Financial review

It has been another year of change and turbulence across the Higher Education sector due to the impact of the COVID-19 pandemic on our students, staff, other stakeholders and the wider financial environment. However, due to actions taken in reaction to the COVID-19 pandemic and targeted investments made last year, we were able to deliver a strong surplus and EBITDA result and preserve healthy year end cash balances.

We have confidence that our strategy, and implementation of robust cost-control measures, will protect Winchester’s financial position and enable delivery of the best possible experience for students under the current conditions.

Our key financial sustainability measures, outlined in the table above, reflect a year-on-year improvement as we were able to draw upon out investments made in 2019/20. These investments included ‘Covid-secure’ campus measures and investments in technology to enable hybrid teaching. Strong student recruitment and savings resulting from a reduction in student and staff activity over almost an academic year of lockdown have significantly improved our financial outturn for 2020/21. Our £5.0m reported surplus for the year comes despite the ongoing challenges presented by the pandemic which included £1.7m of accommodation refunds resulting from the Government imposed restrictions on students returning to campus in January 2021. In addition, the Government and the University invested a total of £1.9m in student hardship and support, including financial support for IT poverty to our most vulnerable students and those adversely impacted by the pandemic. Our cash flow also benefitted from this reduction in activity and, coupled with our careful cash management, has meant that Winchester’s cash in hand did not fall below our treasury management financial sustainability level of 10% of turnover (£8.4m), at any point during the year. Cash for the year showing a £6.0m improvement in our net cash inflow from operating activities and a cash and investments balance of £35.1m at 31 July 2021. However, we are still challenged by uncertainty that the pandemic has caused and continue to regularly review and update our medium and long-term financial forecasts. However, our strong performance for 2020/21 exceeded budget expectations and provides a strong financial foothold from which to face another challenging year ahead. This Financial Review (pages 48 to 54) puts the year in perspective and outlines our financial environment, finance strategy, financial KPIs, financial performance and our future outlook.

KPI HIGHLIGHTS

Surplus (£m)

EBITDA (£m)

Net cash inflow from operating activities (£m)

Staff cost % income

Net cash / (borrowing) (£m)

2020/21 2019/20 Change

5.0

16.3 1.5

10.3 3.5

6.0

17.0

54%

2.2 11.0

57%

-10.8 6.0

-3%

13.0

Financial environment

This year the financial environment was again dominated by the direct and indirect impacts of the COVID-19 pandemic. The UK government introduced further support measures as the country continued to navigate the economic risk and uncertainty caused by the pandemic.

At a local level, Winchester experienced another year of unprecedented challenges including:

•Further investment in new equipment and practices to enhance our online delivery of lectures • Expenditure on campus adaptations and additional supplies to maintain a ‘Covid-safe’ campus • • Loss of catering and conferencing income Putting staff onto the furlough scheme (80% of salary), if they were unable to work, and topping their salary back up to 100% • Implementing a number of cost saving initiatives and mitigating actions • • Restricted travel for international students and staff Turbulent financial markets adversely impacting pension valuations • Reductions in grant funding for research The global pandemic continues to overshadow ongoing concerns over the Government’s spending review recommendations, the wider impacts of Brexit and Union reactions to the sector pension crisis. Winchester is regularly reviewing its financial and operational risks associated with the withdrawal of the United Kingdom from the European Union and incorporates these into our risk register. We have undertaken a risk review of our supply chains to identify high-risk areas for further contingency planning and are reviewing our international partnerships. We seek to secure local supplies where possible to protect both our local community and the environment.

LIVING WITH COVID-19

The University continues to hold regular COVID-19 pandemic risk management meetings to monitor local infections and manage the risks locally. We have also engaged with the local NHS trust, setting up testing centres and supporting vaccine centres.

Finance strategy

Our finance strategy is designed to empower Winchester to exceed its potential and achieve our Strategic Vision 2030. It has been drafted with reference to these five principles:

1. Long-term viability and matching resources with objectives 2. Maintaining productive capacity to meet current objectives 3. Financing development and investment 4. Evaluating strategic alternatives and managing risks 5. Integrating financial and other corporate strategies

In light of the financial environment we are navigating, the Finance Strategy outlines our four strategic priorities for the year ahead:

Financial sustainability – To remain financially sustainable and produce sufficient cash to support our strategic objectives and provide institutional sustainability.

Operational efficiency – To continuously improve efficiency and effectiveness - by managing the cost of operations and delivering value for money whilst continuing to maintain a sustainable recurrent investment in the academic, corporate and support operations.

Capital investment – To ensure the maintenance of our estate and future strategic investment to support the delivery of excellence in education. To also ensure capital investment is at a level that will not put Winchester at financial risk.

Treasury management – To assess and manage risk in all of Winchester’s growth and development activities and to operate sound treasury management as outlined in our Treasury Management Policy. In order to assess our performance against our Financial Strategy, the Board of Governors monitor a number of KPIs, some of which are outlined at the start of this Financial Review.

Financial KPIs

Key performance indicators (KPIs) are used by our Executive Leadership Team and by our Board of Governors to assess the University’s performance. Our KPIs are presented at every board meeting and are regularly reviewed against our strategic plan and are modified, as required, to remain current with a rapidly changing external operating environment.

Our KPIs cover a number of operational areas from student satisfaction to student employability. Our financial KPIs reflect those used by our funding bodies and banks, and are reconciled to accounting data. A selection of our financial management KPIs are shown in the table at the beginning of this Financial Review. Within this table, EBITDA refers to our Earnings Before Interest, Tax, Depreciation and Amortisation. Earnings are taken before FRS 102 pension adjustments as is common with the sector. We focus on this KPI as a strong measure of our ability to generate cash since it is less susceptible than total surplus to changes in non-cash movements (such as depreciation). Our EBITDA outturn of £16.3m for 2020/21 shows a considerable (58.3%) improvement on 2019/20, and reflects our strong performance for the year. Whilst EBITDA can be used as a measure of cash generation, we also report our net cash inflow from operating activities as a KPI. This provides a clear marker of the cash our business is generating each year to service its investing and financing activities. And in line with our EBITDA measure, our net cash inflow from operating activities improved by 55% to £17.0m. After allowing for capital investments and our debt servicing costs, we generated an increase in cash of £7.3m in the year (£7.6m in 2019/20). This increase in cash will provide us with significant funds to invest in improvements to our physical estate to further improve our students’ experience at Winchester.

Staffing costs as a percentage of income are another sector standard KPI which we report on regularly. However, in recent years this KPI has primarily reflected the impact of pension costs and other on-costs associated with staffing rather than a salary or staff FTE increase. 2020/21 shows an increase in this cost KPI of 3%, however it should be noted that, on further investigation, our basic salary and social security costs actually decreased by 4.4% (£1.6m) year-on-year whilst pension costs increased by 24.0% (£1.8m).

Our Net cash/(borrowing) is derived from our total cash and investments less the capital amount of bank debt outstanding at the balance sheet date. Winchester has not drawn any additional borrowing in 2020/21 thus this KPI largely reflects our improvement in cash and investments, increasing from a net borrowing position of £10.8m in 2019/20 to a net cash position of £2.2m in 2020/21.

Financial performance

The pandemic continued to disrupt our financial year, as it did for the whole sector. The impact led to increased expenditure on student hardship support and accommodation refunds, but savings arising from an underutilised campus and restricted learning and teaching activities coupled with careful cost and cash flow management were sufficient to more than mitigate the impact of the ongoing pandemic, resulting in a strong surplus outturn of 5.9% of income for 2020/21.

INCOME

Total income for the year was £84.4m, a 4.3% improvement on 2019/20 (£80.9m).

Tuition fees and education contracts income accounts for 81% of Winchester’s income and has increased by 4% to £68.3m in the year, with the increase reflecting strong recruitment, but also notably stronger than anticipated retention of students progressing into their second and third years of undergraduate study.

TOTAL INCOME 2020/21 (£m)

Total: £84.4m

£0.3m £11.6m £0.1m

£4.1m

£68.3m

„ Tuition fees and education contracts „ Funding body grants „ Research grants and contracts „ Other income

Investment income

TUITION FEE INCOME 2020/21

Per cent

6% 3% 2%

89%

Full-time home students

Full-time international students

Part-time students „ Self-financing courses Recruitment of full-time undergraduate home and EU students was in line with 2019/20, although the total population of this category of students showed an improvement of 2% against the previous year, primarily due to our improved student retention. Part-time student income was lower than anticipated and will be mitigated in future years with the introduction of a number of new short courses, initially associated with Health and Wellbeing courses.

Within funding body grants, our core teaching grant (OfS funding) and our core research grant (Research England Funding) have been broadly in line with our initial funding allocation forecast. However, both exceeded 2019/20 receipts, by a total of £680k. This included an additional £461k in Hardship Funds from the Office for Students. These funds were used to support students who found themselves in financial hardship as a result of the pandemic. Specifically, we supported students: who had rent arrears, both those in the private sector and university accommodation; who experienced digital poverty; who are parents of school age children; care leavers, young carers and estranged students. We also used funds to support students who are not domiciled in the UK and who were unable to collect their belongings.

Students also made greater use of our standard Student Support Fund during the year. Winchester was also grateful to receive a £265k Higher Education Innovation Fund grant to support our knowledge exchange activities in 2020/21. Research grants and contracts income were significantly affected by COVID-19 in the year, closing at £291k. However, due to the pandemic impact also affecting 2019/20, our income remained in line with the previous year albeit £223k lower than 2018/19 (the last pre-pandemic year). Grant income is expected to increase once we are able to reinstate research hours and our academic staff are able to increase the number of bid submissions for external research funding.

Other income includes receipts from our managed housing, catering facilities, conferences and other ancillary income generating activities. Our outturn of £11.6m in the year was in line with 2019/20, although both years have experienced a reduction in accommodation income as a result of extraordinarily high levels of accommodation refunds as a result of COVID-19 restrictions preventing some students from returning to their accommodation after a break. £1.7m was refunded during 2020/21.

Investment income has seen a minor (£34k) decrease since 2019/20 due to less capital flowing through our cash flow and available for deposit following the completion of our new West Downs building last year.

EXPENDITURE

Total expenditure for the year was 0.1% lower than 2019/20, at £79.4m. However, 2020/21 saw a considerable increase in depreciation charges – as our new West Downs building was brought into use – which as offset by year-on-year savings in both staff costs and other operating expenditure, as follows:

EXPENDITURE 2020/21

Total: £79.4m

£6.2m £2.4m

£25.3m

£45.5m

Staff costs

Other operating expenses

Depreciation „ Interest and other finance costs

Total staff costs for the year decreased by 0.8% to £45.5m (2019/20 £45.9m). This reduction was due to changes in all categories of staff costs as outlined below.

Following a staff restructure in 2019/20, basic salary costs decreased by 4.3% (£1.5m) since that year with a corresponding social security cost decrease. There were no material staff restructuring costs in 2020/21, compared to £0.6m of restructuring costs expensed in 2019/20.

However, our salary cost savings were negated by an increase in pension costs, primarily arising from our Local Government Pension Scheme (LGPS) – explained in more detail in note 21 of our notes accompanying the financial statements to this report. A £1.5m increase in the current service cost of our LGPS scheme caused the majority of the £1.6m pension cost increase. The balance of the increase was due to increases in pension scheme contribution rates since 2019, in our three major schemes, a full year impact of the increases being experienced in 2020/21. Although there has been a slight decrease in staff costs in the year, our average full time equivalent headcount increased by 3 heads to 803, as shown in note 6 of our notes accompanying the financial statements to this report. The change in mix of staff grades resulted in the increase in staff with a decrease in staff costs.

Other operating expenditure decreased by 3.3% to £25.3m (2019/20 £26.1m). Whilst 2019/20 experienced a reduction in expenditure as a consequence of the Government restrictions imposed in response to the COVID-19 pandemic, 2020/21 experienced greater restrictions.

Coming out of the first lockdown, in the first part of the financial year, and entering the second lockdown at the turn of the calendar year, followed by the slow unlocking in spring 2021 resulted in savings in expenditure across all areas of the University, as a result of prolonged inactivity of the campus.

Expenditure on residences, catering, conferences and consumables show a £2.4m savings against 2019/20. A reduction in estates maintenance was also experienced as contractors were restricted from accessing our estate for a large part of the year. However, these spending reductions were partly offset by an increase in expenditure on IT equipment (£1.1m increase) and IT software (£0.5m) as we mobilised our staff for hybrid teaching and improved IT security for remote users. Both these measures were initiated in response to the pandemic.

Depreciation increased by £1.1m since 2019/20, due to a full year of depreciation on our new, £48m flagship West Downs building that opened at the beginning of the financial year.

Interest and other finance costs showed a slight increase on the previous year (4.9%) primarily due to an increase in pension cost interest charges levied by our local government pension scheme.

BALANCE SHEET

Fixed Assets Capital additions during the year were £3.1m (2019/20 £15.8m), primarily expended on the estate infrastructure. The decrease in expenditure reflecting the completion of the new West Downs building in 2019/20, without a similar large scale investment in 2020/21.

There were no significant disposals or impairments in the year, and the net book value of our fixed assets decreased by 1.6% to £206.0m.

Current Assets Current assets increased by £11.8m to £40.2m during the year due to an increase in cash resulting from our better than anticipated operating performance for 2020/21, as outlined above. The increase in cash and investments was partly negated by a 9.9% decrease in our trade and other receivables.

Creditors Short term creditors increased by £0.6m year-on-year due to the final drawdown in 2019/20 of a £30m loan from the Triodos Bank, which was used to fund out new West Downs flagship building. Conversely, long term creditors showed an improvement of £0.8m primarily due to the final capital repayment of two Allied Irish Bank loans in the year. However, this improvement was partly mitigated by a £0.8m increase in deferred capital grants.

Pensions Winchester has two main employee pension schemes, Hampshire LGPS and the Teachers’ Pension Scheme (TPS), and an auto-enrolment scheme, our Higher Education Defined Contribution Scheme (HEDCS) held with Aviva. In addition, we have a low number of members (less than 50) in the University

Superannuation Scheme (USS), the National Health Service Scheme (NHSBSA) and the Church of England Funded Pension Scheme (CEFPS).

Our largest scheme is the TPS, which is a statutory, unfunded, government- defined benefit scheme, and as such it does not require Winchester to provide for any pension deficits arising in the fund. However, an outcome of the 2016 actuarial valuations of the public service pension schemes determined that the valuations would lead to very substantial increases to employer contribution rates. In relation to the Teachers’ Pension Scheme, the increase from September 2019 was 44% (a 7.2% percentage point increase from 16.48% to 23.68% employers’ contribution). This change resulted in a circa £1.1m increase in the annual cost of our TPS pension. Our LGPS is a funded defined-benefit scheme with assets held in separate funds administered by Hampshire County Council. The pension fund performed well during the year, closing with a net asset gain of £6.8m (£17.7m loss 2019/20) recognised through other comprehensive income. However, the employers’ contribution rate has remained at 22%, the current service cost of the scheme has increased by £2.8m over the past two years, putting an additional burden on Winchester’s financial sustainability.

Over the past few years, the University’s pension costs have risen faster than inflation. The Board of Governors have recognised the ongoing financial risk of our pension portfolio and have convened a Pension Risk Review Committee that will meet at least twice per year to address the current cost risks associated with the University’s pension schemes and to inform future decision making regarding our pension portfolio.

Cash Position Closing cash and investments increased by £12.3m to £35.1m. This was primarily due to the operating performance improvement resulting for the extended lockdown periods in the second and third quarter of the financial year. This was assisted by mitigating actions during the year to reduce expenditure, and by Government assistance, including furlough and student hardship funding.

All bank covenants for the AIB and Triodos Bank were met at the date of the Statement of Financial Position and the University has no concern over meeting the bank covenants for at least 12 months from the date of signing these financial statements.

Future outlook

After a summer of re-opening mothballed buildings and maintaining a ‘Covid-safe’ campus, students were welcomed back for semester one in 2021.

Learning and teaching has been radically changed to blend both online and face-to-face teaching, ensuring that Winchester is able to offer students the best possible learning experience under COVID-19 restrictions. We were delighted to start our 2021/22 academic year with relaxed government restrictions permitting us to allow full face-toface teaching on campus, bringing back the vibrant heart of our community.

Our overall intake of new full-time students in 2021 was 2.8% higher than the previous year and in line with budget. However, whilst undergraduate full-time student intake was 1.3% less than last year at 2,387 students, our full-time postgraduate recruitment exceeded last year’s intake by 19.0%, including a significant increase in international students. This improvement against last year and against budget has started our 2021/22 financial year with a strong cash position.

We have also seen a continuation of the reduction in other operating expenditure in certain categories of expenditure, similar to that we experienced in 2020/21. This is partly due to a reduction in expenditure on travel and conferencing as government and international restrictions continue to curtail our ability to travel. We are therefore confident that the University has sufficient resources to remain financially sustainable for at least twelve months from the date of signing these financial statements. We are forecasting a deficit for 2021/22 and have recently forecast an improvement in our outturn.

However, we continue to model the most challenging scenarios that the pandemic may introduce for 2021/22 and beyond, and whilst we have experienced a strong start to the year, we are mindful that the pandemic is still very much with us and could impact our projections adversely depending on the progression on new variants. However, we believe that the most likely scenarios are fully sustainable, even with higher inflation modelling.

Despite the challenges COVID-19 presents, Winchester has remained committed to our values and has invested time and resources to consider how it can build upon its strong foundations as a compassionate university community where all individuals matter, where wellbeing is paramount and pastoral care is of the highest quality. To help us mitigate current and future challenges, we have embedded our 2020-2030 strategic plan. The vision includes a five-year business plan that sets the baseline financial projections on which we modelled the possible impacts and scenarios of the shortterm and medium-term challenges we are facing. With a robust strategic vision and business plan, a stronger than planned opening cash balance, and having met our budget for new student intake for 2021, Winchester is in a healthy position for a successful 2021/22.

SIGNED ON BEHALF OF THE BOARD OF GOVERNORS:

M B Edwards Chair of Board of Governors

Professor Sarah Greer Vice-Chancellor

Date: 26 January 2022