Our year was dominated by COVID-19 in anticipating its impact and adjusting to the changing circumstances throughout the year. Financial plans for the year reflected the heightened uncertainty of the Summer of 2020 and the impact that would have on student recruitment. Our income from teaching and research held up relatively well and while our income from accommodation and hospitality services were impacted to a greater extent than expected the reduction in total income was not as great as we anticipated in planning. Cashflow from operating activities increased on the previous year and whilst our internal measure of operating surplus, described below, decreased from the previous year the small surplus surpassed expectations in the budget.
Our priorities during the year were, and remain, to care for the health and wellbeing of our students and staff and to continue to provide a high-quality educational experience. We incurred increases in expenditure necessary to manage and mitigate the impacts of the pandemic. The costs incurred were compensated by reductions in expenditure that were identified as part of a savings plan approved by Council in July 2020. We have been largely successful in reducing our non-pay costs. Pay savings have been less than anticipated as the changing circumstances have notably increased workloads in some aspects of our delivery.
Our deficit for the year, shown in the Statement of Consolidated Income (SOCI), of £32.0m is principally due to the valuation of land and buildings. A write-down of £21.5m on our Institute for Advanced Automotive Propulsion Systems (IAAPS) facility reflects the difference in value between a bespoke high specification research facility and the market value of equivalent non-specialised space. Grant income of £39.2m will be recognised when the facility opens in summer 2022.
Throughout the crisis, we have maintained substantial cash and investment balances and have focussed on cashflow from operating activities. We have invested £39.5m on capital expenditure as work continued on our two main capital projects, a new building for our School of Management and a facility for the Institute of Advanced Automotive Propulsion Systems, throughout the year. As a result, our Net Debt reduced slightly by £1.3m to £62.6m though this remains lower than our expectations. Our cash and investment balances leave considerable scope for investment to support our new strategy.
The financial strategy is based on generating enough operating cashflow to fund the investment in people and infrastructure that our strategy describes. Council and the Executive monitors an internal measure of surplus termed the Historic Cost Operating Surplus (HCOS). This provides a more meaningful measure of our operating performance and excludes the material valuation adjustments which are shown on the SOCI. Further explanation and a detailed reconciliation of the deficit shown in the SOCI to HCOS is included below.
HCOS is one of seven Key Performance Indicators (KPI) that we use to measure our financial performance and sustainability. This review describes the seven KPIs and then describes the Income, Expenditure and Balance Sheet data that the KPIs are drawn from. These KPIs were approved by Council in May 2019. The report concludes with an outlook for the future.
Key Performance Indicators
Historic Cost Operating Surplus/Total Income
The SOCI shows a deficit before gains and losses of £32.0m (2019/2020 £21.0m surplus) in the Consolidated Financial Statements 2020/21.
The table below shows a reconciliation between this figure and the HCOS.
|(Deficit)/Surplus before gains and losses from SOCI||(32.0)||21.0|
|Valuation adjustment for pension schemes||3.8||(26.8)|
|Valuation adjustment for HC depreciation||13.4||12.8|
|Write off of land & buildings||21.5||-|
|Loss on sale of fixed assets||-||(0.5)|
|Valuation adjustment for derivatives||(1.4)||1.2|
KPI1. HCOS/Total Income
We focus on HCOS as a good measure of our ability to generate cash. It is less susceptible than our surplus reported in the SOCI to movements in property, investment and pension valuations that are influenced by factors outside our direct control, for example, changes in discount rates that impact pension scheme provisions or global equity markets. This metric represents the level of surplus required to provide sufficient cash to fund our capital expenditure programme and meet loan payments.
Prior to the COVID-19 pandemic, we aimed to achieve an HCOS of at least 3% of income and in many years this was exceeded. The impact of COVID-19 is that we have set budgets aiming at a lower HCOS, for 2020/2021 this was originally a deficit of 2.4%, however, the actual return has been 0.3%, £1.1m (£5.1m 2019/2020). We are forecasting a return to the 3% HCOS in 2022/2023.
A commentary on income and expenditure is included later in this review.
KPI2. Adjusted EBITDA
Adjusted EBITDA is widely used by the sector. This metric is earnings before interest, tax, depreciation, impairments, and amortisation. It is also adjusted to remove the movement on pension provisions. We have this as a KPI to provide a sector comparison of operating performance. EBITDA is reported at 11.2% of income (12.4% 2019/2020).
KPI3. Ratio of Loan Interest Payable to Income
Loan interest payable to income is the metric used to show how much of our income is spent on servicing our loans. This measure is also used by some of our lenders to assess our financial performance.
For 2020/2021 we achieved an actual metric of 2.3% (2.5% 2019/2020). The majority of our borrowing is at fixed rates this measure is therefore consistent with recent years.
KPI4. Net Debt to Net Assets – Gearing
Our gearing has remained static at 10.8% (11.3% 2019/2020).
Net Debt to Net Assets is a measure to show the extent to which our assets are financed by debt. Whilst low compared to many sectors we have a high value relative to the Higher Education (HE) sector, where many have no net debt. This reflects our financial strategy to borrow to fund investment whilst maintaining a high level of liquidity. Gearing is also a metric monitored by lenders and whilst the definition of debt varies our financial covenant gearing levels are between 40% and 50%. So, whilst the level against the sector is relatively high it is well within the thresholds set by lenders.
Our net debt has fallen by £1.3m to £62.6m and gearing ratio is 10.8% (11.3% 2019/2020).
KPI5. Ratio of current assets to current liabilities
The ratio of current assets to current liabilities, known as the current ratio. This shows our ability to cover our short-term liabilities, such as payroll, loan repayments and other creditors through our short-term assets. Our financial strategy is to maintain high levels of liquidity however the ratio has been higher than we would ordinarily expect in recent years as we have drawn down loans in advance of capital expenditure. The reduction in the ratio to 1.9:1 (2019/2020 2.2:1) is due to the increase in current liabilities which now includes an additional £5.0m of loan capital repayment in 2021/2022.
KPI6. Net cash inflow from operating activities as % of income
This measure shows the cash flow from our ongoing regular activities as a proportion of total income. It does not include long-term capital expenditure or investment returns. It can be used to determine our ability to self-finance new investments or reduce debt. Operating cash inflow of £35.2m is 12.2% of income (£22.6m and 7.6% 2019/2020).
KPI7. Net Liquidity days
This metric indicates the number of days that we could operate without generating any cash inflows by showing the ratio of expenditure to income expressed in days. Our strategy is to retain high levels of liquidity and as a result, our ratio is 253 days (2019/2020 293 days).
Total income decreased by 3.3% (3.9% decrease in 2019/2020) to £289.5m. There follows a summary of the key income streams.
Tuition fee income was consistent with 2020/2021 at £173.6m, (£174.6m 2019/2020) and represents 61% (2019/2020 59%) of total income.
Total Funding body grants at £39.3m (2019/2020 £36.3m) showed an increase for both SETsquared across Sectors in the South of England (SaSSE) and Higher Education Innovation Funding (HEIF) activity with the Office for Students (OfS) recurrent grant increasing by £1.0m to fund research equipment.
Research of £37.2m (2019/2020 £37.1m) is consistent across both years. During both years there was a reduction in research activity when staff were furloughed and the start of new grants was delayed.
Other income, including investment income at £37.1m has decreased by 22.0% (2019/2020 £47.5m). This reduction was a result of an increased number of voids in student accommodation as we held rooms aside to provide quarantine facilities. In addition, we provided rebates to students who were unable to occupy their rooms following the 3rd national lockdown. Hospitality and retail income was substantially lower reflecting the lower campus footfall. Other income includes £3.3m (2019/2020 £4.1m) received through the Job Retention Scheme.
Endowment and donations of £2.3m (2019/2020 £2.2m) reflect the consistent level of donations received over the year.
Tuition Fee income
Tuition Fee income was marginally lower in 2020/2021 at £173.6m compared to £174.6m in 2019/2020. Fees from Home & EU students rose by £2.8m (2.9%) with the undergraduate fee remaining at £9,250 most of this increase came from student number growth. Income from EU students remained static at £13.8m as the impact on fees due to Brexit will start in 2021/2022.
Short Course and apprenticeship fees increased by 29.7% to £10.5m.
The accompanying table – Analysis of fee-paying students as of 1 December – summarises student numbers on 1 December 2019 and 2020 respectively; this is the census date for the Higher Education Statistics Agency (HESA). Our home undergraduate intake was similar year on year. The late changes in A-Level awards resulted in a greater number of deferred offers for 2021/2022 as we limited numbers to maintain standards and better ensure a safe environment. Home postgraduate numbers grew as many graduating students opted for further study given the very challenging jobs market.
COVID-19’s main impact was on our overseas intake where both undergraduate and postgraduate taught student numbers were well down on their usual level.
Analysis of fee-paying students as of 1 December
|Full-time Home and EU students|
|Postgraduate Taught (excluding apprenticeships)||605||804|
|Full-time Overseas and Channel Island students|
Research income was £37.2m, an increase of £0.1m over the previous year.
Research Councils continue to be the largest source of research income at 50.8% (52.0% 2019/2020).
Our research portfolio at the year-end is £156.0m (£157.5m 2019/2020).
Expenditure reported in the SOCI increased by £44.8m, 16.2% to £321.5m (2019/2020 £276.6m).during the year. Two items account for most of this increase:
- A £30.2m lower credit from the USS provision
- The Institute for Advanced Automotive Propulsion Systems (IAAPS) land & building impairment of £21.5m
Expenditure excluding these items was £303.5m, a fall of 2.2% from the 2019/2020 value of £310.4m. This reflects the reduction in many activities over the year in particular commercial and trading areas. Equally, we made additional investments in providing additional city centre student space and supporting the on-campus student experience throughout the year.
Our staff costs at £174.4m (£177.9m 2019/2020) represent 60.2% (59.8% 2019/2020) of our income, this includes recurrent employer pension contributions and reflects the controls put in place to manage staff costs and the impact of the Voluntary Exit Scheme operated over the summer of 2020. This is consistent with the reduction in our staff numbers of 2.2% to 3,153, excluding IAAPS Ltd subsidiary. Whilst no cost-of-living award was made on 1 August 2020 normal incremental progression for eligible staff has continued through the period of the pandemic.
Other operating expenses were £88.1m (2019/2020 £86.8m), in response to the changes in services required due to the COVID-19 pandemic restrictions continued on operating expenses however, the pandemic necessitated some additional expenditure in adapting to the new situation. In the analysis of expenditure by activity, total Academic related expenditure was maintained at £144.8m (£144.5m 2019/2020) representing 45.0% of total expenditure. Other expenditure directly impacting on student activity on campus was also very consistent between the two years at £34.0m (£34.8m) and this represented a further 10.6% of total expenditure.
Central Administration expenditure decreased slightly to £17.9m as the staff savings through the VES scheme run over summer 2020 took effect. Residences, retail & catering operation expenditure also fell by £4.4m, or 11.8% reflecting the reduced occupancy in residences and closing of outlets during the year. Premises costs at £42.4m rose by £1.1m, pay costs fell, again following the VES scheme but non-pay costs increased as campus facilities were adapted to create safe working environments and additional student space was acquired in the city centre.
Depreciation and Impairments of £53.7m include the impairment of the IAAPS land and buildings of £21.5m. The IAAPS facility was substantially complete at the year-end and therefore costs have been compared to a market valuation for the first time, the market value is based on industrial property in the same locality, this market value is substantially less than our investment in this specialist research facility and as a result, we have written down our costs to completion estimated to be £39.2m by £21.5m. In 2021/2022 when the facility is opened, we will be recognising £38.9m of grant income towards the construction of the facility.
Other Comprehensive Income/Expense
The total comprehensive income in the year as disclosed in the SOCI is a surplus of £23.5m (2019/2020 (deficit) £16.1m). Within the surplus for 2020/2021 there is an actuarial gain on the LGPS scheme of £9.5m (2019/2020 loss £22.3m) and results from the increase in the scheme’s assets exceeding the growth in the scheme’s liabilities following strong investment performance in the year.
There was a net increase in the fair value of land and buildings of £32.3m (reduction £15.4m 2019/2020) this was due to an increase in the value of campus buildings as replacement costs increased and to the market value of student residences, the combined gain was £77.1m. A reduction in the value of campus land of £44.8m resulted from the adoption of an alternative valuation methodology by the new valuer.
The fair value of derivatives held to mitigate currency rate variation (foreign exchange options) and future interest rate (swaps) charges recognised in the balance sheet fell by £3.5m (2019/2020 £0.5m) as the market expectation is for an earlier increase in interest rates than on 1 August 2020.
Our capital additions in 2020/2021 were £39.5m. (2019/2020 £66.3m). Included within this was a £28.7m investment towards the completion of the new building for use by the School of Management.
We continue with our policy of revaluing our land and buildings, and gains and losses from this valuation are reflected in our Other Comprehensive Income.
Current assets increased by £1.4m to £223.1m. Our debtors increased by £9.4m following the submission of VAT refund on construction costs for IAAPS, whilst our investments and cash fell by £8.1m to £186.3m as these were used to fund the capital investments. Our investments are segmented based on our predicted cash flows with approximately 50% held for use within one year (short-term), 25% held for investment of between one and three years (medium-term) and the remaining held for in excess of three years (long term). These durations reflect our intention to hold these investments however they all have liquidity of considerably shorter duration.
Creditors, amounts falling due in less than one year
Creditors due in less than one year increased by £16.5m to £116.2m. Deferred income includes £38.9m of capital grant income received from UKRI and the WECA towards the construction of IAAPS, these grants will be recognised as income when the IAAPS facility commences operations. Creditors also include £10.0m for loans as the first bullet payment on loans entered in 2007 is due with a payment of £5.0m scheduled in March 2022. Creditors have also increased in respect of payroll deductions by £3.4m.
Creditors, amounts falling due in more than one year
Creditors of more than one year have reduced by £13.9m to £240.0m. Bank loans and finance leases have reduced by £10.1m as we make regular repayments for those held by Clerical Medical, Barclays and the European Investment Bank (EIB). Interest rate swap liabilities have reduced by £3.6m to £13.9m, these financial instruments are used to manage our loan costs and reflect the change in expectations of future interest rates during the year.
Pension provisions have reduced by £5.5m to £138.1m.
The Universities Superannuation Scheme (USS) is a multi-employer scheme with no basis to accurately identify our share of the assets and liabilities and therefore our deficit. We are required to estimate a provision for our obligation to make deficit recovery payments. This liability reduced by a net of £3.2m during the year to £41.1m. It is based on the deficit recovery plan approved by the USS trustees following the completion of the March 2018 valuation. The USS trustees have been working with stakeholders to reach agreement for a deficit recovery plan based on the March 2020 valuation. In October 2021 USS signed and filed this valuation and deficit recover plan with the Pension Regulator, the impact of this is estimated to be an increase of £76.9m in the provision and this is reported as a post balance sheet event in note 27 of the Notes to the Annual Accounts.
Local Government Pension Scheme (LGPS) is also a multi-employer scheme but its assets and liabilities can be established for individual employers and we saw our pension deficit fall by £2.5m to £97.0m. Asset values increased by £20.0m reflecting the improvement in markets over the year, liabilities grew by £17.6m, whilst the discount rate remained at 1.6%. Contribution rates are determined as a result of a triennial valuation that uses a different set of assumptions. The scheme undertook a triennial valuation on 31 March 2019, our current cash contribution rate is 19.3% of pensionable pay, this compares to an estimated future service cost of 42.5% of pensionable pay. The difference is recognised in staff costs and further explained in note 26 of the Notes to the Annual Accounts. During the year we closed the LGPS to new entrants and have implemented a flexible defined contribution scheme for eligible employees. We anticipate that this will limit the increase in the provision in the next few years and will, in time, reduce it.
Council confirms that it has reasonable expectation that we have adequate resources to continue in operation for the foreseeable future. For this reason, it continues to adopt a going concern basis for preparing the Annual Report and Accounts. In reaching this conclusion, it has reviewed our sustainability and is satisfied that the strategies, plans and policies in place will help ensure this financial sustainability is maintained. Council regularly reviews performance using the key performance indicators included in this review in areas that are relevant to financial sustainability. Council, through Audit and Risk Assurance Committee (ARAC) regularly reviews strategic and operational risks and any financial assessment of these as determined by management. Council, through Finance Committee, reviews the compliance with financial covenants in our loan documentation.
In financial terms, we anticipate that 2021/2022 will be a year of recovery. COVID-19 has presented an extraordinary series of challenges over the last eighteen months for students and staff alike. Whilst we have learned that circumstances can change rapidly and unpredictably it is apparent that a greater degree of normality is returning to our everyday lives. In the event that the easing of restrictions reverses during the course of the year, we are confident that we have the operational flexibility and financial resilience to operate effectively.
Student recruitment, especially those travelling from overseas, is recovering and accommodation occupancy rates are well above last year. The return of students and staff to campus in significant numbers is seeing an increase in our hospitality and retail income. We expect our surplus to recover this year towards our long-standing target of 3% and to meet that target again from 2022 to 2023. Our ability to progress the delivery of the strategy was hampered by the events of the last year but despite this progress has been made in identifying and starting to invest in areas of research strength, in education and in providing the necessary structure and facilities to support our academic goals.
Our strategy anticipates a substantial increase in our research income over the next 5 years. The opening and development of IAAPS will underpin this growth which should be supplemented by campus-based investments following initiatives such as the Bath Beacons. We are planning for a modest growth in our undergraduate intake and a larger increase in postgraduate taught students resulting in large part from the completion of the new School of Management building. Despite the short-term impact of the pandemic the demographic changes in the UK would indicate an increase in the number of students wanting to come to University over the next decade and there are similar predictions for an increase in international students.
We risk being affected by the sector-wide changes including tuition fee funding and pension costs. Equally, there are local risks in delivering our strategy. Over the next year, the completion of our major capital projects, the Research Excellence Framework (REF) outcome, our ability to grow our tuition fee income and develop our research activity and income will all have an important bearing on our ability to deliver our strategic aims.
COVID-19 will undoubtedly have some lasting effects on how we work and study. We expect the skills and tools we have developed in our rapid change to online learning to be adapted in our delivery of blended learning which will enhance the experience we offer. Similarly, over the coming months, we will develop our understanding of how hybrid working may be best utilised.
We are planning a significant investment in the maintenance and upgrading of our estate over the coming years and are very aware of the impact the built environment has on our carbon emissions and our ability to meet our net-zero target by 2030. Achievement of our carbon targets will require changes to our buildings, our procurement, and our behaviours which our carbon action framework team are developing.
Martin Williams, Director of Finance