Financial Statements

Wellington City Council and Group​
Consolidated Financial Statements
For the year ended 30 June 2016

Contents

      Page
    Statement of Compliance and Responsibility 141
    Council and Group structure 142
    Basis of Consolidation 143
      Statement of Comprehensive Revenue and Expense 144
  – Major budget variations 146
     
Note    
1 Rates revenue 147
2 Revenue from operating activities 148
3 Investments revenue 150
4 Vested assets and other revenue 151
5 Fair value gains 152
6 Finance expense 153
7 Expenditure on operating activities 154
8 Depreciation and amortisation 156
9 Share of associates’ and jointly controlled entity’s surplus or deficit 158
10 Income tax expense 159
       
       
      Statement of Financial Position 160
  – Major budget variations 162
     
11 Cash and cash equivalents 163
12 Derivative financial instruments 164
13 Receivables and recoverables 165
14 Other financial assets 168
15 Non-current assets classified as held for sale 170
16 Intangibles 171
17 Investment properties 173
18 Property, plant and equipment 174
19 Investment in controlled entities 185
20 Investment in associates and jointly controlled entity 186
21 Exchange transactions, taxes and transfers payable 189
22 Revenue in advance 190
23 Borrowings 191
24 Employee benefit liabilities and provisions 193
25 Provisions for other liabilities 195
26 Deferred tax assets and liabilities 199
       
      Statement of Changes in Equity 200
  – Major budget variations 202
     
27 Revaluation reserves 203
28 Hedging reserve 205
29 Fair value through other comprehensive revenue and expense reserve 206
30 Restricted funds 207
       
       
      Statement of Cash Flows 209
      – Major budget variations 210
     
31 Reconciliation of net surplus to net operating cash flows 211
     
  Other disclosures  
32 Financial instruments 212
33 Commitments and carry forwards 220
34 Contingencies 222
35 Jointly controlled assets 224
36 Related party disclosures 225
37 Remuneration and staffing levels 229
38 Events after the end of the reporting period 232
     
     
  Other significant accounting policies 233

Statement of Compliance and Responsibility

Reporting entity

Wellington City Council is a territorial local authority governed by the Local Government Act 2002.

The primary purpose of the Council and Group is to provide goods or services for community or social benefits rather than making a financial return. As a defined public entity under the Public Audit Act 2001, the Council is audited by the Office of the Auditor General and is classed as a Public Sector Public Benefit Entity for financial reporting purposes.

The reported Council figures includes the results and operations of Wellington City Council and the Council’s interests in the joint ventures as disclosed in Note 35: Jointly controlled assets (page 224).

The reported Group figures includes the Council (as defined above), its controlled entities (subsidiaries) as disclosed in Note 19 (page 185) and the Council’s equity accounted interest in the associates and a jointly controlled entity as disclosed in Note 20 (page 186). A structural diagram of the Council and Group is included on the following page.

Compliance

The Council and management of Wellington City Council confirm that all the statutory requirements in relation to the Annual Report, as outlined in Schedule 10 of the Local Government Act 2002, including the requirement to comply with New Zealand Generally Accepted Accounting Practice (NZ GAAP) have been complied with.

The financial statements have been prepared to comply with Public Sector Public Benefit Entity Accounting Standards (PBE accounting standards) for a Tier 1 entity1 and were authorised for issue by the Council on 28 September 2016.

Responsibility

The Council and management accept responsibility for the preparation of the annual financial statements and judgements used in them. They also accept responsibility for establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting.

In the opinion of the Council and management, the Annual Report for the year ended 30 June 2016 fairly reflect the financial position, results of operations and service performance achievements of Wellington City Council and Group.

Celia Wade-Brown signature. Kevin Lavery signature. Andy Matthews signature.
Celia Wade-Brown
Mayor
Kevin Lavery
Chief Executive
Andy Matthews
Chief Financial Officer
28 September 2016 28 September 2016 28 September 2016
  1. A Tier 1 entity is defined as being either, publicly accountable or large (ie. expenses over $30m). Council exceeds the expenses threshold.

Council and Group StructureTop

Wellington City Council Reporting Entity (Council)

Council and Group Structure

Wellington City Council Group Reporting Entity (Group)

Wellington City Council Group Reporting Entity (Group)

All entities included within the Group are domiciled in Wellington, New Zealand.

The percentages above represent the Council’s interest and/or ownership (for accounting purposes) in each of the entities in the Group. Refer to Notes 19 and 20 (pages 185 and 186) for more information.

  1. The legal name of Positively Wellington Tourism is Partnership Wellington Trust. The operations of the Trust were transferred to Wellington Regional Economic Development Agency Limited with effect from 1 January 2015. The winding up of the Trust has not been completed as at 30 June 2016.
  2. Wellington Regional Economic Development Agency Limited (WREDA) is a combination of the previously held activities of the Wellington Venues Limited and Positively Wellington Tourism entities. In 2015 WREDA acquired 100% ownership of Grow Wellington Limited and indirectly Creative HQ Limited from Greater Wellington Regional Council. As at 30 June 2016 Grow Wellington was fully amalgamated into the operations of WREDA.

Basis of Consolidation

Joint ventures

Joint ventures are binding contractual arrangements with other parties to jointly control an undertaken activity. The accounting treatment can vary according to the structure of the venture concerned. The two structure types are either a jointly controlled asset or a jointly controlled entity.

For a jointly controlled asset the Council has a liability in respect of its share of joint ventures’ operational deficits and liabilities, and shares in any operational surpluses and assets. The Council’s proportionate interest (ie 21.5% of the Spicer Valley landfill) in the assets, liabilities, revenue and expenditure is included in the financial statements of the Council and Group on a line-by-line basis.

For a jointly controlled entity the Council chooses to use the equity accounting treatment option available as it better reflects its investment in the joint venture. The investment is initially recognised at cost, and adjusted thereafter for the post-acquisition changes in the Council’s share of net assets/equity of the entity. The Council’s share of the surplus or deficit of the entity is included in the Group’s surplus or deficit on a single line.

Controlled entities

Controlled entities are entities that are controlled by the Council. In the Council financial statements, the investment in controlled entities are carried at cost. In the Group financial statements, controlled entities are accounted for using the purchase method where assets, liabilities, revenue and expenditure are added on a line-by-line basis. Where a non-controlling interest is held by another party in a Council controlled entity, the controlled entity is consolidated as if it was fully controlled and the share of any surplus or deficit attributable to the non-controlling interest is disclosed within the Statement of Comprehensive Revenue and Expense.

All significant transactions between Group entities, other than rates, are eliminated on consolidation. Rates are charged on an arm’s length basis and are not eliminated to ensure that reported costs and revenues are consistent with the Council’s Annual Plan.

Associates

Associates are entities where the Council has significant influence over their operating and financial policies but they are not controlled entities or joint ventures. In the Council financial statements, the investments in associates are carried at cost. In the Group financial statements, the Council’s share of the assets, liabilities, revenue and expenditure of associates is included on an equity accounting basis as a single line.

Council Controlled Organisations

The Council has established several Council Controlled Organisations (CCO’s) and Council Controlled Trading Organisations (CCTO’s) to help it achieve its goals for Wellington. These organisations were set up to independently manage Council facilities, or deliver specific services and developments on behalf of Wellington residents. Information on these organisations is found across the relevant sections of the Statements of Service Provision. Council has made appointments to other organisations, which make them Council Organisations (as defined in the Local Government Act 2002) but they are not Council controlled or part of the Group.

Statement of Comprehensive Revenue and Expense

For the year ended 30 June 2016

    Council Group
  Note Actual
2016
$000
Budget
2016
$000
Actual
2015
$000
Actual
2016
$000
Actual
2015
$000
Revenue            
Rates 1 272,127 270,907 253,574 272,127 253,574
Revenue from operating activities            
Development contributions 2 2,747 2,000 2,078 2,747 2,078
Grants, subsidies and reimbursements 2 33,083 42,511 40,826 44,383 53,213
Other operating activities 2 124,926 121,287 121,482 135,235 132,639
Investments revenue 3 23,204 20,135 24,176 11,145 11,257
Vested assets and other revenue 4 13,732 1,050 14,400 13,732 14,400
Fair value gains 5 14,173 4,289 10,515 14,177 10,515
Finance revenue   3,103 13 2,839 3,407 3,213
Total revenue   487,095 462,192 469,890 496,953 480,889
             
Expense            
Finance expense 6 (24,223) (22,961) (23,238) (24,223) (23,239)
Expenditure on operating activities 7 (329,583) (316,333) (310,335) (347,721) (330,454)
Depreciation and amortisation expense 8 (99,183) (99,797) (99,009) (100,970) (100,024)
Fair value reductions   - - (1,766) - (1,794)
Total expense   (452,989) (439,091) (434,348) (472,914) (455,511)
             
Share of equity accounted surplus/(deficit) from associates and jointly controlled entity 9 - - - 12,811 11,612
             
Net surplus before taxation   34,106 23,101 35,542 36,850 36,990
             
Income tax credit/(expense) 10 - - - (240) (609)
NET SURPLUS for the year   34,106 23,101 35,542 36,610 36,381
             
Net surplus attributable to:            
Wellington City Council and Group   34,106 23,101 35,542 36,610 36,281
Non-controlling interest   - - - - 100
    34,106 23,101 35,542 36,610 36,381

The notes on pages 146 to 234 form part of and should be read in conjunction with the financial statements

Statement of Comprehensive Revenue and Expense – continued

For the year ended 30 June 2016

    Council Group
  Refer Actual
2016
$000
Budget
2016
$000
Actual
2015
$000
Actual
2016
$000
Actual
2015
$000
Net surplus for the year   34,106 23,101 35,542 36,610 36,381
Other comprehensive revenue and expense 1            
Items that will be reclassified to surplus/(deficit)            
Cash flow hedges:            
Fair value movement - net SCIE2 (21,268) - (17,059) (21,268) (17,059)
Fair value through other comprehensive revenue and expense            
Fair value movement - net SCIE 1,542 - 43 1,521 442
Items that will not be reclassified to surplus/(deficit)            
Non-contolling interest:            
Movement in non-controlling interest   - - - (32) 316
Revaluations:            
Fair value movement - property, plant and equipment - net SCIE (211) - 11,168 (211) 11,168
Share of other comprehensive revenue and expense of associates and jointly controlled entity:            
Fair value movement - property, plant and equipment - net SCIE - - - - 3,862
Effect of changed shareholding in associates SCIE - - - - 27
             
Total other comprehensive revenue and expense   (19,937) - (5,848) (19,990) (1,244)
TOTAL COMPREHENSIVE REVENUE and EXPENSE for the year   14,169 23,101 29,694 16,620 35,137
             
             
Total comprehensive revenue and expense attributable to:            
Wellington City Council and Group   14,169 23,101 29,694 16,620 35,037
Non-controlling interest   - - - - 100
    14,169 23,101 29,694 16,620 35,137
  1. Other comprehensive revenue or expense is non-cash in nature and only reflects changes in equity.
  2. Statement of Changes in Equity – see page 200.

The notes on pages 146 to 234 form part of and should be read in conjunction with the financial statements

Statement of Comprehensive Revenue and Expense - Major budget variations

Significant variations from budgeted revenues and expenses are as follows:

Revenues were $24.903m higher than budgeted primarily due to:

These higher revenues were offset by $9.428m of lower than budgeted grants, subsidies and reimbursements primarily reflecting the delayed recognition of capital grants relating to the housing upgrade project.

Expenses were $13.898m higher than budgeted primarily due to:

These higher expenses were offset by $0.614m of lower depreciation costs largely due to City Housing valuations (2015) being lower than expected, lower property capital expenditure on Earthquake Resilience, both offsetting accelerated depreciation costs on IT assets due to be phased out in 2016/17.

Note 1: Rates revenue

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
General rates        
Base sector 83,317 73,417 83,317 73,417
Commercial, industrial and business sector 68,315 60,835 68,315 60,835
Targeted rates        
All (excluding water rates by meter) 105,897 106,640 105,897 106,640
Total rates revenue (excluding water rates by meter) 257,529 240,892 257,529 240,892
Water rates by meter revenue 14,598 12,682 14,598 12,682
TOTAL RATES REVENUE 272,127 253,574 272,127 253,574

The total amount of rates charged on Council owned properties that have not been eliminated from revenue and expenditure is $12.752m (2015: $11.623m). For the Group, rates of $12.787m (2015: $11.657m) have not been eliminated.

The revenue from rates for Wellington City Council was billed on the following rating information held as at 30 June 2015.

The number of rating units: 77,271 (30 June 2014: 76,680).

  2016
$000
2015
$000
Total capital value of rating units 51,685,784 51,238,236
Total land value of rating units 22,326,668 22,259,307

Relevant significant accounting policies

Rates are set annually by resolution from the Council and relate to a particular financial year. All ratepayers are invoiced within the financial year for which the rates have been set. Rates revenue is recognised in full as at the date when rate assessment notices are sent to the ratepayers. Rates are a tax as they are payable under the Local Government Ratings Act 2002 and therefore meet the definition of non-exchange.

Water rates by meter are regulated in the same way as other rates and are taxes that use a specific charging mechanism to collect the rate. However, as the rates charged are primarily based on a per unit of consumption basis, water rates by meter are considered to be more in the nature of an exchange transaction. Revenue from water rates by meter is recognised on an accrual basis based on usage.

Rates remissions

Revenue from rates and levies is shown net of rates remissions. The Council’s Rates Remission and Postponement Policies provide for general rates to be partially remitted for rural open space; land used principally for games or sport and in special circumstances (where the rating policy is deemed to unfairly disadvantage an individual ratepayer). A remission of the Downtown levy targeted rate may also be granted to provide rates relief for downtown commercial property temporarily not fit for the purpose due to the property undergoing development and therefore not receiving the benefits derived by contributing to the Downtown levy targeted rate. The Council committed itself at the start of the year to certain remissions, which for the reporting period ended 30 June 2016 totalled $0.407m (2015: $0.378m).

Non-rateable land

Under the Local Government (Rating) Act 2002 certain properties are non-rateable. This includes schools, churches, public gardens and certain land vested in the Crown. This land is non-rateable in respect of general rates but, where applicable, is rateable in respect of sewerage and water. Non-rateable land does not constitute a remission under the Council’s Rates Remission and Postponement Policies.

Note 2: Revenue from operating activities

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Development contributions 2,747 2,078 2,747 2,078
         
Grants, subsidies and reimbursements        
Operating 7,107 7,735 17,610 15,872
Capital 25,976 33,091 26,773 37,341
Total grants, subsidies and reimbursements 33,083 40,826 44,383 53,213
         
Other operating activities        
Fines and penalties 6,968 7,857 6,968 7,857
Rendering of services 111,268 107,709 120,294 117,700
Sale of goods 6,690 5,916 7,973 7,082
Total other operating activities 124,926 121,482 135,235 132,639
TOTAL REVENUE FROM OPERATING ACTIVITIES 160,756 164,386 182,365 187,930

For the Council, the principal grants and reimbursements are from:

For the Group, the additional principal subsidy was $3.718m (2015: $6.949m) from Greater Wellington Regional Council to Wellington Cable Car Limited for the maintenance and upgrade of the overhead wire trolley system.

For other operating activities of Council, the principal services rendered (provided) were:

Relevant significant accounting policies

Revenue from operating activities is generally measured at the fair value of consideration received or receivable.

The Council undertakes various activities as part of its normal operations which generates revenue, but generally at below market prices or at fees and user charges subsidised by rates. The following categories (except where noted) are classified as transfers, which are non-exchange transactions other than taxes.

See Note 13: Receivables and recoverables (page 167), for an explanation of exchange and non-exchange transactions, transfers and taxes.

Development contributions

Development contributions are recognised as revenue when the Council provides, or is able to provide, the service for which the contribution was charged. Until such time as the Council provides, or is able to provide the service, development contributions are recognised as liabilities.

Grants, subsidies and reimbursements

Grants, subsidies and reimbursements are initially recognised at their fair value where there is reasonable assurance that the monies will be received and all attaching conditions will be complied with. Grants and subsidies received in relation to the provision of services are recognised on a percentage of completion basis. Reimbursements (eg NZTA roading claim payments) are recognised upon entitlement, which is when conditions pertaining to eligible expenditure have been fulfilled.

Fines and penalties

Revenue from fines and penalties (eg traffic and parking infringements, library overdue book fines) is recognised when infringement notices are issued or when the fines/penalties are otherwise imposed. In particular the fair value of parking related fines is determined based on the probability of collecting fines considering previous collection history and a discount for the time value of money.

Rendering of services

Revenue from the rendering of services (eg building consent fees) is recognised by reference to the stage of completion of the transaction, based on the actual service provided as a percentage of the total services to be provided. Under this method, revenue is recognised in the accounting periods in which the services are provided. Some rendering of services are provided at a market rate or on a full cost recovery basis (eg. Parking fees) and these are classified as exchange.

Sale of goods

The sale of goods is classified as exchange revenue. Sale of goods is recognised when products are sold to the customer and all risks and rewards of ownership have transferred to the customer.

Note 3: Investments revenue

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Dividend from investment in controlled entities - - - -
Dividend from investment in associates 12,059 12,950 - -
Dividend from investment in other entities 120 132 120 132
Investment property lease rentals 11,025 11,094 11,025 11,094
Proceeds from the sale of shares - - - 31
TOTAL INVESTMENT REVENUE 23,204 24,176 11,145 11,257

The primary investment dividend was from Council’s 34% holding in Wellington International Airport Limited.

The Council continues to maintain its current level of investment as it considers the dividend stream adds diversity to normal rates revenue. The investment holding is presently maintained as it is strategically, financially and economically prudent to do so.

Investments Revenue Table.

* In 2012, the original dividend of $8.826m was boosted by a one-off special dividend of $13.600m.

For further information refer to Note 20: Investment in associates and jointly controlled entity (page 186).

The rentals from investment property leases are primarily from ground leases around the CBD and on the waterfront. The Council periodically reviews its continued ownership of investment properties by assessing the benefits against other arrangements that could deliver similar benefits. Any assessment is based on both the strategic benefit of the investment/ownership and in terms of the most financially viable method of achieving the delivery of Council services.

For further information refer to Note 17: Investment properties (page 173).

Relevant significant accounting policies

Dividends

Dividends from equity investments are recognised when the Council’s right to receive payment has been established.

Investment property lease rentals

Lease rentals (net of any incentives given) are recognised on a straight line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which benefits derived from the leased asset is diminished.

Note 4: Vested assets and other revenue

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Vested assets 10,181 12,368 10,181 12,368
Other revenue 3,551 2,032 3,551 2,032
TOTAL VESTED ASSETS AND OTHER REVENUE 13,732 14,400 13,732 14,400

Vested assets are principally infrastructural assets such as roading, drainage, waste and water assets that have been constructed by developers. As part of the consents process, ownership of these assets is transferred to the Council, and on completion they become part of the city’s network. Vested assets are non-cash in nature and represent a future obligation to the Council, as the Council will have the on-going costs associated with maintaining the assets.

The values of principal vested assets received were:

Relevant significant accounting policies

Donated, subsidised or vested assets

Where a physical asset is acquired for nil or nominal consideration, with no conditions attached, the fair value of the asset received, as determined by active market prices, is recognised as non-exchange revenue when the control of the asset is transferred to the Council.

Gains

Gains include additional earnings (ie sale proceeds in excess of the book value) on the disposal of property, plant and equipment.

Donated services

The Council benefits from the voluntary service of many Wellingtonians in the delivery of its activities and services (eg beach cleaning and Otari-Wilton’s Bush guiding and planting). Due to the difficulty in determining the precise value of these donated services with sufficient reliability, donated services are not recognised in these financial statements.

Note 5: Fair value gains

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Investment property revaluation 13,773 8,552 13,773 8,552
Amortisation of loans to related parties 400 564 404 564
Derivatives at fair value through surplus or deficit - 137 - 137
Gain on investment acquisition - 1,262 - 1,262
TOTAL FAIR VALUE GAINS 14,173 10,515 14,177 10,515

Investment properties, which are revalued annually, are held primarily to earn rental revenue and/or for capital growth. These properties include the Council’s ground leases and land and buildings, including the waterfront’s investment properties.

The gain on investment acquisition in 2015 relates to the Council’s purchase of Grow Wellington Limited, from GWRC, which is now fully amalgamated into WREDA.

Relevant significant accounting policies

Gains

Gains include increases on the revaluation of investment property and in the fair value of financial assets and liabilities.

Investment properties

Investment properties are measured initially at cost and subsequently measured at fair value, determined annually by an independent registered valuer. Any gain or loss arising is recognised within surplus or deficit. Investment properties are not depreciated.

Derivatives

Movements on derivatives at fair value through surplus or deficit represents the fair value movements on interest rate swaps that do not meet the criteria for hedge accounting. Movements in the Group’s other derivatives that meet the criteria for hedge accounting, are taken to the cash flow hedge reserve and have no impact on the net surplus for the year.


Note 6: Finance expense

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Interest on borrowings 23,219 22,142 23,219 22,143
Interest on finance leases 14 29 14 29
Re-discounting of interest on provisions 990 1,067 990 1,067
         
TOTAL FINANCE EXPENSE 24,223 23,238 24,223 23,239
         
Less        
Finance revenue - interest earned 3,103 2,839 3,407 3,213
NET FINANCE COST 21,120 20,399 20,816 20,026

Relevant significant accounting policies

Interest on borrowings

Interest expense is recognised using the effective interest rate method. All borrowing costs are expensed in the period in which they are incurred.

Re-discounting of interest

Re-discounting of interest on provisions is the Council’s funding cost for non-current provisions (where the cash flows will not occur until a future date). For further information refer to Note 24: Employee benefit liabilities and provisions (page 193) and Note 25: Provisions for other liabilities (page 195).

Interest earned

Interest earned is recognised using the effective interest rate method.

Note 7: Expenditure on operating activities

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Auditor’s remuneration:        
Audit services - Audit New Zealand - Financial Statements 282 277 410 382
Audit services - Audit New Zealand - Long-term plan 45 135 45 135
Audit services - Audit New Zealand - other 11 34 11 34
Audit services - Other Auditors - - 35 35
         
Impairments        
Bad debts written off not previously provided for 282 307 282 334
Increase in provision for impairment of receivables and recoverables 437 452 437 452
Impairment loss from property, plant and equipment 132 5,072 581 5,072
Impairment loss on shares - - 18 6
         
Governance and employment        
Elected member remuneration 1,526 1,484 1,526 1,484
Independent Directors/trustees fees for controlled entities - - 354 406
Employee benefits expense:        
- Remuneration 79,343 79,518 101,994 99,229
- Superannuation contributions (including Kiwisaver) 2,253 2,108 2,767 2,526
- Termination benefits (including severances) 924 641 924 724
Other personnel costs 3,657 3,609 4,362 4,060
         
Insurance        
Insurance premiums 9,535 10,713 9,936 11,120
Insurance reserve costs - net 545 1,632 545 1,632
         
General        
Advertising, printing and publications 2,538 2,850 8,686 9,319
Consultants and legal fees 12,506 9,423 13,181 9,577
Contractors 3,083 3,205 5,046 5,269
Direct costs 110,894 109,788 115,651 118,590
Grants - general 18,542 10,910 17,924 11,028
Grants to controlled entities 19,842 17,614 - -
Information and communication technology 9,273 6,367 10,235 7,230
Loss on disposal of property, plant and equipment 1,827 354 2,174 335
Loss on disposal of intangibles - 24 - 24
Operating lease - minimum lease payments 1,313 1,311 2,613 2,527
Reassessment of provisions 12,079 1,045 12,079 1,045
Utility costs 19,632 18,899 20,073 19,360
Other general costs 19,082 22,563 15,832 18,519
         
TOTAL EXPENDITURE ON OPERATING ACTIVITIES 329,583 310,335 347,721 330,454

Auditor’s remuneration

During the period Audit New Zealand provided other services to the Council, namely assurance services relating to the Clifton Terrace Carpark managed by the Council on behalf of the NZTA and specialist assurance advice on shared IT services.

Impairments

The impairment loss from property, plant and equipment in 2015 primarily related to the Town Hall due to the building being earthquake prone. Its value in use was calculated as the difference between the expected value of the building after strengthening has been completed and the costs to strengthen it. The impairment amounted to $4.513m.

Governance and employment

Governance costs relate to the remuneration made to all elected members, comprising the Mayor, Councillors and Community Board members and also to directors appointed to boards of Controlled entities.

Employment costs relate to the remuneration paid directly to staff, other employee benefits such as Kiwisaver and other associated costs such as recruitment and training.

For further information refer to Note 37: Remuneration and staffing levels (page 229).

General

Direct costs are costs directly attributable to the rendering of Council services, including contracts, maintenance, management fees, materials and services.

Grants – general, include $2.250m (2015: $2.250m) towards the funding of the Museum of New Zealand, Te Papa Tongarewa.

Grants to controlled entities such as the Wellington Zoo Trust are for operational funding purposes. For details of the funding to these entities refer to Note 36: Related party disclosures (page 225).

Operating lease minimum lease payments are for non-cancellable agreements for the use of assets such as buildings and specialised computer equipment.

Reassessment of provisions primarily relates to the Weathertight homes provision. Refer to Note 25: Provisions for other liabilities (page 195) for more detailed information.

Utility costs are those relating to the use of electricity, gas, and water. It also includes the payment of rates and water meter charges of $12.824m (2015: $11.623m) on Council owned properties.

Relevant significant accounting policies

Grants and sponsorships

Expenditure is classified as a grant or sponsorship if it results in a transfer of resources (eg cash or physical assets) to another entity or individual in return for compliance with certain conditions relating to the operating activities of that entity. It includes any expenditure arising from a funding arrangement with another entity that has been entered into to achieve the objectives of the Council. Grants and sponsorships are distinct from donations which are discretionary or charitable gifts. Where grants and sponsorships are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the specified criteria have been fulfilled.

Cost allocation

The Council has derived the cost of service for each significant activity (as reported within the Statements of Service Provision). Direct costs are expensed directly to the activity. Indirect costs relate to the overall costs of running the organisation and include staff time, office space and information technology costs. These indirect costs are allocated as overheads across all activities.

Research and Development

Research costs are expensed as incurred. Development expenditure on individual projects is capitalised and recognised as an asset when it meets the definition and criteria for capitalisation as an asset and it is probable that the Council will receive future economic benefits from the asset. Assets which have finite lives are stated at cost less accumulated amortisation and are amortised on a straight-line basis over their useful lives.


Note 8: Depreciation and amortisation

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Depreciation        
Buildings 20,348 22,435 20,348 22,435
Civic Centre complex 2,739 2,793 2,739 2,793
Restricted buildings 1,521 1,430 1,521 1,430
Drainage, waste and water infrastructure 27,586 27,248 27,586 27,248
Service concession assets 4,969 4,969 4,969 4,969
Landfill post closure 145 136 145 136
Library collections 2,165 2,092 2,165 2,092
Plant and equipment 11,890 11,712 13,621 12,684
Roading infrastructure 23,341 21,857 23,341 21,857
Total depreciation 94,704 94,672 96,435 95,644
         
Amortisation        
Computer software 4,479 4,337 4,535 4,380
Total amortisation 4,479 4,337 4,535 4,380
TOTAL DEPRECIATION AND AMORTISATION 99,183 99,009 100,970 100,024

Depreciation (amortisation) is an expense charged each year to reflect the estimated cost of using our assets over their lives. Amortisation relates to ‘intangible’ assets such as software (as distinct from physical assets, which are covered by the term depreciation).

Relevant significant accounting policies

Depreciation

Depreciation is provided on all property, plant and equipment, with certain exceptions. The exceptions are land, restricted assets other than buildings, and assets under construction (work in progress). Depreciation is calculated on a straight-line basis, to allocate the cost or value of the asset (less any assessed residual value) over its estimated useful life.

The landfill post closure asset is depreciated over the life of the landfill based on the capacity of the landfill.

Amortisation

The amortisation of intangible assets is charged on a straight-line basis over the estimated useful life of the associated assets.

The estimated useful lives and depreciation rate ranges of the major classes of property, plant and equipment are as follows:

Asset Category 2016
  Useful Life
(years)
Depreciation
Rate
Land unlimited not depreciated
Buildings 1 - 75 1.33 - 100%
Civic Centre Complex 10 - 78 1.28 - 10%
Plant and equipment 3 - 100 1 - 33.3%
Library collection 3 -11 9.1 - 33.3%
Restricted assets (excluding buildings) unlimited not depreciated
Infrastructure assets:    

Land (including land under roads)

unlimited not depreciated

Roading

3 - 175 0.57 - 33.3%

Drainage, waste and water

3 - 175 0.57 - 33.3%

Service concession arrangements

3 - 100 1 - 33.3%

The variation in the range of lives for infrastructural assets is due to these assets being managed and depreciated by individual component rather than as a whole asset.

Computer software has a finite economic life and amortisation is charged to surplus or deficit on a straight-line basis over the estimated useful life of the asset. Typically, the estimated useful lives and amortisation rate range of these assets are as follows:

Asset Category 2016
  Useful Life
(years)
Amortisation
Rate
Computer software 2 - 10 10 - 50%

Note 9: Share of associates’ and jointly controlled entity’s surplus or deficit

The Council’s share of the results of the Chaffers Marina Holdings Limited, Wellington International Airport Limited and Wellington Water Limited is as follows:

  Group
  2016
$000
2015
$000
Chaffers Marina Holdings Limited    
Share of net surplus/(deficit) before tax (36) 4
Tax (expense)/credit - -
Share of associate’s surplus/(deficit) - Chaffers Marina Holdings Limited (36) 4
     
Wellington International Airport Limited    
Share of net surplus before tax 12,804 10,764
Tax (expense)/credit 1 424
Share of associate’s surplus/(deficit) - Wellington International Airport Limited 12,805 11,188
     
Wellington Water Limited    
Share of net surplus/(deficit before tax) 42 420
Tax (expense)/credit - -
Share of jointly controlled entities surplus/(deficit) - Wellington Water Limited 42 420
     
TOTAL SHARE OF ASSOCIATES’ AND JOINTLY CONTROLLED ENTITY’S SURPLUS OR (DEFICIT) 12,811 11,612

Further information on the cost and value of the above investments is found in Note 20: Investments in Associates and Jointly Controlled Entity (page 186).

Relevant significant accounting policies

Associates are entities where the Council has significant influence over their operating and financial policies but they are not controlled entities or joint ventures. In the Council financial statements, the investments in associates are carried at cost. In the Group financial statements, the Council’s share of the assets, liabilities, revenue and expenditure of associates is included on an equity accounting basis as a single line.

For a jointly controlled entity the Council chooses to use the equity accounting treatment option available as it better reflects its investment in the joint venture. The investment is initially recognised at cost, and adjusted thereafter for the post-acquisition changes in the Council’s share of net assets/equity of the entity. The Council’s share of the surplus or deficit of the entity is included in the Group’s surplus or deficit on a single line.

Note 10: Income tax expense

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Current tax expense        
Current year - - (216) 221
Prior period adjustment - - - (1)
Total current tax expense - - (216) 220
Deferred tax expense        
Origination and reversal of temporary differences (100) (68) - -
Change in unrecognised temporary differences - - 456 389
Recognition of previously unrecognised tax losses 100 68 - -
Total deferred tax expense - - 456 389
TOTAL INCOME TAX EXPENSE / (CREDIT) - - 240 609
Reconciliation of tax on the surplus and tax expense Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Surplus for the period before taxation 34,106 35,542 36,850 36,990
         
Prima facie income tax based on domestic tax rate - 28% 9,550 9,952 10,318 10,357
Effect of non-deductible expenses and tax exempt income (9,590) (9,978) (10,720) (9,873)
Effect of tax losses utilised 100 68 - -
Current years loss for which no deferred tax asset was recognised 40 25 40 25
Recognition of prior year loss (100) (68) (100) (68)
Previously unreognised tax losses now utilised - - (41) -
Change in unrecognised temporary differences - - 738 542
Prior period adjustment - - (205) -
Share of income tax of equity accounted associates - - 211 (375)
TOTAL INCOME TAX EXPENSE / (CREDIT) - - 240 609
Imputation credits Group
  2016
$000
2015
$000
Imputation credits available in subsequent periods 87 77

Relevant significant accounting policies

Council, as a local authority is only liable for income tax on the surplus or deficit for the year derived from any council controlled trading organisations and comprises current and deferred tax. Other members of the Group are subject to normal taxation unless they have tax exempt status as charitable trusts.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, plus any adjustment to tax payable in respect of previous periods.

Statement of Financial Position

As at 30 June 2016

    Council Group
  Note Actual
2016
$000
Budget
2016
$000
Actual
2015
$000
Actual
2016
$000
Actual
2015
$000
ASSETS            
Current assets            
Cash and cash equivalents 11 94,009 1,249 65,913 103,623 75,598
Receivables from exchange transactions 13 11,621 10,662 6,611 12,199 7,492
Recoverables from non-exchange transactions 13 34,519 31,671 33,403 35,414 34,964
Other financial assets 14 315 - 150 315 150
Prepayments   11,500 12,096 12,453 11,962 12,987
Inventories   1,101 888 899 1,915 1,849
Non-current assets classified as held for sale 15 1,504 - 1,668 1,504 1,668
Total current assets   154,569 56,566 121,097 166,932 134,708
Non-current assets            
Derivative financial assets 12 - - 725 - 725
Receivables from exchange transactions 13 4,185 - - 4,186 -
Other financial assets 14 12,865 10,473 9,403 14,343 10,851
Intangibles 16 26,737 28,936 21,465 26,815 21,568
Investment properties 17 211,237 196,566 201,557 211,237 201,557
Property, plant and equipment 18 6,645,975 6,674,860 6,595,900 6,659,487 6,608,226
Investment in controlled entities 19 5,071 3,809 5,071 - -
Investment in associates and jointly controlled entity 20 19,465 19,504 19,465 138,419 137,666
Total non-current assets   6,925,535 6,934,148 6,853,586 7,054,487 6,980,593
TOTAL ASSETS   7,080,104 6,990,714 6,974,683 7,221,419 7,115,301
             
LIABILITIES            
Current liabilities            
Derivative financial liabilities 12 522 - 250 522 250
Payables under exchange transactions 21 42,627 59,122 45,429 45,703 49,922
Taxes and transfers payable 21 10,647 - 12,635 11,299 12,817
Revenue in advance 22 43,098 33,496 29,293 45,193 32,791
Borrowings 23 140,075 219,789 164,104 140,075 164,107
Employee benefit liabilities and provisions 24 7,189 6,845 6,306 8,707 7,467
Provision for other liabilities 25 10,953 11,790 15,207 10,953 15,207
Total current liabilities   255,111 331,042 273,224 262,452 282,561
Non-current liabilities            
Derivative financial liabilities 12 38,208 - 17,937 38,208 17,937
Payables under exchange transactions 21 630 630 630 630 630
Borrowings 23 350,409 196,474 269,624 350,409 269,624
Employee benefit liabilities and provisions 24 995 1,708 1,096 1,056 1,157
Provision for other liabilities 25 50,250 23,945 41,840 50,250 41,840
Deferred tax 26 - - - 1,482 1,240
Total non-current liabilities   440,492 222,757 331,127 442,035 332,428
TOTAL LIABILITIES   695,603 553,799 604,351 704,487 614,989
             
EQUITY            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,756,048 3,725,547 3,722,229 3,745,251 3,709,806
Revaluation reserves 27 1,382,337 1,429,106 1,383,201 1,496,198 1,497,062
Hedging reserve 28 (38,730) 137 (17,462) (38,730) (17,462)
Fair value through other comprehensive revenue and expense reserve 29 1,648 63 106 2,026 505
Non-controlling interest   - - - 284 316
Restricted funds 30 14,064 12,928 13,124 18,741 16,923
TOTAL EQUITY   6,384,501 6,436,915 6,370,332 6,516,932 6,500,312
TOTAL EQUITY AND LIABILITIES   7,080,104 6,990,714 6,974,683 7,221,419 7,115,301

The notes on pages 146 to 234 form part of and should be read in conjunction with the financial statements

Statement of Financial Position – Major budget variations

Significant variations from budget are as follows:

Current assets are $98.003m higher than budget primarily due to:

Non-current assets are $8.613m lower than budget primarily due to:

Offsetting these decreases are the following increases:

Total liabilities are $141.804m higher than budget due to:

Offsetting these increases are the following decreases:

Note 11: Cash and Cash Equivalents

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Cash at bank 7,986 1,392 13,711 7,622
Cash on hand 23 21 35 34
Short term bank deposits up to 3 months 86,000 64,500 89,877 67,942
TOTAL CASH AND CASH EQUIVALENTS 94,009 65,913 103,623 75,598

Bank balances that are interest bearing earn interest based on current floating bank deposit rates.

Short term deposits are made with a registered bank, with a credit rating of at least A+, for varying periods of up to three months depending on the immediate cash requirements and short term borrowings of the Group, and earn interest at the applicable short term deposit rates.

Council holds short term deposits as part of its overall liquidity risk management programme. This programme enables Council to maintain its regular commercial paper programme and to pre-fund upcoming debt maturities. The combination of the commercial paper programme and holding short term deposits reduces Council’s cost of funds.

Note 12: Derivatives

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Assets        
Non-current assets        
Interest rate swaps - cash flow hedges - 725 - 725
Total non-current assets - 725 - 725
TOTAL DERIVATIVE FINANCIAL INSTRUMENT ASSETS - 725 - 725
Liabilities        
Current liabilities        
Interest rate swaps - cash flow hedges 522 250 522 250
Total current liabilities 522 250 522 250
Non-current liabilities        
Interest rate swaps - cash flow hedges 38,208 17,937 38,208 17,937
Interest rate swaps - non-hedged - - - -
Total non-current liabilities 38,208 17,937 38,208 17,937
TOTAL DERIVATIVE FINANCIAL INSTRUMENT LIABILITIES 38,730 18,187 38,730 18,187

Derivative financial instruments are used by the Group in the normal course of business to hedge exposure to cash flow and fair value interest rate risk. The amounts shown above represent the fair values of these derivative financial instruments. Although these are managed as a portfolio, the Group has no rights to offset assets and liabilities and must present these figures separately.

Cash flow hedges are used to fix interest rates on floating rate debt (floating rate notes or commercial paper) or bank borrowings. Fair value hedges are used to convert interest rates on some fixed rate debt (bonds) to floating rates.

For further information on the Council’s interest rate swaps please refer to Note 28: Hedging Reserve (page 205) and Note 32: Financial instruments (page 212).

Relevant significant accounting policies

Derivative financial instruments include interest rate swaps used to hedge exposure to interest rate risk on borrowings. Derivatives are initially recognised at fair value, based on quoted market prices, and subsequently remeasured to fair value at the end of each reporting period. Fair value is determined by reference to quoted prices for similar instruments in active markets. Derivatives that do not qualify for hedge accounting are classified as non-hedged and fair value gains or losses are recognised within surplus or deficit.

Recognition of fair value gains or losses on derivatives that qualify for hedge accounting depends on the nature of the item being hedged. Where a derivative is used to hedge variability of cash flows (cash flow hedge), the effective part of any gain or loss is recognised within other comprehensive revenue and expense while the ineffective part is recognised within surplus or deficit. Gains or losses recognised in other comprehensive revenue and expense transfer to surplus or deficit in the same periods as when the hedged item affects the surplus or deficit.

As per the International Swap Dealers’ Association (ISDA) master agreements, all swap payments or receipts are settled net.

Note 13: Receivables and Recoverables

RECEIVABLES AND RECOVERABLES Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Current        
Receivables from exchange transactions 11,621 6,611 12,199 7,492
Recoverables from non-exchange transactions 34,519 33,403 35,414 34,964
Non-Current        
Receivables from exchange transactions 4,185 - 4,186 -
TOTAL RECEIVABLES AND RECOVERABLES - NET 50,325 40,014 51,799 42,456
Receivables from exchange transactions Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Trade receivables - debtors - net 5,890 4,878 5,282 5,065
Accrued income 3,131 1,733 3,131 1,733
Sundry receivables 6,785 - 7,970 694
TOTAL RECEIVABLES FROM EXCHANGE TRANSACTIONS - NET 15,806 6,611 16,383 7,492
Recoverables from non-exchange transactions Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Taxes        
GST recoverable 5,709 6,581 5,622 6,549
Rates recoverable 9,981 10,164 9,981 10,164
Total taxes 15,690 16,745 15,603 16,713
Transfers        
Trade recoverables - debtors - net 7,879 6,373 8,392 8,267
Trade recoverables - fines - net 3,593 3,347 3,593 3,347
Total trade recoverables - net 11,472 9,720 11,985 11,614
Accrued income 5,408 5,197 5,408 5,197
Sundry recoverables 1,949 1,741 2,420 1,440
Total transfers 18,829 16,658 19,813 18,251
TOTAL RECOVERABLES FROM NON-EXCHANGE TRANSACTIONS - NET 34,519 33,403 35,416 34,964

Current trade, rates and sundry receivables and recoverables are non-interest bearing and receipt is generally on 30 day terms, therefore the carrying value approximates their fair value.

Receivables and recoverables Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Receivables and recoverables from related parties        
- Controlled entities 380 936 - -
- Associates and jointly controlled entity - 15 - 15
TOTAL RECEIVABLES AND RECOVERABLES FROM RELATED PARTIES 380 951 - 15

The movement in the provision for impairment of total receivables and recoverables is analysed as follows:

Provision for impairment of total receivables and recoverables Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 6,030 6,542 6,030 6,542
New provisions made 437 452 437 452
Release of unused provision (166) (14) (166) (14)
Amount of provision utilised (118) (950) (118) (950)
PROVISION FOR IMPAIRMENT OF TOTAL RECEIVABLES AND RECOVERABLES - CLOSING BALANCE 6,183 6,030 6,183 6,030

The ageing profile of total net receivables and recoverables at the reporting date is as follows:

Council 2016 2015
  Gross
$000
Impaired
$000
Net
$000
Gross
$000
Impaired
$000
Net
$000
Trade and other receivables and recoverables            
Not past due 31,868 - 31,868 21,864 - 21,864
Past due 0-3 months 9,229 (82) 9,147 8,540 (79) 8,461
Past due 3-6 months 2,538 (38) 2,500 2,859 (47) 2,812
Past due more than 6 months 12,873 (6,063) 6,810 12,781 (5,904) 6,877
TOTAL RECEIVABLES AND RECOVERABLES 56,508 (6,183) 50,325 46,044 (6,030) 40,014
Group 2016 2015
  Gross
$000
Impaired
$000
Net
$000
Gross
$000
Impaired
$000
Net
$000
Trade and other receivables and recoverables            
Not past due 33,142 - 33,142 24,203 - 24,203
Past due 0-3 months 9,352 (82) 9,270 8,549 (79) 8,470
Past due 3-6 months 2,567 (38) 2,529 2,894 (47) 2,847
Past due more than 6 months 12,921 (6,063) 6,858 12,840 (5,904) 6,936
TOTAL RECEIVABLES AND RECOVERABLES 57,982 (6,183) 51,799 48,486 (6,030) 42,456

The net receivables and recoverables past due for more than six months primarily relates to fines. Due to their nature, the collection pattern for fines is longer than that of trade debtors.

Relevant significant accounting policies

Receivables from exchange transactions

Receivables from exchange transactions arise when the Council is owed by another entity or individual for goods or services provided directly by Council and will receive approximately equal value in a willing arm’s length transaction (primarily in the form of cash in exchange). Examples of exchange transactions include parking services and metered water rates.

Recoverables from non-exchange transactions

Recoverables from non-exchange transactions arise when the Council is owed value from another party without giving approximately equal value directly in exchange for the value received. Most of the goods or services that Council provide are subsidised by rates revenue and therefore the exchange is unequal. Examples of non-exchange transactions include social housing rentals, parking fines and recreational centre activities.

Non-exchange transactions are comprised of either taxes or transfers. Transfers also include grants that do not have specific conditions attached which require return of the grant for non-performance.

An inflow of resources from a non-exchange transaction recognised as an asset is recognised as revenue, except to the extent that a liability is also recognised in respect of the same inflow.

As Council satisfies a present obligation recognised as a liability in respect of an inflow of resources from a non-exchange transaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an amount of revenue equal to that reduction.

 

Note 14: Other financial Assets

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Represented by:        
Current 315 150 315 150
Non-current 12,865 9,403 14,343 10,851
Total other financial assets 13,180 9,553 14,658 11,001
Comprised of:        
Financial assets at fair value through other comprehensive revenue and expense        
Equity investments:        
- Civic Assurance 766 633 766 633
- NZ Local Government Funding Agency (LGFA) 3,275 1,866 3,275 1,866
- Creative HQ incubator/accelerator shareholdings - - 1,427 1,401
Loans and deposits        
Bank deposits - term greater than 3 months - - - -
LGFA - borrower notes 3,728 2,208 3,728 2,208
Loans to related parties - other organisations 5,096 4,696 5,096 4,696
Loans to external organisations 315 150 366 197
TOTAL OTHER FINANCIAL ASSETS 13,180 9,553 14,658 11,001

Equity investments

Civic Assurance is the trading name of New Zealand Local Government Insurance Corporation Limited, which provides insurance products and other financial services principally to local authorities. The Council holds a 4.78% (2015: 4.78%) shareholding in this entity with no present intention to sell.

The New Zealand Local Government Funding Agency Limited (LGFA), which commenced in December 2011 is an alternative debt provider majority owned by and operated for local authorities. The Council holds an 8% shareholding of the paid-up capital and as a shareholder will benefit from a return on its investment and as a borrower from lower borrowing costs. The LGFA has an AA+ (domestic long term) credit rating from Standard and Poors.

Creative HQ, a controlled entity of WREDA, has small shareholdings in various incubator and accelerator programme companies. These shares are held until the companies mature or cease operations.

Loans

The loans to related parties are concessionary in nature, since the loans have been granted on interest free terms. The movements in the loans are as follows:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Loans to related parties - other organisations        
Wellington Regional Stadium Trust        
(nominal value $15,394,893)        
Opening balance 21 1,586 21 1,586
Amortisation of fair value adjustment 3 201 3 201
Movement in fair value - (1,766) - (1,766)
Closing balance at fair value 24 21 24 21
Karori Wildlife Sanctuary Trust        
(nominal value $10,346,689)        
Opening balance 4,675 4,312 4,675 4,312
Amortisation of fair value adjustment 397 363 397 363
Closing balance at fair value 5,072 4,675 5,072 4,675
Loans to other external organisations        
Opening balance 150 150 197 150
New loan advances 442 - 442 75
Loan repayments received (9) - (9) -
Loan forgiveness (118) - (118) -
Loan write-off (150) - (150) -
Amortisation of fair value adjustment - - 4 -
Movement in fair value - - - (28)
Closing balance at fair value 315 150 366 197
TOTAL LOANS 5,411 4,846 5,462 4,893

The fair value movement on loans reflects the timing of their expected repayments and the interest free nature of the loan. Over the remaining life of the loans their fair value will be amortised back up to their full nominal value.

The amortisation rate applicable to the Wellington Regional Stadium Trust loan is 12.710%. Following notification from the Westpac Stadium Trust in 2015, the expected repayment terms of the loan by the Trust back to the Council was extended to 2070. The fair value of the loan was reduced accordingly.

During the adoption of the 2016/17 Annual Plan the Council agreed to the purchase of the Zealandia visitor centre building. Following this purchase, the Council loan to the Karori Wildlife Sanctuary Trust will be fully repaid. As the arrangement is not binding as at the end of the reporting period no adjustment has been made to the current/non-current classification of the loan.

Loans to other external organisations are generally suspensory loan arrangements associated with economic development grants provided by Council to achieve defined outcomes.  The loans are repayable in the event that the economic development outcomes agreed in providing the grant are not delivered. As agreed outcomes for the grants are met the loans are reduced accordingly.

Further information on the related parties is disclosed in Note 36: Related party disclosures.

Note 15: Non-current assets classified as held for sale

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 1,668 1,367 1,668 1,367
Disposals (949) (1,041) (949) (1,041)
Transfers from property, plant and equipment 1,504 1,668 1,504 1,668
Transfers to property, plant and equipment (719) (326) (719) (326)
TOTAL NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE 1,504 1,668 1,504 1,668

Relevant significant accounting policies

Non-current assets classified as held for sale are valued at the lower of the carrying amount and fair value less costs to sell at the time of reclassification.

Non-current assets held for sale are separately classified as their carrying amount will be recovered through a sale transaction rather than through continuing use. A non-current asset is classified as held for sale where:

Note 16: Intangibles

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Computer software        
Cost - opening balance 49,256 39,849 49,965 40,491
Accumulated amortisation (39,537) (32,995) (40,143) (33,567)
Computer software opening balance 9,719 6,854 9,822 6,924
Acquired by direct purchase 17,445 6,774 17,476 6,859
Amortisation (4,479) (4,337) (4,535) (4,380)
Net disposals - (39) - (48)
Transfer from property, plant and equipment - 467 - 467
Total computer software - closing balance 22,685 9,719 22,763 9,822
         
Cost 66,989 49,256 67,730 49,965
Accumulated amortisation (44,304) (39,537) (44,967) (40,143)
Total computer software - closing balance 22,685 9,719 22,763 9,822
         
Work in progress        
Computer software 2,261 10,435 2,261 10,435
Total work in progress 2,261 10,435 2,261 10,435
         
Carbon credits        
Cost - Opening Balance 1,311 575 1,311 575
Additions 672 768 672 768
Net disposals (192) (32) (192) (32)
Total Carbon credits - closing balance 1,791 1,311 1,791 1,311
TOTAL INTANGIBLES 26,737 21,465 26,815 21,568

Disposals and transfers are reported net of accumulated amortisation.

The decrease in work in progress for computer software reflects the ongoing realisation of Council’s commitment to enhancing its technological capabilities across a number of platforms. Council has embarked on replacing its core applications, a new electronic document records management system and a new asset management information system for its infrastructure assets.

Carbon credits

As part of the Emissions Trading Scheme (ETS) the Council received carbon credits from Central Government in recognition of the carbon absorbed by a portion of the Council’s green belt. For the year ending 30 June 2016 the Council received 37,954 credits (2015: 74,643). The Council purchased 25,641credits (2015: 67,874) in the market to cover the expected liabilities associated with landfill operations. During the year 34,078 credits (2015: 32,445) were surrendered to meet the Council’s ETS obligations for the 2015 calendar year. At 30 June 2016 the total number of credits held is 357,589 (2015: 328,072).

At 30 June 2016 the liability relating to landfill carbon emissions is $0.765m (2015: $0.161m).

Relevant significant accounting policies

Computer software

Acquired computer software is measured on initial recognition at the costs to acquire and bring to use and subsequently less any amortisation and impairment losses.

Typically, the estimated useful lives and amortisation rate range of these assets are as follows:

Asset Category 2016
  Useful Life
(years)
Amortisation
Rate
Computer software 2 - 10 10 - 50%

Carbon Credits

Carbon credits comprise either allocations of emission allowances granted by the Government related to forestry assets or units purchased in the market to cover liabilities associated with landfill operations. Carbon credits allocated as a non-exchange transaction are initially recognised at fair value, which then becomes the deemed cost.  Carbon credits that are purchased are recognised at cost.

Gains and losses arising from disposal of intangible assets are recognised within surplus or deficit in the period in which the transaction occurs. Intangible assets are reviewed at least annually to determine if there is any indication of impairment. Where an intangible asset’s recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported within surplus or deficit.
 

Note 17: Investment properties

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 201,557 192,901 201,557 192,901
Additions by acquisition 1,862 10 1,862 10
Additions by subsequent expenditure - - - -
Disposals (5,955) - (5,955) -
Fair value revaluation movements taken to surplus/(deficit) 13,773 8,552 13,773 8,552
Transfer from property, plant and equipment - 94 - 94
TOTAL INVESTMENT PROPERTIES 211,237 201,557 211,237 201,557

Wellington City Council’s investment properties including the waterfront investment properties were valued as at 30 June 2016 by an independent valuer, William Bunt (FNZIV, FPINZ), registered valuer and Director of Valuation Services for CBRE Limited.

The Council’s total investment properties comprise ground leases of $168.753m (2015: $160.058m) and land and buildings of $42.215m (2015: $41.499m) held for investment purposes.

Investment properties are properties which are held primarily to earn rental revenue and/or for capital growth. These properties include the Council’s ground leases and certain land and buildings.

Ground leases are parcels of land owned by the Council in the central city or on the waterfront that are leased to other parties who own the buildings situated on the land. The leases are generally based on 21-year perpetually renewable terms. As these parcels of land are held for investment purposes the rentals are charged on a commercial market basis.

Investment properties exclude those properties held for strategic purposes or to provide a social service. This includes properties which generate cash inflows as the rental revenue is incidental to the purpose for holding the property. Such properties include the Council’s social housing assets, which are held within operational assets in property, plant and equipment.

Relevant significant accounting policies

The basis of valuation varies depending on the nature of the lease. For sites that are subject to a terminating lease the approach is to assess the value of the rental revenue over the remaining term of the lease and add the residual value of the land at lease expiry. For sites subject to perpetually renewable leases values have been assessed utilising a discounted cash flow and arriving at a net present value of all future anticipated gross rental payments.

Borrowing costs incurred during the construction of investment property are not capitalised.

Investment properties are measured initially at cost and subsequently measured at fair value, determined annually by an independent registered valuer. Any gain or loss arising is recognised within surplus or deficit. Investment properties are not depreciated.

Note 18: Property, Plant and equipment

Summary Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Property, plant and equipment - Opening balance 6,595,900 6,536,012 6,608,226 6,547,197
Additions 166,311 142,128 169,524 142,292
Disposals (1,515) (672) (1,849) (862)
Depreciation expense (94,704) (94,672) (96,436) (95,644)
Impairment losses (133) (5,072) (582) (5,072)
Revaluation movement (211) 11,168 (211) 11,168
Transfer to non-current assets classified as held for sale (1,504) (1,668) (1,504) (1,668)
Transfer from non-current assets classified as held for sale 719 326 719 326
Transfer to intangibles - (467) - (467)
Transfer to investment properties - (94) - (94)
Movement in work in progress (18,888) 8,911 (18,400) 10,789
Acquisition of controlled entity - - - 261
TOTAL PROPERTY, PLANT AND EQUIPMENT 6,645,975 6,595,900 6,659,487 6,608,226

Relevant significant accounting policies

Property, plant and equipment consists of operational assets, restricted assets and infrastructure assets.

Operational assets include land, the landfill post-closure asset, buildings, the Civic Centre complex, the library collection, and plant and equipment.

Restricted assets include art and cultural assets, zoo animals, restricted buildings, parks and reserves and the Town Belt. These assets provide a benefit or service to the community and in most cases cannot be disposed of because of legal or other restrictions (for example, land declared as a reserve under the Reserves Act 1977.) The use of the asset may also be restricted such as the donated Basin Reserve land which must be retained for the purposes of providing a cricket and recreation ground with no permitted thoroughfare.

Infrastructure assets include the roading network, water, waste and drainage reticulation networks, service concession arrangement assets and infrastructure land (including land under roads). Each asset type includes all items that are required for the network to function.

Vested assets are those assets where ownership and control is transferred to the Council from a third party (eg infrastructure assets constructed by developers and transferred to the Council on completion of a subdivision). Vested assets are recognised within their respective asset classes as above.

Heritage assets are tangible assets with historical, artistic, scientific, technological, geophysical or environmental qualities that are held and maintained principally for their contribution to knowledge and culture. The Council and Group recognises these assets within these financial statements to the extent their value can be reliably measured.

Recognition

Expenditure is capitalised as property, plant and equipment when it creates a new asset or increases the economic benefits of an existing asset. Costs that do not meet the criteria for capitalisation are expensed.

Measurement

Property, plant and equipment is recognised initially at cost, unless acquired for nil or nominal cost (eg vested assets), in which case the asset is recognised at fair value at the date of transfer. The initial cost of property, plant and equipment includes the purchase consideration (or the fair value in the case of vested assets), and those costs that are directly attributable to bringing the asset into the location and condition necessary for its intended purpose. Subsequent expenditure that extends or expands the asset’s service potential is capitalised.

Borrowing costs incurred during the construction of property, plant and equipment are not capitalised.

After initial recognition, certain classes of property, plant and equipment are revalued to fair value. Where there is no active market for an asset, fair value is determined by optimised depreciated replacement cost.

Optimised depreciated replacement cost is a valuation methodology where the value of an asset is based on the cost of replacement with an efficient modern equivalent making allowance for obsolesce or surplus capacity. The remaining life of the asset is estimated and straight line depreciation applied to bring the replacement cost to a fair value.

Specific measurement policies for categories of property, plant and equipment are shown below:

Library Collections

Library collections are valued at depreciated replacement cost on a 3-year cycle by the Council’s library staff in accordance with guidelines outlined in Valuation Guidance for Cultural and Heritage Assets, published by the Treasury Accounting Team, November 2002.

Operational Land & Buildings

Operational land and buildings are valued at fair value on a regular basis or, whenever the carrying amount differs materially to fair value, by independent registered valuers. Where the information is available land and buildings are valued based on market evidence. The majority of Councils land and buildings are of a ‘non-tradeable’ or specialist nature and the value is based on the fair value of the land plus the optimised depreciated replacement cost of the buildings.

For earthquake prone buildings that are expected to be strengthened, the estimated cost to strengthen the building has been deducted from the optimised depreciated replacement cost.

Buildings that comprise the Social Housing portfolio have been valued on market based approach with the associated land value being established through analysis of sales and market evidence.

Restricted assets

Art and cultural assets (artworks, sculptures and statues) are valued at historical cost. Zoo animals are stated at estimated replacement cost. All other restricted assets (buildings, parks and reserves and the Town Belt) were valued at fair value as at 30 June 2005 by independent registered valuers. The Council has elected to use the fair value of other restricted assets at 30 June 2005 as the deemed cost of the assets. These assets are no longer revalued. Subsequent additions have been recorded at cost.

Infrastructure assets

Infrastructure assets (the roading network, water, waste and drainage reticulation networks and service concession arrangement assets) are valued at optimised depreciated replacement cost on a regular basis or, whenever the carrying amount differs materially to fair value, by independent registered valuers. Infrastructure valuations are based on the physical attributes of the assets, their condition and their remaining lives based on Council’s best information reflected in its assets management plans. The costs are based on current quotes from actual suppliers. As such, they include ancillary costs such as breaking through seal, traffic control and rehabilitation. Between valuations, expenditure on asset improvements is capitalised at cost.

Infrastructure land (excluding land under roads) is valued on a regular basis or, whenever the carrying amount differs materially to fair value, by independent registered valuers.

Land under roads, which represents the corridor of land directly under and adjacent to the Council’s roading network, was valued as at 30 June 2005 at the average value of surrounding adjacent land discounted by 50% to reflect its restricted nature. The Council elected to use the fair value of land under roads at 30 June 2005 as the deemed cost of the asset. Land under roads is no longer revalued. Subsequent additions have been recorded at cost.

The carrying values of revalued property, plant and equipment are reviewed at the end of each reporting period to ensure that those values are not materially different to fair value.

Other Assets

Plant and equipment and the Civic Centre complex are measured at historical cost and not revalued.

Impairment

The Council’s assets are defined as cash generating if the primary purpose of the asset is to provide a commercial return. Non-cash generating assets are assets other than cash generating assets. Property, plant and equipment assets, measured at fair value, are not required to be reviewed and tested for impairment.

The carrying amounts of cash generating property, plant and equipment assets are reviewed at least annually to determine if there is any indication of impairment. Where an asset’s, or class of assets’, recoverable amount is less than its carrying amount it will be reported at its recoverable amount and an impairment loss will be recognised. The recoverable amount is the higher of an item’s fair value less costs to sell and value in use. Losses resulting from impairment are reported within surplus or deficit, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease and recorded within other comprehensive revenue and expense.

The carrying amounts of non-cash generating property, plant and equipment assets are reviewed at least annually to determine if there is any indication of impairment. Where an asset’s, or class of assets’, recoverable service amount is less than its carrying amount it will be reported at its recoverable service amount and an impairment loss will be recognised. The recoverable service amount is the higher of an item’s fair value less costs to sell and value in use. A non-cash generating asset’s value in use is the present value of the asset’s remaining service potential. Losses resulting from impairment are reported within surplus or deficit, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease and recorded within other comprehensive revenue and expense.

Disposal

Gains and losses arising from the disposal of property, plant and equipment are recognised within surplus or deficit in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings.

Work in progress

The cost of projects within work in progress is transferred to the relevant asset class when the project is completed and then depreciated.

The movements according to the individual classes of assets are as follows:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Operational assets        
Land        
Land - at cost - opening balance - - - -
Land - at valuation - opening balance 222,908 213,082 222,908 213,082
Total land - opening balance 222,908 213,082 222,908 213,082
Additions 21,741 1,322 21,741 1,322
Disposals (1) - (1) -
Revaluation movement - 10,837 - 10,837
Transfer between asset classes - (1,680) - (1,680)
Transfer to non-current assets classified as held for sale - (559) - (559)
Transfer to investment property - (94) - (94)
Total land - closing balance 244,648 222,908 244,648 222,908
Land - at cost - closing balance 21,741 - 21,741 -
Land - at valuation - closing balance 222,907 222,908 222,907 222,908
Total land - closing balance 244,648 222,908 244,648 222,908
         
Buildings        
Buildings - at cost - opening balance - 69,409 - 69,409
Buildings - at valuation - opening balance 556,025 539,236 556,025 539,236
Total cost/valuation 556,025 608,645 556,025 608,645
Accumulated depreciation - (33,854) - (33,854)
Total buildings - opening balance 556,025 574,791 556,025 574,791
Additions 26,380 66,705 26,380 66,705
Depreciation expense (20,348) (22,435) (20,348) (22,435)
Disposals (1,017) (16) (1,017) (16)
Revaluation adjustment (211) 331 (211) 331
Transfer between asset classes 1,680 (63,351) 1,680 (63,351)
Total buildings - closing balance 562,509 556,025 562,509 556,025
Buildings - at cost - closing balance 25,906 - 25,906 -
Buildings - at valuation - closing balance 556,802 556,025 556,802 556,025
Total cost/valuation 582,708 556,025 582,708 556,025
Accumulated depreciation (20,199) - (20,199) -
Total buildings - closing balance 562,509 556,025 562,509 556,025

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Landfill post closure costs 1        
Landfill post closure - at cost - opening balance 3,040 3,643 3,040 3,643
Accumulated depreciation (2,437) (2,301) (2,437) (2,301)
Total landfill post closure costs - opening balance 603 1,342 603 1,342
Depreciation expense (145) (136) (145) (136)
Transfer between asset classes - 1 - 1
Movement in post closure costs 474 (604) 474 (604)
Total landfill post closure costs - closing balance 932 603 932 603
Landfill post closure - at cost - closing balance 3,265 3,040 3,265 3,040
Accumulated depreciation (2,333) (2,437) (2,333) (2,437)
Total landfill post closure costs - closing balance 932 603 932 603
         
Civic Centre complex        
Civic Centre complex - at cost - opening balance 176,562 173,817 176,562 173,817
Accumulated depreciation (60,954) (58,165) (60,954) (58,165)
Total Civic Centre complex - opening balance 115,608 115,652 115,608 115,652
Additions 2,387 7,239 2,387 7,239
Depreciation expense (2,739) (2,793) (2,739) (2,793)
Impairment - (4,513) - (4,513)
Transfer between asset classes (1,680) 23 (1,680) 23
Transfer to non-current assets classified as held for sale (1,054) - (1,054) -
Total Civic Centre complex- closing balance 112,522 115,608 112,522 115,608
Civic Centre complex - at cost - closing balance 173,965 176,562 173,965 176,562
Accumulated depreciation (61,443) (60,954) (61,443) (60,954)
Total Civic Centre complex- closing balance 112,522 115,608 112,522 115,608
         
Plant and equipment        
Plant and equipment - at cost - opening balance 213,057 166,755 225,843 179,310
Accumulated depreciation (92,456) (84,860) (99,817) (91,250)
Total plant and equipment - opening balance 120,601 81,895 126,026 88,060
Additions 7,049 6,865 10,262 7,026
Depreciation expense (11,890) (11,712) (13,622) (12,684)
Disposals (239) (352) (573) (542)
Impairment (133) - (582) -
Transfer between asset classes - 44,372 - 44,372
Transfer to intangibles - (467) - (467)
Acquisition of controlled entity - - - 261
Total plant and equipment - closing balance 115,388 120,601 121,511 126,026
Plant and equipment - at cost 216,102 213,057 231,319 225,843
Accumulated depreciation (100,714) (92,456) (109,808) (99,817)
Total plant and equipment - closing balance 115,388 120,601 121,511 126,026
  1. The Council’s share of the joint venture with Porirua City Council relating to the Spicer Valley Landfill is included in this asset class.

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Library collections        
Library collections - at cost - opening balance 1,664 - 1,664 -
Library collections - at valuation - opening balance 14,817 14,812 14,817 14,812
Total cost/valuation 16,481 14,812 16,481 14,812
Accumulated depreciation (2,096) - (2,096) -
Total library collections - opening balance 14,385 14,812 14,385 14,812
Additions 1,887 1,665 1,887 1,665
Depreciation expense (2,165) (2,092) (2,165) (2,092)
Total library collections - closing balance 14,107 14,385 14,107 14,385
Library collections - at cost - closing balance 3,545 1,664 3,545 1,664
Library collections - at valuation - closing balance 14,818 14,817 14,818 14,817
Total cost/valuation 18,363 16,481 18,363 16,481
Accumulated depreciation (4,256) (2,096) (4,256) (2,096)
Total library collections - closing balance 14,107 14,385 14,107 14,385
TOTAL OPERATIONAL ASSETS 1,050,106 1,030,130 1,056,229 1,035,555
         
Infrastructure assets        
Drainage, waste and water        
Drainage, waste and water - at cost - opening balance 25,215 - 25,215 -
Drainage, waste and water - at valuation - opening balance 1,196,804 1,177,524 1,196,804 1,177,524
Total cost/valuation 1,222,019 1,177,524 1,222,019 1,177,524
Accumulated depreciation (26,877) - (26,877) -
Total drainage, water and waste - opening balance 1,195,142 1,177,524 1,195,142 1,177,524
Additions 39,538 25,235 39,538 25,235
Depreciation expense (27,586) (27,248) (27,586) (27,248)
Transfer between asset classes (4) 19,631 (4) 19,631
Total drainage, water and waste - closing balance 1,207,090 1,195,142 1,207,090 1,195,142
Drainage, waste and water - at cost - closing balance 63,847 25,215 63,847 25,215
Drainage, waste and water - at valuation - closing balance 1,197,319 1,196,804 1,197,319 1,196,804
Total cost/valuation 1,261,166 1,222,019 1,261,166 1,222,019
Accumulated depreciation (54,076) (26,877) (54,076) (26,877)
Total drainage, water and waste - closing balance 1,207,090 1,195,142 1,207,090 1,195,142
         
Roading        
Roading - at cost - opening balance 29,927 - 29,927 -
Roading - at valuation - opening balance 824,103 824,096 826,703 826,696
Total cost/valuation 854,030 824,096 856,630 826,696
Accumulated depreciation (21,857) - (21,857) -
Total roading - opening balance 832,173 824,096 834,773 826,696
Additions 58,732 29,927 58,732 29,927
Depreciation expense (23,341) (21,857) (23,341) (21,857)
Transfer between asset classes 537 7 537 7
Total roading - closing balance 868,101 832,173 870,701 834,773

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Roading - at cost - closing balance 88,659 29,927 88,659 29,927
Roading - at valuation - closing balance 824,639 824,103 827,239 826,703
Total cost/valuation 913,298 854,030 915,898 856,630
Accumulated depreciation (45,197) (21,857) (45,197) (21,857)
Total roading - closing balance 868,101 832,173 870,701 834,773
         
Service concession assets        
Service concession assets - at cost - opening balance - - - -
Service concession assets - at valuation - opening balance 154,767 154,767 154,767 154,767
Total cost/valuation 154,767 154,767 154,767 154,767
Accumulated depreciation (4,969) - (4,969) -
Total service concession assets - opening balance 149,798 154,767 149,798 154,767
Depreciation expense (4,969) (4,969) (4,969) (4,969)
Total service concession assets - closing balance 144,829 149,798 144,829 149,798
Service concession assets - at cost - closing balance - - - -
Service concession assets - at valuation - closing balance 154,767 154,767 154,767 154,767
Total cost/valuation 154,767 154,767 154,767 154,767
Accumulated depreciation (9,938) (4,969) (9,938) (4,969)
Total service concession assets - closing balance 144,829 149,798 144,829 149,798
         
Infrastructure land        
Infrastructure land - at cost - opening balance 192 - 192 -
Infrastructure land - at valuation - opening balance 35,818 38,007 35,818 38,007
Total infrastructure land - opening balance 36,010 38,007 36,010 38,007
Additions 3,208 512 3,208 512
Transfer between asset classes - (2,189) - (2,189)
Transfer from non-current assets classified as held for sale 320 - 320 -
Transfer to non-current assets classified as held for sale - (320) - (320)
Total infrastructure land - closing balance 39,538 36,010 39,538 36,010
Infrastructure land - at cost - closing balance 3,720 192 3,720 192
Infrastructure land - at valuation - closing balance 35,818 35,818 35,818 35,818
Total infrastructure land - closing balance 39,538 36,010 39,538 36,010
         
Land under roads        
Land under roads - at cost - opening balance 2,950,197 2,947,969 2,950,197 2,947,969
Additions 224 891 224 891
Disposals (258) (304) (258) (304)
Transfer between asset classes - 2,389 - 2,389
Transfer from non-current assets classified as held for sale 358 - 358 -
Transfer to non-current assets classified as held for sale (377) (748) (377) (748)
Land under roads - closing balance 2,950,144 2,950,197 2,950,144 2,950,197
TOTAL INFRASTRUCTURE ASSETS 5,209,702 5,163,320 5,212,302 5,165,920

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Restricted assets 2        
Art and cultural assets        
Art and cultural assets - at cost - opening balance 8,927 8,927 11,266 11,263
Additions 21 - 21 3
Transfer between asset classes (281) - (281) -
Art and cultural assets - closing balance 8,667 8,927 11,006 11,266
         
Restricted buildings        
Restricted buildings - at cost - opening balance 36,627 35,470 36,627 35,470
Accumulated depreciation (9,497) (8,095) (9,497) (8,095)
Total restricted buildings - opening balance 27,130 27,375 27,130 27,375
Additions 4,386 1,507 4,386 1,507
Depreciation expense (1,521) (1,430) (1,521) (1,430)
Impairment - (559) - (559)
Transfer between asset classes - 237 - 237
Restricted buildings - closing balance 29,995 27,130 29,995 27,130
Restricted buildings - at cost - closing balance 40,865 36,627 40,865 36,627
Accumulated depreciation (10,870) (9,497) (10,870) (9,497)
Total restricted buildings - closing balance 29,995 27,130 29,995 27,130
         
Parks and reserves        
Parks and reserves - at cost - opening balance 211,888 210,179 211,888 210,179
Additions 284 864 284 864
Transfer between asset classes (252) 560 (252) 560
Transfer from non-current assets classified as held for sale 41 326 41 326
Transfer to non-current assets classified as held for sale (73) (41) (73) (41)
Parks and reserves - closing balance 211,888 211,888 211,888 211,888
Town Belt - at cost 84,544 84,544 84,544 84,544
Zoo animals - at cost 500 500 500 500
TOTAL RESTRICTED ASSETS 335,594 332,989 337,933 335,328
         
Work in progress        
Land 143 53 143 53
Buildings 23,569 22,698 23,569 22,698
Civic Centre complex 4,639 4,368 4,639 4,368
Plant and equipment 10,238 8,142 12,688 10,104
Library 474 390 474 390
Drainage, waste and water 5,038 3,838 5,038 3,838
Roading 6,173 28,745 6,173 28,745
Art and cultural 181 180 181 180
Restricted buildings 118 1,047 118 1,047
TOTAL WORK IN PROGRESS 50,573 69,461 53,023 71,423
TOTAL PROPERTY, PLANT AND EQUIPMENT 6,645,975 6,595,900 6,659,487 6,608,226
  1. For restricted assets, valuation at cost means they are not subject to revaluation. Please refer to the significant accounting polices above for a more detailed explanation.

Disposals and transfers are reported net of accumulated depreciation.

Revaluation of property, plant and equipment

The Council’s operational land and buildings were valued as at 30 June 2015, and infrastructural land as at 30 June 2014 by William Bunt (FNZIV, FPINZI), registered valuer and Director of Valuation Services for CBRE Limited.

Library collections were valued as at 30 June 2014 by the Council’s library staff. The revaluation was carried out in accordance with guidelines outlined in Valuation Guidance for Cultural and Heritage Assets published by the Treasury Accounting Team, November 2002. An independent peer review was conducted by Michaela O’Donovan, Manager Service Design and Implementation, National Library of New Zealand.

The drainage, waste and water infrastructure and roading networks and the service concession assets were valued as at 30 June 2014 by John Vessey (MIPENZ), Partner of Opus International Consultants Limited.

Assets are valued at regular intervals by independent registered valuers or whenever the carrying amount differs materially to fair value. In the years which an asset class is not revalued, the Group assesses whether there has been any material change in the value of that asset class. The movement in asset values between 30 June 2014 and 30 June 2016 for the infrastructure assets were assessed using appropriate indices. The increase in asset value of 1.7% was not considered material by management and accordingly the assets were not revalued at 30 June 2016.

Further information on revaluation reserves and movements is contained in Note 27: Revaluation reserves.

Finance leases

The net carrying amount of plant and equipment assets held by the Council under finance leases is $0.216m (2015: $0.286m).

Significant acquisitions and replacements of assets

In accordance with the provisions of Schedule 10 of the Local Government Act 2002, information in respect of significant acquisitions and replacements of assets is reported within the Statements of Service Provision.

Core Assets

Included within the infrastructure assets above are the following core Council assets:

Council 2016
 
 
Closing book
value
Additions Replacement
cost
Constructed Vested
  $000 $000 $000 $000
Water supply        
- treatment plants and facilities - - - -
- other assets 535,184 15,033 1,644 945,331
Sewerage        
- treatment plants and facilities 166,979 - - 222,587
- other assets 315,259 10,852 1,296 774,822
Stormwater drainage 390,251 4,867 3,042 654,926
Flood protection and control works - - - -
Roads and footpaths 624,743 34,444 502 850,940
TOTAL CORE ASSETS 2,032,416 65,196 6,484 3,448,606
Council 2015
 
 
Closing book
value
Additions Replacement
cost
Constructed Vested
  $000 $000 $000 $000
Water supply        
- treatment plants and facilities - - - -
- other assets 529,724 13,265 933 939,317
Sewerage        
- treatment plants and facilities 166,095 - - 221,739
- other assets 318,492 7,959 332 768,062
Stormwater drainage 329,221 4,821 818 650,194
Flood protection and control works - - - -
Roads and footpaths 609,293 41,389 986 830,123
TOTAL CORE ASSETS 1,952,825 67,434 3,069 3,409,436


Water and roads assets are not on the valuation cycle this year. Therefore their replacement costs are based on the optimised replacement costs estimate figures in the valuation for the 2013/14 year measured against an appropriate index to get an indication of potential value changes. These indicators are the same as those used for Council’s Long-term plan (LTP). The Infrastructure indicators used are sourced from Business and Economic Research Limited (BERL) titled “Forecasts of Price Level Change Adjustors”.

The core value of roads and footpaths shown above excludes the value of retaining walls, street lighting, sumps and leads and other related assets totalling $243.4m (2015: $222.8m) that are included in the value of roading assets under infrastructure assets as disclosed above.

Service concession arrangements

The service concession arrangement asset class consists of the Moa Point, Western (Karori) and Carey’s Gulley waste water treatment plants which are owned by the Council but operated by Veolia Water under agreement. The assets are valued consistently with waste infrastructure network assets.

The Moa Point sewerage treatment plant is owned by the Council and operated by Veolia Water under a design, build and operate contract. Veolia Water also operates the Council owned Western (Karori) and Carey’s Gully treatment plants. The plants and building assets are included in the service concession arrangement assets above.

Veolia Water is required to fund all renewals and repairs and return the plants to the Council in 2020 with a future life expectancy of at least 25 years.

As asset owner, the Council incurs all associated operating expenses, namely management fees, depreciation and finance costs. In accordance with section100 of the Local Government Act 2002, the Council does not fully rates fund the plant’s depreciation expenditure.

Veolia’s monthly management fee is determined in accordance with annually adjusted tariffs. The contract terminates either on the expiry of the 25 year term (2020) or on the occurrence of a contract default event by either party. The contract’s right of renewal resides with the Council.

Insurance of assets

  Council
  2016
$000
2015
$000
Total value of property, plant and equipment 6,645,975 6,595,900
less assets (primarily land) excluded from insurance contracts (3,581,335) (3,505,600)
Value of assets covered by insurance contracts 3,064,640 3,090,300
The maximum amount to which assets are insured under Council insurance policies 895,000 820,000

In addition to Council’s insurance, in the event of natural disaster it is assumed that Central Government will contribute 60% towards the restoration of Council owned underground drainage, waste and water assets and the NZTA will contribute between 44-54% towards the restoration of roading assets.

The Council is not covered by any financial risk sharing arrangements in relation to its assets.

An insurance reserve fund of $9.566m (2015: $8.727m) exists to meet the cost of claims that fall below deductible limits under Council insurance policies. The reserve is funded annually through rates by $1.500m (2015: $0.750m). The net cost of claims applied to the reserve during the year amounted to $0.661m (2015: $1.632m). Refer to Note 30: Restricted Funds (page 207) for more information on the reserve.

Note 19: Investment in controlled entities

The cost of the Council’s investment in controlled entities is reflected in the Council’s financial statements as follows:

Investment in controlled entities 2016
$000
2015
$000
Wellington Cable Car Limited 3,809 3,809
Wellington Regional Economic Development Agency Limited (WREDA) 1,262 1,262
TOTAL INVESTMENT IN CONTROLLED ENTITIES 5,071 5,071

The equity investment represents the cost of the investment to the Council and includes all capital contributions made by the Council to controlled entities. The Council has only made equity investments as shareholders as noted in the table above. Nominal settlement amounts (i.e. $100) made in respect of Trusts, for which Council is the settlor, have not been recognised due to their materiality or are considered as equity investments.

Information on inter-company transactions is included in the Note 36: Related party disclosures (page 225).

The following entities are controlled entities of Council:

Controlled entities Accounting Interest 2016 Accounting Interest 2015 Nature of business
       
Positively Wellington Tourism (Partnership Wellington Trust Inc.) 100% 100% The operations have been transferred to WREDA – (see below) while the Trust is being wound up
Wellington Waterfront Limited 100% 100% Acts as bare trustee for the Waterfront project
Wellington Cable Car Limited 100% 100% Owns and manages the trolley bus overhead wiring system and the Cable Car
Wellington Museums Trust 100% 100% Administers the Cable Car Museum, Capital E, the City Gallery, the Colonial Cottage Museum, the Carter Observatory, the Museum of Wellington City and Sea and the NZ Cricket Museum
Wellington Regional Economic Development Agency Limited (WREDA) 80% 80% Manages the Wellington Venues Project and creates economic and social benefit by marketing the city with the private sector as a tourism destination. As at 30 June 2016 Grow Wellington (formerly a controlled entity of WREDA) was fully amalgamated into the operations of WREDA
- Creative HQ Limited 80% 80% Business incubators
Wellington Zoo Trust 100% 100% Manages and guides the future direction of the Wellington Zoo

The reporting period end date for all controlled entities is 30 June. Full copies of their financial statements can be obtained directly from their offices. Further information on the structure, objectives, the nature and scope of activities, and the performance measures and targets of the entities can be found in the relevant sections of the Statements of Service Provision.

Note 20: Investment in associates and jointly controlled entity

The cost of the Council’s investment in associates and a jointly controlled entity is reflected in the Council financial statements as follows:

Investment in associates and jointly controlled entity Council
  2016
$000
2015
$000
Chaffers Marina Holdings Limited 1,290 1,290
Wellington International Airport Limited 17,775 17,775
Wellington Water Limited 400 400
TOTAL INVESTMENT IN ASSOCIATES AND JOINTLY CONTROLLED ENTITY 19,465 19,465

The Council has a significant interest in the following:

Associates and Jointly controlled entities Accounting Interest 2016 Accounting Interest 2015 Nature of business
       
Basin Reserve Trust 0%
(see below)
0% Manages, operates and maintains the Basin Reserve
Chaffers Marina Holdings Limited 10.52% 10.52% Holding company for Chaffers Marina Limited
- Chaffers Marina Limited 10.52% 10.52% Owns and manages the marina
Wellington International Airport Limited 34% 34% Owns and manages Wellington International Airport facilities and services
Wellington Regional Stadium Trust 0%
(see below)
0% Owns and manages the Westpac Stadium
Wellington Water Limited
(previously Capacity Infrastructure Services Limited)
42.11% 42.11% Manages all water services for Wellington, Lower Hutt, Upper Hutt and Porirua City Councils and Greater Wellington Regional Council

Full copies of the separately prepared financial statements can be obtained directly from their respective offices.

Associates

Basin Reserve Trust

The Basin Reserve Trust was established on 24 February 2005 to manage, operate and maintain the Basin Reserve. The Trust was jointly created with Cricket Wellington Incorporated (CWI). Wellington City Council and CWI each appoint two of the four trustees. Wellington City Council has significant influence over the Trust through the appointment of trustees, and receives benefits from the complementary activities of the Trust.

The Council no longer considers the Trust meets the requirements of PBE IPSAS 7 Investments in Associates to enable continued consolidation on an equity accounted basis. The Trust is still identified as an associate given the Council’s level of influence and financial support but due to the lack of an equity investment the Council believes it is no longer appropriate to include the Trust in the Group financial statements. 

Chaffers Marina

Chaffers Marina Holdings Limited and Chaffers Marina Limited have a reporting period end date of 30 June. The shares in Chaffers Marina Holdings Limited are held by Wellington Waterfront Limited in a fiduciary capacity. As at 30 June 2016 Council held a 10.52% interest in Chaffers Marina Holdings Limited (2015:10.52%) which has been recognised in the Group financial statements on an equity accounting basis reflecting the special rights (as set out in Chaffers Marina Limited’s Constitution) which attach to the golden share that it holds in Chaffers Marina Limited.

Wellington International Airport Limited

Wellington International Airport Limited has a reporting period end date of 31 March. The ultimate majority owner, Infratil Limited, has determined a different end of reporting period to Council, which is legislatively required to use 30 June. The Council owns 34% of the company, with the remaining 66% owned by NZ Airports Limited (which is wholly owned by Infratil Limited).

Wellington Regional Stadium Trust

Wellington Regional Stadium Trust was jointly created with Greater Wellington Regional Council and Wellington City Council has significant influence over the Wellington Regional Stadium Trust through the appointment of trustees and receives benefits from the complementary activities of the Trust.

The Council no longer considers the Trust meets the requirements of PBE IPSAS 7 Investments in Associates to enable continued consolidation on an equity accounted basis. The Trust is still identified as an associate given the Council’s level of influence and financial support but due to the lack of an equity investment the Council believes it is no longer appropriate to include the Trust in the Group financial statements.

Jointly controlled entity

Wellington Water Limited

Formerly trading as Capacity (Capacity Infrastructure Services Limited) and jointly created with Hutt City Council on 9 July 2003 the company has expanded its operations and ownership to include Upper Hutt and Porirua City Councils from 1 November 2013 and Greater Wellington Regional Council from 16 September 2014.

The company has a reporting period ending 30 June and has a dual share structure comprising A class shares (voting rights) and B Class shares (financial entitlements). The structure is as follows:

  Class A shares
(voting rights)
Class B Shares
(financial entitlements)
Ownership
interest
Wellington City Council 150 200 42%
Hutt City Council 150 100 21%
Upper Hutt City Council 150 40 8%
Porirua City Council 150 60 13%
Greater Wellington Regional Council 150 75 16%
TOTAL SHARES ON ISSUE 750 475 100%

The Class A shares represent voting rights and are split evenly between the five Councils. The Class B shares confer the level of contributions and ownership benefits of each council. Council classifies this entity as jointly controlled because of the equal sharing of voting rights conferred through the Class A shares and the shareholder’s agreement, which constitutes a binding arrangement.

Wellington City Council chooses to use equity accounting to recognise its 42.11% ownership interest as determined by the proportionate value of Class B shares held.

Summary of Financial Position and Performance of associates and jointly controlled entity

The Council’s share of the assets, liabilities, revenues and surpluses or deficits of its associates and jointly controlled entity are as follows:

  Assets
2016
$000
Liabilities
2016
$000
Revenues
2016
$000
Surplus/(Deficit)
2016
$000
Associates        
Chaffers Marina Holdings Limited 626 171 105 (36)
Wellington International Airport Limited 326,110 153,852 38,593 12,805
Jointly controlled entity        
Wellington Water Limited 4,248 3,438 19,499 42
  Assets
2015
$000
Liabilities
2015
$000
Revenues
2015
$000
Surplus/(Deficit)
2015
$000
Associates        
Chaffers Marina Holdings Limited 626 135 77 4
Wellington International Airport Limited 286,111 137,154 36,825 11,188
Jointly controlled entity        
Wellington Water Limited 3,898 3,130 10,943 420

Value of the investments

The investment in associates and the jointly controlled entity in the Group financial statements represents the Council’s share of the net assets of the associates and the jointly controlled entity. This is reflected in the Group financial statements as follows:

Investment in associates and jointly controlled entity Group
  2016
$000
2015
$000
Chaffers Marina Holdings Limited    
Opening balance 939 959
Change in shares during the year - (39)
Change in equity due to changed shareholding - 15
Equity accounted earnings of associate (36) 4
Closing balance - investment in Chaffers Marina Holdings Limited 903 939
     
Wellington International Airport Limited    
Opening balance 135,960 133,860
Dividends (12,059) (12,950)
Equity accounted earnings of associate 12,805 11,188
Share of net revaluation of property, plant and equipment - movement - 3,862
Closing balance - investment in Wellington International Airport Limited 136,706 135,960
     
Wellington Water Limited    
Opening balance 768 336
Change in equity due to changed shareholding - 12
Equity accounted earnings of jointly controlled entity 42 420
Closing balance - investment in Wellington Water Limited 810 768
TOTAL INVESTMENT IN ASSOCIATES AND JOINTLY CONTROLLED ENTITY 138,419 137,666

The Council’s share of the operating surplus or deficit results of the Chaffers Marina Holdings Limited, Wellington International Airport Limited and Wellington Water Limited is outlined in Note 9: Share of Associates’ and Jointly Controlled Entity’s surplus or deficit (page 158).

Note 21: Exchange transaction, taxes and transfers payable

Exchange transactions, taxes and transfers payable Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Current        
Payables under exchange transactions 42,627 45,429 45,703 49,922
Taxes and transfers payable 10,647 12,635 11,299 12,817
Non-current        
Payables under exchange transactions 630 630 630 630
TOTAL EXCHANGE TRANSACTIONS, TAXES AND TRANSFERS PAYABLE 53,904 58,694 57,632 63,369

Comprised of:

Payables under exchange transactions Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Exchange payables and accruals 36,712 39,358 39,782 43,663
Interest payable 3,059 2,951 3,059 2,951
Sundry payables 3,486 3,750 3,492 3,938
Total payables under exchange tranaction 43,257 46,059 46,333 50,552
Taxes and transfers payable Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Taxes payable        
GWRC rates 1,861 2,315 1,861 2,315
Other 991 1,144 1,207 1,312
Transfers payable        
Creditors and accruals 3,674 4,797 4,076 4,797
Sundry payables 4,121 4,379 4,155 4,393
Total taxes and transfers payable 10,647 12,635 11,299 12,817
Exchange transactions, taxes and transfers payable to related parties Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Controlled entities 1,515 1,455 - -
Associates and jointly controlled entity 2,078 295 2,078 295
         
Total exchange transactions, taxes and transfers payable to related parties 3,593 1,750 2,078 295

Payables under exchange transactions, taxes and transfers payable are non-interest bearing and are normally settled on terms varying between seven days and the 20th of the month following the invoice date. Most of Council’s payables are exchange transactions as they are directly with another party on an arm’s length basis and are of approximately equal value. Non-exchange payables are classified as either taxes (eg. PAYE) or transfers payable (eg. Council grants).

Note 22: Revenue in advance

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Exchange transactions        
Lease rentals 3,416 3,605 3,416 3,605
Other - - 366 -
Taxes        
Rates 1,350 876 1,350 876
Transfers        
Wellington Venues operations 1,256 1,325 1,256 1,325
Inspection and licensing fees 3,393 2,909 3,393 2,909
Other 1,042 1,348 1,818 2,149
Liabilities recognised under conditional transfer agreements 32,641 19,230 33,594 21,927
TOTAL REVENUE IN ADVANCE 43,098 29,293 45,193 32,791

Relevant significant accounting policies

Liabilities recognised under conditional transfer agreements

Council and the Group have received non-exchange transfer monies for specific purposes, which apply to periods beyond the current year, with conditions that would require the return of the monies if they are not able to fulfil the agreement. The revenue from these agreements will only be recognised as the conditionals are fulfilled over time.

The primary liability recognised as being under a conditional transfer agreement is $28.474m relating to the capital grant received from the Crown for the housing upgrade project (2015: $14.463m).

Note 23: Borrowings

The Council maintains a prudent borrowings position in relation to our equity and annual revenue. Borrowings are primarily used to fund the purchase of new assets or upgrades to existing assets that are approved through the Annual Plan and LTP processes.

Gross Borrowings

The gross borrowings are comprised as follows:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Current        
Bank facilities - short term - committed - 2,000 - 2,000
Bank loans - term 22 5 22 5
Commercial paper 100,000 72,000 100,000 72,000
Debt securities - fixed rate bonds - 5,000 - 5,000
Debt securities - floating rate notes 40,000 85,000 40,000 85,000
Finance leases 53 99 53 102
Total current 140,075 164,104 140,075 164,107
Non-current        
Bank loans - term 3,907 3,069 3,907 3,069
Debt securities - fixed rate bonds 20,000 20,000 20,000 20,000
Debt securities - floating rate notes 326,500 246,500 326,500 246,500
Finance leases 2 55 2 55
Total non-current 350,409 269,624 350,409 269,624
TOTAL GROSS BORROWINGS 490,484 433,728 490,484 433,731

Net Borrowings

When the cash position of Council and the Group is taken into account the net borrowings position is comprised as follows:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Total gross borrowings 490,484 433,728 490,484 433,731
Less        
Cash and cash equivalents (see Note 11) (94,009) (65,913) (103,623) (75,598)
TOTAL NET BORROWINGS 396,475 367,815 386,861 358,133

The Council’s borrowing strategy is to minimise liquidity risk by avoiding concentration of debt maturity dates and to ensure there is long term access to funds. Further information on the liquidity and market risks associated with borrowings is contained in Note 32: Financial instruments (page 212).

The following table shows the utilisation of the borrowing facilities available to the Group at the end of the reporting period. The table also indicates the current applicable maturity and interest rate ranges.

Group Available
$000
Utilised
$000
Maturities Rates
%
Bank overdraft - committed 1,500 - - -
Bank facilities - short term - uncommitted 5,000 - - -
Bank facilities - long term - committed 120,000 - - -
Bank loans - term 3,929 3,929 2016 - 2041 7.00
Commercial paper 100,000 100,000 2016 2.37 - 2.46
Debt securities - fixed rate bonds 20,000 20,000 2016 - 2023 4.06 - 5.48
Debt securities - floating rate notes 366,500 366,500 2016 - 2027 2.48 - 3.83
Finance leases 55 55 2017 10.22
Total 616,984 490,484    

Security

Borrowings are secured by way of a Debenture Trust Deed over the Council’s rates revenue.

Internal Borrowings

Council borrows on a consolidated level and as such does not use internal borrowing and therefore does not prepare internal borrowing statements.

Ring fenced funds

The Council holds $62.906m (2015: $40.356m) of funds that may only be used for a specified purpose. These funds are not held in cash but are utilised against borrowings until required. The specified uses for these funds are as follows:

Housing upgrade project

As part of the agreement with the Crown for the Housing Upgrade Project an amount of $57.578m (2015: $36.460m), representing any as yet unused grant funding from the Crown plus the accumulated surpluses and deficits from the Housing activity, has been ring fenced for future investment in the Council’s social housing assets.

Waste reduction and energy

An amount of $5.328m (2015: $3.896m) related to accumulated surpluses and deficits from the Waste Reduction and Energy Conservation activity which, under the Waste Minimisation Act 2008, must be ring fenced for future investment in waste activities. Council is committed to a number of waste minimisation projects that will utilise these funds.

Note 24: Employee benefits and liabilities provision

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Current        
Short-term benefits        
Payroll accruals 1,878 1,166 2,267 1,455
Holiday leave 5,256 5,028 6,385 5,900
Total short-term benefits 7,134 6,194 8,652 7,355
Termination benefits        
Other contractual provisions 55 112 55 112
Total termination benefits 55 112 55 112
Total current 7,189 6,306 8,707 7,467
Non-current        
Long-term benefits        
Long service leave provision - - 49 49
Retirement gratuities provision 995 1,096 1,007 1,108
Total long-term benefits 995 1,096 1,056 1,157
TOTAL EMPLOYEE BENEFIT LIABILITIES AND PROVISIONS 8,184 7,402 9,763 8,624

Relevant significant accounting policies – general

A provision for employee benefit liabilities (holiday leave, long service leave and retirement gratuities) is recognised as a liability when benefits are earned but not paid.

Holiday leave

Holiday leave includes: annual leave, long service leave, statutory time off in lieu and ordinary time off in lieu. Annual leave is calculated on an actual entitlement basis in accordance with section 21(2) of the Holidays Act 2003.

Movements in material employee benefit provisions above are analysed as follows:

Retirement gratuities provision Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 1,096 1,207 1,108 1,219
Movement in required provision (32) (19) (32) (19)
Release of unused provision (7) (29) (7) (29)
Rediscounting of interest 59 75 59 75
Amount utilised (121) (138) (121) (138)
Retirement gratuities – closing balance 995 1,096 1,007 1,108

Background

The Council’s retirement gratuities provision is a contractual entitlement for a reducing number of employees who, having qualified with 10 years’ service will, on retirement, be entitled to a payment based on years of service and current salary. This entitlement has not been offered to Council employees since 1991. Based on the age of remaining participants the provision may not be extinguished until 2037, assuming retirement at age 65.

Relevant significant accounting policies – specific

Retirement gratuities are calculated on an actuarial basis based on the likely future entitlements accruing to employees, after taking into account years of service, years to entitlement, the likelihood that employees will reach the point of entitlement, and other contractual entitlements information.

Estimation

The gross retirement gratuities provision (inflation adjusted at 1.80%) as at 30 June 2016, before discounting, is $1.262m (2015: $1.435m). The discount rate used is 6.10%.

Other contractual provisions Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 112 77 112 77
New provision 55 112 55 112
Release of unused provision - (7) - (7)
Amount utilised (112) (70) (112) (70)
Other contractual provisions – closing balance 55 112 55 112

Background

The above provision is to cover estimated redundancy costs as at 30 June 2016 resulting from current restructuring within the Council.

Relevant significant accounting policies – specific

Other contractual provisions include termination benefits, which are recognised within surplus or deficit only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.


Note 25: Provisions for other liabilities

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Current        
ACC Partnership programme 12 27 12 27
Landfill post closure costs 1,441 2,112 1,441 2,112
Weathertight homes 9,500 13,068 9,500 13,068
Total current 10,953 15,207 10,953 15,207
Non-current        
Landfill post closure costs 15,330 13,708 15,330 13,708
Weathertight homes 34,920 28,132 34,920 28,132
Total non-current 50,250 41,840 50,250 41,840
TOTAL PROVISIONS FOR OTHER LIABILITIES 61,203 57,047 61,203 57,047

Relevant significant accounting policies – general

Provisions are recognised for future liabilities of uncertain timing or amount when there is a present obligation as a result of a past event, it is probable that expenditure will be required to settle the obligation and a reliable estimate of the obligation can be made. Provisions are measured at the expenditure expected to be required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.

Movements in material provisions above are analysed as follows:

Landfill post closure costs Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 15,820 15,779 15,820 15,779
Movement in provision 479 (866) 479 (866)
Re-discounting of interest 932 1,114 932 1,114
Amount utilised (460) (207) (460) (207)
Landfill post closure costs – closing balance 16,771 15,820 16,771 15,820
Current 1,441 2,112 1,441 2,112
Non-current 15,330 13,708 15,330 13,708
Landfill post closure costs – closing balance 16,771 15,820 16,771 15,820

Background

The Council operates the Southern Landfill (Stage 3) and has a 21.5% joint venture interest in the Spicer Valley Landfill. It also manages a number of closed landfill sites around Wellington. The Council has responsibility for the closure of its landfills and to provide ongoing maintenance and monitoring of the landfills after they are closed.

As part of the closure of landfills, or landfill stages, the Council’s responsibilities include:

Post closure responsibilities include:

The management of the landfill will influence the timing of recognition of some liabilities – for example, the Southern Landfill operates in stages. A liability relating to any future stages will only be created when the stage is commissioned and when refuse begins to accumulate in this stage.

The Council, as operator of the Southern Landfill, has a legal obligation to apply for resource consents when the landfill or landfill stages reach the end of their operating life and are to be closed. These resource consents will set out the closure requirements and the requirements for ongoing maintenance and monitoring services at the landfill site after closure.

Relevant significant accounting policies – specific

A provision for post-closure costs is recognised as a liability when the obligation for post-closure arises, which is when each stage of the landfill is commissioned and refuse begins to accumulate.

The provision is measured based on the present value of future cash flows expected to be incurred, taking into account future events including known changes to legal requirements and known improvements in technology. The provision includes all costs associated with landfill post-closure including final cover application and vegetation; incremental drainage control features; completing facilities for leachate collection and monitoring completing; facilities for water quality monitoring and completing facilities for monitoring and recovery of gas.

Amounts provided for landfill post-closure are capitalised to the landfill asset. The capitalised landfill asset is depreciated over the life of the landfill based on the capacity used.

The Council’s provision for landfill post-closure costs includes the Council’s 21.5% proportionate share of the Spicer Valley landfill provision for post-closure costs.

Estimations

The long term nature of the liability means there are inherent uncertainties in estimating costs that will be incurred. The provision has been estimated using known improvements in technology and known changes to legal requirements. Future cash flows are discounted using the rate of 6.10%. The gross provision (inflation adjusted at 2.29%), before discounting, is $23.576m as at 30 June 2016 (2015: $23.445m). This represents the Council’s projection of the amount required to settle the obligation at the estimated time of the cash outflow.

Stage 3 of the Southern Landfill has an estimated remaining capacity of 664,018m3 (2015: 780,000m3) and is expected to close in 2021. These estimates have been made by the Council’s engineers based on expected future and historical volume information.

The Council’s provision includes a proportionate share of the Spicer Valley Landfill provision for post closure costs. The Spicer Valley Landfill has an estimated remaining capacity of 407,000m3 (2015: 483,000m3) and an estimated remaining life out to 2022 (6 years).

Weathertight homes Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 41,200 50,393 41,200 50,393
Additional or increased provision made 12,006 980 12,006 980
Amount utilised (8,786) (10,173) (8,786) (10,173)
Weathertight homes - closing balance 44,420 41,200 44,420 41,200
Current 9,500 13,068 9,500 13,068
Non-current 34,920 28,132 34,920 28,132
Weathertight homes - closing balance 44,420 41,200 44,420 41,200

Background

This provision represents the Council’s estimated liability relating to the settlement of claims arising in relation to the Weathertight Homes Resolution Services (WHRS) Act 2006 and civil proceedings for weathertightness.

A provision has been recognised for the potential net settlement of all known claims, including those claims that are being actively managed by the Council as well as claims lodged with WHRS but not yet being actively managed. The provision also includes an amount of $2.056m (2015: $3.282m) as a provision for future claims relating to weathertightness issues not yet identified or not yet reported.

Movement in the provision

During the year $8.786m was paid as either part or full settlement of claims. An additional $12.006m was added to the provision after an actuarial re-assessment of the likely future costs to be incurred as explained below. The current / non-current split above reflects the expected timing of payments but is reassessed each year to take account of delays in claim negotiations and any mediation outcomes.

Estimation

The Council has provided for the expected future costs of reported claims. The provision for active claims is based on the best estimate of the Council’s expected future costs to settle these claims and is reviewed on a case by case basis. The estimate for claims which have been notified and are not yet actively managed and unreported claims is based on actuarial assessments and other information on these claims. The nature of the liability means there are significant inherent uncertainties in estimating the likely costs that will be incurred in the future. This represents the Council’s best estimate of the amount required to settle the obligation at the estimated time of the cash outflow. Future cash flows are inflation adjusted and discounted using an applicable discount rate. The provision is net of any third-party contributions including insurance, where applicable.

The provision is based on best estimates and actuarial assessments and therefore actual costs incurred may vary significantly from those included in this provision, especially for future claims relating to weathertightness issues not yet identified or not yet reported.

The significant assumptions used in the calculation of the weathertight homes provision are as follows:

Amount claimed

Represents the expected amount claimed by the homeowner and is based on the actual amounts for claims already settled.

Settlement amount

Represents the expected amount of awarded settlement and is based on the actual amounts for claims already settled.

Amount expected to be paid by the Council

Represents the amount expected to be paid by the Council out of any awarded settlement amount and is based on the actual amounts for claims already settled. This figure has been increasing over the last few years as it is becoming more common for the other parties involved in a claim to be either in liquidation or bankrupt, or have limited funds and be unable to contribute to settlement.

Timing of claim payments

Represents the expected timing of claim payments based on the expected length of time it takes to settle claims. This assumption is based on experience and the actual timings for claims already settled.

Percentage of homeowners who will make a successful claim

Historical data collected on the number of claims lodged has enabled assumptions to be made on the percentage of homes built in the last 10 years which may experience weathertightness problems and therefore the percentage of homeowner who may make a successful claim.

The table below illustrates the potential impact on surplus or deficit of changes in some of the assumptions listed above.

Council and Group 2016
$000
  +10% -10%
Assumption Effect on
Surplus or Deficit
Amount claimed 4,442 (4,442)
Settlement level award 4,442 (4,442)
Council contibution to settlement 4,442 (4,442)
Timing of claim payments - -
Participation in FAP scheme (1,756) 1,756
Change in percentage of homeowners who will make a successful claim 205 (205)
  +2% -2%
Assumption Effect on
Surplus or Deficit
Discount rate (1,758) 1,659

Funding of weathertight homes settlements

Council uses borrowings in the first instance to meet the cost of settlements with the associated borrowings subsequently being repaid through rates funding. To ensure that the funding of weathertight homes is fully transparent the associated settlement costs, borrowings and rates funding is reported annually.

Funding for weathertight homes liability Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance (23,207) (18,530) (23,207) (18,530)
Funding for weathertight homes liability 8,125 6,662 8,125 6,662
Total amounts paid (8,786) (10,173) (8,786) (10,173)
Interest allocation (1,551) (1,166) (1,551) (1,166)
Closing balance funded through borrowings (25,419) (23,207) (25,419) (23,207)

Note 26: Deferred tax

Unrecognised temporary differences and tax losses

Deferred tax assets have not been recognised in respect of the following items:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Deductible temporary differences - - 559 461
Tax losses 1,037 1,951 1,165 1,951
TOTAL DEFERRED TAX ASSETS AND LIABILITIES 1,037 1,951 1,724 2,412

Under current income tax legislation, the tax losses and deductible temporary differences referred to above do not expire.

The unrecognised deferred tax asset in respect of the above items for the Council is $0.290m (2015: $0.546m) and for the Group $0.483m (2015: $0.675m).

Deferred tax assets have not been recognised in respect of these items as it is not probable that future taxable profits will be available against which the benefit of the losses can be utilised.

In 2016 $0.357m (2015: $0.244m) previously unrecognised tax losses, with a tax effect of $0.100m (2015: $0.068m) were recognised by the Group by way of a loss transfer arrangement.

As at 30 June 2016, the Group has a deferred tax liability of $1.482m (2015: $1.240m).

Relevant significant accounting policies

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the assets and liabilities, and the unused tax losses using tax rates enacted or substantively enacted at the end of the reporting period.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which they can be utilised.


Statement of Changes in Equity

For the year ended 30 June 2016

    Council Group
  Note Actual
2016
$000
Budget
2016
$000
Actual
2015
$000
Actual
2016
$000
Actual
2015
$000
EQUITY – Opening balances            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,722,229 3,702,985 3,685,128 3,709,806 3,672,911
Revaluation reserves   1,383,201 1,429,106 1,372,033 1,497,062 1,482,005
Hedging reserve   (17,462) 137 (403) (17,462) (403)
Fair value through other comprehensive revenue and expense reserve   106 63 63 505 63
Non-controlling interest   - - - 316 -
Restricted funds   13,124 12,389 14,683 16,923 17,437
TOTAL EQUITY – Opening balance   6,370,332 6,413,814 6,340,638 6,500,312 6,465,175
CHANGES IN EQUITY            
Retained earnings            
Net surplus for the year   34,106 23,101 35,542 36,610 36,381
Transfer to restricted funds   (5,118) (4,518) (2,273) (6,367) (4,146)
Transfer from restricted funds   4,178 3,979 3,832 4,549 4,660
Transfer from revaluation reserves   653 - - 653 -
Revaluation reserves 27          
Fair value movement – property, plant and equipment – net   (211) - 11,168 (211) 15,030
Effect of changed shareholding in associates   - - - - 27
Transfer to retained earnings   (653) - - (653) -
Hedging reserve 28          
Movement in hedging reserve   (21,268) - (17,059) (21,268) (17,059)
Fair value through other comprehensive revenue and expense reserve 29          
Movement in fair value – Equity investments   1,542 - 43 1,542 43
Movement in fair value – Available for sale equities   - - - (21) 399
Non-controlling interest            
Movement of non-controlling interest   - - - (32) 316
Restricted funds 30          
Transfer to retained earnings   (4,178) (3,979) (3,832) (4,549) (4,660)
Transfer from retained earnings   5,118 4,518 2,273 6,367 4,146
TOTAL COMPREHENSIVE REVENUE AND EXPENSE   14,169 23,101 29,694 16,620 35,137
             
EQUITY – Closing balances            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,756,048 3,725,547 3,722,229 3,745,251 3,709,806
Revaluation reserves   1,382,337 1,429,106 1,383,201 1,496,198 1,497,062
Hedging reserve   (38,730) 137 (17,462) (38,730) (17,462)
Fair value through other comprehensive revenue and expense reserve   1,648 63 106 2,026 505
Non-controlling interest   - - - 284 316
Restricted funds   14,064 12,928 13,124 18,741 16,923
TOTAL EQUITY – Closing balance   6,384,501 6,436,915 6,370,332 6,516,932 6,500,312
             
Total comprehensive revenue and expense attributable to:            
Wellington City Council and Group   14,169 23,101 29,694 16,620 35,037
Non-controlling interest   - - - - 100
    14,169 23,101 29,694 16,620 35,137

The notes on pages 146 to 234 form part of and should be read in conjunction with the financial statements


Statement of Changes in Equity – Major budget variations

Significant variations from budgeted changes in equity are as follows:

Total closing equity is $52.414m lower than budget but, after accounting for opening equity being already $43.482m lower than budget due to the timing of the 2014/15 revaluations and the budgeting process; the change in equity for the reporting period is only $8.932m less than budgeted.

The main reasons for this lower than budgeted changes in equity are as follows:

Offset by:

Equity

Equity is the community’s interest in the Council and Group and is measured as the difference between total assets and total liabilities. Equity is broken down and classified into a number of components to enable clearer identification of the specified uses of equity within the Council and the Group.

The components of equity are accumulated funds and retained earnings, revaluation reserves, a hedging reserve, a fair value through other comprehensive revenue and expense reserve and restricted funds which comprise special funds, reserve funds and trusts and bequests.

Restricted funds are those reserves that are subject to specific conditions of use, whether under statute or accepted as binding by the Council, and that may not be revised without reference to the Courts or third parties. Transfers from these reserves may be made only for specified purposes or when certain specified conditions are met.

Equity management

The Local Government Act 2002 (the Act) requires the Council to manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community. Ratepayer funds are largely managed as a by-product of managing revenues, expenses, assets, liabilities, investments, and general financial dealings.

The objective of managing these items is to achieve intergenerational equity, which is a principle promoted in the Act and applied by the Council. Intergenerational equity requires today’s ratepayers to meet the costs of utilising the Council’s assets but does not expect them to meet the full cost of long term assets that will benefit ratepayers in future generations. Additionally, the Council has asset management plans in place for major classes of assets, detailing renewal and programmed maintenance. These plans ensure ratepayers in future generations are not required to meet the costs of deferred renewals and maintenance.

The Act requires the Council to make adequate and effective provision in its LTP and in its Annual Plan (where applicable) to meet the expenditure needs identified in those plans. The Act sets out the factors that the Council is required to consider when determining the most appropriate sources of funding for each of its activities. The sources and levels of funding are set out in the funding and financial policies in the Council’s LTP.

Note 27: Revaluation reserves

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Land - opening balance 155,091 144,254 155,091 144,254
Revaluation recognised in other comprehensive revenue and expense - 10,837 - 10,837
Land - closing balance 155,091 155,091 155,091 155,091
         
Buildings - opening balance 231,498 231,167 231,498 231,167
Revaluation adjustment (211) 331 (211) 331
Transfer to retained earnings on disposal of assets (653) - (653) -
Buildings - closing balance 230,634 231,498 230,634 231,498
         
Library collections - closing balance 7,015 7,015 7,015 7,015
Drainage, waste and water - closing balance 547,533 547,533 547,533 547,533
Service concession assets - closing balance 70,619 70,619 70,619 70,619
Infrastructure land - closing balance 15,410 15,410 15,410 15,410
Roading - closing balance 356,035 356,035 356,035 356,035
         
Associates’ revaluation reserves - opening balance - - 113,861 109,972
Revaluation recognised in other comprehensive revenue and expense - - - 3,862
Effect of changed shareholding in associates - - - 27
Associates’ revaluation reserves - closing balance - - 113,861 113,861
Total revaluation reserves - closing balance 1,382,337 1,383,201 1,496,198 1,497,062
These revaluation reserves are represented by:        
Opening balance 1,383,201 1,372,033 1,497,062 1,482,005
Revaluation recognised in other comprehensive revenue and expense - 10,837 - 14,699
Revaluation adjustment (211) 331 (211) 331
Transfer to retained earnings on disposal of assets (653) - (653) -
Effect of changed shareholding in associates - - - 27
TOTAL REVALUATION RESERVES 1,382,337 1,383,201 1,496,198 1,497,062

The revaluation reserves are used to record accumulated increases and decreases in the fair value of certain asset classes.

For the period ending 30 June 2016 Council has only revalued its investment properties, which are revalued every year. The infrastructure land and network assets (Drainage, waste, water and roading) and the Library collection will be revalued in 2016/17 as per the normal 3-yearly cycle. Operational land and buildings are due for revaluation in 2017/18.

Revaluation movements are non-cash in nature and represent the restating of the Council’s assets, subject to revaluation, into current dollar values after taking into account the condition and remaining lives of the assets.

Relevant significant accounting policies

The result of any revaluation of the Group’s property, plant and equipment is recognised within other comprehensive revenue and expense and taken to the asset revaluation reserve. Where this results in a debit balance in the reserve for a class of property, plant and equipment, the balance is included in the surplus or deficit. Any subsequent increase on revaluation that offsets a previous decrease in value recognised within surplus or deficit will be recognised firstly, within surplus or deficit up to the amount previously expensed, and with any remaining increase recognised within other comprehensive revenue and expense and in the revaluation reserve for that class of property, plant and equipment.

Accumulated depreciation at the revaluation date is eliminated so that the carrying amount after revaluation equals the revalued amount.

While assumptions are used in all revaluations, the most significant of these are in infrastructure. For example where stormwater, wastewater and water supply pipes are underground, the physical deterioration and condition of assets are not visible and must therefore be estimated. Any revaluation risk is minimised by performing a combination of physical inspections and condition modelling assessments.

Note 28: Hedging Reserve

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance (17,462) (403) (17,462) (403)
Cash flow hedge net movement recognised in other comprehensive revenue and expense (21,268) (17,059) (21,268) (17,059)
TOTAL HEDGING RESERVE (38,730) (17,462) (38,730) (17,462)

The hedging reserve shows accumulated fair value changes for interest rate swaps which satisfy the criteria for hedge accounting and have operated as effective hedges during the period.

The Council uses interest rate swaps to fix interest rates on floating rate debt (floating rate notes and commercial paper) to give it certainty over interest costs.

The Council uses hedge accounting to recognise any fair value fluctuations in these swaps through this reserve within equity. Using hedge accounting prevents any significant movement in interest rate exposure significantly affecting the Council’s ability to meet its balanced budget requirements.


Note 29: Fair value through other comprehensive revenue and expense reserve

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Opening balance 106 63 505 63
Movements:        

Civic Assurance

133 43 133 43

Local Government Funding Agency

1,409 - 1,409 -

Creative HQ shareholdings - available for sale

- - (21) 399
TOTAL FAIR VALUE THROUGH OTHER COMPREHENSIVE REVENUE AND EXPENSE RESERVE 1,648 106 2,026 505

This reserve reflects the accumulated fair value movement in the Council’s investment in Civic Assurance and the Local Government Funding Agency, for which there is no intention to sell. For further information refer to Note 14: Other financial assets (page 168).

In the Group, Creative HQ, a controlled entity of WREDA, has small shareholdings in incubator and accelerator programme companies. These shareholdings are fair valued annually and any movement is held within this reserve until the shares are disposed.


Note 30: Restricted Funds

Restricted funds are comprised of special reserves and funds that Council holds for specific purposes and trusts and bequests that have been bestowed upon the Council for the benefit of all Wellingtonians.

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Special reserves and funds 13,639 12,702 17,094 15,635
Trusts and bequests 425 422 1,647 1,288
TOTAL RESTRICTED FUNDS 14,064 13,124 18,741 16,923
Special reserves and funds Closing Balance
2015
$000
Additional Funds
2016
$000
Funds Utilised
2016
$000
Closing Balance
2016
$000
Council        
City growth fund 2,976 3,050 (2,735) 3,291
Reserve purchase and development fund 999 - (217) 782
Insurance reserve 8,727 1,500 (661) 9,566
Total Council 12,702 4,550 (3,613) 13,639
Controlled entities’ reserve funds 2,933 726 (204) 3,455
Total Group - Special reserves and funds 15,635 5,276 (3,817) 17,094

Nature and purpose, funding and utilisation

City Growth Fund (formerly the Wellington economic initiatives development fund)

This fund is part of an integrated approach to fostering growth in the economy. Funding of $3m was provided from previous surpluses and $2.735m was utilised during the year.

Reserve purchase and development fund

This fund is used to purchase and develop reserve areas within the city. During the year $0.217m was used to purchase Flagstaff Hill and other land for reserve purposes.

Insurance reserve

This reserve came into effect in 2001 and allows the Council to meet the cost of claims that fall below deductible limits under Council’s insurance policies. Annual additions to the reserve of $1.500m (2015: $0.750m) are funded through rates as identified in the Annual Plan. During the year $0.661m (2015: $1.632m) was used to meet below-excess insurance costs.

Controlled entities’ reserve funds

The restricted funds of the controlled entities relate to the Wellington Museums Trust and the Wellington Zoo Trust:

Trust and bequests Closing Balance
2015
$000
Additional Funds
2016
$000
Funds Utilised
2016
$000
Closing Balance
2016
$000
Council        
A Graham Trust 3 - - 3
A W Newton Bequest 318 15 (15) 318
Charles Plimmer Bequest - 550 (550) -
E A McMillan Estate 6 - - 6
E Pengelly Bequest 13 1 - 14
F L Irvine Smith Memorial 7 - - 7
Greek NZ Memorial Association 5 - - 5
Kidsarus 2 Donation 3 - - 3
Kirkcaldie and Stains Donation 17 - - 17
QEII Memorial Book Fund 19 1 - 20
Schola Cantorum Trust 7 1 - 8
Terawhiti Grant 10 - - 10
Wellington Beautifying Society Bequest 14 - - 14
Total Council - Trusts and bequests 422 568 (565) 425
Controlled entities’ trusts and bequests 866 523 (167) 1,222
Total Group - Trusts and bequests 1,288 1,091 (732) 1,647

Analysis of movements in trusts and bequests

Additional Funds

Trusts and bequests receiving additional funds during the year were those where interest has been applied in accordance with the original terms and conditions.

Funds utilised

Trusts and bequests funds utilised during the year were:

Nature and purpose

Other than those specific trusts and bequests discussed above, the other Council bequests and trusts are generally provided for library, educational or environmental purposes.

The Wellington Zoo Trust has a number of bequests, trusts and capital grants made to it for specific purposes, which are held as restricted funds until utilised. Further information on these can be found in the Wellington Zoo Trust annual report published on their website here.


Statement of Cash Flows

For the year ending 30 June 2016

  Council Group
  Actual
2016
$000
Budget
2016
$000
Actual
2015
$000
Actual
2016
$000
Actual
2015
$000
CASH FLOWS FROM OPERATING ACTIVITIES          
Receipts from rates - Council 272,802 259,728 252,484 272,802 252,484
Receipts from rates- Greater Wellington Reginal Council 55,622 53,018 50,763 55,622 50,763
Receipts from activities and other revenue 119,920 136,363 127,366 131,199 148,920
Receipts from grants and subsidies - Operating 7,108 6,485 7,666 15,839 28,593
Receipts from grants and subsidies - Capital 38,918 36,026 48,244 39,679 37,906
Receipts from investment property lease rentals 11,025 9,135 10,211 11,025 10,211
Cash paid to suppliers and employees (288,166) (294,178) (286,807) (324,047) (327,119)
Rates paid to GWRC (56,288) (53,018) (50,876) (56,288) (50,876)
Grants paid (38,384) (35,583) (28,524) (18,543) (13,713)
Income tax paid - - - (244) (6)
Net GST (paid) / received (925) - (1,180) (2,329) (972)
NET CASH FLOWS FROM OPERATING ACTIVITIES 121,632 117,976 129,347 124,715 136,191
CASH FLOWS FROM INVESTING ACTIVITIES          
Dividends received 12,179 11,000 13,082 12,218 13,082
Interest received 3,103 637 2,838 3,311 3,068
Loan repayments 277 - - 277 -
Decrease in bank investments - - 20,000 - 20,000
Proceeds from sale of property, plant and equipment 592 2,650 2,290 1,023 2,447
Proceeds from sale of Investments - - - - 31
Proceeds from sale of Investment property 6,843 - - 6,843 -
Loan advance made (442) - - (442) (75)
Increase in investments (1,520) - (824) (1,520) (822)
Cash from aquisition of controlled entity - - - - 668
Purchase of investment properties (1,862) - (10) (1,862) (10)
Purchase of intangibles (9,521) (11,195) (7,741) (9,521) (7,747)
Purchase of property, plant and equipment (136,816) (146,857) (137,353) (140,648) (139,799)
NET CASH FLOWS FROM INVESTING ACTIVITIES (127,167) (143,765) (107,718) (130,321) (109,157)
CASH FLOWS FROM FINANCING ACTIVITIES          
New borrowings 148,855 239,327 70,000 148,855 70,000
Repayment of borrowings (92,099) (197,932) (55,390) (92,099) (55,390)
Interest paid on borrowings (23,125) (22,763) (22,899) (23,125) (22,899)
NET CASH FLOWS FROM FINANCING ACTIVITIES 33,631 18,632 (8,289) 33,631 (8,289)
Net increase/(decrease) in cash and cash equivalents 28,096 (7,157) 13,340 28,025 18,745
Cash and cash equivalents at beginning of year 65,913 8,406 52,573 75,598 56,853
CASH AND CASH EQUIVALENTS AT END OF YEAR 94,009 1,249 65,913 103,623 75,598

The cash and cash equivalents balance above equates to the cash and cash equivalents balance in the Statement of Financial Position.

The notes on pages 146 to 234 form part of and should be read in conjunction with the financial statements

Wellington City Council acts as a collection agency for GWRC by including additional rates and levies in its own billing process. Once collected, the monies are passed to GWRC. The budget assumes that the inflows and outflows will offset each other and are shown as nil accordingly.

The Council has ring fenced funds of $62.906m m (2015: $40.356m) relating to the housing upgrade project and waste activities. For more information see Note 23: Borrowings (page 191).

Cash and cash equivalents for the purposes of the cash flow statement comprises bank balances, cash on hand and short term deposits with a maturity of three months or less. The statement of cash flows has been prepared using the direct approach subject to the netting of certain cash flows. Cash flows in respect of investments and borrowings that have been rolled-over under arranged finance facilities have been netted in order to provide more meaningful disclosures.

Operating activities include cash received from all non-financial revenue sources of the Council and Group and record the cash payments made for the supply of goods and services.

Investing activities relate to the acquisition and disposal of assets and investment revenue.

Financing activities relate to activities that change the equity and debt capital structure of the Council and Group and financing costs.

Statement of Cash Flows – Major budget variations

Cash flow budgeting is performed using various assumptions around the timing of events and any departure from these timings will affect the outcome against budget.

Significant variations from the cash flow budgets are as follows:

Net cash flows from operating activities were $3.656m higher than budgeted primarily due to:

Offset by:

Net cash flows from investing activities were $16.598m lower than budget primarily due to:

Net cash flows from financing activities were $14.999m higher than budget primarily due to:

Note 31: Reconciliation of net surplus to net operating cash flows

The net surplus from the Statement of Comprehensive Revenue and Expense is reconciled to the net cash flows from operating activities in the Statement of Cash Flows as follows:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Net surplus for the period 34,106 35,542 36,610 36,381
Add/(deduct) non-cash items:        
Vested assets (10,181) (12,368) (10,181) (12,368)
Bad debts written off not prevously provided for 282 307 282 334
Depreciation and amortisation 99,183 99,009 100,971 100,024
Impairment of property, plant and equipment 132 5,072 581 5,072
Fair value changes in investment properties (13,773) (8,552) (13,773) (8,552)
Other fair value changes (400) (197) (400) (191)
Movement in provision for impairments of doubtful debts 153 (512) 153 (512)
Non-cash movement in provisions 12,079 1,045 12,550 1,651
Total non-cash items 87,475 83,804 90,183 85,458
Add/(deduct) movement in working capital: 1        
Exchange receivables and non-exchange recoverables (10,826) (2,083) (6,962) (650)
Prepayments 953 (800) 572 (1,200)
Inventories (202) 70 (123) (92)
Exchange transactions, taxes and transfers payables (4,623) (2,163) (8,555) (961)
Revenue in advance 13,805 17,186 12,837 18,854
Employee benefit liabilities 782 967 879 776
Provision for other liabilities (7,908) (10,210) (7,908) (10,401)
         
Total working capital movement (8,019) 2,967 (9,260) 6,326
Add/(deduct) investing and financing activities:        
Net (gain)/loss on disposal of property, plant and equipment 1,115 55 1,461 36
Net (gain)/loss on disposal of investment property (888) - (888) -
Dividends received (12,179) (13,082) (160) (163)
Interest received (3,103) (2,838) (3,334) (3,128)
Tax paid and subvention receipts - - (205) (6)
Interest paid on borrowings 23,125 22,899 23,119 22,899
Share of equity accounted surplus from associates - - (12,811) (11,612)
Total investing and financing activities 8,070 7,034 7,182 8,026
NET CASH FLOWS FROM OPERATING ACTIVITIES 121,632 129,347 124,715 136,191
  1. Excluding non-cash items.

Other DisclosuresTop

Note 32: Financial Instruments

Financial instruments include financial assets (loans and receivables or recoverables and financial assets at fair value through other comprehensive revenue and expense), financial liabilities (payables and borrowings) and derivative financial instruments. Financial instruments are classified into the categories outlined below based on the purpose for which they were acquired. The classification is determined at initial recognition and re-evaluated at the end of each reporting period.

Relevant significant accounting policies

Financial instruments are initially recognised on trade-date at their fair value plus transaction costs. Subsequent measurement of financial instruments depends on the classification determined by the Council.

Financial Assets

Financial assets are classified as loans and receivables or financial assets at fair value through other comprehensive revenue and expense.

Loans and receivables comprise cash and cash equivalents, receivables or recoverables and loans and deposits.

Financial assets in this category are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method. Fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date for assets of a similar maturity and credit risk. Receivables or recoverables due in less than 12 months are recognised at their nominal value. A provision for impairment is recognised when there is objective evidence that the asset is impaired. As there are statutory remedies to recover unpaid rates, rates penalties and water meter charges, no provision has been made for impairment in respect of these receivables or recoverables.

Financial assets at fair value through other comprehensive revenue and expense primarily relate to equity investments that are held by the Council for long-term strategic purposes and therefore are not intended to be sold. Within the Group, small shareholdings are held in start-up companies, which are available for sale, until the companies mature or cease operations. Financial assets at fair value through other comprehensive revenue and expense are initially recorded at fair value plus transaction costs. They are subsequently measured at fair value and changes, other than impairment losses, are recognised directly in a reserve within equity. On disposal, the cumulative fair value gain or loss previously recognised directly in other comprehensive revenue and expense is recognised within surplus or deficit.

Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all of the risks and rewards of ownership.

Financial Liabilities

Financial liabilities include payables under exchange transactions, taxes, transfers and borrowings. Financial liabilities with duration of more than 12 months are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method. Amortisation is recognised within surplus or deficit. Financial liabilities with duration of less than 12 months are recognised at their nominal value.

On disposal any gains or losses are recognised within surplus or deficit.

The following tables provide an analysis of the Council’s financial assets and financial liabilities by reporting category as described in the accounting policies:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Financial assets        
Loans and receivables        
Cash and cash equivalents 94,009 65,913 103,623 75,598
Receivables from exchange transactions 15,806 6,611 16,385 7,492
Recoverables from non-exchange transactions 34,519 33,403 35,414 34,964
Other financial assets 9,139 7,054 9,190 7,101
Total loans and receivables 153,473 112,981 164,612 125,155
Financial assets at fair value through other comprehensive revenue and expense        
Other financial assets 4,041 2,499 5,468 3,900
Total financial assets at fair value through other comprehensive revenue and expense 4,041 2,499 5,468 3,900
Hedged derivative financial instruments        
Derivatives designated as cash flow hedges - 725 - 725
Total hedged derivative financial instruments - 725 - 725
Total financial assets 157,514 116,205 170,080 129,780
Total non-financial assets 6,922,590 6,858,478 7,051,339 6,985,521
TOTAL ASSETS 7,080,104 6,974,683 7,221,419 7,115,301
Financial liabilities        
Financial liabilities at amortised cost        
Payables under exchange transactions 43,257 46,098 50,552 48,417
Taxes and transfers payable 10,647 12,241 12,817 12,606
Borrowings 490,484 433,728 490,484 433,731
Total financial liabilities at amortised cost 544,388 492,067 553,853 494,754
Derivative financial instruments        
Derivatives designated as cash flow hedges 38,730 18,187 38,730 18,187
Total derivative financial instruments 38,730 18,187 38,730 18,187
Total financial liabilities 583,118 510,254 592,583 512,941
Total non-financial liabilities 112,485 94,097 111,904 102,048
TOTAL LIABILITIES 695,603 604,351 704,487 614,989

Fair value

The fair values of all financial instruments equate or are approximate to the carrying amount recognised in the Statement of Financial Position.

Fair value hierarchy

For those financial instruments recognised at fair value in the Statement of Financial Position, the fair values are determined according to the following hierarchy:

Group 2016 2015
  Level 1
$000
Level 2
$000
Level 3
$000
Level 1
$000
Level 2
$000
Level 3
$000
Financial assets            
Financial assets at fair value through other comprehensive revenue and expense - - 5,468 - - 3,900
Derivative financial instruments            
- Cash flow hedges - - - - 725 -
Financial liabilities            
Derivative financial instruments            
- Cash flow hedges - 38,730 - - 18,187 -
             
Reconciliation of fair value movements in Level 3 Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Financial assets at fair value through other comprehensive revenue and expense        
- Equity investments        
Opening balance - 1 July 2,499 2,473 3,900 2,473
Opening balance from acquisition - - - 1,008
Purchases - - 65 -
Disposals - (17) (18) (23)
Gains or losses recognised in other comprehensive revenue and expense 1,542 43 1,521 442
Closing balance - 30 June 4,041 2,499 5,468 3,900

The level 3 equity investments comprise the Council’s shareholdings in the Local Government Funding Agency $3.275m (2015: $1.866m) and Civic Assurance $0.766m (2015: $0.633m). Refer to Note 14: Other financial assets (page 168) for more details.

Financial risk management

As part of its normal operations, the Group is exposed to a number of risks. The most significant are credit risk, liquidity risk and market risk, which includes interest rate risk. The Group’s exposure to these risks and the action that the Group has taken to minimise the impact of these risks is outlined below:

Credit risk

Credit risk is the risk that a third party will default on its obligations to the Group, thereby causing a financial loss. The Group is not exposed to any material concentrations of credit risk other than its exposure within the Wellington region. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the Statement of Financial Position and the face value of financial guarantees to related parties (refer Note 34: Contingencies (page 222)). There is currently no liability recognised for these guarantees as the Group does not expect to be called upon for payment.

The Group’s maximum exposure to credit risk at the end of the reporting period is:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Financial instruments with credit risk        
Cash and cash equivalents 94,009 65,892 103,623 75,564
Derivative financial instrument assets - 725 - 725
Receivables and recoverables        
- Receivables 15,806 6,611 11,621 7,492
- Recoverables 34,519 33,403 35,414 34,964
Other financial assets        
- Bank deposits - term - - - -
- LGFA borrower notes 3,728 2,208 3,728 2,208
- Loans to related parties - other organisations 5,096 4,696 5,096 4,668
- Loans to external organisations 315 150 366 225
Financial guarantees to related parties 278 500 278 500
Total financial instruments with credit risk 153,751 114,185 160,126 126,346

Receivables and recoverables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

The Council is exposed to credit risk as a guarantor of the LGFA’s borrowings. Further information about this exposure is explained in Note 34: Contingencies (page 222).

Credit quality of financial assets

The credit quality of financial assets that are neither past due or impaired can be assessed by reference to Standard and Poor’s credit ratings.

Counterparties with credit ratings Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Cash - registered banks        
AA- 7,986 1,392 13,711 7,622
Short term deposits - registered banks        
AA- 84,500 61,500 88,377 64,942
A+ 1,500 3,000 1,500 3,000
Term deposits (greater than 3 months) - registered banks        
AA- - - - -
Term deposits - borrower notes - NZ LGFA        
AA+ 3,728 2,208 3,728 2,208
Derivative financial instrument assets        
AA- - 725 - 725

Liquidity risk

Liquidity risk refers to the situation where the Group may encounter difficulty in meeting obligations associated with financial liabilities. The Group maintains sufficient funds to cover all obligations as they fall due. Facilities are maintained in accordance with the Council’s Liability Management Policy to ensure the Group is able to access required funds.

Contractual maturity

The following maturity analysis sets out the contractual cash flows for all financial liabilities that are settled on a gross cash flow basis. Contractual cash flows for financial liabilities include the nominal amount and interest payable.

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Contractual cash flows of financial liabilities excluding derivatives        
0-12 months 205,279 236,052 214,747 240,730
1-2 years 49,843 49,642 49,843 49,642
2-5 years 162,570 128,050 162,570 128,050
More than 5 years 186,650 136,273 186,650 136,273
Total contractual cash flows of financial liabilities excluding derivatives 604,342 550,017 613,810 554,695
Represented by:        
Carrying amount as per the Statement of Financial Position 544,388 492,422 553,856 497,100
Future interest payable 59,954 57,595 59,954 57,595
Total contractual cash flows of financial liabilities excluding derivatives 604,342 550,017 613,810 554,695

The following maturity analysis sets out the contractual cash flows for all financial liabilities that are settled on a net cash flow basis. Contractual cash flows for derivative financial liabilities are the future interest payable.

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Contractual cash flows of derivative financial liabilities        
0-12 months 8,532 5,482 8,532 5,482
1-2 years 8,268 5,651 8,268 5,651
2-5 years 16,795 8,186 16,795 8,186
More than 5 years 9,372 753 9,372 753
Total contractual cash flows of derivative financial liabilities 42,967 20,072 42,967 20,072
Represented by:        
Future interest payable 42,967 20,072 42,967 20,072
Total contractual cash flows of derivative financial liabilities 42,967 20,072 42,967 20,072

In addition to cash to be received in 2016/17 the Council currently has $121.5m in unused committed bank facilities available to settle obligations as well as $137.403m of cash, cash equivalents and receivables and is expected to have sufficient cash to meet all contractual liabilities as they fall due.

The Council is exposed to liquidity risk as a guarantor of all of LGFA’s borrowings. This guarantee becomes callable in the event of the LGFA failing to pay its obligations when they fall due. Information about this exposure is explained in Note 34: Contingencies (page 222).

The Council mitigates exposure to liquidity risk by managing the maturity of its borrowings programme within the following maturity limits:

Period Minimum Maximum Actual
0 - 3 years 20% 60% 37%
3 - 5 years 20% 60% 30%
More than 5 years 15% 60% 33%

Market risk

Market risk is the risk that the value of an investment will decrease or a liability will increase due to changes in market conditions. The Group uses interest rate swaps in the ordinary course of business to manage interest rate risks. A Treasury Committee, headed by senior management personnel and the Council’s treasury management advisors (presently PWC), provides oversight for financial risk management and derivative activities and ensures any activities are in line with the Liability Management Policy which is formally approved by the Council as part of the LTP.

Cash flow and fair value interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will decrease due to changes in market interest rates. The Group is exposed to interest rate risk from its interest-earning financial assets and interest-bearing financial liabilities. The Group is risk averse and seeks to minimise exposure arising from its borrowing activities primarily by entering into interest rate swap arrangements to fix interest rates on its borrowings.

The Group manages its cash flow interest rate risk by using interest rate swaps. These have the economic effect of converting borrowings from floating rates to fixed rates. The Council uses interest rate swaps to maintain a required ratio of borrowing between fixed and floating interest rates as specified in the liability management policy:

Minimum fixed rate Maximum fixed rate Actual % of fixed net debt
before interest rate swaps
Actual % of fixed net debt
after interest rate swaps
50% 95% 6% 92%

The table below shows the effect of the interest rate swaps at reducing the Council’s exposure to interest rate risk:

  Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Financial instruments subject to interest rate volatility - before effect of interest rate swaps        
Cash and cash equivalents 94,009 65,913 103,623 75,598
Bank deposits - term greater than 3 months - - - -
Bank facilities - short term - (2,000) - (2,000)
Bank loans (3,929) (3,074) (3,929) (3,074)
Commercial paper (100,000) (72,000) (100,000) (72,000)
Debt securities - floating rate notes (366,500) (331,500) (366,500) (331,500)
Total financial instruments subject to interest rate volatility - before effect of interest rate swaps (376,420) (342,661) (366,806) (332,976)
Effect of interest rate swaps in reducing interest rate volatility        
Effect of Cash flow interest rate swaps - hedged 367,500 357,500 367,500 357,500
Effect of Cash flow interest rate swaps - non-hedged - - - -
Total effect of interest rate swaps in reducing interest rate volatility 367,500 357,500 367,500 357,500
Total financial instruments subject to interest rate volatility - after effect of interest rate swaps (8,920) 14,839 694 24,524

These interest rate swaps have a nominal value which represents the value of the debt that they are covering (included above). This amount is not recorded in the financial statements; instead the fair value of these interest rate swaps is recognised. This represents the difference between the current floating interest rate and the fixed swap interest rate. At 30 June 2016 the fair value of the interest rate swaps was -$38.730m (2015: -$17.462m). This liability will reduce to zero as the swaps reach the end of their lives, and therefore do not represent a liability that the Council will be required to pay cash to settle.

Given that the interest rate swaps have terms that match with the borrowings (short term bank facilities, commercial paper and debt securities), it is appropriate to include the effect of the interest rate swaps on the borrowings interest rate and present the net effective interest rates for the underlying borrowings:

Weighted effective interest rates Council Group
  2016
%
2015
%
2016
%
2015
%
Investments        
Cash and cash equivalents 2.99 3.76 2.89 3.47
LGFA - borrower notes 2.80 3.96 2.80 3.96
Loans to related parties - - - -
Loans to external organisations - - - -
Borrowings        
Bank facilities - short term - 4.63 - 4.63
Bank loans 7.00 7.00 7.00 7.00
Commercial paper 2.41 3.65 2.41 3.65
Debt securities - fixed 4.84 4.93 4.84 4.93
Debt securities - floating 2.96 4.22 2.96 4.22
Derivative financial instruments - hedged 4.63 4.76 4.63 4.76
Finance leases 10.22 10.22 10.24 10.24

Loans to related parties, being the loans to the Wellington Regional Stadium Trust and to the Karori Wildlife Sanctuary Trust, are both on interest free terms.

Sensitivity analysis

While the Council has significantly reduced the impact of short-term fluctuations on the Group’s earnings through interest rate swap arrangements, there is still some exposure to changes in interest rates.

The tables below illustrate the potential surplus and deficit impact of a 1% change in interest rates based on the Council’s and the Group’s exposures at the end of the reporting period:

Council 2016
$000
  +1% -1% +1% -1%
Interest rate risk Note Effect on Surplus
or Deficit
Effect on Other
Comprehensive Revenue
and Expense
Financial assets          
Cash and cash equivalents a 940 (940) - -
LGFA - borrower notes   37 (37) - -
Derivatives - Interest rate swaps - hedged b - - - -
Financial liabilities          
Derivatives - interest rate swaps - hedged b - - 21,400 (23,043)
Debt securities - floating rate notes c (960) 960 - -
Debt securities - fixed rate bonds d - - - -
Bank term loans e - - - -
Commercial paper f (280) 280 - -
Total sensitivity to interest rate risk   (263) 263 21,400 (23,043)

a. Cash and cash equivalents

Council funds are in a number of different registered bank accounts with interest payable on the aggregation of all accounts. A movement in interest rates of plus or minus 1% has an effect on interest revenue of $0.940m.

b. Derivatives - hedged interest rate swaps

Derivatives include interest rate swaps with a fair value totalling -$38.730m. A movement in interest rates of plus 1% has an effect on increasing the unrealised value of the hedged interest rate swaps by $21.400m. A movement in interest rates of minus 1% has an effect on reducing the unrealised value of the hedged interest rate swaps by $23.045m.

c. Debt securities – floating rate notes

Debt securities at floating rates total $366.500m. The full exposure to changes in interest rates has been reduced because the Council has $270.500m of this debt at fixed rates through interest rate swaps. A movement in interest rates of plus or minus 1% has an effect on the interest expense of $0.960m.

d. Debt Securities – fixed rate bonds

Council has $20m of fixed rate bonds which are not exposed to interest rate changes.

e. Bank Loan

Council, through its joint venture with Porirua City Council has a bank term loan of $3.929m. This loan consists of various loans provided to the joint venture through Porirua City Council borrowing. The interest rate applied is fixed at 7% for the joint venture partners and is not subject to interest rate risk.

f. Commercial paper

Council has a Commercial Paper programme which is subject to floating rates and totals $100m. The full exposure to changes in interest rates has been reduced because the Council has $72m of this debt at fixed rates through interest rate swaps. A movement in interest rates of plus or minus 1% has an effect on the interest expense of $0.280m.

Note 33: Commitments

Capital commitments Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Approved and contracted - property, plant and equipment 9,771 35,368 9,771 35,369
Approved and contracted - investment properties 130 3 130 3
Approved and contracted - intangibles 461 1,891 461 1,891
Approved and contracted - share of associates - - 20,190 12,194
Approved and contracted - share of joint ventures - - - -
TOTAL CAPITAL COMMITMENTS 10,362 37,262 30,552 49,457

The capital commitments above represents signed contracts in place at the end of the reporting period.

The contracts will often span more than one financial year and may include capital expenditure carried forward from 2015/16 to future years.

Lease commitments

Operating leases – Group as lessee

The Group leases certain items of plant, equipment, land and buildings under various non-cancellable operating lease agreements.

The lease terms are between 2 and 21 years and the majority of the lease agreements are generally renewable at the end of the lease period at market rates.

The amount of minimum payments for non-cancellable operating leases is recognised as an expense in Note 7: Expenditure on operating activities (page 154).

Relevant significant accounting policies

Leases where the lessor retains substantially all the risks and rewards of ownership of the leased items are classified as operating leases. Payments made under operating leases are recognised within surplus or deficit on a straight-line basis over the term of the lease. Lease incentives received are recognised within surplus or deficit over the term of the lease as they form an integral part of the total lease payment.

The future expenditure committed by these leases is analysed as follows:

Non-cancellable operating lease commitments as lessee Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Plant and equipment        
Not later than one year 21 30 238 92
Later than one year and not later than five years 2 19 174 93
Later than five years - - - -
Land and buildings        
Not later than one year 1,246 821 1,696 1,332
Later than one year and not later than five years 4,121 1,977 4,481 2,477
Later than five years 2,213 1,317 2,213 1,317
TOTAL NON-CANCELLABLE OPERATING LEASE COMMITMENTS AS LESSEE 7,603 4,164 8,802 5,311

Operating leases – Group as lessor

The Group has also entered into commercial property leases of its investment property portfolio and other land and buildings.

The land and buildings held for investment purposes are properties which are not held for operational purposes and are leased to external parties.

Ground leases are parcels of land owned by the Group in the central city or on the waterfront that are leased to other parties who own the buildings situated on the land. The leases are generally based on 21-year perpetually renewable terms. As these parcels of land are held for investment purposes the rentals are charged on a commercial market basis.

The land and buildings not held for investment purposes are either used to accommodate the Group’s operational activities or are held for purposes such as road widening, heritage, or are being monitored for compliance reasons. In some cases, parts of these assets are leased to external parties on a commercial basis. The terms of these commercial leases generally range from 1 to 15 years.

Relevant significant accounting policies

Rental revenue is recognised on a straight-line basis over the lease term.

The committed revenues expected from these lease portfolios are analysed as follows:

Non-cancellable operating lease commitments as lessor Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Investment properties        
Not later than one year 9,605 10,026 9,605 10,026
Later than one year and not later than five years 37,258 37,871 37,258 37,871
Later than five years 69,521 78,110 69,521 78,110
Land and buildings        
Not later than one year 2,284 2,892 2,134 2,244
Later than one year and not later than five years 5,576 6,024 5,256 5,327
Later than five years 9,312 9,177 9,305 9,177
TOTAL NON-CANCELLABLE OPERATING LEASE COMMITMENTS AS LESSOR 133,556 144,100 133,079 142,755

Commitments to related parties

The Council and Group have no commitments to key management personnel beyond normal employment obligations.

Note 34: Contingencies

Contingent liabilities Council Group
  2016
$000
2015
$000
2016
$000
2015
$000
Financial guarantees to community groups 278 500 278 500
Uncalled capital - LGFA 1,866 1,866 1,866 1,866
Other legal proceedings 268 202 268 202
Share of associates’ contingent liabilities - - - -
Share of joint ventures’ contingent liabilities - - - -
TOTAL CONTINGENT LIABILITIES 2,412 2,568 2,412 2,568

Contingent assets

The Council and Group have no contingent assets as at 30 June 2016 (2015: $Nil).

Relevant significant accounting policies

Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident. Contingent liabilities are disclosed if the possibility they will crystallise is not remote. Contingent assets are disclosed if it is probable the benefits will be realised.

Financial guarantee contract

A financial guarantee contract is a contract that requires the Group to make specified payments to reimburse the contract holder for a loss it incurs because a specified debtor fails to make payment when due.

Financial guarantee contracts are initially recognised at fair value. The Group measures the fair value of a financial guarantee by determining the probability of the guarantee being called by the holder. The probability factor is then applied to the principal and the outcome discounted to present value.

Financial guarantees are subsequently measured at the higher of the Group’s best estimate of the obligation or the amount initially recognised less any amortisation.

Karori Wildlife Sanctuary Trust (Zealandia)

The Council has provided a guarantee over a term loan facility to a maximum limit of $1.550m plus any outstanding interest and enforcement costs. The loan matures 30 June 2020 and repayments are being met on schedule.

NZ Local Government Funding Agency Limited (LGFA)

Council is one of 30 local authority shareholders and 8 local authority guarantors of the LGFA. In that regard Council has uncalled capital of $1.866m. When aggregated with the uncalled capital of other shareholders, $20m is available in the event that an imminent default is identified. Also, together with the other shareholders and guarantors, Council is a guarantor of all of LGFA’s borrowings. At 30 June 2016, LGFA had borrowings totalling $6,220m (2015: $4,955m).

Financial reporting standards require Council to recognise the guarantee liability at fair value. However, the Council has been unable to determine a sufficiently reliable fair value for the guarantee, and therefore has not recognised a liability. The Council considers the risk of LGFA defaulting on repayment of interest or capital to be very low on the basis that we are not aware of any local authority, which is a member of the LGFA, that has had debt default events in New Zealand; and local government legislation would enable local authorities to levy a rate to recover sufficient funds to meet any debt obligations if further funds were required. Council considers that even if it was called upon to contribute the cost would not be material.

Other legal proceedings

Other legal proceedings are current claims against the Council and Group as a result of past events which are currently being contested. The amounts shown reflect potential liability for financial reporting purposes only and do not represent an admission that any claim is valid. The outcome of these remains uncertain at the end of the reporting period. The maximum exposure to Council is anticipated to be less than $0.268m.

Unquantified contingent liabilities

The Government’s Weathertight Homes Financial Assistance Package aims to help people get their non-weathertight homes fixed faster, and centres on the Government and local authorities each contributing 25% of agreed repair costs and affected homeowners funding the remaining 50% backed by a Government loan guarantee. A provision for known claims and future claims has been made (refer to Note 25: Provisions for other liabilities (page 195)). The impact and cost of future and unknown claims cannot be measured reliably and therefore the Council and Group have an unquantified contingent liability.

On 11 October 2012 the Supreme Court of New Zealand released a decision clarifying that councils owe a duty of care when approving plans and inspecting construction of a building which was not purely a residential building. The Court held that there was no principled basis for distinguishing between the liability of those who played a role in the construction of residential buildings as against the construction of non-residential buildings. This extends the scope of the potential liability for the Council to include non-residential buildings consented under the Building Act 1991.

Through the process of working with our actuaries, it has been identified that due to a lack of historical and current information relating to non-residential building claims, a reliable estimate of any potential liability cannot be quantified at this time.

There are various other claims that the Council and Group are currently contesting which have not been quantified due to the nature of the issues, the uncertainty of the outcome and/or the extent to which the Council and Group have a responsibility to the claimant. The possibility of any outflow in settlement in these cases is assessed as remote.

Note 35: Jointly controlled assets

The Council has significant interests in the following joint ventures:

Joint Venture Interest
2016
Interest
2015
Nature of business
Wastewater treatment plant – Porirua City Council 27.60% 27.60% Owns and operates a wastewater treatment plant and associated trunk sewers and pumping stations that provide services to Wellington City’s northern suburbs
Spicer Valley Landfill – Porirua City Council 21.50% 21.50% Owns and operates a sanitary landfill that provides services to Wellington City’s northern suburbs

The end of the reporting period for the joint ventures is 30 June. Included in the financial statements are the following items that represent the Council’s and Group’s interest in the assets and liabilities of the joint ventures.

Relevant significant accounting policies

For a jointly controlled asset the Council has a liability in respect of its share of joint ventures’ operational deficits and liabilities, and shares in any operational surpluses and assets. The Council’s proportionate interest (ie 21.5% of the Spicer Valley landfill) in the assets, liabilities, revenue and expenditure is included in the financial statements of the Council and Group on a line-by-line basis.

Share of Net Assets - Porirua City Council Joint Ventures (PCCJV) 2016
$000
2015
$000
ASSETS    
Current    
Inventory 42 59
Receivables and recoverables 1,420 1,657
Non-current    
Property, plant and equipment 22,249 20,680
Share of total assets 23,711 22,396
LIABILITIES    
Non-current    
Borrowings 3,929 3,074
Provisions for other liabilities 2,029 1,595
Share of total liabilities 5,958 4,669
SHARE OF NET ASSETS 17,753 17,727

The Council’s and Group’s share of the joint ventures’ current year net surplus and revaluation movements (after elimination) included in the financial statements are shown below.

Share of Net Surplus and Revaluation Movements - PCCJV 2016
$000
2015
$000
Operating revenue 3,016 3,014
Operating expenditure (2,990) (2,699)
Share of net surplus or (deficit) 26 315
Share of current year revaluation movement - 24

The Council’s and Group’s share of the joint ventures’ capital commitments is $Nil (2015: $Nil) and contingent liabilities is $Nil (2015: $Nil).

Note 36: Related party disclosures

Relevant significant accounting policies

Related parties arise where one entity has the ability to affect the financial and operating policies of another through the presence of control or significant influence. Related parties include all members of the Group (controlled entities, associates and joint ventures) and key management personnel.

Key management personnel include the Mayor and Councillors as elected members of the governing body of the Council reporting entity, the Chief Executive and all members of the Executive Leadership Team, being key advisors to the Council and Chief Executive.

Key management personnel

In this section, the Council discloses the remuneration and related party transactions of key management personnel. The remuneration payable to key management personnel of the Group’s other entities is disclosed separately within their individual financial statements and is not included in the following table.

Remuneration paid to key management personnel Council
  2016
$
2015
$
Council Members    
Short-term benefits 1,464,085 1,434,782
Chief Executive and Executive Leadership Team    
Short-term employee benefits 2,335,591 2,362,735
Post employment benefits 48,109 55,359
Termination benefits - -
TOTAL REMUNERATION PAID TO KEY MANAGEMENT PERSONNEL 3,847,785 3,852,876

Key management personnel comprise 23 individuals: 15 elected members or 15 fulltime equivalents and 8 executive leaders or 8 fulltime equivalents.

For further disclosure of the remuneration payable to the Mayor, Councillors and the Chief Executive refer to Note 37: Remuneration and staffing (page 229).

Material related party transactions – key management personnel

During the year key management personnel, as part of normal local authority relationships, were involved in transactions with the Council such as payment of rates and purchases of rubbish bags or other Council services.

These transactions were on normal commercial terms. Except for these transactions no key management personnel have entered into related party transactions with the Group.

The Mayor and Councillor’s disclose their personal interests in a register available on the Council Website.

There are no commitments from Council to key management personnel.

Material related party transactions – other organisations

Basin Reserve Trust (BRT)

The Basin Reserve Trust was established on 24 February 2005 to manage, operate and maintain the Basin Reserve. The Trust was jointly created with Cricket Wellington Incorporated (CWI). Wellington City Council and CWI each appoint two of the four trustees. Wellington City Council has significant influence over the Trust through the appointment of trustees, and receives benefits from the complementary activities of the Trust.

The Council considers the Trust does not meet the requirements of PBE IPSAS 7 Investments in Associates to enable continued consolidation on an equity accounted basis. The Trust is still identified as an associate given the Council’s level of influence and financial support but due to the lack of an equity investment the Council believes it is not appropriate to include the Trust in the Group financial statements. During the year ending 30 June 2016 Council contributed $0.368m (2015: $0.368m) to fund the operations of the Trust.

NZ Local Government Funding Agency Limited (LGFA)

The LGFA was incorporated on 1 December 2011 and was established to facilitate the efficient, and cost effective, raising of debt funding for local government authorities. There are currently 30 regional, district and city councils throughout New Zealand that own 80% of the issued capital, with the Government holding the remaining 20%. The Council became an establishment shareholder in this Council Controlled Trading Organisation (CCTO) and currently has an investment of $1.866m representing 8.3% of paid-up capital.

Karori Wildlife Sanctuary Trust (Zealandia)

The Council has influence in the governance, funding and operations of the Karori Wildlife Sanctuary Trust (trading as Zealandia) which is not part of the Group, to the extent that it is considered appropriate to disclose the nature of the transactions as being between related parties. The Council appoints two of the five trustees including the Chair. Operational funding of $0.875m (2015: $0.875m) was made during the year to 30 June 2016.

Wellington Regional Stadium Trust (WRST)

Wellington Regional Stadium Trust was jointly created with GWRC and Wellington City Council has significant influence over the Wellington Regional Stadium Trust through the appointment of trustees and receives benefits from the complementary activities of the Trust.

The Council considers the Trust does not meet the requirements of PBE IPSAS 7 Investments in Associates to enable continued consolidation on an equity accounted basis. The Trust is still identified as an associate given the Council’s level of influence and financial support but due to the lack of an equity investment the Council believes it is not appropriate to include the Trust in the Group financial statements.

Council holds a $15m limited recourse loan to WRST which, is unsecured, with no specified maturity and at no interest. The loan is not repayable until all other debts are extinguished.

On maturity of the initial WRST membership underwrite, the unpaid interest was converted to a $0.395m advance repayable after all other advances made by the Council and GWRC.

During the year ending 30 June 2016 Council transacted directly with WRST to the amount of $0.275m (2015: $0.577m) in support of major events.

Intra group transactions and balances

During the year the Council has entered into transactions with its joint venture partner Porirua City Council. These transactions disclosed are within the normal course of business. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows:

Intra group transactions and balances - Jointly controlled assets 2016
$000
2015
$000
Expenditure incurred by the Council to fund the operation and management of:    
Porirua - waste water treatment plant 2,023 1,756

During the year the Council has entered into transactions with its controlled entities. These transactions disclosed are within the normal course of business. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows:

Intra group transactions and balances - Controlled entities 2016
$000
2015
$000
Revenue for services provided by the Council to:    
Positively Wellington Tourism 24 530
Positively Wellington Waterfront - 139
Wellington Cable Car Limited 309 106
Wellington Museums Trust 1,436 1,496
Wellington Regional Economic Development Agency 306 184
Wellington Zoo Trust 841 664
  2,916 3,119
Grant funding by Council for the operations and management of:    
Positively Wellington Tourism - 3,253
Wellington Cable Car Limited 1,500 -
Wellington Museums Trust 8,313 8,226
Wellington Regional Economic Development Agency 7,135 3,378
Wellington Zoo Trust 2,894 2,757
  19,842 17,614
Expenditure for services provided to the Council by:    
Positively Wellington Tourism - 121
Positively Wellington Waterfront - 21
Wellington Cable Car Limited 32 134
Wellington Museums Trust 2,476 3,429
Wellington Regional Economic Development Agency 6,013 6,495
Wellington Zoo Trust 2,749 3,022
  11,270 13,222
Current receivables and recoverables owing to the Council from:    
Positively Wellington Waterfront - 139
Wellington Cable Car Limited - 3
Wellington Museums Trust 161 183
Wellington Regional Economic Development Agency 6 3
Wellington Zoo Trust 213 608
  380 936
Current payables owed by the Council to:    
Wellington Cable Car Limited 419 27
Wellington Museums Trust 171 579
Wellington Regional Economic Development Agency 729 628
Wellington Zoo Trust 196 221
  1,515 1,455

Current receivables, recoverables and payables

The receivable, recoverable and payable balances are non-interest bearing and are to be settled with the relevant entities on normal trading terms and conditions.

Payments to controlled entities

The total payments to controlled entities are $31.112m when the grant funding of $19.842m and expenditure for services provided to Council of $11.270m are combined.

During the year the Council has entered into several transactions with its associates and jointly controlled entity. These transactions disclosed are within the normal course of business. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows:

Intra group transactions and balances - Associates and jointly controlled entity 2016
$000
2015
$000
Dividend received from:    
Wellington International Airport Limited 12,059 12,950
Revenue for services provided by the Council to:    
Wellington Water Limited - 83
Expenditure for services provided to the Council from:    
Wellington International Airport Limited 2,179 72
Wellington Water Limited 22,348 18,046
  24,527 18,118
Current receivables and recoverables owing to the Council from:    
Wellington Water Limited - 15
Current payables owed by the Council to:    
Wellington International Airport Limited - 2
Wellington Water Limited 2,078 293
  2,078 295

Current receivables, recoverables and payables:

The receivable, recoverable and payable balances are non-interest bearing and are to be settled with the relevant entities on normal trading terms and conditions.

Planned and approved future expenditure to related parties

The Council has included in its 2016/17 Annual Plan the extent of operational funding to its controlled entities and other related parties to be as follows:

Council 2017 Annual Plan
$000
Controlled entities  
Wellington Cable Car Limited 1,000
Wellington Museums Trust (including Carter Observatory) 8,487
Wellington Regional Economic Development Agency 11,678
Wellington Zoo Trust 3,044
Total controlled entities 24,209
Other related parties  
Basin Reserve Trust 633
Karori Wildlife Sanctuary Trust (Zealandia) 875
Wellington Regional Stadium Trust 5,000
Total other related party commitments 6,508
TOTAL PLANNED AND APPROVED FUTURE EXPENDITURE TO RELATED PARTIES 30,717

Note 37: Remuneration and staffing

Mayoral and Councillor remuneration

Relevant significant accounting policies

Remuneration of elected members comprises any money, consideration or benefit received or receivable or otherwise made available, directly or indirectly, during the reporting period but does not include reimbursement of authorised work expenses or the provision of work-related equipment such as cell phones and laptops.

Remuneration

The following people held office as elected members of the Council’s governing body, during the reporting period. The total remuneration attributed to the Mayor and Councillors during the year from 1 July 2015 to 30 June 2016 was $1,464,085 (2015: $1,434,782) and is broken down and classified as follows:

Council Member Monetary Remuneration Non-monetary
 
Total
  Salary Allowances Remuneration
  $ $ $ $
Ahipene-Mercer, Ray 88,985 360 2,200 91,545
Coughlan, Jo 94,450 - 2,200 96,650
Eagle, Paul 94,450 360 2,200 97,010
Foster, Andy 94,450 360 2,200 97,010
Free, Sarah 85,325 360 2,200 87,885
Lee, David 85,325 360 2,200 87,885
Lester, Justin 105,560 360 2,200 108,120
Marsh, Simon 88,985 360 2,200 91,545
Pannett, Iona 94,450 360 2,200 97,010
Peck, Mark 85,325 360 2,200 87,885
Ritchie, Helene 85,325 360 2,200 87,885
Sparrow, Malcolm 85,325 360 2,200 87,885
Wade-Brown, Celia (Mayor) 167,800 - 2,200 170,000
Woolf, Simon 85,325 360 2,200 87,885
Young, Nicola 85,325 360 2,200 87,885
TOTAL REMUNERATION PAID TO COUNCIL MEMBERS 1,426,405 4,680 33,000 1,464,085
  Total monetary remuneration 1,431,085
  Total non- monetary remuneration 33,000

Salary

The Remuneration Authority is responsible for setting the remuneration levels for elected members (Clause 6, Schedule 7 of the Local Government Act 2002). The Council’s monetary remuneration (salary) detailed above was determined by the Remuneration Authority. As permitted under the Authority’s guidelines the Council has chosen for its elected members to receive an annual salary for the 2015/16 financial year rather than the alternative option of a combination of meeting fee payments and annual salary.

Taxable and non-taxable allowances – broadband services and mobile phones

Councillors are able to choose either of the following two options:

The payment of a communication allowance of $30 per month; or the reimbursement of any Council related communication costs, over and above any communication costs they would normally incur, payable on receipt of the appropriate documentation required under the provisions of the Remuneration Authority’s determination. Both the allowance and reimbursement options are non-taxable. Only the payments under the allowance option have been included as remuneration in the schedule above.

The level of all allowances payable to the Council’s elected members has been approved by the Remuneration Authority and is reviewed by the Authority on an annual basis. The Remuneration Authority does permit Council to provide the Mayor with a vehicle for full private use, which would be a taxable benefit; however the current Mayor has declined to take up this option.

Non-monetary

In addition, the Mayor and Councillors receive non-monetary remuneration in relation to car parking space provided. The Councillors have shared office and working space available for use, and access to phones and computers. Professional indemnity and trustee liability insurance is also provided to Councillors against any potential legal litigation which may occur while undertaking Council business.

Community Boards

The Council has two community boards – the Tawa Community Board and the Makara/Ohariu Community Board. Remuneration paid to the elected members of these boards is as follows:

Community Board Member Salary
$

 
Allowances
$

 
Other
$

 
Total
2016
$
TAWA COMMUNITY BOARD        
Tredger, Robert (Chair) 17,600 540 - 18,140
Lucas, Margaret (Deputy Chair) 8,800 - - 8,800
Hansen, Graeme 8,800 - - 8,800
Herbert, Richard 8,800 - - 8,800
Lester, Justin (see Councillor remuneration above) - - - -
Marshall, Jack (includes Youth Council attendance fee) 8,800 - 660 9,460
Sutton, Alistair 8,800 - - 8,800
Sparrow, Malcolm (see Councillor remuneration above) - - - -
MAKARA-OHARIU COMMUNITY BOARD        
Grace, Christine (Chair) 9,000 540 - 9,540
Burden, Murray 4,500 - - 4,500
Liddell, Judy 4,500 - - 4,500
Rudd, Wayne 4,500 - - 4,500
Scotts, Margie 4,500 - - 4,500
Todd, Hamish 4,500 - - 4,500
TOTAL REMUNERATION TO COMMUNITY BOARD MEMBERS 93,100 1,080 660 94,840

A technology allowance of $45 per month is available to the chair of both the Tawa and Makara/Ohariu Community Boards. This allowance can be taken as either an allowance or as an actual expense reimbursement. Both options are non-taxable but only payments under the allowance option are included in the above remuneration table.

Malcolm Sparrow was the previous Chair of the Tawa Community Board, before his election to the Council.

Chief Executive’s remuneration

The Chief Executive of the Council was appointed in accordance with section 42 of the Local Government Act 2002.

The table below shows the total remuneration of the Chief Executive paid or payable for the year ended 30 June 2016.

Under the terms of his agreement, the Chief Executive of the Council chooses how he wishes to take his remuneration package (salary only or a combination of salary and benefits).

Remuneration of the Chief Executive Council
  2016
$
2015
$
Short-term employee benefits    
Salary 413,160 405,000
Motor vehicle park 3,000 3,000
TOTAL REMUNERATION OF THE CHIEF EXECUTIVE 416,160 408,000

Severances

In accordance with Schedule 10, section 33 of the Local Government Act 2002, the Council is required to disclose the number of employees who received severance payments during the year and the amount of each severance payment made.

Severance payments include any consideration (monetary and non-monetary) provided to any employee in respect of the employee’s agreement to the termination of their employment with the Council. Severance payments exclude any final payment of salary, holiday pay and superannuation contributions.

For the year ending 30 June 2016 the Council made severance payments to 18 employees totalling $226,458 (2015: 13 employees, $227,468).

The individual values of each of these severance payments are: $890; $998; $2,294; $3,100; $4,500; $4,589; $5,941; $6,521; $6,902; $8,000; $11,185; $13,962; $20,000; $23,000; $25,000, $28,000; $29,576; $32,000.

Employee numbers and remuneration bands

The following table identifies the number of full time employees as at the end of the reporting period and the full time equivalent number of all other part-time, fixed term and casual employees. The table further identifies the breakdown of remuneration levels of those employees into various bands.

  Council
  2016 2015
Full-time and full-time equivalent employee numbers    
Full-time employees (based on a 40 hour week) as at 30 June 1,059 1,020
Full-time equivalents for all other non full-time employees 237 244
Remuneration bands    
The number of employees receiving total annual remuneration of less than $60,000 1105 1,084
The number of employees receiving total annual remuneration of more than $60,000 in bands of $20,000    
$60,000 - $79,999.99 274 277
$80,000 - $99,999.99 178 152
$100,000 - $119,999.99 78 84
$120,000 - $139,999.99 43 53
$140,000 - $159,999.99 35 20
$160,000 - $179,999.99 13 13
$180,000 - $199,999.99   6
$180,000 - $219,999.99* 10  
$200,000 - $239,999.99*   6
$220,000 - $299,999.99* 7  
$240,000 - $319,999.99*   8
$300,000 - $419,999.99* 5  
$320,000 - $419,999.99*   2
TOTAL EMPLOYEES 1,748 1,705

Of the 1,748 (2014: 1,705) individual employees 685 (2015: 685) work part-time or casually.

Total annual remuneration has been calculated to include any non-financial benefits and other payments in excess of normal remuneration such as the employer KiwiSaver contribution.

*If the number of employees for any band was 5 or less then we are legally required to combine it with the next highest band. This means that some rows span different bands across the two years shown.

Council has resolved that in addition to legislative requirements to disclose the above bandings it has also included the 2 lowest remuneration grades.

Grade Salary Range 2016 2015
B1 $32,620 - $44,493 152 176
B2 $32,954 - $52,045 627 559

The current living wage rate for WCC is $18.55. Each year the living wage rate for WCC is reviewed in accordance with the CPI rate for salary and wages.

As at 30 June 2016, 77 council staff (excluding apprentices) were being paid under $18.55 per hour. This reflects the number of trainees we have, who are presently working through a competency based training programme. The intention is that all staff should achieve $18.55 within a 6 - 12 month period. Whilst the entry point for B2 is $18.55 (excluding those on training rates) the average for B2 is $19.84.

Note 38: Events after the end of the reporting period

There are no events after the end of the reporting period that require adjustment to the financial statements or the notes to the financial statements.

Other Significant Accounting PoliciesTop

The following accounting policies are additional to the disclosures and accounting policies that are included within the relevant specific Notes forming part of the financial statements.

Basis of preparation

Measurement base

The measurement basis applied is historical cost, modified by the revaluation of certain assets and liabilities as identified in the accounting policies. The accrual basis of accounting has been used unless otherwise stated.

For the assets and liabilities recorded at fair value, fair value is defined as the amount for which an item could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s-length transaction. For investment property, non-current assets classified as held for sale and items of property, plant and equipment which are revalued, the fair value is determined by reference to market value. The market value of a property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction.

Amounts expected to be recovered or settled more than one year after the end of the reporting period are recognised at their present value. The present value of the estimated future cash flows is calculated using applicable inflation factors and a discount rate.

The financial statements are presented in New Zealand dollars, rounded to the nearest thousand ($000), unless otherwise stated.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Exchange and non-exchange transactions

Revenue from exchange transactions

Revenue from exchange transactions arises where the Council provides goods or services to another entity or individual and directly receives approximately equal value in a willing arm’s-length transaction (primarily in the form of cash in exchange).

Revenue from non-exchange transactions

Revenue from non-exchange transactions arises from transactions that are not exchange transactions. Revenue from a non-exchange transaction arises when the Council receives value from another party without giving approximately equal value directly in exchange for the value received.

An inflow of resources from a non-exchange transaction recognised as an asset, is recognised as revenue, except to the extent that a liability is also recognised in respect of the same inflow.

As Council satisfies a present obligation recognised as a liability in respect of an inflow of resources from a non-exchange transaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an amount of revenue equal to that reduction.

Approximately equal value

Approximately equal value is considered to reflect a fair or market value, which is normally considered as an arm’s-length commercial transaction between a willing buyer and willing seller. Some goods or services that Council provides (eg the sale of goods at market rates) are defined as being exchange transactions. Only a few services provided by Council operate on a full user pays (eg Parking), cost recovery or breakeven basis and these are considered to be exchange transactions unless they are provided at less than active and open market prices.

Most of the services that Council provides for a fee, are subsidised by rates (eg. The cost to swim in a Council pool) and therefore do not constitute an approximately equal exchange. Accordingly most of Council’s revenue is categorised as non-exchange.

Change of accounting policies

There have been no elected changes in accounting policies during the financial period. The first time adoption of the new suite of PBE accounting standards after having previously applied NZ IFRS PBE does not constitute a change in accounting policies.

Change to accounting standards

For the year ending 30 June 2015, the new suite of Public Sector Public Benefit Entity accounting standards was adopted for the first time. From 1 July 2015 a revised suite that included enhanced guidance for Not-for-Profit Public Benefit entities was adopted. The adoption of these revised standards has not had any significant impact on the Group.

Standards, amendments and interpretations issued but not yet effective and early adopted

Standards, amendments and interpretations issued but not yet effective until years ending 31 December 2016 that have been early adopted and which are relevant to the Group are:

2015 Omnibus Amendments to PBE Standards - This standard amends a number of individual PBE Standards to align the PBE Standards with NZ IFRS and IPSAS as a consequence of IASB and IPSASB’s annual improvement amendments. There is no obvious difference in these financial statements as a result of early adoption.

Disclosure Initiative (amendments to PBE IPSAS 1) – This standard sets out amendments to PBE IPSAS 1 Presentation of Financial Statements and consequential amendments to PBE IPSAS 30 Financial Instruments: Disclosures and PBE IAS 34 Interim Financial Reporting.

The amendments clarify existing PBE IPSAS 1 requirements that relate to materiality; the order of the notes; subtotals; accounting policies and disaggregation. The obvious differences in these financial statements as a result of early adoption are firstly, a re-ordered set out of financial statements, notes and accounting policies and secondly a number of smaller notes or tables have been left out on the basis of materiality.

Judgements and estimations

The preparation of financial statements using PBE accounting standards requires the use of judgements, estimates and assumptions. Where material, information on the main assumptions is provided in the relevant accounting policy or in the relevant note.

The estimates and assumptions are based on historical experience as well as other factors that are believed to be reasonable under the circumstances. Subsequent actual results may differ from these estimates.

The estimates and assumptions are reviewed on an ongoing basis and adjustments are made where necessary.

Judgements that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in the relevant notes. Significant judgements and estimations include landfill post-closure costs, asset revaluations, impairments, certain fair value calculations and provisions.

Goods and Services Tax (GST)

All items in the financial statements are exclusive of GST, with the exception of receivables, recoverables and payables, which are stated as GST inclusive. Where GST is not recoverable as an input tax, it is recognised as part of the related asset or expense.

Budget figures

The Annual Plan budget figures included in these financial statements are for the Council as a separate entity. The Annual Plan figures do not include budget information relating to controlled entities or associates. These figures are those approved by the Council at the beginning of each financial year following a period of consultation with the public as part of the Annual Plan process. These figures do not include any additional expenditure subsequently approved by the Council outside the Annual Plan process. The Annual Plan figures have been prepared in accordance with GAAP and are consistent with the accounting policies adopted by the Council for the preparation of these financial statements.

Comparatives

To ensure consistency with the current year, certain comparative information has been reclassified where appropriate. This has occurred: