Report of the Treasurer to the Council on the Group’s Financial Statements for the Financial Year from 1 July 2009 to 30 June 2010

Overview
During the year, the Institute made significant progress in the implementation of the Strategic Plan 2009-12 and Beyond. With the setting up of a graduate school and the recruitment of its first batch of research postgraduate students, launching of two new non-education degree programmes, and the establishment of the fifth Institute-level research centre, the Institute was charging in becoming an education-focused but multidisciplinary University.

As planned, the Institute continued to make use of its General and Development Reserve Fund (“GDRF”) to support such upgrading and changes. With concerted efforts from all members of the management team, the Institute had contained its expenditures with care and prudence, which had resulted in an overall reduction of the total expenditures for the year. Net funding deficit was significantly reduced from $129 million in 2008/09 to $62 million in 2009/10.

Academic Programmes and Student Numbers
Two non-education degree programmes, namely Bachelor of Arts (Honours) in Language Studies and Bachelor of Social Science (Honours) in Global and Environmental Studies were successfully validated by the Hong Kong Council for Accreditation of Academic and Vocational Qualifications (“HKCAAVQ”) and were launched in 2010/11. The first intake cohort has started their exciting learning journey at the Institute this new academic year. Another non-education degree programme, Bachelor of Arts (Honours) in Creative Arts & Culture, has also been successfully validated by the HKCAAVQ and will be launched in 2011/12. As for the research postgraduate (“RPg”) places, the first cohort of ten students had enrolled in the Institute’s RPg programmes in June 2010, and we are now recruiting the second cohort. On the other hand, a self-funded top-up Bachelor of Health Education (Honours) programme was also launched in September 2010.

The total UGC-funded student in Full-Time Equivalent (“FTE”) terms studying at the Institute as at June 2010 increased by about 7.7% from 2008/09 to 4,597 FTE students in 2009/10. The increase mainly came from undergraduate programmes, of about 10.9% to 3,153 FTE students. Regarding the student intake at postgraduate level, there was an increase of about 4.4% to 528 FTE students.

Among the non UGC-funded programmes, the Master of Education continued to be the most popular programme with student enrolment of about 364 FTE students. The Doctor of Education programme had 53 FTE students.

The HKIEd School of Continuing and Professional Education Limited (“SCPE”) continued to offer the Project Yi Jin Programmes (“PYJ”), with about 1,637 FTE students, and the Pre-Associate Degree Foundation Certificate Programmes (“Pre-AD”) and Associate Degree Programmes (“AD”) with about 393 FTE students in 2009/10.

Income and Expenditure
The Group adopts the Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants. For details
of the changes in accounting policy in relation to the new standards, please refer to Note 2 of the Consolidated Financial Statements of the Institute.

Income
There was a net increase in the UGC Block Grants in about $38 million and a decrease in the UGC earmarked Grants of about $9 million. The increased UGC Block Grants was mainly due to increased student enrolment and capital works, whilst the decrease in UGC Earmarked Grants was mainly because there was no receipt of Matching Grant during the period. In addition, with the growth in student numbers, Tuition, Programmes and Other Fees of the Institute had increased by $27 million. Since the financial tsunami in 2008, the Institute has been taking the shelter under the Deposit Protection Scheme, which is guaranteed by the Hong Kong Special Administrative Region Government’s Exchange Fund until the end of 2010, and has invested its fund in bank deposits with a diversity of banks. When the global economy gradually stabilises, the Institute will revisit its investment strategy and will make appropriate changes. Comparing with 2008/09, interest and net investment income in 2009/10 decreased by about $11 million, and it was mainly due to the low interest rate environment.

At the subsidiary level, the SCPE had a total income of about $78.2 million in 2009/10 which was $9.7 million higher than that of 2008/09 and was mainly due to growth in student number.

Over the year, the Group’s non-UGC-funded income had a steady increase of about $23 million to about $281 million.

Expenditure
The expenditure of the Group had decreased by about $16 million to a total of about $1,114 million over the year. The expenditure at the Institute was reduced by $28 million while the expenditure of its subsidiaries had increased by about $8 million in 2009/10.

At the Institute, all of the expenditure categories had experienced decreases, except the expenditures in Instruction and Research, and Other Academic Services. The increase of about $8 million in Instruction and Research was consistent with the Institute’s strategic resources allocation, which was to upgrade the Institute’s academic and research profile. With regard to the increase of about $2 million in Other Academic Services, more staff had been employed to support the new research postgraduate programmes and non-education undergraduate programmes, as well as the various preparation for the New Undergraduate Programme under the “3+3+4” Academic Structure.

On the other hand, various measures had been taken to contain the Institute’s expenditure, and major savings had come from the reduction in expenses related to mass marketing campaign and international communication, and unrealised gain on foreign currency translation, in a total decrease of about $20 million. Moreover, another reduction of about $8 million in premises and related expense was recorded which was mainly attributable to the decrease in the expenditure of repair and maintenance and minor works.

At the subsidiary level, the SCPE had a total expenditure of about $71.8 million in 2009/10 and it was $7.1 million higher than that of 2008/09. The increase was mainly due to increased course fees paid to a PJY partner as a result from increased number of PJY students, but the increase was partially offset by a reduction in service and management fee paid to the Institute.

Superannuation Scheme
Membership of The Hong Kong Institute of Education Superannuation Scheme (“Superannuation Scheme”) stood at 411 and the Superannuation Scheme had total net assets of about $407 million as at 30 June 2010.

In addition, a total of 1,478 members of staff participated in the Mandatory Provident Fund Scheme with an approximate total net asset value of about $69 million as at 30 June 2010.

Outlook
From “Education Plus” to “Powering Education”, the Institute takes one step further to visualise the concept through actions. We will continue our investment in building our capacity, making use of the Institute’s GDRF. Nevertheless, through prudent financial planning, we envisage that a healthy financial position will be maintained to meet the challenges of curriculum reform in the next triennium.