In this Part of the report, we summarise the financial outcomes of the university sector for the year ended 31 December 2019 and comment on the sustainability of the sector in the context of information we obtained and observed during our audits. The detailed data and calculations that underpin our financial sustainability comments of the sector are provided in Appendix D.
The sector continued to be financially sound during 2019. Risks to international student enrolments, in part due to COVID-19 and changes to government funding caps for domestic students, will need to be actively managed.
4.2 Financial performance
The sector's net result significantly improved in 2019 (see Figure 4A). In 2018 one-off investment losses, the result of accounting standard changes, affected the net result.
This year revenue grew in line with student numbers, reflecting strong demand for university-level higher education prior to COVID-19. Fair value gains on investments during 2019 also contributed to the revenue growth.
Financial performance of the university sector for the years ended 31 December (2015–19)
Note: Figures for 2015 to 2018 have been adjusted for the two universities with qualified audit opinions.
4.3 Financial position
The value of net assets held by the sector increased during 2019 (Figure 4B), consistent with its positive net result, and the five-year trend.
Total assets, total liabilities and net assets of the university sector as at 31 December 2015–19
Note: Figures for 2015 to 2018 have been adjusted for two universities with qualified audit opinions.
The adjusted liquidity ratio includes non-current financial investments as most of them can be converted to cash or cash equivalents at short notice and are available to the universities to meet any liabilities if required.
The sector has a very strong net asset position. This reflects its large portfolio of land, buildings and equipment, which the universities use to deliver their services.
However, these assets are illiquid, and cannot be relied upon if a university requires cash to meet its debts.
The adjusted liquidity ratio is a better indication of whether the universities are likely to be able to service their debt obligations in the immediate future. Figure 4C shows the adjusted liquidity ratio for universities for the last two years.
Adjusted liquidity ratio for universities at 31 December 2018–19
Figure 4C shows that, other than RMIT University and La Trobe University, all the universities have enough liquid assets to meet their short-term liabilities. The adjusted liquidity ratio of five of the remaining six universities was lower in 2019. This was largely due to accounting changes from the initial application of AASB 15, which resulted in the sector recording significant current contract liabilities on their balance sheet.
RMIT University proactively monitors its cash position and ensures there is enough cash on hand to meet its obligations as they fall due. This is supported by its historical performance. In both 2018 and 2019, RMIT University had a strong net result and a net operating cash inflow that was significantly greater than its net current liability. The university also closely monitors expenditure levels and implemented cost control measures in 2020 such as limiting recruitment to roles that are essential to business continuity or compliance, delaying planned projects that are not considered critical, implementing senior officer salary cuts and reducing discretionary spend. Approvals were also sought to increase borrowing levels. These strategies along with confirmed federal and state funding reduce the risk of it being unable to meet its short-term obligations.
La Trobe University's adjusted liquidity ratio at 31 December 2019 shows insufficient liquid assets to meet short-term liabilities because they recognised a significant current contract liability in adopting AASB 15. In 2019, La Trobe University also had a strong net result and a net operating cash inflow significantly greater than its net current liability. To mitigate its financial sustainability risks, La Trobe University has sought to increase debt facilities and planned a number of savings initiatives such as only recruiting for crucial roles, delaying bonus payments and staff promotions, executive officer pay cuts and reducing discretionary spend. These measures along with confirmed federal and state funding reduce the risk of it being unable to meet its short-term obligations.
Risks for the sector
The sector's reliance on international student revenue and changes to government funding caps for domestic students increase the financial sustainability risk for the sector.
While the total equivalent full-time student load (EFTSL) has steadily increased over the last five years, overseas students now make up 41 per cent of the sector’s higher education student load, and contributed 33 per cent of revenue.
The travel restrictions from COVID-19 meant many international students were unable to commence studies in Victorian universities. The sector will need to continue to monitor circumstances overseas and actively manage its recruitment programs to diversify the source countries that make up the overseas student base. Universities may also need to rethink their business models and offer the teaching and learning experience in different modes to increase the markets they attract students from.
In relation to domestic enrolments there is a large gap between the number of funded and unfunded places for designated courses which universities need to fund through own-sourced revenue. The shortfall in funding for the sector is approximately $230 million in 2019.
Appendix E provides data on student volumes and Commonwealth grants scheme funding.