Report 00.354
	23 May 2000
	File:  G/4/1/5
	   
Report to the Policy and Finance Committee
from Paul Laplanche, Finance Manager

Financial Report for the 9 months to 31 March 2000

1.	Purpose
	
1.1	To receive the March 2000 Financial Statements (forwarded under separate cover).

1.2	To inform the committee of the updated forecast year end position.

2.	Comment

	The year to date figures reflect favourable results in both operating and capital expenditure with the operating surplus ahead of budget by $7.2 million, and capital expenditure below budget by $2.6 million.  Contained within the favourable operating surplus position is a further gain on sale of investments of $3.2 million relating to Council’s sale of the CentrePort investment to Port Investments Ltd.  This additional gain arose from the application of the adjustment clause within the sale and purchase agreement.

	As Councillors are aware the General Manager and the Chief Financial Officer conduct a comprehensive review of the organisation’s performance each quarter. As part of this review, management have re-examined the forecast financial position to the end of this financial year.  The forecast position to 30 June 2000 in respect of both operating surplus and capital expenditure is explained in section 4.

3.	Financial Performance for the Nine months to 31 March 2000

3.1	Operating Surplus

	The year to date operating result after nine months reflects an operating surplus ahead of budget by $7.2 million.  Detailed variances from budget are shown in the following table:

Significant components of this favourable year to date variance are as follows:

(1)	Utility Services favourable variance of $0.35 million

(a)	    Water Group favourable variance of $0.57 million

•	The overall operating surplus in Water Supply of $570,000 is mainly due to savings in direct costs (primarily contractors & consultants and personnel), as well as higher than anticipated revenue. 

The favourable variance in personnel is mainly due to more operational staff time being spent on capital projects than budgeted. 

(b)    Forestry unfavourable variance of $0.23 million

•	The operating surplus below budget by $225,000 in Plantation Forestry as a result of logging revenue being below expectations as well as increased expenditure on contractors and consultants due to unbudgeted road upgrade costs, the Forestry Scoping Study and miscellaneous property charges.

(2)	Landcare favourable variance of $0.94 million
•	A significant portion of this variance relates to Flood Protection – Operations ($429,000). This is mainly due to flood damage repairs (rebudgeted from last year) delaying planned annual maintenance and the receipt of additional gravel revenue.
•	Flood Protection – Strategy and Assets has a $94,000 favourable variance in financial costs due to delays in commencing Flood Protection works which resulted in less borrowing this financial year.
•	Regional Parks Operations has a favourable expenditure variance of $196,000 due to slow project start-ups in a number of planned operations, associated with weather and other delays.
•	Natural Forestry has a favourable expenditure variance of $145,000.  This is due to delays in carrying out planned work as well as some projects being completed under budget.

(3)	Environment favourable variance of $0.36 million

•	The revenue shortfall of $62,000 is largely because the drilling exercise to investigate the Moera gravel aquifer is behind schedule. 

This shortfall in revenue is more than offset by expenditure savings of $421,000 as follows: 

•	Personnel costs are presently under budget by $105,000 because the Hazard Analyst and Education Co-ordinator positions were not filled until the end of November/beginning of December.  Also the Division did not appoint any replacement for a staff member on unpaid leave.

•	External Contractors and Consultants are $165,000 under budget because:

•	At this stage Iwi projects are $92,000 under budget.  Several initiatives are in various stages of implementation. We expect this under-spend will be reduced considerably by year end.

•	The Petroleum Storage Hazard Analysis study ($40,000) was temporarily delayed because of information access problems. These have now been resolved.

•	The Emissions inventory study ($25,000) is slightly behind schedule.

•	Internal Charges are $96,000 under budget because the Resource Investigations Department’s demand for laboratory services is currently running at a lower level than budgeted. 

(4)	Transport favourable variance of $0.62 million
•	The $381,000 favourable variance in the Public Transport department is mainly due to the following:
•	Total Mobility underspent by $153,000.  This is due to tighter controls on eligibility and restrictions on voucher issue. 
•	Savings of $100,000 in timetable production costs as a result of fewer timetable changes being made.
•	Expenditure on Rail subsidies was $158,000 lower than planned due to the Rail contract being agreed at a lower price than budgeted.
•	A favourable variance of $189,000 in the Customer Service Department has occurred because fewer timetable changes have occurred to date, leading to underspending on timetable displays and special events advertising.

(5) 	Wairarapa favourable variance of $0.51 million

•	The Biosecurity area has a favourable variance of $157,000.  This is due to the Bovine Tb Operations being slightly behind schedule.

•	The Operations department has an overall favourable variance of $178,000 from unbudgeted external revenue.  This includes a favourable variance of $221,000 in the Reserve Forests area which was mainly due to increased harvest revenue.  This variance has been partially offset by a $64,000 unfavourable variance for soil conservation works due to timing.

•	A favourable variance of $130,000 in Support Services is mainly due to the PABX replacement, provided for at 30 June 1999 as operating expenditure rather than capital expenditure.  An offsetting unfavourable variance is shown in the capital expenditure year to date figures.

(6)	Corporate Advisory Services favourable variance of $0.13 million	

•	The favourable variance primarily relates to the Corporate Communications area.   Expenditure planned for early in the financial year did not occur until later, for example, the first edition of Elements was not produced until December.  A permanent saving is therefore expected in this area this year.

 (7)	Finance & Administration favourable variance of $0.11 million
•	Reduced expenditure on materials and supplies (notably within WRC occupancy and IT operations) and a vacancy in the records management area.  Savings in personnel costs and consultants expenditure in the CFO Department have also contributed to the overall favourable variance.
•	This has been partially offset by an unfavourable variance in the Finance department caused by additional expenditure on temporary staff and post go-live FIS related costs. Higher than expected depreciation expense has also contributed to this variance.

(8)	Cost of Democracy unfavourable variance of 0.08 million
•	This is primarily due to attendance by Councillors at more meetings this year because of the LTFS process.

(9)	Investment Management favourable variance of $4.08 million
•	The majority of this variance relates to the $3,200,000 gain on sale of the Council’s investment in CentrePort Ltd to Port Investments Ltd.  (As a result of the adjustment clause)
•	Savings in the Treasury area of $563,000 resulting from a combination of debt levels being lower than expected, and lower than budgeted interest costs, including the benefits of the debt buy back undertaken in June 1999.  In addition, interest revenue earned on the invested proceeds from the sale of Council’s CentrePort investment was higher than budget, resulting in a $226,000 favourable variance.

 (10)	Non Divisional favourable variance of 0.16 million
•	$166,000 relates to valuation fees not fully accrued due to uncertainty over amounts.  Some minor savings are expected once we have received advice of all valuation charges.

3.2	Capital Expenditure

Year-to-date capital expenditure for the nine months to 31 March 2000 is 2.6 million below budget.

	Significant components of this favourable year to date variance are as follows:

(1)	Utility Services favourable variance of $0.92 million

•	The Te Marua Lakes Pipeline refurbishment has a $181,000 favourable variance.  This is a timing variance as work was reprogrammed to April 2000 to suit operational requirements.  

•	The Te Marua Pump Station power projects are under budget by $148,000.  Most of this variance is expected to be a permanent saving.

•	Expenditure on seismic protection is under budget due to some programmes being behind schedule. This has resulted in a YTD underspend of $136,000.

•	Haywards Reservoir Optimisation project is under budget by $145,000.  This is a timing variance and it is anticipated to be on budget before year end.

(2)	Landcare  favourable variance of $1.39 million

•	This variance primarily relates to Flood Protection as follows:

•	Construction start up of SH1 to Maple lane was slightly behind schedule at the end of March.  This was primarily due to time required to finalise the appointment of contractors.  Work has now commenced and is expected to be slightly over budget this financial year (however well within the overall project budget).

•	
A delay in the start of programmed flood protection work at Chrystalls Bend, Otaki River, has resulted in a $377,000 favourable variance.  Work is expected to be completed well under budget.

•	Overspend on the Hutt FMP phases 2 and 3 of $110,000 is due to rebudgeting errors from the acceleration of the plan completion date. It is expected that the overall project budget will be exceeded by $35,000 due to additional investigations being undertaken.

•	Block Road construction has a favourable variance of $181,000.  Construction has commenced but is behind schedule due to delays in sourcing rock supplies.  It should be completed by year-end but is forecast to be slightly over budget.  This will be reallocated from other flood damage Capex projects and has been reported to and approved by the Landcare Committee.

•	A $762,000 favourable variance in the Hutt river is due to a delay in purchasing land for the Boulcott stop bank.  The purchase of the land is still scheduled to occur this financial year.

(3)	Transport favourable variance of $0.16 million

•	The automatic vehicle identification project has been deferred until the completion of a study on how best to integrate with real time timetable display and bus priority systems.

4.	Year End Outlook Position

4.1	Revised year end Operating Surplus

The projected year end operating surplus has been adjusted following the quarterly management reviews.  The projected  year end operating surplus is now $10.3 million, an increase of $4.5 million over the December forecast of $5.8 million.

Detailed movements from the December forecast to the current forecast (outlook) are shown in the following table:

Significant components of the increase in projected surplus are:

(1)	Utility Services decrease in forecast surplus of $0.11 million

•	Reduced revenue expected in the Plantation Forestry area due to seasonal conditions making harvesting more difficult.

(2)	Landcare increase  in forecast surplus of $0.18  million

•	Increased internal revenue received or expected from recoverable works.

(3)	Transport increase in forecast surplus of $0.34 million

•	A reduction in timetable production, display and advertising costs is expected due to fewer timetable changes this year.

	(4)	Finance and Administration increase  in forecast surplus of $0.27 million

•	Savings expected from a vacancy in the records area, and reduced expenditure on consultants and materials in the IT operations area.

(5)	Investment Management increase in forecast surplus of $3.75 million

•	The change in forecast is due to a further gain on sale of $3.2 million arising from the sale of the Council’s interest in CentrePort to Port Investments.  In addition, lower debt levels and increased interest revenue have also contributed to this increased projected surplus.

4.2 	Analysis of Operating Surplus - Areas of Benefit

	It is important that Water Supply, Transport and Stadium surpluses\(deficits) are identified separately from other regional responsibilities given the different communities of benefit and funding issues involved.  The table below analyses the overall operating surplus into these areas:

	1999/00
Year End Outlook

($000)	1999/00
Year End 
Budget

($000)	Outlook
Vs
Budget Variance

($000)
	
Water supply 	         3,490	            2,648	             842  F	
				
Transport	          (661)	             (486)	             175  U	
				
Stadium	           364	              364	                 0  F	
				
Other Regional responsibilities	        7,074	           2,004	          5,070  F	
				
Total Council Position	       10,267   	           4,530	           5,737  F	

4.3	Revised Year End Capital Expenditure

	Overall capital expenditure is now projected to be $8.91 million at year end compared to the December forecast of $9.35 million.

Detailed movements from the December forecast to the current forecast (outlook) are shown in the following table: 

Significant components of the decrease in forecast capital expenditure are:

(1)       Utility Services decrease in forecast capital expenditure of $0.22 million

•	In Plantation Forestry savings of $84,000 have primarily resulted from reduced expenditure on the Pakuratahi East access road project.

•	In the Water Group, forecast expenditure on Pipeline and Sources projects has been reduced by $150,000 due to a mixture of project savings and delays in expenditure, some of which has been rebudgeted into the next financial year.

            (2)       Transport decrease in forecast capital expenditure of $0.16 million

•	$150,000 for Automatic Vehicle Identification equipment has been deferred until the completion of a report on how best to integrate AVI, real time information and bus priority systems.

5.	Compliance with Treasury Management Policy

There were no instances of non-compliance with the Treasury Management Policy during the nine months to 31 March 2000. 

6.	Communications

Council’s favourable financial results will be fully reported on at the conclusion of the financial year.

7.       Recommendations

(1)	That this report be received and the contents noted.

(2)	That the revised forecast figures to 30 June 2000 (termed ‘outlook’ within this report) replace the forecast figures prepared as part of the half year review.

Report prepared by:					Approved for submission:

PAUL LAPLANCHE					GREG SCHOLLUM
Finance Manager					Chief Financial Officer

Attachment 1: Treasury Management Policy Compliance Report