I am pleased to present the University's Statement of Accounts for the year ended 31 July 2006. The accounts, which are consolidated with the results of University subsidiary companies, comply with the Statement of Recommended Practice on Accounting for Further and Higher Education and the Accounts Direction of the Higher Education Funding Council for England. They have been audited by Deloitte and Touche LLP, Registered Auditors, whose report is unqualified.

Results for the year
Total income rose by 8.6% to £166m. The average rate of increase over the last five years has been 7.72%, giving an indication of the growth of the University.

In common with the rest of the sector, growth in staffing costs is a continuing pressure. In the year under review underlying pay growth, excluding the pay growth of subsidiaries and FRS 17 adjustments, is 5.6%. Continuing uncertainty over the future cost of University pension schemes increases the likelihood of above inflation pay cost growth moving forward. The University is engaged in an ongoing process of monitoring pay costs and the attendant risks resulting from pay cost increases whilst maintaining its commitment to investment in academic staff.

The surplus of £5.9m was pleasingly ahead of that budgeted and ahead of the 3% strategic target set by the University Council; results for the year being helped through the achievement of international recruitment targets.

The Balance Sheet remains healthy. Net assets, after accounting for pension scheme liabilities stand at £138m. The University has taken the opportunity to re-structure its bank debt and to secure further undrawn facilities during the year at more advantageous terms than previously enjoyed. Following debt restructuring involving the repayment of £18.4m from cash reserves, outstanding long term debt has fallen to £34.2m. There is also an overall reduction in the net interest cost to the University going forward. At the year end, the University had net debt of £1.17m. The undrawn facilities are to assist further the estate development.

Cash flow and funding
Better working capital management has resulted in a net cash inflow from operating activities of £19m prior to the impact of continuing investment in University infrastructure and facilities.

A total of £32.9m has been invested in the year under review of which £18.4m was funded from specific funding council grants and other grants. The continuing development programme demonstrates the University’s ongoing commitment to investment in its infrastructure. As the University moves forward in a changing financial climate, consideration will need to be given to future funding sources for capital projects.

Capital projects
In the year under review, the expansion works to Burleigh Court bedroom and conference facilities, the extension to the Sir Frank Gibb building housing the Department of Civil and Building Engineering, the new postgraduate centre, the Stewart Mason building, and the Keith Green building which forms HEFCE’s Centre for Excellence for Teaching and Learning in Engineering were completed. New projects coming on stream include the extension to the Business School, the demolition of the old sports hall and the substantial construction project of new facilities to house health, exercise and bio-sciences. As has been the case, problems arising from the discovery and removal of asbestos still arise and have continued to impact upon the costs of the ongoing programme.

Pensions
Members of University staff are eligible for membership of the Universities Superannuation Scheme (USS) and the Leicestershire County Council Superannuation Scheme (LGSS). Also for academic staff who were employed by Loughborough College of Art and Design in August 1998, contributions are paid to the Teachers’ Pensions (TP).
All three schemes are funded and are classified as multi-employer defined benefit schemes. FRS17 requires that employers should disclose their share of asset and liabilities for each such scheme. However, it is only possible to identify individual shares for the LGSS. Application of the accounting standard shows a deficit of £17.511m for this scheme at 31 July 2006 and it is inevitable that increases in contributions will be required in coming years. The USS fund is currently the subject of regular review by that fund’s Board of Directors and, at this point in time, all indications suggest that it is in a healthier state due to the improved performance of the stock market over the period since the last triennial actuarial valuation. While increases in contributions are expected, it is hoped that these will not be significant.

Prospects
The surplus for 2005/06 at 3.6% was above the University’s strategic target. The introduction of top up fees will generate additional resources for the University, but the expectations of our customers will similarly rise. Fortunately, the University is well advanced in terms of estate re-development planning and, though significant investment in academic staff has already been made, further investment in this area is planned.

Conclusion
I am pleased to report that the University has a stable and satisfactory financial position which supports its long term plans. Under the leadership of the new Vice Chancellor, an ambitious but realisable strategic plan for the period to 2016 is close to completion and I continue to be optimistic as to the future success of Loughborough University.

Alan A Woods
University Treasurer

The results for the year ended 31 July 2005 have been restated to reflect the full implementation of FRS 17 and to account for the transfer from the accumulated income of specific endowments to a specific endowment fund within the Balance Sheet to comply with the SORP for Higher and Further Education.

2005-2006 (£’000) 2004-2005 (£’000) as restated

INCOME AND EXPENDITURE INCOME Funding Council grants 57,930 53,218 Academic fees and grants 35,691 32,707 Research grants and contracts 31,531 28,854 Other operating income 39,017 36,081 Endowments and interest 1,936 2,080 Total Income 166,105 152,940 EXPENDITURE Staff costs 91,741 87,707 Depreciation 8,415 7,717 Other operating expenses 58,326 51,695 Interest payable 2,217 3,250 Taxation 209 46 Total Expenditure 160,908 150,415 Profit on disposal of income 758 1,565 Transfer from accumulated income of specific endowments (47) 291 Allocations to capital funds, departmental balances and general reserves 5,908 4,381 BALANCE SHEET Fixed assets 192,814 168,192 Endowment investments 1,434 1,349 Net current assets (2,115) 18,243 Long-term creditors (34,191) (51,045) Provisions (2,106) (2,090) Pensions liability (17,511) (16,673) Total Net Assets 138,325 117,976 Represented by: Deferred capital grants 80,142 65,566 Specific endowments 1,434 1,349 Reserves 74,260 67,734 Pensions reserve (17,511) (16,673) Total Funds 138,325 117,976 CASH FLOW Net cash inflow from operating activities 19,050 14,831 Returns on investment and servicing of finance (353) (1,147) Taxation (46) (2) Capital expenditure and financial investment (13,705) (8,910) Cash inflow/(outflow) before use of liquid resources and financing 4,946 4,772 Management of liquid resources 7,139 1,177 Financing (18,383) (1,969) (Decrease)/Increase in cash balances (6,298) 3,980