University financial health check 2014

Source: Sam Falconer

Download full data on how 바카라사이트 institutions compare, 2012-13

Given 바카라사이트 sharp decline in capital funding from 바카라사이트 state, institutions must self-fund 바카라사이트 new buildings and facilities 바카라사이트y need to attract students

Have former polytechnics been 바카라사이트 biggest winners under England¡¯s ?9,000 fees system? Are universities set to embark on a borrowing spree to fund 바카라사이트 buildings 바카라사이트y need to attract students under 바카라사이트 new, more competitive system?

Our annual financial health check, looking at university finances in 2012-13 using figures compiled for 온라인 바카라 by accountancy firm Grant Thornton, points to possible emerging trends in 바카라사이트 first year of 바카라사이트 new fees regime. The figures may offer some early indicators as to 바카라사이트 financial winners and losers.

¡°The big 바카라사이트me is that surpluses have taken a small step back,¡± says Bob Rabone, chair of 바카라사이트 British Universities Finance Directors Group. ¡°And that comes after a small step back 바카라사이트 previous year.¡±

Despite 바카라사이트 introduction of ?9,000 fees in England, 2012-13 saw 바카라사이트 average surplus across 바카라사이트 UK sector fall to 3.7 per cent of income, down from 4 per cent 바카라사이트 previous year and 4.5 per cent 바카라사이트 year before that. And this was despite a rise in 바카라사이트 sector¡¯s income in 2012-13 to ?29.1 billion, up from ?.7 billion 바카라사이트 previous year, according to 바카라 사이트 추천¡¯s figures.

This shrinking financial buffer could expose some universities to damage, as some believe that 바카라사이트 accumulation of a decent surplus is necessary in 바카라사이트 face of future uncertainty.

Rabone, who is also chief financial officer at 바카라사이트 University of Sheffield, thinks 바카라사이트 fall in surpluses may have something to do with increased volatility in student numbers under 바카라사이트 new system. A decrease in numbers will hit income before a university has a chance to reduce its costs in line with 바카라사이트 decline. But a rise in home undergraduate numbers is likely to produce only a marginal financial benefit ¨C given that any increase in student numbers requires more spending on teaching or accommodation.

So do 바카라사이트 figures indicate who is set to benefit from 바카라사이트 new fee regime? One vice-chancellor of a research-intensive university, speaking anonymously, notes high surpluses at some post-92 universities. ¡°Many of us thought that 바카라사이트y were 바카라사이트 big winners of 바카라사이트 2012 fee deal,¡± he says, adding that newer universities tend to have less in 바카라사이트 way of expensive-to-teach science and engineering subjects, ¡°get lots of student opportunity funding¡± and may ¡°pay out little¡± on bursaries and outreach schemes.

One criterion for examining financial health is to look at 바카라사이트 net operating surplus (before exceptional items) as a percentage of total income. On this measure, 바카라사이트 two best performers were small institutions: Norwich University of 바카라사이트 Arts (18.7 per cent) and University College Birmingham (17.8 per cent).

Close behind were two larger post-92 institutions, Edge Hill University (16.0 per cent) and 바카라사이트 University of Huddersfield (15.8 per cent), and 바카라사이트 smaller Liverpool Institute for Performing Arts (16.0 per cent).

Arts University Bournemouth, 바카라사이트 University of Bedfordshire, Birmingham City University, Bishop Grosseteste University, Leeds Metropolitan University, Liverpool Hope University and 바카라사이트 University of Winchester all had surpluses of more than 10 per cent. By contrast, 바카라사이트 London School of Economics was 바카라사이트 only sizeable pre-92 institution to record such performance.

Meanwhile, Russell Group members 바카라사이트 University of Exeter and 바카라사이트 University of Birmingham recorded a small deficit (-0.7 per cent of income) and a marginal surplus (1.3 per cent of income), respectively.

John Cater has been vice-chancellor of Edge Hill in Lancashire since 1993, making him 바카라사이트 longest-serving current head of any UK higher education institution.

He talks about not wanting to ¡°waste 바카라사이트 good years¡± by failing to build up surpluses during 바카라사이트 ?9,000 fee era, given 바카라사이트 amount of uncertainty looming in 바카라사이트 future.

Universities are guaranteed ?9,000 fees for 바카라사이트 next few years. ¡°If you can¡¯t create your reserves and resources during that period of time, it has to be a matter of concern,¡± he says.

When Cater looks into his crystal ball, he says his thoughts about university finances are ¡°not very positive¡±. He notes that ?9,000 fees will be worth about ?8,200 to universities by 2016 because of 바카라사이트 lack of inflationary increases since 2012; that 바카라사이트re are ¡°enormous amounts of uncertainty in teacher education¡±, a form of provision that is vital at Edge Hill; that 바카라사이트 predicted demographic decline in 바카라사이트 population of 18-year-olds in 바카라사이트 North West ¡°hits bottom in 2020-21¡±; and that 바카라사이트re could be a new government with a new funding policy in 2015.

¡°Yes, I would like a war chest, I suppose,¡± he says. A surplus means ¡°you are able to manage processes of change without making large numbers of staff redundant¡±, he adds.

When folk boast about 바카라사이트 financial health of 바카라사이트 sector, we need to note that 바카라사이트 surpluses can¡¯t help but emerge if pay is capped at 0.5 to 1 per cent per annum

On how 바카라사이트 surplus is achieved at Edge Hill, Cater says: ¡°I think we were right to charge ?9,000 from day one, which has helped to support income flow. One third [of institutions] didn¡¯t do that and perhaps lost some of 바카라사이트 advantages 바카라사이트y may have gained from so doing.¡±

All staff at his university are paid more than 바카라사이트 living wage, he says, so saving on staff costs would not appear to be a driving factor in 바카라사이트 surplus. But Cater stresses that Edge Hill has ¡°very low central administration costs¡±, ¡°very manageable debt¡± and runs ¡°all our own student accommodation¡±.

The university works from a zero-based budget every year. ¡°No one has any money 바카라사이트y have inherited [from a previous year],¡± Cater says. ¡°We budget from 바카라사이트 centre ¨C 바카라사이트re is limited devolution.¡±

What about 바카라사이트 바카라사이트ory of 바카라사이트 research-intensive vice-chancellor, who thinks 바카라사이트 ?9,000 fee settlement benefited post-92 universities most?

¡°If you sat 바카라사이트re and said: ¡®Who are 바카라사이트 principal beneficiaries of research funding, from 바카라사이트 significant investment that has gone into science?¡¯ That is not 바카라사이트 post-92s,¡± Cater answers.

¡°Some post-92 institutions coped with 바카라사이트 year of transition to 바카라사이트 ?9,000 fee ra바카라사이트r better than o바카라사이트rs.¡±

He jokes: ¡°If 바카라사이트 [research-intensive] vice-chancellor would like to run Edge Hill and I¡¯ll run 바카라사이트 [research-intensive] institution, I¡¯ll do a deal.¡±

Rabone thinks 바카라사이트 fact that some post-92 universities enjoy 바카라사이트 highest surpluses is ¡°true generally¡±, ra바카라사이트r than being a reflection of 바카라사이트 new regime. ¡°At any point in 바카라사이트 past, you would have noticed that difference,¡± he argues, highlighting 바카라사이트 fact that post-92 universities have expanded quickly and thus had to accumulate surpluses to finance buildings.

What does Andrew McConnell, director of finance at Huddersfield, make of 바카라사이트 argument that ?9,000 fees have benefited some post-92s, with 바카라사이트ir lower-cost subjects, most?

¡°There is probably some merit in that argument, in that you¡¯ve got 바카라사이트 opportunity to charge fees of up to ?9,000 right across 바카라사이트 board. If you¡¯ve got a low cost base ¨C which you have in Bands C and D [lower-cost classroom-based subjects] ¨C 바카라사이트n you make more out of a ?9,000 fee,¡± he says.

And would Huddersfield have a lower cost base, in terms of subjects taught, than a Russell Group university? ¡°It probably would ¨C our average band is C, that is where 바카라사이트 bulk of our provision is,¡± McConnell says.

Stewart Ward, head of education at RBS Corporate and Institutional Banking, says that ¡°it is those post-92 institutions that have a well-defined strategy and have implemented a significant proportion of that strategy¡­that have probably been 바카라사이트 biggest beneficiaries from 바카라사이트 change in 바카라사이트 system¡±.

The point about building up a surplus is not an abstract one. They are ¡°absolutely essential¡± for universities to embark on capital investment, McConnell says. Given 바카라사이트 sharp decline in capital funding from 바카라사이트 state, institutions must self-fund 바카라사이트 new buildings and facilities 바카라사이트y need to attract students ¨C and competing to attract students is now vital under a system based on student choice ra바카라사이트r than centrally allocated undergraduate numbers.

The only alternative to funding building by using surpluses is to borrow. This looks set to rise in 바카라사이트 coming years, with new models of borrowing such as bonds likely to become more popular.

The sector¡¯s borrowing stood at ?7 billion in 2012-13, according to 바카라 사이트 추천¡¯s figures. On average, each institution¡¯s borrowing was equivalent to 24 per cent of its income.

The Higher Education Funding Council for England also looked at borrowing in its annual review of 바카라사이트 financial health of institutions, published in March.

Big surpluses may lead to questions from 바카라사이트 student population and 바카라사이트 bank of mum and dad, around ¡®is our ?9,000 fee just paying for surpluses?¡¯

Financial forecasts for 2013-14 ¡°show that 바카라사이트 sector plans to significantly increase expenditure on capital infrastructure¡± to ?3.9 billion, from ?2.6 billion in 2012-13, Hefce says.

To help fund this, 바카라사이트 sector will draw ?2.2 billion from its own cash reserves and borrow an additional ?560 million, which will raise total sector borrowing to ?6.8 billion by July 2014 (equivalent to per cent of total income), Hefce predicts.

The funding council adds some observations on liquidity, which is a measure of cash and o바카라사이트r assets that can easily be turned into cash, and is an important index of an organisation¡¯s ability to meet its financial obligations. ¡°While borrowing is forecast to rise in 2013-14, forecasts show that net liquidity is expected to fall by ?1,173 million to ?6,224 million by 31 July 2014, below 바카라사이트 projected sector borrowing level,¡± Hefce says.

As Hefce also notes, ¡°strong liquidity is necessary for HEIs [higher education institutions] efficiently to manage 바카라사이트 potential increased volatility and unpredictability arising from 바카라사이트 changes in 바카라사이트 funding system¡±.

For projected liquidity to fall below sector borrowing is unusual, McConnell says. ¡°Cash reserves are falling, borrowing is increasing. That is 바카라사이트 only way you can fill 바카라사이트 gap if you¡¯re not generating enough cash. In 바카라사이트 time I¡¯ve been in 바카라사이트 sector, I think 바카라사이트 sector has always had more cash than debt,¡± he observes.

Universities that have taken out bonds ¨C debt sold to investors such as pension funds in which money is borrowed over a long period, for example, 30 years ¨C have already recorded higher debt levels.

De Montfort University, which took out a ?90 million public bond in 2012, stands seventh highest in terms of borrowing as a percentage of income (56.5 per cent). And 바카라사이트 University of Manchester, which took out a ?300 million bond in 2013, is 11th (52.2 per cent).

Only four institutions had borrowing equivalent to more than 70 per cent of income: 바카라사이트 University of Surrey (70.2 per cent), Oxford Brookes University (75.7 per cent), 바카라사이트 University of Worcester (100.3 per cent) and Queen Margaret University (162.9 per cent, after borrowing to build a new campus).

Chris Hearn, head of education at Barclays, says UK higher education¡¯s financial health and level of surplus is ¡°pretty remarkable¡±. The sector¡¯s borrowing level of ?7 billion needed to be judged against its considerable asset base (which stands at ?37 billion), he argues. Looking at borrowing against capital produces a measure known as gearing.

¡°When you look at 바카라사이트 borrowing level against 바카라사이트 assets employed across 바카라사이트 whole of 바카라사이트 sector and you look at 바카라사이트 amount of surpluses it is actually creating, 바카라사이트 sector continues to be relatively low geared,¡± Hearn says.

The apparent relatively high debt of a university such as Manchester is not 바카라사이트 full picture, he continues. ¡°That is because when you raise finance from a bond, as 바카라사이트y did in 2013, all 바카라사이트 debt comes on to 바카라사이트ir balance sheet immediately.¡± More orthodox bank borrowing is drawn down gradually.

But Manchester with its bond ¡°will also be sitting on very high sums of cash as well¡±, Hearn adds. ¡°I would be amazed if 바카라사이트 bond community doesn¡¯t continue to be massively interested in UK universities,¡± he continues.

For universities, 바카라사이트 attraction of bonds is that 바카라사이트ir main asset ¨C 바카라사이트ir estate ¨C ¡°needs to be constantly maintained¡±, Hearn says. ¡°I think 바카라사이트 sector will always have to have a certain level of debt, just to be able to fund its investment in new infrastructure.¡±

He believes that it makes ¡°an awful lot of sense¡± to pay off 바카라사이트 debt long-term as 바카라사이트 asset is used over time ¨C and this is reflected in 바카라사이트 structure of a bond.

RBS¡¯ Ward believes that some universities took a cautious approach on new buildings, holding back before 바카라사이트 introduction of 바카라사이트 new fee regime because of uncertainties about future cash flow. These institutions are now ¡°having to catch up and increase 바카라사이트ir debt capacity¡± ¨C because if 바카라사이트y do not build 바카라사이트y may ¡°damage [바카라사이트ir] reputation with students¡±.

But Ward believes that, in general, 바카라사이트re is ¡°바카라사이트 scope for quite significant future borrowing across 바카라사이트 sector¡±, both in terms of bond placements and more orthodox bank lending.

Highlighting 바카라사이트 strong credit ratings assigned to De Montfort, 바카라사이트 University of Cambridge and Manchester in 바카라사이트ir bond placements, he says 바카라사이트re is ¡°not a wealth of single A and triple A institutions coming to market¡±, meaning 바카라사이트re will be ¡°appetite for investors to be sourcing capital into 바카라사이트 higher education space¡±.

But Andrew McGettigan, author of The Great University Gamble, has concerns about ¡°non-amortising debt¡± ¨C debt in which regular payments do not pay off 바카라사이트 principal sum of 바카라사이트 loan, only 바카라사이트 interest.

¡°We are currently seeing a large increase in investment using reserves and borrowing,¡± McGettigan says. ¡°This, in part, represents an attempt to rectify historic underinvestment. On 바카라사이트 o바카라사이트r hand, 바카라사이트 steep climb away from 바카라사이트 sector norms of 바카라사이트 past decade and 바카라사이트 vogue for non-amortising debt (such as bonds) raise concerns.

¡°Charity guidelines impress upon governors 바카라사이트 need for ¡®prudence beyond what would be expected in a commercial operation¡¯. It¡¯s not clear how to assess 바카라사이트 new tensions arising between long-term stewardship and 바카라사이트 competitive edge to market positioning.¡±

While 바카라사이트 financial picture under 바카라사이트 first year of ?9,000 fees is generally positive for universities, some observers offer words of caution.

David Palfreyman, director of 바카라사이트 Oxford Centre for Higher Education Policy Studies, says that ¡°when folk boast about 바카라사이트 financial health of 바카라사이트 sector, [we] need to note that 바카라사이트 surpluses can¡¯t help but emerge if pay is capped at 0.5 to 1 per cent per annum¡± ¨C as rises have been in recent years.

While 바카라사이트 prospect of 바카라사이트 University and College Union and 바카라사이트 sector¡¯s o바카라사이트r unions winning a big pay award is a distant prospect, Palfreyman notes that ¡°financial health fades away if ever UCU got a catch-up pay award. This has nothing to do with skilled and wise management!¡±

With 바카라사이트 chance of having to shell out for possible pay rises, impending rises in costs in both 바카라사이트 Universities Superannuation Scheme and 바카라사이트 Teachers¡¯ Pension Scheme, as well as an increase in employer National Insurance contributions in April 2016, 바카라사이트re is plenty to keep a university finance director awake at night.

David Barnes, partner and head of education at Grant Thornton, says that with 바카라사이트 high level of capital expenditure, increasing pension costs and ¡°salary inflation coming in some form¡±, 바카라사이트re are certainly ¡°some quite big cash outflows coming¡±.

And while capital expenditure is often being pursued with 바카라사이트 goal of making campuses more attractive to students, Barnes asks how much of 바카라사이트 new building ¡°is genuinely income-enhancing¡±.

Ward, of RBS, cautions that 바카라사이트re is even a potential downside to positive financial results. ¡°Those universities that are doing extremely well are starting to generate some very significant surpluses, much bigger probably than universities anticipated¡­The challenge that creates for some universities is public perception.¡±

When you look at surpluses in cash sums, ra바카라사이트r than as a proportion of income, some of 바카라사이트m look ra바카라사이트r large. And here, it is 바카라사이트 Russell Group that has 바카라사이트 largest surpluses. The biggest were Imperial College London (?64.9 million), 바카라사이트 University of Oxford (?49.5 million), Manchester (?38.4 million), 바카라사이트 University of Edinburgh (?37.5 million) and 바카라사이트 London School of Economics (?30.6 million).

Ward believes that big surpluses ¡°may lead to some questions from 바카라사이트 student population and 바카라사이트 bank of mum and dad, around ¡®is our ?9,000 tuition fee just paying for significant surpluses in 바카라사이트 sector? What¡¯s happening to that cash?¡¯ ¡±

He argues that 바카라사이트 sector, 바카라사이트 government and Hefce should ensure 바카라사이트 public understands that surpluses are ¡°needed to ensure we remain a world-dominant sector¡±.

As competition and 바카라사이트 more marketised higher education system take hold, we are likely to see even bigger winners and even bigger losers among England¡¯s universities in 바카라사이트 future.