Council Minutes - Town of Cambridge

COUNCIL
20 DECEMBER 2011
(c)
(d)
(e)
(f)
(g)
(h)
From the 2004/05 financial year the MRC no longer distributed surpluses, therefore any
variation in actual cost of tipping is to be accumulated in an under/over’s account and
allocated to members in their proportion of tonnes tipped for each year of operation.
It is only the casual tonnes (surplus profit) that are to be distributed to the owners in
equity proportions.
Whilst we are customers as well as owners, it was never intended that we charge
ourselves a commercial rate of tipping including a risk premium to be distributed as profit
in equity proportions.
MRC does not have an objective to maximise profit for the owners.
A DCF may be appropriate to value a business that has a profit objective and where
future cash flows can be reliably estimated. Variability in assumptions can have a
significant impact on the final result.
The NPV of an operation run on a cost recovery basis should be zero.
Nevertheless, at a CEO group meeting held in May 2011 it was agreed to proceed with the
valuation approach proposed by PWC with Cambridge dissenting.
PWC completed the second stage report in August 2011. This report assessed the value of
MRC using two scenarios with Scenario A being calculated at $39 million and Scenario B $35.3
million. PWC stated that they considered the value determined under Scenario B to be more
robust and their preferred value.
The City of Stirling has a one-third equity share of MRC and this would translate to $13 million
under Scenario A and $11.8 million for Scenario B.
The City of Stirling considered the valuation prepared by PWC and determined at its
September 2011 meeting that the valuation should be the average of both Scenarios A and B
($12.38 million) and discounted by 10% to assist in resolving this matter equating to a value of
$11.14 million.
Now that the valuation exercise has been completed it is necessary for the members of the
MRC to negotiate a price to be paid upon the withdrawal of the City of Stirling.
DETAILS:
Valuation
PWC have calculated the valuation based on the DCF method as detailed in the following table.
Low
($m)
$135 p/t
High
($m)
$140 p/t
Preferred
($m)
Tipping Fee (ex GST)
Value of MRC as a whole
- Scenario A 30.1 47.8 39.0
- Scenario B 29.3 41.3 35.3
Value of City of Stirling pro rata one-third interest
- Scenario A 10.0 15.9 13.0
- Scenario B 9.8 13.8 11.8
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