haysmacintyre independent schools’ conference · do we need to report our impact and how do we do...

“Charity Expertise Award”Top five for nine consecutive yearsAnnual Charity Finance Audit Survey

haysmacintyre IndependentSchools’ Conference

03 February 2016


• Welcoming address

David SewellHead of the Schools Group

E: [email protected]: 020 7969 5568


10:15 Welcoming address Speaker: David Sewell, haysmacintyre

10:30 The internationalisation of UK independent schools

Speaker: Tony Little, GEMsChair: David Sewell

11:30 Break

12:00 Independent, indefinable and in demand: the independent education sector in 2016

Speaker: Julie Robinson, ISCChair: David Sewell

12:55 Lunch

14:05 Do we need to report our impact and how do we do it

Speaker: Sam Coutinho, haysmacintyre

14:40 The UK economy and its impact on independent schools

Speakers: Joe Nellis, Cranfield School of ManagementDavid Waters, Coutts

15:50 Closing remarks Speaker: David Sewell

Programme


• The internationalisation of UK independent schools

Speaker: Tony Little, Hon President of the Boarding Schools Association and Chief Academic

Officer of GEMs

Chair: David Sewell, haysmacintyre

Currently there are 7,017 international schools around the world meeting the learning needs of over 3.5 million students, all using English as the language for learning. 42% (2,945) offer a UK curriculum and 23% (1,582) an American curriculum;

46% of schools now say their learning approach is internationally oriented, including 17% (1,220) that offer the International Baccalaureate (IB) diploma programme;

When it comes to examinations, 25% (1,761) of international schools take IGCSEs, 16% (1,081) take American SATs or PSATs, and 14% (989) take GCE A levels.

Today, of the total 3.5 million, over 2.5 million international school students are local children seeking a quality, English-speaking education as a means to acquiring a place at one of the world’s respected universities.

Nearly 30% of all international schools today are bilingual with English as the primary language of learning usually combined with the local language. Local culture is still important

UK Schools and International Markets

Market growth:

• 21 countries now have over 100 international schools. 11 of the 21 schools are in Asia (ISC includes the Middle East in Western Asia)o China is one country generating much interest. China has 200 million school-aged children and

a rapidly growing middle class (including at least 2.5 million millionaires). An increasing number of these families are demanding an international education.

o Future growth potential includes Singapore, Malaysia, Vietnam, Thailand, Indonesia, Hong Kong,

• The lead country continues to be the United Arab Emirates with 428 international schools followed closely by China which now has 417 schools. The countries that experienced the most significant growth in 2013 were the UAE with 45 new schools and

• Pakistan and India both have over 350 schools and Japan has more than 200.

• Other countries with over 100 international schools are Hong Kong, Indonesia, Malaysia, Thailand, Qatar, Saudi Arabia, Mexico, Argentina, Brazil, France, Germany, the Netherlands, Spain, Egypt, and Nigeria.

The UK independent sector as a whole educates around 625,000 children in around 2,600 schools.

• The independent sector educates around 6.5% of the total number of school children in the UK (and over 7% of the total number of school children in England) with the figure rising to more than 18% of pupils over the age of 16.

• 1,267 ISC member schools - 517,113 pupils, the highest level since records began in 1974.

(Source: http://www.isc.co.uk/research/)

http://www.isc.co.uk/research/

ISC Research projected that by 2024, there will be over 12,000 international schools teaching 6.9 million students generating an annual fee income of over US$62 billion (£37 billion).


• Independent, indefinable and in demand: the independent education sector in 2016

Speaker: Julie Robinson, General Secretary, ISC

Chair: David Sewell, haysmacintyre

Independent, indefinable and in demand

Julie RobinsonGeneral Secretary

The aim of ISC is to be a service organisation promoting and protecting the independent education sector.

The five principal activities of ISC are to:

• Provide authoritative research and intelligence about the sector• Provide legal and regulatory information/guidance• Provide online access and support informing parental decisions• Promote the sector through lobbying and communications• Provide a meeting place in central London for members

Five functions of ISC

• Emotional wellbeing• Soft value-added• Inspection• Exam reform• Policy changes

“Our results speak for themselves”

•Teacher training•Teacher recruitment•Teacher retention

AFF RDABILITY

Lowest fee increase since 1994

2.6%

9.6%

3.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Introducing the Census Data Viewer

Compliance

• Safeguarding• Regulation• Goddard

Independent IndefinableIn demand

Image problem?

‘Typical’ school in membership of an ISC Association

• Around 350 pupils • Prep• Day• £12,000 per year fees • Non-selective

Confounding expectations

• 30% minority ethnic

• 66,000 SEND• Specialist

schools• 5% whose

parents live overseas

Politics• Victims of our own success?

What do these people have in common?

“Independent schools doing really well!”It's great news that the large number of state schools are feeling supported by the small (7%) proportion of independent schools in our country. It's rightthat we should all work together to raise educational standards.

There's huge diversity in the educational sector, with a wide range of types of schools able to support each other through mutually beneficial collaborations.(Schoolstogether.org)

Investing in your child’s future

Schools Together

www.schoolstogether.org

http://www.schoolstogether.org/

Bursaries

• Social mobility?• £340 million per

annum• 41,400 children

The contribution of independent schools to the economy and to society: doing our bit.

[email protected]

mailto:[email protected]


• Do we need to report our impact and how do we do it

Speaker: Sam CoutinhoAudit and Advisory Partner

[email protected] 969 5548


• The UK economy and its impact on independent schools

Speakers: Joe Nellis, Deputy Director, Cranfield School of Management and

David Waters, Executive Director, Coutts

Chair: Tracey Young, Partner, haysmacintyre

The UK Economy:Impact on Independent Schools

Professor Joe NellisProfessor of Global EconomySchool of ManagementCranfield University

Overview

The State of the Nation Today

Outlook for the UK Economy

Risks for the UK Economy

The Global Context

Q&A

51

The State of the Nation Today

The UK Economy is in ‘relatively’ good shape – but beware… clouds are forming!

GDP is well above the pre-crisis peak in Q1 2008

ITEM Club expects growth of 2.6% in 2016 (optimistic?)

a noflation, low-interest rate economy!

and GDP per capita is also now above it’s pre-crisis level

The consumer continues to drive the economy forward

But industrial output is worryingly lagging behind

Eurozone is at last starting to recover… but little impact so far on UK exports

52

Praise for the UK from the IMF and the OECD

“When we look at the comparative growth rates delivered by various countries in Europe it’s obvious that what is happening in the UK has actually worked”

Christine Lagarde, Managing Director, IMF

“The UK is an actual text book case, or is fast becoming best practice on how labour market and good product market reform can support growth and job creation”

Angel Gurria, Secretary-General, OECD

53

International comparison of GDP – G7 Countries

54

GDP Quarterly Growth Rate (%)

Source: www.tradingeconomics.com | Office for National Statistics55

http://www.tradingeconomics.com/

GDP Annual Growth Rate (%)

Source: www.tradingeconomics.com | Office for National Statistics56


CBI Business Confidence Index

Source: www.tradingeconomics.com | CBI, UK57


Autumn Statement HeadlinesBudget deficit

reduction National

debt reductionBudget

surplus by 2020

Slow down in austerity squeeze

Higher tax

receipts

Lower debt interest

Sustainable growth

Long-term investment

Public sector efficiency and

reform Supply-side reforms

Regional rebalancing

Boosting business

External rebalancing

Devolution revolution Sectoral

rebalancing

58

Government FinancesRecovery in GDP and sustained tax increases boosting government revenues

OBR says public finances will be £27bn better off by 2020 than forecast

The budget deficit is falling quite quickly as previous tax hikes kick in – by the end of the next financial year it will be down by three quarters compared to 2009/10

Taxes and levies on consumers and companies are going to pick up to keep government finances on track…..

A budget surplus of over £10bn is planned by 2020

State spending as % of GDP to fall to 36.5% in 2020, down from 45% in 2010

59

Government borrowing as % of GDP

60

Monetary PolicyBank Rate remains at 0.5%

Bank of England has said that ‘normalisation’ of Bank Rate will be slow….

Mark Carney is increasingly worried about turmoil in the global economy and the possibility of UK growth weakening as a result

He would like to see earnings growth at above 3% p.a. before interest rates are raised – ‘forward guidance’ is now fashionable in an effort to manage market expectations

Earnings growth about 3% is likely this year but does not guarantee a rate rise if other factors turn negative!

61

Bank Rate & 20-year Bond Yields

Source: EY ITEM Club

62

Price Inflation – or Lack of…?

Inflation in recent months has fallen to a record low

Expected to remain low or negative for several more months –largely due to external factors

Key factors:

slowdown in China negatively impacting many commodity prices

surplus of oil & energy– US fracking, Iran, Opec etc

hence bigger falls than expected in oil and retail petrol prices

combined with falling energy prices

Inflation is not expected to be a cause for concern for a prolonged period

63

Consumer Price Inflation

Source: EY ITEM Club

64

The Consumer is King!

Driver of economic growth at present

Average earnings rising faster than consumer prices

Rising employment & lower unemployment

Household debt interest payments still at record low

But the ratio of household debt-to-income is still worryingly high and rising…..

Dangers looming when interest rates do start to rise!

65

House Prices & Employment

Average UK House price inflation picked up to 4.5% p.a. in December 2015

But with significant regional differences

South of England and London outpacing the rest of the UK by a wide margin

Strong relationship between employment growth and house price inflation since the financial crisis

When will the ‘bubble’ burst?

66

Regional House Prices and Employment levels

Source: Nationwide / ONS67

Annual % Change in UK House Prices


Average UK House Prices


UK Average House Price to Earnings Ratio


Employment & Unemployment- Records being broken!

Labour market performance continues to be strong

Unemployment rate is now 5.1%, the lowest rate since 2005

Employment level at a record high of 31.4 million – roughly 73% in full-time and 27% in part-time jobs

Employment rate has hit 74% - the highest since comparable records began in 1971

Female employment rate at 73% is also at a record high

Job vacancies are at a record level too

Over 5.5 jobs created in the private sector for every public sector job lost in the last 5 years

71

Unemployment Back to Pre-Crisis Level – and Falling…(% of Labour Force)

Source: www.tradingeconomics.com | Office for National Statistics

72


International Comparison of Employment Rates – G7

73

+ Source: ITEM Club Winter Forecast* Fiscal years, as % of GDP

(% changes on previous year)

Forecasts

2014 2015 2016 2017 2018 2019 2020

GDP 2.9 2.2 2.6 2.3 2.2 2.5 2.7Consumer Spending 2.5 2.8 2.8 2.1 1.7 1.8 2.2 Fixed Investment 7.3 4.4 5.1 5.7 5.1 5.1 4.9Net Govt. Borrowing* 4.9 3.9 2.5 1.2 0.2 -0.5 -0.6Average Earnings 1.4 2.8 3.4 3.4 3.4 3.4 3.4Inflation (CPI) 1.5 0.1 0.7 1.6 1.8 2.0 2.0Bank Rate 0.5 0.5 0.5 1.1 1.9 2.7 3.4

Outlook for the UK Economy +

74

Risks for the UK Economy

Is growth ‘unbalanced’ – too reliant on consumers?

Rise in consumer credit …are we storing up future problems?

Can the manufacturing sector regain momentum?

Regional disparities and rising income inequalities

Growing uncertainty about the outcome of the EU Referendum – is Brexit gaining credibility?

According to George Osborne, the UK is facing a ‘cocktail’ of serious threats…..internal & external

The global economy – is a perfect storm brewing?75

How is the Global Economy?

The global economy is struggling to get back to ‘normal’

Pace of recovery is disappointing and uneven

Global economy grew by only 3.1% in 2015

slightly better growth expected in 2016 (3.4%)

but growth remaining below trend in 2017 (3.6%)

Geo-political risks are in abundance

Many economies are adjusting to lower medium-term growth expectations

Stock markets around the world are nervous!76

Recovery in Advanced Economies

Monetary policy remains relaxed and supportive – despite the small rise in USA interest rates in December

More neutral fiscal policy in the euro area

But Italy is still struggling … a ‘Lost Decade’?

Lower fuel prices cannot last forever

Business confidence slowly recovering (but fragile?)

Improving labour market conditions

77

General Slowdown in Emerging Market Economies

Lower oil & commodity prices hitting some economies hard

Tighter external financial conditions as risk profiles rise

Significant slowdown in China (to 6% in 2017) as the country continues to rebalance

But India and the rest of Emerging Asia projected to continue growing at a robust pace

Brazil and Russia are in deep recessions

Economic distress in many regions linked to geo-political tensions

‘Unless the key transitions in the world economy are successfully navigated,

global growth could be derailed’ (IMF, January 2016)78

Outlook for the Global Economy

79

3.13.4

3.6

2015 2016 2017

%

Global EconomyAdvanced Economies

1.9 2.1 2.1

2015 2016 2017

3.6

4.04.3

2015 2016 2017

4.7

Emerging Market & Developing Economies

Q&A

80

Reasons to be cheerful January 2016

Coutts 2016 OutlookReasons to be cheerful

Economic and investment strategy views 82

Economic outlook: reasons to be cheerful

• Global growth fears appear overblown: We forecast 4% world growth in 2016

• Oil-price drop ultimately expected to encourage consumer demand across the globe

• US rate-hike fears that caused so much volatility in the markets also look overblown

83Economic and investment strategy views

Developed markets growth fine, no US recession looming

• US growth has slowed a little, but still around 1.2% p.a. year on year

• Recent numbers have been firm, with no signs of a recession and employment figures are strong

• Europe’s growth continues to improve – now at around 1.9% p.a.

84

Notes: * QoQ - Quarter on quarter ** YoY – Year on yearSource: Now Casting, Emerging Market Advisors.(Jon Anderson)

High-frequency estimates of economic growth

0.00.10.20.30.40.50.60.70.80.9

Jul Aug Sep Oct Nov Dec

Next 3 months

US

1.2% YoY

% QoQ

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7


Next 3 months

Last 3 months

Europe% QoQ*

1.9% YoY

Economic and investment strategy views

Last 3 months

Anxieties about China are overblown

Notes: * QoQ - Quarter on quarter ** YoY – Year on yearSource: Now Casting, Emerging Market Advisors.(Jon Anderson)

85

High-frequency estimates of economic growth

• China growth is slowing – good for China and the world in the long run

• But it’s not a disaster, numbers have strengthened recently

• However some of China’s suppliers are in trouble, especially energy and commodity producers

• Brazil has slumped but seems to be turning at last

6.4

6.6

6.8

7.0

7.2

7.4


China

7% YoY

% YoY*

Next 3 months

Last 3 months -1.5

-1.0

-0.5

0.0

0.5

1.0


Next 3 months0.1% YoY

% QoQ* Brazil

Last 3 months


Interest rates: expectations

Source: Bloomberg, Coutts.

• It is not a matter of ifrates will rise, but when

• We believe the Bank of England will delay rises well into 2016

• We expect rates to peak at around 2.5%

86

0.0

0.5

1.0

1.5

2.0

2.5

2014 2015 2016 2017 2018 2019

(%)UK interest rate futures

Dec 2014

Dec 2015


87

Looking beyond the economics

• We use a wide range of filters to cut through market ‘noise’

• Information filters identify periods likely to be good for equities and bad for bonds, or vice-versa – known as ‘risk-on’ and ‘risk-off’ (RORO) periods

• Key drivers in identifying these RORO periods

– Likelihood of US recession

– Economic growth

– Investor sentiment

– Market risk

• These four indicators continue to reinforce our overall pro-equity positioning

Note: Date range 1 January 2007 – 1 January 2016.Source: Coutts, Datastream.

Risk assets: ‘Risk-on: Risk off ’ screen signal

MSCI World monthly returns over the same time period

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


Demand for property

• Though UK commercial property yields have come down over recent years, they continue to offer an attractive premium over bonds in our view

• Rents are still playing catch-up after the steep falls of 2008-10, especially in the office market

• We see continued UK economic growth supporting business confidence and leading to growth in rents for UK commercial propertyPast performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you

may not recover the amount of your original investment.

88


Summary


Positive Outlook

Global growth improving

Rates low for long

Inflation not a threat

Value in risk assets Total return approach

Equities Growing income streams

Property Resilience of dividends

Unconventional value assets Capital growth

Looking at debt | The banker view

The banker view 90

The Big Picture | Sector View

Each case on its own merits

Financial Analysis

Non Financial Analysis

Reasons to be cheerful


The banker view 92

Educational Factors

•External opinions | ISI Reports

•School-leaver destinations

•Class sizes

•Local competition across all channels



The banker view 93

Management

•Governors | SLT | Bursar

•Breadth of skills

•Attitude to Change

•Management Information | Forecasts | KPIs

•Strategy


94

Coutts Commercial BankingIndependent Schools

Coutts has provided banking services to independent schools for over 200 years. Experienced within the not for profit sector, the team has an understanding of the requirements of organisations within the education landscape and the types of solutions that they need to achieve their objectives.

To find out more, please contact David Waters, Head of Independent Schools at Coutts.

EXECUTIVE DIRECTOR, COUTTS COMMERCIALDAVID WATERSDavid joined Coutts in 1986. With extensive experience of working with private, commercial and not-for-profit clients, David has for the past two decades focused on complex commercial banking and lending arrangements across a range of industry sectors. He has an excellent understanding of risk and is experienced in suggesting creative solutions to meet client needs.

Telephone: 0207 957 2830 | Email: [email protected]

tel:00442079572830

mailto:[email protected]

Important information

This document is produced by Coutts for information purposes only and for the sole use of the recipient and may not be reproduced in part or full without the prior permission of Coutts.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.

The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. The information in this document is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgment as at the date of issue and is subject to change without notice. The analysis contained in this document has been procured, and may have been acted upon, by Coutts and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Coutts nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such information, opinions and analysis.

This document has been produced by the Investment Office of Coutts and does not constitute financial research. Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. In certain other jurisdictions, the distribution may be restricted by local law or regulation.

References in this document to Coutts are to any of the various companies in the Royal Bank of Scotland (RBS) Group operating/trading under the name Coutts and not necessarily to any specific Coutts company. The following is a (non-exhaustive) list of entities which form part of Coutts, which in turn belongs to the Wealth Division of RBS Group:

Coutts & Co. Registered in England No. 36695. Registered office: 440 Strand, London WC2R 0QS. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Royal Bank of Scotland International trades in Jersey and Guernsey as Coutts & Co Channel Islands and as Coutts. The Royal Bank of Scotland International Limited. Registered Office: P.O. Box 64, Royal Bank House, 71 Bath Street, St. Helier, Jersey JE4 8PJ. Business address: 23-25 Broad Street, St. Helier, Jersey JE4 8ND. Regulated by the Jersey Financial Services Commission. Guernsey business address: P.O. Box 62, Royal Bank Place, 1 Glategny Esplanade, St. Peter Port, Guernsey GY1 4BQ.Regulated by the Guernsey Financial Services Commission and licensed under the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002 and the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended. The Royal Bank of Scotland International Limited trades in the Isle of Man as Coutts & Co Isle of Man and as Coutts. Isle of Man business address: Royal Bank House, 2 Victoria Street, Douglas, Isle of Man IM99 1DU. Licensed by the Financial Supervision Commission of the Isle of Man and registered with the Insurance and Pensions Authority in respect of general business. Licensed under the Banks and Trust Companies Law (2013 Revision).

© Coutts & Co Ltd 2015. All rights reserved. Coutts specifically prohibits the redistribution of this material in whole or in part without the written permission of Coutts and Coutts accepts no liability whatsoever for the actions of third parties in this respect.



• Closing remarks

David SewellHead of the Schools Group

E: [email protected]: 020 7969 5568

© Copyright 2016 haysmacintyre. All rights reserved.

haysmacintyre is registered to carry on audit work and regulated for a range of investment business by the Institute of Chartered Accountants in England and Wales.

A list of partners’ names is available for inspection at 26 Red Lion Square, London WC1R 4AG.

Disclaimer: This delegate pack has been produced by the partners of haysmacintyre and is for private circulation only. Whilst every care has been taken in preparation of this delegate pack, it may contain errors for which we cannot be held responsible. In the case of a specific problem, it is recommended that professional advice be sought. The material contained in this delegate pack may not be reproduced in whole or in part by any means, without prior permission from haysmacintyre.

haysmacintyre independent schools’ conference · do we need to report our impact and how do we do...

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