DELTA Utility Services Ltd

Transcription

1 DELTA Utility Services Ltd Statement of Intent for the Year Ending 30 June 2007 Table of Contents 1 Mission Statement 1 2 Nature and Scope of Activities 1 3 Corporate Governance Statement 1 4 Corporate Goals 1 5 Specific Objectives for the Year Ending 30 June Performance Measures 3 7 Financial Projections 4 8 Ratio of Consolidated Shareholder s Funds to Total Assets 4 9 Dividend Policy 5 10 Reporting to the Shareholder 5 11 Accounting Policies 6 12 Acquisition of Shares in any Company or Organisation 6 13 Transactions with Related Parties 6 14 Group Purchasing 7 15 Other Matters Agreed as Between the Directorate and the Shareholder 7 16 Estimate of Commercial Value of the Investment 7 17 Use of Otago Manufactured Goods and Services 7 Appendix 1 - Statement of Accounting Policies Approved by Dunedin City Council - March 2006

2 1 MISSION TO BE THE BEST PERFORMING UTILITY SERVICES COMPANY IN NEW ZEALAND 2 NATURE AND SCOPE OF ACTIVITIES The Company undertakes activities related to the management and operation of utility assets and to the ownership of utility and related assets. The skills obtained in design, construction and maintenance of utility assets are also deployed into industrial, commercial and residential markets. 3 CORPORATE GOVERNANCE STATEMENT The Company is ultimately owned by Dunedin City Council and accordingly is a Council Controlled Organisation (CCO) as defined by the Local Government Act The Directors role is defined in Section 58 of the Act which requires that all decisions relating to the operation of a CCO shall be made pursuant to the authority of the directorate of the CCO and its Statement of Intent (SI). In addition to the obligations of the Local Government Act, the Company is also covered by the Companies Act 1993 which places other obligations on the Directors. The Directors are responsible for the preparation of the SI which, along with the threeyear financial plan, is approved by the Company s Shareholder, Dunedin City Holdings Limited. Monthly, six monthly and annual reports of financial and operational performance are provided to the Shareholder. The Directors of the Company are responsible for the overall control of the Company but no cost-effective internal control system will permanently preclude all errors or irregularities. The control systems operating within the Company reflect the specific risks associated with the business of the Company. 4 CORPORATE GOALS The principal goal of the Company is to operate as a successful business, achieving the objectives of its Shareholder as specified in this Statement of Intent. The specific corporate goals of the Company are as follows: General 4.1 To ensure that the Statement of Intent and operating strategies for the Company reflect the policies and objectives of the Shareholder in respect to the operation of that business. 4.2 To ensure that the Statement of Intent and operating strategies are adhered to. DELTA Utility Services Ltd Page 1 of 14

3 4.3 To keep the Shareholder informed of matters of substance affecting the Company. 4.4 To perform continual reviews of the operating strategies, financial performance and service delivery of the Company. 4.5 To grow the Company into a leading New Zealand business. 4.6 To further diversify and expand the Company s activities in the operation and management of utility assets. Economic 4.7 To maximise the financial returns achieved and the value added by the Company. 4.8 To maintain the Company s financial strength through sound and innovative financial management. Social and Environmental 4.9 To operate personnel policies and practices which promote a non-discriminatory, culturally sensitive, equal opportunity workplace To encourage the maintenance of an operating environment that promotes safe work practices and harmonious industrial relations To act as a socially responsible and environmentally aware corporate citizen and to introduce over time sustainability accounting measures. 5 SPECIFIC OBJECTIVES FOR THE YEAR ENDING 30 JUNE 2007 In pursuit of its corporate goals, the Company has the following objectives for the next 12 months: General 5.1 To review the Statements of Intent and strategic plans for consistency with the objectives of Dunedin City Council. 5.2 To review the operating activities of the Company for compliance with the goals and objectives stated in the Statement of Intent and strategic plan. 5.3 To report all matters of substance to the Shareholder. DELTA Utility Services Ltd Page 2 of 14

4 Economic 5.4 To achieve all financial projections. 5.5 To obtain management of an additional group of utility assets. 5.6 To monitor the economic value added by the Company and to monitor financial performance against rates of return established by Dunedin City Holdings Ltd. 5.7 To ensure that the reporting requirements of the Company are met and also that the reporting requirements of the Shareholder are met. Social and Environmental 5.8 To maintain good employer status by: (i) (ii) complying with all employment legislation; ensuring no complaints of discrimination are received; (iii) operating open and non-discriminatory employment practices. 5.9 To ensure no transgression of the environmental and resource laws To review the activities undertaken by the Company for the purposes of being a good corporate citizen. 6 PERFORMANCE MEASURES The following long-term indicators and targets will demonstrate continual management improvement. General 6.1 Matters of Substance To report matters of substance to the Shareholder within five days of occurrence. Economic $ million 2008 $ million 2009 $ million Economic Value Added DELTA Utility Services Ltd Page 3 of 14

5 Social and Environmental 6.3 Health and Safety Year Ending 30 June LTI Rate Corporate Citizen A review of the activities undertaken by the Company for the purposes of being a good corporate citizen will be completed by 30 June FINANCIAL PROJECTIONS The projections in Sections 7 and 8 have been prepared using a number of realistic assumptions about the future and relate to events and actions which have not yet occurred and may not occur. In deriving these projections, judgement has been applied to the uncertain future commercial environment in which the Company operates. Financial Year Ending 30 June $000 $000 $000 EBITDA 12,219 14,468 15,218 Net Profit after Income Tax 4,394 5,854 6,306 Shareholder s Funds 18,879 20,054 20,860 Dividends 4,500 5,000 5,500 8 RATIO OF SHAREHOLDER S FUNDS TO TOTAL ASSETS At 30 June Shareholder s Funds to Total Assets 49% 49% 49% Shareholder s funds are represented by the paid up capital, reserves created by the revaluation of specific assets, and retained earnings. Total assets means the aggregate amount of all current and non-current assets. DELTA Utility Services Ltd Page 4 of 14

6 9 DIVIDEND POLICY The Directors will pay the maximum annual dividend available, subject to maintenance of the percentage of shareholder s funds to total assets at a minimum of 50% and retention of sufficient profit to maintain the operating capability and to sustain the growth of the Company. An interim dividend may be paid by 31 December and any final dividend by 30 June. 10 REPORTING TO THE SHAREHOLDER 10.1 ANNUAL (Prior to 1 March) (i) Draft Statement of Intent ANNUAL (Prior to 30 June) (i) 10.3 MONTHLY (i) (ii) Statement of Intent. Income Statement. Balance Sheet HALF YEARLY (Within Two Months of the End of the Six Month Period) (i) (ii) (ii) (iv) (v) (vi) Directors Report - a review of performance over the half year. Income Statement. Statement of Movements in Capital. Balance Sheet. Statement of Cash Flows. Notes to the Financial Statements ANNUAL (Within Three Months of the End of the Financial Year) (i) (ii) (iii) (iv) (v) (vi) (vii) Directors Report - a review of the Company s performance over the full year, including a comparison of performance against objectives and key performance measures. Income Statement. Statement of Movements in Capital. Balance Sheet. Statement of Cash Flows. Notes to the Financial Statements. Auditor s Report on the above Financial Statements. DELTA Utility Services Ltd Page 5 of 14

7 11 ACCOUNTING POLICIES 11.1 GENERAL ACCOUNTING POLICIES The accounting policies recognised by the Institute of Chartered Accountants of New Zealand for the measurement and reporting of financial performance and financial position will be adopted by the Company PARTICULAR ACCOUNTING POLICIES The particular accounting policies which materially affect the measurement and reporting of financial performance and financial position are contained in Appendix ACQUISITION OF SHARES IN ANY COMPANY OR ORGANISATION The Company will only invest in the shares of another company or organisation if the shares are considered to be likely to produce added value to of the Company. If the Directors intend that the Company should subscribe for or otherwise acquire issued capital or an interest in any company or organisation or assets, (other than minimum holdings in listed companies in related industries) exceeding a total investment of $1,000,000 they will obtain prior approval of the Shareholder. 13 TRANSACTIONS WITH RELATED PARTIES Dunedin City Council is the sole shareholder in Dunedin City Holdings Ltd. Dunedin City Holdings Ltd is the sole shareholder in the Company. Transactions between the Company, Dunedin City Council and other Dunedin City Council controlled enterprises will be conducted on a wholly commercial basis. Charges from Dunedin City Council and its other companies, and charges to Dunedin City Council and its other companies will be made for services provided as part of the normal trading activities of the Company. Related Party Aurora Energy Ltd Transaction Provision of operating and management services. DELTA Utility Services Ltd Page 6 of 14

8 14 GROUP PURCHASING The Company undertakes to operate group purchasing of goods and services unless it is demonstrated conclusively to the Shareholder that the total combined cost to the Group and to Dunedin City Council of such group purchasing is greater than the total combined cost to the Group and to Dunedin City Council of ceasing to purchase such goods and services as a group, including the cost to the Group and to Dunedin City Council of ceasing any such group purchasing. 15 OTHER MATTERS AGREED AS BETWEEN THE DIRECTORATE AND THE SHAREHOLDER 15.1 The undertaking by the Company of any activity of a nature or scope not provided for in the Company s mission or goals will be subject to the prior approval of the Shareholder The approval of the Shareholder is required before disposal by the Company of any segment of its business or shares in a subsidiary or associate company. 16 ESTIMATE OF COMMERCIAL VALUE OF THE INVESTMENT The commercial value of the Shareholders investment in the Company is considered by Directors to be not less than the Shareholder s funds as disclosed in the Statement of Financial Position as at 30 June USE OF OTAGO MANUFACTURED GOODS AND SERVICES The Company will endeavour to use Otago manufactured goods and services subject to price, quality and other strategic considerations being met. DELTA Utility Services Ltd Page 7 of 14

9 APPENDIX I STATEMENT OF ACCOUNTING POLICIES 1 REPORTING ENTITY The financial statements are for the reporting entity DELTA Utility Services Limited. The company is a wholly owned subsidiary of Dunedin City Holdings Limited which is wholly owned by Dunedin City Council The financial statements have been prepared in accordance with the requirements of, the Local Government Act 2002, the Companies Act 1992, the Companies Act 1993 and the Financial Reporting Act These financial statements are presented in New Zealand dollars which is the currency of the primary economic environment in which the company operates. 2 SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements have been prepared in accordance with NZ GAAP. They comply with New Zealand equivalents to IFRSs, and all other applicable Financial Reporting Standards. The financial statements have been prepared in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRSs) for the first time. The disclosures required by NZ IFRS 1 concerning the transition from NZ GAAP to NZ IFRSs are given in note xy. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain Property, Plant and Equipment, and derivative financial instruments. The accounting policies set out below have been applied consistently to all periods in these financial statements and in preparing an opening NZ IFRS balance sheet at 1 July 2005 for the purposes of the transition to NZ IFRSs. The accounting policies have been applied consistently. Goodwill Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous NZ GAAP amounts and was tested for impairment at that date. Goodwill written off to reserves under NZ GAAP has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Any negative goodwill arising on an acquisition is recognised directly in profit or loss. DELTA Utility Services Ltd Page 8 of 14

10 Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and GST. Revenue from services rendered is recognised when it is probable that the economic benefits associated with the transaction will flow to the entity. The stage of completion at balance date is assessed based on the value of services performed to date as a percentage of the total services to be performed. Sales of goods are recognised when significant risks and rewards of owning the goods are transferred to the buyer, when the revenue can be measured reliably and when management effectively ceases involvement or control. Construction Contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. This is normally measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer and the degree of completion of the agreed work. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. As Lessor Amounts due from lessees under finance leases are recorded as receivables at the amount of the group s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the group s net investment outstanding in respect of the leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. DELTA Utility Services Ltd Page 9 of 14

11 As Lessee Assets held under finance leases are recognised as assets of the group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are charged to income in the period in which they are incurred. Profit from Operations Profit from operations is stated after charging restructuring costs and after the share of results of associates but before investment income and finance costs. Employee Entitlements Entitlements to salary and wages and annual leave are recognised when they accrue to employees. This includes the estimated liability for salaries and wages and annual leave as a result of services rendered by employees up to balance date at current rates of pay. Entitlements to long service leave are calculated on an actuarial basis and are based on the reasonable likelihood that they will be earned by employees and paid by the company. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date. DELTA Utility Services Ltd Page 10 of 14

12 Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Property, Plant and Equipment Property plant and equipment are those assets held by the group for the purpose of carrying on its business activities on an ongoing basis. All property, plant and equipment is stated at cost less any subsequent accumulated depreciation and any accumulated impairment losses. Self constructed assets include the direct cost of construction to the extent that they relate to bringing the fixed assets to the location and condition for their intended service. Depreciation is charged so as to write-off the cost or valuation of assets, other than land, and capital work in progress, on the straight-line basis. Rates used have been calculated to allocate the asset s cost or valuation less estimated residual value over their estimated remaining useful lives. Depreciation of these assets commences when the assets are ready for their intended use. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation on revalued assets, excluding land, is charged to the profit and loss. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus remaining in the appropriate property revaluation reserve is transferred directly to retained earnings. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or, where shorter, over the term of the relevant lease. DELTA Utility Services Ltd Page 11 of 14

13 Depreciation rates and methods used are as follows: Rate Method Buildings 1% to 5% SL Metering Equipment 5% to 20% SL Plant and equipment 5% to 50% SL Motor vehicles 5% to 25% SL Office equipment and fittings 5% to 25% SL Capital work in progress no depreciation charged Software 20% to 100% SL An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised. Impairment of Assets Excluding Goodwill At each balance sheet date, the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The estimates of future cash flows are not adjusted for risks that are provided for in the discount rate. If the recoverable amount of an asset (cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease to the extent of any previous revaluation increase for that asset (or cash generating unit) that remains in the revaluation reserve. Any additional impairment is immediately transferred to the income statement. Where an impairment loss subsequently reverses, the carrying amount of the asset (cashgenerating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. DELTA Utility Services Ltd Page 12 of 14

14 Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Financial Instruments Financial assets and financial liabilities are recognised on the group s balance sheet when the group becomes a party to the contractual provisions of the instrument. Accounts Receivable Accounts receivable are stated at the expected net realisable value after allowance for estimated irrecoverable amounts. Bad debts are written off during the period in which they were identified. Investments Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs. Any resultant gains or losses are recognised in the income statement for the period. Accounts Payable Accounts payable are stated at the value at which the liability will be settled. Borrowings Borrowings are initially recorded net of directly attributable transaction costs and are measured at subsequent reporting dates at amortised cost. Finance charges, premiums payable on settlement or redemption and direct costs are accounted for on an accrual basis to the Income Statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Financial Liability and Equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. DELTA Utility Services Ltd Page 13 of 14

15 Derivative Financial Instruments and Hedge Accounting The Company s activities expose it to financial risks of changes in interest rates. The Company uses forward contracts and interest rate swap contracts to protect itself from these risks. The Company does not use derivative financial instruments for speculative purposes. Any derivatives that do not qualify for hedge accounting, under the specific IFRS rules, are accounted for as trading instruments. The use of financial derivatives is governed by policy approved by the Board of Directors. Derivative financial instruments are recognised at fair value. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity. Any ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss. For an effective hedge of an exposure to changes in the fair value, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with the corresponding entry in profit or loss. Gains or losses from re-measuring the derivative, or for non-derivatives the foreign currency component of its carrying amount, are recognised in profit or loss. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the period. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the income statement. Provisions A provision is recognised in the balance sheet when the group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions for restructuring costs are recognised when the group has a detailed formal plan for the restructuring that has been communicated to affected parties. DELTA Utility Services Ltd Page 14 of 14