Financial Review of the Year
The charts and tables above show that 2005-06 was another year of significant financial progress for the Foundation. Note that for this purpose we treat the profit from the 500+ BHF charity shops as our income from that source, whereas in the Accounts that follow, we are required to show the shops’ sales as income (and the significant expenses of the separately-managed operation as costs). In our view, the profit approach gives a more realistic assessment of the situation, while the treatment shown in the Accounts exaggerates the income and the costs of the Foundation as a result of the high proportion of shop sales to our other income (compared with other leading charities).
During the current year, the Foundation adopted in full the Statement of Recommended Practice - Accounting and Reporting by Charities (SORP 2005).
The new SORP requires that the Foundation makes provision for all its liabilities and commitments as soon as they arise. 90% of the Foundation’s commitments were already provided for in this way, but the maintenance of our Chairs of Cardiovascular Disease, and certain ongoing education and care projects were accounted for on an annual basis. The Foundation has now made full provision for all its liabilities and, as a result, has made several prior year adjustments to the Accounts; to reflect this, the figures shown in the table above (and reflected in chart 2) have been restated.
On this basis, our income rose by 6% overall, to just under £105m. Legacy income rose by 8%, and general fundraising by 14%. Among fundraising highlights:
- 27,000 cyclists took part in the 30th annual London to Brighton Bike Ride raising a staggering £3.3m, an 18% increase on the previous year’s total;
- Heart Runners in the London Marathon raised over £750,000;
- Help a Heart Week 2005 raised over £1.6m and attracted nearly 37,000 new supporters; and
- the 2006 Valentine's Appeal raised £1m towards the cost of funding 30 desperately needed BHF Heart Nurses, including over £300,000 from the posting of 200,000 heart shaped love notes in the windows of our charity shops.
Public funding included a further £3.8m from the Department of Health to continue our very successful smoking cessation campaign, and £5.6m from the Big Lottery Fund supporting three projects, Heart Failure Nurses, Defibrillators in the Community and Cardiac Rehabilitation Programmes..
Expenditure on our charitable objectives was 7% down on the previous year; however, this result has been skewed by the reduction in spending on the Cardiovascular Initiative and the effect of the prior year adjustments mentioned above. Regular spending on our main objective, research, has increased by 12% during the year, however a reduction in spending on the virtually completed CVI has reduced that increase to 2%. Full provision for maintenance of our Chairs of Cardiovascular Disease resulted in a prior year adjustment of £14.7m. The nature of a prior year adjustment, as the name implies, is that it affects the results of previous years, therefore the research figures shown above have been restated for the last ten years to smooth the adjustment over that period as it would have fallen if the new accounting policy had been in place throughout.
However, the effect of prior year adjustments on education and care has been more dramatic, where an additional £16.3m had to be provided in respect of previous years, of which £12.2m covered the Foundation’s ultimate liability under the three projects funded by The Big Lottery Fund (all arising in 2004-05). The remaining £4.1m was in respect of BHF Nurses, although 2004-05 expenditure was reduced by £2.0m as a result of an even higher restated provision being required at the start of that year.
The costs incurred on fundraising and publicity in achieving these results amounted to £21.6m compared with £18.9m last year. This represents 21% of the total income described above. Comparisons of such cost ratios between charities must be treated extremely carefully, owing to the widely varying costs of the many different fundraising activities they undertake. A significant proportion of fundraising and publicity expenditure again represents an investment in the development of continuing and future income sources. Our future plans include a continued uplift in this investment as part of a strategy designed to produce an acceleration of the growth in income over a period of years, which is necessary if we are to meet the increasing demand to support high-quality projects in pursuit of our aims.
The value of our investments enjoyed a gain of £34.5m in the financial year, as they continued to participate in a worldwide stock market recovery. Despite the long-term historical success of our investment strategy, we continue to review our approach every year to ensure that it is appropriate for the changed investing environment.
With this in mind, the Foundation commissioned an investment strategy review during the year, which resulted in the portfolio being split, in January 2006, between two discretionary fund managers, whose performance will be measured against identical benchmarks tailored to the Foundation’s investment policy.