The net surplus is the difference between the expenses the Council incurred during the year and the income the Council received. It is represented by the following formula:
Net Surplus = Total income – Total expenses
The Council recorded a net surplus of $28.2 million. The budgeted net surplus was $37.4 million. The net surplus for the year was $9.2 million less than budgeted.
The net surplus for the year includes income that was received to pay for capital projects such as funding from NZTA for roading projects and Housing New Zealand for the upgrades to our social housing. As the cost for capital projects is not recorded in the Statement of Comprehensive Financial Performance the Council budgets to generate a surplus.
Total comprehensive income of $42.1 million represents the net surplus of $28.2 million adjusted for fair value movements of some of our assets including plant and equipment and financial instruments such as cash flow hedges. These movements are non-cash in nature and reflect changing fair value of assets the Council owns.
The majority of the budgeted net surplus of $37.4 million is due to funding received from the Crown to fund capital expenditure projects.
|Budgeted Net Surplus||37,426|
|Value of assets vested to Council||10,519|
|These are assets transferred between the Council and an external party and are recognised as revenue or expense accordingly. The majority are infrastructural assets that have been constructed by developers and transferred to the Council on completion.|
|Net fair value gain/(loss)||5,683|
|These amounts reflect changes in the fair value of our investment properties, loans to related parties and interest rate swaps. These movements are non-cash in nature.|
|Net surplus/(deficit) from Wellington Waterfront and Venues Projects and joint ventures||(6,764)|
|The financial performance (deficit) of these entities is not included in the budget and is subtracted. (Excludes fair value movements and gains or losses on the disposal of assets shown separately)|
|Changes to External Funding for Capital Expenditure||(6,675)|
|This income is received for specific capital projects and cannot be used to fund operating expenditure.|
|Net gain/(loss) on disposal of fixed assets||(1,127)|
|The Council does not budget for gains or losses on the disposal of assets|
|Certain depreciation charges are not funded through rates as they are either fully or partly funded by external parties|
|Surpluses and deficits from our housing and waste activities are ringfenced. Deficits are not rates funded.|
|Underlying funding surplus/(deficit)||(13,295)|
|Further breakdown follows.|
|Actual Net Surplus||28,187|
Underlying net surplus/deficit is the portion of the overall net surplus/(deficit) that has arisen from changes to operating income and operational expenditure as compared to budget. The underlying funding surplus/(deficit) is an important measure of the overall financial performance of the Council during the year.
The Council has recorded an underlying funding deficit in the current year of $13.3 million. This has arisen because the Council recorded expenditure relating to a reassessment of the provision for weathertight homes which has been partially offset by net savings in operational expenditure.
|Unbudgeted net revenue/(expenditure)|
|Restatement of weathertight homes provision||(14,965)|
|Provision for storm costs||(855)|
|Insurance costs (net of recoveries) funded through self-insurance reserve||(451)|
|Significant changes in net revenue/(expenditure)|
|Dividends in excess of budget (including Wellington International Airport Ltd)||1,624|
|Decrease in income from activities||(3,276)|
|Decrease in depreciation||2,820|
|Decrease in rates revenue||(2,228)|
|Decrease in net interest expense||1,997|
|Other net variances||2,039|
|Total underlying funding deficit||(13,295)|
The movement in the weathertight homes provision is separately funded through a combination of rates and borrowings so is added back to calculate the underlying surplus available for use. The Council has already agreed to use $3 million of the 2012/13 surplus to fund the Wellington Economic Initiatives Development Fund and therefore has an underlying funding surplus to carry forward of $10.5 million.
|Opening underlying funding surplus from previous years||1,940|
|Items separately rates funded in prior year|
|Movement in weathertight homes provision||9,903|
|Underlying surplus carried forward from previous years||11,843|
|Movement in underlying funding deficit from this year's result||(13,295)|
|Items separately rates funded|
|Movement in weathertight homes provision||14,965|
|Adjusted available underlying surplus||13,513|
|Transfer to reserves|
|Funding Wellington Economic Initiatives Development Fund||(3,000)|
|Remaining underlying funding surplus to carry forward||10,513|
5 Year Trend ($M)
2013 Results compared with Annual Plan
The Council received total income of $446.4 million during the year.
Rates are the main source of funding for the Council with revenue from operating activities, which includes user fees, being the next largest source. Other sources of income for the Council include income for capital expenditure, income from interest and dividends.
General rates revenue is collected based on property rateable values. Currently commercial properties pay rates at a higher level on their rateable value than non-commercial properties. This is called the rates differential. The rates differential during the year is shown in the graph below. Currently the ratio is 1:2.8.
The total expenses incurred by the Council during the year were $418.2 million which represents the cost of running the city during the year. The activities of the Council are divided into strategic areas of focus:
Cost per strategic area per resident per day
|Strategic area||Total cost |
|Cost per resident per year |
|Cost per resident per day |
|Social and Recreation||96.7||483||1.32|
When we’re deciding how to fund an activity (whether to use rates, user charges, or other sources of income), we consider:
Our Revenue and Financing Policy sets out how each Council activity will be funded, based on these criteria. The policy is available on our website www.Wellington.govt.nz
Net worth is the difference between the total assets and the total liabilities of the Council. Net worth is represented in the financial statements by the balance of equity.
Assets and liabilities – five year trend $M
The major assets of the Council include:
During the year $134.1 million was spent on constructing and developing assets around Wellington that contributed to the balance of Property, Plant and Equipment. The chart below shows how much was spent on each strategic area during the year for constructing and developing assets:
The major liabilities of the Council include:
The Council uses borrowings to fund the purchase or construction of new assets or upgrades to existing assets that are approved though the Annual Plan and Long-term Plan process.
Net Borrowings = Gross Borrowings – Cash and Cash Equivalents.
Net borrowings – five year trend $M
Net borrowings increased by $5.0 million during the year. The net borrowings at the end of the year is $10.1 million less than budgeted in the 2012/13 Long-term Plan. The difference is due to changes in the timing of capital projects and savings in capital expenditure.
The Council continues to maintain a strong investment position when compared with the level of borrowings. The graph below compares the balance of investments and net borrowings over the last five years.
Investments and borrowings – five year trend $M
The balance of investments primarily comes from investment properties, our share of the net assets of our associates (including Wellington International Airport Limited) and other financial assets.
During the year the Council maintained its AA credit rating with Standard and Poors. The credit rating is a comparative measure of the financial strength of the Council. The AA rating held by the Council is the highest attributed to councils across New Zealand. Holding and maintaining such a high credit rating provides a range of benefits to the Council that would not otherwise be available. These benefits include access to lower cost borrowings and access to a wider range of borrowing alternatives.
The Council has met all of the core policy compliance requirements set out in its Investment and Liability Management Policy.
The prudential limits are set out in the table below:
|Prudential limits||Policy Limit||Actual||Compliance|
|Borrowings as a % of equity||<10%||5.5%||Yes|
|Borrowings as a % of income||<150%||78.7%||Yes|
|Net interest as a % of annual rates income||<15%||8.4%||Yes|
Equity is based on the 30 June 2013 Annual Report
Net interest, Net borrowings, Annual Rates and Income are based on 30 June 2013 figures
The policy limit for net borrowings as a percentage of income for the Council of 150% is significantly less than the Local Government Funding Agency policy limit of 250%. The Council is comfortably in compliance with the prudential limits set out in the Investment and Liability Management Policy
|Interest rate risk control limits |
(interest rate exposure)
|Fixed interest proportion||50–95%||84%||Yes|
|Broken down as follows:|
|1–3 year bucket||20–60%||24%||Yes|
|3–5 year bucket||20–60%||23%||Yes|
|5–10 year bucket||20–60%||53%||Yes|
|Liquidity/funding risk (access to funds)||Policy Limit||Actual||Compliance|
|Liquidity/funding risk (access to funds)||>110%||114%||Yes|
|Broken down as follows:|
|1–3 year bucket||20–60%||60%||Yes|
|3–5 year bucket||20–60%||21%||Yes|
|5–10 year bucket||15–60%||19%||Yes|
“Liquidity” is defined as Current borrowings committed loan facilities divided by 12 month peak borrowings (for the purposes of measuring liquidity short dated Commercial paper is excluded).
The Group comprises the Council and its interests in associate and subsidiary entities. These entities include Wellington International Airport Limited and Capacity. Refer to Note 38 of the financial statements for the full Group structure diagram.
The results for the year ended 30 June 2013 reflect the delivery of high-quality, cost-effective services and products to the residents of Wellington.
The 2013/14 Annual Plan sets out the Council’s planned operating expenditure programmes for the 2013/14 year. The following graphs highlight the Council’s spending plans for the 2013/14 financial year.
Operational Expenditure 2013/14
Total operational expenditure: $388.7 million.
Capital Expenditure 2013/14