Finance Director's foreword

Director of Finance Lee Hamill introduces our financial results.

The University of Edinburgh has met significant challenges in an uncertain economic environment and delivered another strong financial performance in 2022/23. We have continued to demonstrate that we are capable of delivering our objectives in a financially sustainable way that provides us with a solid platform to achieve our Strategy 2030 objectives.

We have grown our revenues and managed our underlying costs, despite the challenges presented by high inflation, allowing us to continue the recent trajectory in generating significant positive cash flows for reinvestment in University activities. The Financial Review on pages 44 to 49 covers all the main areas of our financial performance in greater detail.

Financial headlines

During the year we saw our total income grow to a record £1.4 billion (including capital grants) driven by the high demand for places at Edinburgh, as well as our continued reputation for excellence in world-leading research, innovation and knowledge exchange. We have also seen a further upturn in our commercial activities, with our accommodation, catering and events operations contributing significant revenues in the period, reinforcing the importance of this additional revenue stream as we look forward.

Like all organisations in the UK, we have faced very significant increases to our utility costs, as well as inflation-driven increases to the vast array of goods and services that are required to run a university of our size and complexity. This has at times been challenging and although we are starting to see signs of inflation abating, we will continue to work hard to ensure that cost growth does not outstrip income growth.

I outlined in my foreword last year that we now use Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) to measure our underlying financial performance. EBITDA can be used as a proxy for the cash generated from our internal operations – this is the cash we use to service our debt and fund important investment in equipment, our digital infrastructure and our physical estate. Like many of our peer institutions, we use the British Universities Finance Directors Group definition of EBITDA which starts with surplus/ (deficit) before other gains and losses and makes adjustments thereafter to account for the funding models in operation across the higher education sector.

Our EBITDA for 2022/23 was £148 million, or 10.7 per cent of income (2022: £168 million, 12.9 per cent of income). This means that we are covering all of the annual operating costs of the University as well as generating additional cash for reinvestment into the projects and initiatives that will help us deliver on our strategy. The table below shows the reconciliation from surplus/(deficit) before other gains and losses through to EBITDA, and we highlight the large non-cash movement in pension provisions that is further explained in the financial statements.

Notes to table: In calculating EBITDA, adjustments are made for interest costs, capital grants and non-cash items such as depreciation and pension provision movements. 

Capital investment

With more than 500 buildings across our five campuses, it is essential that we commit sufficient investment each year to maintain and develop our physical estate, equipment portfolio and our digital estate. Over the past two years, we have seen significant increases to the cost of labour and materials as well as supply chain issues and general inflation causing disruption across the construction sector in the UK. Despite these challenges, all of our committed capital projects have progressed over the last 12 months. It was particularly pleasing to see the progress made on our largest ever individual capital project with the Edinburgh Futures Institute beginning to open its doors in the autumn of 2023.

Total capital expenditure for 2022/23 was £165 million (2022: £158 million) of which £103 million was spent on improving our physical estate (2022: £114 million). We remain committed to our capital plan which will see us invest in new student facilities, student accommodation and equipment as well as completing contractually committed projects and fulfilling our compliance and maintenance obligations.

“We remain committed to our capital plan which will see us invest in new student facilities, student accommodation and equipment.

Pensions

The triennial valuation of our largest pension scheme, the Universities Superannuation Scheme (USS), began in March 2023. This is a formal process that must be carried out every three years in consultation with scheme employers and members to establish whether or not there is a gap between scheme assets and liabilities. USS is the largest private pension scheme in the UK in terms of assets under management, and the principal pension scheme for universities and Higher Education institutions. The scheme has more than half a million active and retired members as well as more than 340 participating employer organisations.

The 2023 valuation has shown that the scheme’s assets have exceeded the level of its liabilities, resulting in a surplus position. The scheme trustees are working towards agreement on a number of changes from early 2024 that will deliver improvement to benefits for members as well as a reduction in contributions for both members and employer organisations. The long-term financial sustainability of the scheme remains a priority for us and we will continue to work constructively with everyone involved in USS.

Separate to the triennial valuation process, UK accounting standards require us to record the year-to-year movement of the pension provisions in our primary financial statements. Over the past several years we have seen large swings in the valuation for our provision of the University’s share of the USS deficit recovery plan as well as the deficit in the University of Edinburgh Staff Benefits Scheme (SBS). It is important to note that both of these large positive movements in 2022/23 are not a reflection of the University’s actual financial performance and are non-cash in nature — no money has come in or out of the University as a result. All universities who are members of USS and who have similar in-house pension schemes will see their primary financial statements reflect this volatility in non-cash pension movements this year and beyond.

Endowment fund

Our endowment fund recorded an increase in valuation at the end of the 2022/23 financial year with the fund valued at £560 million (2022: £541 million). The increase was driven by new endowments received during the year, which offset a reduction in the unit price of the fund. This increase follows the reduction we reported in 2022 after what was another challenging year. This year’s recovery is welcomed and we are reminded that the endowment fund is invested for the long-term with success measured in decades rather than over a single year.

Conclusion

The University has continued to deliver strong financial performance over what has been, for a variety of reasons, a challenging three-year period. We have done this by adapting quickly to mitigate our risks and make the most of our opportunities. This year provides us with a sound financial base to look forward and deliver on our strategic objectives for the benefit of our students, our staff and our local and global communities