The Pharmaceutical Journal
Vol 268 No 7199 p739-7468
25 May 2002

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161st Annual General Meeting summary

Financial statements adopted by narrow margin

The Royal Pharmaceutical Society's financial statements for 2001 were adopted by a margin of one vote at the Society's annual general meeting on 15 May, following members' questions about apparent discrepancies and inadequacies in the accounts. Because they had received no prior notice of the questions, the Society's Treasurer (David Allen) and Director of Resources (Hugh Mitchell) were not in a position to give detailed responses. Comprehensive answers were promised and are presented in a two-page article by Mr Mitchell in this issue of The Journal (see p745).

The TREASURER said that the Society's total income in 2001 was £22m. The final year-end position was a surplus before taxation of £910,000 — a significant improvement over 2000, when the Society showed a deficit of £880,000. After taxation, this left a surplus for 2001 of £480,000.

During the course of 2001, it had become increasingly apparent that the Society was facing an even greater than planned workload to make it fit for purpose as a modern regulator. It also needed to undertake a considerable programme of refurbishment of the headquarters building to protect its relative asset value and make it a more effective working environment, meeting the requirements of health and safety and disability legislation.

The Council therefore realised that, overall, it would need to be much more rigorous about focusing resources on priority work. This meant introducing a number of measures, including stringent economies, priority budgets and a retention fee increase. Budget holders within the Society had achieved these economies and helped to produce a budget that would allow the Society to focus on priority work. Some of the decisions would not be popular, but the Society would be failing the profession if it did not make this major investment in the future.

Underlying the decision to raise the retention fee were concerns about how core activities were funded. In 2001 retention fees accounted for 24 per cent of income, with 50 per cent brought in by publishing activities. The Society had come to rely on profits from publications to support a considerable proportion of its activities. Because publishing was a risk business in a competitive market, it was unacceptable to continue to fund that level of core and statutory activities from income that could not be guaranteed.

Another key issue was the need to replenish the savings spent on the campaign to preserve resale price maintenance, to which the Society has donated £987,500.

The Treasurer said that 2001 had seen another excellent performance by the publishing operation. Sales of the 32nd edition of Martindale had exceeded expectations, despite 2001 being the final year of its publication cycle, and royalties from the sale of Martindale electronic products had grown. Advertising sales on the classified section of The Journal had exceeded the 2000 figure. On capital expenditure, the Treasurer said that the major items during the year were the acquisition of the flat in Parliament View and the replacement of the Society's telephone system. In addition, the Society had begun a refurbishment programme.

In terms of directorate and Council expenditure, the Society had made savings in a number of areas. Expenditure on the Council had decreased by £60,000 compared to 2000 and a salary saving was made relating to the Director of Professional Standards position, which was vacant for part of the year.

Activities managed within the Public Affairs Directorate showed a drop in expenditure, resulting from reduced activity on scientific residential courses, a reduction in public relations activity and the first full year of efficiency savings arising from a reorganisation of the membership team. Also within that directorate, the costs of the British Pharmaceutical Conference were controlled and income increased, so that the BPC cost the Society £100,000, compared with £278,00 in 2000. The aim was to build move towards a position where it was cost-neutral or even a source of income to the Society.

Some areas of expenditure were maintained or increased. Within the policy of investing in support for devolution, both the Welsh and Scottish Departments' expenditure increased during 2001. There was increased activity by the inspectorate and Statutory Committee, and increased activity on policy development and project based activities.

Some key support services had been enhanced to help meet the Society's needs. The finance team had been reorganised to strengthen its services. The Society had also continued to develop its information technology systems during 2001

In June, the Society had acquired the entire share capital and publishing rights of Stockley Drug Interactions. Expectations for this development were high. In July, the Society had divested its interest in the Medicines Testing Laboratory to Tepnel Life Sciences. The pre-tax surplus on the sale was £176,000. Part of the disposal proceeds were satisfied by the issue of ordinary shares in Tepnel Life Sciences, which, at the balance sheet date, were quoted at £31,000 in excess of their acquisition value.

Summarising, the Treasurer said that 2001 had been a challenging year. The Society was an immensely complex organisation operating across a wide range of activities. It was working to be as transparent as possible, but it was inevitable that members would not always appreciate all the work being done and why it was being done. But senior staff and Council members were always willing to talk to local meetings about their work and the Society's policies. Debating the financial issues through pharmacy journals was not conducive to the running of this organisation and the business of publications, which was strictly a commercial enterprise.

The Treasurer then moved the adoption of the financial statements, seconded by the Vice President, Dr Gillian Hawksworth.

ANDREW HERSOM (Hull) commented that the financial statements gave some figures for 2000 that differed markedly from the 2000 document. For example, the general fund income and expenditure account quoted the income in 2000 as £20.509m, but the financial statement for 2000 had said £20.145m. The operating surplus, £1.197m, was the same but income and expenditure were different.

The TREASURER said that he was unable to comment. They were audited figures so he had to accept them as correct. There might have been some late movement in the accounts. He would be happy to answer the query at a later date.

ASH MEHTA (Hounslow) said that the £900,000 pre-tax surplus reported in the accounts was not being translated into cash, since the cash had gone down by £2.2m from £3.2m at the end of 2000 to £1m at the end of 2001. That situation was not explained, although stocks had risen by £1m and debtors had risen by £1m as well. If the Society were to use up a further £2.2m of cash in 2002, it would be insolvent.

HUGH MITCHELL (Director of Resources) said that any organisation would have movements in its balance sheet, which was a snapshot of a particular day in the year. There were two main contributors to the movement of cash. One was the purchase of the flat in Parliament View, for which, although the leasehold was acquired in 2000, the main cash flow took place in 2001. The second item was the build-up of work in progress on the new edition of Martindale, which was reflected in the year-end results. The build-up in stocks was principally work in progress rather than stocks of anything. That would be released into the results for 2002 after the new Martindale was published. Most of the increase in debtors was part of the £2m. Mr Mitchell said that the Society had reasonably substantial reserves, most of which were used up in working capital and so on, and was not in a position where it could become insolvent. He was also reasonably content that controls put in place for 2002 and onwards would mean that the Society would not go into a position of deficit in the foreseeable future.

Mr MEHTA said that, according to the financial statement, the Society followed applicable accounting standards but so as far as he could see, certain standards had not been applied. For example, under the heading "Creditors: amounts falling due in more than one year" was a loan note of £750,000. That number was large enough to warrant further comment.

The TREASURER replied that the movement of the £750,000 was in relation to the purchase of Stockley.

Mr MEHTA said that financial instruments such as loan notes were covered by financial reporting standard 13, which required disclosure of the maturity profile of such financial instruments and disclosure of the interest rate payable.

Mr MITCHELL said that he would be happy to take up the point with the Society's professional advisers. So far as the loan notes were concerned, no interest was payable.

Mr MEHTA said that it should not be down to someone like himself, as a qualified accountant and a finance director of a public limited company, to attend the AGM and wheedle out the information. It was important enough for all members to have that information. Mr Mehta then went on to explain in detail why he believed that in disposing of MTL the Society had "given it away". The Treasurer was asking the meeting to approve accounts that reflected a profit making situation at MTL.

Mr MITCHELL explained that the run-up to disposal had seen a considerable amount of accelerated income, which the Society was able to take early, before the disposal. It was a short term snapshot and an unusual situation compared to the trend.

The TREASURER said that the market had been trawled for prospective buyers and Tepnel's bid had been the best. The Society had not been prepared to keep funding a declining, loss-making business that needed a lot of investment.

Answering a question, the Treasurer said that the Society's Audit Committee produced minutes that were published and received by all members of Council, but they were not in the public domain. Asked whether the honorary auditors saw the committee's minutes, the Treasurer said that, if they wished to see them, they could do so.

MARK KOZIOL (Birmingham) asked whether the honorary auditors had appropriate access to the Society's financial affairs.

The TREASURER said that the honorary auditors, on request, were given as much information as they required.

Mr KOZIOL said that he had grave concerns about the article in The Journal on who owned the assets of the Society (PJ, 11 May, p666). He understood that its author, Robert Bulling, served on the Society's modernisation steering group. Under the circumstances, should an independent opinion not have been produced?

The SECRETARY AND REGISTRAR said that Mr Bulling worked for a reputable firm of solicitors that specialised in charter and charity law. One reason for having a person of his ability and calibre on the modernisation group was so to gain an opinion at the time it was needed. His letter was from his position with his company.

Mr KOZIOL said that he had been asked to raise the Birmingham branch's concerns about the change in the funding of representatives to the British Pharmaceutical Conference. The branch — although a wealthy one — had decided that it could not send anyone to the 2002 conference.

ROGER PHILIPS (treasurer, Birmingham branch) said that he endorsed Mr Koziol's remarks. He added that the situation in which branches now applied and received their branch grant after the end of June was not satisfactory. The branch normally held seven meetings in a year, five of them normally in the first half, so that what looked a big surplus at the end of the year was not.

JOHN E. BALMFORD (honorary auditor) said that Mr Koziol had asked whether the honorary auditors were satisfied with the answers they got. They were not. They did not get answers to all their questions. It was getting better, but it was like chipping away at a stone. The accounts were not transparent to the auditors, who had expressed their concerns to the Treasurer.

EDWARD MALLINSON (Bothwell, Glasgow) said that the financial statement gave £987,500 as the total cost to the Society of the defence of the RPM case. What proportion of the total cost was that, and how did the expenditure square with the Jenkin judgement of 1921?

The TREASURER said the Society's costs were about 10 per cent of the total. As far as the Jenkin judgement was concerned, the Council took the view that the RPM action was in the interest of the profession as a whole, as well as in the public interest.

Mr HERSOM asked how much the Society's support for the Academy of Pharmaceutical Science was costing per year and whether it would be an on going payment or a one-off?

BEVERLEY PARKIN (Director of Public Affairs) said that the Society's contribution to the academy was generally in kind, as it supported a range of the academy's activities and its constitution with staff time. She could not put a precise figure on it.

PHILIP WALTON (Manchester) expressed amazement that the honorary auditors did not get details of everything they wanted to know to the last penny.

The TREASURER said that at their meeting with the finance team the honorary auditors had had a list of questions, which must all have been answered to their satisfaction or they would not have signed off the accounts. The Society hoped to put in place an improved process in the coming year.

BRUCE RHODES (Cheltenham) said that the meeting had raised questions to which answers had yet to be given. Was the meeting therefore able to adopt the accounts?

The PRESIDENT said that the accounts had been produced in accordance with accounting procedures and audited by a respected firm of auditors, who had signed them without qualification. Despite some of the comments, he believed that it was proper and appropriate to consider them.

The TREASURER said that answers would be obtained to the questions raised. He was sure there was a simple explanation. There was no reason why the accounts could not be approved.

Mr MITCHELL said that the accounts and balance sheet represented a true and fair view of the Society's activities in 2001. Mr Mehta's technical question about the application of accounting standards could be dealt with. Any discrepancy in the 2000 figures did not extend to the bottom line profit and loss figure. He would investigate the discrepancy, but previous years' figures were provided only as a comparative and what the meeting should be looking at was the 2001 figures.

KIRIT PATEL (member of Council) said that in his experience a change of auditors often led to a change in the manner of reporting. The alleged error would be just a change in the way the figures were reported. He added that questioning the Society's solvency was scaremongering. If one allowed for extraordinary payments such as the RPM figure, the true value of the Society's property and the phenomenal success of its publications division, insolvency was not an issue.

PHILIP WALTON suggested that any highly technical matters that would cause disagreement should be submitted in advance so that they could be resolved before the AGM to avoid the sort of discussion that had taken place.

The PRESIDENT then put the adoption of the financial statements for 2001 to the vote. On a show of hands, the financial statements were adopted, by 36 votes in favour and 35 votes against.