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University of Bath

Financial Statements

for the year ended 31 July 2006

University of Bath

Financial Statements for the year ended 31 July 2006

ContentsPAGE

Report of the Treasurer 2

Corporate Governance 7

Responsibilities of the University's Council 10

Report of the Auditors 11

Statement of Principal Accounting Policies 13

Consolidated Income and Expenditure Accountfor the year ended 31 July 2006 16

Statement of Historical Cost Surpluses and Deficitsfor the year ended 31 July 2006 17

Statement of Total Recognised Gains and Lossesfor the year ended 31 July 2006 17

Balance Sheetsas at 31 July 2006 18

Consolidated Cash Flow Statementfor the year ended 31 July 2006 19

Notes to the Accounts 20

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Report of the Treasurer

Scope of the Financial Statements The Financial Statements comprise the consolidated results of the University and its subsidiary companies. The companies in which the University holds 100% of the share capital are listed in note 13 to the Financial Statements, together with their principal activities. As well as the 100% owned subsidiaries, the Financial Statements include the results of University of Bath Foundation Ltd. The University of Bath Foundation Ltd. is a charitable and educational foundation incorporated in the State of Maryland with the object of supporting activities involving the University of Bath in the United States. The Foundation is an independent body responsible under United States law for its own affairs. However, the University exercises dominant control over the Foundation’s activities.

Results for the Year The University’s Consolidated Income, Expenditure and Results for the year to 31 July 2006 are summarised as follows:

The results for 2005 have been restated to reflect the introduction of FRS 17, Retirement Benefits. The impact of the adjustment is explained in note 32 to the accounts. The surplus for the year on continuing operations includes £4,381,000 surplus arising from the sale of shares in Vectura Group plc.

University Income

0%

10%

20%

30%

40%

50%

Funding CouncilGrants andHome/EU

Tuition Fees

Other TuitionFees

ResearchGrants andContracts

Residences andCatering

Other ServicesRendered

Other income

Source

20062005

The University’s total income, excluding endowment and investment income, increased by 6.2% over the previous year.

2006 2005£000 £000

restated

Income 139,359 127,650

Expenditure (132,967) (125,536)

Surplus for the year on Continuing Operations 6,392 2,114

Net surplus on disposal of fixed assets 612 11

Net surplus after disposal of fixed assets 7,004 2,125

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Core recurrent income from HEFCE and TDA grants together with Home and EU student fee revenue, adjusted for payments to the Swindon and Wiltshire Colleges, increased by 7.7% over 2004/5. Full time overseas student fee income continued the trend shown in recent years showing an increase over 2004/5 of 11.0%. Income from Research Grants and Contracts has risen by £2.0 million (8% compared with 2004/5).

2006 2005£000 £000

IncomeResearch Councils and UK Charities 16,617 14,573Other Research Sponsors 9,371 9,457

25,988 24,030

ExpenditureStaff costs 12,049 10,561Other operating expenses 6,897 7,259Depreciation 1,243 1,578

20,189 19,398

Contribution 5,799 4,632

As % of expenditure 29% 24%

The increase in income follows a high level of research awards in 2003/4 and a record level of awards in the first two quarters of 2005/6, primarily from Research Councils. These resulted from applications made in the months before the introduction of full Economic Costing (fEC) so the impact of that change is yet to be seen in the level of awards, and income. As indicated in last year’s report, the University has received transitional funding from Research Councils UK to recognise the sustainability issues that fEC funding is intended to address and has recognised £1 million of this as income from Research Councils in 2005/6 (2004/5, £0.5 million). The transitional funding also contributed £0.5 million of the £1.2 million increase in contribution between the two years.

University Expenditure

0%

10%

20%

30%

40%

50%

AcademicDepartments

AcademicServices

Administration Generaleducational

Premises Residencesand Catering

ResearchGrants andContracts

OtherServicesRendered

OtherExpenses

Category

20062005

Within expenditure (note 11), staff costs are the most significant component, comprising 60.4% of the total. Staff costs increased by 8.8% over 2004/5. Interest costs remained stable at £3.6 million as no new loans were drawn during the year. Interest costs represent 2.7% of expenditure and 42% of interest relates to loans financing residential buildings.

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Investment Performance Endowment income and interest receivable of £5,876,000 is the income and gains realised during the year on the University’s investment portfolio, together with the net return on assets held in the Local Government Pension Scheme. The University’s investment portfolio mainly comprises the investment of the unrestricted internally generated funds shown in note 16 to the accounts, but also includes the investment of endowment funds shown in note 14. The portfolio is split between equities, hedge funds, short-term deposits and the University’s holding in ingenta plc and Vectura Group plc. The equity portfolio is managed by Coutts and Co. with the objective of achieving a total return in excess of comparative performance benchmarks. In the year under review, the portfolio returned 11.48% against a benchmark return of 12.54%. Investments of £2 million have been maintained in two hedge funds. The objective of both funds is to earn positive absolute returns, which they have achieved, returning 13.28% and 8.69% respectively over the year. At 31 July 2006 the market value of the University’s investments (including endowment asset investments – note 14, but excluding cash and certificates of deposit held as a product of cash flow) was £7.6 million (£7.0 million excluding ingenta plc and Vectura Group plc shares), compared with £11.7 million at 31 July 2005 (£6.3 million excluding ingenta plc and Vectura Group plc shares). The University sold 5,886,569 shares in Vectura Group plc during the year, realising a surplus of £4,381,000. The market value of the University’s shareholding in Vectura Group plc at 31 July 2006 was £591,000. In addition to the above income, the University received a final distribution of £497,000 from Bath Technology Limited following the voluntary liquidation of the company. Th e shareholding had been included in fixed assets investments at nil cost and the proceeds are included in disposal of fixed assets (note 10).

Balance Sheet and Cash Flow Statement The Consolidated Balance Sheet and Cash Flow statements show the effect of the continuing capital building programme and the strengthening of the University’s financial base through the generation of operating surpluses. Throughout the year, a positive inflow from operating activities of £16.0 million (note 26) and investment income of £6.1 million (note 27) allowed the financing capital expenditure of £9.7 million (note 28) and increased cash holdings of £13.0 million. Major expenditures on building projects during 2005/6 were: £’000 University Hall refurbishment 1,428 R5 Residences 1,010 4 West replacement 694 Westwood Residences refurbishment 638 Sports Training Village 596 In addition, £3.4 million of equipment and fixtures were purchased, over half of which was funded by research or HEFCE grants. No new loans were drawn down during the year and £1 million of capital repayments were made. Net assets in the consolidated Balance Sheet increased by £5.7 million. This was mainly attributable to the surplus after transfers to specific endowments of £6.9 million reduced by the increase in the Local Government Pension Scheme deficit from £11.8 million at 31 July 2005 to £12.7 million at 31 July 2006.

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Capital Projects The design work for the 4West replacement scheme has continued throughout the year. The redevelopment of the 4West site is intended to provide a range of accommodation to include facilities for research centres, teaching space and lecture theatres, student support services and catering space. A start on site is anticipated in January 2007 with completion in July 2008. The project is fully funded by HEFCE SRIF Round 2 and Learning and Teaching and Research Infrastructure funding together with the University’s matching funding. As noted last year, a programme of works to bring the campus up to the standards required by the Disability Discrimination Act has been undertaken, supported by a specific HEFCE grant. This work was completed during 2005/6. A programme of work to refurbish the University Hall and the surrounding landscaped area commenced during the year and was completed shortly after the year end. The project included the improvement of the Hall foyer area to create a break-out space and increased the capacity of the Hall to 390 seats. The project was largely financed by HEFCE Learning and Teaching Capital funding. Last year’s report noted plans to build a new residence at the east of the campus, and to begin a rolling refurbishment of the Westwood Residences. The new residence block (R5) has been designed with 359 student bedrooms in a mixture of ensuite study rooms, disability standard rooms and resident tutor suites, together with the necessary support facilities. With the increases in the student body that the University has achieved in recent years, the construction of this and further student housing facilities on the eastern edge of the campus is an essential part of the University’s Estate plans. The refurbishment of the Westwood residential blocks is programmed to take place over three summer vacations and commenced in June 2006. Working to a very tight schedule, two contractors removed bathroom pods and refurbished bedrooms in one Westwood block and refurbished kitchens in Eastwood and Brendon residences, completing the work in time for the beginning of the new academic session in September 2006. This project is part of the rolling programme of upgrading and refurbishment of on-campus residences which, when completed in 2008, will have seen all campus residences either newly constructed or refurbished in the previous five years. All residential development and construction is financed by income generated from letting of the facilities. Projects planned for the future and anticipated to commence in 2006/7 include the relocation of 5W level 1 facilities to a purpose built building adjacent to 4South, the continuation of the rolling refurbishment of buildings on the Parade with 3West Level 4 and areas of 2East/4East forming the next phase and the conversion of part of the old tennis hall in the Sports Training Village to provide a single location for Sport and Exercise Science in close proximity to the Sports Training Village facilities. All these projects are supported by HEFCE capital funding.

Future Developments The financial position of the University has continued the improvement achieved in the previous two years. When the credit to income of £4.4 million from the sale of shares in Vectura Group plc is removed from the results, a surplus of £2.6 million has been achieved, which reflects the efforts put into income generation and expenditure control throughout the University. Last year’s report noted that the first applications for research funding following the fEC methodology were made in September 2005. Very few awards have yet been made on this basis and the ability of the University to obtain full funding for its research and other commercial activities remains a crucial issue for its future financial sustainability. This issue was highlighted in the revision to the Estates Strategy which was approved by the University Council in December 2005. The Strategy is designed to support the University’s aspirations for the next ten years and identified the need to accommodate significant expansion on the Claverton campus and to create a high quality estate which supports teaching and research of the highest standards and which is financially and environmentally sustainable. HEFCE capital funding has allowed the long-term maintenance legacy of 1960’s and 1970’s buildings to begin to be addressed and the University’s ability to meet its strategic objectives for regeneration and renewal of the estate relies on this funding continuing at present levels.

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During the year the reports of the Local Plan inquiries in Swindon and Bath were received, both of which were of great importance for the future development of the University. The Swindon report recommended that the Local Plan be modified to provide for a comprehensive mixed use development at Commonhead, focussed around the provision of a university campus, and is a significant advance in the development of the University of Bath in Swindon. The Bath and North East Somerset Local Plan Inquiry was similarly positive to the University, accepting that appropriate expansion of the University would make a significant contribution towards meeting national priorities for higher educational and recommending the revision of the Green Belt boundary to exclude two areas of land within the Claverton Campus. In September 2006, the University entered into a long-term partnership with the IP Group plc for the exploitation of its intellectual property. Under the terms of the partnership, the IP Group will work with the University to identify and facilitate the further development of marketable ideas and will invest an initial fund of £5 million return for an equity stake in University spin-out companies. The University will benefit from the IP Group’s knowledge of market requirements and its well-established links with investors. Also in early September, the University finalised the purchase of the Sulis Club, the former Civil Service sports facilities which it has occupied since 1999 on a peppercorn lease that was due to expire in 2009. This is an important purchase which will secure sports and social facilities at a location close to the main campus. Finally, note 18 to the accounts details the bank loans outstanding at 31 July 2006. The University has been negotiating to refinance these borrowings on more favourable terms and to enter into additional borrowing to fund the residential developments referred to under “Capital projects” above, together with an uncommitted reserve for potential academic development. The new borrowings will total c. £40 million. Keith Woodley

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Corporate Governance The University is committed to exhibiting best practice in all aspects of corporate governance. This summary describes the manner in which it has applied the principles set out in Section 1 of the Combined Code on Corporate Governance issued by the London Stock Exchange in June 1998 and the Governance Code of Practice adopted by the Committee of University Chairmen (CUC) in November 2004. Its purpose is to help the reader of the accounts understand how the principles have been applied.

Summary of the University’s Structure of Corporate Governance The University’s governing body is its Council. This comprises lay and academic persons, appointed under the Statutes of the University, the majority of whom are non-executive. The lay roles of Chairman and Treasurer are separated from the role of the University’s Chief Executive, the Vice-Chancellor. The matters specifically reserved to the Council for decision are set out in the Statutes of the University, and under the Financial Memorandum with the Higher Education Funding Council for England. The Council, with the Senate, determines the ongoing strategic direction of the University; it approves major developments and receives regular reports from executive officers on the day -to-day operations of its business and its subsidiary companies. Council normally meets six times a year. It has several committees, including Finance Committee, Estates Committee, Nominations Committee, Remuneration Committee, Investment Committee and Audit Committee. All of these committees are formally constituted with terms of reference and include lay members of Council, one of whom is the chair. The Finance Committee, inter alia, recommends to Council the University's annual revenue and capital budgets and receives updates to the estimates during the course of a year. The Estates Committee supervises the arrangements for providing buildings and premises. The Nominations Committee considers nominations for vacancies in the co-opted membership of Council and for Pro-Chancellors and Treasurer, Chair and Vice-Chair of Council. The Investment Committee recommends to Council the policy and parameters for investment and manages the University’s portfolio of investments. The Remuneration Committee determines the annual remuneration of the Vice-Chancellor, Deputy Vice-Chancellor, Pro-Vice-Chancellors, Deans of Faculties/Schools and four senior administrative officers. The Audit Committee, on behalf of Council, has an ongoing programme for reviewing the effectiveness of the University’s system of internal control. It is responsible for meeting with the external auditors and the internal auditor of the University and reviews and discusses reports issued. The Committee considers detailed reports together with recommendations for the improvement of the University's systems of internal control and management's response and implementation plans and monitors the progress of these plans. It also receives and considers reports from the Higher Education Funding Council for England, as they affect the University's business, and monitors adherence with the regulatory requirements. Whilst senior executives do attend meetings of the Audit Committee as necessary, they are not members of the Committee, and the Committee does meet with the external auditors on their own for independent discussions.

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Corporate Governance (continued) In accordance with the CUC Governance Code of Practice, Council keeps its effectiveness under regular review. The last effectiveness review of Council was undertaken during 2004/05 and its recommendations are being implemented. An interim review is scheduled for 2008 whilst the next full review will be undertaken in 2011. Members of Council sign an annual declaration of guiding principles stating that they will act in accordance with the University’s guidance on corporate governance and with the principles on the proper conduct of public business and accepted standards of behaviour in public life as set out in the CUC Guide for Members of Higher Education Governing Bodies in the UK. Internal Control As the governing body of the University of Bath, the Council has responsibility for maintaining a sound system of internal control that supports the achievement of policies, aims and objectives, while safeguarding the public and other funds and assets for which it is responsible, in accordance with the responsibilities assigned to it in the Charter and Statutes and the Financial Memorandum with HEFCE. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The University has established the following processes in relation to its risk management policy and for reviewing the effectiveness of the system of internal control: • Council normally meets six times a year to consider the plans and strategic direction of the

University;

• Council has established that the Executive Committee, the senior management team of the University, be the body that oversees risk management at the institution;

• Risk management forms part of the annual planning cycle of the University;

• Academic and central departments have risk registers in place, which are updated annually as part of the planning process and form part of the agenda of planning meetings;

• The University maintains a corporate risk register which is updated annually and progress on improvement actions is reviewed;

• Council receives a report focusing on two specific risks from the corporate risk register at each of its meetings. Annually, it receives an overall report for the year, and an updated register.

• Council annually reviews the effectiveness of the risk management process and internal controls;

• The Audit Committee receives regular reports from the Head of Internal Audit on specific areas of internal control together with recommendations for improvement. Audit planning arrangements and the methodology and approach of internal audit conforms to the latest professional standards reflecting the adoption of risk management techniques.

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Corporate Governance (continued) Council’s review of the effectiveness of the system of internal control is informed by the Internal Audit unit, which operates to standards defined in the HEFCE Accountability and Audit Code of Practice. The internal auditors submit regular reports, which include the Head of Internal Audit’s independent opinion on the adequacy and effectiveness of the system of internal control, together with recommendations for improvement. Council’s review of the effectiveness of the system of internal control is also informed by the work of the executive managers within the institution, who have responsibility for the development and maintenance of the internal control framework, and by comments made by the external auditors in their management letter and other reports. The system of internal control is based on an ongoing process designed to identify the principal risks to the achievement of policies, aims and objectives; to evaluate the nature and extent of those risks; and to manage them efficiently, effectively and economically. This process has been in place for the year ended 31 July 2006 and up to the date of approval of the financial statements, and accords with HEFCE guidance.

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Responsibilities of the University’s Council In accordance with the University's Charter of Incorporation, the Council of the University is responsible for the administration and management of the affairs of the University and is required to present audited financial statements for each financial year. The primary responsibilities of the Council are:

§ approving the mission and strategic vision of the institution, long-term business plans, key performance indicators (KPIs) and annual budgets, and ensuring these meet the interests of stakeholders;

§ appointing the head of the institution as chief executive of the institution and putting in

place suitable arrangements for monitoring his or her performance; § ensuring the establishment and monitoring of systems of control and accountability,

including financial and operational controls and risk assessment, and clear procedures for handling internal grievances and for managing conflicts of interest;

§ monitoring institutional performance against plans and approved KPIs, which should be,

where possible and appropriate, benchmarked against other institutions.

The Council is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the University and enable it to ensure that the financial statements are prepared in accordance with the University's Charter of Incorporation, the Statement of Recommended Practice: Accounting for Further and Higher Education, and other relevant accounting standards. In addition, within the terms and conditions of a Financial Memorandum agreed between the Higher Education Funding Council for England and the Council of the University, the Council, through its designated office holder, is required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the University and of the surplus or deficit and cash flows for that year. In causing the financial statements to be prepared, the Council has ensured that:

• suitable accounting policies are selected and applied consistently;

• judgements and estimates are made that are reasonable and prudent;

• applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

• financial statements are prepared on the going concern basis unless it is inappropriate to presume that the University will continue in operation. The Council is satisfied that the University has adequate resources to continue in operation for the foreseeable future: for this reason the going concern basis continues to be adopted in the preparation of the financial statements.

The Council has taken reasonable steps to:

• ensure that funds from the Higher Education Funding Council for England and from the Training and Development Agency for Schools are used only for the purposes for which they have been given and in accordance with the Financial Memorandum with the Higher Education Funding Council and the Funding Agreement with the Teacher Training Agency, now known as the Training and Development Agency for Schools, and any other conditions which the Funding Council or Agency may from time to time prescribe;

• ensure that there are appropriate financial and management controls in place to safeguard public funds and funds from other sources;

• safeguard the assets of the University and prevent and detect fraud and other irregularities;

• secure the economical, efficient and effective management of the University's resources and expenditure.

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Independent Auditors’ Report to the Council of the University of Bath We have audited the Consolidated and University financial statements (the “financial statements") of the University of Bath for the year ended 31 July 2006 which comprise the Consolidated Income and Expenditure account, the Consolidated and University Balance Sheets, the Consolidated Cash Flow Statement, the Consolidated Statement of Total Recognised Gains and Losses and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the Council, in accordance with the Charter and Statutes of the University. Our audit work has been undertaken so that we might state to the Council those matters we are required to state to it in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Council, for our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of the University’s Council and the auditors The University’s Council responsibilities for preparing the Treasurer’s Report and the consolidated financial statements in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education, applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Responsibilities on page 10. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education. We also report to you whether income from funding bodies, grants and income for specific purposes and from other restricted funds administered by the University have been properly applied only for the purposes for which they were received and whether, in all material respects, income has been applied in accordance with the Statutes and, where appropriate, with the Financial Memorandum with the Higher Education Funding Council for England and the Training and Development Agency for Schools. We also report to you whether in our opinion the Treasurer’s Report is not consistent with the financial statements, if the University has not kept proper accounting records, the accounting records do not agree with the financial statements or if we have not received all the information and explanations we require for our audit. We read the Treasurer’s Report and the Corporate Governance Statement and consider the implications for our report if we become aware of any apparent misstatements within them or material inconsistencies with the financial statements.

Basis of Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and the Audit Code of Practice issued by the Higher Education Funding Council for England. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the University’s Council in the preparation of the financial statements and of whether the accounting policies are appropriate to the institution's circumstances, consistently applied and adequately disclosed.

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We planned and performed our audit so as to obtain all the information and explanations that we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion:

• the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of affairs of the University and the group as at 31 July 2006 and of the group’s surplus of income over expenditure, recognised gains and losses and cashflows for the year then ended,

• the financial statements have been properly prepared in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education;

• in all material respects, income from the Higher Education Funding Council for England and the Training and Development Agency for Schools, grants and income for specific purposes and from other restricted funds administered by the University during the year ended 31 July 2006 have been applied for the purposes for which they were received; and

• in all material respects, income during the year ended 31 July 2006 has been applied in accordance with the University’s statutes and, where appropriate, with the financial memorandum with the Higher Education Funding Council for England and the funding agreement with the Training and Development Agency for Schools.

KPMG LLP 14 December 2006

Chartered Accountants Registered Auditor

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Statement of Principal Accounting Policies

1 Accounting Convention

The financial statements have been prepared under the historical cost convention modified by the revaluation of endowment asset investments and certain tangible fixed assets for which a cost is not readily ascertainable, and in accordance with both the Statement of Recommended Practice: Accounting for Further and Higher Education (SORP), as revised in July 2003, and applicable accounting standards.

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements, except as noted below.

In these financial statements the following new standards have been adopted for the first time:

• FRS 21 ‘Events after the balance sheet date’;

• FRS 28 ‘Corresponding amounts’.

The recognition and measurement requirements of FRS 17 ‘Retirement benefits’ have also been adopted, previously the transitional disclosures of that standard have been followed.

The accounting policies under these new standards are set out below together with an indication of the effects of their adoption. FRS 28 ‘Corresponding amounts’ has had no material effect as it imposes the same requirements for comparatives as hitherto followed by the University.

The corresponding amounts in these financial statements are restated in accordance with the new policies.

2 Basis of Consolidation

These financial statements consolidate the results of the University and its subsidiary undertakings for the financial year to 31 July 2006.

The consolidated financial statements do not include those of the University of Bath Students' Union as it is a separate organisation over which the University does not exercise dominant control.

3 Recognition of Income

Income from research grants and contracts, specific grants and donations is included to the extent of the expenditure incurred during the year, together with any related contribution towards overhead costs. All income from short-term investments and deposits is credited to the Income and Expenditure Account on a receivable basis. Income from investments held as endowment assets is also credited on a receivable basis.

4 Foreign Currencies

Transactions denominated in foreign currencies are recorded at the rate of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into sterling either at year end rates or, where there are related forward foreign exchange contracts, at contract rates. The resulting exchange differences are dealt with in the determination of income and expenditure for the financial year.

5 Leases

Fixed assets held under finance leases and the related lease obligations are recorded in the Balance Sheet at the fair value of the leased assets at the inception of the lease. The excess of lease payments over recorded lease obligations is treated as finance charges, which are amortised over each lease term to give a constant rate of charge on the remaining balance of the obligations.

Rental costs under operating leases are charged to expenditure in equal annual amounts over the periods of the leases.

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Statement of Principal Accounting Policies (continued)

6 Pensions

The two principal pension schemes in which the University participates are the Universities Superannuation Scheme (USS) and the Avon Pension Fund (a local government pension scheme), both of which are defined benefit schemes, externally funded and contracted out of the State Earnings-Related Pension Scheme. Both funds are externally valued, normally every three years by professionally qualified independent actuaries using the projected unit method, the rates of contribution payable being determined by the trustees on the advice of the actuaries. In the intervening years, the actuaries review the progress of the schemes. Pension costs are assessed in accordance with the advice of the actuaries based on the latest actuarial valuations of the schemes.

Where the University in unable to identify its share of the underlying assets and liabilities in a scheme it accounts as if the scheme were a defined contribution scheme, so that the cost is equal to the total of contributions payable in the year. This is the position with USS.

Where it is possible to identify its share of the underlying assets and liabilities in a scheme it accounts as if the scheme were a defined benefit scheme under FRS 17. This is the case with the Avon Pension Fund. The current service cost of providing retirement benefits to employees during the year, the cost of providing amendments to benefits in respect of past service and any gains and losses on settlements and curtailments are charged to the operating surplus or deficit in the year within staff costs. The expected return on the University’s share of scheme assets and interest on its liabilities are netted off and shown as a net return or net cost either within endowment and investment income or within interest payable as appropriate. Changes in the pension surplus or deficit due to changes in actuarial assumptions and to differences between actual and expected returns on assets are reported in the statement of total recognised gains and losses. The University’s share of the surplus or deficit of the scheme is recognised as an asset or liability on the Balance Sheet.

7 Investments

Fixed assets investments that are not listed on a recognised stock exchange are carried at historical cost less any provision for impairment in their value. Endowment asset investments are included in the Balance Sheet at market value. Current asset investments are included at the lower of cost and net realisable value.

8 Stocks

The principal stocks are held in catering, building maintenance, printing, stationery and postage held centrally and some distance learning materials. They are valued at the lower of cost and net realisable value.

9 Maintenance of Premises

The cost of routine corrective maintenance is charged to the Income and Expenditure Account in the period it is incurred. The University has a planned maintenance programme, which is reviewed on an annual basis. Actual expenditure on planned maintenance is charged to the Income and Expenditure Account as incurred.

10 Provisions

Provisions are recognised when the University has a present legal or constructive obligation as a result of a past event, it is probable that a transfer of economic benefit will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

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Statement of Principal Accounting Policies (continued)

11 Land and Buildings

Land and buildings are stated at cost. Land is not depreciated as it is considered to have an indefinite useful life. Buildings are depreciated over a period of 50 years on the basis that their average expected life is in excess of this period. Where a building is listed and has historical value then the policy is to maintain that building so that it has an indefinite useful life.

Where buildings are acquired with the aid of specific grants they are capitalised and depreciated as above. The related grants are treated as deferred capital grants and released to income over the expected useful life of the buildings.

12 Equipment

Equipment costing less than £10,000 per individual item is written off in the year of acquisition unless it forms part of a group of related items or part of a capital project, in which case it is capitalised if the total cost exceeds £10,000. Individual items of equipment costing in excess of £10,000 are capitalised.

Capitalised equipment is stated at cost or, where donated, at valuation and depreciated, on a straight line basis, as follows:

General equipment - 5 years

Furniture - 5 years

Catering equipment - 7 years

Equipment required for specific grants - project life (generally 3 years)

Where equipment is acquired with the aid of specific grants it is capitalised and depreciated as above. The related grant is treated as a deferred capital grant and released to income over the expected useful life of the equipment (the period of the grant in respect of specific research projects).

Where equipment is donated, the asset is recorded at valuation. The donation is recorded as income in the income and expenditure account in the year it is received.

13 Taxation Status

The University is an exempt charity within the meaning of Schedule 2 of the Charities Act 1993 and as such is a charity within the meaning of Section 506(1) of the Taxes Act 1988. Accordingly, the University is potentially exempt from taxation in respect of income or capital gains received within categories covered by Section 505 of the Taxes Act 1988 or Section 256 of the Taxation of Chargeable Gains Act 1992 to the extent that such income or gains are applied to exclusively charitable purposes. The University receives no similar exemption in respect of Value Added Tax.

The University’s subsidiary companies are subject to corporation tax and VAT in the same way as any commercial organisation.

14 Cash Flows and Liquid Resources

Cash flows comprise increases or decreases in cash. Cash includes cash in hand, deposits repayable on demand and overdrafts. Deposits are repayable on demand if, in practice, they are available within 24 hours without penalty. No investments, however liquid, are included as cash.

Liquid resources comprise assets held as a readily disposable store of value. They include term deposits, equities and loan stock held as part of the University’s treasury management activities. They include any such assets held as Endowment Asset Investments.

Note 2006 2005restated

£000 £000

Income

Funding council grants 1 48,903 44,572

Tuition fees and education contracts 2 32,732 31,092

Research grants and contracts 3 25,988 24,030

Other income 4 25,860 25,979

Endowment and investment income 6 5,876 1,977

Total income 139,359 127,650

Expenditure

Staff costs 7 80,329 73,804

Other operating expenses 11 41,811 39,948

Depreciation 11 7,263 8,047

Interest payable 9 3,564 3,737

Total expenditure 11 132,967 125,536

Surplus on continuing operations after depreciationof tangible fixed assets at valuation and before tax 6,392 2,114

Surplus on sale of assets 10 612 11

Surplus on continuing operations after depreciationof fixed assets at valuation, disposal of assets and tax 7,004 2,125

Transfer (to)/from accumulated income within specific endowments 21 (96) 13

Surplus for year retained within general reserves 6,908 2,138

The consolidated income and expenditure account is wholly in respect of continuing operations

For the Year Ended 31 July 2006CONSOLIDATED INCOME AND EXPENDITURE ACCOUNT

- 16 -

Note 2006 2005restated

£000 £000

Surplus on continuing operations 7,004 2,125

Difference between an historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount 22 20 23

Historical cost surplus for the year 7,024 2,148

STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSESFor the Year Ended 31 July 2006

2006 2005restated

Note £000 £000

Surplus after depreciation of assets at valuation, disposal of fixed assets and tax 7,004 2,125

New endowments 21 12 2

Appreciation of endowment asset investments 21 69 302

Actuarial loss in respect of pension scheme 32 (960) (1,786)

Total recognised gains and losses relating to the year 6,125 643

Prior year adjustment - FRS 17 32 (11,784) -

Total recognised gains and losses since last financial statements (5,659) 643

Reconciliation

Opening reserves and endowments 16,919 16,276

Total recognised gains and losses in year 6,125 643

Closing reserves and endowments 23,044 16,919

CONSOLIDATED STATEMENT OF HISTORICAL COST SURPLUSES AND DEFICITSFor the Year Ended 31 July 2006

- 17 -

Note 2006 2005 2006 2005restated restated

£000 £000 £000 £000Fixed Assets

Tangible assets 12 146,577 144,207 140,653 138,720Investments 13 920 920 3,635 3,635

Total fixed assets 147,497 145,127 144,288 142,355

Endowment Asset Investments 14 2,253 2,076 2,253 2,076

Current AssetsStock 426 439 398 437Debtors 15 13,063 16,439 13,303 17,246Investments 16 23,521 11,133 23,521 11,133Cash at bank and in hand 802 714 662 626

37,812 28,725 37,884 29,442Creditors: Amounts Falling Due

Within One Year 17 (29,961) (23,079) (29,865) (23,317)

Net Current Assets 7,851 5,646 8,019 6,125

Total Assets Less Current Liabilities 157,601 152,849 154,560 150,556

Creditors: Amounts Falling Due After More Than One Year 18 (63,299) (64,602) (63,299) (64,602)

Provisions for Liabilities and Charges 19 - (616) - (1,200)

Net Assets excluding Pension Liability 94,302 87,631 91,261 84,754

Pension Liability 32 (12,722) (11,784) (12,722) (11,784)

Net Assets including Pension Liability 81,580 75,847 78,539 72,970

Deferred Capital Grants 20 58,536 58,928 58,360 58,748

Specific Endowments 21 2,253 2,076 2,253 2,076

Revaluation Reserve 22 40 60 40 60

ReservesGeneral reserve excluding pension liability 23 33,473 26,567 30,608 23,870Pension reserve 32 (12,722) (11,784) (12,722) (11,784)

General reserve including pension liability 20,751 14,783 17,886 12,086

Total 81,580 75,847 78,539 72,970

Professor G M Breakwell Mr K S WoodleyVice-Chancellor Treasurer

Consolidated University

BALANCE SHEETS AS AT 31 JULY 2006

The Financial Statements on pages 13 to 43 were approved by the Council on 14 December 2006 and signed on its behalf by:

- 18 -

2006 2005Note £000 £000

Net cash inflow from operating activities 26 16,024 10,492

Returns on investments and servicing of finance 27 2,452 (1,656)

Capital expenditure and financial investment 28 (4,468) (3,399)

Cash inflow before use of liquid resources and financing 14,008 5,437

Management of liquid resources 29 (12,968) (4,745)

Financing 30 (957) (907)

Increase/(decrease) in cash in the period 83 (215)

2006 2005Note £000 £000

Increase/(decrease) in cash in the period 83 (215)

Increase in liquid and current investments 29 12,968 4,745

Net reduction to loans and finance leases 30 957 907

Non-cash changes to net debt 31 (580) (259)

Decrease in net debt 13,428 5,178

Net debt at 1 August 31 (53,666) (58,844)

Net debt at 31 July 31 (40,238) (53,666)

CONSOLIDATED CASH FLOW STATEMENTFor the Year Ended 31 July 2006

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

- 19 -

NOTES TO THE ACCOUNTS

1 FUNDING COUNCIL GRANTS2006 2005£000 £000

HEFCE grantsCore grant 41,915 38,218Specific grants 3,334 2,443Joint Information Systems Committee 775 581

TDA grants 1,161 1,175

HEFCE capital grantsDeferred capital grants released in year (Note 20) 1,718 2,155

48,903 44,572

2 TUITION FEES AND EDUCATION CONTRACTS2006 2005£000 £000

Full-time UK higher education students 9,049 8,708Full-time EU higher education students 1,526 1,535Full time overseas higher education students 16,008 14,409Part-time higher education students 4,062 3,903Short course fees 1,646 2,080Research training support grants and other fees 441 457

32,732 31,092

3 RESEARCH GRANTS AND CONTRACTS2006 2005

restated£000 £000

Research Councils 13,145 10,587UK charitable bodies 3,472 3,986European Commission 1,171 1,477Other sponsors 8,200 7,980

25,988 24,030

Research income includes £1,242,000 (2005: £1,578,000) of income released from deferred capital grants.

Income from Research Councils includes £1,064,000 (2005: £532,000) in respect of transitionalfunding prior to the introduction of full economic cost awards.

There has been a change in the classification of Knowledge Transfer Partnership Grants. These arenow included in research income rather than as part of 'Other Services Rendered' as has been thecase in past years. Included in 'other sponsors' above is a total of £899,000 in relation to thesegrants. A sum of £705,000 has been moved in relation to the 2005 comparative.

- 20 -


4 OTHER INCOME 2006 2005restated

£000 £000

Residences, catering and conferences 12,098 12,036Other services rendered (Note 5) 7,309 6,864Miscellaneous grants 1,475 1,832Rents 953 876Release of deferred capital grants 594 586Donations 434 377University health service income 76 381VAT recovery 514 478Health and hospital authorities 390 453Insurance claims 14 449Car parking 346 345University Nursery 247 243Sundry EC mobility grants 160 133Income from intellectual property rights 215 190Disposal of the Aseptic Unit 122 -Other income 913 736

25,860 25,979

5 OTHER SERVICES RENDERED 2006 2005restated

£000 £000

Academic departments & centres 3,229 2,971Computing, library & other academic services 649 627Sports and related facilities 3,158 3,034Other 273 232

7,309 6,864

6 ENDOWMENT AND INVESTMENT INCOME 2006 2005£000 £000

restated£000 £000

Specific endowments - income (Note 21) 150 47Specfic endowments - capital funding 85 17Net income from short-term investments 4,504 1,484Net return on local government pension scheme (Note 32) 92 -Other interest receivable 1,045 429

5,876 1,977

Income from short term investments includes £4,381,000 (2005: £1,448,000) in respect of the sale ofshares in Vectura Group plc.

There has been a change in the classification of Knowledge Transfer Partnership Grants, which arenow included as research income rather than within Other Services Rendered. The 2005 comparativehas been adjusted. Full details of the amounts can be found in Note 3.

- 21 -


7 Staff Costs 2006 2005restated

£000 £000

Wages and salaries 70,127 63,223Social security costs 5,391 5,030Other pension costs (Note 32) 7,606 8,095

83,124 76,348

less: paid on behalf of other organisations (2,626) (2,386)less: capitalised within the cost of buildings (169) (158)

80,329 73,804

Emoluments of the Vice-Chancellor

Salary and benefits in kind 235 202Pension contributions 30 27

265 229

Remuneration of other higher paid staff

2006 2005Number Number

£ 70,000 - £ 79,999 27 27£ 80,000 - £ 89,999 16 8£ 90,000 - £ 99,999 5 4£100,000 - £109,999 3 4£110,000 - £119,999 2 - £120,000 - £129,999 1 2£130,000 - £139,999 1 - £150,000 - £159,999 - 1£160,000 - £169,999 1 2£170,000 - £179,999 1 - £190,000 - £199,999 1 1£220,000 - £229,000 1 -

Average staff numbers by major category: 2006 2005Number Number

Academic/clinical 967 907Technical 163 173Administrative, library, computing etc. 350 318Other, including clerical and manual 788 766

2,268 2,164

Remuneration of other higher paid staff, including employer's pension contributions (and also includingpayments made on behalf of the NHS in respect of its contractual obligations to University staff underseparate NHS contracts of employment and which are excluded from the University's Income andExpenditure Account):

The University has made available to the Vice-Chancellor during the year a car loan as a cost effectivemeans of providing the benefits to which she is contractually entitled. The car loan was in existence at thestart of the year and a balance of £30,850 remained at the end of the year after repayments of £147. Thecost to the University of providing the loan is included in the Vice-Chancellor's emoluments.

- 22 -


8 OTHER OPERATING EXPENSES2006 2005

Operating expenses include: £000 £000

Repairs and general maintenance 3,146 3,074Heat, light, water and power 2,730 2,062Water, sewerage and trade effluent 576 610Property leases, rents and rates 3,487 3,399Telephone incl. data communications 361 358Insurance 654 831Travel and subsistence 2,872 2,920Printing postage and stationery 1,377 1,472University bursaries 2,899 2,368Other student fee and maintenance payments 1,582 1,528Contribution to the Students' Union:- block grant 590 574- other including premises 358 350

Franchise fees 1,447 1,404Small equipment not capitalised 2,584 2,450Equipment rental 241 260Equipment maintenance (excl premises related) 975 729Computer software 732 613Books & periodicals 1,411 1,278Staff recruitment expenses 632 789Bad and doubtful debts 265 112Auditors' remuneration (Group and University)- external audit 56 47- other services - -

9 INTEREST PAYABLE2006 2005

restated£000 £000

Loans not wholly repayable within five years 3,542 3,672Finance leases 22 14Sundry interest paid - 6Net interest on local government pension scheme (Note 32) - 45

3,564 3,737

10 DISPOSAL OF FIXED ASSETS2006 2005£000 £000

Surplus on sale of tangible fixed assets 115 11Surplus on sale of fixed asset investments 497 -

612 11

- 23 -


10 DISPOSAL OF FIXED ASSETS (continued)

11 ANALYSIS OF EXPENDITURE BY ACTIVITY

2006 2005restated

Staff Other Dep'n Interest Total TotalCosts Operating Payable

Expenses£000 £000 £000 £000 £000 £000

Academic departments 39,538 9,110 1,181 - 49,829 48,801 Academic services

Bath University Computing Services 1,591 520 336 - 2,447 2,133 Library 2,080 2,091 9 - 4,180 3,745 Other academic services 1,735 1,169 83 - 2,987 2,206

Central administration 6,620 2,390 73 - 9,083 7,864 General educational expenditure 1,385 4,817 - - 6,202 5,091 Staff and student facilities 2,486 1,820 67 - 4,373 4,310 Premises 4,551 4,880 3,113 1,872 14,416 13,588 Residences and catering operations 3,621 5,674 1,035 1,520 11,850 10,970 Research grants and contracts 12,049 6,897 1,243 - 20,189 19,398 Other services rendered 2,979 2,226 123 172 5,500 5,321 Other expenses 1,694 217 - - 1,911 2,109

80,329 41,811 7,263 3,564 132,967 125,536

The depreciation charge has been funded by:

Deferred capital grants released (Note 20) 3,554 4,319Revaluation reserve released (Note 22) 20 23General Income 3,689 3,705

7,263 8,047

At the 31 July 2004, the University had a 27% shareholding in BlazePhotonics Limited at nil cost.On 2 August 2004, the assets of the company, including the name, were sold for $3.3million. Thename of the company was subsequently changed to Bath Technology Limited and during December2005 a final distribution of proceeds of £497,485 was made following the voluntary liquidation of thecompany.

The comparative figures for research and other services rendered have been amended to reflect the reclassification of Knowledge Transfer Partnership grants as research. £474,000 has been taken from other services rendered and added to research.

- 24 -


12 TANGIBLE FIXED ASSETS

Consolidated

Equipment TotalFreehold Long

Leasehold £000 £000 £000 £000

Valuation/CostAt 1 August 2005

Valuation - - 247 247Cost 2,323 160,124 39,949 202,396

Additions at Cost - 6,299 3,360 9,659

Disposals at Cost - (26) (775) (801)

At 31 July 2006Valuation - - 247 247Cost 2,323 166,397 42,534 211,254

DepreciationAt 1 August 2005 108 26,655 31,673 58,436Charge for Year 5 3,477 3,781 7,263Eliminated on Disposals - - (775) (775)

At 31 July 2006 113 30,132 34,679 64,924

Net Book Value

At 31 July 2006 2,210 136,265 8,102 146,577

At 31 July 2005 2,215 133,469 8,523 144,207

Land and Buildings

- 25 -


12 TANGIBLE FIXED ASSETS (continued)University

Equipment TotalLong

Freehold Leasehold £000 £000 £000 £000

Valuation/CostAt 1 August 2005

Valuation - - 247 247Cost 2,323 152,578 39,949 194,850

Additions at Cost - 5,715 3,360 9,075

Disposals at Cost - (26) (775) (801)

At 31 July 2006Valuation - - 247 247Cost 2,323 158,267 42,534 203,124

DepreciationAt 1 August 2005 108 24,596 31,673 56,377Charge for Year 5 3,330 3,781 7,116Eliminated on Disposals - - (775) (775)

At 31 July 2006 113 27,926 34,679 62,718

Net Book Value

At 31 July 2006 2,210 130,341 8,102 140,653

At 1 August 2005 2,215 127,982 8,523 138,720

Land and Buildings

The gross amount of depreciable assets included in land and buildings is £166,604,000 in the Consolidatedand £158,510,000 in the University Accounts.

Included in freehold land and buildings is a non-depreciated property, 16 Lansdown Crescent, Bath,purchased in April 2002 at a cost including refurbishment of £1,901,000. A report by Ashdown LyonsChartered Surveyors put the market value as at 27 July 2006 at £2,250,000. The building has not beendepreciated because it is a listed building with historical value, in accordance with the accounting policy ondepreciation.

Buildings with a net book value of £32,100,000 and cost of £43,641,000 have been funded from Treasurysources. Should these particular buildings be sold, the University would either have to surrender the proceedsto the Treasury or use them in accordance with the Financial Memorandum with the Higher EducationFunding Council for England.

Equipment at valuation relates to assets donated to the University.

- 26 -


12 TANGIBLE FIXED ASSETS (continued)

13 FIXED ASSET INVESTMENTS

2006 2005 2006 2005£000 £000 £000 £000

Investments in subsidiary companies - - 2,715 2,715Other investments:

Joint ventures 4 4 4 4Other investments 916 916 916 916

Balance at 31 July 920 920 3,635 3,635

Subsidiary companies

Company Name Principal Activities Share holding

University of Bath One Ltd Equipment leasing 100 £1 ordinary

University of Bath Two Ltd Sporting facilities 100 £1 ordinary

University of Bath Three Ltd Dormant 100 £1 ordinary

University of Bath Four Ltd Property leasing 906 £1 ordinary

Claverton Down Property Developments Ltd Development and sale of real estate 1 £1 ordinary

Claverton Down Construction Ltd Construction and civil engineering 1 £1 ordinary

Claverton Down (Bath) Consultants Ltd Dormant 2 £1 ordinary

The University paid £3,000 per share for 905 shares in University of Bath Four Ltd. All other shares were paid for at par.

The University owns 100% of the following companies which are registered in England and operate in the UK

Buildings at cost include £4,714,000 (2005: £4,228,000) relating to assets in the course of construction.

The net book value of tangible fixed assets includes an amount of £532,000 (2005: £435,000) inrespect of assets held under finance leases. The depreciation charge on these assets for the yearwas £157,000 (2005: £115,000).


- 27 -


13 FIXED ASSET INVESTMENTS (continued)

Other subsidiaries

Principal Activities Share holding

Xtremogen Limited Dormant 6,700 1p ordinary(67% shareholding)

Joint VenturesPrincipal Activities Share holding

Sulis Innovations Ltd Service provider 2 £1 ordinaryEmersons Innovations Ltd Science Park development 50,000 £1 ordinary

Other investments

Included above:

CVCP Properties plc £1 ordinary shares £35,813

AdsFab Ltd £1 'C' ordinary shares £5,000

Sulis Seedcorn Fund Limited Partnership investment £875,000

£915,813

The consolidated results of the group incorporate those of the University of Bath Foundation Ltd, anot-for-profit organisation registered in the United States to fund raise in that country.

Emersons Innovations Ltd. is a joint venture company with the University of Bristol. The Universityholds a 50% share in this science park development company at a cost of £50,000. The value of theinvestment above represents the University's share in the net assets of the company.

The Sulis Seedcorn Fund is a limited partnership initially set up following awards made to theuniversities of Bath, Bristol and Southampton under the University Challenge Scheme to promotethe seedcorn funding of new ventures. The managing partner is Quester Academic GP Ltd. TheUniversity of Bath has invested £875,000 into the partnership.

The joint ventures are relatively small and are therefore accounted for as if they were investmentsand recorded only in the Balance Sheet at cost less amounts written off for reduction in value.

- 28 -


13 FIXED ASSET INVESTMENTS (continued)

Piraeus Limited 100 £1 ordinary shares

Delphic Limited 107,895 £1 ordinary shares

Emersons Green Development Company 500 10p ordinary shares

Xiwave Limited 4,800,000 0.01p ordinary shares

Adiuri Systems Limited (in administration) 113,636 0.1p 'A' ordinary shares

Microsulis Limited 11,161,316 0.01p 'A' ordinary shares

Atlas Genetics Limited 600 1p ordinary shares

The University also holds investments in the following companies which are included at nil cost:

- 29 -


14 ENDOWMENT ASSET INVESTMENTS

2006 2005 2006 2005£000 £000 £000 £000

Balance at 1 August 2,076 1,785 2,076 1,785Net additions/(disposals) 108 (11) 108 (11)Appreciation of investments (Note 21) 69 302 69 302

Balance at 31 July 2,253 2,076 2,253 2,076

Quoted investments 1,993 1,811 1,993 1,811Cash 260 265 260 265

Total endowment asset investments 2,253 2,076 2,253 2,076

Quoted investments at cost 1,530 1,417 1,530 1,417

15 DEBTORS

2006 2005 2006 2005£000 £000 £000 £000

Prepayments and accrued income:Amounts due from group undertakings - - 204 509Other prepayments and accrued income 1,177 1,401 1,177 1,401

Sponsored research 7,055 7,730 7,055 7,730Amounts due from group undertakings - - 228 968Other debtors 4,831 7,308 4,639 6,638

13,063 16,439 13,303 17,246

Due within one year 12,657 15,969 12,897 16,572

Due in more than one year 406 470 406 674

13,063 16,439 13,303 17,246



- 30 -


16 CURRENT ASSET INVESTMENTS

2006 2005 2006 2005£000 £000 £000 £000

Quoted investments 1,688 2,118 1,688 2,118Hedge funds 2,000 2,000 2,000 2,000Certificates of deposit 19,790 6,531 19,790 6,531Cash held for investment 43 484 43 484

23,521 11,133 23,521 11,133

Quoted investments at market value 2,758 7,288 2,758 7,288

Hedge funds at market value 2,587 2,330 2,587 2,330

17 CREDITORS: AMOUNTS FALLING DUEWITHIN ONE YEAR

2006 2005 2006 2005£000 £000 £000 £000

Loans in respect of properties 1,378 1,057 1,378 1,057Obligations under finance leases 144 119 144 119Amounts due to group undertakings - - - 15Other creditors 12,015 9,603 11,966 9,855Deferred income 16,424 12,300 16,377 12,271

29,961 23,079 29,865 23,317



In addition to routine market investments, the market value of quoted investments includes theUniversity's holding of shares in the spin out companies of ingenta plc., which had a market value at31 July 2006 of £36,000 (2005: £40,000) and Vectura Group plc., which had a market value at 31July 2006 of £591,000 (2005: £5,351,000).

- 31 -


18 CREDITORS: AMOUNTS FALLING DUE

AFTER MORE THAN ONE YEAR

2006 2005 2006 2005

£000 £000 £000 £000

Bank loans 63,084 64,460 63,084 64,460

Obligations under finance leases 215 142 215 142

Total due after more than one year 63,299 64,602 63,299 64,602

Analysis of Financing

Bank loans and overdrafts are repayable as follows:

In one year or less 1,378 1,057 1,378 1,057

Between one and two years 2,003 1,394 2,003 1,394

Between two and five years 7,019 6,743 7,019 6,743

In five years or more 54,062 56,323 54,062 56,323

64,462 65,517 64,462 65,517

Finance leases: analysis of obligations:

In one year or less 144 119 144 119

Between one and two years 125 65 125 65

Between two and five years 90 77 90 77

359 261 359 261

19 PROVISIONS FOR LIABILITIES AND CHARGES

2006 2005 2006 2005

£000 £000 £000 £000

Provision relating to tax

Balance at 1 August 616 713 1,200 1,200

Released in year: (616) (97) (1,200) -

Balance at 31 July - 616 - 1,200

The provision was in relation to a Multi-Option Property Structure (MOPS) which was a method of raising

finance. The structure was collapsed in 1999 but a tax provision remained. This provision is no longer

needed and has been credited back to tangible fixed assets.



Building Society and bank loans have been entered into to fund residential and other University properties

and are secured by charges on the specific property or on other University assets.

- 32 -


20 DEFERRED CAPITAL GRANTS

Funding Other Grants TotalCouncil & Benefactions

£000 £000 £000At 1 August 2005

Land & Buildings 32,428 22,912 55,340Equipment 2,335 1,253 3,588

Grants receivableLand & Buildings 786 404 1,190Equipment 288 1,706 1,994

DisposalsLand & Buildings (22) - (22)Equipment - - -

Released to Income and Expenditure Land & Buildings (915) (494) (1,409)Equipment (803) (1,342) (2,145)

34,097 24,439 58,536

At 31 July 2006Land & Buildings 32,277 22,822 55,099Equipment 1,820 1,617 3,437

34,097 24,439 58,536

Funding Other Grants TotalCouncil & Benefactions

£000 £000 £000At 1 August 2005


Grants receivableLand & Buildings 786 404 1,190Equipment 288 1,706 1,994

DisposalsLand & Buildings (22) - (22)Equipment - - -

Released to Income and Expenditure Land & Buildings (911) (494) (1,405)Equipment (803) (1,342) (2,145)

33,921 24,439 58,360At 31 July 2006


33,921 24,439 58,360

Consolidated

University

- 33 -


21 SPECIFIC ENDOWMENTS

2006 2005 2006 2005£000 £000 £000 £000

At 1 August 2,076 1,785 2,076 1,785

Net additions 12 2 12 2

Apppreciation of endowment asset investments 69 302 69 302

Income for year (Note 6) 150 47 150 47

Expenditure for year (54) (60) (54) (60)

At 31 July 2,253 2,076 2,253 2,076

Representing:Prize funds 201 181 201 181Chairs and scholarship funds 1,983 1,820 1,983 1,820Other funds 69 75 69 75

2,253 2,076 2,253 2,076

22 REVALUATION RESERVE

2006 2005 2006 2005£000 £000 £000 £000

At 1 August 60 83 60 83

Transfer from revaluation reserve to general reservein respect of depreciation on revalued assets (20) (23) (20) (23)

At 31 July 40 60 40 60



- 34 -


23 RESERVES

2006 2005 2006 2005restated restated

£000 £000 £000 £000

At 1 August excluding pension reserve 26,567 23,171 23,870 20,740 pension reserve (Note 32) (11,784) (8,763) (11,784) (8,763)

Surplus/(deficit) for the year excluding pension reserve 6,982 3,360 6,814 3,094 relating to the pension reserve (Note 32) 22 (1,235) 22 (1,235)

Transfer from accumulated income within specific endowments (96) 13 (96) 13

Released from Revaluation Reserve 20 23 20 23

Actuarial loss on pension scheme (960) (1,786) (960) (1,786)

At 31 July excluding pension reserve 33,473 26,567 30,608 23,870 pension reserve (Note 32) (12,722) (11,784) (12,722) (11,784)

24 CAPITAL COMMITMENTS AND LEASE OBLIGATIONS

2006 2005 2006 2005£000 £000 £000 £000

Capital commitments contracted at 31 July 4,480 1,356 4,480 1,356

25 CONTINGENT LIABILITY

In addition, the University had operating lease commitments in respect of leased property on leases thatexpire after 5 years of £3,345,000 (2005: £3,284,000).

Last year it was reported that there was an ongoing dispute relating to the final costs of the Sports TrainingVillage, completed in 2004. The result of an adjudication decision in December 2005 was also reported lastyear and the University has since paid over the declared additional sum. However, this has not resolved thedispute. The University is currently unable to assess the level of any final settlement. Any settlement figureagreed or directed as a result of proceedings will be added to the carrying value of the building.



- 35 -


26 RECONCILIATION OF CONSOLIDATED OPERATINGSURPLUS TO NET CASH FROM OPERATING ACTIVITIES

2006 2005restated

£000 £000

Surplus on continuing operations before exceptional items and tax 7,004 2,125Pension cost less contributions payable (Note 32) 70 1,190Depreciation (Note 12) 7,263 8,047Deferred captial grants released to income (Note 20) (3,554) (4,319)Net surplus on sale of tangible fixed assets (Note 10) (115) (10)Surplus on sale of fixed asset investments (Note 10) (497) -Endowment and investment income receivable (Note 6) (5,876) (1,977)Endowment capital funding (Note 6) 85 17Interest payable (Note 9) 3,564 3,737Decrease in stocks 13 14Decrease/(increase) in debtors on operating activities 2,005 (1,298)Increase in creditors on operating activities 6,062 2,964Share of loss of joint venture - 2

Net cash inflow from operating activities 16,024 10,492

27 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE2006 2005£000 £000

Income received from endowments 162 18Income received from short term investments 5,084 1,750Other interest received 847 404Interest paid: - Finance leases (22) (14) - Other interest paid (3,619) (3,814)

2,452 (1,656)

28 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT2006 2005£000 £000

Payments to acquire tangible fixed assets (9,723) (11,799)Net (purchases)/sales of endowment asset investments (113) 165Receipts from sales of tangible fixed assets 118 11Receipts from sale of fixed asset investment 497 -Deferred capital grants received 4,741 8,222Endowments received (Note 21) 12 2

(4,468) (3,399)

- 36 -


29 MANAGEMENT OF LIQUID RESOURCES2006 2005£000 £000

Net (purchases)/sales of quoted investments (150) 5Net purchases of certificates of deposit (13,259) (4,266)Net reductions/(additions) to short term deposits 441 (484)

Net increase in liquid resources (12,968) (4,745)

30 ANALYSIS OF CHANGES IN CONSOLIDATED FINANCING DURING THE YEAR

2006 2005Loans Finance Total Total

leases£000 £000 £000 £000

Balance outstanding at 1 August 65,517 261 65,778 66,685

New loans/leases - 254 254 222Capital repayments (1,055) (156) (1,211) (1,129)

Net change in year (1,055) 98 (957) (907)

Balance outstanding at 31 July 64,462 359 64,821 65,778

31 ANALYSIS OF CHANGES IN NET DEBTAt Cash Other At

31 July Flows Changes 31 July2005 2006£000 £000 £000 £000

Cash at bank and in hand:Held in endowment asset investments 265 (5) - 260Other cash at bank and in hand 714 88 - 802

979 83 - 1,062

Other current asset investments 11,133 12,968 (580) 23,521

Debt due within one year (1,176) 1,176 (1,512) (1,512)

Debt due after one year (64,602) (219) 1,512 (63,309)

(53,666) 14,008 (580) (40,238)

- 37 -


32 PENSIONS

Universities Superannuation Scheme

The valuation was carried out using the projected unit method.

Surpluses or deficits which arise at future valuations may impact on the institution’s future contributioncommitment. An additional factor which could impact the funding level of the scheme is that with effectfrom 16 March 2006, USS positioned itself as a "last man standing" scheme so that in the event of theinsolvency of any of the participating employers in USS, the amount of any pension funding shortfall(which cannot otherwise be recovered) in respect of that employer will be spread across the remainingparticipant employers and reflected in the next actuarial valuation of the scheme.

The actuary also valued the scheme on a number of other bases as at the valuation date. Using theMinimum Funding Requirement prescribed assumptions introduced by the Pensions Act 1995, thescheme was 126% funded at that date; under the Pension Protection Fund regulations introduced by thePensions Act 2004 it was 110% funded; on a buy-out basis (ie assuming the Scheme had discontinued onthe valuation date) the assets would have been approximately 74% of the amount neceassary to secureall the USS benefits with an insurance company; and using the FRS17 formula as if USS was a singleemployer scheme, the actuary estimated that the funding level would have been approximately 90%.

The next formal triennial actuarial valuation is due as at 31 March 2008. The contribution rate will bereviewed as part of each valuation.

The University participates in the Universities Superannuation Scheme (USS), a defined benefit schemewhich is externally funded and contracted out of the State Second Pension (S2P). The assets of thescheme are held in a separate trustee-administered fund. According to USS, it is not possible to identifyeach institution’s share of the underlying assets and liabilities of the scheme on a consistent andreasonable basis and therefore, as required by FRS 17 "Retirement Benefits" the University accounts forthe scheme as if it were a defined contribution scheme. As a result, the amount charged to the incomeand expenditure account represents the contributions payable to the scheme in the year.

At the valuation date, the market value of the assets of the scheme was £21,740 million and the value ofthe past service liabilities was £28,308 million indicating a deficit of £6,568 million. The assets thereforewere sufficient to cover 77% of the benefits which had accrued to members after allowing for expectedfuture increases in earnings.

The Institution contribution rate required for future service benefits alone at the date of the valuation was14.3% of pensionable salaries but the trustee company, on the advice of the actuary, decided to maintainthe institution contribution rate at 14% of pensionable salaries.

The latest actuarial valuation of the scheme, for which the results are available, was at 31 March 2005.The assumptions which have the most significant effect on the result of the valuation are those relating tothe rate of return on investments (i.e. the valuation rate of interest), the rates of increase in salary andpensions and the life expectancy of members. In relation to the past service liabilities the financialassumptions were derived from market yields prevailing at the valuation date. It was assumed that thevaluation rate of interest would be 4.5% per annum, salary increases would be 3.9% per annum (plus anadditional allowance for increases in salaries due to age and promotion in line with recent experience) andpensions would increase by 2.9% per annum. In relation to the future service liabilities it was assumed that the valuation rate of interest would be 6.2% per annum, including an additional investment returnassumption of 1.7% per annum, salary increases would be 3.9% per annum (also plus an allowance forincreases in salaries due to age and promotion) and pensions would increase by 2.9% per annum.

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32 PENSIONS (continued)

Local Government Pension Scheme

Return on investments - pre retirement 6.95% 6.50% - post retirement 5.80% 6.50%Salary inflation 4.05% 3.75%Pension inflation 2.80% 2.50%

Valuation date 31 March 2004Valuation method Projected UnitMarket value of assets at date of last valuation £1,475 millionMarket value of assets as a percentage of accrued benefits 80%

Major assumptions used:31 July

200631 July

2005

Rate of inflation 3.0% 2.7%Rate of increase in salaries 4.25% 3.95%Rate of increase in pensions 3.0% 2.7%Discount rate 5.1% 5.0%

As a multi-employer scheme where the share of assets and liabilities applicable to each employer canbe defined, the University has accounted for the scheme under FRS 17 as a defined benefit schemebased on a full actuarial valuation of the Fund as at 31 March 2004, updated to July 2006 by a qualifiedindependent actuary.

The contributions payable by the University were equal to 7.6% of total pensionable salaries up to 31March 2006 and 9.3% from 1 April to 31 July 2006.

The University participates in the Avon Pension Fund which is a funded defined benefit pension schemewith the assets held in separate trustee administered funds. The assumptions which have the mostsignificant effect on the determination of contribution levels are as follows:

Past Service

Liabilities

Future Service

Liabilities

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32 PENSIONS (contd)

Long term rate of return

expected at

Value at 31July

2006

Long term rate of return

expected at

Value at 31July

2005

Value at 31July

20042006 £000 2005 £000 £000

Equities 7.0% 40,363 7.5% 35,842 29,473

Government bonds 4.4% 7,571 4.4% 6,756 6,195

Other bonds 5.1% 4,212 5.0% 3,472 3,196

Cash/Liquidity 4.5% 1,173 4.75% 844 592

53,319 46,914 39,456

University's share of the scheme's assets and liabilities:2006 2005 2004£000 £000 £000

Market value of assets 53,319 46,914 39,456

Present value of scheme liabilities 66,041 58,698 48,219

Net pension liability (12,722) (11,784) (8,763)

Amounts charged to income and expenditure account

2006 2005£000 £000

Included in staff costs for the year (Note 7)

Current service cost 2,430 2,049Past service cost (1,132) 172Curtailment cost 25 30

Total operating charge 1,323 2,251

The assets in the scheme and expected rate of return were:

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Amounts charged to income and expenditure account (cont'd)

Financing - Net Return2006 2005£000 £000

Expected return on pension scheme assets 3,078 2,743Interest on expected scheme liabilities (2,986) (2,788)

Net return/(interest) on pension scheme 92 (45)

Amounts recognised in the Statement of Total Recognised Gains and Losses (STRGL)

2006 2005£000 £000

Actual return less expected return on pension scheme assets 2,447 4,717

Experience gain and losses arising on scheme liabilities (1,052) 837

Change in financial and demographic assumptions underlying the scheme liabilities (2,355) (7,340)

Actuarial loss recognised in the STRGL (960) (1,786)

The movement in the scheme's deficit during the year is made up as follows:

2006 2005£000 £000

Deficit in scheme at 1 August (11,784) (8,763)Movement in year:

Current service charge (2,430) (2,049)Contributions 1,253 1,061Past service and curtailment gain/(cost) 1,107 (202)Net return/(interest) on assets and liabilities 92 (45)Actuarial loss (960) (1,786)

Deficit in scheme at 31 July (12,722) (11,784)

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History of experience gains and losses£000 %

Difference between the expected and actual return on assets 2,447Percentage of year end scheme assets 4.6%

Experience gains and losses on scheme liabilities (1,052)Percentage of present value of year end liabilities 1.6%

Change in financial assumptions (2,355)Percentage of present value of year end liabilities 3.6%

Total amount recognised in STRGL (960)Percentage of present value of year end liabilities 1.5%

Total pension costs (Note 7)2006 2005£000 £000

Universities Superannuation Scheme: contributions 6,207 5,745

Avon Pension Fund: current and past service costs plus curtailment costs 1,323 2,251

Contributions to other pension schemes 76 99

7,606 8,095

Prior year adjustment

2005 comparatives have been amended to reflect the adoption of FRS 17. The effect has been toincrease staff costs by £1,190,000 and net financing costs, disclosed within Interest Payable (Note 9), by£45,000. The opening pension liabilty, as at 1 August 2004, of £8,763,000 has been incorporated ontothe Balance Sheet. These amendments relate entirely to the local government pension scheme.

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33 RELATED PARTY TRANSACTIONS

34 HARDSHIP, ACCESS BURSARY AND ACCESS FUNDS

2006 2005£000 £000

Balance at 1 August 86 49 Higher Education Funding Council for England grants 287 299Interest earned 9 10

382 358

Disbursements (275) (272)

Balance at 31 July 107 86

35 BURSARIES FROM THE TRAINING AND DEVELOPMENT AGENCY FOR SCHOOLS

2006 2005£000 £000

Balance at 1 August 66 62 Grant received 1,119 1,084

Disbursements (1,110) (1,080)

Balance at 31 July 75 66

The above Funding Council grants are available solely for students. The University acts only as a paying agent. The grants and related disbursements are excluded from the Income and Expenditure Account

The above bursaries are available solely for students. The University acts only as a paying agent. Thegrant and related disbursements are excluded from the Income and Expenditure Account

Due to the nature of the University's operations and the composition of the Council (being drawn fromlocal public and private sector organisations), it is inevitable that transactions will take place withorganisations in which a member of Council may have an interest. All transactions involvingorganisations in which a member of the Council may have an interest are conducted at arms length andin accordance with the University's financial regulations and normal procurement procedures.

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