Our financial sustainability is based on the following principles:
- create capacity for strategic development by achieving an average historical cost operating surplus (HCOS) of at least 3% of income in any financial year
- maintain a robust balance sheet with sufficient cash reserves to meet our financial obligations
- deliver value for money in all our activities
- use our cash reserves and, if appropriate, borrowing capacity, to invest in academic and student experience, to enhance research quality and reputation, teaching quality and student satisfaction
We can report an HCOS of 1.7% against our target of 3% and believe this represents a strong result given the impact of COVID-19 on our operations in the final 5 months of the year.
In March, when it became apparent that a lockdown would be imposed, we recognised this would have a significant impact on our financial performance. We initially identified a shortfall in income of £20m was likely and whilst there would be some associated reduction in cost substantial savings were required. Several changes were introduced immediately to mitigate expenditure, and these included:
- incurring only essential expenditure to support on-going research, the transition to on-line teaching and compliance matters
- removing certain payment methods
- reducing budgetary allocations
In parallel we reviewed our in-year estimates against our loan covenants. This identified a level of surplus and operating cash inflow required to ensure that we met our obligations. We created a Financial Sustainability Group (FSG) lead by the Vice-Chancellor to review and prioritise cost savings and oversee their delivery. FSG recognised that some recurrent cost saving was required to address underlying financial issues most notably, the likelihood that the regulated fee for home undergraduates would remain fixed going forward, whilst other savings would be one-off to address the consequences of the pandemic.
Some of the cost reductions identified have been delivered in 2019/20 and these have contributed towards the improved HCOS of £5.1m which compares well to the breakeven position estimated in April.
Examples of cost saving measures delivered include the surrendering of leases on property, cancelling some maintenance and capital projects and a voluntary exit scheme.
In addition, we took advantage of the support packages made available by the Government, primarily the Job Retention Scheme (JRS). We furloughed staff in operating areas that were closed as well as support staff in professional service and academic departments as activity reduced.
The delivery of cost saving measures will continue through 2020/21 as we recognise the financial uncertainty, in particular around student recruitment, will continue. We acknowledge the key requirement for 2020/21 is to meet our financial obligations to our lenders and whilst a small negative HCOS is currently budgeted for, we will generate sufficient operating cash to ensure these obligations are met. We will maintain oversight of this Finance Committee and Council with projects being prioritised and reviewed by FSG.