COMMUNITY FINANCIAL REPORT

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1 COMMUNITY FINANCIAL REPORT Council s approach to financial planning guides the organisation toward operating in a manner that ensures financial sustainability in both the short, and the long term. IMAGE: BUSTARD HEAD LIGHTHOUSE

2 Our long term approach to financial planning provides our organisation with a solid financial platform from which to operate. Mark Holmes Chief Financial Officer What is a Community Financial Report? This is included as an important part of Council s Annual Report to provide members of the community, our business partners, our employees and all relevant stakeholders a better understanding of Council s financial position and financial performance throughout. Our goal in community financial reporting is to provide a report that is as comprehensive as it is comprehensible and offers an honest, transparent account of our financial performance. We recognise that a crucial element of financial performance incorporates a blend of retrospective reporting and forecasting. Information relating to our unconsolidated financial performance and budgeting (that is, Gladstone Regional Council s performance excluding the performance of the controlled entity of the Gladstone Airport Corporation) appears on pages Pages offer similar consolidated information

3 Financial Ratio Performance Financial ratios provide a useful snapshot of Council s financial status and trends (see page 14 for graphical representations and commentary of Council s performance as informed by financial ratio analysis). Individual ratios often do not provide sufficient information to form a comprehensive opinion of Council s financial position and performance. However, when the right mix of ratios are considered together, they become an important tool in analysing Council s results for the year. Ratios are also useful when comparing Gladstone Regional Council to other councils. We use a mix of ratios, in combination with bottom line results and long term financial planning to inform our financial decision making and to ensure sustainable use of finite financial resources now, and into the future. SUMMARY OF KEY FINANCIAL PERFORMANCE INDICATORS Council aims to operate in a manner that ensures that it is financially sustainable in both the short and long term. As part of monitoring this, Council utilises a series of sustainability ratios that act as a collective guide to the financial health of the organisation. These indicators are reported monthly to Council as part of its monthly financial statements, ensuring that Council is fully informed and in a position to identify any corrective action necessary. TARGET ACTUAL ACTUAL FORECAST FORECAST >90% 177% 126% 97% 86% 0% - 10% 1.61% 2.75% 2.38% 1.72% 0%- 15% 2.1% 2.0% 2.9% 4.3% Working Capital Ratio >1: Net Financial Liabilities Ratio <60% 45% 33% 65% 59% RATIO TARGET ACHIEVED Infrastructure Capital Sustainability Ratios Asset Sustainability Ratio Net Interest Coverage Ratio Financial Capital Sustainability Ratios Operating Surplus Ratio IMAGE: BOYNE ISLAND

4 What were the major sources of income to Council? Sources of Operating Income for Council received $189.9 million in revenue, inclusive of $15.3 million attributable to the controlled entity of Gladstone Airport Corporation. The greatest contribution provided by rates and utility charges (68.3 per cent), followed by user fees and charges (14.6 per cent), and sales revenue (contract works) accounting for 4.0 per cent. The following pie chart shows the revenue breakdown: Operating Expenses for The following pie chart provides a breakdown of our $185.9 million total operating expenditure, excluding capital purchases. Net rate and utility charges $129.6 million Fees and charges $27.6 million Grants, subsidies, contributions and donations $10.5 million Other recurrent income $8.5 million Sales revenue $7.5 million Operating Income $189.9 million Materials and services $74.9 million Employee benefits $58.2 million Depreciation and amortisation $42.0 million Operating Expenses $185.9 million Interest received $5.4 million Finance costs $10.7 million Rental income $0.7 million Total operating revenue has increased by $2.9 million (1.6 per cent) over the previous year and is primarily attributed to: Rates and utility charges increased by 6.8 per cent due to a combination of both property growth and increased cost recovery associated with utility charges; Operating grants and subsidies increased by $4 million due primarily to the resumption of the full receipt of Federal Assistant Grant in the financial year; and, Fees and charges decreased by $4.8 million, due largely to a decrease in building and development activity in the region and a decrease in passenger numbers at Gladstone Airport. The graph above illustrates that 68.3 per cent of Council s total operating revenue comes from rates and utility charges (that is, water, sewerage and cleansing charges). This demonstrates a clear reliance on general rates and service charges as the predominant income stream to Council. This percentage is considered normal for councils with a large urban centre. Generally, the larger the urban base of a local government, the higher the reliance on rating revenue as a source of income. The primary expense components for each program include employee costs, materials and services and depreciation. Total expenses increased by 1.5 per cent over the previous year, almost solely as result of increased depreciation costs, however: Materials and services which totalled $75.0 million (40.3 per cent) of operating expenses, and down $1.5 million or 2.0 per cent on the previous year, the largest individual item was $17.7 million on contractors performing works on behalf of Council, with bulk water purchases the next largest at $16.8 million. Together these two line items accounted for 46.0 per cent of the materials and services expenditure for the year. The costs for materials and services incorporate our payments to our suppliers for the delivery of our hundreds of services and projects to the community including roads, parks, water, sewerage, footpaths, bikeways, libraries, pools, airports, community halls and town planning and includes payments to individual contractors and consultants to bitumen materials, gravels, electricity, petrol and other operational costs. Employee benefits on operating activities accounted for $58.2 million, this figure includes employee s salaries and wages, superannuation, leave entitlements and councillor remuneration. This was a decrease of $1.6 million, or 2.6 per cent, over Council s depreciation expense was $42.0 million, up $5.8 million on the prior year, or 15.9 per cent on , whilst this does not represent cash spent, it recognises the value of our assets consumed during the period, given that Council s asset base has continued to expand both as a result of growth, and also accelerated asset replacement following flood damage restorations works, this increased depreciation is in line with expectations. This depreciation charge shows that the community consumed approximately 2.0 per cent of the asset base over the period, which is a slight increase of 0.1 per cent over the prior year. The increase is as a result of an expanding asset base, increased asset replacement cost, and reflective of the current condition of Council s assets. Finance costs increased to $10.6 million (up $0.2 million from last year) this is in line with expectations and associated with the ongoing servicing of borrowings for major infrastructure

5 What is the value of the community s assets? Assets (What the community owned as at 30 June 2015) Council controlled assets had a total value of $2.218 billion as at 30 June 2015, which represented an increase in the community s assets during the period of $94.4 million. The increase in Council s asset base is primarily attributable to $101.8 million worth of additions to Council s asset base resulting from capital works completed during the year and developer contributed assets. The major components of assets are property, plant and equipment (land, buildings, road network, water and sewerage infrastructure, capital works in progress), which accounted for $2.075 billion. Cash and deposits totalled $112.5 million. A large proportion ($92.3 million) of the cash held is earmarked as reserves for future capital expenditure. Liabilities (What we owe to others as at 30 June 30 June 2015) Council s liabilities include loans, amounts owed to suppliers and amounts owing to employees for leave entitlement. The total liabilities amount of $199.6 million as at 30 June 2015 is a decrease of $10.4 million over the previous year. Council s largest single liability is its interest bearing loans with Queensland Treasury Corporation ($162.0 million as at 30 June 2015, down $8.8 million from 2014). Council did not borrow any funds in, as was the case the previous year and made net repayments after interest of $9.24 million. The $2.075 billion of property plant and equipment assets controlled by Council can be broken down into the following asset classes: Road, drainage and transport infrastructure $1.244 billion Sewerage infrastructure $296.0 million Water infrastructure $164.8 million Buildings $146.4 million Land and improvements $129.9 million Work in progress $39.4 million Plant and equipment $26.4 million Property, Plant and Equipment Asset Classes $2.218 billion Park furniture and other structure $25.5 million Major plant and equipment $2.4 million Cultural assets $1.0 million LOOKING TO THE FUTURE In order for Gladstone Regional Council to be considered sustainable it must be able to maintain its financial capital and infrastructure over the long term. Council needs to implement long term asset management plans and have these plans integrated with long term financial forecasts. In , we will continue to implement 10 year long term asset management plans for key infrastructure assets, community engagement plans, and corporate planning projects which in turn will necessitate the continual comprehensive review of Council s long term financial forecasts. In short, we maintain a solid financial platform from which to continue to support our regions growth into the future