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Finance foreword
In a year in which we returned to more normal operations on campus, Imperial delivered a sound financial performance.
At first sight, that might seem an unusual conclusion to draw on the back of a large overall deficit and a big drop in the level of cash flow from operating activities. Both numbers need to be put in context.
The deficit was the result of the need to recognise a large increase in the provision for deficit contributions to the USS pension scheme. This is not a cash item and will unwind as employer contributions are paid over the 18-year recovery period that has been agreed. With another valuation of USS due in March 2023, this is likely to remain a source of volatility in our results in the coming years.
The cash flow from operating activities in 2021–22 was less than half the amount of the previous year, but timing differences impacted this. Positive working capital movements relating to tuition fees and research grant income received in advance had boosted the previous year’s figure and adjusting for such year-on-year movements showed the underlying position improved from £71 million to £87 million. The latter was still below the £100 million we have previously identified as a target to ensure we have generated sufficient funds to maintain and develop our physical and digital estate in a way that meets the requirements of our world-class academic mission.
It has been very encouraging to see the pick-up in the level of donations and endowments in 2021–22 and we are always grateful for the generous support of our donors. This type of support, along with occasional one-off government grants that we bid for when the opportunity arises, helps us to accelerate our pace of investment towards the level we aspire to.
As the pandemic struck, we had already started preparing for difficult choices around our rate of growth and managing our cost base to improve the trend in our net cash generation from operations. The need to respond swiftly and decisively to the impact of the pandemic, which we did, meant more immediate events had to take priority over these longer-term considerations. We need to revisit these questions as we adjust to new ways of operating, with the added challenge of doing so in a high-inflation environment.
The increased use of a multi-mode approach blending in-person and online content is one of the ways in which we believe we are delivering a student experience that is better than ever. However, the cost of delivering a high-quality learning experience is increasing at a time when home undergraduate tuition fees are capped until at least 2024–25.
The hard work and commitment of our staff has helped us achieve a huge amount in recent years and we need to respond to workload pressures they have been experiencing. We have kept staff headcount numbers tightly controlled over the last few years, but this is not sustainable with student numbers targeted to at least remain at the high levels we have seen recently. The hybrid ways of working we are piloting present us with the chance to rethink the way we use our space and optimise the return on our investment in our estate.
Inflation pressures did not impact the financial results for 2021–22 in a significant way but will do in 2022–23. Government support will help mitigate the full impact of energy cost increases to some extent, but we still face a step-change in these running costs following the Russian invasion of Ukraine earlier this year. Our attention is very much on how we manage consumption and reduce our reliance on fossil fuels over the longer-term.
We need to proceed cautiously through a period that seems set to bring continuing volatility. At the same time, we need to keep sight of our long-term vision and remember that periods such as this bring opportunity as well as risk. The strength of our balance sheet provides reassurance that we have capacity to see beyond short-term shocks. Our fantastic recent performance in REF and the continued growth in student applications give us reasons to look forward with confidence. The pandemic showed that Imperial often operates at its best when we work collectively to solve specific challenges. We will need to call on this same approach as we navigate our way through the choices we face over the next couple of years.
Dr Tony Lawrence
Acting Chief Financial Officer