Agenda item

Freedom Leisure is in receipt of a support package to mitigate the impact of the COVID-19 pandemic on the Council’s Leisure Operating Contract.  This report sets out the current situation and recommendations for the future viability of the Contract.

 

The Cabinet

 

            RESOLVED

 

That approval be given to the measure to recover the forecast income for operating fees as budgeted using the local government income compensation scheme for lost sales, fees and charges as a result of Covid-19; and

 

The Council

 

            RECOMMEND TO FULL COUNCIL

 

That a supplementary estimate for a sum up to £191,500 (Band D equivalent of £3.07) to support the Council’s leisure operating contract from October to December 2020 be approved.

Prior to inviting the Cabinet Member for Community Wellbeing, Councillor Mrs Yeates, to introduce this report, the Chairman welcomed Ivan Horsfall-Turner, Managing Director of Freedom Leisure, to the meeting. 

 

            Councillor Mrs Yeates then introduced the report reminding Cabinet Members that a ten-year leisure operating contract was let to Freedom Leisure in 2016 and that it played a significant role in the financial prospects of the Council.  It was also a vital component in the health and wellbeing of the District’s community.

 

At Full Council on 15 July 2020, Councillors debated a proposal to reopen the Council’s Leisure facilities with a financial support package to make this possible.  Members agreed with the proposal, largely for the health and wellbeing of the community, but also to protect the Council’s leisure operating contract and give it the best opportunity to bounce back as the Covid-19 restrictions began to lift.

 

The Group Head of Community Wellbeing then updated Cabinet on the impact of the support package so that it could consider the recommendations proposed for further supporting the leisure operating contract.

 

          He was able to confirm that there were positive aspects which had occurred since the last report to Full Council on 15 July 2020.  Firstly, in addition to the centres opening, the first full month’s attendance figures had been very encouraging with over 20,000 visits despite reduced capacity.  Freedom Leisure had gone to great efforts to make the buildings and the activities COVID safe and to communicate that message to the community.  A full track and trace process had been put into place and anecdotal responses had been that customers had felt very safe, with some admitting they preferred the new booking arrangements and lower numbers in the buildings.  Despite this, Freedom Leisure recognised the need to build on this success.  In August and September, it extended the range of activities available, including the capacity of some popular sessions and reintroduced the Learn to Swim programme with over 1500 children attending sessions.

 

The Government had introduced an income recovery scheme for Council’s to claim lost budgeted income.  As the Leisure Operating Fee was a loss to the Council, it could claim back approximately 70% of its lost income from the leisure contract in accordance with the rules of the scheme, representing a sum in the region of £47,500 per month.

 

The Group Head of Community Wellbeing stated that put into perspective how important the leisure operating contract was to the Council.  In the first four years of the contract it generated £1.7M to the Council and in the next five years that sum would be in excess of £4.5M.  By supporting the contract now during this recovery phase, the Council was helping to secure this long-term income stream. What also had to be remembered was the health and wellbeing benefits for residents.

 

            The financial aim was to get back to normal business levels as quickly as possible and Members were asked to note that that by the end of September, the agreed level of support would be over £400,000.  Initially this support was merely to mothball the centres, but it was now providing the balance between the income that Freedom Leisure was able to achieve through sales, and the expenditure required to operate the leisure facilities under the current conditions.   This support was key whilst the customer numbers increased, and income returned to its pre-pandemic levels.  Once the level of income from customer activity met the cost of keeping the centres open, the Council would be able to withdraw this level of support.

 

Looking forward, Freedom Leisure estimated the support required for the contract in the third quarter to be £191,400.  In comparison, the support costs in the second Quarter (July to September) were almost £267,000.  Freedom Leisure was doing all it could to rebuild customer numbers, income and therefore its reliance on support from the Council. The current assessment was that after a further payment in the fourth quarter the income generated would cover operating costs.

 

However, despite this news, the possibility of a local lockdown or further restrictions being imposed could not be overlooked.  But what had been proven was Freedom Leisure’s ability to bounce back from a closure and instil confidence in customers to return to activity in its facilities.

 

In concluding his presentation, the Group Head of Community Wellbeing outlined that the total cost of supporting the leisure operating contract to the end of this year could be in the region of £700,000.  However, the Council stood to receive £570,000 this year from the Government’s income recovery scheme.  There were also valuable social and health benefits of keeping the centres open.  By providing support during these difficult times, recovery was likely to be swifter if the centres remained open and the Council would have a stronger chance of achieving the £4.5M it stood to gain from the leisure operating contract over the next five years.

 

          Cabinet debate commenced with Cabinet Members thanking Officers for ensuring that the funding needed had been organised and for working with Freedom Leisure to ensure that the centres had opened again in a safe way that was clearly benefiting the community. It was acknowledged that it had clearly been the right decision to make in terms of the income that was now coming in and from the first round of attendance figures received.

 

            The Cabinet questions asked, and the responses provided are set out below:

 

·        How had the customer experience been for staff when the centres had re-opened?  Staff had been delighted to return to work and there had been no significant staff anxiety in terms of operating within the centres as all areas had been made very Covid secure and all appropriate processes were in place and working effectively.

·        How had interaction with customers been and had any frictions been reported?  Responses received had been 100% positive with virtually no complaints made.

·        How was Freedom Leisure’s relationship with other Councils and how was the financial health of the business generally?  FL had a good liaison and support from almost all of its partners.  Out of 19 local authorities, 18 had offered support agreements with the 19^th hopefully commencing soon.  Their financial health was good as they had had a good solid year the year before Covid and so had been able to enter the pandemic in a good financial position, though had run up considerable losses since then.  

 

          The Chairman then invited non-Cabinet Members to ask their questions.  The questions asked and the responses provided are set out below:

 

 

 

 

 

1)    The amount of financial support from the Council to operate leisure facilities seemed to be more than that required to have them empty – why?

 

The reality was that when facilities were closed there were a certain amount of costs that could not be fully lost known as unmitigated costs such as the resource for checking the facilities, paying for utilities and there were costs that could not be recovered through Government schemes.  Staff that had been on the furlough scheme had since returned to work and so there were staffing and full plant costs, including full repair and maintenance that had come back into the business, although partially offset by income, this was not high enough to offset those costs.

 

2)    What are your forecasts for future users of the leisure facilities?

 

Looking at usage numbers that were expected on the return to being open, this was for around 60% of membership and for fitness and class usage approximately 40%, swimming and casual usage was 30% in the first 6 weeks of opening – FL confirmed that it was close to those numbers.  The challenge would be how these figures need to grow over the remainder of the financial year. Although this could be considered as good news, it needed to be accepted with a health warning in that this situation was unprecedented.  Whilst regrowth models were based upon best industry knowledge, they were also based on the assumption that Covid-19 restrictions would continue to be lifted over a period of time so there was concern about what news future announcements could bring and whether these would take the sector backwards rather than forwards.  Whatever happened, it was vital to continue to ensure consumer confidence was not damaged moving forward.

 

3)    What level of visitors do you need in order to cease any financial support and when do you predict that point will be reached?

 

It was explained that FL was a not for profit leisure trust and so made small margins of income.  It needed to get back to as close to 100% of previous levels of occupancy to get back to the same level of surplus. It had taken a lot of cost out of the organisation and was targeting to get back to around 85% of last year’s income by March 2021 to achieve a position of being properly sustainable. 

 

4)    Should we still have Covid restrictions into next summer, would we still need to be providing a subsidy to you at that point?

 

It was outlined that FL made relatively low levels of surplus due to the type of organisation that they were and so if it was still in a position of making limited income, the pressure would be on them still to continue with mitigating actions to reduce their financial position.  They could make changes and could adjust the service to make it affordable if this is what was needed.  If Covid was still a significant issue next summer, they FL would not be in the position they thought they would be in when they bid for the Contract back in 2014.

 

 

 

 

 

5)    What actions are you taking to reduce the financial risk to Councils?

 

Those actions were around the level of mitigation in the short term and during lockdown, utilising the Government’s JRS system to reduce costs but also they had looked at central overheads and sadly had had to lose some good staff from the central team to make things affordable.  Some significant salary cuts had also been made to include their senior management team back from April onwards.

 

 

6)    In terms of reduced visitors, what impact was this having on the health and well-being of the District?

 

The Group Head of Community Wellbeing responded stating that the impacts on District were that people were not able to access the facilities as they had previously.  Before lockdown, many attendees did not book and just turned up to take part in sessions.  All sessions now had to be pre-booked, with the prime slots being booked out early and so some people were feeling excluded.  The positive news was that the centres were now creating sessions where pre-booking was not required and so it was hoped that this would give more people more opportunity to exercise when they wanted and would install more confidence going forward.

 

7)    If the Cabinet decide to approve the recommendations before them, what is the total cost of support to Freedom Leisure since March (in terms of both income to the Council that has been lost and in terms of money agreed to Freedom Leisure?

 

The Group Head of Community Wellbeing responded confirming that since March when outbreak took hold and the centres had closed, £419,388 had been paid up until the end of September 2020. Loss of income was £399,882 giving a total of £819,270k.  The caveat was that the Council was claiming back lost revenue to the approximate value of £285k, representing a net figure of £534,270k. 

 

(8) what are the consequences if we do not provide any further financial support?

 

      This had partly been responded to earlier.  It was confirmed that FL had received very good support from all Local authorities, however, when they first entered pandemic back March the first round of discussions made a commitment to Local Authorities that if they were to receive support, this would be received with conditions, making it clear that one local authority would not be supporting another’s contract. If Arun was not able to provide support – FL would have to review the contract in place as this would mean a change in law mechanism in which the implications would have to be fully discussed.  

 

(9) how long would FL survive without further support?

 

      It was explained that without the critical mass support from other authorities, the contract in place with FL would become vulnerable.  If all support was taken away, FL would have approximately 6 weeks’ worth of reserves.  It was hoped that this provided Councillors with enough reassurance in that FL was not hugely vulnerable with the collective support that it had.

 

(10)               Was there any possibility of receiving Government support? 

 

FL had been working closely with industry lead bodies such as UK Active and Sport England.  There had been much talk of funding in the region of £800 m for public sector leisure, however, not much had progressed even though this had been signed off by DCMS and MCHLG – an outcome was expected shortly.

 

(11)               Was there any danger of FL going into administration and what else could Arun do?

 

Arun’s client team had been very supportive, and work was continuing with joint communications/marketing to encourage the customer to come back and use facilities. 

 

Other questions asked were related to other capital programmes and how these might be affected, this was because there were investments being looked at such as further modifications to the Littlehampton Wave and the Arun Leisure Centre.  The response provided was that FL was not aware of anything specific.  In view of the earlier discussion around prudential borrowing, it was confirmed that FL would be happy to take away a review and look at whether or not anything they could do with the provision of some capital could improve financial situation in the future i.e. further environmental savings, looking at their carbon footprint and meeting the carbon agenda The Group Head of Community Wellbeing confirmed that there were no projects of this nature in the pipeline.

 

          The Cabinet

           

                        RESOLVED

 

That approval be given to recovering the forecast income for operating fees as budgeted using the local government income compensation scheme for lost sales, fees and charges as a result of Covid-19.

 

The Cabinet also

 

            RECOMMEND TO FULL COUNCIL

 

            That a supplementary estimate for a sum up to £191,000 (Band equivalent of £3.07) to support the Council’s Leisure Operating Contract from October to December 2020 be approved.

 

The Cabinet confirmed its decision as per Decision Notice C/009/210920, a copy of which is attached to the signed copy of the Minutes.