What’s up the road and down the line in 2017 for transport?

What’s up the road and down the line in 2017 for transport?

Paul Wormald, Partner and transport specialist at Hawsons, takes a look at what the future may hold for two key elements of the transport sector in 2017.

Haulage

General economic outlook

On a global level, we are predicted to be in for another year of weak if any growth. Key positives are technological advancements, improved labour skills, and greater productivity, but these are hedged by ongoing political uncertainty around the world which may dampen business and consumer confidence.

Domestically, an OECD report in November showed the UK economy still getting over the Brexit result. Sterling depreciation, and uncertainty about future trading relationships with the rest of the world may impact on business investment both within the UK and into the UK. Inflation is expected to pick up in 2017 which could reduce consumer spending power, squeeze margins, and hinder growth.

This is not great news for a sector that does well when businesses are investing and consumers are buying which stimulates demand for hauliers.

Fuel costs are predicted to stabilise at least, but with Crude expected to trade at around $50 to $60 per barrel, this stabilisation point is at a much higher level than the sub $30 per barrel seen in early 2016. As a result the FTA predicts bulk diesel prices to be around 95-96pence per litre (ex VAT) during 2017 compared to sub 90p pence for much of 2016.

Some positive news remains for 2017 though with fuel duty being frozen for the seventh consecutive year in the latest Autumn Statement.

Further cost pressures may materialise from the continuing shortage of skilled drivers. This drove up labour prices in 2016. With an estimated 664,000 qualified commercial vehicle drivers in the UK, and an estimated one in four drivers due to retire over the next ten years, the ability to promote the road transport industry as a career choice for the next generation remains a huge challenge for the industry. The financial impact for hauliers is that either through restricted supply, or by the need to increase wages to attract younger drivers, labour costs are likely to increase further.

Which brings us nicely to driverless vehicles… 2016 saw the first public trial of a driverless car in the UK, at Milton Keynes. Further trials are set to take place in Bristol and Greenwich in 2017, and whilst we would seem to be a long way from commercial vehicles heading hands free down the motorway, the potential that this line of technology has and the impact it may have in the future for the sector in some form could have sizeable consequences for the sector.

Rail

The fall in the level of freight lifted by Rail in 2015/16 has been well documented, with coal traffic declining, and uncertainty surrounding the steel industry. Coal now ranks third in the pecking order of volume moved behind Intermodal and Construction traffic, having once ruled the roost.

This abrupt decline has meant that rail freight operators have the challenge of how to replace these revenue streams via diversification and how to deal with underutilised and redundant assets.

The volume of Biomass hauled on the rails should increase during the year as the reliance on coal fuelled power stations continues to reduce in favour of ones capable of using Biomass.

Major infrastructure projects could help construction traffic grow during 2017 and beyond, although whether some of the longer term projects are ultimately delivered may depend on how the UK’s finance fare post Brexit.

Rail infrastructure projects will continue through 2017 such as further progression on Crossrail along with other improvements around the network.

2017 will also see the start of the periodic review process. This will ultimately determine what Network Rail’s outputs and funding will be for Control Period 6 (2019 – 2024). Since the last review, the funding landscape for NR has changed with it being reclassified as a public body in 2014. As a result, the borrowing that NR incurs forms part of the national debt. In CP5 there have been some high profile budget overruns on major projects, causing other projects to be delayed or cancelled. Couple this with the continued uncertainty over Brexit, and pressure on the public purse, and it can be seen that those businesses who may benefit from these projects will need to keep a close eye on how that review develops.

Intermodal traffic is now the largest freight traffic category on the UK’s rails, but the challenge here is that a lot of the key routes for intermodal are also those with the highest demand for passenger traffic. This pressure on network capacity looks set to increase in 2017, with more passenger services being timetabled on already crowded routes. So whilst there is a need for further capacity in the rail network, there may be more limited resources available to Network Rail to deliver these.

2017 should see work begin on the ground on the first phase of HS2 between London and Birmingham. No doubt there will also be further developments across the year over how the northern phases of this project will ultimately look.

Overall 2017 looks set to be a year of challenge for those involved in the transport sector.

More from our transport and logistics experts

You can find all of our latest transport and logistics sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]

How is your care home performing?

How is your care home performing?

How is your care home performing?

All care home managers and owners ought to know how their business is performing against its competitors. We realise that each home is different but an analysis of margins, costs etc. against the competition can help highlight areas of concern and, of course, highlight where your business is performing well.

The financial performance of any business is a key focus for any owner and manager. The financial results will almost certainly impact on fundamental operational decisions, CQC recognise this and legislation is in place that requires operators to consider the financial viability and position of their homes to ensure that care standards are not impacted due to financial constraints.

UK Care Home residents by main funding source

Funding sources have remained consistent over the past year with 48% of care homes being funded by local authorities, 40% are privately funded whereas only 12% are funded by the NHS or CCGs. This follows the trend of previous years in which the private fee paying market is continuing to increase, especially in the South East of the country. Many operators face the same dilemma with regards to private fee levels being used to subsidise lower paying local authority funded services users and have no option but to take a commercial view on this to remain viable.

Funding source Percentage (%)
Local Authority 48
Privately funded 40
NHS/CCG 12

Fees – Elderly Care

Average weekly fees continue to be a challenge for many operators, with funding pressures in both nursing and personal care by many local authorities. Many of our clients have benefited from increases in specialist care income streams, but this is highly dependent on the needs of residents and the demand on providers in the local area.

 Average weekly fees Nursing Personal/residential
East of England £738 £585
East Midlands £643 £597
London and South East £813 £722
North East England £568 £483
North West England £570 £522
Scotland £660 £558
South West England £782 £687
Wales £608 £527
West Midlands £670 £632
Yorkshire & The Humber £545 £492
*Source: JLL Elderly Care Homes KPI 2015/16

 

Some local authority fee rates are indeed increasing due to a new number of reasons, and these are:

  • Judicial reviews
  • Integrated budgets
  • Better care fund

Payroll costs

Payroll costs present a mixed picture, with falling levels in personal care homes but rising levels in the more specialised nursing and specialist sectors. Going forward we expect the increase in the National Minimum Wage (effective from 1 October 2016) and National Living Wage (effective from 1 April 2017) to impact operators, together with additional pension costs following the implementation of Auto-Enrolment.

% of total revenue PC  NH SP
2016 H1 50.7 56.9 55.7
2015 H2 51.0 56.1 56.5
2015 H1 50.8 56.1 55.0
2014 H2 51.7 56.2 53.8
*Source: Colliers Healthcare Market Review 2016

Non-Payroll costs

Non-payroll costs across all forms of care have fallen, largely due to income increases across the board. These costs do tend to relate to operators fixed costs and therefore this trend is not surprising to see. Nursing care, for the first time, is showing a sub-fifteen percent average of non-payroll costs, which we expect being a result of the FNC increases during the past year.

% of total revenue PC NH SP
2016 H1 17.0 14.9 14.8
2015 H2 17.1 15.0 14.6
2015 H1 17.2 15.1 15.8
2014 H2 17.1 15.0 15.9
*Source: Colliers Healthcare Market Review 2016

EBITDAR

There have been modest profit increases for EBITDAR (Profit Margins), with percentage of total revenue for personal care rising to 32.3% in 2016, up by 0.5% from 31.8%. However, nursing homes feel the pressure of wage increases and show a fall in profitability, with profits reducing by 0.7% to 28.2%, down from 28.9% in 2015.

% of total revenue PC NH SP
2016 H1 32.3 28.2 29.6
2015 H2 31.8 28.9 29.0
2015 H1 32.0 28.9 29.3
2014 H2 31.0 28.7 30.2
*Source: Colliers Healthcare Market Review 2016

The impact of nurse shortages

The national shortage of nurses doesn’t just impact the NHS; it impacts the private sector as well. This is partly down the fact that there is a high cost of agency staff. The cost of agency staff in the East of England, London and the South East and the West Midlands all come to more than £20,000.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]

Care sector 2016 review – What does the future hold?

Care sector 2016 review – What does the future hold?

Care sector 2016 review – What does the future hold?

Scott Sanderson, Partner at Hawsons and Care Home Specialist gives his thoughts on the events of the past year: “Throughout 2016 the care sector continued to be challenging for operators, with staffing shortages in nursing care, continued funding pressures from local authorities and rising wage costs. Yet, the sector continues to be an attractive option amongst wealthy new entrants looking to develop purpose built homes, together with existing operators looking to expand or re-develop existing sites to remain fit for purpose in future years.

However, for smaller operators, we have seen a growing number choosing to leave the sector due to the continued compliance demands and funding constraints. The Care Quality Commission (“CQC”) recently published their report on The State of Health Care & Adult Social Care in England 2015/16, in the report CQC acknowledge the above noted concerns facing operators, commenting “that smaller providers are particularly susceptible to closures”.

Phillip Hammond’s Autumn Statement also did little to support the funding gaps in the adult social care sector either, however more positive signs for the sector were announced at the back end of 2016 with 95% of all local authorities planning council tax rises of between 3.9 per cent and 3.99 per cent. Local authorities have warned that despite the planned rises they will still not have enough money to cover the burgeoning cost of social care, at the same time as absorbing continuing cuts from central government.

On compliance matters, CQC’s annual report shows a significant increase in standards across the sector with 72% of adult social care homes being rated as either Good or Outstanding, up from 60% from 2014/15. For those operators who were rated as either Requires Improvement or Inadequate, upon re-inspection 77% of which had their ratings improved.”

What will 2017 bring for the sector?

One certainty for 2017 is that we can expect the next 12 months to be equally as challenging!

With a growing number of smaller home owners thinking of exiting the sector, new entrants continuing to show interest, improved willingness for banks to lend and an attractive tax regime, we expect the next year to involve an increasing number of acquisitions and disposals, both nationally and locally. If you have been waiting for a healthy environment to sell your care home or enter the sector, then the next 12 months may be a great opportunity for you to make that move. Read more about this at www.hawsons.co.uk/care-home-buying-selling.

The care sector is also set to become a gradually more competitive and uncertain environment, as the new entrants challenge the status quo. It is therefore crucial that care home owners within the sector see the increased compliance and growing emphasis on financial sustainability as an opportunity to highlight key areas where their home can improve and, critically, implement new policies and procedures to work towards a stronger, sustainable financial future.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]