Every year our annual report looks back on our performance of the previous financial year and forward to our future plans. In this blog, Chief Financial Officer, Peter Vermeulen, responds to the publication of our 2020/21 report and offers insight into our financial accounts.
For many of our supporters, the publication of our annual report and financial accounts will go unnoticed, but others will place a magnifying glass over our performance the previous year. That’s something we welcome. It’s a very important document for a charity like ours; it provides important facts and figures about how we did through that period and opens us up to public scrutiny – about how we spend supporters’ money and run our organisation for their benefit.
The annual report we published last week on 1 September is one of our most unusual. It deals with a year like no other: 12 months in which we put most of the charity into hibernation and where we saw our finances hit very badly by the pandemic.
While the report outlines our performance, it is only a snapshot of a certain period in time, and it doesn’t provide the month-by-month story of what really happened during the year.
Just as our last financial year started at the beginning of March, so too did the grip that Covid-19 would have on our country over the following 18 months. While we were starting off the year in a great financial position it became clear, very quickly, that the prospect of the country shutting down, resulting in us having to close all our houses, shops, cafés, holiday cottages and cancelling events, would have devastating consequences on our finances. We had to map out a financial plan like no other; one in which we had to think differently, think long-term and most importantly consider the consequences for our work and our staff.
There’s been lots of debate over the years about the amount of cash we hold in our reserves – the current level is set by our Board of Trustees at £186m. To any of us, that amount is a huge sum, but for an organisation the size of the National Trust, looking after more than 500 properties, 780 miles of coastline, 250,000 hectares of land and more than one million items in our collections, £186m is equivalent to three months-worth of expenditure in a normal year. When you take into account the unknown world we entered in March, you can clearly see why we couldn’t waste time in planning how we’d get through the pandemic. Our annual report shows that over the entire year we were £213m below our income target, the equivalent to about £600,000 per day, which paints a stark picture of just how badly affected we were.
At the start of 2020, we used analysis to try to understand what the next few months and years had in store for us. We looked at the likelihood of different scenarios, and whether the charity had enough financial resilience to survive those scenarios. Regrettably, we realised we were going to need to reduce our costs further in order to cope with the longer-term effects of social distancing and lower levels of trading, so we made a plan to reduce our annual spend by £100m by changing the way we operate and reducing our payroll and budgets.
In addition, we were able to use the Government’s furlough scheme and drew on the Bank of England’s emergency coronavirus loan schemes to help us through the short-term impacts of the crisis. But with our inability to recruit more members because our places were closed, which would have a much bigger impact on our income in the future, we had to think much longer term.
At the front of our minds during this financial planning was minimising the effects on our staff, which is why we initially focussed on stopping or pausing some of our project spend and then turning to non-pay cuts. Once we had exhausted those avenues, we still hadn’t reached our £100m per year savings and so regrettably had to look at where we could find savings in our staff budgets, which led to the 1,767 redundancies confirmed in our annual report.
Some have asked why we didn’t use our reserves to save jobs. We did. At the end of the 2019/20 financial year, we had £320 million of ‘unrestricted reserves’, which are funds that we can spend wherever the need is greatest. This is just under six months’ worth of costs. As we moved into this crisis, we knew we had some resilience, but half a year’s worth of costs can disappear very quickly when so many sources of income dry up. We had to dip into them but as they continued to dwindle we had no option but to find savings elsewhere. It was only later in the year, when we started to receive some exceptional income, such as Government grants, a large insurance claim and improved income from our shares as the stock market recovered, that we were able to start replenishing our reserves.
But we’re not out of the woods yet. We’re still recovering from the pandemic and we’re still feeling the effects, including in hospitality trading and visitor numbers at some properties. We will feel the repercussions of the financial effects for many years to come, but with the financial plans we put in place last year – our 125th anniversary year - coupled with the fact most of the places in our care have reopened and a member is signing up to the Trust on average every 25 seconds, we’re confident we’ve been able to safeguard the National Trust – hopefully for at least another 125 years.