The annual accounts as ever make for interesting reading. There's a lot to cover so we'll get right to the point with the key stats/info to emerge:
1) A new phenomenon was encountered this year - contracting income, both in cash terms and in real terms. In cash terms income contracted by some ~1.2%. If one assumes an inflationary rate of ~5% (CPI currently at 5% and RPI at 5.4% but both figures have been high since the initial slump in both output and demand post-banking crash, as the Bank of England has pursued a policy of devaluation) then this equates to a real terms contraction of income of ~6%.
2) In spite of this a historic cost surplus was preserved (just) at £0.3m, which is a fairly impressive achievement given the fairly large contraction of income that has hit the University. We would envisage that this was preserved at least in part by a reduction in staff numbers and some quite broad and detailed campus-wide policies for creating savings. Preserving some kind of surplus can have important implications for the University's relationship with its creditors so this is a key statistic.
3) It appears a large chunk of the lost income is explained by a reduction in HEFCE grant - some of this seems to be because the University was fined for under-recruitment, although we cannot be certain of this.
4) The fiscal restraint has been primarily achieved by keeping growth of key expenditure (staff costs & other operating expenses) well below the rate of inflation.
5) From August 2010, "staff pay rises" were a mere 0.4% - we will have more to say on this point below.
6) Professor Hall's emoluments are a mixed bag. On the one hand, his notional salary and pension contributions have risen roughly in line with the rest of the University's staff - his salary is declared as increasing by a mere £1k to £192,000, with pension contributions increasing by the same figure. We do expect that these are 'rounded' figures and, with regards the salary at least, this is roughly the 0.4% pay rise afforded to all other staff. On the other hand, he received 'benefits in kind' totalling some £4k and a 'merit award' (presumably a bonus by another name) of some £8k. All in this amounts to an increase in total emoluments of some £12,000 - or roughly 5.4% year-on-year. This is roughly in line with the current Retail Prices Index and has meant that Professor Hall's salary has effectively been 'proofed against inflation'. It must be considered in assessing this figure that it has been an extremely intensive year for the University so there is at least an argument in favour of a performance-linked 'merit award'. One of the benefits of such awards is that they usually do not have to be accompanied by a corresponding increase in pension contributions, whereas a simple increase in salary usually would, which helps keep the overall emolument figures down. That said it is obviously the case that Professor Hall's total emoluments have been inflation-proofed and those of the rank and file have not. We leave it to others to decide upon the morality of this discrepancy.
7) The number of staff within the '£100k+' club actually fell year-on-year to 11 (including Professor Hall himself). One member of staff is said to have received a severance payment of £112,000 and pension contributions of some £82,000. The only high profile member of staff who left suddenly that we can immediately think of is Professor Alistair Alcock, but there is obviously no obvious way of determing to whom such a large sum was awarded.
8) The method of presenting 'other operating expenses' has been revised (again). We wouldn't wish to venture as to why. Most of the expenditure is quite innocent (which we did anticipate when we commented upon last year's accounts) but as ever there are opaque sub-headings describing the divestiture of enormous sums of money - "Professional and Other Fees" still accounts for some £9.935m (~5% of operating income!) and 'Staff Travel and Subsistence' dispenses with some £3.5m. We now have a point of reference thanks to the Freedom of Information Act what these enormous sums incorporate - legal fees, consultants, air travel, rail travel, hotels etc are the principal contributors. Without seeing the detailed breakdown, we doubt much has changed year-on-year.
9) Commercial loans obtained by the University have run to some £39.5m - still a relatively 'safe' level of operating income although we would be tempted to add into this ostensible liability the lease arrangement with Peel Holdings for the use of the campus facility at MediaCityUK (which, to 2014, would add a further ~£6m to the total liability - we will not speculate beyond 2014 as the lease arrangement is thereupon due to be renegotiated and so the cost of the lease may be subject to variation).
On the whole, we would agree entirely with the University's description of its own future risks. The primary risks as we see them are the simultaneous tightening of visa restrictions, and the likely cascading effect on non-EU recruitment levels, as well as the 'core and margin' element of the Higher Education White Paper, which will almost inevitably lead to a loss of UK/EU student places. Our sources tell us interest from non-EU prospective students has contracted markedly on the previous year - a product no doubt of central government policy. Whatever way one tries to look at it, income will at best stagnate in cash terms but, in our opinion, is more likely to fall both in cash and real terms in the short to medium term.
So what for the forthcoming year? We suspect that this is actually the worst possible time to have incurred liabilities to creditors and to have entered in to high cost lease agreements - neither of these are optional commitments and regardless of what happens to operating income these costs are going to have to be met. This will create even further pressure to make savings elsewhere and we suspect the temptation for the University will be to dispense with departments and/or courses that are likely to perform poorly under the unflattering spotlight of the government's 'Key Performance Indicators' statistical data (which are intended to measure the financial prospects that graduates of a particular course might look forward to) and which are not an effective bastion of international recruitment. Similarly those that attract no HEFCE subsidy (band C and D subjects) are likely to suffer. We would anticipate that this will mean the University makes a shift to even greater emphasis on its considerable assets at MediaCity, and away from the Social Sciences and Humanities.
Is this a crisis of funding or just turbulent times ahead? It will depend on the effect the new HE funding policy has on recruitment, coupled with how much of a deterrent/filter the new visa restrictions prove to be.
