Trustees Annual Report and Financial statements for the year ended 31 August 2019 Shaw Trust Registered Company Number 01744121 Registered Charity Number in England & Wales 287785 Registered Charity Number in Scotland SC039856 A Company Limited by Guarantee Trustees Report – Strategic report 1. Figures at a glance Incoming resources 2019 £206,367 2018 (17 Months) £259,573 2017 £132,107 2016 £103,813 2015 £129,290 Employment and Charity shops charitable activities £4,659,184 Other £176,361,935 2% £3,995,331 86% 2% Net assets taken on with mergers and transfers £21,349,000 10% Resources expended 2019 £224,799 2018 (17 Months) £258,683 2017 £93,954 2016 £96,619 2015 £107,144 Employment and charitable activities £219,509,000 98% Charity shops £5,225,770 2% Other £385,360 0% 1 2. Financial review The Shaw Trust consolidated financial The second half of 2019 has seen a statements for 2018-19 incorporate the period of reorganisation and full year results of Ixion Holdings consolidation and identification of (Contracts) Ltd (“Ixion”) and Prospects efficiencies within the business. A Group 2011 Limited (“Prospects”) restructuring exercise during this period following the acquisition of the has significantly reduced the cost base, organisations by Shaw Trust in May reducing the losses incurred during the 2017 and November 2017 respectively. year. Detailed operational reviews are driving better margin performance, and The financial statements also include repositioning the Trust for its future the results of the Disabled Living development. Foundation (DLF) following a merger in November 2014, CDG-WISE Ability Economic conditions in the main UK Limited (CDGWA), Forth Sector and the market remain challenging but the group results of Shaw Education Trust, which is now delivering strong performance was established by Shaw Trust in June across the majority of its contracts. 2014 as a multi-academy trust. During the prior period client referrals to the Trust’s main welfare to work Strategically these acquisitions are programmes (Work Choice and Work important to Shaw Trust as it enabled Programme) ceased but Shaw Trust the Trust to grow in existing markets. It saw significant success in being has also facilitated opportunities to awarded two of the Governments six optimise the cost base across the group new flagship employability contracts, by maximising the opportunities to Work and Health Programme, which integrate property, systems, processes commenced in January 2018 and a and people, particularly within the areas further contract in London, of central support services. More commissioned by the West London recently the organisation has seen a Alliance. period of integration and consolidation in anticipation of future opportunities Current challenges remain, more within a rapidly shifting public sector recently the impact of the Covid-19 marketplace. virus. Extensive modelling has been undertaken to assess the impact on our The Trust has had a challenging year, business plan and contingency planning however, with the ending of certain and actions undertaken. This has contracts and poor performance in included renegotiation of income others. The organisation had been slow streams on major contracts, furloughing to manage and integrate the recent certain employees where necessary, acquisitions and adjust the cost base particularly in our retail and enterprise accordingly. The introduction of a new operations, and mitigating cash flow management team in the middle of 2019 through deferral of certain payments began the restructure programme for under the Government scheme as the business, including the approval and appropriate. The underlying business implementation of a three year remains robust and we are confident turnaround plan. This business plan that we will be able to manage the Trust has been approved by the Trustees and through this crisis. has the full support of funders and other stakeholders. 2 2. Financial review (continued) The prior year end was extended to 31 August 2018 and with the exception of The results of each main activity may be Shaw Education Trust comparisons with summarised as follows: the prior period are against a 17 month period. The prior period results of £m Prospects are for a 10 month period and Shaw Trust UK operations (18.3) for Ixion, 16 months, reflecting the (excluding business combinations period of time after their acquisition. The and amortisation in period) change in turnover is a reflection of this Shaw Education Trust 20.7 change and reduction in number of contracts especially Employment Other (0.6) Contracts. The incoming resources from Ixion 1.2 the activity of the group decreased by £53.2m to £206.4m from the previous Prospects 0.9 year of £259.6m. The net deficit after Goodwill amortisation and (27.0) the effect of unrealised gains on the impairment investment portfolio, unrealised gains on Actuarial (losses) and Net foreign currency net assets and finance return on defined benefit (27.7) actuarial gains/ (losses) on the pension pension scheme fund was £50.8m (2018: surplus of £18.3m). Net movement in funds (50.8) Net cash and current asset investments decreased by £4.5m in the year (2018: The net movement in funds for Shaw decrease of £2.6m). Capital expenditure Education Trust includes the value of incurred of £31.2m was primarily in assets acquired at the date that new respect of the costs of building work and schools joined the Shaw Education improvements undertaken at the Shaw Trust amounting to £21.3m (further Education Trust’s Academies, largely details are included in note 25 – funded by successful grant applications. Business Combinations). A large portion of the Trust’s investment portfolio was liquidated during the year in order to fund working capital requirements, with the remainder of the portfolio realised post year end. The portfolio recorded a net gain of £2k in the period (2018: gain of £2.7m) as a result of favourable movement in the world financial markets. The market value as at 31 August 2019 was £213k (31 August 2018: £17.5m). 3 2. Financial review (continued) The reserves policy is reviewed annually by the Trustees, to take account of Investment powers, policy and changes to the environment in which the performance Trust operates, and any other internal or external risk factors that might impact on Investment powers are governed by the the level of reserves required. Trust’s Memorandum and Articles of Association and permit the Trust’s funds The reserves policy is based on the to be invested in a wide range of assets. level of free reserves. The Trustees Shaw Trust’s investment policy for its have considered whether the definition UK reserves is to balance the security of of free reserves, being the total its funds available for investment with unrestricted funds less any designated the need for liquidity to meet its funds, revaluation reserves and pension obligations as they fall due, while scheme surpluses or deficits, was obtaining the best yield that can be appropriate due to the significant generated given the Trust’s risk pension deficit arising from the appetite. acquisition of Prospects. The remainder of the Trust’s UK The conclusion of the Trustees was that reserves were invested by the Trust’s there was not a significant risk that the Investment Manager, Quilter Cheviot, in pension liability would crystalise in the a balanced portfolio of listed UK and short to medium term and that due to overseas equities and bonds and the relative stability of income through alternative investments. The investment the long term nature of contracts policy with regard to the funds held by undertaken, any reductions can be Quilter Cheviot were to obtain the best reasonably foreseen and actions taken financial return within an acceptable before there is a significant impact on degree of risk in order to generate over the Trust’s reserves. the long term a total return of RPI plus 4% on sums invested. The majority of As at 31 August 2019 the Trust had free these were liquidated during the year to reserves of £35,4m (31 August 2018: satisfy working capital requirements of £75.8m) as follows: the business, with the final funds liquidated and transferred out after the At At year end. 31 Aug 31 Aug 19 18 Reserves policy £m £m Total unrestricted (23.4) 39.0 The Trust’s free reserves are held in reserves order to manage the risks to which the Less: Designated (1.7) (2.4) charity is exposed in the course of its funds activities. The Trustees ensure that the charity is in a responsible and secure Less: revaluation - (2.8) financial position to provide reliable reserve services for our beneficiaries, to absorb Add: Pension 60.5 42.0 unforeseen setbacks in the event of a liability significant financial downturn and to Free reserves 35.4 75.8 take advantage of opportunities that are in line with our charitable mission. 4 2. Financial review (continued) The Trust continues to outperform against its Three Year Business plan The decrease in Free Reserves is as a and business performance is reviewed result of losses incurred during the year on a monthly basis. As part of the and amortisation and write-down of restructuring of the Trust under new goodwill created from the acquisition of management and with the agreement of Prospects. its funders the Trust embarked on a divestment programme, to sell non-core In addition to a suggested level of free assets and business in order to enable reserves, the Trust’s policy stipulates a the Trust to focus on its core activities. minimum level of cash holding This programme is progressing in line requirement to meet the following with expectations, with funds being scenarios, including: realised for working capital and future development. A delay in collection of receipts Exceptional payments of costs In addition the impact and challenges as A significant loss of business a result of the Covid-19 have been extensively investigated.