Alt Profit Making and Risk in Independent Children’s Social Care Placement Providers final 2023
There are solutions.
On the face of it our latest study of the financial reporting of the larger children’s social care providers seems to indicate that, despite the plethora of studies and reviews and recommendations in recent years, the provider sector has continued to gain scale while maintaining operational profit margin levels. However, look closely at the underlying information and there are signs that demand our attention.
This study largely looks at financial statements covering 2021/22, and we are already well into 2023 as we publish the report. There are examples in the 2021/22 reporting period of some providers experiencing operational issues (typically lack of available care staff) that have impacted negatively on their results. In such situations, the presence of debt levels that, in order to remain manageable, require a stable or growing operational cash flow for several years to come, brings a need for closer, real-time, monitoring and management of those situations.
Other providers warn that 2022/23 results will show the impact of a step change in costs related to cost-of-living inflation and the impact of significant staffing shortages. The degree to which these additional costs have been met through increases in prices paid by local authorities is not yet evident. Certainly, the annual round of fee negotiations around the sector has reported some bruising encounters this year.
The external environment is tough. The shock of high inflation, increased interest rates, and the financial crisis at Birmingham City Council (and other local authorities not far behind) cannot be ignored.
There are solutions.
The solutions require a leadership mindset (within both local authorities and providers) that, instead of partisan and divisive language, looks to access and better share the glaringly obvious financial efficiencies demonstrated by these large providers. Through assiduous partnership development, balanced risk sharing, and straightforward hard work and attention to detail, techniques such as block contracts, joint ventures, profit sharing and other arrangements are all possible. There are examples of all of these already in operation around the sector, but they remain a stubbornly small minority of current activity.
Our leaders would also benefit by looking to ownership options. The prospect of rebuilding in-house services that were abandoned over the last two decades in favour of outsourcing is daunting for many councils and regions. Big picture thinking is needed.
Again, there are solutions.
Where there is concern around who are the investors in the provider groups, there is also opportunity. Local authority and other public sector pension schemes already invest indirectly in private equity funds. Perversely, the Ontario Teacher’s pension scheme showed us the way as long ago as 2010, via their period of investment and ownership in Acorn Care and Education (now part of Outcomes First Group). It is possible to share in the profit and return on investment of provider groups at an ownership level. This has the potential to act as a balancing hedge. For example, if a local authority pension scheme were to take an ownership stake in a children’s services provider, and thereby benefit from strong profits and return on that investment then the annual funding rate into that pension scheme from the local authority may be reduced.
Are we strategically brave enough to consider this potential?
We will be running further seminars and workshops on these topics this autumn. For further details please contact us via contact@revolution-consulting.org
Additional workshop – Children’s Social Care contracting
UncategorizedThe first two workshops in March 2024 were oversubscribed.
Individual authorities and regional groups are taking the model forward.
We undertook to those unable to secure a place at the first two workshops to run an additional event.
This is scheduled for 9th April, 10:30-11:30.
Please contact us to secure a place: contact@revolution-consulting.org
https://www.revolution-consulting.org/2024/02/18/childrens-social-care-do-you-want-to-get-commercial-arrangements-out-of-the-way/
Children’s Social Care: Do you want to get commercial arrangements out of the way?
UncategorizedNew local partnership agreements are needed between purchasing authorities and independent providers.
Commercial and financial arrangements are too prominent and influential in this sector. They need to be moved out of the way of professional decision making around the needs of children and young people.
A new form of commercial model to bring purchasers and providers closer together.
Key elements of the model:
This allows parties to visualise the rewards and risks of the arrangements across all possible outcomes, and to alter parameter values to experiment with different levels of contributions and profit shares.
Facilitated use of the tool would allow local authorities or regions and their local providers to find out if there are values of contributions and profit sharing that would be acceptable to all parties. If there are such values these would form the commercial basis of new local partnerships that moves commercial arrangements out of the way of professional decision making.
Benefits
Are you interested?
We are in the process of introducing this model to the first region in England and would welcome contact from you if you are from a local authority, a regional commissioning team, a regional care cooperative or a provider organisation who would like to know more.
We will be running workshops to illustrate this model on 5th March and 14th March 2024 at 10:30am. The first 20 places are free to attend.
If you would like to secure a place please provide your contact details via contact@revolution-consulting.org
Profit and Debt in children’s social care – there are solutions
UncategorizedAlt Profit Making and Risk in Independent Children’s Social Care Placement Providers final 2023
There are solutions.
On the face of it our latest study of the financial reporting of the larger children’s social care providers seems to indicate that, despite the plethora of studies and reviews and recommendations in recent years, the provider sector has continued to gain scale while maintaining operational profit margin levels. However, look closely at the underlying information and there are signs that demand our attention.
This study largely looks at financial statements covering 2021/22, and we are already well into 2023 as we publish the report. There are examples in the 2021/22 reporting period of some providers experiencing operational issues (typically lack of available care staff) that have impacted negatively on their results. In such situations, the presence of debt levels that, in order to remain manageable, require a stable or growing operational cash flow for several years to come, brings a need for closer, real-time, monitoring and management of those situations.
Other providers warn that 2022/23 results will show the impact of a step change in costs related to cost-of-living inflation and the impact of significant staffing shortages. The degree to which these additional costs have been met through increases in prices paid by local authorities is not yet evident. Certainly, the annual round of fee negotiations around the sector has reported some bruising encounters this year.
The external environment is tough. The shock of high inflation, increased interest rates, and the financial crisis at Birmingham City Council (and other local authorities not far behind) cannot be ignored.
There are solutions.
The solutions require a leadership mindset (within both local authorities and providers) that, instead of partisan and divisive language, looks to access and better share the glaringly obvious financial efficiencies demonstrated by these large providers. Through assiduous partnership development, balanced risk sharing, and straightforward hard work and attention to detail, techniques such as block contracts, joint ventures, profit sharing and other arrangements are all possible. There are examples of all of these already in operation around the sector, but they remain a stubbornly small minority of current activity.
Our leaders would also benefit by looking to ownership options. The prospect of rebuilding in-house services that were abandoned over the last two decades in favour of outsourcing is daunting for many councils and regions. Big picture thinking is needed.
Again, there are solutions.
Where there is concern around who are the investors in the provider groups, there is also opportunity. Local authority and other public sector pension schemes already invest indirectly in private equity funds. Perversely, the Ontario Teacher’s pension scheme showed us the way as long ago as 2010, via their period of investment and ownership in Acorn Care and Education (now part of Outcomes First Group). It is possible to share in the profit and return on investment of provider groups at an ownership level. This has the potential to act as a balancing hedge. For example, if a local authority pension scheme were to take an ownership stake in a children’s services provider, and thereby benefit from strong profits and return on that investment then the annual funding rate into that pension scheme from the local authority may be reduced.
Are we strategically brave enough to consider this potential?
We will be running further seminars and workshops on these topics this autumn. For further details please contact us via contact@revolution-consulting.org
Profit and Debt in Children’s Social Care May 2023
UncategorizedFor several years Revolution Consulting has been studying the published financial statements of the largest providers of children’s social care services in the UK, with results published by the Local Government Association and others. We’ve recently been revisiting all of the new information filed at Companies House since the Competition and Markets Authority reported on their 2021/22 study of the sector. The picture emerging is increasingly informative for policy makers, commissioners, and the new pilot Regional Care Cooperatives.
Amongst a wealth of detail are some examples that will be of interest to those concerned with the sustainability of provider organisations that also report high debt levels. One example that caught our eye comes from the Aspris Holdco Limited accounts for the year ended 31 August 2022. Aspris is the relatively newly named group that was formed by the consolidation of the Priory Group’s children’s care and education operations with those of Sandcastle homes under the direction of their common Waterland Private Equity owners.
Amongst the details provided in the accounts is information about the loans carried by this new Aspris group of £165million:
“The Group’s Loan facilities are subject to a single financial covenant test which is assessed quarterly. This covenant assesses the total gross Leverage of the Group as a ratio to pro forma LTM EBITDA of the consolidated group at each quarterly test date. At the balance sheet date the covenant threshold was 7.4x, as at 31 August 2022 the ratio level was materially below this threshold at a level of 4.9x. This equates to £11.6m of headroom expressed in terms of pro forma LTM EBITDA.”
Commissioners and policy makers need to have access to the technical ability to decode this sort of statement. What does it mean? How is it important to assessment of sustainability? What should commissioners make of it? How could it be used to inform the sort of financial oversight imagined by the Care Review and in the Department for Education’s Stable Homes consultation? How could it be used to inform smart strategic commissioning?
The Aspris disclosure of bank covenant information is rare and voluntary, but is in keeping with the DfE’s intent to start with a voluntary regime of oversight.
We will be running a seminar on 15 June (11am) as more information emerges from our wider profit and debt study, including the following topics:
Profit and Debt: An extract of some key findings from the review of accounts filed in the last year.
Financial ratios, bank covenants and risk monitoring. A simple introduction.
What does the financial information mean for commissioners? What can local authorities do in the short term via commercial terms with providers?: Can commissioning change the way that local authorities and providers interact?
Directors of Children’s Services, Commissioners, Finance officers and policy makers who would like to join the debate around this information should contact us via our contact page to reserve a place.
https://www.revolution-consulting.org/contact/
State of the children’s residential care sector 2023
UncategorizedToday sees the release of the 9th “State of the sector” report by the Children’s Homes Association.
The results are based on a comprehensive annual survey of the association’s membership, a large majority of which are small organisations, often operating only one or two homes. The smaller providers make up a significant majority of the provision in the sector, a factor that is often overlooked by commentators who do not look beyond the now out-of-date CMA market study that only considered a small minority of the (largest) children’s social care providers.
The dominant themes in this year’s report relate to the challenges of staff recruitment and retention and the rising costs of staffing and the impact of the highest cost inflation experienced since the studies began in 2015. Reduced profitability and reserves are anticipated by respondents as a result of the uncertainties around recovery of higher costs from local authorities. This situation leads to greater caution amongst some providers and therefore acts as a brake on further capacity investment. Given the clear and continuing evidence of increasing demand and the urgent need for additional capacity this should be seen as a warning sign for policy makers and commissioners.
The Government and Independent Review response to the CMA market study offers little other than a relatively undefined notion of regional care cooperative pilots in the next 2 years. With such a lacklustre and ponderous response from policy makers there is an opportunity for providers to take a more urgent and leading role in shaping the sector to better meet demand and needs. The survey report includes some non-partisan examination of the roles of public, voluntary and private sector in a mixed economy. It also examines both the operation of the current referral interfaces between purchasing authorities and providers and considers the appetite for alternative forms of contracting arrangements.
This is rich intelligence that has the potential to be developed into a set of pragmatic, balanced and sustainable models for purchasing bodies and providers alike.
The report can be accessed via the link below.
CHA Spring 2023 final
Where next for children’s services commissioning?
UncategorizedToday sees the publication of our State-of-the-sector market study of children’s homes, commissioned by ICHA.
ICHA May 2022 final
This comprehensive study enhances the information available to policy makers as they consider the many recommendations arising from the CMA and the Independent Care Review, both of which placed primary importance on the perspective gained from study of the largest providers. It is essential to state that the top 10 providers account for only 1/3rd of children’s homes, and therefore any strategy needs to consider the role of the majority small and medium providers.
As the most up to date and comprehensive picture of the sector, the state of the sector report illustrates growing staffing and workforce pressures that risk undermining the ability of providers to respond to escalating need and demand. These are increasingly severe issues that require urgent attention.
When it comes to consideration of the way forward for commissioning, there is undoubtedly a need for innovative solutions in risk sharing and relationship development. Last weeks’ national children’s commissioning and training conference heard from Dan Turnbull of the CMA about their findings and had also hoped to hear directly from the chair of the Review, Josh MacAlister, but over 400 attendees were disappointed when he did not attend his allotted slot on the main platform.
Having personally had the chance to hear first hand from dozens of commissioners at the event, and through recent webinars for the LGA, it is clear to me that many have reservations about the regional structure put forward.
I would urge Will Quince to ensure his implementation team engage with commissioners and providers at a level of detail that the main reviews could not achieve.
There are a range of options not considered by the larger studies that merit proper debate and consideration.
Protecting children from market dynamics
UncategorizedProfit Making and Risk in Independent Children’s Social Care Placement Providers FINAL 2022
Our latest update for the Local Government Association confirms the growth in size and profitability of the largest children’s services providers.
The CMA have recommended actions to address the imbalance they described in the sector, but in our view these do not go far enough, and do not recognise the important role of the smaller providers that were not included in these studies.
At the core of the challenge is the need to protect children from the influence that commercial factors might have on decisions made that impact on their lives. This includes decisions made in commissioning, procurement and in service delivery.
The pan-national scale of the larger providers renders ineffective the different national agendas and the CMA proposals for a patchwork of sub-national commissioning. It is time for bold and assertive engagement with providers to reduce volatility, secure long term access to services where they are needed, and to partner with the economic efficiency that the results in our study clearly demonstrate.
It is time to re-cast the out of date price-per-week models and to break down commercial barriers and attitudes. It is time to support robust and long term study of the know-how that exists in service provision and the impact that providing the right services in the right places at the right time can help children to achieve.
The CMA clearly identify that individual local authorities cannot do this alone. We’re therefore calling on Ministers and the Care Review to grasp these challenges.
Implications of CMA report
UncategorizedIn this month’s CYPNow – a discussion of the remedies proposed by the CMA’s interim report.
https://www.revolution-consulting.org/wp-content/uploads/2021/12/CYP_Commissioning_Dec21-CH.pdf
More than 9 months into the Independent Review, the CMA are clearly signalling that they will be handing a set of recommendations for improvement in local authority market engagement early in 2022. Anyone who has been around the sector long enough to have absorbed previous reviews and studies may feel that much being studied and commented this time around is not saying anything we haven’t seen or heard before.
The clock is ticking on both reviews to start to deliver tangible improvements.
The underlying problem of insufficient supply…and the diverging activities of adults.
UncategorizedThe CMA published its interim report from the UK-wide Children’s social care market study last week.
Readers of over 80 pages in the report and 60 pages of appendices are invited to comment on it all by 12 November.
I for one welcome a couple of weeks to properly absorb the report, but my first thoughts are these:
“fundamentally a symptom of the underlying problem of insufficient supply of appropriate placements and the difficulties faced by local authorities in engaging effectively in this market”.
These conclusions set up potential tensions around the UK.
Scotland and Wales are both adopting positions that potentially conflict with the CMA’s position, and in England the chair of the Independent Review is maintaining his position that “indefensible profits” are being made.
In an interview with my professional body, the Institute of Chartered Accountants in England and Wales earlier this year I described the risks of the various reviews producing a set of recommendations that can’t be properly funded, link below.
I’d now add to this a concern that the various ongoing reviews appear to be heading in different directions, and different countries within the UK are also diverging in approach.
Children and Young people who need care and support need the adults around them to design, operate and fund systems to provide for that care and support. I would suggest that children and young people are unlikely to benefit from divided opinions, directions and positions being taken by those adults. Perhaps it is time for the new Minister for Children and the Education Secretary to bring parties together to reconcile and redirect?
https://www.icaew.com/insights/viewpoints-on-the-news/2021/oct-2021/solving-the-growing-crisis-in-childrens-social-care
Profit and Debt in children’s social care latest
UncategorizedToday sees the release of the second update report in this series of studies for the Local Government Association.
Projects
In this work we are commissioned to provide financial indicators about the largest children’s services sector providers. This can be a technical area and we urge readers to take care in their use and interpretation of the content. We’re always ready to help users to understand the work and invite you to contact us with questions and clarification requests.
This is all the more important as we have seen evidence in the social media and elsewhere that misstates our findings in previous reports. At this time of particular focus on the sector from the Independent Review and the CMA it is essential that this information is correctly understood.
We are planning a further webinar to discuss findings. If you are interested to attend please email contact@revolution-consulting.org or use the details on our contact page.
Contact
We are also interested to hear from organisations that would like to see this type of study repeated on a regular basis and who may be interested in becoming shared owners of the information and analysis.