ASSOCIATION GENERAL MEETING There will be a general meeting in Heritage Hall at the Drouin East Campus on Thursday 9 November from 7.30 to 9.30 pm, followed by supper. Our guest speaker will be Professor Darren Iselin (see below for details) and one highlight of the evening will be the launch of our new strategic plan. Representatives from Flinders Christian Community College will also be attending as part of a ‘hand over’ of the Campus from the start of next year. All parents/guardians and staff members are warmly invited to attend. Please endeavour to read through the meeting agenda and other documents that have been distributed for your information. If you can’t attend and wish to record an apology, this can be done by emailing Caroline Weatherhead ([email protected]) or phoning her in Central Administration at the Drouin Campus.

GENERAL MEETING GUEST SPEAKER Professor Darren Iselin is the President of CHC (Christian Heritage College), a college of approximately 900 students in . Darren has extensive leadership experience within Christian education, and has served in many principal and senior leadership roles within higher education and schooling sectors. He has been involved in a diverse range of educational consultancy and professional development initiatives throughout the Asia-Pacific region, regularly presenting on a range of topics including Christian worldview, faith formation, school culture, leadership and faith-learning integration.

ASSOCIATION MEMBERSHIP All parents and staff members are Association members and therefore invited to attend general meetings. Full members in particular are expected to attend meetings, exercise their right to vote and contribute generally to the governance of the school. Current Chairo parents who are Christians and fully supportive of our Articles of Faith, and have been associate members for a year or more, are invited to apply to become full members by contacting Caroline Weatherhead. Application forms will also be available at the meeting.

ANNUAL BOARD ELECTIONS Annual Board elections will be held at this meeting. We are blessed to have excellent Board members who devote many hours to the governance and oversight of Chairo. Christopher Dean and Allan Piening are both coming to the end of three-year terms and have accepted renomination. In addition, Robert Bruce and Peter Morison, who have both been serving as co-opted members of the Board this year, have been nominated for three-year terms. Please read the profile information provided and pray for these willing volunteers. Note that there are currently ten Chairo parents (including those co-opted) serving on the Board, with twelve being the maximum allowed.

Jeff Calway Simon Matthews

Board Chairman Executive Principal Chairo Christian School ABN 12 451 824 370 WARRAGUL DISTRICT PARENT CONTROLLED CHRISTIAN SCHOOL ASSOCIATION INC. Reg. No. A5753 ~ GENERAL MEETING AGENDA ~

Thursday 9 November 2017, 7:30 pm Drouin East Campus (435 Lardners Track, Drouin East)

1. Welcome 2. Devotion & prayer 3. Singing 4. General resolutions 4.1 Recommendation: That the agenda as distributed be adopted. 4.2 Recommendation: That the apologies received be accepted. 4.3 Recommendation: That full members Tom Guilford & Ian Gawler be appointed as scrutineers for the Board election.

5. Traralgon campus “hand over” 6. Financial matters 6.1 Financial report for 2017 6.2 Introduction to the 2018 budget

7. Nurture Conference presentation 8. Board election 8.1 Current Board composition 8.1.1 Term expiring 31/12/17: Christopher Dean, Allan Piening 8.1.2 Term expiring 31/12/18: Jeff Calway, Melissa Rumble, Brian Tucker 8.1.3 Term expiring 31/12/19: Mark Cutchie, Louise Hood, Kerrie Jackson 8.2 Board nominations 8.2.1 Robert Bruce (3 years) Nominated by S McAllister 8.2.2 Christopher Dean (3 years) Nominated by K Hood 8.2.3 Peter Morison (3 years) Nominated by B Anderson 8.2.4 Allan Piening (3 years) Nominated by M van Leeuwen 8.3 Election ballot

9. Guest speaker 10. Special reports 10.1 Traralgon campus 10.1.1 Principal introduction 10.1.2 Progress report 10.2 Strategic plan launch

11. Board election continued 11.1 Declaration of election results 11.2 Prayer for new Board members

12. Closing prayer

~~ Fellowship over supper to follow (supper provided) ~~

Thursday 9 November 2017, 7:30pm, Drouin East Campus Page 1 of 1 Board Nominee Profiles November 2017

This year, we have four nominees for election to the Board of Directors. As the election of all four would only bring the total number of elected Board members to ten, and our Statement of Rules provides for up to twelve elected Board members, there is no need to choose between nominees. The election process at the general meeting is therefore more accurately described as one of approval rather than actual election. Nominees require the approval of at least 75% of the full members voting at the meeting to be elected. Each nominee has been interviewed by the Board and it has been resolved that their nomination be approved for inclusion on the general meeting agenda. The various rights, duties and responsibilities of Board members have been outlined and the nominees have agreed to abide by all policies of the Association, and to support the vision, mission, values and leadership of the Association. They are also in full agreement with the Statement of Rules, including the Articles of Faith R obert Bruce Church: Pakenham Christian Church Family: Wife Jemima; Emily (Y10), Olivia (Y8), Amy (Y5), Jessica (Y2)

I grew up in the Warragul area and married Jemima (a past Chairo student) 18 years ago. We lived for about five years in the Albury/Wodonga area and moved to the Pakenham area in 2008. We currently live in Bunyip and I am self-employed in my own it consultancy business as a Network Solutions Architect. Our four daughters all attend Chairo at Pakenham. I was raised in a Christian home and made a personal commitment at of ten. For most of my life, I have been involved with church ministries, including kid’s church, youth group, men’s ministries and music. At present, I am involved in playing music (bass guitar) at church and working on the sound desk. As a family, we have been involved with Chairo for more than 30 years, including the past eight years with our own children. I feel that it is good to be able to help out and give back to the school, and I am also interested in serving on the Chairo Board as a learning experience regarding how a board of a large Christian organisation operates. I believe that the main functions of the Board include strategic and master planning, setting mission and vision, delegating authority, appointing executive staff members, and reviewing the performance and progress of the school. Notwithstanding any delegated authority, the Board is ultimately responsible for all aspects of the school. Having run my own business for more than 15 years, I believe I have a good understanding of business, accounting and finance. I have a passion to see Christian business and education succeed. I’m a problem-solver, translating business problems into solutions. Christopher Dean Church: Warragul Presbyterian Church Family: Wife Julie; Josiah (20y) & Caleb (Y12)

I grew up in the Goulburn Valley, married Julie 25 years ago, and moved to Warragul about 20 years ago. After working for many years as an optometrist, I am now serving as the pastor of Warragul Presbyterian Church. I grew up in an observant Catholic home. However, I didn’t understand the gospel and had no assurance of eternal salvation. At university, friends explained the Christian faith to me and, in the kindness of God, I came to understand and believe the good news about Jesus Christ. Since that time of conversion, God has mercifully continued His work in me. I have always been impressed with the diligence, prudence and Christian character of our Board members. Wishing to follow their good example, and to assist the Board in its important governance role, I stood for election in 2011 and again in 2014. I count it as a privilege and great responsibility to have served over the past six years. Chairo is a well-run school which, under God, has a good future that reflects the committed efforts of Board members, executive leadership and others. I would like to continue to assist the Board in helping safeguard Chairo’s future as an excellent Christian school. I have past experience in small business, including at a managerial level, and have now served for six years on the Chairo Board. During this time, I have served on Board committees, including the Finance Committee and Board Executive Committee, and I am currently the Board Treasurer. I am very careful to ensure that correct and thorough procedures are followed in the decision-making process. Peter Morison Church: Community Church Warragul Family: Wife Janita; Sam (19y), Emma (Y11), Luke (Y8)

Originally from the Blue Mountains, I am an Environmental Scientist who made the move to to undertake a PhD scholarship. I’m now a senior manager at Melbourne Water, based in the city. Sam attended Warragul & District Specialist School while Emma and Luke started at Chairo in mid-2010 (a great blessing to our family!). I am privileged to play with Steve Messer’s Strange Country and to be involved in music ministry at church. I made a commitment to Christ when I was thirteen and have been actively involved in various evangelical churches over the years; including leading worship and Bible studies, serving on various committees, and playing violin. I continue to have an interest in guiding the school and playing a part in its future direction, participating in achieving the school’s vision and objectives, and working alongside other committed Christians with a focus on educating children according to God’s word. I recognise the great benefits of Christian education for my children and have a passion for Christ. I want to be able to encourage others, and to be encouraged, to make decisions under Christ’s guidance and for His purpose. I have skills and experience in policy development, public administration, social research and strategic planning, and I’ve served on various not-for-profit boards and committees. I have also had the great blessing of serving on the Chairo Board from 2012 to 2015 (and again for much of this year as a co-opted member) and on several Board committees, including the Finance Committee, Board Education Committee and Board Executive Committee. Allan Piening Church: Leongatha Presbyterian Church Family: Wife Susie; Nick (24y), Amelia (21), Jeremy (19y), Timothy (Y12), Cassandra (Y8) & William (Y5)

I attended Maranatha Christian School until Year 7 and then Leongatha Technical School, before working as an electrician. I am now a Senior Constable with Police, having joined the force in 2002. My children have all attended South Coast Christian College and Chairo Christian School (Leongatha and Drouin). I was brought up in a Christian home and came to know God personally in my late teens. I know that I’m not perfect and at times have struggled with my faith, but I have never stopped believing. I was a member of the Christian Reformed Church for some thirty years and am now attending Leongatha Presbyterian Church. I am also a member of a Christian motorbike group. I began attending Chairo Board meetings as an observer in August 2013 and this continued throughout 2014. I was then elected to serve on the Board from the start of 2015. Over the past four years, I have gained an understanding of how the Board operates and the important role it performs. Serving on the Board is a way of assisting, encouraging and supporting Christian education locally. I am pleased that our staff teach with Christian values that support what we teach our kids at home, and I believe that serving on the Board is a way that I can continue that support. The key role of the Board is to prayerfully support and encourage the staff members, and to ensure that biblical values are clearly evident in the teaching. It’s important to find ways to bring biblical decisions to problems and issues, as well as the general running of the school. Introduction to the 2018 Budget

Presented by: Bryan Lewis, Business Manager, Chairo Christian School Association General Meeting, Thursday 9 November 2017

Warragul District Parent Controlled Christian School Association Inc. Chairo Christian School Introduction to the 2018 Budget

1. OVERVIEW ...... 3 2. 2018 BUDGET – Chairo Christian School ...... 4 3. EXPLANATORY NOTES ...... 5 NOTE 1 ...... 5 TUITION FEES ...... 5 NOTE 2 ...... 6 GOVERNMENT GRANTS...... 6 Government Recurrent Grants ...... 6 Kindergarten Grants/Fees ...... 6 NOTE 3 ...... 7 OTHER INCOME ...... 7 Bus Service Fees/Grants ...... 7 Other Income – Parents ...... 7 Other Income – General; including tax deductible donations ...... 7 NOTE 4 ...... 8 SALARIES – TEACHING AND ADMINISTRATION AND RELATED COSTS ...... 8 Teaching and Administration Salaries ...... 8 Salary Related Expenses ...... 8 NOTE 5 ...... 8 TUITION AND EXCURSION EXPENSES ...... 8 NOTE 6 ...... 8 ADMINISTRATION, GENERAL EXPENDITURE AND INTEREST ...... 8 NOTE 7 ...... 9 DEPRECIATION AND OTHER PROVISIONS ...... 9 4. CAPITAL EXPENDITURE BUDGETS AND ASSET RENEWAL 2018 ...... 9 5. CASH FLOW BUDGET AND OUTLOOK 2018 ...... 10

Page 2 of 10 Chairo Christian School Introduction to the 2018 Budget

1. OVERVIEW

A planned period of significant initiative and growth will come to a conclusion in 2018 as we enter a subsequent period of consolidation, building on the excellent structures and resources we now have in place, including the Traralgon Campus, the Drouin performing arts centre, and a growing Senior School at Pakenham with associated new buildings and land. Enrolment growth at our Leongatha and Drouin East campuses will also increasingly drive new investment on these sites.

It has been a blessing to be able to be involved in the planning to commence operating our new Traralgon Campus (all budget figures shown for 2018 include Traralgon, abbreviated as TGN). We have an excellent team of staff members in place and are very much looking forward to growing partnerships with parents and students, and to establishing the campus as the school of choice for Christian families in the area. While initial enrolment numbers will be modest, interest in the Kindergarten has been strong and we are confident that the campus will grow quickly. We have also already been enriched by the Traralgon families that have joined the Drouin community as a result of this initiative.

After a slow start, construction of the performing arts centre is progressing well and we are planning for an opening during Term 3 next year. The provision of a modern 350-seat auditorium with associated teaching spaces will allow us to host many whole school and community events, to grow the performing arts program at Drouin and Drouin East, and to cater for new enrolments at the Drouin campuses as a result of area growth and the Leongatha and Traralgon partnerships.

Construction continues at Pakenham, with new Junior School and library facilities currently being completed, a new Years 9–10 centre to commence in 2018, and further Senior School buildings to follow. The Pakenham Campus is now near-capacity in Junior School and Middle School, with Senior School set to grow significantly in coming years. Development of associated infrastructure will also continue, including recreation areas and car parks.

Enrolments across the campuses grew by 50 students from 2016 to 2017, with 1399 students from Prep to Year 12, plus similar Kindergarten levels of 114 students. This was on par with budget, which has helped produce another better than budgeted result in addition to other improvements to state grants in particular. At the same time, we have been able to improve overall staffing levels and program offerings. As per 2016, all campuses experienced a pleasing increase in enrolments.

Completion of our personal learning device roll-out will occur in 2018, with all students from Years 7–12 to now have a take-home school-provided device, the rental cost of which is included in tuition fees. VCAL will continue to be developed at Drouin, and subject offerings will expand in Senior School at Pakenham in addition to a new class being added to each school section. The new Year 10 camp initiatives will continue and be improved following the trial year in 2017.

A focus on curriculum refinement in line with new government guidelines and our own Christian worldview framework will continue. We will be continuing initial planning for a Kindergarten at Leongatha, with a final decision to occur early in the year, and to plan for the accommodation of enrolment growth at Drouin East. We have also provided resources to build community links and profile within the Traralgon area, and to continue the same in the South Gippsland region. Our new Strategic Plan will also drive other improvements focusing on student transformation.

To God be the glory as we continue to work together as a Christ-centred community and seek His will for our lives.

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2. 2018 BUDGET – Chairo Christian School

For Year Ending 31 December 2018

2017 Budget 2017 Forecast 2018 Budget (Provisional) Income With TGN Tuition Fees 6,465,000 6,505,000 7,288,189 Fee Assistance & Discounts -600,000 -610,000 -660,000 Government Grants - Commonwealth 13,220,000 13,242,000 15,638,230 Government Grants - State 3,937,439 4,131,439 4,477,387 Kindergarten Tuition/Grants 371,000 371,000 441,608 Bussing Fees/Grants 570,000 588,000 624,770 Other Income - Parents 317,000 322,000 350,524 Other Income - General 53,000 84,000 56,000

TOTAL INCOME 24,333,439 24,633,439 28,216,708

Expenses Salaries 15,316,822 15,386,822 17,691,962 Salary Related Expenses 1,586,334 1,596,334 1,829,681 Tuition Expenses 645,299 645,299 732,500 Excursions / Camps Expenditure 505,050 545,050 633,400 Bussing 697,000 697,000 775,000 Kindergarten Salaries/expenses 400,411 425,411 479,567 Administration and General Expenditure 2,313,700 2,363,700 2,655,681 Specific Grants Expenditure 47,600 47,600 47,600 Depreciation Expenses 2,126,197 2,126,197 2,450,000 Interest 163,446 113,446 282,175 Provisions 417,813 417,813 484,962

TOTAL EXPENSES 24,219,672 24,364,672 28,062,528 Total Net Surplus / (Deficit) 113,767 268,767 154,180 ADD Government Grants Income – 840,428 640,428 500,000 Capital Funding Total Net Surplus / (Deficit) inc Capital 954,195 909,195 654,180 Grants Total Net Cash Surplus / (Deficit) exc 2,239,965 2,394,964 2,604,180 Deprec & Capital Grants Cash Surplus as a % tuition/grant income 9.58% 10.13% 9.58% Total Enrolments (Ex Kinder) 1,401 1,399 1529 Total Capex 8,007,511 7,0000,000 5,410,855 Total Debt 8,500,000 6,355,391 8,662,066 Debt per Student 6,067 4,546 5,665

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3. EXPLANATORY NOTES

NOTE 1

TUITION FEES

A consistent increase of 2.3% has been applied to core tuition fees. In addition, the Year 12 fee now incorporates an amount for personal learning device provision, and higher than average camp expense increases have led to small variable additional increases in Middle School. The third child discount has also been increased to lessen fee increases for larger families, and the fee for children beyond the third child attending continues to reflect mostly the cost of bundled expenses such as camps, technology provision and stationary. Higher total increases shown in the budget reflect also the increase in enrolments (including Traralgon) and changes to numbers in different year levels.

This is historically a relatively low fee increase, reflecting our continuing desire to maintain parent affordability as much as possible while needing to meet increasing costs. These include industry salary increases, which for 2018 have been largely driven by a government teacher salary increase of 3.25%. However, positive changes to the Commonwealth Government grant model has assisted us in keeping the parent fee increase well below other increases in expenses. The impact of fee restraint over recent years can also be demonstrated through the fact that the percentage of our income from parent tuition fees has reduced from 25% in 2009 to 23.5% in 2018. Our average fee increase over the past seven years, compared to a number of close competitors in the Pakenham region, has also been found to be around 1% less per annum, even when including the cost of the provision of personal learning devices.

Having said this, it is recognised that the costs associated with an independent school education are a real struggle for some families and require considerable commitment, which we acknowledge and value. Significant assistance to support those desiring a Christian education for their children, and who would otherwise not be able to access it, continues to remain available and has been increased proportionately. I would encourage those who are unable to meet the fees set to contact the Finance Department at the Drouin Campus to have a confidential discussion regarding their circumstances and what we may be able to do to assist.

While increases this year are consistent across campuses, we continue to maintain individual fee schedules for each campus. We are one school with multiple campuses and strive to maintain much consistency in what we do. However, we also recognise that each of our campus communities are unique, and that many positive variations exist that suit the needs of specific campuses. It is therefore natural that fee schedules will reflect this and also allow for future program variations where seen as of benefit to each community. Fee variations can also reflect, at any given time, different demographics (for example, government statistics regarding average income levels), grant funding differences, stages of campus maturity, the level of development occurring, and competitive environments that exist for each of our sites. While the Pakenham Campus currently has slightly higher fees than the next highest fee schedule due to some of the factors mentioned above, this may not always be the case in future as campus circumstances change and are reviewed year-by-year. Fee schedules for 2018 will soon be placed on our website and distributed in the annual finance pack.

At Leongatha, a lower fee for Year 6 has been introduced to complete the transition of the change to Years 5–6 fees started last year. Years 11–12 fees have also now had expenses incorporated to assist in averaging costs for parents, and to be more consistent with Drouin fees given that students transition to Drouin for VCE. Traralgon fees have largely been based on Drouin fees with the exception of early Junior School, where lower fees have been set, partly to help grow the campus.

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NOTE 2

GOVERNMENT GRANTS

Government Recurrent Grants

We have been blessed with good grant increases for 2018. We continue to be thankful for the support of both the Commonwealth and State governments on both sides of the political spectrum in funding choice of education for all Australian parents. The move towards more targeted needs- based funding has assisted us in our circumstances. It allows us to better meet the diverse needs of our student population and to maintain access for lower income families.

After much public debate this year, the Commonwealth Government introduced a new funding model for 2018. This recognises better the demographics of our community, including socio- economic/income levels, regional impacts, student needs and parent backgrounds. Accordingly, we forecast that we will receive an increase of 8% in Commonwealth Government per-student grants next year, with lower but solid increases following this of around 5%.

The State Government moved to a similar model a number of years ago, which similarly led to an initial above average increase for Chairo. Their ongoing per-student grant increases are forecast to be a more modest 2.5% approximately in the near future.

The downside of these new funding models is the increased potential for variability in outcomes when the make-up of our enrolment base changes. We need to be mindful of this in forecasts and ensure we have allowed capacity to cope with changes that may have a negative impact on overall grant outcomes. Accordingly, budgets have been set allowing for an appropriate margin for error.

The higher percentage of total grant increases shown in the budget also reflect the increase in enrolments (including Traralgon) and changes to numbers in year levels, noting the government funds different year levels at different rates.

Kindergarten Grants/Fees

The level of Kindergarten grants and increases for independent school Kindergartens continues to be well below that of ‘community’ Kindergartens, which does put pressure on our fee levels. We continue to try to absorb a percentage of these funding differences to aid accessibility, recognising the value of our Kindergartens to families and the school generally.

Generally, Kindergarten fees have been increased by 3%. The length of the pre-Kinder program at the Pakenham Campus has been increased to three hours for 2018 and the fee has been adjusted proportionately. This brings Pakenham into line with the situation at Drouin East in 2017, and is also a response to parent requests for a longer session time. For those with Health Care cards, the government rebate is expected to be slightly higher than the 2017 rate ($1433). This is available upon application through our Finance Department at Drouin.

Finally, we are excited to be commencing a new Kindergarten at Traralgon in 2018. This will operate in a similar way and with similar fees to our other centres, although will start initially with a single group. The appointment during 2017 of Wendy Lowe to the new whole school position of Director of Early Learning will help to ensure that all of our Kindergartens operate at a high level of service provision as we expand from two centres to potentially four in the future.

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NOTE 3

OTHER INCOME

Bus Service Fees/Grants

Similar to Kindergarten grants, as the conveyance allowances received from the State Government continue to increase at less than annual cost increases (if increased at all), we need to continue to apply consistent increases to bus fees in order to ensure that the subsidy we provide for bus services does not get too large.

Accordingly, fees will be increased by 3% for 2018. The Leongatha/Drouin bus fee will also continue to move closer to other bus fee levels after beginning at a lower introductory rate, noting that any Years 11–12 students transferring to Drouin do not need to pay for this inter-campus service. Traralgon bus fees will be consistent with other fees except for transferring students to Drouin who have completed Year 8 at Traralgon, where initially there will be no charge.

We continue to only charge bus fees for the first two members of the family. Our fees remain very low compared with most private services and represent charges of around $6 per day for return trips, which is very reasonable and less than the cost of alternative car travel in many cases.

We always work to keep costs down by reviewing bus routes to ensure that buses are as close to capacity as possible. We also try to ensure that any changes do not negatively impact families and, where possible, look to improve services. However, parents are reminded it is not practical to always be able to provide services within walking distance of home.

We also now allow for casual bus travel. If your children are not regular bus users but may need to occasionally use a bus service, please contact the Finance Department at the Drouin Campus in advance of travel for more details of conditions and costs.

Other Income – Parents

Other income from parents includes income from optional subject fees, membership fees and the capital levy. There has been little change in this area for 2018, with increases reflecting only the increase in total enrolments. The capital levy will help support increased interest costs.

Other Income – General; including tax deductible donations

This item includes enrolment fees, interest received, donations and various miscellaneous incomes. Again, no fee changes have occurred here for 2018. The budget remains lower than the recent past due to less interest received. We would encourage people to take advantage of our tax deductible building fund when considering their giving, particularly to add benefit to performing arts and library facilities about to be built.

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NOTE 4

SALARIES – TEACHING AND ADMINISTRATION AND RELATED COSTS

Teaching and Administration Salaries

We continue a policy of maintaining comparable staff salaries to that of the government sector. A new government agreement was reached during 2017 that provides for consistent 3.25% increases for the next three years for the majority of government school employees. After considering this, our current salary settings and our current financial capacity, we are pleased that an increase of 3.3% will be granted to the majority of Chairo employees in 2018 to maintain comparability and continue to attract excellent staff members to all of our campuses. As stated earlier, we are also pleased to have been able to accommodate this increase with a significantly lower percentage increase applied to tuition fees.

Salary costs have also increased due to teachers advancing up salary scales, additional classes being added at Pakenham, and a small number of new positions being established due to growth, including more administration staff at Pakenham, the Director of Early Learning position, and support to assist with the planning of camps and management of related risks. Obviously, the addition of staffing for the Traralgon Campus has also impacted salary expenses compared to 2017, as is the case with all budget items.

Salary Related Expenses

This section includes workers’ compensation expenses, superannuation and staff welfare expenses. The increase reflects general salary rises having a corresponding impact on superannuation contributions.

NOTE 5

TUITION AND EXCURSION EXPENSES

Increases here mostly reflect modest inflationary increases and the expansion of enrolments and classes. We also continue to generally improve classroom resource levels. Changes in the camp program year-to-year also impact these costs. There have also been bigger than usual increases in Middle School camp costs reflecting both camp changes and impacts of larger numbers on the Canberra trip.

NOTE 6

ADMINISTRATION, GENERAL EXPENDITURE AND INTEREST

These expenses cover a wide range of categories including maintenance, utilities, administration, marketing, photocopying and staff training. The most significant increases in 2018 relate to increased operating costs from new buildings (e.g. insurance, cleaning, service costs), electricity due to increased rates, expenses related to student numbers, and increased maintenance budgets.

Interest payable will also rise as borrowings increase in line with long-term planning. Borrowings will peak in 2018 as we complete a development period, plateau in 2019, and begin to be reduced over the following few years.

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NOTE 7

DEPRECIATION AND OTHER PROVISIONS

Depreciation is a non-cash accounting entry that now largely, post revaluations, reflects the current market value depreciation of our assets over the year. This is a change of approach from previous years when it was more a reflection of the allocation of past asset expenses over the life of each asset. This reflects current accounting standards.

As depreciation is not a cash item, we concentrate on maintaining an appropriate level of cash surplus before capital expenditure (accounting surplus plus depreciation expense). The minimum industry benchmark here for a sustainable budget outcome tends to be 9 to 10%, which is similar to our budget goal. You will note that this is expected to be exceeded again in 2017 and the budget is set in the mid-range point of this target for 2018, even after accommodating a modest initial operating deficit for Traralgon.

Provisions relate to long service leave and annual leave for staff, and bad and doubtful debts. As percentages of staffing and fees respectively, these have risen in line with increases in those areas.

4. CAPITAL EXPENDITURE BUDGETS AND ASSET RENEWAL 2018

2018 Budget Land - Building/Improvements/Site Development 4,280,855 Furniture, Equipment and Teaching Aids 460,000 Library Resources 70,000 Computers/Software/Network expenses 600,000 Total 5,410,855

2018 will be the final year of a period of increased capital expenditure before such expenditure settles to a more usual level that allows for debt reduction over time and continued modest capital works across campuses. Current projects will be completed including the Drouin performing arts centre and the Pakenham library extension. Construction of a Years 9–10 centre will also start at Pakenham, together with associated landscaping and site development of a Senior School precinct. Provision has also been made for minor capital works at Traralgon and Drouin, and for a potential Kindergarten conversion at Leongatha.

Regular provision for spending in other areas has been made, with some increase for technology expenditure related to new enrolments and personal learning device provision.

We continue to be mindful of the need to renew established assets. Minor capital budgets allow for such renewal as well as expansion. We have also increased operational maintenance budgets in order to ensure funds for renewal of older buildings are at appropriate levels. Finally, consideration of the need to replace older buildings in the future or to attend to major refurbishments is being included in master plan updates and future capital expenditure planning.

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5. CASH FLOW BUDGET AND OUTLOOK 2018

2018 Budget Sources of Cash: Operating Cash Surplus 2,604,180 Capital Grants 500,000 Borrowings 2,306,675 Existing cash reserves -

Total 5,410,855

Applied to: Repayment of Loans / Leases, Increase in Cash held - Capital Expenditure 5,410,855

Total 5,410,855

As explained in the past, some of our recent capital expenditure has been offset by the fact it has put us in a better position to be awarded capital grants through government grant programs. These grants are prioritised to schools providing addition enrolment spaces in areas of high population growth who can demonstrate a need for financial support. We have successfully applied for $1.74m of grants in the past two years and anticipate further support toward the Pakenham Senior School development in coming years. We are very thankful to both the State and Commonwealth governments for the funds provided.

New borrowings will also be used to complete funding of planned expenditure in 2018 prior to planned reductions. It should be noted that despite our debt levels being temporarily above our internal desired ongoing levels (mainly due to the unexpected Traralgon and land opportunities), we remain in a very secure position with per-student debt levels around the industry average, not all assets being mortgaged, and liquidity ratios (such as gross interest cover, debt to total income and debt over earnings) being well within benchmark limits used across the industry and by our financial lenders. We also are confident that the capital expenditure that has occurred is strongly strategically beneficial to future school operations and success, and will help ensure sustained positive outcomes in coming years.

Central to our longer term planning is the maintaining of appropriate cash surpluses within a range of 9.5–10.5%. We have always achieved this over the past decade or more and, with continued sound management, we are confident of being able to achieve this in future while continuing to develop all campuses and being mindful of affordability. While the budget is set at the lower end of this, as explained earlier it is set conservatively, and there is a good probability of a final result nearer the top of our target range.

Borrowing levels are likely to settle by 2021 to around $6.5m, or $4000 per student, which for a school our size is relatively modest. Ongoing capital expenditure demands across campuses are at this time also forecast to be more modest as we get much closer to reaching a point of all campuses being near an appropriate development level for their planned size. We will also be well-placed to continue to improve the quality of resources and programs that we offer as we seek to fulfill our mission of providing excellence in Christ-centred education.

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