an economic slowdown. These same market conditions will
present added cost pressures for Yorwaste over the coming year and
beyond and the company continues to explore opportunities to help
mitigate their impact.
Veritau
As at Q2 Veritau is projecting a pre-tax profit of £46k for
the year; £18k of which relates to NYC’s shareholding.
Total forecast fee income is £171k higher than the original
budget due to the addition of two new member councils and continued
growth in external work. A broadly similar increase is anticipated
in the cost of sales.
The main focus for
the business over the last two quarters has been the creation of
Veritau Public Sector Limited (VPS) (the new Teckal company), which
started trading on 1 August.
Recruitment and
retention remains a key risk to the company. Continuing recruitment
and investment in professional development programmes is essential
to maintain capacity within the business and remains a priority.
Veritau also commissioned an external review by NYC of the existing
pay / grading structure which concluded that some changes were
needed. These changes will be taken forward in Q3 or Q4.
North Yorkshire Highways (NYH)
(April to August Only)
As at Q2 NYH is projecting a pre-tax profit of £52k for the
year, which is broadly in line with budget and the Q1 projection,
and a shareholder value to NYC of £3,025k.
NYH are
forecasting an overall deficit against revenue for the year, which
is derived from a reduction in the capital schemes delivery plan
and is due to cost savings against planned schemes budgets, schemes
programme delivery slippage into 25/26 and re-allocation of schemes
by NYC outside of the NY Highways contract. Cost of sales has
decreased in line with the reduced revenue.
Recruitment
continues to be a challenge although for the first time NYH are
close to having a full complement of operatives and supervisors to
meet the needs of the highway network. To address recruitment
challenges NYH have changed the way vacancies are advertised, set
up specific contracts for external works operatives, and are
working with Resourcing Solutions closely. Whilst it is improving
for business-as-usual activities it remains harder to attract
operatives with larger project experience.
NYH is performing well despite the challenges of recruitment and
budgetary pressures and is increasingly being seen as the
organisation within Brierley group that can deliver construction
and maintenance works. NYH is also focussed on establishing
efficient processes so that efficiency savings can be realised by
NYC.
Bracewell Homes
Bracewell Homes is
forecasting a profit before tax of £274k for the year and a
shareholder value to NYC of £309k. The pre-tax profit
projection represents an improvement of £30k against the
position reported at Q1 predominantly due to a reduction in
interest payable associated with an improved cashflow position.
Maple Park
Maple Park was transferred back to the council on 1st of October
2024, with Hambleton Holdings and Maple Park LLP being wound up.
The draft forecast pre-tax profit position for 2024/25 is currently
reported to full-year budget, however the actual trading position
for the 6 months should be available to report at Quarter 3.
Brimhams Active
The leisure contract for the Harrogate area transferred in-house on
1 December. At Q2 Brimhams Active were forecasting a loss of
£161k for the year. This is an improvement of £162k
against the forecast reported in the Q1 report.
Health Suite and Corporate Memberships continue to grow and are
performing particularly well, however this has been offset by
projected income shortfalls at the Turkish Baths and on Learn to
Swim activities.
Turkish Bath income is below budget as a result of income targets
being stretched significantly for 2024/25. The service is
forecasting similar income to that received in 2023/24 and
continues to increase its marketing to improve its income position.
Shortfalls in Learn to Swim income relate directly to difficulties
in recruiting and retaining swim teachers and work continues to
recruit additional swim teachers.