2022 annual report: Significant budget shortfall despite continued growth
Aarhus University saw continued growth in 2022 – with regard to both revenue and costs. Although cost-savings measures introduced in the autumn had a significant positive effect on the bottom line, the university closed the year with a large budget shortfall due to major losses on financial items.
As expected, Aarhus University exited 2022 with a large budget shortfall. On top of a relatively small deficit on the university’s operating budget, the university suffered a major loss on financial items, which resulted in a total budget deficit for 2022 of DKK 292m.
However, on a positive note, the autumn’s qualified hiring freeze and successful efforts to conserve energy on the part of staff made a major contribution to minimising the operating budget deficit. As a result of these measures, the operating budget deficit was about DKK 50m less than predicted in the budget forecast made in August 2022.
These are the highlights of the 2022 annual report, which has just been approved by the Aarhus University Board.
The growth paradox
AU is required by law to invest its liquid assets, which primarily consist of research grants that haven’t been spent yet, the result of the university’s success in attracting external funding. After a number of years of positive returns on these investments, 2022 saw a dramatic reversal. According to Birgitte Nauntofte, the chair of AU’s board, losses on investments are the major reason for the major budget deficit in 2022. However, she also pointed out that because AU has fundamentally sound finances and solid financial reserves, the deficit is manageable. Nauntofte said:
“2022 wasn’t a good year when we look at the bottom line. But the annual report also reflects that AU’s total revenue continues to grow, and the auditor’s report testifies to sound financial management across the university. And this is a good point of departure for the coming years, when the university must meet its budget targets. Aarhus University is in a position of growth and has huge potential. These are the two decisive factors in order for Aarhus University to continue its positive development.”
The financial reserves must be replenished
The budget shortfall in 2022 means that AU’s financial reserves are now down to just 8.6 per cent of revenue – against 13.3 per cent at the end of 2021. This percentage must be increased again, explained University Director Kristian Thorn:
“The target set by the board is that financial reserves must be equivalent to about 10 per cent of our revenue, precisely in order to ensure the necessary resilience in times of crisis – as we experienced in 2022,” he said. “This is why we must now begin to rebuild our financial reserves in a balanced way. We will use future returns on our investments to accomplish this. For a number of years, we have been able to offset operating budget deficits with the returns on our investments. This option will not be available to us in coming years, which is why our operating budget must balance.”
External funding will be an important topic
Rector Brian Bech Nielsen pointed out that Aarhus University must continue to exercise sound financial management, which means budgets will have to be tight in coming years. Despite these challenges, he stressed, continued growth in revenue is still anticipated. The rector said:
“This is not least due to our success in attracting even more external funding. Researchers from Aarhus University have an impressive track record. In 2022, Aarhus University increased external research funding by an additional 12 per cent over 2021. The total amount has not increased to about 2.5 billion kroner and has never been higher.”
The university brought home more funding from private and public sources in Denmark as well as from the EU last year. Statistics show that AU’s researchers are doing an excellent job in the competition for funding from Horizon Europe programmes, the rector emphasised.
He also added that while the positive development in external research funding is naturally a good thing, it also presents challenges. Not least funding from private sources, which accounted for 42 per cent of external research funding spent last year. The rector said:
“We don’t expect our basic funding to increase, while the proportion of external funding will increase. As a large part of these funds come from private sources, over time we will be more and more challenged by the fact that total overhead coverage will fall. This is the well-known challenge that receiving external grants costs the university money. We will have to be extremely focused on making sure that grant applications take both direct and indirect costs into account, for example for labs and administrative support. We share this challenge with the rest of the sector, and it’s very important that we continue to build on the constructive, positive dialogue with the Danish private foundations.”