HKUST Annual Report 2022-2023

64 65 Appendix IV Finance Overview The financial year 2022-23 recorded a surplus of $1,159 million (deficit of $230 million for 2021-22). The surplus in 2022-23 was mainly due to a significant investment gain resulted from investment markets rebound when global economies re-opened after cancellation of COVID-19 pandemic control measures. By excluding the impact of investment return, the University recorded a surplus of $352 million in 2022-23 compared to $439 million in 2021-22. The University has practiced Environmental, Social and Governance (“ESG”) investing since 2018. In October 2022, Council approved an ESG Investment Policy (“ESG Policy”), the first among local universities. The ESG Policy calls for recognizing ESG factors as material determinants for the investments held. Through working with fund managers for whom ESG considerations are integral to their investment philosophy and manifested throughout their investment process, the University seeks alignment with its value as an educational institution and the goal to be a sustainability leader across the region and beyond. Consolidated Income and Expenditure Consolidated income increased by $1,727 million to $6,715 million in 2022-23 ($4,988 million for 2021-22). The increase was mainly contributed by the increase in interest and net investment income of $1,476 million and government subventions and grants of $229 million. Higher government subventions and grants was due to additional University Grants Committee (“UGC”) supplementary grants for General Pay Adjustment (“GPA”) and the increase in research and other earmarked grant income. Consolidated expenditure increased by $337 million to $5,560 million ($5,223 million for 2021-2022), which was mainly attributable to higher salary costs arising from GPA, increase in premises maintenance and related costs, and growth in teaching and research expenses as the University bounced back to its normal operations and activities for the year after COVID-19 pandemic. Segment Results Commentaries on operating segments, analyzed by UGC-Funded Activities and non-UGC Funded Activities, are as follows: UGC-Funded Activities UGC-Funded Activities showed a surplus of $436 million for the year (deficit of $154 million for 2021-22). After excluding the interest and net investment income of $335 million (loss of $276 million for 2021-22), the underlying result was a surplus of $101 million ($122 million for 2021-22). Due to the favorable investment return recorded in 2022-23, the University's UGC reserves increased to $4,285 million ($3,849 million for 2021-22). Non-UGC Funded Activities Self-Financing Continuing Professional Education Programs, Research and Other Activities Self-financing CPEP activities contributed a surplus of $375 million ($365 million for 2021-22), remained at the similar level as compared to last year. Non-UGC funded research activities contributed a surplus of $17 million ($23 million for 2021-22), mainly arising from completed commercial research projects and government subsidies. Other activities contributed a surplus of $210 million (deficit of $225 million for 2021-22) which was mainly due to the increase in allocation of net investment income. In aggregate, the overall surplus of these operating segments amounted to $602 million ($163 million for 2021-22). Donations Activities Donations totaling $126 million were recognized as income for 2022-23 ($234 million for 2021-22). Overall, this segment showed a surplus of $121 million (deficit of $239 million for 2021-22) as contributed by the increase in investment return. The University has successfully secured $417 million new pledges in 2022-23 ($230 million in 2021-22). For research related donations received in 2022-23, the University has applied matching under the Research Matching Grant Scheme and $111 million matching grants were awarded in 2022-23. Another $55 million research related donations were received after the year end, enable the University to reach the ceiling of Research Matching Grant. Non-UGC Reserves Non-UGC reserve balances reached $8,896 million at the end of 2022- 23 ($8,119 million for 2021-22). The increase in the reserve balance was mainly contributed by the afore-stated investment return, self-financing CPEP and other activities. Capital Expenditure Several 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. Apart from the soon to be completed new 1551-bed Student Hostel, other major capital works include one innovation building and one research building, which are targeted to be completed in 2025 and 2026 respectively. In addition, to cope with the increasing demand of high-performance computing (HPC) facilities from HKUST researchers, two new HPC facilities are going to be built on campus. They are expected to be completed in 2024 and 2026 respectively. The University is also exploring to build an HKUST InnoTech Park near Clear Water Bay campus, which will provide a platform for collaboration between academia and industry. The University will continue to upgrade its research and knowledge transfer infrastructure and activities in its next stage of development. Outlook After the three years long historic disruption of COVID-19 pandemic, the University bounced back to its normal operations and activities in 2022-23. The opening of Hong Kong University of Science and Technology (Guangzhou) in September 2022 embarked on our transformative HKUST 2.0 journey, which provided abundant opportunities to foster collaboration among faculties and students from both campuses and deepened our collaborations in the Guangdong-Hong Kong-Macao Greater Bay Area and other provinces and cities across the nation. Following the passage of HKUST (Amendment Bill) by the Legislative Council in July 2023 on removing the restriction on the maximum number of Vice-Presidents at HKUST, the University will have greater flexibility in its strategic manpower planning to better position itself to support Hong Kong’s development into a global innovation and technology (I&T) hub and maximize opportunities arising from relevant I&T policies. Riding on the success and remarkable achievement in 30 years history, the management team is ready to take on new opportunities and challenges to begin our HKUST 3.0 journey. The entire HKUST community will also work closely together to elevate the University to the next level of excellence. Significant financial resources will be required to support and sustain various initiatives and projects. As of June 30, 2023, the University maintained a healthy reserve of over $13 billion. The University will remain prudent and cautious in financial planning to ensure there is adequate resources available for the future development. Stephen YIU Kin-Wah Treasurer of the University October 26, 2023