NFP Finance Forum The need for innovation & the ability ...

NFP Finance Forum The need for innovation & the ability within the NFP sector

John McLeod, JBWere Philanthropic Services

May 2017

Regular analysis and programs highly valued in the sector

The Cause Report Australian Giving Trends Social Leadership Program

Impact Australia The PAF Report Non-Profit Leadership

The challenges are ….

• New Zealand doesn’t understand and appreciate you

• Competition continues to grow from both within and outside the sector

• Innovation has been slow, but not your fault

• Your assets are not always aligned with your mission

• Income growth has been strong but expenses growth is just as strong

• Government funding growth may be peaking

• Philanthropy has changed and the NFP sector isn’t ready

• Volunteering has peaked and replacing ageing supporters is hard

• New models of accessing capital for social activities are emerging that

allow social returns to be valued and rewarded, not just reimbursed. Are

you ready?

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4

Difficulties with the traditional nfp funding model

•Reliant on short term support from Government and philanthropy

•The size of these available funding pies is limited

•No guarantee of sustainability makes it difficult to focus on long term solutions

•We want them to run like businesses but fund them like charities

DemandFunding Gap

Unmet Need / Lost

Opportunity

Gov’t

Financing

The place of the charity sector

5

Households

$150B taxable

income

Business

$60B pretax

profit

Charities

$20B income

Government

$75B spending

Source: JBWere Philanthropic Services

• Support through

philanthropy, CSR,

shared value

• Compete for

contracts

• Benefitting from

NFP activities

• Trading with NFPs

• Engagement with

employees and

their communities

• Regulation

• Direct and

indirect funding

• Influenced by

advocacy and

community

expectations

• Delivery of

government

funded

services

• Investment in

community

• Clients of NFPs

• Members of clubs etc

• Employees

• Volunteers

• Philanthropy

6

Typ

e

Pure Social Pure Profit

An organisational spectrum

Non-Profits/

Charities

Non-Profits

that generate

some income

Social

Enterprises

Socially

responsible

businesses

Businesses

that practice

CSR

For Profit

Investments/

businesses

Purely Social & Environmental Purely Financial

Impact

Investing

Traditional

Investments

Socially-

Responsible

Investments

ESG

Investments

Philanthropic

Donations

Venture

Philanthropy

Program

Related

Investing

The number of charities

• The number of charities has increased by around 2.5 per business day since 2010

• The number of non profit institutes (a broader measure) has grown by 7.6 per business day since 2004 7

0% 20% 40% 60% 80%

1

Growth in charity numbers since 2010

International activities

Care / protection of animals

Community development

Promotion of volunteering

Economic development

Sport / recreation

Marae on reservation land

Fund-raising

Environment / conservation

Religious activities

Accommodation / housing

Education / training / research

Emergency / disaster relief

People with Disabilities

Health

Employment

Social Services

Where are the new names?

8

• The for profit sector sees changes each decade in the largest companies through both innovation and industry decline

1970 1980 1990 2000 2010

1 General Motors Exxon Mobil General Motors General Electric Exxon Mobil

2 Exxon Mobil IBM General Electric Citigroup Microsoft

3 IBM General Motors Ford Motor SBC Communications Wal-Mart Stores

4 Texaco Mobil IBM Exxon Mobil Procter & Gamble

5 Gulf Oil ChevronTexaco Exxon Mobil Bank of America Corp. IBM

6 Ford Motor Texaco Altria Group Microsoft Goldman Sachs Group

7 ChevronTexaco Amoco Dow Chemical IBM Merck

8 Mobil General Electric DuPont DuPont AT&T

9 Eastman Kodak Gulf Oil Texaco Altria Group Wells Fargo

10 DuPont BP America Atlantic Richfield Intel Johnson & Johnson

11 Amoco Ford Motor Mobil Ford Motor JP Morgan Chase & Co

12 Shell Oil Atlantic Richfield Coca-Cola General Motors General Electric

13 General Electric Shell Oil Amoco Merck Bristol-Myers Squibb

14 General Telephone & Elec Eastman Kodak Merck Chase Manhattan Corp. Chevron

15 ITT Industries DuPont Shell Oil Wal-Mart Stores Pfizer

16 Atlantic Richfield ConocoPhillips 3M American Intl. Group Berkshire Hathaway

17 AT&T Technologies Conoco Procter & Gamble Morgan Stanley Hewlett-Packard

18 US Steel Dow Chemical Wyeth Lucent Technologies Coca-Cola

19 Procter & Gamble Sunoco Johnson & Johnson Bell Atlantic Google

20 Union Carbide 3M Digital Equipment Johnson & Johnson Liberty Media

Rising industries, improved operations Consistent organisation adapting in changing environments Declining industries, poor adapting to circumstances

Source: http://money.cnn.com/magazines/fortune/

Where are the new names?

9

• Comparisons of the largest not for profit organisations show little change over the past 20 years, except in a few areas

such as aged care. A large part of the reason is the lack of risk capital for the sector.

1994 Income ($m) 2014 Income ($m)

1 Australian Red Cross Society $176 Australian Red Cross Society $1,109

2 Salvation Army – Southern $129 Unitingcare NSW.ACT $651

3 Salvation Army – Eastern $126 Blue Care: Head Office $605

4 World Vision of Australia $89 Salvation Army – Eastern $394

5 Wesley Mission Sydney $60 World Vision Australia $380

6 Silver Chain Group Limited $51 Salvation Army – Southern $377

7 CARE Australia $44 Life Without Barriers $345

8 Anglican Retirement Villages (Diocese Of Sydney) $43 Mission Australia $285

9 Endeavour Foundation $41 The Trustee for RSL (QLD) War Veterans' Homes Trust $257

10 Royal District Nursing Service Limited $34 BaptistCare NSW & ACT $253

11 BaptistCare NSW & ACT $31 Catholic Healthcare Limited $241

12 Sydney Anglican Home Mission Society Council $30 St John Ambulance Western Australia Ltd. $241

13 Activ Foundation Inc $28 Diabetes Australia $231

14 Scope (Aust) Ltd $27 Ozcare $220

15 Churches of Christ Community Care $27 ECH Inc $202

16 Mission Australia $27 Anglican Retirement Villages (Diocese Of Sydney) $200

17 Brotherhood of St Laurence $24 Endeavour Foundation $198

18 The Smith Family $24 Silver Chain Group Limited $186

19 Cerebral Palsy Alliance $23 Unitingcare Community $175

20 Minda Incorporated $22 Wesley Mission $164

Source: Charitable Organisations in Australia, Industry Commission 1995, ACNC, JBWere Philanthropic Services

Dominance of long established charities

• For the largest 40 New Zealand charities (by income)

- the average date of establishment was 1941

- only 22% were established in the last 20 years10

0

5

10

15

20

25

30

35

40

1840 1860 1880 1900 1920 1940 1960 1980 2000 2020

Ran

k b

y in

com

e

Year of establishment

Date of Establishment for largest 40 NZ Charities

There is a significant asset base

• Assets controlled by charities are significant at $58Billion, but they are asked to do a lot with them

• Land and buildings comprise 45% of assets and cash, endowments plus investments another 41%

• Net assets are around 80% of this total suggesting comfortable levels of liabilities.

• The question to always ask is “are these assets best serving our mission”

11

10%

6%

25%

15%

30%

14%

CHARITY SECTOR ASSETS

Cash and Bank

Endowment Funds

Investments

Land

Buildings

Other Assets

Large organisations dominate funding

Charity assets by decile

12

Charity income by decile

• The 80/20 rule is actually the 89/11 rule for charity income and 85/15 for assets

Changes in not for profit funding

13

• Income growth for the sector has been strong at 5.7% annually since 2004

• The income mix has moved with Government rising by 7.4% annually to total 31% of all

income including grants and contracts, while philanthropy rose more slowly at 3.8%

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

2004 2010 2013

Income sources for non profit institutions ($m)

Insurance claims

Government grants

Membership, donations andgrants

Dividends received

Interest received

Sales of goods and services(incl Gov't)

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Provide capital

• Transactions currently tend to be private debt or equity investments

• We expect more publicly traded investment opportunities will

emerge as the market matures

Expect financial returns

• The investment should be expected to return at least nominal

principal

– Grants and donations should be excluded

– Market-rate returns in scope

Business designed with intent…

• The investment should be designed with intent to make a

positive impact

• This differentiates impact investments from investments

that have unintentional positive social consequences

… to generate positive social and/or environmental impact

• Positive social and/or environmental impact should be

part of the stated business strategy and should be measured as part of

the success of the investment

Investments Intended to Create Positive Social Impact with Financial Return

What Is Impact Investing?

Courtesy of the Rockefeller Foundation

A growing number of Impact Investment options are now available

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Different causes see different $

16

$0 $100 $200 $300 $400 $500 $600 $700 $800




Employment





Fund-raising

Sport / recreation



Social Services

Arts / culture / heritage


Other

Health



Philanthropy ($million)

And it is more important for some

17

0% 10% 20% 30% 40% 50% 60% 70% 80%

Employment




Health


Other

Social Services


Sport / recreation




Arts / culture / heritage


Fund-raising




Philanthropy (% of income)

Philanthropy in New Zealand

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Personal Donations

Bequests

Family and Individual Trusts

Universities and other Tertiary Inst.

Community Trusts

Energy Trusts

Licensing Trusts

Gaming Machine Societies

Lottery Grants Board

Business and Corporate Giving

Business and Corporate Sponsorships

Sources of New Zealand Philanthropy

Source - Giving New ZealandPhilanthropic Funding 2014, Statistics New Zealand

Philanthropy in Australia

Breakup of Charitable Donations in Australia

Source: ABS, JBWere Philanthropic Services

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Individuals (tax deductible,

excl. ancillary funds)

Individuals

(not claimed as tax deductions)

Bequests

Private ancillary funds

Public ancillary funds

Other charitable trusts

Corporates (excl. sponsorships)

Sponsorships

The right hand side of the pie is tough

20

• Although it represents half of the pie, there are challenges for charities

• The cost of gaining both tax deductible donations and hosting events or conducting

“charity gambling” are among the lowest returning activities

$0

$400

$800

$1,200

$1,600

$2,000

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Proportion claiming tax credit and $ given

Proportion claiming tax credit (LHS) average donation ($)

Australia is not that different

21

• New donors are difficult to acquire as the proportion of the population donating is

disappointingly low and static.

• Spikes do occur during natural disasters, but fall back afterwards

$0

$100

$200

$300

$400

$500

$600

0%

10%

20%

30%

40%

50%

60%

1979 1984 1989 1994 1999 2004 2009 2014

Proportion giving and average donations 1979-2014

Proportion of taxpayers who donate (LHS)

Average donation per giving taxpayer (RHS)

Source - ATO, JBWere Philanthropic Services

The other half of the pie is growing evolving

22

• Bequests are set to grow with both higher property values and the baby boomer bulge

• Structured giving continues to grow fast led by PAFs with assets around $8Billion

• The largest change will be in the shift of corporate support from less focussed but well

intentioned philanthropy to a more structured, directed and analysed shared value

model. The not for profit opportunity is as a skilled partner

Not for profit expenses

23

• Expenses have risen at 6.0% annually since 2004 (income grew at 5.7%)

• Employee costs have remained steady at 38% of total expenses

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

2004 2010 2013

Expenditure for non profit institutions ($m)

Net insurance premiums

Interest payments

Donations paid

Taxes on production

Compensation of employees

Purchases of goods andservices

Sector workforce

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• The type of paid workforce has remained flexible and grown at 2.9% annually since 2004

• Volunteers continue to be a very large share of the total “workforce” but have likely peaked

• The value of volunteers is 30% greater than the amount of philanthropy given.

Source: Charities Services, JBWere Philanthropic Services

-

50,000

100,000

150,000

200,000

250,000

300,000

Charity Sector workforce 2015

volunteer

part time

full time

Not for profit sector surplus

25

• Although volatile, there has been a trend down in sector surplus since 2004

• Does this suggest lack of pricing power or lack of cost control?

Source: Statistics NZ, JBWere Philanthropic Services

0%

2%

4%

6%

8%

10%

12%

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

2004 2010 2013

Annual non profit institute surplus ($m)

Surplus $ (LHS) Surplus % of income (RHS)

Comparisons between countries

26

• Australia and New Zealand charity sectors are quite similar in many areas

• However, New Zealand has relatively more charities and assets and is less reliant on

paid staff but more reliant on volunteering

Source: Statistics NZ, Charity Servives NZ, JBWere Philanthropic Services

Charity Sector comparison New Zealand Australia ratio

Population 4,500,000 24,000,000 19%

Individuals taxable income ($B) $150 $700 21%

Business operating profit ($B) $60 $300 20%

Government spending ($B) $75 $400 19%

Charity sector income ($B) $20 $125 16%

Charity sector assets ($B) $58 $200 29%

Number of registered charities 28,000 55,000 51%

Employees (FT+PT) 165,000 1,100,000 15%

Volunteers (FTE) 80,000 380,000 21%

Sector observations –Arts, Culture, Heritage

Profit and Loss – New Zealand

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Culture and Arts - Australia

• There is a greater reliance on philanthropy and less on Government in New Zealand

• Employee expenses are lower in New Zealand and profit margins good

• There is almost exactly one volunteer for each paid employee

• The sector has a strong and asset rich balance sheet (relative to income)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Income Expenses

$m

Other Expenses

Employee Expenses

Other Income

Donations and bequests

Government grants

Source: Charities Services, JBWere Philanthropic Services Source: ACNC, JBWere Philanthropic Services

0

100

200

300

400

500

600

Income Expenses

$m

Other Expenses

Employee Expenses

Other Income

Donations and Bequests

Government Grants

$0

$200

$400

$600

$800

$1,000

$1,200

Income Expenses

$m

Other Expenses

EmployeeExpenses

Other Income

Donations andbequests

Government grants

Sector observations –International Activities


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International Activities – Australia

• A very similar situation in both countries

• A large reliance on philanthropy combined with a low profit margin and a relatively small

asset base make sustainability an annual challenge.

Source: Charities Services NZ, JBWere Philanthropic Services Source: ACNC, JBWere Philanthropic Services

0

20

40

60

80

100

120

140

160

180

200

Income Expenses

$m

Other Expenses

Employee Expenses

Other Income


Government Grants

Sector observations –Religion


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US Charitable Giving by Cause 1972-2014

• Religion remains the largest single cause for philanthropy in New Zealand (and Australia

and the USA)

• But its share of income has fallen by 10% since 2004 while self earned income has risen.

Source: Giving USA, JBWere Philanthropic Services

0%

10%

20%

30%

40%

50%

60%

197

2

197

7

198

2

198

7

199

2

199

7

200

2

200

7

201

2

201

3

201

4

Religion

Education

HumanServices

Health

Public-societybenefit

Arts, culture,humanities

International

Source: Charities Services NZ, JBWere Philanthropic Services

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Income Expenses

$m

Other Expenses

Employee Expenses

Other Income


Government Grants

Final thoughts

• The NFP sector is vital to the wellbeing of our society, but its scale, scope and direction

are not well understood, even by many participants.

• We’re seeing the lines continue to blur between for profits and NFPs in many ways.

• This opens the way for social activities to access capital in ways they haven’t and to

question their use of existing assets

• Let’s have innovative win/win discussions with the corporate sector. You have the insights

they need, you’re valuable to them.

• This new way of operating should extend to the use of volunteers. While willing, their

expectations and degree of satisfaction have changed.

• And finally, let’s keep the discussion about charity numbers going, even if it just prompts

sensible sharing of assets and knowledge.

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Important Notice

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the particular investment objectives, financial situation, goals or needs ("financial circumstances") of any particular person. Accordingly, before acting

on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact

your adviser. The disclosure statement for your JBWere adviser(s) is available on request, free of charge.

This communication is being furnished to you solely for your information and may not be copied or redistributed to any other person. It is provided on

the condition that you keep it confidential and do not copy or circulate it in whole or in part. In particular, the information may not be redistributed

outside of Australia and New Zealand via e-mail or otherwise.

For the purposes of the Financial Advisers Act 2008 ("FAA"), the content of this document is of a general nature and is intended as a source of

general information only. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is

intended only as a "class service" provided by JBWere within the meaning of the FAA.

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believe that the information contained in this document is correct and that any estimates, opinions, conclusions or recommendations contained in this

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