The Universitys Finances

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The Universitys Finances
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The Universitys Finances

• University Income and Surplus
• Is Our Budgeting/Forecasting Accurate?
• Is This The End of the World?
• Emerging Balance Sheet Issues
• Investment

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Sustained Growth in University Turnover
In 10 Years - Double in Size with Growth of 7.9
pa
In 5 Years 10.1 pa growth delivered
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Where has the Growth Come From ? Over the last 5
Years
12 pa
11 pa
9 pa
8 pa
15 of Income
50 of Income
26 of Income
9 of Income
2004/05 Income
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but growth has not flowed on to the bottom line
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2004/05 Outturn Surplus better than expected
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2004/05 Outturn Surplus better than expected

• 843k improvement, why?
• 420k under spend on Dept Grant, 20/22 units
  under-spent their grant
• 298k improvement on indirect-costs recovered
  from research grants
• 122k improvement on student residences,
  conferences and catering
• 3k other

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future prospects hit by 2005 student
registrations
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The Funding Gap
Expenditure
Income
The Return of the Funding
Gap! 2.5 Inflation
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Inflation
T Grant inflation 0.99 in 05/06
Regulated income is where Govt determine
inflation eg HEFCE T Grant, QR Grant HEU
Tuition Fees
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The Funding Gap Over Time
Over 5 Years Pay Costs 15.1m
5.0 pa
Regulated Income 5.1m
2.5 pa
The University needs to find 10m from other
sources
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But Other Costs Have Also Grown
26 pa
18 pa
16 pa
10 pa
8 pa
6 pa
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What are the drivers?
2005/06

• 147 Overseas FTEs shortfall against target _at_ 9k
  per FTE
• 1.3m loss of income

• 73 HEU FTEs below financial target, also below
  contracted FTE
• 280k in holdback of T Grant and loss of fee
  income

• Start-up costs of Southend
• but this generates healthy net income streams
  by 08/09

• But we have received 1m transitional fEC grant!

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What are the drivers?
2006/07
The year of double whammy!

• (1) The 05/06 fEC grant drops out, replaced by
  new earnings ???
• income drops by 1m

• (2) Introduction of Pay Modernisation
• recurrent costs rise by 950k per year (net
  cost to the University)

• Reduction in overseas FTEs in 05/06 flows
  through, plus a further fall
• ..at a loss of 9,000 per FTE

• Variable fee income begins to flow through
• ..at a gain of 1,350 per FTE (3,000 - 1,200
  current fee - 450 bursary costs)

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What are the drivers?
2007/08

• 2 Years of variable fee income
• Continued build up of fEC earnings
• assumption is that these new income streams are
  not spent
• Southend finances begin to improve

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What are the drivers?
2008/09

• 3 Years of variable fee income 3rd year, full
  effect
• worth a net 6.9m per year from 08/09 onwards
• Continued build up of FEC earnings 3rd year,
  full effect
• budget assumes 600k per year from 08/09 onwards
  
• Southend begins to generate surpluses

BUT despite all this new income, we will still be
WELL below a sustainable level of IE Surplus..
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What level of surplus should we be earning?
1.5m short
3 Target
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Budgeting Accuracy
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Budgeting Accuracy
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Budgeting Accuracy
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Budgeting Accuracy
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Budgeting Accuracy
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Budgeting Accuracy
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Budgeting Accuracy
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Budgeting Accuracy
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Corrective Budgetary Action

• 2001/02
• 200k deferral of residential LTM
• 131k reduction in Dept grant/freeze fund
  balances
• 200k reduction in admin budgets
• Recruitment freeze
• 2002/03
• No measures needed..new lecture hall proposed

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Corrective Budgetary Action

• 2003/04
• 5 reduction in Dept Grant
• 50k reduction in Library budget
• 200k deferral of ISS expenditure
• 300k deferral of LTM
• Recruitment freeze/freeze dept funds

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Corrective Budgetary Action

• 2004/05
• 200k deferral of residential LTM
• 200k reduction of Dept grant/freeze in fund
  balances
• 100k reduction in Library budget
• 50k reduction in PG Scholarship budget
• Recruitment freeze
• Initiation of 2m permanent cost-reduction
  exercise to be achieved by the start of 2006/07

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Corrective Budgetary Action

• 2005/06 2006/07
• 200k deferral of LTM
• 75k reduction in Library budget
• 50k reduction in ISS budget
• TALIF suspended
• 60k reduction in Dept grant (via REF)
• Recruitment freeze

• Whats likely to happen this year and next?
• Might just about breakeven in 05/06
• May be difficult to avoid a deficit in 06/07

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Recurrent Health Some Conclusions

• 5 years (out of 6) of short-term / temporary
  budget measures
• Significant deferral of cost into the future
• In last 3 years we have balanced the budget by
  what has proven to be over optimistic student
  growth assumptions
• Essex has benefited from high levels of overseas
  income, but.
• the University is more exposed that others when
  markets turn downwards
• Need to focus on improving student recruitment
  and retention
• Need to permanently rebalance expenditure in line
  with our income

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The End Of The World?
1994 Group
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Deficits in Last 5 years
1994 Group
18/80 squares in deficit 23
10/16 HEIs have posted a deficit over the last 5
years 63
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Inadequate Surpluses (lt3 of income)
1994 Group
63/80 squares below 3 target 79
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Sustainable Surpluses (gt3 of income)
1994 Group
18/80 squares above 3 target 22
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94 Group 5 Year Surpluses/(Deficits)
1994 Group
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94 Group 5 Year Surpluses/(Deficits)
1994 Group
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But the surplus for the year isnt the only
concern about our financial health..
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Balance Sheet Issues

• Why?
• IE Surplus for the Year has been main focus
  for judging financial health

• High debt - but does this matter?
• Low Cash - may become a constraint
• High debt / low cash closes down two sources of
  future capital financing - how will we fund
  future cap ex?
• High debt / low cash / low surpluses increases
  risk - how can we reduce our risk exposure?

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Changing Shape of the Balance Sheet
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Changing Shape of the Balance Sheet
Real side real things!
Equity representation of who owns what and
where investment resources come from
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Changing Shape of the Balance Sheet
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Changing Shape of the Balance Sheet
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Changing Shape of the Balance Sheet
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Changing Shape of the Balance Sheet
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Changing Shape of the Balance Sheet
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Changing Shape of the Balance Sheet
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Changing Shape of the Balance Sheet
Note some current liabilities are included in
debt
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Changing Shape of the Balance Sheet
2006/07 -15 0.31
Note some current liabilities are included in
debt
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Changing Shape of the Balance Sheet
Note some current liabilities are included in
debt
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Capital Investment
Recent History - 8 Years
Ext Funding capital grants loans sale
receipts
1m per year
3m per year
Next 4 Years to 2008/09
1.8m per year planned
BUT this assumes no additional schemes to those
currently approved wholly unrealistic
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Conclusions

• Careful management of recurrent position over
  next few years
• Closer eye on balance sheet issues
• Plan to achieve recurrent balance in Income and
  Expenditure
• without damaging income earning capacity
• Revise the Universitys strategy
• Devise a new financial strategy to support the
  new strategy