The Merchant Company Education Board Annual report and financial statements Charity number SC009747 31 July 2020

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Contents Page

Reference and administrative details 1

Report of the Board 2

Statement of Education Board’s responsibilities 20

Independent auditors’ report to the members of the Education Board of the Company of Merchants of the City of Edinburgh 21

Statement of financial activities (including income and expenditure account) 24

Balance sheet 25

Statement of cash flows 26

Notes to the financial statements 27

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board

The Merchant Company Education Board presents the annual report and financial statements for the year ended 31 July 2020.

Reference and administrative details

Principal office Merchants Hall 22 Hanover Street Edinburgh EH2 2EP

Secretary and Chamberlain

Principals

Auditors MHA Henderson Loggie 11-15 Thistle Street Edinburgh EH2 1DF

Bankers The Royal Bank of Scotland plc 36 St Andrew Square Edinburgh EH2 2YB

Solicitors Morton Fraser Quartermile Two 2 Lister Square Edinburgh EH3 9GL

Investment advisors Baillie Gifford Brooks MacDonald Carlton Square 80 Hanover Street 1 Greenside Row Edinburgh Edinburgh EH2 1EL EH1 3AN

Aubrey Capital Management 10 Coates Crescent Edinburgh EH3 7AL

Registered charity number SC009747

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Structure, Governance and Management

The Merchant Company Education Board was constituted as a body corporate under the Edinburgh Merchant Company Endowments Order 1909 and is governed by the provisions of the Edinburgh Merchant Company Educational Endowments Scheme 1960, as amended. On 3 November 2011, OSCR approved the Merchant Company Education Board’s new Constitution. The new Constitution was adopted on the same day approval was received and resulted in a refinement of the charitable purposes and changes to the size and composition of the Board of Trustees. The Board is registered as a charity with the Office of the Scottish Charity Regulator under charity reference number SC009747. The Merchant Company Education Board is responsible for The Mary Erskine School and Stewart’s Melville College, including their combined Junior School, and George Watson’s College. The Board oversees the administration of their schools which is carried out by two governing councils, established in 1989, namely the ESMS Governing Council and the George Watson’s College Governing Council. The councils are standing committees of the Merchant Company Education Board. The governing councils, assisted by their finance committees, are required to prepare annual accounts for the relevant schools giving a true and fair view of the state of affairs. The Education Board is responsible for the preparation of consolidated accounts, which includes the George Watson’s Family Foundation. The members of the Education Board consist of: a) The Master and the Treasurer of the Merchant Company b) The Chairmen of the Governing Councils of each of the schools c) Up to 6 additional members, selected by the Nominations Committee of the Merchant Company

Master From 2 November 2019 Treasurer From 7 November 2019 Lord Dean of Guild From 5 November 2015 From 2 June 2016 Chair of the GWC Governing Council From 1 May 2017 Chair of the ESMS Governing Council From 1 August 2018 From7 November 2019 From 7 November 2019

Induction and training Board Members

1. All Board members On appointment, all Board members are given a copy of the Edinburgh Merchant Company Educational Endowment Scheme 1960, the Rules made under the Scheme in 1960 and amended in 2002 and 2011 and the Merchant Company Standing Orders made under the Scheme in 1989, 2004 and 2011. They are also given a copy of all papers already distributed to Board Members in regard to current issues of significance, provided with the opportunity to visit the schools and then made aware of all training opportunities that are intimated to the Secretary of the Board.

2. Merchant Company Members who are also members of a School Governing Council The Merchant Company Court appoints three members to each of the school governing councils. These Court members require more detailed knowledge of the school on whose Governing Council they sit and are inducted into the governance and workings of the schools by the Chairman of Governors, the Principal and the Bursar. They are invited to join committees dealing with particular aspects of the school’s work, are variously invited to attend governors’ days or conferences or away days with senior staff or to shadow a member of staff or pupil of the school. They are also made aware by the school of any significant issues arising between meetings of Governing Council and of all training opportunities that are intimated to the school and in particular, training and seminars held by the Scottish Council of Independent Schools.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Structure, Governance and Management (continued)

Members of Governing Councils who are not Board Members

Other Governors are appointed at governing council meetings following nomination by the Chairman of Governors on the basis of their specialist skills, knowledge of the schools and readiness to commit to contributing to the governance of the schools and they receive the same induction and training as Governors who are Board members.

Organisational management

Ultimate legal responsibility for the management and control of the schools rests with the Merchant Company Education Board which meets four times a year. The governing councils of the schools, which are standing committees of the Board, are responsible for the overall management and control of each of the schools and meet at least four times a year. Each Governing Council is assisted by a Finance Committee, which is also a standing committee of the Board, a Property or Buildings Committee, an Education or Academic Policy Committee and a Health and Safety Committee, all of which meet in advance of governing council meetings on an annual cycle.

The day-to-day management of the schools is delegated to the Principals supported by their key management personnel, who are listed below:

The Merchant Company Education Board

Secretary & Chamberlain

Erskine Stewart’s Melville Schools (ESMS) George Watson’s College (GWC) Principal Principal Head of The Mary Erskine School Senior School Head of Stewart’s Melville College Head of the Senior School Senior School Head of ESMS Junior School Head of the Junior School Bursar Bursar Director of Information Technology Chief Operating Officer Director of Development

Remuneration Committees comprising Governors at each of the schools periodically review the remuneration and terms and conditions of key management personnel with reference to the AGBIS Annual Survey of Heads’ and Bursars’ Remuneration and other external market data.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Structure, Governance and Management (continued)

Risk management

The Merchant Company Education Board is responsible for the overall management of risks faced by the Board and the schools. Each of the schools maintains a Risk Register in which significant risks are recorded together with an assessment of the likelihood and impact of each risk on the school and the controls which are in place to mitigate risk. The Governing Councils and Senior Management Teams of the schools formally review their Risk Registers at each Governor and Finance Committee meeting. In addition, the Audit and Risk Management Committee of the Merchant Company reviews the risks faced by the Education Board at least every year.

The Governing Councils are also responsible for the continuing review and development of policies to ensure that the schools are managed with probity and efficiency, and regulations and guidelines for the welfare of pupils and staff are observed. Internal risks are mitigated through the application of these policies and the implementation of procedures for authorisation of all transactions and projects, and to ensure consistent quality of delivery across all elements of the schools’ operation. External risks are controlled or mitigated by a continuous review of the external environment and the on-going adjustment of the schools’ strategies, policies and procedures to anticipate and respond to changing circumstances.

The most significant risks faced by the Schools are shown below together with strategies and control measures for managing those risks:

Risk Strategies/control measures 1. Corona virus (Covid-19) pandemic: • Adherence to UK and Scottish Governments’ • Risk of further school buildings containment strategy and any subsequently announced closures leading to demands for plans. partial fee rebates • Ongoing advice from BSA/ISC/ISBA/AGBIS. • Risk of staff or pupil illness • Comprehensive strategic and operational risk undermining capability to deliver assessment documentation in place. education • Implementation of infection control measures and • Business Interruption insurance did compliance with Test & Protect. not provide cover for financial loss. • Demonstrated capability to provide continuity of education remotely. • Covid Committee meets weekly at ESMS • At GWC the Covid Response and Recovery Team managed operations during lockdown and the return to School. The Covid Resilience Team is planning for future scenarios from class isolation to full lockdown. 2. Significant fall in pupil numbers due to: • Additional funds to provide short term financial support in • Competition from the state sector and 2020/21. other independent school. • Investment in Virtual Open Day and Digital Open • Fees becoming unaffordable to Morning. current and prospective parents. • On-going marketing of school across media channels – • Post-pandemic recession affecting senior schools close to capacity the ability of parents to afford school • On-going investment in educational offering and facilities fees. • Alteration and/or expansion of schools’ bus services to • Change in demographics with fewer meet changing market needs school-age children in and around • Any fall in pupil numbers is more likely to be gradual, Edinburgh. rather than sudden, giving the schools time to adjust their • Withdrawing from City of Edinburgh cost base and fee levels Council partnership for Nursery at end • Contingency planning for a drop in pupil numbers in of 2020/21 school session. 2021/22 and beyond.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Structure, Governance and Management (continued)

Risk management (continued)

Risk Strategies/control measures 3. Political risks, including:

• Loss of rates relief from April 2021 • The full cost of the loss of rates relief has already been resulting in a five fold increase in the factored in to budgets and financial projections. cost of non-domestic rates. • Loss of charitable status, the financial • Other measures face a number of practical hurdles and impact of which would be the loss of would take a number of years to implement. gift aid on donation income and the schools’ becoming liable to • Lobbying through Scottish Council of Independent corporation tax on any surpluses. Schools (SCIS) and the Independent Schools Council The ethos and the way in which the (ISC). schools are managed may also • Economic Impact Study by Edinburgh Schools submitted change if they are no longer regarded to the Council in December 2018. as charities. • VAT on school fees would have a very significant impact on the level and affordability of school fees. • Abolition of independent schools as adopted by the (UK) Labour Party Conference. 4. Serious damage to the reputation of the • Use of experienced media agency to assist with crisis Schools, for example due to: communications • Allegations of historic and/or current • Proactive response to racism allegations institutional racism • Child protection policy reviewed annually and backed up • Duty of Candour incident in by child protection training for all new staff (and repeated Nursery/Boarding House every three years for all staff) • Child protection or pornography • PVG scheme procedures adhered to strictly incident • Full risk assessment of departments undertaken • Health and safety accident annually. • Incidents involving alcohol, drugs, • Accident and incident reporting and follow-up system in parties, etc by pupils and/or staff place • Misuse of the internet or email by • Policies in place for staff and pupils regarding behaviour, pupils or staff bullying etc.; reinforced via in-service training, PSE and • Data breach (see also M6) through Development Plans • Staff misbehaviour or dispute with • Robust guidance provision other members of staff or pupils. • Robust, flexible system for maintaining pupil discipline • (or failure to report appropriately for • Regular parent consultation any of the above) • Scottish Government’s Historic Child Abuse Enquiry ongoing. • - Increased media interest in historic abuse cases increases likelihood of allegations emerging,

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Structure, Governance and Management (continued)

Risk management (continued)

Risk Strategies/control measures 5. Failure of management controls • Selection and retention of quality staff • Appointment of relevant, appropriate individuals to the senior management teams • Management accounting process • Supervision of controls by the Bursars and use of Finance Committees • Provision of relevant papers to Governors and Trustees 6. Failure to manage higher costs resulting • Rigorous review of all costs and of opportunities for in school fees becoming unaffordable to generating additional income. many of our current and prospective • The schools need to develop their strategies on staff pay parents. and pensions. • Strategy on future fee rises over the medium term to be All independent schools in Scotland are reviewed by the Finance Committees and Governing facing very substantial cost pressures over Councils. the next few years, including:

• The likelihood of further increases in employer’s contributions to the Scottish Teachers Pension Scheme following the substantial increase to 23% in September 2019. • Higher pay rises for teachers in the state sector which will put pressure on pay rises at the schools. • The withdrawal of rates relief from April 2021 which will increase the cost of rates by 500%.

The Merchant Company Education Board is satisfied that major risks faced by the schools and the Board have been identified and that adequate controls are in place to reduce the likelihood and/or impact of each risk. The Board recognises that any system of controls can only provide reasonable but not absolute assurance that risks have been adequately managed.

Objectives

The Board is incorporated under the Merchant Company Educational Endowments Scheme 1960, as amended. Details of the Scheme can be obtained on the website www.mcoe.org.uk.

The Endowments are held and administered for the purposes of the scheme, which is the provision of education at the Edinburgh Merchant Company schools, their maintenance and management and the provision of financial assistance to a proportion of their pupils.

There has been no change in the purposes since the last report. The activity of the Board and its sub-committees comply with the Educational Endowments Scheme and Standing Orders and rules drawn up under the Scheme and current statutory requirements.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Structure, Governance and Management (continued)

Strategies to achieve objectives

The objectives of the Merchant Company Schools are:

1. The advancement of education, particularly the education and advancement of children and young people; 2. The advancement of the arts, heritage, culture and science; 3. The advancement of public participation in sport; 4. The provision of recreational facilities, or the organisation of recreational activities, with the object of improving the conditions of life for the person for whom the facilities or activities are primarily intended; and 5. The advancement of citizenship or community development.

Our delivery of these included the following:

1. Monitoring performance in external public examinations in comparison with national averages and other independent schools. 2. Ongoing review of the schools’ academic syllabus both as to the range of subjects and the level of presentation in external public examinations. 3. Ongoing development of learning and teaching initiatives supported by in-service training. 4. Self-evaluations of different parts of the schools based on The Scottish Executive’s “How Good Is Our School” quality indicators and/or other means of self-evaluation. 5. Ongoing review of extra-curricular provision taking into account feedback from staff, parents and pupils. 6. Maintaining or improving the overall level of bursary and scholarship funds. 7. Continuing to promote a culture of endeavour and achievement in communications with pupils, parents and staff. 8. Reviewing school development plan priorities and measuring outcomes against targets set in the previous period. 9. Promoting involvement with the wider community with activities such as community service, liaison and partnership with other schools and work with the disabled and elderly. 10. Promoting a culture of citizenship through activities such as the Model United Nations Conference, Young Enterprise Scheme, European Youth Parliament, the Children’s Commission and School Councils, active participation in charitable ventures overseas and charitable giving through a wide range of charitable activities throughout the year. 11. Ongoing maintenance and development of the property and facilities of the schools. 12. Maintaining effective careers, student support and guidance departments to support pupils.

Principal activities of the year

The principal activity is to provide education for boys and girls from the ages of 3 – 18 at the Edinburgh Merchant Company schools, namely ESMS (The Mary Erskine School, Stewart’s Melville College and ESMS Junior School), and George Watson’s College. Average pupil numbers for each of the schools are shown below:

2019/20 2018/19 The Mary Erskine School 766 766 Stewart’s Melville College 783 788 ESMS Junior School 1,210 1,221 George Watson’s College 2,464 2,415

Demand for places at Merchant Company schools remains high for all year groups except Nursery and P1. Uncertainty about the future of the City of Edinburgh Council’s Preschool Partnership model and whether the schools would remain in the Partnership partly explains the lower number of Nursery children, though other factors including affordability are also likely to have had an effect. These trends have carried through to applications for the coming year which are healthy overall, though slightly lower for Nursery and P1.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Coronavirus COVID-19

In line with the national lockdown, the Erskine Stewart’s Melville Schools and George Watson’s College closed to all pupils and staff from 23 March 2020 and did not reopen until the start of the new school year in August. Learning and teaching continued during term time throughout this period supported by a number of virtual learning platforms and office and administration activities continued to be carried out remotely.

During the Summer Term, both Schools suffered a substantial loss of non-school fee income, including income from wraparound care, sports clubs, music tuition and school transport. Both schools also incurred unplanned expenditure in adapting their buildings and facilities to reduce the risk of transmitting the virus, including external shelters, screens, one way systems, handwashing and sanitiser stations and signage. Additional funds were also set aside to provide short term financial assistance to families affected by the crisis. The schools also had to absorb additional costs in connection with cancelled trips and activities. In common with most other policies, the School’s Business Interruption Insurance did not cover loss of income nor additional costs incurred during the period of closure.

Both Schools made use of the Government’s Coronavirus Job Retention Scheme to furlough a significant number of mainly support staff. Significant savings in operating costs were also achieved during the Summer Term.

Furlough receipts and other savings exceeded the loss of income and additional costs in the closure period. Most of these net savings were returned to parents in the form of fee rebates at the end of the Summer Term.

Grant-making policy

Grants are made by the Governing Councils to fund scholarships for gifted children and bursaries to widen access to include families of all financial backgrounds so that children have the opportunity to make the most of their intellectual, academic and other abilities. Academic scholarships are offered to pupils entering the senior school. They are made on the basis of academic assessment and a scholarship examination. Music Scholarships and Music Tuition Awards are also available. These are made on the basis of musical aptitude, application and performance.

Means tested bursaries worth up to 100% of the tuition fee are available to parents of children entering any year group in the senior schools, to candidates for entry to Primary 7 in the junior schools and to parents of current pupils in those years. At George Watson’s College, bursary funding may, in exceptional circumstances, also be extended to other pupils in the Junior School. Bursary awards are subject to applicants attaining the schools’ entry standards and the expectation that they will contribute to the wider life of the school. Additional means- tested hardship assistance was provided to some school parents in the latter stages of the 2019/20 school year who had been adversely affected by the Covid-19 pandemic – this was made available to parents of pupils of all ages across the schools.

All the awards are subject to annual review of academic and general progress over the school session. Bursary awards are also subject to annual testing of parental means. At ESMS, grants are awarded from The Access to Excellence Pupils’ Fund to assist parents with the costs of school trips that might otherwise be beyond their means. At George Watson’s College, bursary awards also cover the cost of individual music tuition as well as the cost of curricular residential trips. Additional assistance may be provided towards the cost of other trips and activities at the discretion of the Principal.

Volunteers

Members of the Board and the Governing Councils did not receive any payment for the work they carried out for the charity in the year to 31 July 2020. In addition, a large number of former pupils, parents and other voluntary helpers assist the schools in supervising sports, school trips and other extra-curricular activities.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued) Review of Achievements and Performance for the Year

Operational performance of the schools

Given the historic decision to cancel the SQA exam diet as schools entered lockdown in response to the COVID- 19 pandemic and the subsequent decision of the Government to overturn exam results within days of their publication, to replace them with teacher estimates, it is difficult to analyse the performance of pupils in relation to that of previous sessions. Combining the results of all three schools, at S4 level, where the prevailing qualification is National 5, the rate of pass for that examination was 98%, with 75.1% at Grade A; at S5, where the prevailing qualification is Highers, the pass rate was 98.5% with 69.4% at Grade A. At Advanced Higher the overall S6 pass rate was 98.1%, with 68.5% at Grade A. This compares with national pass rates of 89% for National 5, 89.3% for Higher and 93.1% for Advanced Higher. Detailed results for the schools are shown in the tables below:

The Mary Erskine School Gradings No. of No. of No. of Year Pupils Examination Candidates Presentations A* A B C D E/Fail

S6 124 Advanced Highers 109 242 n/a 172 49 18 2 1 S6 124 Highers 64 112 n/a 59 33 18 2 0 S6 124 A Level 8 8 1 7 0 0 0 0 S6 124 Nat 5 3 3 n/a 2 0 1 0 0 S5 119 Highers 119 582 n/a 415 111 50 6 0 S5 119 Nat 5 7 8 n/a 6 0 2 0 0 S4 126 Nat 5 126 970 n/a 782 131 52 5 0 S4 126 Nat 4 6 8 8 (Nat 4 is Pass/Fail – all 8 passed) 9 8 7 6 5 4 S4 126 GCSE 24 24 4 5 5 4 4 2

Stewart’s Melville College Gradings No. of No. of No. of Year Pupils Examination Candidates Presentations A* A B C D E/Fail

S6 124 Advanced 98 218 n/a 138 48 27 5 0 Highers S6 124 Highers 77 147 n/a 71 39 27 6 4 S6 124 A Level 13 14 2 3 4 4 1 0 S6 124 AS Level 0 0 0 0 0 0 0 0 S6 124 Nat 5 1 1 n/a 1 0 0 0 0 S5 135 Highers 135 653 n/a 440 139 63 8 3 S5 135 Nat 5 17 23 n/a 9 8 3 0 3 S4 131 Nat 5 131 1011 n/a 767 144 74 20 6 S4 131 Nat 4 9 11 n/a 11 (Nat 4 is Pass/Fail - all 9 9 8 7 6) 5 4 S4 131 GCSE 14 14 0 2 4 3 2 2

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued) Review of Achievements and Performance for the Year(continued)

Operational performance of the schools (continued)

George Watson’s College

No. of No. of No. of Year Pupils Examination Candidates Presentations A B C D U

S6 190 Advanced 173 380 265 76 31 6 2 Highers S6 190 Highers 139 260 132 80 40 5 3

S5 237 Highers 237 1,156 804 224 109 16 3 S5 237 National 5 36 38 10 10 11 6 1

S4 243 Highers 1 1 1 - - - - S4 243 National 5 243 1,875 1,345 326 157 41 6

Pass Fail S4 243 National 4 30 36 36 -

A S3 249 National 5 2 2 2 - - - -

The ESMS Junior School uses a variety of assessment procedures, including summative assessments, diagnostic assessments and formative assessments, to support and inform teaching and learning. The school tracks the progress of its pupils through annual Standardised Assessments in Reading, Spelling and Mathematics. Assessments take place in the first week of March and the following information was reported to parents in the Junior School Standards and Quality Report for session 2019/20.

Primary 4 The average GL (NFER) Assessment Reading score is 43/48. The average GL (NFER) Assessment Spelling score is 29/50. The average GL (NFER) Assessment Mathematics score is 39/55.

Primary 7 The average GL (NFER) Assessment Reading score is 39/52. The average GL (NFER) Assessment Spelling score is 38/50. The average GL (NFER) Assessment Mathematics score is 51/70.

George Watson’s College Junior School carried out standardised assessments (Performance Indicators in Primary Schools) in Mathematics for all pupils in Primary 1, 3, 5 and 7 and in Spelling (Single Word Spelling Test) for pupils in Primary 2 to Primary 7.

Averages for each of these assessments, compared with national averages of 50 for PIPS and 100 for SWST, and with the previous year’s figures in brackets, are shown below:

Year group Reading (PIPS) Mathematics Spelling PIPS (SWST) Primary 1 51.9 (55.0) 55.4 (52.8) Primary 2 N/A (105.1) Primary 3 62.1 (56.7) 63.3 (61.7) 105.6 (104.2) Primary 4 105.5 (107.6) Primary 5 58.1 (58.1) 63.1 (63.6) 105.8 (111.5) Primary 6 108.8 (109.4) Primary 7 57.0 (58.6) 64.9 (63.5) 108.1 (107.5)

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued) Review of Achievements and Performance for the Year(continued)

Operational performance of the schools (continued)

Personal development

The schools’ ethos of all round personal development places great emphasis on participation and active involvement in extra-curricular activities as outlined below:

ESMS

In 2019-2020, 66 teams were put out by MES in 23 sports and overall attendance at extra-curricular sports clubs exceeded 500 pupils. Over 500 fixtures took place. Comparative statistics for Stewart’s Melville College were not available due to the pandemic lockdown. More than 30 pupils represented the district, Scotland, or the UK in their specific sport. The Mary Erskine School 1st XI Hockey team were the joint winners of the Scottish Schools’ Cup. The SMC First XV won the Scottish Schools’ Cup at Murrayfield. At the Scottish Schools Cross Country Championships, the SMC U17 team secured Bronze, the O17 Team won Gold and retained its Scottish title for the third successive year with all runners finishing in the top eight. The Junior School fielded ten rugby teams, twelve girls’ hockey teams and three netball teams. Summer term sports fixtures were all cancelled.

More than 400 specialist music lessons on 23 instruments were provided for Junior School children each week, most continuing during the lockdown. The full Junior School orchestra includes 100 children. Over 450 senior boys and girls were actively involved on a regular basis in more than 40 choirs, orchestras, ensembles and bands at the schools. Over 800 specialist instrumental music lessons were taught each week. Unfortunately, most major concerts, plays and musicals were casualties of lockdown and a junior and senior school choir was unable to perform at the Edinburgh Military Tattoo, which was cancelled for the first time in its history. SMC had three teams in the Scottish Finals of the F1 in Schools Competition. SMC had the fastest car, was winner of the best engineered car, took first place in the Entry Class and won the prize for team identity for branding and presentation. The MES Debating Club now regularly attracts more than 100 pupils. MES successfully achieved the LGBT Youth Scotland Gold Charter Award.

215 senior pupils were members of the Combined Cadet Force, and a further 340 participated in the Duke of Edinburgh’s Award Scheme, although the summer expeditions were unable to go ahead. In the Junior School over 600 pupils participated in 80 separate clubs and societies.

A wide-ranging programme of both curricular and extra-curricular day trips, overnight visits, camps, tours, cultural exchanges and expeditions was undertaken by senior and junior school pupils, much curtailed from 23 March 2020. All summer school outdoor education activities, including the S3 Carbisdale Project, were cancelled.

George Watson’s College

A vast range of extra-curricular activities, with 70 extra-curricular clubs, 20 sports and 44 musical ensembles, opportunities for outdoor education, 205 educational visits to destinations near and far and a culture of generous support and participation by staff, all add immense value to pupils’ school experience. Sadly most of these activities were stopped or severely curtailed by the national lockdown from 23 March 2020 and for the first time since its inception in 1962, S3 Projects (a two week outdoor education experience for S3 pupils, which has become a rite of passage for pupils at Watson’s) could not take place this year.

During the year, junior and senior pupils participated in 20 sports. In addition to the main team sports of athletics, cricket, football, hockey, rowing, rugby, swimming and tennis, pupils also played badminton, basketball, cross- country running, curling, dance, equestrian, fencing, golf, netball, shooting, skiing, squash, table tennis, trampolining and water polo. There were many sporting highlights throughout the year. The 1st XV rugby team won the Scottish Schools’ Conference, the Merchiston Festival and finished runners up in the Scottish Schools’ Cup. At hockey the P7 Girls’ Hockey Team won the Glasgow Academy and George Watson’s College tournaments. The George Watson’s College Boat Club won the Victor Ludorum at the Scottish Rowing Championships, making it the most successful rowing club in Scotland. The Rifle Team won the Scottish Junior Indoor Championships. At the Scottish Schools’ Championships, the Swimming Team won a bronze medal and at the Edinburgh Schools’ Championships, two gold, two silver and four bronze medals. 11

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued) Review of Achievements and Performance for the Year(continued)

Operational performance of the schools (continued)

Personal development (continued)

Bands, orchestras, choirs and music ensembles covering all age groups rehearsed and performed until lockdown. Several major musical events, evenings of music and lunchtime concerts took place in school and The Festival of Nine Lessons and Carols gave pupils the opportunity to sing in St Giles Cathedral.

Pupils enjoy timetabled Drama with their class teachers from Primary 1 and, for those in Primary 3 to 7, lessons with specialist teachers. Drama productions this year included Little Red Riding Hood by P2, Aladdin by P7, The Witches by S3 and a digital production of Les Miserables by pupils in S6.

George Watson’s College Pipes and Drums includes three bands and provides piping or drumming tuition to more than 200 pupils and is one of the most successful teaching centres in the Royal Scottish Pipe Band Association. The bands compete at Juvenile and Novice Juvenile level all over the country; the Juvenile Band has won six World Championships and the Novice Juvenile Band four and both bands have won numerous Scottish, British, European and Cowal Championships. The bands regularly perform at many school events and have also played at The Royal Edinburgh Military Tattoo, The Great Scottish Walk and the Braemar Gathering and travelled to countries as far and wide as Canada, Japan, Belgium and Russia.

Art continues to flourish across all year groups at Watson’s and pupils continued to benefit from having an artist in residence. A highly committed team of teaching and support staff is joined each year by an artist-in-residence, who shares specialist skills, normally gained from recent study at an art or design college. The department regularly runs workshops and talks by specialist on topics such as fashion, communication design, fine art, and architecture.

The MacQuarrie Science Fellow, a post graduate student at Heriot Watt University funded by a generous legacy from a former pupil continued to work to support the enrichment of science education for senior pupils.

The Debating Society is a thriving club that debates a range of motions from School matters to moral questions and the political issues of the day. Each week, pupils get opportunities to chair or speak in the main debate, or to join in the floor debate. The Society holds balloon debates and plays Just a Minute and other speaking games, helping pupils to practise a range of important skills. At a competitive level, the Society also enters teams in competitions around the country and has enjoyed considerable success at senior and junior level in recent years. Watson’s debaters are regularly selected to represent Scotland at the World Championships.

George Watson’s College is one of only a handful of schools to have achieved LGBT Youth Scotland’s Gold Charter Award. An LGBTQ+ club has provided support and advice to pupils since 2015 and has helped to guide Watson’s to becoming an LGBT friendly school.

In April 2020 George Watson’s College was re-accredited as a Gold Rights Respecting School by UNICEF. This confirmed the positive and mutually respectful relationships between pupils and staff expressed in the School’s aspiration to Aim High, Join In, Be Kind and Respect All.

Infrastructural maintenance and development

The property of the schools continues to be maintained and developed to provide pupils with high quality facilities in which to learn and take part in a wide range of curricular and extra-curricular activities.

At ESMS, construction of Phase 3 of the Redevelopment of the Queensferry Road site continued throughout the year and was completed by Easter 2020; this comprises a new senior school classroom block housing Modern Languages, RMPS, Classics and an Outdoor Education and CCF store and is the single largest capital development of the last decade at £5.6M, including professional fees and VAT. The new building has been named the Rutherford Building in honour of a former Melville College pupil. The basement corridor of the MES main building was damaged by a flash flood in January 2020, with reinstatement works, covered by the schools’ insurers, costing £96K.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued) Review of Achievements and Performance for the Year (continued)

Infrastructural maintenance and development (continued)

At George Watson’s College, construction of Phase 1a of the Junior School Development, being a major extension to the Upper Primary building, started in June 2018 and was completed in October 2019 at a cost of £6.5m including professional fees and VAT. The two storey extension, comprising a new entrance and reception, additional classrooms, a music suite, performance space, library, additional offices and storage facilities, has been named the John Martin Building to honour the extraordinary generosity of a benefactor whose legacy helped to fund this project. Construction of Phase 1b, being works to the Lower Primary building including two additional Nursery classrooms, started in May 2019 and was completed in July 2020 at a cost of £875,000 including professional fees and VAT. The School was also planning to build a drive with parking spaces to the south of the Grandstand pitch to provide additional drop off and pick up facilities in the summer of 2020, but this project has been put on hold due to the pandemic.

The Myreside Sports Pavilion at George Watson’s College was badly damaged by a fire in February 2020. Reconstruction works started in May 2020 and are expected to be completed by March 2021, mostly funded by the insurers, with additional enhancement works funded by the School and/or donation income.

Fundraising performance

The George Watson’s Family Foundation received £1,110,400 of income, including legacy receipts, in the year. The total value of reserves of the Foundation, which are used mainly to provide financial assistance to families who would otherwise not be able to afford the school fees and to assist with the cost of capital development, stood at £4,665,255 at year-end.

At the Erskine Stewart’s Melville Schools, the Access to Excellence bursary fund received £385,812 of income, including legacy receipts. A further £221,857 was received following an appeal to the ESMS Community and £215,000 was received from the Former Pupil Club to support hardship funding. The Access to Excellence bursary fund is fully invested and actively managed for capital and income growth. The capital value of the Access to Excellence bursary fund stood at £5,648,930 at year-end and the capital value of the Historic Endowment fund stood at £765,687.

Investment performance

Investment performance is compared regularly against appropriate benchmark indices. In the year to 31 July 2020 ESMS investments generated income of £180,550, a return of 3.3% based on the year end value of investments. During the quarter ended March 2020 the value of investments fell by £749,729. These losses were only partially recouped by 31 July 2020 with a year on year loss of £293,846. In the year to 31 July 2020 George Watson’s College’s investments generated income of £161,678, a return of 2.8% on the closing value of investments, and increased in value by £139,251.

Public Benefit

The main purpose of the schools is the advancement of education, which is a charitable purpose under The Charities and Trustee Investment (Scotland) Act 2005. In addition, the schools provide public benefit by widening access to those who would otherwise not be able to afford the school fees and by activities to promote links to the local and national community.

13

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Public Benefit (continued)

Widening Access

Access to the education and facilities offered by the schools is not restricted to those who can afford the school fees. Wider access was achieved through the disbursement of £3,720,495 (2019: £3,495,187) in means tested financial assistance to 494 pupils (2019: 457). This represented 6.5% (2019: 5.8%) of fees receivable. Over one in ten pupils in the senior schools received means tested financial assistance in the year.

George Watson’s College awarded means tested financial assistance of £1,827,130 to 216 pupils in the Senior School and Primary 6 and 7 in the year, compared with £1,770,806 awarded in the previous year to 222 pupils. In addition, the School provided £126,411 of short term financial assistance to 104 pupils from families who had experienced a significant reduction in their income as a result of the pandemic crisis. The School plans to enhance its Foundation Places programme to widen access further by positively facilitating applications from parts of the community that have not traditionally considered a Watson’s education. This will mean identifying barriers that currently impede the parents of potential pupils from applying for Foundation Places and working with partners to overcome them.

A separately controlled charity, the George Watson’s College Endowment Trust, was set up in January 2019 to provide donors with an alternative vehicle for funding Foundation Places at George Watson’s College it is not consolidated into these accounts.

ESMS awarded means tested financial assistance of £1,893,365 to 278 Primary and Senior School pupils, compared with £1,724,381 awarded in the previous year, to 235 pupils. This included £68,724 of short term financial assistance to 43 pupils from families who had experienced a significant reduction in their income as a result of the pandemic crisis. The schools’ policy is to expand the level of bursary funding in line with demand where practicable. However, with the exception of support from The Melville College Trust and the Access to Excellence Bursary Fund, the schools do not have substantial endowments and the majority of funding for bursaries comes directly from fee income.

Activities to promote links to the local and national community

The schools are part of wider communities in which they are eager to participate. Activities to promote links to the local and national community are many and varied.

At ESMS, many staff contribute to educational bodies, SQA curriculum development and new educational initiatives at both a local and national level. The schools’ facilities are made available to the wider community for evening, weekend and school holiday use. The Tom Fleming Centre for the Performing Arts provides a spectacular venue for the practice of music, drama and dance to the very highest levels. The schools aim to make the TFC as accessible as possible to a wide range of potential users who may otherwise not have access to a comparable facility. Over the last year, prior to the pandemic, 6 community groups used The Tom Fleming Centre over 19 days. The Tom Fleming Centre hosted events including Palmerston Place Church, Salle Holyrood Fencing and the Scottish Chess Championships. The Dean hosted regular meetings of the Edinburgh North Church and education workshops with the Scottish Bass Trust. Prior to lockdown the Scottish Chamber Choir rehearsed weekly in the Wallace Dunlop Hall.

2019/20 saw community usage of The Mary Erskine Sports Centre of 51,054 user hours (2018/19: 101,246) – the reduction arising from the enforced closure of sports centres during March until beyond the end of the financial year. Many local groups used the Sports Centres, including Cramond Boys, Spartans FC, Blackhall Primary, Edinburgh Swift Netball, Grange HC & CC, Watsonians HC, Edinburgh Civil service. A range of local cricket clubs used the Games Hall over the winter, in addition to the resident Cricket Scotland usage. At Stewart’s Melville College, Kings Camps ran multi-sport activities in the school holidays pre-lockdown and Total Swimming provide swimming lessons for over 300 children. ESMS completed the seventh year of a ground-breaking Partnership Agreement with City of Edinburgh Council, whereby the schools took over the management and maintenance of Arboretum Playing Fields on a 60-year lease, in exchange for the restoration of the previously derelict pavilion and guaranteed continuing access by local clubs and schools. Under the agreement, Trinity Academy and St Thomas of Aquin’s High School pupils use Arboretum playing fields for rugby and football fixtures free of charge on a weekly basis. 14

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Public Benefit (continued)

Activities to promote links to the local and national community

Inverleith Rugby Club, Holy Cross Cricket Club and Spartans Youth Section also use Arboretum Playing Fields, with letting charges pegged to Edinburgh Leisure rates. The schools also provide a base for former pupils’ clubs in rugby, cricket and hockey using Stewart’s Melville College’s Inverleith Playing Fields. The Stew Mel Lions and the Rugby Academy, which are the youth section of Stewart’s Melville RFC, is run largely by our school parents with our Rugby Co-ordinator, Bruce Ruthven, and offered weekly coaching sessions and fixtures for 280 local children.

In total, over 500 ESMS pupils are involved in community service within and outwith the schools, including the entire sixth form of over 230 pupils. Projects have seen pupils working with organisations including Wee Social Bite, Edinburgh Food Bank, Run for Heroes, Smalls for All and the WWF Australia Bushfire Fund. Over £52,300 was raised in 2019/20 by senior school pupils for a wide range of local, national and international charities. The Junior School raised over £15,000 for 12 charities, including Simpson’s Special Care Babies, Finlay’s Friends, Bethany Trust, RNLI and Future Hope. In many instances the schools’ support for charities extends beyond fundraising to incorporate significant community service elements.

Further information on the wide range of community activities can be found in the Standards & Quality Reports published by Stewart’s Melville College, The Mary Erskine School and the ESMS Junior School.

The access and outreach programme at George Watson’s College has continued to consolidate partnerships with community groups and schools across Edinburgh. Working in partnership, the School aims to ensure that its resources are applied to make an impact where they are most needed. The benefits of these partnerships are mutual with staff gaining new experiences that feed into their teaching practice and pupils gaining a broader understanding of society at large.

Outreach activities during the year included 12 S1 and S2 pupils from Castlebrae Community High School attending Watson’s for weekly computer science lessons and Watson’s teachers running coding clubs and lessons at Castleview Primary and Broomhouse Primary Schools. The hockey coaching programme at Gracemount Primary School, partly funded by Sporting Start, has now expanded to include St Catherine’s School.

The School also provided facilities to local clubs and groups including weekly use of the swimming pool by Kaimes School, use of the squash courts by South Morningside Primary, sharing of science equipment and resources with various schools and hosting events for the Eric Liddell Centre and Scottish Love in Action. The School’s Galleon Club sports facilities were made available to local schools and other organisations (Scouts, Cubs, Brownies, Rainbows), at no charge.

In the summer of 2020, George Watson’s College became the first independent school in Scotland to be designated a Community Sports Hub by sportscotland.

Community Service by S6 students continued with pupils working with several organisations including The Eric Liddell Centre, a number of local nurseries and playgroups.

The Junior School maintained long-established links with St Catharine’s Convent Homeless Project, Drum Riding School for the Disabled, Hopscotch and Lady Haig’s Poppy Factory and this year added Morningside View care home. The Junior School is also twinned with Lycee du Saint-Esprit, a primary school in Beauvais, near Paris and through Unicef and School Lunches for Kamuli developed links with the global community.

15

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Public Benefit (continued)

Activities to promote links to the local and national community(continued)

Fundraising is embedded in the ethos at Watson’s and pupils, staff and parents are encouraged to work together to support school fundraising projects, local charities, community partners and international charities. From 2019 the School has taken a more formalised approach to fundraising by setting up a Charity Committee and Charities Policy. The School continues to work with and raise funds for key community partners: Sporting Start, The Eric Liddell Centre, Scottish Love in Action, Feed the Minds and UNICEF. Funds were also raised for projects in Malawi through the George Watson’s Malawi Partnership and for charities nominated by staff, parents and pupils, including My Name’5 Doddie, Open Boook, Friends of Chernobyl’s Children and Children in Need . The School raised £62,738 for charity in the year and donated clothes, equipment and toys to a number of different charities. In addition, the Principal served as a volunteer trustee of three Scottish educational charities (SCIS – until April 2019, ES-U Scotland and Connect).

In the Senior School, 360 pupils participated in the Duke of Edinburgh Award Scheme and 180 Junior School pupils gained Junior Duke Awards. Although, many of these activities were curtailed by the lockdown, pupils still managed to put in 5,126 hours of volunteering in their local community as part of the programme, the social value of which is estimated at £22,126.

The Swire Chinese Language Centre Edinburgh (SCLCE), a partnership with local state-funded schools James Gillespie’s and Boroughmuir High School, established with the support of the Swire Chinese Language Foundation, has begun to have a real impact on enriching the curriculum of local schools. The partnership has now expanded to include 23 state schools across Edinburgh and East Lothian, including areas of high socio- economic deprivation. It employs seven teachers of Mandarin, more than any other employer in Scotland and more than 2,000 pupils participated in regular timetabled provision in the school year 2019/20. The programme offers high quality opportunities for pupils of all backgrounds and abilities to study Mandarin Chinese, with progression and certification at every level and a range of enrichment activities from cultural events to trips to China. The SCLCE also provides support for initial teacher training at the University of Edinburgh. The aim is to support partner schools to embed Mandarin in the curriculum so as to ensure its longer term sustainability.

George Watson's College sponsors five Arkwright Scholarships for pupils from state funded schools in the Edinburgh area. The Arkwright Scholarship Trust seeks to identify talented and committed 15 or16 year old students to encourage them into engineering, technology, maths and science. The five scholars funded by George Watson's College have the opportunity to work within the School's flourishing Technology Department to support their aspirations.

Each year George Watson's College hosts the Caritas Lecture on a subject of general educational interest, which is promoted throughout the City and for which there is no charge. In October 2019 Sir Anthony Seldon presented the 12th Caritas Lecture, 300 Years of British Prime Ministers. November 2018 James Naughtie, veteran reporter and broadcaster, presented the 11th Caritas Lecture On the Road, a Reporter’s Story. This followed presentations in previous years by James Naughtie, On the Road, a Reporter’s Story by Professor Sarah Churchwell on Careless People: F. Scott Fitzgerald and the Invention of The Great Gatsby and by Lord Robert Winston on Future perfect: will we be human in the next century?

Project 810 was launched in August 2019 by , a leading global youth leader and social campaigner, who spoke to all staff on his background and social inequality in Edinburgh and around the world. This initiative aims to honour the memory of the 810 Watsonians who gave their lives in the conflicts of the 20th century by committing the School to action on three main themes: fairer communities; environmental sustainability and global understanding. The School has recently appointed a Director of Project 810 to focus on building longer term relationships with partners and finding ways in which pupils can become engaged in long term projects which support the Project 810 themes.

George Watson's College has responded positively to the challenges brought about by the Black Lives Matter campaign. Before the end of the year, work had begun to examine the historical legacy of George Watson and to highlight the contribution and success of pupils and former pupils of colour. A review of policy and practice concerning Diversity and Inclusion had also been commissioned.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Public Benefit (continued)

Activities to promote links to the local and national community (continued)

The Schools played a significant role in supporting the training of new teachers in Scotland as centres for the training of student teachers from Moray House teacher training college and Strathclyde University, providing placements and employing a number of teachers for their probationary year. George Watson's College usually provides about 50 members of staff each year to undertake the SQA roles of markers, setters, vetters, examiners, assessors and appeals assessors, though the number was much lower this year due to the cancellation of formal SQA examinations. Other colleagues supported course development with Education Scotland/SQA. ESMS provided 9 staff to work with the SQA in team-leading, consulting, reviewing, designing, setting, vetting, verifying, scrutinising, qualification support and assessing public examinations, assignments, investigations and folios at National 5, Higher and Advanced Higher. This figure would usually be over 40, but much fewer were involved than usual given that the SQA examination diet was abandoned and, ultimately, examination markers were not required..

The Schools are closely involved with the Scottish Council for Independent Schools (SCIS), a charity which supports education in Scotland. The Head of the Junior School of George Watson’s College currently serves on the Governing Board of SCIS and the principal of George Watson’s College and the bursar of ESMS have both served on the Board in recent years.

Financial review

Results for the year

In the year to 31 July 2020 the Merchant Company Education Board had net income of £1.1m after investment losses of £155k (2018: £1.8m after investment gains of £288k). The schools have continued to reinvest in fixed assets with capital expenditure of £5.8m in the year (2019: £12.3m) and made payments in respect of bursaries, scholarships and prizes of £3.4m (2019: £3.1m).

Gross income for the year totalled £66.1m (2019: £66.8m).Tuition and boarding fees totalled £58.6m (88.6% of the total) (2019: £59.2m (88.6%)) this is after the deduction of fee rebates of £2.4m which were returned to parents following the COVID-19 pandemic. The key other sources of income in the year were; Catering sales £1.1m (1.6%) (2019: £2.3m (3.5%)), after school club fees £1.3m (2%) (2019: £1.6m (2.4%)) and rents and lettings £554k (0.8%) (2019: £881k (1.3%)). Surpluses generated on income and expenditure are applied to fund improvements to the schools’ buildings, facilities and equipment.

After considering the budgets prepared by the Finance Committees, the two Governing Councils independently determine the appropriate fee levels for the schools which are then approved by the Education Board. School fees for the 2019/20 academic session rose by 6.7% at the Erskine Stewart’s Melville Schools and by 4.9% at George Watson’s College.

The average roll of the schools during the financial year was 5,223 (2019: 5,190). Demand for places at the schools remains high. There has been over-subscription in some year groups and the projection for the coming year is positive with a continuing high level of application for places.

Reserves policy

The Schools budget to generate surpluses on income and expenditure in each financial year and these surpluses are generally applied to upgrade their property and facilities. At 31 July 2020, the schools had reserves totalling £57,723,961, of which £42,395,726 was unrestricted, £11,834,678 was restricted and £3,493,557 was endowed. The balance of unrestricted reserves on the balance sheet does not represent free reserves because all of the value is tied up in property and fixed assets.

The Schools maintain cash balances to cover expenditure over the short term; cash and bank balances at 31 July 2020 totalled £2,252,027. Due to the pattern of school fee payments, the cash balance at 31 July each year is typically the lowest balance in the financial year and increases by at least £4m at the beginning of August when the first instalment of school fees for the next school year is received. 17

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Financial review (continued)

Reserves policy(continued)

In recognition of the financial impact of the pandemic on fee paying parents, neither school increased their school fees for session 2020/21. However, both are likely to continue to suffer a loss of non-school fee income and additional costs during the pandemic, as a result of which they are budgeting for substantial losses on income and expenditure in 2020/21, though both schools are aiming to generate modest cash surpluses.

School fees account for the predominant share of income and a fall in pupil numbers is the main risk to the financial health of the schools. Pupil numbers at both schools at the beginning of the new school year were well above budget and fee collection remains healthy. However, the financial impact of the crisis is likely to have been delayed by the Government’s support schemes and because parents generally try to do all they can to keep their children at the school in which they are enrolled. Both schools have also set aside additional funds to support families affected by the pandemic and to ease the financial burden of keeping their children in school. For these reasons it is more likely that any downturn in pupil numbers will be in session 2021/22 and beyond, giving the schools time to adjust their cost base and/or fee levels.

Both schools carry comprehensive business continuity insurance covering loss of income for up to five years due to a disaster or catastrophe, though in common with most other policies, this did not cover the closure of both schools during the pandemic. The Education Board also has significant borrowing capacity which could be utilised to fund restructuring costs following a downturn. For these reasons, the Education Board does not maintain significant free reserves.

Investment policy

As at 31 July 2020 a sum of £11,337,524 (2019: £11,337,524) was held in investments. £3.5m of these funds were endowed for the specific purpose of funding bursaries, scholarships and prizes. The management of the portfolio is based on long-term considerations, with policy directed towards achieving an appreciation in capital values, while at the same time aiming to generate a reasonable and growing level of income. This policy is reviewed annually.

Merchant Company defined benefit pension deficit

The trustees resolved on 17 August 1999 to close the scheme to new entrants because the Merchant Company employers had resolved to offer an alternative money purchase scheme to all new employees and existing employees who had not entered this scheme.

An actuarial valuation was carried out as at 31 July 2018 which showed a reduction in the deficit on the scheme and an improvement in the funding level to 90% (up from 84% at the previous valuation at 1 August 2015). The employers are currently funding this deficit by making annual payments of £696,000 over a period of the next three years.

Following a consultation with members, the scheme was closed to future accrual with effect from 1 November 2011. Members were given the option of joining the money purchase scheme currently offered to other employees. The decision to close the scheme was accepted by all members.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Report of the Board (continued)

Future Plans

Copies of the detailed Development plans and Annual Reports for each of the schools can be obtained from the Secretary and Chamberlain of the Merchant Company.

The key objectives of the schools are:

• To maintain school rolls; • To strive to widen access to families of all financial backgrounds; • To continually review the academic syllabus; to maintain the breadth and depth of the curriculum; • To maintain the high standards of achievement in public examinations; • To continue to provide a broad range of sporting and extra-curricular activities for pupils; • To maintain or improve the level of bursary and scholarship funding; • To continue to invest in improving the property and facilities of the schools; • To continue to build and encourage links with the local and national community. • To continue to provide a range of choice in the Merchant Company schools between single sex and coeducational and day and boarding schools. • To continue to explore additional income streams consistent with the objectives of the charity.

Approval of the Trustees’ annual report

So far as each Trustee is aware, there is no relevant audit information of which the auditors are unaware. Each Trustee has taken the appropriate steps as a Trustee to make themselves aware of such information and to establish that the auditors are aware of it.

On behalf of the Education Board:

25 March 2021

Chairman

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Statement of Education Board’s Responsibilities

The Education Board is responsible for preparing the Report of the Board and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

The law applicable to charities in Scotland requires the Education Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the charity and of the incoming resources and application of resources of the charity for that period. In preparing these financial statements, the Education Board is required to:

• select suitable accounting policies and then apply them consistently;

• observe the methods and principles of the Charities SORP;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Board will continue in business.

The Education Board has delegated to the governing councils of Erskine Stewart's Melville and George Watson's College through their respective finance committees and the Secretary of the Board the responsibility for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the charity and enable them to ensure that the financial statements comply with the Charities and Trustee Investment (Scotland) Act 2005, the Charities Accounts (Scotland) Regulations 2006 (as amended) and the provisions of the charity’s Constitution. They are also responsible for safeguarding the assets of the charity and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In so far as the Education Board is aware:

• there is no relevant audit information of which the charity’s auditors are unaware; and

• the Education Board has taken all steps that it ought to have taken to make itself aware of any relevant audit information and to establish that the auditors are aware of that information.

The Education Board is responsible for the maintenance and integrity of the charity and other information included in the charity’s websites. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

20

Independent auditors’ report to the members of the Merchant Company Education Board

Opinion

We have audited the financial statements of the Merchant Company Education Board (the 'charity') for the period ended 31 July 2020 which comprise the Statement of Financial Activities, the Balance Sheet, the Statement of Cash flows and the related notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

· give a true and fair view of the state of the charity's affairs as at 31 July 2020 and of its income and expenditure for the year then ended; · have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and · have been prepared in accordance with the requirements of the Charities and Trustee Investment (Scotland) Act 2005 and Regulation 8 of the Charities Accounts (Scotland) Regulations 2006 (as amended)

Basis of opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the charity in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the Trustees’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the Trustees have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the charity and the group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

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Independent auditors’ report to the members of the Merchant Company Education Board (continued)

Other information

The other information comprises the information included in the Report of the Trustees, other than the financial statements and our auditor’s report thereon. The Trustees are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Charities Accounts (Scotland) Regulations 2006 (as amended)

In our opinion, based on the work undertaken in the course of our audit: • the information given in the Trustees' Report for the financial period for which the financial statements are prepared is consistent with the financial statements; and • the Trustees' Report has been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the charity and its environment obtained in the course of the audit, we have not identified material misstatements in the Trustees' Report.

We have nothing to report in respect of the following matters where the Charity Accounts (Scotland) Regulations 2006 (as amended) requires us to report to you if, in our opinion:

• proper accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements are not in agreement with the accounting records and returns; or • we have not received all the information and explanations we require for our audit.

Responsibilities of Trustees

As explained more fully in the Statement of Trustees’ responsibilities the trustees are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Trustees are responsible for assessing the charity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustees either intend to cease operations or have no realistic alternative but to do so.

22

Independent auditors’ report to the members of the Merchant Company Education Board (continued)

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

This report is made solely to the trustees, as a body, in accordance with Section 44 (1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and Regulation 10 of the Charities Accounts (Scotland) Regulations 2006 (as amended). Our audit work has been undertaken so that we might state to the trustees those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the charity and the group and its trustees as a body for our audit work, for this report, or for the opinions we have formed.

MHA Henderson Loggie Chartered Accountants Statutory Auditor (Eligible to act as an auditor in terms of section 1212 of the Companies Act 2006) 11-15 Thistle Street Edinburgh EH2 1DF

MHA Henderson Loggie is a trading name of Henderson Loggie LLP

25 March 2021

23

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Statement of financial activities (incorporating the income and expenditure account) for the year ended 31 July 2020

Note Unrestricted Restricted Endowment Total Unrestricted Restricted Endowment Total funds funds Funds 2020 funds funds Funds 2019 £ £ £ £ £ £ £ £ Income and endowments from: Donations and legacies 2 1,631,868 1,725,900 - 3,357,768 3,300 1,230,287 - 1,233,587 Other trading activities 3 561,545 - - 561,545 896,594 - - 896,594 Investments 4 17,573 251,909 100,330 369,812 55,720 271,028 89,515 416,263 Charitable activities 5 61,465,817 376,126 - 61,841,943 63,749,785 371,064 - 64,120,849 Other 6 40,898 - - 40,898 107,278 - - 107,278 ______Total income and endowments 63,717,701 2,353,935 100,330 66,171,966 64,812,677 1,872,379 89,515 66,774,571 ______Expenditure on: Raising funds 7 (222,663) (44,520) (4,235) (271,418) (225,917) (212,726) (4,216) (442,859) Charitable activities 8 (62,819,347) (1,752,476) (83,421) (64,655,244) (63,203,301) (1,496,300) (85,284) (64,784,885) ______

Total expenditure (63,042,010) (1,796,996) (87,656) (64,926,662) (63,429,218) (1,709,026) (89,500) (65,227,744) ______Net income before gains and losses 675,691 556,939 12,674 1,245,304 1,383,459 163,353 15 1,546,827

Net gains/(losses) on investments - (220,146) 65,551 (154,595) - 158,140 130,213 288,353 ______

Net income 675,691 336,793 78,225 1,090,709 1,383,459 321,493 130,228 1,835,180 Transfers between funds 21-23 (263,065) 263,065 - - 2,087,885 (2,087,885) - - ______Net movement in funds 412,626 599,858 78,225 1,090,709 3,471,344 (1,766,392) 130,228 1,835,180

Fund balances brought forward 21-23 41,983,100 11,234,820 3,415,332 56,633,252 38,511,756 13,001,212 3,285,104 54,798,072 ______

Fund balances carried forward 21-23 42,395,726 11,834,678 3,493,557 57,723,961 41,983,100 11,234,820 3,415,332 56,633,252

All operations are continuing.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Balance sheet at 31 July 2020

Note 2020 2020 2019 2019 £ £ £ £ Fixed assets Tangible assets 14 62,186,401 59,697,923 Investments 15 11,355,054 11,337,524 ______

73,541,455 71,035,447 Current assets Stocks 16 43,253 105,276 Debtors 17 1,774,896 1,720,986 Cash at bank and in hand 2,252,027 3,392,081 ______4,070,176 5,218,343

Creditors: amounts falling due within one year 18 (10,781,799) (11,379,392) ______Net current liabilities (6,711,623) (6,161,049) ______

Total assets less current liabilities 66,829,832 64,874,398

Creditors: amounts falling due after more than one year 19 (8,544,458) (7,030,057)

Provision for liabilities and charges 20 (561,413) (1,211,089) ______

Net assets 57,723,961 56,633,252

Funds General (unrestricted) funds 21 42,395,726 41,983,100 Restricted funds 22 11,834,678 11,234,820 Permanent endowment funds 23 3,493,557 3,415,332 ______

Total funds 24 57,723,961 56,633,252

The financial statements were approved by the Education Board on 25 March 2021 and signed on its behalf by:

Chairman

Charity number SC009747

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Statement of cash flow for the year ended 31 July 2020 2020 2019 £ £

Note Cash provided by operating activities 28 2,553,782 5,424,040

Cash flows from investing activities Investment income 369,812 416,263 Interest paid (221,095) (94,813) Payments to acquire fixed assets (5,632,766) (11,805,700) Proceeds from the sale of fixed assets 14,060 67,988 Payments to acquire investments (2,090,280) (1,822,509) Proceeds from the sale of investments 1,916,931 1,045,483 Movement in cash held for re-investment 1,224 75,023 ______

Cash used in investing activities (5,642,114) (12,118,265)

Cash flows from financing activities Payment of finance lease obligations (234,332) (25,361) Receipt of loans 3,500,000 5,000,000 Repayment of bank borrowings (1,317,390) (157,238) ______

Cash provided by financing activities 1,948,278 4,817,401 ______

Net cash movement in the year (1,140,054) (1,876,824)

Cash and cash equivalents at start of the year 3,392,081 5,268,905 ______

Cash and cash equivalents at end of the year 2,252,027 3,392,081

Cash and cash equivalents comprise: Cash at bank and in hand 2,252,027 3,392,081

26

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes to the financial statements

1 Accounting policies

The following accounting policies have been applied consistently in dealing with the items which are considered material in relation to the Education Board’s financial statements.

Basis of accounting

The financial statements have been prepared under the historical cost convention with the exception of investments which are included at market value. The charity is a Public Benefit Entity. The financial statements are compliant with the charity’s constitution, the Charities and Trustee Investment (Scotland) Act 2005, the Charities Accounts (Scotland) Regulations 2006 (as amended), the Statement of Recommended Practice (SORP) FRS 102 “Accounting and Reporting by Charities”, in accordance with Financial Reporting Standard 102 (FRS 102), and applicable accounting standards. The treatment and format are in compliance with the Edinburgh Merchant Company Educational Endowments Scheme 1960. The financial statements are prepared in sterling, which is the functional currency of the charity. Monetary amounts are rounded to the nearest £.

The coronavirus pandemic has increased the risks under which the Education Board operates. The Trustees and Governors have reviewed the assumptions made in projecting forward the cash flow requirements of the Education Board for the next twelve months post signing of the financial statements and are satisfied of it’s ability to continue as a going concern.

Income Income is recognised when the charity has entitlement to the funds, any performance conditions attached to the item(s) of income have been met, it is probable that the income will be received and the amount can be measured reliably.

For legacies, entitlement is taken as the earlier of the date on which either: the charity is aware that probate has been granted, the estate has been finalised and notification has been made by the executor(s) to the Trust that a distribution will be made, or when a distribution is received from the estate. Receipt of a legacy, in whole or in part, is only considered probable when the amount can be measured reliably and the charity has been notified of the executor’s intention to make a distribution. Where legacies have been notified to the charity, or the charity is aware of the granting of probate, and the criteria for income recognition have not been met, then the legacy is a treated as a contingent asset and disclosed if material.

Fees receivable and charges for services and use of premises are accounted for in the period in which the service is provided. Fees receivable are stated after deducting allowances, scholarships and other remissions granted by the School. Fees consist of charges for pupils attending the Schools. The charges are the amounts due for the year ending 31 July.

Income from Interest and Dividends Investment income is applied to the restricted, unrestricted and endowed funds on the basis of investments held within each fund. Interest on funds held on deposit is included when receivable and the amount can be measured reliably by the charity; this is normally upon notification of the interest paid or payable by the Bank. Dividends are accrued when the shareholder’s right to receive payment is established. Measurement is at the fair value receivable, which will normally be the transaction value.

Donated goods, facilities and services Donated goods, services and facilities are recognised as income when the charity has control over the item(s), any conditions attached have been met, the receipt of economic benefit from the use of the item(s) is probable and the economic benefit can be measured reliably. In accordance with Charity SORP, volunteer time is not recognised.

On receipt, donated goods, services and facilities are recognised on the basis of the value of the gift to the charity which is the amount the charity would have had to pay to obtain the equivalent economic benefit on the open market. A corresponding amount is also recognised as expenditure in the period of receipt.

27

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

1 Accounting policies (continued)

Expenditure and irrecoverable VAT Expenditure is recognised once there is a legal or constructive obligation to make a payment to a third party, it is probable that settlement will be required and the amount of the obligation can be measured reliably. Expenditure is classified under the following activity headings:

• Expenditure on raising funds include the costs of raising donations and legacies and investment management costs on the investment portfolio. • Expenditure on other trading activities include letting and repair costs in respect of the investment properties. • Expenditure on charitable activities include the costs of providing teaching services. In addition teaching costs include supplies of books, stationery, games equipment and sundry materials are charged against revenue in the year in which the expenditure is incurred. • Other expenditure represents those items not falling into any other heading.

Irrecoverable VAT is charged as a cost against the activity for which the expenditure was incurred.

Redundancy and termination payments are recognised in the year to which they relate.

Allocation of support costs Support costs are those functions that assist the work of the charity but do not directly undertake charitable activities. Support costs include back office costs, finance, personnel, payroll and governance costs which support the Board’s charitable activities. Governance costs are those associated with the constitutional and statutory requirements of the charity.

Expenditure is allocated to expense headings either on a direct cost basis, or apportioned according to time spent.

Fixed assets Fixed assets are capitalised at cost. Depreciation is provided on all fixed assets in use, other than heritable land, at rates and bases calculated to write off the cost of each asset over its expected useful life, on a straight line basis, as follows:

Heritable buildings Up to 50 years Leasehold improvements Over life of lease Heating plant 5 - 15 years Other plant and equipment 5 – 15 years Motor cars 4 years Computer equipment 4 years

Investments and investment income Investments are a form of basic financial instrument. The investments are brought into account at fair value. The value applied to listed investment is the middle market price of that investment at the close of business as at the year end The main form of financial risk faced by the charity is that of volatility in the investment markets due to wider economic conditions.

Investment income and gains and losses are recognised in the statement of financial activities in the year in which they arise. Unrealised gains and losses are included in the statement of financial activities on the same basis of investments held within each relevant fund.

Stocks Stocks are valued at the lower of cost and net realisable value.

Cash and cash equivalents Cash at bank and in hand includes cash and short term highly liquid investments with a short maturity of three months or less from the date of acquisition or opening of the deposit or similar account.

28

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

1 Accounting policies (continued)

Debtors Trade and other debtors are recognised at the settlement amount due after any trade discounts offered. Prepayments are valued at the amount prepaid after taking account of any trade discounts due.

Creditors and provisions Creditors and provisions are recognised where the charity has a present obligation resulting from a past event that will probably result in the transfer of funds to a third party and the amount due to settle the obligation can be measured or estimated reliably. Creditors and provisions are normally recognised at their settlement amount after allowing for any trade discounts due.

Financial instruments The charity only has financial assets and financial liabilities of a kind that qualify as basic financial instruments. Basic financial instruments are initially recognised at transaction value and subsequently measured at their settlement value.

Fund accounting General funds are unrestricted funds which are available for use at the discretion of the trustees in furtherance of the general objectives of the charity and which have not been designated for other purposes.

Designated funds comprise unrestricted funds that have been set aside by the trustees for particular purposes. The aim and use of each designated fund is set out in the notes to the financial statements.

Restricted funds are funds which are to be used in accordance with specific restrictions imposed by donors or which have been raised by the charity for particular purposes. The cost of raising and administering funds are charged against the specific fund.

Endowment funds represent the original endowment of the charity as adjusted for gains and losses arising in investments. The income generated from the investments are used largely in the provision of bursaries to school pupils.

Taxation The Board is registered as a charity and has no liability to corporation tax on surpluses.

Pensions Pension contributions are made to an approved pension scheme. These are charged to the income and expenditure account in the year which they are incurred.

Defined benefit pension scheme The charity operates a pension scheme providing benefits based on final pensionable pay. The assets of the scheme are held separately from those of the Board. Pension scheme assets are measured using bid price values at balance sheet date. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on AA-rated corporate bonds with a term and currency equivalent to that of the assets and liabilities of the pension scheme. The scheme is a multi-employer scheme and it is not possible in the normal course of events to identify on a consistent basis, the share of underlying assets and liabilities belonging to the participating employers. The scheme has therefore been accounted for as if it were a defined contribution scheme in line with the provisions of Charities SORP (FRS 102). Accordingly, the accounting charge for the year represents the unwinding of the discount on the provision for deficit recovery payments.

Defined contribution pension scheme The charity also operates a pension scheme providing benefits based on contributions. Employer contributions are charged to the SOFA in the period to which they relate.

29

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

1 Accounting policies (continued)

Leased assets Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated over their expected useful lives. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the profit and loss account over the period of the lease.

All other leases are regarded as operating leases and the total payments made under them are charged to the profit and loss account on a straight line basis over the lease term.

Judgements in applying accounting policies and key sources of estimation uncertainty In the application of the charity’s accounting policies, the trustees are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

In preparing these financial statements, the trustees have made the following judgements:

• Determine whether leases entered into by the Board as a lessee are operating or finance leases. These decisions depend on an assessment of whether the risks and rewards of ownership have been transferred from the lessor to the lessee on a lease by lease basis.

• Tangible fixed assets are depreciated over a period to reflect their estimated useful lives. The applicability of the assumed lives is reviewed annually, taking into account factors such as physical condition, maintenance and obsolescence.

• Fixed assets are also assessed as to whether there are indicators of impairment. This assessment involves consideration of the economic viability of the purpose for which the asset is used.

• Trade debtors are assessed at the year end to determine the likelihood of recoverability and the level of bad debt provision required.

The following are the group’s key sources of estimation uncertainty:

• The value of the deficit in the defined benefit pension fund is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and the long- term nature of the liabilities, such estimates are subject to significant uncertainty. In determining the appropriate discount rate, management considers the interest rates of corporate bonds with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables. Future pension increases are based on expected future inflation rates.

2 Donations and legacies

Unrestricted Restricted Total Unrestricted Restricted Total 2020 2020 2020 2019 2019 2019 £ £ £ £ £ £

Donations - 1,725,900 1,725,900 3,300 1,230,287 1,233,587 UK Government grant 1,631,868 - 1,631,868 - - - ______1,631,868 1,725,900 3,357,768 3,300 1,230,287 1,233,587

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

3 Other trading activities (unrestricted) Total Total 2020 2019 £ £

Rents and lettings 553,690 881,172 Visiting music teachers facility fee 7,855 5,510 Other small activities - 9,912 ______561,545 896,594

4 Income from investments Unrestricted Restricted Endowed Total Total 2020 2020 2020 2020 2019 £ £ £ £ £

Investment income - 243,463 98,765 342,228 343,780 Interest 17,573 8,446 1,565 27,584 72,483 ______17,573 251,909 100,330 369,812 416,263

2019 total 55,720 271,028 89,515 416,263

5 Income from charitable activities Unrestricted Restricted Total Total 2020 2020 2020 2019 £ £ £ £

Fees receivable 58,610,879 30,682 58,641,561 59,264,099 Bursaries, scholarships and prizes 715 345,444 346,159 356,578 Registration fees 58,458 - 58,458 54,803 Catering sales 1,070,097 - 1,070,097 2,333,904 After school club fees 1,259,172 - 1,259,172 1,583,670 Pupils buses 291,748 - 291,748 349,369 Music instrument hire 172,543 - 172,543 161,747 Other 2,205 - 2,205 2,193 ______61,465,817 376,126 61,841,943 64,120,849

2019 total 63,749,785 371,064 64,120,849

6 Other income

Unrestricted Restricted Total Total 2020 2020 2020 2019 £ £ £ £

Gain on sale of assets 8,952 - 8,952 52,563 Miscellaneous income 31,946 - 31,946 54,715 ______40,898 - 40,898 107,278

2019 total 107,278 - 107,278

31

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

7 Expenditure on raising funds

Unrestricted Restricted Endowed 2020 2020 2020 2020 2019 £ £ £ £ £

Fundraising event costs - - - - 180,240 Wage and salary cost of lettings (note 12) 222,663 - - 222,663 225,917 Investment management fees - 44,520 4,235 48,755 36,702 ______222,663 44,520 4,235 271,418 442,859

2019 total 225,917 212,726 4,216 442,859

8 Expenditure on charitable activities

Unrestricted Restricted Endowed Total Total 2020 2020 2020 2020 2019 £ £ £ £ £

Wages and salaries (note 12) 35,129,340 249,349 - 35,378,689 33,346,630 Fee reductions 2,160,775 6,212 - 2,166,987 1,933,080 Bursaries, scholarships and prizes 2,193,187 1,139,052 83,277 3,415,516 3,176,490 Examinations costs 317,679 - - 317,679 310,199 Teaching materials 680,566 - - 680,566 929,641 Staff development 191,387 - - 191,387 286,488 Transport costs 779,747 - - 779,747 944,739 Educational projects cost 1,140,821 - - 1,140,821 3,009,804 Other educational costs 894,404 250,065 - 1,144,469 1,360,946 Catering costs 1,449,560 - - 1,449,560 1,733,034 ______Total direct costs 44,937,466 1,644,678 83,277 46,665,421 47,031,051

Property costs (note 9) 9,910,475 61,951 - 9,972,426 10,316,415 Support costs (note 10) 7,971,406 45,847 144 8,017,397 7,437,419 ______62,819,347 1,752,476 83,421 64,655,244 64,784,885

2019: Direct costs 45,513,704 1,432,063 85,284 47,031,051 Property costs 10,254,478 61,937 - 10,316,415 Support costs 7,435,119 2,300 - 7,437,419 ______2019 total 63,203,301 1,496,300 85,284 64,784,885

32

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

9 Property costs Unrestricted Restricted Total 2020 2020 2020 2020 £ £ £ Wages and salaries (note 12) 2,086,776 - 2,086,776 Ground maintenance 88,869 - 88,869 Rates 455,469 - 455,469 Insurance 453,921 - 453,921 Heat and light 1,419,369 - 1,419,369 Cleaning 783,870 - 783,870 Repairs and maintenance 1,387,166 - 1,387,166 Depreciation 3,235,035 61,951 3,296,986 ______9,910,475 61,951 9,972,426

Unrestricted Restricted Total 2019 2019 2019 2019 £ £ £ Wages and salaries (note 12) 2,163,393 - 2,163,393 Ground maintenance 110,619 - 110,619 Rates 384,019 - 384,019 Insurance 433,408 - 433,408 Heat and light 1,420,568 - 1,420,568 Cleaning 891,004 - 891,004 Repairs and maintenance 2,022,612 - 2,022,612 Depreciation 2,828,855 61,937 2,890,792 ______10,254,478 61,937 10,316,415

10 Support costs

Total Total 2020 2019 £ £

Wages and salaries (note 12) 5,624,182 5,068,197 Advertising 166,177 173,278 Telephone 56,521 90,965 Stationery, postage, printing and photocopying 337,243 422,124 Subscriptions 112,056 128,366 Marketing 253,127 235,834 Professional fees 415,574 294,135 Computer costs 314,625 235,768 Finance costs 371,888 310,334 Other costs 327,723 425,250 Governance costs (note 11) 38,281 53,167 ______8,017,397 7,437,418

11 Governance costs Total Total 2020 2019 £ £

Governors’ meetings and professional fees 584 9,664 Auditors’ remuneration 37,697 43,503 ______38,281 53,167

33

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

12 Salaries 2020 2019 £ £

Wages and salaries 34,017,469 33,018,680 Social security costs 3,532,255 3,444,651 Pension contributions 5,708,185 4,340,806 Termination payments 54,401 - ______

43,312,310 40,804,137

Allocated between: Teaching costs 35,378,689 33,346,630 Property costs 2,086,776 2,163,393 Support costs 5,624,182 5,068,197 Raising funds 222,663 225,917 ______

43,312,310 40,804,137

The average number of employees during the year was: 2020 2019 Number Number

Teaching 562 568 Ancillary to teaching 285 266 Administration & catering 166 194 Maintenance 95 96 ______

1,108 1,124

The number of employees whose emoluments for the year fall above £60,000 are as follows:

£60,000 - £69,999 19 15 £70,000 - £79,999 9 14 £80,000 - £89,999 5 3 £90,000 - £99,999 4 1 £100,000 - £109,999 3 2 £190,000 - £199,999 1 1 £200,000 - £209,999 - 1 £210,000 - £219,999 1 -

Key management personnel remuneration including employer’s NI totalled £1,693,885 (2019: £1,616,917).

Amounts payable to pension schemes on behalf of all employees which are included within creditors at the year end are £604,897 (2019: £497,285). This represents part of one month’s deductions which are due for payment in August 2020.

No trustees received reimbursement of travel expenses, remuneration or other payments (2019: one trustee, £393 expenses)

34

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

13 Pensions

The Board contributes to three separate pension schemes:-

(a) Scottish Teachers’ Superannuation Scheme

Amounts are paid into the Scottish Teachers Superannuation Scheme to provide pensions for teaching staff. The scheme is a defined benefit scheme administered independently of the Board. The contributions are determined by a qualified actuary on the basis of five yearly valuations using the prospective benefit valuation method. The latest actuarial valuation of the scheme as at 31 March 2016 was issued by the Government Actuary. The employer’s contribution was 17.2% until 31 August 2019 and 23% thereafter. Employee contributions are stepped, according to the level of their pensionable pay and rates vary from 7.2% to 11.9%. The pension costs charged in these accounts for this scheme was £4,962,692 (2019: £3,631,062) which were the contributions due for the year.

The Scottish Teachers’ Superannuation Scheme is a multi-employer defined benefit scheme, which in common with other Government pension schemes is unfunded. The Schools are unable to identify their share of the underlying liabilities of the scheme and therefore account for the contributions to the scheme as if it were a defined contribution scheme.

(b) The Merchant Company Retirement Benefit Scheme

The Merchant Company Education Board makes pension contributions to the Merchant Company Retirement Benefits Scheme, a defined benefits scheme. The assets of the scheme are held separately from those of the Merchant Company in an independently administered fund. The Schools are unable to identify their share of the underlying liabilities of the scheme and therefore account for the contributions to the scheme as if it were a defined contribution scheme.

During the year, the employer’s deficit contribution was £589,482 (2019: £589,482). At the last actuarial valuation by JLT, as at 31 July 2018, a deficit was confirmed in the fund, with a funding level of 90%.

The scheme closed to future accrual on 1 November 2011. At this date pensionable service under the scheme ceased for all active members; however members were granted additional benefits equivalent to one year of pensionable service and an increase of 4% in basic salary in compensation for loss of pension benefits. All members were offered the option of joining the existing defined contribution scheme for support staff from 1 November 2011 to provide continuing pension benefits.

The assumptions used in the actuarial valuation were:- Inflation Gilt inflation curve Rate of increase in salaries RPI inflation plus 1% Rate of increase for pensions in payment Derived at each term using Black Scholes Methodology with a volatility assumption of 1.25%

The fair value of the assets & liabilities of the scheme was as follows Value Expected rate (as at 31 July 2019): £’000 of return

Standard Life Fund 18,793 1.8% Scottish Widows Fund 49 1.8% Net current Assets 89 1.8% _____ 18,931 Present value of the scheme liabilities (20,931) _____ (2,000)

35

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

13 Pensions (continued)

(c) Personal Retirement Plan Since 1999 a new scheme has been entered into for support staff, pension contributions are made to a Personal Retirement Plan. The scheme is a defined contribution scheme and is administered independently of the board. The employer’s contribution is 8% and the scheme minimum employee contribution is 5%. During the year the employer’s contribution was £745,493 (2019 - £709,744).

14 Tangible fixed assets Assets in Heritable Leasehold course of Plant and Motor property improvements construction equipment cars Total £ £ £ £ £ £ Cost At beginning of year 65,473,913 10 10,382,756 10,728,635 160,187 86,745,501 Additions 4,257,951 - - 1,461,541 71,080 5,790,572 Disposals - - - (96,744) (52,313) (149,057) Transfers 10,382,756 - (10,382,756) - - - ______

At end of year 80,114,620 10 - 12,093,432 178,954 92,387,016 ______Depreciation At beginning of year 20,055,464 - - 6,854,781 137,333 27,047,578 Charge for year 1,799,506 - - 1,427,309 70,171 3,296,986 Disposals - - (91,636) (52,313) (143,949) ______

At end of year 21,854,970 - - 8,190,454 155,191 30,200,615 ______Net book value At 31 July 2020 58,259,650 10 - 3,902,978 23,763 62,186,401

At 31 July 2019 45,418,449 10 10,382,756 3,873,854 22,854 59,697,923

The cost of heritable property at 31 July 2020 and 31 July 2019 includes items brought in at a valuation in 1960 of £2,002,500.

The net book value of assets includes amounts of £576,100 (2019; £707,628) in respect of assets held under hire purchase contracts. The depreciation charge in the year on these assets was £268,049 (2019; £247,451)

36

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

15 Investments Listed Cash held Investment Fixed Investments for Re- in Equity interest Total investment Subsidiary Total Market value £ £ £ £ £ £ At beginning of year 6,383,098 4,727,758 11,110,856 226,567 101 11,337,524 Additions 1,550,662 539,618 2,090,280 - - 2,090,280 Disposals (1,150,307) (766,624) (1,916,931) - - (1,916,931) Revaluation in year (168,495) 13,900 (154,595) - - (154,595) Movement in cash for investment - - - (1,224) - (1,224) ______At end of year 6,614,958 4,514,652 11,129,610 225,343 101 11,355,054

2020 2019 £ £ Historical cost 10,730,433 9,547,950

The portfolios are managed by Baillie Gifford, Brooks MacDonald & Aubrey Investment Management. All investments are carried at their fair value. Investments in equities and bonds are traded in quoted public markets. Holdings in multi-asset funds are at bid price. The basis of fair value for quoted investments is equivalent to market value, using the bid price. Asset sales and purchases are recognised at the date of trade at their transaction value.

The main risk to the charity from financial instruments lies in the combination of uncertain investment markets and volatility to growth and incomes. The investment strategy is to maximise income and ensure capital growth of funds in excess of inflation each year and as such the portfolio is invested in medium to high risk stocks. Liquidity risk is anticipated to be low as all assets are traded in markets with good liquidity and high trading volumes and this is expected to continue. The charity manages these investment risks by retaining expert advisors to manage its investment portfolio.

The investment in subsidiary undertakings represents the cost of investments in ESMS Enterprises Limited, a wholly owned subsidiary company incorporated in Scotland with company number: SC139534 & GWC Trading UK Limited a wholly owned subsidiary company incorporated in Scotland with company number: SC588763. The results of ESMS Enterprises Limited in the year, which are not consolidated in these financial statements on grounds of immateriality, are as follows:

2020 2019 £ £ Profit for the year - -

Net liabilities 861 861

GWC Trading Limited was dormant in the year.

37

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

16 Stocks 2020 2019 £ £ Catering - 6,613 Prospectus, stationery and other 43,253 98,663 ______43,253 105,276

17 Debtors 2020 2019 £ £ School and boarding fees 179,179 93,727 Other debtors 236,400 192,832 Prepayments 1,359,317 1,434,427 ______1,774,896 1,720,986

18 Creditors: amounts falling due within one year 2020 2019 £ £ Bank loans 1,926,111 1,365,326 Trade creditors 678,823 2,064,494 Taxes and social security 1,491,496 1,394,124 Other creditors 4,061,016 2,912,306 Accruals 2,383,028 3,431,523 Finance leases 241,325 211,619 ______10,781,799 11,379,392

19 Creditors: amounts falling due after more than one year 2020 2019 £ £ Bank loans 8,088,898 6,467,073 Finance leases 417,160 523,392 Other creditors 38,400 39,592 ______8,544,458 7,030,057

Analysis of bank loans due after more than one year 2020 2019 £ £ Due within 2- 5 years 5,971,452 4,429,314 Due after more than 5 years 2,117,446 2,037,759 ______8,088,898 6,467,073

The Board has two loans with Bank of Scotland repayable over the period to May 2031. Both Loans are made up of an element of loan which is charged at a variable interest rate equal to the Bank of England base rate plus 1.65% and an element of loan which is charged at a fixed interest rate of 2.45% and 3.64%. The Board also has two loans with HSBC repayable over the period to 31 August 2021. One loan attracts interest at LIBOR plus 1.40% and the other attracts interest at LIBOR plus 1.60%.

38

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

20 Provisions for liabilities and charges Provision for deficit Provision recovery for staff Total Total payments costs 2020 2019 £ £ £ £

At beginning of year 1,096,089 115,000 1,211,089 1,605,305 Released in year - (115,000) (115,000) 115,000 Deficit recovery payments in year (589,482) - (589,482) (589,482) Unwinding of discount (interest charge) 54,806 - 54,806 80,266 ______At end of year 561,413 - 561,413 1,211,089

21 General Fund 2020 2019 £ £

At beginning of year 41,983,100 38,511,756 Income in year 63,717,701 64,812,677 Expenditure in year (63,042,010) (63,429,218) Transfers (note 22) (263,065) 2,087,885 ______At end of year 42,395,726 41,983,100

39

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

22 Restricted Funds At beginning Income Expenditure Gains/ 2020 of year in year in year (losses) Transfers Total £ £ £ £ £ £ GW Family Foundation 4,625,249 1,110,400 (1,100,385) 29,991 - 4,665,255 Sport Scotland grant 1,387,489 - (61,951) - - 1,325,538 Access to Excellence 5,077,065 978,619 (372,758) (250,137) 216,141 5,648,930 Other smaller funds 145,017 264,916 (261,902) - 46,924 194,955 ______

At end of year 11,234,820 2,353,935 (1,796,996) (220,146) 263,065 11,834,678

At beginning Income Expenditure Gains/ 2019 of year in year in year (losses) Transfers Total £ £ £ £ £ £ GW Family Foundation 6,579,781 811,025 (819,944) 142,272 (2,087,885) 4,625,249 Bursaries & scholarships - 141,064 (141,064) - - - Sport Scotland grant 1,449,426 - (61,937) - - 1,387,489 Access to Excellence 4,828,800 682,125 (449,728) 15,868 - 5,077,065 Other smaller funds 143,205 238,165 (236,353) - - 145,017 ______

At end of year 13,001,212 1,872,379 (1,709,026) 158,140 (2,087,885) 11,234,820

George Watson’s Family Foundation –provides financial assistance for pupils who would otherwise be unable to attend GWC, provide support for pupils whose families experience short term financial difficulties maintain and develop the property and facilities of GWC. The Family Foundation is a registered charity, number SC004818. The transfer in the prior year represented capital items purchased from the fund.

Bursaries and scholarships – this relates to income received solely for the purpose of bursaries and scholarships at Erskine Stewart’s Melville and it is usually spent in the year of receipt.

Sport Scotland Grant – this was a donation received towards the National Cricket Centre and it is being released in line with the depreciation on the building itself.

Access to Excellence Fund – these are donations received through the Development Office at Erskine Stewart’s Melville which are then invested to produce an annual income to enhance bursary provision. The transfers from unrestricted funds into this fund in the year represent the reallocation of a legacy previously accrued into the financial statements which Erskine Stewart’s Melville chose to restrict.

Other small funds – this is a collection of smaller funds with balances less than £50,000 and most relate to donations towards smaller capital items. The transfers from unrestricted funds into this fund in the year represent the reallocation of legacies previously accrued into the accounts which were found to be restricted in the current year.

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

23 Permanent Endowment Funds Bursaries and Prizes and 2020 scholarships legacies Total £ £ £

At beginning of year 1,782,821 1,632,511 3,415,332 Income 75,248 25,082 100,330 Expenditure (65,742) (21,914) (87,656) Gains on investments 18,123 47,428 65,551 ______

At end of year 1,810,450 1,683,107 3,493,557

Bursaries and Prizes and 2019 scholarships legacies Total £ £ £

At beginning of year 1,721,402 1,563,702 3,285,104 Income 49,987 39,528 89,515 Expenditure (49,976) (39,524) (89,500) Gains on investments 61,408 68,805 130,213 ______

At end of year 1,782,821 1,632,511 3,415,332

24 Net asset reconciliation

Unrestricted Restricted Endowment Total 2020 Funds Funds Funds 2020 £ £ £ £ Tangible fixed assets 60,860,859 1,325,542 - 62,186,401 Investments 101 8,145,460 3,209,493 11,355,054 Net current (liabilities)/ assets (9,359,363) 2,363,676 284,064 (6,711,623) Long term liabilities (8,544,458) - (8,544,458) Provisions (561,413) - (561,413) ______

42,395,726 11,834,678 3,493,557 57,723,961

Unrestricted Restricted Endowment Total 2019 Funds Funds Funds 2019 £ £ £ £ Tangible fixed assets 58,310,434 1,387,489 - 59,697,923 Investments 101 8,206,152 3,131,271 11,337,524 Net current liabilities (8,086,289) 1,641,179 284,061 (6,161,049) Long term liabilities (7,030,057) - - (7,030,057) Provisions (1,211,089) - - (1,211,089) ______

41,983,100 11,234,820 3,415,332 56,633,252

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The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

25 Capital commitments 2020 2019 £ £

Authorised and contracted - 3,142,070

26 Other financial commitments

At 31 July 2020 the Education Board had total minimum commitments under non-cancellable operating leases as follows: 2020 2019 £ £

< 1 year 176,247 288,120 Within 2-5 years 175,170 470,336 > 5 years 8,985 5,742 ______360,402 764,198

Lease payments recognised as an expense 291,344 269,220

27 Financial instruments

2020 2019 £ £ Carrying amount of financial assets Assets measured at fair value through profit and loss 11,129,610 11,110,856

Carrying amount of financial liabilities Measured at fair value through profit and loss 561,413 1,096,089

Assets measured at fair value through profit and loss represent listed investments

Liabilities measured at fair value through profit and loss represent the defined benefit pension liability.

28 Cash flows from operating activities 2020 2019 £ £

Net income 1,090,709 1,835,180 Loss/ (Gains) on investments 154,595 (288,353) (Increase)/ decrease in stock 62,023 (50,589) (Increase)/ decrease in debtors (53,910) (434,022) Increase/(decrease) in creditors (1,838,952) 1,845,045 Depreciation charges 3,296,986 2,890,792 (Gain)/ loss on disposal of assets (8,952) (52,563) Investment income (369,812) (416,263) Interest paid 221,095 94,813 ______

Cash provided by operating activities 2,553,782 5,424,040

42

The Merchant Company Education Board Annual report and financial statements 31 July 2020

Notes (continued)

29 Analysis of changes in net debt

New finance As at leases/ As at 1 August 2019 bank loans Cashflows 31 July 2020 £ £ £ £

Cash 3,392,081 (1,140,054) 2,252,027 Bank Loans (7,832,399) (3,500,000) 1,317,390 (10,015,009) Finance leases (735,011) (157,806) 234,332 (658,485) ______

(5,175,329) (3,657,806) 411,668 (8,421,867)

30 Related parties

One Trustee of the Merchant Company Education Board, seven Governors of GWC, two members of key management of GWC, four Governors of ESMS and four key management of ESMS have children who attend the schools.

One Governor at GWC and one member of key management of GWC were directors of the Scottish Council for Independent Schools in the year, membership fees totalling £58,815 (2019; £66,410) were paid by the Board in the year to Scottish Council for Independent Schools. No amounts were outstanding at the year end.

One member of key management of ESMS was a director of the Independent Schools’ Bursars Association in the year, membership fees totalling £1,940 were paid by the Board in the year to Independent Schools’ Bursars Association. No amounts were outstanding at the year end.

Five Trustees of the Merchant Company Education Board were Members of The Master’s Court of The Royal Company of Merchants of the City of Edinburgh, management charges of £57,418 (2019; £55,746) were paid to The Royal Company of Merchants of the City of Edinburgh in the year. No amounts were outstanding at the year end.

One Governor of GWC was a director of Rent Gym Equipment Limited in the year. £14,742 (2019; £19,656) was paid by the Board in the year to Rent Gym Equipment Limited for the rental of gym equipment. No amounts were outstanding at the year end.

One trustee of the Merchant Company Education Board was a Trustee of the Melville College Trust. £230,000 (2019; £230,000) was donated by the Melville College Trust to the Board in the year.

One of the Governors of GWC was also a Partner of MacRoberts LLP in the year. £14,229 (2019; £4,955) was paid to MacRoberts LLP for legal services in the year. No amounts were outstanding at the year end.

The spouse of one trustee and the spouse of four members of key management were employed by the Education Board in the year.

43