College Finances

This time last year I reported that we had reluctantly budgeted a small cashflow deficit for 2022-23. 

At the time we set that budget, inflation was still increasing and on balance we judged that the new budget carried more risk than opportunity. The actual outturn for the year reflected this in underlying terms, with the following key variances to budget:

• The conference business continued to recover strongly post-pandemic, posting record revenue, at least in nominal terms, of £3.3m compared to £2.7m in 2017. Unfortunately, the profit contribution from this revenue was slightly lower than in 2017 due to the impact of inflation on the cost base, but profitability was higher than the 2022-23 budget.

• At the end of the year College cashflow also benefitted from a large unbudgeted and unrestricted legacy which was most welcome. Given the difficulty in forecasting such receipts it is to be hoped that this was a real positive budget variance for 2022/23 rather than a phasing difference between adjacent financial years.

• We also benefitted from another phasing difference related to capital expenditure. Repair and refurbishment costs for the south side Chapel Windows has been deferred to 2023-24, so of course this is not a favourable variance measured over the two-year period.

• Unfortunately, there was a long list of adverse variances to budget that mostly offset these positives. These were largely driven by higher inflation and included: two exceptional cost of living payments for Keble staff, higher insurance premium costs, higher recruitment and agency costs, and higher food cost inflation and general cost inflation.

• While we were able to increase commercial prices in response to increased inflation this was not the case with any of our academic income where increases were set in advance at levels considerably lower than our cost inflation rates.

• Student rents were set in advance for the year but we did, very reluctantly and unusually increase College food prices mid-way through the year.

The overall result was that College cashflow was slightly positive, compared to the budgeted cashflow deficit. However, if the capital expenditure phasing benefit and unexpected legacy are put to one side, the underlying result was a larger deficit than had been budgeted.

The College had a healthy cash balance at the year-end, though this was due to a large amount of money about to be invested in the endowment and a significant positive working capital balance associated with the conference business. The working capital balance is a real cash benefit to the College, though it disappeared when the conference business could not operate during the pandemic. Adjusting for the monies owing to the endowment, there was a small positive cash balance at the year-end of c£1m, together with £44m of debt on the balance sheet.

The College Endowment at 31 July 2023

The College runs on an endowment model which assumes that drawdowns from the endowment, together with unrestricted gifts, are large enough to avoid an overall College cashflow deficit. It is therefore important that the endowment grows at a healthy rate through a combination of new endowment receipts and strong investment returns.

The value of the endowment at 31 July 2022 was £60.7m and this was increased during the year by income generated from investments of £2.2m and new endowment receipts of £2.6m. There were net losses in investment values of £2.7m and the endowment was also reduced by the amount of endowment drawdown to College cashflow of £1.4m. As a result of these movements, the value of the endowment increased to £61.4m at 31 July 2023.

The investment losses during the year were due to underperformance of global equity markets. The College endowment is predominantly invested with Oxford University Endowment Management and their fund has high equity exposure in order to achieve the targeted long-term returns. The 10-year annualised OUEM net return of 5.4% is slightly ahead of the 5% target.

2023-24 Outlook

A key feature of the current financial year is that the College must begin to repay the £4m of short-term bank debt taken on to cover COVID costs. This amount is to be repaid over the next 5 financial years. The College total cashflow budget for is for a deficit for the second year running, including these debt repayments. Before debt repayments budgeted College cashflow is slightly positive.

However, it is fair to say that the College is straining to hold this ‘close-to-break-even’ position now that the impact of very high inflation is reflected in the cost base. The budget assumes that the conference business can increase profitability on a similar revenue base to 2022-23. As conference business is mostly constrained to vacations periods, however, activity levels over these weeks are now at all-time highs. It will not be possible to convert much additional business, but we are targeting operational efficiency improvements which should also bring some relief to the non-academic teams running the conference business who were fully stretched in 2023.

Growth in academic fees is not within College control and these fees have grown at a rate considerably lower than College cost inflation for many years now. We have however reluctantly been forced to pass on large inflationary cost increases to students of 23% for rent and 26% for food over the last 2 years. Governing Body is acutely aware of the resulting adverse impact on student finances, the student experience and on our Access agenda.

Against this challenging backdrop, the one reliable source of relief is generous philanthropic support in the form of unrestricted gifts or endowments for which we are extremely grateful.