In 2020, we recorded a surplus of £2.4m (2019: £0.3m). Our surplus was £2.1m higher than 2019 due to a £3.4m increase in total income, which followed regulatory fee increases and a change in our retained portion of the annual return fee (refer to Note 5 of our accounts). This was partially offset by a £1.3m increase in operating expenses, principally due to higher utilisation of professional services (£0.8m) and an increase in staff costs (£0.5m).
We had budgeted to break even in 2020 but lower than planned expenditure in a number of areas – partly due to Covid-19 – and the unbudgeted changes in the annual return fee gave rise to the £2.4m surplus. As a result, our reserves increased to £9.1m, although this remains below our current target of £10m.
Income
Total income in the year reached £22.8m (2019: £19.4m) following increases in both regulatory and registry fee income.
Regulatory fee income rose by £1.4m as a result of fee increases to fund our largest ever capital investment programme and further develop our capability to combat the threat of financial crime. Registry fee income increased by £1.7m following (i) an underlying increase in the annual return fee and (ii) a one-off increase in the proportion of the fees retained by us, following changes to the capital funding agreement with Government. The volume of annual returns received was broadly consistent with the prior year.
Operating costs
Total operating expenditure increased by £1.3m (7%) to £20.4m.
Staff costs are the most significant item of expenditure, representing two-thirds of our cost base. Costs increased by £0.5m (4%) compared to 2019, driven by a 5% increase in the average number of full-time employees to 151. Our 2020 plans targeted a larger increase in headcount, however this was not fully achieved as a result of a period of slower recruitment during the initial stages of Covid-19 lockdown restrictions. Despite inflationary pressures, average costs per head continue to reduce year on year.
Professional services costs principally comprised IT technical specialists and were largely temporary in nature. Associated costs saw a marked increase of £0.8 million in the year as a result of the ongoing design and development of our core systems, including the new Registry system to deliver the Island’s commitment to increased public access to registry data. Capital investments in prior years continued to drive increases in the annual depreciation charge, which rose by £0.3m to £1.6m in 2020.
As in 2019, investigation and litigation costs were below the historical average, as appeals remained at a low level and current cases did not require significant third-party costs. Associated costs reduced by £0.2m compared to the prior year.
As many organisations will have experienced, operating costs in 2020 were strongly influenced by Covid-19 and a number of initiatives proved considerably more challenging to deliver than initially scheduled in the 2020 business plan. As a consequence, operating costs were £2.0m lower than budget, mainly as a result of lower staff costs through slower recruitment and a temporary slow-down of project work in the first half of the year.
Capital expenditure
Our review and enhancement of project governance at the start of 2020 provided a solid foundation to launch our significant capital investment programme, but compressed the time frames for completing the associated work.
Our focus on these strategically important initiatives also resulted in a slower rate of expenditure on other, lower priority investments. As a result, the total capital investment of £3.1m was lower than originally planned, although £0.2m higher than 2019.
The net book value of fixed assets increased to £8.5m by the end of the year (2019: £6.9 million) with annual depreciation and amortisation increasing to £1.6m (2019: £1.4m).
Financial position and forward look
Our financial reserves improved during 2020 to £9.1 million (2019: £6.7 million). However, they remain below our current target level of £10 million, which equates to six months’ operating expenses and one year of average litigation costs.
One of our strategic priorities is to strengthen our organisational resilience. During the course of 2020, we started work on our financial resilience review to ensure that our finances remain stable and sustainable in the future. The scope of this work includes a full review of our cost controls and approach to financial management, and further consideration of our reserves policy.
A key objective of the review is to deliver a balance sheet that will enable us to:
- operate without loss of quality through an adverse event; and
- continue to provide regulatory and registry services that make Jersey globally competitive, while affording a good level of protection for Islanders.
The review will be finalised in 2021 and published to Industry, providing the context for our future fee basis discussions.
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