As a not-for-profit entity, Technical Safety BC operates within a long-term financial planning strategy, balancing investments in the safety system over a period of years. A sustainable Technical Safety BC aims to deliver its 10-Year Strategy and vision: Safe technical systems. Everywhere. Prudent investment in employees, training, tools, and capital assets support our work in assessment, education and outreach, enforcement, and research, which is essential to achieving our objectives and advancing technical safety in the province.
This Financial Performance overview summarizes Technical Safety BC’s financial and operating results for the year ended December 31, 2018, and should be read in conjunction with the complete Management Discussion and Analysis and audited financial statements, which is in the full 2018 Annual Report.
|Key financial performance indicators
Monetary indicators (in 000’s)
|2018 ($)||2017 ($)|
Total revenues increased by 7% from 2017, which is primarily due to the strong construction market in BC, resulting in growth in installation permits.
Increased spending was associated with an increase in client service activity to support new certification requirements, a continued focus on compliance and enforcement, investment in improved risk prioritization techniques for assessment, new training programs, and one-off costs related to the head office relocation from New Westminster to East Vancouver. The continued investigation, and ultimately the operationalizing of province-wide risk control, stemming from the tragic Fernie Memorial Arena incident, also increased our costs for 2018.
Salaries and benefits
The majority of the increase was due to hiring in the areas of safety operations, client care, and business analytics to support a higher volume of activity, improved assessment and incident investigation.
Excess (deficiency) of revenue over expenses:
Expenditures exceeded budget due to restructuring costs and one-time costs related to the office move to Vancouver. Revenues were negatively impacted by a one-time accounting adjustment of $0.5 million related to the timing of revenue recognition; and volatility in the Canadian Stock Market in December 2018 that resulted in an unrealized loss on investments of $0.5 million. This loss is expected to reverse in 2019, based on market improvement.
This represents 9% of the 2019 operating expense budget compared to our internal operating reserve target of 15%. Our three-year business plan carefully outlines how we will bring our operating reserve back to the target level of 15% by the end of 2021.
|Capital budget spend||7,069||5,700|
Total volumes of permits (in 000')
Installation permits increased by 9%, driven mainly by the gas and electrical industries. Operating permits decreased by 10%, driven mainly by the migration of clients from individual permits for each operating asset (prescriptive fees) to an audit-based, Alternative Safety Approach program.
Services and related fees represent approximately 99% of our revenue. The remainder is comprised of investment income, monetary penalties, and other revenue. Learn more about our fees.
|Full Time Equivalent employees (FTEs)||402||368|
Capital Spending - Investing in Infrastructure
During 2018, Technical Safety BC spent $7.1 million in capital. Of this amount, $3.2 million was a leasehold improvement allowance that was recovered from the landlord at the Vancouver office and was added to the $0.8 million balance of Deferred Leasehold Inducements on the balance sheet. This allowance will be amortized against rent expenses over the remaining 10-year term of the lease.
Capital was invested in improvements to the Vancouver, Comox, and Victoria offices. Investment in information technology included continued development and improvement of online client services and purchase of new servers to support both the new head office and regional offices. Fleet vehicles were purchased in accordance with the Vehicle Replacement Plan.
|Reserves and Net Assets||2018 ($)||2017 ($)|
|Investment in property, equipment, and intangible assets||15,490,268||12,757,194|
The education reserve was established in accordance with the Safety Standards Act to reserve monetary penalties collected to pay for safety education programs.
The capital reserve is allocated from the operating reserve to fund long-term capital investment projects such as the modernization of facilities and information technology systems. The balance in any given year represents the estimated capital expenditures over a period of years depending on the needs of the organization at the time.
The operating reserve decreased due to the excess of expenses over revenues and the aforementioned increase in capital outlays in 2018.
|Total Net Assets||27,223,975||29,613,239|
Risk and Uncertainty
Technical Safety BC has adopted a proactive approach for identifying, evaluating, and responding to the risks that arise from its activities in a systematic manner by establishing its Enterprise Risk Management (ERM) Framework. The ERM Framework uses industry standards and best practices, and includes the requirement for bi-annual reporting to the board and executive team, to enable members to fulfill their fiduciary responsibilities.
Our financial risk includes concerns about threats to revenue and the possibility that prime sources of income could shrink. Global economies continue to face challenges arising from weak oil and gas prices and international trade disputes. As the economy moves into the contraction phase of the business cycle, Technical Safety BC’s clients will adjust their activities in response. Declining permit volumes, particularly installation permits, are expected to negatively impact our revenues. We mitigate the impact of declining revenues during economic contraction through cost reduction measures and the use of our reserve funds. Safety operations will continue to ensure all work is appropriately permitted.
Financial risk is also mitigated through our financial investments, capital reserves, and our liquidity. Liquid assets amount to 70% of the total assets on our balance sheet. A conservative portfolio of our financial investments is managed by our investment advisors and is invested in short term bonds and Canadian dividend producing equities in accordance with Technical Safety BC’s investment policy. In 2018, as we continued to step up our investment in safety oversight initiatives, our operating reserves declined below the 15% target. Our three-year business plan carefully outlines how we will bring our operating reserve back to the target level of 15% by the end of 2021.
Download our full 2018 Annual Report for further details on our ERM Framework safety system, strategic, compliance, performance, talent management, data, and financial categories of risk.
In 2019 we will evolve our 10-Year Strategy, building on our capabilities as a knowledge-based and data-driven organization to deliver products and services in support of BC’s evolving safety system. The 2019 Business Plan provides for continued innovation to increase the effectiveness of our safety hazard assessments and drive participation in the safety system. We will increase participants’ knowledge so that they can better manage safety risks over the entire lifecycle of the technical equipment. We will also continue to build partnerships and share what we learn. Initiatives to build on these priorities have been funded through a careful review of spending requirements and expected revenue.
Revenues are expected to increase slightly in 2019. BC’s economy is expected to remain relatively strong with low unemployment and projected growth in commercial construction, including new LNG developments in the north. Continued focus on compliance and enforcement is also expected to support revenue growth as we increase the level of participation in the safety system. Operating costs for 2019 have been reviewed to control costs that will allow us to continue with the innovation required to achieve our business plan.
The below table illustrates 2019-2021 projections. There are numerous factors, some beyond our control, which could cause results to vary from expectations. A key risk to the projected results is the strength of the provincial economy.
2019 – 2021 Projections ($’000s)
|Service and related fees||66,122||67,727||70,425|
|New business initiatives||2,162||2,545||1,888|
|Investment and other income||1,275||1,326||1,380|
|Excess of revenue over expenses||-||-||-|
For 2019, we anticipate revenues of $68.6 million. This builds on our 2018 revenue with a conservative projected increase in installation permit volumes and modest revenue growth from new initiatives. The projection includes approved 2019 fee increases of 2% for the Electrical; Gas; Elevating Devices; and Boilers, Pressure Vessels, and Refrigeration technologies.
Managing operating expenses
Technical Safety BC makes every effort to deliver necessary safety programs as efficiently and cost effectively as possible. Our balanced 2019 operating budget will provide Technical Safety BC with the necessary resources to perform our mandated services. We anticipate that our operating expenses will remain in line with our revenue growth in 2020 and 2021.
Investing in infrastructure
Capital spending in 2019 is focused on advancing our strategic objectives through improved technology and increased presence in the province. We have budgeted $5.4 million in capital expenditures of which $2.3 million relates to information technology innovation, $1.1 million relates to the replacement of vehicles, and $2.0 million relates to leasehold improvements in the regions. 2019 will be the first year of a five-year facilities strategy to improve Technical Safety BC’s presence throughout the province which aligns with the long-term expected growth in the BC economy.