NDNA Business Performance Survey December 2012 - A North-South divide for nursery prospects

It is a mixed picture for the sector as it prepares to meet the business challenges of 2013. While survey respondents in the South of England have typically reported stronger occupancy levels than the North, the latter is more likely to find that funding is covering costs for the free entitlement.

With 72 per cent of the NDNA's sample fo rits latest Business Performance Survey representing single-site nurseries, it may come as little surprise that less than 50 per cent expected to make a profit in 2012.

OCCUPANCY

A decline in occupancy rates continues to be fuelled by the economic downturn. In November 2012 the average occupancy rate was 71 per cent, putting it on a par with the same time last year.

Overall occupancy levels tend to be weakest in the North of England at 69 per cent compared to an average 77 per cent in the South.

Earlier school entry contributed to a dip in November 2012, with 55 per cent of nurseries experiencing an overall decrease in occupancy over the previous six months.

Parents' moves to reduce their outlay on formal childcare contributed to changes to patterns of childcare use. Eighty per cent of those nurseries surveyed took more part-time children; 67 per cent noted greater use of informal childcare and 52 per cent said parents were using funded hours only. Only six per cent of nurseries reported seeing more children full-time.

However, only 18 per cent of nurseries are considering changing the pattern of their opening hours in 2013. Many felt they already operate flexibly and voiced concern whether even longer hours would be good for children.

OPERATIONAL COSTS

Controlling costs, and paying and retaining staff is currently a very challenging area of the business. As one owner commented, 'Due to the drop in occupancy I am making three practitioners and my cook redundant, and am taking on cooking responsibilities myself.'

Under these kinds of pressures, nurseries are having to take a reactive, rather than a proactive approach to staffing. They are not replacing staff members who leave or who go on maternity leave and several nurseries report using apprentices and trainees to cover gaps rather than replacing qualified staff.

Unsurprisingly, redundancies are on the increase, with the number of nurseries making staff redundant having risen from seven per cent in May, to a current 10 per cent.

In terms of confidence about the future, the latest figures show little year-on change. Forty four per cent expect to make a profit/surplus, 43 per cent expect to break even and 13 per cent expect to make a loss.

While one nursery comments that the forecast for occupancy for the next 12 months looks 'very promising', another says, 'I cannot see myself surviving another six months.'

Despite the rise in staff wages and utility costs, 43 per cent of nurseries have frozen their fees while 58 per cent have bitten the bullet and raised them. Across all nurseries the average rise was below the CPI, 2.7 rate, at 1.87 per cent. This was against a backdrop of increasing parent debt, with only eight per cent of nurseries reporting that their parents' debt levels had decreased.

While 94 per cent of nurseries say they are aware of employers' new legal responsibilities for automatic enrolment of employees in a pension scheme, only 17 per cent have employees already enrolled. However, in nursery groups with over 11 settings, 75 per cent of employees have enrolled.

EXPANSION

The good news is that 33 per cent of nurseries plan to expand in the next 12 months, on the back of the two-year-old offer, site extensions and place expansion, and premises development or acquisition.

However, sources of capital continue to be hard-won. Thirty five per cent felt that banks were being supportive, which is a big drop from the 2010 figure of 53 per cent.

Local government cuts are also hindering growth and staff investment. As one respondent noted, 'The reduction in training grants has adversely affected profit, but on a personal level the child services team are supportive.'

Not only have 79 per cent of nurseries seen subsidised or free training from local authorities reduced but 56 per cent have seen business support and advice significantly reduced. Seventy per cent note a decrease in support for EYP salaries.

FUNDED PLACES FOR TWO-, THREE- AND FOUR-YEAR-OLDS

In England 97 per cent of nurseries are working with their local authority to deliver funded threeand four-year-old places, only three per cent are not.

Eighty four per cent reported that the hourly rate they receive does not cover their costs, with the average loss per hour at 96p, equivalent to a loss of £547 a year, per child.

Hourly rates paid by local authorities have stagnated, with 82 per cent staying the same, 14 per cent increasing and four per cent decreasing.

In England 59 per cent of nurseries surveyed said they were funded to provide two-year-old places, at an average hourly rate of £4.92. Of these, 59 per cent said this covered their costs. For the 42 per cent that said the hourly rate did not cover costs, the average shortfall was 77 pence.

Further information

• NDNA Insight report: December 2012. The nursery sector in England, Scotland and Wales

• The survey received 240 responses (198 England, 18 Scotland and 24 Wales), representing a total 943 settings.

• Respondents comprised 72 per cent single-site nurseries, 20 per cent providers with two to five sites, five per cent providers with six to ten sites and the remaining 2.1 per cent providers with more than 11 sites.

• www.ndna.org.uk/insight-report-December12