Reports and Financial Statements for the year ended 31 July 2019

FINANCIAL REVIEW

Scope of the financial statements

The consolidated financial statements provide an overview of the finances and operations of the University Group (the ‘Group’) covering:

•the teaching and research activities of the University and its subsidiary companies that undertake activities which, for legal or commercial reasons, are more appropriately carried out by limited companies;

•Cambridge Assessment (CA)1 and its subsidiary undertakings (including associates and joint ventures);

•Cambridge University Press (CUP) 2 and its subsidiary companies and joint ventures; and

•Gates Cambridge Trust and certain other Trusts (the ‘Associated Trusts’).3

The financial statements 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 2018–19 academic year. References to the University reflect the teaching and research activities of the University (excluding subsidiary companies and Associated Trusts), together with CA and CUP (but excluding their subsidiary companies, joint ventures and associates). References to the Group reflect the teaching and research activities of the University together with CA and CUP, including all subsidiary companies, Associated Trusts, joint ventures and associates (see Note 35).

The financial position of the core teaching and research activities of the University (the ‘Academic University’) may be seen more clearly in the Financial Management Information published in the Cambridge University Reporter. Further detailed information about the finances and operations of CA and CUP is given in the published annual reports of those entities. CA and CUP are constituent parts of the corporation known as the Chancellor, Masters and Scholars of the University of Cambridge. CA’s primary work is the conduct and administration of examinations in schools and for persons who are not members of the University. CUP is the University’s publishing house, dedicated to publishing for the advancement of learning, knowledge and research worldwide.

The Associated Trusts are separately constituted charities. They are deemed to be subsidiary undertakings of the University since the University appoints the majority of the trustees for each Trust. The purpose of these Trusts is to support the University by enabling persons from both within and outside the United Kingdom to benefit from education at the University through the provision of scholarships and grants.

Public benefit

The University is an exempt charity subject to regulation, with effect from 1 April 2018, by the Office for Students under the Higher Education and Research Act 2017.

The University reports annually on the ways in which it has delivered charitable purposes for the public benefit. Highlights of its activities over the past year are included in the Brief Overview for the year ended 31 July 2019.4

The Council, in reviewing the University’s activities in this regard, has taken into account the Charity Commission’s guidance on public benefit. The Council is satisfied that the activities of the University as described in these Reports and Financial Statements, the Brief Overview and in the Annual Report of the Council, fully meet the public benefit requirements.

The mission of the University

The mission of the University is ‘to contribute to society through the pursuit of education, learning and research at the highest international levels of excellence’. The University makes a significant contribution, through these activities, to the advancement of education, research and dissemination of knowledge.

Financial results for the year

The results for the Group for the year ended 31 July 2019 are summarised in Table 1:

Table 1	2018–19	2017–18	Change
	£m	£m	%
Income	2,192	1,965	12%
Expenditure*	(2,308)	(1,911)	21%
Surplus / (deficit) before other gains and losses and share of surplus of joint ventures and associates	(116)	54	(315)%
Gain on investments	235	219
Share of surplus of joint ventures and associates	2	–
Taxation	(4)	(3)
Surplus for the year	117	270	(57)%
Actuarial gain / (loss)	(208)	122
Profit on acquisition of Foundation**	–	2
Loss on deconsolidation of Trust**	(2)	–
Gain / (loss) on foreign currency translation	2	(3)
Total comprehensive income for the year	(91)	391	(123)%
Adjusted operating surplus / (deficit) for the year***	16	(21)	176%

    * Includes the adverse impact of the change in USS deficit recovery funding of £230.7m related to the 2017 valuation.
  ** See Note 35 to the Accounts.
*** See Appendix 1 to the Accounts

The Group’s financial position remains strong but at a time of prolonged and unprecedented uncertainties, declining public investment and rising costs, the prioritisation and prudent management of costs, improvement of operating efficiencies and identification of new revenue streams remain priorities. Our key challenges remain: the ongoing changes to government policy impacting student fees; the affordability of local housing, making it increasingly difficult to recruit and retain the best staff and students; risks arising from the prolonged Brexit uncertainties; and significant pressures on pay and pension costs.

The underlying 2018–19 financial operating performance was satisfactory. Management regards the most representative measure of underlying performance to be the adjusted operating surplus for the year of £16.1m reflected in Appendix 1 to the Accounts (p. 277). This revises the reported surplus for the year for unrealised fair value adjustments, the accounting provision for the USS scheme deficit (below), capital grants and significant one-off endowments (which are to be used over an extended period), in order to provide a measure of recurrent operating surplus / deficit.

An adjustment of particular note this year is the £230.7m non-cash charge to staff costs, reflecting the increased accounting provision for the USS scheme deficit (Note 28 to the Accounts). The calculation of the liability for the obligation to fund the USS deficit uses a HEI-sector-standard model and reflects the Schedule of Contributions put in place in January 2019 following the finalisation of the 2017 valuation, as updated for current discount rate assumptions. Post the balance sheet date, agreement has been reached on the UUK-proposed 2018 valuation which will result in a substantial reduction in the new deficit contributions. Whilst the 2018 valuation is not deemed an ‘adjusting’ event for the 2018–19 annual accounts the impact of this valuation if it were disclosed in this year’s accounts is outlined in detail in Note 28.

Total income continues to grow year-on-year with an increase of 12% compared to 2017–18. At the same time, total donations raised to date by the Dear World, Yours Cambridge campaign has reached £1.6bn. The Cambridge University Endowment Fund (CUEF) delivered another year of stable performance achieving a return of 4.7% for the year ended 30 June 2019 in a challenging market, characterised by high asset valuations. The University was delighted to announce, post year-end, the successful appointment of its new Chief Investment Officer, Ms Tilly Franklin.

Investment by the University in its capital infrastructure continued during 2018–19 at a slowing pace, with £215.3m invested in fixed assets, software and investment property over the period.

Reported surplus for the year

The statement of comprehensive income reflects a surplus for the year of £117.3m (2017–18: £269.6m). This includes a high proportion of income competitively won each year for teaching and research activities (requiring cross-subsidisation from other activities), donations for permanent endowment / capital purposes, contributions from CA and CUP trading activities (used by the University towards capital expenditure in the academic estate), unrealised gains on investments and, for the first time, a £51.5m fair value adjustment (through finance costs) on revaluation of the CPI-linked bond. The surplus is £152.3m lower than last year, primarily reflecting the £230.7m charge to staff costs for the increased accounting provision for the USS scheme deficit based on the 2017 valuation modeller (see Note 13 to the Accounts). Other factors contributing to the surplus for the year include the growth in revenue-generating activities and new endowments for funding key posts and scholarships, partially offset by increased staff costs. In 2018–19 total gains on investments, included in the surplus for the year above, were £235.1m (2017–18: £219.0m). The value of invested assets is inherently volatile and this figure will fluctuate significantly year on year. In addition to the revaluation of the University’s investments in the CUEF, total gains on investments include unrealised revaluation gains and losses in respect of the University’s growing investment property portfolio (see Note 21 to the Accounts), which have generated a net revaluation gain of £53.1m for the year.

Total comprehensive income for the year

The Group incurred a total comprehensive expense for the year of £(90.9)m (2017–18: £390.8m), adversely impacted by the increase in the USS deficit recovery charge of £(230.7)m, the actuarial loss on other pension scheme liabilities of £(208.2)m, a finance charge associated with the revaluation of the CPI-linked bond of £(51.5)m (required to be re‑measured to fair value at each consecutive reporting date, see Note 27) and the loss on deconsolidation of the Malaysian Commonwealth Studies Centre in Cambridge (‘Malaysia Trust’) of £(1.9)m partly offset by gains on foreign currency translation of overseas subsidiary undertakings of £1.9m. On 1 August 2018 the University ceased to be Trustee of the Malaysia Trust and has subsequently deconsolidated its net assets from these financial statements. As nil consideration was received for these net assets the resultant loss has been recognised through the statement of comprehensive income.

The unrealised gains or losses on investments, fair value adjustment of the CPI-linked bond, and actuarial gains and losses on pension schemes will all continue to fluctuate from year to year over time. These effects are demonstrated in the historical trend data (see Appendix 1 to the Accounts). The University considers the best measure of underlying recurrent operating performance to be the adjusted operating surplus for the year, being the surplus for the year adjusted for the gain on investments, CPI-linked bond fair value adjustment, change in USS pension deficit recovery provision, and before capital grants and significant one-off endowments. The adjusted operating surplus remains finely balanced, with a deficit on core teaching and research activities offset in the consolidated accounts by surpluses from CA and CUP trading activities. The Academic University’s operating cash flows are also supported by the element of CUEF distributions funded from long-term capital growth.

Segmental analysis

The consolidated position comprises three main segments: (i) core academic activities, Trusts and subsidiary activities of the University; (ii) the assessment activities carried out by CA; and (iii) the publishing activities carried out by CUP. Within the Group there are a number of intra-group transactions, principally the financial and other support from CA and CUP for the University’s academic activities. Table 2 gives segmental information, which is considered in further detail in Note 17 to the Accounts.

Table 2		Total income 2019  £m	Expenditure  2019  £m	Share of operating surplus in joint ventures and associates  2019  £m	Investment gains 2019  £m	Tax  2019  £m	Surplus for the year 2019  £m
HEI, Trusts, and others		1,423	(1,599)	–	219	–	43
Cambridge Assessment		487	(450)	2	14	(1)	52
Cambridge University Press		342	(319)	–	2	(3)	22
		2,252	(2,368)	2	235	(4)	117
Financial support to the University from Cambridge Assessment		(29)	29	–	–	–	–
Transfer of assets from Cambridge Assessment to the University		(23)	23	–	–	–	–
Financial support to the University from Cambridge University Press		(8)	8	–	–	–	–
As per the reported financial statements		2,192	(2,308)	2	235	(4)	117
Adjustment to reflect the element of CUEF distributions funded out of long-term capital growth
	HEI, Trusts and others	81	–	–	(81)	–	–
	Cambridge Assessment	8	–	–	(8)	–	–
	Cambridge University Press	1	–	–	(1)	–	–
To restate onto a distribution basis		90	–	–	(90)	–	–
Adjusted distribution basis		2,282	(2,308)	2	145	(4)	117

 

		Total income 2018  £m	Expenditure  2018  £m	Share of operating surplus in joint ventures and associates  2018  £m	Investment gains  2018  £m	Tax  2018  £m	Surplus for the year  2018  £m
HEI, Trusts and others		1,259	(1,245)	–	194	(1)	207
Cambridge Assessment		442	(411)	–	21	(1)	51
Cambridge University Press		319	(309)	–	4	(1)	13
		2,020	(1,965)	–	219	(3)	271
Financial support to the University from Cambridge Assessment		(26)	26	–	–	–	–
Transfer of assets from Cambridge Assessment to the University		(24)	24	–	–	–	–
Financial support to the University from Cambridge University Press		(5)	4	–	–	–	(1)
As per the reported financial statements		1,965	(1,911)	–	219	(3)	270
Adjustment to reflect the element of CUEF distributions funded out of long-term capital growth
	HEI, Trusts and others	71	–	–	(71)	–	–
	Cambridge Assessment	7	–	–	(7)	–	–
	Cambridge University Press	1	–	–	(1)	–	–
To restate onto a distribution basis		79	–	–	(79)	–	–
Adjusted distribution basis		2,044	(1,911)	–	140	(3)	270

Income

The Group’s income increased by £227.2m (up 12%) from £1,964.8m to £2,192.0m. The Group has growing, diversified sources of revenue providing operational stability and resilience with a compound growth of 7.5% since 2012. Apart from other income each category of income grew in 2018–19:

•Sponsors of research projects continue to be the single largest source of income for the University. Research grants and contracts activity increased revenues by some 13% to £592.4m compared to 2017–18 levels. The areas of most growth include funding from Research Councils which increased by 24% to £216.6m, funding from other non-EU and non-UK bodies which increased by 18% to £84.2m and UK-based charity funded research income which increased by 5% to £160.6m.

•Combined revenues from CA and CUP represent the next largest source of Group income, and in aggregate totalled £812.5m (2017–18: £745.5m) which amounts to 37% of total revenues for the year.

•Tuition fees and education contracts totalled £320.2m, up by 9%, principally due to an increase in student numbers and increases in non-regulated fee rates. It should be noted that the practical consequences of responding to the published recommendations of the Augar review panel’s report on post-18 education are yet to be determined.

•Funding body grants from the Higher Education Funding Council for England (HEFCE) and latterly from the Office for Students (OfS) increased by 5% to £181.9m. Funding from teaching grants and museum grants was broadly held at 2017–18 levels. Research and other revenue funding grants showed a 4% increase with capital grant funding generating the highest increase (up 13%).

•Other income of £133.4m decreased by 6%, mainly as a result of gains on the disposal of fixed assets and the receipt of research tax credits recognised in 2017–18. In addition, the change in presentational format to reclassify operating surpluses associated with joint ventures and associates from other operating income to a separate disclosure in the statement of comprehensive income has also contributed to the year-on-year reduction.

•Donations and endowments received were £111.4m, (2017–18: £63.8m).

•Investment income is an important component of the University’s funding mix. Provided by the Group’s financial investments, in particular the CUEF and substantial equity realisations generated this year by certain seedcorn investments held through the University’s subsidiary, Cambridge Enterprise Limited, investment income grew from £19.8m to £40.2m. The CUEF’s distribution (available for spending on operations) exceeded the income received in the year from its underlying investments by £90.3m. On a ‘distribution basis’, investment income was £130.5m.

Examination and assessment services are carried out by CA through its three exam boards: Cambridge Assessment English,5 Cambridge Assessment International Education,6 and Oxford Cambridge and RSA Examinations (OCR).7 CA’s international businesses now account for some 64% of income. Total examination and assessment income in the year to 31 July 2019 increased by 11% to £478.5m.

Overall Publishing income from publishing services in the period rose by 7% to £334.0m. Publishing service revenue incorporates CUP’s income from the sales of educational and scholarly books, e-books, journals, applications and related services through its three publishing groups: Academic (research books, advanced learning materials and reference content as well as journals); Cambridge English Language Teaching (materials for both adults and students); and Education (teaching materials for schools and advice on educational reform). Around 90% of CUP sales arise outside the United Kingdom.

During the year the University acquired the employees and trading assets of the Centre for Evaluation and Monitoring (CEM), a former department of the University of Durham, for a cash consideration of £17.8m. This is treated as a jointly-controlled operation, with CA and CUP each consolidating a 50% share.

Research

The Group’s 2018–19 research income increased to £592.4m from £524.9m in the previous year, with the single largest contribution being received through Research Councils’ grants of £216.6m. Research income from sources other than UK Research Councils was £375.8m. Of this, £160.6m came from UK-based charities, £145.0m from overseas and EU sources and £70.2m from other UK sources. These figures recognise further tranches of a major research donation from the estate of Ray Dolby, in support of the new Cavendish III facilities, where construction is well underway.

The University receives recurrent funding from the UK government in the form of grants for teaching, research and other activities. With effect from 1 April 2018, this function has been undertaken by UK Research and Innovation (UKRI). In 2018–19, the University was also allocated £128.3m of Quality-Related (QR) funding, representing 7.2% of the overall grant award for England.

Donations

The University receives benefactions and donations from a variety of sources including trusts and foundations, corporations and individuals (both alumni and non-alumni). The total given for donations and endowment income recognises all new endowments, donations for capital in respect of heritage assets, and other restricted and unrestricted donations available for current spend.

During the year, the University announced an unprecedented £100m gift from the David and Claudia Harding Foundation to help attract the most talented postgraduate and undergraduate students from the UK and around the world. It will propel Cambridge’s ambitious fundraising drive to increase the financial and wider support for students at the University as well as the collegiate University, helping to sustain Cambridge’s place among the world’s leading universities through attracting, support and funding the most talented students from all parts of the UK and the world, whatever their background or means. Some £41m of this donation was received by the University in 2018–19.

In aggregate over the period ended 31 July 2019, donations and endowment income totalled £111.4m (2017–18: £63.8m) of which approximately £1m (2017–18: £10m) was of a capital nature (i.e. donations for fixed assets and heritage assets).

The Academic University continues to see increasing benefits from the dedicated team of development professionals, working in alignment with the University’s priorities in raising endowment and investing in cutting-edge research, scholarships and facilities. The run rate for philanthropic donations to the collegiate University has now reached an average of £271m p.a. and the £2bn Dear World, Yours Cambridge campaign has now delivered £1.6bn in commitments. For the second consecutive year the collegiate University has surpassed £300m in new funds raised. Looking at international competitors’ philanthropy programmes, the University remains positive about the further potential to grow donations, with enhanced alignment to academic priorities.

The Group receives and generates significant other income including: property rentals, contributions from health and hospital authorities, residences and catering, and income from intellectual property managed primarily through Cambridge Enterprise Limited. Total other income decreased by 6% to £133.4m (2017–18: £142.1m) as noted above.

Investment income

The Cambridge University Endowment Fund (CUEF)8 is an investment vehicle which enables the University to pool assets held on trust and invest them for the very long term, gaining from scale, diversification and professional management. The CUEF is managed by Cambridge Investment Management Limited under investment and distribution policies set by the Council on the advice of its Investment Board. The CUEF is open to the University and to the Colleges and charitable trusts associated with the University. At 31 July 2019, there were 16 College investors. The CUEF aims to preserve and grow the value of the perpetuity capital of its investors, while providing a sustainable income stream. The University has adjusted its long-term investment objective to generate an average 5.0% return over the Consumer Price Index (CPI), while judiciously managing the risk taken by utilising diversification in investment strategies, asset classes and managers. The distribution policy is based on underlying capital values, ensuring the distribution is directly linked to the performance of the Fund without depleting capital originally invested. At 31 July 2019, the net asset value of the CUEF was £3,456m. On a ‘distribution basis’, 2018–19 investment income to the University was £130.5m.

The CUEF reports its performance to 30 June 2019. During the year ended 30 June 2019, the CUEF had an investment return of 4.7% (2017–18: 8.8%). The Fund has returned an annualised 10.45% return over a rolling five-year period. This exceeds the long-term investment objective over this period of 7.84% annualised. The value of the CUEF at 30 June 2019 was £3,401m (2017–18: £3,193m) of which £3,020m (2017–18: £2,786m) is attributable to the University.

Public equities comprise 59% of the CUEF as at 30 June 2019 and have been the main driver of returns in both the long and short term. Investments in private equity have also begun to make a significant impact and are likely to be increased in the future, mindful of investor liquidity requirements. Credit exposure has evolved over time and will continue to do so as opportunities arise.

The asset allocation and investment selection in the Fund is aimed at optimising the expected long-run total return, bearing in mind expected future volatility. The CUEF’s asset allocation at 30 June 2019 is shown below. Over the course of 2018–19, allocations to these broad asset classes did not change significantly.

Public equity	59%
Private investment	12%
Credit strategies	5%
Absolute returns	8%
Real assets	9%
Fixed interests / Cash	7%

Other investment assets generated investment income of £25.5m during 2018–19. Some long-term investments are held outside the CUEF. These include certain investment properties in Cambridge, other securities, and equity investments in spin-out companies overseen by the University’s technology transfer company Cambridge Enterprise Limited9 and through its holding in Cambridge Innovation Capital.10

The majority of the University and Group’s 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 as agreed by the Finance Committee. The investments are principally short-term deposits with banks and similar institutions.

Expenditure

The Group’s total expenditure in 2018–19 of £2,307.5m is £396.4m (21%) higher than in the prior year, primarily reflecting increased staff costs across both research and other activities. Expenditure comprises: staff costs (including research) at 49%; other operating expenses at 42%; depreciation at 5%; and interest and other finance costs at 4%. The main changes compared to 2017–18 levels reflect the following:

• Staff costs increased by 34% to £1,135.0m. The average number of staff rose by 4% to 17,083, with increases in pay and University Superannuation Scheme (USS) pension service costs and the charge made for the increase in the calculated deficit liability (Note 13 to the Accounts).

•Other operating expenses increased by 4% to £969.6m, including higher grant-funded research costs.

•Depreciation increased from £94.4m in 2017–18 to £111.7m as a result of significant fixed asset additions during the year and project write-off costs.

•Interest payments rose from £33.6m in 2017–18 to £91.2m (up 172%). Whilst financing costs of pension and retirement benefits account for £17.3m of the total, a significant element of the increase is driven by fair value adjustments related to (1) the CPI-linked bond which resulted in a financing charge of £51.5m in the period and (2) euro and dollar denominated forward exchange contracts which resulted in a financing charge of £1.2m. Further year-on-year increases reflect the first full-year interest on the University’s 2018 fixed interest bond liability (up £6.4m).

•The ongoing annual interest charges associated with all of the University’s bond liabilities is estimated at £21m p.a., although this will be impacted by changes in the Consumer Price Index as the CPI-linked bond is fair valued at each balance sheet date (see Note 15 to the Accounts).

Cash flow and financing

After adjusting for non-cash charges such as depreciation and amortisation, the underlying net cash inflows from operating activities of £124.4m increased ahead of the associated surplus reflected in the statement of comprehensive income. Against this must be set the demands of the University’s strategic capital investment programme for the operational estate and equipment and IT, which in 2018–19 totalled £194.3m.

The activities of Cambridge Assessment (CA) and Cambridge University Press (CUP) further the mission of the University in important ways and are important sources of funds for the Academic University. In the financial year to 31 July 2019, examination and assessment services produced a surplus before investment gains and before share of operating surplus in joint ventures and associates of £97.0m, while publishing services produced a £32.6m surplus in the same period. Routinely, 30% of these surpluses are transferred to the University and used towards funding capital expenditure, alongside donations, grants, and a continued draw on University unrestricted resources. In addition, this year special transfers of £208m have been agreed, reflecting accumulated surpluses built up by these businesses in recent years and considered surplus to their own mid-term business requirements. These transfers will take place in 2019–20.

The overall net cash outflow for the Group was £(122.8)m for the year, reflecting the continued progression of the University’s strategic capital investment programme and investment of bond proceeds in the endowment fund and other market investments.

As at 31 July 2019, the Group had outstanding bond liabilities totalling £988.8m.

Net assets

The following table shows the movement in Group net assets analysed into its main segments:

Table 3	HEI, Trusts and others	Assessment	Press	Eliminations	Group
	£m	£m	£m	£m	£m
Net assets at 31 July 2018	4,490	646	119	(17)	5,238
Surplus for the year before tax	43	53	25	–	121
Taxation	–	(1)	(3)	–	(4)
Surplus for the year (Table 2)	43	52	22	–	117
Actuarial loss	(170)	–	(38)	–	(208)
Gain on currency translation	–	1	1	–	2
Loss on deconsolidation of Trust	(2)	–	–	–	(2)
Dividend paid to non-controlling interest	–	(2)	–	–	(2)
Net assets at 31 July 2019	4,361	697	104	(17)	5,145

The Group’s net assets totalled £5,145m as at 31 July 2019 (2018: £5,238m). The decrease in net assets largely relates to increased pension liabilities resulting from significant actuarial losses on the Group’s contributory pension schemes and changes in the USS deficit funding levels, partly offset by increases in the value of investments and expenditure on fixed assets.

Fixed assets

The University continued to deliver against its prioritised capital investment programme, focusing on maintaining and enhancing its world-class facilities and infrastructure in order to safeguard its position as a global leader in education and research. However, cash generated from the University’s own activities continues to be insufficient to deliver significant elements of the programme. For this reason, philanthropy and other sources of capital funding are becoming increasingly important to the future programme’s success.

In the year 2018–19, fixed asset additions were £154.0m, with capital expenditure on land and buildings of £121.8, and further expenditure of £32.2m on equipment. The University continues to project a reduction of annual capital spend to more sustainable mid-term levels as it completes the extensive capital programme of the last few years.

Investment of £145.3m was made in the academic estate across a wide range of building projects, with significant expenditure on the major new Cavendish III national laboratory facilities on the West Cambridge site.

The University has an ambitious, academically prioritised programme of capital investment stretching forward into the coming years. The total given for capital investments includes projects on the Cambridge Biomedical Campus, the New Museums site, the Old Addenbrooke’s site and at the West Cambridge site.

On the wider front, the University’s estates strategy is reshaping the City. Focused on the major campus areas of West and North West Cambridge, the Biomedical Campus and the City Centre the estates strategy is supporting both continued academic excellence and the development of housing, transport, and childcare facilities, for staff and their families. The University continues to develop its site at Eddington (formerly North West Cambridge), contributing attractive yet affordable housing solutions for key workers and postdoctoral staff. Phase 1 is now complete and provides University housing for letting to staff, market housing for sale and let, a primary school, supermarket, retail units and further sites for research. Phase 1 is now generating a rental income stream of £6.3m p.a. in accordance with the rental model agreed with Cambridge City Council, providing a level of subsidy from market rates. Work continues to optimise the plans for a second phase of development at Eddington to consolidate on the University’s strategic investment in the future success and value of this exciting new quarter of the City of Cambridge.

Pension schemes

The costs and risks of the pension schemes to which the Group is exposed remain of heightened concern, in particular in relation to the Universities Superannuation Scheme (USS).11 The USS is a multi-employer scheme and Note 28 to the Accounts describes how the scheme is reflected in these statements. The USS triennial actuarial valuation as at 31 March 2017 has resulted in a material increase in the scheme deficit, with the cost of future service benefits substantially higher than in the previous valuation. For the purposes of the Financial Statements, the calculation of the liability for the obligation to fund the USS deficit uses the modeller shared by the British Universities Finance Directors Group for the Higher Education sector, and reflects the Schedule of Contributions put in place in January 2019 following the finalisation of the 2017 valuation, as updated for current discount rate information.

The 2018 actuarial valuation was finalised after the year end and indicated a shortfall of £3.6bn. Following the completion of the 2018 actuarial valuation, a new deficit recovery plan has been agreed which will materially reduce the Group’s liability under the scheme. This revision to the recovery plan is deemed a non-adjusting post balance sheet event and so whilst significant disclosures of the impact of the change under the 2018 valuation have been reflected in the financial statements this has not resulted in a change to the actual financial position for the year ended 31 July 2019 reported under the 2017 valuation.

The Group has three other major schemes: the Cambridge University Assistants’ Contributory Pension Scheme (CPS)12 for assistant staff and two defined benefit schemes for staff of the Cambridge University Press. The CPS is a hybrid-defined benefit scheme with a defined contribution component. The scheme remains open to new joiners and future accrual. While the triennial valuation of the CPS at 31 July 2018 has shown a significantly improved position, the Group continues to make deficit-recovery contributions to the scheme of £14.6m p.a.

The Cambridge University Press defined benefit schemes are closed to new joiners and, following the triennial valuation of the two UK schemes as at 1 January 2016, are subject to a recovery plan projecting an aggregate deficit contribution of £25.3m to be funded by 31 July 2022. As at 31 July 2019, £16.0m of the deficit contribution remains to be funded.

Based on the 2017 actuarial valuation and reflecting additional liabilities associated with the acquisition of the Centre for Evaluation and Monitoring, the USS liability recognised in the accounts has increased by £228.6m to £347.5m as at 31 July 2019 (2018: £118.9m). The CPS and the University Press UK schemes (being single-employer schemes) are included in the Financial Statements following FRS 102 and the associated net pension liability is £741.4m (2017–18: £516.8m), of which £108.4m relates to the University Press UK schemes. Finally, there is a modest net pension asset recognised in 2018–19 of £0.2m in respect of the University Press US schemes and the Local Government Pension Scheme for staff employed through the University’s primary school. Pensions are discussed further in Note 34 to the Accounts.

The Group’s current service costs and deficit-recovery contributions as reflected through staff costs in the year 2018–19 were £362.5m,[13] which includes the non-cash figure of £230.7m reflecting the change in underlying assumptions in calculating the USS accounting provision noted above. It is recognised that forward employer contributions are likely to increase in the medium term. While the University faces pressure on its pension schemes’ costs and risks (in particular, on the USS) and on staff costs more generally given the pay restraint of recent years, it is relatively well positioned in the sector to handle these potential challenges in the short term through the reprioritisation of funds.

Long-term borrowings

In 2012, the University issued £350m of 3.75% unsecured bonds due in October 2052. The bonds are listed on the London Stock Exchange. The net proceeds of the issue (£342m) were applied in the University’s investment in Eddington.

In 2018, the University captured a market opportunity in securing additional external finance at historically low interest rates, providing the University with options to further develop its non-operational estate (i.e. projects outside those directly enabling core academic teaching and research activities). The University successfully raised £600m in unsecured external finance through two tranches:

•£300m 60-year (2078) bullet repayment fixed-rate Bond at coupon 2.35% p.a.

•£300m 50-year (2068) CPI-linked Bond at coupon 0.25% p.a., amortising from year 10 and capped at 3% and floored at 0%.

Over time, proceeds from the bonds will provide added flexibility in the continuing support of the University’s academic mission and student interest through the development of income-generating projects in the non-operational estate, including further strategic housing. Such income-generating projects are of high strategic importance: they deliver significant indirect benefits essential to the University’s primary mission, while also addressing the critically important housing challenge, providing alterative income streams at a time of significant financial volatility.

Financial outlook

The University is confident in its long-term financial sustainability. The University seeks to manage its sources of revenue effectively and its costs efficiently, in order to generate the long-term cash flow needed to ensure it maintains a pre‑eminent position amongst the world’s leading universities.

The University’s single largest source of funding – income from research grants and contracts – is projected to continue in steady growth, despite the uncertainties surrounding future European research funding following Brexit and the restructuring of UK Research Councils. Fee income is expected to increase in line with a long-term upward trend in postgraduate student numbers, although this could be somewhat offset by any changes in response to the recommendations of the government’s post–18 review of education and funding.

In a highly competitive marketplace, Cambridge Assessment’s international activities and income are expected to continue to grow over the next five years, given continued investment in research, technology, product development and staff. Cambridge University Press also anticipates steady revenue growth in the face of global economic and competitive challenges and evolving customer needs. Increasing strategic alignment, greater joint investment between CA and CUP, and closer working with the Academic University are already starting to yield benefits, with the prospect of potential combined benefits from the recent acquisition of the Centre for Evaluation and Monitoring (CEM).

Going forward, the long-term growth objective for the CUEF has been marginally reduced (to 5.0% +CPI), but elevated asset valuations as at 31 July 2019 mean that medium-term investment returns from this point are likely to be below this target level.

Principal risks and uncertainties

These are uncertain times for both the Higher Education sector and the global economy. As the University’s principal executive body, the University Council takes primary responsibility for ensuring the University has an effective and balanced enterprise risk management framework in place. Business risk management is at the core of the University’s overall system of internal controls and is designed to focus on and mitigate, to every extent possible, the most significant risk events that might adversely or beneficially affect the University’s ability to achieve its policies, aims and objectives.

The University is committed to ensuring that it has a robust and comprehensive system of risk management in line with the requirements of the Office for Students, and follows good practice in considering risk appetite in the context of the University’s academic mission, seeking to ensure an appropriate balance between risk aversion and opportunity capture. The business risk management approach identifies and appraises risks and opportunities in a systematic manner and is integrated and embedded with the University’s planning, investment decision-making and operational management processes. Accountability and responsibility for risk mitigation is assigned to management across the devolved organisation. Managers are encouraged to implement good risk management practice across the University. The University makes conservative and prudent disclosure of the financial and non-financial implications of risks.

In January 2019, the University Council approved a new risk management framework and policy, which applies throughout the University, apart from CUP and CA which have their own policies and procedures for risk management. The new framework is designed to allow the senior leadership team to consider the University’s key risks in a meaningful way and within the context of the University’s evolving priorities, prior to scrutiny and approval of the University Risk Register through the Audit Committee and Council.

The senior leadership team is responsible for identifying and managing risks across the University’s activities. The Council receives reports on the University’s risks at least biannually, and seeks assurances over risk management and controls from individuals identified as accountable for risks. The Council has delegated to the Audit Committee the responsibility for reviewing the University’s risk management processes to ensure that they are adequate and effective. The Audit Committee considers risk management as a standing item in its meetings to ensure routine monitoring, and will report to the Council on internal controls and alert the Council to any emerging issues as necessary. The Audit Committee also receives an annual opinion from the internal auditors on the adequacy and effectiveness of the University’s arrangements for risk management, control, governance and Value for Money, and provides assurance to Council on the adequacy and effectiveness of the University’s arrangements for risk management.

In parallel to the introduction of the new risk management framework, the University’s senior leadership team identified a revised set of University risks. The University’s risk register identifies those risks that are considered to have a fundamental impact on the University’s ability to deliver its mission or to operate effectively. The principal risks and uncertainties of the University are broadly consistent year on year: its long-term ability to maintain and develop its research funding, attract the best staff and students, and maintain, refresh and renew its physical facilities. The activities of Cambridge Assessment and Cambridge University Press are subject to the pressures of international competition. CA and CUP balance the need to reinvest sufficient of their operating surplus to thrive with the need to support the University’s core academic activities wherever possible.

The University remains comparatively well positioned in the sector to deal with financial risks. Revenue streams are well diversified, both in terms of revenue line and geographically. The fact that the University does not seek to ‘profit maximise’ means that there are additional sources of revenue open that it has chosen not to maximise. These sources of revenue provide significant resilience, as does the strong and liquid balance sheet, enabling the University to manage the unexpected over the short term, and providing time to make the necessary operating adjustments.

Key strategic risk areas identified include:

Risk area	Responses and actions
Reputational and financial impact through failure to meet OfS and other stakeholder expectations for widening student access; student dissatisfaction in the quality of their educational experience; failure to recruit the very best undergraduate and postgraduate students; failure to ensure that educational facilities are of an acceptable standard for a world-class educational institution.	–Implementation of the actions committed to in the University’s agreed Access and Participation Plan (2020–21 to 2024–25). –Full engagement with Colleges which are responsible for undergraduate admissions. –Fundamental review of widening participation expenditure and development of new initiatives. –Delivery and further development of the Student Support Initiative. –Student Recruitment Strategy. –Review of curricula and methods of teaching and examination. –Launch of the Education Framework.
Changes to government policy lead to further cuts in financial support and provision for education. Negative outcomes from the ongoing government review of post-18 education and funding in relation to student tuition fees. Negative impact or delays to funding through the formation of UK Research and Innovation, which has brought together the current Research Councils, and the increasing emphasis on national research institutes which might affect restructuring of Research Councils.	–The University continues to engage with government directly and through the HE sector to influence policy in support of its education and research mission. The University also continues to diversify its income sources. –The College dimension of education provision is distinctive and successful, but it is costly to deliver. The University continues to review ways of controlling costs, seeking value for money gains, and opportunities to develop the mix of students over time, while maintaining the highest quality of education and without compromising on admission standards. –The University will continue to develop strategic relationships with research funders, including Research Councils and industrial partners.
Brexit outcomes restrict access to movement and funding of EU students and staff. Reduced access to current levels of EU Research income. Wider economic downturn impacts future sources of revenue and availability of indirect labour and materials, disrupting the capital expenditure programme.   Areas of high risk are: EU Research Funding, Immigration Costs, Staff Counselling, EU Student Recruitment, Student Funding, and Communications.	–The ongoing uncertainties and likely direct and indirect human and financial consequences of the UK’s imminent exit from the EU are of significant concern. The University and the HE sector continue to engage with government on all Brexit issues. –The University’s strategic and operational-level Brexit working groups continue to review and develop plans to ensure that the University maintains and enhances its position as the external environment changes. The University has agreed interim measures to support meeting immigration costs for existing EEA staff. –Loss of European Research Council (ERC) funding is likely to impact on the University’s ability to engage leading researchers. HM Treasury has committed to guarantee existing ERC funding commitments.
Increasingly competitive landscape for all forms of research funding.	–The University continues to invest significant resources in preparation for the upcoming REF21 funding round and continues to enhance the capabilities and capacity of its Research Office in support of the ongoing processes for grant application and management. –The University has a growing focus on industrial research collaboration with international partners, focusing on finding solutions to the major global challenges
Significant downturn in financial markets leads to reduced financial strength.   Combined impact of devalued long-term Investments, reduced endowment distribution levels, deterioration in pension valuations (increasing contribution levels), and reduced sources of revenue and philanthropy.   Suboptimal management of long-term financial sustainability leads to erosion of financial health with enforced curtailment of investment in the University’s primary objectives (both capital and operational requirements) in support of academic teaching and research priorities, leading to an indirect loss of social value.	–The University continues to focus on the optimal management of long-term financial sustainability, including stress testing and enhanced contingency planning. –The University is actively exploring opportunities to attract new revenue streams, modernise processes to seek cost efficiencies and ensure its capital programme is fully funded ahead of new commitments being made. –Over time, more fundamental adjustments to the cost base could be made but would negatively impact on students and research. Likewise capital investment would have to be prioritised on refurbishment over investment. –The University is investing further in its Development and Alumni Relations activities. A new campaign with a target to raise £2bn across collegiate Cambridge was launched in October 2015 and has already delivered £1.6bn. This will include areas of substitutional funding. –The professionally managed CUEF has allocations across a diversified range of asset classes, sectors, styles and geographies with a broad equity focus, designed to optimise returns and be resilient over the long term.
Both CUP and CA operate in challenging international markets where global economic conditions may adversely impact their financial performance, reducing the funds available for reinvestment in the University’s core academic mission.   The University has an increasing international footprint of activities. International tax laws are narrowing the distinction between supporting activities and permanent establishments, leading to the potential for more overseas activity to become taxable.	–The University’s businesses look to diversify their product offerings, develop new revenue streams and deepen existing capabilities. –A joint Board now provides oversight of these businesses and is developing an overarching strategy to ensure they continue to thrive by exploiting business synergies and new distribution channels. –The University continues to monitor the key risks associated with its combined international activities. –The Strategic Partnerships Office coordinates functional due diligence of proposed new international activities, sharing best practice. –The University leverages specialist external taxation and legal advice in support of its core internal capabilities.
Inability to attract and retain the best academics and adequately resource professional and administrative staff through a failure to compete with escalating levels of international reward levels, growth in the University’s complexity and scale, and high costs of living and housing in the Cambridge area.   In particular, there is a risk that the USS triennial revaluation leads to increased employer and employee contributions to fund a valuation deficit.	–The University continues to focus on pensions and pay as key components of a competitive employment proposition, seeking economy, efficiency and effectiveness in its operations to accommodate pay and pension inflation as necessary. –The University is also focusing on the provision of transport, nursery schooling and housing, with the Eddington development designed to ease pressures. –The USS’s triennial valuation, currently under extended review, indicates an increased deficit and probable materially increased cost of provision of future defined benefits. The University continues to work with the sector to explore sustainable long-term options that might provide employers and staff with better value for money and more flexibility.
Failure to maintain adequate risk management of Health & Safety related risks and compliance with associated regulations across the distributed University estate and activities leads to personal injury / fatality or significant loss of facilities.	–The University has policies and procedures in place to support appropriate risk management and compliance across the organisation. However, the devolved nature of the University and diverse nature of associated direct and indirect activities represent a challenge in ensuring full assurance coverage.
Inadequate long-term maintenance and development of the academic and non-academic estate and supporting infrastructure.	–The University has an ambitious capital building programme and is actively sharpening the prioritisation and management of its strategic investments.   –The University seeks to optimise available funding through maximising associated capital grants and philanthropic resources and by increasing net operating cash flows.
Significant data breach, failure to comply with GDPR, or major information security event (cyber security) leads to loss of confidential / commercially sensitive information or failure of IT infrastructure.	–The University has invested resources to understand its data assets and the security landscape across a devolved institution, and to enable assessment of the risks associated with loss of confidential and commercially sensitive information. –The University is developing an updated Cyber Strategy to deliver enhanced security controls across the University, noting that this is a challenge in more devolved areas of control and in an environment of increased and changing threats.

Anthony Odgers
Chief Financial Officer

 

CORPORATE GOVERNANCE

1. The following statement is provided by the Council to enable readers of the financial statements to obtain a better understanding of the arrangements in the University for the management of its resources and for audit.

2. The University endeavours to conduct its business in accordance with the seven principles identified by the Committee on Standards in Public Life (selflessness, integrity, objectivity, accountability, openness, honesty and leadership) and within the general principles of the Higher Education Code of Governance, which has been provided by the Committee of University Chairs. Further information is given at paragraph 9 below.

Under the Statutes, the Governing Body of the University is the Regent House, which comprises some resident senior members of the University and the Colleges, together with the Chancellor, the High Steward, the Deputy High Steward, the Commissary and the external members of the Council. The approval of the Regent House is required for changes to the University’s Statutes and Ordinances and for any other matter for which in Statute or Ordinance the University’s approval must be obtained; the Council and the General Board may also decide to seek the Regent House’s approval on questions of policy which are considered likely to be controversial. The Council of the University is the principal executive and policy-making body of the University, with general responsibility for the administration of the University, for the planning of its work, and for the management of its resources. The membership of the Council includes four external members, one of whom chairs the Audit Committee (see paragraphs 4 and 7 below). The Statutes provide for the appointment of a Deputy Chair of the Council, normally one of the external members, to take the chair as necessary or when it would be inappropriate for the Vice-Chancellor to do so, in particular in relation to the Vice-Chancellor’s own accountability. The General Board of the Faculties is responsible for the academic and educational policy of the University.

3. The University is an exempt charity and is subject to regulation by the Office for Students (OfS). The members of the University Council are the charity trustees and are responsible for ensuring compliance with charity law.

4. The Council is advised in carrying out its duties by a number of committees, including the Finance Committee, the Audit Committee, the Planning and Resources Committee and the Remuneration Committee. The Finance Committee is chaired by the Vice-Chancellor and advises the Council on the management of the University’s assets, including real property, monies and securities. The Audit Committee, which has a majority of external members, governs the work of the Internal and External Auditors, reporting on these matters directly to the Council. As part of a review of the University’s risk management processes, in January 2019, the Council approved the transfer of the principal responsibilities relating to risk management from the Risk Steering Committee to the Audit Committee and to dissolve the Risk Steering Committee with immediate effect. In addition, the Audit Committee reviews the University’s risk management processes to ensure that they are adequate and effective. The Planning and Resources Committee is a joint committee of the Council and the General Board. Its responsibilities include the preparation of the University’s budget. The Remuneration Committee is chaired by an external member of the Council and advises the Council on the remuneration of senior staff in the University. The West and North West Cambridge Estates Board reports to the Council on its oversight of the development of two key University sites. The Press and Assessment Board advises the Council on matters concerning Cambridge University Press and Cambridge Assessment.

5. Under the terms of the OfS’ Terms and Conditions of funding for higher education institutions and the Terms and Conditions of the Research England grant between the University and the OfS, the Vice-Chancellor is the Accountable Officer of the University.

6. Under the Statutes, it is the duty of the Council to exercise general supervision over the finances of all institutions in the University; to keep under review the University’s financial position and to make a report thereon to the University at least once in each year; to recommend bankers for appointment by the Regent House; and to prepare and publish the annual accounts of the University in accordance with UK-applicable accounting standards such that the accounts give a true and fair view of the state of affairs of the University.

7. It is the duty of the Audit Committee to keep under review the University’s risk management strategy and implementation; to keep under review the effectiveness of the University’s internal systems of financial and other controls and governance; to advise the Council on the appointment of external and internal auditors; to consider reports submitted by the auditors, both external and internal; to monitor the implementation of recommendations made by the internal auditors; to satisfy itself that satisfactory arrangements are adopted throughout the University for promoting Value for Money (economy, efficiency and effectiveness); to monitor the University’s management and quality assurance of data submitted to the OfS and other bodies; to establish appropriate performance measures and to monitor the effectiveness of external and internal audit; to make an annual report to the Council, the Vice-Chancellor and to the OfS; to receive reports from the OfS and other authorities. Membership of the Audit Committee includes as a majority five external members (including the chair of the Committee), appointed by the Council with regard to their professional expertise and experience.

8. There are Registers of Interests of Members of the Council, the General Board, the Finance Committee, and the Audit Committee, and of the senior administrative officers. Declarations of interest are made systematically at meetings. All members of the Council were routinely asked to self-certify against the OfS indicators of a ‘fit and proper person’ at the beginning of their tenure as trustees.

9. The University is a self-governing community whose members act in accordance with the seven principles of public life (see paragraph 2 above) and in pursuit of the objectives and purposes of the University as set out in its Statutes. The University complies with most but not all of the voluntary Higher Education Code of Governance published in December 2014 and revised in June 2018 by the Committee of University Chairs. In particular the Vice-Chancellor is chair of the Council, which does not have a majority of external members, and the Council is subject to the statutory authority of the Regent House.

 

MEMBERS OF THE COUNCIL AND THE CHARITY TRUSTEES DURING THE YEAR ENDED 31 JULY 2019

Position	Name
The Chancellor:	Lord Sainsbury of Turville
The Vice-Chancellor:	Professor Stephen Toope
Heads of Colleges:	Dr Anthony Freeling Professor Christopher Kelly (from 1 January 2019) The Reverend Dr Jeremy Morris Professor Michael Proctor Professor Susan Smith (until 31 December 2018)
Professors and Readers:	Professor Ross Anderson (until 31 December 2018) Professor Nick Gay Professor Fiona Karet Professor Susan Oosthuizen (until 31 December 2018) Professor Richard Penty (from 1 January 2019) Dr Jason Scott-Warren (from 1 January 2019)
Members of the Regent House:	Dr Sam Ainsworth (from 1 January 2019) Dr Richard Anthony (until 31 December 2018) Dr Ruth Charles Dr Stephen Cowley Dr Jennifer Hirst Dr Nicholas Holmes Dr Alice Hutchings (until 29 October 2018) Dr Andrew Sanchez (from 1 January 2019) Dr Mark Wormald Ms Jocelyn Wyburd
Student members:	Ms Evie Aspinall (until 30 June 2019) Mr Alessandro Ceccarelli (from 1 July 2019) Ms Poppy Cockburn (from 1 July 2019) Mr Marcel Llavero Pasquina (until 30 June 2019) Mr Edward Parker Humphreys (from 1 July 2019) Ms Sofia Ropek-Hewson (until 30 June 2019)
External members:	Ms Sharon Flood (from 1 January 2019) Professor Sir David Greenaway Mr Mark Lewisohn Mr John Shakeshaft (until 31 December 2018) Ms Sara Weller

The Chancellor, external members, student members, Dr Freeling, Professor Kelly, Dr Morris, Professor Proctor, Professor Smith (until 31 December 2018), Dr Anthony (until 31 December 2018) and Dr Wormald are not employees of the University. The other members of the Council are employees of the University. No member of the Council receives payment for serving as a member of the Council.

STATEMENT OF INTERNAL CONTROL

1. The Council is responsible for maintaining a sound system of internal control that supports the achievement of policies, aims, and objectives, while safeguarding the public and other funds and assets for which the Council is responsible, in accordance with the Statutes and Ordinances and the Office for Students’ (OfS) Terms and Conditions of funding for higher education institutions and the Terms and Conditions of the Research England grant.

2. The system of internal control is designed to identify the principal risks to the achievement of policies, aims, and objectives, to evaluate the nature and extent of those risks, and to manage them efficiently, effectively, and economically on an ongoing basis. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve policies, aims, and objectives; it therefore provides reasonable but not absolute assurance of effectiveness.

3. During the year ended 31 July 2019, the Council approved and implemented a new risk management framework and Policy, designed to improve the identification and management of risks and strengthen the links with University objectives. This process was in place for the year ended 31 July 2019 and up to the date of approval for the financial statements. The process is in accordance with OfS guidance.

4. The Council is responsible for ensuring that a sound system of internal control is maintained. The following principles of internal control have been established and applied as described below:

(a)The Council receives periodic reports from the Chair of the Audit Committee concerning internal control and risk management, together with the minutes of all meetings of the Audit Committee.

(b)The Audit Committee reviews the University’s policy against bribery and corruption on an annual basis.

(c)The Audit Committee receives regular reports from the University’s internal auditors, Deloitte LLP, which include the internal auditors’ independent opinion on the adequacy and effectiveness of the University’s system of internal control and risk management, together with recommendations for improvement.

(d)The Council has delegated to the Audit Committee the responsibility for reviewing the University’s risk management processes to ensure that they are adequate and effective. Risk management is a standing item on the Audit Committee agenda and is the driving element in the design of the annual internal audit programme of work.

(e)The Audit Committee’s annual report (which is submitted to Council) sets out how risks are identified and evaluated, how risk management is embedded in ongoing operations and reviews the effectiveness of the risk management framework. The annual report also considers the University’s arrangements for the prevention and detection of corruption, fraud, bribery and other irregularities.

(f)The University’s senior leadership team is responsible for identifying and managing risks across the University’s activities, within the context of the University’s priorities and objectives. The review of risks encompasses business, operational, compliance, financial and reputational risks.

(g)All identified risks are evaluated using a common framework for scoring that considers both the likelihood and impact of risks becoming a reality. The scoring guidance for evaluating risks prompts risk owners to consider the following categories of impact: finance, compliance, safety, service delivery (operational), reputation and people.

(h)The risk management framework applies across the University’s institutions, with further guidance and information provided to those who own or manage University, School, Faculty or Departmental risks (primarily through web‑based resources and training). Risk assessment underpins the University’s programme of internal audit work and is embedded as part of the University’s annual planning processes.

(i)The University’s Risk Register identifies those risks that are considered to have a fundamental impact on the University’s ability to deliver its mission or to operate effectively. The risk register is considered and formally approved by the Council at least annually, enabling it to receive direct updates on the evaluation and management of risks.

5. The Council is also responsible for reviewing the effectiveness of the system of internal control The Council’s review of the effectiveness of the system of internal control is informed by:

(a)the work of the University’s internal auditors, Deloitte LLP, as reported to the Council through the Chairman of the Audit Committee, the Audit Committee’s annual report and the minutes of all meetings of the Audit Committee;

(b)the work of the senior officers and the risk owners within the University, who have responsibility for the development and maintenance of the internal control framework; and

(c)comments made by the external auditors in their management letter and other reports.

6. No significant control weaknesses or failures were identified during the 2018–19 financial year, or up to the date of approval of the financial statements.

 

STATEMENT OF THE RESPONSIBILITIES OF THE COUNCIL

Under the University’s Statutes and Ordinances it is the duty of the Council to prepare and to publish the annual accounts of the University in accordance with UK applicable accounting standards such that the accounts give a true and fair view of the state of affairs of the University.

The Council is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the University.

In preparing the financial statements the Council is required to:

(a)select suitable accounting policies and then apply them consistently;

(b)make judgements and estimates that are reasonable and prudent;

(c)state whether applicable accounting standards have been followed;

(d)prepare the financial statements on a going concern basis unless it is inappropriate to presume that the University will continue to operate;

(e)ensure that income has been applied in accordance with the University’s Statutes and Ordinances, the Terms and conditions of funding for higher education institutions, the Terms and conditions of the Research England grant, and the funding agreement with the National College for Teaching and Leadership; and

(f)safe-guard the assets of the University and take reasonable steps to prevent and detect fraud and other irregularities.

 

Independent auditors’ report to the Council of the University of Cambridge (the 'University')

Report on the audit of the financial statements

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Opinion

In our opinion, the University of Cambridge’s Group financial statements and University financial statements (the “financial statements”):

•give a true and fair view of the state of the Group’s and the University’s affairs as at 31 July 2019 and of the Group’s and University’s income and expenditure, gains and losses, changes in reserves and the Group’s cash flows for the year then ended;

•have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law); and

•have been properly prepared in accordance with the requirements of the Statement of Recommended Practice – Accounting for Further and Higher Education and the requirements of the Office for Students’ Accounts direction (OfS 2018.26).

We have audited the financial statements, included within the Reports and Financial Statements (the “Annual Report”), which comprise: the Balance Sheets as at 31 July 2019; the Statements of comprehensive income, the Consolidated statement of cash flows, and the Statements of changes in reserves for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

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Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the University.

Other than those disclosed in note 14 to the financial statements, we have provided no non-audit services to the Group or the University in the period from 1 August 2018 to 31 July 2019.

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Our audit approach

Overview

	–Overall Group materiality: £21.9 million (2018: £18.7 million), based on 1% of total income. –Overall University materiality: £20.4 million (2018: 18.7 million), based on 1% of total income.
	–The scope of our work covered the Academic University, Cambridge Assessment, Cambridge University Press and the Cambridge University Endowment Fund. –Our audit scope addressed 92% of Group income and 99% of Group assets.
	–Revenue recognition for donations and research grants . –Valuation of investments. –Valuation of North West Cambridge. –Valuation of pension schemes.

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The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the Council made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

Capability of the audit in detecting irregularities, including fraud

Based on our understanding of the Group and sector, we identified that the principal risks of non-compliance with laws and regulations related to the Office for Students’ regulatory framework, including the terms and conditions of funding, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Statement of Recommended Practice – Accounting for Further and Higher Education, the requirements of the Office for Students’ (“OfS’s”) Accounts direction (OfS 2018.26) and the Education Reform Act 1988. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to revenue recognition. Audit procedures performed by the group engagement team and/or component auditors included:

•substantive testing of revenue;

•testing of critical accounting estimates and judgements;

•incorporation of an element of unpredictability in the audit;

•testing journal entries, specifically around unusual revenue account combinations; and

•performing department visits.

There are inherent limitations in the audit procedures described above and the further removed non‑compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Key audit matter	How our audit addressed the key audit matter
Revenue recognition for donations and research grants The Group recognised £111m of income in the year from donations and endowments and £592m from research grants (see notes 9 and 7). Research grants are recognised when the terms of the grant or contract are met, primarily as allowed expenditure is incurred. Often there will be timing differences between when cash is received and recognition criteria are met which requires income to be accrued or deferred. In addition there is judgement applied where performance conditions are used as the basis for income recognition. There is also judgement involved in determining when to recognise donation income with regards to when performance conditions have been met that allow recognition. Group and University	We have evaluated and tested the accounting policy for income recognition to ensure that this is consistent with the requirements of accounting standards. No exceptions were noted. We performed detailed testing of these revenue transactions, including deferred revenue. For a sample of research grants we tested the revenue recognised back to underlying grant agreements to identify any specific performance conditions that were attached to recognition. We also tested a sample of cash received and tested a sample of expenditure to confirm that the funds had been spent in accordance with the requirements of funding. We also tested a sample of donations and agreed that these were recognised in accordance with any performance conditions in the underlying donation agreements with a particular focus on larger individual donations. We also tested a sample back to cash receipt or where cash has not yet been received that the accrual or deferral is appropriate. We also performed income cut-off testing in the month before and after year-end to ensure income was recognised in the correct period. No exceptions were noted from our work.
Valuation of investments Refer to note 21 (Non-current asset investments) and note 11 (Investment income). The majority of the Group investments (£3,456m) are held within CUEF so the valuation of the units, used by the various components of the Group in determining their investment valuations, is key. The remainder of the Group’s investments (£833m) are a mix of investment properties, securities, subsidiaries / spin-out companies, and money markets investments. In recent years there has been an increase in the value of property related assets (including North West Cambridge) and other investments where judgement is needed when performing valuations. Some (£916m or 21%) of the Group’s total investments are valued using readily available market data, and are therefore relatively straightforward to value. Within CUEF, a large proportion (£2,141m or 62%) of investments are in pooled investment funds, where valuations are provided by the investment manager rather than directly from market data and the valuation of the underlying asset classes can, for some of these funds, be more subjective. Additionally, investments in private companies (of which £70m relates to the investment in Cambridge Innovation Capital), direct property investments and interests in property vehicles also require estimation and are therefore judgemental. Group and University	For all quoted investments and pooled investments held in the CUEF we obtained confirmations from the custodian. For quoted securities, we performed independent verification of the prices used for valuation, and noticed no discrepancies. On a sample basis, we also obtained confirmations from fund managers for pooled funds to corroborate the information received from the custodian. We also performed procedures to assess the reliability of the information received, with a particular focus on the hardest to value – Level 3 – investments. No exceptions were noted from the work in terms of the valuation of the assets. However, the classification of the pooled investment funds is not currently reflective of the nature of the underlying assets due to the custodian’s default classification of these investments. Management have included the relevant disclosures in note 39. Investments in direct properties have been valued by third party valuation experts. We assessed the competency of the valuation professionals used by management and used PwC internal experts to assess the valuation methodology and review the reasonableness of the year-on-year capital movements. No exceptions were noted from this testing. Included within interests in property vehicles is £26m in relation to the CUEF’s interest in two property vehicles. The original investment in these vehicles was made a number of years ago, and management are valuing these interests internally. At 31 July 2019 the valuation of these interests is not significantly sensitive to the assumed value at the end of the arrangement, and therefore we concur with the values used.
Valuation of North West Cambridge Refer to note 21b (Investment Property). The North West Cambridge development, including the related land with relevant planning permission, was recognised an as investment property in the prior year. Phase 1 of the development has been materially completed with a number of components, including: key worker housing; student accommodation, market housing and retail units. Management has plans for Phase 2 and Phase 3 of the development. The development was valued at £362m at 31 July 2019 by an external valuation professional, an increase by £35m since prior year (FY18: £327m). There are a number of judgemental assumptions applied across the different components including: discount rate, rental growth, operating costs, yields, and expected sales prices for those units for sale. A valuation of this nature has a material risk of error given that it, firstly, involves a number of subjective assumptions and, secondly, depends upon the inputs to the valuation being consistent with the facts, land usage and plans. Group and University	We have performed testing of the valuation report prepared by the valuation professional engaged by the University. We reviewed the individual components of the development, agreeing estimates back to supporting evidence where available (including to sales contracts already in place, third party valuations, and evidence in support of current rental income). We also assessed the assumptions that feed into the valuation (including discount rate, expected rental yields and sales proceeds). We used the PwC Valuations team to assist us with assessing the valuation methods, the appropriateness of the comparators and benchmarks used by the valuation professionals and hence the assumptions adopted. We concluded that they all sit within external market ranges, where available, are consistent with underlying support and in line with our own expectations. We compared the components of the valuations with support for the components of Phase 1 and the plans for Phases 2 and 3. We also reviewed Council minutes to obtain evidence of the University’s intentions and plans for future phases, and ensured they were consistent with the assumptions for land use in the valuations adopted. Based on this work, no material issues were noted.
Valuation of pension schemes Refer to note 28 (Pension liabilities) and note 34 (Pension schemes). The Group has defined benefit pensions plans with net liabilities of £741m, which is significant in the context of the Group balance sheet. The Group also holds a liability in respect of the deficit reduction agreement for the multi-employer Universities Superannuation Scheme (‘USS’) of £348m. Defined pension scheme liabilities are material to the Group and are affected by the value of the scheme’s underlying assets and the actuarial assumptions, such as discount rates, inflation and life expectancy, used to calculate the value of the pension liabilities. There is a range of assumptions that can be used by actuaries depending upon the individual circumstances of the scheme, and a change in the assumptions can have a significant financial impact on the year-end pension liability. In addition, the liability of £348m recognised in relation to USS reflects the results of the 2017 actuarial valuation and, similarly, is calculated using certain subjective assumptions such as discount rate and changes in staff numbers and salary inflation. Subsequent to year end a 2018 valuation was agreed between the parties. The subsequent valuation has been treated as a non-adjusting post balance sheet event based on the timing of the agreement. The March 2018 valuation, had it been recognised, would have reduced the liability by £150m. Group and University	In respect of the Cambridge University Assistants’ Contributory Pension Scheme (CPS) and the Press Contributory Pension Fund and the Press Senior Staff Pension Scheme (together ‘Press’) defined defined benefit schemes, we obtained the pension valuation reports from the external actuaries. With the assistance of our internal actuarial specialists we compared the inflation rates and discount rates used in the valuation of the pension liability by the external actuary to our internally developed benchmarks and considered the consistency of assumptions against the prior year. We compared the assumptions around salary increases and mortality to national and industry averages as well as University specific information. We performed testing over the census data on which the valuation is based. We agreed underlying assets in the scheme to confirmations obtained from fund managers, and obtained controls reports and/or financial statements to evaluate the reliability of the evidence obtained. Based on this work, no material issues were noted. In respect of the USS deficit recovery provision we have tested the contribution data and actuarial assumptions and are satisfied that the assumptions used for the USS provision are reasonable and we have confirmed the integrity of the underlying model used for its calculation. We have satisfied ourselves that the treatment of the 2018 valuation as a non-adjusting subsequent event is appropriate and concluded the related disclosures are complete.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the University, the accounting processes and controls, and the industry in which they operate.

In relation to scoping our work the following were considered significant components – the Academic University, Cambridge Assessment, Cambridge University Press, and the Cambridge University Endowment Fund.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

	Group financial statements	University financial statements
Overall group materiality	£21.9 million	£20.4 million
How we determined it	1% of total income.	1% of total income
Rationale for benchmark applied	As the Group is a not-for-profit organisation, the most suitable benchmark to use for overall materiality is deemed to be total income. This is a generally accepted auditing benchmark.	As the University is a not-for-profit organisation, the most suitable benchmark to use for overall materiality is deemed to be total income. This is a generally accepted auditing benchmark.

For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was £6.3m – £20m. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1 million (Group and University audit) (2018: £935,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

---

Conclusions relating to going concern

ISAs (UK) require us to report to you when:

•the Council’s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

•the Council has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s and University’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

We have nothing to report in respect of the above matters.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and University’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Group’s and University’s activities, students, suppliers and the wider economy.

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Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon, i.e. A brief overview, Financial review, Corporate governance, Members of the Council, Statement of internal control and Statement of the responsibilities of the Council. The Council is responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

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Responsibilities for the financial statements and the audit

Responsibilities of the Council for the financial statements

As explained more fully in the Statement of the responsibilities of the Council set out on page 224, the Council is responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Council is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Council is responsible for assessing the Group’s and the University’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Council either intends to liquidate the Group or the University or to cease operations, or has no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report

This report, including the opinions, has been prepared for and only for the Council as a body in accordance with the Charters and Statutes of the University and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other required reporting

Opinions on other matters prescribed in the OfS and Research England Audit Code of Practice issued under the Further and Higher Education Act 1992 (as amended)

In our opinion, in all material respects:

•funds from whatever source administered by the Group and University for specific purposes have been properly applied to those purposes and, if relevant, managed in accordance with relevant legislation;

•income has been applied in accordance with the University of Cambridge’s Statutes and Ordinances; and

•funds provided by the OfS and Research England have been applied in accordance with the relevant terms and conditions, and any other terms and conditions attached to them.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Audit Committee, we were appointed by the Regent House on 23 January 2009 to audit the financial statements for the year ended 31 July 2009 and subsequent financial periods. The period of total uninterrupted engagement is 11 years, covering the years ended 31 July 2009 to 31 July 2019.

The engagement partner on the audit resulting in this independent auditors’ report is Stuart Newman.

PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors
Cambridge
25 November 2019

 

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JULY 2019

		Group Year ended 31 July 2019	Group Year ended 31 July 2018		University Year ended 31 July 2019	University Year ended 31 July 2018
	Note	£m	£m		£m	£m
Income
Tuition fees and education contracts	5	320.2	295.1		306.1	283.0
Funding body grants	6	181.9	173.6		181.9	173.6
Research grants and contracts	7	592.4	524.9		582.9	515.5
Examination and assessment services	8	478.5	432.5		393.7	360.4
Publishing services		334.0	313.0		300.8	275.6
Donations and endowments	9	111.4	63.8		121.1	62.9
Other income	10	133.4	142.1		128.6	127.2
Investment income	11	40.2	19.8		22.6	16.3
Total income	12	2,192.0	1,964.8		2,037.7	1,814.5
Expenditure
Staff costs
– Excluding impact of USS deficit recovery	13	904.3	845.1		829.6	782.2
– USS deficit recovery	13	230.7	4.5		224.1	5.2
		1,135.0	849.6		1,053.7	787.4
Other operating expenses	14	969.6	933.5		876.6	845.1
Depreciation	14, 19	111.7	94.4		109.2	93.6
Interest and other finance costs	14, 15	91.2	33.6		91.1	33.5
Total expenditure		2,307.5	1,911.1		2,130.6	1,759.6
Surplus before other gains and losses and share of surplus/(deficit) in joint ventures and associates		(115.5)	53.7		(92.9)	54.9
Share of operating surplus in joint ventures and associates	10	1.5	–		–
Gain on investments	21b	235.1	219.0		198.5	166.6
Surplus before tax		121.1	272.7		105.6	221.5
Taxation	16	(3.8)	(3.1)		(1.5)	(2.2)
Surplus for the year	32	117.3	269.6		104.1	219.3
Other comprehensive income/(expense)
Actuarial gain/(loss)	28, 29	(208.2)	122.5		(207.9)	122.5
Gain/(loss) arising on foreign currency translation		1.9	(2.9)		0.9	(2.3)
Profit on acquisition of Foundation	35	–	1.6		–	–
Loss on deconsolidation of Trust	35	(1.9)	–		–	–
Total comprehensive income/(expense) for the year	32	(90.9)	390.8		(102.9)	339.5
Represented by:
Endowment comprehensive income for the year	30	115.6	127.8		112.0	112.6
Restricted comprehensive income for the year	31	121.5	74.3		121.4	74.5
Unrestricted comprehensive income/(expense) for the year	32	(328.0)	188.7		(336.3)	152.4
		(90.9)	390.8		(102.9)	339.5

 

STATEMENTS OF CHANGES IN RESERVES FOR THE YEAR ENDED 31 JULY 2019

	Endowment £m	Restricted £m	Unrestricted £m	Total £m
Group
Balance at 1 August 2017	1,727.9	85.5	3,033.7	4,847.1
Surplus for the year ended 31 July 2018	127.8	74.3	67.5	269.6
Other comprehensive income	–	–	121.2	121.2
Total comprehensive income for the year ended 31 July 2018	127.8	74.3	188.7	390.8
Release of restricted capital funds spent in the year ended 31 July 2018	–	(61.9)	61.9	–
Dividend paid to non-controlling interest	–	–	(0.5)	(0.5)
Balance at 31 July 2018	1855.7	97.9	3,283.8	5,237.4
Surplus/(deficit) for the year ended 31 July 2019	117.5	121.5	(121.7)	117.3
Other comprehensive expense	(1.9)	–	(206.3)	(208.2)
Total comprehensive income/(expense) for the year ended 31 July 2019	115.6	121.5	(328.0)	(90.9)
Release of restricted capital funds spent in the year ended 31 July 2019	–	(91.1)	91.1	–
Dividend paid to non-controlling interest	–	–	(1.7)	(1.7)
Balance at 31 July 2019	1971.3	128.3	3,045.2	5,144.8

University
Balance at 1 August 2017	1,449.3	84.3	2,764.4	4,298.0
Surplus for the year ended 31 July 2018	112.6	74.5	32.2	219.3
Other comprehensive income	–	–	120.2	120.2
Total comprehensive income for the year ended 31 July 2018	112.6	74.5	152.4	339.5
Release of restricted capital funds spent in the year ended 31 July 2018	–	(61.8)	61.8	–
Balance at 31 July 2018	1,561.9	97.0	2,978.6	4,637.5
Surplus/(deficit) for the year ended 31 July 2019	112.0	121.4	(129.3)	104.1
Other comprehensive expense	–	–	(207.0)	(207.0)
Total comprehensive income/(expense) for the year ended 31 July 2019	112.0	121.4	(336.3)	(102.9)
Release of restricted capital funds spent in the year ended 31 July 2019	–	(91.1)	91.1	–
Balance at 31 July 2019	1,673.9	127.3	2,733.4	4,534.6

 

BALANCE SHEETS AS AT 31 JULY 2019

		Group 31 July 2019	Group 31 July 2018		University 31 July 2019	University 31 July 2018
	Note	£m	£m		£m	£m
Non-current assets
Intangible assets and goodwill	18	87.1	63.5		84.8	62.6
Fixed assets	19	2,601.4	2,559.3		2,595.8	2,554.6
Heritage assets	20	72.0	70.6		72.0	70.6
Investments – other investments	21a	3,210.2	2,904.9		2,634.4	2,345.8
Investments – investment property	21b	547.5	501.4		547.5	501.4
Investments in joint ventures	21a	9.4	6.5		0.5	–
Investments in associates	21a	0.5	0.5		0.9	0.9
		6,528.1	6,106.7		5,935.9	5,535.9
Current assets
Stock and work in progress	22	52.7	47.4		49.9	40.8
Trade and other receivables	23	463.2	418.2		469.7	424.2
Investments	24	522.0	498.9		1,100.0	1,063.3
Cash and cash equivalents	25	732.5	869.3		667.4	815.5
		1,770.4	1,833.8		2,287.0	2,343.8
Creditors: amounts falling due within one year	26	(1,038.7)	(1,096.8)		(1,594.7)	(1,651.3)
Net current assets		731.7	737.0		692.3	692.5
Total assets less current liabilities		7,259.8	6,843.7		6,628.2	6,228.4
Creditors: amounts falling due after more than one year	27	(1,001.6)	(949.6)		(991.3)	(938.3)
Pension liabilities	28	(1,088.7)	(635.1)		(1,077.6)	(631.0)
Other retirement benefits liabilities	29	(24.7)	(21.6)		(24.7)	(21.6)
Total net assets		5,144.8	5,237.4		4,534.6	4,637.5
Restricted reserves
Income and expenditure reserve – endowment	30	1,971.3	1,855.7		1,673.9	1,561.9
Income and expenditure reserve – restricted	31	128.3	97.9		127.3	97.0
Unrestricted reserves
Income and expenditure reserve – unrestricted	32	3,045.2	3,283.8		2,733.4	2,978.6
Total reserves		5,144.8	5,237.4		4,534.6	4,637.5

The financial statements on pages 231 to 276 were approved by the Council on 25 November 2019 and signed on its behalf by:

Professor Stephen Toope Vice-Chancellor

Mark Lewisohn Member of Council

David Hughes Director of Finance

 

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 JULY 2019

	Note	Group Year ended 31 July 2019 £m		Group Year ended 31 July 2018 £m
Cash flow from operating activities
Surplus for the year		117.3		269.6
Adjustments for non-cash items:
Depreciation	14, 19	111.7		94.4
Amortisation of intangible assets	18	17.0		33.3
Gain on investments		(235.1)		(217.1)
Decrease / (increase) in stocks and work in progress	22	(5.3)		2.2
Increase in trade and other receivables		(45.0)		(38.1)
Increase in creditors		56.7		23.4
Revision of deficit recovery cost recognised in the year	13, 28	230.7		4.5
Other pension costs less contributions payable	28	17.6		13.3
Other retirement benefit costs less contributions payable	29	(0.3)		(0.2)
Receipt of donated assets	20	(1.4)		(3.3)
Currency adjustments		(1.9)		2.9
Adjustments for investing or financing activities:
Investment income	11	(40.2)		(19.8)
Interest payable	15	73.9		14.8
New endowments	9	(66.8)		(21.6)
Capital grants and donations		(107.0)		(75.6)
Share of joint venture and associated net surplus	10	(1.5)		(1.9)
Loss / (gain) on the sale of fixed assets	10	0.2		(3.9)
Other		3.8		1.8
Net cash inflow from operating activities		124.4		78.7
Cash flows from investing activities
Capital grants and donations		107.0		75.6
Proceeds from sales of fixed assets		–		8.8
Proceeds of sales: North West Cambridge		26.8		–
Proceeds from sales of other non-current asset investments		140.9		185.5
Net acquisitions of other current asset investments		(113.1)		(12.0)
Investment income	11	40.2		19.8
Payments made to acquire intangible assets	18	(40.3)		(20.6)
Payments made to acquire fixed assets		(166.9)		(230.6)
Payments made to acquire heritage assets	20	–		–
Payments made to acquire other non-current asset investments		(269.4)		(81.2)
Dividend payment to non-controlling interest	32	(1.7)		(0.5)
Payments made re. North West Cambridge development costs		(17.8)		(48.1)
Net cash outflow from investing activities		(294.3)		(103.3)
Cash flows from financing activities
New endowments	9	66.8		21.6
Bond proceeds		–		593.6
Interest paid		(21.0)		(13.8)
Capital element of finance lease proceeds / (repayments)	26, 27	1.3		(1.3)
Repayments of loans	26, 27	–		(1.5)
Net cash inflow from financing activities		47.1		598.6
Increase / (reduction) in cash and cash equivalents in the year		(122.8)		574.0
Cash and cash equivalents at beginning of the year		855.3		281.3
Cash and cash equivalents at end of the year		732.5		855.3
Represented by:
Cash and cash equivalent assets	25	732.5		869.3
Bank overdrafts	26	–		(14.0)
		732.5		855.3

 

Notes to the Accounts for the year ended 31 July 2019

Notes to the accounts for the year ended 31 July 2019 (pp. 235–276)

 

APPENDIX 1

Summary Consolidated Financial Information

Financial summary (unaudited)

The financial summary set out below has been derived from the audited consolidated financial statements of the University for the five years ended 31 July 2019. It should be read in conjunction with the consolidated financial statements and related notes.

(a) Summary consolidated statement of comprehensive income (£m)	2019	2018	2017	2016	2015
Total income	2,192.0	1,964.8	1,869.9	1,799.6	1,721.6
Total expenditure	2,307.5	1,911.1	1,806.5	1,733.8	1,682.7
Surplus / (deficit) before other gains and losses	(115.5)	53.7	63.4	65.8	38.9
Share of operating surplus in joint ventures	1.5	–	–	–	–
Gain on investments	235.1	219.0	407.1	221.8	329.2
Surplus before tax	121.1	272.7	470.5	287.6	368.1
Surplus for the year	117.3	269.6	466.4	284.6	355.9
Actuarial gain / (loss)	(208.2)	122.5	26.3	(182.2)	(13.2)
Other comprehensive income / (expense) for the year	–	(1.3)	(0.4)	9.8	(3.6)
Total comprehensive income / (expense) for the year	(90.9)	390.8	492.3	112.2	339.1
Represented by:
Endowment comprehensive income for the year	115.6	127.8	208.7	105.2	151.7
Restricted comprehensive income for the year	121.5	74.3	49.5	65.8	86.4
Unrestricted comprehensive income / (expense) for the year	(328.0)	188.7	234.1	(58.8)	101.0
	(90.9)	390.8	492.3	112.2	339.1
Adjusted consolidated statement of comprehensive income
Surplus for the year	117.3	269.6	466.4	284.6	355.9
Less: Gain on investments	(235.1)	(219.0)	(407.1)	(221.8)	(329.2)
Less: CPI-Linked Bond fair value adjustment	51.5	–	–	–	–
Less: USS pension deficit recovery reflected in staff costs	230.7	4.5	(1.5)	17.6	62.3
Less: Harding endowment	(41.3)	–	–	–	–
Less: Capital grants and donations	(107.0)	(75.6)	(80.5)	(105.4)	(92.6)
Adjusted operating surplus / (deficit) for the year	16.1	(20.5)	(22.7)	(25.0)	(3.6)
(b) Summary consolidated balance sheets (£m)	2019	2018	2017	2016	2015
Non-current assets	6,528.1	6,106.7	5,805.3	5,293.9	4,902.0
Current assets	1,770.4	1,833.8	1,055.6	990.8	982.7
Total assets	8,298.5	7,940.5	6,860.9	6,284.7	5,884.7
Current liabilities	(1,038.7)	(1,096.8)	(896.0)	(792.3)	(712.7)
Non-current liabilities	(2,115.0)	(1,606.3)	(1,117.8)	(1,137.6)	(929.4)
Net assets	5,144.8	5,237.4	4,847.1	4,354.8	4,242.6
Income and expenditure reserve – endowment	1,971.3	1,855.7	1,727.9	1,519.2	1,414.0
Income and expenditure reserve – restricted	128.3	97.9	85.5	79.2	81.9
Income and expenditure reserve – unrestricted	3,045.2	3,283.8	3,033.7	2,756.4	2,746.7
Total reserves	5,144.8	5,237.4	4,847.1	4,354.8	4,242.6
(c) Summary consolidated statement of cash flows (£m)	2019	2018	2017	2016	2015
Net cash inflow from operating activities	124.4	78.7	77.6	51.4	20.3
Net cash outflow from investing activities	(294.3)	(103.3)	(105.2)	(101.5)	(13.2)
Net cash inflow / (outflow) from financing activities	47.1	598.6	14.6	14.8	(4.8)
Increase / (reduction) in cash and cash equivalents in the year	(122.8)	574.0	(13.0)	(35.3)	2.3
Cash and cash equivalents at end of the year	732.5	855.3	281.3	294.3	329.6
Note: Year ended 31 July 2015 has been restated to Financial Reporting Standard 102.