University announces break-even financial results for 2020 and uncertain times ahead
In an update on its 2020 financial position, the University of Melbourne last month announced that its preliminary, unaudited accounts show an operating surplus of approximately $8 million for 2020 and that the next two years continue to present substantial challenges.
This effectively break-even result was largely achieved through a very significant reduction in spending of approximately $360 million. It was delivered in the face of a fall in budgeted revenue of $275 million and additional costs including $60 million in student support grants.
Other measures that were put in place to manage the financial impact of the COVID-19 pandemic included reducing capital expenditure by more than $300 million, drawing down on the University’s financial reserves by $120 million and increasing debt facilities by $300 million. The University’s capacity to take these measures is a testament to solid financial management over a number of years.
The University experienced a boost in enrolments in Semester 2, plus an increase in the number of subjects that students took in the last half of the year which also contributed to the result in 2020.
Financial reporting requirements dictate that the recurrent operating result is conflated with fluctuations in the value of long-term assets like endowments and investments. This means the University’s overall reported bottom line is expected to show a surplus of about $180 million. However, this amount is not available to fund the University’s teaching and operations since much of it is tied to specific endowments. (With these endowments in mind, donors should be reassured to know that all gifts will continue to be applied to their specific purposes in line with donor wishes.)
Looking ahead, the University expects the challenging outlook to continue into 2021 and 2022.
In addition to the 2020 revenue shortfall, the University is anticipating a continued fall in revenue over the next two years, including a shortfall in student revenue of around $280 million in 2021. The University is expecting a loss of almost $900 million in budgeted revenue over three years from 2020 to 2022.
Domestic student enrolments are on track, but international student enrolments have fallen. Currently, more than 23,000 international students are enrolled (new and returning students) which is 10% down on last year and is down 22% compared to pre-COVID estimates for commencing students.
The Vice-Chancellor told staff that despite the result in 2020, achieved only after unprecedented efforts in terms of cost savings, the future remains extremely uncertain as the effects of the pandemic will continue to be felt for several years to come.
Reducing the ongoing cost base to ensure the University continues to live within its means remains an important part of the institution’s response. The University Executive has confirmed that, overall, $252 million of savings are required this year to offset the expected revenue shortfall in 2021 and its pipeline impacts into 2022, which may worsen if border closures continue and other international risks materialise.
All divisions have reviewed their operations with a focus on finding savings. While some job losses are inevitable, the University now expects the total number to be less than the 450 figure that was estimated last year, with as many as half of these being voluntary.
The Vice-Chancellor paid tribute to the resilience of students and staff and their ability to adjust to a set of circumstances on a scale that could never have been imagined. He thanked the university’s community for all of the efforts of 2020 which have resulted in the university being in a much better position today than it otherwise would have been.