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UK Universities – Covid-19 – Scenario planning and predications

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So, now attention is moving to student applications, admissions, offers (no unconditionals), deferrals, acceptances, A-Levels, social distancing and global travel, the big questions are when will we be ‘open for business’ and how many ‘bums on seats’ will there be come September?

If you know the answer, can you let me know next week’s lottery numbers too please.

The above questions will be a key driver of how much cash will be needed over the coming weeks and months. Likewise, the answers to these questions will drive funding requests and the accompanying sensitivity scenarios that need to be presented. My aim here is to highlight a few of the common sensitivities I’m seeing across the sector that make sense and you may want to factor into your own cash flow scenarios. This list is not going to be exhaustive, but can be factored in to your planning, starting with your base case which is likely to be your pre Covid budget, then scenarios such as a hopeful case, realistic case, negative and then a worst case to show the potential scale and impacts.

First, however, I’m going to take a punt, stick my neck out and provide my thoughts on some of the key unknowns. Time will tell how accurate, or otherwise, these predictions turn out to be.

Domestic students – Applicant numbers seem to be holding up and may even increase when the academic year starts up again. Clearing will be a fight, but the numbers will arrive en-masse. I’m going to suggest (hope) that deferrals will be low. After all, why would you put off another qualification if you can’t travel and the job market is challenging? Your parents may well be driving you up the wall by September, too!

International numbers – Given the world-leading quality of the UK HE sector, I think that international students will do what they can to get here. They may choose to start late or via a digital channel, but they will come-albeit at lower numbers than pre Covid budgets, despite applications being up to date. Those institutions with particularly large international exposures will be hardest hit in cash terms, however they will remain as leading institutions and the majority will have the ability to ride this out.

Term commencement – The government will have announced a phased exit plan and I expect this will suggest a September term start date. Campuses will be open, despite the first institution announcing a delay in returning. Some courses may choose to provide an online induction period to phase returns, but academic year 20/21 will nonetheless have a September start. The cash impact of a later date would be exceptional.

Student Loan Company – I expect them to hold off as long as possible regarding the re-profiling of funding and may not need to do this at all. It will come down to what numbers actually look like. They will wait to see what the numbers do look like before managing the budgets and it may even include an application process, whereby institutions can ask for a rescheduled payment profile in case of need, but it may not be blanket across the sector.

Student number cap – This one gives me a headache. There is no easy way to introduce a cap and the 5% proposal by UUK will result in winners and losers. I'm not sure where this will end up but I don’t envy those trying to find a fair solution.

So, hopefully this comes across as optimistic. I’m hoping for a relatively strong outcome albeit it I am a firm believer of hoping for the best but planning for the worst. Therefore those undertaking financial planning and devising sensitivity scenarios should be showing what happens if the above turns out to be a load of old tosh (which is a very valid option given the various outcomes possible).

The whole point here is to plan for the worst, no matter how uncomfortable this may be. In addition to this sensitivity analysis, and building on my previous posts, I continue to urge universities considering accessing financial support to:

  • Engage early with their lenders
  • Demonstrate operating viability pre-Covid-19
  • Articulate the lending rationale, supported by student number trends and projections
  • Take self-help measures to preserve liquidity where possible and suitable
  • Sensitise cash flow forecasts for a range of scenarios (best through to absolute worst)
  • Using all of the above when articulating the worst-case cash requirement.

When undertaking sensitivity analysis, and building a picture of what the cash position looks like across each scenario, and where this cash is going to come from there are various scenarios to consider. The key drivers that I’m seeing across the sector are:

  • Refunds on accommodation and potentially some tuition fees (noting tuition has continued and refunds are not proposed), based on the date that students left their accommodation. Any funds retained post this are an upside to the scenarios.
  • £0 income from renting out the university’s facilities and conferencing over the summer months.
  • Term dates/fee receipts aligned to September, October and January academic year commencement.
  • £0 income from international students for the 2020/21 academic year.
  • Scenarios accounting for 100%, 80% and 70% domestic student income next year.
  • £0 income from research activities until September, October and January respectively.
  • Student Loan Company income profiles retained at 25:25:50 and amended to 50:25:25.
  • Increased cost of online delivery versus traditional face-to-face delivery.
  • Consideration of the robustness across the university’s supply chain and potential risks.

Consideration of the above worst-case scenarios will no doubt be uncomfortable, and I am quite sure I speak for everyone in the HE sector when I say that I hope such contingencies do not materialise. Nonetheless, careful consideration and modelling of the above, coupled with proactive and open engagement with lenders, should help maximise universities’ success in reacting to the financial headwinds caused by Covid-19.

Should you wish to discuss any of this or potential support for the cash hole that this modelling may show then please do get in touch.

Ian – Sector Head, Public Sector and Education
+44 7920 417 565

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