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Reports and Financial Statements for the year ending 31 July 2008



The commentary that follows is intended to give the readers of the financial statements an overview of the finances and operations of the entire University group including Cambridge Assessment and Cambridge University Press. It should be read in conjunction with the Annual Report of the Council and the Annual Report of the General Board to the Council for the academical year 2007-08. Both these reports are published in the Cambridge University Reporter. The financial position of the teaching and research activities of the University may be seen more clearly in the Financial Management Information published in the Reporter. Further detailed information about the finances and operations of Cambridge Assessment and Cambridge University Press is given in the annual reports of those entities which are also published.

Scope of the Financial Statements

The consolidated financial statements cover the teaching and research activities of the University, its subsidiary companies which undertake activities which for legal or commercial reasons are more appropriately carried out by limited companies, Cambridge Assessment and Cambridge University Press and their subsidiary companies and joint ventures, the Gates Cambridge Trust, and certain other Trusts (the 'Associated Trusts').

Cambridge Assessment and Cambridge University Press are constituent parts of the corporation known as the Chancellor, Masters and Scholars of the University of Cambridge. Cambridge Assessment's primary work is the conduct and administration of examinations in schools and for persons who are not members of the University. Cambridge University Press is the printing and publishing house of the University dedicated to printing and publishing for the advancement of knowledge, education, and learning worldwide.

The Gates Cambridge Trust is a separately constituted exempt charity. It is deemed to be a subsidiary undertaking of the University since the University appoints the majority of its trustees. The purposes of the Gates Cambridge Trust are to support the University by enabling persons from any part of the world outside the United Kingdom to benefit from education in the University by the provision of scholarships and grants and otherwise. The assets of the Gates Cambridge Trust are therefore not available for the general purposes of the University. The other Associated Trusts are also separately constituted exempt charities with purposes primarily to support students ordinarily resident or domiciled in countries outside the United Kingdom to benefit from education in the University. The assets of these Trusts are similarly not available for the general purposes of the University.

The University will continue to publish separately the accounts of its core education and research activities. The accounts of the activities of Cambridge Assessment and of Cambridge University Press are also published separately.


The mission of the University of Cambridge is to contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence.

Its principal activities are teaching and learning, research, stewardship of collections and ancient buildings, and the activities of Cambridge Assessment and Cambridge University Press.


The sources of income of the University are:

Accounting changes

Certain changes in accounting treatment have been made this year in order to be consistent with the Statement of Recommended Practice: Accounting for further and higher education. Comparative figures for 2006-07 have been restated. The principal changes are (i) to reclassify specific donations as endowments and (ii) to account for donations of, and for the purchase of, heritage assets as income, with no corresponding expense. This latter change has resulted in an increase of £9m in reported surplus for 2007-08.

An accounting adjustment to provide for a post-retirement benefits liability in Cambridge University Press, as required under Financial Reporting Standard 17, has been dealt with in the current year, increasing expenditure by £14m.

Financial performance for the year

The consolidated results for the year ended 31 July 2008 are summarized in Table 1 below.

Table 1

Income 1,074 948 +13.4%
Expenditure (1,055) (946) +11.5%
Surplus on continuing operations before donations of heritage assests 19 2
Donations of heritage assets 9 3
Surplus on continuing operations before exceptional items 28 5
Exceptional items: gain on sale of tangible fixed assets - 3
Surplus on continuing operations after exceptional items 28 8
Minority interest and transfer from restricted endowments 14 17
Surplus for the year retained with general reserves 42 25
Net assets 2,321 2,439 -4.8%

This consolidated position is built up from the University's three main segments: its core academic activities and the assessment and publishing activities carried out by Cambridge Assessment and Cambridge University Press respectively. Within the group there are a number of intra-group transactions, principally the printing of examination papers which the Press provides for Cambridge Assessment, and financial and other support for the University's academic activities made by both Cambridge Assessment and the Press. Table 2 gives segmental information.

Table 2

Surplus on continuing operations before gifts of heritage assets
to reserves
Results by segment Education and research 686 681 5 25
  Cambridge Assessment 222 197 25 28
  Cambridge University Press 186 199 (13) (13)
Eliminations Press sales to Cambridge Assessment (11) (11) - -
  Financial support to the University from:        
  Cambridge Assessment (11) (11) - -
  Cambridge University Press - (1) 1 1
Pension scheme and other adjustments 2 1 1 1
  1,074 1,055 19 42

Note that the University's consolidated surplus for the year added to general reserves is higher than the difference between income and expenditure by virtue of two factors. Firstly, donations of heritage assets in the year amounted to £9m, which does not form part of total income but have been credited to reserves via the income and expenditure account. Secondly, a net transfer of funds of £14m has been made from endowments to reserves: this is the extent to which restricted endowments have funded expenditure in the year. In line with the requirements of the SORP, this transfer includes for the first time £13m (£8m in the University and £5m in the Trusts) relating to restricted donations not required to be invested for the longer term.

The education and research activities of the University group were at a surplus because of increased fee income from a further year of undergraduates paying fees at the higher rate, improved recovery of indirect costs of research, a transfer of £11m from Cambridge Assessment in support of academic activities, trading, and other surpluses, and expenditure in Faculties and Departments being less than had been planned. The surplus transferred to reserves further includes donations of heritage assets and the net transfer of endowments to reserves.

Cambridge Assessment continues to grow its UK and international assessment service and exceeded budgeted sales in all product areas. Costs were contained, in particular through benefits of the operational enhancements in warehousing and information systems. Cambridge University Press continued its favourable trend with good increases in sales, despite a weak US dollar to which around half its revenues are linked. Academic and professional publishing in books and journals recorded a strong performance and the English Language Teaching business stream was the Press's highest growth business. The printing business was more challenging as the industry as a whole turned down in the UK. The Press maintained a small surplus, before the accounting adjustment in respect of earlier years referred to above.

Change in financial position

The University group has a sizeable balance sheet, and Table 3 below gives the movement in net assets showing the capital flows into the group and the impact of changes in the values of investment assets.

Table 3

Movement in net assets


Net assets at 31 July 2007 2,222 177 99 (59) 2,439
Surplus on continuing operations after donations of heritage assets and gain on sale of tangible fixed assets 14 25 (13) 1 27
Currency adjustments - - 2 - 2
New endowment capital 36 - - - 36
External funding for capital expenditure 38 - - - 38
Actuarial loss on retirement benefits - (1) (24) (57) (82)
Decrease in investment values (127) (10) (2) - (139)
Net assets at 31 July 2008 2,183 191 62 (115) 2,321

Capital expenditure programme

The Capital Programme over the past ten years has provided new buildings and new facilities at West Cambridge, the Sidgwick Site, the Addenbrooke's Site (Cambridge Biomedical Campus), Tennis Court Road (the old Addenbrooke's Site), and at Lensfield Road (the Department of Chemistry), and major warehouse and office facilities for Cambridge Assessment. The majority of capital expenditure for academic activities is funded by external sources: Funding Council capital grants, donations for buildings, and equipment costs funded by research grants.

The University continued to invest in its physical facilities over 2007-08. Total capital expenditure was £119m, of which £103m was in respect of the University's academic activities, including £32m on equipment and £9m heritage assets. During the year significant expenditure was made on the new Physics of Medicine and Institute for Manufacturing buildings at West Cambridge, the Cambridge Centre for Imaging at the Addenbrooke's Site, and the new Sainsbury Laboratory for plant sciences. Cambridge Assessment made further expenditure on its main warehouse in Duxford and continued to invest in its information systems.

Endowment and investment performance

The University's investment assets are significant and although investment income provides only a small percentage of the operating budget of the University's academic activities it supports posts and activities and gives important financial assistance to students. The investment assets, analysed and disclosed in the financial statements according to the various purposes for which they are held, are managed in three principal pools.

(i) Cambridge University Endowment Fund (CUEF)

The majority of the fixed asset investments and endowment assets are invested in the CUEF. As at 31 July 2008 the CUEF had a market value of £907m (2007: £991m). Since 2004 the CUEF has been managed on a total return basis, such that the amount generated for budgetary expenditure is now determined by a formula based on underlying capital values combined with factors which smooth the rate of spending changes from year to year.

The performance of the CUEF is monitored to a 30 June year end in order to utilize more accurate valuation and benchmark information and to allow comparisons with similar endowment investment funds. The investment performance of the CUEF was -7.1% over the twelve months to 30 June 2008 in a difficult year for equity and property markets (FTSE All-Share -12.9%, MSCI All Country World -8.5%, IPD UK Property -14.9%). Although this was slightly better than its historical WM Charities benchmark, it was well below the long-term objective of RPI+5.25%.

During the year the University's new Investment Office, overseen and advised by the Investment Board, assumed the supervision of the CUEF. A target long-term asset allocation was agreed: global equities 40%, real assets including property 23%, absolute return including hedge funds 20%, private equity 9%, fixed income including cash 8%. The Investment Office has made new global equity fund manager appointments and is now proceeding with caution to increase investment in the alternative asset classes.

(ii) The Gates Cambridge Trust

The Gates Cambridge Trust investments pool is managed separately through its own investment committee and external investment adviser. As at 31 July 2008 the Gates Cambridge Trust had assets of £166m (2007: £180m).

(iii) Money market investments

The majority of the current asset investments are invested in the deposit pool. This pool is managed by the Finance Division according to guidelines on diversification, exposure, and credit quality agreed by the Finance Committee and subject to external advice. The investments are principally short-term deposits with banks and similar institutions. At the time of reporting, amounts within the deposit pool totalling £11m remain frozen pending resolution of the Icelandic banking crisis. It is not possible to estimate accurately how much of the amounts due will ultimately be recovered.

Since the year end investment markets have continued to decline, although there will have been a relative benefit during the recent period from the strategic decision to reduce the University's exposure to UK markets and to increase its exposure to global markets.

Staff costs and pensions

The University's education and research activities staff received a general increase in salaries of 5% as at 31 October 2008, being the final element of a sector-wide pay settlement of in excess of 15.9% since 1 August 2006. Combined with the move to a single pay spine and other pressures the staff costs of the academic activities have increased significantly. The staff costs for Cambridge Assessment and Press have increased in line with their business growth.

Staff costs by segment, before taking into account pension scheme adjustments and the exceptional prior period charge in the Press, were:

Education and research activities 352 326 +8.2%
Cambridge Assessment 54 52 +4.5%
Cambridge University Press 60 54 +10.4%

The main pension schemes of the Group are the Universities Superannuation Scheme (USS), the Cambridge University Assistants Contributory Pensions Scheme (CPS), and those of the Press. The position of the USS is disclosed in detail in Note 31 to the accounts. A full actuarial valuation of the USS as at 31 March 2008 is being carried out, and it is expected that the contribution rate required will be increased by at least 2% in 2009 following a review of mortality assumptions, expected investment returns, and the rates of salary increases observed across the HE sector. Further increases in the USS contribution rate may be necessary.

The adverse investment markets of the last year have had an impact on the assets of pension funds. The CPS and the Press's schemes, being single-employer schemes, are included in the financial statements following Financial Reporting Standard 17 (FRS 17). The total pension liability under FRS 17 has increased from £79m to £158m, of which £48m relates to the Press's schemes, primarily due to falls in asset values. Like most employers, the Council is aware of the changing liabilities of defined benefit pension schemes and monitors the University's position carefully. It takes a long-term view but must consider the impact of the recent market falls on current funding positions.

Development and fundraising

The University celebrates its 800th anniversary in 2009 and the campaign to raise £1 billion across the University and the Colleges is well advanced. The main aims of the 800th Campaign are to improve student support and to increase the capacity of Collegiate Cambridge to deliver its core missions of teaching and research. The benefits are long-term and cannot be expected to affect the finances of the University in the short term.

In 2007-08 an additional £36m was added to endowment, and total funds raised including for capital expenditure and gifts for current use was approximately £70m. Over recent years the average use of donations has been approximately 40% for construction, 40% for endowment (to provide an income to fund a post or activity), and 20% for current use.

Future projects

Plans are well advanced for development of 140 hectares of University land at North West Cambridge to create a site for future growth of academic space, the housing requirements of staff and students, and for commercial research. The project represents a substantial financial commitment over a period of over fifteen years. In addition to the staffing, academic, and research space aims, the University will seek to generate an income stream.

The University has also progressed further proposals for the development of its city-centre New Museums and Mill Lane Sites. Current expectations are that the New Museums Site will be redeveloped to provide new or refurbished accommodation for Departments in the School of Humanities and Social Sciences, for the Department of Geography, and for elements of the Unified Administrative Service and Staff and Student Services. These proposals are in the consultation phase but will require the transfer of the Departments of Materials Science and Metallurgy and Chemical Engineering and Biotechnology to new accommodation in West Cambridge. The costs of the redevelopments have yet to be calculated but, if progressed, they will form an integrated capital programme during the next six years and will inevitably be the focus of significant capital expenditure.

Principal risks and uncertainties affecting the long-term financial position

There are a number of risks that the University faces, the principal ones being the ability to maintain and develop its research funding, to attract the best students, and to maintain and renew its physical facilities. The University is seeking to diversify its sources of income to avoid over-reliance on any one source. The businesses of Cambridge Assessment and the Press are subject to the usual pressures of competing internationally against major competitors, and in balancing their mission with the need to generate sufficient net income to ensure that they thrive and support the University's core academic activities when possible.

In the near and medium term the financial uncertainties are:

In conclusion

The University generated a modest operating surplus in 2007-08 and must continue to do so to allow investment in its people, programmes, and physical facilities. It needs a diversity of income streams to reduce its exposure to short-term changes in, for example, government policy or, as we are seeing, the economic situation.

The University's costs, primarily staff costs but also certain other costs such as utilities, have increased significantly over the past three years. This has been manageable as variable undergraduate fees have raised fee income and full economic costing of research grants and contracts has been phased in. The financial plans for academic activities are for small surpluses, against which the downside expectation is for increased pension costs. The position could also be affected by the outcome of the 2008 RAE, changes in the formulaic funding of undergraduate teaching, or reduced commitment by the government to research. These factors need to be viewed against generally worsening economic conditions which will have an impact in many areas and for which the University is now planning.



Pro-Vice-Chancellor (Planning and Resources)

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Cambridge University Reporter 01 December 2008
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