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Report and Financial Statements (Abstract of Accounts) for the year ending 31 July 2006

FINANCIAL REVIEW

Scope of the Financial Statements

The consolidated financial statements cover the teaching and research activities of the University, its subsidiary companies which undertake activities which for legal or commercial reasons are more appropriately carried out by limited companies, Cambridge Assessment and its subsidiary companies and joint ventures, the Gates Cambridge Trust, the Cambridge Commonwealth Trust, Cambridge Overseas Trust, Cambridge European Trust and the Malaysian Commonwealth Studies Centre in Cambridge (the 'Associated Trusts'). This year, for the first time, the financial statements also include the activities of Cambridge University Press. The comparative figures for 2004-05 have been restated accordingly.

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

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

For the purpose of these financial statements Cambridge University Press's accounts to its new financial year end of 30 April were taken, and adjustments then made for major transactions and changes in May to July in order to reflect the positions as at 31 July, the University's financial year-end.

With the inclusion this year of the activities of Cambridge University Press, the final step has been taken so that the University group accounts now follow current accounting practice. The Council is presenting financial statements which are 'true and fair'. However, in providing fully consolidated accounts the presentation of the core teaching and research activities of the University is made more difficult, and the University will continue to publish the accounts of these activities separately. The accounts of the activities of Cambridge Assessment and of Cambridge University Press are also published separately.

Results for the year

The consolidated results for the year ended 31 July 2006 are summarized as follows:

 Restated
 2005-06
£m
2004-05
£m
Change
%
Income890.7819.9+8.6%
Expenditure(882.4)(822.6)+7.3%
Surplus/(deficit) on continuing operations8.33(2.7)
Exceptional items: gain on sale of tangible fixed assets6.59.4
Surplus on continuing operations after exceptional items14.86.7
Minority interest and transfer to accumulated income within(2.7) (1.5)
specific endowments
Surplus for the year12.15.2

It is pleasing to see a return to a small surplus on continuing operations before exceptional items, although it is small in relation to the size of the University group's activities. Exceptional gains, arising primarily from the sale of land and buildings by Cambridge University Press, add to the surplus.

It is helpful to see how this is split between the main segments. There are various transactions between the University's core academic activities, Cambridge Assessment and Cambridge University Press (the Press) which should be separated out. The principal transactions are the printing of examination papers which the Press provides for Cambridge Assessment, and financial and other support for the University's academic activities made by both Cambridge Assessment and the Press.

This segmental analysis is given in accordance with accounting standards in Note 11 to the accounts, but the additional information below may be helpful:

  Academic
activities
£m
Cambridge
Assessment
£m
Cambridge
University
Press
£m
Central
adjustments
£m
As
reported
£m
Income (external)571.7173.2144.71.1890.7
Income (intra-group)3.610.2
 575.3173.2154.91.1890.7
 
Expenditure (external)(566.6)(158.0)(155.0) (879.6)
Expenditure (intra-group for services) (10.2)
Expenditure (intra-group transfer)(3.6)
Other adjustments - pension fund accounting(2.8)(2.8)
 (566.6)(171.8)(155.0)(2.8)(882.4)
Surplus / (deficit) on continuing operations
before exceptional items
8.71.4(0.1)(1.7)8.3

In summary, before exceptional items, the academic activities of the University made a small surplus, after a contribution of £3.6m from Cambridge Assessment. Academic activities have benefited from additional government funding in advance of the introduction of full economic costing methodology for research council grants, and additional investment income. Costs have been kept under control. Although the University, as a whole, is in surplus, the general 'Chest' funds were again depleted over 2005-06. In effect, a transfer of funds has been made to academic schools, faculties, and departments as a result of their success in controlling expenditure. Although this permits the schools to build up cash reserves as a deliberate policy to facilitate budgetary and planning devolution, in the medium term it will be important to maintain a balance between central strategic reserves and those held in schools and institutions.

Cambridge Assessment continues to grow its UK and international assessment services, but is making significant investment in information technology and other infrastructure. Cambridge University Press continues its improvement from recent operating deficits with recent investment, notably in English language course publishing, beginning to bear fruit.

Consolidated income for the University group for 2005-06 increased by £70.8m (+8.6%) to £890.7m. For the academic activities (i.e. excluding Cambridge Assessment and Cambridge University Press, but including for this purpose the Gates Cambridge Trust and the Associated Trusts which support the University's students) income increased by £37.0m (+6.9 %) to £575.3m.

Grant income from the Higher Education Funding Council for England (HEFCE) and the Training and Development Agency for Schools increased by £15.8m (+9.7%) to £178.1m. Within this increase the core recurrent grant increased by only £4.8m (+3.3%), slightly behind our underlying inflation. However specific grants were released to income, the grants being primarily to contribute to the costs of rewarding and developing staff and modernization of higher education pay structures.

Academic fees and support grants increased by £3.0m to £59.0m with this increase being from full-time overseas students, who now contribute around half the total fee income.

Research grants and contracts income increased by £15.2m (+8.1%) to £203.9m continuing the real increase in sponsored research, in particular that funded by research councils. This income included £7.7m (2005: £3.8m) of special government funding in advance of the introduction of full economic funding methodology for research council grants. Improved pricing of research projects will be a key factor in the future financial operating position of the University.

Examination and assessment services income derives from the activities of Cambridge Assessment and increased by £8.4m (+5.2%) to £169.5m from general growth in its business, but in particular from its English language testing stream.

Publishing and printing services income of Cambridge University Press increased by a pleasing £16.3m (+13.0%) to £141.8m. This excludes £10.2m income received by the Press for printing services carried out for Cambridge Assessment and the University itself.

Other operating income increased by £5.1m (+5.9%). Donations received in the year for general use amounted to £10.9m (2005: £8.8m).

Endowment and investment income increased by £7.0m (+ 17.2 %) to £47.5m, mainly because of an increased distribution from the Cambridge University Endowment Fund. Of the total, £32.3m is directly available for the main University academic activities, with the balance supporting the activities of Cambridge Assessment (£3.3m), the Press (£1.0m), the Gates Cambridge Trust (£5.0m) and the Associated Trusts (£3.8m).

Staff costs overall increased by 6.7% to £407.6m, with the increase mainly arising from general salary increases, and the impact of the move to a single pay spine for staff in the core University. The split of staff costs between the main segments of the University group is:

 2005-06
£m
2004-05
£m
Increase
%
Academic activities301.8284.1+6.2%
Cambridge Assessment52.449.4+6.0%
Cambridge University Press50.747.3+7.2%

Other operating expenses at £430.7m were £31.6m (7.9%) higher. Within this, expenditure in the main University academic and administrative departments has increased by 6.2% after a long period of only moderate increases.

Depreciation has increased slightly as capital expenditure on new buildings and major refurbishments continues.

Capital expenditure programme

Expenditure on land and buildings was £69.0m for the year, of which £48.5m was for the academic activities of the University (a reduction from the high levels of recent years). Major expenditure was made on the Centre for Advanced Photonics and Electronics on the West Cambridge site, refurbishment of Department of Chemistry buildings, and the Cancer Research facility and Institute for Metabolic Sciences at the Addenbrooke's site. Cambridge Assessment buildings expenditure of £19.5m included the purchase of a major warehouse to rationalize its storage and distribution activities.

The main disposals of operational land and buildings, leading to exceptional accounting gains, were made by Cambridge University Press: a New York office building in 2005-06 and land at Cambridge in 2004-05.

Capital expenditure in the year on equipment was £22.3m, of which £18.3m was made for academic activities, a level similar to previous years.

Endowment and investment performance

The total endowment, fixed asset investment and other investment assets at the year-end were £1,393m for the University group, an increase of £161m made primarily through increases in market values. Of this total £165m is attributable to the Gates Cambridge Trust and £115m to the Associated Trusts.

The majority of the endowment assets of the University and Cambridge Assessment, and the majority of those of the Associated Trusts, are invested in the Cambridge University Endowment Fund. The Fund's assets are managed by external managers. The University's short-term cash and other investment assets are managed by external managers and directly by University staff.

The Cambridge University Endowment Fund performed well over the year with a closing value of £870.8m. The capital value of a unit increased from £30.20 to £33.60, and this capital growth and distribution for spend gave a total investment return of 15.0% over the year. The distribution for spend is determined by a formula intended to provide a consistent income stream for academic and related activities whilst ensuring that permanent capital of the endowment is maintained in real terms. The distribution made in 2005-06 was equivalent to a yield of 3.77% on the opening capital unit value.

The investment portfolio of the Gates Cambridge Trust is managed by a number of fund managers. The total value of the endowment of the Trust increased by £15m over the year.

Pensions

The University group participates in a number of pension schemes. The main schemes are the Universities Superannuation Scheme (USS) and the Cambridge University Assistants Contributory Pensions Scheme (CPS). In addition the Press has a number of schemes, which are now accounted for in these financial statements. The University's Finance Committee is monitoring the position of the schemes closely.

The USS carried out an actuarial valuation of the scheme as at 31 March 2005 which showed that the scheme was 77% funded. The position of the USS is disclosed in detail in Note 30 to the accounts. The USS has recently consulted participating institutions on the scheme's benefits and costs in respect of future service.

The CPS and the Press's schemes, being single-employer schemes, are presented in the financial statements in accordance with Financial Reporting Standard 17 (FRS 17), which provides a snapshot of fund liabilities at the balance sheet dates. The total pension liability under FRS 17 has increased from £115m to £127m, of which £27m relates to the Press's schemes. A triennial valuation of the CPS as at 31 July 2006 is in progress and the outcome may lead to an increase in contributions by the University.

Conclusion

We are pleased that we have now published financial statements for the University and the University group which follow current accounting practice and are 'true and fair'. However it is important to disaggregate the various activities within the University group and, as noted above, the University will continue to publish separately the accounts of its teaching and research activities, Cambridge Assessment and Cambridge University Press.

The University group showed a small operating surplus in 2005-06, but of less than one per cent of total income. Cambridge Assessment and Cambridge University Press are projected to remain in small surplus over the next few years, and the main uncertainties lie with the teaching and research activities of University. Here again, the projections indicate that the results will be close to balance, aided by higher fees charged to Home/EU undergraduates and the introduction of research funded by research councils by reference to full economic costing of this activity. On the expenditure side, staff costs will increase significantly as a result of the recent national settlement, and pension costs may increase following the actuarial valuation of the CPS and the current policy review by the USS.

The balance sheet remains sound and net assets are growing steadily, giving the University its operating and financial capability. Securing the sustainability of our operations and of our financial position remains a key concern for the University's Council and its committees.

Professor TONY MINSON

Pro-Vice-Chancellor (Planning and Resources)


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Cambridge University Reporter 20 December 2006
Copyright © 2006 The Chancellor, Masters and Scholars of the University of Cambridge.