January 2003/02
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| To: | Heads of HEFCE-funded higher education institutions Heads of universities in Northern Ireland |
| Of interest to those responsible for: | Finance, Planning, Management |
| Reference: | 2003/02 |
| Publication date: | January 2003 |
| Enquiries to: |
Annual operating statements Financial forecasts |
Executive summary (read on-line)
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Report
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Annex A 2002 financial forecasts: Surplus/deficit after depreciation of assets at valuation and tax
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Annex B 2002 financial forecasts: Income and expenditure account - HEFCE HEIs sector total
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Annex C Operating surplus/deficit and historical cost surplus/deficit as a percentage of total income
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Annex D 2002 financial forecasts: Balance sheet
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Annex E Net cash, net liquidity and external borrowing
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Annex F 2002 financial forecasts: Cash flow statement HEFCE HEIs sector total
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Executive summary
Purpose
1. This report provides a summary of the higher education sector's annual operating statements for 2001-02, and gives financial projections for the sector covering 2001-02 to 2005-06. It is based on information provided by higher education institutions (HEIs) in July 2002.
Key points
Annual operating statements
2. This is the fourth year in which we have sought annual operating statements (AOSs) from institutions. Our analysis of the 2001-02 AOSs focused on four key areas of HEFCE strategic funding: widening participation; learning and teaching; business and the community; and rewarding and developing staff.
3. Our analysis of the 2001-02 AOSs shows that the great majority of institutions have demonstrated that they are making good progress with their plans in each of the areas of strategic special funding. Where the AOS indicates that an HEI has fallen behind with its plans, we will investigate the matter further, to determine what action is appropriate. In extreme cases we may re-profile funds or take back funding.
4. We are continuing to develop the AOS framework, seeking to identify the minimum range of information that we need for monitoring purposes, and collecting as much of it as possible through the AOS.
Financial forecasts
5. The operating position is forecast to be at break-even for 2001-02 and 2002-03, with slight improvements in later periods but with operating surpluses remaining well below 1 per cent of total income after excluding exceptional items. (These forecasts do not take account of the infrastructure and cost of capital adjustments included by HEIs when they report under the Transparency Review to reflect the full cost of activities.)
6. Overall the forecasts appear to have been prepared on broadly reasonable assumptions, albeit for some institutions these may be challenging or unduly optimistic.
7. Universities and colleges are forecasting to keep income and expenditure in balance, but this is at a cost of, among other things, reducing staff:student ratios. Increases in income generation are forecast, and income from research grants and contract activity is forecast to increase by 6 to 7 per cent per year, but contribution rates (to indirect costs) are forecast to remain static at current levels. This is despite many institutions targeting this area for improvement, and indicates that this is likely to be a difficult area in which to secure financial benefits.
8. Institutions face a wide range of financial risks, which need to be managed. Those most often identified by institutions are:
- Under-recruitment of UK and EU students, or failure to achieve recruitment targets.
- Failure to achieve overseas recruitment targets.
- Increases in salaries above inflationary uplifts.
- Failure to manage capital programmes - delivery and funding.
9. Actions which institutions have identified to address the projected financial situation include:
- Strategic change (including restructuring, reduction in size, merger or strategic alliance).
- Change in academic provision and delivery.
- Changes in resources and use of assets (including estate rationalisation).
- Improvements in management information and management processes.
- New strategies for costing, pricing and marketing.
10. The financial strength of the sector is satisfactory when viewed in aggregate, but a small number of HEIs are facing significant financial constraints.
11. The level of capital expenditure is forecast to be considerably higher than in previous periods, peaking in 2002-03. This strongly reflects the availability of capital grants such as the Joint Infrastructure Fund (JIF), the Science Research Investment Fund (SRIF) and project capital, and is forecast to decline from 2004-05 onwards as these programmes come to an end.
12. These forecasts do not incorporate the additional capital grants for research announced following the 2002 Spending Review, which will enable the capital investment programme in support of research activity to continue. Continuation of capital funding streams for teaching will also be necessary if the required levels of investment are to be sustained.
Action required
13. None, this report is for information.