NOTICE OF MEETING EIRWEN HARRIS MANAGER, SECRETARIAL SERVICES

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1 NOTICE OF MEETING Notice is hereby given of the Meeting of the Finance and Policy Committee to be held in the Council Chamber, First Floor, Civic Administration Building, 11 Esk Street, Invercargill on Tuesday 24 June 214 at 4. pm His Worship the Mayor Mr T R Shadbolt JP Cr N D Boniface (Chairman) Cr G J Sycamore (Deputy Chair) Cr R L Abbott Cr G D Lewis Cr D J Ludlow Cr L S Thomas EIRWEN HARRIS MANAGER, SECRETARIAL SERVICES

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3 A G E N D A Page 1. APOLOGIES 2. PUBLIC FORUM 3. MONITORING OF PERFORMANCE 3.1 LEVELS OF SERVICE 1 JULY 213 TO 31 MARCH MONITORING OF FINANCIAL PERFORMANCE 4.1 REPORT OF THE DIRECTOR OF FINANCE AND CORPORATE SERVICES Financials 3 April ACTIVITY PLAN REVIEW N/A. 6. DEVELOPMENT OF POLICIES/BYLAWS N/A. 7. ACTION SHEET 8. OTHER BUSINESS 8.1 REPORT OF THE DIRECTOR OF FINANCE AND CORPORATE SERVICES Remuneration Invercargill City Holdings Limited Statement of Intent URGENT BUSINESS 3

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5 TO: FINANCE AND POLICY COMMITTEE FROM: DIRECTOR OF FINANCE AND CORPORATE SERVICES MEETING DATE: TUESDAY 24 JUNE 214 LEVELS OF SERVICE REPORT 1 JULY 213 TO 31 MAY 214 Report Prepared by: Melissa Short Strategy and Policy Manager SUMMARY Reporting on the Corporate Services levels of service measures for the period comprising 1 July 213 to 31 May 214. RECOMMENDATIONS That the report be received. IMPLICATIONS 1. Has this been provided for in the Long Term Plan/Annual Plan? The report monitors performance in relation to levels of service measures identified in the Long Term Plan and Annual Plan. 2. Is a budget amendment required? No 3. Is this matter significant in terms of Council s Policy on Significance? No 4. Implications in terms of other Council Strategic Documents or Council Policy? No 5. Have the views of affected or interested persons been obtained and is any further public consultation required? No FINANCIAL IMPLICATIONS No financial implications result from this report. 5

6 DEMOCRATIC PROCESS Democratic Activities 1 July 213 to 31 May /13 Annual Report adopted before 1 November 213. Achieved. Annual Report adopted on 29 October 213. DESTINATIONAL MARKETING Please note, the following information and graph is supplied by Venture Southland. Southland monthly statistics for March 214 compared with the same time period in 213 showed international guest nights rose 1.1 percent to 14,119 and domestic guest nights rose 1.7 percent to 27,273. Total guest nights were up by 4.4 percent to 41,392. The statistics indicate that March numbers were up. The average length of stay in Southland for the year ended March rose from 1.71 nights to 1.73 nights. The occupancy rate, excluding holiday parks, was 3.4 percent for the year ended March 214. During March and April the Locals Campaign On Your Doorstep, was run. The campaign was advertised via radio, print, social media and via other online mechanisms. Results were positive with an improvement on last year results. May was a busy time with the tourism team attending three major trade events. These included a day meeting with Tourism New Zealand Representatives advising them of our region, two days meeting with inbound operators advising what Southland has on offer for them to sell our region to customers and of course TRENZ. TRENZ was held in Auckland and is the main trade event of the year. It gave Southland the opportunity to meet with over 5 buyers from a number of different countries. In addition we have been working on getting our website translated into Chinese in order for us to start to reach this market. Please note - the figures that have been provided are for the year ended March 214. All figures are from Commercial Accommodation Monitor 6

7 ENTERPRISE Please note, the following information and graphs are supplied by Venture Southland. Graph of number of people employed in Southland. Source: Household Labour Force Survey (Data collected quarterly) Source: Household Labour Force Survey (Data collected quarterly) Southland unemployment levels decreased in the March to 4.7% from the December quarter of 5.7% which significantly below the national rate of 6%. Labour force participation in Southland still remains well above the national average at 72.3% compared with 69.3%. Numbers employed, just over 51, however is lowest it has been over the past 5 years. This maybe as a result of a contracted labour pool due to impacts such as retirement. 7

8 INVESTMENT PROPERTY Investment Property Activity Investment Property transactions (purchases and sales) 1 July 213 to 31 May 214 Sales 13 Bond Street, Invercargill (5 August 213) 8

9 TO: FROM: FINANCE AND POLICY COMMITTEE THE DIRECTOR OF FINANCE AND CORPORATE SERVICES MEETING DATE: TUESDAY 24 JUNE 214 FINANCIALS Report Prepared by: Dean Johnston Director of Finance and Corporate Services SUMMARY Finance and Policy are $746,538 under budget for the ten months to 3 April 214. RECOMMENDATIONS That this report be received. IMPLICATIONS 1. Has this been provided for in the Long Term Plan/Annual Plan? No 2. Is a budget amendment required? No 3. Is this matter significant in terms of Council s Policy on Significance? No 4. Implications in terms of other Council Strategic Documents or Council Policy? No 5. Have the views of affected or interested persons been obtained and is any further public consultation required? No REPORT For the ten months to 3 April 214, Finance and Policy are $746,538 under budget. The departmental breakdown of this is as follows. 9

10 Democratic Responsibility Democratic responsibility is $4,654 under budget for the ten months. All areas are underspent for the ten months which is offset by the lack of drawdown form reserves to date. Finance and Corporate Services Finance and Corporate Services are $336,643 under budget for the ten months. The main reason for this is that the consultants are underspent by $22,457 due to the timing of the focus groups and the innovation fund. Grant and Subsidies Grant and Subsidies are $36,939 over budget for the first ten months due to timing difference between the actual grant paid and the budgeting of the grand. Hall and Theatres Halls and theatres are $15,365 under budget for the year through spending on the Civic Theatre. Special Projects Special projects that incorporate the CBD Redevelopment, Urban Rejuvenation and Overgrown Sections are $39,816 under budget due to the timing of the projects. 1

11 Finance and Policy Committee Financial Summary Operational Statement Ten months to 3th April 214 Actual Year to Date Budget Variance 12,nth Budget Democratic Responsibility Finance and Corporate Services Grants and Subsidies Halls and Theatre Special Projects Museum ,976 3, , , , , ,778, Total Operational 7,341,35 8,294,538 6,529,899 Appropriation Account Democratic Responsibility Finance and Corporate Services Grants and Subsidies Halls and Theatre Special Projects Museum 1, ,323, , ,27 1,66,63 3,888, ,48 25, , ,5 1,37, ,564 Rates Required 7,675,72 8,421,61 5,592,644 11

12 Democratic Responsibility Operational Statement Ten months to 3th April 214 Actual Year to Date Budget Variance 12 rn/h Budget Operational Income Councillors Mayor Chief Executive Community Boards (1 Total Income H 'P Operational Expenditure Councillors 535,71 Mayor 32,142 Chief Executive 51,146 Community Boards 36, ,55 56,5 51, ,271 71,56 Total Operational 1,375,947 1,452,77 1,778,36 Net Operational 1,374,616 1,452,77 1,778,36 Finance and Corporate Services Appropriation Account Ten months to 3th April 214 Year to Date 12 rn/h Actual Budget Variance Budget Net Operational b/fwd 1,374,616 1,452,77 R 1, Capital Expenditure Councillors Mayor 4,17 Chief Executive 4,17 Community Boards Total Capital Expenditure 8, , 1, Capital Movements Councillors ' 37.5 Mayor 4,17 Chief Executive 4.17 Community Boards Total Capital Movements 45,84 Rates Required 1,374,616 1,415,27 ''t4 1,733,36 12

13 Finance and Corporate Services Operational Statement Ten months to 3th April 214 Actual Year to Dale Budget Variance I2mth Budget Operational Income Accounting Services Director Corporate Services Information Services Investment Property Secretarial Services Total Income Operational Expenditure Accounting Services Director 2, Corporate Services 1, Information Services ,57 Investment Property 1, Secretarial Services ,25 2,285, ,286 1,211,83 878, R 1,435,66 2,842,556 2, ,836, L454, Total Operational 8,814,19 9,64,62 1,993,68 Net Operational 1,276,976 1,742,63 13

14 Finance and Corporate Services Appropriation Account Ten months to 3th April 214 Actual Year to Date Budget Variance l2mth Budget Net Operational b/fwd 1, ,63 Capital Expenditure Accounting Services Director Corporate Services Information Services Investment Property Secretarial Services 46, ,398 55,362 1,531 1,25 13,42 4,5 12, 27, Z ,398 55,362 1,5 15,5 24, , Total Capital Expenditure 399, ,411 41,655 Capital Movements Accounting Services Director Corporate Services Information Services Investment Property Secretarial Services Total Capital Movements ? Total 1,335,1 1,66,63 " b, o * CR Add Back Non Cash Depreciation Rates Required 1,323,42 1,66,63 14

15 Grants and Subsidies Operational Statement Ten months to 3th April 214 Actual Year to Date Budget Variance 12 mth Budget Operational Income Grants and Subsidies Total Income Operational Expenditure Grants and Subsidies Total Expenditure 3, , ,613,38 3,863, ,179 5,27,179 Net Operational 3,598,38 3,863,789 5,27,179 Appropriation Account Ten months to 3th April 214 Actual Year to Date Budget Variance I2mth Budget Net Operational b/fwd 3,598,38 3, CR 5.27,179 Capital Expenditure Grants and Subsidies 2. 2, Total Capital Expenditure 2, 2, Capital Movements Grants and Subsidies 326,76 4, Total Capital Movements 326,76 4, ,348 Rates Required 3,925,14 3,888,21 36,939 4,923,5 15

16 Halls and Theatres Section Operational Statement Ten months to 3th April 214 Actual Year to Date Budget Variance 12 Month Budget Operational Income Civic Theatre Bluff Hall Scottish Hall Awarua Hall Myross Bush Hall Makarewa Hall Otatara Community Centre Total Income Operational Expenditure Civic Theatre Bluff hall Scottish 1 JaIl Awarua Hall Myross Bush I Jail Makarewa Hall Otatara Community Centre 817, , , ,435 I I , ,435 Total Expenditure 834, ,526 1,21,19 Nett Operational 834, ,526 1,21,19 Halls and Theatres Section Appropriation Account Nett Operational b/fwd 834, ,526 1,21.19 Capital Expenditure Civic Theatre Bluff Hall Scottish Hall Awarua Hall Myross Bush Hall Makarewa Hall Otatara Community Centre Total Capital Expenditure 2,83 25, Capital Movements Civic Theatre Bluff hall Scottish Hall Awarua Hall Otatara Community Centre Myross Bush Hall Makarewa Hall Otatara Community Centre Total Capital Funds Rates Required 2, ,49 2,83 834, ,526 15,365 CR 1,37,324 16

17 Special Projects Operational Statement Year to Date 12 Month Ten months to 3th April 214 Actual Budget Variance Budget Operational Income CBD Redevelopment Urban Rejuvenation Overgrown sections and Derelict L3uildir Total Income Operational Expenditure CBD Redevelopment Urban Rejuvenation Overgrown sections and Derelict Buildir , ,54 26, Total Expenditure 24, ,78 51,724 Nett Operational 139, ,78 45,724 Appropriation Account Nett Operational b/fwd Capital Expenditure CBD Redevelopment Urban Rejuvenation Overgrown sections and Derelict Buildir 53, ,33 3,184,628 4, Total Capital Expenditure 53, ,584,628 Capital Movements CBD Redevelopment Urban Rejuvenation Overgrown sections and Derelict Buildir Total Capital Movements ' 1,32,29 Rates Required 192, ,48 626,564 17

18 Museum Operational Statement Year to Date 12 Month Ten months to 3th April 214 Actual Budget Variance Budget Operational Income Museum Total Income Operational Expenditure Museum Total Expenditure 1,73,112 1,487,7 1,73,112 1,487, ,412 1,785,173 Nett Operational 117, ,456 Appropriation Account Nett Operational b/fwd Capital Expenditure Museum Total Capital Expenditure , 13,723 25, H. 3. 3, Capital Movements Museum Total Capital Movements.. CR Total Rates Required 25,71 25,7 1 25,71 25,7 1 18

19 TO: FROM: FINANCE AND POLICY COMMITTEE THE DIRECTOR OF FINANCE AND CORPORATE SERVICES MEETING DATE: TUESDAY 24 JUNE 214 REMUNERATION Report Prepared by: Dean Johnston Director of Finance and Corporate Services SUMMARY The Remuneration Authority have revised the remuneration for the 214/15 year. RECOMMENDATIONS That this report be received. IMPLICATIONS 1. Has this been provided for in the Long Term Plan/Annual Plan? No 2. Is a budget amendment required? No 3. Is this matter significant in terms of Council s Policy on Significance? No 4. Implications in terms of other Council Strategic Documents or Council Policy? No 5. Have the views of affected or interested persons been obtained and is any further public consultation required? No REPORT The Remuneration Authority have reviewed the 214/15 remuneration for Councils and issued a draft determination (attached). As Invercargill City Council have not amended their structures, the recommendations will be implemented. 19

20 The changes are: Actual 213/14 Proposed 214/15 Mayor 14,72 17,522 Deputy Mayor 42,7 43,96 Chair 38,125 39,25 Audit Chair 34,337 35,35 Venture Representative 34,337 35,35 Councillor 3,5 31,4 2

21 MAY 3 April 214 Mr Tim Shadbolt Mayor Invercargill City Private Bag 914 INVERCARGILL 984 Dear Mayor Shadbolt Remuneration Setting process The Authority has reviewed the remuneration to elected members, with a view to issuing a formal determination in June for the 214/215 financial year. The process for developing and gazetting the determination takes some weeks. The new system established last year reduces the work required by Councils and council staff. As you are aware, last year the Authority moved from the 'pool' system that had been in place since 23 to a new approach based on base councillor and community board remuneration, and supplemented by up to 1.5 times the base councillor remuneration to be utilised to recognise councillors undertaking additional responsibilities or undertaking additional work that flows from the district plan process. All councils have now confirmed their structures and allocation of additional duties to the Authority, and the final amending determination for the year has been gazetted. The increment determined by the Authority will be automatically gazetted and approved for payment without any requirement of submissions or information by councils. Expenses and allowances Likewise there will be no requirement for councils to reconsider the expenses and allowances policy approved by the Authority last year. The Authority will not be revisiting any of the arrangements in the 213 determination, other than amending the provisions to reflect the fact that the determination is for a full 12 month period rather than a pro rated period. Remuneration Authority Box 184, Morrison Kent House, 15 The Terrace, Wellington, New Zealand Telephone Facsimile info@remauthority.govt.nz

22 for adjusting for mayors and councillors The remuneration levels for mayors and councillors have been established by: Re assessing each councils size index by reference to updated population statistics and 212/13 individual council's expenses, and Applying the relationships established last year between size indices and remuneration together with an allowance for general levels of wage growth between 213 and Applying similar techniques as used last year to dampen down large decreases or increases, and Ensuring that no base councillor salaries or mayoral remuneration was reduced as a result of the above process. Mayoral Salary and cars There is a need for councils to reconfirm the arrangements regarding mayoral vehicles and a return is attached for that purpose. The current information we hold on mayoral vehicles and the change in your mayoral remuneration is as follows: Mayoral car provided? Yes Cost of car ($) 66,82 Percentage private use (%) 2 213/14 214/15 Mayor salary (before adjustment for vehicle 19,55 113, provision) Value of private use of vehicle* 5,478 5,478 Mayor net salary 14,72 17,522 *The latest value is used for both years your Council (and Community Boards applicable) Attached is information on the current provisions that apply to your council salaries, and the provisions apply from July 214. The new rates for positions of responsibility have been determined by applying the same proportional change as the base councillor salary. Also attached, where applicable, is information on Community Board salaries that will apply from July 214. These have been determined using the same relationship between population as was established last year, using updated population statistics and an allowance for general wage growth between 213 and

23 Matters needing your attention The Authority seeks your cooperation by: receiving confirmation that the positions of additional responsibility shown in the attachment reflect the arrangements with your council, and completion of the return on mayoral vehicles that are current going into the new year. To ensure we are in a position to release a determination prior to 1 July this information needs to be in our hands by no later than 3 May. Yours sincerely John Chairman 23

24 Invercargill City Council Positions of Responsibility Position Name number of positions 213 Position salary 214 Position salary Deputy Mayor 42,7 43,96 Committee Chairperson 3 38,125 39,25 Chairperson, Audit Committee 34,337 35,35 Venture Southland Representative 1 34,337 35,35 Councillor 1 3,5 31,4 District Plan Review Meetings 3, 3,89 24

25 Invercargill City Community Board Members' Salaries 214/15 COMMUNITY Bluff Community member salary 2,9 4, 214 member salary 4, 25

26 VEHICLE Councils decide whether or not a car is to be supplied and on what basis. The determinant is what is most cost effective for Council and ratepayers. Please use this form to confirm or reconfirm car provision details. Car supplied: If Yes, confirm Make & Model Date of Purchase Total on the road cost to Council on purchase GST inclusive $ Use of car: Chair/Mayoral use only Private use If yes, confirm % private use % N.B. Chair/Mayoral use only means that the car can be used by other can be driven home and garaged by the Chair/Mayor but does not permit any private use. Full Private Use is normally assessed by the Authority at 2%. Where a larger or smaller usage is claimed supporting information is required (such as log books). Car value deduction calculation: If value of car = $38, % ofprivate use = 2% GST $38, x 41% x 2% = $3116 This is the amount to be deducted from the Chair/Mayoral salary. 26

27 TO: FROM: FINANCE AND POLICY COMMITTEE THE DIRECTOR OF FINANCE AND CORPORATE SERVICES MEETING DATE: TUESDAY 24 JUNE 214 INVERCARGILL CITY HOLDINGS LIMITED STATEMENT OF INTENT Report Prepared by: Dean Johnston Director of Finance and Corporate Services SUMMARY The Directors of Invercargill City Holdings Limited have provided Council with their final Statement of Intent. RECOMMENDATIONS That the Invercargill City Holdings Limited Statement of Intent be received. IMPLICATIONS 1. Has this been provided for in the Long Term Plan/Annual Plan? No 2. Is a budget amendment required? No 3. Is this matter significant in terms of Council s Policy on Significance? No 4. Implications in terms of other Council Strategic Documents or Council Policy? No 5. Have the views of affected or interested persons been obtained and is any further public consultation required? No REPORT The Directors of Invercargill City Holdings Limited have taken the comments from Council, on the draft Statement of Intent presented earlier, in finalising the Statement of Intent for the three years commencing 3 June

28 INVERCARGILL CITY HOLDINGS LIMITED STATEMENT OF INTENT FOR THE FINANCIAL YEAR ENDING 213 A

29 TABLE OF CONTENTS PREAMBLE 3 PAGE OBJECTIVES 3 NATURE AND SCOPE OF ACTIVITIES 3 PERFORMANCE TARGETS 4 FINANCIAL FORECASTS 4 RATIO OF CONSOLIDATED SHAREHOLDERS FUNDS TO TOTAL ASSETS 5 COMMERCIAL VALUE OF THE SHAREHOLDERS INVESTMENTS 5 REPORTING TO SHAREHOLDER 5 DIVIDEND POLICY 6 PROCEDURES FOR ACQUISITION OF OTHER INTERESTS 6 COMPENSATION FROM LOCAL AUTHORITIES 7 OTHER MATTERS AGREED AS BETWEEN THE DIRECTORATE AND ITS SHAREHOLDER 7 GOVERNANCE 7 ACCOUNTING POLICIES 7 Statement of Intent June

30 PREAMBLE As required by Section 64 of the Local Government Act 22 the Directors have prepared this Statement of Intent. OBJECTIVES The objectives are those as provided in Section 59 of the Local Government Act 22 including the following specific objectives: To provide reasonable returns to its shareholder Invercargill City Council. To keep the Invercargill City Council informed of matters of substance affecting the group. To ensure that regular reporting of results occurs to Invercargill City Holdings Limited and to Invercargill City Council. To act generally as a responsible corporate citizen. NATURE AND SCOPE OF ACTIVITIES The nature of the Invercargill City Holdings Limited activities will be that of normal policy decisions of a Holding Company together with: (a) Providing input into the Statement of Intent of each of its subsidiaries to ensure that they reflect the objectives and policies of Invercargill City Council in such manner and to such extent as Invercargill City Holdings Limited is lawfully entitled to do so; and, (b) Monitoring the performance of the individual subsidiary companies. (c) In relation to Invercargill City Property Limited, no land sales will be to an entity that will bring the City into disrepute and all land sales will reflect Council s vision of economic and population growth. The undertaking by Invercargill City Holdings Limited of any activity of a nature or scope not provided for would be subject to the prior approval of the Invercargill City Holdings Limited shareholders. In particular the prior approval of the shareholder would be required to the company forming, acquiring or divesting an interest in any subsidiary company and in the case of each subsidiary the Directors of Invercargill City Holdings Limited shall not, without the prior approval of the shareholder approve any investment which is contrary to that subsidiary s Constitution. The Invercargill Airport Limited board have indicated to Invercargill City Holdings Limited that they require capital injection from their shareholders to complete a terminal upgrade. The costs of the upgrade are still to be finalised by the airport board, but will not be economic for Invercargill City Holdings Limited to support as a business model. As the airport is a strategic asset to the region, the Invercargill City Holdings board would consider ways to fund this upgrade if the Invercargill City Council directs it to do so. This will not have an effect on the dividend in 212/13, but may have an impact in future years. This investment is also reliant on the Government contributing their share as a 45% shareholder. Statement of Intent June

31 PERFORMANCE TARGETS The following targets relate to the group of companies consisting of Invercargill City Holdings Limited, Electricity Invercargill Limited, Invercargill City Forests Limited, Invercargill Airport Limited and Invercargill City Property Limited. That the following rates of return on equity funds are attained. % Before Tax % After Tax 212/ % 6.63% 213/ % 6.13% 214/ % 4.42% That all statutory requirements for reporting under the Companies Act 1993 and the Local Government Act 22 are achieved. That half yearly financial reports are provided to the shareholder within two months of the end of the period and that the annual statements and report are provided within three months after the end of the financial year. FINANCIAL FORECASTS These consolidated financial forecasts are based on information provided by the subsidiary companies and Invercargill City Holdings Limited own forecasts: Year Ending 3 June 213 ($ s) Year Ending 3 June 214 ($ s) Year Ending 3 June 215 ($ s) Gross Revenue 37,577 37,796 34,63 Expenditure 25,727 25,957 25,935 Net Profit (Loss) 11,85 11,839 8,668 Tax 3,555 3,552 2,6 Retained Earnings 8,295 8,287 6,68 Dividend Invercargill City Council 3,5 3,7 3,9 Special Dividend Invercargill City 2 Council 4,595 4,587 2,168 The projected equity of the consolidated company at 3 June is estimated to be as follows: Year Ending 3 June 213 ($ s) Year Ending 3 June 214 ($ s) Year Ending 3 June 215 ($ s) Equity 125,42 135, ,177 Statement of Intent June

32 These financial forecasts are for Invercargill City Holdings Limited only: Year Ending 3 June 213 ($ s) Year Ending 3 June 214 ($ s) Year Ending 3 June 215 ($ s) Revenue 7,241 7,541 7,741 Expenditure 3,294 3,524 3,529 Net Profit (Loss) 3,947 4,17 4,212 Dividend 3,7 3,7 3,9 Surplus RATIO OF CONSOLIDATED SHAREHOLDER FUNDS TO TOTAL ASSETS The forecasted ratio of shareholder funds as a percentage of total assets as at 3 June are as follows: Year % % % % For the purpose of this ratio shareholder funds are defined as the paid-up capital plus any retained tax paid profits. They include undistributed profits which have been accumulated in accounts known as either "Revenue Reserves" or "Capital Reserves" and shareholder advances. It is anticipated that the Invercargill City Council shareholder advance (if any) will be subordinated, that is, subject to certain restrictions by the lender. Total assets are defined as the sum of all current, fixed and investment assets of the group. COMMERCIAL VALUE OF THE SHAREHOLDER S INVESTMENT The Directors estimate that the commercial value of the shareholder s investment in Invercargill City Holdings Limited as at 1 July is represented by the opening balance of shareholder s funds. REPORTING TO THE SHAREHOLDER The following information will be available to the shareholder based on an annual balance date of 3 June. DRAFT STATEMENT OF INTENT On or before 1 March each year, the Directors will deliver to the shareholder a Draft Statement of Intent that fulfils the requirements of Section 64 of the Local Government Act 22. Statement of Intent June

33 COMPLETED STATEMENT OF INTENT On or before 3 June each year the Directors shall deliver to the shareholder a completed Statement of Intent which fulfils the requirements of Section 64 of the Local Government Act 22. HALF YEARLY REPORT Within two months after the end of the first half of each financial year, the Directors shall deliver to the shareholder an unaudited report containing the following information as a minimum in respect of the half-year under review: A revenue statement disclosing actual revenue and expenditure, with comparative figures from the previous half yearly report. A statement of financial position at the end of the half year. A statement of cash flows. A commentary on the results for the first six months together with a report on the outlook for the second six months with reference to any significant factors that are likely to have an effect on Invercargill City Holdings Limited s performance, including an estimate of the financial result for the year based on that outlook. ANNUAL REPORT Within three months after the end of each financial year, the Directors shall deliver to the shareholder an annual report and audited financial statements in respect of that financial year, containing the following information as a minimum: (a) A Director report including a summary of the financial results, a review of operations, a comparison of performance in relation to objectives and any recommendation as to dividend. (b) A revenue statement disclosing actual revenue and expenditure, and comparative figures. (c) A statement of financial position at the end of the year. (d) A statement of cash flows. (e) An Auditor s report on the above statements and on the measurement of performance in relation to objectives. DIVIDEND POLICY The Directors have agreed that it is prudent to retain a portion of the Company s earnings as a hedge against movements in interest rates and/or income stream. It is anticipated a dividend will be paid by Invercargill City Holdings Limited to the Invercargill City Council of $3,5,, together with a $2, special dividend in 212/213, $3,7, in 213/214 and $3,9, in 214/215. Any surplus from the Group operation will be used to repay the Invercargill City Holdings Limited debt. PROCEDURES FOR ACQUISITION OF OTHER INTERESTS The Company will only invest in the shares of another company or organisation in accordance with the Constitution of the company. Statement of Intent June

34 COMPENSATION FROM LOCAL AUTHORITIES The Directors do not envisage any circumstances arising that would give rise to any claim from any Local Authority during the year. OTHER MATTERS AGREED AS BETWEEN THE DIRECTORATE AND ITS SHAREHOLDER The Company has entered into Deeds of Understanding with its subsidiaries imposing upon the companies certain restrictions, requirements and obligations as set out in the Deed. Invercargill City Holdings Limited has a written agreement with Invercargill City Forests Limited to reimburse that company s operating costs, by way of interest bearing loan, on a monthly basis, subject to the provision of annual budgets. GOVERNANCE The Directors of Invercargill City Holdings Limited are appointed by Invercargill City Council to oversee the governance of the company and its subsidiaries and will act in accordance with the guidelines set by the Shareholder. The Directors acknowledge their fiduciary responsibilities however the day to day management of the company is delegated to the management team and the Treasury Manager. The Directors hold regular board meetings at which management reports are received and discussed. ACCOUNTING POLICIES REPORTING ENTITY Invercargill City Holdings Limited is a Council Controlled Trading Organisation as defined in the Local Government Act 22 is registered under the Companies Act 1993 and is wholly owned by the Invercargill City Council. Electricity Invercargill Limited is a wholly owned subsidiary of Invercargill City Holdings Limited and is registered under the Companies Act 1993 and holds a 5% shareholding in PowerNet Limited and a 24.5% holding in the assets of Otago Net, (through its subsidiary Pylon Limited) a Joint Venture with The Power Company and Marlborough Lines. The company also holds a 49% shareholding in Power Services Limited, a 24.5% shareholding in Otago Power Services Limited and a 5% shareholding in Electricity Southland Limited. Invercargill City Forests Limited is a wholly owned subsidiary of Invercargill City Holdings Limited and is a Council Controlled Trading Organisation registered under the Companies Act Statement of Intent June

35 Invercargill Airport Limited is 55% owned by Invercargill City Holdings Limited and is a Council Controlled Trading Organisation registered under the Companies Act Invercargill City Property Limited is a wholly owned subsidiary of Invercargill City Holdings Limited and is a Council Controlled Trading Organisation registered under the Companies Act GENERAL ACCOUNTING POLICIES The following particular accounting policies which may have a material effect on the measurement of results and financial position are: (i) Subsidiaries The Company consolidates as subsidiaries in the group financial statements all entities where the Company has the capacity to control their financing and operating policies so as to obtain benefits from the activities of the entity. This power exists where the Company controls the majority voting power on the governing body or where such policies have been irreversibly predetermined by the Company or where the determination of such policies is unable to materially impact the level of potential ownership benefits that arise from the activities of the subsidiary. The Company measures the cost of a business combination as the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, in exchange for control of the subsidiary plus any costs directly attributable to the business combination. Any excess of the cost of the business combination over the Company s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised as goodwill. Shareholdings in Subsidiary Companies Invercargill City Holdings Limited has the following subsidiaries. Shareholdings are as follows: Electricity Invercargill Limited 13,, $1. Ordinary Shares (1%) Invercargill City Forests Limited 2,774,7 $1. Ordinary Shares (1%) Invercargill Airport Limited 1,828,58 $1. Ordinary Shares (55%) Invercargill City Property Limited 1,, $1. Ordinary Shares (1%) (ii) Basis of Consolidation - Purchase Method The purchase method is used to prepare the consolidated financial statements, which involves adding together like items of assets, liabilities, equity, income and expenses on a line-by-line basis. All significant intragroup balances, transactions, income and expenses are eliminated on consolidation. The Company s investments in its subsidiaries are carried at deemed cost in the Company s own parent entity financial statements. Deemed cost is based on the net asset value of the subsidiary on conversion to NZ IFRS. Statement of Intent June

36 (iii) Associates The group accounts for an investment in an associate in the group financial statements using the equity method. An associate is an entity over which a Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. The investment in an associate is initially recognized at cost and the carrying amount is increased or decreased to recognise the Company s share of the surplus or deficit of the associate after the date of acquisition. The Company s share of the surplus or deficit of the associate is recognised in the Company s Statement of Comprehensive Income. Distributions received from an associate reduce the carrying amount of the investment. The Company s share in the associate s surplus or deficits resulting from unrealised gains on transactions between the Company and its associates is eliminated. The Company s investments in associates are carried at cost in the Company s own parent entity financial statements. (iv) Joint Ventures Joint ventures are those entities over which the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group s proportionate share of the joint venture entities assets, liabilities, revenue and expenses with items of a similar nature on a line-by-line basis, from the date joint control commences until the date joint control ceases. (v) Revenue Revenue is measured at the fair value of consideration received. Revenue from the rendering of services is recognised by reference to the stage of completion of the transaction at balance date, based on the actual service provided as a percentage of the total services to be provided. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be reliably estimated and there is no continuing management involvement with the goods. Interest income is recognised using the effective interest method. Dividends are recognised when the right to receive payment has been established. Contributions from customers in relation to the construction of new lines for the network are accounted for as income in the year in which they have been received. (vi) Construction Contracts Contract revenue and contract costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract at balance date. The stage of completion is measured by reference to the contract costs incurred up to balance date as a percentage of total estimated costs for each contract. Statement of Intent June

37 Contract costs include all costs directly related to specific contracts, costs that are specifically chargeable to the customer under the terms of the contract and an allocation of overhead expenses incurred in connection with the group s construction activities in general. An expected loss on construction contracts is recognised immediately as an expense in the Statement of Comprehensive Income. Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense as incurred, and where it is probable that the costs will be recovered, revenue is recognised to the extent of costs incurred. Construction work in progress is stated at the aggregate of contract costs incurred to date plus recognised profits less recognized losses and progress billings. If there are contracts where progress billings exceed the aggregate costs incurred plus profits less losses, the net amounts are presented under other liabilities. (vii) Borrowing Costs Borrowing costs are recognised as an expense in the period in which they are incurred. (viii) Income Tax Income tax expense in relation to the surplus or deficit for the period comprises current tax and deferred tax. Current tax is the amount of income tax payable based on the taxable profit for the current year, plus any adjustments to income tax payable in respect of prior years. Current tax is calculated using rates that have been enacted or substantively enacted by balance date. Deferred tax is the amount of income tax payable or recoverable in future periods in respect of temporary differences and unused tax losses. Temporary differences are differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences or tax losses can be utilised. Deferred tax is not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of an asset and liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax is recognised on taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the company can control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 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, using tax rates that have been enacted or substantively enacted by balance date. Current tax and deferred tax is charged or credited to the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the tax is dealt with in equity. Statement of Intent June

38 (ix) Leases Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term. (x) Cash and Cash Equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the Statement of Financial Position. (xi) Trade And Other Receivables Trade and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted using the effective interest method. (xii) Inventories Inventories (such as spare parts and other items) held for distribution or consumption in the provision of services that are not supplied on a commercial basis are measured at the lower of cost and current replacement cost. Inventories held for use in the production of goods and services on a commercial basis are valued at the lower of cost and net realisable value. The cost of purchased inventory is determined using the FIFO method. The write down from cost to current replacement cost or net realisable value is recognised in the Statement of Comprehensive Income. (xiii) Financial Assets Where applicable the Group classifies its investments in the following categories: Financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date. Financial Assets at Fair Value Through Profit Or Loss Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose of selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are designated as hedges. Statement of Intent June

39 Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the company provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet. Held-to-Maturity Investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the company s management has the positive intention and ability to hold to maturity. Available-for-Sale Financial Assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Noncurrent assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans and receivables and heldto-maturity investments are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category, including interest and dividend income, are presented in the income statement within other income or other expenses in the period in which they arise. The Company classifies its financial assets (excluding derivatives) as loans and receivables. Loans and receivables are classified as trade and other receivables in the Statement of Financial Position. Investments in this category include loans to subsidiaries. Impairment of Financial Assets At each Statement of Financial Position date, the Company assesses whether there is any objective evidence that a financial asset or group of financial assets is impaired. Any impairment losses are recognised in the Statement of Comprehensive Income. (xiv) Financial Instruments Receivables Trade and other receivables are recognised initially at fair value. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Statement of Intent June

40 Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant amount of risk of changes in value. Trade and Other Payables Trade and other payables are initially measured at fair value, and subsequently measured at amortised cost using the effective interest method. Borrowings Borrowings are recognised initially at fair value, net of any transaction costs incurred. Borrowings are subsequently stated at amortised cost; any differences between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability at least 12 months after the balance date. Accounting for Derivative Financial Instruments and Hedging Activities The Company uses derivative financial instruments to hedge exposure to foreign exchange and interest rate risks arising from financing activities. In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at each balance date. However, where derivatives qualify for hedge accounting, recognition for any resultant gain or loss depends on the nature of the hedging relationship. Cash Flow Hedge Changes in the fair value of the derivatives hedging instruments designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, change in fair value are recognised in Statement of Comprehensive Income. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. The amount recognised in equity is transferred to revenue or expenditure in the same period that the hedged item affects the Statement of Comprehensive Income. (xv) Property, Plant and Equipment Property, plant and equipment are shown at cost or valuation, less accumulated depreciation and impairment losses. Certain items of property, plant and equipment that had been revalued to fair value on or prior to 1 July 25, the date of transition to NZ IFRS are measured on the basis of deemed cost, being the revalued amount at the date of transition. Statement of Intent June

41 Additions The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to the Company and the cost of the item can be measured reliably. In most instances, an item of property, plant and equipment is recognized at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value as at the date of acquisition. Electricity Invercargill Limited Network Assets acquired between 1 April 24 and 31 March 25 (pre transition) are stated at deemed cost, with all Network Assets acquired since that date stated at purchase cost. All other assets are stated at historical cost. Disposals are written back against the asset cost with any necessary adjustments to accumulated depreciation. Disposals Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the Statement of Comprehensive Income. When revalued assets are sold, the amounts included in asset revaluation reserves in respect of those assets are transferred to retained earnings. Subsequent Costs Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Company and the cost of the item can be measured reliably. Depreciation Depreciation is provided on all property, plant and equipment other than land, at rates that will write off the cost (or valuation) of the assets to their estimated residual values over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows: (a) Buildings Electricity Invercargill Limited, 1% - 15% Straight Line/Diminishing Value Invercargill Airport Limited, 3% Straight Line (b) Furniture and Fittings Invercargill Airport Limited, 9.5% - 33% Diminishing Value (c) Office Equipment Electricity Invercargill Limited, 5% - 48% Straight Line/Diminishing Value (d) Plant Electricity Invercargill Limited, 5% - 48% Straight Line/Diminishing Value Invercargill Airport Limited, 7.5% - 5% Diminishing Value (e) Motor Vehicles Invercargill Airport Limited, 1% - 12% Diminishing Value Statement of Intent June