Heritage Services Business Plan

a medium term plan for sustainability and continuity

update 2009–2014
 Contents.

page
1. Key Points 3
2. Heritage Services 4
3. The Council’s Financial Plan 5
4. Performance in 2008-09 11
5. Business Strategy 2009-2014 18
6. Investment and Development 2009-2014 23
7. New Developments 25
8. Marketing Strategy 29
9. Sensitivity and Risk 31

List of Updated Appendices

The appendices are the same as those that supported the five year Business Plan
2006-2011 for consistency but have been updated. For reasons of size and
confidentiality they are not attached but can be made available on request.

1. Heritage Services: 5 year Financial Summary to 2013/14

2. Heritage Services management accounts, Year to February 2009
3. Spend per visitor: Roman Baths and Fashion Museum
4. Graphs: Heritage Services 'as a whole' performance against ALVA Members
5. Graphs: Roman Baths & Pump Room performance against ALVA Members
6. Graphs: ALVA: Visitor perceptions of ‘Quality of Visit’ 2001 to 2008
7. Planned Revenue Investment
8. Headline admission charges:1993 to 2014
9. Graphs: Roman Baths & Fashion Museum visitors
10. VAT Implications
11. Graph: Admission price increases compared with inflation
12. Roman Baths Development Project

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 1. Key points.

This updated Business Plan 2009–2014 (‘the Plan’) identifies changes to the planning
assumptions made in the Heritage Services Business Plan 2006–11. It has been
prepared following the annual in-depth review of business activity carried out over the
last seven months and includes an analysis of the risk involved.

This Plan is not an exhaustive analysis of the Service’s business position. For the full
picture it should be read in conjunction with the Business Plan 2006–11.

The key points to note in the updated Business Plan are:

2008/09 profit target of £3 million exceeded, £763k higher than in 2005/06;

Annual profit to rise by 52% on 2005/06 to £3.6 million in 2013/14;

Roman Baths visitors to increase marginally from c.845,000 to c.854,000 pa,

despite the worldwide economic downturn;

Fashion Museum visitor numbers to stabilise at c.96,000 pa;

Retail sales to increase by £388k pa (25%) by 2013/14;

Room hire sales to continue to increase in price and volume;

Above target profits in 2008/09 will boost the profit reserve to £231k;

Profit targets are broadly achievable from 2010/11 onwards, but the profit
reserve will be used to finance £98k of the target required in 2009/10;

The profit reserve will be maintained at a minimum level of c. 1% of turnover;

Capital investment in a new off-site catering development;

Ongoing Roman Baths Development Plan revenue and capital investment in DDA
accessibility, interpretation and conservation, financed from earned income;

Development proposals will be prepared during 2009/10 that will generate

funds to develop the capacity of the Service to support further investment;

Further investment to be planned in conservation and the visitor experience

beyond 2012 and the current Roman Baths Development Plan, and reviewed by the
Heritage Board.

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2. Heritage Services.

2.1 Heritage Services is a business unit within the Council which operates at no cost to
the local taxpayer. It returns a net surplus of £3.1 million p.a. to the Council. Through
its rolling 5-year business plan, the Service maximizes the commercial opportunities
offered by the Council’s world class heritage assets. Through planned re-investment
of a proportion of its earned income, the Service seeks to conserve and develop
these assets, maintain and extend the audiences who enjoy them and protect and
enhance the income earned through them.

2.2 The Heritage Services business plan is sub-titled ‘A Plan for Sustainability and
Continuity’. Herein lies its fundamental rationale. The Service does not seek to
maximise income to the exclusion of all other considerations; rather, it seeks to
ensure the ongoing and long-term sustainability of three key areas of activity –
Conservation, Customer care and Commercial activity. This is represented as the
‘tripod of sustainability’ (figure 1.)

Figure 1. The Tripod of Sustainability.

2.3 This business philosophy argues that, to ensure the long-term sustainability of the
Council’s irreplaceable heritage assets, equal attention must be paid to each of the
three key areas of activity. The model suggests that the more one disturbs this
balance by unduly extending or contracting any one of the tripod legs, the less
sustainable the Service becomes.

2.4 The three Cs represent the three main areas of activity in the Service. These are:

2.5 Conservation: the Service cares for the unique museum and archive collections,
ancient monuments and historic public buildings held in trust by the Council on behalf
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 of the public. It provides the expertise to document, conserve, exhibit and interpret
them to the high standard expected of a local authority. The collections in the Roman
Baths Museum, Fashion Museum and Bath Record Office are all Designated by
Government as being of national / international importance.

2.6 Customers: the Service meets the needs of a diverse range of local, national and
international audiences and deals with well over one million service users in person
each year. These range from daytime visitors, school groups, students, researchers
and shoppers to concert-goers, corporate guests, conference delegates, restaurant
diners and wedding parties. Virtual users run to a further one million plus p.a.

2.7 Commercial: the Service seeks to maximise the commercial opportunities offered by
its heritage assets, through admission charges, museum shops, corporate hospitality
and catering commission.

2.8 The ‘tripod of sustainability’ further indicates that the three legs of the tripod are inter-
dependent. Investment in Conservation gives a better quality of experience and
leads to more Customers; more Customers create more Commercial activity; and
more Commercial activity leads to a greater sum available for re-investment in all
three areas – Conservation of the historic fabric, Customer services such as
interpretation, public toilets and visitor seating and Commercial imperatives such as
marketing, retail product development and shop refurbishment.

2.9 To ensure that the structure of the Service reflects the parity of these three areas of
activity, a major restructuring in 2005 established three core teams of equal status to
deliver them. In addition there are two support teams – Finance and Facilities –
whose purpose is to enable the three core teams to perform their primary activities.
Figure 2 shows the basic structure of the Service.

Head of
Heritage
Services

Public Visitor Commercial Facilities Finance

Services Team Services Team Team Team Team

CORE TEAMS SUPPORT TEAMS

Figure 2: The basic Heritage Services structure.

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3. The Council’s Financial Plan.

3.1 The Council’s decision in 2004 to retain Heritage Services in-house and
invest in its facilities also required that the Service deliver a year-on-year
increase in profit above the then target levels at least equal to the rate of
inflation. This required the generation of income from external sources
totalling £12.6 million p.a. by 2014 in order to generate annual profits rising
to £3.6 million p.a. This demand for a year-on-year increase in profit continues
to take no account of pressures on the international and national visitor market,
the current global economic downturn or of substantial impending increases
in staffing, pensions and utilities costs.

3.2 The profit target for 2009/10 represents a 35% increase over the profit
generated in 2005/06. Over the five years to 2013/14 this is expected to
increase by a further 17%. To attempt to achieve these targets, it is necessary
to continue the existing business strategy of above-inflation admission price
increases. However, in view of the relatively depressed visitor market and
uncertain economic conditions, assumptions on visitor numbers are cautious.

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4. Performance in 2008/09.

Profitability.

4.1 Table 1 below outlines the key features in 2008/09, based on projected
performance at February 2009. The Service is expected to exceed its profit target
of £2.99 million, up £610k on the profit achieved in 2005/06, the first year of the
current Business Plan. Turnover, largely from admission sales, has increased by
£557k on 2006/07 despite a 1% reduction in visitors. This increase has been due
to planned increases in prices, improved performance in secondary spend and
reductions in the cost base.

Table 1: Heritage Services financial performance in 2007/08 and 2008/09

2007/08 2008/09 2008/09
Actual (£ million) Budget (£ million) projected (at Feb 09)
(£ million)
Turnover (Income) 11.369 11.436 11.754
Variable costs 6.053 5.989 6.135
Fixed costs 2.214 2.420 2.476
Total costs 8.267 8.410 8.612
Net Profit £3.101 £3.026 £3.142

Roman Baths admission income £6.34 £6.61 £6.64

Roman Baths visitors 831,000 845,000 843,000

Fashion Museum visitors 90,000 93,000 94,000

Visitor Numbers
Numbers and Admission Income.
Income.

4.2 Admissions have fallen marginally below the anticipated level of 845,000 for the
Roman Baths, but have achieved the target planned for the Fashion Museum. For
the Roman Baths this represents a level of visitors marginally above the average
level for the five previous financial years while, for the Fashion Museum, it
represents a stabilisation of hitherto declining visitor numbers at around 2006/07
levels.

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4.3 Admissions revenue has continued to grow strongly, mainly due to price increases
in excess of inflation, combined with a small change in the visitor base in which the
proportion of group visitors has decreased from the relatively high levels of the
past five years. Group visitor numbers in the financial year 2008/09 are expected
still to total c.280,000, or 33%, of all Roman Baths visitors. In 2008/09 they are
forecast to bring admissions income of c.£1.8 million and a total income, including
net secondary spend, of c.£2.5 million p.a. The reduction in group visitors has
been mainly in the adult sector, and has affected the major group carriers – who
bring mainly foreign visitors from London hotels – less than smaller, independent
coach companies, who bring mainly domestic visitors such as clubs and societies.
School and other groups of children have also reduced, but to a lesser degree.

4.4 The reduction in group visitors in absolute numbers and as a proportion of overall
visitors has coincided with an increase in individual, “non group” visitors, and a
consequent modest increase in the average spend per head has been
incorporated into future planning. The improvement in admissions income is
mainly due to an increase in sales of “full priced” adult tickets and a general
improvement in sales of combined tickets. The “full priced” adult ticket accounts for
42% of admission sales income and therefore the impact on revenue of
fluctuations in sales is significant.

4.5 Since the redisplay and rebranding, The Fashion Museum has become a popular
visitor attraction in its own right. It has also become an attractive add-on for
younger female visitors in particular. Roman Baths staff have become more adept
in promoting it, especially during the summer exhibition. In addition, combined
tickets are now available from the TIC.

Secondary Spend
Spend – Retail.

4.6 Sales performance has remained stable and has exceeded the revised target
for the year. The gross margin achieved has improved by 1.5% over 2007/08.
However, net profitability has declined slightly due to increased staffing costs as
a result of the Single Status agreement on pay, together with partial closure of
one of the Roman Baths shops to allow development of the site.

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Secondary Spend
Spend – Catering.
Catering.

4.7 Income (commission) targets were agreed with the caterer as part of the
business planning process. The commission earned in 2008/09 is projected to
exceed the target of £436k for the year by £18k (4%). This performance comes
in the fourth year of a five year contract with the current suppliers, Searcys. It
reflects commitment of resources by the parent company and improved staff
training. This has resulted in improvements to the quality of food and service,
followed by a growing reputation that has gradually resulted in more business.
As a result, income has increased in excess of expectations.

Room Hire.
Hire.

4.8 Income for the year is expected to significantly exceed the annual target of
£488k by £106k (22%). This is due to a combination of increased business
earned through proactive marketing, and higher charges for the most popular
venues. It is likely to come under pressure in 2009-10 due to the economic
downturn.

Cost Base
Base.
ase.

4.9 Significant savings in the cost base totalling c. £750k p.a. were made in the
previous three financial years. These have mitigated the pressure on profits due
to relatively stable visitor volumes and increased utility and staffing costs. Further
stringent controls on expenditure, particularly on maintenance expenditure,
further improved profitability in the year.

4.10 Staffing costs have increased significantly since 2007/08 due to the
implementation of the Single Status agreement. Although the profit target was
adjusted to reflect this, the overall profitability of the Service was adversely
affected. Ongoing increases from inflation and on-costs must now be funded by
the Service, adding to the pressure on the cost base in future years.

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Value for Money
Money Benchmarking.
enchmarking.

4.11 Results from the research year October 2007 to August 2008 show that visitor
perceptions of value-for-money at the Roman Baths have improved
significantly from those in the previous year, continuing the upward trend that
began in 2007. However, the Roman Baths is still below the mean for ‘Heritage
Attractions’ and ‘Attractions’ generally, as shown in Annex 6.

4.12 The improvement in perceptions of value for money reflects the improved visitor
experience provided by investment in the site and builds on the success of the
lower level of price increase implemented in the previous year. The Pound
remained high during this period, so this improvement does not reflect the
additional purchasing power of the Euro in autumn 2008. Visitor perceptions of
‘enjoyment’ also improved in 2008, and exceeded the mean for both
‘Attractions’ generally and Heritage Attractions.

4.13 Graph 1 below illustrates movement in the combined perceptions of both ’value
for money’ and “enjoyment” over the last eight years. The improved levels of
visitor satisfaction in both 2006/07 and 2007/08 demonstrate the positive impact
of investment in visitor facilities. Further capital investment in the visitor
experience through the Roman Baths Development Plan is intended to continue
this upward trend in order to achieve and exceed the mean for ‘Heritage’ and
‘all’ visitor attractions.

Graph 1: Roman Baths visitor satisfaction against ALVA average

25%

0%
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

-25%

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4.14 The enjoyment rating for the Fashion Museum declined again in 2007-08,
although the value-for-money rating improved. Price increases at the museum
have been restrained for 2009 in order to address worsening perceptions of
the enjoyment rating in the previous year. This means that there may be scope
to increase prices at the museum from 2010.

4.15 The museum was re-launched as the Fashion Museum in July 2007 and a full
redisplay was completed in March 2008. The visitor experience in the period
February 2007 to March 2008 was adversely affected to a greater or lesser
degree by the changes, which took place while the museum was open. This
improved significantly in the summer of 2008 following the opening of the
’Dresses of History‘ display. Efforts will continue to concentrate on improving
the visitor experience to ensure that the planned prices are perceived to be
value for money. This will include investment in “blockbuster” exhibitions in the
peak season.

Business and Profitability

Profitability Benchmarking.
enchmarking.

4.16 Heritage Services again performed well above the median level of
performance of all ALVA attractions in 2007/08 in all areas of visitor revenue
and activity other than secondary spend (retail and catering). The Service
again performed in the top quartile for:
- net contribution per member of staff
- net contribution per visit
- income generated per employee
- labour cost per visit (lowest cost)
- retail spend per square metre (floorspace)
- average spend per catering transaction.

The Service was only marginally outside of the top quartile for “admission income
per paying visit” (admission price for both charging sites taken together).

4.17 However, as in previous years, the need to improve the conversion rate of
visitors to customers and the average spend per visitor is highlighted for both
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 areas of secondary spend (retail and catering). Given the levels of sales already
achieved from the existing facilities, this can only be addressed by investing in
additional floor space for these activities. Expansion in both activities is included
in the Roman Baths Development Plan (for retail) and in the off-site catering
development and will take place over the next two financial years.

4.18 The Roman Baths & Pump Room has performed in the top 25% of ALVA
attractions for five of the six key indicators of profitability in each of the last ten
years. This performance was repeated in 2007/08. These five key indicators of
profitability are:
- labour costs as a percentage of total income (lowest 25%)
- direct labour cost per visit (lowest 25%)
- net contribution per visit
- net contribution per member of staff
- net contribution as % of total income..

The site fell marginally outside of the top quartile for “net contribution per
paying visit” due to a significant change in the composition of the sample of
attractions. However it was in the top quartile for the following additional
measures:

- admission income per paying visit (average admission price)

- member admission income per visit (season ticket price)
- average catering transaction spend
- income per employee
- visits per member of staff
- retail sales per square metre

4.19 An independent review of all retail activities in 2008 concluded that financial
performance in terms of gross margins and returns is strong, comparing favourably to
sector statistics. It reported that the Retail operation has done well to maintain
profitability and sales in an increasingly challenging retail and tourism environment.

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5. Business Strategy 2009-2014.

5.1 The Heritage Services business philosophy is that sustainability depends upon
maintaining a balance in the attention devoted to Commercial activity,
Conservation and Customer care – the ‘tripod of sustainability’. The successful
financial performance described in Section 3 above has been achieved
alongside an improvement in visitors’ perceptions of enjoyment and value for
money, indicating that this balance has been maintained as a result of
investment in the facilities and visitor product.

5.2 The Roman Baths Development Programme, which is now well underway, has
been designed to influence visitor perceptions positively and support a
continued drive to increase revenues and profitability. This investment appears
to have been successful in both 2007 and 2008, and is intended to support
further improvements in future years.

5.3 Despite the current economic downturn, the Council’s financial planning
assumptions still assume an incremental increase in the level of net annual
profit generated. This will require an increase in profit of 19% over the next five
years, from £3.03 million planned in 2008/09 to £3.61 million in 2013/14. Table
2 below shows the annual profit and visitor targets for the next five years.

Table 2: Annual profit and visitor targets.

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Projected Planned Planned Planned Planned Planned
Annual profit:

Profit target / projected* £3,142m £3,204m £3,300m £3,399m £3,501m £3,606m

Profit per Council Tax payer £41.99 £42.48 £43.75 £45.07 £46.42 £47.80

Profit per B&NES resident £17.89 £18.25 £18.79 £19.36 £19.94 £20.53

Visitor targets:

Roman Baths 845,000 848,000 853,000 854,000 854,000 854,000

Fashion Museum 93,000 96,000 96,000 96,000 96,000 96,000

Visitor Numbers.

5.4 The Updated Plan anticipates a relatively stable overall volume of visitors to both the
Roman Baths and Fashion Museum over the next five years. A very small increase
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 on current visitor levels is anticipated as a result of investment in the Roman Baths
Development Plan and the offsite catering development, reflecting the impact of the
improvements to the visitor experience and associated marketing activity. This
increase is anticipated in the higher value, non group sector of the market, and no
effect is expected upon the sale of combined tickets to both attractions.

5.5 Visitor volumes for the Fashion Museum will be sustained and modestly improved,
partly as a result of investment in “blockbuster” summer exhibitions in the
Assembly Rooms. This approach was successfully trialled during 2008 with the
Marilyn Monroe exhibition. The performance of the Fashion Museum is closely
linked to the decision to be taken on the future of the Assembly Rooms site.

5.6 A further small reduction in group visitors is expected, in line with that experienced
in 2008, due to an anticipated continued decline in long haul visitors. A risk of a
larger decrease in the North American group market is currently being investigated,
as it depends on the relative effects of the economic downturn and the weakness of
the Pound. The major group carriers, including those with a predominantly “long
haul” customer base, are particularly price sensitive, and price increases have been
restrained to reflect this. However, group visits among EFL students and European
visitors are expected to grow due to the value of the Pound.

5.7 The Updated Plan assumes that the stability of the visitor market will suffer no
significant disruption from the major developments taking place in Bath over the
coming years. The continued achievement of visitor and revenue targets will
depend on adequate provision being made for visitor needs during this period,
including the provision of coach and car parking facilities.

Admission Charges Pricing Strategy.

Strategy.

5.8 To meet the increasing profit targets required by the Council’s Financial Plan,
Roman Baths admission prices must continue to rise annually by above-inflation
rates from 2009. The price increase in both 2007 and 2008 was held at the level of
inflation in order to allow a ’pause’ in the level of increase made in previous years
and to address the worsening ’value for money‘ perceptions of visitors. The

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 investment proposed should allow potential price resistance to be managed
successfully in subsequent years.

5.9 Premium summer pricing (additional charges in July and August) will continue in
2009 and future years. This premium was restricted in 2008 and successfully
reduced the price resistance that had been evident when the premium was higher,
confirming that a price ceiling had been reached. These charges will continue to
be subject to further evaluation as circumstances change. The discounting
structure has been reviewed, and no further significant changes are proposed to
those made in 2006.

5.10 The Fashion Museum headline price has been held in 2009 as visitor feedback
showed it to be poor value for money against other attractions in 2007. This should
also help to sustain and improve visitor volumes. The discount structure has been
reviewed and senior, student and group prices have increased, but adult, family
and child prices held.

5.11 Take-up of the season ticket for the Roman Baths and Fashion Museum, which
allows entry for three years, has been slow, so the price of these tickets has been
reduced to encourage take-up among regional domestic visitors. Currently, 81%
of visitors to the Roman Baths are on their first visit.

5.12 The headline admission prices for both attractions that were introduced in
January 2009 were equal to or lower than those highlighted and agreed in the
Business Plan 2006–2011.

Secondary Income Streams.

Streams.

Retail.
Retail.

5.12 Sales are planned to increase by £388k (25%) p.a. over the next five years,
achieved by an improved conversion of visitors to customers following
improvement and expansion in retail space as part of the Roman Baths
Development Plan. Spend per visitor is also expected to increase at a modest rate
in excess of the assumed level of inflation.
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5.13 Margins are under general pressure from increases in carriage and haulage costs
and in the price of raw materials, most notably metal, wheat, paper and chocolate.
However, judicial purchasing decisions will be taken to maintain gross margins at
the previously high level of 49-52% of turnover, although these will be under
pressure if there are further increases in the rate of inflation. The 15% VAT
windfall until December 2009 is being used mainly to help maintain margins
without increasing prices.

5.14 Web-based ticket sales and an e-shop are due to go live in 2009/10, and will be
developed over the next five years. The shop will sell a tight range of high-value
products that are suitable for posting, most of which are unique to the site.

5.15 The main Roman Baths shop will be closed in January 2010 while the sales floor
space is expanded, and the effect on revenues is reflected in the sales and
profitability targets for that year.

Catering.

5.16 The current contract for catering at the Pump Room and Assembly Rooms expires
in January 2010. Targets for the next five years are based on a prudent assessment
of likely returns under the new contract, and allow for the increase in revenues as a
result of the opening of a new catering facility in 2011, which will form part of the
new contract. Private function catering sales often suffer due to the uncertainty
caused in the year of contract changeover. The modest increase in targets for
2009/10 and 2010/11 reflects this risk.

5.17 The catering contract at both sites will be affected by the review of the future
retention and use of the Assembly Rooms post 2012. Further proposals to develop
catering activity in a building adjacent to the Roman Baths and Pump Room from
the summer of 2011 will be developed with the appointed caterer.

Room Hire.

5.18 The increase in external sales over the last five years is expected to be sustained.
Targets in this Updated Plan assume that increases in both price and volume will
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 be achieved. These offer a significant level of growth against existing targets and
reflect extra resource devoted to promotion and the continued effects of changes
to pricing policy. The Business Development Feasibility Study into room hire at the
Assembly Rooms has addressed specifically the generation of income from
conferences and banqueting (see Section 6.5 below).

Cost Base.

5.19 The Service will continue to absorb within its profit target all cost increases,
including the effects of inflation. However, significant increases in hitherto
unforeseen costs are now expected that were not included in the original
Business Plan 2006–2011, mainly related to utility and staffing costs.

5.20 Utility costs, particularly energy, are expected to increase by £150k p.a. (70%)
by 2014. This increase is governed by corporately managed contracts that aim
to minimise the costs to the Council generally, and is under review.

5.21 During the same period business rates are likely to increase by over 30%
(c.£120k p.a.), whilst the Service will be required to meet annual financing
charges to support investment through the Roman Baths Development Plan
and new catering development totalling £420k p.a.

5.22 Staffing costs will also increase beyond the levels previously planned, due to
the incremental growth in costs caused by Single Status and an increase in
National Insurance contributions in 2011. However, the most significant impact
will come from a significant increase in pension contributions in following the
revaluation of the Council’s Pension Fund in 2011.

5.23 The Council is increasing its annual provision for the likely impact of this
revaluation by c.1.4% of its employee costs each year. This Updated Plan
provides for a similar level of additional provision by Heritage Services, totalling
c.£40k p.a., with the first such amount in 2009/10 forming part of the
exceptional increase in the profit target for that year of £80k.

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Reserves.

5.24 The current business strategy will struggle to absorb these unforeseen
increases, whilst also delivering the level of increase in annual profit required by
the Council’s Financial Plan. As demonstrated in Table 3, this will prove
particularly difficult in 2009/10, and will require the use of the Service’s profit
reserve in order to meet the profit target for that year

5.25 The profit reserve for Heritage Services was established as part of the Council’s
decision to retain the Service in house as a business unit. The reserve consists
of profits generated by the Service in excess of the annual profit target, and will
be reduced by any shortfalls against annual targets. The balance on the reserve
is expected to total £231k at the end of 2008/09.

5.26 Table 3 illustrates the level of profit that Heritage Services is likely to generate
in 2009-2014 and the surplus or shortfall against the target in each year. The
Service proposes to maintain a prudent minimum level of reserves, so as to
allow for unforeseen fluctuations in levels of visitors and revenues, which it
assesses at c.1% of turnover (£120k). The balance will be used to offset the
shortfall in profit in 2009/10, as shown in Table 3. The smaller shortfalls
currently anticipated in 2011/12 and 2012/13 are less significant, and will be
addressed by further reductions in the cost base, together with increases in
revenues from initiatives outlined below.

Table 3: Planned use of profit reserve.

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Annual profit:

Profit target £3,026m £3,204m £3,300m £3,399m £3,501m £3,606m

Likely profit generated £3,142m £3,106m £3,300m £3,351m £3,485m £3,606m

Excess / (shortfall) £116k (£98k) (£48k) (£16k)

Reserves:

Balance b/f £115k £231k £133k

Used to meet profit target - 98k -

Balance c/f £231k £133k

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Finance Costs of New Development.
Development.

5.27 Further investment in the buildings, facilities and visitor product beyond that
currently planned will generate additional financing costs. These will require
new sources of funds beyond those currently contained in this Plan. A series of
development proposals will therefore be brought forward to the Heritage Board
during 2009/10 that will generate the funds necessary to develop the capacity of
the Service to support further investment. The development proposals currently
under investigation are outlined at Section 8 below.

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6. Investment and Development 2009-2014.

Investment Strategy.
trategy.

6.1 The Council has a duty of care for the nationally important heritage assets in its
care, to ensure their survival for future generations to enjoy. Such investment
could be part of broader investment in the business of running a major visitor
attraction. However it can be distinct from it and is, nonetheless, a legal obligation. It
is unlikely that this could be funded from significant new borrowing.

6.2 The successful development of the Service is dependent upon investment in four
key areas of activity. These are:

a) Ongoing investment to maintain, refresh and update the ‘visitor offer’ and
to sustain the standard of recent investment in improvements at the Roman
Baths and Fashion Museum.

b) Investment in the next stage of the Roman Baths Development Plan, whose
current programme will be completed in 2012. Developments in subsequent
years may require funding from external sources such as the Lottery, which is
already the expected source of any major new feature beneath York Street.
During 2009/10 plans for this next phase of development will be drawn up.

c) Investment in the broader Heritage offer, including the Victoria Art Gallery and
Assembly Rooms / Fashion Museum, where a strong business case can be
made or clear public benefit can be demonstrated from it.

d) Investment in the Council’s heritage assets which will contribute to the Vision for
Bath and make an impact on the public realm adjacent to and beyond their curtilege.

6.3 This updated Business Plan provides the Business Strategy necessary to meet
the Council’s financial planning assumptions of a sustained increase in profit,
augmented by a programme of further reductions in the cost base to divert
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 resources into investment. It therefore mainly addresses the category of
investment described at 5.2 a) and b) above, i.e. in the ‘visitor offer’ at the main
attraction, the Roman Baths. A broader strategy for investment in all four areas
identified above will be brought to the Heritage Board later in 2009/10.

6.4 Central to the current Business Strategy is the implementation of a number of

key investment projects which are addressed below and detailed in Table 4.

Table 4: Annual investment.

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Actual Budget Planned Planned Planned Planned Planned
Revenue investment:

Revenue investment programme £514k £440k £430k £365k £430k £435k £485k
(gross of grant income)

Planned building maintenance £104k £134k £161k £168k £175k £183k £191k

Responsive building maintenance £322k £335k £351k £370k £390k £413k £438k
Total £940k £909k £942k £903k £995k £1,031k £1,114k

Capital investment:

Roman Baths £0.816m £1.322m £1.95m £0.30m

Off site catering £0.96m

The Roman Baths Development Plan

Plan.
lan.

6.5 In September 2004 the Executive agreed that an increase in investment in the
Roman Baths and Pump Room was essential and that the Council should borrow
to finance major capital investment through the Roman Baths Development Plan.
This investment is essential to improve visitor perceptions of value for money and
justify the planned price increases upon which income assumptions rely.

6.6 Between 2009 and 2014 ongoing revenue investment in the visitor experience,
commercial development, building maintenance and monument conservation
for all sites will total £5 million. In addition, capital works at the Roman Baths and
on the off-site catering development will cost £5.4 million, funded via external
borrowing and subject to a detailed annual business case that allows for the costs
of borrowing and for the VAT implications.

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6.7 The Service will absorb and finance both the direct costs of investment and the
repayments of external loans required to fund the major capital project, although
these costs form an increasing level of fixed cost that will total £423k p.a. by 2012.
This process will be subject to ongoing challenge and review from the Heritage
Services Advisory Board and the Proposed Investment Development (PID) Group.

6.8 Associated with the Roman Baths, but not included in its Development Plan, is
the ongoing investigation into extending the visit into hitherto unused areas
under York Street. Previous studies have indicated that any new interpretation
here should be incorporated into the existing visit and not charged for as a
separate attraction. During 2008/09 the Development Plan’s designers have
investigated this area and will bring forward detailed proposals in 2009 which
will be considered as part of the investment strategy and next business plan
update.

6.9 An outline study has been undertaken in the last year on further opportunities
for significant development of the Roman Baths site. This will be developed
further over the coming year. Any such proposals will be considered by the
Heritage Board and the Proposed Investment Development (PID) Group. It is
expected that these proposals would be financed mainly through an external
funding solution such as a Lottery bid and / or grant-aid.

Retail Development Plan.

6.10 To complement the shop refurbishments included in the Roman Baths Development
Plan, a Retail Development Plan has been prepared whose aims are to:

- ensure that the retail offer is integral to new developments;

- maximise opportunities to increase turnover as a result of these developments;
- identify opportunities to increase customer satisfaction and marketing potential
through merchandise inspired by the collections, monuments and buildings.

6.11 The effects on turnover anticipated from the Retail Development Plan have been
captured within the Updated Business Plan.

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New off-
off-site Catering
Catering Opportunity.
Opportunity.

6.12 The current catering facility in the Pump Room does not provide sufficient capacity
for the volume of visitors to the Roman Baths and only services the higher end
of the market. The Pump Room is a visitor attraction in its own right, appealing to ABC1
adults with time to spare and attracting a high proportion of repeat visits from regional
visitors, especially off-peak. The cross-over between Pump Room diners and Roman
Baths visitors is low, at 8% on average.

6.13 Benchmarking with other major visitor attractions consistently reveals that there is
also a market for a less formal and more contemporary catering offer for families
and busy tourists, which would complement rather than compete with the Pump
Room restaurant. Independent qualitative market research and a competitor review,
commissioned in 2008 and conducted during the main tourist season, has helped to
define the nature of the offer required and the price flexibility of the target market.

6.14 A joint Cabinet Member decision was taken in December 2008 to proceed with the
development of a new catering outlet along these lines, using a property close to the
Roman Baths. It is owned by the Council and provides an income to its Commercial
Estate. The use of this site by Heritage Services will enable the existing level of return
to continue and for all other costs to be met by the income it generates.

6.15 The project will enable the Roman Baths to influence the quality and use of the public
realm around its main entrance. To minimise the level of risk to the Council, ensure that
the service is operated to the highest industry standard and to achieve economies of
scale, the facility will be operated by the specialist caterer awarded the Pump Room and
Assembly Rooms contract in 2010.

6.16 Assumptions on both the cost of this project and the revenue that it would generate
have now been incorporated within this Updated Business Plan. Capital funds will be
made available to allow the project to be completed, subject to a further PID review
early in 2009/10.

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The Assembly Rooms.

6.17 The Service is reviewing its use of the Assembly Rooms site in the light of the
expiry of the current lease in March 2012. The site currently meets the direct costs
of its operation, including building maintenance, and provides a small contribution
to managerial and corporate overhead, as illustrated in Table 5 below.

Table 5: Assembly Rooms site.

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Budget Planned Planned Planned Planned Planned

Turnover £904k £966k £1,003k £1,035k £1,061k £1,090k

Less: Operating costs £669k £687k £710k £732k £756k £784k
Less: Ongoing investment and £192k £160k £187k £236k £192k £231k
building maintenance
Contribution to overhead £43k £119k £106k £67k £113k £75k
Overhead £260k £267k £270k £273k £277k £281k
Net Profit / (Deficit) (£217k) (£148k) (£164k) (£206k) (£164k) (£206k)

6.18 This Updated Plan contains the working assumption that the building will continue
to be operated post 2012 on the terms of the current lease. However, in the light of
the uncertainty surrounding its future use, all commitments to investment,
maintenance and operating expenses are under continual review. Negotiations
continue with the National Trust to assess the scope for a revised lease of a
shorter duration with shared responsibility for the building’s maintenance liability.

6.19 A feasibility study took place in 2008/09 into business development opportunities
to improve the sustainability of the building’s already successful room hire and
catering performance. These opportunities are outlined in Section 6 below.

VAT Impacts.
Impacts.

6.20 The level of investment during the period of this Plan will put pressure on the
Council’s VAT position. The effect on the corporate VAT position has again been
fully reviewed and, on current assumptions, it is likely that it will not cause the
Council to exceed its 5% partial exemption limit. The costs of financing a VAT
penalty would effectively be met by additional borrowing, with a commitment for
repayment over a 25 year period.

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7. New Developments.

7.1 Benchmarking has revealed that there are opportunities to improve the visitor
experience and increase income from improvements to the areas dedicated to
secondary spend, principally retail and catering. The ongoing Roman Baths
Development Plan includes expansion of the main Roman Baths Shop and the
refurbishment of the Lower Museum shop. The separate off-site catering
development will provide an alternative café experience. Both of these developments
are fully funded via this Plan, including the financing costs of capital expenditure.

7.2 However, any further development at either the Roman Baths or Assembly Rooms
sites, or in the broader heritage offer, will generate costs, including debt finance
charges, beyond the level provided within this Plan. As demonstrated above,
admission charges – especially at the Roman Baths – are already at or above the
level of the top 25% of all major UK attractions, despite the visit duration being half
a day or less. To meet the requirements of the Financial Plan, price increases are
planned at levels that already exceed inflation. Assumptions on secondary spend
also allow for the development of additional revenue sources, with little room for
further expansion. The generation of the additional funds required will therefore
require new developments to be planned and implemented in 2009-2014.

7.3 New developments have been identified that will be investigated further during
2009/10. They will be reviewed by the Heritage Board and, where appropriate, the
PID group, prior to inclusion in the next version of this Plan. These are:

New Visitor Markets.

7.4 New visitor markets will be developed to increase Roman Baths visitor volumes
beyond the level of c.830,000 to 850,000 p.a. achieved over the last five years. A
Gap Analysis, conducted in-house by Heritage Services in 2007 and drawing upon
previous independent market research, revealed the following areas of greatest
potential:
- repeat visitors
- families
- regional visitors, living within 90 minutes drive time
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 - holiday makers within 60 minutes drive-time
- UK primary schools within 60 minutes drive time.

7.5 Attracting these visitors implies changes to the visitor experience, to marketing and
promotion, and to the promotional channels used in marketing the Roman Baths.
Details are given in the Marketing Strategy in Section 7 below.

7.5 In addition, there is a potential market of visitors with limited mobility and those
travelling with them, which the Roman Baths will be able to attract for the first time
as a result of developments in winter 2008-9. The Fashion Museum already has a
good reputation for accessibility, including favourable reviews in disabled press.

Assembly Rooms Action Plan.

7.7 The independent review conducted in 2008 concluded that Heritage Services
provides “a consistent and quality corporate hospitality service, with a reputable
and established catering partner”. Nevertheless it identified a number of measures
that could increase yield from the Rooms by developing banqueting, conference
and other room hire activity and it divided these into low, medium and high
investment areas. Relevant low investment actions will be carried out in 2009/10
and consideration will be given to the return on investment likely from some of the
medium investment items as part of the forthcoming investment strategy. High
investment in the Assembly Rooms is not possible until a new lease with the
National Trust has been agreed; relevant funding for this could come from a
variety of sources.

Environmental Plan.

7.8 During 2009/10 the Service will prepare a plan to reduce its carbon footprint. The
plan will build on the work done in recent years to minimise energy consumption,
and will bring forward proposals for Council funding under its ‘invest to sustain’
and ‘invest to avoid’ schemes to explore the feasibility of harnessing solar energy
and capturing heat from kitchen vents. The Service will work with the Council’s
consultants to capture yet more energy from the thermal springs, ensuring that the
maximum possible energy is retained for use on site.
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8. Marketing Strategy.

Current
Current and Ongoing
Ongoing Strategy.
trategy.

8.1 The successful marketing initiatives deployed in 2008/09 will be continued in

2009/10. In the very competitive and crowded visitor attractions market these have
served the Service well in maintaining visitor volumes, particularly at a time of
economic downturn. The Business Plan 2009-2014 requires a modest uplift in
visitor numbers to meet the profit target required by the Council’s Financial Plan.
The marketing strategy outlined below describes both ongoing activity essential to
retain existing markets and new initiatives designed to attract new audiences in
2009/10 and beyond.

New Development:
Development: uplift
uplift in financial
financial investment.
investment.

8.2 The Gap Analysis conducted in 2007 concluded that an uplift of 8% in annual
visitor numbers could be achieved by attracting the following numbers of visitors,
yielding an extra £774,000 in gross revenue per annum (at 2007 prices):

Table 6: Potential new visitors per annum

Repeat Business 18,700
Regional day visitors 5,000
Overseas visitors 38,000
Schools 6,000
Students 6,000
TOTAL 73,700

8.3 To reach these visitors the following investment in the core product and in
marketing will be required:

Repeat Visitors
Visitors:
isitors:
- features each year that can be promoted as “new” elements of the visitor
experience;
- features that change with the seasons;
- events on bank holidays;
- increased promotion to Bath’s regional day visitor market in particular.

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Regional Day Visitors
Visitors:
isitors:
- all the initiatives mentioned above;
plus
- substantial new investment in regional advertising and promotion, to attract
families and the active elderly;
- Improved accessibility and comfort for elderly visitors, including more seating,
fewer steps and investment in toilet and café facilities.

Overseas Visitors,
Visitors, staying anywhere in the UK:
UK:
- an exceptional offer with high visitor satisfaction rates;
- good value for money against other currencies;
- profile-raising at the place of their accommodation, on the Internet and overseas;
- strong links with agents, tour operators and accommodation providers;
- distance purchase of tickets;
- international media coverage.

Schools:
Schools:
- a strong curriculum-related education offer
- increased promotion of the service to primary schools as an essential part of the
curriculum;
- a second quality teaching space, suitable for older groups;
- bespoke indoor sandwich eating space for primary schools;
- adequate lunch rooms within easy walking distance for secondary school pupils.

Students:
Students:
- increase in use of Children’s audio guides, eg by adding German;
- non-verbal communication in visitor interpretation;
- interactive experiences;
- Visual experiences, perhaps using new technology;
- Teenager-friendly activities;
- Places to store rucksacks and schoolbags;
- Lunch facilities;
- Promotion to the EFL market;
- Improved facilities for coaches visiting Bath.

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8.4 During 2009-10 the cost benefit of reaching these markets will be tested. Investment
proposals on future promotion will be based on the conclusions and will form part of
the investment strategy to be considered by the Business Team. Some of the
relevant investment in the core product is already being made.

Economic Downturn
Downturn.
ownturn.

8.5 The worldwide economic downturn has reduced the overall market but has
increased the potential for business from the Eurozone and domestic business in
particular. There are also signs that visitors from the United States will still travel to
Britain in 2009-10, as long as the Pound remains weak.

8.6 To reach the domestic market in 2009, Heritage Services will invest in an early
summer out-of-home campaign targeted at children and families, highlighting new
costumed interpretation at the Roman Baths. The unprecedented success of the
recent promotion with First Great Western trains has indicated that towns between
Bath and London are a primary catchment area. There will be an out-of-home
campaign in June to August 2009 to target these families, including in-train
advertisements for London commuters, streetliners on Bath and Bristol buses and
in-bus advertisements on park and ride buses. This will be supported by a poster
campaign in Bath and Bristol and at Bristol airport and limited magazine advertising
to this market.

8.7 As a secondary campaign we shall also promote the Roman Baths on a summer
evening as a romantic place for adults to relax and avoid the crowds (of children
and young people coming during the day as a result of the out-of-home
campaign!).

8.8 The economic downturn is increasing the demand for packages and added value
offers or discounted products. The popularity of the ’Spas Ancient and Modern‘
package has grown exponentially and 2,020 have been purchased in the past year
with an income of more than £25,000 to the Service. These are bought almost
entirely by domestic visitors on short breaks and they therefore indicate the
potential strength of domestic holidays in 2009.

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New Media Development.

8.9 In 2007 for the first time, our average visitor began to use websites more than
traditional promotional materials, and this trend has continued. Heritage Services’
first database-driven websites have been continually improved and expanded with
new features and have stood the test of the past ten years. They will continue to
be used for promoting the Service and are being augmented with film, 360°
photography, new images, social networks, blogs and other user-generated
content. They will be well embedded and linked to achieve high search engine
rankings, and will be promoted on-line and in print. Regular e-newsletters will be
sent to the database of nearly 15,000 subscribers.

8.10 The websites are being future-proofed by migrating them to a new content
management system. This will provide easy editing, will assist in achieving high
search engine rankings and will reduce the risk of the sites becoming obsolete.
By September 2009 all five sites will have a completely new look and feel and
structure, making them all look fresh and up-to-date.

8.11 E-ticket sales will be introduced in 2009-10. A web-based retail shop is intended,
although this has proved more difficult to produce than expected so far. We are
working with colleagues elsewhere in the Council to provide a solution that is linked
to the Council’s other uses of e-purchasing.

8.12 Video and DVD advertising is replacing print, and the Service is building up a body
of TV footage for use in hotels, for the media, on the web and for its own in-house
purposes. For example, the traditional bedroom browser has recently been
superseded by in-hotel television channels and Heritage Services has contributed
relevant advertising to this medium.

8.13 A new library of exceptional quality photographic images was commissioned in

2008 in co-operation with Bath Tourism Plus and Thermae Bath Spa, and the value
of this will be maximised in advertising and editorial over the next year. It has
already been instrumental in getting the Roman Baths listed among the most
romantic buildings in Britain in a poll on the RIBA website.
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9. Sensitivity and Risk.

Planning Assumptions and Local Factors.

actors.

9.1 There is a significant risk that the Financial Plan profit targets for 2009/10 and
beyond will not be achieved, both due to the sensitivity of planning assumptions
and to national and international economic factors. The Director’s ‘Review of the
Adequacy of Reserves and Robustness of Estimates’ assesses the likely exposure
to risk at approximately £750k in 2009/10.

9.2 This Updated Plan is underpinned by extensive and integrated modelling of all key
visitor, income and cost assumptions and is sensitive to normal tolerance on the
business model and its assumptions. The assessment of a £750k risk exposure
also anticipates the likely effects on the visitor market of local events. There are no
new specifically local factors in 2009-10; the biggest new risk to the Service in
2009-10 is the unpredictable effect of the economic downturn.

World Events.
vents.

9.3 The assessment of a £750k risk exposure does not, however, address the possible
impact of other significant world events such as terrorist outrages, outbreaks of
disease, fuel crises or extremes of weather. The possibility of a downturn in profit
achieved against the ambitious targets imposed by the Financial Plan due to world
events was recognised and identified in 2004 and a possible profit shortfall of
£750k p.a. was posted on the Council’s Risk Register. The London bombings of
July 2005 proved this to have been a prudent measure to take.

Economic Environment.
nvironment.

9.4 In addition to sudden and unpredictable traumas caused by ‘world events’, the
business is affected by the economic environment worldwide. In 2009 the forecast
includes the adverse effects of recession in the United States, the credit crisis in
the UK and the relative weakness of the Dollar, Pound and Yen. The Plan allows
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 for a moderate economic downturn in 2009, but it does not allow for this to deepen
yet further or to continue into 2010.

9.5 On the positive side, the Euro is currently strong, which will encourage business
from the Eurozone. Recent indications are that the value of the Pound against the
Dollar has also encouraged business from the United States, despite the
recession. Increasing numbers of visitors from the emerging markets of India and
China continue to benefit the Roman Baths, despite strong competition from
France and Italy for these markets. The sharpest decline over the last three years
has been in Japanese visitors, who until last year were the third largest language
group visiting the Roman Baths, but are now only the fifth largest.

Customer Resistance.
esistance.

9.6 Since 2006 it has been recognised that admission charges have been pushed to
the limit of customer tolerance. As a result, the headline price increases in 2007
and 2008 were set at no more than the rate of inflation. However from 2009 prices
have resumed the practice of the past ten years and increased by c.5% year-on-
year in order to meet the demands of the Council’s Financial Plan. This situation
will remain under review but the current assumption is that the Roman Baths
Development Plan will help to mitigate price sensitivity.

9.7 The sustainability of this rate of increase is questioned by the ongoing widespread
visitor perception revealed by market surveys that the Roman Baths is an
expensive attraction, and by below average perceptions of the ’value for money‘ of
the visit. These perceptions may only be partially mitigated by further investment in
the visitor experience through the Roman Baths Development Plan. Concern at
the increased threat to the financial sustainability of the Service as a result of price
increases has been voiced by the Heritage Advisory Board which advises the
Cabinet on the Service’s business plan and investment proposals.

Competition.
Competition.

9.8 Cheap overseas flights and regenerated UK cities with large marketing budgets
continue to pose a significant risk to Bath as a destination. Major developments in
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 other leading visitor attractions and new competition from shopping, leisure and
home entertainment, continue to make the market more competitive than ever.

9.9 The economic downturn has caused the overall tourist market to contract for the
first time since 2001, increasing competition among tourism service providers and
putting visitor attractions under pressure to discount, package, add value or
reduce prices. Lead times have reduced and price sensitivity has increased.

Inflation
Inflation.
ion.

9.10 The current uncertain economic conditions make assumptions on inflation difficult
to assess. This Plan makes prudent assessments of likely inflation levels based on
industry and in-house specialist advice, but is sensitive to changes in assumptions
on major areas of expenditure, principally employee costs and building costs
(utilities; business rates; maintenance). Inflation in these areas is extremely
difficult to predict, and has been subject to severe fluctuations in the last year.

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