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Strategic Plan Timeline

 

Dudley Dashboard - Financial Strength

 
 

Financial Strength (Updated In-Year)

SFA Financial Health Assessment Metrics

Performance Ratio

The performance ratio measures the underlying operating strength of the college. The higher the percentage measure, the stronger the operational performance.

The performance ratio measurement changed in 2015-16 following the introduction of a new accounting standard FRS 102, but the maximum 100 points were historically awarded for a performance ratio above 9% prior to this and above 8% from this date.

The college’s operational performance has historically been strong, ranked as ‘Outstanding’ since 2013-14. However the college’s operating performance increased again and scored the maximum 100 points in 2015-16, and is forecast to remain at this highest level of performance over the next two years.

Current Ratio

The current ratio is a measure of current assets against current liabilities and is used as an indicator of a college’s liquidity. The higher the percentage measure, the better a college’s liquidity. The maximum 100 points are awarded for a current ratio above 200%, which means that current assets have to be at least double current liabilities.

With the £50m+ development of the Dudley Learning Quarter which commenced in 2011-12, the college’s cash and liquidity position has been impacted and is weaker than it would otherwise have been, because cash generated from the college’s operations has been invested in these new capital projects. However, the college cash balance increased by £1.1m to £1.3m in 2015 -16, despite the ongoing investment into the capital projects of Dudley Advance II and the 3G football pitch this year. The college’s current ratio is forecast to start increasing again after completion of Dudley Advance II in September 2017.

Gearing

Gearing (also known as leverage) used to be a measure of total borrowings compared to net assets (excluding the pension liability) prior to 2015-16, but changed to borrowings as a percentage of income from this date. It is used to measure the proportion of assets invested in a college that are financed by borrowing and is also concerned with liquidity, as it provides an indicator to the longer term financial stability of a college. The higher level of borrowing (gearing) brings a higher risk to a college since more cash has to be set aside to meet debt and interest repayments. The lower the percentage measure, the better a college’s gearing and its prospects for long term stability. The maximum 100 points are awarded for gearing of 0%.

Prior to the change in the measurement, the college’s gearing would have been classed as ‘Good’ in 2015-16, but is now graded as ‘Satisfactory’. The change in this measurement has not only affected the college but has reduced the FE sector average by approximately 6%. The college is forecasting to reduce its level of gearing from 2016-17 onwards following the completion of Dudley Advance II.

SFA Overall Financial Health Assessment Grade

Through measuring the three ratio’s of performance, gearing and current performance, the SFA adds up the individual scores and provides an overall financial health assessment grade for a college, based on the banding structure illustrated opposite.

Historically, the college has been graded ‘Satisfactory’. However with the operating surplus forecast to continue to grow, increasing net asset values from the continued investment in the college estate from the building of Dudley Advance II, the increase in cash and the repayment of debt, the college’s financial health, as graded by the SFA measures, has increased considerably in 2015-16. The would have been rated ‘Good’ under the old measures but remains ‘Satisfactory’ under the new measures due to the reduction in the Gearing ratio noted above.

The college is forecasting to remain ‘Satisfactory’ in 2016-17 and increase to ‘Good’ in 2017-18 following the opening of Dudley Advance II in September 2017.


College Financial Metrics

Underlying Operating Surplus

The college has continued to grow its underlying operating surplus in 2015-16 to approximately £2.4m, largely due to the college’s ability to increase learner and apprenticeship numbers (some of which is funded on a lagged basis) whilst closely managing costs. The college forecasts that the operating surplus will grow again in 2016-17 to £2.8m and then stabilise at around £2.5m the following year.

Operating Surplus Compared To Sector Averages

The college increased its underlying operating surplus as a percentage of income again in 2015-16 to 6.6%, which is well above the Government aspirational sector target of 3% to 5%, which in itself is significantly higher than the current GFE sector average which is a 1.9% deficit. The college’s operating performance as a percentage of income is anticipated to remain very strong over the next two years and stabilise at around 6% to 7%.

Total Income

Total college income has grown steadily since 2011-12 and was almost £36m in 2015-16. This growth in income reverses the general trend being experienced elsewhere in the sector. The college anticipates that income will continue to grow in 2016-17 and 2017-18 to approximately £40m, principally due to the growth in 16-18 year old learner numbers, apprenticeships and HE provision.

Grant Funded Income

Combined grant funding income from the three main funding bodies – Education Funding Agency (EFA), Skills Funding Agency (SFA) and Higher Education Funding Council for England (HEFCE) has increased again in 2015-16, principally due to the growth in the number of 16-18 year old learners which is funded by the EFA on a lagged basis, but with added in-year growth in 2015-16 due to the large increase in learner numbers this year. This trend is set to continue over the next couple of years, which combined with the increase in apprenticeship income from the full year delivery of the former Institute of Swimming contract and continuing growth in existing apprenticeship provision through the transition from frameworks to standards, is set to increase college income to around £40m.

SFA/EFA Income

Growth in the number of 16-18 year old learners, as well as reductions in the level of funding available for adult education has resulted in the Education Funding Agency becoming the college’s most significant grant funded partner over the last two years. This trend is set to continue with the increasing number of 16-18 year old learners at the college, but SFA income is also set to rise in 2016-17 through further growth in apprenticeships, including a full year impact from the former Institute of Swimming apprenticeship contract that transferred to the college in 2016.

Other Income

Other income has grown steadily over the last few years, but declined a little in 2015-16 to £4.7m following a delay in delivery of projects in the Kingdom of Saudi Arabia. We anticipate other income will revert to growth again and increase relatively slowly over the next two years, mainly due to growth in tuition fees, international contracts and other commercially-generated income.

Staff Efficiency (Pay/Income Compared to Sector Average)

The ratio of payroll costs to total income reduced significantly in 2015-16 to below 60% for the first time in several years, helped by more efficient classroom management and increased class sizes. Also, the receipt of in-year growth funding of approximately £0.8m from the EFA has helped to reduce pay costs as a percentage of income. In recent years, it has been adversely affected by the EFA lagged funding methodology, which has resulted in the college delivering provision to more learners each year, and incurring the additional staff costs associated with that, but not benefiting from the additional income from the growing numbers until the following year. Staff costs are forecast to increase in 2016-17 and 2017-18 through a high level of investment and to help recruit industry standard staff to deliver more technical and professional provision, but are set to remain at or below the 60% benchmark.

Borrowing

Following the college’s decision to re-finance its borrowings with Santander in September 2015, the college’s borrowing as a percentage of income (41%) in 2015-16 of 41% has decreased slightly from 2014-15. Although this remains above the 40% guideline set by Corporation, this is considered reasonable given the college’s investment into the £50m+ development of the Dudley Learning Quarter. The borrowing ratio is set to fall below 40% again in 2016-17 and reduce to around 33% in 2017-18, as the college pays down its borrowings.