finane and poliy ommittee meeting held on … · rates revenue, etc). employee liabilities annual...

FINANCE AND POLICY COMMITTEE MEETING HELD ON WEDNESDAY 17 FEBRUARY 2016 AT MEMORIAL HALL SUPPER ROOM,

ESPLANADE, KAIKOURA.

AGENDA

1. Apologies 2. Matters of Importance to be raised as Urgent Business 3. Reports:

Finance Report page 39

Statement of Financial Position

Statement of Financial Performance

Corporate Services Budget Report page 53

Library Report page 54 4. Quarterly Reports:

Investment Report page 56

Liability Management Report page 61

Special Reserves & Special Funds page 64

Development Contributions page 65

Depreciation vs Capital Expenditure page 66

Airport Report page 70

Housing for the Elderly page 72 5. Urgent Business

Finance Report

Statement of Financial Position

The most notable changes on the balance sheet is the drop in cash, and in trade receivables. Cash

has repaid $317,000 worth of loans that fell due in December, and has paid another instalment to

the Hospital, and for the civic centre project. We drew a $500,000 loan in February to cover the

Hospital donation (after the date of this report).

Trade receivables have dropped because the 2nd rates instalment was due in December. Debt is

lower than budget because a) the fundraising by the Hospital Trust means we have not had to raise

the full amount forecast in hospital loans, and b) we are reducing debt wherever possible using

special funds and reserves, as directed by Council.

Statement of Comprehensive Revenue & Expense

Our operating deficit of $2,112,041 includes our payments to the CDHB of $1,860,445, which is

included in Other Expenses. Water meters have been read and invoiced out in January – these are

up on budget mainly because a number of council-owned properties that were previously “read

only” are now being billed to show true costs (the swimming pool is an example).

It should be noted that the actual operating deficit is $2.1million versus a budgeted deficit to end of

January of $2.3million. Revenue is tracking slightly better than budget, and expenditure is overall

less than budget. The Long Term Plan has forecast an operating deficit at 30 June 2015 of

$2,558,582, and we are currently on track to that level of deficit.

Statement of Activity Performance

Variances against budget are explained below.

Revenue Variances:

Revenue is up on budget by $50k overall. The main variances are:

Activity Variance Permanent/ Temporary

Main Reason

Roading Down $66,638 Temporary Timing of NZTA subsidies.

Community facilities

Down $50,388 Permanent Lease revenue for the Civic Centre and

existing council office not received.

Commercial activity

Up $97,418

Permanent

Marlborough Regional Forestry capital distributions are still coming in, and we are charging penalty interest on an overdue tenant.

Expenditure Variances:

Expenditure is under budget by $175k overall, with the main variances as below.

Activity Variance Permanent/ Temporary

Main Reason

Leadership & governance

Over $58,157 Permanent Consultancy/reports on the Civic Centre

project.

Regulation & control

Under $52,917

Temporary General savings in stat planning and building.

Safety & wellbeing Under

$62,676

Permanent

Personnel (no community development officer), and no family violence or strengthening families programmes underway this year.

Kaikoura Hospital Under

$92,057 Permanent Payments to CDHB less than anticipated at

this time.

Statement of Cash Flows

Cash has decreased by $2.6million for the year to date – the key reason being progress payments on

the Civic Centre. At the end of January the Hospital donations had reached $1.86 million, and a

$500,000 loan has been drawn on 1st February to match the hospital loans to that amount.

Capital Expenditure

Roading work is prioritised so that the total annual budget ($987,000) is optimised, and so within the

total budget some line items (such as bridges, pavement rehabilitation and minor works) are showing

as a lower priority and will only be completed if there is budget unspent. Unsealed road renewals

and drainage are currently a higher priority. Environmental renewals includes coastal foreshore

protection, and so is a higher priority – with zero budget in roading, there is $20k available within

community facilities (coastal management strategy work), and the Asset Manager proposes to utilise

that budget plus capacity within the roading total budget to undertake around $60k worth of work.

This will be subsidised by NZTA and so the net cost will be around $30k.

The South Bay water pipe replacement is well underway, and street lights have been replaced as part

of that work. The original budget in the Long Term Plan is only $80,000, but the Council has

indicated that it now approves this South Bay water project up to $300,000.

One of the pensioner flats had a substantial interior refurbish and wheelchair access installed, and

similar work has started on a second flat (unit 11). The Ozone project is nearing completion with the

last modules (dog registrations and debt management) going live at the start of February.

The Civic Centre costs are now at $5.77 million, noting that this includes costs (to be confirmed)

incurred in the 2015/2016 year that will be recovered with the insurance claim for the roof product

failure. Those insurance losses incurred in the previous financial year have already been deducted

from the total capital expenditure shown.

The table below shows the losses plus actual costs for the project itself to date. Impairment losses is

the value of the actual roof components being written off, and the expense costs include the extra

labour hours, scaffold and crane hire involved in replacing the roof.

Civic Centre project costs 2014/2015 2015/2016 Total to date

Construction/project costs 4,460,005 1,305,771 5,765,776

Impairment losses (roof components removed) 341,007 TBC 341,007

Expense costs relating to roof replacement (scaffolding, crane hire, extra building hours, etc)

166,472 TBC 166,472

4,967,484 1,305,771 6,273,255

Revenue vs. Expenditure

Expenditure substantially exceeded revenue in both December and January.

Working Capital & Liquidity

Because of the way Ozone reports rates revenue (by instalment rather than the full year’s rates up

front) the graph comparing this year with last year is misleading. This has been removed from this

report until it can be reworked. Notwithstanding this, the Council should be aware that working

capital is negative for the first time in many years. This is apparent on the Statement of Financial

Position, where current assets are less than current liabilities. This is due to timing of revenues yet to

be received.

Rates revenue for the two instalments due 20 March and 20 June will boost cash reserves. The loan

drawn 1st February of $500k has already improved our cash position (this loan is to cover the

payments to the CDHB which had been paid in December and January). The house at 20 Beach Road

has sold during February. These factors collectively ensure there are sufficient funds to cover costs.

Short term loans may be required to cover the Civic Centre project once the forestry fund has been

fully depleted.

Budget Performance (Revenue YTD and Expenditure YTD)

These are a graphic representation of the Statement of Activity Performance, so you can see at a

glance how activities are performing against budget and in comparison with each other.

Revenue & Expenditure Types

Rates (targeted plus general rates) make up 63% of total revenue so far this year, and user fees and

charges have dropped to 19%. Operating expense makes up close to half of total expenses.

Recommendation: It is recommended that the Finance Report be received.

Prepared by Sheryl Poulsen, Finance Manager

Authorised by Angela Oosthuizen, Chief Executive Officer

GLOSSARY OF TERMS: Items on the Statement of Financial Position

Cash & cash equivalents Bank accounts and term deposits that mature within 90 days.

Trade & other receivables Debtors and rates accounts (the amount that our ratepayers and customers owe us).

Prepayments & inventory Bills we have paid in advance (such as insurance), plus stock items.

Other financial assets Term deposits that mature after 90 days, and carbon credits (intangibles).

Investment property for sale Property that the council intends to sell within 12 months

Forestry assets The standing value of trees grown specifically for logging

Investment property Any property that is owned with the intention of generating a return (e.g. Pyne’s building and north wharf buildings).

Property, plant & equipment All other assets – roads, wharves, water and sewer infrastructure, land, buildings, vehicles, furniture, art works, library books, etc

Trade & other payables Bills we haven’t paid yet, and other amounts we must pay within 12 months (refundable bonds, GST, ECan’s share of rates revenue, etc).

Employee liabilities Annual leave owing to employees

Borrowings – current Loans that must be repaid within 12 months.

Provisions Landfill aftercare provision – an estimate of the cost that will be incurred to secure and cap the site once the landfill is closed.

Borrowings – non current The balance of loans that don’t need to be repaid within 12 months.

Other term debt Our share of Marlborough Regional Forestry debts, and other long term liabilities.

Public equity A type of equity which records accumulated surpluses and deficits, and other movements in equity not recorded below.

Asset revaluation reserve A type of equity which records movements in property, plant and equipment values.

Special funds & reserves A type of equity which records funds set aside for specific purposes (such as grants, targeted rates, development contribution funds, etc)

KEY INDICATORS AS AT 31 JANUARY 2016

OPERATING RESULT OPERATING COSTS

operating surplus/(deficit) costs to deliver existing levels of service

TOTAL EXTERNAL DEBT INTEREST ON DEBT

total borrowings from bank cost to service debt

CAPITAL EXPENDITURE DEVELOPMENT CONTRIBUTIONS

cost of new &/or replacement of assets received for district growth

LONG TERM PLAN MEASURES

DEBT AFFORDABILITY BENCHMARK EBID

financing expenses as a % of rates earnings before interest and depreciation

BALANCED BUDGET BENCHMARK LONG TERM DEBT TO EQUITY

revenue equal or greater than expenses debt as a % of equity

68% 3.62%

36% unfavourable v/s last year actual of 103% 0.32% unfavourable v/s last year actual of 3.30%

32% unfavourable v/s council benchmark of 100% 0.02% favourable v/s full year budget of 3.65%

8.7% $0.64m

1.4% unfavourable v/s last year actual of 7.3% $2,103k unfavourable v/s last year actual of $1.46m

11.3% favourable v/s council approved limit of 20.0% $347k favourable v/s year-to-date budget of -$0.99m

$1.85m $0.0k

$0.3m unfavourable v/s last year actual of $1.6m $04k unfavourable v/s last year actual of $4k

$2.2m favourable v/s year-to-date budget of $4.0m $40.3k unfavourable v/s year to date budget of $40k

$6.91m $241k

$335k unfavourable v/s last year actual of $6.6m $18k unfavourable v/s last year actual of $223k

$878k favourable v/s full year budget of $7.8m $08k favourable v/s year-to-date budget of $249k

-$2,112k $6.51m

$2,267k unfavourable v/s last year actual of $155k $1,866k unfavourable v/s last year actual of $4.65m

$225k favourable v/s year-to-date budget of -$2,337k $175k favourable v/s year-to-date budget of $6.69m

STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY 2016

BUDGET

to year end

$

ACTUAL

31/01/16

$

ACTUAL

31/01/15

$

ASSETS

Current assets

Cash & cash equivalents 2,909,790 729,766 2,844,273

Trade & other receivables 1,077,377 906,245 3,873,417

Prepayments & inventory 98,200 74,684 60,515

Non-current assets held for sale - 755,000 1,858,000

Total current assets 4,085,367 2,465,695 8,636,205

Non-current assets

Intangible assets - 202,900 3,036

Forestry assets 2,583,334 2,160,709 2,704,543

Investment property 2,408,000 1,319,875 1,380,000

Property, plant & equipment 167,063,468 160,495,763 159,370,118

Total non-current assets 172,054,802 164,179,247 163,457,697

TOTAL ASSETS 176,140,169 166,644,942 172,093,902

LIABILITIES

Current liabilities

Trade & other payables 1,400,004 373,361 1,088,944

Employee liabilities 100,000 257,267 266,474

Borrowings – current 1,985,309 1,196,930 1,189,840

Other liabilities – current - 646,952 -

Total current liabilities 3,485,313 2,474,510 2,545,258

Non-current liabilities

Provisions - 390,509 41,657

Borrowings – non current 8,191,882 5,715,280 5,387,520

Other term debt 564,606 327,086 964,607

Total non-current liabilities 8,756,488 6,432,875 6,393,784

EQUITY

Public equity 80,415,371 86,547,142 91,061,181

Asset revaluation reserve 81,427,688 69,333,563 69,317,174

Special funds & reserves 2,055,309 1,856,852 2,776,504

Total equity 163,898,368 157,737,557 163,154,860

TOTAL LIABILITIES & EQUITY 176,140,169 166,644,942 172,093,902

STATEMENT OF COMPREHENSIVE REVENUE & EXPENSE FOR THE PERIOD ENDED 31 JANUARY 2016

BUDGET

31/01/16

$

ACTUAL

31/01/16

$

ACTUAL

31/01/15

$

REVENUE

Rates revenue 2,756,140 2,769,293 3,067,554

Water meter charges 81,000 118,257 93,480

User fees & charges 860,084 856,403 854,414

Grants & subsidies 412,456 362,454 423,399

Development contributions 40,278 - 4,336

Interest revenue 32,844 31,834 54,719

Other revenue1 165,822 260,906 302,693

Total revenue 4,348,624 4,399,147 4,800,595

EXPENSES

Personnel 1,032,066 999,174 1,187,471

Depreciation 1,102,514 1,231,944 1,085,891

Financing expenses 249,142 241,238 223,096

Other expenses 4,302,069 4,038,832 2,149,031

Total expenses 6,685,791 6,511,188 4,645,489

Operating surplus/(deficit) (2,337,167) (2,112,041) 155,107

OTHER COMPREHENSIVE

REVENUE

Gains/(losses) on revaluation - - -

Vested assets - - -

Ecan share of MRF profit/loss - - -

Total other comprehensive

revenue

- - -

TOTAL COMPREHENSIVE

REVENUE

(2,337,167) (2,112,041) 155,107

1 Other Revenue includes Marlborough Regional Forestry joint venture revenue, penalties on overdue leases, and petrol tax.

STATEMENT OF ACTIVITY PERFORMANCE FOR THE PERIOD ENDED 31 JANUARY 2016

BUDGET

31/01/16

$

ACTUAL

31/01/16

$

ACTUAL

31/01/15

$

REVENUE

Roading 779,339 712,701 707,280

Water services 452,138 490,239 509,547

Sewerage 283,196 287,028 319,804

Stormwater 65,750 62,815 70,313

Refuse & recycling 75,006 85,065 92,988

Community facilities 595,649 545,263 511,990

Commercial activities 295,454 392,872 495,098

Leadership & governance 22,575 19,425 28,358

Regulation & control 233,959 222,520 241,238

Safety & wellbeing 139,633 127,908 225,400

District development 201,549 259,102 211,025

Hospital 68,750 68,695 -

Interest revenue 32,844 31,833 54,719

General rates 1,102,782 1,093,681 1,332,835

4,348,624 4,399,147 4,800,595

EXPENDITURE

Roading 898,401 925,601 910,618

Water services 615,091 624,087 669,237

Sewerage 452,920 409,698 424,284

Stormwater 86,530 68,208 74,030

Refuse & recycling 228,858 247,395 227,575

Community facilities 985,816 970,681 867,232

Commercial activities 62,890 64,154 118,227

Leadership & governance 404,339 462,496 372,356

Regulation & control 398,352 345,435 381,097

Safety & wellbeing 255,834 193,158 296,895

District development 303,885 289,083 295,579

Hospital 1,988,570 1,896,513 160

Other 4,305 14,679 8,198

6,685,791 6,511,188 4,645,488

Operating Surplus/(Deficit) (2,337,167) (2,112,041) 155,107

STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 31 JANUARY 2016

BUDGET

to year end

$

ACTUAL

31/01/16

$

ACTUAL

31/01/15

$

OPERATING ACTIVITIES

Receipts from rates 5,512,259 2,854,187 2,899,506

Interest received 56,298 31,834 54,719

Receipts from other revenue 3,169,769 1,512,251 1,277,144

Payments to employees & suppliers (8,559,436) (5,933,366) (3,804,748)

Interest paid (541,208) (241,238) (223,096)

Net Cash from Operating Activities (362,318) (1,776,332) 203,525

INVESTING ACTIVITIES

Sale of investment property - - -

Sale of forestry - 330,000 -

Purchase of property, plant &

equipment

(2,150,515) (1,788,296) (1,559,100)

Purchase of forestry assets - - -

Purchase of intangible assets - (69,330) -

Payment into term deposits - - -

Net Cash from Investing Activities (2,150,515) (1,527,626) (1,559,100)

FINANCING ACTIVITIES

Proceeds from borrowing 4,786,905 1,860,000 1,740,000

Repayment of borrowings (2,403,095) (1,143,850) (1,672,640)

Net Cash from Finance Activities 2,383,810 716,150 67,360

NET INCREASE/(DECREASE) IN

CASH & CASH EQUIVALENTS

(129,023) (2,587,808) (1,288,215)

CASH AT BEGINNING OF THE YEAR 3,038,812 3,317,574 4,132,488

CASH AT END OF THE PERIOD 2,909,790 729,766 2,844,273

Cash is substantially down on budget due to the Civic Centre project. See the narrative at the front of this report for more information.

CAPITAL EXPENDITURE FOR THE PERIOD ENDED 31 JANUARY 2016

Project Budget Actual Percent Status

ROADING

Bridge replacement 90,000 - Medium priority

Reseals 100,000 - Deferred 2016/17

Unsealed road renewals 60,000 61,709 103% More to come

Drainage renewals 50,000 53,802 107% More to come

Pavement rehabilitation 100,000 9,510 10% Medium priority

Traffic service renewals 9,356 -

Minor work improvements 50,000 5,248 10% Low priority

Environmental renewals - 8,441 xxx High priority

Footpath renewals 500,000 8,692 2% Prioritising

Streetlights 27,644 38,158 138% More to come

987,000 185,560 19%

WATER SUPPLIES

Kaikoura (South Bay)

renewals

80,000 117,444 147% More to come

Kincaid renewals 15,000 - Yet to commence

Oaro water treatment 4,179 - Yet to commence

Ocean Ridge treatment - 1,884

99,179 119,328 120%

SEWERAGE

New generator & telemetry - 44,113 xxx Complete

Renewals 40,000 - Budget utilised

40,000 44,113 110%

STORMWATER

Renewals 25,000 749 3% Deferred 2016/17

25,000 749 3%

REFUSE & RECYCLING

Landfill cell capping &

aftercare

7,500 -

7,500 - -

COMMUNITY PROPERTIES

Memorial hall upgrade 11,500 -

Library books, CDs & DVDs 36,626 8,833 24%

Coastal management

strategy

20,000 - See Roading

New public toilets* 30,000 -

Pensioner flats - 46,694 xxx More to come

South Bay marina upgrade 170,000 642 0% Requires consent

Swimming pool 200,000 13,609 7% More to come

Cemetery - 5,386 xxx

Civic Centre* # 4,900,000 5,765,776 118% See separate

report

5,368,126 5,840,940 109%

Project Budget Actual Percent Status

COMMERCIAL ACTIVITIES

20 Beach Rd - - Property sold

Forest pruning & thinning 4,464 -

4,464 - -

LEADERSHIP &

GOVERNANCE

Office furniture &

equipment

10,000 11,973 120% Complete

Computer equipment 20,000 2,490 12% More to come

Datacom Ozone project* - 201,799 xxx More to come

New plant & equipment - 3,988 xxx

Vehicle replacement 20,000 32,165 160%

50,000 252,415 505%

TOTAL 6,581,269 6,443,105 98%

* The Civic Centre, new public toilet, and Datacom Ozone projects have carried over from the 2014/2015 financial year, and are the accumulative value to date.

# The Civic Centre impairment and insurance-related losses that we incurred prior to 30 June 2015 have been deducted from the total capital project cost. Those types of expenses incurred since 1 July 2015 will change – they form part of the insurance claim, and will be recoverable as part of the claim settlement.

The working capital graph has been removed from this report until it can be reworked, due to difficulties in providing accurate prior year comparatives.

988

640

758

151

1,142

179

411

621

1,196

857

648

871

1,020

736

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

ThousandsIncome v/s Expenditure - Jan 2016

Inc $410,690 v/s Exp $736,453= Deficit $325,763

INCOME EXPENDITURE

713

490

287

63

85

545

393

19

223

128

245

69

779

452

283

66

75

596

295

23

234

140

175

69

Roading

Water Services

Sewerage

Stormwater

Refuse & Recycling

Community Facilities

Commercial Activities

Leadership

Regulation & Control

Safety & Wellbeing

Development

Hospital Activities

Thousands Income YTD by Activity

Actual Budget

926

624

410

68

247

971

64

462

345

193

237

1,897

898

615

453

87

229

986

63

404

398

256

260

1,989

Roading

Water Services

Sewerage

Stormwater

Refuse & Recycling

Community Facilities

Commercial Activities

Leadership

Regulation & Control

Safety & Wellbeing

Development

Hospital Activities

Thousands Expenditure YTD by Activity

Actual Budget

Corporate Services Budget Report

$0

$2,500

$5,000

$7,500

Mayors & Councillors CEO Corporate Services IT & Mapping Library

Income MTD

Actual Budget

-$50,000

-$25,000

$0

$25,000

$50,000

Mayors & Councillors CEO Corporate Services IT & Mapping Library

Expenses MTD

Actual Budget

Library Report

0

500

1000

1500

2000

2500

3000

2013 2014 2015

December Circulation Statistics

Issues

Renewals

0

200

400

600

800

1000

1200

December Revenue Statistics

2013

2014

2015

0

500

1000

1500

2000

2500

3000

3500

2014 2015 2016

January Circulation Statistics

Issues

Renewals

Administration

Building inspection carried out on the 8th January 2016 for owners of Harakeke Mall.

Events & Activities

Toddler-time end of year party held at library on the 7th December 2015 was enjoyed by all.

Collection Development

One single rollaway unit was purchased for the children’s and preschool DVD’s and installed, allowing space for an additional 8 shelves which were added allowing more space for the children’s collection.

Display at the library for teen’s and children’s new releases in line with the summer School holidays.

Class Visits

Whales Tales enjoyed a visit on the 19th January 2016.

Adult Learning group enjoyed 3 visits on the 3rd December 2015 & 21st & 26th January 2016.

Technology

Kyle from Hurunui IT support visited on the 10th December 2015 and Brendon again on the 17th December 2015 to install a temporary portable drive for server backup.

Prepared by Cheryl Barker, District Librarian


0

200

400

600

800

1000

1200

January Revenue Statistics

2014

2015

2016

INVESTMENT QUARTERLY REPORT

FOR THE PERIOD TO 31 DECEMBER 2015 Objective Ensure that the council’s investments;

Are managed prudently and effectively, thereby optimising value and return

Increase the size and value of its investment portfolio to enable increased levels of

revenue to be returned to the community over time

Kaikoura District Council’s investment portfolio consists of short, medium and long term investments, and these must be optimised to provide sufficient funds for planned expenditure including the council’s ability to meets its payments as they fall due. Investments must therefore be chosen which -

are for the period of time that the funds are surplus

are able to be liquidated for the right price at the appropriate time

provide a spread of investments covering short, medium and long term

Value and Mix of Investments In order to optimise the council’s investment portfolio, and maintain an appropriate mix of short, medium and long-term investments, investments shall be kept at the following levels.

A minimum of $250,000 of its investment on short-term money market or fixed interest

securities of not more than 30 days.

Other cash investments shall aim to achieve a return equivalent to the 90 day bill rates at

the time the investment is made.

Investment in forestry assets, including Marlborough Regional Forestry joint venture, should

not exceed 50% of the total investment portfolio where practicable.

The council’s investments shall include (but not be limited to) at least three of the following; a) Treasury Investments b) Property Investments c) Forestry Investments d) Equity Investments

Acquisition of New Investments All proposed acquisition of new investments decisions are to be approved by the council, with the exception of treasury investments, which are managed on a day to day basis by the Chief Executive Officer and the Finance Manager. Use of Revenue from Investments Income generated from investment should be used initially to offset costs associated with owning and operating that investment. The use of surplus revenues will then be used according to:

a) the source and criteria attached to the initial investment sum, or the criteria attached to the fund from which the investment fund came, or

b) in accordance with any resolution of the council, or

c) for general operating revenue.

On maturity, investments held for a specific purpose will only be used for that purpose or reinvested for a further period. The capital portion of any investment will not be used to offset general operating expenditure unless the purpose for which the investment was initially set up no longer exists. The council may determine by resolution (on a case by case basis) to deviate from the above.

Proceeds from Sale of Assets Council assets will be disposed of from time to time. Income received from the disposal of vehicles and operating plant will be credited to the council’s plant renewal account while income from the disposal of property will go into the council’s property account. The capital from these accounts will either be reinvested in a separate account for this special purpose, or used to purchase other assets required toward the realisation of the council’s strategic objectives. The funds could also be used to repay term debt but such a move would only be by resolution of the council.

Reporting Procedure A report will be prepared quarterly on the council’s investment portfolio. Such a report will include:

a) the value and mix of the council’s investments

b) any changes to the mix and value from the previous report

c) terms and interest rates or treasury investment

d) net rental yields of property investments

e) earnings per share of equity investments

f) return on investment on each investment type

g) comparisons of actual returns versus budgeted returns

Assessment and Management of Risks associated with Investments The Kaikoura District Council minimises its exposure to risk by;

a) maintaining a minimum cash on short term deposit of $250,000; and

b) encouraging diversification of the type of investments held;

c) limiting its treasury investments to those organisations identified in the council’s liability management policy

Day to Day Management Procedure The day-to-day management of the council’s investment portfolio will be undertaken by the Chief Executive Officer. All treasury investments will be made by the Chief Executive Officer and recorded on deal reports. These reports will be held by the Finance Manager. The authority to open new bank accounts shall be made by the council and at least two of the Chief Executive Officer, Executive Officer, Asset Manager and Finance Manager shall be required to sign cheques or electronic transfers associated with the investment.

Disclosure in Financial Statements For the purposes of disclosing the council’s investment assets in its public documents, sinking funds and bank deposits are stated as Sinking Funds & Investments within non-current assets, and property and forestry investments are included within Fixed Assets.

REPORT ON COMPLIANCE WITH THE POLICY AND ANY CHANGES SINCE THE LAST REPORT

Value and Mix of Council’s Investments

This Quarter (Dec 2015) Last Year (Dec 2014)

Bank deposits 1,448,710 22% 3,436,171 35%

Leased property 2,886,925 44% 3,787,263 39%

Forestry 102,771 2% 505,055 5%

MRF Joint Venture 2,057,938 32% 2,011,352 21%

6,496,344 100% 9,739,841 100%

Comparing this quarter to that of 31 December 2014, cash has reduced as we utilise special funds and reserves to build the Civic Centre. The Pyne’s building was sold in June 2015, and the Clarence plantation was sold to the landowner in August 2015. Remaining movements are due to revaluation of investment properties and forestry assets at 30 June 2015 for the Annual Report.

Value & Mix of Investments

Bank deposits

Leased property

Forestry

MRF Joint Venture

The combined value of the council’s own forestry operations and those of Marlborough Regional Forestry (MRF) is 34%, which is within the 50% cap set by the Council’s Investment Policy. Bank deposits have been reducing as we have used cash to repay debt, and so leased properties currently make up the greatest proportion of our total portfolio.

Treasury Investments

Balance Rate Term Interest

On call account 1,117,260 2.40% On call 22,345

Special funds on call account 331,450 2.00% On call 6,629

Term deposits - - - -

1,448,710 2.26% 28,974

By the end of December all term deposits had matured and are instead held in short term on call accounts, to meet commitments for the Civic Centre. This means we have exceeded the Policy

minimum requirement of $250,000 held on call (rather than in longer term deposits). With the project ongoing it is unlikely for there to be surplus funds to set aside for longer than 90 days.

Forestry Investments

Capital distribution payments from the Marlborough Regional Forestry total $132,250, of which we owe Environment Canterbury $17,682. We sold the Clarence forest in August, and the South Bay Forest is not generating any revenue, but does incur expenses such as rates and insurance.

Net Rental Yields of Property Investments

The Wakatu Quay properties disclose the amount the lessee has actually paid, rather than the amount they have been invoiced.

The back section of the land at 25 Beach Rd is still in the process of subdivision to sell to the adjacent landowner. The remaining land and buildings on that property are for sale by tender (closing 26th January). The house at 20 Beach Road sold during January.

This report includes the Airport terminal and hangars as part of property investments.

Asset value EBIT Interest Net Yield

Wakatu Quay 1,330,000 27,464 0 27,464 2.06%

25 Beach Road 450,000 (7,941) 0 (7,941) (1.76%)

20 Beach Road 305,000 (1,627) 0 (1,627) (0.53%)

Land behind 20 Beach Road 270,000 0 0 0 0.00%

Airport terminal & hangars 531,925 7,193 13,450 (6,258) (1.18%)

2,886,925 25,089 13,450 11,638 0.40%

Note EBIT refers to Earnings before Interest and Tax.

Return on Investments

Value Return Yield

Bank deposits 1,448,710 28,974 2.00%

Leased property 2,886,925 11,638 0.40%

Forestry 102,771 (13,130) (12.78%)

Marlborough Forestry 2,057,938 132,250 6.43%

With the sale of the Clarence Forest, this report now highlights the low value and low return of the South Bay forest, which suggests its value is in its popularity as a recreational area rather than commercial return.

Similarly, the land behind 20 Beach Road is not generating any revenue and, now that the proposed boutique mall formerly planned for the block seems unlikely to progress, then this section of land is no longer for sale and serves the purpose of alternative access to the West End.

Recommendation It is recommended that the Council reclassify both the South Bay forest and the land behind 20 Beach Road as recreational reserves and exclude them from future investment reports.

The graph below highlights the performance of our investment portfolio against budget, with the stand-out performer being the Marlborough Regional Forestry joint venture. Leased property revenues have been recalculated to only show revenue actually received, and they include leases attached to the Airport.

(40,000)

(20,000)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Bank deposits Leased property Forestry Marlborough Forestry

Actual to Budget Comparison

Actual Budget

LIABILITY MANAGEMENT POLICY COMPLIANCE REPORT

TO 31 DECEMBER 2015

Objective

All council current and term liabilities are managed prudently and effectively.

Current Liabilities

Current liabilities are those liabilities that will be repaid in a short period, not exceeding 12 months,

and include accounts payable, cash advance facilities, and other short term liabilities. For the

purposes of this section of the policy, the current portion of term liabilities do not apply, these are to

be considered as term liabilities.

Accounts payable are to be paid in full by the due date wherever possible. Those current liabilities

that incur a late payment penalty are to be paid in full by the due date in all cases.

Term Liabilities

Term Liabilities are those liabilities which are for a term exceeding 12 months, and include Council

borrowings, and liabilities associated with the Marlborough Regional Forestry joint venture.

Interest Rate Exposure The interest rate exposure table below is the Council’s guideline for interest rate exposure. This

table does not incorporate the liabilities associated with the Marlborough Regional Forestry joint

venture.

Term of exposure Policy levels Actual Proportion Compliant?

0 - 1 year 20% - 27% 21% 1 - 2 years 20% - 27% 32%

2 - 3 years 20% - 27% 9%

3 - 4 years 20% - 27% 19%

4 years + 0% - 20% 19%

Our exposure profile has not achieved compliance because of the cluster of loans in the 1-2 year

term and not many loans falling due in the 2-3 year term. During January we raised a new Hospital

loan, maturing in the 2-3 year term, which has made the maturity profile more evenly spread

(although still not fully compliant). Staff aim to achieve compliance by 30 June 2016.

Liquidity The liquidity ratio is the total current assets that can quickly be converted to cash (cash and debtors)

divided by the current liabilities that need to be paid. The council’s policy is to maintain a liquidity

ratio of a minimum of 1.1:1 at all times, (which means $1.10 is available for every $1.00 payable).

Policy levels Liquidity Rate Compliant?

1.1:1 1.96:1

Credit Exposure The mix of agencies and financial limits as set out below is to manage the Council’s credit exposure.

Approved Counter Party Credit Limits Limits (percentage of total investment)

1. Government/Local Government Funding Agency

Unlimited

2. Banks with A+/A- or better long term rating. These include, but are not limited to BNZ, ASB, National Bank, ANZ, Westpac and Countrywide.

Up to 100% subject to not more than $1 million with one issue

3. Other entities with A+/A- or better long term rating. These include but are not limited to Local Government Stock/Bonds

Up to 50% but no more than $500,000 with any single issuer

All loans are taken with banks of A or better ratings (category 2), and have not been for over $1 million in any one issue.

Debt Repayment The Council will not use internal loans to pay external debt. Should the Council wish to use internal

loans, it shall be on a case-by-case basis, and by Council resolution.

Policy Compliant?

Council does not use internal loans to pay external debt.

Reserve funds are set aside to repay the loan on maturity.

Borrowing Limits

Policy Levels Actual Levels Compliant?

Total term debt will not exceed

$12 million $6,912,210

Gross interest expense of all external term borrowing’s as a percentage of total revenues

will not exceed 10%

5.0%

Borrowings that can be fully self-funded by the activity or purpose the borrowings are required for,

and do not require rates input, shall be exempt from this limitation i.e. where the specific project is

cash flow positive and can sustain the borrowing repayment programme out of its cash flow.

Security The Council has a cash advance and term borrowing facility secured by negative pledge.

Policy Compliant?

Council will not pledge assets as security, with the exception of the pensioner housing suspensory loans

Loan Schedule Maturity

date 2014/2015 Movement 2015/2016

Cash Advance Floating 0 0 0

Civic Centre Floating Portion (2014) Floating 245,140 38,790 283,930

Stormwater # 4 2011 21/09/2015 200,000 -200,000 0

Sewer # 12 Part 2 Loan 2011 21/09/2015 159,000 -159,000 0

Library Building Loan 1997 1/12/2015 123,000 -123,000 0

Water Supply # 2 Loan 2000 1/12/2015 76,000 -76,000 0

South Bay Footpath Loan 2006 1/12/2015 36,000 -36,000 0

Refuse Upgrade Loan 1995 21/12/2015 14,000 -14,000 0

Airport Upgrade Loan 1995 21/12/2015 17,000 -17,000 0

Stormwater # 1 Loan 1995 21/12/2015 18,000 -18,000 0

Stormwater # 2 Loan 1996 21/12/2015 33,000 -33,000 0

Glen Alton Bridge Loan 1998 29/07/2016 101,000 101,000

East Coast Water Loan 2009 29/07/2016 26,000 26,000

Airport Terminal Loan 2009 29/07/2016 386,000 386,000

Sewer # 15 Loan (2014) 8/08/2016 400,000 400,000

Civic Centre # 4 Loan (2014) 21/12/2016 246,010 -9,970 236,040

Pensioner Flats Loan 2008 28/04/2017 193,000 193,000

District Plan # 3 Loan 2008 28/04/2017 33,000 33,000

Sewer # 14 Loan 2013 27/06/2017 300,000 300,000

Harbour # 2 Loan 2013 27/06/2017 370,000 370,000


Water Supply # 5 (2008) 20/12/2017 0 220,000 220,000

Airport Hangar Loan 2011 20/12/2017 150,000 -109,000 41,000

West End # 3 Pt 2 Loan 2008 20/12/2017 140,000 140,000

Memorial Hall Loan 2001 20/12/2017 48,000 -28,000 20,000

Sewer # 10 Loan 2001 20/12/2017 170,000 170,000

Leachate Control Loan 2000 20/12/2017 51,000 51,000

Sewer # 11 Loan 2010 20/12/2017 187,000 187,000

Sewer # 12 Loan 2011 20/12/2017 121,000 121,000

Footpath & Streetlight Loan 2004 31/07/2018 290,000 290,000


Footpath & Streetlight Loan 2004 20/06/2019 100,000 100,000

New Wharf Loan 2004 20/06/2019 480,000 480,000

Water Supply # 3 Pt 2 Loan 2002 20/06/2019 116,000 116,000

West End # 3 Pt 1 Loan 2008 20/06/2019 150,000 150,000


Hospital Loan # 1 (2015) 21/08/2020 0 593,750 593,750

Hospital Loan # 2 (2015) 25/08/2020 0 735,000 735,000

6,196,060 716,150 6,912,210

Special Reserves & Special Funds as at 31 December 2015

Special Reserves Opening Inflow Outflow Closing

Balance Balance

Town Water Maintenance (16,099)$ 188,264$ 234,628$ (62,463)$

Town Water Capital 7,763$ 294,195$ 186,590$ 115,368$

Ocean Ridge Water (8,194)$ 13,015$ 11,436$ (6,615)$

East Coast Rural Water (25,779)$ 35,250$ 17,949$ (8,478)$

Kincaid Rural Water 46,025$ 48,061$ 21,113$ 72,973$

Fernleigh Rural Water 45,405$ 2,703$ 2,000$ 46,108$

Peketa Rural Water (12,508)$ 2,057$ 1,946$ (12,397)$

Roading 14,667$ 515,359$ 361,903$ 168,123$

Footpaths & Streetlights 73,346$ 129,509$ 139,159$ 63,696$

Recycling (6,079)$ 46,969$ 50,536$ (9,646)$

District Plan (150,204)$ 67,602$ 69,330$ (151,932)$

Stormwater Maintenance (37,709)$ 44,716$ 29,189$ (22,182)$

Stormwater Capital 222,902$ 18,099$ 200,749$ 40,252$

Sewerage Maintenance (174,915)$ 226,247$ 174,418$ (123,086)$

Sewerage Capital 583,095$ 54,837$ 203,113$ 434,819$

Commercial Rate 5,730$ 15,604$ 30,645$ (9,311)$

Harbour (12,298)$ 126,843$ 68,218$ 46,327$

Registered Premises (21,073)$ 69,268$ 36,390$ 11,805$

Town Centre (58,651)$ 71,674$ 38,509$ (25,486)$

Stock Control 11,082$ 6,463$ 3,657$ 13,888$

Rural Fire Control (32,870)$ 42,720$ 43,327$ (33,477)$

Totals 453,636$ 2,019,455$ 1,924,805$ 548,286$

Special Funds Opening Inflow Outflow Closing

Balance Balance

Social Services Committee 4,135$ 1,631$ 1,519$ 4,247$

Tourism Strategy Fund 22,506$ 167,459$ 100,494$ 89,471$

Creative NZ 6,220$ 4,581$ 2,941$ 7,860$

George Low Trust 60,513$ -$ 5,735$ 54,778$

Airport 74,212$ 35,071$ 109,000$ 283$

John Gibb Fund -$ -$ 5,209$ (5,209)$

Forestry Fund 1,482,380$ 466,378$ 1,209,598$ 739,160$

Biodiversity (SNA) Fund 28,774$ -$ -$ 28,774$

Reserve Development 80,004$ -$ -$ 80,004$

Pensioner Flats 26,096$ 47,400$ 61,323$ 12,173$

Property Fund 292,776$ 38,809$ 191,847$ 139,738$

Community Facility Fund 95,716$ -$ 95,716$ -$

Plant Renewal 51,169$ 2,716$ 26,087$ 27,798$

Waste Minimisation Levy 26,955$ 6,527$ 5,632$ 27,850$

Landfill Development Fund 81,156$ -$ -$ 81,156$

Landfill Site Aftercare 93,832$ -$ -$ 93,832$

Library Donations 25,668$ 633$ 7,379$ 18,922$

Violence Free Lesa B'Do (27,881)$ -$ 1,764$ (29,645)$

Youth Development Ptnshp 4,419$ 18,200$ 3,789$ 18,830$

Mayoral Fund 9,526$ -$ 1,200$ 8,326$

Library Grants -$ -$ -$ -$

Family Violence Men's Shed 732$ 50,000$ 24,949$ 25,783$

Strengthening Families 11,508$ -$ 6,591$ 4,917$

2,450,416$ 839,405$ 1,860,773$ 1,429,048$

TOTAL CASH BALANCE TO BE ON HAND 1,977,334$

Development Contributions Quarterly Report – 31 December 2015

There has been no development contributions revenue in the 2016 financial year, following the

changes to the Policy and the introduction of thresholds. There have been several enquiries, most of

which were for developments under the thresholds, and one assessment has been prepared for a

dairy milking shed, which exceeds the threshold of 100m2 for non-residential development (458m2).

The Development Contributions Review Committee met in December to consider an application for

refund of contributions that had been paid. The application was declined, and minutes of that

meeting are included in this month’s Council agenda (public excluded).

Contribution Amounts The new Development Contributions Policy provides for new thresholds, which means contributions

will be required only if any of these thresholds are exceeded:

Ten (10) housing equivalent units (HEU); or

$1 million capital value of development; or

For non-residential development only, a gross floor area of 100m2

Development contributions are at the following amounts (excluding GST).

Per new urban lot Per new rural lot Per person (accommodation)

Roading 1,350.00 1,350.00 222.75

Kaikoura township water

2,175.00 - 358.88

Sewerage 2,369.00 - 390.89

Stormwater 900.00 - 150.15

Parks & Reserves 2.5% of land value 0.5% of land value or 1% of land value

The value of 20m2 of land per person

Estimated total each $9,804.00 $2,000.00 $1,122.66

These amounts are for indicative purposes only, and should not be relied upon as an assessment.

Depreciation vs. Capital Expenditure Report as at 31 December 2015

Ideally, assets should be renewed or replaced at roughly the same rate as depreciation so as not to

run down the condition of assets. The mandatory financial prudence benchmarks introduced in

2014 suggest that capital expenditure should be at least 100% of depreciation each year.

The aim of this report is to highlight the variance between depreciation and capital expenditure

(renewals and new assets). In reality, the timing of major capital projects means that there can be

significant projects in certain years – such as has occurred with water and sewerage – which are then

followed by several years of low (or no) expenditure because the assets are in excellent condition.

This effectively means that an assessment of depreciation vs. capital expenditure has little meaning

when shown on an annual basis, and should ideally be considered over the life of the asset.

In all graphs in this report, we show a solid 100% “target” line and a dotted “average” line.

Roads and Bridges

It has been difficult to achieve the benchmark for roads and bridges because flooding events have

prioritised work away from capital renewal and upgrades, to emergency repairs instead. Extensive

reseals and pavement rehabilitation work was last done in 2008.

Council would need to spend in excess of $740k each year on roads and bridges to achieve this

benchmark standard; this is almost double our current capex spend (averaged over the ten years).

We have only spent $136k so far this financial year, against depreciation of$405k.

52%

106%

53% 46%

30%

86%

13%

79%

42%

34%

0%

20%

40%

60%

80%

100%

120%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cap

ital

exp

en

dit

ure

/de

pre

ciat

ion

(%

)

Water Supply (Kaikoura Urban)

There have been substantial renewals of pipe infrastructure in the township throughout 2006 to

2011, with much of the urban water supply systems completely up to date. This reduced the need

for renewal expenditure in subsequent years. This financial year the focus has been on renewing the

underground pipe network in South Bay, with $117k spent to date against depreciation of $110k.

Sewerage

Major upgrades and pipe renewal projects were completed in previous financial years, which means

sewerage assets are in excellent condition – with a reduced requirement for renewal works.

With capex averaging $585k over the last nine years, we have only spent $44k to date this financial

year, mainly on upgrading the telemetry system.

306%

378%

108%124%

280%

94%

54%

25% 22%

106%

0%

50%

100%

150%

200%

250%

300%

350%

400%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cap

ital

exp

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ure

/de

pre

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ion

(%

)

699%

65%

363%

13%

309%

178%

575%

262%

16% 61%

0%

100%

200%

300%

400%

500%

600%

700%

800%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cap

ital

exp

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ion

(%

)

Stormwater

Only one year out of the ten has met the benchmark. Much of the work in 2011 was to increase

capacity at Sullivans Gully.

Properties

Properties are one area where our buildings are not attended to regularly, but tend to be

refurbished as large, infrequent, projects. Because there are several properties contained within the

graph on this page, the following graphs give a little more detail on the main properties involved.

76% 92%

6%31%

346%

0%23%

34%

69%

3%0%

50%

100%

150%

200%

250%

300%

350%

400%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cap

ital

exp

en

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ure

/de

pre

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ion

(%

)

63%

1249%

92% 42% 47% 3% 0% 0% 52% 145%

0%

200%

400%

600%

800%

1000%

1200%

1400%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cap

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(%

)

Swimming Pool

Memorial Hall

Pensioner flats

Council Office (Esplanade)

Public toilets

One of the pensioner flats was extensively refurbished internally, and wheelchair ramps are being

installed. Major repairs have been made to the swimming pool including locating and fixing a

significant leak.

Airport Quarterly Report For the second quarter ended 31 December 2015

0

50

100

150

200

250

300

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Number of landings per month

Actual Last Year

The summer season has been particularly busy at the airport and, as the following graph shows, revenue from landing fees is up on budget.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


Landing fee revenue

Actual Budget

In the 2015/2016 financial year, the Airport requires $33,358 from general rates. While Airport revenue such as landing fees and leases is enough to cover operating expenses, rates input is required to provide sufficient revenue to also cover the loan repayment. There are two loans currently drawn for the airport, being;

Airport terminal (2009) loan $386,000

Airport hangar (2011) loan $41,000

The Airport upgrade loan (of $17,000) was fully repaid, and the Airport hangar loan was reduced by

$109,000, over the last six months.

0

10,000

20,000

30,000

40,000

50,000

60,000


Total airport revenue

Actual Budget

Revenue has come well up on budget thanks to lease revenues.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000


Total airport expenditure

Actual Budget

Operating expenditure is tracking very close to budget.

Housing for the Elderly Quarterly Report 31 December 2015

Fifteen of the sixteen units at 95 Torquay Street are tenanted, with one flat being refurbished while it is vacant. The rentals now range from $100 to $155 per week. The rentals for existing tenants will only increase by 10% per annum until they are in line with the full rent amounts ($105 single, $140 double and $155 for the new units). All new tenants are paying the full amount. Thanks to the rent increases the special fund has come out of a deficit situation and is starting to accumulate, and we are able to complete reasonably substantial refurbishments on the units.

PENSIONER FLATS FUND 2013/2014 2014/2015 2015/2016

Opening Balance (3,949.40) (3,934.33) 26,095.92

Funded by:

Rental Income 79,991.92 90,385.00 47,400.00

Applied to:

Expenses 99,143.85 79,521.75 33,122.49

less Depreciation (19,167.00) (19,167.00) (9,660.00)

Plus Loan Principal - - -

plus Upgrade - - 37,860.61

79,976.85 60,354.75 61,323.10

Closing Balance (3,934.33) 26,095.92 12,172,82

Levels of service

2014/2015 Actual

2015/2016 Target

2015/2016 Actual

Percentage of housing for the elderly tenants that come under criteria one (highest priority).

100% 100% 100%

Waiting List: Fifteen people are on the waiting list. Two criteria one applicants were offered a unit recently but both refused on the basis that they didn’t need to move yet.

Singles Couples

Criteria 1 4 -

Criteria 1 (b) 1 -

Criteria 1 (c) 1 -

Criteria 1 (g) 4 -

Criteria 2 3 -

Criteria 3 1 -

Criteria 4 1 -

Eligibility Policy for Housing for the Elderly Units This policy has been set by the Kaikoura District Council and adopted 24 May 2006. Criteria One applicants are given first preference for housing.

Criteria One

(a) The applicant must be 65 years of age or over. (b) Preference will be given to those applicants whose personal assets do not exceed

$30,000 for a single person or $40,000 for a married couple. (c) Council will accept applications from people who have personal assets of up to $90,000.

In considering the allocation of a vacant unit, however, preference will be given to those who meet the criteria as set out immediately above.

(d) The applicant must not have an interest in or own property. (e) Invalid beneficiaries over 60 years can be considered. A medical certificate must support

their application. (f) There must be a genuine housing need. (g) Kaikoura residents or immediate family of residents have higher priority. (h) All tenancies are subject to a residential tenancies agreement.

Criteria Two

(a) The applicant must be 60 years of age and over. (b) The applicant can have personal assets of up to $90,000. (c) The applicant must not have an interest in or own property. (d) All tenancies are subject to a residential tenancies agreement.

Criteria Three

(a) Applications from invalid beneficiaries 55 years of age or over will be considered. A medical certificate must support their application. Should applicants no longer qualify for an invalids benefit and no longer have a medical certificate to support their application then they no longer qualify for residency.

(b) The applicant can have personal assets of up to $90,000. (c) The applicant must not have an interest in or own property. (d) All tenancies are subject to a residential tenancies agreement.

Criteria Four

(a) The Allocation Committee may use its discretion if there are no applicants who meet Criteria 1, 2 or 3.

Note: Single tenants occupying two-roomed units will be asked to move if a single unit becomes available, when a twin-unit is required for a couple. This would be administered on a last in/first out basis. For your information:

Council flats and Council buildings operate under a “No Smoking” policy

Dogs are not permitted in Council flats

Pets by prior arrangement only

Prepared by Sheryl Poulsen, Finance Manager


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