The year 2019/20 has been one of many remarkable achievements and memorable moments. The University celebrated its 30th anniversary with a series of events throughout the year, through which it strengthened links with various stakeholders and highlighted the University’s achievements and its transformation from a modest distance learning institution into the full-fledged university that it is today. These successes stem from the hard work, dedication, and abilities of all of its staff and students over many years, and their pursuit of excellence and inclusivity in teaching, research, and knowledge transfer.
The University’s financial strategy has been designed to deliver long-term financial sustainability, specifically by generating cash from operations, maintaining a healthy balance sheet, and investing in people and assets that underpin the delivery of the University’s strategic focus. In 2019, the University changed its financial year-end to 31 August to align it with the academic year, in order to further enhance budget planning, resource allocation, and financial stewardship. The current financial period thus covers the 17 months from 1 April 2019 to 31 August 2020, while the comparative figures in the financial statements cover the 12-month period from 1 April 2018 to 31 March 2019.
Rigorous financial planning, coupled with thorough risk management, enabled the University to deliver a sound financial performance in 2019/20 against a backdrop of prolonged and unprecedented challenges. The University has benefitted from a moderate increase in student numbers while at the same time effectively controlling costs, and this has resulted in a HK$501.0 million consolidated overall surplus. Cash flow from operations amounted to HK$709.3 million. Net assets of the Group increased by 15.5% to HK$3,727.5 million.
Income
Consolidated income for the 17-month period was HK$1,821.2 million. Of this, HK$1,710.0 million was tuition fee income, benefitting from moderate growth in student numbers. Strong revenue streams and a strong and liquid balance sheet have contributed to the University’s resilience in these uncertain times, enabling it to manage the unexpected over the short term and giving it time to make necessary operating adjustments.
Operating expenditure
Operating costs have been well managed in line with the budget. Total operating expenses were HK$1,544.5 million in 2019/20. The University invests heavily in human capital; staffing costs were HK$1,068.7 million and represented 69.2% (similar to the 70.2% for 2018/19) of the University’s total operating expenses. Depreciation was HK$94.5 million, accounting for 6.1% (2018/19: 6.9%) of total operating expenses. Direct student costs and course materials were maintained at HK$53.8 million and HK$21.7 million respectively, representing 3.5% (2018/19: 3.6%) and 1.4% (2018/19: 1.8%) of total operating expenses.
Interest and investment income
Global financial markets were highly volatile in 2019/20 as a result of the COVID-19 global outbreak. This highlighted the importance of the University having a diverse investment portfolio ranging across different asset classes, geographies, and industry sectors. Despite the volatile financial markets, the University managed to record HK$252.5 million in interest and investment income in 2019/2020. This income, coupled with its recurring operating cash flow, provided a welcome and much needed addition to the University’s financial resources, supporting its long-term development.
Donations and matching grants
Donations from individuals, corporations, and foundations represent a vitally important source of funding for the University. In aggregate, the University received HK$278.6 million in donations and grants in the financial year ended 31 August 2020, of which HK$166.9 million represented donations from The Hong Kong Jockey Club for the IOH and STEAM projects. In addition, the Government awarded a total of HK$15.7 million in matching grants under the Seventh Matching Grant and Research Matching Grant Schemes, against a total of HK$24.0 million of matched donations. Donations of another HK$32.8 million were made by philanthropists, corporations, charitable foundations and friends for scholarships, bursaries, and student activities. This remarkable generosity is providing essential funding for current operations, long-term investments, and resources for core activities for future generations.
Mainland activities
The University’s subsidiary in Shenzhen achieved a profit after tax of HK$19.4 million for the year. The subsidiary’s good financial performance was mainly due to an increase in enrolments in programmes offered with mainland partners. In order to promote research collaboration with mainland universities and scientific research institutions and to secure financial support from local donors, the University is in the process of changing the company name of its Shenzhen subsidiary and expanding the business scope of the subsidiary to include research and development activities in China.
Overall financial performance for the year, and funds and reserves
The year 2019/20 has been another year of solid financial performance for the University, despite the uncertain economic and political environment in which it has been operating. The University achieved a consolidated operating surplus of HK$276.6 million and net interest and investment income of HK$252.5 million. These contributed to a HK$501.0 million overall surplus, one of the best results in the University’s history. Operating cash flow was a strong HK$709.3 million and net assets of the OUHK (Group) increased to HK$3,727.5 million. These results have ensured that the University remains financially robust and able to respond to challenges ahead.
Retirement schemes
The University provides two retirement schemes to staff, namely the Occupational Retirement Schemes Ordinance (ORSO) Scheme and the Mandatory Provident Fund (MPF) Scheme. At year-end, the ORSO scheme had 439 members and the MPF scheme had 1,909 members. Their respective fund sizes were HK$458.4 million and HK$109.4 million.
The Open University of Hong Kong (Zhaoqing) (OUHK (ZQ))
The University entered into agreements in April 2020 with the Zhaoqing Municipal Government and Zhaoqing University to jointly establish The Open University of Hong Kong (Zhaoqing) (OUHK (ZQ)), marking an important milestone in the University’s development and advancement. Occupying an area of 167 million square metre, OUHK (ZQ) will offer professional and practical programmes contributing towards talent development in the Greater Bay Area (GBA). According to the agreements, the construction cost of the campus will be funded by the Zhaoqing Government, while the University will mainly be tasked with ensuring that the quality of the academic programmes and research at the Zhaoqing campus is on par with that of its Hong Kong counterpart. The new campus will strengthen research cooperation and student exchange between Hong Kong and Guangdong.
Outlook
The Central and HKSAR Governments are showing increasing support for higher education institutions from Guangdong, Hong Kong, and Macao to jointly operate education institutions in the GBA. The University is committed to contributing to the GBA through the development of the OUHK (ZQ) campus, and this will be one of the University’s strategic focuses in the coming years. The project will provide students with rich and diverse learning experiences, strengthen academic and research cooperation for staff, and nurture future talent with the professional knowledge and global vision needed to participate in the development of the GBA.
Global financial markets are expected to continue to be volatile in 2020/21. Despite stimulus policies introduced by governments and central banks around the world, the shutdown of the global economy resulting from the COVID-19 outbreak has led to an economic recession. This, coupled with the escalation of US-China trade tensions and the US presidential election, is likely to create more surprises and fuel market volatility. Notwithstanding these uncertainties, the University is confident about its long-term financial sustainability. It will continue to implement effective financial strategies for managing its income and spending, with a focus on value creation and efficiency enhancement, in order to generate the long-term cash flow needed to deliver its mission.
