CIPS financials – an informative response from the Institute

We published our thoughts on the CIPS financials that were published in Supply Management. Our article got a response from CIPS, which I'm delighted to feature today.

The overall messages are that the “loss” was largely planned given a lot of investment in 2012, but margins did soften. Yes, the pension fund is a burden, but the overall financial (cash flow) position is healthier than it first looks given some complicated stuff around deferred revenues (which I’m still not sure I fully understand, but I do believe is all genuine).

David Noble, the Chief Executive, said this.

“The expenditure was planned, last year was a heavy investment year but we are proud of the new syllabus and e-learning modules which put CIPS firmly at the forefront in the standards arena - particularly as ISM have just got rid of CPM and reduced the entry requirements for CPSM which no longer makes it compatible with MCIPS.

In terms of your comment on membership, this area represents only 23% of our total revenues (average % of revenues across ten other large UK Institutes is 36%) and our growth rate is higher than most of them. Corporate is and will be our largest revenue area”.

And here are responses from Malcolm Croft, CIPS CFO, to some questions we asked. (Croft is still there I'm pleased to say, he was in that role when I was heavily involved 10 years ago, and is a really 1st class finance person).

  1. The trading loss for CIPS was £309K in the year.  I assume that was worse than planned...?

CIPS group did make an overall trading deficit last year, however this was after one off investment for the future costs of £768k, namely finalizing the revised educational syllabus, e-Learning development, membership database development, all of which we chose to expend rather than capitalize as an asset of the business, so yes it was planned.

 

  1. That seems to have been driven by sales revenue increasing by 5%, whilst costs (pre pension payments) increased by 9%.  Given the margin last year was just over 2%, that 4% swing has led to a loss in 2012 of 1.5% of revenue.

Yes .. the incoming revenues increased year on year by 4.9% generating an additional £974k closing the year at £20.7m, margin returns from revenues softened during the year, particularly within Australia and this coupled with the one off expenditure referred to above meant that overall the group results slipped into a negative position, although this was controlled and planned.

 

  1. 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.  But even with that payment, the pension fund was revalued and the deficit / liability has increased even AFTER the £689k by some £374K – so the actuarial liability in the fund is £3.6M now.

CIPS incurred a one off pension top up payment during FY12 of £346k and this coupled with the ongoing regular payments meant that CIPS did incur £689k of pension costs last year. The final salary pension scheme however, valued on an FR17 basis showed a scheme liability within the accounts of £3.6m, an increase of £374k from the previous year’s position.

 

  1. So the overall effect is an outflow of around £1M in 2012 (the trading loss plus the pension payment). So  on paper at least, ratios aren’t great. Even excluding pension liability, net assets are negative £358K.

On the face of it you are right, the net reserves of CIPS are negative by £358k, however you need to take account of the fact that within the creditors figure of £8.7m there is £5.2m of deferred revenues which compared to last year’s figure of £4.0m was up by £1.2m or 30%. Deferred revenues have increased due to the continuing success of CIPS examination revenue stream and a much stronger corporate order book, which is currently at record levels.

...  Deferred revenues are classified as creditors as this figure represents invoiced revenues or cash received in respect of an event due to take place in the future. So if that event did not take place due to whatever reason and CIPS were unable to deliver a service which the customer has paid for then CIPS would have to refund the money, hence treated as a potential liability at the end of the year.

 

  1. 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.

Nearly right, you need to take into account the level of investments we have, which you seem to have ignored, overall cash reserves (Listed Investments + Short term cash deposits + Cash at bank) did reduce year on year by £968k because of the trading result, additional pension payments etc. However the overall cash reserve at 31st October 2012 was £3.2m not £2m!

 

  1. The other source of funding is the difference between creditors at £8.7 M and debtors at £4M.

If you adjust for deferred revenues then trade creditors become £3.5m (£8.7m less £5.2m) compared to trade debtors of £4.0m or a positive ratio of 1.14.

One final point. I think it is really healthy that CIPS members understand what is going on with the Institute - including the financials. And as CIPS becomes global, I do feel we should understand some of these international trade-offs that are going on, and some exciting but tricky strategic initiatives that are going on.

We should probably have tried harder (we did try, but not very hard) to get CIPS comments before we published last week. But equally, I would urge CIPS to give members more commentary rather than just presenting the numbers in Supply Management with an "everything is going fine" paragraph. Perhaps out intervention will support that idea for next year.

Voices (2)

  1. Charles Dominick, SPSM, SPSM2:

    There’s an interesting excerpt from this article that I think should not be lost in all of the other detail. “ISM have just…reduced the entry requirements for CPSM which no longer makes it compatible with MCIPS.”

    Under the reign of ISM’s former CEO, ISM put in place “reciprocity agreements” with institutes like CIPS where if you had one institute’s certification, you could pay a fee and get the other institutes’ certification(s) without testing. Does this quote mean that the MCIPS will no longer be able to be “bought” by individuals holding the CPSM?

    And does CIPS now feel it is in more competition rather than collusion with ISM now that ISM has a new CEO, who came from outside of the procurement world and may have a different perspective on partnering?

    1. Peter Smith:

      Charles
      That’s a great point on the reciprocity. You may well be right – I’ll see if I can get that confirmed or otherwise.
      And yes, I suspect the Institutes are more in competitive than collaborative mode these days.
      Peter

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