Guide Dogs’ reserves have more than halved over the last two years as the charity has invested heavily in a new breeding centre, new services and in its fundraising and campaigning capability.

The disability charity, which has long been envied in the sector for its plentiful reserves, has seen their value plunge from £96.5m in 2009 to £39.7m at the end of last year.

The new figure is revealed in Guide Dogs’ 2011 report and accounts, just published on its website after being signed off by members at the AGM last month.

Publication of the accounts has prompted the charity’s former chair-designate Rodney Buse to warn of “worrying trends”.

Buse, who suddenly decided not to take up the chairmanship late last year and then quit the board altogether, refused to discuss the accounts in detail but did admit: “Thirty years of experience in the sector has provided me with an antennae to hear warning bells when they’re ringing. It is true that the accounts disclose a number of worrying trends.”

But Guide Dogs’ chief executive Richard Leaman insists that reserves have not been plundered to meet operating costs, and the fall is part of a deliberate strategy to invest for the future, and to address criticism that the charity is sitting on too much wealth.

He told civilsociety.co.uk: “There are some disadvantages to having big reserves. Guide Dogs has come in for a bit of criticism over the years for hoarding money – now we’re not sitting on all those millions, we’re using it to help blind people.

“To be fair, when we’ve approached corporates and trusts in the past they’ve often said ‘we don’t feel we need to give you money, you don’t need it’. Now we can say ‘we’re leaner and meaner, we’re spending money not sitting on it’ and I think that gives us greater leverage for that kind of fundraising.”

New services for blind people

Leaman also said the fall in reserves coincides with a “quantum shift” in the organisation’s activities.

“For the last 80 years we’ve been all about providing guide dogs,” he said. “But for the last two years our whole philosophy has been to develop a new strategy to get more blind people out and about. At the moment we’ve got about 4,600 guide dog owners but in five years’ time we expect to be helping 60,000-odd blind people get mobile.”

As well as breeding more guide dogs, this increased activity will comprise new children’s services and a huge increase in the charity’s new ‘sighted guide’ service, where a sighted person is trained to guide a blind person on a bespoke basis, to take them shopping or to bingo or whatever they need. This service aims to tackle isolation amongst blind people.

Drop in free reserves

In its 2011 accounts, the charity stated that its policy is to have free reserves equivalent to between one and two years’ operating costs. By 31 December 2011 free reserves had fallen below the equivalent of one year’s operating costs.

However, the report states: “Council has carefully reviewed forward projections of Guide Dogs’ financial position and is confident that the organisation will be able to meet its liabilities as they fall due, while maintaining services.

“Council is closely monitoring performance against the forward projections so that remedial action can be taken if it becomes clear that the assumptions underlying the projections cease to be realistic.”

Leaman said that personally he would even be happy to see the reserves shrink a little further temporarily – “but they’re not going to go significantly below the 12-month level and we are climbing out”.

Operating deficit of £11.1m

The operating deficit was £11.1m on income totalling £66.1m. This deficit was lower than the previous year (£15.7m) but slightly higher than in 2009 (£10.5m). Overall, 2011 income was up by £8.8m on 2010; this included a 13 per cent increase in voluntary income to £55.5m following three years of reductions.

However, the cost of raising funds has risen since 2009. Then, the charity spent £5.5m on donor-based fundraising and generated £13m – a ratio of 42 per cent. By 2011 costs had grown to £9.7m and donor income had risen to £16.5m – a ratio of 58 per cent. But Leaman said the added investment in fundraising is already paying off.

“We gave our director of fundraising a target of a 15 per cent increase in fundraised income this year and that’s being exceeded already. That’s because we invested last year and the way some of our fundraising products work is that we invest in year one and we expect to see benefits in year two and beyond.”

The charity also put an extra £1m a year into legacy marketing in 2010 and 2011. (See Fundraising magazine in September for a case study on this.)

The added investment in fundraising, campaigning and service design and delivery have also driven the growth in the numbers of management and administrative staff, which rose from 146 full-time equivalents in 2009 to 189 two years later.

Leaman expects that operating costs will remain at around the same level for next three or four years, but by next year income will have grown enough to cover all these costs.

“In 2013 we expect to see a neutral year and from 2014 onwards we’ll begin to create a surplus every year. In my view that does not need to go straight back into reserves, it needs to go into getting blind people mobile, and that’s a discussion I’ll be having with trustees down the line.”

Pension deficit

The latest pension scheme valuation for FRS 17 purposes was carried out at 31 December 2011 and valued the deficit at £46.2m, up from £35m in 2010. During 2010 and 2011 Guide Dogs paid an extra £6.7m to help cut the deficit and agreed four further annual payments of the same amount. The defined benefit scheme was closed to new entrants on 31 March 2011.

Leaman said: “Some of the changes we’ve seen in our pension deficit have nothing to do with a failure to manage, it’s just that like everybody else we’re at the mercy of the markets.”

He concluded that he was confident about the future of the organisation and did not agree that the trends were worrying. “It would be naïve to say I’m utterly confident it will all be ok, because anyone who says that in today’s financial climate would have to be slightly mad.

"But we’ve increased our guide dog members, increased our sighted guide members, increased our success in campaigning, and all this is underpinned by fundraising that’s exceeding industry averages. And we’re controlling our costs and attacking the pensions challenge. And unless we do all this we are not going to get more people out and about.

“Yes it’s been a period of change and there is more to come, and all I can say is I am determined we will get there.”