Annual Report 2011 - Watercare

Watercare Services Limited
2011 ANNUAL REPORT
FINANCIAL COMMENTARY
The financial result for the year was a net deficit after tax of $12.3 million, compared with a budgeted net deficit of $0.58 million (2010 – Net
deficit after tax of $27.7 million). The deficit was primarily due to the unfavourable revaluation of the company’s interest rate swap contracts to
market value of $13.6 million and the change in deferred tax due to the reduction of the tax depreciation rates to zero on buildings with useful
lives greater than 50 years which were integrated from the previous local network operators.
Key Points
• On 1 November 2010, the company acquired the water and wastewater businesses conducted by Metrowater Limited, Manukau Water Limited,
North Shore City Council, Waitakere City Council, Rodney District Council and Franklin District Council in accordance with the Local Government
(Tamaki Makaurau Reorganisation) Act 2009, the Local Government (Auckland Council) Act 2009 and the Local Government (Auckland
Transitional Provisions) Act 2010. The company now provides total water and wastewater services to the Auckland region and as a result,
the assets, liabilities, revenues and costs of the company have increased significantly in the financial year to 30 June 2011.
• During the year the company’s Standard & Poor’s corporate credit rating was raised to ‘A’ long-term and ‘A-1’ short-term, with a positive outlook.
The credit rating on the company’s long-term debt was raised to ‘AA’, consistent with the change to Auckland Council’s long-term credit rating.
Subsequent to year end, Standard & Poor’s raised the company’s corporate credit rating to ‘AA-‘ long-term and ‘A-1+’ short term with a stable
outlook (refer to note 27 for further detail).
• A $150 million medium-term note issue was completed in February 2011. The notes were for a term of four years, and the proceeds were
largely used to refinance maturing intercompany loans from Auckland Council.
• No price adjustment was paid in the 2011 year (2010 – $nil).
• Under NZ IFRS, the company has chosen to revalue its interest rate swaps and forward foreign exchange contracts to fair value. These resulted
in a decrease in current year operating surplus from trading operations by $13.6 million (2010 – decrease in operating surplus from trading
operations by $20.5 million).
• Operating costs were 6.0% lower than budget due to savings in asset operating costs, maintenance and overheads.
• The deferred taxation liability has been adjusted to integrate the previous deferred taxation positions of Metrowater and Manukau Water.
Additionally an adjustment was required to reflect the reduction of the tax depreciation rates to zero on buildings with useful lives greater
than 50 years which were inherited at integration date.
• This financial commentary includes the budget for the 2011 year and notes on significant variances. Comparisons are also provided to
last year being a period where Watercare was the wholesale provider of water and wastewater services which is reflected in revenue,
costs, assets and liabilities all being significantly lower. The 2012 budget is also provided as a reference point and reflects higher revenue
and costs as Watercare only provided retail water and wastewater services for eight months in this financial year, being the period since
integration on 1 November 2010.
Statement of Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2011
Total Comprehensive income
2011 2011 2011 2010 2012
actual budget Variance to Budget Actual Budget
$000 $000 $000 $000
Net deficit after tax (12,333) (582) N/A (27,709) (3,179)
Other comprehensive income, net of tax 361,873 151,403 139% 29,371 -
Total comprehensive income for the year, net of tax 349,540 150,821 131.8% 1,662 (3,179)
The Statement of Comprehensive Income also includes other comprehensive income of $361.9 million due to the revaluation of property, plant
and equipment at 30 June 2011.
Total comprehensive income for the year of $349.5 million after tax, compared with budgeted comprehensive income of $150.8 million after
tax, represents a favourable variance of $198.7 million. This primarily reflects the upwards asset revaluation being greater than the 3% increase
assumed in the budget.
Material unfavourable variances in comparison to budget include the negative revaluation of financial instruments of $13.6 million, depreciation
and amortisation of $1.21 million, non-operating costs of $1.36 million and revenue of $1.0 million. The unfavourable variances were partially
offset by the favourable variance in operating costs of $10.1 million.
2011 2011 2011 2010 2012
actual budget Variance to Budget Actual Budget
$000 $000 $000 $000
Revenue
Water 131,438 134,343 (2.2%) 71,962 135,196
Wastewater 203,773 206,290 (1.2%) 106,922 262,707
Trade waste 14,038 13,709 2.4% 11,763 12,510
Other 23,858 19,823 20.4% 8,580 43,339
Operating revenue 373,107 374,166 (0.3%) 199,227 453,752
2011 Financial Report
PAGE 61
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