FINANCIAL PERFORMANCE REPORT – JUNE 2023

Executive summary

Financial performance for the 2022/23 year has resulted in an interim operating position of $10.0 million, capital revenue of $40.6 million and capital expenditure of $46.6 million. Note that this is only an interim position, year-end financial adjustments are still in progress which may have material impacts to the interim financial position. A further report on the final 2022/23 financial performance will be provided to Council in November 2023 following the finalisation and independent audit of the financial statements in October 2023.

• Reflects constructed assets and intangibles only (excludes contributed) The $9.8 million full year operating surplus comprises $5.4 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 $0.1 million from holiday park operations, and $4.4 million in unspent levy and separate charge funds which are constrained in reserve for future use. This was offset by a small operating deficit of $0.1 million in waste operations. The general operating surplus position is also augmented by a number of incomplete grant-funded programs.
• Includes Waste and Holiday Park operations as shown in the table below Council elected to apply National Competition Policy (NCP) reforms to its Waste Management and Holiday Parks which provides greater transparency and assists with removing anti-competitive conduct and ensure the best allocation of Council's limited resources. A summary of the interim operational performance of these business activities for the year end 30th June 2023 are outlined below. 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 June 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 report. YTD Measures of Financial Sustainability Current Target Actual YTD Status Budget Operating Surplus Ratio On Track 0-10% 0.1% 8.0% Net Financial Liabilities On Track Ratio <60% -12.8% -33.6% Cash Cover Ratio On Track 3 months 10.3 months 14.1 months Asset Sustainability Ratio On Track > 90% 176.7% 163.8%

Recommendation

That Council note the report by the Manager Financial Services (Acting) to the General Committee Meeting dated 17 July 2023 outlining the interim 2022/23 full year financial performance against budget, including key financial sustainability indicators.

Report

Operating Revenue (YTD Benchmark 100.0%) Council has received 102.9% ($126.3 million) of its operating revenue budget ($122.7 million). Commentary on each revenue category is provided below.

Category

Summary

Comments •

Rates and Levies $83.2 million (100.0%) Overall total rates and levies earned are in line of the annual budget of with the annual budget $83.2 million has been earned •

Fees and Charges $8.2 million (95.4%) of Development Assessment $187.3k below the annual budget of budget (92.2% or $2.2 million of $2.4 million $8.7 million has been annual budget earned) • earned Building fees $112.0k below budget (87.3% or $770.0k of $882.2k annual budget earned) • Plumbing fees $41.2k below budget (96.8% or $1.2 million of $1.3 million annual budget earned) • Local Laws $66.3k below budget (95.9% or $1.5 million of $1.6 million annual budget earned) • Waste Management $45.6k below budget (95.27% of $918.8k of $964.4k annual budget earned) •

Sale of Goods and $13.9 million (105.1%) Holiday Park revenue $406.1k above budget

Services of the annual budget of (110.26% or $4.3 million of $4.0 million annual $13.2 million has been budget earned). Any revenue upside will be earned generally offset by a corresponding increase in associated operating costs • Community Facility fees $270.0k above budget (108.7% or $3.4 million of $3.1 million annual budget earned) •

Interest Received $4.4 million (138.5%) Interest revenues continue to track above of the $3.2 million budget with Council investing surplus cash in annual budget has high yielding term deposits to maximise the been earned return on its cash holdings. The interest rate on the QTC and CBA facilities has also increased in line with market pressures generating increased interest revenue. •

Other Revenue $3.6 million (134.8%) Waste Management sundry revenue $107.7k of the $2.7 million above budget (147.3% or $335.5k of $227.8k annual budget has annual budget earned) • been earned Community Facility revenue $71.3k above budget (116.5% or $503.3k of $431.9k annual budget earned) • Properties and Facilities revenue is $127.7k above budget due to the receipt of an insurance reimbursement for damage to Council properties from the February 2022 flood event. •

Operating Grants, $6.9 million (120.9%) Operating Grants and subsidies are above

Subsidies of the $5.7 million budget expectations due to the receipt of a annual budget has QRA Local Economic Recovery Grant, QRA been received Emergent Works and Disaster Funding, Queensland Arts Showcase Program Grant, Illegal Dumping Grant, Eco-Certified Tourism Destination Program and Public Health Network Grant. • 100% ($2.0 million) of the financial assistance grant in respect to the FY 2023/24 year was prepaid in June 2023. In previous years this prepayment has been 50-75%. As such this may impact on Council’s 2023/24 final

Category

Summary

Comments operating position if the prepayment approach is discontinued by the Australian government. •

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 100.0%) Actual operating expenditure is currently 94.9% ($116.2 million) of full year budget ($122.5 million). Detailed commentary for each expenditure category is provided below.

Category

Summary

Comments •

Employee Costs $41.4 million (97.5%) of the Expenditure for permanent staff salaries annual budget of $42.4 and wages underspent ($2.3 million) due million has been expended to position vacancies, partially offset by additional spend on casual staff and external labour hire ($1.4 million). • Training costs $23.8k under full year budget (93.6% or $350.3k of $374.0k annual budget spent) •

Materials and $53.6 million (91.1%) of the Civil Operations $408.5k above budget

Services $58.9 million annual budget (104.7% or $9.1 million of $8.7 million has been expended. annual budget spent) • Holiday Parks $306.1k above budget (113.2% or $2.6 million of $2.3 million annual budget spent) – offset by additional revenue. • Community Facilities $94.5k above budget (103.8% or $2.6 million of $2.5 million annual budget spent) • Governance $53.5k above budget (106.3% or $902.4k of $848.9k annual budget spent) • Environmental Services $1.9 million below budget (61.2% or $3.1 million of $5.0 million annual budget spent) Note: $420k relates to levy funded projects any net balance of levy funds will be transferred to reserves for future use. • Asset Management $557.9k below budget (57.2% or $744.5k of $1.3 million annual budget spent) Note: $476.4k relates to levy funded projects any net balance of

Category

Summary

Comments levy funds will be transferred to reserves for future use. • Library and Galleries $480.5k below budget (77.5% or $1.6 million of $2.1 million annual budget spent) Note: $213.4k relates to levy funded projects any net balance of levy funds will be transferred to reserves for future use. • Strategic Land Use Planning $429.1k below budget (41.6% or $305.7k of $734.8k annual budget spent. • Sustainable Transport program $280.6k below budget (73.4% or $775.9k of a $1.0 million annual budget spent) Note: any balance of levy funded projects will be transferred to reserves for future use • Economic Development $178.7k below budget (95.4% or $3.7 million of $3.9 million annual budget spent) • Digital Hub $98.7k below budget (84.9% or $553.1k of $651.8k annual budget spent) • Information Communication & Technology $251.4l below budget (93.9% or $3.9 million of $4.1 million annual budget spent) • Infrastructure Planning, Design & Delivery $208.7k below budget (51.5% or $221.2k of $429.9k annual budget spent) • Building and Facilities $206.1k below budget (81.1% or $883.7k of $1.1 million annual budget spent) • Waste Management $194.5 below budget (98.5% or $13.0 million of $13.2 million annual budget spent) • Development Assessment $189.7k below budget (86.3% or $1.2 million of $1.4 million annual budget spent) • Procurement $177.8k below budget (87.0% or $1.2 million of $1.4 million annual budget spent) • Community Development $173.5k below budget (87.9% or $1.2 million of $1.4 million annual budget spent) • Fleet $86.2k below budget (94.0% or $1.3 million of $1.4 million annual budget spent) • Council properties $69.4k below budget (88.0% or $505.8k of $574.9k annual budget spent) •

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.

Category

Summary

Comments

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 30 June 2023 is outlined below:

Expenditure

Annual Budget

FY Actual

Variance

$m $m

$m Payment to Tourism - $2.65 $2.65 Noosa $0.18 Economic Development $1.27 $1.09

$0.18

Total

$3.92

$3.74 All instalments payable under the Tourism Noosa agreement for the 2022-23 financial year have been made. The renewal of the Tourism Noosa agreement was endorsed by Council at the April Ordinary Meeting. Economic Development expenditure is slightly under the full year budget with the development of the Destination Management Plan progressing. 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 30 June 2023 is outlined below. Legal and associated costs are $26.5k below budget (98.6% or $1.59 million of $1.61 million of annual budget spent).

Consultancy Cost Summary Council requested an overview of expenditure on consultancy costs at the General Committee Meeting on the 15th May 2023. Expenditure as at 30 June 2023 is outlined below. Consultancy costs are $488.3k below budget (77.2% or $1.6 million of $2.1 million of annual budget spent). The requirement for expenditure on external consultancy is dependent on the type and specialist nature of projects being undertaken and may fluctuate as a result. They may also relate to initiatives underway during 2023/23, not yet complete and some may carry over into 2023/24. Note: the above amounts relate to operational projects only and do not reflect consultancy expenditure incurred in respect to capital projects.

Capital Revenue Full Year Capital revenue of $40.6 million received comprises cash contributions from developers ($3.2 million) and capital grants ($36.9 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 has received upfront payments of $23.9 million to fund these works.

Figure 4: Capital Revenue by Type

Capital Program Actual capital expenditure (excluding commitments) is $46.6 million (FY budget $56.6 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 June was $115.4 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 June 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. 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 $115.4 million total cash balance compromises: • $51 million (44%) in restricted cash. This has increased since the previous quarter by $11 million relating to advance payment for QRA Feb 22 flood event disaster works (Black Mountain) and a total of $4.0 million expended year to date. • $19 million (17%) committed for capital works, comprising $9 million current year projects pushed to FY 2024 and $10 million expected to carryover from projects currently underway. • $7 million in working capital to pay for operations until the next rates and levies issue in July. • $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. • $9 million (8%) in interim operating result, which is higher than forecast, but subject to the finalisation of levy and reserve balances and accounting adjustments and allocations being finalised.

Figure 7: 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: 8.0% •

Comment: Strong sales, increased interest and grant revenue, operational savings, unspent levies and grants have contributed toward a positive interim annual result. •

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. Note this is calculated based on total cash, and includes both restricted and unrestricted cash components.

Category

Comments •

Target: > 3 months •

Result: 14.1 months •

Comment: Whilst interim annual cash cover result is well above target, this includes committed cash for capital programs, unspent grant monies paid in advance, Waste Levy subsidy prepayments and QRA advance 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: -33.6% •

Comment: Council has low debt levels and strong cash holdings which are reflected in the annual result. •

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 (3.40%) •

Result: 4.21% •

Comment: With bond rates rising, Council has invested surplus cash in higher yielding term deposits to maximise returns. Council’s investment returns remain above target.

Category

Comments •

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: 5.4% •

Comment: Rates arrears are in line with performance for the previous 6 and 12 monthly cycles. Where appropriate recovery action will be taken.

Report details

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