RNCM Financial Statements 2008

Financial Statements 31 July 2008

ROYAL NORTHERN COLLEGE OF MUSIC CONTENTS Page The Patron, The President and The Governors 1 Officers and professional advisers 2 Operating and Financial Review 3 Corporate Governance Statement 8 Responsibilities of the Board of Governors 11 Report of the Independent Auditor to the Board of Governors 13 Statement of principal accounting policies 14 Consolidated income and expenditure account 18 Statement of consolidated total recognised gains and losses, note of historical cost surpluses and deficits 19 Balance sheet 20 Consolidated cash flow statement 21 Notes to the accounts 22

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ROYAL NORTHERN COLLEGE OF MUSIC PATRON HER MAJESTY THE QUEEN PRESIDENT THE DUCHESS OF KENT (to 31 December 2007) GOVERNORS Michael J Oglesby DL (Chairman) 1, 3, 4

Philip Ramsbottom (Deputy Chairman) 1, 3, 4

Professor John Allen Ben Lloyd Evans (President of the Students’ Union) Josephine Burns 1, 4

Dame Alexandra Burslem 2, 3

Christopher Cox 2Chris Craker Professor Kelvin Everest 3, 4

Professor David Fanning 2Roger Goddard 1

Professor Edward Gregson (Principal) 1, 3, 4, 5

John Jesky 1

Katharine Kent Professor Malcolm Layfield 4, 5Colin Lomas (to 13 November 2007)Colin Matthews Alex Robertson (from 1 January 2008) Anna Wright Martin Vander Weyer 1

Kris Worsley (to 31 December 2007) 1 Member of Finance & General Purposes Committee 2 Member of Audit Committee 3 Member of Remuneration Committee 4 Member of Nominations Committee 5 Member of Academic Board

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ROYAL NORTHERN COLLEGE OF MUSIC OFFICERS AND PROFESSIONAL ADVISERS

PRINCIPAL Professor Edward Gregson

BMus, GRSM, LRAM, Hon.DMus (Sunderland), Hon.DArts (MMU), Hon.DMus (Lancaster), Hon.DUniv (UCE Birmingham), FRAM, FDCA, HonFLCM, FRNCM, FRCM

DEPUTY PRINCIPAL

Colin Beeson BA (Hons), PhD, FRNCM

VICE-PRINCIPAL

Professor Linda Merrick GRSM(Hons), MMus, PhD, ARAM, LRAM, FLCM, FRSA, HonVCM, ILTM

DIRECTOR OF FINANCE David Tyrrell MA, CPFA

DIRECTOR OF OPERATIONS Sue Baines BA (Hons), MBA

DIRECTOR OF PERFORMANCE AND PROGRAMMING

Toby Smith BA (Hons)

DIRECTOR OF DEVELOPMENT Kate Seeckts BA (Hons), PGCert

CLERK TO THE BOARD OF GOVERNORS

Howard Keable BSc (Hons), PhD

BANKERS Royal Bank of Scotland Precinct Centre Oxford Road Manchester M13 9PH SOLICITORS George Davies Fountain Court 68 Fountain Street Manchester M2 2FB AUDITORS KPMG LLP Chartered Accountants St James’ Square Manchester M2 6DS ADDRESS 124 Oxford Road Manchester M13 9RD A Higher Education Corporation established under the terms of the Education Reform Act 1988

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ROYAL NORTHERN COLLEGE OF MUSIC OPERATING AND FINANCIAL REVIEW Nature, Objectives and Strategies Legal status The Royal Northern College of Music is an independent Corporation, established as a Higher Education Corporation under the terms of the Education Reform Act 1988 and the Further and Higher Education Act 1992. Its objectives, powers and framework are set out in the Articles of Government, the current version of which was approved by the Governors in November 2004, and by the Privy Council in 2005. Implementation of Corporate Plan The College developed a Corporate Plan in 2005 which covers the period from 2005-10. The Governing Body of the College monitors the performance of the College against this plan. The overarching goals within the plan were

• to strengthen the position of the RNCM as a world-class conservatoire. • to educate, train and inspire students to meet the challenges of a professional career in music within

an environment informed by research at the highest level. • to support the College’s activities by providing an infrastructure of the highest quality.

These overall objectives are divided into 85 individual activities. The latest report to the Board of Governors will indicate that only 4 of these are not currently at the required position, and that work is underway to rectify this. The College has already begun developing a new Corporate Plan, to cover the period 2009/14. Financial objectives The primary financial objective of the institution, as contained within the Corporate Plan, is to “budget for sufficient annual surpluses to ensure the College’s continuing financial stability and sustainability”. Financial position The College generated a consolidated operating deficit of £0.6m during 2007/08 (2006/07 – consolidated surplus of £0.6m). The key drivers behind this were a failure to recruit to target for overseas students and the impact of 2 pay awards during the year as a part of the National Pay Framework. This information was transmitted to the Board during the year through the presentation of updated financial forecasts at each of the meetings of the Finance and General Purposes Committee. The College is taking a number of steps to address this position, and is currently projecting the achievement of a surplus in the financial year 2008/09. The College has accumulated reserves (excluding pension provision) of £6.6m in its I&E reserve (2006/07 - £7.0m), which equates to 48% of turnover for the year (2006/07 – 47%). The College has investments and other assets of £10.9m (2006/07 - £9.5m) which are held primarily for the purpose of financing scholarships, prizes and bursaries for students at the College. The vast majority of these are unavailable for use in support of the College’s running expenses. The College is reliant upon funding from the Higher Education Funding Council (HEFCE). The following table illustrates the extent of this 2007/08 2006/07 £m £m Income from HEFCE 6.2 6.4 Total Income 13.8 14.9 % of Income from HEFCE 45% 43% Cash flows The operating cash flow of the College shows a net cash inflow of £484,000 in the funds available.

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ROYAL NORTHERN COLLEGE OF MUSIC OPERATING AND FINANCIAL REVIEW Current and Future Developments and Performance Student recruitment The principal activity of the College is the provision of higher education. The College recruited a total of 663 students in 2007/08 (source – HESA return), compared to a registered total of 696 in 2006/07. This fell short of the numbers which were projected in the College’s budget for the year, and contributed significantly to the deficit recorded for the year. This reduction was particularly noticeable in the recruitment of students from outside the EU, whose numbers fell from 115 to 99. This resulted in projections of student numbers for 2008/09 and onwards being revised downward, as it became apparent that the original target of 135 non-EU students which was contained in the International Strategy was not likely to be realised. Recruitment for 2008/09 has been much more positive. A total of 703 students have been enrolled for the current year, and targets both for recruitment of UK/EU students against the targets within the funding agreement with HEFCE and the projected numbers of overseas students have been exceeded. The College has also met its target for the generation of student fees in full, which compares favourably to a shortfall of approximately £200,000 during the financial year 2007/08. Fundraising and sponsorship The Awards Fund received, by way of donations, the sum of £2.3m for investment, the income from which will fund additional awards in future years. Major donors included the late Kathleen Wright, to endow the F W Wright Piano Scholarship, the late John Halsall, the late John Fewkes, the late Gordon Lyth and Muriel Krystofowicz. The College is also undertaking significant amounts of promotional activity, particularly in China and South-East Asia. A visit took place in October 2008, leading to the College becoming the first overseas educational institution to gain charitable status within China itself, and linking with major Government bodies in Shanghai which should result in fundraising adventures and has certainly done much to increase the awareness of the RNCM within China. Curriculum developments (future) The College continues to develop the curriculum offered at both undergraduate and postgraduate levels. The postgraduate program is being reworked on a more varied modular design to allow wider choice, and the College has, in 2008/09, successfully started a Foundation Degree course in association with Access to Music. An additional allocation of student numbers was agreed with HEFCE for this program in 2008/09, and the College will be seeking a further allocation in order to recruit another cohort onto this 2 year program in 2009/10. Resources The College has various resources which it can deploy in pursuit of its strategic objectives. Financial The College has £28.8m of net assets (including £2.4m of pension liability) and £3.5m of long term liabilities. People The College has 227 staff (expressed as Full Time Equivalent), of whom 168 are academic or direct academic support staff. Reputation The College has an excellent reputation locally, nationally and internationally. The maintenance of this positive profile is essential to the College’s strategic aims, and to the achievement of the 3 aims of the Corporate Plan for 2005-10.

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ROYAL NORTHERN COLLEGE OF MUSIC OPERATING AND FINANCIAL REVIEW Principal Risks and Uncertainties The College has undertaken further work during the year to develop and embed the system of internal control, including financial, operational and risk management which is designed to protect the College’s assets and reputation. Based on the strategic plan, the Risk Management Group undertakes a review of the risks to which the College is exposed. They identify systems and procedures, including specific preventable actions which should mitigate any potential impact on the College. The internal controls are then implemented and the subsequent year’s appraisal will review their effectiveness and progress against risk mitigation actions. A risk register is maintained at the College level which is reviewed at least annually by the Audit Committee and more frequently where necessary. The risk register identifies the key risks, the likelihood of those risks occurring, their potential impact on the College and the actions being taken to reduce and mitigate the risks. The College is currently reviewing its risk management processes with the assistance of its internal auditors in order to continue to develop them in as efficient a manner as possible. A full business planning process will be implemented during 2008/09 which will build up the risks facing the College from departmental level upwards, which should ensure that all risks are captured and considered. Outlined below is a brief summary of the principal risk factors which may affect the College. Not all of the factors are within the College’s control and other factors than those listed below may also adversely affect the institution. Government funding review The College receives more funding than a standard HEI for students of the same band due to the recognition that the method of delivery is significantly more expensive. A review of this funding was instituted by HEFCE in 2008, and a formal submission made to the relevant committee during September 2008. The results of this review have yet to be announced, but the submitted document demonstrated that the extra amount expended in the provision of RNCM’s curriculum model was more than the extra amount of funding received. It is clear that any significant reduction in the £3.75m of additional funding to be received in 2008/09 would have a significant impact upon the College. HEFCE have stated that the aim of the review is not to destabilize institutions currently in receipt of exceptional funding. Tuition fee policy The College is constrained by its Access Agreement with the Office for Fair Access (OFFA) as to the amount which can be charged to home/EU students. Any significant changes to the national tuition fee policy, such as the removal of the cap on tuition fees, may increase the amount which could be generated, but would also have a negative impact upon the ability of students to afford the fees, which would manifest itself in lower recruitment, a reduction in the College’s proportion of students recruited from neighbourhoods defined as ‘widening participation’ and a potential for increased applications to the College’s bursary funds. Maintain adequate funding of pension liabilities The Financial Statements disclose the College’s share of the pension scheme deficit on the Greater Manchester Pension Scheme, which has been calculated by an independent actuary in accordance with FRS 17. The College’s share of the overall deficit has increased to £2.4m (2006/07 - £0.7m), but this figure is outside the College’s control and is subject to significant fluctuations from one year to the next. The GMPF was subject to a full independent valuation in 2007, and was 100% funded.

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ROYAL NORTHERN COLLEGE OF MUSIC OPERATING AND FINANCIAL REVIEW General Economic Outlook The worsening economic climate currently prevailing must be taken into consideration when the College forecasts recruitment from overseas in particular. The College is predicting a slight decrease against the original long-term strategy in the number of non-EU students to be recruited for 2009/10, but continual efforts to increase the profile of the College around the world (including visits to China and other countries in the Far East) are designed to offset this. In addition, the continued strength of the College’s Awards and Endowment Funds will allow the support of students (both home/EU and overseas) who have met the College’s audition requirements but who may be otherwise prevented from enrolling at the College due to lack of funding. Associated Board of Royal Schools of Music (ABRSM) The College has a 25% stake in the ABRSM, and receives significant payments during each financial year from it. The ABRSM has large proportions of its turnover in overseas markets, so is therefore vulnerable not only to the general economic outlook referred to above, but also to any currency fluctuations or changes in turnover patterns which are specific to that region. Stakeholder Relationships

In line with other colleges and with universities, the Royal Northern College of Music has many stakeholders. These include:

Students;

Funding Councils;

Staff;

Local employers (with specific links);

Local Authorities;

Government Offices/ Regional Development Agencies;

The local community;

Other HE institutions;

Trade unions;

Professional bodies.

Our partner organizations

The College recognises the importance of these relationships and engages in regular communication with them through the College Internet site and by meetings.

Environmental Policy The College acknowledges a responsibility for, and a commitment to, the protection of the environment at all levels. The RNCM is committed to the principle and practice of environmental protection and sustainable development focusing on continuing improvement and reducing pollution and emissions. The RNCM will seek to improve its environmental performance in the areas of academic programmes, infrastructure and operations, communications and facilities. The College will endeavour to exceed the requirements of relevant environmental legislation and will:

• promote purchasing practices which favour those products and services which cause the least harm to the environment;

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ROYAL NORTHERN COLLEGE OF MUSIC OPERATING AND FINANCIAL REVIEW

• continue to reduce the consumption of primary raw materials (including fossil fuels, water and energy) and seek to enhance the contribution of energy efficiency measures, recyclable components and renewables;

• implement sound long-term waste management strategies to reduce overall waste production and

increase the recycled component of the waste stream;

• continue to encourage and facilitate modes of transport by staff and students which minimise environmental impact, and to apply environmentally friendly principles to the use of vehicles used on College business;

• develop awareness campaigns to encourage new working methods to reduce the impact of College

activities on the environment;

• develop and maintain the grounds and buildings of the College in an environmentally sensitive way, seeking to protect and enhance natural habitats and biodiversity where possible.

A series of targets will be identified annually with progress monitored and reported to the Senior Management Committee and to the Board of Governors. Equal opportunities and employment of disabled persons The College is committed to ensuring equality of opportunity for all who learn and work here. We respect and value positively differences in race, gender, sexual orientation, ability, class and age. We strive vigorously to remove conditions which place people at a disadvantage and we will actively combat bigotry. This policy will be resourced, implemented and monitored on a planned basis. The College’s Equal Opportunities Policy, including its Race Relations Policies, is published on the College’s internet site. The College considers all applications from disabled persons, bearing in mind the aptitudes of the individuals concerned. Where an existing employee becomes disabled, every effort is made to ensure that employment with the College continues. The College's policy is to provide training, career development and opportunities for promotion which are, as far as possible, identical to those for other employees. Disclosure of Information to Auditors The members who held office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information of which the College’s auditors are unaware; and each member has taken all the steps that he or she ought to have taken to be aware of any relevant audit information and to establish that the College’s auditors are aware of that information. Chairman of the Board of Governors 26 November 2008

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ROYAL NORTHERN COLLEGE OF MUSIC CORPORATE GOVERNANCE STATEMENT The Royal Northern College of Music is an independent corporation, established as a Higher Education Corporation under the terms of the Education Reform Act 1988 and the Further and Higher Education Act 1992. Its objects, powers and framework of governance are set out in the Articles of Government, the current version of which was approved by the Board of Governors (‘the Board’) in November 2004, and by the Privy Council in April 2005. The College receives substantial public funding to support its activities, and is regulated by the Higher Education Funding Council for England (HEFCE) through a Financial Memorandum (HEFCE 2006/24), which was updated and re-issued by HEFCE in June 2008 (HEFCE 2008/19). Under the terms of this Financial Memorandum, the Principal is the accounting officer and in that capacity can be summoned to appear before the Public Accounts Committee of the House of Commons. The Board is committed to conducting its business in accordance with the seven principles identified by the Committee on Standards in Public Life (selflessness, integrity, objectivity, accountability, openness, honesty and leadership). It also endeavours to comply with the guidance to institutions of higher education produced by the Committee of University Chairmen in its Guide for Members of Governing Bodies of Universities and Colleges in England, Wales and Northern Ireland (HEFCE 2004/40). The Board is also aware of its obligations under the Financial Memorandum with HEFCE and to take into account any relevant guidance on accountability, probity or value for money issued from time to time by HEFCE, the National Audit Office or the Public Accounts Committee. The Board is committed to exhibiting best practice in all aspects of corporate governance. The College has implemented the full requirements of the guidance set out in Section 1 of the Combined Code on Corporate Governance (the Turnbull Report) issued by the London Stock Exchange in June 1998. The Board acknowledges its responsibility for the College’s system of internal control and for reviewing its effectiveness. This system, which covers all aspects of internal control, including financial, operational, compliance and the management of risk, is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only, therefore, provide reasonable and not absolute assurance against material misstatement or loss. The College’s risk management arrangements are currently being reviewed, with the assistance of the Internal Auditor, in the context of developing a new Business Planning process, to be overseen by a reconstituted risk management group. The financial statements are prepared on a going concern basis as the Board is satisfied that, at the time of approving the financial statements, the College has the resources to continue in business for the foreseeable future. A summary of the College’s governance and management arrangements is given below. The Board of Governors The Board of Governors (‘the Board’), which normally meets at least four times a year, is constituted in accordance with the College’s Instrument of Government and has a clear majority of independent members. There is a clear separation between the roles of the non-executive Chairman and Deputy Chairman and the College’s chief executive officer, the Principal, who is a member of the Board. Academic staff, non-academic staff and the student body are also represented on the Board. The Board approves the College’s mission statement and corporate plan and provides overall financial and organisational control. It has a number of committees including the Finance and General Purposes Committee, the Audit Committee, the Remuneration Committee, the Nominations Committee, and other ad hoc committees as may be required from time to time. A significant proportion of the membership of these committees consists of independent and co-opted members of the governing body. The chairmen are normally selected from the co-opted and independent members. The responsibilities of the Board in respect of the financial management of the College and these financial statements are set out on pages 11-12.

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ROYAL NORTHERN COLLEGE OF MUSIC CORPORATE GOVERNANCE STATEMENT The Academic Board The Academic Board, which normally meets at least four times a year, is constituted in accordance with the College’s Articles of Government and comprises members of the academic staff of the College, members of the student body and two co-opted external academic members. It is chaired by the Principal and is responsible for establishing policies relating to research, scholarship and teaching at the College. These include academic criteria for the admission of students, approval of the content of the curriculum, approval of policies and procedures for the examination and assessment of students, for appointing and reviewing internal and external examiners, and for monitoring the quality of academic programmes. The Academic Board is also the final authority for the determination of student progression and for the granting of academic awards in its own name. In addition, it initiates and considers proposals for the development of the academic activity of the College and advises the Principal and the Board thereon. Finance and General Purposes Committee This Committee comprises not fewer than three independent members of the Board, the Principal and at least two other Board members as determined by the Board. The Committee, which is established to oversee all matters relating to the finances and business concerns of the College, meets at least four times each year and receives reports relating to finance, estates and facilities and human resources (through a Human Resources Sub-Committee). The Board has delegated to the Committee the authority to act on its behalf in a number of areas and holds it accountable through the presentation of its minutes and other reports. Matters affecting the mission and character of the College are referred to the Board, as are other matters that are specified in the Articles of Government as being reserved to the Board. Specifically, the Committee recommends to the Board the College’s annual revenue and capital budgets for approval, monitors performance in relation to approved budgets and recommends to the Board the annual financial statements for approval, having confirmed compliance with relevant statutory and regulatory provisions. In addition, the Committee is authorised by the Board to act on its behalf in respect of certain matters relating to the RNCM Trust Funds. Audit Committee The Committee comprises a Chairman, who is an independent member of the Board, two other independent or co-opted members of the Board and two co-opted external members with relevant experience. Senior executive officers are invited to attend meetings of the Audit Committee as necessary, but the Committee also has the opportunity to meet with the internal and external auditors without such officers being present. The Committee meets at least three times a year; receiving reports from the internal and external auditors of the College, and reviewing their work. The Committee considers recommendations for the improvement of the College’s systems of internal control and receives the auditors’ opinion on the adequacy of those systems. The Committee also oversees the College’s Value for Money Strategy. It reviews the external auditor’s report to management on the College’s annual financial statements, together with the accounting policies.

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ROYAL NORTHERN COLLEGE OF MUSIC CORPORATE GOVERNANCE STATEMENT Remuneration Committee The Committee comprises a Chairman, who is the Chairman of the Board of Governors, and three other independent members of the Board, including the Deputy Chairman. The Committee meets at least annually to determine the remuneration of the Principal and that of such other senior staff of the College as the Board has agreed should come within its remit. Nominations Committee The Committee comprises the Chairman of the Board, three other independent or co-opted members of the Board, an academic member of the Board, and the Principal. The Committee meets at least annually and advises the Board in relation to the appointment of members of the Board and its Committees, unless authority to make an appointment rests elsewhere. Risk Management Group The Risk Management Group is a small team of senior executives of the College with representation of the Board of Governors that prepares the annual risk catalogue, reviews the strategic risks faced by the College, prepares the Annual Strategic Risk Assessment and Action Plan for presentation to the Board. The Principal and the Management Teams The Principal is responsible to the Board for the organisation, direction and management of the College. Although the ultimate responsibility for what is done in this regard rests with the Board, the Principal exercises considerable influence upon the development of institutional strategy, the identification and planning of new developments, and the shaping of institutional ethos. The Principal is supported by: • The Directorate Team, consisting of (in addition to the Principal), the Deputy Principal, Vice-Principal,

Director of Finance, Director of Operations, Director of Performance and Programming and the Director of Development, which meets formally at least fortnightly during term time to discuss the corporate and academic management issues of the College, including those related to the financial, physical, and human resources of the College.

• Four Management Teams, each chaired by a member of the Directorate Team, as follows: - Academic Management Team - Operations and Finance Management Team - Promotions Management Group - CETL (Centre for Excellence in Teaching & Learning) Management Team These teams meet regularly, deal with issues in their respective areas of competence, and report to the Directorate Team. [Note: During the course of the 2007-08 session, the post of Director of Finance and Support Services was replaced by two new posts, Director of Finance and Director of Operations, but a single Management Team for these areas of activity has been retained.] Register of Interests The College maintains a Register of Interests of Members of the Board and of the Senior Officers, which may be consulted by arrangement with the Clerk to the Board. Chairman of the Board of Governors

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26 November 2008

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ROYAL NORTHERN COLLEGE OF MUSIC RESPONSIBILITIES OF THE BOARD OF GOVERNORS In accordance with the Education Reform Act 1988, the Board of Governors 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 Board of Governors is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the College and to enable it to ensure that the financial statements are prepared in accordance with the Education Reform Act 1988, the Statement of Recommended Practice on Accounting in Higher Education Institutions and other relevant accounting standards. In addition, within the terms and conditions of a Financial Memorandum agreed between HEFCE and the Board of Governors of the College, the Board of Governors, 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 College and of the surplus or deficit and cash flows for that year. In causing the financial statements to be prepared, the Board of Governors 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 College will continue in operation. The Board is satisfied that the College 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 Board of Governors has taken reasonable steps to: * ensure that funds from the Higher Education Funding Council for England are used only for the

purposes for which they have been given and in accordance with the 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 and which enable it to ensure that the financial statements are prepared in accordance with relevant legislation of incorporation and other relevant accounting standards;

* safeguard the assets of the College and prevent and detect fraud; * secure the economic, efficient and effective management of the College 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 : * clear definitions of the responsibilities of heads of academic and administrative departments;

* a comprehensive medium and short-term planning process, supplemented by detailed annual income, expenditure, capital and cash flow budgets;

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ROYAL NORTHERN COLLEGE OF MUSIC RESPONSIBILITIES OF THE BOARD OF GOVERNORS * regular reviews of academic performance and regular reviews of financial results involving 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 as determined by the Board; * comprehensive Financial Regulations, detailing financial controls and procedures approved by the

Board; The Audit Committee, on behalf of the Board, has reviewed the effectiveness of the College’s system of internal control. This review is informed by the work of the internal auditors, by the contributions of the College managers with responsibility for the development and maintenance of the financial control framework, and by comments made by the external auditors in their management letter and other reports. The system of internal control has been in place throughout the year 31 July 2008. Any system of internal control can, however, only provide reasonable, but not absolute, assurances against material misstatement or loss.

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REPORT OF THE INDEPENDENT AUDITOR TO THE BOARD OF GOVERNORS OF ROYAL NORTHERN COLLEGE OF MUSIC We have audited the consolidated financial statements of the Royal Northern College of Music for the year ended 31 July 2008 which comprise the statement of principal accounting policies, the consolidated income and expenditure account, the statement of group total recognised gains and losses, the statement of group historical costs surpluses and deficits, the balance sheets, the consolidated cash flow statement and the notes to the financial statements. These financial statements have been prepared under the accounting policies set out herein. This report is made solely to the Members of the Board of Governors. Our audit work has been undertaken so that we might state to the Members of the Board of Governors those matters we are required to state to them in an auditors’ 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 College and the Members of the College's Board of Governors as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of the Board of Governors and Auditors The Board of Governors' responsibility for preparing the financial 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 United Kingdom law and accounting standards is set out in the Statement of Responsibilities of the Board of Governors. 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 in our opinion, income from funding bodies, grants and income for specific purposes and from other restricted funds administered by the College, have been properly applied in all material respects for the purposes for which they were received, and whether income has been applied in all material respects in accordance with the College’s statutes and where appropriate in accordance with the financial memorandum with the Higher Education Funding Council for England. We also report to you if, in our opinion, the Report of the Board of Governors is not consistent with the financial statements, if 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 other information contained in the Financial Statements and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the report of the Board of Governors and the Operating and Financial Review. Our responsibilities do not extend to any other information. Basis of Audit 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 Council in the preparation of the financial 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 which 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 Group and College as at 31 July 2008, and of the surplus of income over expenditure for the year then ended and 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, grants and income for specific purposes and from other restricted funds administered by the College during the year ended 31 July 2008 have been applied only for the purposes for which they were received.

• In all material respects, income during the year ended 31 July 2008 has been applied in accordance with the

College's statutes and where appropriate in accordance with the Financial Memorandum with the Higher Education Funding Council for England dated 1 October 2003.

KPMG LLP REGISTERED AUDITORS CHARTERED ACCOUNTANTS Manchester

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ROYAL NORTHERN COLLEGE OF MUSIC STATEMENT OF PRINCIPAL ACCOUNTING POLICIES Year ended 31 July 2008 The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements. 1. Accounting convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of fixed assets brought into the College on incorporation, and in accordance with both the Statement of Recommended Practice: Accounting in Further and Higher Education Institutions (SORP) and applicable Accounting Standards. 2. Basis of Consolidation The consolidated financial statements include the College and its Trust funds; Awards Fund, Endowment Fund, Eva Turner Fund, and Annie Ridyard Scholarship because the funds are effectively controlled by the College. Intra-group transactions are eliminated fully on consolidation. In accordance with Financial Reporting Standard (FRS) 2, the activities of the student union have not been consolidated because the College does not control those activities. All financial statements are made up to 31 July 2008. 3. Recognition of Income HEFCE recurrent grants of a revenue nature are credited to income and expenditure account on a receivable basis. Grants of a capital nature are recognised as deferred income and credited to income and expenditure account over the useful economic life of the related assets. Income from tuition fees is recognised in the period for which it is received and includes all fees payable by students or their sponsors. All income from short-term deposits is credited to the income and expenditure account in the period in which it is earned. Income from specific endowments not expended in accordance with the restrictions of the endowment is transferred from the income and expenditure account to specific endowments. 4. Pension schemes The College participates in three pension schemes, the Teachers Pension Scheme (TPS) and the Universities Superannuation Scheme (USS) for academic staff and the Greater Manchester Pension Fund (GMPF) for non-academic staff. All are independently administered defined benefit schemes which are externally funded and contracted out of the State Earnings-Related Pension Scheme (SERPS). Contributions to the TPS and USS are calculated so as to spread the costs of pensions over employees’ working lives with the College in such a way that the pension cost is a substantially level percentage of current and future pensionable payroll. The contributions are determined by qualified actuaries on the basis of quinquennial valuations for the TPS and triennial valuations for the USS, using a prospective benefit method. The TPS and USS are multi-employer schemes and the College is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis. The TPS and USS are therefore treated as defined contribution schemes and the contributions recognised as they are paid each year. The assets of the GMPF are measured using closing market values. GMPF liabilities are measured using the projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The increase in the present value of the liabilities of the scheme expected to arise from employee service in the period is charged to the operating surplus. The expected return on the scheme’s assets and the increase during the period in the present value of the scheme’s liabilities, arising from the passage of time, are included in pension finance costs. Actuarial gains and losses are recognised in the statement of total recognised gains and losses.

16

ROYAL NORTHERN COLLEGE OF MUSIC STATEMENT OF PRINCIPAL ACCOUNTING POLICIES Year ended 31 July 2008 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 are 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 period of the leases. 6. Land and Buildings Land and buildings brought into the College on incorporation are stated at valuation; subsequent additions are stated at cost. Land is held freehold and is not depreciated as it is considered to have an indefinite useful life. Buildings are depreciated over their expected useful economic lives of 50 years. FRS 15 “Tangible Fixed Assets” was implemented during the financial year ended 31 July 2001. The College has taken advantage of the transitional arrangements within FRS 15 permitting the carrying amounts of the land and buildings to reflect the previous valuation. The basis of valuation is depreciated replacement cost and the valuation on 1 April 1989 was performed by the District Valuer, Manchester. This valuation has not been updated during the year. 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. Assets under construction: Assets under construction are accounted for at cost, based on the value of architects’ certificates and other direct costs, incurred to 31 July. They are not depreciated until they are brought into use. Subsequent expenditure on existing fixed assets: Where significant expenditure is incurred on buildings it is charged to the income and expenditure account in the period it is incurred, unless it meets one of the following criteria, in which case it is capitalised and depreciated on the relevant basis:

• Market value of the fixed asset has subsequently improved • Asset capacity increases • Substantial improvement in the quality of output or reduction in operating costs • Significant extension of the asset’s life beyond that conferred by repairs and maintenance

7. Investments Listed investments held as fixed assets or endowment assets are stated at market value. Current asset investments, which may include listed investments, are stated at the lower of cost and net realisable value. 8. Plant and Machinery Primary heating plant acquired by the College is depreciated over its expected useful life of 25 years.

17

ROYAL NORTHERN COLLEGE OF MUSIC STATEMENT OF PRINCIPAL ACCOUNTING POLICIES Year ended 31 July 2008 9. Equipment Equipment costing less than £1000 per individual item or group of related items is written off in the year of acquisition. All other equipment is capitalised. Equipment brought into the College on incorporation is stated at valuation. The transitional arrangements within FRS 15 “Tangible Fixed Assets” have been adopted such that the carrying amounts of equipment reflect previous valuations. These valuations have not been updated during the year. The bases of valuation are as follows:- a). Fixtures, Fittings and Equipment were valued on an existing use basis as at 31 December 1988 as

determined by Thornburn & Co. b). Musical Instruments, excluding organs and pianos, are at 1 April 1989 insurance value. Organs and

pianos were valued by the Head of the School of Keyboard Studies at 1 April 1989. c). Recording Equipment was valued by the Head of Department at 1 April 1989. Additions subsequent to these valuations are stated at cost. Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets. The rates of depreciation are as follows :- Fixtures and fittings 10% Computer and recording equipment 20% - 33% 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 grants and released to income over the expected useful life of the equipment. 10. Musical instruments Musical instruments, except for string and the Henry Watson Museum collection are depreciated at the following rates: Pianos and organs 10% Woodwind and brass instruments 10% Percussion, keyboard and electronic 10% Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets. Depreciation is not provided on string instruments and the Henry Watson Museum collection since the estimated remaining useful economic life of the tangible fixed assets exceeds 50 years and any depreciation charge would be deemed immaterial. In accordance with FRS 11 “Impairment of Fixed Assets and Goodwill” the carrying value of these assets are subject to an annual impairment review. 11. Stocks The stocks are catering, bar and promotional items and are valued at the lower of cost and net realisable value. 12. Maintenance of Premises The cost of routine corrective maintenance is charged to income and expenditure account as incurred.

18

ROYAL NORTHERN COLLEGE OF MUSIC STATEMENT OF PRINCIPAL ACCOUNTING POLICIES Year ended 31 July 2008 13. Taxation Status The College has charitable status under the Education Reform Act 1988 and believes that it is exempt from income tax, corporation tax and capital gains tax. No such exemption applies in respect of value added tax. For this reason the College is generally unable to recover input VAT it suffers on goods and services purchased. Non-pay expenditure is therefore shown inclusive of VAT with any partial recovery netted off against these figures. 14. Royal Northern College of Music Students’ Union The financial statements do not consolidate those of the Royal Northern College of Music Students’ Union as the College has no financial interest and no control or significant influence over policy decisions. Nevertheless, the Board of Governors requires the Students’ Union to submit its audited Report and Accounts for scrutiny annually and satisfies itself that a sound budget is prepared for the ensuing year, before the grant to the Union, which is disbursed proportionately on a termly basis, is released. 15. Deferred Income The premium received by the College on the grant of the long lease has been deferred and is being released over a 30 year period being the period of the lease up to the first break point. 16. Agency Arrangements The College acts as an agent in the collection and payment of Access Funds. Related payments received from the HEFCE and subsequent disbursements to students are excluded from the Income and Expenditure Account and are shown separately in note 21, except for up to 5% of the grant received which is available to the College to cover administration costs relating to the grant. 17. Liquid Resources Liquid resources include sums on short-term deposits with recognised banks, building societies and government securities. 18. Provisions Provisions are recognised when the College 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.

ROYAL NORTHERN COLLEGE OF MUSIC CONSOLIDATED INCOME AND EXPENDITURE ACCOUNT - - Year ended 31 July 2008

Note 2008 2007£'000 £'000

INCOME

Funding council grants 1 6,156 6,419 Tuition fees 2 3,606 3,556 Other operating income 3 3,218 3,336 Endowment and resticted income and interest receivable 4 810 1,593

Total income 13,790 14,904

EXPENDITUREStaff Costs 5 8,287 7,699 Depreciation 8 948 939 Other operating expenses 6 4,997 4,947 Interest payable 7 162 67

Total expenditure 14,394 13,652

(Deficit) / Surplus after depreciation of assets at valuation and before and after tax (604) 1,252

Share of surplus on continuing operations of associate 32 131

(Deficit) / Surplus after depreciation of assets at valuation and after tax (572) 1,383

Surplus income transferred to restricted funds 16 (17) (797)

Total (deficit) / surplus for year (589) 586

The income and expenditure account is in respect of continuing activities.

MOVEMENT ON CONSOLIDATED INCOME AND EXPENDITURE ACCOUNTYear ended 31 July 2008

Note 2008 2007 2008 2007£'000 £'000 £'000 £'000

Balance at 1 August as previously stated 5,364 3,207 1,884 513

(Deficit) / Surplus (572) 1,383 (923) 29

Surplus income transferred to restricted funds 16 (17) (797)Actuarial (loss)/gain in respect of pension scheme 22 (1,563) 1,182 (1,563) 1,182

410 215

(10) 14 Release from revaluation reserve 17 160 160 160 160

Balance at 31 July 3,772 5,364 (442) 1,884

CollegeConsolidated

Share of actuarial gain on pension scheme of associateShare in (decrease) / increase in value of fixed asset investments of associate

19

ROYAL NORTHERN COLLEGE OF MUSIC

STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSESYear ended 31 July 2008

Note 2008 2007£'000 £'000


Pension actuarial (loss) / gain 22 (1,563) 1,182 Share of actuarial gain on pension scheme of associate 410 215 Share in (decrease) / increase in value of fixed asset investments of associate (10) 14 New endowments 16 2,349 147 Investment management fees (45) (44)(Decrease) / Increase in value of endowment asset investments 16 (958) 594

Total recognised (losses) / gains relating to the year (389) 3,491

Prior year adjustment in respect of consolidation 23 13,670 Prior year adjustment in respect of ABRSM 24 (3,464)

Total recognised losses and gains recognised since last report (389) 13,697

Reconciliation

Opening reserves and endowments 20,887 24,520

Total recognised losses and gains relating to the year (389) 3,491

20,498 28,011

NOTE OF CONSOLIDATED HISTORICAL COST SURPLUSES AND DEFICITSYear ended 31 July 2008

Note 2008 2007£'000 £'000


17 160 160

Historical cost (deficit) / surplus (412) 1,543

Difference between a historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount

20


21

BALANCE SHEET31 July 2008

Note 2008 2007 2008 2007£'000 £'000 £'000 £'000

FIXED ASSETSTangible assets 8 24,475 24,688 24,475 24,688 Investment asset

Share of net liabilities of associate 24 (397) (829) - -

24,078 23,859 24,475 24,688

ENDOWMENT AND RESTRICTED ASSETSFixed asset investments 9 8,123 8,137 - - Restricted and other endowment assets 10 2,739 1,362 - -

10,862 9,499 - -

CURRENT ASSETSStocks and stores in hand 25 26 25 26 Debtors 11 814 998 800 937 Cash at bank and in hand 497 954 16 102 Cash on deposit 1,930 1,500 - -

3,266 3,478 841 1,065

12 (2,739) (2,373) (2,738) (2,372)

NET CURRENT ASSETS / (LIABILITIES) 527 1,105 (1,897) (1,307)

TOTAL ASSETS LESS CURRENT LIABILITIES 35,467 34,463 22,578 23,381

13 (3,486) (3,622) (3,486) (3,622)

PROVISIONS FOR LIABILITIES AND CHARGES 14 (723) (739) (723) (739)

PENSION LIABILITY 22 (2,425) (765) (2,425) (765)

TOTAL NET ASSETS 28,833 29,337 15,944 18,255

DEFERRED CAPITAL GRANTS 15 8,335 8,450 10,522 10,347

ENDOWMENT AND RESTRICTED FUNDS 16 10,862 9,499 - -

RESERVESRevaluation reserve 17 5,864 6,024 5,864 6,024 Income and expenditure account 18 6,197 6,129 1,983 2,649 Pension reserve 22 (2,425) (765) (2,425) (765)

9,636 11,388 5,422 7,908

TOTAL FUNDS 28,833 29,337 15,944 18,255

These financial statements were approved by the Board of Governors on 26 November 2008 and signed on its behalf by :

Principal

Chairman of the Board of Governors

Chairman of the Finance and General Purposes Committee

CREDITORS: amounts falling due within one year

College

CREDITORS: amounts falling due after more than one year

Consolidated


CONSOLIDATED CASH FLOW STATEMENT

Note 2008 2007£'000 £'000

Cash flow from operating activities 19a (842) (107)Returns on investments and servicing of finance 19b 560 1,461 Capital expenditure and financial investment 19c 870 (2,609)Management of liquid resources 19d (1,839) (2,353)Financing 19e 794 2,650

Decrease in cash in the period (457) (958)

Reconciliation of net cash flow to movement in net funds

Decrease in cash in the period (457) (958)Cash on deposit 430 1,500 New loan (850) (2,650)Repayment of loan 56 -

Change in net funds (821) (2,108)Net funds at 1 August (196) 1,912

Net funds at 31 July (1,017) (196)

22


NOTES TO THE ACCOUNTS Year ended 31 July 2008 1 FUNDING COUNCIL GRANTS

HEFCE 2008 2007£'000 £'000

Recurrent grant 5,211 5,313 Specific grants 683 838 Deferred capital grants released in year (note 15) 262 268

6,156 6,419

2 TUITION FEES

2008 2007£'000 £'000

Full-time students 1,535 1,471 Full-time students charged overseas fees 1,347 1,445 Junior RNCM and Junior Strings 627 555 Other fees 97 85

3,606 3,556

3 OTHER OPERATING INCOME

2008 2007 2008 2007£'000 £'000 £'000 £'000

restated restated

Residence and Catering 636 635 636 635 Other income generating activities 689 860 689 860 Released from deferred capital grants (note 15) 68 62 187 182 Other income 1,825 1,779 1,126 1,056

3,218 3,336 2,638 2,733

HALL OF RESIDENCE

4 ENDOWMENT INCOME AND INTEREST RECEIVABLE

Note2008 2007 2008 2007£'000 £'000 £'000 £'000

restated restated

Restricted endowment income 591 1,413 - - Net interest relating to FRS17 88 65 88 65 Other interest receivable 131 115 20 20

810 1,593 108 85

Consolidated and College

Other income now includes donations from ABRSM and similar income previously included in Endowment Income and Interest Receivable, and net interest relating to FRS17 is now included in Endowment Income and Interest Recevable (see note 4).

Donations from ABRSM and similar income are now included in Other Operating Income, and net interest relating to FRS17 previously included in Other Operating Income is now shown separartely above (see note 3).

In 2000 the College entered into a complex Public Private Partnership arrangement with Jarvis plc to the operation of the Sir Charles Groves Hall of Residence on the College's campus. The land is leased on a 99-year lease to Students Investment (RNCM) Limited (a subsidiary of Liberty Living Limited), and the Hall of residence is leased back to the College in 30 and 60 year leases. Management of the Hall is contracted to Students Investment (RNCM) Limited. The underlease payments are calculated as 98.45% of the student rents collected by the Hall plus an agreed payment for the use of the studio flats by College staff and guests. During 2007-08, the sixth year of its operation, the total income of the Hall was £2,805,207, and the underlease rent payable was £2,761,726. Since the risks and rewards of operating the Hall are substantially with Students Investment (RNCM) Limited, the net income to the College of £43,481has been recorded in the accounts under other income.

College

College


Consolidated

Consolidated

23


NOTES TO THE ACCOUNTS Year ended 31 July 2008 5 STAFF COSTS

2008 2007£'000 £'000

Staff costs during the yearWages and salaries 6,896 6,469 Social security costs 510 484 Other pension costs 881 746

8,287 7,699

Emoluments of the Principal

Principal (retiring 31 July 2008)Salary 138 128 Benefits 2 2 Pension Contribution 18 17

Principal designateSalary 27 - Benefits - - Pension Contribution 4 -

Higher paid employees

No other senior staff earning in excess of £100,000

Average number of persons employed (Full Time Equivalent (FTE))

Academic 93 96 Administrative and technical 75 68 Other Support Staff 59 58

227 222

6 OTHER OPERATING EXPENSES

2008 2007 2008 2007£'000 £'000 £'000 £'000

Academic and student related costs 923 907 794 778 Scholarships and bursaries 826 755 - - Concerts, Promotions and Performances 1,000 1,057 1,000 1,057 Estate related costs 1,014 1,059 1,014 1,059 Residence and Catering operating expenses 289 287 289 287 Administrative and other costs 945 882 937 878

4,997 4,947 4,034 4,059

Administrative and other costs includes auditor's remuneration:

External auditor 19 18 14 14 Internal auditor 19 19 19 19

7 INTEREST PAYABLE

2008 2007£'000 £'000

Bank loans, overdrafts and other loans repayable within five years 34 22 Loans not wholly repayable within five years 128 45

162 67

College


CollegeConsolidated

24


NOTES TO THE ACCOUNTS Year ended 31 July 2008 8 TANGIBLE FIXED ASSETS

Fixtures ComputerLand Fittings and

and and Musical RecordingTotal Buildings Equipment Instruments Equipment£'000 £'000 £'000 £'000 £'000

Cost or valuation At 1st August 2007 33,377 22,850 5,983 2,670 1,874

Additions 735 362 20 37 316 Disposals -

At 31st July 2008 34,112 23,212 6,003 2,707 2,190

Accumulated depreciation At 1st August 2007 8,689 3,949 2,089 930 1,721

Charge for the year 948 445 260 128 115 Disposals -

At 1st August 2007 9,637 4,394 2,349 1,058 1,836

Net Book Value

At 31st July 2008 24,475 18,818 3,654 1,649 354

At 31st July 2007 24,688 18,901 3,894 1,740 153

The depreciation charge has been funded by:

2008 2007£'000 £'000

Deferred capital grants released (note 15) 448 451 Capital reserve released (note 17) 160 160 General income 340 328

948 939

If inherited tangible fixed assets had not been valued they would have been included at the following amounts:

2008 2007£'000 £'000

Cost Nil NilAggregate depreciation based on cost Nil Nil

Net book value based on cost Nil Nil


The net book value of tangible fixed assets includes an amount of £0 (2006 - £0) in respect of assets held under finance leases. The depreciation charge on these assets for the year was £0 (2006 - £0).



Land and buildings with a net book value of £4,460,084 and equipment with a net book value of £1,846,228 have been financed by exchequer funds. Should these assets be sold, the College may be required, under the terms of the Financial Memorandum with HEFCE, to surrender the proceeds.

Included in land and buildings is land amounting to £1,025,000 which is not depreciated and which includes land amounting to £225,000 leased to Students Investment (RNCM) Limited. Included within musical instruments are string instruments and the Henry Watson Museum collection amounting to £1,268,452 which are not depreciated.

Assets in the course of construction are included in land and buildings valued at £19,296 (2007 - £12,195) and included in computers and recording equipment valued at £197,212 (2007 - £nil)

25


NOTES TO THE ACCOUNTS Year ended 31 July 2008 9 ENDOWMENT FUNDS - FIXED ASSET INVESTMENTS

Note 2008 2007£'000 £'000

restated

At 1 August 8,137 7,263

Additions 2,364 1,641 Disposals (1,452) (1,513)(Losses) / Gains in market value of investments (958) 594 Movements on cash 32 152

At 31 July 8,123 8,137

Investments are analysed as follows

2008 2007£'000 £'000

restated

Fixed interest stocks 1,034 942 Equities and unit trusts 6,429 6,566 Cash held by investment managers 660 629

Managed Investments 8,123 8,137

10 RESTRICTED AND OTHER ENDOWMENT FUND ASSETS

2008 2007£'000 £'000

restated

Cash at bank 595 488 Cash on deposit 2,270 1,000 Debtors 34 42 Creditors (160) (168)

2,739 1,362

11 DEBTORS

2008 2007 2008 2007£'000 £'000 £'000 £'000

Amounts falling due within one yearDebtors 275 269 261 208 Social security and other taxation receivable - 138 - 138 Prepayments and accrued income 539 591 539 591

814 998 800 937

12 CREDITORS

2008 2007 2008 2007£'000 £'000 £'000 £'000

Unsecured loans 1,584 728 1,584 728 Payments received on account 259 303 259 303 Creditors 376 563 375 562 Social security and other taxation payable 173 167 173 167 Accruals 273 538 273 538 Deferred income 74 74 74 74

2,739 2,373 2,738 2,372

Consolidated

Share of net liabilities of associate is now shown separately on the Balance Sheet as an investment asset under fixed assets (see also note 24). Cash of £72k previously analysed as cash held by investment managers is now included as cash at bank in Restricted and Other Endowment Assets (see note 10).

Cash of £72k previously analysed as cash held by investment managers in Fixed Asset Investments Endowment is now included in cash at bank (see note 9).

College

CollegeConsolidated

Consolidated

Consolidated

Consolidated

26


NOTES TO THE ACCOUNTS Year ended 31 July 2008 13 CREDITORS : amounts falling due after more than one year

2008 2007£'000 £'000

Bank loanAmount repayable 2-5 years 399 374 Amount repayable after 5 years 1,461 1,548

1,860 1,922

Deferred income lease 1,626 1,700

3,486 3,622

The deferred income rent relates to rent received in advance over the next year.

14 PROVISIONS FOR LIABILITIES AND CHARGES

Enhanced pension costs 2008 2007£'000 £'000

At 1 August 739 753 Utilised in year (60) (58)Transfer from income and expenditure account 44 44

At 31 July 723 739

15 DEFERRED CAPITAL GRANTS

PrivateHEFCE funding Total

£'000 £'000 £'000

At 1 August 2007Buildings 4,546 1,632 6,178 Equipment 2,134 138 2,272

Total 6,680 1,770 8,450

Cash receivedBuildings - 87 87 Equipment 97 30 127

Total 97 117 214

Released to income and expenditureBuildings 91 46 137 Equipment 171 21 192

Total 262 67 329

At 31 July 2008Buildings 4,455 1,673 6,128 Equipment 2,060 147 2,207

Total 6,515 1,820 8,335

Consolidated



27


NOTES TO THE ACCOUNTS Year ended 31 July 2008 15 DEFERRED CAPITAL GRANTS continued

PrivateHEFCE funding Total

£'000 £'000 £'000

At 1 August 2007Buildings 4,546 3,302 7,848 Equipment 2,134 365 2,499

Total 6,680 3,667 10,347

Cash receivedBuildings - 225 225 Equipment 97 301 398

Total 97 526 623

Released to income and expenditureBuildings 91 123 214 Equipment 171 63 234

Total 262 186 448

At 31 July 2008Buildings 4,455 3,404 7,859 Equipment 2,060 603 2,663

Total 6,515 4,007 10,522

16 ENDOWMENT AND RESTRICTED FUNDS

Note 2008 2007£'000 £'000

restatedCapitalAt 1 August 2007 8,209 7,512

New endowments 2,349 147 (Losses) / Gains in market value of investments (958) 594 Investment management fees (45) (44)

At 31 July 2008 9,555 8,209

Accumulated incomeAt 1 August 2007 1,290 493

Income for year 591 1,413 Expenditure for year (574) (616)

At 31 July 2008 1,307 1,290

Total Capital and Accumulated Income 10,862 9,499

Share of net liabilities of associate is now shown separately on the Balance Sheet as an investment asset under fixed assets (see also note 24).


College

28


NOTES TO THE ACCOUNTS Year ended 31 July 2008 17 REVALUATION RESERVE

2008 2007£'000 £'000

RevaluationsAt start and end of year 9,408 9,408

Capital element of debt charge

At start and end of year 2,054 2,054

Contributions to depreciationAt 1 August (4,257) (4,097)Repaid in year (160) (160)

Total (4,417) (4,257)

Released on disposal

At start and end of year (1,181) (1,181)

Net revaluation amountAt 31 July 5,864 6,024

18 INCOME AND EXPENDITURE ACCOUNT

Note 2008 2007£'000 £'000

At 1 August 1,884 513 At 31 July (442) 1,884

Movement in year (2,326) 1,371

Surplus before movement in pension deficit (666) 248 22 (1,660) 1,123

Movement in year (2,326) 1,371

College

Movement in pension deficit during the year


29


NOTES TO THE ACCOUNTS Year ended 31 July 2008 19 a RECONCILIATION OF OPERATING SURPLUS/(DEFICIT) TO NET CASH FLOW FROM OPERATING ACTIVITIES

2008 2007£'000 £'000

restated

Surplus/ (Deficit) after depreciation of assets at valuation (572) 1,383Depreciation 948 939 Deferred capital grants released to income (329) (331)Interest payable 162 67 Decrease in stocks 1 2 Decrease / ( Increase) in debtors 184 (112)Decrease in creditors (595) (558)Increase in provisions (16) (14)FRS17 adjustments 97 45 Investment income and interest receivable (722) (1,528)

(842) (107)

19 b RETURNS ON INVESTMENTS AND SERVICING OF FINANCE

Income from endowments 591 1,413 Other interest received 131 115 Interest paid (162) (67)

560 1,461

c CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT

Payments to acquire endowment asset investments (1,675) (1,587)Receipts from sale of endowment assets 1,451 1,457 Endowments received 1,660 94 Investment management fees (45) (44)Payments to acquire tangible assets (other than leased equipment) (735) (4,945)Deferred capital grants received 214 2,416

870 (2,609)

d MANAGEMENT OF LIQUID RESOURCES

Amounts placed on deposit (430) (1,500)Restricted and other endowment cash placed on deposit (1,270) (1,000)Movement in endowment investment asset cash (32) (152)Movement in restricted and other endowment asset cash (107) 299

(1,839) (2,353)

e FINANCING

New loan 850 2,650 Repayment of loan (56) -

794 2,650

f ANALYSIS OF CHANGES IN NET FUNDS31 July Cash 31 July

2007 flows 2008

Cash at bank and in hand 954 (457) 497 Cash on deposit 1,500 430 1,930 Debt due within one year (728) (856) (1,584)Debt due after one year (1,922) 62 (1,860)

(196) (821) (1,017)


30


NOTES TO THE ACCOUNTS Year ended 31 July 2008 20 LEASE OBLIGATIONS

2008 2007£'000 £'000

Operating lease commitments in respect of equipment on leases expiring Within one year - - Between one and five years 124 124

21 ACCESS FUNDS

2008 2007£'000 £'000

Funding council grants 17 12 Interest earned - -

17 12 Disbursed to students (17) (12)Administrative expenses - -

- -

22 PENSION SCHEMES

FRS 17

SSAP 24

Investment returns per annumPension increases per annumSalary scale increases per annumMarket value of assets at date of last valuation

Proportion of members’ accrued benefits covered by the actuarial value of the assets 98.88%.This is the accrued funding level (prospective funding level for total service is 94%).

6.5% per annu5.0% per annu5.0% per annu£162,650 millio

Teachers’ Pension Scheme

Latest actuarial valuation 31-Mar-04Actuarial method Prospective be



The College’s employees belong to three principal pension schemes, the Teachers’ Pension Scheme, the Universities Superannuation Scheme and the Greater Manchester Pension Fund.

The Teachers’ Pension Scheme (TPS) is an unfunded defined benefit scheme. Contributions on a pay as you go basis are credited to the exchequer under arrangements governed by the Superannuation Act 1972.

Under the definitions set out in Financial Reporting Standard 17 Retirement Benefits (FRS17), the TPS is a multi-employer pension scheme. The College is unable to identify its share of the underlying assets and liabilities of the scheme. Accordingly, the College has taken advantage of the exemption in FSR17 and has accounted for its contributions to the scheme as if it were a defined contribution scheme. The College has set out below the information available on the deficit in the scheme and the implications for the College in terms of the anticipated contribution rates.

The pension cost is assessed every five years in accordance with advice from the government actuary. The assumptions and other data that have the most significant effect on the determination of the contribution levels are as follows:

Following implementation of Teachers’ Pensions (Employers’ Supplementary Contributions) Regulations 2000 the government actuary carried out a further review on the level of employers’ contributions. The agreed contribution rate from 1 August 2007 to 31 July 2008 was 14.10% of pensionable salaries. The total contribution made for the year ended 31 July 2008 was £400,883 of which employers contributions totalled £275,731 and employees contributions totalled £125,152. An appropriate SSAP 24 provision in respect of unfunded pensioners’ benefits is included in provisions.

31


NOTES TO THE ACCOUNTS Year ended 31 July 2008 22 PENSION SCHEMES continued

The total pension cost for the College was £54,231 of which employers contributions totalled £37,309 and employees contributions totalled £16,922. The contribution rate payable by the College was 14 % of pensionable salaries.

Since March 2005 the financial security of the scheme has improved and the actuary has estimated that the funding level has increased from 77% at 31 March 2005 to 91% at 31 March 2007. This improvement in the scheme's financial security is due primarily to the investment return on the scheme's assets since 31 March 2005 being higher than allowed for in the funding assumptions. On the FRS17 basis, the actuary estimated that the funding level at 31 March 2007 was above 109% and on a pay-out basis was approximately 84%

Universities Superannuation Scheme

At the valuation date, the value of the assets of the scheme was £21,740 million and the value of the past service liabilities was £28,308 million indicating a deficit of £6,568 million. The assets therefore were sufficient to cover 77% of the benefits which had accrued to members after allowing for expected future increases in earnings. Using the Minimum Funding Requirement prescribed assumptions introduced by the Pensions Act 1995, the scheme was 126% funded at the valuation date and under the Pension Protection Fund regulations introduced by the Pension Act 2004 it was 110% funded.

The College’s contribution rate required for future service benefits alone at the date of the valuation was 14.3% of salaries but the trustee company, on the advice of the actuary, decided to maintain the College contribution rate at 14 % of pensionable salaries.

Surpluses or deficits which arise at future valuations may impact on the College’s future contribution commitment. An additional factor which could impact the funding level of the scheme is that with effect from 16 March 2006, USS positioned itself as a “last man standing” scheme so that in the event of the insolvency 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 remaining participant employers and reflected in the next actuarial valuation of the scheme. The next formal triennial actuarial valuation is due at 31 March 2008. The contribution rate will be reviewed as part of each valuation.

The College participates in the Universities Superannuation Scheme (USS), a defined benefit scheme which is externally funded and contracted out of the State Second Pension (S2P). The assets of the scheme are held in a separate trustee-administered fund. The College is unable le to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as required by FRS17 “Retirement benefits”, accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to the income and expenditure account represents the contributions payable to the scheme in respect of the accounting period.

The latest actuarial valuation of the scheme was at 31 March 2005. The assumptions which have the most significant effect on the result of the valuation are those relating to the rate of return on investments (i.e. the valuation rate of interest) and the rates of increase in salary and pensions. In relation to the past service liabilities the financial assumptions were derived from market yields prevailing at the valuation date. It was assumed that the valuation rate of interest would be 4.5% per annum, salary increases would be 3.9% per annum (plus an additional allowance for increases in salaries due to age and promotion and a further amount of £800m of liabilities to reflect recent experience) and pensions 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 return assumption of 1.7% per annum, salary increases would be 3.9% (also plus an allowance for increases in salaries due to age and promotion) and pensions would increase by 2.9% per annum. The valuation was carried out using the projected unit method.

32



SSAP 24

31-Mar-07Projected Unit6.25% per annum

Pension increases per annum 2.8% per annumSalary scale increases per annum 4.7% per annumMarket value of assets at date of last valuation £ 9,563million

Proportion of members’ accrued benefits covered by the actuarial value of the assets 105%.

FRS 17

31 July 2008 31 July 2007 31 July 20063.80% 3.30% 3.10%5.30% 4.80% 4.60%3.80% 3.30% 3.10%6.70% 5.80% 5.10%

Value at Value at Value at31 July 2008 31 July 2007 31 July 2006

£'000 £'000 £'000Equities 7.80% 6,238 8.00% 6,923 7.70% 6,404 Bonds 5.70% 1,651 5.20% 1,746 4.70% 1,635 Property 5.70% 818 6.00% 1,074 5.70% 922 Cash 4.80% 874 5.10% 1,044 4.80% 717

9,581 7.10% 10,787 6.80% 9,678

Year Ended Year Ended Year EndedJuly 2008 July 2007 July 2006

£'000 £'000 £'0009,581 10,787 9,678

(11,833) (11,382) (11,387)(173) (170) (179)

(2,425) (765) (1,888)

College’s estimated asset sharePresent value of scheme liabilitiesPresent value of unfunded liabilities

Deficit in the Scheme

Rate of increase in pensionsDiscount rate for liabilities

The assets in the scheme (for which the College’s share is estimated at 0.11%) and the expected rates of return were:

Long term

Rate of Return

Long term

Rate of Return

The following information is based upon a full actuarial valuation of the Fund at 31 March 2007 updated to 31 July 2008 by a qualified independent actuary.

InflationRate of increase in salaries

Investment returns per annum

The pension cost is assessed every three years in accordance with the advice of a qualified independent actuary. The assumptions and other data that have the most significant effect on the determination of the contribution levels are as follows:

Latest actuarial valuationActuarial method

Greater Manchester Pension Fund

The Greater Manchester Pension Fund (GMPF) is a defined benefit scheme, with the assets held in separate trustee administered funds. The total contribution made for the year ended 31 July 2008 was £488,018 of which employers contributions totalled £339,226 and employees contributions totalled £148,792. The agreed contribution rate was increased to 14.6% of pensionable salaries from 1 April 2008.

Long term

Rate of Return

33



Year Ended Year Ended Year Ended Year EndedJuly 2008 July 2007 July 2006 July 2005

£'000 £'000 £'000 £'000

Analysis of the amount charged in the income and expenditure account 376 433 347 257 144 - - - 16 - - 134

536 433 347 391

767 662 561 507 (679) (597) (527) (505)

88 65 34 2

Amount recognised in the statement of total recognised gains and losses (STRGL)

Actuarial return less expected on pension scheme assets (2,099) 304 439 1,008 Experience gains and losses arising on the scheme liabilit 75 2 (2) (18)

461 876 (402) (1,171)

(1,563) 1,182 35 (181)

(765) (1,888) (1,870) (1,585)

(376) (433) (347) (257)340 299 250 275

11 10 10 10 (144) - - -

(16) - - (134)88 65 34 2

(1,563) 1,182 35 (181)

(2,425) (765) (1,888) (1,870)

Actuarial gain or (loss)

Deficit in scheme at 31 July

Contributions in respect of unfunded benefitsPast service costsImpact of settlements and curtailmentsNet interest / return on assets

(Deficit) in scheme at 1 August

Movement in year:Current service chargeContributions

Movement in deficit during the year

Total operating charge

Net return

Actuarial gain / (loss) recognised in STRGL

Analysis of net return on pension scheme

Expected return on pension scheme assetsInterest on pension scheme liabilities

Service costPast service costCurtailment and settlements

Change in financial and demographic assumptions underlying the scheme liabilities

34



Year Ended Year Ended Year Ended Year Ended Year EndedJuly 2008 July 2007 July 2006 July 2005 July 2004

£'000 £'000 £'000 £'000 £'000Difference between the expected and actual return on assets (2,099) 304 439 1,008 233 Value of assets 9,581 10,787 9,678 8,596 7,019 % of scheme assets -21.90% 2.80% 4.50% 11.70% 3.30%

Experience gains / (losses) on liabilities 75 2 (2) (18) 1 Present value of liabilities 12,006 11,552 11,586 10,466 8,604 % of scheme liabilities 0.60% 0.00% 0.00% -0.20% 0.00%

Total amount recognised in STRGL (1,563) 1,182 35 (181) 223 Present value of liabilities 12,006 11,552 11,566 10,466 8,604 % of scheme liabilities -13.00% 10.20% 0.30% -1.70% 2.60%

2008 2007 2006 2005£ £ £ £

275,731 240,968 208,958 184,437 37,309 34,428 29,360 20,539

339,226 425,607 347,000 391,000 43,829 44,742 45,703 45,203

696,095 745,745 631,021 641,179

Where the institution closes and there is no successor establishment, the Secretary of State becomes the compensation authority.

USS cash contributionsGMPF charged to I&EEnhanced pension charge (note 14)

An amount of £722,950 (2007 £739,328, 2006 - £752,736, 2005 - £761,746, 2004 - £741,701) is included in provisions for liabilities and charges representing the extent to which the capital cost charged exceeds actual payments made. The provision will be released against the cost to the College of enhanced pension entitlements over the estimated life expectancy of each relevant retired employee.

History of experience gains and losses

Changes to the fund permit employees retiring on or after 6 April 2006 to take an increase in their lump sum payment on retirement in exchange for a reduction in their future annual pension. On the advice of our actuaries we have taken the view that there is insufficiently reliable evidence to assume a level of take-up of the change in the pension scheme. Consequently the valuation of the retirement benefit liabilities as at 31 July 2006 does not include any allowance for this change to the pension scheme.

In calculating the fund assets and liabilities, the fund's actuaries had to make a number of assumptions about events and circumstances in the future. These assumptions represent the best estimate of expected outcomes but it is possible that actual outcomes will differ from those included in the accounts. Any differences between expected and actual outcomes are reported through experience gains and losses.

Pension Charge (see note 5)

The pension charge for the year was £696,095 (2007 - £745,745, 2006 - £631,021, 2005 - £641,179 restated, 2004 - £498,500): this included an amount in respect of enhanced pension entitlements of staff taking early retirement under the reorganisation programme. The calculation of the cost of early retirement provisions charged to the income and expenditure account in the year of retirement is based on the total capital cost of providing enhanced pensions with allowance for future returns at 3% in excess of price inflation.

TPS cash contributions

35


NOTES TO THE ACCOUNTS Year ended 31 July 2008 23 CONSOLIDATION OF THE ROYAL NORTHERN COLLEGE OF MUSIC TRUST FUNDS

Royal Northern College of Music Trust Funds

24 ACCOUNTING FOR ASSOCIATE

The Group's share of the results of its associate (ABRSM) as at 31 January 2008 are set out below:

2008 2007£'000 £'000

Total income 7,554 7,418

Fixed assets 336 359 Current assets 2,763 2,841 Liabilities due within one year (2,265) (2,435)Net pension liability (1,231) (1,594)

(397) (829)

25 CAPITAL COMMITMENTS

2008 2007£'000 £'000

Commitments contracted at 31 July 54 347 Authorised but not contracted at 31 July 119 83

173 430

The Royal Northern College of Music Awards Fund is constituted under trust schemes dated 6 October 1975, 22 October 1992 and 15 March 1999 and is a registered charity number 504948. The objective of the Fund is to apply its income to the education of students of the College by the award of prizes, scholarships, exhibitions, grants for travel or for the purchase of musical instruments, maintenance allowances or other similar benefits.

The Royal Northern College of Music Endowment Fund is constituted under a trust scheme dated 22 October 1992 and is a registered charity number 504949. The objective of the Fund is to apply its income in such ways as the trustee considers fit for the general purposes of the Royal Northern College of Music and the Junior School at the Royal Northern College of Music and in the advancement of the education of its students and former students.

The Royal Northern College of Music Annie Ridyard Scholarship is constituted under a trust created by the will of Dame Eva Turner who died on 16 June 1990 and is a registered charity number 1015295. The objective of the Charity is to apply its income to provide scholarships for mezzo sopranos of British nationality who are students at the Royal Northern College of Music, subject to certain rules set out in the will of the late Dame Eva Turner.

The Royal Northern College of Music Eva Turner Fund is constituted under a trust created by the will of Dame Eva Turner who died on 16 June 1990 and is a registered charity number 1015292. The objective of the Charity is to apply its income to provide scholarships for dramatic sopranos of British nationality who are students at the Royal Northern College of Music, subject to certain rules set out in the will of the late Dame Eva Turner.

In the financial statements of the Endowment Fund the interest in the ABRSM is carried at cost. In the consolidated figures the interest in the ABRSM is represented by the Group's share of the net liabilities of the ABRSM as at 31 January 2008.

The College, through the Endowment Fund, holds a 25% share in the Asociated Board of the Royal Schools of Music (ABRSM). The consolidation of the Royal Northern College of Music Trust Funds (as detailed in Note 23) has led to a requirement to account for the investment in ABRSM under the gross equity method in accordance with FRS 9. The comparatives for the financial year ended 31 July 2006 have been restated in this respect.

The ABRSM is a registered charity, number 292182, and a company limited by guarantee, registered number 1926395, established by the four Royal School's of Music for the benefit of music education. The ABRSM has no share capital and the liability of the members in the event of winding up is limited to £1 per member. In the event of a winding up, the ABRSM's constitution requires its board to consider, in the first instance, the transfer of surplus assets to any charitable body that is equipped to carry on the work of the ABRSM.

The ABRSM is an international examining body that offers a system of graded music examination in 80 countries around the world. The company is also a provider of professional development for instrumental and singing teachers. A subsidiary of ABRSM is engaged in the production and sale of music publications.


36

Documents

RNCM Financial Statements 2008