Financial Reporting Insights and Analysis

Council Briefing 18/12/24 An independent member of UHY International 1

Financial Report Components Operating Statement Income Rates & Annual Charges User Charges & Fees Other Revenues Grants & Contributions for Operating Grants & Contributions for Capital Interest & Investment Revenue Other Income (gain on disposal of assets) Total Income from Continuing Operations Expenditure Employee Costs Materials, Contracts & Other Borrowing costs Depreciation Other Expenses Loss on disposal of asset Total Operating Expenditure Capital Works Expenditure on Renewal of Assets Replacement of Assets Expenditure on New Assets Upgraded Asset Capital Grants Asset Expenditure Maintenance (ie potholes) = Operating Renewal/replacement (ie resealing) = Capital New/Upgrade (dirt to sealed) = Capital Net Operating An independent member of UHY International Net Operating before Grants & Contributions for Capital (capital grants removed) 2

Depreciation: the tale of two machines Ted Bill Has $100,000 Buys a machine for $100,000 Bank account = Nil Machine lasts 10 years Deterioratesby $10,000/year (Depr) Has $100,000 Buys a machine for $100,000 Bank account = Nil Machine lasts 10 years Deteriorates by $10,000/year (Depr) $150,000 per year income Less expenditure of: $30,000 general costs $10,000 depreciation (deterioration of machine) $150,000 per year income Less expenditure of: $30,000 general costs Result = $120,000 taken as a wage Ted uses $10,000/yr to renew machine Result = $110,000 taken as a wage In 10 years Ted s machine has been renewed each year which has extended its life and it still has a life of 10 yrs. In 10 years time Bill s machine has deteriorated and needs replacement and he has to borrow $100,000 An independent member of UHY International 3

Monthly Financial Report 1. Consolidated Income Statement 2. Income Statement Variance Analysis 3. Income Statement by Fund 4. Statement of Financial Position 5. Reserves Balance 6. Capital Expenditure 7. Crago Mill Progress Report An independent member of UHY International 4

Reserves Cash set aside for specific purposes Externally Restricted (legislation) Developer Contributions Waste Sewer Water Others Internally Restricted (council resolution) Reserves are cash from previously recognised income Example In Out Balance Developer Contributions $500k $500k Following year (s) $300k $200k An independent member of UHY International 5

Reserves Internally Restricted Multiple reserves Complicated Add time and cost to accounting Delays reporting Not efficient Better to be as simple as possible only have a reserve where needed An independent member of UHY International 6

Reserves (ignores capital) Ideal Not Ideal Cash in Bank (not reserves) $10m $10m Council Operating Income (not including capital grants) (includes Developer Contributions of $1m unspent by end of year) $40m $40m Council Operating Expenditure (not including depreciation $10m) -$25m -$50m Cash in Bank $25m $0m Reserve Opening balance $5m $5m Add Developer Contributions $1m $1m Reserve Closing balance $6m $6m Cash in Bank (not reserves) $24m -$1m Includes - Depreciation for renewal of capital $10m Haven t funded depr An independent member of UHY International 7

Capital Ideal Not Ideal Depreciation $10m Not funded Capital Grants and Contributions $10m $10m Capital Expenditure $20m $20m Balance $0 -$10m Where is the cash to fund this? An independent member of UHY International 8

Long Term Financial Plan An independent member of UHY International 9

Long Term Financial Plan Takes all the information from all the plans and sets out the financial consequences in the form of financial statements over a number of years. At least 10-year plans but can be longer, review annually or more often Includes assumptions about: Inflation CPI Grants Rates Service Levels Other cost pushes: Waste charges (Govt Levies) Utilities Insurance An independent member of UHY International 10

YASS LTFP $'000 Year ended 30th June Income Rates/charges/Revenue Operating Grants Capital Grants & Contributions Gain from Disposal of Assets Total Income 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 30,413 10,799 13,955 1,100 56,267 30,913 11,134 14,388 31,290 11,423 14,762 32,067 11,709 15,131 32,865 12,002 15,509 33,682 12,302 15,897 34,519 12,609 16,294 35,378 12,924 16,701 36,258 13,247 17,119 37,159 13,579 17,547 56,434 57,474 58,907 60,375 61,880 63,422 65,003 66,624 68,285 Expenditure Employee/other Depreciation Total Expenditure (37,256) (9,816) (47,072) (39,892) (10,047) (49,939) (41,437) (11,173) (52,610) (42,303) (11,426) (53,729) (43,191) (11,606) (54,797) (44,087) (11,806) (55,893) (45,296) (12,052) (57,347) (46,253) (12,307) (58,560) (47,299) (12,565) (59,864) (48,286) (12,843) (61,128) Operating Result 9,195 6,495 4,865 5,178 5,578 5,987 6,075 6,444 6,759 7,157 Remove Capital Grants & Contributions (13,955) (14,388) (14,762) (15,131) (15,509) (15,897) (16,294) (16,701) (17,119) (17,547) Net Result (4,760) (7,893) (9,897) (9,953) (9,931) (9,910) (10,219) (10,258) (10,359) (10,390) Capital Grants & Contributions Capital Expenditure Net Capital Result 13,955 (51,241) (37,287) 14,388 (37,757) (23,370) 14,762 (22,525) (7,763) 15,131 (23,204) (8,073) 15,509 (21,580) (6,071) 15,897 (22,568) (6,671) 16,294 (23,220) (6,926) 16,701 (22,419) (5,718) 17,119 (23,526) (6,407) 17,547 (25,643) (8,096) Income Statement (Operating Plan) shows capital grants but doesn t show the capital expenditure We have included capital expenditure to show the end result Doesn t show the effect on cash An independent member of UHY International 11

Lets look at cash only $'000 Year ended 30th June Cash In Rates/Charges/Revenue Operating Grants Capital Grants & Contributions Dispose Assets Cash In Total 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 30,413 10,799 13,955 1,100 56,267 30,913 11,134 14,388 31,290 11,423 14,762 32,067 11,709 15,131 32,865 12,002 15,509 33,682 12,302 15,897 34,519 12,609 16,294 35,378 12,924 16,701 36,258 13,247 17,119 37,159 13,579 17,547 56,434 57,474 58,907 60,375 61,880 63,422 65,003 66,624 68,285 Cash Out Employee and Other operating exp Capital Expenditure Total Cash Out (37,256) (51,241) (88,497) (39,892) (37,757) (77,649) (41,437) (22,525) (63,961) (42,303) (23,204) (65,506) (43,191) (21,580) (64,771) (44,087) (22,568) (66,655) (45,296) (23,220) (68,516) (46,253) (22,419) (68,672) (47,299) (23,526) (70,826) (48,286) (25,643) (73,928) Net Cash (32,231) (21,215) (6,487) (6,600) (4,396) (4,775) (5,094) (3,669) (4,202) (5,643) An independent member of UHY International 12

Add in Reserves and Borrowing Cumulative Effect of Cash Flow $'000 Year ended 30th June Cash Reserves at start of year Cash In Borrowings In Total Cash 2025 30,254 56,267 28,601 115,122 2026 25,703 56,434 15,208 97,345 2027 18,149 57,474 2028 9,364 58,907 2029 335 60,375 2030 (6,630) 61,880 2031 2032 2033 2034 (13,690) 63,422 (21,213) 65,003 (27,464) 66,624 5,244 44,404 (34,321) 68,285 75,624 68,271 60,710 55,250 49,733 43,790 33,964 Cash Out Repayment of borrowings Total Cash Out (88,497) (921) (89,418) (77,649) (1,547) (79,196) (63,961) (2,298) (66,260) (65,506) (2,429) (67,935) (64,771) (2,569) (67,340) (66,655) (2,285) (68,940) (68,516) (2,429) (70,946) (68,672) (2,582) (71,254) (70,826) (7,900) (78,726) (73,928) (2,895) (76,823) Cash on Hand 25,703 18,149 9,364 335 (6,630) (13,690) (21,213) (27,464) (34,321) (42,860) All money that we can use comes from the Income Statement Reserves came from income in previous years Borrowing has to be paid back An independent member of UHY International 13

Grants A Cautionary Tale Grants are not free money (usually) Usually, they are tied to a specific project Sometimes grant is $2 for $1 which means that council must contribute Even if a capital project is fully funded Grant $5m Capital project - building -$5m Net 0 Each year Depreciation (approx. 2% for future renewal) Maintenance (approx. 0.5%) $100k $25k An independent member of UHY International Total cost each year council cost $125k 14

What can we do to improve long-term financial sustainability? Council must balance net operating results before capital grants Council must also improve its long-term unrestricted cash position Some options are: Cut Operating Projects Cut Capital Projects Asset Management Plans Condition Assessments and Planning Levels of Service operational and capital Review of allocation of costs between funds doesn t change cash position. Review the use of Reserves Special Rates Variation An independent member of UHY International 15

Asset Management Plans Should consider: Level of Service & Risk Concerns Condition of Assets Growth effect on asset requirements Provides: Annual maintenance requirements Depreciation $ Renewal/Replacement requirements New/upgrade requirements to cope with growth Capital Projects should address the Asset Management Plan requirements New and Upgrade outside of this considered very carefully Fund Depreciation full by having a zero Net Result funds for AMP An independent member of UHY International 16