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					Subject:                 Trust Finance Report 2007-08
                         Executive Summary: February 2008 (Month 11)

Report By:               Chris Bradshaw, Director of Finance and Performance

Authors:                 Richard Parker, Head of Financial Accounts.
                         Edmund Knight-Jones, Head of Financial Management.
                         Chris Archer, Head of Corporate Financial and Business Planning

PURPOSE OF THE REPORT:
To report the financial position of the Trust to February 2008 as presented to the Finance &
Performance Committee


KEY POINTS:
Key Financial        Year To Date                                Forecast Outturn
  Targets

Income &           £1,498k surplus          The Trust is forecasting a £1.5m surplus in 2007-08 and this will
Expenditure      (£1,370k surplus last      enable it to meet the next scheduled repayment of its working
Balance                 month)              capital loan.

                The year to date position includes a shortfall of £892k (1%) on income, offset by an under-spend
                of £886k (1.5%) on pay, an under-spend of £164k (0.8%) on non-pay, an under-spend of £657k on
                reserves and capital charges and a surplus of £683k on interest receivable. The forecast position
                remains achievement of a surplus that will enable the Trust to meet the next annual repayment
                commitment of its working capital loan.


External                  N/A               The Trust is forecast to achieve EFL being under the cash limit
Financing                                   target set by the Department of Health by £7.3m.
Limit (EFL)
                The Trust is forecast to undershoot its EFL by £7.3m comprising £2.2m under drawing of capital
                and £5.1m increase in cash balances.

                Cash balances reduced to £9.8m at the end of February and are forecast to be £5.4m at the end
                of March.

Capital
Resource                  N/A               The Trust is forecast to achieve CRL with a forecast under-spend
Limit (CRL)                                 of £2.3m against the capital programme

                The Trust’s Capital Resource Limit of £6.5m and has approved a programme of £6.1m.
                At the end of February the Trust has committed £4.3m and spent £3.5m of the programme; the
                main spend being £2.2m on PACS.
                The forecast outturn on the programme is £4.1m.




                                                 Page 1 of 10
KEY POINTS (Contd):
   Key Financial        Year To Date                              Forecast Outturn
     Targets
Capital Absorption
Duty (3.5%)                  N/A                       3.1%

                      The Trust is planning to achieve this duty with a current forecast position being within the
                      0.5% permitted tolerance of the target.
Public Sector Pay’t
Policy (Trade)
- By volume                 88.0%                       90%
- By value                  88.2%                       90%
                      National target 95%. Slightly below the Trust target of 90%.




IMPLICATIONS:

Financial:              The Trust is forecasting achievement of its key financial duties in 2007-08. A
                        forecast surplus of £1.5m that will reduce the cumulative deficit carried
                        forward at the end of the year to £4.5m.
Personnel:

Healthcare/             The Trust’s Use of Resources assessment under SfBH is anticipated to
National Policy:        improve to “fair” or “good” based on forecast performance in 2007-08.
Other:


RECOMMENDATIONS:

To consider the Finance Report and note the expected achievement of financial objectives for the
year, subject to approval of the final accounts.




                                                  Page 2 of 10
                            Trust Financial Performance Report.
                                     Month 11: 2007-08




                             Report of the Director of Finance



Income & Expenditure


The Trust’s current financial position is a year to-date surplus of £1,498k compared to plan
(£1,370k surplus last month). The full year forecast is for a surplus of £1.5m. This will enable
the Trust to meet the next year’s repayment of its working capital loan.

Key variances for the year to date are: -

      £693k adverse variance on NHS patient care income (£1,257k adverse last month)
      £199k adverse variance on other income (£141k adverse last month)
      £886k favourable variance on pay budgets (£961k favourable last month)
      £164k favourable variance on non-pay budgets (£302k favourable last month)
      £657k favourable variance on capital charges and reserves (£885k favourable last
       month)
      £683k favourable variance on interest receivable (£620k favourable last month)

The month has seen an improved position patient care income, this is in line with forecast and
has not had a major impact on the projected outturn position.


Please refer to the Board Performance Reporting Pack page “Income and Expenditure”




                                            Page 3 of 10
Healthcare Income

The year to date NHS patient care income position is a shortfall of £693k (£1,257k last
month). Outpatient activity was higher in February than for any month in the year to date.

   Under-performance on elective inpatients and day cases £1,158k (£1,208k last
    month). Elective inpatient and day case activity returned to nearer to its previous level
    following the reduction seen in December and January.

   Under-performance on non–elective & A&E activity £1,612k (£1,541k last month).
    This underperformance is due to the volume of non-elective activity being significantly
    below plan.

   Over-performance on out-patient activity £1242k (£755k last month).
    Actual outpatient activity was the highest seen in any month for the year to date for both
    first and follow-up attendances. This combined with ongoing slippage against the demand
    management targets built into SLA activity targets gave rise to a £486k increase in over-
    performance. Activity reductions from PCT initiatives to significantly reduce follow-up
    outpatients by transferring this work to primary care are phased to the later part of the year.

   Over-performance on direct access and high cost drugs £808k (£721k last month).
    Over-performance reflects increased volumes for direct access radiology and pathology
    and use of cancer drugs in 2007/08.

   Under-performance reserve, MFF and other £29k (£16k last month).

NHS patient care income is calculated based on the 1st cut of data for February 2008 and is
subject to change when the final data becomes available.


Please refer to the Board Performance Reporting Pack page “HC Inc PCT” and “HC Inc
Act”.




                                            Page 4 of 10
Directorate Position

The year to date position against directorate budgets is an under spend of £1,493k (£1,994k
last month). Directorate under-spending is concentrated in non-clinical departments.

   Surgery: £269k under spent (£309k under spent last month)
    The reduced under-spend is due to medical staffing waiting list initiative costs.

   Medicine: £196k overspent (£172k overspent last month)
    The adverse impact of the non-achievement of the CIP target for reducing length of stay
    (£41k) partially offset by lower expenditure in the month on cancer and GUM drugs.

   Clinical Support: £201k overspent (£120k over spent last month)
    Key overspends for the current month include off-site storage of medical records, under-
    achievement against the income generation target for asceptic pharmacy and the pay and
    non-pay costs of radiology WLI activity.

   Pathology £276k overspent (£213k over spent last month)
    The deterioration in the position in the current month relates to non-achievement of the CIP
    target in relation to creation of an integrated pathology service (£40k) with in addition a
    higher level of non-pay expenditure in February.

   Women & Childrens: £286k under spent (£278k under spent last month)
    As in recent months the directorate has reduced under spending on pay from that seen in
    the first half of the year.

   Estates & Facilities: £341k under spent (£450k under spent last month)
    The underspend is reduced in the current month due to increased spend on maintenance
    as part of the back to basics program.

   Corporate Departments: £577k under spent (£563k underspent last month)
    Corporate under spending relates to vacancies across a number of departments.

   Reserves & Provisions: £693k under spent (£899k underspent last month)
    The movement on reserves relates to reassessment of commitments, contingencies and
    provisions.

All directorate budget positions are reviewed at meetings between directorates and executive
directors where the scope to generate recurrent savings is assessed.

Staffing numbers have increased with 1,701WTE in the current month compared to 1,685WTE
last month, the average for April-February has been 1,686WTE.


Please refer to the Board Performance Reporting Pack page “Directorate £”




                                            Page 5 of 10
Income & Expenditure Forecast Outturn

The full year forecast remains at £1.5m surplus (£1.4m surplus last month). Key variances
within the projected forecast outturn are:

        A shortfall in income against target of £0.9m
        Under-spending against expenditure budgets and reserves £1.7m
        A favourable variance for depreciation and financing, including interest receivable
         £0.7m

The following table summarises the budget and actual year to date and forecast position.

                                       Year to Date                      Remaining Months              Forecast Outturn
                            Budget        Actual Variance          Budget Forecast Variance     Budget Forecast Variance
                              £000         £000      £000            £000      £000     £000      £000       £000       £000
    Income                  (79,319)     (77,921)    1,398         (14,653) (14,964)    (311)   (93,972) (92,885)      1,087
    Pay                      52,056       51,095     (961)          10,720    10,316    (404)    62,776     61,411    (1,365)
    Non-pay                  18,888       17,686    (1,201)          4,649     5,385     736     23,537     23,071      (466)
    Budget phasing            2,004        2,004       0            (2,004)   (2,004)     (0)       0         (0)        (0)
    EBITDA                   (6,371)      (7,135)    (764)          (1,288)   (1,268)     20     (7,659)    (8,403)     (744)
    Depreciation &
                             6,371        5,765         (606)       1,288      1,200   (88)      7,659     6,965      (694)
    Financing
    (Surplus)/Deficit           0         (1,370)      (1,370)         0       (68)    (68)        0       (1,438)   (1,438)

    EBITDA: Earnings before interest, tax, depreciation and amortisation




Significant additional non-pay expenditure is expected in the final month of the year based on
orders placed in relation to maintenance, minor equipment and infection control measures
including deep clean. There is upside risk that the forecast surplus will be exceeded if there is
slippage in delivery of these orders.


Please refer to Appendix “Detailed Income & Expenditure Position & Forecast”




                                                                Page 6 of 10
Cost Improvement Programme

Please refer to the Board Performance Reporting Pack page “CIP”.

The Trust has identified its cost improvement programme of £3.9m in detail and has a well
embedded process of regular performance review meetings between directors (Director of
Operations and Director of Finance) and directorates (Clinical Director and General Manager
with their team) to ensure progress is being made on delivery of the detailed programme. All
the savings from the programme have now been removed from directorate budgets.

£825k of the programme was planned for achievement from October onwards, three elements
of this have not yet been achieved:

       Medical length of stay reduction (£250k): A project to deliver this has now begun and a
        project officer has been identified to take the work forward.
       Pathology Network (£250k): It now seems unlikely that the creation of an integrated
        pathology service will generate further savings in the current year, although this
        shortfall is more than offset by charging for anticoagulation service (£155k) and
        additional direct access income (£141k to the end of December).
       Aseptic lab income (£50k):

The overall programme is forecast to overachieve the £3.9m target by more than £300k as a
result of initial savings against the length of stay and pathology network targets, additional
savings against the Trust’s utilities budgets of £329k, additional site rationalisation savings of
£114k and reductions in corporate budgets of £68k.

Work is underway to identify the detailed savings programmes needed to achieve further
efficiency improvements next year.

Please refer to the Board Performance                       Reporting     Pack    page     “Cost
improvement/recovery programmes”



Risks

Key risks to the financial position include: -

       Under spending against the Deep Cleaning Programme and other non-recurrent non-
        pay expenditure.
       Year end audit issues
       Variation in outturn activity and cost of addressing waiting list

Please refer to the Board Performance Reporting Pack page “Risk”




                                             Page 7 of 10
Balance Sheet, Cash, Capital & Other Performance Measures

The balance sheet states the assets and liabilities of the Trust and how the Trust is financed.

The key changes between January 2008 and February 2008 are:-

          Cash:-reduced by £6.3m, because of capital payments and a reduction in SLA
           prepayments from PCTs.
          Current Liabilities:- reduced by £5.6m mainly because of the reduction in
           Payments on Account from the PCTs.

Advance payments from PCTs are now reported separately from NHS Creditors under the
heading Creditor Payments on Account.

The key forecast changes between February 2008 and March 2008 are:-

          Cash:- reduces by £4.2m (see below)
          NHS debtors:-increases by £0.1m because of the impairment £1.0m which is offset
           by a reduction in other debtors £0..9m
          Non NHS Trade Creditors:- increases by £0.8m because of the delivery of
           equipment to site in March; invoices will be settled in April within 30days..
          Other Non-trade Creditors:- reduces by £1.8m; mainly the reduction of deferred
           income on non recurring expenditure.
          Creditors Payment on Account:-reduces by £2.7m because PCTs will not prepay
           SLAs at the end of the financial year.
          Creditors due over 1 year:-reduces by £0.7m because of the repayment of the
           Working Capital Loan in March.

The forecast key variances from plan are:-

          Fixed assets and Revaluation Reserve:-The plan to target a reduction in building
           values by up to £3.0m was shelved following DH guidance in December 2006 (after
           the Trust’s capital charge plans were set) which requires all NHS organisations to
           adopt a consistent approach to the valuation of building and which discourages
           interim valuations between the 5 year valuations provided by the Valuation Office.
          Working Capital:- Debtor balances are forecast to be £1.5m lower than planned
           chiefly because of the forecast impairment of fixed assets. Stocks are forecast to be
           £250k higher than planned, £50k higher than the stock value at the end of March
           2007; mainly because stock levels are still to be reviewed as new systems are
           being implemented. Creditor balances are forecast to increase by £1.0m because
           PCT’s have prepaid SLA contract values before any claw-back for under
           performance on the contracts The Trust is now permitted to hold a higher cash
           balance at the year and in the forecast this is equivalent to the opening balance
           plus the revenue surplus (forecast £1.4m), plus payments from PCT before any
           claw-back of under performance (£1.7m ) and an increase in creditors because of
           non recurring expenditure in March (£2.0m)
          Income and Expenditure Reserve:-the Trust is forecasting a revenue surplus of
           £1.4m compared to the plan to break even. The plan included a £1.3m transfer
           between the revaluation and Income and Expenditure reserve as an estimate of the
           balance in the revaluation reserve for assets which become fully depreciated during
           the year. The assessment will be made at the year end.

Please refer to the Board Performance Reporting Pack page “Bal Cash”




                                           Page 8 of 10
Capital Resource Limit (CRL) 2007-08

Capital Programme

The Trust’s approved CRL is £6,430k.

The Trust’s current programme is £5.7m and of this the Trust has committed £4.3m (76%) and
spent £3.5m (61%). Forecast expenditure is £4.1m.

Key areas of expenditure to date are

      PACS -£2,187k the system was commissioned in November 2007.
      Computer Server Room -£350k.
      Endoscopy Equipment -£254k
      PC Replacement and Server Programme £330k
      Plant and equipment replacement programme. £226k

There has been slippage in the programme in particular:-

      X Ray -Fluoroscopy Equipment-£400k. will now be purchased in 2008-09 following
       site visits to the equipment shortlisted.
      Pathology –Essential Service Laboratory £90k.
      Car Park management equipment. £100k.
      Medical equipment £250k.
      Estates –lifts and roads ££60k

These items will now be first call on the 2008-09 programme.

Impairment of buildings

The impairment and demolitions programme approved by Trust Board in February requires
£1,057k impairment funding, compared to the £3,092k funding available to the Trust, to offset
the cost of the write down in the value of buildings/equipment which will be declared surplus to
requirements as part of the site development programme in 2007-08.

The impairment programme includes:-

   o   Lydgate Ward (Medical ward to be relocated to Cheverel)
   o   A Residential block. (includes Occupational Health Services to be relocated to 72
       Heath End Road)

Key assumptions in achieving this plan are as follows:-
    Medical beds on Lydgate ward are relocated to Cheverel, Lydgate ward will be used as
      a decant area until the end of March when it will become surplus to requirements.
    There is sufficient accommodation for medical staff to enable A Block to be closed and
      the Occupational Health Service can be relocated before the end of March 2008.
    The accounting transactions are subject to final audit approval.

Cash Management (& EFL):

The Trust’s approved External Financing Limit (EFL) is £9.693k negative. This includes
£2,216k new Public Dividend Capital.

In 2007-08 DH will reset the EFL to equal the forecast outturn external funding requirement
reported in the Month 11 Financial Monitoring return. The purpose of this adjustment is to


                                           Page 9 of 10
ensure trusts report on a consistent basis and eliminate any erroneous variances caused by
changes in technical guidance.

The Trust has forecast the EFL to be £17,016k negative.

The movement from planned EFL is as follows:

 External Finance Requirement                                            £’ooo            £’ooo
 Planned EFL                                                                             -9,693

 Adjustments
 New PDC no longer required                                               2,216
 Increase in cash balance (new DH guidance)
        Revenue surplus                                                   1,438
        Healthcare SLA under performance paid                             1,719
        Creditors- relating to non-recurring expenditure in               1,950
        March
 Total adjustments                                                                       -7323
 New EFL                                                                                -17016

The Trust cash balance was £9.9m at the end of February and includes the following:-

         Full payment of the PBR capping adjustment for 2007-08. £0.4m
         Payment on Account from PCTs. £2.7m
         Timing of non pay expenditure. £2.0m. (deferred income)
         Timing of capital expenditure. £0.1m.
         Interest received. £0.6m.

Based on the forecast EFL the forecast cash balance at the 31st March will be £5,387k. The
balance will be held in the Office of Paymaster General bank account. .

In order to achieve EFL the Trust is planning to reduce the cash balance by £4,467k in March,
expenditure will include dividend £1,206k, loan principle repayment £680k and loan interest
payment £166k.

Please refer to the Board Performance Reporting Pack page “Bal Cash”

Other Financial Duties:

i)        Capital Absorption Duty: The Trust is expected to achieve 3.1% performance in
          2007-08.

ii)       Better Payment Practice Code: In the 11 months to February the Trust achieved
          cumulative performance against the Public Sector Payment Practice code of 88.2% by
          value and 88.0% by number slightly down on the internal target set within the Trust for
          2007-08. Whilst this is an improvement on performance in 2006-07 the Trust is
          planning to continue to improve the percentage of invoices paid within 30 days to
          achieve the national 95% target.

          Cumulative performance for NHS creditors in the 11 months to February 2008 was
          83.4% by value and 63.8% by number, a significant improvement on 2006-07.




                                            Page 10 of 10