Previous Report to Council on 18 October 2010

BACKGROUND

1. The Council’s Financial Report for the year ended 30 June 2010 has been completed and is submitted to Council for adoption and formal referral to Council’s Auditors, PricewaterhouseCoopers.

2. Council’s Financial Report includes the following:

2.1 The General Purpose Financial Report

2.2 The Special Purpose Financial Report

2.3 The Special Schedules.

3. The audited Financial Reports were presented to the Audit Committee on

October 7 and they recommended that the accounts be presented to Council.

4. The full Financial Report is attached but does not include the Auditor’s Report.

5. Mr D. Banicevic, Director, Local Government Services of PricewaterhouseCoopers, will be in attendance at the Council Meeting on 18 October 2010 to present the Auditor’s Report and answer questions.

6. To meet statutory requirements, it is proposed that Council present the 2009/10 Financial Report and Auditor’s Report to the public at its meeting of the 22 November 2010. This is after the public exhibition period of 2 weeks which enables the public to make submissions.

7. Council must ensure that copies of all submissions received are referred to the Auditor, and may take such action as it considers appropriate with respect to any such submission, including the giving of notice to the Director-General of Local Government of any matter that appears to require amendment of the Council’s Financial Report.

ISSUES/OPTIONS/CONSEQUENCES

Financial Performance

8. The 2009/10 Financial Report reports Council’s financial performance along similar lines to financial reports in the commercial world, where the focus is on the bottom line profit of the company.

9. Council’s operating result has increased from a surplus of $4.5 million in the previous year to a $9.3 million surplus this year. The increase is due to a increase in investment returns ($2m) due to an improvement in global economic conditions, employee costs being lower than originally anticipated, borrowing costs reducing by $1.4m due to favourable deals on renegotiated loans, $990K drop in depreciation due to a one-off impairment in 2008/09 on the Civic Place project and $3.7m increase in capital grants and contributions.

10. Council is maintaining its asset base with $31 million (2008/09 $33 million) spent on capital works which provides a renewal ratio of 1.01. This was funded from a mix of revenue, loans, special rates, sale of assets and capital grants and contributions. For further information see Note 9 in the Financial Reports.

11. Council’s cash position remained constant at $80.7 million.

12. Council’s loan liability decreased from $89.2 million to $85.4 million during the year. Of this amount, $55 million is in respect of Civic Place and the interest repayments are currently being serviced from the leasing income and interest on the unexpended balance of the loan.

13. The 2009/10 Financial Report contains a number of performance indicators (Note 13) and they are detailed below with commentary:

PERFORMANCE INDICATORS

2009/10 2008/09 2007/08 2006/07

Unrestricted

Current Ratio 1.84:1 1.86:1 1.82:1 0.78:1

(To assess the adequacy of working capital and the ability to satisfy obligations in the short term for the unrestricted activities of Council)

Comment/Explanation

For every $1 of current liabilities, Council has $1.84 of working capital to satisfy these obligations in the short term. (This is a useful indicator in that it takes into account restrictions placed on working capital.)

This ratio stands above the industry benchmark of 1:1.

2009/10 2008/09 2007/08 2006/07

% % % %

Debt Service Ratio 7.32 6.49 6.86 6.80

(To assess the degree to which revenues are committed to the repayment of debt)

Comment/Explanation

7.32% of our total revenue was committed to loan repayments for 2009/10. This is better than the industry benchmark of 10% for developed councils. (NB: The Civic Place borrowings are interest only loans.)

Rate & Annual Charges Coverage Percentage

2009/10 2008/09 2007/08 2006/07

% % % %

59.22 59.71 61.00 60.72

(To assess the degree of dependence upon revenues from rates)

Comment/Explanation

A major portion (59%) of our revenue is derived from Rates and Other Annual Charges such as Domestic Waste, Commercial Waste and the new Stormwater Levy.

Rates Outstanding Percentage

2009/10 2008/09 2007/08 2006/07

% % % %

4.27 5.50 4.40 4.11

(To assess the impact of uncollected rates and annual charges on liquidity and the adequacy of recovery efforts)

Comment/Explanation

4.27% of rates and annual charges remained uncollected at year end which compares favourably with the industry benchmark of 5%. This is still an outstanding result given economic conditions.

General Comments

14. Council’s performance indicators are all better than the industry benchmark.

15. Council’s Salary System, along with award increases, of above 3% have seen Council’s wages and salaries bill continue to rise at a minimum of about 5% per annum, which is much higher than the current year Sydney Consumer Price Index (CPI) of 2.4%.

16. Some of the major projects included are Wharf Road Boat Ramp, Blacktown Cycleway, Parks Improvements, Coca Cola Amatil, Civic Place Project Management and the CITSR project.

17. Council has revoted approximately $1.4 million of projects from the 2009/10 budget to the 2010/11 budget. This represents 3% of the 2009/10 projects budget and 0.78% of total operating and capital expenditure, against a benchmark of 2%.

18. Restrictions relating to grants and contributions provide information on unspent amounts. There continues to be an improvement in reducing the balance of unspent contributions which are down from $19.5 million in 2008/09 to $18.8 million in 2009/2010. Whilst this remains high, the improvement should be noted given the amount of grants received by Council towards the latter part of the financial year. This is illustrated in Note 3g to the financial accounts.

Special Purpose Financial Report

19. Council identified in its Delivery Program its Commercial Property Portfolio as a Category 1 business in accordance with the requirements of National Competition Policy (NCP) guidelines.

20. Council has imputed all normal taxation payments that would be faced by an equivalent private sector organisation as well as a return on investment.

Special Schedule 7 – Condition of Public Works

21. The purpose of this schedule is to allow an assessment of the condition of Council’s public works assets and how Council is performing in managing these assets. The schedule reports on our public works assets in respect of:

21.1 The assessed condition of the assets

21.2 The assessed expenditure required to bring the asset up to a satisfactory standard

21.3 The anticipated expenditure required to keep these assets at a satisfactory standard

21.4 The actual maintenance expenditure in 2009/10.

22. Council is working to develop an asset management strategy and progressively implement Whole of Life costing for all its classes of assets. An excellent example is the work done by City Services for the road pavements and footpath pavements and work on Council’s drainage assets.

23. Whilst the condition of our assets is generally satisfactory, the consequence of not finding the right balance will be that asset management costs will be deferred for future generations to address and lead to deterioration in asset performance.

CONSULTATION & TIMING

24. PricewaterhouseCoopers has completed its Annual Audit and no major issues have arisen. Council will receive an unqualified Audit Report for 2009/10.

Alistair Cochrane

Manager Finance