2011 year in review

Key performance indicators

Financial headlines

Chairman's statement

Business headlines

Chief Executive overview

Operations and performance

Highways segmental review

Government and Business Services segmental review

Regulated Industries segmental review

Management Consulting segmental review

Financial statements

Government and Business Services segmental review

We brought you innovative buildings...

...now we’re developing innovations in service delivery

Government and Business Services revenue has decreased by £12.8m compared with the previous year as councils implement the Government’s austerity cuts and discretionary spend is reduced. Our focus has been on working with existing clients to help meet these challenges.

Consequently, the underlying operating margin in this sector fell to 3.4% (2010:6.5%) - a reduction of 47.7%. Although we have seen a significant reduction in capital project work, particularly in property services, we have seen growth from supporting our existing customers with their transformation programmes, which has also led to the transfer of additional services to Mouchel.

In Lincolnshire, we have managed the Council’s workforce change programme to help it achieve the significant budget reductions required under the 2010 CSR. We are working in partnership with Bournemouth Council to deliver its £256m cost reduction programme over 10 years. Whilst this is a key strategic relationship for Mouchel, the contract is expected to generate little margin in the first year or so of operation as investment in service transition and improvement is undertaken.

In Oldham, four new services have been transferred to Mouchel; and in Milton Keynes we have signed a  contract through our joint Working Better Together programme, which will deliver an additional net cumulative £18.1m of savings to Milton Keynes Council.

We see an increasing drive within local authorities to working in partnership to deliver the challenging budget savings that have been set and we believe this trend will continue for the coming two years. This will be at the core of our growth for the next three years, developing existing partnerships and adding new ones to our portfolio.

Market overview and outlook

Local authorities are experiencing an unprecedented level of change resulting from cuts in public expenditure, demographic change and increasing public expectations. There is a clear drive towards a more local approach and greater focus on citizen and community outcomes. Achieving this change requires a shift in the way that councils provide services and how they engage with the private sector. We are already working with local government leaders to map out new ways of working that meet the challenges facing local government finances and to find innovative solutions that enable the transformation of their whole organisation. We also see that an increasing number of councils are looking to private sector partnership and risk sharing.

Our business process outsourcing activities are in demand, with almost every local authority pursuing service transformation strategies, rather than simply cost savings and service cuts. While our work in the local authority property sector has been scaled back as a result of the reductions in school building, refurbishment and maintenance expenditure, there is greater stability in our long-term contracts and service partnerships – these contracts are also  our best source of growth, as a result of service expansion or extension.

We are able to leverage the scale and innovation of our support services infrastructure to guarantee rapid and sustainable cost reduction. We are  working with local authorities on new delivery models that will transform frontline services and continue to address problems of unemployment, skills shortages, poor health, poor economic growth and housing shortages.

Whilst our services remain in demand by clients in the public sector, the overall severity of government cuts will have an inevitable impact on the volume of work we deliver next year.

The short-term outlook is uncertain as discretionary spend could be further reduced to meet spending reductions imposed on councils by Government. In some cases, councils are willing to reduce scope and levels of service to achieve reductions which would adversely affect our margins.

Results