The chairman of rural college SRUC warned last night it could take some time for the benefits of the merger that created it and a continuing restructuring to deliver “a positive financial impact”.
Lord Lindsay was speaking as SRUC’s inaugural accounts revealed it plunged £1.541million into the red at an operating level in the year to March 31. The accounts also reveal it is facing a tax challenge on VAT treatment from HM Revenue and Customs and for which it has made a contingent liability in the accounts from zero to £4milllion.
SRUC was formed in October 2012 from the merger of the Scottish Agricultural College and the rural further education colleges at Oatridge, near Edinburgh, Elmwood at Cupar and Barony at Dumfries.
The accounts – which include a full year of SAC’s figures and just six months of trading from the other colleges – disclosed the operating loss was more than double the £765,000 posted the previous year by SAC alone.
SRUC did, however, post a bottom-line profit of £4.29million after a £2.994million gain from the sale of land in Aberdeen and the release of £2.837million of “negative goodwill”. That accountancy term translates into SRUC benefiting from the merger process and it getting a bargain in the shape of the assets of the three further education colleges that joined SAC as they were transferred at no cost. That gave SRUC a £45million benefit.
Investopedia added: “Negative goodwill may be listed as a separate line item on the acquiring company’s balance sheet and may be considered income. For the purchased company, negative goodwill often indicates a distress sale, and the unfavourable sale conditions lead to a depressed sale price.”
SRUC said in the accounts that its results had covered a difficult trading period. It shared the financial pain of many of its farming customers as its farms were hit by adverse weather conditions which resulted in significantly higher costs.
One-off costs relating to the merger also hit the business and it lost 50 posts through voluntary redundancies. The Scottish Funding Council and Scottish Government provided finance for some of the merger and redundancy costs, but SRUC bore £530,000 itself.
The challenge from the taxman is over the treatment of certain income streams for VAT purposes. The college is also attempting to negotiate a new VAT partial exemption special method, according to the accounts.
SRUC added: “The board has engaged professional advisors to assist in these matters and is robustly defending the challenge on the VAT treatment of the income streams.”
Directors said the underlying business remained sound. They added: “There are many challenges ahead for the merged institution with an enlarged estate in varying conditions spread over a wide geographic area which is required to be maintained to meet the needs of students and staff. Work will continue to focus on merger synergies and savings which can be made to ensure financial sustainability.”
The directors said they remained optimistic about SRUC’s future prospects, particularly as it operated in areas of increasing public concern – food supply, the environment and climate change. “We believe we are well positioned to secure additional research and to attract more students to these areas.”
SRUC said income in its consultancy division suffered from the weather problems in 2012 and early 2013 as farmers and landowners pulled in spending.
The focus in education had been in bringing the four colleges together. Considerable time and effort had been, and will continue to be for some time yet, dedicated to the merger process. Research had enjoyed continued success in publication and knowledge exchange and in winning grants.
The accounts also show that Jim McLaren, the Quality Meat Scotland chairman, resigned his non-executive role on the SRUC board in October. He is understood to have stepped down early because of other commitments.