Board Sponsor: Sarah Truelove, Director of Finance and Deputy Chief Executive. Author: Lynne Abbott, Head of Financial Management

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1 Report To: Public Trust Board Agenda item: 13 Date of Meeting: 23 October 2013 Title of Report: Finance Report Status: Discussion Board Sponsor: Sarah Truelove, Director of Finance and Deputy Chief Executive Author: Lynne Abbott, Head of Financial Management Appendices ne 1. Purpose of Report (Including link to objectives) The purpose of this report is to set out the Trust s financial performance for the period to 30 th September Summary of Key Issues for Discussion This report details the current performance against the Trust s main financial duties and the key risks to the delivery of those financial targets, and includes recommendations, where further action is required. 3. Recommendations (te, Approve, Discuss etc.) The Board should note the financial position for September 2013 and understand the key risks and the actions being taken to mitigate them. Action: All 4. Care Quality Commission Regulations (which apply) Care Quality Commission Outcome 26 : Financial position People can be confident that the provider has the financial resources needed to provide safe and appropriate services. 5. Legal / Regulatory Implications (NHSLA / Value for money conclusion) t achieving financial duties will impact on the ability and sustainability to achieve the Value for money conclusion. 6. NHS Constitution NHS Constitution principle 6 The NHS is committed to providing best value for taxpayers money and the most effective, fair and sustainable use of finite resources. Agenda Item: 13 Page 1 of 16

2 7. Risk (Threats or opportunities link to risk on register etc.) In line with the BAF risk 6 The Trust fails to deliver its financial plan which leads to the Trust having a financial risk rating of two or less, resulting in a lack of confidence from the Trust s commissioners and the regulator. This increases their level of scrutiny which places additional resource pressures on the Trust and degrades the Trust s reputation. 8. Resources Implications (Financial / staffing) t applicable 9. Equality and Diversity t applicable 10. Communication t applicable 11. References to previous reports Standing item 12. Freedom of Information Public 1. Executive Summary 1.1. Introduction As at the 30 th September 2013 (Month 6), the Trust is reporting a surplus of 2,619k to date, which is 158k favourable to plan ( 178k favourable in M5). The key reason for this favourable variance is that QIPP is being largely delivered and investment slippage and budget underspends are mitigating the underperformance of non-sla income. The current forecast outturn, based on agreed actions, is delivery of a 4.6m surplus (including accounting for donated assets and impairments). This is an increase of 0.9m above planned levels due to the receipt of additional donated income. Agenda Item: 13 Page 2 of 16

3 2. Key Performance Indicators Area of review Key Highlights YTD Rating Year end Rating Income & Expenditure position QIPP programme The Year to date position is 2,619k surplus (including accounting for donated assets and impairments) 158k favourable to plan, mainly due to Pay underspends to date mitigating n pay overspends and non-sla income underperformance. EBITDA margin is 8%, which is in line with the planned 8% for the period. 3,818k achieved against plan of 3,905k, 98% YTD. Main areas of non-delivery are within the Efficiency Board schemes, predominately due to the inability to reduce premium staffing and drugs costs. Liquidity Cash balance at month end is 7,699k, 82k less than plan FRR rating for liquidity is 4 (with the inclusion of a working capital facility in line with the LTFM). Risk Rating Monitor Risk Rating YTD is a 4. The minimum authorisation rating is 3. Monitor Forward Financial Risks are showing minimal risk. 3. Overview of Financial Performance 3.1. Statement of Comprehensive Income The Trusts overall income and expenditure position is outlined in the table below: Agenda Item: 13 Page 3 of 16

4 Last Statement of Comprehensive Income YTD YTD YTD Year Period to Budget Actual Variance Actual 30 September 2013 '000 '000 '000 '000 SLA Performance Income (99,916) (100,103) (187) (93,635) Other Income (16,519) (15,934) 586 (16,275) Income Total (116,435) (116,037) 398 (109,909) Pay 73,385 72,615 (770) 69,244 n Pay 33,534 33, ,619 Expenditure Total 106, ,462 (457) 100,863 EBITDA (9,516) (9,575) (59) (9,046) Depreciation 4,111 4, ,056 Dividend Payment & Interest 2,654 2,643 (11) 2,704 Finance Charges 6,765 6,762 (3) 6,760 (Surplus)/Deficit (2,750) (2,813) (63) (2,286) Margin 8% 8% 8% Donated Asset Income (150) (246) (96) (55) Donated Asset Depreciation Donated Assets (96) 355 Grand Total (2,460) (2,619) (158) (1,931) The EBITDA bridge above highlights the key individual variances. These relate predominantly to n-sla income underperformance, some of which is offset by pay underspend, with the remainder being mitigated through slippage on investments. The key risks going forward are that QIPP delivery does not increase in line with expectations, CQUIN delivery does not continue in line with quarter 1 and 2 achievement levels and increased data challenge leads to a decrease in contract income levels. Agenda Item: 13 Page 4 of 16

5 Income Income year to date is 398k below plan, of this SLA income is over-recovering against plan by 187k, Donated Asset income is 96k above plan and "Other" income is 586k below plan. The main income streams currently underperforming are: Education and Training; RTA Income and Distinction Awards, the latter being offset by a reduction in pay spend. Appendix 1 highlights that SLA income was in-line with plan in month and is now cumulatively 187k ahead of plan. Elective and Day Case income has continued to fall back against plan and is now 948k below plan. n elective income continues to over perform and is now 1.2m ahead of plan, most notably in Diabetic Medicine/Endocrinology, Trauma & Orthopaedics, and General Surgery. Analysis of the plan for non-contracted income (included in previous months under Other ), has allowed a more detailed allocation of this plan across the main PODs. Whilst the overall Income plan in unaffected, the individual plans for Outpatients and High Cost Drugs have increased, offset by a corresponding reduction in the plan for Other. Outpatient income is now underperforming against plan by 365k, driven predominantly by underperformance in Oncology/Haematology and Orthodontics. High Cost Drug income is underperforming by 624k; although this is being offset by a similar underspend in drugs expenditure. Other areas of overperformance relate predominantly to CCG QIPP adjustment of 1.7m and overperformance on direct access radiology activity. These are being partially offset by the potential underachievement of CQUIN targets and the assessment of potential fines. Income loss under the non-elective 30% marginal rate threshold is 515k YTD, with a further 892k lost YTD due to the readmissions penalty. Income by Commissioner shows that contract income attributable to BANES CCG remains well below plan. However all other Commissioners are showing overperformance. Work remains on-going to ensure that income is being correctly attributed to the correct Commissioner, with the correct identification of specialised activity, remaining an area of concern for all Commissioners. As the SCG contract baseline was agreed solely at FOT, for budget setting purposes an additional income plan of 3.8m was set for SCG. This plan was based on the growth and service development assumptions shared with SCG, as part of the contracting round and is predominantly growth in high cost drugs, acute oncology and radiotherapy. This is the figure that is quoted in table 4 and is agreed in principle Agenda Item: 13 Page 5 of 16

6 by SCG. Thus although year-to-date SCG overperformance is only showing as 295k, actual billed overperformance M1-5 was 2.1m. Appendix 1 shows year to date income split by both point of delivery and Commissioner Expenditure Expenditure year to date is 457k below plan. This offsets the current income underperformance levels and therefore the EBITDA is favourable to plan by 59k. Pay expenditure has remained below planned levels. However staffing costs have increased in September, as a number of vacant posts have now been successfully recruited to. This trend will continue in future months with additional recruitment in ITU, Theatres and linked to the ECIST funding. n-pay expenditure is above plan mainly on premises costs and specifically around Energy and Hardware/Software levels. The combined heat and power plant was not fully operational during September and a water leak has now been located but not resolved. Hardware /Software costs are also high, due to additional PACs implementation costs, which are yet to be mitigated. These overspends are being partially offset by underspends on clinical supplies, drugs and slippage on one-off expenditure items. These underspends are not forecast to remain at these levels and are expected to increase in future months. Appendix 2 shows how expenditure has moved over the last two months and the prior year average Finance Charges The capital plan has been approved at the Capital Prioritisation Group and planned finance charges, consisting of depreciation, and PDC, have been calculated. These are expected to deliver in line with plan by year end, subject to any unforeseen slippage in the capital programme in year. Agenda Item: 13 Page 6 of 16

7 4. QIPP Programme (Savings) The year to date QIPP position shows that the Trust has delivered savings of 3,818k against a year to date plan of 3,905k, an achievement of 98% of the planned year to date target (97% in M5). The QIPP plan for 2013/14 is 11m and the forecast outturn at Month 6 indicates a potential shortfall of 0.8m savings by year-end. The 2.2m improvement from Month 5 relates specifically to anticipated increases in income and income overperformance. There are a number of schemes which are red rated for financial risk, with specific areas of concern around reductions in staffing costs, particularly premium costs. However the forecast continues to improve each month and work remains on-going to ensure that QIPP is fully delivered. New QIPP schemes are under development and the acute care of the elderly (ACE) unit will open in October, with a focus on reducing length of stay and improving patient pathways. Further savings opportunities and mitigations, specifically relating to Efficiency Board schemes, are being reviewed on an on-going basis. Appendix 3 gives more detail on QIPP delivery to date. Agenda Item: 13 Page 7 of 16

8 5. Statement of Cash flow and Financial Position The table below shows the current cash flow for the Trust Statement of cash flows Plan to date Actual to date Variance to date '000 '000 '000 Operating surplus/(deficit) 9,662 9,618 (44) Movements in: Inventories Receivables (1,713) (6,274) (4,561) Payables 411 3,859 3,448 Provisions 0 (135) (135) Cashflow from operations 8,360 7,097 (1,263) Capital expenditure (7,979) (7,079) 900 Cashflow before financing (363) Net interest paid (216) (42) 174 Dividend paid (2,586) (2,479) 107 Repayment of borrowings (495) (495) 0 Loan Received Net in/(out)flow (2,916) (2,998) (82) Opening cash balance 10,697 10,697 0 Closing cash balance 7,781 7,699 (82) The cash balance is currently 0.82m below plan. This has been realised through a combination of: Increase in trade receivables, circa 2m GWH outstanding debts relating to provider to provider contract and circa 4m M1-5 contract overperformance recently raised to Commissioners; Increase in trade payables due to capital accruals and income received in advance or expenditure being incurred; Slippage on the capital programme. Agenda Item: 13 Page 8 of 16

9 Liquidity Cash balance month end Target 8.1m Actual 7.7m Average daily cash balance in month 6m 13.4m BPP aggregrate based on volume of invoices 95% 97% BPP aggregrate based on value of invoices 95% 99% Trade Receivables balance (target per opening balance sheet) 10.1m 16.5m Trade Payables balance (target per opening balance sheet) 13.5m 17.5m The table above highlights both the key liquidity measures, which form part of Monitor s Foundation Trust compliance framework, and the internal metrics used to monitor cash balances. Both trade receivables and trade payables remain above planned levels, as discussed above. 6. Statement of Financial Position n-current Assets: have increased by 2.6 m year to date. This is driven by capital spend of 7.2m (discussed in more detail below) and depreciation of 4.5m. Current Assets: year to date have increased by 2.8m. There has been a significant increase in NHS receivables, due to the invoicing of 5 months overperformance against contract income. Current Liabilities: year to date have increased by 2.8m. This is mainly due to increased accruals and prepayments, predominantly where income has been received in advance of costs being incurred and capital accruals (for work done but not yet invoiced). This has been partially offset by the planned capital loan repayment. Agenda Item: 13 Page 9 of 16

10 As per 2012/13 '000s Statement of Financial Position as at 30 Sep 2013 Actual to Date '000s Movement YTD '000s n-current Assets 159,388 Property, Plant and Equipment 162,048 2, Intangible Assets ,532 Trade and Other Receivables 1,433 (99) 161,869 Total n-current Assets 164,430 2,561 Current Assets 3,701 Inventories 3,672 (29) 10,678 Trade and Other Receivables 16,505 5,827 10,697 Cash and Cash Equivalents 7,699 (2,998) 25,076 Total Current Assets 27,876 2,800 Current Liabilities (14,079) Trade and Other Payables (17,516) (3,437) (2,012) Provisions (1,883) 129 (186) Borrowings (125) 61 (990) Capital Loan from Department (495) 495 (17,267) Total Current Liabilities (20,019) (2,752) 7,809 Net Current Assets/(Liabilities) 7, n-current Liabilities (2,234) Provisions (2,227) 7 (190) Borrowings (190) 0 (7,925) Capital Loan from Department (7,925) 0 (10,349) Total n-current Liabilities (10,342) 7 159,329 Total Assets Employed 161,945 2,617 Finance by Taxpayers' Equity (137,356) Public Dividend Capital (137,356) 0 15,652 Prior Year Retained Earnings 15, Current Year Retained Earnings (2,617) (2,617) (37,624) Revaluation Reserve (37,624) 0 (159,328) Total Taxpayers' Equity (161,945) (2,617) 7. Capital The capital programme expenditure as at September totalled 7.0m, plus a further 0.2m spend on donated assets. Capital Plan Annual YTD YTD YTD Plan Plan Actual Actual As at 30th September 2013 '000 '000 '000 % Estates Five Year Programme 1, % IM & T % Medical Equipment 1, % Leased Assets % Strategic capital schemes 8,539 6,123 5,465 89% 12,084 8,004 6,987 87% Agenda Item: 13 Page 10 of 16

11 The Pathology Laboratories building has been the main area of expenditure in the period, at 4.9m and this will continue to be the main focus of the capital programme throughout 2013/14. The Combe Ward refurbishment was completed in month; this will attract additional PDC once the Trust has met its current CRL. Spend against a number of smaller projects includes 0.5m on Medical Equipment and 0.7m on the Estates rolling replacement programme. The underspend against the capital programme is driven by delays on the pathology build and the IM&T building, this is under continuous review. 8. Key Financial Risks Downside year-end forecast as at 30th September m Mitigations Expected Forecast outturn surplus 4,551 QIPP performance is monitored by both the Efficiency and the QIPP non-delivery worse than predicted Transformation boards and the Programme Management Office -821 is actively ensuring that QIPP plans can either be delivered or alternative plans developed Winter funding received at lower amount than expected -467 Investment could be flexed in-line with income received CQUIN Steering Group actively monitors delivery against CQUIN delivery worse than predicted -471 schemes and programme leads have been identified for each scheme to ensure delivery remains in line with Q1 & 2 There are regular meetings with Commissioners and very few Additional contract risks specific issues have been raised. However no data challenges -565 have yet been received and allocation of activity against new commissioners remains variable Other risks Discussions remain on-going to verify these risks. However it is -225 unlikely that these risks will be fully realised Potential downside surplus 2, Financial Risk Indicators The table below shows the Foundation Trust Monitor risk ratings (scores 5= low risk, 1 = high risk). The Trust s overall risk rating, based on the results to September, has maintained an FRR of 4. The position for Debtors over 90 days has improved from 6.6% to 4.1% as forecast for Month 6. The percentage of capital expenditure against plan has increased from 85% in August to 87% in September; continued monitoring will ensure that the trust will meet its capital plan for the year. Agenda Item: 13 Page 11 of 16

12 Financial risk ratings Scoring Criteria YTD YTD YTD Plan rating Score Risk Criteria Metric Weight / / /14 Underlying Performance EBITDA Margin % 25% 11% 9% 5% 1% <1% % 3 Achievement of Plan EBITDA achieved % 10% 100% 85% 70% 50% <50% % 5 Financial Efficiency Net Return after Financing 20% >3% 2% -1% -5% <-5% % 3 Financial Efficiency I&E surplus margin 20% 3% 2% 1% -2% <-2% % 4 Financial Efficiency (including WC facility in line with LTFM) Liquid days ratio 25% < Overriding rules FRR= 2 Overriding rules if two financial criteria scored 2 Overall rating Overall Rating 3 4 Monitor Indicators of Forward Financial Risk Unplanned decreased in EBITDA margin in two consecutive quarters 2012/ / / / /14 Q4 Q1 M4 M5 M6 10% 7% 8% 8% 10% Trust certifies that FRR may be less than 3 in next 12 months Working capital facilitiy used in quarter Debtors >90 days past due account for more than 5% of total debtor balances 3.1% 4.5% 3.6% 6.6% 4.1% Creditors> 90 days past due account for more than 5% of total creditors balances 2.2% 2.0% 2.3% 1.4% 1.1% Two or more changes in Finance Director in twelve month period Interim Finance Director in place over more than one quarter end Quarter end cash balance <10 days of operating expenses (c 5m) Capital Expenditure +/- 15% of plan for the year to date Yes Yes 10. Forecast Outturn The forecast outturn is 4.6m for 2013/14. This represents a forecast increase in surplus of 0.9m (due to an increase in donated income levels). The downside position, as shown in Section 8 above, would leave the trust with a 2m surplus. However mitigations plans have been identified against these downside risks and it is expected that the mitigated downside would still lead to delivery of the planned surplus. Agenda Item: 13 Page 12 of 16

13 11. Recommendation The Board is asked to note the financial performance to the end of September and the actions being taken to ensure delivery of the annual plan. Agenda Item: 13 Page 13 of 16

14 Appendix 1 Table 3 Annual YTD YTD YTD SLA Performance Plan Plan Actual Variance PCT '000 '000 '000 '000 BANES CCG (66,910) (33,715) (32,334) 1,381 WILTS CCG (69,658) (35,076) (35,427) (351) Somerset CCG (23,039) (11,575) (11,543) 32 Other CCG (4,793) (2,381) (2,587) (206) SCG (25,200) (12,396) (12,691) (295) n Contract Activity (2,306) (1,138) (1,293) (155) Other Commissioners (8,215) (3,636) (4,228) (592) Income Total (200,121) (99,916) (100,103) (187) Table 4 Annual YTD YTD YTD Income performance Plan Plan Actual Variance 30 September 2013 '000 '000 '000 '000 A&E ATTENDANCE (8,212) (4,072) (3,978) 94 DAYCASE (19,317) (9,891) (9,605) 286 ELECTIVE INPATIENT (20,150) (10,335) (9,673) 662 HIGH COST DRUGS (17,399) (7,816) (7,192) 624 NON ELECTIVE PATIENT (74,645) (36,899) (38,132) (1,233) OUTPATIENT (47,475) (24,290) (23,925) 365 OTHER (12,923) (6,613) (7,592) (979) EXCEPTIONAL DRUG FUNDING 0 0 (6) (6) Income Total (200,121) (99,916) (100,103) (187) Agenda Item: 13 Page 14 of 16

15 Appendix 2 Divisional Expenditure Comparison September 2013 Current Month '000s Prior Month '000s Prior Year Average Month '000s Current to Prior '000s Variances Current to Prior Year Average '000s Pay Expenditure Corporate 1,242 1,209 1, Estates & Facilities Medical 5,024 4,994 4, Surgical 5,028 5,009 4, Sub total pay 12,111 12,017 11, n Pay Expenditure Corporate (1) (188) Estates & Facilities (81) (60) Medical 2,416 2,351 2, Surgical 1,673 1,807 1,800 (134) (127) Sub total non pay 5,537 5,688 5,636 (151) (99) Total expenditure 17,648 17,705 17,397 (57) 251 Temporary Staffing Spend (included in Pay Expenditure above) Medical Staff (27) (4) Nursing Staff (1) (59) Other Staff (44) 51 Sub total pay (72) (12) Agenda Item: 13 Page 15 of 16

16 Appendix 3 QIPP Programme YTD YTD YTD Annual Forecast Forecast RAG Plan Actual Variance Plan Outturn Variance Rating '000 '000 '000 '000 '000 '000 Transformation Board Acute Oncology G Ambulatory Care G Bed Efficiency - DTOC Green to Go G ED Attendance Avoidance R Hip Fragility G Improving Efficiencies in Radiology G INNF Compliance G Outpatient Efficiencies R Pathology Cost Reduction G Readmissions G Reduction in Infection & Harm G SAU pilot G SLM Gastro G SLM OPU R SLM Urology G Theatres Scheduling & Capacity Realignment R Total Transformation Board -1,556-1, ,197-5, Efficiency Board Drugs Review R Back Office Review , G Procurement R Energy and Water Consumption G Terms and Conditions R Skill Mix / Reduction in Bank R Agency Recruitment R Research and Development G Savings identified through budget setting , R Total Efficiency Board -2,349-2, ,786-5,129-1,657 Total QIPP Programme -3,905-3, ,983-10, Agenda Item: 13 Page 16 of 16