HESA has released data on the financial returns submitted by higher education providers for the year to 31 July 2019. The data sheds light on the financial position of the higher education sector and individual providers ahead of the COVID-19 public health crisis. The data indicates that individual providers are likely to find themselves in very different positions, and highlights the importance of contingency planning by executive teams and governing bodies in the face of a highly uncertain external environment.
The Higher Education Statistical Agency (HESA) has published data on the financial outcomes recorded for the financial year ended 31 July 2019 by 196 providers.
The data presented in the form of a series of spreadsheets, which can be downloaded from HESA’s website.
Dependence on tuition fee income
HESA notes that higher education providers (HEPs) in England and Wales are dependent for more than half of their total income on tuition fees. The proportion, at approximately one-third, is lower in Scotland and Northern Ireland.
Surplus (or deficit) ratio to total income
The data shows that a high proportion of higher education providers (HEPs) were in deficit in 2018-19. Of the providers, 75 (39%) recorded a surplus, with 119 (61%) recording a deficit.
The size of individual deficits varied with 12 providers registering a deficit of more than 20% of their total income. By comparison, 9 providers achieved a surplus to income ratio of more than 10%. However, a significant proportion of institutions who posted a surplus (ie 28; 37% of those with a surplus) had a surplus-to-income ratio of below 3%.
The impact of pension adjustments
HESA suggests that many of the deficits reflect “a significant pension accounting adjustment (a non-cash expense) in the year following the 2017 valuation of the Universities Superannuation Scheme (USS). The expense is not a typical operating expense for these providers and therefore not reflective of their underlying financial operating performance in 2018-19.”
Cash flow from operating activities
Given the above, it is instructive to consider whether providers were generating cash, and how much. The HESA data release includes a number of key performance indicators (KPIs), including cash flow from operating activities as a percentage of total income. On this measure, 15 providers were cash negative, with a further 24 providers generating cash from their operations at below 4% of their total income. Providers from every mission group are found in this subgroup.
At the other end of the spectrum, 11 providers generated cash flow from operations of more than 20% of total income.
Net liquidity days
Net liquidity days is a KPI which provides an indication of how much cash and other liquid assets a provider has in relation to its outgoings. The higher the number of days the longer the provider is able to meet expenditure from its liquid assets.
For registered English HEPs, the Office for Students (OfS) has recently introduced a new reportable event with regard to short-term financial risk. While acknowledging that there may be cases where a provider’s “normal cash management policy” is to maintain lower levels of liquidity, OfS expects providers to make it aware of potential problems “if liquidity will drop below 30 days at any point during a rolling three-month period from of the date of the report to the OfS.”
As 31 July 2019, 11 providers had net liquidity days of one month or less, with a further 24 providers having net liquidity days of between one and two months. While some providers may have chosen to operate with lower levels of liquidity, this is unlikely to apply to all.
Levels of financial resilience
Especially in regard to their “cash engine” and levels of liquidity, the data for 2018-19 suggests ahead of COVID-19 providers’ levels of financial resilience was markedly different. While all providers are likely to have been challenged by the unprecedented national health emergency, some executive teams and their governing bodies may face particularly difficult financial decisions. One of the big unknowns being whether the start of the 2020-21 academic year will be delayed, resulting in a corresponding impact on tuition fee income.
The current public health crisis has resulted in significant challenges for leadership teams and governing bodies. Managing the immediate need to move teaching online and close campuses has been an early challenge. But equally, suggesting the need to undertake contingency planning, the duration of the current crisis is unknown. Assessing and managing the financial outcomes of the different scenarios will be an integral part of this process.
Join the conversation
We would love to hear your views on how this may affect governance at your institution, for example, are you engaged in contingency planning and assessing how best to manage different possible scenarios? Share and connect online in our two governance groups on Advance HE Connect
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