Finance Director's foreword

The University of Edinburgh has recorded another year of solid financial performance in 2023/24 against a backdrop of uncertainty for the UK higher education sector. 

We have not been immune to the significant financial challenges that have persisted during the last year, and we are keenly aware of new risks and issues that will continue into future years. However, we  can be proud of what the University has achieved, whilst anchoring itself to responsible and sustainable financial management. 

Like the majority of the sector, we have experienced an unexpected challenge around international student recruitment for the 2023/24 intake as well as the lasting impact of a number of years of very high inflation on our cost base. Despite this, we have worked hard to adapt quickly to changing circumstances, to mitigate risks and take advantage of new opportunities where we can. We have seen our overall revenue grow to in excess of £1.4 billion which supports the activities and projects that are necessary to sustain and move the University forward. This Annual Report and Accounts covers the University’s financial performance for the year to 31 July 2024, with a detailed review of the key areas presented in the Financial Review section on pages 40 to 45.

Financial headlines

Our total income increased by 3.5 per cent in 2023/24 to over £1.4 billion, and caps off a six-year period where we have achieved £450 million growth in income and delivered approximately £650 million of cumulative EBITDA. In what was a challenging year for student recruitment for us and the rest of the sector, our international tuition fees were lower than the target we had set for the year. However, we still managed to achieve a 3 per cent year-on-year increase in our total tuition fees.

The situation we faced across our largest income stream emphasised the importance of our commercial income that we generate alongside our core teaching and research activity. We saw income grow by 5.3 per cent in our accommodation, catering and events business to over £98 million and our pro-active treasury management generated over £40 million in investment returns by taking advantage of favourable market conditions. 

We saw expenditure grow in 2023/24 with staff costs increasing due to the implementation of the nationally agreed cost of living pay awards, as well as a large proportion of staff moving up the pay scale after the University implemented a positive change to where Edinburgh's grade points sit on the national pay scale. Non-staff costs also increased in the year reflecting the impact of a number of years of high inflation across our activities. While it did not affect the costs for the 2023/24 financial year detailed in this document, the UK Government's October 2024 budget statement will result in a significant increase to employers' national insurance contributions from April 2025. The full year net impact, after accounting for assumed matched income in restricted funds, is estimated to be circa £12.5 million, which will add almost 2% on to the total unrestricted staff cost bill.

We use Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) to measure our underlying financial performance. EBITDA can be used as a proxy for the cash generated from our internal operations this is the cash we use to service our debt and fund important investment in equipment, our digital infrastructure and our physical estate. Following the British Universities Finance Directors Group definition of EBITDA, we start with surplus/(deficit) before other gains and losses and make adjustments thereafter to account for the funding models in operation in the sector.

Our EBITDA for 2023/24 was £84 million, or 5.8 per cent of total income (2023: £148 million, 10.7 per cent of income). See the table below for the reconciliation from surplus before other gains and losses through to EBITDA.

Notes to table: In calculating EBITDA, adjustments are made for interest costs, capital grants and non-cash items such as depreciation and pension provision movements. 

Capital investment

The University maintains one of the most complex and sophisticated physical estates in the sector with over 500 buildings across five distinct campuses, and we remain committed to our ambitious capital plan which will deliver significant investment in new student accommodation and facilities as well as fulfilling our compliance and maintenance. Despite the continued impact of recent high inflation in the construction sector we have been able to deliver our committed capital projects over the last year resulting in a total capital expenditure of £186 million, with £122 million allocated to improving our physical estate and £64 million to fixtures, fittings, and equipment. 

Pensions

The Universities Superannuation Scheme (USS) is our largest pension scheme and remains the UKÕs largest private pension scheme in terms of assets under management. USS is the principal pension scheme for universities and higher education institutions with more than half a million active, deferred and retired members and covering over 340 participating employer organisations. The 2023 USS triennial valuation was undertaken as at 31 March 2023 and resulted in the scheme being in surplus, on a technical provision basis. Following the conclusion of the valuation in November 2023, the Joint Negotiating Committee (JNC) confirmed that the University is no longer required to maintain a provision on its balance sheet for our share of the scheme deficit recovery plan — as there is no longer a deficit to fund. 

As a result, our financial statements show that the provision previously held on our balance sheet has been removed and a £352 million non-cash credit has been applied to our staff costs in 2023/24. It is important to highlight that this non-cash accounting adjustment is not included in the standard calculation for EBITDA, nor does it have an effect on the University’s underlying operating performance. Even though it does not represent any real cash flowing in or out of the University, it is however included in the statutory calculation for operating surplus and is the main driver of the total comprehensive income of £403 million noted in the primary financial statements from page 58.

Separate from the USS, we are also required to include the annual non-cash actuarial movements relating to our other main defined benefit pension scheme, the Edinburgh University Staff Benefits Scheme (EUSBS), in the primary financial statements. This is also a non-cash movement and is derived from the year-on-year revisions to the estimated actuarial value of the EUSBS assets and liabilities. The calculation for 2023/24 was based on the 2021 EUSBS triennial valuation and resulted in a non-cash loss of £18 million as the scheme’s liabilities exceed assets. While we are required to report this position in the 2023/24 financial statements, it should be noted that the most recent triennial valuation for the EUSBS was struck in March 2024 and the preliminary results report a scheme surplus on a technical provisions basis. The final outcome of the 2024 valuation will be reflected in our 2024/25 financial statements and will likely result in a positive non-cash movement. Just like the movement in the USS deficit recovery plan provision noted above, the annual actuarial changes for the EUSBS are not included in the standard EBITDA calculation and are not a measure of the University’s operational performance.

Endowment fund

Our endowment fund recorded an increase in valuation at the end of the 2023/24 financial year with the fund valued at £580 million (2023: £560 million). After a challenging couple of years, the unit price of the endowment fund increased by 3.5 per cent. This year’s recovery is welcomed and we are reminded that the endowment fund is invested for the long-term with success measured in decades rather than over a single year. 

Conclusion

This foreword marks my final year as Director of Finance at the University of Edinburgh as I take on a new challenge in a new sector from January 2025. Reflecting on the last six years, there are many significant financial highlights and metrics that I could mention, but most of all I am pleased to have worked with many wonderful colleagues and stakeholders and I am incredibly proud of everything we have achieved together. I wish the University of Edinburgh continued success in the future.