HKUST Annual Report 2021-2022

Appendix IV FINANCE OVERVIEW The financial year 2021/22 recorded a deficit of $230 million (surplus of $2,003 million for 2020/21). The deficit in 2021/22 was mainly due to tightened monetary policy and geographical conflicts which resulted in a significant investment loss. By excluding the impact of investment return, the University recorded a surplus of $439 million in 2021/22 compared to $176 million in 2020/21. The University is committed to prioritising investments aligned with environment, social and corporate governance (ESG) values without compromising on return or diversification. Over 80% of the University’s investments are managed by professional investment managers who are signatories to the United Nations’ Principles for Responsible Investment. The University is reviewing its ESG investing policy to incorporate climate change risks and opportunities and support the goals of the 2015 Paris Agreement to limit global warming. This also aligns with Hong Kong/China’s net-zero emission targets. CONSOLIDATED INCOME AND EXPENDITURE Consolidated income decreased by $1,967 million to $4,988 million in 2021/22 ($6,955 million for 2020/21). By excluding the impact of investment return, the underlying consolidated income actually increased to $5,657 million ($5,128 million for 2020/21). The increase in underlying consolidated income was contributed primarily by the growth in tuition fee income of $266 million and donation income of $95 million compared to the previous year. Consolidated expenditure increased by $264 million to $5,223 million ($4,959 million for 2020/21), which was mainly attributable to an increase in other operating expenses of $178 million and increase in depreciation charge of $71 million. In light of the gradual stabilisation of the epidemic situation and adequate preventive measures, many of the on-campus activities were gradually resumed normal which led to the increase in operating costs. SEGMENT RESULTS Commentaries on operating segments, analysed by UGC-Funded Activities and non-UGC Funded Activities, are as follows: UGC-Funded Activities UGC-Funded Activities showed a deficit of $154 million for the year (surplus of $876 million for 2020/21). After excluding the investment loss of $276 million (gain of $748 million for 2020/21), the underlying result was a surplus of $122 million ($128 million for 2020/21). Due to the unfavourable investment return recorded in 2021/22, the University’s UGC reserves dropped to $3,849 million ($4,003 million for 2020/21). Non-UGC Funded Activities Self-Financing Continuing Professional Education Programs, Research and Other Activities Self-financing CPEP activities contributed a surplus of $365 million ($196 million for 2020/21), mainly due to higher student enrolment and higher tuition income. Non-UGC funded research activities contributed a surplus of $23 million ($33 million for 2020/21), mainly arising from completed commercial research projects and government subsidies. Other activities contributed a deficit of $225 million (surplus of $406 million for 2020/21) which was mainly due to the allocation of net investment loss. In aggregate, the overall surplus of these operating segments amounted to $163 million ($635 million for 2020/21). Donations Activities Donations totalling $234 million were recognized as income for 2021/22 ($139 million for 2020/21). Overall, the segment showed a deficit of $239 million (surplus of $492 million for 2020/21) as contributed by the investment loss. The University has successfully secured $230 million new pledges in 2021/22 ($420 million in 2020/21). For research related donations received in 2021/22, the University has applied matching under the Research Matching Grant Scheme and $129 million matching grants were awarded in 2021/22. Non-UGC Reserves Non-UGC reserve balances were $8,119 million at the end of 2021/22 ($8,177 million for 2020/21). The decrease in the reserve balance was mainly contributed by the afore-stated investment loss which caused a deficit position in donation and other activities. CAPITAL EXPENDITURE On 17 November 2021, the University celebrated the grand opening of Shaw Auditorium - a brand new hall with state-of-the-art facilities. This new landmark is set to become an arts and culture hub for the University, offering a new place of learning and gathering for the community and further and creativity development of the University and its surrounding environment. A number of construction projects are underway to enhance the University’s facilities and infrastructure to cater for accommodation and amenity needs of students as well as for academic and research activities. The largest construction project is the New 1551-bed Student Hostel, which is expected to be completed by 2023. Likewise, two research buildings are proceeding and are targeted to be completed in 2025 and 2026 respectively. OUTLOOK The unprecedented Covid-19 pandemic continued to impact the operations of the University on various fronts. With the concerted efforts of the HKUST community, the University is on the path to return to normal activities. On 29 June 2022, the Ministry of Education announced the approval of the establishment of the Hong Kong University of Science and Technology (Guangzhou) (HKUST (GZ)). The opening of HKUST (GZ) on 1 September 2022 created a new chapter of HKUST. Under the “Unified HKUST-Complementary Campuses” framework, HKUST and HKUST (GZ) will form a blueprint for next-generation cross- disciplinary education and research that take advantage of the complementary academic structures and shared resources to nurture forward-looking and creative talents, and pioneer a new way forward in higher education. To ensure the financial sustainability, our University will plan and prioritise its financial resources prudently and carefully so as not to risk the quality or effectiveness of its academic deliverables. In the 2021-28 University Strategic Plan, our underlying aspirations not only set out to sustain and advance HKUST as a trendsetter in both education and research landscapes for the long term, but also address the evolving needs and challenges facing society. Stephen YIU Kin-Wah Treasurer of the University 20 October 2022 61 HKUST Annual Report 2021-2022 Appendices