Treasurer’s Report

It will not be a great surprise to anybody that the dominant influence on 2019-20 and the 2020-21 year to come has been, and will be, Covid-19.

Coronavirus has had a dramatic impact on our income in 2019-20. The numbers behind this are set out below:

COLLEGE INCOME £’000S %

Reduced endowment income 275 9%

Reduced student rents (no TT rents and reduced vacation residence)

Reduced net conference income (no Easter or summer conferences) 950 41%

1,150 72%

Reduced rental income from our commercial tenants 150 19%

Total reduction in income 2,525 22%

The sharply reduced level of activity from Easter onwards and the government’s furlough scheme allowed us to reduce our expenditure by c. £850k, which means that we are anticipating a deficit of £1.7m which compares to an expectation of breakeven pre-Covid.

This level of deficit is typical of a mixed college of our size. There are smaller colleges with smaller endowments which have fared considerably worse than this and some are even having to contemplate significant corrective action, including redundancies.

I’m afraid that we expect 2020-21 to bring more of the same. Endowment income will be down again, reflecting reduced capital values and lower dividends. Our commercial tenants will continue to struggle and will look to us for support. It is also inevitable that we will need to fund sharply increased costs for academic pensions as the USS pension fund deficit continues its inexorable rise.

We have looked to trim our cloth accordingly, without compromising long term capability, and we expect this to reduce our costs by £500k. Despite our best efforts, we still anticipate a loss for 2020-21 of between £1.5m and £2m.

We are fortunate that the growth in our endowment in recent years, thanks to the generosity of the Somerville community, has given us the financial heft to absorb these losses. We have built up unrestricted reserves of £1.5m which will broadly cover the 2019-20 loss, but at some point, when capital values have recovered, we will need to dip into our endowment to restore our liquidity and to cover the 2020-21 deficit.

ANDREW PARKER, COLLEGE TREASURER

Refurbishing our kitchen and pantry

Against this backdrop, we have taken what might be seen as a counter-intuitive decision to replenish our kitchen and pantry at a cost of £4m this year.

The need has been clear for some time. The kitchen has not had any serious investment since the mid-1990s and we have been nursing our kitchen and pantry equipment for many years. There are only so many times the Head Chef can cope with the gas supply giving up the ghost an hour before a guest night!

We have been building up funds to cover this for the last few years with the money being invested alongside our endowment and we had everything lined up to start this summer. Our initial reaction, once the impact of Covid became fully apparent, was to postpone for a year in the hope that our investment asset values might have had the chance to recover somewhat by then. However, in the end we took the view that asset values were just as likely to deteriorate further in a year’s time, and that together with the strong negotiating position we had with contractors due the scarcity of work during the pandemic, persuaded us to push on this year.

It has proved to be a good decision. We were able to take £2.2m out of our investments without incurring any capital loss (the balance being funded by a temporary overdraft), and the absence of any conferences over the summer has allowed us to make an early start and get ahead of programme. Temporary kitchen and dining hall facilities on the quad are being assembled as I write, and by the time you read this will be catering to our staff and students.

With a following wind the work should be completed by the end of April 2021.