Insurance claim proceeds provide short-term boost to University of Canterbury's 2011 results
The University of Canterbury has released its annual financial results for 2011. The results show that UC has performed well in trying circumstances, however Vice-Chancellor Dr Rod Carr said reduced income and increased spending because of the earthquakes mean the institution will continue to face significant challenges.
The University has recorded a surplus of $9.5million before the impact of insurance for 2011. When the insurance impacts are factored into the result, as required by international financial reporting standards, UC’s 2011 surplus is inflated to $30.9million.
Dr Carr said this overstates the result as it includes all insurance proceeds but does not offset earthquake-related expenditure which has been capitalised, such as the actual cost of building remediation and the temporary buildings constructed from insurance proceeds.
He also said the results need to be analysed in the context of projected future impacts of the earthquake on the University’s finances.
“We face the very real and imminent prospect of a significant drop in income from tuition fees, particularly from international students. This will have an impact on our operational budget over coming years. The 2012 budget, for example, is for a loss before the impact of insurance of $17.4million.
“Costs in areas such as insurance premiums and the cost to the University of damage that will no longer be covered by insurance, have increased dramatically.
“We also know that our capital expenditure has increased dramatically post-earthquake and that significant spending in this area will continue as we remediate our buildings and as a result of the new building code requirements.”
“With the application of a rigorous testing regime we continue to have confidence in the safety of our built structures on campus, the vast majority of which are in use by staff and students.”
Dr Carr said that the 2011 results demonstrate that the University has performed well under extremely challenging circumstances and that its responsible and measured approach was deserving of ongoing support as the true financial impact of the earthquakes becomes apparent over the coming years.
“This is not a short-term, one-year picture for the University and our planning and approach needs to reflect that. While we will have to review the scope of some course and programme offerings, we will continue to deliver quality programmes for our students, while maintaining a strict focus on cost management and process efficiencies.”
Key points from the University of Canterbury’s 2011 Annual Financial Performance:
The University has recorded a surplus before the direct costs and insurance proceeds as a result of the earthquakes of $9.5million.
· The $9.5M surplus was below the budget set after the September 2010 earthquake but before the February 2011 and subsequent quakes and was due to revenue reductions not being entirely offset by spending reduction initiatives in 2011.
· The University reported a $30.9million operating surplus when the impact of insurance proceeds and earthquakes is taken into account. The surplus overstates the University's financial situation as it includes all insurance proceeds but not all matching expenditures. (This is because, in line with international financial reporting standards (IFRS), any capital expenditure relating to an insurance claim is not shown in the Statement of Comprehensive Income)
· The estimated cost of bringing buildings back to their pre-earthquake standard is $120million. This is not reflective of the expected costs to remediate damaged buildings to comply with the building code or the cost of upgrading undamaged buildings to comply with the building code.
· The University’s equity is down $115.4million on 2010 levels mainly due to the impairments to asset values resulting from the earthquakes.
· Cash holdings dropped by $25million in 2011 as a result of declining revenue and increased expenditure resulting from the earthquakes e. g. meeting the almost $10 million of insurance policy excesses, increased insurance premiums, decreased revenue from tuition fees, redundancy costs and capital spending not covered by insurance. Cash holdings were also impacted because of the delay between incurring post-earthquake expenditure and when the insurance proceeds are received.
· Building revaluation reserve was eliminated after dropping by $157million. This will mean any future impairments or write-offs to building assets will go straight to the bottom line in the Statement of Comprehensive Income.
· The University has not breached any of its philanthropic bond covenants. Payments to bondholders will not be affected.
· The University has made significant savings reducing Full Time Equivalent staff by around 170 (8 per cent) through non-replacement of staff, retirements, voluntary and compulsory redundancies. 37 of these staff members were fixed term and continuing academic staff while the remainder were casual, fixed term and continuing general staff and vacant positions.