Oxford University Gazette

Financial Statements for the year ended 31 July 1998

Supplement (1) to Gazette No. 4495

Wednesday, 16 December 1998

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Contents of the supplement:

Report on the Financial Statements

Scope and Format of the Financial Statements

The financial statements set out in the following pages have been prepared in accordance with the requirements of the revised Statement of Recommended Accounting Practice entitled Accounting in Higher Education Institutions which is applicable to accounting periods commencing on and after 1 August 1994. The financial statements consolidate the accounts of the University and its subsidiary companies and associated bodies (other than the Oxford University Press, the accounts of which are not permitted to be included under the S tatutes and Decrees of the University).

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Results for the Year ended 31 July 1998

Income rose by 6.9 per cent compared with the previous year, a significantly greater increase than the 4.6 per cent experienced in 1996--7. Funding Council income increased by 8.1 per cent reflecting a substantial increase in research-related assessment exercise. External funding for research through grants and contracts also increased substantially, by 6.9 per cent; the major areas of growth were UK charities (9.6 per cent) and UK industry (13.5 per cent). These results illustrate the increasing success of the University in the highly competitive field of research funding.

 The University's expenditure rose by 5.6 per cent, again a higher figure than for 1996--7, but reflecting the increase in activity funded by the increases in income referred to above. Costs generally continue to rise at a rate greater than the year on year increase in Funding Council grant, which makes success in raising funds from other sources all the more important.

 The consolidated surplus for the year was £17.1m. Within this total, the surplus on the General Fund, which reflects the University's true surplus on operations for the year, was £1.5m, after transferring £3m to meet future capital needs, bringing the accumulated balance on the General Reserve to £10.8m, a small figure in the context of an organisation with an annual turnover now in excess of £300m. In addition to the transfer to capital reserves from the current year's operations and the income of £1.5m. earned on the balances held by the reserves, £6.0m. of the accumulated income from general endowments was transferred to capital, making a total available (with the balance brought forward) of £17.6m. Expenditure from capital reserves totalled £8.7m, leaving a balance of £8.9m. The consolidated surplus is made up as follows: 

increase in the undepreciated cost of 
  tangible fixed  assets financed from 
   general funds                               £9.4m

increase in balances held by departments
  and subsidiaries, and committed
  balances                                     £9.6m

increase in accumulated income from
   general endowments                          £(5.2)m

increase in capital reserves                   £1.8m

increase in general reserve                    £1.5m
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The Financial Position of the University

The University's balance sheet has again been strengthened by a revenue surplus, the receipt of endowment funds and investment in fixed assets. Thus at 31 July 1998, total net assets amounted to £492m, an increase of £62m in the year. Tangible fixed assets increased by £17m before depreciation, reflecting expenditure on a number of major projects including the acquisition of the Oxford station forecourt site for the Said Business School. Investments representing endowed funds increased from £334m to £378m arising from an increase in market value of £35m, new receipts of £3.4m, and £6m from retained income. Liquidity remains strong with over £150m of cash and short term deposits. The University's reserves now stand at £111m having increased from £94m in the year. This total is made up of: 
Undepreciated cost of tangible fixed 
   assets financed from general funds      £43.2m  

funds held by departments, subsidiaries 
   or committed balances 
   (including capital funds)               £48.1m  

accumulated income from general
   endowments                              £8.9m  

University general funds                   £10.8m

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Investment Performance

The University's investments, and their management, play an important role in the financial strategy. Market values increased broadly in line with standard benchmarks during a year which saw some defensive restructuring of the portfolio. Funds handled by external managers include £273m in the Trusts Pool and £33m in the Capital Fund, whilst the balance on the Deposit Pool, which is managed internally, amounted to £77m. Over the year total returns on long term investments have been broadly maintained against the benchmarks set by the Investment Committee, whilst income exceeded target such that an increase of 4.5 per cent in the Trust Pool dividend was payable to constituent trusts, and a substantial transfer was made to the income reserve which acts as a cushion against potential future shortfalls. The Deposit Pool exceeded its benchmark income level, returning 8.5 per cent to depositors. The Investment Committee is continuing to review policy and portfolio structure in the light of current difficulties in the market.

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The Year 2000 problem

There has been a considerable amount of publicity regarding the potential problem caused by computers and allied equipment which may malfunction as a result of the millennium. This is a complex and pervasive issue since the operation of the University's business depends not only upon its own computer systems but also to some degree on those of its suppliers and customers. Council has initiated a project to determine the potential risks to the University's activities arising from the date change to the year 2000. Once this phase is completed, the likely impact on activities can be assessed and prioritised action plans developed to deal with the key risks. Much of the cost of dealing with this problem will be subsumed into normal departmental finances, but central contingencies exist to deal with any University-wide difficulties. Essential central systems are already being comprehensively checked and it is understood that no significant problems are foreseen in this area.

Conclusion

In 1996--7 the University was awaiting the outcomes of the Dearing report, the research assessment exercise and the policies of the new government. With a further year behind it, these outcomes are somewhat clearer. The Dearing report has led to a review of college fees by the government, and an emphasis within the higher education sector on issues of access. These have impacted on funding and planning, not least in clarifying that there is unlikely to be significant growth in funded undergraduate numbers within higher education, whilst cuts in resources, referred to as `efficiency gains', continue, albeit at a reduced level, and funding for the collegiate university will be further reduced by £6.5m at current prices over the next ten years through the college fees settlement. It seems therefore that the proportion of public funding within the University budget will continue to decline and that alternative sources must be sought with increased vigour. A new feature of the financial landscape is the increasing number of special initiatives, often funded partly by government and partly by private sources in partnership, such as the University Challenge Fund to foster technology transfer, and the Joint Infrastructure Fund to renew outworn research facilities. Whilst any new money is to be welcomed, these initiatives generate problems; new buildings bring new costs; funding is usually non-recurrent and leaves the institution to meet future costs. These opportunities therefore have to be approached with caution and financial rigour to ensure that the University derives genuine long term benefit.

As mentioned above, the University secured a significant increase in research funding during the year, both from HEFCE and from external sources. One of the outcomes of that research activity has been an increasingly successful technology transfer operation through Isis Innovation Limited. Since the last report, a number of new spin-off companies have been set up, and three existing companies have come to the market. Shares held by the University in these companies, and other similar enterprises, have a combined value of £28m, representing a substantial asset and one which the University intends to use to create further investment in its business.

Despite the concerns outlined above, the University remains committed to its academic mission, and has further refined its financial strategies to allow it to develop in new directions. Increased resources have been made available to Isis Innovation to stimulate the return on our intellectual property portfolio. There are many projects in progress such as the Said Business School and Wellcome Trust Centre for Human Genetics which will bring further long term benefits and strengths. The University has set up a Research Development Fund to stimulate new concepts; it is investing in strategic sites in Oxford to safeguard its ability to grow. This indicates that the University is actively planning for the future and has confidence that difficulties, if approached with care in the context of a comprehensive strategic planning framework, can be overcome.

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Consolidated Income and Expenditure Account

for the year ended 31 July 1998

1998 1997
£000 £000
Income
Grants from the Higher Education Funding Council for England 88,476 81,875
Grants from the Teacher Training Agency 591 599
Academic fees and support grants 38,467 37,439
Research grants and contracts 114,449 107,031
Other operating income 41,141 39,615
Endowment income and interest receivable 21,593 18,357
TOTAL INCOME 304,717 284,916
Expenditure
Staff costs 158,426 153,306
Depreciation 20,355 24,118
Other operating expenses 107,898 94,126
Interest payable 961 833
TOTAL EXPENDITURE 287,640 272,383
Surplus for the year 17,077 12,533

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Note of Historical Cost Surpluses

for the year ended 31 July 1998

1998 1997
£000 £000
Surplus as reported above 17,077 12,533
Difference between historical cost profit on disposal of fixed asset investments and the actual profit on disposal calculated on the carrying value prior to disposal - -
Historical cost surplus 17,077 12,533

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Balance Sheets

as at 31 July 1998

Consolidated University
1998 1997 1998 1997
£000 £000 £000 £000
Fixed assets
Tangible fixed assets 139,951 121,024 139,465 120,576
Fixed asset investments 44,290 52,069 45,581 53,360
less amounts attributable to outside bodies (40,162) (34,658) (40,162) (34,658)
Net asset investments 4,128 17,411 5,419 18,702
144,079 138,435 144,884 139,278
Endowment fixed asset investments 378,428 334,100 378,428 334,100
Current Assets
Stocks 1,872 1,839 610 566
Research grants and contracts debtors 13,939 20,572 13,939 20,572
Other debtors and prepayments 19,845 23,735 19,211 22,498
Current asset investments 134,213 93,210 134,213 93,210
Cash at bank and in hand 17,522 14,000 15,666 13,360
Creditors
Amounts falling due within one year (115,662) (85,874) (112,092) (82,817)
Net current assets 71,729 67,482 71,547 67,389
Total Assets less Current Liabilities 594,236 540,017 594,859 540,767
Creditors
Amounts falling due after more than one year (998) (19,111) (998) (19,111)
Provisions for liabilities and charges (5,475) (4,148) (5,993) (4,329)
Total assets less liabilities 587,763 516,758 587,868 517,327
Deferred Capital Grants (96,210) (86,682) (96,210) (86,682)
Total net assets 491,553 430,076 491,658 430,645
Endowments
Specific 329,368 291,195 329,268 291,195
General 49,160 42,905 49,160 42,905
378,428 334,100 378,428 334,100
Reserves
Income and expenditure account 110,989 93,912 111,094 94,481
Revaluation reserve 2,136 2,064 2,136 2,064
113,125 95,976 113,230 96,545
Total Funds 491,553 430,076 491,658 430,645

The financial statements were approved by the Curators of the University Chest on 27 November 1998.

C.R. LUCAS
Vice-Chancellor

W. HAYES
Chairman of the Curators of the University Chest

J.R. CLEMENTS
Secretary to the Curators of the University Chest

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Consolidated Cash Flow Statement

for the year ended 31 July 1998

1998 1997
£000 £000
Net Cash Inflow from Operating Activities 25,429 551
Returns on Investments and Servicing of Finance
Income from endowments received 15,658 14,286
Other income from investments and interest received 13,036 6,919
28,694 21,205
less amounts paid to outside bodies (1,161) (1,110)
27 ,553 20,095
Interest paid (163) (72)
Net cash inflow from returns on investments and servicing of finance 27,370 20,023
Capital Expenditure and Financial Investment
Payments to acquire tangible fixed assets (39,338) (36,783)
Net realisation/(acquisition) of fixed asset investments 13,354 (95)
Net realisation/(acquisition) of endowment asset investments (21,608) (4,749)
Net (acquisition) of current asset investments (785) (500)
Capital grants received 29,069 21,689
Endowments received 3,361 3,572
Net cash (outflow)/inflow from capital expenditure and financial investment (15,947) (16,866)
Acquisitions and disposals - -
Net cash inflow before use of liquid resources and financing 36,852 3,708
Management of liquid resources (59,719) (3,753)
Financing
Net mortgages and loans (repaid)/acquired (3) (1)
(Decrease)/Increase in Cash (22,870) (46)

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Consolidated Statement of Total Recognised Gains and Losses

for the year ended 31 July 1998

1998 1997
£000 £000
Surplus for the year 17,077 12,533
Appreciation of fixed asset investments 72 15
Appreciation of endowment asset investments 34,859 34 ,710
Specific endowment income retained for the year 6,108 3,019
New endowments received 3,361 3,572
Total Recognised Gains Relating to the Year 61,477 53,849
Prior year adjustment - -
Total Gains Recognised Since Last Financial Statements 61,477 53,849

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