Financial review 2017/18

Review of the financial year from 1 August 2016 to 31 July 2017

The University is in a strong, financially sustainable position which creates degrees of strategic freedom for responding to the political, regulatory and economic uncertainty facing the UK

Higher Education sector. While financial performance during the year shows a reduced operating surplus of £27m (2017: £56m), due to revenue investment to improve future performance, the balance sheet has strengthened with total net assets increasing to £2.2bn (2017: £2.0bn).

Total income in 2017/18 was £984m which represents an increase of almost 6 per cent from last year with a similar source of funds mix. Tuition fees accounted for 32 per cent of the University’s total income and research income grew by 5 per cent on the previous year to £280m, continuing a strong trend reflecting the University’s continued success in securing competitive research grants and contracts. Despite the shadow of Brexit, 14 per cent (2017: 12 per cent) of the total research funding was received from European Union (EU) Government bodies. The University continues to closely monitor the longer-term outlook for EU research funding in the context of Brexit related issues while maintaining and strengthening links to other European universities.

Total expenditure in 2017/18 was £957m, up almost 10 per cent year on year, with staff costs representing 55 per cent of this total.

Other operating expenses include expenditure on student accommodation, scholarships and bursaries, library services, research projects, utilities and premises maintenance costs, and administration costs.

Other operating expenses (excluding depreciation) for the year were £359m, a 12 per cent increase on last year. This increase reflects the growing student population, total staff costs and the important capital investment programme; the latter causing the

University’s depreciation charge to increase by 29 per cent to £60m. This correlates directly to the University’s drive to improve its estate for the benefit of students and staff and to create a world-class estate (including important heritage buildings) for a world-class university.

Fifty-nine per cent of the total comprehensive income for the year relates to a £101m actuarial gain on the pension fund. The actuarial gain is a non-cash movement and is not a measure of the University’s operational financial performance or surplus generation.

It is simply the difference, year on year, of revisions to the estimated value of the pension scheme assets and liabilities in the University’s own defined benefit pension scheme.

Certain assumptions are used to value the future liabilities of the pension scheme and also the assets belonging to the scheme.

These estimates reflect changes to the actuary’s assumptions as a result of another year’s experience in population mortality and the scheme’s own staff member profiles. The actuarial gain or loss can vary greatly from year to year depending on the remeasurements which have taken place.

The University’s Estates Capital Plan was approved by Court in June 2018. Projected spend over the next 10 years is circa £1.3bn.

Each project has a unique business case that reflects how it will be funded through capital contributions from third parties and/or subsequent operating cashflow from new business. A number of these projects are directly related to the City Region Deal and require significant capital investment in early years to develop the physical infrastructure to support City Region Deal activity. Some £230m of capital grant will be provided by the government over the next decade. The £250m of new debt secured by the University at a very competitive rate in 2017/18 will also support implementation of the Estates Capital Plan.

The University Cash and Cash Equivalents balance at 31 July 2018 was £236m (31 July 2017: £250m).

To help facilitate funding of its ambitious estates programme, the University used its balance sheet strength to secure an additional £250m of long-term debt at attractive rates through a private placement, some of which was used to refinance expensive existing debt. Improvements to our forecasting and budgeting process gave us the confidence to make changes to our risk appetite to allow for a lower operating surplus, increased level of debt and lower interest cover as we invest for the future.

The University continues to develop its approach to integrated reporting. The 2017/18 Annual Report and Accounts document focuses on the value created by the University for its stakeholders, through the framework of integrated reporting. Our value model explains how the University draws on multiple capitals and helps to demonstrate an overall net positive impact for the University’s specific stakeholders, society in general and the natural environment in which we operate.

Our objective is to make the world a better place by delivering a positive impact through our graduates and our staff.

The above information reflects the audited accounts for the year to 31 July 2018, published in December 2018. Further information can be found on the Finance website or by contacting the University’s Finance Department directly.

Annual Report and Accounts 2017/18

Consolidated statement of comprehensive income and expenditure for the year ended 31 July 2018

Consolidated balance sheet as at 31 July 2018