Royal College of Art Annual Review Financial Statements

Royal College of Art

Annual Review

Financial

Statements

1 0

Financial

Statements

For the Year

Ended 31 July

2010

Rector’s Review

Treasurer’s Report

Public Beneﬁt Statement

Corporate Governance Statement

Council and Committee Members

Senior Ofﬁcers and Advisers

Auditors’ Report

Income and Expenditure Account

Balance Sheets

Cash Flow Statement

Accounting Policies

Notes to the Accounts

The College was successful in both raising fee income and

containing operational costs, and achieved a surplus on its

income and expenditure account for 2009/10. We remain

ﬁnancially sustainable in the face of the major changes to the

funding of higher education currently being made by the UK

Government.

During 2009/10 HEFCE announced several small

reductions in the level of funding to the College, and the new

Government announced signiﬁcant public expenditure

reductions. Coupled with the changes to HE funding

foreshadowed in the Browne review, and a forecast substantial

reduction in HEFCE grants phased over 2011–15, these

changes will have a major impact on the College. The College

is committed to the preservation of the quality of our student

experience and will absorb these reductions through

expenditure savings in support areas and an expansion in

student numbers, minimising any impact on its academic work.

Demand for places remains high – more than 3,000

applications for some 490 places in 2010 – allowing some

conﬁdence that the College’s ﬁnancial sustainability will

withstand the higher fees that will result from the withdrawal of

Government funding. With the Battersea campus expansions

– the Sackler Building was completed in 2010 and the Dyson

Building is due to open in 2012 – the College will be able to

accommodate additional students without making major

reductions in space or facilities available.

We thank alumna Lady Hamlyn and the trustees of the

Helen Hamlyn Foundation for their remarkable and ongoing

support of the Helen Hamlyn Centre for Design. We thank the

Provost, Sir Terence Conran, and The Conran Foundation for

supporting the annual Show 2010; this is the Foundation’s ﬁfth

consecutive year of support for which we are most grateful.

Alumnus Sir James Dyson and the Dyson Foundation

generously pledged to support the vital work of patent

protection with student projects entering InnovationRCA and

Design London’s incubators for a three-year period,

commencing 2010/11. We also note with gratitude the ﬁve-year

commitment of The Rumi Foundation to the Royal College of

Art’s Innovation Night lecture series, and the Man Group plc

Charitable Trust continued its support of ReachOutRCA, the

College’s outreach programme, for the ﬁfth consecutive year

since its inception in 2006.

This ﬁnancial year the College’s pension scheme merged

with the Superannuation Arrangements of the University of

London (SAUL) placing both the employee and employer of

the College on a more secure and advantageous ﬁnancial

footing. Last year the College scheme had a deﬁcit of more

than £21m. A payment of £11.7m was made to bring the

funding level of the scheme up to that of SAUL, and the result

of these arrangements was in improvement of almost £10m in

the College’s general reserves position. The payment was

ﬁnanced through a loan that was secured on very favourable

terms – interest accrues at 1.1% over LIBOR, so the rate

currently payable is less than 2%. To protect the College

against the possibility of large interest rate rises, we have

capped the rate at 5%.

I am very grateful to those who have been responsible for

the College’s ﬁnancial wellbeing during the year. In particular I

would like to thank – our Treasurer Eric Hagman and our Audit

Committee Chairman Caragh Merrick, and Finance & Estates

Director Nick Cattermole. I commend the accounts to the

Court.

Dr Paul Thompson

Rector’s

Review

The College is an exempt charity which

operates under the terms of a Royal

Charter. The current Charter was

granted in 1967, although the College

was originally founded in 1837 – at that

time it was known as the Government

School of Design. The College has

governance arrangements which are

similar to those of pre-1992 English

universities. It is funded by the Higher

Education Funding Council for England

(HEFCE), which also acts as the

College’s regulator under the terms of

the Charities Act 2006, which came into

effect earlier this year. The College’s

accounts are required to follow the

format laid down in the Statement of

Recommended Practice: Accounting for

Further and Higher Education (SORP).

In early October 2010 the

Government published a report on

‘Securing a Sustainable Future for

Higher Education’, which was prepared

by a panel chaired by Lord Browne.

Shortly thereafter the Government

announced details of signiﬁcant

reductions in public expenditure. These

events foreshadow the most far-

reaching change in the funding of higher

education in England in living memory.

It is clear that the cost of teaching

in HE institutions will in future be borne

primarily by students and not by the

state. As the College formulates its

response to these challenges we will

be guided by the need to maintain our

unrivalled reputation for excellence

and also by the need to do everything

possible to ensure that our doors

remain open to those of limited ﬁnancial

means. However, it is inevitable that

fees charged to students from EU

countries, whose studies are currently

subsidised by HEFCE, will be

signiﬁcantly increased.

The College and its Subsidiaries

During the year the College wound up

the former RCA Development Fund,

a separate charitable subsidiary, and

transferred its assets into the books

of the College. A previously dormant

subsidiary – RCA Design Group Ltd –

was revived and the College entered

into an agreement with it which provides

for RCA Design Group Ltd to act as

the developer of the Dyson Building on

the Howie Street North site. This

arrangement has been made necessary

in order to safeguard the College’s

position in respect of the recovery

of input VAT on the project. If a legal

case that is currently being brought by

Deloittes LLP on behalf of a number

of institutions is successful a substantial

amount (though not all) of the input

VAT incurred would be deemed

recoverable. However the outcome of

this case will not be known for several

years – long after the development

will have been completed. If the case is

successful, the developer – RCA Design

Group Ltd – would be in a position

to reclaim the relevant amount of input

VAT from HMRC. The accounts of

RCA Design Group Ltd have been

consolidated into those of the College.

The College also has a dormant

subsidiary company – Lion & Unicorn

Press Ltd. An exempt charity, the

RCA Foundation, was set up to deal

with fundraising activities in 2000.

No transactions have been recorded

by the Foundation as yet. In 2006

the College set up a limited liability

partnership, Future Acoustic LLP, with

two other partners. Future Acoustic

LLP was formed to develop an invention

by a former student of the College.

Its accounts have not been consolidated

into those of the College as its turnover

is too small to have any material impact

on the College’s ﬁnancial position.

Major Developments in the Year

a) Pensions

On 1 January 2010, the RCA Retirement

Beneﬁts Scheme merged with the

Superannuation Arrangements of the

University of London (SAUL). Under

the terms of the merger agreement SAUL

took on all the assets and liabilities of

the former RCA scheme. Beneﬁts

accrued for past service in the RCA

scheme will remain unaltered and future

beneﬁts for College staff will be accrued

on the basis of SAUL’s standard

arrangements, which are very similar

to those of the former RCA scheme. The

College made a payment of £11.7m to

SAUL at the time of the merger to bring

the funding level in the former RCA

scheme up to that of SAUL.

Before the merger the RCA

Retirement Beneﬁts Scheme seemed

likely to have a deﬁcit of well over £20m

and a large increase in employer’s

contributions was expected. The merger

with SAUL has led to a substantial

drop in employer’s contributions (from

25.6% to 13%) and has also resulted

in the removal of a signiﬁcant managerial

burden that the RCA scheme

represented.

Unlike the former RCA scheme,

SAUL is a group pension scheme that

cannot disaggregate its assets between

member institutions, therefore pension

costs are shown in the accounts on

the basis of contributions payable. The

entries on the Balance Sheet showing

pension assets and liabilities have

therefore been removed this year. The

effect of this is a credit of £9,777,000

to general reserves, which has been

shown in the Statement of Recognised

Gains and Losses.

Treasurer’s

Report for the

Year ended

31 July 2010

Battersea Project and Fundraising

During the year we completed work on

Phase 1 of the Battersea North site – the

Sackler Building – which was occupied

by the Painting Department in the spring

term. The ﬁnal cost of this project was

£196,000 below the agreed budget of

£4,416,000.

Work on Phase 2 of the project –

the Dyson Building – has now started

and is scheduled for completion in

late 2011. The main contract, in the sum

of £13.3m, was awarded to Wates

Construction Ltd following an OJEU

tender process in February 2010. Wates

took possession of the site in March and

work is scheduled to last for 94 weeks.

At the time of writing construction is

proceeding according to plan and there

have been no signiﬁcant difﬁculties or

delays. The construction cost of the

building has already been raised – there

will be some increase in these costs due

to the rise in VAT to 20% in January 2011

but this can be covered from within

the contingency already provided for

the project.

Work on Phase 3 of the North Site

development has not proceeded this

year as funding is not yet available.

This project has reached RIBA stage D,

and it has been agreed that no further

work will be done until the costs of

its construction (estimated at £12m) have

been raised. A fundraising auction of

works of art donated by various alumni

and friends of the College took place

at Christie’s in October 2010. The

proceeds – amounting to £225k – will be

put towards Phase 3.

The College has been approached

on the possible lease of a further site

in Battersea adjacent to the Sculpture

Building in Howie Street. This site

is owned by the same landlord as the

College’s other Battersea properties.

The site comprises several industrial

units and a petrol station. The College

academic work of the College. It is

fortunate that the Dyson Building is due

to open in Battersea in 2012 – this will

provide much needed extra space and

enable us to accommodate additional

students without making major

reductions in space or facilities available.

Demand for places at the College

is currently at record levels – in 2010 we

had more than 3,000 applications for

some 490 places. We can therefore have

a degree of conﬁdence that the higher

fees that will result from the withdrawal

of Government funding will not threaten

the College’s ﬁnancial sustainability.

Results for the Year

The consolidated income and

expenditure results for the year to 31

July 2010 (page 14) show a historic cost

surplus of just over £1m. This ﬁgure

includes £527,000 of ‘matched funding’

due from HEFCE under a scheme

whereby it matches private donations

that the College has received during

the year in a ratio of 1:3. The surplus that

arose on the College’s operations was

£479,000.

This is a creditable result in the

circumstances. The College has

achieved signiﬁcant reductions in both

staff and non-staff expenditure during

the year and this, along with an increase

in fee income, has enabled us to

maintain an operational surplus despite

reductions in the level of HEFCE grants

and income from sources other than

fees. However, looked at in the context

of the forthcoming reductions in public

expenditure, an operational surplus

of £479,000 represents less than 2%

of the College’s turnover and does not

offer us much of a cushion against

ﬁnancial adversity.

The College’s Balance Sheet

strengthened during the year. This is due

to the effect of removing the pension

deﬁcit on the former RCA pension

scheme following its merger with SAUL.

b) Loan Finance

SAUL offered to accept the £11.7m

payment over a period but the rate of

interest charged (7.3%) was unattractive,

and so the Finance Committee agreed

that the full amount should be paid

immediately and that a loan should

be raised to ﬁnance it. The College

therefore sought proposals from

the ﬁve major banks. RBS offered the

most competitive arrangement, and

accordingly the College entered into

an agreement to borrow £12m over

10 years at an interest rate of 1.1% over

three-month LIBOR. In order to provide

security against possible future

increases in interest rates we have

made an arrangement with RBS to cap

the rate payable on our loan at 5%.

The loan was drawn down on 15 April

2010 and it is repayable in 40 quarterly

instalments, the ﬁrst of which fell on

15 July 2010.

c) Reductions in Public Expenditure

During the year HEFCE announced

several small reductions in the level of

funding to the College, and following

the General Election held in May the

new Government announced much

more signiﬁcant reductions in public

expenditure. Coupled with the changes

to HE funding foreshadowed in

the Browne review (see above) these

changes will have a major impact on

the College. At the time of writing the

precise ﬁgures are not known but

substantial reductions in HEFCE grants

seem very likely. These reductions will

be phased in over the four academic

years 2011–15. The College has already

begun work on expenditure reductions

and also on an expansion in student

numbers to help us absorb these

reductions. We are committed to the

preservation of the quality of our student

experience, and we will concentrate

expenditure reductions in support areas

that do not impact directly on the

Conclusion

The HE sector in the UK is entering a

period of unprecedented ﬁnancial

pressure. The College is well placed

to tackle the substantial reductions

in Government expenditure that are

expected, but we are under no illusions

about how difﬁcult and challenging the

next few years will be for both students

and staff.

Eric Hagman

Treasurer

currently has a short lease on one of the

industrial units. Discussions on this are

at an early stage.

Investments

The College’s portfolio is split between

Ruffer Investment Management LLP

and a portfolio of iShares, which are

traded funds which track various stock

market indices. The Finance Committee

receives reports on investment

performance at all of its meetings. The

College proposes to set up a separate

Investment Committee in 2010–11

to relieve the workload of the Finance

Committee in this area and to formulate

an investment strategy that will include

policy objectives.

Cash Flow

The College’s net funds shown on the

cashﬂow statement (page 16) increased

by £2.3m during the year. Operational

cashﬂow outﬂow was just over £10m;

however this includes the £11.7m

payment to SAUL (see above). Leaving

aside this one-off payment the College’s

operational cash inﬂow was about

£1.7m. The College’s cash reserves will

show a steady decline over the next two

years as the bulk of them will be used for

the construction of the Dyson Building.

Payment of Creditors

The College is fully committed to the

prompt payment of its suppliers’

invoices, and aims to pay in accordance

with contractual conditions, or where

no such conditions exist, within 30 days

of receipt of invoice or of the goods

or services concerned.

Other Activities

The College organises public

exhibitions, seminars, lectures and

conferences that enable students

to show their work and also enable the

public to engage with the work of the

College. All College exhibitions and

lectures are free of charge to members

of the public and any charge which might

be made for conferences or seminars

is designed to cover costs only.

Policies and Operations

The College has adopted policies

on environmental and ethical issues

and makes every effort to operate

in a sustainable and responsible way.

These policies are available on the

College’s website.

Education

The College provides postgraduate

courses in art and design on a non

proﬁt-making basis. Fees charged to

EU-domiciled students are well below

the cost of teaching those students,

as their costs are subsidised by HEFCE

grants. Fees charged to non-EU

domiciled students are set at a level that

covers the costs of their courses but

does not include any element of proﬁt.

The College provides bursaries and

hardship grants to some of its students,

partly from HEFCE resources and partly

from other resources. These bursaries

and hardship payments help students of

limited means to study at the College.

Research

The College undertakes research in art

and design. A particular emphasis is

placed on design for an ageing

population – the Helen Hamlyn Centre

is particularly strong in this area. Much

of the research carried out at the

College is funded by charities and UK

research councils and is undertaken in

order to advance knowledge and

understanding. This research activity

is not carried on a proﬁt-making basis.

In some cases research is carried out

on behalf of commercial sponsors – any

proﬁts arising on such research are

reinvested in the College’s teaching and

research activities, where permissible.

The Royal College of Art is an exempt

charity under the terms of the Charities

Act 2006. As such the College has

charitable status for taxation purposes

but it is regulated by the Higher

Education Funding Council for England

(HEFCE). HEFCE requires exempt

charities that it regulates to publish an

annual public beneﬁt statement having

regard to the Charity Commission

guidance on public beneﬁt.

The College is incorporated by

Royal Charter – it has no shareholders

and it does not distribute proﬁts.

Any surpluses that arise on its income

and expenditure are reinvested in

the College’s teaching and research

activities.

Public Beneﬁt

Statement

implementation plans. The Audit

Committee also receives and considers

assurance and internal control reports

from HEFCE and monitors adherence

to the regulatory requirements. The

Audit Committee reports annually to

Council and to HEFCE on the operation

of the College’s internal control

procedures, risk management, value

for money and other relevant matters.

Whilst senior management team

members attend meetings of the Audit

Committee as necessary, they are

not members of the Committee, and

the Committee meets with the External

and Internal Auditors on their own for

independent discussions.

The Buildings & Estates Committee

is responsible for estates planning and

maintenance issues.

Risk Management

On behalf of Council, the Audit

Committee has appointed Deloitte &

Touche Public Sector Internal Audit Ltd

as the College’s internal auditors. The

internal auditors review the effectiveness

of the College’s systems of internal

control. The results were considered by

management and reviewed by the Audit

Committee. The Audit Committee is

also responsible for the oversight of the

College’s policies and procedures for

risk management, in accordance with

guidelines issued by HEFCE. A risk

management policy for the College has

been approved by Council, and a risk

framework has been presented to the

Council by the Audit Committee. The

risk management policy sets out the

College’s underlying approach to risk

management and documents the roles

and responsibilities of senior managers,

Council and other key parties. During

the year heads of school and other

senior ofﬁcers attended the Committee

to discuss their perceptions of the key

Summary of the Structure of

Corporate Governance

The Council comprises lay and

academic persons appointed under

the College’s Statutes, the majority

of whom are non-executive. The roles

of Chairman and Vice-Chairman of

Council are separated from the role

of the College’s Chief Executive, the

Rector. The matters speciﬁcally reserved

to the Council for decision are set out

in the College’s Statutes. By custom

and under the HEFCE Financial

Memorandum, the Council is

responsible for the College’s ongoing

strategic direction, approval of major

developments and receiving regular

reports from Executive Ofﬁcers on

day-to-day operations. The Council

meets four times a year and has several

Committees, including a Finance

Committee, a Buildings & Estates

Committee, an Audit Committee and

a Remuneration Committee. All these

Committees are formally constituted

with terms of reference and comprise

mainly lay members of Council.

The Planning & Resources

Committee recommends to the Finance

Committee the College’s annual revenue

and capital budgets and monitors

performance in relation to the approved

budgets. The Senior Management Team

advises Council on the College’s overall

objectives and priorities and the

strategies and policies to achieve them.

The Nominations Committee considers

nominations for vacancies on Council

and Committee membership under

the relevant Statute. The Remuneration

Committee determines the remuneration

of the most senior staff.

The Audit Committee meets three

times annually, with the Internal and

External Auditors, to discuss audit

ﬁndings and to consider detailed internal

audit reports and recommendations

for the improvement of the College’s

systems of internal control, together

with management’s response and

The College is a corporation formed

by Royal Charter with charitable status,

so it does not fall within the regulation

of the London Stock Exchange, but

nevertheless the Council is satisﬁed that

the College has, throughout the year

ended 31 July 2010, been in compliance

with all the Code provisions set out in

Section 1 of the Combined Code on

Corporate Governance insofar as they

relate to Colleges.

The College also complies with the

Guide for Members of Governing Bodies

of Universities and Colleges in England,

Wales and Northern Ireland that was

issued by the Committee of University

Chairmen in November 2004.

Corporate

Governance

Statement

— clear deﬁnitions of the

responsibilities of, and the authority

delegated to, heads of academic and

administrative departments

— a comprehensive medium and

short-term planning process,

supplemented by detailed variance

reporting and updates of forecast

outturns

— clearly deﬁned and formalised

requirements for approval and control of

expenditure, with investment decisions

involving capital or revenue expenditure

being subject to formal detailed

appraisal and review according to

approval levels set by the Council

— comprehensive Financial

Regulations, detailing ﬁnancial controls

and procedures, approved by the

Finance Committee and Council

— a professional Internal Audit team

whose annual programme is approved

by the Audit Committee.

The Audit Committee, on behalf of the

Council, has reviewed the effectiveness

of the College’s system of internal

control. Any system of internal ﬁnancial

control can, however, only provide

reasonable, but not absolute, assurance

against material mis-statement or loss.

The maintenance and integrity of

the Royal College of Art website is the

responsibility of the Council; the work

carried out by the auditors does not

involve consideration of these matters

and, accordingly, the auditors accept

no responsibility for any changes

that may have occurred to the ﬁnancial

statements since they were initially

presented on the website.

the state of affairs of the College and

of the surplus or deﬁcit for that year.

In causing the accounts to be prepared,

the Council has to ensure 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

— the College has adequate resources

to continue in operation for the

foreseeable future and for this reason

the ﬁnancial statements are prepared

on the going concern basis.

The Council has taken reasonable

steps to:

— ensure that funds from HEFCE are

used only for the purposes for which

they have been given and in accordance

with Financial Memorandum with the

Funding Council and any other

conditions which the Funding Council

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 College

and prevent and detect fraud

— secure the economical, efﬁcient and

effective management of the College’s

resources and expenditure.

The key elements of the College’s

system of internal ﬁnancial control,

which is designed to discharge the

responsibilities set out above, include

the following:

risks facing the College and the Audit

Committee has updated the risk register

accordingly.

A number of other key plans and

strategies have been drawn up, including

a disaster recovery plan and an IT

security policy. These address areas

of risk identiﬁed by the risk framework.

The disaster recovery plan includes a

telephone cascade system under which

all College staff could be contacted in

an emergency. Records

of the cascade system, and duplicate

copies of all systems and data on

the College network, are kept off-site.

The College maintains a Register

of Interests completed by Council

members and senior managers and

these declared interests are updated

annually. Additionally all Council and

Committee agendas have ‘declaration

of interests’ as the ﬁrst substantive

item on the agenda. Members

and ofﬁcers are invited to declare any

interest in business to be considered

by the meeting at that time.

Responsibilities of the Council

The Council is responsible for the

administration and management of the

affairs of the College and is required

to present audited ﬁnancial statements

for each ﬁnancial year.

The Council is responsible for

keeping proper records that disclose

with reasonable accuracy at any time

the ﬁnancial position of the College and

enable it to ensure that the accounts are

prepared in accordance with the Royal

Charter and the 2007 Statement of

Recommended Practice: Accounting for

Further and Higher Education (SORP)

and other relevant accounting standards.

In addition, within the terms and

conditions of the Financial Memorandum

agreed between HEFCE and the Council

of the College, the Council, through

its designated ofﬁce holder, is required

to prepare accounts for each ﬁnancial

year that give a true and fair view of

Remuneration Committee

Sir Neil Cossons, Chairman

Mr Charles Allen-Jones

Mr Eric Hagman

Ms Cathy Turner

Dr Paul Thompson

Buildings & Estates Committee

Sir Idris Pearce, Chairman

Professor Peter Bearman

Mr Robert Evans

Ms Joanna Kennedy

Dr Paul Thompson

Professor Jo Stockham

Mr Garry Philpott

Professor Alan Cummings

Mr Charles Allen-Jones

Professor Derek Walker

Co-opted Members

Professor Sir Roy Anderson

Mr Tony Brierley

Dr David Good

Sir Mark Jones

Mr Paul Priestman

Dame Gail Rebuck

Mr John Studzinski

Mr Matthew Freud (from 18 March 2010)

The following served as members of the

other Committees directly concerned

with ﬁnancial matters:

Finance Committee

Mr Eric Hagman, Chairman

Mr Charles Allen-Jones

Mr Paul Priestman

Dr Paul Thompson

Mr Tony Brierley (from 1 January 2010)

Audit Committee

Ms Caragh Merrick (Chairman)

Ms Sarah Miller

Dr David Good

Mr Tony Brierley

Mr David Thompson

Planning & Resources Committee

Dr Paul Thompson, Chairman

Professor Alan Cummings

Mr Garry Philpott

(to 31 December 2009)

Mr Alan Selby

Mr Nick Cattermole

Professor Jeremy Aynsley

Professor Wendy Dagworthy

Professor Dan Fern

Ms Hilary French

Mr Peter Hassell

Professor Jeremy Myerson

Professor Martin Smith

Professor David Rayson

Professor Dale Harrow

Mr Jack Tan

The following served as members of

Council during the year:

Ex Ofﬁcio

The Provost Sir Terence Conran

The Chairman and Pro-Provost

Sir Neil Cossons

The Rector and Vice-Provost

Professor Sir Christopher Frayling

(retired 31 August 2009)

Dr Paul Thompson

(from 1 September 2009)

The Treasurer Mr Eric Hagman

The Pro-Rector Professor

Alan Cummings

The President of the Students’ Union

Mr Jack Tan

Members Appointed by the Court

Mr Charles Allen-Jones (Vice-Chairman)

Professor Richard Burdett

Sir James Dyson

Ms Betty Jackson

Mrs Joanna Kennedy

Mr David Kester

Mr Robin Levien

Ms Caragh Merrick

Ms Sarah Miller

Mr Sandy Nairne

Sir Idris Pearce

Ms Cathy Turner

Members Appointed by the Senate

Professor Wendy Dagworthy

Professor Jeremy Aynsley

Professor Dan Fern

Mr Peter Hassell

Ms Hilary French

Professor David Rayson

Professor Hans Stofer

One Student Elected by the Students

Ms Ekua McMorris

Council and

Committee

Members

Bankers

National Westminster Bank plc,

180 Brompton Square, SW3 1XJ

Coutts & Co, 40 Strand, WC2R 0QS

Solicitors

Stephenson Harwood, One St Paul’s

Churchyard, EC4M 8SH

Insurers

UM Association Ltd, Hasilwood House,

60 Bishopsgate, EC2N 4AW

External Auditors

KPMG LLP, 15 Canada Square, E14 5GL

Internal Auditors

Deloitte & Touche Public Sector Ltd,

3 Victoria Square, St Albans, AL1 3TF

Investment Managers

Ruffer LLP, 80 Victoria Street, SW1E 5JL

Rector and Vice Provost:

Dr Paul Thompson

Pro-Rector and Director of

Academic Development:

Professor Alan Cummings

Director of Administration:

Garry Philpott

(to 31 December 2009)

Registrar:

Alan Selby

Director of Finance:

Nick Cattermole

Director of Research:

Professor Jeremy Aynsley

Head of Information

& Learning Services:

Peter Hassell

Director of the Helen Hamlyn Centre:

Professor Jeremy Myerson

Senior

Ofﬁcers and

Advisers

we also evaluated the overall adequacy

of the presentation of information in the

nancial statements.

Opinion

In our opinion:

— the nancial statements give a true and

fair view, in accordance with UK Generally

Accepted Accounting Practice, of the state

of the Group and the College’s affairs as at 31

July 2010 and of the Group’s decit of income

over expenditure for the year then ended;

— the nancial 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, grants and income for specic

purposes and from other restricted funds

administered by the College during the year

ended 31 July 2010 have been applied for the

purposes for which they were received; and

— in all material respects, income during

the year ended 31 July 2010 has been applied

in accordance with the College’s statutes

and, where appropriate, with the Financial

Memorandum with the Higher Education

Funding Council for England, dated

June 2008.

Neil Thomas (Senior Statutory Auditor)

for and on behalf of KPMG LLP,

Statutory Auditor

Chartered Accountants

15 Canada Square

Canary Wharf

London

E14 5GL

18 November 2010

bodies, grants and income for specic

purposes and from other restricted funds

administered by the College 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 dated June

2008. We also report to you whether in our

opinion the Treasurer’s Report is not

consistent with the nancial statements.

In addition we report to you if, in our

opinion, the College has not kept proper

accounting records, or if we have not received

all the information and explanations we

require for our audit.

We read the Treasurer’s Report, other

information contained in the Annual Report

and the Corporate Governance Statement

and consider the implications for our

report if we become aware of any apparent

mis-statements within them or material

inconsistencies with the nancial 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 nancial

statements. It also includes an assessment of

the signicant estimates and judgments made

by the College’s Council in the preparation

of the nancial statements and of whether the

accounting policies are appropriate to the

College’s circumstances, consistently applied

and adequately disclosed.

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 sufcient evidence

to give reasonable assurance that the nancial

statements are free from material mis-

statement, whether caused by fraud or other

irregularity or error. In forming our opinion

We have audited the Group and College

nancial statements (the ‘nancial

statements’) of The Royal College of Art for

the year ended 31 July 2010, which comprise

Group Income and Expenditure Account, the

Group and College Balance Sheets, the Group

Cash Flow Statement, the Group Statement

of Total Recognised Gains and Losses and

the related notes. These nancial statements

have been prepared under the historical cost

convention (as modied by the revaluation

of certain xed assets) and in accordance with

the accounting policies set out therein.

This report is made solely to the Council,

as a body, in accordance with the Charter

and Statutes of the College. Our audit work

has been undertaken so that we might state

to the Council those matters that 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 College

Council Governors and Auditors

The College Council’s responsibilities

for preparing the Treasurer’s Report and

the nancial statements in accordance

with the Accounts Direction issued by the

Higher Education Funding Council for

England, 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 9.

Our responsibility is to audit the

nancial 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 nancial 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

Independent

Auditors’

Report to the

Council of the

Royal College

of Art

Consolidated

Income and

Expenditure

Account

for the Year

Ended

31 July 2010

Income Note 2009/10 2008/9

£’000 £’000

Funding Council Grants 1 15,431 18,145

Tuition Fees and Education Contracts 2 7,50 0 6,613

Research Grants and Contracts 3 1,494 2,230

Other Operating Income 4 4,041 4,090

Endowment and Investment Income 5 360 1,568

Total Income 28,826 32,646

Expenditure

Staff Costs 6 13,256 14,355

Other Operating Expenses 7 14,005 14,802

Depreciation 11 1,840 1,800

Interest and Other Finance Costs 8 61 0

Total Expenditure 10 29,162 30,957

(Deﬁcit)/Surplus on Continuing Operations

after Depreciation of Tangible Fixed Assets

at Valuation Before Exceptional Items (336) 1,689

Exceptional Items: Continuing Operations

Payment on Joining New Pension Scheme 9 (11,70 0) 0

Credit Arising on Removal of

Pensions Liability 9 11,70 0 0

(Deﬁcit)/Surplus on Continuing Operations

after Depreciation of Assets at Valuation

and Disposal of Assets (336) 1,689

Surplus Transferred to Accumulated Income

in Endowment Funds 19 283 183

(Deﬁcit)/Surplus for the Year Retained within

General Reserves (53) 1,872

The Income and Expenditure Account

has been prepared in respect of continuing

operations.

Statement of Historical Cost

Surpluses and Deﬁcits for the year

ended 31 July 2010 Note 2009/10 2008/9

£’000 £’000

(Deﬁcit)/Surplus after Depreciation of

Assets at Valuation (336) 1,689

Difference between the Historical Cost

Depreciation Charge and the Actual

Depreciation Charge for the Year

Calculated on the Revalued Amount 20 1,342 1,342

Historical Cost Surplus 1,006 3,031

Statement of Consolidated Total

Recognised Gains and Losses for

the Year Ended 31 July 2010 Note 2009/10 2008/9

£’000 £’000

(Deﬁcit)/Surplus on Continuing Operations

after Depreciation of Assets at Valuation and

Disposal of Assets (336) 1,689

Credit on Elimination of Pensions Liability 9,777 0

Actuarial Loss 21 0 (17,182)

Appreciation of Endowment

Asset Investments 19 1,054 168

Endowment Additions 19 808 1,008

Total Recognised Gains/(Loss) Relating

to the Year 11,303 (14,317)

Balance

Sheets as at

31 July 2010

Note Consolidated Consolidated College College

2010 2009 2010 2009

£’000 £’000 £’000 £’000

Fixed Assets

Tangible Assets 11 59,240 59,201 59,240 59,201

Other Fixed Asset Investments 12 404 332 404 0

Endowment Asset Investments 13 12,758 11,179 12,758 7,821

Current Assets

Stock 52 54 52 54

Debtors 14 3,10 0 3,881 3,10 0 3,881

Investments 15 17,721 15,447 17,721 15,447

Cash at Bank and in Hand 134 672 134 672

Total Current Assets 21,007 20,054 21,007 20,054

Creditors: Amounts Falling Due

within One Year 16 5,037 4,053 5,037 4,053

Net Current Assets 15,970 16,001 15,970 16,001

Total Assets Less Current Liabilities 88,372 86,713 88,372 83,023

Creditors: Amounts Falling Due after more than

One Year 17 10,825 0 10,825 0

Net Assets Excluding Pension Liability 77,5 47 86,713 7 7,547 83,023

Pension Liability 24 0 (21,477) 0 (21,477)

Net Assets Including Pension Liability 77,547 65,236 77,547 61,546

Represented by:

Deferred Capital Grants 18 15,324 14,316 15,324 14,316

Endowments 19

Expendable 3,615 1,783 3,615 1,783

Permanent 9,143 9,396 9,143 6,038

Total Endowments 12,758 11,179 12,758 7,821

General Reserves

Revaluation Reserve 20 44,703 46,045 44,703 46,045

General Reserves Excluding Pension Reserve 4,762 15,173 4,762 14,841

Pension Reserve 24 0 (21,477) 0 (21,477)

Total General Reserves 21 4,762 (6,304) 4,762 (6,636)

Total 77,547 65,236 77,547 61,546

The Financial Statements on pages 13 to

33 were approved by the Council on 18

November 2010 and signed on its behalf by:

Dr Paul Thompson

Rector

Eric Hagman

Treasurer

Consolidated

Cash Flow

Statement

for the Year

Ended

31 July 2010

Note 2010 2009

£’000 £’000

Net Cash outﬂow from Operating Activities 25 (10,031) (1,095)

Returns on Investments and

Servicing of Finance

26 380 1,099

Capital expenditure and Financial Investment 27 165 2,366

Cash (Outﬂow)/ Inﬂow Before Use

of Liquid Resources and Financing (9,486) 2,370

Management of Liquid Resources 28 (2,274) (1,552)

Financing

New Loans 17, 28 12,000 0

Loans repaid (221) 0

Increase in cash 19 818

Reconciliation of Net Cash Flow to

Movement in Net Funds

(Decrease)/Increase in Cash in the period 28 19 818

Cash inﬂow from Liquid Resources 28 2,274 1,552

Movement in Net Funds in Period 2,293 2,370

Net funds at 1 August 17,0 47 14,677

Net funds at 31 July 19,340 17,047

A Accounting Convention

The Accounts have been drawn up in

accordance with the 2007 ‘Statement

of Recommended Practice: Accounting

for Further and Higher Education’

(SORP) and applicable accounting

standards. The ﬁnancial statements

have been prepared under the historical

cost convention, as modiﬁed by

the revaluation of endowment asset

investments and of buildings for which

a cost is not readily ascertainable.

B Basis of Consolidation

The consolidated ﬁnancial statements

consolidate the ﬁnancial statements

of the College, and the RCA Design

Group Ltd (subsidiary). The RCA Design

Group has been dormant for a number

of years but during 2009–10 it was

revived in order to provide development

services for Phase 2 of the College’s

Battersea North site development.

The accounts of the other subsidiaries

Lion & Unicorn Press Ltd and the RCA

Foundation have not been consolidated,

as these organisations were dormant

during the period. The consolidated

ﬁnancial statements do not include

those of the Students’ Union because

the College does not control those

activities. The College is a partner in

Future Acoustic, an LLP. The partnership

has produced accounts as at 28

February 2010 and it has not been

included in the College’s accounts

as the ﬁgures are not material.

C Income Recognition

Funding council grants are accounted

for in the period to which they relate.

Fee income is stated gross and

credited to the income and expenditure

account over the period in which

students are studying. Where the

amount of the tuition fee is reduced by

a discount for prompt payment, income

receivable is shown net of the discount.

Bursaries and scholarships are

accounted for gross as expenditure

and not deducted from income.

Recurrent income from grants,

contracts and other services rendered

are accounted for on an accruals basis

and included to the extent of the

completion of the contract or service

concerned; any payments received

in advance of such performance

are recognised on the Balance Sheet

as liabilities.

Donations with restrictions

are recognised when relevant

conditions have been met; in many

cases recognition is directly related

to expenditure incurred on speciﬁc

purposes. Donations that are to be

retained for the beneﬁt of the institution

are recognised in the statement of

Total Recognised Gains and Losses and

in Endowments; other donations are

recognised by inclusion as other income

in the income and expenditure account.

Non-recurrent grants received in respect

of the acquisition or construction

of ﬁxed assets are treated as deferred

capital grants. Such grants are credited

to deferred capital grants and an

annual transfer made to the income and

expenditure account over the useful

economic life of the asset, at the same

rate as the depreciation charge on the

asset for which the grant was awarded.

Income from the sale of goods

or services is credited to the income and

expenditure account when the goods

or services are supplied to the external

customers or the terms of the contract

have been satisﬁed.

Endowment and investment

income is credited to the income

and expenditure account on a

receivable basis. Income from

restricted endowments not expended

in accordance with the restrictions

of the endowment, is transferred from

the income and expenditure account

to restricted endowments. Any realised

gains or losses from dealing in the

related assets are retained within the

endowment in the Balance Sheet.

Any increase in value arising

on the revaluation of ﬁxed asset

investments is carried as a credit to the

revaluation reserve, via the statement

of Total Recognised Gains and Losses;

a diminution in value is charged to the

income and expenditure account as a

debit, to the extent that it is not covered

by a previous revaluation surplus.

Increases or decreases in value

arising on the revaluation or disposal of

endowment assets, i.e. the appreciation

or depreciation of endowment assets,

is added to or subtracted from the funds

concerned and accounted for through

the Balance Sheet by debiting or

crediting the endowment asset, crediting

or debiting the endowment fund and

is reported in the statement of Total

Recognised Gains and Losses.

D Agency Arrangements

Funds the College receives and

disburses as paying agent on behalf

of a funding body are excluded from the

income and expenditure of the College

where the College is exposed to minimal

risk or enjoys minimal economic beneﬁt

related to the transaction.

E Land and Buildings

Land and buildings are stated at cost

or at valuation. Chartered Quantity

Surveyors carried out a revaluation

in December 1998. Under FRS 15 the

College has opted to use the 1998

valuation as the Balance Sheet value,

and not to make regular revaluations.

Freehold land is not depreciated.

Freehold buildings are depreciated over

their expected useful life of 50 years.

A review for impairment is conducted

if events or changes in market conditions

indicate that the carrying amount of any

ﬁxed asset may not be recoverable.

Statement

of Principal

Accounting

Policies

donation will be received and the value

of the incoming resources can be

measured with sufﬁcient reliability.

Endowment funds:

Where charitable donations are

restricted to a particular objective

speciﬁed by the donor these are

accounted for as an endowment.

There are three main types:

— Restricted permanent endowment

– the capital of the fund is to be

maintained and the income thereon

applied to the purposes speciﬁed by

the donor;

— Unrestricted permanent

endowments – the capital of the fund

is to be maintained but the income

can be applied to the general purposes

of the College;

— Restricted expendable endowments

– the capital of the fund can be spent for

purposes speciﬁed by the donor.

Donations for ﬁxed assets:

Donations received to be applied to the

cost of a tangible ﬁxed asset are shown

on the Balance Sheet as a deferred

capital grant. The deferred capital

grant is released to the income and

expenditure account over the estimated

useful life of the asset in question.

M Taxation Status

The College 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 Income and Corporation

Taxes Act 1988 (ICTA 1988).

Accordingly, the College is exempt from

taxation in respect of income or capital

gains received within categories covered

element outstanding. Assets held under

ﬁnance leases are depreciated over

the shorter of the lease term or

the useful economic lives of equivalent

owned assets.

H Heritage Assets

The College Art Collection consists

mainly of works of art acquired free of

charge from former students and artists

associated with the College. Most items

in the collection had nil or little value

at the date of acquisition as the artists

were not well known. These works

of art are not therefore included in the

Balance Sheet.

I Investments

Endowment Asset Investments are

included in the Balance Sheet at market

value. Short-term investments consist

of cash balances, which are invested in

interest bearing deposit accounts.

J Stocks

Stocks are stated at the lower of cost or

net realisable value. Where necessary,

provision is made for slow-moving and

defective stocks.

K Maintenance of Premises

The College has a rolling maintenance

plan, which is reviewed on an annual

basis. The cost of routine and corrective

maintenance is charged to the income

and expenditure account as incurred.

L Accounting for Charitable

Donations

Unrestricted donations:

Charitable donations are recognised

in the accounts when the charitable

donation has been received or if, before

receipt, there is sufﬁcient evidence to

provide the necessary certainty that the

Where buildings are acquired with

the aid of speciﬁc grants they are

capitalised and depreciated. The related

grants are treated as deferred capital

grants and released to income over the

expected useful life of the buildings.

F Equipment

Equipment, including PCs and software,

costing less than £10,000 per individual

item or group of related items is

expensed in the year of acquisition.

All other equipment is capitalised.

Capitalised equipment is stated at cost

and depreciated over its expected useful

life, as follows:

Computing Equipment 3 years

Other Equipment 5 years

Where equipment is acquired with the

aid of speciﬁc grants it is capitalised and

depreciated as above. The related grants

are treated as deferred capital grant

received in advance and released to

income over the expected useful life of

the equipment (the period of the grant in

respect of speciﬁc research projects).

G Leased Assets

Costs in respect of operating leases

are charged on a straight-line basis over

the lease term. Leasing agreements,

which transfer to the College

substantially all the beneﬁts and risks

of ownership of an asset, are treated

as if the asset had been purchased

outright. The assets are included in ﬁxed

assets and the capital elements of the

leasing commitments are shown as

obligations under ﬁnance leases. The

lease rentals are treated as consisting

of capital and interest elements.

The capital element is applied in

order to reduce outstanding obligations

and the interest element is charged

to the income and expenditure account

in proportion to the reducing capital

S Intra-group Transactions

Gains or losses on any intra-group

transactions are eliminated in full.

Amounts in relation to debts and claims

between undertakings included in

the consolidation are also eliminated.

Balances between the College and

its associates and joint ventures are

not eliminated; unsettled normal trading

transactions are included as current

assets or liabilities. Any gains or losses

are included in the carrying amount of

assets of either entity, the part relating

to the College’s share is eliminated.

differences are dealt with in the

determination of income and expenditure

for the ﬁnancial year.

P Gifts in Kind, Including Donated

Tangible Fixed Assets

Gifts in kind are included in ‘other

income’ or ‘deferred capital grants’ as

appropriate using a reasonable estimate

of their gross value or the amount

actually realised.

Q Provisions, Contingent Liabilities

and Contingent Assets

Provisions are recognised in the ﬁnancial

statements when the College has a

present obligation (legal or constructive)

as a result of a past event, it is probable

that a transfer of economic beneﬁts

will be required to settle the obligation

and a reliable estimate can be made

of the amount of the obligation. The

amount recognised as a provision

is discounted to present value where

the time value of money is material. The

discount rate used reﬂects current

market assessments of the time value

of money and reﬂects any risks speciﬁc

to the liability.

Contingent liabilities are disclosed

by way of a note, when the deﬁnition of

a provision is not met and includes three

scenarios: possible rather than a present

obligation; a possible rather than a

probable outﬂow of economic beneﬁts;

an inability to measure the economic

outﬂow.

Contingent assets are disclosed by

way of a note, where there is a possible,

rather than present, asset arising from

a past event.

R Financial Instruments

The College uses derivative ﬁnancial

instruments called interest rate

caps to reduce exposure to interest

rate movements.

by Section 505 of the ICTA 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

College receives no similar exemption

in respect of Value Added Tax.

N Pension Scheme

The Royal College of Art participates

in the Superannuation Arrangements of

the University of London (SAUL), which

is a centralised deﬁned beneﬁt scheme

and is contracted-out of the Second

State Pension. SAUL is a group pension

scheme which does not disaggregate

its assets or liabilities into items which

relate to individual member institutions,

therefore pension costs shown in the

income and expenditure account are

the cash contributions payable for the

year and there are no pension assets

or liabilities shown in the Balance Sheet.

SAUL is a ‘last man standing’ scheme

so that in the event of the insolvency

of any of the participating employers

in SAUL, the amount of any pension

funding shortfall (which cannot

otherwise be recovered) in respect of

that employer will be spread across the

remaining participant employers and

reﬂected in the next actuarial valuation.

A formal valuation of SAUL is carried

out every three years by professionally

qualiﬁed and independent actuaries

using the Projected Unit method.

Informal reviews of SAUL’s position are

carried out between formal valuations.

The next formal valuation will be made

at 31 March 2011.

O 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 converted into sterling at

year-end rates. The resulting exchange

1. Funding Council Grants 2009/10 2008/9

£’000 £’000

Recurrent Grant 13,752 14,361

Speciﬁc Grants 973 1,414

HEFCE Matched Grants 527 2,18 5

Deferred Capital Grants Released in Year

Buildings (note 18) 86 86

Equipment (note 18) 93 99

Total 15,431 18,145

2. Tuition Fees and Education Contracts 2009/10 2008/9

£’000 £’000

Full-time Home Fees 3,876 3,346

Overseas Fees 3,389 3,031

Part-time Home Fees 166 125

Other Short Course Fees 69 111

Total 7,500 6,613

3. Research Grants and Contracts 2009/10 2008/9

£’000 £’000

Research Councils Grants 816 1,12 6

UK Based Charities 394 378

UK Industries & Commerce 284 726

Total 1,494 2,230

4. Other Operating Income 2009/10 2008/9

£’000 £’000

Lettings 156 200

Catering Services 609 643

Other Services Rendered 1,710 1,537

Degree Shows Income 299 306

Other Deferred Grants Released (note 18) 161 150

Other Income 1,10 6 1,254

Total 4,041 4,090

5. Endowment and Investment Income 2009/10 2008/9

£’000 £’000

Income from Expendable Endowments 107 98

Income from Permanent Endowments 146 309

Pension Scheme 0 469

Other Interest Receivable 107 692

Total 360 1,568

6. Staff Costs 2009/10 2008/9

£’000 £’000

Contracted Staff 10,188 10,700

Projects and Other Staff 720 836

Social Security Costs 918 978

Pension Costs 1,398 1,525

Restructuring Costs* 32 316

Total 13,256 14,355

*Restructuring relates to costs in respect

of redundancies following a restructuring

exercise.

2009/10 2008/9

£’000 £’000

Emoluments of the Rector 175 175

Total 175 175

Professor Sir Christopher Frayling retired

as Rector on 31 August 2009 and Dr Paul

Thompson became Rector from 1 September

2009. Pension contributions paid on

behalf of the current Rector were £24,306.

He received no other beneﬁts. No pension

contributions were paid on behalf of the

former Rector. He received no other beneﬁts.

No redundancy payments were payable

to senior staff in 2009/10 (£73,875 in 2008/9)

under the terms of the College’s voluntary

redundancy scheme.

Remuneration of Other Higher Paid

Staff, Excluding Employer’s Pension

Contributions

No other member of staff, apart from

the Rector, received emoluments of more

than £100,000.

Number Number

2009/10 2008/9

Average Full-time Equivalent Staff Numbers

by Major Category:

Academic Courses and Services 163 169

Premises 33 34

Catering 12 14

Research 28 30

Administrative and Other 46 49

Total 282 296

Average FTE staff numbers in 2009/10

calculated by taking an average of actual staff

numbers at 31 July 2009 and 31 July 2010.

7. Other Operating Expenses 2009/10 2008/9

£’000 £’000

Academic Courses 2,235 2,423

Central Library & Learning Resources 126 191

Computing & Information Services 117 139

Administrative Services 882 877

Rents and Rates 638 655

Heat, Light, Water and Power 443 573

Minor Works 218 520

Other Premises Costs 1,273 1,127

Degree Shows 381 395

Grants to Students’ Union 94 81

Scholarships, Prizes and Awards 694 570

Catering 411 455

Research Projects Expenditure 928 1,035

Sponsored Projects/Exhibitions, etc. 562 436

HEFCE Student Bursaries 2,898 2,929

HEFCE Earmarked Expenditure 1,051 1,322

Other Educational Expenses 895 923

Other Expenses 159 151

Total 14,005 14,802

Other Operating Expenses Include: 2009/10 2008/9

£’000 £’000

Auditors’ Remuneration:

External Auditors in Respect

of Audit Services* 46 42

External Auditors in Respect

of Non-audit Services

34 0

Internal Audit 23 23

Hire of Machinery - Operating Leases 0 4

* Includes £42,000 (2008/9 - £39,000) in

respect of the College.

8. Interest and Other Finance Costs 2009/10 2008/9

£’000 £’000

Bank Loans not Wholly Repayable

within 5 Years 61 0

This is the interest paid on the College’s £12m

bank loan drawn in April 2010 (note 17 refers).

9. Exceptional Items

The College’s own pension scheme merged

on 1 January 2010 with the Superannuation

Arrangements of the University of London

(SAUL) scheme. On 29 January 2010,

the College made an exceptional deﬁcit

payment of £11.7m to SAUL in order to bring

the funding level of the College’s former

scheme up to that of SAUL’s scheme.

As a result of the merger of the schemes

and the deﬁcit payment, the College’s

pensions liability, which was £21.477m

at 31 July 2009 as measured on an FRS 17

basis, has been eliminated. This gave rise

to an exceptional credit of £11.7m in the

income and expenditure account and a credit

of £9.777m in the statement of recognised

gains and losses.

The College funded the exceptional

payment through a £12m bank loan

(see note 17).

10. Analysis of Expenditure by Activity 2009/10 2008/9

Staff Costs Depreciation

Operating

Expenditure Total Expenditure Total Expenditure

£’000 £’000 £’000 £’000 £’000

Academic Departments 6,579 350 2,235 9,16 4 10,122

Academic Services 905 0 866 1,771 1,657

Administration Services 1,966 0 882 2,848 2,932

General Educational 21 0 475 496 509

HEFCE Bursaries 0 0 2,898 2,898 2,929

Student Awards and Support 0 0 694 694 570

Other Services 607 0 1,054 1,661 1,611

Premises 1,19 0 1,490 2,572 5,252 5,545

Catering 417 0 411 828 906

Research Grants and Contracts 942 0 928 1,870 2,527

Earmarked Expenditure 629 0 1,051 1,680 1,649

Total Per Income and Expenditure Account 13,256 1,840 14,066 29,162 30,957

The Depreciation Charge has been funded by:

Deferred Capital Grants Released (note 18) 340

Revaluation Reserve Released (note 20) 1,342

General Income 158

Total 1,840

11. Tangible ﬁxed assets Land & Buildings Equipment

Assets in the

Course of

Construction Total

(Consolidated and College) £’000 £’000 £’000 £’000

Cost/Valuation

At 1 August 2009 66,149 1,322 4,621 72,092

Transfer to Land & Buildings 3,471 0 (3,471) 0

Additions at Cost 434 0 1,445 1,879

Disposals at Cost 0 0 0 0

At 31 July 2010 70,054 1,322 2,595 73,971

Depreciation

At 1 August 2009 11,9 69 922 0 12,891

Charge for Year 1,604 236 0 1,840

Disposals at Cost 0 0 0 0

At 31 July 2010 13,573 1,158 0 14,731

Net Book Value

At 31 July 2010 56,481 164 2,595 59,240

At 1 August 2009 54,180 400 4,621 59,201

The College’s land and buildings include

those held on long leases from the 1851

Commission, which were revalued in 1998,

the refurbished Sculpture Building and

the Sackler Building. The Sackler Building

was completed during 2009/10 and the

capital cost (£3,471,000) has been transferred

from assets in the course of construction to

land and buildings. The remainder of the costs

in assets in the course of construction relate

to Phase 2 of the College’s Battersea project.

Heritage assets

The College has an art collection that consists

mainly of works of art acquired free of charge

from former students and artists associated

with the College. Most items in the collection

had nil or little value at the date of acquisition

as the artists were not well known. Over time

some items in the collection have appreciated

in value. At 31 July 2010 there were over

1,100 items in the collection.

The College has opted to apply a policy

of non-revaluation to its heritage assets

and so these are still assumed to have a nil

value and are not disclosed in the balance

sheet. There have been no signiﬁcantly

valuable pieces acquired in recent years.

12. Other ﬁxed assets

Consolidated and College Other Fixed Asset

Investments

£’000

At 1 August 2009 332

Additions 72

Disposals 0

At 31 July 2010 404

Other ﬁxed asset investments consists

of unused income generated from the

Development Fund, an unrestricted

permanent endowment (see note 19).

13. Endowment Asset Investments Consolidated Consolidated College College

2009/10 2008/9 2009/10 2008/9

£’000 £’000 £’000 £’000

Balance at 1 August 11,179 10,18 6 11,179 6,890

Additions 5,823 6,455 5,823 4,933

Disposals (5,711) (6,038) (5,711) (4,587)

Unrealised Appreciation (note 19) 1,054 168 1,054 109

Increase/(Decrease) in Cash Balance 413 408 413 476

Balance at 31 July 12,758 11,179 12,758 7,821

Represented by:

Fixed Interest Stocks (listed) 5,226 5,266 5,226 3,862

Equities (listed) 6,047 4,985 6,047 3,256

Cash Balances 1,485 928 1,485 703

Total 12,758 11,179 12,758 7,821

14. Debtors

Consolidated

& College

Consolidated

& College

2009/10 2008/9

£’000 £’000

Amounts Falling Due within One Year

Debtors 322 371

Sackler Foundation Donation 250 500

HEFCE Matched Funding 0 251

Pre-payments 295 277

Accrued Income 92 48

959 1,447

Amounts Falling Due after One Year

HEFCE Matched Funding 1,891 1,934

Sackler Foundation Donation 250 500

2,141 2,434

Total 3,100 3,881

15. Investments

Consolidated

& College

Consolidated

& College

2009/10 2008/9

£’000 £’000

Deposits Maturing:

In One Year or Less 16,721 15,447

Between One and Two Years 1,000 0

Total 17,721 15,447

Deposits are held with banks operating

in the London market and licensed

by the Financial Services Authority.

16. Creditors: Amounts Falling Due

within One Year:

Consolidated

& College

Consolidated

& College

2009/10 2008/9

£’000 £’000

Sundry Creditors 872 1,021

Social Security and Other Taxation Payable 379 364

Accrued Expenditure 336 141

Deferred Income - Projects and Sponsorships 1,860 1,808

Other Deferred Income 675 558

Bank Loan 915 0

Provisions* 0 161

Total 5,037 4,053

*Provisions

£’000

At 1 August 2009 161

Used in Year (161)

New Provision 0

At 31 July 2010 0

The College made a provision in 2009 in

respect of redundancies following a

restructuring exercise. The full provision

was used during 2009/10.

17. Creditors: Amounts Falling Due after

more than One Year:

Consolidated

& College

Consolidated

& College

2009/10 2008/9

£’000 £’000

Bank Loan 10,825 0

Due within One to Two Years 972 0

Due within Two to Five Years 3,302 0

Due after more than Five Years 6,551 0

10,825 0

The College took out a loan from Royal Bank

of Scotland in April 2010 of £12m to fund a

deﬁcit payment That was required when the

College’s own pension scheme merged with

the SAUL scheme. The loan is being repaid

in quarterly instalments over 10 years at

a rate of 1.1% over LIBOR. The College has

entered into a hedging arrangement, an

interest rate cap, to cap the interest rate

payable on the loan at 5% to reduce exposure

to increases in interest rates.

18. Deferred Capital Grants

Consolidated

& College

Consolidated

& College

2009/10 HEFCE 2009/10 Non-HEFCE 2009/10 Total 2008/9 Total

£’000 £’000 £’000 £’000

At 1 August

Buildings 5,702 8,288 13,990 6,566

Equipment 93 233 326 551

Total 5,795 8,521 14,316 7,117

Grants Received During the Year

Buildings 1,317 31 1,348 7,53 4

Equipment 0 0 0 0

Total 1,317 31 1,348 7,534

Released to Income and Expenditure

Buildings (86) (44) (130) (110)

Equipment (93) (117) (210) (225)

Total (179) (161) (340) (335)

At 31 July

Buildings 6,933 8,275 15,208 13,990

Equipment 0 116 116 326

Total 6,933 8,391 15,324 14,316

Grants received for projects that have not

yet been completed have been deferred

and will be released to the income and

expenditure account over the life of the

projects concerned.

19. Consolidated Endowment Investments

Unrestricted

Permanent

Restricted

Permanent

Total

Permanent

Restricted

Expendable

2009/10

Total

2008/9

Total

£’000 £’000 £’000 £’000 £’000 £’000

Balances at 1 August 2009

Capital 3,358 5,530 8,888 1,707 10,595 9,657

Accumulated Income - 508 508 76 584 529

3,358 6,038 9,396 1,783 11,179 10,186

Transfers 0 (1,416) (1,416) 1,416

Additions 0 284 284 524 808 1,008

Investment Income 20 126 146 107 253 321

Expenditure (20) (117) (137) (399) (536) (504)

Increase in 375 495 870 184 1,054 168

Market Value of Investments

At 31 July 2010 3,733 5,410 9,143 3,615 12,758 11,179

Represented by:

Closing

Capital Value

Closing

Accumulated

Income Total

Scholarships, Awards &

& Prize funds 5,762 949 6 ,711

Development Fund 3,733 0 3,733

Helen Hamlyn Endowment 993 0 993

Helen Hamlyn Chair of Design 1,321 0 1,321

11,809 949 12,758

Scholarships, Awards & Prize Funds

Consists of numerous restricted permanent

and expendable endowments to fund prizes

or awards to students.

Development Fund

Up until 2010 this was a separate charity that

was consolidated into the College’s accounts,

as well as being an unrestricted permanent

endowment. In June 2010, the Charity was

formally dissolved and is now an unrestricted

permanent endowment.

Helen Hamlyn Endowment

This restricted expendable endowment funds

the activities of the Helen Hamlyn Centre.

Helen Hamlyn Chair of Design

This restricted expendible endowment funds

the Helen Hamlyn Chair of Design.

20. Revaluation Reserve Valuation Land & Buildings

£’000

At 1 August 2009 46,045

Contributions to Depreciation

At 1 August 2009 (10,749)

Released in Year (1,342)

At 31 July 2010 (12,091)

Net Revaluation Amount

At 31 July 2010 44,703

At 1 August 2009

46,045

21. Movement on Reserves 2009/10 2008/9

£’000 £’000

(Deﬁcit)/Surplus after Depreciation of Assets

at Valuation

(336) 1,689

Released from Revaluation Reserve 1,342 1,342

Historical Cost Surplus 1,006 3,031

Balance Brought Forward at 1 August (6,304) 7,6 6 4

Historic Cost Surplus for the Year 1,006 3,031

Transfer to Speciﬁc Endowments 283 183

Actuarial Loss 0 (17,18 2)

Credit Arising from Removal of Pensions

Liability

9,777 0

General Reserves at 31 July 4,762 (6,304)

22. Lease Obligations Consolidated

& College

Consolidated

& College

2009/10 2008/9

£’000 £’000

Operating Lease Commitments in Respect of

Buildings and Equipment

On Leases Expiring:

Between One and Five Years 3 4

Over Five Years 554 554

Total 557 558

23. Capital Commitments

Now that funds have been raised, the College

has started the Construction of Phase 2

of the Battersea North site development and

building work commenced in early 2010.

The total construction contract value is £15m

(inclusive of VAT). The total cost of the project

is expected to be around £21m, of which just

under £5m had been spent by 31 July 2010.

24. Pension Scheme

The College’s own pension scheme merged

on 1 January 2010 with the Superannuation

Arrangements of the University of London

(SAUL) scheme. On 29 January 2010, the

College made an exceptional deﬁcit payment

of £11.7m to SAUL in order to bring the

funding level the College’s former scheme

up to that of SAUL’s scheme.

As a result of the merger of the

schemes and the deﬁcit payment, the

College’s pensions liability, which was

£21.477m at 31 July 2009 as measured on

an FRS 17 basis, has been eliminated.

This gave rise to an exceptional

credit of £11.7m in the income and

expenditure account and a credit of £9.777m

in the statement of recognised gains and

losses. The College funded the exceptional

payment through a £12m bank loan (see

note 17).

The Royal College of Art

participates in a centralised deﬁned beneﬁt

scheme for all qualiﬁed employees with the

assets held in separate Trustee-administered

funds. It is not possible to identify the Royal

College of Art’s share of underlying assets

and liabilities of SAUL. Therefore

contributions are accounted for as if SAUL

were a deﬁned contribution scheme and

pension costs are based on the amounts

actually paid (i.e. cash amounts) in

accordance with paragraphs 8-12 of FRS17.

SAUL is subject to triennial

valuations by professionally qualiﬁed

independent actuaries. The last available

valuation was carried out as at 31 March 2008

using the projected unit credit method in

which the actuarial liability makes allowance

for projected earnings. The following

assumptions were used to assess the

past service funding position and future

service liabilities:

Valuation Method: Projected Unit

Past Service Future Service

Investment Return on Liabilities:

- Before Retirement 6.9% p.a. 7.0% p.a.

- After Retirement 4.8% p.a. 5.0% p.a.

Salary Growth * 4.85% p.a. 4.85% p.a.

Pension increases 3.35% p.a. 3.35% p.a.

* excluding an allowance for

promotional increases.

The actuarial valuation applies to SAUL as

a whole and does not identify surpluses or

deﬁcits applicable to individual employers.

As a whole, the market value of SAUL’s

assets was £1,266m representing 100%

of the liability for beneﬁts after allowing

for expected future increases in salaries.

Based on the strength of the Employer

covenant and the Trustee’s long-term

investment strategy, the Trustee and the

Employers agreed to maintain Employer and

Member contributions at 13% of Salaries

and 6% of Salaries respectively following

the valuation.

A comparison of SAUL’s assets and

liabilities calculated using assumptions

consistent with FRS 17 revealed SAUL to

be in surplus at the last formal valuation

date (31 March 2008).

The next formal actuarial valuation is due

at 31 March 2011 when the above rates will

be reviewed.

25. Reconciliation of Operating Activities Consolidated Consolidated

2009/10 2008/9

£’000 £’000

(Deﬁcit)/Surplus Before Tax (336) 1,689

Depreciation (note 11) 1,840 1,800

Deferred Capital Grants Released

to Income (note 18)

(340) (335)

Investment, Endowment & Pension

Interest (note 5)

(360) (1,568)

Decrease/(Increase) in Stocks 2 33

Decrease/(Increase) in Debtors 781 ( 3,173 )

(Decrease)/Increase in Creditors 21 366

Pension Costs 0 (70)

Proﬁt on Sale of Investments

Development Fund

0 163

Interest Payable 61 0

Payment on Joining New Pension Scheme (11,70 0) 0

Net Cash Inﬂow/(Outﬂow) from

Operating Activities (10,031) (1,095)

Change in Net Funds

At 01-Aug-09 Cashﬂows At 31-Jul-10

£’000 £’000 £’000

Cash at Bank and in Hand 672 (538) 134

Endowment Cash 928 557 1,485

1,600 19 1,619

26. Returns on Investments and

Servicing of Finance 2009/10 2008/9

£’000 £’000

Income from Endowment Investments 253 321

Other Interest Received 107 692

Income from Unrestricted Endowment

Fund 72 86

Interest Paid (52) 0

Net Cash Inﬂow from Returns on

Investments and Servicing of Finance 380 1,099

27. Capital Expenditure and

Financial Investment 2009/10 2008/9

£’000 £’000

Tangible Assets Acquired (1,879) (5,759)

Endowment Assets Acquired (5,823) (6,455)

Receipts from Sale of Endowment Assets 5,711 6,038

Deferred Capital Grants Received (note 18) 1,348 7,53 4

Endowments Additions 808 1,008

Net Cash (Outﬂow)/Inﬂow from Capital

Expenditure and Financial Investment 165 2,366

28. Analysis of Changes in Net Funds At 01-Aug-09 Cashﬂows Non cash changes At 31-Jul-10

£’000 £’000 £’000

Endowment Asset Investments (note 13) 928 557 0 1,485

Cash at Bank and in Hand 672 (538) 0 134

Total 1,600 19 0 1,619

Current Asset Investments 15,447 2,274 0 17,721

Changes in Net Funds 17,0 47 2,293 0 19,340

Financing

Loan: Due within One Year 0 0 0 915

Loan: Due after more than One Year 0 0 0 10,825

17,0 47 0 0 31,080

29. Cash ﬂows Relating to

Exceptional Items

Operating cash ﬂows include an outﬂow

of £11.7m in respect of a deﬁcit payment to

SAUL, the College’s new pension scheme.

This brought the funding level of the

College’s former pension scheme up to

that of the SAUL scheme (note 9 refers).

30. Financial Instruments

The College has unquoted equity investments

of £475,000 which are held at cost. These

consist of investments in eight start-up

companies supported by the Design London

Business Incubator. One of these companies

has been wound up during the year.

The objective is to create new ﬁrms

that can attract further funding, create

intellectual assets that can be licensed,

or sold to other ﬁrms.

The Design London Business Incubator

aims to create new design entrepreneurs

and business innovators.

These investments have been recognised

as equity investments in the Balance Sheet

and they have subsequently been impaired

to nil.

The College has entered into a hedging

arrangement, an interest rate cap, which

caps the interest rate payable on the £12m

loan at 5% to reduce exposure to interest

rate increases (see note 17).

31. Related Party Transactions

Due to the nature of the College’s operations

and the make-up of its Council and staff,

it is inevitable that transactions will take place

with external bodies, trusts and organisations

with which Council members and/or staff

may be associated. The College maintains

a Register of Interests in which all such

interests are declared, and all transactions

are conducted at arms’ length and in

accordance with the College’s ﬁnancial

regulations. Payments of £110.60 in

respect of incidental expenses were made

to Council members during the year.

32. Access Funds

Access Funds have not been included in the

Income and Expenditure Account:

2009/10 2008/9

£’000 £’000

Balance Brought Forward as at 1 August 13 8

Received from HEFCE 20 30

Payments Made to Students (29) (25)

Balance Carried Forward as at 31 July 4 13

Grants totalling £311,471 were received from

HEFCE during the year for work undertaken

by the National Film & Television School.

These grants were passed on to the NTFS,

and have not been included in the College’s

Accounts. The College receives an

administration charge for this that is shown

in other income.

33. Changes in Group Structure

The 2009 consolidated ﬁgures on the Balance

Sheet include the RCA’s former charitable

subsidiary the RCA Development Fund. In

2009/10 the RCA wound up the Development

Fund as a separate charity but retained

the funds as an unrestricted endowment

(note 19 refers).

In 2009/10 a previously dormant

subsiduary, the RCA Design Group Ltd

(registered in England) was revived and the

College entered into an agreement with it

which provides for RCA Design Group Ltd

to act as the developer of the Dyson Building

at Battersea. The 2010 consolidated ﬁgures

on the balance sheet include the RCA Design

Group Ltd.

Royal College of Art

Annual Review 2009/10

Financial Statements

For the Year Ended 31 July 2010

Editor

Octavia Reeve

Design

Julia

www.julia.uk.com

Website