Examination of Witnesses (Questions 140
- 159)
WEDNESDAY 10 MAY 2000
PROFESSOR MICHAEL
WILSON, MR
PETER SIDDALL
AND MR
DAVID TEMPERLEY
140. It does?
(Mr Siddall) Yes.
141. And how is it structured?
(Professor Wilson) Well, we are working on it. The
new ones are within the R&D Services, because R&D Services
actually became three sub-units, if you like.
142. So there are three sub-units within this?
(Professor Wilson) Yes.
143. So let's just put that to one side for
a second just so that I can understand. HortiTech Seed Services,
Propagation Services and Diagnostic Services, running since 1998,
these have got individual robust business plans?
(Mr Siddall) Yes, and managers.
144. And managers. Are these organisations self-sufficient
financially? In other words, do they stand on their own two feet?
How are they funded? Did you give them start-up capital? Do they
have to repay money to the principal body? How do they operate?
Could Mr Temperley help us with the financial model?
(Mr Temperley) They operate as a group within HRI,
that is as groups of projects, if you like. Each business unit
manager manages all of the commercial projects within an area
and also seeks new business in that area.
145. Does he have a little balance sheet where
he says, "Right, this is my start-up capital and these are
the returns that I have to get"? How does he know whether
he is being successful or not? If these are called business units,
I would have expected them to be free-standing within your accounts.
(Mr Temperley) They certainly will be over time and
that has been part of the accountancy development we talked about
earlier.
146. So you started them off in 1998, sort of
initiatives and ideas, and now magically they are emerging as
businesses, but without a sort of business balance sheet and eventually
they are going to have one?
(Mr Temperley) They have income and expenditure accounts.
They do not have separate balance sheets as yet. As we develop
HortiTech into a commercial subsidiary, then balance sheets will
be constructed.
147. But are they profit centres?
(Mr Siddall) Yes.
148. I am trying to find out how accountable
these managers are for the business plan and I do not want to
get you into territory which is commercially sensitive, but it
goes back to this question of how robust is the income stream
which you have projected, and I get the impression that they are
sort of lolling along and some are successful and some are not,
but—
(Mr Siddall) No, no. In fairness, let me just try
to summarise it.
149. Yes, go on, tell me I am wrong.
(Mr Siddall) No, your interpretation is right, but
we have profit and loss accounts for each of these business areas,
which might be a better way to look at it, so, as David says,
the information system produces a sales line and a cost line and
a contribution line and there is an overhead proportion and there
is a profit for each one of these. What I can say to you in relation
to your uncertainty about the future is that each one of these
is pretty good ongoing stuff, and what it is not is the future,
if you like, saviour of HRI in terms of revenue, so what you have
here are some good, solid activities which are essentially on
the development and production side of our activities and less
on the scientific side.
150. Could you spin these off as separate free-standing
businesses which might be wholly owned by you as the principal,
but where they could make their contribution back to you where
they could be more robust? You have got in the corporate plan
2002/03 an income stream of £8.96 million ascribed to these
and the distinct impression I am getting is that that figure ain't
going to be achieved.
(Mr Siddall) Yes, well this is the point, you see.
I am sorry if I am taking rather a long time to answer your question—
151. That is all right; we are getting there.
(Mr Siddall) These are essentially what you might
call production-type activities which use HRI science. The Propagation
Services is a particularly good case because we do a very high
health type of work there. We have very dedicated facilities down
in Efford to do this and it is a completely-stand-alone unit which
you can go and see and it is really quite satisfying, but it does
concentrate on the high health which is effectively the scientific
piece and we use special scientific instruments and techniques
to ensure that that happens, so there is something that we do
especially there, but it is not, and none of these are, fundamentally
about science; they are about development and application.
152. I do not get the impression that they are
really formulated like their own little stand-alone companies
out there fighting for their share of the market—
(Mr Siddall) They do.
153. They do?
(Mr Siddall) Yes, in a small way. They are really
quite small, but I think the point I am trying to make is that
if we come back to your point about certainty, these are pretty
good exercises. They are making a profit, they are ticking over
and they will do quite a bit to remunerate the asset base.
154. I think they have got to do a bit more
than tick over. Those are almost words of complacency.
(Mr Siddall) Well, you asked for confidence and there
is confidence about the future revenue here. The bit that we really
need to concentrate on is the bottom one which Michael was explaining,
the Commercial R&D, which is where effectively we get the
science and we make that more available to the market and we generate
the income there. That is where the big numbers which you have
seen in that plan—which we have already acknowledged were
over-ambitious in last year's—are going to come from, and
this is where the organisational development has taken place.
We have had to work very hard to integrate the science with the
commercial so that we get the right combination that brings this
R&D business forward and it has taken time. The organisational
development within that has been partly to do with the research
area strategy teams and partly to do with the compartmentalisation
of this thing called—Michael does not like the term—"R&D
Services". It is more about technology push and market pull.
(Professor Wilson) It should be more proactive than
"Services". That implies something supine to me.
(Mr Siddall) It is a developmental thing, and there
are within that three particular categories.
(Professor Wilson) That is right. There is Industrial
Plant Users, Biotechnology and Breeding and Sustainable Agronomy
at the moment. Those are the three that we, after an analysis,
decided would be the first ones to become profitable, or could
become profitable.
155. Do you have people who work 100 per cent
in these areas or do they divide their time between activities
in these zones and other things which they may be responsible
for?
(Professor Wilson) Can we just clarify which areas
we are talking about—all of these?
156. All of them.
(Professor Wilson) The first three, yes, we have people
dedicated 100 per cent to these. The R&D Services, as they
are growing, at the moment we have committed 50 per cent of a
number of scientists to these and we have an overarching person
in HortiTech who looks after them 100 per cent.
Mr Marsden
157. I think there was a long process of reviewing
your future status because I understand you were still a non-departmental
government body. How would you cope if you were privatised or
you were turned over into a public-private partnership?
(Mr Siddall) We would not cope very well at the moment
because we are not a mature organisation for the reasons I was
explaining earlier. We need a little bit more infrastructural
development to get the constitutional arrangements right and we
need a little bit more time to get the commercial strategy converted
into a solid revenue stream, but it could be done and, as I said
earlier, if you are in the sort of bed next to the door, you do
have to contemplate how you go forward. I do not think there is
any clear case which says that HRI needs to be public or private.
It will always be, I think, for the foreseeable future, given
the needs of the horticultural industry, a mixture of both; it
will be providing services to public and private customers. The
future lies in creating a mature organisation, which we are in
the process of building with all of these steps that I have been
telling you about, which will be able to generate good solid income
streams from the private sector which would enable us to be viable
in either situation. We see ourselves very much as in a half-way
house anyway.
(Professor Wilson) I think there is a horticultural
analogy there about growing from a seed. We put our money on the
R&D Services units, or unit, one of them or more of them,
and this link-up with the private sector and developing our "global
portal" and all the rest of it. That will be the way to create
something which will grow and become part of this. There are "public
good" issues, and there is also commercialisation and at
some point in the quinquennial review or whatever, we have to
make a judgment as to what happens to these components. We do
not even have the right vehicle, a subsidiary company, to take
any of these units out to make them more "private".
158. Do any of your business units have quality
assurance schemes and are you certified to ISO-9000?
(Professor Wilson) We have GLP in all of our HD sites
and for these units, yes, we have all sorts of quality assurance
and GLP particularly on these top three.
(Mr Siddall) We do not have ISO-9000.
159. You do not have that?
(Mr Siddall) No.
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