The Pharmaceutical Journal
Vol 276 No 7404 p690
10 June 2006

Society summary

Balance sheet stronger than ever, Treasurer tells AGM

The Royal Pharmaceutical Society's balance sheet is now stronger than in previous years, the Treasurer, John Jolley, told the annual general meeting on 24 May. It contains both higher levels of cash and increased investments in fixed assets, he said.

The Treasurer said that the Society attained high standards of financial management in 2005. The external auditors gave given the Society a totally clean audit report with no weaknesses or control issues identified — a significant achievement for both the finance team and the Society as a whole.

The Treasurer said that protecting the Society’s future means adopting a sound policy, and planning and preparing for the future. Protecting the future, however, also requires some unpalatable decisions, and one in 2005 was the closure of Birdsgrove House, to protect the future of the Benevolent Fund. The intention was to protect the future of the fund further by establishing a new trust deed with a board of trustees independent of the Council.

The Treasurer went on to say that an important asset of the Society is its publications activity. This faces many challenges because it operates in a competitive market within which demand for its services can fluctuate from year to year. To ensure its future is protected, publications has been established as a separate business with its own board under an independent chairman with a wealth of publishing experience.

Drawing attention to specific issues in the financial statements for 2005, the Society’s Director of Finance and Resources, Bernard Kelly, said that the overall financial performance was positive and represented an improvement over the previous year. After making gift aid payments of £2.9m, the Society recorded an operational deficit of £133,000, compared with a deficit of £723,000 in 2004 after gift aid payments of £2.4m. The net difference between the two years represented an underlying improvement of £1.2m, due mainly to a substantial increase in retention fees and an increase of only 2 per cent in operating costs. The overall effect of this improved performance was a positive cash flow of £1.7m.

The results showed that it was correct to follow the financial strategy established in 2004 — to increase revenues faster than costs, to reduce reliance on publications and to build the reserves. The large increases in retention fees in 2005 had been a difficult but necessary decision.

On publications activity, Mr Kelly said that, given difficult trading conditions, the year had been successful. The overall contribution after overheads but before gift aid payments was £2.2m, more than £500,000 less than in 2004. Classified advertising revenue from The Pharmaceutical Journal had continued to fall. This was the direct result of reduced demand, primarily from the NHS, and did not reflect a loss of business to any competitor. The total decline in revenue experienced by the PJ in 2005 was £543,000. This underlined the volatility of the commercial arena in which publications operate, and reinforced the wisdom of reducing reliance on the financial contribution from publications.

Mr Kelly then turned to the impact on the balance sheet of implementing Financial Reporting Standard 17 for the first time. FRS 17 required the pension fund deficit to be reflected in the Society’s accounts and balance sheet. He said that an FRS 17 valuation would always be expected to produce a more conservative valuation than the Society’s three-yearly actuarial valuation, and the overall impact of FRS 17 has been to reduce the reported reserves by £4.9m to £5.2m. However, Society welcomed FRS 17 because it aided transparency of the accounts.

Mr Kelly went on to describe in detail the factors contributing to an increase in pension liability and the steps taken to limit the risk. Under a new schedule of contributions agreed between the Society and the trustees of the pension scheme, the Society now contributes 18 per cent of salary plus £360,000 per annum and the staff contribution has been raised to 7 per cent of salary.

Turning to the Benevolent Fund, Mr Kelly said that, as a result of the improvements in stock markets, the value of the Benevolent Fund’s investments rose by over £1.3m and the reserves increased from £9.5m to £9.9m at the end of 2005.

The extraordinary cost related to the closure of Birdsgrove House amounted to £798,000. The contents of the house were to be auctioned in August and it was hoped that the sale of the house itself would be completed by the end of year. The date of the content sale would be announced in The Journal, since the Society expected that many members would take the opportunity to visit the house for one last time.

Mr Kelly said that the Society has been exploring opportunities to realise the value invested in the Benevolent Fund property in Edinburgh. The tenant at 34 York Place intends to leave in 2006 and the Society is exploring a number of options, including redevelopment and sale. There is no intention of disrupting the occupancy of No 36, the home of the Society’s Scottish Department.

The Society’s financial controller, Graham Duncan, then took the meeting through the financial statements in detail.

Summing up, the Treasurer said that 2005 had been a significant year in the Society’s history. It had seen a new Council, the closure of Birdsgrove House, significant growth in activity and some difficult decisions — the pensions fund, changes in accounting standards and challenges in the publication business, to name but a few.

Answering a question from Andrew Burr (Sutton Coldfield), the Treasurer confirmed that there had been an internal audit of Council expenses. He could not give any details because the report was not yet finalised.

In response to questions from John Balmford (Chipping Campden), the Treasurer said that the additional cost of holding the 2006 AGM and branch representatives’ meeting at the Queen Elizabeth II Conference Centre was £17,549. The refurbishment of the Society’s hall could not have been timed to avoid holding these events at an external venue because the work was expected to take at least a year.

Asked by Mr Balmford about the additional cost associated with the error in distributing this year’s Council election papers, the Treasurer said that the figure was £22,500. The issue had been addressed and corrective action been taken to ensure that it did not happen again. (See also p691.)

Answering questions submitted by Ian Caldwell (Lanark), the Treasurer said that the cost of storing and maintaining the museum collection off-site was £18,800 per annum. Insurance was covered in the Society’s overall policy. There had been no recovery of losses sustained in the fire at the off-site storage unit in 2004.

In reply to a further question from Mr Caldwell, the Treasurer said that the refurbishment costs of 1 Lambeth High Street had been £1.8m to date, with a further £1m planned for 2006.

Asked by Mike Williams (Solihull) about the proposed increase in the premises retention fee, Mr Kelly said that the current premises fee does not allow full cost recovery of the activities that support the inspection of premises. The Society has been engaged in conversation with the Department of Health for nearly three years. The Department appreciates the Society’s position, but politics come into play and it is ministers who decide what fee will be awarded. The Society continues to press its case.