The Pharmaceutical Journal
Vol 272 No 7300 p651
22 May 2004

Society summary

Society “in sound health”, with fitter balance sheet

The Royal Pharmaceutical Society is an organisation in sound health, the annual general meeting on 12 May was told during a presentation on the financial statement for 2003. Bernard Kelly, Director of Finance and Resources, added that action undertaken in 2003 had left balance sheet leaner and fitter.

Opening discussion on the Society’s financial statement for 2003, the Treasurer, Linda Stone, said that the honorary auditors had commented favourably on the quality, clarity and timeliness of the financial information. The external auditors also were satisfied with the change to accounting procedures.

Mr Kelly said that his finance team, as newcomers to the Society, had set some immediate short-term objectives. The first was to determine that the Society’s finances needed to be sustainable. That objective would form the approach to financial planning. The review identified opportunities to minimise the tax bill. They wanted to ensure that financial information presented to Council, and eventually to members, was transparent and clear.

Significant issues that had affected the results for 2003 included a change in accounting policy, the results of the implementation of the tax planning strategy, reduced publications income, increased professional development costs and high legal and operating costs.

The essence of the change to accounting policy was to ensure that editorial cost of publications such as Martindale were accounted for as they were incurred rather than regarded as work in progress. The change helped give more transparency to financial statements and better reflected the true cash position. It also helped reduce the taxable surplus in 2003.

On taxation, Mr Kelly said that the Society was subject to VAT, and the surpluses generated by its commercial publication activities were subject to corporation tax. The finance team had adopted a robust approach to tax planning and had sought to maximise recovery of VAT. Having reduced taxable surpluses to the minimum, what remained had been gift-aided to the Pharmaceutical Trust for Education and Charitable Objectives. In the interests of probity and transparency, these monies had been left with PTECO over the year end. In March 2004, the Society made applications to PTECO for, and was awarded, grants totalling £821,000 to support its research and information services. The consequence of this approach had been to reduce the tax charge from its previous annual levels of £400,000 to zero.

Publications income was lower in 2003 than for 2002. Income from Martindale, last published in 2002, was lower by £2.2m, but this had been anticipated and budgeted. Classified advertising in The Journal was lower than in 2002, reflecting a lower level of recruitment advertising for pharmacists.

The year had seen an increase in the Society’s operating costs arising from the rollout of continuing professional development, higher levels of activity in the inspectorate and Statutory Committee and involvement with the Shipman inquiry. There had been increases in costs arising from the reorganisation of the directorates and the higher levels of consultation with members and other stakeholders.

The Society’s balance sheet revealed it to be an organisation in sound health. It was now not only more transparent but also leaner and fitter. Stocks were lower, debtors were down and creditors were being paid in a timely manner. After gift-aiding £850,000 to PTECO, there was £4.4m in the bank. This represented a solid position from which to move forward.

Graham Duncan, the Society’s financial controller, said that the new style reporting had enabled the Executive Group, Resource Management Committee and ultimately the Council to be fully aware of the results throughout 2003, which enabled them to react where appropriately and present a small operating surplus before accounting policy adjustments in the accounts.

The accounting policy adjustments masked the true operational results of the Society. The objective was to present break-even results before the adjustments. Despite considerable unbudgeted costs, the objective had been met, with a small operating surplus of £188,000.

After restating the 2002 results to take account of the accounting policy adjustments, income was reported as down 13 per cent on 2002 and expenditure up 8 per cent. Taking out the accounting policy adjustments, expenditure was up by 2 per cent.

While income from publications and classified advertising had decreased, there was increased income from retention fees because of a 2.4 per cent increase in the number of members and a 4.8 per cent increase in retention fee. There had been external funding of £400,000, which covered specific practice research projects, and a rise in income from Science Committee conferences.

Costs had increased by £1.8m in the year. A £1.1m increase in salary costs reflected recruitment problems in 2002 and salary increases in that year.

Through an aggressive approach to VAT agreements, the Society had negotiated a number of changes to VAT exemptions, which enabled it to claim back of three years of VAT that were previously not claimable. A refund of £289,000 had been received during the year.

Corporation tax was another significant success in 2003, with expenditure reclassified to ensure the Society benefited, together with a reallocation of central overheads to publications. This had enabled the Society to eradicate any tax liability in 2003.

The balance sheet had also been strengthened. One point to note was the investment of £275,000 in Tepnel Life Sciences [arising from the sale of the Medicines Testing Laboratory in Edinburgh to Tepnel in 2001]. Historically the shares had been trading at two-thirds of their original value, but their progress had been monitored and in September 2003 the Society capitalised on a short-term increase in the share price, selling its shares for £281,000.

On the Benevolent Fund, Mr Duncan said that there had been an improvement but the fund still showed a £91,000 deficit. The main highlight was Hope House treatment centre income, which had more than doubled.

Answering a written question, Mr Duncan said that since the Society’s sale of its Tepnel shares the share price had fallen to 8p, so the Society would have made a loss of over £100,000 if it had held on to them. Tepnel had paid no dividends while the Society held the shares. Tepnel currently paid £80,000 to the Benevolent Fund for renting 34 York Place on a rolling one-year lease.

Answering a question about an increase in directors’ remuneration, the Treasurer said that in 2001 remuneration for six directors was £616,000, in 2002 for four directors it was £461,000, and in 2003 eight directors were employed at a total cost of £715,000.

John Gentle (Shropshire) noted that expenditure on branches and regions was £334,000 in 2002 and £380,000 in 2003. How was the increase accounted for, when many branches reported having less money to spend?

Beverley Parkin, the Society’s Director of Public Affairs and Communications, said that the increase reflected the cost of the consultation on the Charter. Money was made available to branches to run meetings. A significant number of branches took that money up.

Asked what was happening to the Parliamentary Fund, Mr Kelly said that the Council had decided that continuing with the current Parliamentary activity was not in keeping with modern governance and regulatory activities. It was preparing to consider ways in which to dispose, or make use, of the existing balances in the fund.

The Treasurer said that more was achieved through the All Party Pharmacy Group than was ever possible through the Parliamentary Fund, and it was done more equitably.