AUDIT AND RISK MANAGEMENT SUBCOMMITTEE AGENDA WEDNESDAY 29 SEPTEMBER 2010 AT 12.30PM IN THE NO. 2 COMMITTEE ROOM, NEW CIVIC OFFICES, 53 HEREFORD STREET Subcommittee: The Mayor, Mr Bob Parker Councillors David Cox, Bob Shearing, Gail Sheriff, and Chrissie Williams, and Messrs John Hooper and Michael Rondel. Principal Adviser Committee Adviser Paul Anderson Warren Brixton Telephone: 941-8528 Telephone: 941-8439 Fax: 941-8572 Fax: 941-8696 INDEX 1. APOLOGIES 2. DRAFT ANNUAL REPORT 1. APOLOGIES 2. ANNUAL REPORT FOR AUDIT AND RISK SUBCOMMITTEE MEETING General Manager responsible: General Manager, Corporate Services, DDI 941-8528 Officer responsible: Corporate Finance Manager Author: Diane Brandish PURPOSE OF REPORT 1. The purpose of this report is to present for review by the Audit and Risk Subcommittee the annual report of the Christchurch City Council (CCC) for the year ended 30 June 2010. 2. Under section 98 of the Local Government Act 2002 a local authority must prepare and adopt in respect of each financial year an annual report. Each annual report must be completed and adopted by resolution, and within one month after the adoption of its annual report, the local authority must make publicly available: (a) its annual report; and (b) a summary of the information contained in its annual report. EXECUTIVE SUMMARY 3. Attached as Appendix 1 (previously circulated to Subcommittee members) is a copy of the Annual Report for the year ended 30 June 2010. Attached as Appendix 2 is a reconciliation of the accounting surplus to the cash surplus. 4. At the time of forwarding this report to the Subcommittee, Audit NZ have examined the financial statements and accompanying reports of the group but have not finally signed off on the report. 5. A representative of Audit NZ will be in attendance at the Committee meeting to answer any questions regarding the accounts. 6. This result differs from the result reported in the Performance Report received by the Council on 26 August 2010. While the reported cash surplus of $10.3 million has not changed, there has been a $13.7 million deterioration in the accounting surplus, largely due to asset impairments and fair value and deferred tax adjustments. A reconciliation of the accounting surplus to the cash surplus is provided in Appendix 2. 7. The Council’s accounting surplus for the year, inclusive of vested asset contributions, was $107.9 million, $16.8 million (13.5%) below plan. A detailed analysis of the variance is set out in note 41 of the Annual Report, but the key variances include: • vested assets, down $9.2 million, • development contributions, down $5.9 million, • deferred income tax $1.9 million, • other cash revenues, up by $5.0 million; this is primarily licence fees and a $1.4 million gain on disposal of property, • higher expenses as detailed below, $4.8 million. 8. Overall, expenses were $4.8 million above plan. The main variances were: • employee costs higher than plan, $2.7 million; • interest expense lower than plan, $3.8 million; this is mainly due to lower interest rates and the delayed delivery of the capital programme, • other expenses lower than plan, $2.2 million; • impairment of assets, $9.8 million, offset by lower depreciation of $5.5 million; the impaired assets are the loan to Tuam Limited and several minor investments, the lower depreciation is largely the result of the delay in the delivery of the previous year’s capital programme, • fair value reduction on assets, $3.5 million. 9. Other comprehensive income contributed a further $204.9 million towards the Council’s total comprehensive income for the period, net of tax. The key components were: • property plant and equipment revaluation, $356.6 million; roading and water supply assets were revalued as part of a rolling three year programme, • losses from investment revaluations, $113.0 million; the value of Vbase Limited was written down $30.0 million reflecting the impact of the change in legislation around the treatment of deferred tax, and the value of CCHL was written down by $83.0 million. This reflects the reduction in CCHL’s net asset position as a result of paying the special dividend to Council, a reduction in the value of Orion New Zealand Limited offset by an increase in the value of Christchurch International Airport Limited. Detail is provided in Note 16 of the Annual Report. 10. $201.1 million was invested in capital projects during the year. Those completed include: • the commissioning of the Ocean Outfall project, ($6 million of an $83.3 million project), • completion of the Burwood gas pipeline, $2.2 million. Gas reticulation pipelines now run to the drying facility at the Christchurch Wastewater Treatment Plant where it will be used to dry waste, and to the Art Gallery and new Civic building for heating, in addition to the original pipeline to QEII • completion of the City Mall enhancement, $4.5 million, • completion of the Akaroa Museum storage facility, $0.6 million, • enhancement of the land around AMI Stadium, $0.75 million, • completion of the Awatea Basin for land drainage, $8.0 million, • development of the artificial hockey pitch at St Bede’s College, $0.3 million, redevelopment of the Wharenui Pool, $0.9 million and, • an upgrade of the Birdlings Flat water treatment to meet the requirements of drinking water standards, $0.3 million. • plant and fit-out for the new Hereford Street civic offices, $10.6 million, • for ongoing development of IT equipment and software, $9.4 million, • strategic land purchases including purchases at Ruapuna, $3.6 million, Te Oka farm, $3.2 million, and land required for land drainage, $2.4 million. 11. In addition $49.2 million was invested in equity in Vbase Limited. This included a net $10 million to fund AMI Stadium, ($15 million was received from Central Government and invested in Vbase and $5 million of Council’s equity was repaid) and $38.5 million funded the transfer of the Town Hall and the commencement of its refurbishment. 12. Projects progressed include: • expenditure on the road corridor, $39.3 million, • bus priority lanes, $6.6 million, • the Biosolids Drying Facility, $19.1 million, • work on the extended tram base in preparation for the Rugby World Cup, $1.7 million, • ongoing work for the planned Transport Interchange, $6.9 million and, • further work on the Western Interceptor sewer upgrade, $8.1 million, • Graham Condon Leisure Centre, $3.8 million, • housing improvements, $3 million and • community centre upgrades, $1.3 million, including the purchase of land for the St Albans Resource centre upgrade. 13. The Council’s balance sheet reflects its strong financial position with total assets of $7.3 billion and net assets of $6.9 billion. Equity increased by $348.8 million, comprising $240.9 million of gains on revalued assets and investments and the $107.9 million surplus. 14. The Council has five financial ratios which form a key part of its financial risk management strategy. All five actual results fell well within policy limits. FINANCIAL IMPLICATIONS 15. There are no financial or legal implications. STAFF RECOMMENDATION It is recommended that: (a) The General Manager Corporate Services be authorised to make changes as required by Audit NZ to correct errors in preparation for presentation of the report to the Council on 30 September 2010. (b) The Christchurch City Council 2010 Annual Report be forwarded to the Council for adoption. APPENDIX 1 Christchurch City Council Annual Report 2010 Table of Contents 0040 – Council vision ...........................................................................................................................................................3 1000 – Introduction ...............................................................................................................................................................4 1005 – What is the Annual Report?.....................................................................................................................................5 1010 – Message from the Mayor and Chief Executive...........................................................................................................6 1020 – Statement of compliance ............................................................................................................................................8 1050 – Christchurch at a glance .............................................................................................................................................9 2000 – Highlights ................................................................................................................................................................10 2010 – Our achievements.....................................................................................................................................................11 2020 – Celebrating our success ...........................................................................................................................................12 3000 – Your Council............................................................................................................................................................13 3005 – How the Council works .............................................................................................................................................14 3010 – Community Outcomes ..............................................................................................................................................16