2020 FINANCIAL STATEMENTS 1 Knowledge Bites David Hughes, Director

2020 FINANCIAL STATEMENTS 1 Knowledge Bites David Hughes, Director of Finance

TERMINOLOGY ‘The University’ means the parent Legal Entity Research and Teaching, Schools, Depts & NSIs, plus the central departments of Press and Assessment Finance Division Research & Teaching: Schools, Departments, NonSchool Institutions Cambridg Cambridg e e Assessme Universit y Press nt THE UNIVERSITY The Chancellor Masters and Scholars of the University of Cambridge ‘BIG U’ 2

TERMINOLOGY ‘The Group’ means the parent institution Finance Division Trus ts C E If M CU TS Porta l CISL Cambridg Cambridg e e Assessme Universit y Press nt CA Subsidiaries CUP Subsidiaries Subsidiary companies, joint ventures, and Associated Trusts 3 THE GROUP Subsidiaries, Associates, JVs and Associated Trusts of the University and of Press and Assessment Research & Teaching: Schools, Departments, NonSchool Institutions THE UNIVERSITY consolidated with: ‘BIG U’

PROCESS FINANCIAL REPORTING produce the Consolidated Financial Results ream Reporting Entities Financial Results Audited (PwC) Finance Committee Audit Committee Council approval The VC, Deputy Chair and DoF sign LSE Morningstar https://www.cam.ac.uk/about-theuniversity/annual-reports/financialstatements-for-the-year-ending-31-july-2020 4

OfS ANNUAL FINANCIAL RETURN FINANCIAL RETURN WORKBOOK (Excel) 2020 actuals 5 year forecast Student numbers FINANCIAL COMMENTARY Finance Committee Council approval VC signs return 5

FINANCIAL STATEMENTS BASIS: FRS 102; F&HE SORP 2019; OfS accounting directives (Oct 2019) - no major changes Going Concern FORMAT: Evolution to user friendly document: Overview (Public benefit statement) Financial review commentary ‘Adjusted Operating Surplus’ underlying performance; and Historical trend Finance Division 6

OVERVIEW SECTION Highlights infographics Public Benefit case studies Finance Division 7

FINANCIAL REVIEW SECTION Financial commentary Adjusted Operating Surplus Risks Outlook 8 Finance Division Finance Division 8

UNDERLYING PERFORMANCE Best measure of underlying recurrent operating performance is Adjusted Operating Surplus Strips out volatile unrealised and nonrecurrent elements Finely balanced, with deficits on core teaching and research offset by CUP/CA ‘Appendix 1’ to Accounts Finance Division 9

KEY AREA: INVESTMENT PROPERTIES 575m: NWCD and portfolio of other properties RICS standard external valuation Revalued every year Far more stable this year (NWCD up just 6m) Note 23 to Accounts Finance Division 10

KEY AREA: PENSIONS USS Statutory funding objective: assets match technical provision; 2018 valuation shortfall 3.6bn Multi-employer scheme: account for Deficit Recovery 160m credit through staff costs (2019 charge 230m); market conditions improved 2018 vs. 2017 2020 valuation will lead to increased provision – PBSE note 43 CPS & others: FRS102 valuation generated net (157)m actuarial loss; markets deteriorated 2020 vs. 2019 Enhanced disclosures and sensitivities Finance Division 11

KEY AREA: CPI-LINKED BOND Complex financial instrument Revalued every year to market (Morgan Stanley 2) 98m increase in value of liability and interest charge on the income statement Does not impact our repayment obligation Finance Division 12

KEY AREA: STAFF COSTS Staff costs analysis VC remuneration and pay ratios Salary bandings for higher paid staff ( 100k) Basic salary (OfS guidance) Separate Remuneration Report Finance Division 13

THE PRIMARY STATEMENTS Statement of Comprehensive Income Statement of Financial Position Cash Flows Finance Division 14

INCOME STATEMENT Includes capital grants & donations High proportion of revenues competitively won Growth of loss-making activities requires cross subsidisation Excludes CUEF distributions from capital but consolidates CUP/CA (surplus used for Capital Fund) Total Comprehensive Income includes significant, unrealised items that swing from year to year over time (CUEF, pensions, inv. properties, CPI bond) Finance Division 15

INCOME STATEMENT Income down (5)% Finance Division 16

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Finance Division 17

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Significant impact of USS provision change - highlighted Finance Division 18

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Significant impact of USS provision change - highlighted Surplus before other gains and losses of 105m Finance Division 19

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Significant impact of USS provision change – highlighted Surplus before other gains and losses of 105m Interest includes 21m bond interest and 98 unrealised CPI bond revaluation Finance Division 20

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Surplus before other gains and losses of 105m Significant impact of USS provision change – highlighted Interest includes 21m bond interest and 98 unrealised CPI bond revaluation Loss on investment includes (30)m revaluation of CUEF and 8m on investment properties Finance Division 21

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Surplus before other gains and losses of 105m Significant impact of USS provision change – highlighted Interest includes 21m bond interest and 98 unrealised CPI bond revaluation Loss on investment includes (30)m revaluation of CUEF and 8m on investment properties Gives a surplus for the year of 85m Finance Division 22

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Surplus before other gains and losses of 105m Significant impact of USS provision change – highlighted Interest includes 21m bond interest and 98 unrealised CPI bond revaluation Loss on investment includes (30)m revaluation of CUEF and 8m on investment properties Gives a surplus for the year of 85m Actuarial loss on pensions CPS (157)m Finance Division 23

INCOME STATEMENT Income down (5)% but headline expenditure down (15)% Surplus before other gains and losses of 105m Significant impact of USS provision change – highlighted Interest includes 21m bond interest and 98 unrealised CPI bond revaluation Loss on investment includes (30)m revaluation of CUEF and 8m on investment properties Gives a surplus for the year of 85m Actuarial loss on pensions CPS (157)m Gives Comprehensive Expense of (75)m Finance Division 24

BALANCE SHEET I&E deficit leads to reduction in Net Assets Finance Division 25

BALANCE SHEET I&E deficit leads to reduction in Net Assets Growth in Fixed Assets Finance Division 26

BALANCE SHEET I&E deficit leads to reduction in Net Assets Growth in Fixed Assets Decrease in Investments Finance Division 27

BALANCE SHEET I&E deficit leads to reduction in Net Assets Growth in Fixed Assets Decrease in Investments Increase in Cash Finance Division 28

BALANCE SHEET I&E deficit leads to reduction in Net Assets Growth in Fixed Assets Decrease in investments Increase in Cash Twin 1.1bn liabilities on Pensions and External borrowings (Bonds) Finance Division 29

CASH FLOW Broadly level surplus from Group operating activities Best measure of underling sustainable cash flow performance is on Operating Activities – but remember this consolidated CUP/CA and is before necessary investment in regeneration of buildings and infrastructure Finance Division 30

CASH FLOW Broadly level surplus from Group operating activities Best measure of underling sustainable cash flow performance is on Operating Activities – but remember this consolidated CUP/CA and is before necessary investment in regeneration of buildings and infrastructure Significant swing on Investing Activities (net CUEF redemptions) and 2019 includes temporary investment of bond proceeds Finance Division 31

CASH FLOW Broadly level surplus from Group operating activities Best measure of underling sustainable cash flow performance is on Operating Activities – but remember this consolidated CUP/CA and is before necessary investment in regeneration of buildings and infrastructure Significant swing on Investing Activities (net CUEF redemptions) and 2019 includes temporary investment of bond proceeds Cash and equivalents at year end 886m ( 732m) still includes a large proportion of 2018 Bond proceeds Academic University cash flow remains very finely balanced - See Technical Account Session Finance Division 32

CURRENT NARRATIVE As far as we know, we have avoided worst of COVID-19 risk We must now focus with renewed vigour on the opportunities to generate a sustainable surplus to allow investment without over-reliance on CUP/CA See ‘Financial Narrative’ slides on webpage So emergency measures taken last year can be substantially reversed Finance Division 33