FINANCIAL PERFORMANCE REPORT – APRIL 2023

Executive summary

Year-to-date (YTD) performance against current budget as at 31 March 2023 is positive with operating revenues outperforming forecast. Operating expenditure is under forecast YTD, with an underspend in Employee Costs currently offsetting an overspend in Materials and Services. Capital revenues are above forecast while capital expenditure is below forecast primarily due to delivery timing of multi-year projects. Adjustments to the budget have been proposed as part of Budget Review 2 (BR2) to address any emerging items and current specific variances, as outlined in a separate report to this meeting. YTD Financial Performance Summary Budget Actual Variance Variance Status $m $m $m % Operating Revenue $106.6 $112.4 $5.8 5.4% Above Budget Operating Expense $84.5 $84.4 $0.1 0.0% On Track Operating Position $22.1 $28.0 $5.9 26.7% Capital Revenue $8.2 $23.2 $15.0 182.9% Above Budget Capital Expenditure* $42.3 $39.2 $3.1 7.3% Below Budget

• Reflects constructed assets and intangibles only (excludes contributed) The $5.9 million YTD operating surplus comprises $4.7 million general operating surplus from activities that are funded through Council’s general rate, regulatory fees and sales of goods and services; as well an additional $0.9 million from waste operations and $0.3k in unspent levy and separate charge funds which are constrained in reserve for future use. The general operating surplus position is also augmented by a number of incomplete grant-funded programs. Budget Actual Variance Item

YTD

YTD

YTD

$m $m $m $17.8 General business operating position (unconstrained funds) $22.5 $4.7 ($1.1) Unspent levies (constrained funds) ($0.8) $0.3 $5.4 Waste operations $6.3 $0.9 $22.1 Total Council Operating Position $28.0 $5.9 Financial statements including Statement of Income & Expenditure, Statement of Financial Position (balance sheet), and Statement of Cash Flows are included as attachments for information for Council. Figure 1: Actual Performance Compared to Budget Council’s performance against key measures of financial sustainability has been calculated as at March 2023. These statutory indicators enable the reader to assess Council’s success in managing its budget, cash and debt as well as undertaking sustainable asset management. The table below contains a snapshot of a number of key measures, with full detail included in the

Recommendation

That Council note the report by the Manager Financial Services (Acting) to the General Committee Meeting dated 17 April 2023 outlining March 2023 year to date financial performance against budget, including changes to the financial performance report with the inclusion of key financial sustainability indicators.

Report

YTD Measures of Financial Sustainability

Current

Target

Actual YTD

Status

Budget Operating Surplus Ratio

On Track

-10% -0.6% 24.8% Net Financial Liabilities Ratio

On Track

<60% 1.0% -40.4% Cash Cover Ratio

On Track

months 6.7 months

months Asset Sustainability Ratio

On Track

> 90% 188.0% 139.0%

RECOMMENDATION

That Council note the report by the Manager Financial Services (Acting) to the General Committee Meeting dated 17 April 2023 outlining March 2023 year to date financial performance against budget, including changes to the financial performance report with the inclusion of key financial sustainability indicators.

REPORT

Operating Revenue (YTD Benchmark 75.0%) Council has received 94.9% ($112.4 million) of its operating revenue budget ($118.4 million). Commentary on each revenue category is provided below.

Summary •

Rates and Levies $83.2 million (100.9%) General rate (net of discounts and pensioner of the annual budget remissions) $391.5k above YTD budget

Summary of $82.5 million has (100.6% or $62.9 million of $62.6 million been earned annual budget earned) • Waste utility charges $326.4k above YTD budget (102.3% or $14.6 million of $14.3 million annual budget earned) •

Fees and Charges $6.4 million (71.5%) of Property and Facility fees $134.0k above YTD the annual budget of budget (88.4% or $453.6k of $513.4k annual $8.9 million has been budget earned) • earned Plumbing fees $98.7k above YTD budget (87.9% or $1.0 of $1.1 million annual budget earned) • Waste Management fees $50.4k above YTD budget (70.5% or 154.3k of $219.0k annual budget earned) • Cemetery fees $30.9k above YTD budget (85.1% or $260.7k of $306.4k annual budget earned) • Local Laws $59.4k below YTD budget (77.7% or $1.3 million of $1.7 million annual budget earned) • Revenue Services $62.9k below YTD budget (67.3% or $258.2k of $383.5k annual budget earned) • Building fees $198.2k below YTD budget (51.2% or $530.5k of $1.0 million annual budget earned) • Development Assessment $211.1k below YTD budget (55.5% or $1.5 million of $2.8 million annual budget earned) •

Sale of Goods and $10.3 million (83.6%) Holiday Park revenue $562.3k above YTD

Services of the annual budget budget (92.1% or $3.2 million of $3.5 million of $12.3 million has annual budget earned). Any revenue upside been earned will be generally offset by a corresponding increase in associated operating costs • Community Facility fees $408.4k above YTD budget (90.7% or $2.6 million of $2.8 million annual budget earned) • Waste disposal fees $339.1k above YTD budget (79.4% or $3.4 million of $4.2 million annual budget earned) • Sales of Recyclables $166.9k below YTD budget (61.4% or $917.0k of $1.5 million annual budget earned) •

Interest Received $3.1 million (361.1%) Interest revenues are tracking above budget of the $870k annual YTD with recent economic conditions pushing budget has been investment rates up. Accordingly, Council has earned invested surplus cash in higher yielding term deposits to maximise the return on its cash holdings. •

Other Revenue $2.3 million (81.2%) of Waste Management royalties $28.3k above the $2.8 million annual YTD budget (187.7% or $47.2k of $25.1k budget has been annual budget earned) • earned Community Facility revenue $61.2k above YTD budget (90.9% or $351.1k of $386.5k annual budget earned)

Summary • Properties & Facilities revenue $88.9 below YTD budget (69.7% or $1.2 million of $1.7 million annual budget earned) •

Operating Grants, $3.6 million (71.9%) of Operating Grants and subsidies are above

Subsidies the $5.1 million annual YTD budget expectations due to the receipt of budget has been a QRA Local Economic Recovery Grant, QRA received Emergent Works and Disaster Funding, Queensland Arts Showcase Program Grant, Illegal Dumping Grant, Eco-Certified Tourism Destination Program and Public Health Network Grant. • 75% ($1.9 million) of the financial assistance grant was prepaid in June 2022 and may impact on Council’s 2022/23 final operating position if the prepayment approach is discontinued by the Australian government. Council has also been advised that its allocation of future year financial assistance grants is likely to decrease, which has the potential to further impact Council’s operating result. •

Unitywater On track Unitywater distributions are fixed each year so

Distributions there is limited budget variance risk

Figure 2: Operating Revenue Position by Type (Excluding Rates)

Operating Expenditure (YTD Benchmark 75.%) Actual operating expenditure is currently 70.9% ($84.4 million) of full year budget ($119.1 million). Detailed commentary for each expenditure category is provided below.

Category

Summary

Comments •

Employee Costs $28.9 million (68.4%) of the YTD under expenditure for permanent annual budget of $42.3 staff salaries and wages ($1.85 million) million has been expended due to position vacancies, partially offset by additional spend on casual staff and external labour hire ($980.8). • Training costs $40.5k under YTD budget (64.8% or $242.5k of $374.0k annual budget spent)

Summary • Council’s Certified Agreement annual salary increase occurred in late February

and is linked to the CPI Brisbane Dec Qtr index. Council’s current budget includes provision for a 5.0% CPI increase however the actual CPI for the Dec Qtr was 7.7%. As such the actual financial impact will be higher than originally forecast. This shortfall will be offset against current year employee cost savings and will be reflected through to the end of the financial year. •

Materials and $39.6 million (71.1%) of the Civil Operations $783.3k above YTD

Services $55.7 million annual budget budget (83.0% or $7.0 million of $8.4 has been expended. million annual budget spent) • Holiday Parks $396.1k above YTD budget (96.8% or $1.9 million of $2.0 million annual budget spent) – offset by additional revenue. • Environment & Sustainable Development Management $180.2k above YTD budget (817.8% or $192.1k of $23.5k annual budget spent) • Community Facilities $146.1k over YTD budget (81.1% or $1.9 million of $2.3 million annual budget spent) • CEO Office $145.5k over YTD budget (122.9% or $560.4k of $455.8k annual budget spent) • Fleet $105.9k over YTD budget (78.1% or $1.0 million of $1.4 million annual budget spent) • Insurance Costs $62.3k over YTD budget (108.5% or $793.2k of $730.9k annual budget spent) • Waste Management $294.1k below YTD budget (70.16% or $9.2million of $13.1 million annual budget spent) • Asset Management $171.9k below YTD budget (40.4% or $606.3k of $1.5 million annual budget spent) • Infrastructure Planning, Design & Delivery $115.9k below YTD budget (10.5% or $45.0k of $429.9k annual budget spent) • Environmental Services $102.7k below YTD budget (44.5% of $1.5 million of $3.4 million annual budget spent) • Development Assessment $86.5k below YTD budget (57.7% or $800.2k of $1.4 million annual budget spent) • Libraries & Galleries $78.4k below YTD budget (55.0% of $1.1 million of $2.1 million annual budget spent) • Cemeteries $48.8k below YTD budget (45.8% or $80.1k of $175.1k annual budget spent)

Summary •

Finance Costs Currently on track Whilst existing loan borrowings are set with fixed interest rates, any further RBA rate rises will impact finance costs on new loan borrowings. •

Depreciation Currently on track Current inflationary conditions for construction inputs will continue to impact the value of Council’s infrastructure assets and depreciation. The annual asset revaluation cycle will quantify the financial risk by end of financial year.

Other Expenses Currently on track Nil

Figure 3: Operating Expenditure Position by Type

Tourism and Economic Development Investment Summary Council resolved to report on a monthly basis, investment details for tourism and economic development. Expenditure at 31 March 2023 is outlined below:

Expenditure

Annual Budget

YTD Budget

YTD Actual

YTD Variance

$m $m

$m - Payment to Tourism Noosa $2.65 $2.65 $2.65 $0.03 Economic Development $1.20 $0.74 $0.71

$0.03

Total

$3.85

$3.39

$3.36 All instalments payable under the Tourism Noosa agreement for the 2022-23 financial year have been made. Work on the renewal of the current agreement, which was extended for 12 months to

June 2023, has progressed and is in the process of being finalised. Economic Development expenditure is on track with the development of the Destination Management Plan underway. Tourism and economic development activity is funded through the general rate, with 5.8% of the annual general rate committed towards tourism and economic development. Should actual general rate revenue fall below budget, this does not impact Council’s contractual commitment to fully fund its contribution to Tourism Noosa and all associated tourism activity. Any general rate revenue shortfall is funded through other general revenue sources to ensure all planned activities are undertaken in full.

Legal Cost Summary An update on legal costs and associated expenditure is provided on a quarterly basis. Expenditure as at 31 March 2023 is outlined below. Legal and associated costs are $153.9k above YTD budget (70.1% or $1.0 million of $1.5 million of annual budget spent).

Capital Revenue YTD capital revenue of $23.2 million received comprises cash contributions from developers ($1.9 million) and capital grants ($20.8 million). Note that the timing of capital grant receipts are generally dependent on the timing of grant conditions and also capital delivery performance, and that the timing of the receipt of developer contributions (both cash and contributed) is unpredictable. Council has received funding approval from the Queensland Reconstruction Authority for reconstruction works relating to the Black Mountain landslip and several other flood impacted sites, which occurred during the February 2022 rain event. Following this approval, Council received upfront payments of $13.2 million to fund the commencement of these works.

Figure 4: Capital Revenue by Type

Capital Program Actual capital expenditure (excluding commitments) is $39.2 million (YTD budget $42.3 million). Detailed discussion of progress in the delivery of the capital works program is provided through a separate quarterly report by the infrastructure team.

Figure 5: Capital Program Delivery Performance

Cash Management and Investment Performance Total cash on hand at the end of March was $116.4 million. Included in this balance are funds held in trust and for restricted purposes (e.g. unexpended levy and grant funds), prepaid grants including the financial assistance grant, QRA disaster funding and other capital works grants, prepayment of Waste Levy subsidy (4 years), and unspent monies committed for funding capital projects which are underway and will continue during the financial year. The following pie charts present the mix of cash held at March 2023 by agency (graph on the left) and by credit risk rating (graph on the right). All funds have been invested in accordance with the Investment Policy and in consideration of the principles of ethical investment, preservation of capital, return on investment and counterparty thresholds.

Figure 6: Closing Cash Held by Agency and Credit Rating The following chart monitors the 12 month trend on total cash and the agencies invested. Payments received in February from bi-annual rates generated a significant increase in cash holdings. To maximise the return on in its cash holdings Council has invested $50 million in higher yielding term deposits. These investments were made in line with Council’s Investment of Surplus Funds policy.

Figure 7: 12 Month Trend of Cash Invested by Agency

Quarterly Supplementary Information - Cash Components An update detailing the composition of Council’s cash reserves is provided quarterly. Council’s cash balance comprises a number of components – restricted cash (reserves), committed cash, financial sustainability requirements and unrestricted cash. These are outlined below.

Restricted Cash - In accordance with Council’s Management of Restricted Cash Policy, funds are set aside and restricted for a specific purpose. This can be either to meet regulatory requirements, allocate against specific future projects and activities, and to ensure sufficient working capital to meet current and long term financial obligations. Committed Cash - A portion of cash reserves are committed to undertake current year capital works. At the start of the financial year, this commitment will be increased for any unfinished capital works from previous year which are carried over as part of the budget review process to ensure the projects can be completed.

Sustainability Requirement – Cash expense cover is a key statutory indicator to measure liquidity, ensure going concern and is a key measure considered in Council achieving its current credit rating (Sound with a Neutral Outlook) to ensure borrowing capacity. Cash expense cover calculates how long Council can continue to pay its day-to-day expenses without needing to seek borrowings or other external funding. A target minimum of three month’s cash cover is to be held in any given financial year to minimise financial risk.

Unrestricted Cash – These are funds where there is no regulatory, policy or budgetary commitment to retain funds for specific purposes. These funds can be separated into the following: • Working Capital – The cycle of revenue received twice yearly through rates that is held in the bank and spent over the following six months on operations and capital. • Long Term Surplus – Uncommitted cash set aside to fund the 10-year capital works program. Overall, Council’s $116.4 million total cash balance compromises: • $40 million (34%) in restricted cash. This has increased during the year with $13 million received in advance for QRA Feb 22 flood event disaster works (Black Mountain) with $2.5 million expended year to date. • $21 million (18%) committed for capital works, comprising $11 million current year projects, $6 million future year projects and $4 million project variations this. This is also includes capital projects flagged for delayed timing to next year as the funding is still committed. • $27 million in working capital to pay for operations until the next rates and levies issue in July 2023. • $5 million (4%) in unrestricted free cash, which is the cash available to fund emergent or new capital works projects. There is no funding to replenish this unless Council generates a surplus operating position.

Figure 8: 12 Allocation of Cash Balances

Measures of Financial Sustainability The following table incorporates a set of financial sustainability indicators to further assist in managing Council financial performance. There are no current emerging risks regarding performance noting the early stage of the financial year.

Category

Comments •

Operating Surplus Ratio

Intent: Identifies the extent to which revenues cover operational expenses, to ensure community equity is not degraded •

Target: 0 – 10% •

Result: 24.8% •

Comment: The ratio is at the second peak for the year following the issue of rates and levies in January. This ratio will slowly decline as expenditure on operations occurs through to the end of the financial year at 30 June 2023. •

Cash Expense Cover

Intent: Indicates how long council can continue paying its day-to-day expenses from cash at bank without needing additional cash flows •

Target: > 3 months •

Result: 14.2 months •

Comment: Council is forecast to remain above target for the financial year. Business as usual expenditure through to 30 June 2023 will continue to diminish Council’s cash holdings, albeit not below the target range of 3 – 6 months. Cash balances are also enhanced with Grant and Waste Levy subsidy prepayments (held as restricted cash) and QRA payments for disaster projects •

Asset Sustainability Ratio

Intent: Measures the extent to which assets are being replaced as their condition degrades to ensure service potential is maintained •

Target: 90% of depreciation budget spent on renewals annually •

Result: In line with budget •

Comment: The ratio will progressively increase each month as expenditure on renewals occurs as part of the capital works program. •

Net Financial Liabilities Ratio

Intent: Outlines the level that net Council debt can be serviced by operating revenues. A ratio below zero implies that liabilities are less than cash (and other current assets) and there is adequate borrowing capacity available if needed. •

Target: less than 60% •

Result: -40.4% •

Comment: Council has low debt levels and strong cash holdings. The January rates revenue also inflates the YTD actual outcome. •

Investment Return

Intent: Ensure appropriate return on investment yield for cash at bank. •

Target: 0.25% above current Bloomberg commonwealth 10-year bond rate yield (3.44%) •

Result: 4.34% •

Comment: With bond rates rising, Council has invested surplus cash in higher yielding term deposits to maximise returns. Council’s investment returns when averaged are showing slightly under target for the month due to the significant increase in cash holdings from the second rates run received later in February. •

Rates in Arrears

Intent: Ensuring that the amount of unpaid rates remains sustainable and does not negatively impact cash flows •

Target: 5% industry benchmark •

Result: 8.5% •

Comment: Rates arrears continue to decline from the high point in the cycle with payments coming due in February. Reminder notices will be issued in April and arrears will continue to stabilise through to June as they are collected, and payment arrangements implemented.

Previous Council Consideration

Nil

Report details

Index: ECM/ Subject / 22.09 – Monthly Financial Performance Report