CIPS finances – a pension fund with a procurement Institute attached?

The recent edition (hard copy only, as far as I can see) of Supply Management magazine carried last year’s CIPS (the Chartered Institute of Purchasing and Supply) financial highlights.  Here are some of the numbers and a little interpretation.

  1. The trading loss for CIPS was £309K in the year (November 2011 – Oct 2012).  We might assume that didn’t meet the planned figure, but we don’t know what that was.
  2. That seems to have been driven by sales revenue increasing by 5%, whilst costs (pre the additional pension payments – see below) increased by 9%.  Given the margin in the previous year was just over 2%, that 4% swing has led to a loss in 2012 equivalent to 1.5% of revenue.
  3. On top of that, CIPS paid (or had to pay) £689K into the pension fund. It’s not clear whether that was on top of the “usual” payments linked to salaries of current staff – I would imagine that it was additional.  But the pension fund was also revalued and the deficit / liability has increased even after the £689k by some £374K – so the actuarial liability related the fund now stands at  £3.6M.
  4. So the overall effect is an outflow of around £1M in 2011/12 (the trading loss plus the pension payment). The result is that on paper at least, the CIPS “acid test” (quick ratio) and similar financial ratios  and numbers aren’t great. Even excluding pension liability, net assets stand at a negative £358K.
  5. The effect on cash of this year’s performance is that short term deposits plus cash has declined by almost £1 million, leaving CIPS with just over £2M “in the bank” as it were.

There’s no criticism of CIPS intended here - many firms have pension fund deficits. Some have agreed plans with the pensions regulator to fill the gap over 10 or even 20 years!  But given the state of the CIPS fund, one would imagine that some further substantial  payments will be necessary over the next few years. So current members will be supporting past employees – nothing much that can be done about this, but it does raise a few questions. Notably, is this restraining and reducing CIPS ability to invest and spend in ways it might want to? Or is it perhaps making the organisation focus on income generation more than it might otherwise do, in order to fund the pension deficit?

 We might also wonder why with record numbers of members, revenue growth isn’t higher? The problem, I suspect, is that the membership growth has come from Chinese and developing world students, who are frankly not a great source of revenue or profit. We might also suggest that CIPS has conceded too much power in its supply chains and networks to partners (classic Prof. Andrew Cox analysis here) – but perhaps we won’t go too far down that track today!

The accompanying message in Supply Management from David Noble, the CIPS CEO is solely around positive factors – increased numbers of exams and so on.  Perhaps the assumption is that no-one looks at the detailed numbers. But I would have thought that some commentary would have been appropriate given what looks like a somewhat worrying picture. Certainly, another year like this one and the Board and Congress will need to ask themselves some hard questions.

Voices (4)

  1. Ed Cross:

    Peter, well made comments, be good to see David or someone in the management team of CIPS respond.

    1. Peter Smith:

      Thanks Ed – and we’ve had a detailed and useful response from CIPS today which we’ll publish on Monday.

  2. Gordon Murray:

    I’m continue to be concerned about the global domination strategy which appears to be compromising the core membership. A strategy which needs real justification of the benefits. I’d also really like to see some truthful analysis of what members actually view of the individual benefits – my own experience is that they appear good on a webpage but not in reality., for example, when I asked for legal advice it was basically no more than I could find on a website, and what are the actual ‘unique’ member only benefits of CIPS Recruitment?

  3. steve mullins:

    Great assessment Peter – resulting in ALL the right questions. Have alerted Alan Cooley – another great financial anlyst of numbers that noone else digs into!

    Keep up the good work

    Steve

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