Red Cross Report

2011 Trustees’ report and accounts Patron Her Majesty The Queen President His Royal Highness The Prince of Wales KG KT GCB OM Deputy presidents Her Royal Highness Princess Alexandra The Hon Lady Ogilvy LG GCVO The Countess Mountbatten of Burma CBE CD JP DL Honorary vice-presidents Lord Barnard TD The Rt Hon Baroness Chalker of Wallasey Sylvia, Countess of Limerick CBE Professor John McClure OBE Mrs Elspeth Thomas CBE DL Vice-presidents Mr Anthony Andrews Ms Angela Rippon OBE Mrs Maria Shammas MBE Board of trustees Chairman Mr James M. T.Cochrane Vice-chairmen Mrs Victoria Peterkin Mr David Fall CMG Mrs Stella Cummings (from January 2012) Treasurer Mr Russell Walls (until September 2011) Mr David Howell (from September 2011) Other trustees Mrs Sue Brown Mr Stanley Fitches MBE Ms Amy Foan Mr Christopher Hedges (until December 2011) Mr Michael Herriot MBE Mr Steve John Mr Afzal Khan CBE (until October 2011) Lady Lamport Dr Lise Llewellyn Mr Gordon Low Dr J. Kay Richmond (until De cember 2011) Mr Graham Stegmann CBE Mr Paul Taylor (from January 2012) Mr Keith Shipman (from January 2012)Senior management team Chief executive Sir Nicholas Young Managing director of operations Michael Adamson Director of international David Peppiatt Director of UK service development Margaret Lally UK director, Scotland, Northern Ireland and the Isle of Man Territory Norman McKinley UK director, Northern Territory Jean Henderson UK director, Wales and Western Territory Annie Bibbings UK director, South Eastern Territory Liz Page Director of communications Philip Talbot Director of fundraising Mark Astarita Director of people and learning Roger Smith FCIPD Chef de cabinet Caroline Leighton Director of finance and business development Rohan Hewavisenti Sub-committees Finance and audit committee Mr David Howell, chairman (from September 2011) Mr Russell Walls, chairman (until September 2011) Mr James M. T. Cochrane Mr Stanley Fitches MBE Mr Gordon Low Mrs Liz Hazell Mr Anthony Pott s Mr Peter Bluck Remuneration committee Mr James M. T. Cochrane, chairman Mr Russell Walls until September 2011) Mr David Howell (from September 2011) Mrs Victoria Peterkin Mr David Fall CMG Ethical review panel Mrs Stella Cummings Mr Steve John Mr Graham Stegmann CBE External auditors BDO LLP Emerald House East Street Epsom Surrey KT17 1HS Bankers National Westminster Bank plc City of London Office PO Box 12258 1 Princes Street London EC2R 8PA Investment managers Lazard Asset Management Ltd 50 Berkeley Street London W1J 8HA Legal & General Investment Management One Coleman Street London EC2R BlackRock 33 King William Street London EC4R 9AS External legal advisers Withers 15 Old Bailey London EC4M 7EG Young mother Pearl, 21, became a volunteer after she and her extended family received support from the Red Cross in South Africa 1 ContentsChairman and chief executive’s statement Our aims Emergency response Health and social care Building resilience: first aid and humanitarian education Plans for 2012 Review of finances Structure and governance Independent auditors’ report to the trustees of the British Red Cross Society 4 5 6 8 10 12 14 16 19 22 44 I don’t think I could have managed. To know I could always pick up the phone and talk with Sue made the world of difference Volunteer Sue Whalley helped Ellis Sheldon and his wife cope with illness in their remote country home Accounts for the year ended 31 December 2011 Thank you 2 British Red Cross Trustees’ report and accounts 2011 3 Chairman and chief executive’s statement This year has shown us how easy it is for a movement of people to change the world, for good or ill.Summer riots in the UK, financial protests around the world and the fall of governments in the Middle East and Africa – they all relied on an instantly connected network of people acting as one, quickly and powerfully. Part of the Red Cross’ mission is to mobilise the power of humanity. If chaos an d violence are unfolding more quickly, then so must our ability to harness that power for good, saving and changing lives in the UK and overseas. As always, our volunteers and staff were at the sharp end of crisis around the world last year, from drought and famine in east Africa to severe weather in Scotland. We remain realistic about the external pressures and challenges facing us.A key focus for us has been the way the coalition government’s reforms and reviews are affecting our work – most notably the NHS reforms, cuts in the public sector and the Department for International Development (DFID) aid reviews. We have continued to develop our health and social care offer to be more consistent, integrated and focussed on what NHS commissioners’ needs are likely to be in the future. This is just one way we are making sure that our services are available for people adversely affected by changes or cuts. We also obtained unconditional registration for our ambulance work from the Care Quality Commission, which ensures we can continue to deliver a variety of ambulance services independently across England.In November we transferred our skin camouflage service to a new home at Changing Faces, a charity specialising in disfigurement. Over the last 36 years, this award-winning service has helped tens of thousands of people cope with disfiguring conditions and blemishes and Changing Faces is well placed to develop the service further, ensuring it continues to have a great impact on people’s lives. We offer our thanks to the dedicated and skilled volunteers and staff involved. The DFID aid reviews, and the work of the devolved administrations, have shown an increasing focus on preparing for emergencies in the UK and overseas, which represents a significant opportunity for us.Our ‘Ready for Winter’ campaign to ensure that people are prepared for severe weather, launched in partnership with the Scottish government, is a good exampl e of how we are meeting it. In these financially challenging times, we must make sure we maximise our fundraising potential to ensure our financial sustainability. Our compact with our supporters is that, as ever, we will keep our costs under control and make efficient and effective use of all our resources. We, and the more than a million people we help each year, rely on their generosity and trust. Thank you to all of our supporters, partners, volunteers and staff members for their vital contributions in 2011 – working together, we saved and changed people’s lives around the world. Our aims Our vision is of a world where everyone gets the help they need in a crisis.Our mission is to mobilise the power of humanity so that individuals and communities can prepare for, deal with and recover from a crisis. As the UK’s leading emergency response charity, 3,500 staff and 32,500 volunteers pursue these goals both here and overseas. Our work includes emergency response , health and social care, and building resilience (including first aid and humanitarian education). We operate both in our own right, and as part of the International Red Cross and Red Crescent Movement, the world’s largest humanitarian network, which has around 13 million volunteers across 188 countries. Our corporate strategy, Saving Lives, Changing Lives, sets the framework for our core activities between 2010-15. redcross. org. uk/movement redcross. org. uk/strategyOur plans for 2011 included: > strengthening our ability to respond to large emergencies across the whole of the UK > strengthening the quality of our services for refugees and asylum seekers > increasing the reach and quality of the International Federation of Red Cross and Red Crescent Societies’ disaster response > establishing our care in the home activity as the main focus of our UK health and social care work, integrating existing services with it where appropriate > building resilience, helping pe ople and communities prepare for and withstand disasters. James M. T. Cochrane Chairman of the board of trustees I feel I’m not only helping individual people, but helping the Red Cross and society in general After being made redundant, Ed Owen found a new lease of life as a care in the home volunteer Sir Nicholas Young Chief executive 4British Red Cross Trustees’ report and accounts 2011 5 Emergency response When an emergency strikes, we respond We launched seven emergency appeals in 2011, raising ? 21. 6 million to help people in east Africa, Japan, New Zealand, Pakistan, Turkey, the Libya region and the Ivory Coast region recover from famine, conflict, flooding and earthquakes. As tens of thousands of people displaced by civil war in Libya fled across the border to Tunisia in March, we sent experts in logistics and mass sanitation to support the International Red Cross and Red Crescent Movement’s response there. This helped prevent the outbreak of disease and sickness in the displacement camps.We also sent logistics delegates to support the Movement’s operations during violent clashes in Egypt and the food crisis in Kenya to make sure vital aid got to the people who new cases opened to help separated families get back in touch 610 30,000 people in the UK given first aid at 9,000 public events needed it, even in the most challenging environments. Following January 2010’s devastating earthquake in Haiti, we are halfway through a four-year recovery programme. Over the last year, we have helped 75,000 people recover their livelihoods through cash distribution, provided water and sanitation where there was none, and given 22,000 families safe and improved shelter. We started to build permanent housing to replace transitional shelters. In he midst of the recovery process, we also responded to a major cholera outbreak, treating 9,000 patients and operating five clinics and oral hydration units. Staff and volunteers responded to 4 ,200 (440 in Scotland) emergency response call-outs in the UK in 2011, in support of the emergency services. These ranged from fires and power cuts to an improvised explosive device in Omagh. The Red Cross volunteers provide an invaluable service to people at a time of great emotional need and stress. When they are looking after the families, it means the firefighters have one less factor to consider Mike Burroughs, Devon and Somerset Fire and Rescue Service ?3 million released from our Disaster Fund to help people affected by conflict or disasters in the UK and overseas 6British Red Cross Trustees’ report and accounts 2011 When severe weather in Scotland in December cut off many vulnerable people in remote locations, volunteers worked around the clock to distribute relief and support the Scottish Ambulance Service. We completed various reviews to ensure we can draw in the right numbers of volunteers and equipment from across the UK to respond in the event of a large emergenc y. Around a third of our services for refugees and asylum seekers, which helped 35,000 people (570 in Scotland), 22,300 of them destitute, are now accredited by the Office of the Immigration Services Commissioner, giving external assurance of their quality.We plan for the majority to be accredited by the end of 2012. redcross. org. uk/emergencyresponse redcross. org. uk/recovery I like the Red Cross because they give us biscuits and are teaching us how to improve our health James Losiru, ten, one of the children for whom our school feeding programme in Kenya is making a difference 27,000 people in the UK helped by us in an emergency 7 Health and social care We help vulnerable people recover from health or social crises, and live with dignity and independence in their homes We helped 397,000 people in the UK (28,000 in Scotland) this year when they could not cope at home alone, many of them after a stay in hospital or facing the risk of being admitted.This helped them retain their in dependence, and reduced admissions to hospitals and residential or nursing care. For example, our medical equipment loan service in southeast Wales made it possible for 280 patients to be discharged from hospital, averaging a saving of at least three bed days per patient. Ninety-one per cent of our health and social care service users reported that their experience was either good or excellent. We also began working towards the ambitious target of reaching 40 per cent more people in the UK with our health and social care services by 2014. As part of this work, we agreed 26 new health and social care developments in 2011. 75,000As the government progresses its social care reform agenda, we submitted written evidence to the health select committee, and developed proposals which will form the basis of an advocacy programme in 2012 to embed the voluntary sector’s role in tackling the UK’s care crisis. We work in partnership with other members of the International Red Cross and Red Crescent Movement across 16 countries to help communities tackle health and social crises – from people living with HIV in South Africa to young people rebuilding their lives after conflict in Sierra Leone. For example, we support a Kyrgyzstan Red Crescent programme to help vulnerable women build their livelihoods and be aware of their rights. This work includes an advocacy element, which contributed to a change in the law this year, whereby marriage registration is now compulsory.Previously, traditional unregistered marriages had left women who had been left by their husbands with no legal rights or standing. wheelchairs loaned to people to help them stay independent I’m very happy for the Red Cross’ help as they taught me how to take care of the kids, demonstrating how to give the pills when they first started taking their treatment. They supported me until I knew what to do Patricia lives in South Africa and cares for her four grandchildren, aged bet ween one and four, all of whom have either HIV or TB 7,700 volunteers in the UK delivering health and social care 8 British Red Cross Trustees’ report and accounts 2011 redcross. org. uk/healthandsocialcare redcross. org. uk/uksocialcare ulnerable people in the UK used our transport service to reach medical appointments or get other help with daily life 34,000 Now I feel more confident about getting out – and it’s so nice not to be stuck in the house all the time Sight-impaired Brenda Hall, from Llanelli, was visited for several weeks by a volunteer to help build her confidence and remain independent 9 Building resilience: first aid and humanitarian education We make communities more resilient by teaching people how to save lives and encouraging them to take action to help others of our volunteers are aged 18-26 (6,600 volunteers in total) 20% people learned about humanitarian issues and international humanitarian law through our education programmes 183,300 370 ,000 eople in the UK took one of our first aid courses in 2011, 61,000 of whom were from vulnerable groups A survey we ran this year showed that just 3 per cent of the UK population would be willing to invest a couple of hours in learning first aid, and 64 per cent fear the responsibility of having first aid skills. So in September 2011 we launched Everyday First Aid, a free online resource providing the simplest way possible to learn basic life-saving skills. Featuring videos, animation and reallife scenarios, the resource has been viewed by 199,000 people since its launch and supplements our range of face-to-face training courses. Ninety per cent of people who have taken one of our first aid courses felt more confident in using first aidThank goodness I had completed the first aid course, as the knowledge was still fresh in my mind. I just stopped panicking and started to slap her back. In less than a minute she was okay again Sayma put her training from our first aid course for m inority ethnic groups in Edinburgh into practice when her threeyear-old daughter began to choke as a result; and 76 per cent were more willing to use those skills in an emergency. We followed this up with the launch of our first mobile app, so that Android, BlackBerry and iPhone users have access to the same life-saving information on the move. The app was downloaded 127,300 times in 2011 and 185,000 by March 2012.Over the summer, we continued our Life. Live It. campaign, aimed at equipping 11 to 16-year-olds with first aid skills. Through a cinema trailer shown before the final Harry Potter film, we showed 2. 6 million people how to save an unconscious person’s life by pushing them on their side and tilting their head back so their airway is clear. We also took the same message to youth festivals around the country, with a series of ‘silent disco’ events, reaching around 5,000 young people. redcross. org. uk/firstaid redcross. org. uk/everydayfirstaid redcross. org. uk/app 6. 4 million people learned about first aid from us through public or media campaignsI realised I’d basically have to save someone’s life, which was a bit of a shock early on a Wednesday morning While on her way to a GCSE English exam, Hannah Niesser used her first aid training to give chest compressions to a collapsed man 11 10 British Red Cross Trustees’ report and accounts 2011 Plans for 2012 In 2012 we have committed that: 1. We will ensure we are fully prepared to meet the potential emergency response challenges presented by a year of major activity in the UK, including the Olympics, Paralympics and Queen’s Diamond Jubilee. 2. We will grow investment in international disaster response and increase the reach and impact of resilience programming with International Red Cross and Red Crescent Movement partners, particularly in Africa and South Asia. 3.We will teach first aid to 354,000 young people and adults, so they are more able, confident and willing to help someone in a crisis. 4. We will further strengthen the quality of our services for refugees and asylum seekers by achieving OISC accreditation for the majority of our services and seek institutional funding to meet some of the needs arising from the significant budget cuts of partners in the refugee sector. 5. We will continue to develop our health and social care services so we are on course to reach 40 per cent more beneficiaries by the end of 2014 with a choice of services that increase their ability to live independently for longer. 6.We will further strengthen our ability to measure the outcomes and impact of our work in the UK and internationally. Everything happened so quickly – it was really scary – so it was really good to have those friendly faces around Volunteers were on hand to provide mother-of-two Holly Gunning with emotional support and practical advice after her home was struck by lightning 12 British Red Cross Trustees’ rep ort and accounts 2011 13 Review of finances The organisation continued to grow, with total expenditure in 2011 increasing 16 per cent from ? 199. 2 million to ? 230. 9 million. This was supported by a 4 per cent increase in our total income to ? 213. 8 million. from regular giving increasing 21 per cent to ? 41. 9 million.Charitable expenditure Our charitable expenditure increased by 20 per cent to ? 159. 2 million in 2011 with the increase mostly in our emergency response activities. Continued support for the Haitian earthquake programmes, along with cash transfers made to support the Japanese earthquake response, resulted in our international emergency response expenditure increasing 74 per cent to ? 45. 4 million. We also invested further in our UK emergency response activities, increasing expenditure by 18 per cent to ? 24. 5 million. Expenditure on resilience programmes has increased 7 per cent to ? 39 million with the principal increase being in our work with National Societie s in other parts of the world.Our health and social care work is primarily UK-based and our expenditure on this activity decreased slightly to ? 41. 3 million. Expenditure on medical equipment services decreased by ? 3. 5 million to ? 12. 7 million due to the loss of a major contract for the provision of community equipment. This was offset by a ? 3. 4 million increase in our care and support programmes. Fundraising Voluntary income, which includes income from emergency appeals, fundraising, regular giving, cash donations and legacies, increased 10 per cent from ? 119. 9 million to ? 131. 5 million. Our individual supporters donated more than ever before, throughout challenging economic times, with incomeCharitable income Around 25 per cent of total income comes directly from charitable activities including first aid training fees, health and social care contracts and grants to support our international work. Our charitable income decreased 8 per cent to ? 52. 9 million, due to the loss of a major community equipment contract as well as a drop in grants to support our international work. Reserves Our reserves policy is set to ensure that there is no disruption of British Red Cross services in the event of an unforeseen reduction in income or increase in expenditure. The policy sets our minimum free reserves level at ? 15 million. As at 31 December, our free available reserves amounted to ? 41. 4 million (2010: ? 54. 7 million).We have changed many of our investments from equity to bonds to reduce the effects of market volatility on us. Together with tighter financial forecasting and reporting, this will enable us to plan for a lower level of reserves, allowing us to spend more helping people in need. This is consistent with our strategy, Saving Lives, Changing Lives, which outlines plans to draw down on our free available reserves by 2015. We plan to draw down ? 14. 8 million of reserves in 2012 and a further ? 6. 2 million in 2013. Pensions The British Red Cr oss operates two defined benefit pension schemes, which are both closed to new members. The net pension surplus reported in our accounts is ? 0. 7 million as at 31 December 2011 (2010 surplus: ? 1. million) and We prepare vulnerable groups, including women and children, for cyclones in Char Padma, Bangladesh the actuarial loss during the year was ? 1. 6 million (2010: ? 2 million gain). However, our latest actuarial valuations for funding purposes showed a net deficit of ? 4. 4 million. We also have contingent liabilities in relation to the membership of the Pension Trust’s Growth Plan. The British Red Cross has sole liability for ? 6. 5 million and joint liability with the Order of St John for estimated ? 3 million pension liabilities of the Joint Committee of the Order of St John of Jerusalem and British Red Cross Society. Investments As at 31 December 2011, we held fixed asset investments of ? 49. 1 million (2010: ? 58 million).Our investments reported net losses of ? 0. 6 million in 2011. An investment sub-committee of the finance and audit committee regularly reviews our investment portfolio and performs an annual review of our investment policy. Our investment objective is to seek yield subject to a requirement of capital preservation. The investment sub-committee has reviewed, and is satisfied with, the overall performance of the investment portfolio against its benchmarks. The British Red Cross will not directly invest in shares in, or commercial paper issued by, companies with a significant interest in the trading of arms or in the manufacture of tobacco products.However, it is recognised that the ethical investment policy cannot be applied when investing in pooled money market or investment funds. 14 British Red Cross Trustees’ report and accounts 2011 15 Structure and governance Legal status The British Red Cross was founded in 1870 and incorporated by Royal Charter in 1908. A Supplemental Royal Charter took effect on 1 January 1998 an d this was revised by HM the Queen in Council on 17 July 2003. The governing instruments under which the British Red Cross operates comprise this revised charter, the standing orders and other policies agreed from time to time by its governing body, the board of trustees.The legal objects of the British Red Cross, as laid out in its revised Royal Charter, are to provide assistance to victims of armed conflicts and to work for the improvement of health, the prevention of disease and the prevention and alleviation of human suffering in the UK and throughout the world. Organisation The board of trustees comprises nine elected members and up to eight members co-opted by the board itself. Newly elected and appointed trustees join the board at the start of the calendar year in most instances. Their terms of office last for three years, and they can serve two consecutive threeyear terms, after which they must stand down from the board for at least one year. A nominations group oversees rec ruitment of co-opted trustees. The recruitment of elected trustees is conducted via a national electoral college of eight volunteer council chairs. The board of trustees ratifies the result.The finance and audit committee oversees the organisation’s financial transactions. This committee has been given specific responsibilities and makes relevant recommendations to the board. While the approval of policy is a matter for the board, that body works closely with the chief executive and his colleagues on the senior management team, which is charged with the implementation of policy. A wholly-owned trading subsidiary, Britcross Limited, supports the fundraising activities of the British Red Cross. The assets, liabilities and trading results of this company, which is incorporated in the UK, are consolidated into the financial statements.The British Red Cross has eight Overseas Branches in British Overseas Territories and these have also been included in the financial statements. Th e British Red Cross is a member of the International Red Cross and Red Crescent Movement, with volunteers and staff contributing to a number of initiatives in both the International Federation of Red Cross and Red Crescent Societies (Federation) and the International Committee of the Red Cross (ICRC). Volunteers carry out a wide range of activities, including responding to emergencies, first aid, delivering health and social care and humanitarian education programmes, supporting refugees and asylum seekers, and fundraising.Without them, we could not carry out this life-saving and lifechanging work. The British Red Cross has more than 320 charity shops across the UK documented management systems, processes and procedures. The system of internal control and risk management is designed to: > The finance and audit committee reviews risk and internal controls and receives regular reports from senior management. > The committee approves the annual risk-based internal audit plan, which cov ers major risks as identified by management and trustees. It receives internal audit reports, regular progress reports and risk updates. Internal audit reports identify areas for improvement in the internal control, risk and governance environment. gt; Senior management reviews key strategic and operational risks on a regular basis. They consider progress on mitigating actions, new and emerging risks, and opportunities. > Management identifies, evaluates and manages risks within their areas from planning to delivery of service. Progress is reported quarterly via Risk management Achievement of the charity’s aims and objectives entails taking risks. The system of internal control is designed to manage risk to a reasonable degree rather than to eliminate all risk of failure relating to achieving aims and objectives. The trustees are responsible for ensuring the charity has effective risk management and internal control systems in place.The board reviews significant risks and ens ures reasonable measures have been taken to manage risks. Senior management has responsibility for managing resources, monitoring performance, and establishing and maintaining effective internal control systems. This is supported by clearly > identify and prioritise the strategic and operational risks to the achievement of the charity’s aims and objectives; > evaluate the likelihood of those risks being realised and their potential impact; and > manage these risks efficiently, effectively and economically. The trustees are satisfied that appropriate internal control systems and risk management processes are in place.They consider that the following framework provides the charity with adequate measures to reduce the impact of identified risks: 16 British Red Cross Trustees’ report and accounts 2011 17 Independent auditors’ report to the trustees of British Red Cross divisional and departmental updates. This is analysed and reported to senior management on a regul ar basis. > Board sub-committees and management groups help identify, evaluate and manage risks relating to fundraising, investments, business continuity, health and safety, remuneration, major infrastructure and IT projects, and operational needs including health and social care, emergency response and the Olympics.Work in this area is continuing with an improvement plan to further enhance the effectiveness of risk management activities and ensure consistency in its application across the charity. The most significant risks to the charity include the impact of government policy including the spending review, fundraising, reputation, security and safety of staff and volunteers, safety of beneficiaries, workforce capacity and capability, management information, IT infrastructure and the challenges of operating major relief programmes. > prepared the accounts on a going concern basis. Financial statements are published on the organisation’s website (redcross. org. k) in accorda nce with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The trustees’ responsibilities also extend to the ongoing integrity of the financial statements contained therein. Trustees participated in a range of development activities during the year. From visits to British Red Cross areas, services and events, to external conferences, the British Red Cross ensures its board members are kept abreast of developments in the sector, as well as given the opportunity to broaden their skills and experiences to assist them in discharging their duties effectively.Trustees’ responsibilities The trustees prepare consolidated financial statements for each financial year. These give a true and fair view of the state of the British Red Cross and of the annual results. In preparing the financial statements, the trustees have: > selected suitable accounting policies and applied them consistently; > made judgements and estimates that are reasonable and prudent; > followed applicable accounting standards without any material departures; Public benefit The board of trustees has given regard to the legislative and regulatory requirements for disclosing how its charitable objectives (as set out in our Royal Charter) have provided benefit to the public.The board of trustees has complied with the duty set out in Section 4 of the Charities Act 2011, and that set out by the Office of the Scottish Charity Regulator in the Charities and Trustee Investment (Scotland) Act 2005. This report outlines how our achievements during 2011 have benefited the public, either directly or indirectly. On behalf of the trustees We have audited the financial statements of the British Red Cross Society for the year ended 31 December 2011 which comprise the Consolidated Statement of Financial Activities, the Consolidated Balance Sheets, the Consolidated Cash Flow Statement and the relat ed notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).This report is made solely to the charity’s trustees, as a body, in accordance with the Charities Act 2011 and the Charities and Trustee Investment (Scotland) Act 2005. Our audit work has been undertaken so that we might state to the charity’s 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 charity’s trustees as a body, for our audit work, for this report, or for the opinions we have formed. Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www. frc. org. uk/apb/ scope/private. cfm. Opinion on financial statements In our opinion the financial statements: > give a true and fair view of the state of the group’s and the parent charity’s affairs as at 31 December 2011 and of the group’s incoming resources and application of resources 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 Charities Act 2011, the Charities and Trustee Investment (Scotland) Act 2005 and regulations 6 and 8 of the Charities Accounts (Scotland) Regulations 2006 (as amended).Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Charities Act 2011 and the Charities Accounts (Scotland) Regulations 2006 (as amended) requires us to report to you if, in our opinion: > the information given in the Trustees’ Annual Report is inconsistent in any material respect with the financial statements; or James M. T. Cochrane Chairman of the board of trustees 28 March 2012 Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement (set out on page 18), the trustees are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.We have been appointed as auditor under section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and under section 144 of the Charities Act 2011 and report in accordance with regulations made under those Acts. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). 18 British Red Cross Trustees’ report and accounts 2011 19 > proper and sufficien t accounting records have not been kept; or > the parent charitable company’s financial statements are not in agreement with the accounting records or returns; or > we have not received all the information and explanations we require for our audit.BDO LLP Statutory Auditor Epsom United Kingdom Date: 28 March 2012 BDO LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006. BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Guei, 24, was one of thousands of refugees from conflict in the Ivory Coast who the Red Cross helped with water and other essentials when they reached Liberia 20 British Red Cross Trustees’ report and accounts 2011 21 Accounts for the year ended 31 December 2011 Summary of income and expenditure for the year ended 31 December 2011 Consolidated statement of financial activities for the year ended 31 December 2011 2011 Total ? m 2010 Total ? m Unrestricted Notes ? Incoming resources Incoming resources from generated funds Voluntary income Trading activities Investment income Total incoming resources from generated funds Incoming resources from charitable activities Emergency response and recovery Resilience Health and social care Supporting the Movement Total incoming resources from charitable activities Other incoming resources Miscellaneous income Net gains on disposal of tangible fixed assets Total incoming resources Resources expended Costs of generating funds Voluntary income Trading activities Total resources expended on generating funds Restricted ? m 2 Income ? 213. 8m ca re in co m e E an me d rg re en co c ve y r ? 1 ry es 5. po 5m ns e R es ili en ce ac tiv iti es so ci al 94. 4 26. 5 0. 3 121. 2 37. 1 37. 1 131. 5 26. 5 0. 3 158. 3 119. 9 24. 8 0. 6 145. 3 S M up ov po ? em rt . 9 en ing m t th O e in th ve er st an m d en t Tr ad in g H ea lth 3 3. 3 14. 7 21. 0 0. 4 39. 4 3. 7 0. 8 0. 6 8. 4 13. 5 7. 0 15. 5 21. 6 8. 8 52. 9 9 . 3 15. 3 25. 1 7. 9 57. 6 .5 m Vo lu nt ar y 5m 6m an d 1. ?2 ? 8 . 8 31 ?1 ?2 ?7 m 6. m 0. 6 2. 0 163. 2 50. 6 0. 6 2. 0 213. 8 1. 1 1. 7 205. 7 44. 6 23. 6 68. 2 28. 2 31. 6 39. 7 2. 0 101. 5 2. 6 4 172. 3 (9. 1) (9. 1) 9 14 (0. 3) (0. 9) (1. 6) (11. 9) 7 7 110. 4 98. 5 0. 9 0. 9 41. 7 7. 4 1. 6 7. 0 57. 7 58. 6 (8. 0) (8. 0) 0. 3 (7. 7) 45. 4 37. 7 45. 5 23. 6 69. 1 69. 9 39. 0 41. 3 9. 0 159. 2 2. 6 230. 9 (17. 1) (17. 1) (0. 3) (0. 6) (1. 6) (19. 6) 155. 8 136. 2 40. 3 23. 5 63. 8 46. 36. 3 41. 4 8. 3 132. 8 2. 6 199. 2 6. 5 6. 5 (0. 2) 1. 7 2. 0 10. 0 145. 8 155. 8 Expenditure ? 230. 9m Su ca pp re ? 2 or . 6 tin m g th G e ov M er ov na em nc en e co t st s E an me d rg re en co c ve y r ry es po ns e C in os co t o m fv e o lu nt ar y ac tiv iti es so ci al Costs of charitable activities Emergency response and recovery Resilience Health and social care Supporting the Movement Total resources expended on charitable activities Governance costs Total resources expended Net (ou tgoing) / incoming resources before transfers Transfers between funds Net (outgoing) / incoming resources before recognised gains and losses Losses on urrent asset investments (Losses) / gains on fixed asset investments Actuarial (losses) / gains on defined benefit pension schemes Net movement in funds Total funds – 1 January Total funds – 31 December All the activities relate to continuing operations. R es ili en ce Tr ad in g 5m 6m 9m 9m 3m H ea lth ? 4 1. ?9 an d ?4 ?2 ?6 ?3 m 5. 3. 9. 7 22 British Red Cross Trustees’ report and accounts 2011 23 Consolidated balance sheet as at 31 December 2011 2011 ? m 64. 4 49. 1 113. 5 Current assets Stocks Debtors Investments Cash at bank and in hand 4. 2 30. 9 6. 6 4. 0 45. 7 Current liabilities Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due in more than one year Provision for liabilities and charges Net assets before pension scheme s urplus Defined benefit pension scheme surplus Net assets 14 7 (20. ) 25. 7 139. 2 (0. 3) (3. 4) 135. 5 0. 7 136. 2 2010 ? m 63. 8 58. 0 121. 8 Consolidated cash flow statement for the year ended 31 December 2011 Notes Net cash (outflow) / inflow from operating activities (see below) Capital expenditure and financial investment 16 2011 ? m (13. 7) 3. 0 (10. 7) Decrease in current asset investments Decrease in cash 17 4. 3 (6. 4) 2010 ? m 8. 4 (19. 4) (11. 0) 9. 7 (1. 3) Notes Fixed assets Tangible fixed assets Investments 8 9 10 9 3. 3 29. 0 11. 2 10. 4 53. 9 Reconciliation of net incoming resources to net cash outflow from operating activities Net (outgoing) / incoming resources Depreciation charge Net gains n disposal of tangible fixed assets Increase in stocks Increase in debtors Increase in creditors Increase / (decrease) in provisions for liabilities and charges Net charges for defined benefit pension scheme Net cash (outflow) / inflow from operating activities Reconciliation of net funds to movement in short-term funds less borrowing Decrease in cash Decrease in current asset investments (6. 4) (4. 3) (10. 7) Losses on current asset investments (0. 3) (11. 0) Net short-term funds less borrowing at 1 January Net short-term funds less borrowing at 31 December 17 21. 3 10. 3 (1. 3) (9. 7) (11. 0) (0. 2) (11. 2) 32. 5 21. 3 (17. 1) 6. 7 (2. 0) (0. 9) (1. 9) 2. 6 0. 1 (1. 2) (13. 7) 6. 5 6. 5 (1. 7) (0. 4) (1. 5) 2. 0 (2. 2) (0. 8) 8. 4 11 (17. 4) 36. 5 158. 3 (0. 3) (3. 3) 154. 7 1. 1 155. 8 12 Funds: Restricted funds Unrestricted funds tangible fixed assets Defined benefit pension scheme fund Free available reserves Unrestricted funds Total funds 7 7 37. 7 56. 0. 7 41. 4 98. 5 136. 2 45. 4 54. 6 1. 1 54. 7 110. 4 155. 8 The accompanying notes form an integral part of these consolidated financial statements. The British Red Cross has not prepared a separate balance sheet for the charity as this is not considered to be materially different to the consolidated balance sheet. For and on behalf of the British Red Cross, James Cochrane Chairman, board of trustees 28 March 2012 David Howell Chairman, finance and audit committee 28 March 2012 24 British Red Cross Trustees’ report and accounts 2011 25 Notes to the consolidated financial statements for the year ended 31 December 2011 1. Accounting policies a) Scope and basis of the financial statements The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments at market value, and are in accordance with Accounting and Reporting by Charities: Statement of Recommended Practice (Revised 2005) (‘the SORP’), applicable accounting standards in the United Kingdom and the reporting requirements of the Charities Act 2011. The results and balance sheet of the British Red Cross’ subsidiary, Britcross Limited, have been consolidated on a line by line basis. Britcross Limited makes up accounts to 31 D ecember. Separate statements of financial activities and balance sheet have not been presented for the charity alone as these are not considered to be materially different from the consolidated statement of financial activities and consolidated balance sheet.The financial statements incorporate the results of all material activities overseas where the British Red Cross has operational responsibility. The results and net assets of Red Cross operations in eight British Overseas Branches have been included in the financial statements. (b) Fund accounting General unrestricted funds are available for use at the discretion of the trustees in furtherance of the general charitable objectives. A pension reserve is included within unrestricted funds to reflect the pension surplus. Restricted funds are donated for either a particular area or purpose, the use of which is restricted to that area or purpose. Such donations are principally for international purposes. c) Incoming resources All inco me is accounted for when the British Red Cross has entitlement to the funds, the amount can be quantified and there is certainty of receipt. Where income is received in advance of providing goods and/or services, it is deferred until the British Red Cross becomes entitled to that income. Unless there is evidence of uncertainty of receipt, residuary legacies are recognised from the date of probate where a reliable estimate of income can be made. Income from will or reversionary trusts is not recognised until the life interest has passed away. Income from pecuniary legacies is recognised upon notification. Disasters Emergency Committee (DEC) appeal income is recognised to the extent that resources have been committed on programmes funded through the DEC appeals.Gifts donated for resale are included as income when they are sold. Donated assets and services are included at the value to the British Red Cross where this can be reliably quantified. Donated services from our volunteers are not included within the financial statements. (d) Resources expended and basis of allocation of cost All expenditure is accounted for on an accruals basis. Direct costs are those specifically related to producing the output of an activity, for example the costs incurred in direct contact with beneficiaries. Support costs are those which provide indirect support to front-line output provision – examples are central finance, human resources and management information services.Support costs not attributable to a single activity have been allocated on a basis consistent with identified cost drivers for that cost category such as staff head count, floor space and expenditure. Governance costs relate to the direct running of the charity, allowing the charity to operate and generate the information required for public accountability. They include the costs of subscriptions related to membership of the International Red Cross and Red Crescent Movement, as well as the costs of trustee meetings and internal and external audits. (e) Tangible fixed assets and depreciation All tangible fixed assets costing more than ? 1,000 are capitalised and included at cost, including any incidental expenses of acquisition and irrecoverable VAT.Depreciation is provided on a straight-line basis over their useful economic lives as follows: Freehold properties Leasehold properties > Shop premises > Other premises Freehold premises improvements Leasehold premises improvements Ambulances Other vehicles Equipment and furniture Computer equipment and software Freehold land Assets in course of construction 50 years the shorter of the term of the lease and five years the shorter of the term of the lease and 50 years ten years the shorter of the term of the lease and ten years seven years five years five years between one and three years nil nil (f) Pensions The defined benefit pension scheme current service costs, together with the scheme interest cost less the expected return on the sche me assets for the year, are charged to the relevant expenditure heading within the consolidated statement of financial activities in line with the salary costs of the related employees. The defined benefit scheme assets are measured at fair value at the balance sheet date.Scheme liabilities are measured on an actuarial basis at the balance sheet date using the projected unit method and discounted at a rate equivalent to the current rate of return on a high-quality corporate bond of equivalent term to the scheme liabilities. The change in value of assets and liabilities arising from asset valuation, changes in benefits, actuarial assumptions, or change in the level of deficit attributable to members is recognised in the consolidated statement of financial activities within actuarial gains/losses on defined benefit pension schemes. The resulting defined benefit asset or liability is presented separately on the face of the balance sheet.The British Red Cross recognises assets for its d efined benefit pension schemes to the extent that they are considered recoverable with reference to expected future current service costs for active scheme members. Pension costs in respect of defined contribution schemes are charged to the consolidated statement of financial activities for the period in which they are payable. (g) Investments Investments are stated at market value at the balance sheet date and the consolidated statement of financial activities shows net investment gains and losses arising from revaluation of the investment portfolio and disposals during the year. (h) Stocks Stocks are stated at the lower of cost and net realisable value. Provision is made for obsolete, slow-moving or defective stock where appropriate.Items donated for resale and distribution are not included in the financial statements until they are sold or distributed. Emergency stocks held for disaster response are transferred from stock to resources expended when issued from the warehouse. (i) Value added tax Irrecoverable value added tax is allocated to the category of expenditure to which it relates. (j) Provisions Provisions are recognised when the British Red Cross has a legal or constructive financial obligation, that can be reliably estimated and for which there is an expectation that payment will be made. (k) Operating leases Rentals under operating leases are charged on a straightline basis over the lease terms, even if the payments are not made on such a basis.Benefits received and receivable as an incentive to sign an operating lease are, similarly, spread on a straight-line basis over the lease term, except where the period to the review date on which the rent is first expected to be adjusted to the prevailing market rate is shorter than the full lease term, in which case the shorter period is used. (l) Foreign currencies The British Red Cross uses forward exchange contracts to hedge some of its known foreign exchange exposure. Transactions in foreign currencie s are recorded at the rate of exchange prevailing at the date of the transaction, except where a forward contract is in place, in which case the rate specified in the contract is used.Monetary assets and liabilities are translated into sterling at the exchange rate ruling on the balance sheet date, except where a forward contract is in place, in which case the relevant asset/liability is translated at the rate contained in the contract. Foreign exchange gains are recognised as other income and foreign exchange losses are recognised in the consolidated statement of financial activities within the relevant charitable activity expenditure for the period in which they are incurred. 26 British Red Cross Trustees’ report and accounts 2011 27 Notes to the consolidated financial statements for the year ended 31 December 2011 2. Voluntary income Unrestricted ? Regular giving Public donations, appeals and fundraising Service donations Gift aid Legacies Disasters Emergency Committee app eals Grants Total 41. 9 19. 0 2. 4 12. 3 18. 8 94. 4 Restricted ? m 26. 0 0. 1 1. 8 0. 9 8. 3 37. 1 2011 Unrestricted Total ? m 41. 9 45. 0 2. 5 14. 1 19. 7 8. 3 131. 5 34. 6 17. 6 2. 4 10. 5 21. 5 86. 6 Restricted ? m 20. 7 0. 1 1. 8 0. 6 8. 4 1. 7 33. 3 2010 Total 34. 6 38. 3 2. 5 12. 3 22. 1 8. 4 1. 7 119. 9 Costs of generating funds Voluntary income Trading activities 44. 3 22. 9 67. 2 Charitable activities Emergency response and recovery UK International 23. 1 44. 6 67. 7 Resilience UK International 25. 8 10. 8 36. 6 2011 Total ? m 3. 9 3. 1 7. 0 14. 9 0. 6 15. 5 6. 9 14. 7 21. 6 8. 8 52. 9 2010 Total ? m 3. 0 6. 3 9. 3 Governance costs 0. 2 0. 0. 8 Health and social care Medical equipment services Care and support programmes 0. 3 3. 5 3. 8 Supporting the Movement Total 7. 2 15. 7 14. 7 14. 7 6. 6 11. 2 17. 8 1. 6 37. 2 0. 6 0. 5 1. 1 0. 3 3. 3 3. 6 6. 2 17. 2 14. 0 0. 2 14. 2 10. 7 10. 8 21. 5 1. 7 40. 4 14. 6 0. 7 15. 3 11. 0 14. 1 25. 1 7. 9 57. 6 Total 220. 6 10. 3 230. 9 1 99. 2 Subscriptions to Federation Staff Fees to auditors for audit of financial statements Fees to auditors for other services Other 1. 9 0. 3 0. 1 0. 2 2. 5 0. 1 0. 1 1. 9 0. 3 0. 1 0. 3 2. 6 1. 6 0. 6 0. 1 0. 3 2. 6 Health and social care Medical equipment services Care and support programmes 11. 8 25. 9 37. Supporting the Movement 8. 9 150. 9 0. 9 2. 7 3. 6 0. 1 8. 3 12. 7 28. 6 41. 3 9. 0 159. 2 16. 2 25. 2 41. 4 8. 3 132. 8 2. 1 0. 3 2. 4 27. 9 11. 1 39. 0 25. 2 11. 1 36. 3 1. 4 0. 8 2. 2 24. 5 45. 4 69. 9 20. 7 26. 1 46. 8 1. 2 0. 7 1. 9 45. 5 23. 6 69. 1 40. 3 23. 5 63. 8 4. Resources expended Direct costs ? m Support costs ? m 2011 Total ? m 2010 Total ? m Legacy income is not recognised until the British Red Cross has entitlement to the funds, the amount can be quantified and there is certainty of receipt. The estimated value of legacies, which have been notified but not recognised at 31 December 2011, was ? 7. 4 million (2010: ? 9. 2 million) of which ? . 4 million (2010: ? 6. 6 million) are assets bequeathed to the British Red Cross, but subject to life tenancy. Disasters Emergency Committee (DEC) appeal income is recognised to the extent that resources have been committed on programmes funded through the DEC appeals. Subject to our agreed allocation, the value of DEC appeal income not drawn down or accrued for at 31 December 2011 was ? 2. 6 million (2010: ? 5. 5million). 3. Incoming resources from charitable activities Grants ? m Emergency response and recovery UK International 0. 8 3. 1 3. 9 Resilience UK International Other ? m 3. 1 3. 1 Grants ? m 0. 2 6. 1 6. 3 Other ? m 2. 8 0. 2 3. 0 Supporting the Movement’ grant income is mainly from the Department for International Development (DFID). ?1. 2 million (2010: ? 1. 1 million) was received as part of our Partnership Programme Agreement (replacing the Strategic Framework Agreement), which provides core funding for our international work to strengthen further the effectiveness of the Intern ational Red Cross and Red Crescent Movement as a key pillar of the international humanitarian system. ?6. 0 million (2010: ? 5. 1 million) was received as part of our Institutional Strategy agreement with the International Federation of Red Cross and Red Crescent Societies (IFRC), which provides funding for their programmes and operations.The charity v has supported our youth volunteering, Future Jobs Fund and National Citizen Service activities. The income for 2011 is ? 187,000 (2010: ? 90,000). The basis of allocation of support costs is described in note 1(d) and further analysis is provided in note 5. Our total resources expended includes irrecoverable VAT of ? 2. 9m (2010: ? 2. 1m). Included under 2011 direct costs are grants to the International Federation of Red Cross and Red Crescent Societies (IFRC) and International Committee of the Red Cross (ICRC) of ? 20. 1 million (2010: ? 19. 5 million) and grants to other National Societies of ? 22. 2 million (2010: ? 6. 6 million). 28 British Red Cross Trustees’ report and accounts 2011 29Notes to the consolidated financial statements for the year ended 31 December 2011 5. Support costs by activity Cost of generating funds Emergency response Supporting and Health and the recovery Resilience social care Movement Governance 2011 Total 2010 Total 7. Funds Balance 1 January 2011 Net investment gain / Expenditure (losses) Actuarial losses on defined benefit pension Balance 31 December Transfers 2011 ?m ?m ?m ?m ?m ?m ?m 2. 6 3. 7 3. 6 0. 4 ?m 2. 4 3. 6 Total UK restricted funds Total unrestricted funds ?m Income ?m ?m ?m ?m ?m ?m Finance Human resources and central facilities Management information services Central management Total 0. 8 0. 6 0. 4 0. 1 1. 9 0. 9 0. 6 0. 6 0. 1 2. 0. 5 0. 9 0. 9 0. 1 2. 4 0. 4 1. 6 1. 5 0. 1 3. 6 0. 1 0. 1 0. 1 0. 1 110. 4 163. 2 (172. 3) (1. 2) (1. 6) – 98. 5 17. 1 9. 0 13. 3 22. 3 6. 0 45. 4 155. 8 3. 8 4. 9 14. 4 26. 9 46. 2 0. 6 50. 6 213. 8 (6. 8) (7. 2) (14. 2) (2 7. 4) (48. 8) (3. 0) (58. 6) (230. 9) 0. 1 0. 2 0. 2 0. 3 (0. 9) (1. 6) (0. 5) (0. 5) 0. 5 – 14. 2 6. 7 0. 2 12. 5 19. 4 4. 1 37. 7 136. 2 3. 4 0. 4 9. 8 Haiti earthquake Japan Other international restricted funds Total international restricted funds Disaster Fund Total restricted funds Total funds 10. 3 Support costs have been allocated on the basis of the accounting policy set out in note 1 (d). 6. Trading subsidiaryBritcross Limited, the British Red Cross’ wholly owned trading subsidiary incorporated in the United Kingdom, engages in the sale of cards and gifts as well as corporate sponsorship in aid of the British Red Cross. The turnover and expenditure included within trading activities are: 2011 ? m Turnover Expenditure Net income donated to British Red Cross The assets and liabilities of Britcross Limited consolidated within the balance sheet are: Current assets Current liabilities Net assets 1. 4 (0. 9) 0. 5 2011 ? m 0. 8 (0. 8) 2010 ? m 1. 4 (0. 9) 0. 5 2010 ? m 0. 7 (0. 7) – Restricted funds Expenditure plans have been agreed for all material restricted funds. Funds are held in appropriate asset categories in accordance with planned usage. UK restricted funds UK restricted funds include: > ? million of properties and other tangible fixed assets held for restricted purposes > a variety of local, national and European funding sources to deliver projects over the next 2-3 years > legacies with a geographical and/or service restriction. The balance of UK restricted funds is held for the provision of locally agreed services. International restricted funds Significant programmes of work are planned for the disbursement of international restricted fund balances as at 31 December 2011. Other international restricted funds include: > ? 2. 4 million of stock for international programmes > ? 1. 5 million represented by net assets of the Overseas Branches. Disaster Fund The Disaster Fund allows us to prepare for and respond to humanitarian d isasters abroad and in the UK.We fundraise specifically for the Disaster Fund and, as stated on emergency appeal materials, it can also contain funds donated to emergency appeals where we raise more than can be reasonably and efficiently spent on that specific response. 30 British Red Cross Trustees’ report and accounts 2011 31 Notes to the consolidated financial statements for the year ended 31 December 2011 8. Tangible fixed assets Freehold property ? m 45. 9 0. 1 2. 5 (0. 5) 48. 0 Vehicles, Assets in the Leasehold equipment course of property and furniture construction ? m ? m ? m 34. 2 0. 1 (0. 5) 33. 8 41. 2 0. 3 3. 5 (1. 1) 43. 9 0. 6 (0. 5) 2. 0 2. 1 Total ? m 121. 9 8. 0 (2. 1) 127. 8 9. InvestmentsFixed assets investments Market value – 1 January 2011 Additions at cost Disposals at market value Net investment losses in the year Market value – 31 December 2011 Cost – 31 December 2011 Total ? m 58. 0 3. 0 (11. 3) (0. 6) 49. 1 47. 1 Cost At 1 Januar y 2011 Completions Additions Disposals At 31 December 2011 Accumulated depreciation At 1 January 2011 Charge Disposals At 31 December 2011 Net book value At 31 December 2011 At 31 December 2010 13. 1 1. 8 (0. 2) 14. 7 11. 6 1. 1 (0. 2) 12. 5 33. 4 3. 8 (1. 0) 36. 2 – 58. 1 6. 7 (1. 4) 63. 4 The portfolio consists of the following: UK equities Overseas equities UK fixed income Market value 2011 ? m 7. 8 5. 9 35. 4 49. 1 Per cent of Market value 2011 2010 portfolio ? m 16% 12% 72% 86. 0 6. 3 43. 1 58. 0 Per cent of 2010 portfolio 15% 11% 74% 33. 3 32. 8 21. 3 22. 6 7. 7 7. 8 . 1 0. 6 64. 4 63. 8 The following investments represented more than 5 per cent of the value of the portfolio at 31 December 2011 Lazard Thematic Global Institutional Share Class Legal & General CAF UK Equitrack Black Rock Ultra Short Bond Fund Number of units 67,350 12,988,700 287,196 Market value ? m 5. 9 7. 5 35. 4 Per cent of portfolio 12% 15% 72% Current asset investments Royal Bank of Scotland Global Treasury Funds plc BlackRock – Institutional Sterling Liquidity Fund 2011 ? m 6. 2 6. 2 2010 ? m 4. 1 1. 0 5. 1 5. 4 0. 7 11. 2 Deposits Investment property in the UK Total 0. 4 6. 6 32 British Red Cross Trustees’ report and accounts 2011 33Notes to the consolidated financial statements for the year ended 31 December 2011 10. Debtors 2011 ? m Trade debtors Accrued income Other debtors Prepayments Tax recoverable Legacies receivable Total 4. 6 6. 9 1. 0 3. 5 4. 4 10. 5 30. 9 2010 ? m 6. 5 4. 7 0. 4 3. 3 4. 0 10. 1 29. 0 At 31 December 2011 Amounts expected to be incurred: – within one year – beyond one year 1. 1 1. 1 1. 3 1. 0 2. 3 2. 4 1. 0 3. 4 1. 1 2. 3 3. 4 At 1 January 2011 Payments during the year Increase in provision 12. Provisions for liabilities and charges Rehabilitation Leasehold commitments dilapidations ? m ? m 1. 2 (1. 2) 1. 1 2. 1 (1. 5) 1. 7 Total ? m 3. 3 (2. 7) 2. 8 All amounts shown under debtors fall due for payment within one year. 11 .Creditors: amounts falling due within one year 2011 ? m Trade creditors Accruals Other creditors Deferred income Taxes and social security costs Total 3. 3 12. 0 1. 2 1. 9 1. 6 20. 0 2010 ? m 2. 1 10. 9 1. 1 2. 0 1. 3 17. 4 The provision for rehabilitation commitments as at 31 December 2011 includes amounts committed in Haiti for livelihood grants. Leasehold dilapidations relate to properties where the British Red Cross has a legal responsibility as tenant for such costs. 13. Staff emoluments and trustee expenses Total staff emoluments (including casual staff) for the year were as follows: Salary costs National insurance costs Pensions costs 2011 ? m 68. 7 5. 1. 0 75. 6 2010 ? m 63. 0 5. 4 1. 2 69. 6 Movements in deferred income during the year were as follows: At 1 January Income recognised during the year Income deferred during the year At 31 December 2011 ? m 2. 0 (2. 0) 1. 9 1. 9 2010 ? m 2. 6 (2. 6) 2. 0 2. 0 The number of employees whose emoluments, as defined for taxation pu rposes (basic pay, vehicle and medical insurance benefits), amounted to over ? 60,000 in the year were as follows: ? 60,001 – ? 70,000 ? 70,001 – ? 80,000 ? 80,001 – ? 90,000 ? 90,001 – ? 100,000 ? 100,001 – ? 110,000 ? 110,001 – ? 120,000 ? 170,001 – ? 180,000 ? 180,001 – ? 190,000 2011 6 6 3 5 1 2 1 2010 8 6 5 2 1 1 1 –Five (2010: five) of the above employees have retirement benefits accruing to them under defined benefit pension schemes. The total cost of the contributions to these defined benefit schemes made by the British Red Cross for these employees was ? 106,000 (2010: ? 94,000). Thirteen (2010: fourteen) of the above employees are members of a defined contribution scheme. The total cost of the contributions to this scheme made by the British Red Cross for these employees was ? 81,000 (2010: ? 61,000). 34 British Red Cross Trustees’ report and accounts 2011 35 Notes to the consolidated financial statement s for the year ended 31 December 2011 13. Staff emoluments and trustee expenses (continued)The average number of full-time equivalent staff employed by the British Red Cross during the year was as follows: In the UK Fundraising Retail UK services First aid services International services Other Overseas International services Total employed by FTE Total employed by headcount The average number of volunteers working for the British Red Cross during the year was as follows: In the UK Fundraising Retail UK services First aid services International services Total Trustees’ expenses: Expenses incurred by trustees and reimbursed by the British Red Cross Expenses incurred by the British Red Cross on behalf of trustees Trustees’ indemnity insurance cover cost 2011 171 547 1,475 405 72 280 65 3,015 3,547 2010 147 544 1,417 379 66 249 54 2,856 3,364 14. PensionsNew British Red Cross staff are entitled to join either the Pensions Trust’s Unitised Ethical Plan or the Pension s Trust’s Flexible Retirement Plan. Staff had previously been entitled to join the British Red Cross Pension Fund (â€Å"UK Office scheme†), Scottish Branch British Red Cross Society Retirement Benefits Scheme (â€Å"Scottish scheme†) or the Pensions Trust’s Growth Plan. These three schemes are all closed to new entrants. UK Office and Scottish defined benefit pension schemes The assets of these pension schemes are held in separate trustee-administered funds. The schemes are subject to triennial valuations with the last full valuation being carried out as at 31 December 2010 for the UK Office scheme and 1 January 2009 for the Scottish scheme.These valuations were updated at 31 December 2010 and 2011 by independent actuaries on a Financial Reporting Standard 17 – Retirement Benefits (FRS 17) b

Ford Motor Company: Supply Chain Management and Strategic Fit

This report covers the performance of Ford Motor Company over the past 10 years and analyzes the results of its â€Å"One Ford† business plan. The main question this report answers is whether Ford’s resent actions match the supply chain strategy of the new plan. There is also a short comparison between Ford and it closest competitor in the United States, General Motors. Data was collected from different sources such as, annual and quarterly reports, company websites, organizations such as the United Nations, along with independent sources.This data was review and non-financial and financial computations were performed to see it if Ford’s overall performance had improve since the implementation of â€Å"One Ford† and the assignment of new management. The results show that the company has made improvements to it performance both financial and quality based off forecasting, employee efficiency, contribution and cost margins, net income, and higher prices dema nded for their products. Table of Contents Industry Overview In their industry report, First Research (2011) describes both the United States and global automobile manufacturing industries.The industry in the United States is comprised of about 200 companies . In 2010, two of the larger manufactures, Ford and General Motors, had combined annual revenues of approximately $235 billion & . The automobile manufacturing industry is a global industry with players from several major countries. Some of the larger global companies based outside the United States include Toyota (Japan), Volkswagen (Germany), Hyndai (South Korea), Peugeot (France), Fiat (Italy), and SAIC (China) .Although these manufacturing companies are  foreign based a few have manufacturing facilities inside the United States. Some of these include Honda, Nissan and Toyota . While other manufactures have facilities here in the United States, Ford and General Motors have located facilities in other countries. Companies th at locate facilities in foreign countries are attempting to maximize profits by taking advantage of lower labor costs, locate near suppliers and customers, and lower tariffs and other taxes. There are other challenges that are faced by the automobile manufactures besides the distance between their facilities and customers.These challenges include world economic conditions, fuel prices, regulatory standards, and the amount of loanable funds available to consumers . To combat macroeconomic issues such as these, firms must find other ways to increase profitability. Ford Motor Company is one of the automobile companies that has been able to do just that. Ford Motor Company Brief Overview, Products and Services The following information was compiled from Ford Motor Company’s 2010 Annual Report (2011) and www. Ford. com. Ford Motor Company manufactures and distributes automobiles across six continents, employs about 164,000 people at approximately 70 plants.The major bands manufact ured by Ford Motor Company are Ford and Lincoln. Ford Motor Company also owns approximately 30% of Mazda that is located in Japan. Besides automobiles, the company also sells parts and offers financial and repair services for their products to the consumer. In its car segment the Ford brand offers economical and sports cars, and a sedan. The economical cars include the Focus, Figo, Fiesta, and Fusion. The sports car and sedan are the Mustang and Taurus, respectively. MSRP of these cars rang from just over $13,000 to almost $26,000.The SUV and crossover segment includes the Escape, Flex, Explore, Edge, Kuga, Expedition, and the EcoSport. MSRP for these two types of automobiles from Ford ranges from $21,000 to $38,000. Ford brand also has a truck line that includes the F-Series, Ranger, Transit Connect, Super Duty, and E-Series Wagon. MSRP for the truck line ranges from $18,000 to $29,000. Ford Motor Company also has a domestic luxury car segment. The Lincoln brand of automobiles incl udes sedans, crossovers and an SUV. The sedans include the Town Car, MKZ, and MKS. These cars range from $35,000 to $47,000, MSRP.The crossovers include the MKX and MKT and range in MSRP from $40,000 to $45,000. Lincoln’s SUV is the Navigator and starts at an MSRP of almost $58,000. Ford Motor Company’s Changes in Their Supply Chain Strategy Over the past decade Ford Motor Company has had its financial ups and downs and had not been able to maintain a stable net income (See graph below). To combat this problem in the middle of the last decade Ford made some management changes to try and improve their industry position. They addressed supply chain efficiency problems that the company was facing.Some of the needed changes included closing plants, retooling, building flexible manufacturing facilities, and contracting with new logistics firms. The plan to make the transformation was coined â€Å"One Ford† . â€Å"In September of 2006 William Clay Ford, Jr. was name d CEO of the Ford Motor Company. . In Liker and James’ journal article (2011) they noted that Ford brought in Allan Mulally whose job it was to use borrowed monies to bring Ford Motor Company back to a more stable and profitable state. Mulally had to decide where to use the borrowed $23 billion and where to cut cost.To help with this he appointed Derrick Kuzak, former vice-president of Europe’s product development. Kuzack was appointed as the vice-president of global product development . To combat cost Ford has closed approximately ten of its facilities since 2006 . In addition to closing facilities, Ford had to pare down supplier to bring all of its production facilities and products across the globe into alignment. In 2010 James Tetreault, vice-president of North American manufacturing stated, â€Å"[it was] expensive to maintain separate product and supply chains† .The company in 2006 started working on standardizing the architecture of the all it body panel s, vehicle plat forms, die designs and processes . In addition to making manufacturing changes Ford addressed it logistics problems in the United States. From 2000 and into 2009 Ford had used United Parcel Services (UPS) as its logistics partner for transporting both inbound and outbound inventory . Since then, Ford contracted with Penske to be its logistic partner. Penske works with Ford not only in the United States but also in Europe, South America, and United Kingdom .In addition to internal process challenges, there are other internal and external challenges that the automotive industry faces. External Challenges to Ford’s Changes In the middle of all of its changes Ford Motor Company had many different challenges besides its, financial and process changes to make the â€Å"One Ford† concept work. First, it had communication issues from upper levels to lower levels, and they could not get past â€Å"improvements† fully implemented. Second, relationships wit h vendors needed improvement. Third, the world was about to enter into a recession starting in 2008.Even though the world’s GDP was falling, there was continuous inflation all over the world. Finally, iron ore price continue to rise even during the recession. In their case study, Liker and Morgan (2011) said information dissemination was described as â€Å"hand grenades† and â€Å"scud missiles. † To improve this, two types of meetings were started inside the company. First, were the â€Å"Skip-level† meetings that allowed engineers and upper level management to communicate. Second, they had â€Å"All-Hands† meetings twice a year where the entire organization gathered to discuss the status of the improvements.Liker and Morgan (2011) also quoted Mulally as saying â€Å"supplier were treated like enemies† and not partners of Ford. To fix the battles between Ford and its suppliers â€Å"a process of dialogues between matched pairs of Ford engi neers and buyers in purchasing who were responsible for the commercial side of working with suppliers† was put into place . This can help the buyers know what, how much, and when supplies are needed, and hopefully this will increase the supplier confidence in the processes at Ford.Shortly after Allan Mulally came on in 2006 the world was about to enter into a recession that some news reports were saying could be the next Great Depression. According to a United Nations, World Economic Situation and Prospects 2010 report, the rate of growth for GDP in most, if not all, countries began to decline in 2007 and actually entered into declines sometime in 2008. Although GDP was falling, inflation continued without any period of dis-inflation, meaning that prices were still on the rise but just at a slower rate .See the two graphs below for a graphical view of the United Nations data. These results show that the cost of living (prices) were still on the rise, but the amount of producti on (income) is in decline between 2007 and 2009. This makes it harder for consumers to purchase products like automobiles. Even with the upturn in the economies between 2009 and 2010, there is still a likelihood that people are going to be reluctant to purchase expensive durable goods. Unfortunately for the automobile industry its greatest commodity is steel.Over the past ten years world iron ore prices have been on the rise, except for a dip in prices between mid-2008 and the first quarter in 2010 . â€Å"About 98% of iron ore is used to make steel† . These price increases will drive the price of inputs for the car industry up because everything from the nuts and bolts, engine, frame and body panel, on most cars, are made from steel. Higher input prices means either lower gross profits and/or higher prices to the final consumer. The graph below shows the price changes of iron ore from 2001 until the end of 2010.Ford’s Forecasting, Inventory, Transportation, and Revenu e Management To compete, keep cost down, be profitable, and stay in business Ford has had to address the fore mentioned internal and external issues even after getting its â€Å"Ford One† plan in place. To do so it appears that management has addressed the forecasting, inventory, transportation, and revenue management functions of their operations. First, Ford had to address its forecasting so that it would not over or under produce its product to a level that would be detrimental to profitability.Second, inventory and transportation was outsourced to capitalize on the knowledge inside a firm that specialized in logistics and also had the physical resources. With an improvement of the first and second topics in this section the third topic’s, revenue management, tasks are made much easier. After a review of the company’s quarterly reports from 4Q 2007 to 3Q 2011 and the 2001 to 2010 annual reports, it can be determined that Ford uses historical quantitative info rmation in its aggregate forecasting. Some of this information is not automobile industry specific but macroeconomic information that affects sales inside the industry.It appears that Ford’s aggregate demand forecast uses historical data and the macroeconomic information for world production forecasting and then they base their production off of recent market share percentages they control. Ford also recognizes that there is seasonality to its customers purchasing patterns and adjust projection levels. In the notes of the â€Å"Outlook† section of the 1Q 2008 report (2008) Ford commented that â€Å"results generally have been stronger in the first half of the year, with the first quarter being the strongest† .After having forecast errors in 2008 and 2009 that totaled 1.9 million units, Ford’s forecast for 2010 was only off 149,000 units worldwide. As addressed earlier, Ford had shifted its logistics in 2010 from UPS to Penske Logistics. Penske claims that they have lowered Ford’s domestic plant inventory by 15% with the use of Order Dispatch Centers (ODC) and training suppliers on a uniform set of carrier procedures . With the ODCs Ford’s suppliers were no longer delivering to the plant facilities but to the ODC where supplies were cross-docked. This was done because Penske found that delivery trucks were traveling at 50% capacity and crossing routes.Penske now reports that â€Å"most trucks are at 95% capacity when they depart for a plant . On their website, Penske states that they have setup other logistical functions to streamline Ford’s transportation portion in its supply chain activities which include information technology and finance management systems. Their information technology system communicates schedules and shipment information up and down the supply chain and the finance management handles all of the freight bill payments, claim processing and resolutions throughout the supply chain .We have al l seen the ads on television and in newspapers that start around October and run through the end of the year. The manufacturers and dealers give them titles like â€Å"Year End Blowout† and â€Å"Year End Clearance. † The specials they are running are to clear out the previous year models. These sales are a form of revenue management used to increase sales during the upcoming holiday months when consumers are more focused on Christmas and vacations. Specifically, it is a form of dynamic pricing. Dynamic pricing is used to sale inventory that is becoming less valuable as time persists .Ford is one of those automobile companies that partake in such pricing practices. They also offer discounts to consumers that finance through their Ford Motor Credit Company. Visit Ford’s website www. fordspecialevent. com and you will see the special interest rates, some even at 0%, and rebates that are offered on select units from the previous year models to help move them off of the dealer lots. This type of sales practice is an example what happens with an inventory push system. The Performance and Financial Results of â€Å"One Ford†After just over three years from when Alan Mulally took the helm as CEO for Ford Motor Company, how have they performed? To determine if Ford’s changes have actually worked we can look at several metrics. First, we will look at the aggregate forecasting numbers from 2008 to 2010. Next, the utilization of employees that are working in the automobile sector of Ford will be analyzed. Finally, we will look at some financial performance numbers to see if the plan has had an effect on Ford’s bottom line. Ford’s forecasting has greatly improved over the past several years.When forecasting, an organization, such as Ford, must take into account its existing inventory and base its production forecast on expected demand that exceeds inventory. In 2008 Ford had forecasted that it would produce just over 4. 5 m illion units, but actually produced only 3. 8 million. Sales that year totaled 5. 5 million units. This means that the annual forecast had an error of 1. 7 million units. In 2009 the total production forecast was 3. 7 million units, but the actual production was 4. 6 million. Sales in 2009 were almost 4. 9 million units. That’s a forecast error of -247 thousand units.In 2010 Ford’s forecasting improved even more. Production was forecasted at 5. 4 million units, but actual was 5. 6 million units, and sales were 5. 5 million units. This results in a forecasting error of 149 thousand units. Ford has lowered its forecasting error by more than 10 times from 2008 to 2010 (See chart below). It has also lowered its mean average deviation between quarters from 1Q 2008 to 4Q 2010 a total of 367 units (See chart below). These kinds of results could show that Ford is moving from a push to a pull type of inventory control system.Since 2003 Ford has reduced the number of employees t hat are in their automobile sector. Along with a reduction of employees, the implementation of the above discussed â€Å"One Ford† plan to improve and standardize production processes has had a positive effect on the company’s financial performance. Between 2003 and 2010 employment went from approximately 279,000 down to 157,000, a reduction of 44%. But with this reduction in employment, production per employee rose from 24. 1 to 35. 2 or 46%. The increased number of units per employee has had a positive effect on the company’s revenues from auto sales and gross profit margin.Revenue from the sale of automobiles per employee has risen 53%, $495. 56 million to $759. 75 million. The total employment at Ford has dropped from 328,000 down to 164,000. This includes both the manufacturing and service sectors of the company. The effect on total net revenue per employee has increased from $501. 75 million to $786. 3 million or 57% from 2003 to 2010. See the graph below for a depiction of the above employee utilization and contribution results. Now we will look at how Ford’s change in their business model has affected the unit contribution and cost, and gross profit margin of the company.The average contribution per unit between 2001 and 2010 was $18,668 and $21,593, respectively. That is an increased contribution of 16% per unit. In 2001 the average cost to produce one unit for Ford was $18,324. This rose to a high of $23,558 in 2007, but the company was able to reduce this cost back down to $18,908 in 2010. The percentage reduction in cost per unit from 2007 to 2010 is 16%. The negative correlation between contribution and cost per unit has a positive effect on the gross profit margin for the company. Ford’s gross profit margin from 2003 to 2010 increased 100% from 6% to 12%.That is after dipping to lows of -4% and 1% in 2006 and 2008, respectively. See the below graph to see how the changes in Ford’s operations has affected the above mentioned financials. To analyze the total effect the â€Å"One Ford† plan has had on the company’s bottom line let us look at the revenue and income side of the financials. First, we need to take into account that the world has been in a recession since about 2008. This has had an effect on the total sales and revenues that Ford has experienced over the last several years, and the difference between 2001 and 2010 results are $160 billion and $129 billion, respectively.To understand how the changes (One Ford) have affected the net income for the company we must look at the trend between sales and cost of goods sold. Starting in 2006 the cost of goods sold for Ford trended downward, as did total sales and revenue starting in 2007, but in 2009 there started to be a change between the rate of growth between sale and cost of goods sold. The rate of growth from sales increased at a faster pace than cost of goods sold. From 2008 to 2009 the change in sales was a re duction of 19%, and the cost of goods sold fell by 22%. Between 2009 and 2010 sales rose 15% while cost of goods only increased by 6%.These differences are a result of the above mention average contribution and cost per unit. Other changes that could be making this difference are the outsourcing of its logistics and relations with suppliers. These increases in gross profits from operations have been enough to offset the reduced revenues (22%) from the financial sector and have resulted in a 141% increase in net income between 2009 and 2010. (All of the above employment, production and financial data was collected from annual and quarterly reports published by Ford Motor Company and can be found on their website, www.Ford. com, and the Securities and Exchange’s website, www. sec. gov. ) Comparison of Ford and General Motors Performance To compare General Motors to Ford Motor Company we will look at worldwide sales revenues, cost of goods sold, and net income. In its 2010 Annua l Report (2011), General Motors claims to lead Ford in worldwide sales . This is true, in the number of units sold. In 2010 General Motors did out sales Ford by almost 2. 8 million units.This has been the trend even back to 2004 where the difference was in General Motors favor at 2.2 million units. Even when it comes to some financial performances General Motors has the advantage. In 2010 average unit cost for a General Motors unit was $14,200 dollars and Ford’s average unit cost was $18,900. That is a difference of $4,700. Between 2006 and 2010 General Motors was able to reduce their average unit cost by 28%. Ford only reduced its average unit cost by 19% in the same period. The big differences that gives Ford the advantage between the two companies are the average gross profit per unit and the net income.Ford is able to demand a higher average price, $21,600 versus $16,100, than General Motors. This has given Ford the advantage in net income with a difference of almost $1. 9 billion in 2010 alone. Plus, Ford has done this all without a bailout from the United States government like General Motors. Conclusion Over the ten years this report covers, Ford has been able to make major improvements in its operations. It has been able to make architectural changes to the body assembly and tooling that makes their production facilities more flexible.Penske was able to come in and reduce waste in the inventory and logistics that was not found by their previous logistics company. The big hurdle that Ford overcame was the implementation and communication issues they had in-house and with suppliers. With all of these changes Ford has been able to alleviate some of the financial woes it was experiencing several years back. Finally, the result of the automobile sector and the total company shows that Ford Motor Company as a whole is moving in the right direction with its â€Å"One Ford† plan. Ford Motor Company: Supply Chain Management and Strategic Fit AbstractThis report covers the performance of Ford Motor Company over the past 10 years and analyzes the results of its â€Å"One Ford† business plan. The main question this report answers is whether Ford’s resent actions match the supply chain strategy of the new plan. There is also a short comparison between Ford and it closest competitor in the United States, General Motors. Data was collected from different sources such as, annual and quarterly reports, company websites, organizations such as the United Nations, along with independent sources. This data was review and non-financial and financial computations were performed to see it if Ford’s overall performance had improve since the implementation of â€Å"One Ford† and the assignment of new management. The results show that the company has made improvements to it performance both financial and quality based off forecasting, employee efficiency, contribution and cost margins, net income, and higher pr ices demanded for their products.Industry OverviewIn their industry report, First Research (2011) describes both the United States and global automobile manufacturing industries. The industry in the United States is comprised of about 200 companies. In 2010, two of the larger manufactures, Ford and General Motors, had combined annual revenues of approximately $235 billion & . The automobile manufacturing industry is a global industry with players from several major countries. Some of the larger global companies based outside the United States include Toyota (Japan), Volkswagen (Germany), Hyndai (South Korea), Peugeot (France), Fiat (Italy), and SAIC (China) .Although these manufacturing companies are foreign based a few have manufacturing facilities inside the United States. Some of these include Honda, Nissan and Toyota . While other manufactures have facilities here in the United States, Ford and General Motors have located facilities in other countries. Companies that locate faci lities in foreign countries are attempting to maximize profits by taking advantage of lower labor costs, locate near suppliers and customers, and lower tariffs and other taxes. There are other challenges that are faced by the automobile manufactures besides the distance between their facilities and customers.These challenges include world economic conditions, fuel prices, regulatory standards, and the amount of loanable funds available to consumers . To combat macroeconomic issues such as these, firms must find other ways to increase profitability. Ford Motor Company is one of the automobile companies that has been able to do just that. Ford Motor Company Brief Overview, Products and Services The following information was compiled from Ford Motor Company’s 2010 Annual Report (2011) and www. Ford. com. Ford Motor Company manufactures and distributes automobiles across six continents, employs about 164,000 people at approximately 70 plants.The major bands manufactured by Ford M otor Company are Ford and Lincoln. Ford Motor Company also owns approximately 30% of Mazda that is located in Japan. Besides automobiles, the company also sells parts and offers financial and repair services for their products to the consumer. In its car segment the Ford brand offers economical and sports cars, and a sedan. The economical cars include the Focus, Figo, Fiesta, and Fusion. The sports car and sedan are the Mustang and Taurus, respectively. MSRP of these cars rang from just over $13,000 to almost $26,000.The SUV and crossover segment includes the Escape, Flex, Explore, Edge, Kuga, Expedition, and the EcoSport. MSRP for these two types of automobiles from Ford ranges from $21,000 to $38,000. Ford brand also has a truck line that includes the F-Series, Ranger, Transit Connect, Super Duty, and E-Series Wagon. MSRP for the truck line ranges from $18,000 to $29,000. Ford Motor Company also has a domestic luxury car segment. The Lincoln brand of automobiles includes sedans, c rossovers and an SUV. The sedans include the Town Car, MKZ, and MKS. These cars range from $35,000 to $47,000, MSRP.The crossovers include the MKX and MKT and range in MSRP from $40,000 to $45,000. Lincoln’s SUV is the Navigator and starts at an MSRP of almost $58,000. Ford Motor Company’s Changes in Their Supply Chain Strategy Over the past decade Ford Motor Company has had its financial ups and downs and had not been able to maintain a stable net income (See graph below). To combat this problem in the middle of the last decade Ford made some management changes to try and improve their industry position. They addressed supply chain efficiency problems that the company was facing.Some of the needed changes included closing plants, retooling, building flexible manufacturing facilities, and contracting with new logistics firms. The plan to make the transformation was coined â€Å"One Ford† . â€Å"In September of 2006 William Clay Ford, Jr. was named CEO of the F ord Motor Company. . In Liker and James’ journal article (2011) they noted that Ford brought in Allan Mulally whose job it was to use borrowed monies to bring Ford Motor Company back to a more stable and profitable state. Mulally had to decide where to use the borrowed $23 billion and where to cut cost.To help with this he appointed Derrick Kuzak, former vice-president of Europe’s product development. Kuzack was appointed as the vice-president of global product development . To combat cost Ford has closed approximately ten of its facilities since 2006 . In addition to closing facilities, Ford had to pare down supplier to bring all of its production facilities and products across the globe into alignment. In 2010 James Tetreault, vice-president of North American manufacturing stated, â€Å"[it was] expensive to maintain separate product and supply chains† .The company in 2006 started working on standardizing the architecture of the all it body panels, vehicle pla t forms, die designs and processes . In addition to making manufacturing changes Ford addressed it logistics problems in the United States. From 2000 and into 2009 Ford had used United Parcel Services (UPS) as its logistics partner for transporting both inbound and outbound inventory . Since then, Ford contracted with Penske to be its logistic partner. Penske works with Ford not only in the United States but also in Europe, South America, and United Kingdom .In addition to internal process challenges, there are other internal and external challenges that the automotive industry faces. External Challenges to Ford’s Changes In the middle of all of its changes Ford Motor Company had many different challenges besides its, financial and process changes to make the â€Å"One Ford† concept work. First, it had communication issues from upper levels to lower levels, and they could not get past â€Å"improvements† fully implemented. Second, relationships with vendors need ed improvement. Third, the world was about to enter into a recession starting in 2008.Even though the world’s GDP was falling, there was continuous inflation all over the world. Finally, iron ore price continue to rise even during the recession. In their case study, Liker and Morgan (2011) said information dissemination was described as â€Å"hand grenades† and â€Å"scud missiles. † To improve this, two types of meetings were started inside the company. First, were the â€Å"Skip-level† meetings that allowed engineers and upper level management to communicate. Second, they had â€Å"All-Hands† meetings twice a year where the entire organization gathered to discuss the status of the improvements.Liker and Morgan (2011) also quoted Mulally as saying â€Å"supplier were treated like enemies† and not partners of Ford. To fix the battles between Ford and its suppliers â€Å"a process of dialogues between matched pairs of Ford engineers and buye rs in purchasing who were responsible for the commercial side of working with suppliers† was put into place . This can help the buyers know what, how much, and when supplies are needed, and hopefully this will increase the supplier confidence in the processes at Ford.Shortly after Allan Mulally came on in 2006 the world was about to enter into a recession that some news reports were saying could be the next Great Depression. According to a United Nations, World Economic Situation and Prospects 2010 report, the rate of growth for GDP in most, if not all, countries began to decline in 2007 and actually entered into declines sometime in 2008. Although GDP was falling, inflation continued without any period of dis-inflation, meaning that prices were still on the rise but just at a slower rate .See the two graphs below for a graphical view of the United Nations data. These results show that the cost of living (prices) were still on the rise, but the amount of production (income) is in decline between 2007 and 2009. This makes it harder for consumers to purchase products like automobiles. Even with the upturn in the economies between 2009 and 2010, there is still a likelihood that people are going to be reluctant to purchase expensive durable goods. Unfortunately for the automobile industry its greatest commodity is steel.Over the past ten years world iron ore prices have been on the rise, except for a dip in prices between mid-2008 and the first quarter in 2010 . â€Å"About 98% of iron ore is used to make steel† . These price increases will drive the price of inputs for the car industry up because everything from the nuts and bolts, engine, frame and body panel, on most cars, are made from steel. Higher input prices means either lower gross profits and/or higher prices to the final consumer. The graph below shows the price changes of iron ore from 2001 until the end of 2010.Ford’s Forecasting, Inventory, Transportation, and Revenue Management T o compete, keep cost down, be profitable, and stay in business Ford has had to address the fore mentioned internal and external issues even after getting its â€Å"Ford One† plan in place. To do so it appears that management has addressed the forecasting, inventory, transportation, and revenue management functions of their operations. First, Ford had to address its forecasting so that it would not over or under produce its product to a level that would be detrimental to profitability.Second, inventory and transportation was outsourced to capitalize on the knowledge inside a firm that specialized in logistics and also had the physical resources. With an improvement of the first and second topics in this section the third topic’s, revenue management, tasks are made much easier. After a review of the company’s quarterly reports from 4Q 2007 to 3Q 2011 and the 2001 to 2010 annual reports, it can be determined that Ford uses historical quantitative information in its aggregate forecasting. Some of this information is not automobile industry specific but macroeconomic information that affects sales inside the industry.It appears that Ford’s aggregate demand forecast uses historical data and the macroeconomic information for world production forecasting and then they base their production off of recent market share percentages they control. Ford also recognizes that there is seasonality to its customers purchasing patterns and adjust projection levels. In the notes of the â€Å"Outlook† section of the 1Q 2008 report (2008) Ford commented that â€Å"results generally have been stronger in the first half of the year, with the first quarter being the strongest†.After having forecast errors in 2008 and 2009 that totaled 1.9 million units, Ford’s forecast for 2010 was only off 149,000 units worldwide. As addressed earlier, Ford had shifted its logistics in 2010 from UPS to Penske Logistics. Penske claims that they have lowe red Ford’s domestic plant inventory by 15% with the use of Order Dispatch Centers (ODC) and training suppliers on a uniform set of carrier procedures . With the ODCs Ford’s suppliers were no longer delivering to the plant facilities but to the ODC where supplies were cross-docked. This was done because Penske found that delivery trucks were traveling at 50% capacity and crossing routes.Penske now reports that â€Å"most trucks are at 95% capacity when they depart for a plant . On their website, Penske states that they have setup other logistical functions to streamline Ford’s transportation portion in its supply chain activities which include information technology and finance management systems. Their information technology system communicates schedules and shipment information up and down the supply chain and the finance management handles all of the freight bill payments, claim processing and resolutions throughout the supply chain .We have all seen the ads on television and in newspapers that start around October and run through the end of the year. The manufacturers and dealers give them titles like â€Å"Year End Blowout† and â€Å"Year End Clearance. † The specials they are running are to clear out the previous year models. These sales are a form of revenue management used to increase sales during the upcoming holiday months when consumers are more focused on Christmas and vacations. Specifically, it is a form of dynamic pricing. Dynamic pricing is used to sale inventory that is becoming less valuable as time persists .Ford is one of those automobile companies that partake in such pricing practices. They also offer discounts to consumers that finance through their Ford Motor Credit Company. Visit Ford’s website www. fordspecialevent. com and you will see the special interest rates, some even at 0%, and rebates that are offered on select units from the previous year models to help move them off of the dealer lot s. This type of sales practice is an example what happens with an inventory push system. The Performance and Financial Results of â€Å"One Ford†After just over three years from when Alan Mulally took the helm as CEO for Ford Motor Company, how have they performed? To determine if Ford’s changes have actually worked we can look at several metrics. First, we will look at the aggregate forecasting numbers from 2008 to 2010. Next, the utilization of employees that are working in the automobile sector of Ford will be analyzed. Finally, we will look at some financial performance numbers to see if the plan has had an effect on Ford’s bottom line. Ford’s forecasting has greatly improved over the past several years.When forecasting, an organization, such as Ford, must take into account its existing inventory and base its production forecast on expected demand that exceeds inventory. In 2008 Ford had forecasted that it would produce just over 4. 5 million units, b ut actually produced only 3. 8 million. Sales that year totaled 5. 5 million units. This means that the annual forecast had an error of 1. 7 million units. In 2009 the total production forecast was 3. 7 million units, but the actual production was 4. 6 million. Sales in 2009 were almost 4. 9 million units. That’s a forecast error of -247 thousand units.In 2010 Ford’s forecasting improved even more. Production was forecasted at 5. 4 million units, but actual was 5. 6 million units, and sales were 5. 5 million units. This results in a forecasting error of 149 thousand units. Ford has lowered its forecasting error by more than 10 times from 2008 to 2010 (See chart below). It has also lowered its mean average deviation between quarters from 1Q 2008 to 4Q 2010 a total of 367 units (See chart below). These kinds of results could show that Ford is moving from a push to a pull type of inventory control system.Since 2003 Ford has reduced the number of employees that are in thei r automobile sector. Along with a reduction of employees, the implementation of the above discussed â€Å"One Ford† plan to improve and standardize production processes has had a positive effect on the company’s financial performance. Between 2003 and 2010 employment went from approximately 279,000 down to 157,000, a reduction of 44%. But with this reduction in employment, production per employee rose from 24. 1 to 35. 2 or 46%. The increased number of units per employee has had a positive effect on the company’s revenues from auto sales and gross profit margin.Revenue from the sale of automobiles per employee has risen 53%, $495. 56 million to $759. 75 million. The total employment at Ford has dropped from 328,000 down to 164,000. This includes both the manufacturing and service sectors of the company. The effect on total net revenue per employee has increased from $501. 75 million to $786. 3 million or 57% from 2003 to 2010. See the graph below for a depiction of the above employee utilization and contribution results. Now we will look at how Ford’s change in their business model has affected the unit contribution and cost, and gross profit margin of the company.The average contribution per unit between 2001 and 2010 was $18,668 and $21,593, respectively. That is an increased contribution of 16% per unit. In 2001 the average cost to produce one unit for Ford was $18,324. This rose to a high of $23,558 in 2007, but the company was able to reduce this cost back down to $18,908 in 2010. The percentage reduction in cost per unit from 2007 to 2010 is 16%. The negative correlation between contribution and cost per unit has a positive effect on the gross profit margin for the company. Ford’s gross profit margin from 2003 to 2010 increased 100% from 6% to 12%.That is after dipping to lows of -4% and 1% in 2006 and 2008, respectively. See the below graph to see how the changes in Ford’s operations has affected the above menti oned financials. To analyze the total effect the â€Å"One Ford† plan has had on the company’s bottom line let us look at the revenue and income side of the financials. First, we need to take into account that the world has been in a recession since about 2008. This has had an effect on the total sales and revenues that Ford has experienced over the last several years, and the difference between 2001 and 2010 results are $160 billion and $129 billion, respectively.To understand how the changes (One Ford) have affected the net income for the company we must look at the trend between sales and cost of goods sold. Starting in 2006 the cost of goods sold for Ford trended downward, as did total sales and revenue starting in 2007, but in 2009 there started to be a change between the rate of growth between sale and cost of goods sold. The rate of growth from sales increased at a faster pace than cost of goods sold. From 2008 to 2009 the change in sales was a reduction of 19%, and the cost of goods sold fell by 22%. Between 2009 and 2010 sales rose 15% while cost of goods only increased by 6%.These differences are a result of the above mention average contribution and cost per unit. Other changes that could be making this difference are the outsourcing of its logistics and relations with suppliers. These increases in gross profits from operations have been enough to offset the reduced revenues (22%) from the financial sector and have resulted in a 141% increase in net income between 2009 and 2010. (All of the above employment, production and financial data was collected from annual and quarterly reports published by Ford Motor Company and can be found on their website, www.Ford. com, and the Securities and Exchange’s website, www. sec. gov. ) Comparison of Ford and General Motors Performance To compare General Motors to Ford Motor Company we will look at worldwide sales revenues, cost of goods sold, and net income. In its 2010 Annual Report (2011) , General Motors claims to lead Ford in worldwide sales . This is true, in the number of units sold. In 2010 General Motors did out sales Ford by almost 2. 8 million units.This has been the trend even back to 2004 where the difference was in General Motors favor at 2.2 million units. Even when it comes to some financial performances General Motors has the advantage. In 2010 average unit cost for a General Motors unit was $14,200 dollars and Ford’s average unit cost was $18,900. That is a difference of $4,700. Between 2006 and 2010 General Motors was able to reduce their average unit cost by 28%. Ford only reduced its average unit cost by 19% in the same period. The big differences that gives Ford the advantage between the two companies are the average gross profit per unit and the net income.Ford is able to demand a higher average price, $21,600 versus $16,100, than General Motors. This has given Ford the advantage in net income with a difference of almost $1. 9 billion in 20 10 alone. Plus, Ford has done this all without a bailout from the United States government like General Motors. Conclusion Over the ten years this report covers, Ford has been able to make major improvements in its operations. It has been able to make architectural changes to the body assembly and tooling that makes their production facilities more flexible.Penske was able to come in and reduce waste in the inventory and logistics that was not found by their previous logistics company. The big hurdle that Ford overcame was the implementation and communication issues they had in-house and with suppliers. With all of these changes Ford has been able to alleviate some of the financial woes it was experiencing several years back. Finally, the result of the automobile sector and the total company shows that Ford Motor Company as a whole is moving in the right direction with its â€Å"One Ford† plan.