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Jobs Australia - The Future CFO The future of funding in the NFP sector John McLeod, JBWere Philanthropic Services February 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 ….
• Competition continues to grow from both within and outside the sector
• Your assets are not always aligned with your mission
• Income growth has been strong but expenses growth is just as strong
• Innovation has been slow, but not your fault
• Government funding growth may be peaking
• Philanthropy has changed and the NFP sector isn’t ready
• New models of accessing capital for social activities are emerging that allow social returns to be valued and rewarded, not just reimbursed.
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The number of charities
Number of Charities established and cumulative per decade and Population per charity
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0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
0
500
1,000
1,500
2,000
2,500
1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Charities established per decade (RHS)
Population per charity(LHS)
Cumulative Charities established (RHS)
• Charity numbers have risen dramatically, doubling every two decades and approaching almost 10 new charities established per business day bringing the population per charity to it’s lowest level ever.
Source: ACNC, JBWere Philanthropic Services
Large organisations dominate funding
Charity assets by decile
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Charity income by decile
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
1st
2nd
3rd
4th
5th
6th
7th
8th
9th
10th
• The 80/20 rule is actually the 92/8 rule for both charity assets and income • While this is even more concentrated in education and hospitals, it is true for nearly all causes
There is a significant asset base
• Assets controlled by not for profit organisations total around $350 billion when adding charities, non charity NPIs and Government controlled not for profits.
• Property comprises around two-thirds of assets and cash plus investments another quarter.
• Net assets are around 70% of this total suggesting reasonably comfortable levels of liabilities.
• The question of “are these assets best serving our mission” must continually be asked by all organisations
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Changes in not for profit funding
Income mix – All NPIs
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• Income growth for the sector has been strong at 8.4% annually since 1996 • The income mix has moved substantially with Government rising (30% to 38%), self earned falling (62% to 54%) while
philanthropy has remained steady at 8%
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
1995/96 1999/00 2006/07 2012/13
$m
Income other
Income investments
Income memberships
Income donations and sponsorships
Income non Gov't (goods and services)
Income Govt (goods and services)
Income Govt (capital and non volume)
Not for profit expenses
All NPIs – Expenditure
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• Expenses have risen at 8.4% annually since 1996 (same as income) • Employee costs have remained steady at 51% of total expenses
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
1995/96 1999/00 2006/07 2012/13
$m Expenditure other
Expenditure purchases
Expenditure labour
Source: ABS, JBWere Philanthropic Services
Not for profit workforce
All NPIs – Employees and Volunteers
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• The type of paid workforce employment has remained very flexible and has grown at 3.7% annually since 1996 • Volunteers continue to be a very large share of the total “workforce” and have grown at 4.1% annually with their value
double that of philanthropy.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1995/96 2006/07 2012/13
Employees (volunteers, FTE)
Employees (casual)
Employees (part time)
Employees (full time)
Source: ABS, JBWere Philanthropic Services
Not for profit sector surplus
All NPIs – Annual Surplus
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• There has been a relatively steady sector surplus of around 5% of income over the last 20 years. Does this suggest lack of pricing power or lack of cost control?
• ACNC reports suggest an 8% margin, partly due to less, low margin sporting organisations. Religion, Arts and Environment show the best margins while Sports, International aid and Health show the lowest.
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1995/96 1999/00 2006/07 2012/13
$m
Surplus (LHS)
Surplus/Income (RHS)
Source: ABS, JBWere Philanthropic Services
Where are the new names?
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• 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?
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• 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
Different causes attract different dollars
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$0 $200 $400 $600 $800 $1,000 $1,200
Religious activitiesOther
International activitiesGrant-making activities
Social servicesOther health service delivery
Higher educationEconomic, social and community development
ResearchEmergency Relief
Culture and artsOther Education
Hospital Services RehabilitationEnvironmental activities
Primary and secondary educationAnimal Protection
Aged Care ActivitiesHousing activities
Other PhilanthropicMental health and crisis intervention
Civic and advocacy activitiesEmployment and training
Income support and maintenanceOther recreation and social club activity
SportsLaw and legal services
Millions
Donations and Bequests
And it is more important for some
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0% 10% 20% 30% 40% 50% 60% 70% 80%
Other Philanthropic
International activities
Animal Protection
Religious activities
Grant-making activities
Environmental activities
Emergency Relief
Income support and maintenance
Research
Culture and arts
Economic, social and community development
Other
Other health service delivery
Sports
Social services
Housing activities
Civic and advocacy activities
Mental health and crisis intervention
Other Education
Primary and secondary education
Other recreation and social club activity
Hospital Services Rehabilitation
Higher education
Aged Care Activities
Employment and training
Law and legal services
Donations and Bequests as a share of income
What about employment and training?
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Top 10 Organisations by Income Total Gross Income Government Grants Donations and Bequests Other IncomeEmployment and training $m $2,507 $783 $17 $1,707
Megt (Australia) Ltd $105 51% 0% 49%Job Futures Ltd $70 97% 0% 3%Campbell Page Limited $65 7% 0% 93%Break Thru People Solutions $53 99% 0% 1%Hunter Valley Training Company Pty Ltd $50 4% 0% 96%The Trustee For The Building & Construction $50 6% 0% 94%Bedford Group Incorporated $49 21% 1% 79%Wise Employment Ltd $49 0% 0% 100%MTC AUSTRALIA LIMITED $45 12% 0% 88%Workskil Australia Incorporated $39 2% 0% 98%
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 side of the pie is tough
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• Although it represents half of the pie, there are challenges for charities • New donors are difficult to acquire as the proportion of the population donating is disappointingly low and static. • The cost of gaining both tax deductible donations and hosting events or conducting “charity gambling” are among the
lowest returning activities
$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
Growth in philanthropy and the emergence of PAFs
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-
500
1,000
1,500
2,000
2,500
3,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$million
Financial Year ending June
Total Individual Tax Deductible Donations
Donations into Private AFs
Donations excluding those into PAFs
Donations into Public AFs
PAF establishment is now back around pre GFC levels
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-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
25
50
75
100
125
150
175
200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Annual PAF establishment (current PAFs) by year (to June) and State
NT
ACT
Tas
SA
Qld
WA
Vic
NSW
All Ord's
Source - ATO, JBWere Philanthropic Services
Bequests will grow in importance
20
• The growth in bequests (demographics * asset values) will continue for several decades
Source: ABS, JBWere Philanthropic Services
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Deaths by age group in Australia by in 2004-20140 to 19 20 to 59 60 to 84 85 and over
Theatres of Corporate Responsibility
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Corporate Philanthropy
Corporate Responsibility
Shared Value
“Giving Back”
Strategic Philanthropy
Business must fulfil
community obligations
“Minimising harm to society
and the company”
Re-engineering the Value Chain
Business should be responsible
“Finding business opportunities in
societal problems”
Transforming business models
Create social & organisational value
+ +
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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
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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
The Structured Giving World
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$10,000
$100,000
$1,000,000
$10,000,000
$100,000,000
$1,000,000,000
$1,000 $10,000 $100,000 $1,000,000 $10,000,000
Tota
l Ass
ets
Total Grants Made
Grant Making PAF's not in ACNC Grantmaking PAF's in ACNC Grantmaking Average of 788 PAF's not in ACNC
Source: ACNC, JBWere Philanthropic Services
New ATO Ancillary Fund guidelines
Example 1: If a private or public ancillary fund makes a gift of land to a public benevolent institution, it would include the market value of the land in calculating how much it has distributed.
Example 2: If a private or public ancillary fund leases office space to a deductible gift recipient at a discount to the market price, the fund is providing a benefit whose market value is equal to the discount.
Example 3: If a private or public ancillary fund invests in a social impact bond issued by a deductible gift recipient with a return that is less than the market rate of return on a similar corporate bond issue, the fund is providing a benefit whose market value is equal to the interest saved in the financial year by the deductible gift recipient from issuing the bond at a discounted rate of return.
Example 4: If a private or public ancillary fund lends money to a deductible gift recipient at a discount to the interest rate which would be charged on a comparable loan sourced from a financial institution at arm’s length, the fund is providing a benefit whose market value is equal to the discount.
Example 5: If a private or public ancillary fund guarantees a loan provided by a financial institution to a deductible gift recipient, the fund is providing a benefit whose market value is equal to the discount to the interest rate which would be charged on a comparable arm’s length unsecured loan sourced from that financial institution.
Example 6: Continuing example 5, if the deductible gift recipient defaults on the loan and the fund is called on under the guarantee to make a payment to the financial institution on behalf of the deductible gift recipient, the payment is a distribution (being the provision of money, property or benefits).
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A growing number of Impact Investment options are now available
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