Hermes I - 2008-09
Update for staff on the University's financial position

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The following questions and answers are intended to provide members of staff with information about the University's overall financial position.

1. What was the University's financial position at the close of the 2007-8 academic year (i.e., at 31 July 2008)?
2. Was this result better than expected and if so, why?
3. What is the position in the current academic year (i.e. 2008-9)?
4. What are the University's medium - long-term financial goals?
5. Why does the University need a 3% surplus?
6. How successful is the University at generating increased income from student fees?
7. What plans does the University have for further capital works, and what impact do these have on the overall financial position?
8. What progress has been made in implementing the voluntary severance scheme, and what impact has this had on the University's financial position?
9. What impact does the crisis in international finance markets have on the University's finances?
10. What are the other financial pressures facing the University?

1. What was the University's financial position at the close of the 2007-8 academic year (i.e., at 31 July 2008)?

The auditors have nearly completed their end of year audit on the University's accounts. At this stage, it looks as if the year-end position was an operating surplus, before accounting adjustments, of £0.9m and a bottom-line surplus of £3.6m on a turnover of £191m. At 31 July 2008, the University had overall debt of £5m.

2. Was this result better than expected and if so, why?

The result was much better than expected as well as being a significant improvement on 2006-7. The reasons for the better-than-expected performance were:

1. a significant improvement in research overhead income;
2. greater control over spending, both in staffing and non-pay budgets
3. lower than expected borrowings, due largely to increased research activity, which resulted in early receipt of funds from some major research projects

3. What is the position in the current academic year (i.e. 2008-9)?

We are projecting an operating deficit at year end of £2.5m and a bottom-line breakeven. Borrowings are also expected to increase.

The main reasons the projections are worse than the outcome in 2007-8 are that:

1. staff costs have risen from 1 October 2008 following implementation of the final part of the 2006 pay deal
2. utility costs have risen
3. we will spend some of the research income which was received in advance of projects commencing.

However, the University could do better than the projections by a combination of continuing to win more overhead-bearing research grants, recruiting more postgraduate students in January and maintaining tight control of costs.

4. What are the University's medium - long-term financial goals?

5. Why does the University need a 3% surplus?

The 3% surplus is necessary for two reasons. Firstly, we need a modest surplus to allow investment in new academic priorities, such as inter-disciplinary research and teaching programmes. Time and again, we have shown that up-front investment by the University helps us to attract additional funds from external grant-giving bodies. It also helps us to attract high-calibre staff to emerging areas of academic activity.

Secondly, our income from non-Funding Council sources remains volatile from one year to the next. We need to achieve modest surpluses to provide a degree of contingency and to ensure that we can continue to meet our commitments to staff, students and other stakeholders.

6. How successful is the University at generating increased income from student fees?

In 2007-8, our income from overseas and postgraduate fees totalled more than £9m. There is scope to generate additional income from fees charged to overseas and postgraduate students. We have steadily expanded and updated the range of postgraduate courses in our prospectus, and we strive to offer an excellent educational experience and good value for money compared to our competitors. Overall this year, we expect to increase our postgraduate numbers by more than 30% compared to 2007-8, but there is significant variation among the schools. We need to work harder and to target our recruitment efforts more effectively if we are to achieve the numbers set out in our strategic plan.

7. What plans does the University have for further capital works, and what impact do these have on the overall financial position?

The University has set out its ten-year plan in the estate strategy and its more detailed plan for the next three years in the capital programme. The plans are more modest than over the past five years, with more emphasis on dealing with backlog maintenance and refurbishing some of our older accommodation on the city and Ninewells campuses. In total, we expect to spend £19m in 2008-9, £13m in 2009-10 and £16m in 2010-11 on our physical infrastructure, much of it financed by external funding and disposal of surplus properties. If we keep within this budget, the capital programme is affordable and will not lead to an increase in our borrowings. The focus on backlog maintenance will also help to reduce our outgoings in the long term.

8. What progress has been made in implementing the voluntary severance scheme, and what impact has this had on the University's financial position?

Since the scheme was launched in April 2007, we have achieved more than £5m of net savings through voluntary severance against an overall target of £6.5m of savings. The savings have been spread across all schools and support services, and across all staff groups. While we have made good progress, we need to achieve further savings in staff costs and to reduce the proportion of staff cost to overall turnover if we are to achieve long-term financial sustainability.

9. What impact does the crisis in international finance markets have on the University's finances?

The credit crunch and crisis in the international markets has no immediate effect on the University as we do not have substantial investments in stocks and shares.

However, the financial crisis is already starting to impact on the 'real' economy, which is likely to make student fee income and research grant income from non-government sources harder to come by. Future government grants are also likely to be adversely affected as the Treasury's tax receipts reduce and government borrowing increases further. Moreover, the decline in the stock markets will impact on both the University of Dundee pension scheme and the UK-wide Universities Superannuation Scheme, which may adversely affect the rate at which the University has to contribute to each fund.

10. What are the other financial pressures facing the University?

In addition to the above pressures, receipts from property disposals in 2009 and 2010 are likely to be lower as the property market becomes more difficult. The 2009 pay increase is also unknown at this stage and will be the subject of negotiations at national level over the coming months. Thirdly, utility costs are high and represent an increasing part of our non-pay expenditure.

At the same time, the University is in a stronger financial position than it has been in recent years. We have a clear strategy for generating additional income and controlling costs. If we work together and remain committed to our strategy, there is every prospect that the University will continue to thrive and prosper in the more challenging times that lie ahead.

20 October 2008