The latest in our ongoing series of updates about activities at the Institution.
When I stood up at the AGM in May to present last year’s accounts, I didn’t have a very rosy picture to paint of our financial situation. 2018 was a tough year for the Institution. Despite an improvement in income from our trading subsidiaries compared to the previous year, we still ran a deficit of £0.8M from our ordinary activities. In addition, a write-off against the Digital Transformation project and costs related to the Special Meeting and other activities contributed a further deficit of £2M. Due to the poor stock market performance (the FTSE 100 tumbled by 12.5% in 2018 - its biggest fall in a decade), we also lost ground on our market and pension fund investments.
We have seen fluctuations in our financial performance in the past and we still have a good level of unrestricted reserves. However, as I highlighted at the time, of main concern is the decline in our free reserves (that is, our readily accessible funds). At the end of 2018, these amounted to only about three months of charitable spend, below Charity Commission guidelines and well behind the Trustee Board target of six months. Whilst revenue will not dry up to nothing overnight, this still represents a situation that requires urgent attention in order to restore a healthy level of available cash.
And we are making progress. The year to date has been much more positive. The charity activities have pulled in their belts and are holding spend at a breakeven level. Our trading subsidiary companies are performing much better and, for the first half year, have been well ahead of their targeted profit levels. We still have four months to run in 2019 but I am confident that we are heading in the right direction.
So how do we consolidate this for the future. Both the Finance and Governance Reviews made detailed recommendations on changes that should be implemented in order to provide a more robust approach to safeguarding our financial position. Two new Boards were proposed; a Finance Board as the main body within the Institution to oversee its financial activities and a PEP Limited Board to manage the trading subsidiary companies. The Trustee Board has mandated a quick rollout of these new Boards so that they can start addressing the many recommendations made. Consequently, I have been working closely with Peter Flinn, Colin Brown and Sean Fox to establish the membership so that the first meetings of the new Boards can take place soon. The last Commercial & Investments Board meeting was held on Friday 6 September with hand-over of its Institutional remit to the new Boards.
My thanks to all the volunteers on the new Boards for their commitment and support. I look forward to working closely with you in the future.
I feel we are now on the right road to establishing a securer financial structure for the Institution. We have a lot of good work to do in ‘improving the world through engineering‘ and a sound financial base is a strong enabler of that.
Vice-President, Honorary Treasurer