Skip to main content

Financial Review 2023-24

The University's income, expenditure, and balance sheet data, and the KPIs we use to measure our finances. Part of the Annual Accounts 2023-24.


Annual Accounts

We remain focussed on delivering against our Strategy 2021-26 providing a high-quality educational experience, excellent research and supporting the health and wellbeing of students, staff and other members of our community on whose efforts our success is built.

In 2023-24, our income from teaching, research and accommodation grew, driven by our growth in student numbers, both home and overseas, in what was a more challenging market. Expenditure also increased, albeit at a slower rate than income. Overall, there was an increase in surplus to £9.8m from £6.2m in the previous year (on the internal Historic Cost Operating Surplus (HCOS) basis), with an increase in income (of £31.6m) partly offset by expenditure growth of £28m (staff costs rise of £17.6m, other expenditure costs rise of £10.4m).

Inflationary pressures have continued to impact upon us during the year. Our utilities costs remain high, and we continue to see increases in inflation across the range of product categories that we buy. Similarly, inflation continues to add to the pressure for higher pay awards. Conversely, the majority of our debt is fixed so our interest cost is not greatly affected by the increase in interest rates, and we have been able to benefit from the higher rates available on cash deposits.

We continue to retain significant cash and investment balances in preparation for supporting future investments in our Strategy and for the refurbishment of the original 1960s and 1970s buildings on campus. Operating cash inflows were £40.4m (2022-23 £47.2m) and we spent £58.3m (2022-23 £21.9m) on capital investments, including the acquisition of two new student residences in the city (Scala and Eveleigh Waterside).

Our financial strategy is based on generating sufficient operating cash flow to fund the investment in people and infrastructure that our strategy describes. Council and the Executive Board monitor financial performance by reference to our internal measure of surplus, HCOS. This provides a more meaningful measure of our operating performance and excludes the material valuation adjustments which are shown on the Statement of Comprehensive Income (SOCI). Further explanation and a detailed reconciliation of the deficit shown in the SOCI to HCOS is included.

HCOS is one of seven Key Performance Indicators (KPIs) that we use to measure our financial performance and sustainability. This report 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 financial performance indicators

Historic Cost Operating Surplus/total income

The SOCI shows a surplus before gains and losses of £75.2m (2022-23 £1.1m surplus).

The table shows a reconciliation between this figure and the HCOS.

2023-24 2022-23
Surplus before gains and losses from SOCI £75.2m £1.1m
Capital grants (£2.1m) (£5.5m)
Adjustment for pension schemes (£94.5m) (£10.6m)
Valuation adjustment for depreciation £31.2m £21.2m
HCOS £9.8m £6.2m

KPI - 1. HCOS/Total income

Our HCOS surplus is disclosed in the table above as the best measure of our ability to generate cash and as such represents the level of surplus required to generate cash to fund our capital expenditure programme and meet loan payments.

For 2023-24 this was budgeted at a deficit of £5.7m, but tight cost control mitigated the impact of lower than planned income growth yielding a surplus of £9.8m, 2.5% of income.

A commentary on income and expenditure is included later in this review.

A graph showing Operating surplus as percentage of income

The HCOS takes the income and expenditure values recorded in the SOCI and adjusts them for valuation or material one-off items. These items are either infrequent, for example, capital grants or subject to market valuations, for example, pension valuations and so distort the underlying recurrent operating activity. Removing these items allows us to set and monitor a budget surplus at a consistent % of income. Including these items in the budgeted surplus would mean that as a % of income our target surplus could be materially different year on year and would make consistent reporting of the surplus challenging.

The rationale for these adjustments is described further.

Area Rationale
Capital Grants Capital grants are dependent on capital spend which is recorded in the balance sheet. Including capital grants, which are now recognised only when the construction of the fixed assets has been completed, creates spikes in income and therefore surplus.
Pension valuations Both Universities Superannuation Scheme (USS) & Local Government Pension Scheme (LGPS) are subject to periodic actuarial valuations and these valuations are heavily impacted by economic assumptions outside of the routine operational activity of management and therefore the valuation charges and credits are recognised after the HCOS.
Depreciation Our buildings are subject to annual valuations and total depreciation is based on these “fair” values, which are impacted by market conditions and building cost inflation, outside the control of management. This adjustment reflects the valuation element of the total depreciation charge and is recognised after the HCOS.

KPI - 2. Adjusted EBITDA

Adjusted EBITDA is widely used by the sector and provides a sector comparison of operating performance. This metric is earnings before interest, tax, depreciation, and amortisation, it is also adjusted to remove pension provision. EBITDA for 2023-24 is 12.0% of income (2022-23 12.3%). This is in line with previous years before 2021-22. The Institute for Advanced Automotive Propulsion Systems (IAAPS) capital grant increased income, on a one-off basis, in 2021-22.

A graph showing Adjusted EBITDA as a % of total income.

KPI - 3. Ratio of interest payable to income

Interest payable to income is the metric used to show how much of our income is spent on paying the interest on our loans. Similar measures are used by some of our lenders to assess our financial performance. In 2023-24 our result was 2.2% (2022-23 2.0%). The majority of our borrowing is at fixed rates so our additional income created an improvement in cover.

A graph showing Ratio of loan interest payable to income.

KPI - 4. Net debt to net assets – Gearing - Historic cost basis

Our gearing (on a historic cost basis) has increased slightly to 2.3% (2022-23 1.6%).

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 gross debt value relative to the HE sector. 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 well below the 50% threshold set by lenders.

In 2023-24 our Net Debt (on a historic cost basis) rose by £11.0m to £25.2m (2022-23 £14.2m), as a result of our capital investments in the year.

A graph showing Net debit as a % of total net assets.

KPI - 5. Ratio of current assets to current liabilities

The ratio of current assets to current liabilities is known as the current ratio. This shows our ability to cover our current liabilities by current assets. Our financial strategy is to maintain high levels of liquidity and we have borrowed in advance of capital expenditure, so the ratio is higher than many in the sector. The ratio has remained unchanged in the year at 2.8:1 (2022-23 2.8:1). As we invest in refurbishing our estate, we would expect this ratio as well as our Net Liquidity Days (KPI 7) to reduce.

A graph showing Ratio of current assets to current liabilities.

KPI 6. 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 is £40.4m which represents 10.3% of income (2022-23 £47.2m and 13.0%). The decrease from last year is mainly due to movements in working capital.

A graph showing Net cash inflow to income.

KPI 7. 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 282 days (2022-23 248 days). This includes the USS credit in expenditure.

A graph showing Net liquidity days.

Income

Total income increased by £28.2m (7.8%) from £363.0m to £391.2m.

Tuition fee income increased by 6.6% to £219.5m. This was mainly due to an increase in full time overseas students (up by £12.5m). Tuition fee income represents 56% of total income.

Total funding body grants decreased from £46.7m to £41.2m. Grant income from UKRI fell by £5.4m in year, mainly due to lower levels of capital grants.

Research grants were £50.6m (2022-23 £45.0m) an increase of 12.4% and reflects the growing portfolio of contracts we hold and the focus on research growth which is part of our strategy.

Other income at £68.2m has increased by 16.8% (2022-23 £58.4m). This is mainly due to the increase in income from residences and catering of £6.0m in 2023-24.

Endowment and donation income for 2023-24 is £4.3m (2022-23 £1.5m).

A bar chart showing Total income £m.

Tuition fee income

Tuition fee income increased by 6.6% to £219.5m (2022-23 £205.9m).

Fees from full time UK students rose by £1.0m (0.9%) to £108.1m. With the undergraduate fee remaining at £9,250 this increase came from student number growth.

Fees from full time overseas students (including EU students who now pay the overseas rate) rose by £12.5m to £89.3m. This source now represents 40.7% of all tuition fee income.

Fees from part-time students, short course and training student grants remained unchanged at £22.0m.

A bar chart showing Fee income £m.

Analysis of fee-paying students as at 1 December 2022-23 2023-24
Headcount Home fee status
Undergraduate 12,576 12,911
Postgraduate taught 1,775 1,434
Postgraduate research 1,127 1,039
Headcount Overseas fee status
Undergraduate 1,916 2,273
Postgraduate taught 1,466 1,364
Postgraduate research 380 353
Total 19,240 19,374

The table above summarises the standard registration population headcount for the years.

Expenditure

Expenditure reported in the SOCI decreased by £45.9m to £316.0m. This decrease includes a credit of £98.2m for the release of the USS pension provision.

Recurrent expenditure excluding this release is £414.2m, the equivalent value for 2022-23 is £378.0m which represents an increase of 9.6%. This reflects strategic investment, inflationary pressures and higher depreciation resulting from capital investments.

Our staff costs at £208.0m have increased by £15.8m (8.2%) over 2022-23, whilst average FTE numbers increased by 146 (4.5%) to 3,367. Academic department staff costs were £112.7m for 2023-24, 54.2% of total staff costs before pension adjustments.

A bar chart showing Total Expenditure £m.

Our operating expenses at £137.6m have increased by 8.6% from £126.7m.

In the analysis of expenditure by activity (note 10), Academic Department expenditure increased by £12.1m to £151.5m and represents 36.6% of total expenditure before release of the USS pension provision (2022-23 36.9%). When combined with Academic Services this rises to 46.2% of all expenditure before the USS provision release. Research grants, premises, residences, retail and catering represent 7.0%, 16.2%, 12.6%, respectively, of all expenditure before the USS provision release.

Central Administration expenditure increased 3.8% from £23.5m to £24.4m.

Staff and student facilities expenditure increased by 4.8% to £19.7m. Residences, retail and catering operations expenditure increased by 15.0%, to £52.0m. There was a similar increase in income for this area of 13.7% (note 5).

Research expenditure fell slightly by 4.3% to £29.1m, despite the growth in income of 12.4% in the year (note 4).

Depreciation and impairment increased by £10.7m, to £57.4m (an increase of 22.9%) reflecting the higher levels of capital investment now being made.

Other comprehensive income

The total comprehensive income in the year is £226.5m (2022-23 restated £190.9m).

The table below summarises those entries reported after surplus for the year on the SOCI of £81.0m (2022-23 restated surplus £18.6m) and reason for the change from 2022-23.

Item Impact 2023-24 Impact 2022-23 Valuation impact
Actuarial gain in respect of pension schemes £0.3m £36.6m At 31 July 2023 the discount rate used to estimate future liabilities of the scheme increased to 5.1% from 3.5% and this reduced the liabilities due from the LGPS. There have not been any significant changes in the actuarial assumptions as at 31 July 2024.
Change in the fair value of tangible fixed assets £145.2m £135.7m Building valuation is determined by either market value or replacement cost less an allowance for use (depreciation). Building costs increased by 5.0% in 2023-24 against 6.2% the previous year. On a leasehold estate of £982.2m the net increase was £97.6m. The market value of our freehold properties increased by £47.6m.

Balance sheet

Fixed assets

Our capital additions in 2023-24 were £53.7m (2022-23 £25.5m). The combination of this with depreciation and the revaluation gain reported in the table above saw fixed assets increase from £1,054.4m to £1,195.7m.

Current assets

Current assets decreased by £15.4m to £230.0m. Of this our investments decreased by £12.8m to £196.8m, which is due to the increased level of fixed asset expenditure made in the year.

Creditors, amounts falling in less than one year

These decreased by £5.7m, to £81.7m, with a decrease in trade payables of £2.1m and deferred income of £3.7m. Loan repayments due next year remained unchanged at £2.1m at 31 July 2024.

Creditors, amounts falling due in more than one year

These remained virtually unchanged at £194.4m (31 July 2023 restated £194.3m). The main movements are the bank loan repayment of £2.1m in year offset by loss on valuation of loan notes of £2.1m.

Pension provisions

Pension provisions have decreased by £94.8m to £7.6m.

The USS is a multi-employer scheme with no basis to accurately identify our share of the assets and liabilities and therefore our deficit. At 31 July 2023, our balance sheet included a liability of £96.0m for future contributions payable under the deficit recovery agreement which was concluded on 30 September 2021, following the 2020 valuation when the scheme was in deficit. No deficit recovery plan was required from the 2023 valuation, because the scheme was in surplus. Changes to contribution rates were implemented from 1 January 2024 and from that date we are no longer required to make deficit recovery contributions. The remaining liability of £98.2m was released to the income and expenditure account. Further disclosures relating to the deficit recovery liability can be found in note 25.

LGPS is also a multi-employer scheme in which liabilities and assets can be established for individual employers. We saw our pension deficit increase slightly to £7.6m (31 July 2023 £6.4m), as the increase in scheme liabilities (at £6.2m) exceeded the increase in the market value of the assets (at £4.9m). Contribution rates are determined by triennial valuations which use a different set of assumptions. The scheme undertook its most recent valuation on 31 March 2022. Our cash contribution rate is 20.7% for future service.

Loan notes

We have previously recognised loan notes of £150.0m as basic financial instruments, resulting in the loan notes being recognised at amortised cost. Certain of the loan notes (with a cost of £94.6m) are subject to foreign exchange options held by US investors to protect against future foreign exchange exposure should we decide in the future to repay part or all of the debt early. A review of the loan notes has concluded that the instruments should be classified as non-basic and recognised at fair value.

The change in recognition has resulted in a loss of £2.1m (2022-23 gain of £17.5m) in relation to fair value movements being recognised through the statement of comprehensive income and expenditure for the 2023-24 financial year.

The value of the loan notes in the balance sheet has reduced from £94.6m to £66.9m (31 July 2023 £64.8m). Details of the prior year adjustment are included in note 27. The contractual payments arising from the loan notes are unchanged.

Going concern

After reviewing the University’s forecasts, which cover the period to 31 July 2026 (the outlook period), Council confirms that it has reasonable expectation that we have adequate resources to continue in operation for the foreseeable future. In reaching this conclusion it has considered a downside scenario in student recruitment levels; however, Council is satisfied that the strategies, plans and policies in place will help ensure that the University has sufficient funds to meet its liabilities as they fall due over the outlook period.

Council regularly reviews performance using the key performance indicators included in this review in areas that are relevant to financial sustainability. Council, through the Audit and Risk Assurance Committee, 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 and is confident that the agreed covenants will be met throughout the outlook period. Council is not aware of any material uncertainties related to events or conditions existing at the date of signing these accounts, that cast significant doubt upon the University’s ability to continue as a going concern. Therefore, Council continues to adopt a going concern basis for preparing the Annual Accounts.

Financial risk & outlook

2023-24 has seen a continuation of the growth in student numbers from both home and overseas. Despite the substantial recruitment pressures in the UK higher education sector, we are continuing to predict and plan for further growth over the next few years. Demographic changes will support our important home markets and we anticipate further growth in our overseas undergraduate population where our offering is strongest.

To deliver and support this growth, we recognise that we need to invest in our estate both to accommodate growth and modernise our original 1970’s buildings. We are also mindful of the impact the built environment has on our carbon emissions and our ability to meet our net zero target by 2030. As we develop our capital and carbon plans we will continue to assess our performance against our net zero target.

As part of our planning, we have developed a fifteen-year capital requirement amounting to approximately £1.3 billion. Whilst still subject to change it is clear that we will need to increase our operating cashflow to fund this investment, consequently we have set ourselves the target of increasing our annual HCOS operating surplus to 5% by 2027-28 and to maintain it at that level thereafter. Achieving this will require contributions from all faculties, central teams and commercial areas. Whilst this is broadly in line with our surpluses pre-Covid it is an ambitious target given the headwinds facing the sector. We recognise the execution risk in delivering our plan to re-build our operating margins and the impact external factors may have. Whilst we are seeking to increase our cash generation to fund investment, a higher operating cashflow will also stand us in good stead in the event of a greater than expected deterioration in sector finances. Ultimately, we could defer some of our capital expenditure to ensure our sustainability, though this would impact our student experience and research ambitions.

Our new capital strategy is essential to ensure the University continues to deliver world class education and research for our students, staff and community, as well as support the achievement of our net zero target by 2030. However, we will face risks in its delivery, in respect of capital cost inflation, availability of construction resource and debt servicing costs if interest rates remain substantially above levels seen in recent years.

We continue to experience cost pressure in staff and operating expenses with higher inflation rates. Regulated fees constrain our ability to offset cost inflation however, we either set the price, or prices are linked to costs, for around 70% of our income providing scope to address cost inflation.

In addition to these inflationary pressures, we face the same risks as those seen across the rest of the UK higher education sector. The risk of continued increases in pensions costs has declined in the year, with the latest actuarial valuation reporting that the University Superannuation Scheme is now fully funded and the improved funding position of the Local Government Pension Schemes. We recognise that we are in a global market for international students and are impacted by the policy of our own as well as our competitors’ governments. Recent changes in UK immigration rules have seen a marked decrease in application for study visas from overseas which has had a negative impact across the sector. The UK’s relative market position will continue to present both a risk and an opportunity for us and we await any response of the new government to the challenges the sector is experiencing in this area.

As a sector, universities have a lot to add to the growth agenda of the new government through our education and research. Whilst we recognise the substantial pressure on public funding, the financial sustainability of the sector funding model is a significant risk to our plans. We were reassured to see that the Government recognise this and are seeking to put the sector on a secure footing as part of their upcoming review of HE. More immediately, the net impact of the recent changes to regulated tuition fees and National Insurance are negative for us.

In common with the rest of the Higher Education sector, we face significant risks to the delivery of our strategy. However, our continued commitment to high quality education and research has given us a strong financial and market position, which provides confidence for our future.

Martin Williams
Director of Finance

Signed on behalf of the Council
12 December 2024

On this page