Financial Report of North England Zoological Society for Year Ended 31 Dec 2019, Slides of Accounting

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The North of England Zoological Society

TRUSTEES’ REPORT AND

FINANCIAL STATEMENTS

Year ended 31st December 2019

Registered Charity Number 306077 Registered Company No. 00287902

Contents

• its Trustees and Advisors Reference and Administrative Details of the North of England Zoological Society,
• Trustees’ Report for the Year Ended 31 December
  • Introduction
  • Strategic Report
    • Objectives and Strategy
    • Achievements and Performance in
    • Going Concern and COVID-
    • Equal Opportunities
    • Public Benefit
    • Financial Review
    • Plans for Future Periods
    • Principal Risks and Uncertainties
• Structure, Governance and Management
• Zoological Society Independent Auditors’ Report to the Members of the North of England
• Financial Statements for the Year Ended 31 December
  • Consolidated Statement of Financial Activities
  • Consolidated & Society Balance Sheets
  • Consolidated Cash Flow Statement
  • Principal Accounting Policies
  • Notes to the Consolidated Financial Statements

Reference and Administrative Details of the North of England Zoological Society, its Trustees and Advisors Solicitors Aaron & Partners, Grosvenor Court, Foregate Street, Chester, CH1 1HG DTM Legal LLP, Archway House, Station Road, Chester, CH1 3DR Hill Dickinson, No.1 St. Paul’s Square, Liverpool, L3 9SJ Jolliffe & Co, 6 St John Street, Chester, CH1 1DA Bankers Santander, 7th^ Floor, 4 St Paul’s Square, Liverpool, L3 9SJ HSBC, 47 Eastgate Street, Chester, Cheshire, CH1 1XW Actuaries Spence & Partners Limited, The Culzean Building, 36 Renfield Street, Glasgow, G2 1LU.

Trustees’ Report for the Year Ended 31 December 2019

Introduction

The Trustees of the North of England Zoological Society (“NEZS” or “the Charity”) are pleased to present their annual report together with the consolidated financial statements of the Charity and its subsidiaries for the year ended 31 December 201 9 which are also prepared to meet the requirements for a directors’ report and financial statements for Companies Act 2006 purposes. NEZS is a conservation and education charity which owns and runs Chester Zoo. Further information about NEZS’s activities during 201 9 can be found in the “Chester Zoo Annual Review” which is published separately and can be downloaded from www.chesterzoo.org. The financial statements comply with the Charities Act 2011, the Companies Act 2006, the Society’s Memorandum and Articles of Association, and Accounting and Reporting by Charities: Statement of Recommended Practice applicable to charities preparing their financial statements in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS102).

Strategic Report

Objectives and Strategy The Society’s objects, as set out in its Memorandum and Articles of Association, are (a) to promote the conservation of the physical and natural environment by promoting biodiversity; and (b) to advance the education of the public on the conservation of the physical and natural world and the promotion of biodiversity; in particular by, but not limited to, the provision of public education, scientific study and the maintenance of endangered animals, plants and habitats in both protective and natural environments. Our Mission Preventing Extinction Our Strategy The Society’s five-year strategic plan was launched in 2018 and supports the mission statement “Preventing Extinction”. The strategic plan contains six strategic objectives which are:

• Preventing extinction by achieving the greatest conservation impact
• Preventing extinction by being a world class visitor attraction
• Preventing extinction by providing exceptional animal and plant care
• Preventing extinction by ensuring financial stability
• Preventing extinction by developing our people
• Preventing extinction by being a voice for change

Trustees’ Report for the Year Ended 31 December 2019 air and a healthy thriving environment in which we live. We cannot and will not achieve this without radical changes if we want to conserve the world in which we live. We recognise that the world has reached a critical milestone and the future of the planet relies on the advocacy of us and others to bring about real change in behaviour. 2019 marked a year when we finally saw governments around the world begin to highlight the impacts of climate change, where we saw young people campaign to protect their future and where we saw major companies start to place climate change and the carbon agenda front and centre of their mission. Chester Zoo supported this by eliminating two million pieces of plastic from its operation, by championing Chester as the first sustainable palm oil city in the world, by lobbying politicians on the climate change emergency, by engaging with thousands of school children and weaving conservation into the education curriculum, and by working around the world supporting impactful programmes of change. At the end of the year we created a Youth Board to support the Trustees and Executive to connect with and mobilise the ideas of a generation who are not usually regular zoo visitors but amongst whom there is real concern for the direction in which most countries and populations have been travelling. We are privileged and proud to lead this organisation and its mission in all its aspects. Our teams are dedicated to preventing extinction as well as continuing to provide our visitors with a memorable and, hopefully enlightening, experience. As a charity, we rely on our members and visitors to join with us in helping us achieve our mission. We look forward to that support in 2020. A full review of the Society’s achievements and performance in 201 9 can be found in the “Chester Zoo Annual Review” which is published separately and can be downloaded from www.chesterzoo.org. Going concern and COVID- 19 The financial statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the financial statements, the Trustees are required to consider whether the Society and the group can continue in operational existence for the foreseeable future. Information in relation to the Society and group’s activities, together with the factors likely to affect future development, performance and position is set out in this Strategic Report, including the Principal Risks and Uncertainties section on page 16. The zoo was closed for nearly three months after the year end, resulting in a significant drop in income. As of the date of this report the zoo has reopened, albeit with reduced visitor capacity and income. Operating costs have been significantly reduced with discretionary spend curtailed. The Society has utilised the government’s Job Retention scheme for those key staff not needed to maintain operations during closure and whilst visitor numbers and income remain restricted. A voluntary release scheme has led to 35 members of staff leaving the organisation and some compulsory redundancies are likely to follow. Capital expenditure plans have been suspended, with only those projects that were in progress at the time of closure continuing to completion.

Trustees’ Report for the Year Ended 31 December 2019 In early May 2020 the Society agreed a new banking facility with Santander, comprising a £22m Revolving Credit Facility and a £2m overdraft. The facility was intended to be used in the main to fund the Grasslands development, which has now been delayed and the facility has instead provided additional headroom during an uncertain period. The facility is provided subject to two financial covenants which are tested quarterly: net debt to EBITDA (leverage) and EBITDA to net finance charges. In recognition of the current macroeconomic uncertainty, the Society’s bank has agreed to suspend testing of these covenants until June 2021. A fundraising campaign was launched in June 2020 to address the shortfall in income due to the closure and to highlight the financial impact of the ongoing closure. We are very grateful for the generous donations together with purchases of memberships and adoptions, which have raised over £3m. With the subsequent re-opening of the zoo, the Society is expected to generate sufficient income for the Society to meet the covenant tests in the facility. The Trustees consider that the Society and group are well placed to manage the risks within its control and mitigate those outside its control, including the impact of the COVID-19 pandemic. After the review of forecasts and predictions for the period to 31st^ December 2021, taking account of reasonably possible changes in income and considering the existing banking facilities, including the available liquidity and covenant tests, the Trustees have a reasonable expectation that the Society and group has adequate resources to continue in operational existence for the next 12 months following the date of approval of the financial statements. However, there remains uncertainty as to the development of the COVID-19 pandemic and further national or local lockdowns remain a possibility. The ability of the Society to withstand a second closure depends on its timing and duration – a short closure during the summer would result in greater lost income than a longer closure during the winter. In addition the potential of an economic downturn following the pandemic may impact visitor numbers and memberships. As a consequence of these uncertainties the Trustees have considered downside scenarios that reflect such potential closures. The most severe scenario considered was that the zoo was closed again in August, September and October 2020. Set against this were mitigating actions including further reductions in expenditure, including staffing costs, with further utilisation of the Job Retention scheme. Such a closure would be expected to result in a further £6m reduction in the surplus (or increase in the deficit) forecast for the 2020 financial year. Whilst there is sufficient headroom in the current banking facility to manage such a closure, in the event the closure extended beyond a period of 5 weeks in the summer and 10 weeks in the winter there is the potential for a covenant breach at June 2021. The bank remains supportive, as indicated by the agreed suspension of covenant tests, and further flexibility may be available in the future if required. The impact of a second closure, particularly during peak season, indicates a material uncertainty outside the control of the Society which may cast significant doubt over the Society’s ability to continue as a going concern in the event that, if the closure resulted in a covenant breach, the bank elected to trigger a repayment of outstanding debt. In such circumstances and without further

Trustees’ Report for the Year Ended 31 December 2019 Criteria for funding support for projects include feasibility; expected conservation outcomes; qualification of project personnel; capacity building; benefits to local communities; relevance to other conservation initiatives of the zoo and regions or countries where the zoo already has a field conservation focus; links to species within the collection plan and opportunities for technical support from zoo employees. Primarily support is provided to those projects which are judged to have potential to make a significant positive conservation impact. Applications are requested to be made on our standard grant application forms and these are reviewed internally against standardised criteria before a funding decision is made. Financial Review 2 019 The year ended 31st December 201 9 was a record year for The North of England Zoological Society (the Society) in terms of zoo visitor numbers; and income and expenditure on our charitable activities. Our underlying income rose to £47. 4 m (201 8 : £4 4 .3m) whilst underlying expenditure rose to £43. 4 m (201 8 : £40.9m). These figures exclude exceptional income of £7.7m receivable from insurers in respect of the Monsoon Forest fire (2018: £5.2m), of which £5.2m is treated as restricted funds until spent, and exceptional costs relating to the fire of £0. 9 m (2018: £5.5m). Having taken account of the net £6.8m increase in funds in respect of these exceptional items the Society reported a £10.8m net increase in funds (201 8 : £3.0m increase in funds after a net expense of £0.4m relating to exceptional items). Incoming resources The majority of the Society’s income comes from the zoo’s visitors and members, in the form of admissions and other charges. Visitor numbers reached a record 2,086,785 in 201 9 , up 6% from 1,969,768 in 2 018 with over a third of those visits made by our members. Membership numbers increased by 14 % to 129,483 (2018: 114,007) during the year. Our winter Lanterns event attracted over 111,000 visitors and we welcomed 132,000 education visitors, more than 42,000 of whom visited the zoo for free during the winter months under an initiative launched in 2017. Total visitor related income for 201 9 , which includes admission fees and membership income, rose by 9 % to £30.6m (201 8 : £28.1m). As a registered charity the Society generates voluntary income from visitor donations, Gift Aid, animal adoptions, grants, legacies and other donations. Donations and Gift Aid on general admission was consistent with prior year at £2.9m (201 8 : £2. 9 m) reflecting a change in the mix of visitors, with an increasing proportion of visits from the growing membership. Fundraising income, which includes animal adoptions, grants, legacies and other donations fell slightly to £1.2m (201 8 : £1.3m). The Society’s trading subsidiary, Chester Zoo Enterprises Limited, which provides retail and food & beverage offerings across the Zoo site had a turnover of £12. 7 m in 201 9 (201 8 : £1 2 .0m) which includes the first full year of trading for The Oakfield gastro pub which opened in July 2018.

Trustees’ Report for the Year Ended 31 December 2019 Exceptional income of £7.7m reflects further income recoverable from insurers in relation to the fire in the Monsoon Forest building. Of this amount £3. 6 m relates to the reinstatement of the building itself (in addition to £5.2m recognised in 2018), £1. 2 m relates to contributions from insurers to cover the cost of constructing buildings to house animals displaced by the fire together and £2.8m relates to compensation for loss of income and increased costs of working. Resources expended In 201 9 the Society spent £43. 4 m (201 8 : £40.9m), excluding capital expenditure and exceptional costs relating to the Monsoon Forest fire. Resources expended on our charitable activities, including the costs of maintaining the animal & plant collection, the visitor facilities, science and education and our field conservation programmes, together with related support costs totalled £31.3m (201 8 : £29.7m). In addition we spent £0. 4 m (201 8 : £0. 3 m) generating our voluntary income. Information on the charitable activities undertaken can be found at www.chesterzoo.org and in the Society’s 201 9 Annual Review. Chester Zoo Enterprises Limited had costs of £11.8m (2018: £10.9m), excluding £0.7m of rents paid to the Society (2018: £0.7m), and it made an operating profit of £0. 2 m in 201 9 (201 8 : £0. 4 m) which is donated to the Society. By far the biggest element of operating expenditure (2019: £18.1m, 2018 £16.3m) relates to our employees, who all work towards our mission of preventing extinction. Our staff cost continues to increase, reflecting both increases in the number of employees and the ongoing increases to the national living wage. Our average Full Time Equivalent (FTE) headcount for 201 9 was 618 compared to 579 in 201 8. A third of these employees worked directly in support of the Society’s charitable objectives, either with our animal & plant collection or in education, science and research. In addition we benefitted from the hard work of a team of over 200 passionate volunteers. Exceptional costs in relation to the fire in the Monsoon Forest were £0. 9 m (2018: £5.5m) and reflect professional costs and reinstatement costs that are not covered by insurance. The comparative figure of £5.5m in 2018 included a £5.2m impairment charge in relation to elements of the building structure and its fixtures and fittings which were damaged in the fire. Included within the financial statements is a prior year adjustment in relation to the treatment of income and expenditure relating to the fire, detail can be found in note 2 6. Capital expenditure During 201 9 the Society spent £20.4m on capital expenditure (201 8 : £10.4m). Of this £5.8m related to the rebuild of the Monsoon Forest and construction of buildings to house animals displaced by the fire. Other capital projects included the opening of our new Madagascar zone, completion of a new habitat for our Asiatic Lions, design and feasibility work on the Grasslands development, which received planning permission in late 2019, construction of an off show facility which will allow for management and breeding of our collection ahead of the planned Grasslands development, construction of a new maintenance facility and investment in new IT systems.

Trustees’ Report for the Year Ended 31 December 2019 The Society now operates a defined contribution scheme which is open to all employees. For permanent employees who contribute 3% or more, the Society makes a contribution that is 2% more than the employee contribution up to a maximum of 9%. Qualifying seasonal employees are enrolled into the NEST pension scheme with contributions in line with government rates. Fundraising The Society is committed to making fundraising a fair, responsible and joyous experience for our supporters and those who fundraise on our behalf. We are committed to building and maintaining trust. We want people to feel connected to our work and understand the incredible impact their donations make. The Society is wholly committed to good fundraising practice and as such we’re signed up with the Fundraising Regulator. Both the organisation, and the fundraisers operating within it, abide by the Code of Fundraising Practice. We do not undertake fundraising that we consider to be intrusive or not akin to the inclusive culture of our organisation, and have taken the decision to eliminate the following activities from our fundraising:

• Telephone fundraising (either in-house or third party)
• Mass unaddressed direct-mail postal fundraising campaigns
• Door-to-door campaigns
• Wealth screening through third party organisations
• Direct cold telephone asks to individuals where there is no personal link or connection
• Direct outbound SMS fundraising campaigns In 2019, we employed three permanent professional fundraisers, and sought external support from five consultants, to work on corporate giving, trusts, foundations and grants, legacy and in-memory giving and individual donations (including digital). All are members of the Institute of Fundraising. Professional fundraisers contracted to work on our behalf must either be a member of the Institute of Fundraising, or be contracted on terms which directly embrace the Fundraising Promise, the Code of Practice and our own fundraising ethics. Consultants are not remunerated by commission or commission-only methods. The permanent fundraising team are subject to regular meetings to monitor activity, reporting directly to the Directorate team about all areas of giving. The fundraising team report to the board at every meeting to ensure trustees have a clear understanding of fundraising processes and activities. Consultants working on our behalf are very much treated like part of the core team, with regular update meetings to assess style, tone and content of any proposals, applications or asks and monitoring targets of quality assurance and compliance.

Trustees’ Report for the Year Ended 31 December 2019 Individuals, community groups, corporate social committees and schools often want to fundraise to donate to Chester Zoo. We support those by providing free and accessible guides to responsible and safe fundraising, pointing them to guidance provided by the Fundraising Regulator. Where we feel it is appropriate we will issued them with a Letter of Authority, solicitation statement or commercial participation agreement. The Fundraising T&C’s section of the Chester Zoo website outlines our fundraising complaints process and the steps we take to resolve any issue brought to us. From here, we also help people to access the Fundraising Regulator for advice and guidance. In 2019 we did not receive any complaints relating to our fundraising activities and received no action requests from the Fundraising Preference Service. Safeguarding, and treating donors fairly, is paramount to our work. We support people on their donation journey with us, in whatever capacity requested or needed, responding to the needs of the individual as per the Code of Fundraising Practice. With relevant permissions, we communicate with our supporters so any indicators of additional required care become apparent (such as bereavement or personal circumstances). We take measures to protect donors including delaying the acceptance of gifts, returning gifts (cooling off period), monitoring online giving for gifts made in error or malicious activity, and ensuring there is clear transparency as to where a gift will be used. If we believe an individual lacks sound capacity to make a donation, it will not be taken. Returned donations will be logged on our dedicated database, so we can prepare if another donation is made or attempted, making a reasoned judgment and acting appropriately. Supporters under the age of 16 must have explicit guardian approval, and must be accompanied by their guardian during any telephone communications and during their fundraising. They will not receive any general fundraising communications from us. We take all reasonable steps to ensure that supporters understand the context, implications and use of their donation and our campaigns are carefully managed to never place undue emotional pressure to donate.

Trustees’ Report for the Year Ended 31 December 2019 Principal Risks and Uncertainties The Trustees have set a risk management strategy which sets out responsibilities for risk management across the Society, the Society’s risk appetite, a process for reporting, review and escalation in relation to identified risks and links to the internal control environment and external legal frameworks. The Trustees actively review the major risks that the Society faces on a regular basis against the relevant mitigating internal controls and believe that maintaining cash reserves within defined levels, alongside appropriate insurances will provide sufficient resources in the event of most adverse conditions. The key risks identified by the Trustees are:

• A major event either within or outside the control or influence of management threatens staff and/or public safety or zoo operations. The COVID-19 pandemic is an example of such an event and the long term effect of the pandemic is likely to impact the way the zoo operates for the foreseeable the future.
• Standards of animal husbandry and care are insufficient resulting in reputational damage.
• A significant downturn in financial performance for a prolonged period.
• Animal or plant disease outbreak causing loss to collection or inability to move animals.
• Zoos are not seen as morally acceptable by the public. The effectiveness of the Society’s risk assessment procedures are reviewed by the Audit & Risk Management Committee. The Society’s internal auditors undertake a schedule of internal audits determined and scoped by the Audit & Risk Management Committee and report back to the committee on a regular basis. The internal auditors also provide advice and guidance on the Society’s overall risk management process.

Structure, Governance and Management The North of England Zoological Society ("the Society") is a registered charity (Number 306077) and a company limited by guarantee (Number 00 287902), regulated by its Memorandum and Articles of Association. Its principal and registered office is Cedar House, Chester Zoo, Caughall Road, Upton, Chester, CH2 1LH. The Society, which owns and operates Chester Zoo, also wholly owns a trading subsidiary company, Chester Zoo Enterprises Limited, registered in England with company number 02669535, whose taxable profits are distributed to the Society via Gift Aid. Chester Zoo Foundation Nigeria (“CZFN”), an unlimited company (registered in England with company number 08904330) is a wholly owned subsidiary of Chester Zoo (Nigeria) Limited (“CZNL”), a limited company (registered in England, no. 08374657) and a wholly-owned subsidiary of the Society. Both CZNL and CZFN are now close to being dormant having originally been established to facilitate the Society’s conservation activities in Nigeria. The Society is also the sole member of the North of England Zoological Society Pension Trustee Company Limited, a company limited by guarantee (registered in England with company number 0 9173532) which provides governance of the Society’s defined benefit pension scheme. Trustees and Governance The Trustees, as a body of charity trustees and as directors for the purposes of company law, have general control and management of the administration of the Society. They determine the strategic direction and policies of the Society, with consultation and discussion with the Chief Executive Officer and Chief Operating Officer of the Society as Principal Executives and their teams who implement these policies. The number of Trustees shall be not less than three and not more than sixteen of whom not more than thirteen shall be Elected Trustees and not more than three shall be Co-opted Trustees. Elected Trustees, who must be members of the Society, are elected by the members at the Annual General Meeting to serve for a maximum of six years. Co-opted Trustees are co-opted by the Trustees and may serve for up to fifteen months from being appointed. The Trustees hold at least six formal meetings each year, together with an Annual General Meeting. The Chairman and Vice Chairmen are elected by the Trustees from their current membership, for a period not exceeding three years before re-election for a maximum of one further term not exceeding three years. They are not required to retire as Trustees in accordance with the six year maximum in this circumstance.

Structure, Governance and Management Trustee involvement in each committee at 31 December 201 9 is set out in the table below: Committees^ Ethical Review^ Management^ Audit and Risk^ Remuneration^ Nominations^ Trustee^ Development^ Strategic Bruce Ursell Chair Chair x Malcolm Ardron x x Chair William Beale x x x x Jen Carter Edwin Christmas Penny Coates x x Sandra Donnelly Prof Richard Griffiths x Prof David MacDonald Prof Russell Newton Chair x Angela Pinnington x x Lee Rawlinson Simon Venables Chair Trustees – Recruitment If there are vacancies in any year, the Trustee Nominations Committee prepares a list of names of members of the Society that they recommend for election to the Trustee board at the Annual General meeting. Such recommendations are made having regard to the maintenance of an appropriate mix of skills on the Trustee Board to ensure adequate management of the zoo and protection of the Society’s assets.

Structure, Governance and Management Trustees’ Training The relationship between the executive and the Trustees is fundamental to the Society’s success. It is vitally important therefore that the Trustees understand the overall day to-day operational activities of the Society. To this end, new Trustees are required to complete an induction tour of the zoo's various divisions, and to discuss with the executive team the role and function of each division, and the part it plays in the fulfilment of the Society’s mission. Each Trustee is issued with an induction pack on becoming a Trustee that covers their roles and responsibilities and the mission, vision, values, strategy and current plans for the Society. All Trustees are encouraged to attend appropriate external training courses, covering the role and responsibilities of being a charity trustee. Trustees' Third Party Indemnity The Society purchases liability insurance cover for the Society, its Trustees and other employees which provides appropriate cover against claimants’ damages, judgements, settlements or the costs incurred in the defence of actions. Statement of Trustees’ Responsibilities The Trustees (who are also directors of the North of England Zoological Society for the purposes of company law) are responsible for preparing the Trustees’ Annual Report (including the Strategic Report) and the financial statements in accordance with applicable law and regulation. Company law requires the Trustees to prepare financial statements for each financial year. Under that law the trustees have elected to prepare the financial statements in accordance with United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law (United Kingdom Generally Accepted Accounting Practice). Under company law the Trustees must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the charitable company and the group and of the incoming resources and application of resources, including the income and expenditure, of the charitable group for that period. In preparing these financial statements, the Trustees are required to:

• select suitable accounting policies and then apply them consistently;
• observe the methods and principles in the Charities Statement of Recommended Practice (FRS102);
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the charitable group will continue in business.