Close to the Edge – IOF Financials 2016

The good news is that the IOF has just published their 2016 accounts. This is an unprecedented move. In living memory accounts were published only for General Assemblies. Never on their own more than a year before the GA meeting that should approve it in October 2018. Pity though that it took more than 3 months (or a blog?) for the Council to publish it. The financial report was signed off by the Council in March 2017. But interestingly, it was published only on 14 July, 9 days after the Presidents’ Conference.

The bad news is that the numbers are below all expectations. The losses of 2016 were even higher than the shocking results expected in January. Insolvency is not just a theoretical option any longer.

Less than 2 weeks net cash reserves left. A small negative variance (far smaller than experienced in previous years!) may push the IOF over the edge.

The Council has also sent a revised budget to member federations for 2017. Budgeted expenses were cut from €935,000 to €771,000 (a 18% cut), yet the annual profit is expected to be below €10,000, or 86% down from the €70,000 presented by the IOF Council to the General Assembly in August 2016.

Here are some of the highlights until I find some time to present a more detailed and easier digestible analysis.

  • Result for 2016 was a loss of €65,281. This is well below the €37,000 loss expected in January(!), and a shocking €132,737(!!!) below the €67,456 profit predicted by the IOF Council in August 2016 – only 4 months before year end!
  • Reserves are down to €45,022 – a low level last seen in 2003. The difference is that in 2003 when costs were below €200,000, it covered 3 months of it. In 2017, at the original budget reserves cover just above 2 weeks of average expenses. With the revised 2017 budget, at lower expected expenses, it covers 3 weeks of average expenses.
  • Net cash position is getting very tight. Out of the €45,000 reserves net cash is probably not more than €27,000 – and likely to be less. This includes adjustment for less than €8000 machinery and equipment, and €10,000 debt of the Brazilian Federation from 2014 converted into long term debt to finance South American development. (see https://www.cbo.org.br/financas  2016 – Acordo IOF CBO – Debt Agreement Original em inglês.pdf – unfortunately, this information for some reason is not available from the IOF website) There are other items that are likely to reduce the net cash position further (there were references to long outstanding debts in Council minutes, inventory may not be fully used, etc).
  • Net cash position of less than €27,000 covers less than 2 weeks of average expenses, even under the cut budget of 2017. Any development below optimal would wipe it out.
  • The stated cash of €191,000 in hand and at banks should not confuse anybody. There were unpaid invoices in the amount of €172,000, and a further €80,000 services already consumed with no invoices received yet.
  •  The less than €10,000 expected profit for 2017 would not change the situation in practical terms. We – including IOF suppliers, contractors, and employees – are in for a long ride close to the edge. We can only hope that we will ride on the right side of that edge.

The overall situation of the IOF has become difficult to sustain. Even if insolvency can be avoided, the sword of Damocles will hang over it for many years to come, if things are not changed radically.

Member federations may need to start to warm up to the idea of a cash call, say an extraordinary annual membership fee.

A complete rethink of IOF’s operation also looks unavoidable – asap! It would be inconvenient, but it is better to do it now, before one is forced to do it by the circumstances.