FINANCIAL PERFORMANCE REPORT – JUNE 2024

Executive summary

Financial performance for the 2023/24 year has resulted in an interim operating position of $7.8 million, capital revenue of $38.5 million and capital expenditure of $30.6 million with a further $40.6 million expended on QRA disaster funded projects. Note that year-end financial adjustments are still in progress. A further report on the final 2023/24 financial performance will be provided to Council in November 2024 following the finalisation and independent audit of the financial statements in October 2024. YTD Financial Performance Summary Budget Actual Variance Variance Status $m $m $m % Operating Revenue $136.2 $134.6 ($1.6) (1.2%) Below Budget Operating Expense $135.9 $126.8 $9.1 6.7% Below Budget Operating Position $0.3 $7.8 $7.5 Capital Revenue $137.5 $38.5 ($99.0) (72.0%) Behind Budget Capital Expenditure* $173.3 $71.2 ($102.1) 58.9% Behind Budget

• Reflects constructed assets and intangibles only (excludes contributed), also includes QRA disaster funded projects (FY 2023/24 budget: $127.4 million), resulting from the February 2022 flood event. The $7.5 million full year positive interim operating variance comprises $3.4 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 $2.3 million from commercial operations and $1.8 million in unspent levy and separate charge funds, which are constrained in reserve for future use. Budget Variance Actual YTD Item

YTD

YTD

$m $m $m ($2.2) General business operating position (unconstrained funds) $1.2 $3.4 $3.2 Commercial operations (constrained funds) * $5.5 $2.3 ($0.7) Unspent levies (constrained funds) $1.1 $1.8 $0.3 Total Council Operating Position $7.8 $7.5

• 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 ensures the best allocation of Councils limited resources. A summary of the YTD operational performance of these business activities are outlined below. Waste Operations Holiday Parks Budget Actual Variance Budget Actual Variance

YTD

YTD

YTD

YTD

YTD

YTD

$m $m $m $m $m $m Revenue 24.2 24.5 0.3 4.2 4.8 0.6 Expenditure 21.8 20.4 1.4 3.5 3.5 0.0 Net Operating Position 2.4 4.1 1.7 0.7 1.3 0.6 Financial statements including Statement of Income & Expenditure, Statement of Financial Position (balance sheet), and Statement of Cash Flows are included as attachments as further 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 2024. 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 Above Budget 0-10% 0.2% 5.8% Net Financial Liabilities Ratio Above Budget <60% -0.3% -7.2% Cash Cover Ratio Above Budget 3 months 9.4 months 11.1 months Asset Sustainability Ratio Target Met > 90% 132.7% 92.5%

Recommendation

That Council note the report by the Financial Services Manager to the General Committee Meeting dated 15 July 2024 outlining the interim 2023/24 full year financial performance against budget, with the inclusion of key financial sustainability indicators.

Report

Operating Revenue (YTD Benchmark 100.0%) Council has received 98.9% ($134.7 million) of its operating revenue budget ($136.2 million). Commentary on each revenue category is provided below.

Category

Summary

Comments •

Rates and Levies $88.9 million (100.0%) General rate (net of discounts) $138.9k above of the annual budget of YTD budget (100.2% or $67.2 million of $67.0 $88.9 million has been million annual budget earned) • earned Waste utility charges $89.2k below YTD budget (99.4% or $15.8 million of $15.9 million annual budget earned) •

Fees and Charges $9.1 million (80.8%) of Development Assessment $1.2 million below the annual budget of budget (69.6% or $2.7 million of $3.8 million $11.2 million has been annual budget earned) • earned Local Laws $374.5k below budget (81.5% or $1.6 million of $2.0 million annual budget earned) • Building & Plumbing Compliance $222.1k below budget (90.8% or $2.2 million of $2.4 million annual budget earned) • Community facility fees $158.3k below budget (61.03% or $247.9k of $406.3k annual budget earned) •

Sale of Goods and $16.3 million (110.2%) Holiday Park revenue $770.1k above budget

Services of the annual budget of (118.68% or $4.9 million of $4.1 million annual $14.8 million has been budget earned). Any revenue upside will be earned generally offset by a corresponding increase in associated operating costs. • Sports facility revenue $358.7k above budget (113.0% or $3.1 million of $2.7 million annual budget earned) • Waste Management fees $258.0k above budget (103.6% or $7.4 million of $7.1 million annual budget earned) •

Interest Received $7.0 million (143.5%) Interest revenues have continued to track of the $4.9 million above budget with investment in higher annual budget has yielding term deposits maximising the return been earned on surplus cash holdings. Cash holdings are higher compared to previous years due to the advanced payment of QRA disaster capital works grants and delays in the delivery of the capital works program. •

Other Revenue $3.3 million (117.6%) Plant recharge revenue is $339.4k above of the $2.8 million budget due to internal plant being utilised for annual budget has the delivery of disaster funded capital projects. • been earned Recoupment of SPER and any subsequent court costs $111.5k above budget (163.3% or $287.5k of $176.0k annual budget earned) •

Operating Grants, $3.9 million (52.4%) of The financial assistance grant allocated for FY

Subsidies the $7.5 million annual 2023/24 was prepaid in June 2023. This budget has been prepayment approach has been consistent received over the past 7 years.

Category

Summary

Comments • However, there was a change in approach by the state and commonwealth governments this year and Council did not receive advance payment of the FY 2024/25 grant, this has resulted in a shortfall of $2.0m. • The FY 2023/24 budget included provision to secure grant revenue of $500k to fund social housing strategy projects, however no funding was secured. • The timing of delivery for projects under the QCoast and Flood Risk Mitigation programs means grant funds will be received in FY 2024/25. •

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.%) Actual operating expenditure is currently 93.3% ($126.8 million) of the full year budget ($135.9 million). Detailed commentary for each expenditure category is provided below.

Category

Summary

Comments •

Employee Costs $46.8 million (95.5%) of the Expenditure for permanent staff salaries annual budget of $48.9 and wages underspent ($3.7m) due to million has been expended position vacancies, partially offset by additional spend on casual staff and external labour hire ($1.7 million). • Training costs are below budget (90.2% or $335.9k of $372.6k annual budget spent) Above Budget:

Materials and $57.2 million (89.5%) of the

Services $63.9 million annual budget • Civil Operations $722.6k above budget has been expended. (107.8% or $10.1 million of $9.4 million annual budget spent) • Development Assessment $190.9k above budget (110.3% or $2.0 million of $1.8 million annual budget spent) The main

Category

Summary

Comments driver in overspend relates to legal costs relating to development appeals. • ICT $112.0k above budget (102.5% or $4.6 million of a $4.5 million annual budget spent) • Governance $87.9k above budget (108.3% or $1.1 million of a $1.0 million annual budget spent) Below Budget: • Waste Management $1.6 million below budget (89.4% or $13.5 million of $15.0 million annual budget spent) – cost savings have been utilised to fund several emergent capital works projects which do not form part of operating performance • Strategic Land Use Planning $1.1 million below budget (65.8% or $703.3k of a $1.8 million annual budget spent) $530.6k of this underspend relates to grant funded programs yet to be delivered. • Environment Levy program $645.3k below budget (59.9% or $964.8k of $1.6 million annual budget spent). Any underspend in levy fund programs will be held in reserve for future utilisation in line with levy program guidelines. • Disaster Management $292.3k below budget (32.0% or $138.1k of $430.4k annual budget spent). This underspend relates primarily to QRA grant funded programs yet to be delivered. • Environmental Services (excluding levy funded programs) $337.3k below budget (76.8% or $1.1 million of $1.5 million annual budget spent) • Noosa Main Beach Levy $327.3k below budget (36.9% or $191.4k of $518.8k annual budget spent). Any underspend in levy fund programs will be held in reserve for future utilisation in line with levy program guidelines. • Local Laws $302.5k below budget (62.4% or $502.7k of $805.2k annual budget spent) • Transport and Traffic $143.6k below budget (40.1% of $96.1k of $239.7k annual budget spent) • Arts & Culture facilities $210.7k below budget (90.5% or $2.0 million of $2.2 million annual budget spent) • Bush Fire Resilience and Response Levy program $204.9k below budget (49.1% or $197.6k of $402.5k annual budget spent). Any underspend in levy fund programs will be held in reserve for future utilisation in line with levy program guidelines. • Cemeteries $186.2k below budget (42.8% or $139.3k of $325.6k annual budget spent)

Category

Summary

Comments • Canals & Waterways $168.7k below budget (66.8% or $339.0k of $507.8k annual budget spent) • Heritage Levy $113.0k below budget (38.4% or $83.0k of $216.0k annual budget spent). Any underspend in levy funded programs will be held in reserve for future utilisation in line with levy program guidelines. •

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 Nil

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 2024 is outlined below:

Expenditure

YTD Budget

YTD Actual

Variance

$’000 $’000

$’000 - Tourism Noosa Funding Agreement $2,520 $2,520 ($56) Economic Development $1,240 $1,184

($56)

Total

$3,760

$3,490 All instalments payable under the Tourism Noosa agreement for the 2023-24 financial year have been made. • Employee Costs are $1k above budget (100.1% or $628.6k of $627.6k annual budget spent) • Materials & Services are $56.6k below budget (87.1% or $383.1k of $439.7k annual budget spent)

Legal Cost Summary An update on legal costs and associated expenditure is provided on a quarterly basis. Legal and associated costs are $400.5k over budget YTD (121.3% or $2.3 million of $2.1 million annual budget spent). Legal and associated expenditure is dependent on the type and specialist nature of appeals being undertaken and costs and timing may fluctuate as a result. Following a centralised legal service trial (as reported to Council at the April 2023 meeting), Council endorsed the appointment of inhouse Legal Counsel to centralise Council’s legal requirements with a view minimising organisational risk and reducing external legal costs. This resource was appointed in December 2023 and the associated costs of this resources have been included in the quarterly legal cost update below for comparative purposes. The role of legal counsel for Noosa Council commenced in December 2023 to support Council Officers on various legal matters, including commercial transactions, risk guidance and legal advice. Certain legal activities are excluded from this scope, such as planning matters, as they require specialised legal support. Other benefits beyond the financial savings, include risk mitigation, decreasing likelihood of future claims, upskilling Council staff and improved process efficiencies. Full year expenditure as at 30 June 2024 is outlined below:

FY 24 ACT

FY 2023/24

% of FY

Legal Expenditure by Type

Actuals

Budget Budget

$'000 $'000

spent

Specialised Legal Costs 1,859 Development Application Appeals 1,590 116.9% 69 Planning Scheme Amendments 110 62.3% Overdue Rates 0 50 0.0% 43 Procurement and Tender Advice 40 106.8% 40 Property & Lease costs 74 53.8% Infringement prosecutions 78 79 98.7% 14 Industrial Relations Advice 30 47.1%

,101

,972

%

General Legal Advice 175 CEO & Governance 155 113.1% 72 All Other Branches 64 112.8% 247

83.4%

Total

,349

,191

% Figure 4: Legal Costs (including consultancy) over time.

Figure 5: Legal Expenditure by Department – 5-year trend

Consultancy Costs Summary Council requested an overview of expenditure on consultancy costs at the General Committee Meeting on the 17th June 2024. Expenditure as at 30 June 2024 is outlined below. Consultancy costs are $407.4k below budget (78.9% or $1.5 million of $1.9 million 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. 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 $38.5 million received comprises cash contributions from developers ($2.6m) and capital grants ($32.9 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. Grants and subsidies is higher than prior years due to the receipt of funding from the Queensland Reconstruction Authority for reconstruction works relating to the Black Mountain landslip and several other flood impacted sites, which are currently under construction.

Figure 6: Capital Revenue by Type

Capital Program Actual capital expenditure (excluding commitments and disaster projects) is $30.6 million (YTD budget $45.9 million). Expenditure on disaster projects (excluding commitments) is $40.6 million (YTD budget $127.4 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 7: Capital Program Delivery Performance

Cash Management and Investment Performance Total cash on hand at the end of June was $105.0 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 2024 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 8: 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 $30 million in higher yielding term deposits. These investments were made in line with Council’s Investment of Surplus Funds policy.

Figure 9: 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 $105.0 million total cash balance compromises:
• $36.9 million (35.1%) in restricted cash. This has decreased during the year with construction commencing on the QRA funded disaster projects arising from the February

flood event, as advance payment of grant funds are utilised.

• $23.8 million (22.7%) committed for the delivery of capital works projects, comprising $15.2 million current year projects, $8.6 million future year projects.
• $28.3 million (26.9%) to meet sustainability requirements, equivalent to 3 months cash cover.
• $9.6 million (9.2%) in working capital to pay for operations through to the end of the financial year.
• $6.4 million (6.1%) 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 10: 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: 5.8% •

Comment: Strong sales, increased interest revenue and 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 •

Target: > 3 months •

Result: 11.1 months •

Comment: While the 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: 92.5% achieved, however below forecast result due to project delays and scheduling. •

Result: Renewals are currently running behind budget due to project delays and scheduling. •

Comment: The ratio progressively increases each month as expenditure on renewals occurs as part of the capital works program. For transparency

QRA

disaster projects have been excluded from the ratio calculations.

Category

Comments •

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: -7.2% •

Comment: Council has low debt levels and strong cash holdings which are reflected in the annual result. Council drew down loans of $1.6m in June, relating to the refurbishment of the Noosa Lock and Weir, with associated repayments being funded from the associated levy. Council's total borrowings at 30 June were $24.8m. •

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 (5.04%) •

Result: 5.61% •

Comment: With higher than normal cash balances and bond rates at their peak, Council has invested surplus cash in higher yielding term deposits to maximise returns. Council's investment returns remain above target. •

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: 5.6% •

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