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Finance Committee
5 September 2016
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Attachment I
Financial Review
For The
Year Ended 30 June 2016
This report provides a commentary on the
Council’s financial results for the year ended
30 June 2016 and the financial position at that date.
net surplus/(Deficit)
(including waipori)
The net
surplus (including Waipori) for the twelve months to June was $7.491 million or
$6.327 million better than budget.
The favourable
variance against budget was due to the following:
· $5.708
million – higher than expected other operating revenue. Favourable
variances included:
Ø $730k
fair value gains in Investment Properties;
Ø $3.885
million gain on the disposal of property assets (Union Street and Caledonian);
Ø $300k
an unbudgeted recovery for the service level agreement with Dunedin City
Treasury Ltd;
Ø $504k
solid waste due to additional tonnage through the Green Island Landfill;
Ø $323k
Transport where community road safety and corridor access revenue was greater
than budget;
Ø $331k
Improved property revenue including higher than expected residential occupancy;
These favourable variances were partially offset by
lower parking enforcement revenue, and lower water sales revenue.
· $9.172
million – contributions due to the early timing of recoveries from
developments in Mosgiel as well as unbudgeted vested assets revenue ($8.302
million) in Transportation and Three Waters ($640k).
· $2.687
million - assets operations and maintenance expenditure was less than
expected largely due to delayed timing related to transport work including
drainage works, traffic services maintenance, paving maintenance and
non-subsidised general maintenance. In addition property maintenance was
running behind budget. These favourable variances were partially offset
by expenditure on a condition assessment of the Green Island Waste Treatment
digester and repairs to the Mosgiel Waste Treatment clarifiers.
· $2.216
million – lower than expected interest costs, primarily due to the lower
than expected loan balances.
· $312k
– Waipori Fund, resulting from fair value gains in investments, partially
offset by losses on the disposal of some international equities.
These
favourable variances were partially offset by:
· $3.169
million - depreciation costs were higher than expected due to the revision of
useful lives for the Council property portfolio as a result of the June 2015
building asset revaluation exercise. The useful lives were adjusted to
reflect the component nature of building assets.
· $3.977 million - lower than expected grants revenue mainly as a
result of Transport undertaking less capital projects than expected. The
cancelled University Oval Cricket Light project resulted in budgeted revenue of
$1.2 million not being received. Both of these items are reflected in
savings in capital expenditure.
· $4.575 million – other expenses higher than budgeted primarily
due to fair value losses on Investment Properties ($4.240 million).
REVENUE
The total revenue for the year was
$261.037 million or $11.285 million greater than budget.
The major income variances were as follows:
Other Operating Revenue
Actual $68.671 million, Budget $62.963
million, Favourable variance $5.708 million
Solid Waste revenue was favourable $504k
primarily due to additional tonnage processed through the Green Island
landfill.
Transport revenue was favourable $323k due
to community roading safety receiving an unbudgeted amount of $95k relating to
the cycle way network and safer schools, and corridor access way revenue being
$238k favourable to budget.
Finance revenue was favourable $312k due to the unbudgeted
service level fee recovery from Dunedin City Treasury Ltd ($300k) along with
unbudgeted other recoveries versus budget.
Economic Development revenue was favourable
$138k due to receipt of Regional Business Partner Network contract revenue.
Parks revenue was favourable $3.903 million
mainly due to the gain realised on the sale of some property related assets.
Property revenue was favourable
$882k. This primarily related to fair value gains for Investment
Properties. There was also higher than expected residential revenue with
higher occupancy levels.
These favourable variances were partially
offset by:
·
Parking Enforcement revenue was unfavourable
$347k with both infringement fees and court fines recoveries being less than
expected. This was in part due to fewer infringement notices being issued
along with a higher number of referrals for court collection.
Three Waters revenue was unfavourable $525k
due to water consumption being lower than expected.
Grants
Actual $16.048 million, Budget $20.025
million, Unfavourable variance $3.977 million
Transport grants and subsidy revenue was
unfavourable by $3.006 million due to less than expected NZTA funded work
(operating & capital) taking place year to date.
Parks contributions revenue was
unfavourable $1.197 million. $1.2 million budgeted revenue from Otago
Cricket was not received due to the cancelling of the University Oval Cricket
Light project.
This unfavourable variance was partially
offset by:
$108k favourable variance in Civic due to
donations received related to the June Flood Relief fund.
Contributions
Actual $10.475 million, Budget $1.303 million,
Favourable variance $9.172 million
Unbudgeted
vested assets revenue in Transportation $8.302 million and Three Waters
$640k.
Development contribution revenue was $204k
favourable due to the early timing of recoveries from Mosgiel developments.
Expenditure
The total expenditure for the year was
$257.518 million or $5.270 million greater than budget.
The major expenditure variances were as
follows:
Personnel Costs
Actual $49.728 million, Budget $49.275
million, Unfavourable variance $453k
The unfavourable variance was due to higher
than expected recruiting costs, increased fringe benefit costs associated with
the private use of Council vehicles, and unbudgeted salary costs funded from
external recoveries and savings in general operating budgets.
These unfavourable variances were partially
offset by under-expenditure on staff training ($102k) and a number of position
vacancies across Council.
Asset Operations and Maintenance Costs
Actual $41.989 million, Budget $44.676
million, Favourable variance $2.687 million
Transport costs were favourable $1.617
million largely due to under expenditure in the areas of routine drainage work
($59k), pavement maintenance ($74k), traffic services maintenance ($536k),
cycleway maintenance ($149k) and general maintenance ($934k).
Property costs were $1.015 million
favourable with planned work on hold while a new operational method of
assessing required maintenance for the various property portfolios was
commissioned.
BIS costs were $673k favourable due mainly
to lower than expected Infrastructure as a Service costs.
Fleet Operations costs were favourable
$132k mainly due to fuel and repair costs being less than budgeted.
These favourable variances were partially
offset by:
Parks expenditure was ahead of budget $452k
due mainly to unbudgeted renovations of sports fields, maintenance and event
costs at the University Oval, deferred maintenance costs of coastal structures
and costs associated with contract reviews.
Water and Waste Services expenditure was
unfavourable $255k due to higher than expected water network maintenance costs
and plant maintenance costs associated with an unplanned expenditure on the
Green Island Treatment plant thermophillic digester, which is now
complete. There have been a number of other unscheduled maintenance
expenses for emergency repairs, including for example repairs on the clarifiers
at the Mosgiel WWTP.
Fees and Levies
Actual $9.736 million, Budget $8.115
million, Unfavourable variance $1.621 million
Property costs were unfavourable
$1.001 million, mainly professional fees relating to the development of
deferred maintenance schedules and identification of hazards. There were
also unbudgeted costs associated with the development of the Vanguard
methodology for property maintenance systems.
Regulatory Services costs were
unfavourable $377k due to unbudgeted consultancy costs relating to outsourced
building consent processing and unbudgeted legal costs.
BIS costs were unfavourable
$203k. External consultant expenditure was unfavourable $358k due to
costs relating to the transition to externally out-sourced services. This
was partially offset by reduced Microsoft licencing fees as a result of better
than expected contract negotiations.
Resource Consents costs were
unfavourable $119k mainly due to unbudgeted litigation costs on a number of
appeals, prosecutions and other compliance matters.
Grants & Subsidies
Actual $7.653 million, Budget $7.986
million, Favourable variance $333k
This favourable variance resulted
from an underspend on various community and civic grants across Council
including Heritage Rates Remission grants, GigCity grant and Waste Strategy
grants.
The budgeted underwriting for
the Otago Therapeutic Pool Trust was not called upon ($100k).
Other Expenses
Actual $5.391 million, Budget $816k,
Unfavourable variance $4.575 million
Property costs were unfavourable $4.209
million due to fair value losses on Investment Properties.
Depreciation
Actual $56.446 million, Budget $53.277
million, Unfavourable variance $3.169 million
Depreciation costs were higher than
expected primarily due to a change in useful life for buildings as a result of
the June 2015 building asset revaluation exercise. The useful lives were
adjusted to reflect the component nature of these assets.
Interest
Actual $15.945 million, Budget $18.161
million, Favourable variance $2.216 million
The favourable variance in interest costs
was primarily due to the lower than expected level of debt.
WAIPORI FUND NET
OPERATING RESULT
Actual
$3.972 million, Budget $3.660 million, Favourable variance $312k
The Waipori Fund net operating
result was favourable for the year mainly due to unrealised gains in property
investments and New Zealand equities, partially offset by losses associated
with the disposal of some international equities.
Statement of
Financial Position
A Statement of Financial Position is
provided as Attachment C.
The value of fixed assets was less than
budget as at 30 June 2016, due to lower capital expenditure (2014/15 and
2015/16), a net write down of investment properties (2014/15 and 2015/16) and a
negative revaluation adjustment processed across building and infrastructural
assets again effective 30 June 2015.
Terms loans were less than budget primarily
due to a lower than expected loan balance at the start of the current financial
year, delayed capital expenditure 2015/16 and proceeds from asset disposals
being used to pay down debt.
Statement of
Cashflows
A Statement of Cashflows is provided as
Attachment D.
Net cashflow from operations was better
than expected reflecting the impact of the lower operating expenses (including
interest paid).
Cash outflows from investing were less than
budgeted mainly due to asset sales being greater than anticipated (Caledonian
Bowling Club site, Union St and Anzac Avenue - Emerson’s Brewery site),
and capital expenditure being less than budgeted.
Cash outflows from financing were greater
than budgeted mainly due to no new term debt being raised, and the repayment of
existing term debt being greater than anticipated.
Capital
Expenditure
A summary of the capital expenditure
programme by Activity is provided as Attachment E.
Total capital expenditure for the year to
30 June 2016 was $36.553 million or 74% of the full year budget of $49.755
million. Note that the budget includes allocations of
$3.061 million of carry forwards from 2014/15.
Arts and Culture capital expenditure was $113k favourable
This variance was due to an under-spend on
collection acquisitions for the Art Gallery and delayed completion of their
facility environment upgrade.
Community and Planning Group capital expenditure was $490k favourable
The 2015/16 City Wide Amenity Upgrade has
been delayed until 2016/17 due to the Jetty Street hearing process.
Corporate Services capital expenditure was $637k favourable
A number of corporate systems upgrades and
other ICT projects were delayed while scoping work is carried out.
Finance capital
expenditure was $4.140 million favourable
A number of building capital projects are
in the investigation and design stages. As such some were not completed
in the current financial year.
Parking meter expenditure was $92k
favourable with some procurement delayed until the 2016/17 financial year.
Fleet replacement capital was close to
budget.
Parks and Recreation capital expenditure was $1.673 million favourable
New capital expenditure was favourable
$2.186 million due to the planned $2.200 million University Oval Cricket Light
project not proceeding.
This was partially offset by unbudgeted
expenditure on the Ocean Beach Erosion structures totalling $660k.
Transport capital
expenditure was $6.304 million favourable
Cycle Network expenditure was $1.579 million favourable. Corrective
work on Portobello Road will be completed in the new financial year.
Footpath
Resurfacing was $488k favourable. Footpath contracts (North and South)
were delivered to a reduced programme. The kerb and channel contract was
completed close to budget.
Carriageway
resurfacing was $944k favourable due to a reduced re-metaling programme and
favourable pricing on a slightly reduced reseal programme.
Other
renewal work was $1.394 million favourable with work at various stages of
development.
The Turnbull’s Bay slip repairs were $1.171 million
unfavourable. The contract has reached practical completion stage, although
buttressing is yet to be completed.
Water and Waste Services capital expenditure was $2.917 million favourable
Water production capital was under budget
$1.811 million. This was due to delays obtaining consent for the Ross Creek
Reservoir project.
Waste treatment capital expenditure was
under budget by $5.620 million due to delays with the biosolids project and
central drainage expenditure.
Network management capital was over budget
by $5.236 million. This was largely attributable to an increase of
planned network renewals which included the Andersons Bay Yellow Zone renewals,
Bradford/Mulberry renewals, the Kaikorai Valley Renewal Programme - Phases 1
& 2, and the University service renewals work. The purchase of 240
Portobello Road also represented a significant expenditure of $1.139 million.
Debt
Refer to Attachments F and G.
Attachment F provides a summary of the debt
servicing ratios for the year to date.
All of the ratios exceeded the specified
targets.
Term debt was below expectations for the
year due to no new loans raised in the 2014/15 and 2015/16 financial
years. Asset sales in the current year have also contributed to a
reduction in debt.
Note that both the actual and budget
figures include the $30.0 million transferred from Dunedin Venues Limited
effective 30 June 2015.
Debtors and rates
outstanding
Sundry debtors outstanding as at 30 June
2016 totalled $16.196 million. This included long term debt of $3.568 million,
and debt associated with Warm Dunedin of $3.273
million.
Of the $3.568 million long term debt,
$3.100 million was for debt relating to the sale of Carisbrook. This was repaid
in July 2016.
Debtors outstanding for more than four
months (excluding long term debt and Warm Dunedin) totalled $493k, compared
with last year’s total of $329k as at 30 June 2015.
Rates arrears relating to prior year rates
totalled $305k. This was higher than the $198k total as at June
2015. Of this total $51k was being recovered under formal arrangements
with Council, while the balance was being actively pursued.
Comments from
group activities
Attachment H, the Summary of Operating
Variances, shows, by Group Activity, the overall net surplus or deficit
variance for the year ended 30 June 2016. It also shows the variances by
revenue and expenditure type.
Corporate Services Group - $772k Favourable
Staff costs were favourable $516k with the
budgeted cost associated with the ICT transition changes being booked in the
2014/15 financial year.
Depreciation was $163k favourable for the
group reflecting the lower than expected capital expenditure for the year.
Enterprise Dunedin Group - $187k Favourable
This favourable variance related primarily
to due to receipt of unbudgeted Regional Business Partner Network contract
revenue.
Finance Group - $6.508 million Unfavourable
Depreciation was unfavourable $3.464
million due to the change in useful lives of Council building assets resulting
from the June 2015 asset revaluation.
Operating expenses were unfavourable $4.991
million mainly due to fair value losses on Investment Properties and
expenditure on developing deferred maintenance schedules and performing
building assessment. These unfavourable variances were partially offset
by delayed maintenance expenditure while this assessment work has been
completed.
Group revenue was favourable $1.349
million. This primarily related to fair value gains on Investment
Properties, higher than expected residential revenue due to higher occupancy
levels and an unbudgeted $300k recovery for the service level agreement with
Dunedin City Treasury Limited.
Parks and Recreation Group – $1.343
million Favourable
External revenue was favourable $2.186
million mainly due to the profit realised on the sale of some Parks property
assets totalling $3.885 million. This was partially offset by an
unfavourable grants revenue variance of $1.197 million due to the cancelling of
the University Oval Lighting project. Development contributions revenue
was also unfavourable $353k.
Operating expenditure was unfavourable
$431k due to unbudgeted Sportsfield renovations and deferred maintenance on
buildings and other structures. Energy costs at the crematorium and new
propagation facility at the Botanic Garden were also slightly greater than
budgeted.
Customer and Regulatory Services Group
– $349k Unfavourable
The unfavourable operating variance was
primarily due to lower than expected revenue across a number of operating units
- Building inspection fees were down due to lower recoverable activity and
parking infringement fees and court fine recoveries due to fewer infringement
notices being issued along with a higher number of referrals for court
collection.
Operating costs were
unfavourable $182k due to unbudgeted consultancy costs relating to outsourced
building consent processing and unbudgeted legal costs.
Staff costs were favourable $187k due to a
number of vacancies across the group and training budgets not utilised.
Transport Group - $7.763 million Favourable
External revenue was favourable $5.807
million due to unbudgeted vested asset income partially offset by less than
expected NZTA capital and operating work taking place resulting in grants
revenue being down on budget. In addition there was some unbudgeted road safety
revenue and an increase in revenue from corridor access ways.
Operating expenditure was favourable $1.838
million primarily due to delayed timing of traffic services maintenance,
drainage works, pavement maintenance and general maintenance.
WWS Solid Waste – $1.486 million
Favourable
Landfill revenues were favourable due to
the combination of increased waste tonnages from out of the district, and
higher than expected sludge volumes.
WWS Three Waters – $1.047 million
Favourable
Revenue was $471k favourable, largely due
to unbudgeted development contribution and vested assets revenue, partially
offset by a shortfall in water sales and trade waste revenue.
Total
expenditure was favourable $576k primarily due to savings in interest and
depreciation costs. Offsetting these variances, internal expenditure was
unfavourable $690k due to higher than anticipated sludge disposal costs during
the Tahuna incinerator refurbishment project, and unfavourable asset
maintenance costs $193k due to higher than anticipated reactive workloads both
on the water network as well as urgent repairs to the Green Island digester and
the Mosgiel Wastewater Treatment Plant clarifiers.
