Nuffield Farming Finances – Update and Explanation

NUFFIELD FINANCES

….. This article provides an update and explanation of our latest Finances – and some parts are retained from previous versions to provide an ongoing reference. We are very fortunate to have strong finances as we operate in the new ‘covid environment’. What is more, the support of our sponsors has continued much as before and, importantly, substantial new donations have been received. Long may this situation continue.

AN HISTORICAL PERSPECTIVE…

Since 1947, when our scholarships were first awarded and funded by the Nuffield Foundation, the Nuffield Farming Scholarships Trust has assumed, firstly responsibility for scholarships costs (in 1956) and later all finances (in 1968). The organisation became a registered charity and company limited by guarantee in 2003 and since then has been run under the legally binding rules and regulations of these bodies. The Trustees are responsible for setting strategic objectives, ensuring that the Trust complies with its formal obligations and authorising the annual budget for the Director to implement. Currently, Nuffield Farming is fortunate to receive sponsorship for all scholarships awarded. Indeed, more organisations have promised support than the number of scholarships available – notwithstanding the geographical and specialist restrictions of some. In general terms, annual donations are used to fund a proportion of overheads (currently approximately 25%) with the balance being made up by general sponsorship along with investment income, donations and a small amount of scholar sponsorship funds. In recent years, until 2018-19, this has provided a small operating surplus (after deduction of major donations) in the order of 5% of normal income. However, again this year, additional costs have meant that an operating deficit approximately equivalent to 10% of normal income was incurred. More general sponsorship would be welcomed! Nevertheless, it is emphasised that because of the generosity of major donors the statutory accounts continue to show a healthy surplus of approximately £340k in 2020-21. In addition, over the years the Trust has built up a portfolio of investments that provides reserves for the short and long term. Despite initial decline at the beginning of the covid emergency, as reflected in the last 2019-20 Statutory Accounts, these have continued to recover and performed well during this 2020-21 financial year.

HEADLINES FROM RECENT YEARS 2013 – 2021

2012-13 2020-21 Trend

Total Net Assets: Investment Holdings: Expenditure less Scholarships: Cost of Administration & Overheads: £835,100 £3,201,836 <Quadrupled £735,300 £3,068,241 >Quadrupled £164,500 £175,732 +7%! £114,000 £155,995 +37%!

Note: ‘!’ indicates significant reduction from last year, due, in the main, to the impact of covid restrictions.

FINANCIAL OBJECTIVES, RESERVES ALLOCATIONS AND INVESTMENT STRATEGY

(from the 2020-21 Trustees Annual Report and the Policy) The strategic management of Trust’s finances are run according to the policy setting out the overarching Financial Objectives, Reserves Allocations and Investment Strategy for the Nuffield Farming Scholarships Trust. The overarching Financial Objectives of the Trust are to: maintain two years’ expenditure in reserve; provide stable and consistent levels of expenditure and maximise returns, but within the agreed level of risk - and will guide other decisions. Given these objectives and to enable a method of monitoring progress against them Trustees have determined to establish a short term reserve and a long term reserve. The Short Term Reserve retains the net surplus of all income (including investment income), less any expenditure and comprises of both unrestricted and restricted funds at a range of around £200,000. The Long Term Reserve benefits from any investment returns (other than income), together with any ad hoc donations that Trustees want to keep for the long term (such as legacies). Investment fees are paid from this reserve. It can comprise a general (unrestricted) fund and other restricted funds where the intention is to hold a lump sum for the long term.

The detailed management of investments is the responsibility of the appointed professional managers. However, Trustees set an Investment Strategy as the mandate under which these operate. This is in two parts: Liquidity, or the amount of cash the organisation needs to have access to at any one time and an Investment Policy, setting out how money may be allocated. It is considered unlikely that the Long Term fund will hold less than 70% in real assets. In addition, a separate operational liquidity balance of £200,000 is retained to provide protection should the usual dividends from the invested funds be interrupted. Any restricted funds are invested alongside unrestricted funds subject to the investment policy. Individual donors are listed separately in the annual accounts without reference to whether their gift has been spent or not. Trust assets are, therefore, invested to ensure that two years’ expenditure is available for unforeseen emergencies. Given the above, the investment policy is simply assessed against the cheapest available way of investing money in assets with similar volatility protection. Fund Managers are measured against a passive index of 80% in global equities and 20% in investment grade bonds. This policy and the Fund Managers progress is reviewed annually for compliance with the mandate, and every three to five years for performance and volatility (when measured against that benchmark). The aim is to have a higher performance and lower volatility than the benchmark.

RECENT PERFORMANCE

Operating Surplus: Unrealised Investment Gains: Donations Restricted/Unrestricted Funds: Net Movement in Funds: Net Assets/Balance Carried Forward: Investments:

2020-21 2019-20 2018-19 2017-18

-£90k -£60k £18k £32k £433k -£133k £79k £7k £55k £522k £1,156k £91k £343k £229k £1,175k £122k £3,202k £2,858k £2,630k £1,455k £3,068k £2,618k £2,865k £1,520k

NOTES ON RECENT PERFORMANCE FIGURES:

• Operating Surplus. In recent years, until 2018-19, Trustees have set a budget with an operating surplus in the order of £25,000 – including investment income. This has not been sustained as explained above. However, included in the 2020-21 operating deficit is a commitment of £30k towards the Digitalisation project. • Unrealised Investment Gains/Losses. This is sometimes referred to as ‘investment growth’ (or decline) and for which there are no fixed targets. Rather the movement in funds reflects changes in the stock market with a negative figure indicating a reduction in value. The growth of investments in 2017-18 was less than we had become used to but returned to ‘normal’ in 2018-19. In 2019-20, however, we suffered a decline of -£133k, only for this to ‘bounce back’ dramatically this year. • Donations to Restricted/Unrestricted Funds. The Trust continues to benefit by the generosity of charitable and private donors to establish ‘restricted funds’ to be used specifically for their scholarships. In the 2017-18 financial year major legacies were received totalling £91k. In the 2018-19 financial year donations were received for a John Oldacre Restricted Fund of £1,100k as well as a further legacy from the Jill Willows Estate of £162k. In 2019-20 major donations totalling £522k were received or formally promised, but, in 2020-21 the amount was £55k. • Net Movement in Funds. This figure shows the final, overall, increase or decrease in funds. • Balance Carried Forward. This is the Net Worth of the Trust and reflects that of the previous year plus or minus the net movement in funds. Readers will appreciate that, whatever else has occurred the effective doubling of the Trust’s worth over 3 years must be considered exceptional! • Investments. This is the total value of the short and long term reserves. These have grown considerably over recent years and the unrestricted funds or free reserves now total £1,504k which continues to be just under 50% of the investments.

SUMMARY

The Nuffield Farming finances continue to be reassuringly strong. The overall annual increase in the value of the Trust is satisfactory and reflects the generous support of our sponsors and benefactors without which free reserves would have to be used to fund our activities.

Even though the operating deficit is disappointing and may well be repeated next year the overall, final result as set out in the Statutory Accounts is still satisfactory. The amount of free reserves, along with the security of major legacies, enables Trustees to confidently allocate monies towards new initiatives as these occur - whilst being sure that funds will still be available to carry the Trust over any downturn in its fortunes.

Whilst Trustees continue to bear down on administrative costs, they also recognise that increased levels of operational performance may need additional funding. Going forwards, it must be recognised that new initiatives are likely to need increased expenditure. This will only be possible if new sources of funds are identified or some funds from the free reserves are realised …..