Rotorua Lakes Council 2016 Annual Report and Treasury Update

Draft operating result $1.4m better than budget Revenues $1.8m ahead of budget Expenditure $0.4m more than budget, mainly depreciation Achieved $1m efficiency saving targeted in LTP ($9.3m over the last 2.5 years)

2016 Capital expenditure 5 significant projects deferred - $9.8m Capital revenue less than budget due to deferred projects Capital expenditure $12.8m less than budget

2016 Capital expenditure by activity

Financial position at 30 June 2016 Cash on hand increased by $3.3m (budget was no increase) Borrowing reduced by $1.9m (Budget was to borrow $7m) $12m improvement on budget

Borrowings and Cash & Near Cash Investments

Net debt = total borrowings less cash and near cash investments

Borrowings refinanced with Credit rating & average interest rates 1.Realising benefit of AA- rating and current interest rate market with low long term rates secured 2.$49m refinanced since credit rating with savings of $70k per year 3.Opportunity to lower average interest rates with re-financing of average 5.53% debt 4.Future savings from credit rating – 15 to 20 basis points (approx $200,000 per annum)

2016 Annual Report Draft – Borrowings (note 22) 1.Reflects total debt of $164.1m on behalf is: -Airport $15.0m -Rotorua Contracting $1.0m 2.$3.4m facility held directly by airport in their own managed facility of which $1.9m was retired at June Total group debt is $165.6m 4.Reflects the placement of debt longer term post airport transfer avg interest rate = 5.38% 2016 avg interest rate = 4.71%

Debt maturity profile Issues to address: 1.Debt maturity profile shows peak in $98.7m held with LGFA – 2020 is LTP forecasted debt increase to support sewage projects ($26m) Plans: 1.Work with treasury advisor Bancorp to understand and manage risk: -potentially establish limits on borrowing to be held with LGFA -derivatives to help manage the interest rate exposure in Implementing hedge book pro software package to compliment our treasury management.

2016 Annual Report – Derivative financial instruments (note 13) 1.RLC has 1 interest rate swap for $10m fixed for floating at 5.25% maturing November Fair value assessment completed by Bancorp resulting in a liability increase of $197k 3.This is a reflection of market interest rates being low 4.Balance of council debt is on fixed rate basis with spread in maturity.

2016 Annual Report – Liquidity Update Facilities swapped Westpac ($30m) for BNZ ($25m. Annual savings $65,000 Facilities swapped Westpac ($30m) for BNZ ($25m. Annual savings $65,000

Receivables and Financial Assets

2016 Annual Report draft – Debtors and other receivables (note 12) 1.Provision for impairment Rates + $244k General Debtors -$184k 2. Prepayments I ncrease due to insurance renewal period moving from 12 to 15 months.

Rates collections

2016 Annual Report draft – Other financial assets (note 14) 1.Investment in Airport – Equity to support asset transfer 2.Investment in Rotorua Contracting – Equity to support asset transfer 3.Investment Growth in Borrower notes – mandatory based on LGFA borrowings (interest bearing)

2016 Annual Report draft – Intangible assets (carbon credits) 1.Significant increase in market value (spot rate) of ETS units 2.Price 2015 was $6.50 / unit and 2016 $17.87 / unit 3.Portion to be retired in relation to landfill operations to June 2016 is $277k 4.Council holds uncommitted credits valued at $1,063k 5.Assess need for these units given change in landfill operations, potential to sell.

Annual Report - fixed assets

2016 Asset revaluations Cyclical valuation for 2016 is roading and footpaths Book value of assets at June 2015 $334m Asset system matching and review well underway Data is held in RAMM database and record maintenance managed by OPUS Expect a revaluation gain of % (approx. +23m to +$34m) Asset record capture and maintenance to be reviewed as part of revaluation with goal of moving to annual revaluations for roading and footpaths Expect revaluation process to be a big focus for Audit New Zealand

Other fixed asset considerations Asset Impairment Entries 2015 major impairment: Out of the forest assets 2016 impairment review underway for all asset categories Community House City Focus Building Review of Work In Progress 2015 WIP $8.4m 2014 WIP $16.3m 2016 Capital Spend $22.1m Large focus is again being placed on review of capital work in progress and timely capitalisation of 2016 spend as part of the on-going review of fixed asset accounting.

2016 Annual Report – next steps 1.Complete RLC final year-end review and classification entries 2.Finalise roading asset revaluation and asset capitalisation 3.Complete Rotorua Contracting Annual Report 4.Receive other CCO completed reports 5.Consolidate subsidiaries and prepare group accounts 6.Audit New Zealand review through September – 3 weeks 7.Final compilation and audit clearance in October 8.Annual Report adopted by new Council end of October Note: With Rotorua contracting CCO establishment timing (1 Aug) & airport asset transfer timing (28 Feb) there will be movement between cost categories in final statements. Overall cash result will not change.

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