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2020-12-31-accounts

Charity Registration No. 1112813

Company Registration No. 05514908 (England and Wales)

THE POTANIN FOUNDATION

TRUSTEES' REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2020

The Potanin Foundation

TRUSTEES’ REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

CONTENTS

Page
Charity information, Trustees and advisors 1
Trustees’ report incorporating the Directors’ report 2
Independent auditor’s report 8
Statement of financial activities 11
Balance sheet 12
Cash flow statement 13
Notes to the financial statements 14

The Potanin Foundation

CHARITY INFORMATION, TRUSTEES AND ADVISORS

Trustees CAF Global Trustees (the corporate Trustee)
Sir John Low CBE
Charity number 1112813
Company number 05514908
Directors of the Sir John Low CBE
Corporate Trustee Mike Dixon
Michael Mapstone (appointed 15 July 2020, resigned 16 February 2021)
Kate Mayor (appointed 16 February 2021)
Registered office 25 Kings Hill Avenue
Kings Hill
West Malling
Kent
ME19 4TA
Bankers Goldman Sachs International
River Court
120 Fleet Street
London
EC4A 2BE
Investment advisers Goldman Sachs International
River Court
120 Fleet Street
London
EC4A 2BE
J P Morgan International Bank Limited
125 London Wall
London
EC2Y 5AJ
Auditor Deloitte LLP
Statutory Auditor
Hill House
1 Little New Street
London
EC4A 3TR

1

The Potanin Foundation

TRUSTEES’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2019 (incorporating the Directors’ Report)

The Trustees present their Trustees’ report together with the audited financial statements of the charity for the year ended 31 December 2020.

The Trustees’ report and financial statements are presented in US dollars ($), which is the charity’s operating currency.

The Trustees’ report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemptions, and accordingly exemption has been taken from the requirement to prepare the Strategic Report. The financial statements are prepared in accordance with the small companies’ regime.

Constitution

The Potanin Foundation is a registered charity (No. 1112813) and a company limited by guarantee (No. 05514908). The directors of the charity are collectively referred to as the Trustees in this report. The names of Trustees who served during the year and at the year end are noted on the preceding page.

Objectives and activities

The objective of the charity is to develop education and culture, particularly through the support of students, young tutors and arts professionals.

The charity carries out its objectives by awarding grants principally to support the programmes of the Vladimir Potanin Foundation (VPF) or to beneficiaries with similar charitable objectives as the VPF. The VPF is a well-established charity in Russia and began its operations in 1999 with the purpose of furthering education and art and culture and developing charities and philanthropy more generally. More information on the VPF and its activities can be found at: http://english.fondpotanin.ru/.

Since inception the charity has received donations of $100m from its Founder, which had no restrictions placed thereon and consequently constitute unrestricted funds. The Trustees do not anticipate the receipt of any further donations from the Founder or from any other donors.

Having regard for the Founder’s original wish for the charity to support the programmes of the VPF on an enduring basis, from inception to 2019 the Trustees adopted an approach to managing the charity’s funds and grantmaking on a similar basis to the management of an endowed foundation. Consequently, the Trustees aimed to ensure that the level of grantmaking and other expenditure preserved the value of the charity’s funds in real terms when compared with the United States Consumer Price Index (US CPI) – US dollars being the charity’s operating and reporting currency.

Following a review of the activities of the VPF, in December 2017 the Trustees received a detailed proposal from the VPF for a multi-year grant to fund activities in four categories:

Throughout 2018 the Trustees worked with the VPF to refine the details of the proposal and in March 2019, the Trustees signed a grant agreement with the VPF providing funding of up to $50.6m payable over three years.

2

The Potanin Foundation

TRUSTEES’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

Achievements and performance

As at 1 January 2019, the charity had paid $19.4m of the $50.6m committed to the VPF under the terms of the three-year grant agreement. This represented the full amount of $15.3m for the first year of the programme, along with a further $4.1m representing the first tranche for delivery of the second year of the programme in 2020.

During 2019 the VPF applied $13.7m to three of the four major programmes, as follows:

The launch of the fourth programme, the Sport for Social Change programme, was deferred to the second phase. This enabled the VPF to focus on the efficient and effective expansion of the three programmes falling within its sphere of existing expertise, whilst conducting research and designing the Sport for Social Change programme.

In line with all organisations, the uncertainty brought by the Covid-19 pandemic in early 2020, had a significant impact on the operations of the VPF. However, despite the VPF personnel moving to working remotely from its offices, it was able to continue to run the three programmes, with the VPF providing support to its grantees remotely. However, monitoring visits had to be suspended and extensions granted to existing VPF grantees.

In addition and in response to the impact of the Covid-19 pandemic, the VPF was able to launch three further programmes to alleviate the impact of Covid-19 on Russian charities. Given the unprecedented circumstances, the Trustees approved a proposal from the VPF for unspent year-one programme funding of $1.6m to be applied to following three new VPF programmes:

Given the VPF’s effective transition to remote-working and in accordance with the grant agreement with the VPF, during 2020 the charity paid a further $8.3m. This represented a partial amount due for the second year and brought the total paid in respect of year two of the programme to $12.4m. During 2020 the VPF spent $8.4m of the year-two funding, with $4.0m remaining unspent.

As required by the terms of the grant agreement, the Trustees receive and review quarterly reports from the VPF, as well as an annual report in respect of the application of the grant funds. The annual report for 2020 received in March 2021 describes the outcomes and impact achieved by the programmes funded by the charity. Despite the challenges and impact of Covid-19 and expenditure being lower than anticipated, the VPF was able to achieve and surpass the planned outcomes for 2020 and exceeded projections in respect of:

Consequently, the Trustees were satisfied with the performance and the outcomes of the VPF’s programmes in 2020.

Since the onset of Covid-19 in March 2020 and the associated lockdowns in the UK, the charity has been able to continue its operations without interruption by means of remote working. At the time of signing this report the charity continues to operate effectively. During the period since the end of the financial year, in which the pandemic continues to have wide-ranging impact on the world, we have seen no material adverse impact on the market value of investments. At 31 August 2021 the market value of the investments was $133.2m.

3

The Potanin Foundation

TRUSTEES’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

Aims for next year

At 31 December 2020, $22.9m was outstanding in respect of the final year of the three-year commitment to the VPF. However, none of this commitment has been paid to the VPF at the time of signing this report.

At the end of August 2020 the VPF suspended application of the charity’s funding to its programme activities. In November 2020, with the charity’s agreement, the VPF resumed modified programme activities utilising the unspent funds to achieve the agreed programme objectives. The VPF has since reviewed the ongoing suitability of the grant programme funded by the charity. In April 2021, the VPF notified the charity that it wished to waive the right to receive the remaining tranches due for the second and third year as set out in the grant agreement.

The VPF stated it had been necessary to review and restructure its activities for 2020 and 2021 to reflect the significantly changed circumstances arising from the Covid-19 pandemic. It was further noted that even though the programme had not been delivered in the way it was originally envisaged, the agreed outcomes for 2020 were achieved and those for 2021 were expected to be achieved before the end of year. Further to moving many activities online a reduced level of funding was required to achieve the agreed goals.

Consequently, in August 2021, the VPF and Trustees have agreed that no further payments will be made under the grant agreement. Also, an updated plan has been agreed under which the VPF may use the previously-received unspent funds of $4.0m to advance the four major programmes detailed above and increase and strengthen its operational and capacity-building needs and/or the administration support as it works towards a post-pandemic operating model.

No further funds have been remitted by the charity to the VPF since the balance sheet date either under the terms of the grant agreement or otherwise.

Potential changes to the governance structure are reported below within the Appointment of Trustees section.

Financial review

During the year the charity’s funds and net assets increased by $9.3m to $98.2m (2019: decreased by $35.7m to $89.0m). This is principally the result of investment gains of $9.8m (2019: $18.8m).

The investment position at 31 December 2020 reflects the recovery in world stock markets, following the initial impact of the Covid-19 pandemic earlier in the year. Realised gains of $3.9m (2019: $5.3m) and unrealised gains of $5.9m (2019: $13.5m) arose on fixed asset investments during the year.

No grants were awarded in the current year (2019: $54.6m). However, a further $8.3m (2019: $19.4m) was paid to the VPF in respect of the second year of the three-year grant commitment for $50.6m entered into in 2019.

The net impact of investment gains and other income and expenditure, together with grant funding paid during the year, saw fixed asset investments increase to $121.3m at 31 December 2020 (2019: decrease to $120.6m from $124.8m).

Investment management fees paid to investment managers for management of the charity’s investments on a discretionary basis amounted to $0.6m (2019: $0.7m).

Risk management and internal control

The Trustees have overall responsibility for ensuring that the charity has an appropriate system of controls, financial or otherwise. They are also responsible for keeping proper accounting records which disclose with reasonable accuracy, at any time, the financial position of the charity and which enable them to ascertain its financial position; and to ensure that the financial statements comply with the Companies Act 2006 and the Charities Act 2011. They are also responsible for safeguarding the assets of the charity and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

4

The Potanin Foundation

TRUSTEES’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

The Trustees have a risk management strategy which comprises:

The main risks identified are market risk and credit.

Market risk

Market risk is the risk from adverse movements in external markets including changes in investment values and foreign currency rates that will reduce the value of assets.

The charity’s investments have been held to fund long-term philanthropic goals, and consequently during the year Trustees had an objective to preserve the value, in real terms compared with US CPI, of the charity’s funds. Grantmaking was therefore planned having regard for the potential changes in investment values over time and US CPI. Consequently, the value of investment determined the value of the funds available to make grants. In the event of a fall in investment values, the value of grants would be reduced. The performance of the discretionary investment managers is regularly reviewed by the Trustees.

Credit risk

Credit risk is the risk of loss as a result of a failure of a counterparty to meet obligations as they fall due. The charity’s principal financial assets are fixed asset investments.

The charity’s investments are managed on a discretionary basis by two major global investment managers in accordance with investment guidelines approved by the Trustees. The investment guidelines are designed to mitigate exposure to credit risk.

Covid-19 pandemic

The charity continues to monitor the developments surrounding the global pandemic. Although vaccination programmes are beginning to have some impact, uncertainties remain regarding the outcome which may impact the future objectives; the market value of investments; and investment income. The Trustees have considered the principal areas of uncertainty and potential mitigating actions for counteracting a worst case scenario such as reducing the level of controllable costs and grant payments.

Structure, governance and management

The Trustees ensure efficient and transparent operation of the charity and are responsible for the investment of its assets. The charity’s Trustees met on four occasions during the year (2019: seven). The day-to-day management of the charity is undertaken by Charities Aid Foundation (CAF, registered charity number 268369) under the terms of a tripartite agreement between the charity; its Corporate Trustee (CAF Global Trustees (CAF GT), registered charity number 1111039); and CAF.

None of the Trustees has any beneficial interest in the charity.

Appointment of Trustees

The charity is required to have at least three Trustees, unless CAF GT is acting as corporate trustee, then only two Trustees are required. Accordingly, the Trustees are currently CAF GT and Sir John Low. Additional Trustees may be appointed by written resolution of the Founder. If the Founder shall fail to exercise this right within reasonable time following the date when such appointment is required or be unable to do so within such time, the power to appoint new Trustees passes to the existing Trustees.

The Trustees are liaising with the Founder’s, representative and legal advisers with a view to refreshing the governance structure of the charity which was established in 2005 at the time of incorporation and registration. This would necessitate changes to the charity’s Memorandum and Articles of Association, which require Charity Commission approval. Although the Trustees were not party to the application, it is understood that the Charity Commission has approved the amendments to the Articles of Association proposed by the Founder.

As a result, it is anticipated that new Trustees will be appointed during 2021 and existing Trustees will step aside having served for 16 years (CAF Global Trustees) and 14 years (Sir John Low).

5

The Potanin Foundation

TRUSTEES’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

Public benefit

The Trustees confirm that they have referred to the guidance contained in the Charity Commission’s general guidance on public benefit when reviewing the charity’s aims and objectives and in planning for the charity’s future. The Trustees receive regular reporting on the use of the grants it has made and monitoring is carried out on their behalf to ensure that the grantmaking programme meets the above guidance.

Fundraising

There have been no fundraising activities undertaken in the current or preceding year.

Grantmaking policy

Grants are awarded primarily to support the programmes of the VPF, in accordance with the charity’s objectives set out earlier in this report. However, grants can be awarded to other programmes outside of VPF that match the charity’s objectives.

Reserves policy

The charity's policy is to maintain an adequate level of resources to support its future activities, such as grantmaking, capital investment and the financing of its operations. Funds held represent general unrestricted funds which are expendable at the discretion of the Trustees in the furtherance of the charity’s objectives.

At 31 December 2020, the value of the charity’s funds (reserves) stood at $98.2m (2019: $89.0m). The Trustees consider this an adequate level of reserves to support the costs of managing the charity and of the remaining period of the three-year grant programme. In addition, the reserves at the balance sheet date are net of the remaining grant funding of $22.9m due the VPF under the terms of the three-year grant agreement. Following a request in April 2021 from the VPF to waive its right to receive that the remaining funding due, the Trustees are liaising with the VPF to agree the terms for terminating the agreement.

Going concern

In order to assess the appropriateness of the going concern assumption basis, the Trustees have considered the charity’s financial position, liquidity and unrestricted reserves taking into account the principal risks to which the charity is exposed including the potential impacts of the continuing Covid19 pandemic. Recognising the uncertainty associated with predicting the economic impact of Covid19, in particular, the Trustees have considered the impact of a severe economic outcome on the charity and the effectiveness of management actions that might be taken to mitigate the impact of this stress. Trustees have also considered the circumstances under which the operations of the charity would be unable to continue. After taking into account the current level of the charity’s investments, reserves, grant commitments and the financial performance since 31 December 2020, the Trustees have concluded that the risk of this situation occurring is remote.

Accordingly and after making appropriate enquiries, the Trustees have a reasonable expectation that the charity will be able to continue in operation and meet its liabilities as they fall due for at least twelve months from the date of signing of this report. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Investment policy and performance

The Trustees appoint investment managers to manage the charity’s investments on a discretionary basis. Goldman Sachs International and J P Morgan International Bank Limited each manage a portfolio of investments. The investment aim has been to generate income and capital growth to fund grantmaking. At the balance sheet date the charity’s funds stood at $98.2m (2019: $89.0m).

Related parties

CAF Global Trustees (CAF GT), registered charity number 1111039 has acted as corporate trustee of the charity throughout the year. CAF GT is controlled by CAF, which provides the charity with administrative and managerial services.

6

The Potanin Foundation

TRUSTEES’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

Post balance sheet events

Details have been set out earlier in this report of the Trustees’ agreement, in principle, to the request received in April 2021 from the VPF to waive its right to receive the remaining tranches of the second and third year funding under the terms of the grant agreement. In August 2021, the VPF and Trustees reached agreement that no further payments will be made under the grant agreement. Otherwise, there have been no significant post balance sheet events.

STATEMENT OF TRUSTEES’ RESPONSIBILITIES

The Trustees (who are also directors of The Potanin Foundation for the purposes of company law) are responsible for preparing the Trustees' Report and the financial statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice), including FRS102, “the Financial Reporting Standard applicable in the UK and Republic of Ireland”.

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 affairs of the charitable company and of the incoming resources and application of resources, including the income and expenditure, of the charitable company for that period. In preparing these financial statements, the Trustees are required to:

The Trustees are responsible for keeping adequate accounting records that are sufficient to show and explain the charitable company's transactions and disclose with reasonable accuracy at any time the financial position of the charitable company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the charitable company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

AUDITOR

Each of the persons who is a Trustee at the date of approval of this report confirms that:

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

A resolution to appoint auditors of the charity and authorising the board to fix their remuneration will be submitted to the forthcoming Annual General Meeting.

Approved by the Trustees and signed on their behalf on 27 September 2021

Sir John Low CBE Chairman of Trustees

7

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE POTANIN FOUNDATION

Report on the audit of the financial statements

Opinion

In our opinion the financial statements of The Potanin Foundation (the ‘charitable company’):

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the charitable company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the trustees’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the [group’s and parent] charitable company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the trustees with respect to going concern are described in the relevant sections of this report.

Other information

The other information comprises the information included in the trustees’ report, other than the financial statements and our auditor’s report thereon. The trustees are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

8

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE POTANIN FOUNDATION

Responsibilities of trustees

As explained more fully in the trustees’ responsibilities statement, the trustees (who are also the directors of the charitable company for the purpose of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the trustees are responsible for assessing the charitable company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the trustees either intend to liquidate the charitable company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

We considered the nature of the charitable company’s industry and its control environment, and reviewed the charitable company’s documentation of their policies and procedures relating to fraud and compliance with laws and regulations. We also enquired of management about their own identification and assessment of the risks of irregularities.

We obtained an understanding of the legal and regulatory framework that the charitable company operates in, and identified the key laws and regulations that:

We discussed among the audit engagement team regarding the opportunities and incentives that may exist within the organisation for fraud and how and where fraud might occur in the financial statements.

As a result of performing the above, we identified the greatest potential for fraud or non-compliance with laws and regulations in the following areas, and our specific procedures performed to address them are described below:

In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. In addressing the risk of fraud through management override of controls, we tested the appropriateness of journal entries and other adjustments; assessed whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluated the business rationale of any significant transactions that are unusual or outside the normal course of business.

9

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE POTANIN FOUNDATION

Report on other legal and regulatory requirements

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the directors’ report included within the trustees’ report.

Matters on which we are required to report by exception

Under the Companies Act 2006 we are required to report in respect of the following matters if, in our opinion:

We have nothing to report in respect of these matters.

Use of our report

This report is made solely to the charitable company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the charitable company’s members 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 charitable company and the charitable company’s members as a body, for our audit work, for this report, or for the opinions we have formed

Jessica Hodges ACA (Senior Statutory Auditor) For and on behalf of Deloitte LLP Statutory Auditor London, UK

Date:

10

The Potanin Foundation

STATEMENT OF FINANCIAL ACTIVITIES (incorporating an Income and Expenditure Account) FOR THE YEAR ENDED 31 DECEMBER 2020

Unrestricted funds Unrestricted funds
2020 2019
Notes $000 $000
Income from:
Investment income 2 428 1,147
Total income 428 1,147
Expenditure on:
Raising funds:
Investment management costs 630 708
Charitable activities:
Grants payable 3 - 54,575
Costs of charitable activities 4 319 368
Total expenditure 949 55,651
Net expenditure before net gains on
investments (521) (54,504)
Net gains on investment assets 7 9,795 18,823
Net income/(expenditure) 9,274 (35,681)
Total funds brought forward 88,968 124,649
Total funds carried forward 98,242 88,968

All items within the above Statement of Financial Activities relate to continuing operations.

There are no other gains or losses other than stated above.

The notes on pages 14 to 21 form an integral part of these financial statements.

11

The Potanin Foundation

BALANCE SHEET AS AT 31 DECEMBER 2020

Notes
Fixed assets
Investments
7
Current assets		 $000
$000
$000
$000
121,336
120,553
2020
2019		 $000
$000
$000
$000
121,336
120,553
2020
2019
Cash at bank 49
28
Creditors:amounts falling due within one
year
8
Net current liabilities
Total assets less current liabilities
being net current assets
Creditors:amounts falling due in greater
than one year
9
Total assets less total liabilities being
net assets
Funds
Unrestricted charitable funds
Total funds		 (23,143)
(17,523)
(23,094)
(17,495)
98,242
103,058
-
(14,090)
98,242
88,968
98,242
88,968
98,242
88,968
103,058
(14,090)
88,968
88,968
88,968

These financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.

The notes on pages 14 to 21 form an integral part of these financial statements.

Approved by the Trustees and authorised for issue and signed on their behalf on 27 September 2021

Sir John Low CBE Chairman of Trustees

Registered Charity No. 1112813 Company Registration No. 05514908 (England and Wales)

12

The Potanin Foundation

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020

Notes
Cash flows from operating activities
Net cash used in operating activities
Cash flow from investing activities		 $000
$000
$000
$000
(9,419)
(24,216)
2019
2020		 $000
$000
$000
$000
(9,419)
(24,216)
2019
2020		 $000
$000
$000
$000
(9,419)
(24,216)
2019
2020
Cash withdrawn from investment portfolios 9,440 24,184
Net cash provided by investing activities
10
Change in cash and cash equivalents in the year		 9,440
21		 24,184
(32)
Cash and cash equivalents as at 1 January 2020
Cash and cash equivalents as at 31 December 2020
Reconciliation of net income to cash flows from
operating activities
28 60
49
2020
28
2019
$000 $000
Net income/(expenditure)
Gains on financial investments
(Decrease)/increase in creditors
Investment income received into cash held by investment managers		 9,274
(9,795)
(428)
(8,470)		 (35,681)
(18,823)
(1,147)
31,435
Net cash used in operating activities (9,419) (24,216)

The notes on pages 14 to 21 form an integral part of these financial statements.

13

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

1. Accounting policies

The principal accounting policies and judgements used in the preparation of the financial statements are:

1.1 Basis of preparation

These financial statements have been prepared in accordance with applicable United Kingdom law and UK Generally Accepted Accounting Practice (UK GAAP), including FRS 102 (as issued by the Financial Reporting Council), the Financial Reporting Standard applicable in the UK and Republic of Ireland (‘FRS 102’) and the Statement of Recommended Practice: Accounting and Reporting by Charities updated 1 January 2019 (‘Charity SORP (FRS 102)’) and the Companies Act 2006. These financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.

The Potanin Foundation is a UK charitable company incorporated in the UK (company number 05514908) and registered with the Charity Commission for England and Wales.

1.2 Going concern

In order to assess the appropriateness of the going concern assumption basis, the Trustees have considered the charity’s financial position, liquidity and unrestricted reserves taking into account the principal risks to which the charity is exposed including the potential impacts of the continuing Covid-19 pandemic. Recognising the uncertainty associated with predicting the economic impact of Covid-19, in particular, the Trustees have considered the impact of a severe economic outcome on the charity and the effectiveness of management actions that might be taken to mitigate the impact of this stress. Trustees have also considered the circumstances under which the operations of the charity would be unable to continue. After taking into account the current level of the charity’s investments, reserves, grant commitments and the financial performance since 31 December 2020, the Trustees have concluded that the risk of this situation occurring is remote.

Accordingly and after making appropriate enquiries, the Trustees have a reasonable expectation that the charity will be able to continue in operation and meet its liabilities as they fall due for at least twelve months from the date of signing of this report. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

1.3 Fund accounting

The charity holds only unrestricted funds.

Unrestricted income funds comprise those funds which the Trustees are free to use for any purpose in furtherance of the charitable objects of the charity.

1.4 Income recognition

Income is recognised once the charity has entitlement to the income, it is probable that the income will be received and the amount can be measured reliably.

1.4 (a) Donations

Donations received are recognised once the charity has entitlement to the income, it is probable that the income will be received and the amount of income receivable can be measured reliably.

1.4 (b) Investment income

Dividends are recognised once the dividend has been declared and notification has been received of the value of the dividend due.

1.5 Expenditure recognition

Expenditure is recognised as soon as there is a legal or constructive obligation to make a payment to a third party, it is probable that settlement will be required and the amount of the obligation can be measured reliably.

Grants payable are payments where the beneficiary charity has been formally notified in writing of the award. This notification gives the recipient a reasonable expectation that they will receive the one-year or multi-year grant. In the case of an unconditional grant offer this is accrued once the recipient has been notified of the grant award.

14

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

(continued)

Grant awards that are subject to the recipient fulfilling performance conditions are accrued when any remaining unfulfilled conditions attaching to that grant are outside of the control of the charity.

The provision for a multi-year grant is recognised at its present value where settlement is due over more than one year from the date of the award, there are no unfulfilled performance conditions under the control of the charity that would permit the charity to avoid making the future payment(s), settlement is probable and the effect of discounting is material. The discount rate used is the average rate of investment yield in the year in which the grant award is made.

Governance costs comprise all costs involving the public accountability of the charity and its compliance with regulation and good practice. These costs include costs related to statutory audit and legal fees.

Irrecoverable VAT is charged as a cost.

1.6 Allocation of support costs

All expenses including support costs are allocated or apportioned to the applicable expenditure headings. Governance costs are allocated as part of support costs in accordance with Charity SORP (FRS102).

1.7 Foreign currency

The reporting currency of the charity is US dollars.

Transactions in other currencies are translated to US dollars at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in other currencies at the balance sheet date are retranslated to US dollars at the foreign exchange rate ruling at that date. Exchange differences arising are taken to the SOFA.

1.8 Taxation

Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

The Potanin Foundation is considered to pass the tests set out in Paragraph 1 Schedule 6 Finance Act 2010 and therefore it meets the definition of a charitable company for UK corporation tax purposes.

Accordingly, the charity is potentially exempt from taxation in respect of income or capital gains received within categories covered by Chapter 3 Part 11 Corporation Tax Act 2010 or Section 256 of the Taxation of Chargeable Gains Act 1992, to the extent that such income or gains are applied exclusively to charitable purposes

1.9 Basic financial instruments

Investments

Investments are held to achieve capital appreciation and to generate income to fund future charitable donations. The value of the investments determines the funds available for donation at any point in time.

Basic financial instruments are, therefore, measured initially at fair value, which is normally the transaction price. Transaction costs are expensed in the SOFA (where material) if the investments are subsequently measured at fair value through profit and loss. Subsequent to initial recognition all types of investments, including debt securities, which can be measured reliably are measured at fair value with changes recognised in the SOFA.

Cash at bank and in hand

Cash at bank and in hand includes cash and short term highly liquid cash deposits with a short maturity of three months or less from the date of opening the deposit or similar account.

Where a portfolio of investment and cash assets is managed on a discretionary basis by an investment manager, cash and cash deposits which form part of that portfolio, are included with the investment balance to reflect that the funds do not form part of normal day-to-day operational cash flows and balances.

15

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

(continued)

Debtors and creditors

Debtors are recognised at the settlement amount due after any discount offered. Prepayments are valued at the amount prepaid.

Creditors are recognised where there is a present obligation resulting from a past event that will probably result in a transfer of funds to a third party and the amount due to settle the obligation can be measured or estimated reliably. Creditors are normally recognised at their settlement amount after allowing for any discounts due.

1.10 Other financial instruments - financial instruments not considered to be ‘Basic financial instruments’

Other financial instruments not meeting the definition of ‘Basic financial instruments’ are recognised initially at fair value. Subsequent measurement is at fair value with changes recognised in the SOFA, except for equity instruments which are not publicly traded and whose value cannot be otherwise be measured reliably, which are measured at cost less impairment.

Forward currency exchange contracts (a form of derivative financial instrument) may be held within investment portfolios managed on a discretionary basis by an investment manager, but only in order to mitigate any currency risk to which the portfolio may be exposed.

1.11 Significant estimates and judgements

There have been no significant estimates or judgements necessary in the preparation of these financial statements.

1.12 Entity status

The Potanin Foundation meets the definition of a Public Benefit Entity under FRS102.

16

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

2.
3.
4.		 Investment income Investment income
Interest and dividends receivable 2020
$000
428
428		 2019
$000
1,147
1,147
Grants payable
Grants awarded:
The Vladimir Potanin Foundation (Russia)
St Edmund Hall (University of Oxford)		 2020
$000
-
-
-		 2019
$000
50,616
3,959
54,575
Cost of charitable activities
Cost of charitable activities in respect of unrestricted
general funds includes the following:
2020 2019
Costs of grantmaking: $000 $000
Validation services
Advisory services
Programme management
VPF programme costs
Professional fees
Governance costs:		 -
60
93		 16
163
55
153
35		 234
30
188 264
Management charges
Legal fees		 74
27		 73
3
Audit fee for the audit of the annual accounts:
Fee excluding irrecoverable VAT
VAT thereon		 25
5		 23
5
Amounts payable to CAF included above
and inclusive of VAT (see note 5):
VPF programme costs
Management charges		 131 104
319 368
153
74		 234
73
227 307

17

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

5. Trustees and related party transactions

The charity’s corporate trustee, CAF Global Trustees, is a related party of the Charities Aid Foundation (CAF, registered charity number 268369). CAF provided services to the charity in respect of the management of the charity’s compliance with constitutional and statutory requirements amounting to $74,000 (2019: $73,000). CAF also provided services to the charity for the grant programme, including $60,000 (2019: $163,000) for advisory services, $93,000 (2019: $55,000) of programme management costs and $nil (2019: $16,000) for validation services.

As at 31 December 2020, an amount of $64,734 was unpaid (2019: $214,706).

None of the Trustees was reimbursed for expenses or received any remuneration in the current or previous financial year, nor were any expenses paid on their behalf (2019: none).

6.

Employees

There were no employees during the year (2019: none).

During the year there was one member of staff employed by CAF (2019: one) whose responsibilities were largely in respect of The Potanin Foundation. Total employment costs are recharged where activities have been undertaken for The Potanin Foundation. Staff costs are included in programme management costs in note 4.

7. Fixed asset investments

Fixed asset investments are managed on a discretionary basis as segregated portfolios by the charity’s investment managers.

The investment assets (including cash held for investment purposes) are held with the overall intention of retaining them for the long-term (namely, as fixed assets) for the continuing benefit of the charity in the form of income and capital appreciation. Cash held for investment purposes generally arises as a result of the application of each investment manager’s strategy or through the realisation of assets for subsequent reinvestment of the disposal proceeds.

Consequently, this note does not show the movement of individual investment transactions executed by the investment managers within the portfolios. Instead, the movement in the value of the portfolios is analysed to show new funds introduced to or funds withdrawn from the portfolios, together with revaluations reflecting changes in market values.

Forward currency exchange contracts may be entered into by the discretionary investment managers, but such contracts are only used to mitigate any currency risk to which the portfolio may be exposed.

Market value at 1 January
Income received and retained in portfolios
Cash withdrawn from portfolios
Net realised gains
Net unrealised gains
Market value at 31 December
Historical cost:		 2020
$000
120,553
428
(9,440)
3,868
5,927
121,336		 2019
$000
124,767
1,147
(24,184)
5,283
13,540
120,553
At 31 December 94,483 99,520

18

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

7. Fixed asset investments (continued)

Represented by:
Fixed income:		 2020
$000		 2019
$000
US
Other
Equities:
UK
Rest of Europe
North America
Asia
International
Other
Other:
Pooled Funds:
International
Hedge funds
Short-term liquidity and settlements pending		 29,331
4,259
13,223
25,103
21,941
3,173
1,783
1,271
9,421
11,454
377		 28,363
4,552
-
33,609
16,844
6,102
4,996
3,135
9,859
11,879
1,214
121,336 120,553

Measurement of fair values:

The company uses the following hierarchy to estimate the fair value of investments held:

No level 3 investments were held by the charity at 31 December 2020 or 2019.

19

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

7. Fixed asset investments (continued)

Accounting classifications and fair values:

Classification and fair values:

Fixed income investments
Equities
Alternative investments
Other investments
Equity-based investments
Cash held pending investment
Fixed income investments
Equities
Alternative investments
Other investments
Equity-based investments
Cash held pending investment		 Level 1
Level 2
2020		 Total
$000
$000		 $000
33,590
-
66,494
-
5,800
5,654
4,710
4,711
77,004
10,365
377
-
110,971
10,365		 33,590
66,494
11,454
9,421
87,369
377
121,336
2019
Level 1
Level 2		 Total
$000
$000
32,917
-
64,684
-
5,783
6,095
4,811
5,048		 $000
32,917
64,684
11,879
9,859
75,278
11,143		 86,422
1,214
-		 1,214
109,409
11,143		 120,553

8. Creditors: amounts falling due within one year

Creditors: amounts falling due within one year
Grants payable
Accruals		 2020
$000
22,928
215
23,143		 2019
$000
17,123
400
17,523

On 1 February 2019, the board awarded a grant of $50.6m to the Vladimir Potanin Foundation (the VPF) payable over three years. As at 31 December 2020, $27.7m had been paid. Under the terms of the grant agreement the remaining $22.9m falls due within one year.

The grant shall be applied solely to further purposes which are charitable in English law, and particularly the advancement of education for the public benefit. If the funded projects do not proceed to the Foundation’s satisfaction then the funding for subsequent years may not proceed.

See also the details of post balance sheet events set out in note 11 below.

20

The Potanin Foundation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (continued)

9. Creditors: amount falling due in greater than one year

Creditors: amount falling due in greater than one year
Grants payable 2020
$000
-
-		 2019
$000
14,090
14,090

10. Net cash flow from investing activities

The cash flows in respect of investing activities represent cash withdrawn from or introduced to the charity’s investment portfolios, which are managed on a discretionary basis by the charity’s investment managers. As described in note 7, cash within the investment portfolios is held for investment purposes and is treated as fixed asset investments. Thus, cash movements in respect of investment additions and disposals within the investment portfolios do not generate a cash flow in respect of the charity’s overall level of financial investment.

11. Post balance sheet events

As described in the Trustees’ report, the Trustees’ agreed, in principle, to a request received in April 2021 from the VPF to waive its right to receive the remaining tranches of the second and third year funding under the terms of the three-year grant agreement (see note 8). In August 2021, the VPF and Trustees reached agreement that no further payments will be made under the grant agreement. Consequently, at the date of signing this report, no further payments have been made or are expected to be made to the VPF in respect of this grant commitment. Otherwise, there have been no significant post balance sheet events.

21