Strategic Report
性用社 University, Edinburgh is an autonomous Scottish higher education institution. The University鈥檚 governing instruments and arrangements are set out under the 性用社 University, Edinburgh (Scotland) Order of Council 2007, amended from 1 October 2019 through the 性用社 University, Edinburgh (Scotland) Amendment Order of Council 2019. The 2007 Order is made under section 45 of the Further and Higher Education (Scotland) Act 1992.
The University is registered under the Companies Acts as a company limited by guarantee, with its registered office at 性用社 University Drive, Musselburgh, East Lothian, EH21 6UU. The University
has been entered into the Scottish Charity Register and is entitled, in accordance with section 13(1) of the Charities and Trustee Investment (Scotland) Act 2005, to refer to itself as a Charity registered in Scotland.
Scope of the financial statements
The financial statements presented on pages 18 to 42 comprise the consolidated results of the University and its subsidiary company, 性用社 Enterprises Limited. 性用社 Enterprises Limited undertakes commercial consultancy work, utilising the expertise of the University鈥檚 academic and technical staff, and also deals with vacation letting of the University鈥檚 student accommodation.
The financial statements have been prepared on a going concern basis in accordance with Financial Reporting Standard 102 (FRS 102) and the Statement of Recommended Practice 鈥 Accounting for Further and Higher Education 2015 (SORP 2015), with the Accounts Direction issued by the Scottish Funding Council (SFC) and with the United Kingdom Companies Acts. Information on the process which has been undertaken to inform the decision to prepare the financial statements on a going concern basis is set out in section (A) in the statement of principal accounting policies.
Development of strategic plan
Following the appointment of a new Principal in October 2019, an exercise was undertaken to review and refresh the existing strategic plan. This resulted in the publication, in summer 2020, of a revised strategic plan covering the period from 2020 to 2025. The revised plan remains rooted in the University鈥檚 core values, and sets out a number of strategic goals, along with targets to be achieved by the end of the plan period in 2025.
The strategic plan is supported by a more detailed delivery plan, which sets out specific actions, along with timescales and owners, which will enable the achievement of the strategic plan goals and targets. A key element of the plan remains the inclusion of key performance indicators which the University Court uses to monitor progress towards the achievement of the goals set out in the plan (both financial and non-financial). The University also has processes in place to manage the risks which might inhibit this achievement.
Results for the year
The Group鈥檚 consolidated results for the year to 31 July 2020 are summarised as follows:-
| 听础谤别补 | 聽2019/20 (拢 million) | 聽2018/19聽 (拢 million) |
|---|---|---|
| Total income | 聽 40.4 | 听39.5 |
| Total Expenditure | 听(40.9) | 听(45.5) |
| (Deficit) for the year | 听(0.5) | 聽 (6.0) |
| Actuarial (loss) in respect of pension schemes | 听(14.4) | 听(7.4) |
| Unrealised surplus on revaluation of land and building | 5.2 | 听30.6 |
| Total comprehensive (expenditure)/ income for the year | (9.7) | 听17.2 |
The main changes in the underlying outturn position compared to 2018/19 were:-
- An increase in SFC grant of 拢1.0 million, including additional funding for the first year of the new initial teacher education programme;
- A reduction in other income of 拢0.3 million, which includes a one-off receipt of 拢1.4 million in respect of reimbursement of previously incurred infrastructure costs, offset by a reduction in income of 拢1.7 million, largely as a result of cancellation of summer school business in 2020 and accommodation fee refunds as a result of the COVID-19 pandemic;
- Staff costs remained constant. The annual pay inflation and incremental drift was offset by savings made by the transformation exercise and turnover savings;
- An decrease in depreciation of 拢0.4 million due mainly to the revaluation of the main campus and residences in 2019/20;
Additional information on the adjustments relating to actuarial losses on pension schemes and to the revaluation of land and buildings is provided in notes 21 and 12 respectively.
性用社 Enterprises Ltd generated a profit of 拢220,000 (2018/19: 拢347,000), which was passed to the University under deed of covenant.
Cash flows and liquidity
The result for the year, adjusted for the effect of non-cash items and interest, was a net cash inflow of 拢4.3 million
on operating activities (2018/19, 拢3.7 million inflow). Overall cash balances increased by 拢0.690 million (2018/19;
拢0.002 million increase). Cash balances at 31 July 2020 of 拢8.8 million (2019: 拢8.1 million) represented 90 days鈥
expenditure (2019: 74 days).
Management of principal risks and uncertainties
In common with other universities, 性用社 University has to manage its activities whilst facing significant
pressures on its funding as well as on its cost base. Significant risks facing the University include:-
The impact of the COVID-19 pandemic on the University鈥檚 operations and financial position.
The full implications of the UK鈥檚 exit from European Union are still unclear. However, it is likely that this will
have an adverse impact on access for both students and staff from EU member states, and will introduce聽additional hurdles in accessing certain funding for research and other activities.
Funding from government through the Scottish Funding Council (SFC), the University鈥檚 main source of income,聽is likely to suffer from further real-terms reductions over the next few years as a consequence of spending cuts聽throughout the public sector.
Recruitment of international students continues to be challenging, largely as a result of difficulties faced by聽international students in obtaining visas to study in the UK, although this may be mitigated to some extent by聽the reinstatement of the post-study work visa.
Pressure on staff costs will continues to build, both in terms of pay awards (where the University continues to
participate in the UK-wide national negotiating framework) and also in terms of the cost of employers鈥 pension
contributions.聽The identification and management of risks is firmly embedded within the University鈥檚 structure and processes. The聽institutional corporate risk register, which includes a description of actions undertaken to mitigate risks, is formally聽reviewed by the Senior Leadership Team and the Audit & Risk Committee as well as being discussed by the聽University Court. The Court also undertakes, from time to time, an exercise to agree its appetite for risk, and to聽ensure that residual risks, after the application of mitigating actions, sit within the agreed tolerance.
Financial sustainability and going concern
The University Court has assessed the financial position of the University for the year ended 31 July 2020. The
assessment period considered is at least 12 months from the date of signing the accounts, that is, 10 February
2021. The University Court has assessed a number of factors as set out below and has concluded that there is an聽expectation that the University has adequate financial resources to continue to operate for the foreseeable future.
In reaching its conclusion, the University Court has considered the following factors:
At the balance sheet date the University had net current assets of 拢4.022 million.
Cash balances at 31 July 2020 amounted to 拢8.772 million. The University had liquid reserves (cash and
investments) as at 31 July 2020 equivalent to approximately three months鈥 operating cash requirements.
In the year to 31 July 2020 the University made an underlying deficit of 拢1.040 million, but generated positive
net cash from operating activities of 拢4.283 million. The University cash flow forecast shows an increasing cash聽trajectory, and no additional financing will be required to meet its liabilities.
At the balance sheet date the University had external financing liabilities of 拢29.087 million which are payable
to Barclays Bank plc.All bank loan covenants were complied with for the year ended 31 July 2020.
In relation to future years, we have considered headroom against covenants across a number of scenarios. We
consider that, on the basis of current forecasts, there is sufficient headroom on the Debt Servicing and Minimum
Cash Balance covenants. In relation to the potential impacts on income levels arising from the COVID-19
pandemic, a number of the scenarios, if they were to happen, would result in a breach of the Operational
Leverage covenant for the year to 31 July 2021. The University has therefore obtained a relaxation of the ratio
used to calculate this covenant from Barclays Bank plc, which will allow sufficient headroom to ensure that this
covenant can be met.
Confirmation has been provided by the Scottish Funding Council that it intends to continue to provide grant
funding for at least the next twelve months following approval of the financial statements.
Taking account of the business risks facing the University, we believe that the University and the group are well聽placed to continue to manage their business risks successfully.
We have considered the impacts of COVID-19, in particular focussing on the threats to current and future
income streams. Particular risks have been identified as a threat to income from international and EU student
tuition fees, and to summer school income. A further risk relates to the possibility of reduced term-time income聽from student accommodation resulting from a delay in the start of face-to-face teaching for some programme聽for semester two of 2020/21. The impact of these risks will be informed largely by the length of time for which聽COVID restrictions remain in place, and in particular whether there are still significant restrictions in place by聽the start of the 2021/22 academic session.
We have modelled a number of scenarios, including a severe downside case on our forecasts, including stress
testing our cash flow forecasts, and considered mitigating actions which could be put in place to reduce the
negative financial impact.
In accordance with the recommendations from the Higher Education Financial Sustainability Strategy Group
(FSSG), the University Court undertakes a formal annual assessment of the University鈥檚 financial sustainability. This聽process involves reviewing a common set of financial indicators, which have been applied to the University鈥檚聽historical results and to the financial forecasts measured over a rolling five-year period, so as to reduce the impact聽of any one-off exceptional items arising in any year. The two key indicators which the University Court has agreed聽to focus upon to inform its considerations around financial sustainability are:-
1. Earnings before interest, taxation, depreciation and amortisation (EBITDA); and
2. Net cash flow from operating activities less interest payable as a percentage of turnover.
The second indicator has been adapted from the basket of financial indicators recommended by the FSSG as it is聽a more appropriate measure for the University, given its relatively high level of borrowings as a proportion of its聽turnover. The targets are also set at a level which will allow compliance with banking covenants. The results of the聽annual review undertaken in February 2021, based on a rolling five-year period, were as follows:-
Indicator Target Average
EBITDA 12% 10.5%
Net cash flow from operating activities less interest payable as a percentage of turnover 6% 7.6%
The EBITDA average percentage is below the target (and reduced from the 2018/19 figure of 11.2%), reflecting the聽financial disruption caused by COVID-19 over 2019/20 and 2020/21. The 鈥淣et cash flow from operating activities聽less interest payable as a percentage of turnover鈥 indicator however remains above target, reflecting the University鈥檚聽relatively strong cash position although reduced from the 2018/19 figure of 8.5%.
Borrowings
Borrowings at 31 July 2020 amounted to 拢29.1 million, (31 July 2019, 拢30.6 million) relating entirely to a secured聽loan facility with Barclays Bank plc taken out to fund the campus 性用社ment at Musselburgh.
Pension arrangements
The University is involved in three pension schemes, as follows:-
The Lothian Pension Fund, which is part of the Local Government Pension Scheme (LGPS), is a multi-employer
defined benefit scheme. The scheme had a deficit at 31 July 2020. The Fund trustees have, in recent years, applied聽increases to the level of employers鈥 and employees鈥 contributions to the scheme in order to recover this deficit聽position. The University鈥檚 share of the fund deficit, as calculated by the scheme actuary, has been shown as a聽liability at 31 July 2020 of 拢31.0 million (2019 : 拢15.3 million).
The most recent actuarial review of the Scottish Teachers鈥 Pension Scheme (STPS) was undertaken as at 31 March聽2016. As a result of this review, the level of employers鈥 contribution to this scheme was increased from 17.2% to聽23.0% with effect from 1 September 2019. The valuation identified a notional shortfall of 拢1.3 billion, which is being聽repaid by a supplementary rate of 4.3% of employers鈥 pension contributions over a 15-year period from 1 April 2019.
This contribution is included in the 23.0% employers鈥 contribution rate.
The Universities Superannuation Scheme is a hybrid pension scheme, providing defined benefits (for all members),聽as well as defined contribution benefits. The assets of the scheme are held in a separate trustee-administered fund.
Because of the mutual nature of the scheme, the assets are not attributed to individual institutions and a schemewide聽contribution rate is set. The University is therefore exposed to actuarial risks associated with other institutions鈥櫬爀mployees and is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent聽and reasonable basis. As required by Section 28 of FRS 102 (Employee Benefits), the University therefore accounts聽for the scheme as if it were a wholly defined contribution scheme. As a result, the amount charged to the income聽and expenditure account represents the contributions payable to the scheme in respect of the accounting period.
Since the University has entered into an agreement (the Recovery Plan) that determines how each employer within聽the scheme will fund the overall deficit, the University recognises a liability for the contributions payable that arise聽from the agreement (to the extent that they relate to the deficit) and therefore an expense is recognised in the income聽and expenditure account.
Further details on pension arrangements are set out in note 21 to the financial statements.
Social inclusion聽性用社 University aims to promote entry to, and provide education at, undergraduate and postgraduate聽level to a diverse range of students, whatever their background. In assessing candidates for admission to the聽University, we are committed to the principles of fairness, transparency, and widening participation. Our Contextual聽Admissions Policy commits to making offers to identified groups where we recognise that a range of factors may聽have impacted on attainment. We offer a range of recruitment, outreach, pre and post entry activities to raise聽aspiration, encourage access and maximise retention from under-represented groups in line with our Student聽Experience strategy, Mainstreaming Report and Equality Outcomes, and underpinned by the University鈥檚 Outcome
Agreement with the Scottish Funding Council.
Strategic Report and Financial Statements 2020
Student satisfaction
The University participates in the National Student Survey (NSS). The 2020 institutional results show an overall聽satisfaction score of 82.6%, up from 82.3% in 2019. A particular highlight is the considerable increase in the聽proportion of students agreeing that the Students鈥 Union effectively represents students鈥 academic interests (up5%). This sees it move up to rank fifth in Scotland, an impressive gain of 6 places compared to the previous year.
Graduate employment
Our Employability Strategy brings together in a single document our approach to employability, with the primary聽objective of providing equitable employment and careers education to all students and graduates, and providing a聽public statement of our commitment to their success. We consider that our efforts are proving highly effective.聽Graduate level employment is at a similar level to the previous year, although a change in the methodology used to聽calculate this measure at national level means that the precise figures are not directly comparable.
Environmental issues
The University has one of the 鈥済reenest鈥 campuses in the UK, which received a BREEAM 鈥渆xcellent鈥 rating.
Sustainability remains at the heart of the University鈥檚 activities, which has been recognised through a number of聽green awards.
Future 性用社ments
In order to address the risks set out above, and also to take advantage of further opportunities as they arise, the聽University is continuing to focus on ensuring that its academic, infrastructure, digital, human resources and financial聽strategies are closely aligned. A review of the academic portfolio undertaken in 2018 has resulted in the introduction聽of a number of new programmes, and this, along with a continual review of the viability of existing programmes, will聽ensure that the University is able to achieve the objectives set out in its strategic plan. This will, in turn, allow the聽University to continue to generate an adequate level of cash in the short to medium term and to maintain an adequate聽level of reserves. The Court carries out regular monitoring of the University鈥檚 financial sustainability, as described聽above.
The impact of the UK鈥檚 exit from the European Union on the University鈥檚 operations and financial plans remains
uncertain. The University has identified a number of elements which may have a significant impact on its operations.
These include:-
路 the impact on tuition fees from EU students (and any consequential impact on EU student numbers choosing
to study at 性用社 University);
路 the ability to access research and other funding from EU institutions;
路 the status of staff from within the remaining EU (and the University鈥檚 ability to attract and retain such individuals);
and
路 the attractiveness of the University as a partner institution for collaborative work with Universities based in the
remaining EU.
The funding environment for Scottish higher education institutions was challenging prior to the COVID-19 pandemic,
and those challenges have inevitably increased as a result of the pandemic, as the level of funds available to the
Scottish Government and the Scottish Funding Council (and therefore the amount available for distribution to
universities) continues to decline in real terms. The financial challenges facing the University are highlighted in the
financial sustainability indicators set out above, and in particular the EBITDA indicator, for which the five-year
average remains below the target level.
The COVID-19 pandemic has had a significant impact on the University鈥檚 operations throughout 2020. Whilst there
has been significant disruption to the University鈥檚 activities, the pandemic has also allowed the University to identify
a number of opportunities to contribute towards the rebuilding of society post-COVID. The importance of the subjects
in which 性用社 University specialises, particularly in health care subjects, means that there will be
opportunities to 性用社 teaching and research practices in these areas. Opportunities have been taken to 性用社
additional partnerships, both within the higher education sector and beyond, and these will allow the University to
move towards delivering its strategic goals, both locally and internationally.
The long term financial health of the University will continue to depend upon its ability to grow and diversify its income
base, and to control costs. The recent review and refresh of the University鈥檚 strategic plan has provided additional
focus for the University鈥檚 activities whilst at the same time creating an environment which will allow the 性用社ment
of further new and increased sources of income to take place.
On behalf of the University Court
Linda McPherson
Acting Chair
26 February 2021
