Meeting documents
Executive (I)
Monday, 10th March, 2014
| REPORT TO: | 10 |
| DECISION NUMBER: | PH/31/2014 |
| EARLIEST DATE FOR DECISION: | 10th March 2014 |
CASHFLOW LOAN TO THE VIA PARTNERSHIP | |
| Matter for Consideration: Provision of a medium-term loan to the Via Partnership (formerly Connexions Lancashire) of £300,000 alongside those of £400,000 from Lancashire County Council and £300,000 from Blackburn with Darwen Council to support the company in meeting its cashflow commitments and provide the platform for it to develop its business. | |
| Information: The Via Partnership's main purpose is to improve skills and reduce unemployment. Via helps people to move forward in work and life and helps employers to develop their business and their workforce. Via works with public, private and third sector organisations to deliver a range of products, services and careers information; advice and guidance for young people and adults; and business support for workforce development, redundancy transition and business growth. The company employs about 50 staff at offices in Leyland and at Clayton Park. These range from trainers to a chief executive. The Via Partnership is a social enterprise company owned jointly by Lancashire County Council, Blackpool Council and Blackburn with Darwen Borough Council and delivers work for Lancashire Education Business Partnership, a registered charity. The ownership ratios are 40% Lancashire County Council and 30% each for Blackpool and Blackburn with Darwen Councils. There are three companies under the Via umbrella: CXL, Lancashire Education Business Partnership and Clayton Park training. The third of these runs a training centre in Clayton Park, but only leases the building so there are no valuable assets in the organisation upon which a charge could be made. In terms of governance there is a board that consists of an independent chair (Dr David Sanders), a chief executive and there are two positions for each of the three local authorities involved in the ownership of the company. At the moment the local authorities take up only one of these positions each but could exercise the option for 2 at any time. Board positions that are taken up are filled by officers of the local authorities rather than their members. Blackpool Council is represented by Mr Alan Cavill. The board must defer to the shareholders to change any of its structural nature or its memorandum of understanding and articles of association. The company group used to have its own in-house financial services, but is now moving to management accounting only with all other accountancy services being delivered by Lancashire County Council. Since the departure of the previous finance director about 18 months ago, Mr Steve Dean of Lancashire County Council has been undertaking the function on a consultancy basis. The viability of the organisation has been the principle concern for the board for the last 2 years. In 2009/2010 Via had a turnover of more than £10m with much of its funding being based on grants and some local authority contracts. During the past couple of years the consequences of the public sector austerity measures have had a direct impact on the company’s business and cashflow. Much of the income of Via is now paid in arrears and on results. In addition to this there is far more competition for local authority services. A consequence of these changes was that the turnover fell dramatically in 2011/2012 to £4.8m and considerable downsizing had to take place. Mr Dean has done an excellent job in reducing costs and despite the drop in income the company made a surplus in 2012/2013 before the one-off costs of redundancy and lease terminations were taken into account when a loss of £290,000 was delivered. The accounts for 2013/2014 predict a modest surplus of £250,000 against a turnover of £4.2m which seems not unreasonable at this stage. The turnover has also stabilised over the last three years with the changes being in single percentage figures, albeit in the wrong direction. The view of the company is that it is now sufficiently fleet of foot to change quite quickly based on its success rate in bidding. Its success strike rate for bidding is better than 60% and it has a strong bidding team with dramatically improved monitoring arrangements and more people on flexible contracts. The only way to improve turnover and profitability now is to bid for resources and this needs working capital. The issue for Via, as it has used much of its unallocated and allocated reserves against the one-off costs of downsizing, is that it has little working capital to justify making new bids for funding for which, if indeed successful, payments are then made in arrears and upon results. Without a cash injection Via will continue to decline slowly, but with it is doubtlessly far more viable as an organisation with a much better chance of a sustainable future. | |
| Does the information submitted include any exempt information? | NO |
| Legal Considerations: An interest rate below that being offered would be difficult to demonstrate as meeting state aid provisions given the level of risk prevalent. | |
| Personnel Considerations: None | |
| Financial Considerations: A loan is not risk free and it is not recommended to mirror the terms that Lancashire County Council has offered, namely a 10-year loan at 2.5% with a 2-year capital repayment holiday. Therefore, an interest only loan with a term of no more than 8 years is advised at an interest rate of 4.0% for years 1 to 3, rising to 4.5% for years 4 to 8 to encourage early principal repayment. | |
| Performance Management Considerations: See paragraph 5.1 | |
| Risk Management Considerations: All activity involving the borrowing and lending of cash requires the assessment and management of risk. In this case the relevant risks are the reputational risks to the Council of default by a company of which it owns a 30% stake and the risks of loss of capital should the company fail to deliver its business plan. Given the successful efforts over the last two years to turn the company round and the success demonstrated in winning new business, it is considered that the balance of risk is acceptable and will, in any case, be mitigated through the additional loan arrangements by Lancashire County Council and Blackburn with Darwen Councils together with the structuring itself of Blackpool Council’s loan. | |
| Relevant Officer: Steve Thompson, Assistant Chief Executive Treasurer Services | |
| Relevant Cabinet Member: Councillor S. Blackburn | |
| Consultation Undertaken: Only between Blackpool Council, Lancashire County Council, Blackburn with Darwen Councils and Via itself. | |
| Background Papers: None | |
| Is this a key decision? | NO |
| Is the decision required in less than 5 days? | NO |
| Recommendations: That the Council provides the Via Partnership with a loan of £300,000 from its Business Loans Fund for a period of up to 8 years that is incentivised for early repayment. | |
| Reasons for Recommendations: To enable the organisation to move forward. | |
| Is the recommendation contrary to a plan or strategy adopted or approved by the Council? | NO |
| Is the recommendation in accordance with the Council’s approved Budget? | YES |
| Other alternative options to be considered: Although an alternative option, non-participation in offering a cashflow loan to Via, a company that Blackpool Council holds a 30% interest, would adversely impact upon the company’s business development plans. | |
| Policy, Overview, and Scrutiny Committee Chairman (where appropriate) Date Informed: N/A Date Approved: N/A | |
| DECLARATION(S) OF INTEREST (if applicable) None | |
| Decision: The Leader of the Council agreed the recommendation as outlined above namely: That the Council provides the Via Partnership with a loan of £300,000 from its Business Loans Fund for a period of up to 8 years that is incentivised for early repayment. | |
| Date: | 10th March 2014 |
| Reason for Decision: To enable the organisation to move forward. | |
Date of Publication: | 10th March 2014 |
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