REPORT TO : Cabinet DATE : 2nd December 2015 Report of Cllr Miles Parkinson PREPARED BY : Joe McIntyre Deputy Chief Executive Subject Commercial Joint Ventures
Purpose of Report
The Report provides background and updates the Cabinet on the Council’s 3 key joint ventures.
Recommendations
Cabinet notes the report.
Summary
The Report sets out the overall financial position of the Council’s 3 main commercial Joint Ventures.
Introduction
The Council has 3 commercial style joint ventures. These are
Globe Enterprise Limited, Barnfield and Hyndburn Limited Barnfield and Hyndburn Partnership.
The first two are companies as defined under the Companies Acts 1985 and 2006. The third is a partnership governed by the Partnership Act 1890.
Barnfield Construction Limited is a part owner in all 3 joint ventures. This company is privately owned by the Webber family and operates from its headquarters in Nelson, Lancashire. It has traded for over 30 years, currently employs over 216 staff and has an annual turnover of £49 million
Barnfield and Hyndburn Partnership
Barnfield and Hyndburn Partnership is an “old fashioned partnership,” similar to how solicitor firms and firms of accountants and other organisations used to construct themselves for the purposes of trade. As the Barnfield and Hyndburn Partnership is a true partnership, the Council and Barnfield , as partners do not have the limited liability that surrounds a company. It is for this reason that the economic activity of the partnership has largely been limited and the Council along with its partner Barnfield Construction Limited have looked to dissolve the partnership at the appropriate opportune moment. The partners have agreed that the partnership will be dissolved on completion of the development at Premier Mill in Great Harwood.
Barnfield and Hyndburn Partnership was the first joint venture of the three listed above. It was created in 1995. Barnfield has a 70% stake in the partnership and the Council has the remaining 30%.
The Partnership’s main asset for most of its existence has been Premier Mill in Great Harwood. The Mill was historically, rented business accommodation at fairly low level rents, providing employment and economic activity in the local area. Due to a number of factors coming together around six years ago, the Partnership decided to demolish the Mill and develop it for domestic housing.
The site has now been developed as Mill Gardens. The official site address is Arthur Street in Great Harwood. The overall development is expected to be valued at around £4.3m. It is being developed in two phases. Phase 1 consists of 21 executive style town houses, with a mix of detached, semi-detached and linked detached houses which are either 3 or 4 bedrooms with garages. Phase 2 was originally planned to be 16 two and one bedroom executive apartments with car parking, however this proposal has now been revised and bungalows will now be built rather than executive apartments.
Property sales on the site have been low due to the Recession and the lack of mortgage funds for buyers. However sales have been forthcoming during 2015 and a number of properties have now been sold There is some hope now that the remainder of the site will attract buyers over the next 18 to 24 months.
The finances for the last 3 years of the Partnership are set out below.
B&H Partnership 2014 2013 2012 Turnover £ 148,972 £ - £ 92,500 Cost of Sales £ 129,390 £ - £ 103,753 Gross Profit £ 19,582 £ - -£ 11,253
Administrative Expenses £ 21,217 £ 20,749 £ 25,116
Operating Profit or Loss -£ 1,635 -£ 20,749 -£ 36,369
Interest Payable etc. £ 57,016 £ 2,193 £ 1,436
Profit or Loss on Ordinary Activities -£ 58,651 -£ 22,942 -£ 37,805
Tax Due or Recovered £ - £ - £ -
Profit or Loss for Year -£ 58,651 -£ 22,942 -£ 37,805
Current Assets Stocks £ 2,622,931 £ 1,932,687 £ 1,821,939 Debtors £ 3,766 £ 3,497 £ 2,304 Prepayments £ 1,986 £ 1,784 £ 1,689 Cash at Bank £ 3,164 Total Current Assets £ 2,631,847 £ 1,937,968 £ 1,825,932
Current Liabilities Bank Overdraft £ - £ 54,199 £ 56,116 Trade Creditors £ 450 £ 451 £ 451 Amounts due to Barnfield Construction£ 2,429,367 £ 1,677,551 £ 1,540,656 Accruals £ 55,814 £ 900 £ 900 Total Current Liabilities £ 2,485,631 £ 1,733,101 £ 1,598,123
Net Current Assets £ 146,216 £ 204,867 £ 227,809
Capital Accounts £ 250,000 £ 250,000 £ 250,000
Current Accounts -£ 103,784 -£ 45,133 -£ 22,191
£ 146,216 £ 204,867 £ 227,809
The Partnership has been making a book loss on its trading activities for over 7 years. Prior to that period it was making a small surplus each year and had built its Reserves up from the trading profit over the years since 1995. The losses on trading activity coincide with the run down of the rental income as the decisions were taken to vacate the Mill of tenants and move to develop the site for housing. The last year in which the Partnership received any rental income was 2006. Over the years since the last rental income the Partnership has continued to incur business expenses around security and insurance for the site and other administrative and overhead charges and funded the development of the site for housing. The reported Balance Sheet position over the last 3 years has seen deterioration due to the lack of sales during the period. Reserves have continued to fall from £269,000 in 2006 to £146,000 by the end of 2014. However this has not presented the Partnership with any difficulties due to their considerable resources outside the Partnership and the prospects of the future development of the site providing a substantial profit in the next few years.
Within the Balance Sheet the fixed asset position has been written down to zero as the land and building value of Premier Mill were removed as a tangible fixed asset, once the building ceased to be used for rental space. This has now been replaced with the new housing that has been built and is shown as stock within the Balance Sheet prior to sale. As sales occur, repayments of loans are made to the bank in an agreed manner and the rest of the value from the sale is retained as cash within the business. The main creditor to the business is Barnfield Construction for their work in developing the site.
Once all the properties have been sold the partnership will be dissolved and the income divided between the partners. This is expected to occur over the next 2 years, but will depend on the full extent of the recovery in the housing market.
The business address for the Partnership is
Kenyon Road Lomeshaye Industrial Estate Nelson Lancashire BB9 5SP
Annual Accounts are reported to the Partnership Board each year. In line with standard practice within the private sector, annual accounts are produced on a calendar year basis. Due to the size of the Partnership, the preparation of the accounts does not have to comply with many of the accounting requirements of larger private sector or public sector bodies. However the Partnership in the interest of transparency and good governance, produces appropriate annual accounts to a high standard and has the accounts audited by an independent auditor. The auditors were rotated for the 2008 financial year.
The current Partnerships auditors are
Pierce C A Limited Mentor House Ainsworth Street Blackburn Lancashire BB1 6AY
The Management of the Partnership is undertaken by Tim Webber, Chairman and Managing Director of Barnfield, and 3 Hyndburn Borough Council representatives. The 3 Councillors currently on the Board are Councillor Miles Parkinson, Councillor Tony Dobson and Councillor Paul Cox. It is usual for either the Chief Executive or the Deputy Chief Executive from Hyndburn Borough Council to attend any meetings of the Board to provide support and advice to Councillors. This Group approves the Annual Accounts and sets the strategic framework for the Partnership and takes all major decisions around its activities. It will meet up to 4 times per year depending on the level of business it needs to conduct.
Barnfield and Hyndburn Limited
Barnfield and Hyndburn Limited was formed in 1997 shortly after it became apparent that the Barnfield and Hyndburn Partnership presented Hyndburn Borough Council with unlimited legal liabilities around its operation and that this was an inappropriate means of conducting business. The Limited Company was therefore formed to regularise the relationship and purposes for which the two parties had initially come together as well as providing an appropriate vehicle for continued joint working. As with the Partnership, Barnfield owns 70% of the Company and the Council owns 30%.
The company has two assets which generate its activities as follows:
Norden Court – this is a development of 9 industrial units in Great Harwood. The units are of a relatively small size but are usually in demand with little competition in this area for this type of offer and attract good rental. All units are occupied by tenants currently and the general pattern over the last 12 years shows high occupancy rates with good tenants. Renewal dates on leases are spread over the next 3 years.. As the record of tenants renewing leases is strong this does not give any great concern.
Alan Ramsbottom Way – This land has been developed for industrial units with most sold to the private sector. The company recently sold one unit to Metflex the existing tenant. Only two properties remain in the company’s portfolio at this time.
The financial position of the last 3 years for the Company is set out below
B&H Limited 2014 2013 2012 Turnover £ 2,497,973 £ 331,778 £ 569,463 Cost of Sales £ 2,246,005 £ - £ 229,303 Gross Profit £ 251,968 £ 331,778 £ 340,160
Administrative Expenses £ 61,596 £ 35,538 £ 35,218 £ 9,235 £ 9,899 Operating Profit or Loss £ 199,607 £ 306,139 £ 304,942
Interest Receivable etc. £ 1,119 £ 142 £ 23 Interest Payable etc. £ 63,613 £ 73,839 £ 83,536
Profit or Loss on Ordinary Activities £ 137,113 £ 232,442 £ 221,429
Tax Due or Recovered £ 30,317 £ 48,606 £ 54,290
Profit or Loss for Year £ 106,796 £ 183,836 £ 167,139
Surplus or Deficit on Revaluation £ - £ -
Total Recognised Gains & Losses £ 106,796 £ 183,836 £ 167,139
Tangible Assets £ 900,000 £ 900,000 £ 900,000
Current Assets Stocks £ 891,000 £ 3,137,005 £ 3,137,005 Debtors £ 916,776 £ 48,568 £ 47,547 Prepayments £ 53,152 £ 120,563 £ 90,707 Total Current Assets £ 1,860,928 £ 3,306,136 £ 3,275,259
Current Liabilities <1 year £ 1,391,037 £ 728,401 £ 711,002
Net Current Assets £ 469,891 £ 2,577,735 £ 2,564,257
Total Assets Less Current Liabilities £ 1,369,891 £ 3,477,735 £ 3,464,257
Creditors due over 1 year £ - £ 2,214,640 £ 2,385,000
£ 1,369,891 £ 1,263,095 £ 1,079,257
Capital & Reserves Called Up Share Capital £ 10 £ 10 £ 10 Revaluation Reserve £ 379,249 £ 379,249 £ 379,249 Profit & Loss Account £ 990,632 £ 883,836 £ 699,998
Shareholders' Funds £ 1,369,891 £ 1,263,095 £ 1,079,257
The Company’s Financial Position over the last 3 years has been strong. It has increased its Reserves, in this period from £912,118 to £1,369,891. The figures are provided without considering the tax liability stemming from asset disposal as these do not become due until a disposable occurs. Normal taxation due on operating activities is shown in the accounts.
The business address for the Company is
Kenyon Road Lomeshaye Industrial Estate Nelson Lancashire BB9 5SP
The Company’s registered number with Company House is 3062068
Annual Accounts are reported to the Company Board each year. In line with standard practice within the private sector, annual accounts are produced on a calendar year basis. Due to the size of the Company, the preparation of the accounts does not have to comply with many of the requirements of larger private sector or public sector bodies and only has to meet the requirement for small companies. The Accounts are subject to Audit. Contact details for the auditors are below. The auditors were rotated for the 2008 financial year.
The current Company auditors are
Pierce C A Limited Mentor House Ainsworth Street Blackburn Lancashire BB1 6AY
The Board consists of Tim Webber, Chairman and Managing Director of Barnfield, Andrew Couper, Barnfield’s Finance Director (who acts as the Finance Director for the Company) and 3 Hyndburn Borough Council representatives. The 3 Councillors currently on the Board are Councillor Miles Parkinson, Councillor Tony Dobson and Councillor Paul Fox. It is usual for either the Chief Executive or the Deputy Chief Executive from Hyndburn Borough Council to attend any meetings of the Board to provide support and advice to Councillors. The Board approves the Annual Accounts and sets the strategic framework for the Company and takes all major decisions around its activities. The Board will meet up to 4 times per year depending on the level of business it needs to conduct.
Globe Enterprise Limited
Globe Enterprise Limited is the largest of the 3 joint ventures. In addition to the Council and Barnfield, the Company has a third partner, Mr and Mrs Nevison. The Council, Barnfield and the Nevisons each own 1/3 of the Company. As well as its memorandum and articles of association, the operation of the company is governed by a shareholders agreement.
The Assets of the Company are the Globe Building on Scaitcliffe Street, Accrington, (less part of the block that has been sold to LCC and is now occupied by BT), the Accrington Superbowl and Cinema Complex, the associated retail and office space at St James Court, Accrington, the remaining Waterside Offices at St James Court, Accrington, next to Scaitcliffe Lodge that have not been sold and Great Harwood Town Hall.
The Company was formed to develop the former Platts Mill at Scaitcliffe Lodge after the mill buildings fell into disuse when the company stopped trading. Its primary aim has been to invest and regenerate parts of Hyndburn. In this it has been very successful with the major job creation activity in the Globe Centre, the development of leisure and recreation facilities around the Viaduct area and the opening up of Scaitcliffe Lodge for Residential, Office and Amenity purposes.
The Waterside Apartments consists of 55 luxury apartments with views over Scaitcliffe Lodge and the surrounding countryside and retail and office space. The project was started in 2007 and has an estimated value of £5.6m. The apartments have now been sold with Globe retaining the ground floor commercial space.
The Waterside Offices are 2 office blocks containing 7 office suites over 2 floors. The Project was completed in the first half of 2009 and a number of units were sold to the Department of Education—but have been left empty by them pending a decision on how to use them.
Globe is continuing to discuss the sale of a variety of assets and developing other assets by further investment of cash. .
Globe Accounts 2014 2013 2012
Turnover £ 710,259 £ 846,577 £ 813,563 Operating Costs £ 117,302 £ 58,890 £ - Gross Profit or Loss £ 592,957 £ 787,687 £ 813,563 Administrative Expenses £ 409,062 £ 490,464 £ 644,690
Operating Profit or Loss £ 183,895 £ 297,223 £ 168,873 Profit on Sale of Tangible Fixed Assets £ - £ 107,136 Loss on Investments
Interest receivable etc. £ 756 £ 1,984 £ 762
Interest Payable etc. £ 185,494 £ 227,485 £ 299,817
Profit or Loss on Ordinary Activities -£ 843 £ 178,858 -£ 130,182
Tax Due or Recovered -£ 397 £ 5,776 £ -
Profit or Loss for Financial Year -£ 1,240 £ 184,634 -£ 130,182
Unrealised Surplus on revaluation -£ 829,134 -£ 160,000 £ -
Final Position -£ 830,374 £ 24,634 -£ 130,182
Balance Sheet
Fixed Assets £ 6,460,433 £ 7,917,845 £ 8,766,769 Investments £ -
Stocks £ 4,187,905 £ 4,526,867 £ 4,523,469 Debtors £ 67,343 £ 68,571 £ 104,584 Cash at Bank etc. £ 132,349 £ 280,507 £ 86,034
Creditors within 1 year £ 6,583,475 £ 677,995 £ 551,509 Net Current Assets -£ 2,195,878 £ 4,197,950 £ 4,162,578
Total Assets less Current Liabilities £ 4,264,555 £ 12,115,795 ##########
Creditors over 1 year £ 935,546 £ 7,956,412 £ 8,735,178
Provision for Liabities £ -
Net Assets £ 3,329,009 £ 4,159,383 £ 4,194,169
Capital & Reserves Called Up Share Capital £ 3,000 £ 3,000 £ 3,000 Revaluation Reserve £ 18,187 £ 1,111,717 £ 1,193,954 Profit & Loss Account £ 3,307,822 £ 3,044,665 £ 2,997,215
Shareholders' Fund £ 3,329,009 £ 4,159,382 £ 4,194,169
Globe’s Shareholder value has shrunk over the last 3 years from £4.1m to £3.3m mainly due to a downturn in income from increased vacancy levels due to the Recession. However Globe’s management accounts for 2015 indicate that it should have returned to annual profitability and this will be confirmed when it produces its 2015 Annual Financial Accounts.
The business address for the Company is
The Globe Centre St James Square Accrington Lancashire BB5 0RE
The Company’s registered number with Company House is 3011308.
Annual Accounts are reported to the Company Board each year. In line with standard practice within the private sector, annual accounts are produced on a calendar year basis. Due to the size of the Company, the preparation of the accounts does not have to comply with many of the requirements of larger private sector or public sector bodies and only has to meet the requirement for small companies. The Accounts are subject to Audit. Contact details for the auditors are below.
The current Company auditors are
Ainsworth Limited Chartered Accountants & Registered Auditors The Globe Centre St James Square Accrington BB5 0RE
The Board consists of Tim Webber, Managing Director of Barnfield, Stuart Nevison and 3 Hyndburn Borough Council representatives. The 3 Councillors currently on the Board are Councillor Miles Parkinson, Councillor Tony Dobson and Councillor Paul Cox. The Chairmanship of the Board meetings revolves each year between Board Members. It is usual for either the Chief Executive or the Deputy Chief Executive from Hyndburn Borough Council to attend any meetings of the Board to provide support and advice to Councillors. Andrew Couper from Barnfield Construction who produces the monthly and final year account information also usually attends the Board meeting in his capacity as financial adviser to the Board and the operational manager usually provides an update from her area. The Board approves the Annual Accounts and sets the strategic framework.
Conclusion
The 3 Joint Ventures vary in size. Each is providing a vehicle to enhance the commercial, economic and environmental development of areas of Hyndburn. The Council’s involvement with these enterprises has ensured job protection and job creation over the last 20 years. In addition, the Council has gained financially as its value in all three organisations has grown, through their commercial success. The Barnfield and Hyndburn Partnership has posed risk management issues since its inception as it potentially exposed the Council to unlimited liabilities around its operation. However the Partnership has ensured by its actions that significant risks did not materialise. It is expected that within the next 2 years the Partnership can be dissolved and the value within it shared between the Partners. Barnfield and Hyndburn Limited and Globe Enterprise Limited continue to trade successfully and grow their profits and their balance sheet value. These two companies provide the Council with the ability to assist the future regeneration of Hyndburn with partners that have a long standing successful track records of development. REASONS FOR RECOMMENDATIONS
As outlined in the report
ALTERNATIVE OPTIONS CONSIDERED AND REASONS FOR REJECTION
Not applicable
IMPLICATIONS
Issue Comments Financial (including As outlined in this report . mainstreaming) Legal The Council has legal power to participate in companies and other joint ventures by virtue of its well being powers in section 2 Local Government Act 2000. The Council must however be satisfied that participation promotes the economic, social or environmental well being of the Borough. Officers and members appointed as company directors are subject to legal obligations under the Companies Act 2006 and must, for example, act in the best interest of the company when taking decisions as directors. The Council
has a joint venture protocol which advises on issues such as conflicts of interest. Assessment of Risk None Equality None Key Decision None CONSULTATIONS
Not applicable
LINKS TO CORPORATE PRIORITIES
Priority Comments
Corporate Governance and Community Leadership Community Safety Housing and the Environment Economy and Employment This report updates the Cabinet on its 3 commercial ventures that help it support its objectives around economy and employment. Culture and Leisure Other priorities with partners: Health and Social Care Education and Lifelong Learning
LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT 1985: CONSIDERATION OF WHETHER THE REPORT CONTAINS EXEMPT INFORMATION
The report does not contain exempt information under the Local Government Act 1972, Schedule 12a and all information can be disclosed under the Freedom of Information Act 2000.
LOCAL GOVERNMENT (ACCESS TO INFORMATION) ACT 1985: LIST OF BACKGROUND PAPERS
Not applicable