Understanding the Group financial Statements
With the new structure proposal circulating I felt it would be a good time to give the full update of our financial position, how its broken down and what’s driving our deficit.
Having completed our first unqualified consolidated and amalgamated accounts, we have the first true picture of the combined financial health of Playcentre Aotearoa as a Group. Up until now we have had snap shots of Associations, Federation and the centres, but never a fully collective and consistent picture of the full costs – profit and loss across all entities once equity payments and changes in property values through differing accounting policies etc.
For the 2018/19 year we did. We managed to successfully amalgamate all the entities and the overall result was a bit alarming. The Group had a net loss of $7.8m however it is important to note that $4.2m of this is a non-cash adjustment to building values and wont be repeated in future years.
The parent entity New Zealand Playcentre Federation/Playcentre Aotearoa lost $920,760 for the year but this was supplemented by a further loss of over $1.73m by Associations who were still operating during the period with minimal revenue while change over in these operations moved over to the new national organisation.
When we prepared the budgets for the 2019/20 year with all operations now moved over from Associations to Playcentre Aotearoa it was not too surprising to see the budgeted loss was very similar to the combined loss of $2.65m for the 2018/19 year. Unfortunately, the current costs to run our organisation is significantly higher than what is brought in through Levies.
What’s driving these costs?
First its not just a case of what’s driving the costs up, but we also note that Revenue has been dropping, with the changes to education requirements pushing more centres to become Playgroups or resulting in centres dropping or running unlicensed sessions we are seeing less Funded Child Hours income without any reduction in costs. Although MoE do support Playgroups, in reality all this is doing is reducing their cost and pushing the costs of building maintenance and overheads away from MoE and back to our National organisation further stretching our fully funded centres.
Another big factor is that Playcentre has only received 1.6% total increased funding since 2014 – that means we have not even kept up with inflation, so as our base costs go up, our deficit does too. Basic costs such as minimum wage, insurance, utilities are going up faster than our revenue pushing our bottom line further and further into the red every year.
The move by MoE requiring online RS7 submissions added enormous cost to the organisation and our total IT licensing and subsequent spend on internet and telecoms to the centres is now over 20% of the Playcentre Aotearoa Budget – far higher than it was originally anticipated. It is well known the struggle to get all our centres online especially those in rural areas and the initial quotes and contracts simply could not produce this outcome at the cost originally budgeted by Playcentre during the amalgamation. The result is that many of these centres are now being connected as they are just as important and, in many cases, need this more than our central locations with less access in the home or through other community centres, but this has come at a cost to our bottom line.
With all NZs recent seismic activity and other natural disasters, it won’t come as any surprise that insurance for our sizable property portfolio is a major piece of our spend at over $500,000 per annum and just keeps rising. The original quotes based on Association building valuation and premiums were based on some areas of the country being significantly under insured e.g. centre buildings insured for less than $10,000– although this kept premiums low it would have resulted in some of our already most vulnerable rural areas being unable to rebuild or repair through no fault of their own. This has all been reassessed and we are confident that we are now insuring all our centres adequately and evenly.
Deferred maintenance – as we have taken over the property portfolio, we are seeing that in order to make ends meet many of our centres and Associations were deferring necessary maintenance pushing our spend in this area to over 300% the initial property budget just to meet essential reactive spend. This is an area we have raised in our discussions with MoE – a rural centre receiving less than $5k in funding a year is simply not being adequately funded to meet their property needs and this needs to change.
Sadly these costs above cannot be avoided and push our organisation to look at the areas we can control which is one of the reasons we are working to develop a long term viable model that both meets our needs but also demonstrates factually why we need our funding addressed. The benefit we have now that we never had before is the detailed breakdown of how much money is being spent, and where. This has really helped to progress our discussion with our funders as we are not simply giving an emotive argument but a data backed factual evidence of why 1.6% increase in MoE funding over 6 years is simply not adequate and needs to be addressed.