Land Title and Survey Authority of British Columbia

Transcription

1 Land Title and Survey Authority of British Columbia Management s Discussion and Analysis For the three months ended June 30, 2012 The following is a discussion and analysis of the financial condition and results of operations of the Land Title and Survey Authority of British Columbia and its subsidiary ( the LTSA ) as of August 30, This management discussion and analysis ( MD&A ) should be read in conjunction with the consolidated financial statements for the three months ended June 30, All financial information reflected herein is expressed in Canadian dollars and determined on the basis of International Financial Reporting Standards ( IFRS ). Business Overview Financial Highlights Financial Highlights A Description of the LTSA The LTSA is a publicly accountable, statutory corporation which operates and administers British Columbia s land title and survey systems. The LTSA maintains secure land title and survey systems through the timely, cost effective registration of land title interests and survey records. Annually, about 3.5 million online transactions are processed, of which one million are the registration of transfers of title and charges. Economic Environment Our customers include property owners and charge holders with transactions involving private land in the Province of British Columbia. Our revenue volumes are influenced by a number of factors including population growth, interest rates and the general economic environment. As a result of the slowdown in economic activity consumers reduced transactions involving real properly sharply in late 2008 and early Since then low mortgage rates and the improvement in general economic conditions have stabilized demand and as a result our transactions have returned to long-term historical averages. Market Trends The revenues of the LTSA are directly related to the volume of private real estate transactions in the province. Applications grew steadily from the launch of the LTSA in January 2005 through to the fiscal year ended March 31, The market peak was reached in August 2007 and annual transaction volumes have declined almost 35% since then. This downward trend has been consistent, with applications received in the year ended March 31, 2009 down 17% from 2008, in the year ended March 31, 2010 down 4% from 2009, in the year ended March 31, 2011 down 9% from 2010, and Page 1

2 applications received in the year ended March 31, 2012 down 5% from In the three months ended June 30, 2012, the volumes were down almost 6% compared to the same period of the prior year. Seasonality 2 On a quarterly basis, our revenues have historically varied significantly with the April to June and July to September quarters having the highest transaction volumes. As our costs on the whole do not track with revenue, these quarters show positive net earnings but we break even, or experience a loss, in the October to December and January to March quarters. BusinFinancial Highlights Financial Highlights Business Overview Revenues this quarter exceeded expenses by $1,188k, a decrease of $317k from the prior year. This was caused by a slight decrease in revenues, resulting from lower transaction volumes, coupled with a small increase in expenses, resulting from increased salaries and benefits costs and professional fees costs. Net income and comprehensive income will continue to be positive in the second quarter; however it will decrease by about $500k due to the commencement of amortization of the new land title registry system. The LTSA s cash, cash equivalents and short-term investments, excluding property transfer taxes and fees owed to the province, was $35.9 million at June 30, 2012, a $14k reduction from March 31, Page 2

3 Results of Operations The following table sets forth certain consolidated statement of comprehensive income data for the first quarter, expressed in dollars and as a percentage of revenues, as at June 30, 2012 and Revenue $ 6,832, % $ 7,078, % Expenses Salaries and benefits 3,277, % 3,150, % Information services 365, % 472, % Office and business 360, % 453, % Building occupancy 911, % 858, % Professional fees 581, % 323, % Amortization 207, % 381, % Total expenses 5,703, % 5,640, % Operating income 1,128, % 1,438, % Other income and expenses Bank charges, interest and investment fees (24,987) (0.4%) (26,312) (0.4%) Interest income 86, % 99, % Loss on disposal of property and equipment (52) 0.0% (4,973) (0.1%) Total other income and expenses 61, % 67, % Net income and comprehensive income before income taxes 1,190, % 1,506, % Income taxes 1, % 1, % Net income and comprehensive income $ 1,188, % $ 1,504, % Revenues The first quarter revenue of $6,832k was $246k or 3.5% less than prior year. The 3.5% decrease in revenue compared to prior year was comprised of a 5.9% decrease in transaction volumes, offset by a 2.0% fee increase effective April 1 st and 0.4% shift in mix of service rendered. Due to the lower Multiple Listing Service sales in May and June, we anticipate that revenue in the next quarter will be approximately 5% lower than in prior year, but similar to this quarter, approximately $6,700k to $7,000k. The share of applications submitted through BC OnLine using LTSA s Electronic Filing System has increased steadily from an average of 58.0% in the prior year s fourth quarter to 90.3% in June We anticipate seeing required e-filing of the most commonly submitted land title documents continuing to improve all offices productivity in future quarters. Page 3

4 Expenses Overall, the operating costs for the quarter were $63k or 1.1% above prior year. The variance was mostly due to increased salaries and benefits expenses offset by delayed professional fees expenses. Salaries and benefits were our largest cost at 48% of revenue (2011: 45%). The salaries and benefits expense for the quarter was $3,277k, $127k or 4.0% more than prior year due to an average 2% increase in salaries, the addition of employment incentive plans to encourage business transformation completion and subsequent retirements, and an average 0.7% increase in pension contributions. We anticipate seeing salaries and benefits costs remain at this level through the second quarter. Quarterly information services costs were $366k, $107k or 22.6% less than prior year, dropping from 6.7% to 5.4% of revenue. This was due to savings on information technology support costs and data network services and we expect these costs to remain stable through the second quarter. Office and business expense for the quarter was $361k, $42k or 10.5% less than prior year, dropping from 6.4% to 5.3% of revenue. This is primarily due to delaying expenses on training, travel and communications, but was also due to reduced office equipment operating lease costs, a concerted effort to improve purchasing practices and recognize savings on office supplies. Office and business expense will continue to be at about this level through the second quarter. This quarter building occupancy expense of $912k was $53k or 6.2% more than prior year, increasing from 12.1% to 13.3% of revenue. The variance was because of rent increases for the Victoria and New Westminster offices. We do not anticipate any changes to the amount of building occupancy expense through the second quarter. Professional fees for the quarter of $582k were $258k or 80.0% more than prior year, increasing from 4.6% to 8.5% of revenue. Professional fees have been much higher compared with prior year because of costs related to two new projects: ParcelMap BC, an integrated cadastre fabric initiative between the Province of BC and the Surveyor General Division and the Integrated Customer Portal, the construction of an online customer management and payment system for LTSA services. The costs relate to the initial exploratory work required to define the projects and are therefore expensed. The second quarter will see increased costs in this category as the final phases of business transformation are achieved and resources are reassigned to these new projects. Amortization expense for the quarter was $207k, $175k or 45.8% less than prior year, dropping from 5.4% to 3.0% of revenue. Amortization expense for intangible assets was lower than prior year, mostly due to prior years image storage migration work being fully amortized. The second quarter will see amortization increase significantly, to about 11% of revenue due to the completion of business transformation and the start of amortization of the new registry system over its six year useful life. Page 4

5 Net Income and Comprehensive Income Overall, net income and comprehensive income totalled $1,188k for the quarter, $317k or 21.0% less than in We anticipate seeing a decrease of about half a million dollars due to the amortization increase in the second quarter. This situation will improve in the third quarter as a reduction of about $919k in annual salaries and benefits costs will be achieved through planned retirements. Liquidity and Capital Resources Sources and Uses of Cash Our cash, cash equivalents and investments totalled $35.9 million on June 30, 2012 (March 31, 2012: $35.9 million), of which $85k (March 31, 2012: $53k) consisted of cash collected on behalf of the Province of British Columbia for property transfer tax and fees. The cash owing to the Province was remitted on the following business day as required under our Operating Agreement. Cash from Operating Activities Our primary source of cash is from operating activities. Cash from operations for the quarter totalled $1,412k, a decrease of $329k from the $1,741k generated in the prior year s quarter. The decrease is due both to decreased sales volumes and increased salaries and benefits costs in the quarter. Investing in Capital Assets The purchases of intangible assets and property/equipment together for the quarter were $1,392k, $714k more than prior year s $678k, primarily due to costs incurred for the business transformation initiative. For the quarter, we have capitalized costs of $1,256k (2011: $1,009k) and expensed costs of $38k (2011: $44k) for business transformation. With an expected expenditure of $2,096k in the balance of the fiscal year, the project is on target to complete within budget. Off-Balance Sheet Arrangements We have no off-balance sheet financing arrangements. Internal Controls over Financial Reporting There were no changes in the LTSA s internal control over financial reporting that occurred during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the LTSA s internal control over financial reporting. Page 5

6 Please refer to the interim consolidated financial statements, which contain additional information regarding our accounting policies and other disclosures required under IFRS. Page 6