Examination of witnesses (Questions 1
WEDNESDAY 13 DECEMBER 2000
and MR DAVID
1. Gentlemen, welcome back to the Committee.
When we did our little report into your activities some months
ago, I suppose it is fair to say that the conclusion we came to
was that you had rather lost your way. We are wondering whether
you have found it.
(Professor Wilson) Can I answer that, first? I believe
we have. I believe that now we have a Government-agreed restructuring
package and that we have been through a very thorough review of
our programmes, our staff and so forth. We are now, I think, on
target, at the end of this financial year, to enter a period of
stability and, hopefully, future growth.
2. Mr Temperley, last time, told us that you
needed to reduce costs by about £3 million, I think.
(Mr Temperley) I did, Chairman
3. Are you going to do that?
(Mr Temperley) Yes. We have agreed a restructuring
plan with our sponsors who are financing the plan, and we are
taking out costs to the order of £3 million in total.
4. What is the budgeted impact on income and
(Mr Temperley) The budgeted impact on income was a
reduction of about £200,000 initially, on the basis that
we would transfer the work elsewhere, and we would save over £3
million in costs. So there is a net saving of £3 million.
5. You have had several restructurings before,
of course. Why should we believe that this one has cracked it?
What is it about this one which is different to the other ones?
(Professor Wilson) Any of these restructurings has
been entirely dependent upon the future support from the Government
and our traditional customers. What we have done at this point
has been, I suppose, bringing our fixed asset costs, our overhead
costs and our recurring costs in line with our existing and future
projected income from our principal sponsor, MAFF, and the BBSRC.
The forward projections that Mr Temperley has done indicate that
we will go into profit in the beginning of the next financial
year. I believe that anything we do in addition to thatand
we have many projects in handwill add to our strength,
as it were.
6. Some people say you are moving away from
research linked to the needs of industry to much more basic research.
Some of the people who have made representations to us have said
that. Do you think they have got a point?
(Professor Wilson) I do not think they have, actually.
I have been at pains, in the press and in all of my meetings with
industry representatives over the last two months, to make great
issue of the fact that HRI remains committed to the development
and the transfer of technology and knowledge to the industry.
It is one of the strengths of HRI that it has this continuum of
funding sources and approach. Not only can we transfer our own
knowledge, discoveries and intellectual property but we can actually
work with other, more academic, research outfits and transfer
their discoveries and knowledge into more relevant solutions to
true horticultural problems. We are doing that now, in fact, with
brassicascapitalising on all the work done at the John
Innes Institute, for example.
7. One of my concerns is over the issue of how
to deliver quality horticultural research in the United Kingdom,
rather than how to protect the institution which is HRI as it
is now. I am not entirely persuaded that your approach is the
best way to do that. We have had evidence from others in horticultural
research that indicate a view that HRI is seen, effectively, as
a monopoly in this particular research market place, with a close
necessary relationship with some of the key horticultural industry
players, and that a more fragmented picture which focused more
on quality outcomes rather than a relationship with an institution
would serve horticultural research better in this country. What
is your view on that?
(Professor Wilson) I do not think there is a conflict
there. I am very proud of the output from HRI, and have been over
the last year and a half that I have been associated with it.
Certainly in its history over ten years its outputs have served
the UK horticultural industry extremely well. I do not think that
the previous strategy we had to stabilise the organisation, which
was effectively large-scale production, trading and import/export
of plants, for example, was the way aheadcertainly not
for an organisation whose core business is research and development
for technology transfer, adding value to the industries of the
UK. So the future that we see is much more targeted at capitalising
on, including and engaging the whole research base of HRI to solve
problems for the industry. The point you make about the monopoly
situation, I imagine you are referring to HDC and the fact that
traditionally HRI has received about 70 per cent of the HDC levy.
In fact, I have discussed this with Colin Harvey since his appointment.
We first met on 9 February and we were discussing issues like
this and how to better support the key individuals and whether
or not there was, indeed, a cosy relationship. I have always maintained
that I want us to be measured by the quality of our outputs, our
ability to compete for money, and the help that we can offer the
industry through the HDC, through our own Associations and through
organisations like the East Malling Trust. I have recently been
offering to sit down and brain-storm with them because it is quite
clear that, in many cases, the sponsorswhether it is HDC
itself or whether it is the industry itself or MAFF, or even the
work we do for the BBSRChave to make sure that the R &
D fits very well to the real problems in the real world.
8. I will quote the suggested solution from
one interested player, who is not an HRI protagonist but, presumably,
has some self-interest in the matter as well. "A radical
solution would be to close HRI entirely, sell its sites and reallocate
its staff, resources and funding to interested universities."
What is your perception of that?
(Professor Wilson) I have worked in universities,
I have also worked in institutes and I have worked in universities
in the States as well. Universities have very different missions
to institutes, as a whole. This is not specific to HRI; this is
a regular argument put forward by universities to acquire the
money that is put into, not just MAFF institutes, but into BBSRC
and their institutes. They covet this money and the longer-term,
very research-and-development-focused programmes. They see us
as having a life which does not involve teaching, for example.
I would contend that universities are actually quite ill-equipped,
and sometimes ill-equipped literally, to do the sorts of work
that we do, and on the long time frames that we do development
programmes, building breeding programmes and the like.
9. Perhaps you might concede that there could
be a better balance between the resources allocated to HRIyou
might notand what are the potential competitive providers
of research services in horticulture?
(Professor Wilson) I have to say that we do collaborate
with a huge number of universities. In terms of the allocation
of resources, we have not only 90 PhD students in HRI who are
co-funded with universities but we also have a large number of
projects funded through a range of Research Councils and other
sponsoring bodies, which involve university partners. That is
fine, and allows us to access specific skills and expertise. As
far as horticulture is concerned, HRI is a unique asset, probably
in the world, certainly in the UK and in Europe, and I think we
are attractive to those who are doing horticulture in universities
as much as anything because of the facilities we can provide to
help their research programmes.
10. The Chairman, gentlemen, took you through
some of the numbers which came out from our previous report. I
wanted to take you to paragraph 3 of the submission which you
sent to us. In paragraph 3 you tell us that HRI had an operational
deficit of £1.64 million in the last financial year and you
are forecasting a deficit of £2.17 million for the current
financial year. Yet, Mr Temperley, you used words which would
lead us to believe that you have a robust business plan, financial
plan, to get you out of your difficulties. Part of our inquiry
today is to understand whether the changes you have made, particularly
with reference to the controversy over Stockbridge House, is going
to deliver a robust position as far as HRI's finances are concerned.
So, looking at the situation over the next three years, can you
give me your estimate of the deficit, or profit or whatever the
situation is, and could you just give the Committee some indication
as to what you project, again for the next three financial years,
your sources of income are going to be from the Government, the
HDC and other sources? Explain to us why you think those numbers
(Mr Temperley) If I can give you the summary position,
first of all. Our forecast for the financial year 2001/2002 is
a small surplus of the order of £300,000, and it builds over
the following three years to just over £1.5 million in 2003/2004.
We have currently got an operational loss, as you can see, of
just over £2 million. We have taken out, net, £3 million
costs which should, in broad terms, take us to a £1 million
surplus. In the first year we expect there to be some losses of
income as we reorganise the business, and then we will gradually
recover that position over the following two years.
11. Let me pin you down, because you said you
have taken out £3 million. The words you use give the impression
you have already taken out the £3 million, and yet what I
understood to be the case was you had plans to reduce your costs
over a period of time forward from where we are now. Can you help
me to understand how this cost reduction is going to be achieved?
(Mr Temperley) The cost reduction should be effective
in April. We are reducing staff by around 145 posts, if I can
remember the numbers exactly. We are closing, as you are aware,
the Stockbridge House site, which reduces non-staff costs in terms
of overheads. Overall, we are taking out about £3.5 million
in costs, but we now expect to lose about £500,000 in income.
12. Just to help me understand, you are going
to take out £3.5 million over what period?
(Mr Temperley) That will be taken out, in effect,
by April 2001. We have issued the redundancy notices to the staff,
they are on six months' notice and due to leave at the end of
13. So there is a gain by April of next year
of £3.5 million from the current operating position.
(Mr Temperley) Yes.
14. However, it says in paragraph 3 that you
see a situation where you are going to have rising operational
costs combined with declining public sector funding, and you have
just indicated to us that you see a loss in income. You did not
answer the question, which is, how are you going to generate income
over the next three financial years because I think the Committee
concluded there was a black hole in your finances, largely accounted
for by the failure of HortiTech to deliver its commercial objectives?
I want to know what is going to change that can make me believe
in your more robust financial projections. Why should I believe
the numbers you are going to give me in a minute?
(Mr Temperley) I think what I said to the Committee
in May, if I remember, was that we can be robust over expenditure
because we can control our expenditure positionand that
we will do. We will reduce the costs by the amount we stated.
Although the income projections have been lowered, as with any
income projection there is a greater degree of risk over income.
As a business we are predicting level income over the next three
years in total. We have factored in a reduction of 2 to 5 per
cent as was stated by MAFF, and we have allowed for an increase
in commercial income.
15. What kind of increase? You failed to deliver
the commercial income in your previous plan. Try and give me some
indication as to what kind of numbers we can expect? What is the
current commercial income? What do you project future commercial
income to be?
(Mr Temperley) The current commercial income is just
over £2 millionabout £2.2 to £2.3 millionforecast
in the current financial year. We have built in an increase to
£4 million by the year 2003/2004.
16. How are we going to get from 2 to 4?
(Mr Temperley) There are a number of initiatives we
are involved in, in dealing particularly with high-value contracts
converting IP and our science with multinational corporations
and bigger companies. We have a number of initiatives we are working
on, particularly with the East Malling and Efford sites, on developing
enterprise hubs and other commercial income on these sites, which
are longer-term in nature and I am not sure will deliver in the
two to three year time-span.
17. So we are not certain, then. I get a lot
of aspirational messages but I do not get a robust financial message.
The reason I am asking these questions is that you have had to
deal with a very painful situation of having to say goodbye, in
a short space of time, to a relatively large number of your employees.
I think others listening to this financial modelling will ask
the question: if you do not make, over the next three to five
years, your commercial target, what happens then? Is the sword
of Damocles still hanging over other parts of your enterprise?
(Mr Siddall) Can I answer this? I think this is the
nub of the problem that we are facing at the moment. What we are
looking at on the basis of the financial projections that you
have just been hearing about is very little growth in the new
sources of incomeminimal. The top line does not really
change very much. We are continuing to cope with expected cuts
in public funding and replacing them with small additional sources
of commercial income, which we have every reason to expect. We
have achieved 60 per cent growth in that. That is nothing like
what we said it would be, but we expect to continue to build that
up and, as we continue with our development programme (which we
will tell you about in due course), we would expect that to increase
substantially. However, the reality is that we will not survive
and will not be able to give a confident answer to the Chairman's
question about the future of HRI unless we can find sources of
income from the private sector. That is where the future lies.
We are not anticipating that the public sector funding will increase.
I think it would be wrong for us to plan on that assumption. We
have been told all along it will continue to fall, we are suffering
the consequences of very rapid falls this year and I cannot sit
here and say that we will not be cutting our facilities even further
if we do not obtain financing from outside the public sector.
That is exactly where we are.
18. Let us talk about consultation. You told
us last time that you had consulted with the principal customers
and the key stakeholders. You do not seem to have consulted much
over Stockbridge House, which is the last research facility in
the north of England, which is causing a particular outcry. We
will come to Stockbridge House later, as a separate and much more
emotive issue. In general terms, your claims to have been consulting
have been criticised by Bernard Sparkes pretty strenuously. He
says he communicated with you, Professor, in early August suggesting
you should consider your position. He then met you again on 22
August and you told him that you were unable or unwilling to have
the full consultation with the industry that he was suggesting.
(Professor Wilson) Let me pick up the specific point
with Bernard, first of all. I must say I was disappointed that
Bernard resigned as the Chairman of the HRI Association because
I saw him as a very vibrant force in that organisation that I
was seeking to develop as an outreach to the industry. On the
point of consultation, I communicated by letter and, certainly,
had meetings with Bernard. I effectively informed him of all of
the implications of the restructuring and the cost-saving exercise,
with the sole exception of which site it was we would close. It
was very difficult for I and my senior colleagues throughout the
eight months of negotiations with the Ministry (our principal
sponsor/funder) to go public, as it were, and to consult or communicate
out-with those people with whom I had spoken. I spoke with Colin
Harvey on 9 February and alerted him to the fact that it looked
like it was going to be Stockbridge, that it was confidential
and he respected that confidence. I said, if it was Stockbridge
then he could appreciate that the SOLA programme, for example,
would be high on the list, and we discussed and communicated on
that over several successive months. In fact, through until August
we had correspondence on that point. The BBSRC Council was informed
in February. They were informed of the likely implications of
our £3 million shortfall in funding and, of course, all the
principal officials in MAFF were involved throughout. We spent
a lot of time negotiating. We were also, of course, dependent
on employment law and on the likely effects on our staff if we
let it out that we were in this situation and would have to, perhaps,
close one or more sites. Up until a fax on 14 August, and a hard
copy on 16 August, we were not certain that the funding or the
ministerial approval would be there for us to do the restructuring
exercise. It is quite evident, in some of the correspondence I
know you have received, that ever since we came through the discussions
with the Trade Union side, the issuing of "at risk"
letters, and the final issue of redundancy notices and so forth,
and I and my senior colleagues have been engaged in a huge number
of discussionsI accept they are not consultationswith
the industry, and those have elicited, I am glad to say, some
very positive, constructive and helpful comments, particularly
from the HDC and NFU. When I am speaking to my own Site Advisory
Committees and the like, I find some of the comments and information
I give them finds its way back to be used, as it were, against
us in some of the correspondence. I think this, to me, exemplifies
why it would have been difficult prior to the middle of August
to have gone out and consulted widely, because it would have led
to further speculation and pressure. I fully accept that the closure
of Stockbridge Houseand we always anticipated thiswould
cause considerable local stress and reaction.
19. Can I just clarify, if you did all this
in February, you were before us in May so you knew all about this
when you were sitting there six months ago.
(Professor Wilson) We did not know what the solution
was going to be. I only alluded to Mr Harvey that if approval
was given, that would be a likely course of action. We had several
options at that stage that we were discussing with MAFF; a large
variety of options, in fact, from do nothing, to close everything