7/29/19 Financial Sustainability Mark Davies Financial Performance Solutions Agenda Introductions 1. Where are we after three years of rate capping? 2. What does financial sustainability look like? 3. How do we get there? Financial Performance Solutions 1
7/29/19 Introductions Financial Performance Solutions 1. Where are we after three years of rate capping? Financial Performance Solutions 2
7/29/19 Fair Go Rates System Overview • Commenced in the 2016-17 year • Rate increase in 3 years prior: 5.1% (av) • Rate caps – 2016-17: 2.25% – 2017-18: 2.00% – 2018-19: 2.25% – 2019-20: 2.50% Financial Performance Solutions Fair Go Rates System Rate increases (av) 6.0% Rate Capping 5.0% 4.0% 3.0% 2.0% CPI March 19 1.0% 0.0% 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Financial Performance Solutions 3
7/29/19 VAGO sustainability indicators Indicators • Underlying result – Net result (excluding non-recurrent capital grants, non- monetary asset contributions, and other contributions to fund capital expenditure) divided by adjusted revenue • Liquidity (working capital) – Current assets divided by current liabilities • Renewal gap – Asset renewal and upgrade expenditure divided by depreciation Financial Performance Solutions VAGO sustainability indicators Underlying result* 15% Rate Capping 10% 5% 0% 2014-15 2015-16 2016-17 2017-18 2018-19 Projected -5% -10% -15% Metro Interface Regional Rural (L) Rural (S) *Net result excluding non-recurrent capital grants, non-monetary asset contributions, and other Financial Performance Solutions contributions to fund capital expenditure 4
7/29/19 VAGO sustainability indicators Liquidity* 4.5 Rate Capping 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2014-15 2015-16 2016-17 2017-18 2018-19 Projected Metro Interface Regional Rural (L) Rural (S) *Current assets divided by current liabilities Financial Performance Solutions VAGO sustainability indicators Asset renewal* 1.5 Rate Capping 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 2014-15 2015-16 2016-17 2017-18 2018-19 Projected Metro Interface Regional Rural (L) Rural (S) *Asset renewal and upgrade expenditure divided by depreciation Financial Performance Solutions 5
7/29/19 Impact Summary • Underlying result: decline from 2016-17 • Working capital: decline from 2017-18 • Asset renewal: steady (2018-19?) Asset renewal needs being met BUT current service provision unsustainable in the long term Financial Performance Solutions 2. What does financial sustainability look like? Financial Performance Solutions 6
7/29/19 Financial sustainability Definition • Means being able to meet the agreed service needs of the community (LGPRF) • Includes providing services/facilities and maintaining infrastructure (S3E Act) • Maintaining the viability of the council over the long term (S3D Act) Financial Performance Solutions Financial sustainability Operating sufficiency Earn sufficient income to meet the cost of services and asset renewal over the long term Financial Performance Solutions 7
7/29/19 Financial Performance Solutions Comprehensive income statement Measure • Operating sufficiency + Surplus +$2,491 - Capital grants & contributions -$754 - Financial assistance grants* -$2,500 - $763 - Underlying operating deficit Financial Performance Solutions 8
7/29/19 Financial sustainability Cash sufficiency Generate sufficient cash to fund services, asset renewal and debt over the long term Financial Performance Solutions Financial Performance Solutions 9
7/29/19 Statement of cash flows Measure • Cash sufficiency + Net operating cash inflows +$8,532 - Financial assistance grants* -$2,500 - Capital grants & contributions -754 - Asset renewal (depreciation) -$5,835 - Debt repayments -$155 - Underlying cash deficit -$712 Financial Performance Solutions Financial sustainability Summary Achieving: • Underlying operating surplus and/or • Underlying cash surplus Meeting the agreed service needs of the community over the long term Financial Performance Solutions 10
7/29/19 3. How do we get there? Financial Performance Solutions Financial sustainability Equation Revenue =/> Expenses (Services + Infrastructure) Financial Performance Solutions 11
7/29/19 Financial sustainability Levers Levers available to achieve financial sustainability are: • Revenue (increase) • Services (reduce cost of delivery) • Infrastructure (reduce cost of maintenance and renewal) How can we adjust these levers to achieve financial sustainability? Financial Performance Solutions Options: Workshop 1 Revenue Services Infrastructure • 3 rd party • Wet hiring • Reduce no. services delivery • Other businesses • Reduce service • Colocation/ levels leaseback • Rates in lieu eg solar, extractive • Change delivery • Rationalising model buildings • Industrial estates, • Shared services • PPP development • Multi-purpose facilities • Sharing assets Financial Performance Solutions 12
7/29/19 Options: Workshop 2 Revenue Services Infrastructure • Paid parking • Shared • Rationalise/sell assets • Crown land • Hand crown land back • Asset plans • Developer • Delivery model • Service hubs • Population • Reduce services • Reuse assets • Lease unused facilities • Regional • Buy new assets facilities (low debt cost) • Recycling centre • Bed tax Financial Performance Solutions Options: Workshop 2 Revenue Services Infrastructure • New revenue generating services • Air space • Use low cost debt Financial Performance Solutions 13
7/29/19 Options: Workshop 3 Revenue Services Infrastructure • Parking sensors • Energy • Alternative fuel efficiency eg • Property • Crown land LEDs acquisitions • State services • Aggregated • Waste charges • Rationalising procurement • Tourism tax assets • Shared services • Service income • Community • Reduce number generation halls • Subscription • Rating non- • Redeveloping reviews rateables assets • Delivery model • One office Financial Performance Solutions Options: Workshop 3 Revenue Services Infrastructure • Increasing fees • Internal v • Multi use and fines external staff facilities provision • Working outside the boundaries Financial Performance Solutions 14
7/29/19 Finish Financial Performance Solutions 15
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