Financial Statements

Wellington City Council and Group​
Consolidated Financial Statements
For the year ended 30 June 2017

      Page
    Statement of Compliance and Responsibility XX
    Council and Group structure XX
    Basis of Consolidation XX
      Statement of Comprehensive Revenue and Expense XX
  – Major budget variations XX
     
Note    
1 Rates revenue XX
2 Revenue from operating activities XX
3 Investments revenue XX
4 Vested assets and other revenue XX
5 Fair value gains XX
6 Finance expense XX
7 Expenditure on operating activities XX
8 Depreciation and amortisation XX
9 Share of associates’ and jointly controlled entity’s surplus or deficit XX
10 Income tax expense XX
       
       
      Statement of Financial Position XX
  – Major budget variations XX
     
11 Cash and cash equivalents XX
12 Derivative financial instruments XX
13 Receivables and recoverables XX
14 Other financial assets XX
15 Non-current assets classified as held for sale XX
16 Intangibles XX
17 Investment properties XX
18 Property, plant and equipment XX
19 Investment in controlled entities XX
20 Investment in associates and jointly controlled entity XX
21 Exchange transactions, taxes and transfers payable XX
22 Revenue in advance XX
23 Borrowings XX
24 Employee benefit liabilities and provisions XX
25 Provisions for other liabilities XX
26 Deferred tax XX
       
      Statement of Changes in Equity XX
  – Major budget variations XX
     
27 Revaluation reserves XX
28 Hedging reserve XX
29 Fair value through other comprehensive revenue and expense reserve XX
30 Restricted funds XX
       
       
      Statement of Cash Flows XX
    31 Reconciliation of net surplus to net operating cash flows XX
     
  Other disclosures  
32 Financial instruments XX
33 Commitments XX
34 Contingencies XX
35 Jointly controlled assets XX
36 Related party disclosures XX
37 Remuneration and staffing levels XX
38 Financial impacts of the Kaikoura earthquake XX
39 Events after the end of the reporting period XX
     
     
  Other significant accounting policies XX

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 include 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 207).

The reported Group figures include the Council (as defined above), its controlled entities as disclosed in Note 19 (page 169) and the Council’s equity accounted interest in the associates and a jointly controlled entity as disclosed in Note 20 (page 170). 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 27 September 2017.

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 2017 fairly reflects the financial position, results of operations and service performance achievements of Wellington City Council and Group.

Justin Lester signature. Kevin Lavery signature. Andy Matthews signature.
Justin Lester
Mayor
Kevin Lavery
Chief Executive
Andy Matthews
Chief Financial Officer
27 September 2017 27 September 2017 27 September 2017

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 Structure

Wellington City Council Reporting Entity (Council)

Council and Group Structure

Wellington City Council Group Reporting Entity (Group)

Council and Group Structure

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 169 to 172) for more information.

2 The Karori Sanctuary Trust (trading as Zealandia) became a Council controlled organisation on 30 September 2016 following the signing of a variation to the original Deed of trust.

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 percent 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 (CCOs) and Council Controlled Trading Organisations (CCTOs) 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. A report on these organisations is found on page 119. 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 2017

    Council Group
  Note Actual
2017
$000
Budget
2017
$000
Actual
2016
$000
Actual
2017
$000
Actual
2016
$000
Revenue            
             
Rates 1 286,015 284,138 272,127 286,015 272,127
Revenue from operating activities            
Development contributions 2 3,025 2,000 2,747 3,025 2,747
Grants, subsidies and reimbursements 2 33,881 41,037 33,083 46,538 44,383
Other operating activities 2 144,215 121,965 124,926 162,461 135,235
Investments revenue 3 24,585 20,447 23,204 12,648 11,145
Vested assets and other revenue 4 8,565 1,050 13,732 12,652 13,732
Fair value gains 5 23,500 3,989 14,173 23,404 14,177
Finance revenue   2,367 650 3,103 2,601 3,407
Total revenue   526,153 475,276 487,095 549,344 496,953
             
Expense            
             
Finance expense 6 (23,960) (25,617) (24,223) (23,970) (24,223)
Expenditure on operating activities 7 (368,625) (334,923) (329,583) (398,986) (347,721)
Depreciation and amortisation expense 8 (101,889) (101,975) (99,183) (103,653) (100,970)
Total expense   (494,474) (462,515) (452,989) (526,609) (472,914)
             
Share of equity accounted surplus from associates and jointly controlled entity 9 - - - 13,313 12,811
             
Net surplus before taxation   31,679 12,761 34,106 36,048 36,850
             
Income tax credit/(expense) 10 - - - 102 (240)
             
             
NET SURPLUS for the year   31,679 12,761 34,106 36,150 36,610
             
             
             
Net surplus attributable to:            
Wellington City Council and Group   31,679 12,761 34,106 35,866 36,326
Non-controlling interest   - - - 284 284
    31,679 12,761 34,106 36,150 36,610

The notes on pages 132 to 220 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 2017

    Council Group
  Refer Actual
2017
$000
Budget
2017
$000
Actual
2016
$000
Actual
2017
$000
Actual
2016
$000
Net surplus for the year   31,679 12,761 34,106 36,150 36,610
             
Other comprehensive revenue and expense 1            
             
Items that will be reclassified to surplus/(deficit)            
             
Cash flow hedges:            
Fair value movement - net SCIE 2 17,447 - (21,268) 17,447 (21,268)
Fair value through other comprehensive revenue and expense            
Fair value movement - net SCIE 1,240 - 1,542 1,195 1,521
             
Items that will not be reclassified to surplus/(deficit)            
             
Non-contolling interest:            
Movement in non-controlling interest   - - - - (32)
Revaluations:            
Fair value movement - property, plant and equipment - net SCIE 295,254 106,241 (211) 295,254 (211)
Share of other comprehensive revenue and expense of associates and jointly controlled entity:            
Fair value movement - property, plant and equipment - net SCIE - - - 24,165 -
             
Total other comprehensive revenue and expense   313,941 106,241 (19,937) 338,061 (19,990)
             
TOTAL COMPREHENSIVE REVENUE and EXPENSE for the year   345,620 119,002 14,169 374,211 16,620
             
             
             
Total comprehensive revenue and expense attributable to:            
Wellington City Council and Group   345,620 119,002 14,169 373,927 16,336
Non-controlling interest   - - - 284 284
    345,620 119,002 14,169 374,211 16,620
  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 184

The notes on pages 132 to 220 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 $50.877m higher than budgeted primarily due to:

These higher revenues were offset by $7.683m of the lower than expected recognition of capital grants primarily relating to the social housing upgrade ($5.900m) and NZTA funded projects ($1.783m).

Expenses were $31.959m higher than budgeted primarily due to:

Net finance expense was $3.374m lower than budgeted reflecting the lower than planned capital expenditure, which is debt funded, resulting in lower interest charges.

Note 1: Rates revenue

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
General rates        
Base sector 88,448 83,317 88,448 83,317
Commercial, industrial and business sector 72,758 68,315 72,758 68,315
Targeted rates        
All (excluding water rates by meter) 110,232 105,897 110,232 105,897
         
Total rates revenue (excluding water rates by meter) 271,438 257,529 271,438 257,529
Water rates by meter revenue 14,577 14,598 14,577 14,598
         
TOTAL RATES REVENUE 286,015 272,127 286,015 272,127

The total amount of rates charged on Council-owned properties that have not been eliminated from revenue and expenditure is $13.258m (2016: $12.752m). For the Group, rates of $13.298m (2016: $12.787m) have not been eliminated.

The revenue from rates for Wellington City Council was billed on the following rating information held as at 30 June 2016.

The number of rating units: 77,802 (30 June 2015: 77,271).

     
  2017
$000
2016
$000
Total capital value of rating units 55,116,216 51,685,784
Total land value of rating units 23,300,843 22,326,668
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 2017 totalled $0.751m (2016: $0.407m).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Development contributions 3,025 2,747 3,025 2,747
         
Grants, subsidies and reimbursements        
Operating 6,606 7,107 18,961 17,610
Capital 27,275 25,976 27,577 26,773
Total grants, subsidies and reimbursements 33,881 33,083 46,538 44,383
         
Other operating activities        
Fines and penalties 8,350 6,968 8,350 6,968
Rendering of services 129,415 111,268 143,504 120,294
Sale of goods 6,450 6,690 10,607 7,973
Total other operating activities 144,215 124,926 162,461 135,235
         
TOTAL REVENUE FROM OPERATING ACTIVITIES 181,121 160,756 212,024 182,365

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

For the Group, the additional principal subsidy was $3.616m (2016: $3.718m) 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. This generates revenue, but generally at below market prices or with 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 150), 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 NZ Transport Agency 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, overdue rates penalties) 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
  2017
$000
2016
$000
2017
$000
2016
$000
Dividend from investment in associates 11,937 12,059 - -
Dividend from investment in other entities 104 120 104 120
Investment property lease rentals 12,544 11,025 12,544 11,025
         
TOTAL INVESTMENTS REVENUE 24,585 23,204 12,648 11,145

The primary investment dividend was from the 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.

Dividends - Wellington International Airport

For further information refer to Note 20: Investment in associates and jointly controlled entity (page 170).

The rentals from investment property leases are primarily from ground leases around the central city 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 157 ).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Vested assets 6,250 10,181 6,250 10,181
Gain on business combination - - 4,072 -
Other revenue 2,315 3,551 2,330 3,551
         
TOTAL VESTED ASSETS AND OTHER REVENUE 8,565 13,732 12,652 13,732

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 ongoing costs associated with maintaining the assets.

The values of principal vested assets received were:

Other revenue is principally Fuel Tax – $1.120m (2016: $1.096m)

For the group the $4.072m gain on business combination relates to the Council acquiring control of the Karori Sanctuary Trust. For more information refer to Note 19 – Investment in controlled entities (page 169).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Investment property revaluation 18,222 13,773 18,222 13,773
Amortisation of loans to related parties 3 400 8 404
Fair value adjustment on loans to related parties 5,275 - 5,174 -
         
TOTAL FAIR VALUE GAINS 23,500 14,173 23,404 14,177

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 certain lands and buildings, including the waterfront’s investment properties. For more information refer to Note 17: Investment properties (page 157).

The $5.275m adjustment to the related party loan was due to the early repayment of the loan the Council made to the Karori Sanctuary Trust. This loan had previously been reduced to its fair value to reflect the time value of money and the expected repayment schedule and was being amortised back up over time to its original full value. The early full repayment required the fair value to be adjusted up to the full value of $10.347m. For more information refer to Note 14: Other financial assets (page 152 ).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Interest on borrowings 22,956 23,219 22,966 23,219
Interest on finance leases 2 14 2 14
Re-discounting of interest on provisions 1,002 990 1,002 990
         
TOTAL FINANCE EXPENSE 23,960 24,223 23,970 24,223
         
Less        
         
Finance revenue - interest earned 2,367 3,103 2,601 3,407
         
NET FINANCE COST 21,593 21,120 21,369 20,816
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 177) and Note 25: Provision for other liabilities (page 179).

Interest earned

Interest earned is recognised using the effective interest rate method.

Note 7: Expenditure on operating activities

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Auditor's remuneration:        
Audit services - Audit New Zealand - Financial Statements 297 282 471 410
Audit services - Audit New Zealand - Long-Term Plan - 45 - 45
Audit services - Audit New Zealand - other 11 11 11 11
Audit services - Other Auditors - - 73 35
         
Impairments        
Bad debts written off not previously provided for 123 282 123 282
Increase in provision for impairment of receivables and recoverables 896 437 896 437
Impairment loss from property, plant and equipment 11,446 132 11,446 581
Impairment loss on shares - - 27 18
         
Governance and employment        
Elected member remuneration 1,550 1,526 1,550 1,526
Independent directors/trustees fees for controlled entities - - 489 354
Employee benefits expense:        
- Remuneration 83,879 79,343 109,180 101,994
- Superannuation contributions (including Kiwisaver) 2,336 2,253 2,884 2,767
- Termination benefits (including severances) 943 924 1,278 924
Other personnel costs 3,666 3,657 4,140 4,362
         
Insurance        
Insurance premiums 9,671 9,465 10,149 9,866
Insurance reserve costs - net 6,910 545 6,910 545
         
General        
Administration costs 6,467 6,244 18,334 13,384
Contractors 4,846 3,083 7,629 5,046
Contracts, services and materials 131,212 115,481 135,541 114,465
Grants - general 22,363 18,542 19,098 17,924
Grants to controlled entities 21,032 19,842 - -
Information and communication technology 12,119 9,273 13,147 10,235
Loss on disposal of property, plant and equipment 542 1,827 886 2,174
Operating lease - minimum lease payments 1,737 1,313 4,734 2,613
Other general costs 620 1,449 2,959 2,190
Professional costs 14,406 14,573 16,216 15,540
Reassessment of weathertight provision 4,429 12,079 4,429 12,079
Utility costs 27,124 26,975 26,386 27,914
         
TOTAL EXPENDITURE ON OPERATING ACTIVITIES 368,625 329,583 398,986 347,721

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 New Zealand Transport Agency and assurance services relating to Council’s debenture trust deed compliance.

Impairments

The impairment loss from property, plant and equipment in 2016/17 relates to the Civic Administration Building due to the damage sustained from the November 2016 Kaikoura earthquake. For more detailed information refer to Note 38: Financial impacts of the Kaikoura Earthquake (page 216).

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 212).

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 (2016: $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 208).

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 179) 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 $13.250m (2016: $12.824m) 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 Performance). 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 that 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
  2017
$000
2016
$000
2017
$000
2016
$000
Depreciation        
Buildings 21,784 20,348 22,199 20,348
Civic Centre complex 2,592 2,739 2,592 2,739
Restricted buildings 1,577 1,521 1,577 1,521
Drainage, waste and water infrastructure 27,475 27,586 27,475 27,586
Service concession assets 4,911 4,969 4,911 4,969
Landfill post closure 132 145 132 145
Library collections 2,352 2,165 2,352 2,165
Plant and equipment 11,106 11,890 12,386 13,621
Roading infrastructure 25,039 23,341 25,039 23,341
         
Total depreciation 96,968 94,704 98,663 96,435
         
Amortisation        
Computer software 4,921 4,479 4,990 4,535
         
Total amortisation 4,921 4,479 4,990 4,535
         
TOTAL DEPRECIATION AND AMORTISATION 101,889 99,183 103,653 100,970

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 2017
  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 2017
  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
  2017
$000
2016
$000
Associates    
     
Chaffers Marina Holdings Limited (31) (36)
Wellington International Airport Limited 13,432 12,805
     
Jointly controlled entity    
     
Wellington Water Limited (88) 42
     
TOTAL SHARE OF ASSOCIATES’ AND JOINTLY CONTROLLED ENTITY’S SURPLUS OR (DEFICIT) 13,313 12,811

Further information on the cost and value of the above investments is found in Note 20: Investments in Associates and Jointly Controlled Entity (page 170).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Current tax expense        
         
Current year - - 293 (216)
Prior period adjustment - - 1 -
         
Total current tax expense - - 294 (216)
         
Deferred tax expense        
         
Origination and reversal of temporary differences (73) (100) - -
Change in unrecognised temporary differences - - (396) 456
Recognition of previously unrecognised tax losses 73 100 - -
         
Total deferred tax expense - - (396) 456
         
TOTAL INCOME TAX EXPENSE / (CREDIT) - - (102) 240
Reconciliation of tax on the surplus and tax expense Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Surplus for the period before taxation 31,679 34,106 36,048 36,850
         
Prima facie income tax based on domestic tax rate - 28% 8,870 9,550 10,093 10,318
Effect of non-deductible expenses and tax exempt income (8,897) (9,590) (10,321) (10,720)
Effect of tax losses utilised 73 100 - -
Current years loss for which no deferred tax asset was recognised 27 40 27 40
Recognition of prior year loss (73) (100) (134) (100)
Previously unreognised tax losses now utilised - - - (41)
Change in unrecognised temporary differences - - 208 738
Prior period adjustment - - (407) (205)
Share of income tax of equity accounted associates - - 385 211
Under / (over) provision of income tax in previous period - - 47 -
         
TOTAL INCOME TAX EXPENSE / (CREDIT) - - (102) 240
Imputation credits Group
  2017
$000
2016
$000
     
Imputation credits available in subsequent periods 99 87
Relevant significant accounting policies

The 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 2017

    Council Group
  Note Actual
2017
$000
Budget
2017
$000
Actual
2016
$000
Actual
2017
$000
Actual
2016
$000
ASSETS            
Current assets            
Cash and cash equivalents 11 76,907 1,714 94,009 85,366 103,623
Receivables and recoverables 13 45,179 42,834 46,140 46,515 47,613
Other financial assets 14 263 - 315 304 315
Prepayments   14,012 13,433 11,500 14,303 11,962
Inventories   1,149 906 1,101 1,503 1,915
Non-current assets classified as held for sale 15 - - 1,504 - 1,504
Total current assets   137,510 58,887 154,569 147,991 166,932
             
Non-current assets            
Derivative financial assets 12 1,283 - - 1,283 -
Receivables and recoverables 13 4,185 - 4,185 4,185 4,186
Other financial assets 14 9,996 11,954 12,865 11,337 14,343
Intangibles 16 26,528 28,578 26,737 26,613 26,815
Investment properties 17 230,194 213,931 211,237 230,194 211,237
Property, plant and equipment 18 6,972,168 6,771,399 6,645,975 6,988,405 6,659,487
Investment in controlled entities 19 5,071 5,071 5,071 - -
Investment in associates and jointly controlled entity 20 19,465 19,465 19,465 163,960 138,419
Total non-current assets   7,268,890 7,050,398 6,925,535 7,425,977 7,054,487
             
TOTAL ASSETS   7,406,400 7,109,285 7,080,104 7,573,968 7,221,419
             
LIABILITIES            
Current liabilities            
Derivative financial liabilities 12 975 - 522 975 522
Exchange transactions and transfers payable 21 58,155 62,477 50,422 59,639 53,934
Taxes payable 21 3,498 - 2,852 3,627 3,068
Revenue in advance 22 28,922 16,717 43,098 30,717 45,193
Borrowings 23 100,096 267,279 140,077 100,196 140,077
Employee benefit liabilities and provisions 24 7,811 7,180 7,189 9,808 8,707
Provision for other liabilities 25 13,584 7,972 10,953 13,584 10,953
Total current liabilities   213,041 361,625 255,113 218,546 262,454
             
Non-current liabilities            
Derivative financial liabilities 12 21,591 - 38,208 21,591 38,208
Exchange transactions and transfers payable 21 630 630 630 630 630
Borrowings 23 395,724 211,766 350,407 395,792 350,407
Employee benefit liabilities and provisions 24 889 1,593 995 924 1,056
Provision for other liabilities 25 44,404 18,231 50,250 44,404 50,250
Deferred tax 26 - - - 938 1,482
Total non-current liabilities   463,238 232,220 440,490 464,279 442,033
             
TOTAL LIABILITIES   676,279 593,845 695,603 682,825 704,487
             
EQUITY            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,793,827 3,741,957 3,756,048 3,788,286 3,745,251
Revaluation reserves 27 1,677,312 1,489,442 1,382,337 1,815,338 1,496,198
Hedging reserve 28 (21,283) - (38,730) (21,283) (38,730)
Fair value through other comprehensive revenue and expense reserve 29 2,888 106 1,648 3,221 2,026
Non-controlling interest   - - - 284 284
Restricted funds 30 8,243 14,801 14,064 12,135 18,741
TOTAL EQUITY   6,730,121 6,515,440 6,384,501 6,891,143 6,516,932
             
TOTAL EQUITY AND LIABILITIES   7,406,400 7,109,285 7,080,104 7,573,968 7,221,419

The notes on pages 132 to 220 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 $78.623m higher than budgeted primarily due to:

Non-current assets are $218.492m higher than budgeted primarily due to:

Total liabilities are $82.434m higher than budget primarily due to:

Note 11: Cash and cash equivalents

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Cash at bank 4,886 7,986 10,978 13,711
Cash on hand 21 23 39 35
Short term bank deposits up to 3 months 72,000 86,000 74,349 89,877
         
TOTAL CASH AND CASH EQUIVALENTS 76,907 94,009 85,366 103,623

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 3 months depending on the immediate cash requirements and short-term borrowings of the Group, and earn interest at the applicable short-term deposit rates.

The Council holds short-term deposits as part of its overall liquidity risk management programme. This programme enables the 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 the Council’s cost of funds.

Note 12: Derivative financial instruments

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Assets        
Non-current assets        
Interest rate swaps - cash flow hedges 1,283 - 1,283 -
         
Total non-current assets 1,283 - 1,283 -
         
TOTAL DERIVATIVE FINANCIAL INSTRUMENT ASSETS 1,283 - 1,283 -
         
Liabilities        
Current liabilities        
Interest rate swaps - cash flow hedges 975 522 975 522
         
Total current liabilities 975 522 975 522
         
Non-current liabilities        
Interest rate swaps - cash flow hedges 21,591 38,208 21,591 38,208
         
Total non-current liabilities 21,591 38,208 21,591 38,208
         
TOTAL DERIVATIVE FINANCIAL INSTRUMENT LIABILITIES 22,566 38,730 22,566 38,730

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 188) and Note 32: Financial instruments (page 195).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Current 45,179 46,140 46,515 47,613
Non-Current 4,185 4,185 4,185 4,186
         
TOTAL RECEIVABLES AND RECOVERABLES - NET 49,364 50,325 50,700 51,799
Receivables and recoverables Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Trade receivables - debtors - net 18,119 13,769 17,394 13,674
Trade recoverables - fines - net 3,439 3,593 3,439 3,593
Accrued income 8,058 8,539 8,094 8,539
Sundry receivables 7,617 8,734 9,779 10,390
GST recoverable 2,803 5,709 2,666 5,622
Rates recoverable 9,328 9,981 9,328 9,981
         
TOTAL RECEIVABLES AND RECOVERABLES - NET 49,364 50,325 50,700 51,799

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
  2017
$000
2016
$000
2017
$000
2016
$000
Receivables and recoverables from related parties        
- Controlled entities 1,294 380 - -
- Associates and jointly controlled entity 187 - 187 -
         
Total receivables and recoverables from related parties 1,481 380 187 -

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
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 6,183 6,030 6,183 6,030
New provisions made 896 437 896 437
Release of unused provision (91) (166) (91) (166)
Amount of provision utilised (28) (118) (28) (118)
         
Provision for impairment of total receivables and recoverables - closing balance 6,960 6,183 6,960 6,183

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

Council 2017 2016
  Gross
$000
Impaired
$000
Net
$000
Gross
$000
Impaired
$000
Net
$000
Trade and other receivables and recoverables            
             
Not past due 29,904 (179) 29,725 31,868 - 31,868
Past due 0-3 months 7,947 (57) 7,890 9,229 (82) 9,147
Past due 3-6 months 4,209 (227) 3,982 2,538 (38) 2,500
Past due more than 6 months 14,264 (6,497) 7,767 12,873 (6,063) 6,810
             
TOTAL RECEIVABLES AND RECOVERABLES 56,324 (6,960) 49,364 56,508 (6,183) 50,325
Group 2017 2016
  Gross
$000
Impaired
$000
Net
$000
Gross
$000
Impaired
$000
Net
$000
Trade and other receivables and recoverables            
             
Not past due 30,852 (179) 30,673 33,142 - 33,142
Past due 0-3 months 8,224 (57) 8,167 9,352 (82) 9,270
Past due 3-6 months 4,240 (227) 4,013 2,567 (38) 2,529
Past due more than 6 months 14,344 (6,497) 7,847 12,921 (6,063) 6,858
             
TOTAL RECEIVABLES AND RECOVERABLES 57,660 (6,960) 50,700 57,982 (6,183) 51,799

The net receivables and recoverables past due for more than 6 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
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Current 263 315 304 315
Non-current 9,996 12,865 11,337 14,343
TOTAL OTHER FINANCIAL ASSETS 10,259 13,180 11,641 14,658
         
Comprised of:        
Financial assets at fair value through other comprehensive revenue and expense        
Equity investments:        
- Civic Financial Services Ltd 806 766 806 766
- NZ Local Government Funding Agency (LGFA) 4,475 3,275 4,475 3,275
- Creative HQ incubator/accelerator shareholdings - - 1,341 1,427
         
Loans and deposits        
LGFA - borrower notes 4,688 3,728 4,688 3,728
Loans to related parties - other organisations 27 5,096 27 5,096
Loans to external organisations 263 315 304 366
         
TOTAL OTHER FINANCIAL ASSETS 10,259 13,180 11,641 14,658
Equity investments

Civic Financial Services Limited (formerly Civic Assurance) is the trading name for the New Zealand Local Government Insurance Corporation Limited. The Council holds a 4.78% (2016: 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 Wellington Regional Economic Development Agency Limited (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
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Loans to related parties - other organisations        
         
Wellington Regional Stadium Trust        
(nominal value $15,394,893)        
Opening balance 24 21 24 21
Amortisation of fair value adjustment 3 3 3 3
Closing balance at fair value 27 24 27 24
         
         
Karori Sanctuary Trust        
(nominal value $10,346,689)        
Opening balance 5,072 4,675 5,072 4,675
Amortisation of fair value adjustment - 397 - 397
Movement in fair value 5,275 - 5,275 -
Loan repayment received (10,347) - (10,347) -
Closing balance at fair value - 5,072 - 5,072
         
Loans to other external organisations        
Opening balance 315 150 366 197
New loan advances - 442 - 442
Loan repayments received (13) (9) (28) (9)
Loan forgiveness (39) (118) (39) (118)
Loan write-off - (150) - (150)
Amortisation of fair value adjustment - - 5 4
         
Closing balance at fair value 263 315 304 366
         
TOTAL LOANS 290 5,411 331 5,462

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

Wellington Regional Stadium Trust

The 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

The amortisation rate applicable to the Wellington Regional Stadium Trust loan is 12.710%.

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 Greater Wellington Regional Council. The current expected repayment of the loan and the advance back to the Council as advised by WRST is in 2070.

Karori Sanctuary Trust

During the adoption of the 2016/17 Annual Plan, the Council agreed to the purchase of the Zealandia visitor centre building for $10.347m. Following this purchase, the Council loan to the Karori Sanctuary Trust was fully repaid. The $5.275m adjustment to the related party loan was due to the early repayment of the loan Council made to the Karori Sanctuary Trust. This loan had previously been reduced to its fair value to reflect the term of the loan and expected repayment schedule. It was being amortised back up over time to its original value. The early full repayment required the fair value to be adjusted up to its full value.

Loans to other external organisations are generally suspensory loan arrangements associated with economic development grants provided by the 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 (page 208).

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

  Council Group
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 1,504 1,668 1,504 1,668
Disposals - (949) - (949)
Transfers from property, plant and equipment - 1,504 - 1,504
Transfers to property, plant and equipment (1,504) (719) (1,504) (719)
         
TOTAL NON-CURRENT ASSETS CLASSFIED AS HELD FOR SALE - 1,504 - 1,504
Relevant significant accounting policies

Non-current assets 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:

A non-current asset classified as held for sale is recognised at the lower of its carrying amount or fair value less costs to sell. Impairment losses on initial classification are included within surplus or deficit.

Note 16: Intangibles

  Council Group
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Computer software        
Cost - opening balance 66,989 49,256 67,730 49,965
Accumulated amortisation (44,304) (39,537) (44,967) (40,143)
Computer software opening balance 22,685 9,719 22,763 9,822
Acquired by direct purchase 6,281 17,445 6,357 17,476
Amortisation (4,921) (4,479) (4,990) (4,535)
Transfer to property, plant and equipment (140) - (140) -
Total computer software - closing balance 23,905 22,685 23,990 22,763
         
Cost 73,340 66,989 74,210 67,730
Accumulated amortisation (49,435) (44,304) (50,220) (44,967)
         
Total computer software - closing balance 23,905 22,685 23,990 22,763
         
Work in progress        
Computer software 640 2,261 640 2,261
         
Total work in progress 640 2,261 640 2,261
         
Carbon credits        
Cost - Opening Balance 1,791 1,311 1,791 1,311
Additions 369 672 369 672
Net disposals (177) (192) (177) (192)
         
Total Carbon credits - closing balance 1,983 1,791 1,983 1,791
         
TOTAL INTANGIBLES 26,528 26,737 26,613 26,815

Disposals and transfers are reported net of accumulated amortisation.

The decrease in work in progress for computer software reflects the implementation of phase one of the OneCouncil system on 1 July 2016 and the resulting decrease in project implementation costs to be capitalised.

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 2017 the Council received 1,094 credits (2016: 37,954). The Council purchased 21,473 credits (2016: 25,641) in the market to cover the expected liabilities associated with landfill operations. During the year, 32,425 credits (2016: 34,078) were surrendered to meet the Council’s ETS obligations for the 2016 calendar year. At 30 June 2017 the total number of credits held is 347,731 (2016: 357,589).

At 30 June 2017 the liability relating to landfill carbon emissions is $0.173m (2016: $0.0765m).

More information on carbon credits can be found in the Statements of Service Provision under activity 2.2: Waste reduction and energy conservation (page 49).

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 2017
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
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 211,237 201,557 211,237 201,557
Additions by acquisition 153 1,862 153 1,862
Adjustment (269) - (269) -
Disposals - (5,955) - (5,955)
Fair value revaluation movements taken to surplus/(deficit) 18,222 13,773 18,222 13,773
Transfer to property, plant and equipment (37) - (37) -
Invvestment property - WIP 888 - 888 -
         
TOTAL INVESTMENT PROPERTIES 230,194 211,237 230,194 211,237

Wellington City Council’s investment properties including the waterfront investment properties were valued as at 30 June 2017 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 $185.208m (2016: $168.753m) and land and buildings (including work in progress) of $44.986m (2016: $42.215m) held for investment purposes.

Investment properties are properties that 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 that 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

  Council Group
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Property, plant and equipment - Opening balance 6,645,975 6,595,900 6,659,487 6,608,226
Additions 83,497 166,311 87,774 169,524
Disposals (1,094) (1,515) (2,151) (1,849)
Depreciation expense (96,968) (94,704) (98,663) (96,436)
Impairment losses (11,446) (133) (11,446) (582)
Revaluation movement 295,254 (211) 295,254 (211)
Transfer between asset classes 179 - 178 -
Transfer to non-current assets held for sale - (1,504) - (1,504)
Transfer from non-current assets held for sale 1,504 719 1,504 719
Movement in work in progress 55,267 (18,888) 52,819 (18,400)
Acquistion of controlled entity - - 3,649 -
         
TOTAL PROPERTY, PLANT AND EQUIPMENT 6,972,168 6,645,975 6,988,405 6,659,487
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 is 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 and 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 Council 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.

The 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 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 the 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
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Operational assets        
         
Land        
Land - at cost - opening balance 21,741 - 21,741 -
Land - at valuation - opening balance 222,907 222,908 222,907 222,908
Total land - opening balance 244,648 222,908 244,648 222,908
Additions 120 21,741 120 21,741
Disposals - (1) - (1)
Transfer between asset classes (663) - (663) -
Total land - closing balance 244,105 244,648 244,105 244,648
         
Land - at cost - closing balance 21,862 21,741 21,862 21,741
Land - at valuation - closing balance 222,243 222,907 222,243 222,907
Total land - closing balance 244,105 244,648 244,105 244,648
         
Buildings        
Buildings - at cost - opening balance 25,906 - 25,906 -
Buildings - at valuation - opening 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 - opening balance 562,509 556,025 562,509 556,025
Additions 18,613 26,380 19,091 26,380
Disposals (419) (1,017) (419) (1,017)
Depreciation expense (21,784) (20,348) (22,199) (20,348)
Revaluation adjustment - (211) - (211)
Transfer between asset classes 5,837 1,680 8,770 1,680
Acquisition of controlled entity - - 1,500 -
Total buildings - closing balance 564,756 562,509 569,252 562,509
         
Buildings - at cost - closing balance 46,914 25,906 55,457 25,906
Buildings - at valuation - closing balance 561,635 556,802 561,635 556,802
Total cost/valuation 608,549 582,708 617,092 582,708
Accumulated depreciation (43,793) (20,199) (47,840) (20,199)
Total buildings - closing balance 564,756 562,509 569,252 562,509
         
Landfill post closure costs 1        
Landfill post closure - at cost - opening balance 3,265 3,040 3,265 3,040
Accumulated depreciation (2,333) (2,437) (2,333) (2,437)
Total landfill post closure costs - opening balance 932 603 932 603
Depreciation expense (132) (145) (132) (145)
Movement in post closure costs 927 474 927 474
Total landfill post closure costs - closing balance 1,727 932 1,727 932
         
Landfill post closure - at cost - closing balance 4,561 3,265 4,561 3,265
Accumulated depreciation (2,834) (2,333) (2,834) (2,333)
Total landfill post closure costs - closing balance 1,727 932 1,727 932
  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
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Civic Centre complex        
Civic Centre complex - at cost - opening balance 173,965 176,562 173,965 176,562
Accumulated depreciation (61,443) (60,954) (61,443) (60,954)
Total Civic Centre complex - opening balance 112,522 115,608 112,522 115,608
Additions 767 2,387 767 2,387
Depreciation expense (2,592) (2,739) (2,592) (2,739)
Impairment (11,446) - (11,446) -
Transfer between asset classes (2,631) (1,680) (2,631) (1,680)
Transfer from Non-Current Assets Held for Sale 1,054 - 1,054 -
Transfer to non-current assets held for sale - (1,054) - (1,054)
Total Civic Centre complex- closing balance 97,674 112,522 97,674 112,522
         
Civic Centre complex - at cost - closing balance 161,576 173,965 161,576 173,965
Accumulated depreciation (63,902) (61,443) (63,902) (61,443)
Total Civic Centre complex- closing balance 97,674 112,522 97,674 112,522
         
Plant and equipment        
Plant and equipment - at cost - opening balance 216,102 213,057 231,319 225,843
Accumulated depreciation (100,714) (92,456) (109,808) (99,817)
Total plant and equipment - opening balance 115,388 120,601 121,511 126,026
Additions 7,535 7,049 11,334 10,262
Depreciation expense (11,106) (11,890) (12,386) (13,622)
Disposals (29) (239) (1,086) (573)
Impairment - (133) - (582)
Transfer between asset classes 18,321 - 15,388 -
Acquisition of controlled entity - - 2,149 -
Total plant and equipment - closing balance 130,109 115,388 136,910 121,511
         
Plant and equipment - at cost 239,658 216,102 257,450 231,319
Accumulated depreciation (109,549) (100,714) (120,540) (109,808)
Total plant and equipment - closing balance 130,109 115,388 136,910 121,511
         
Library collections        
Library collections - at cost - opening balance 3,545 1,664 3,545 1,664
Library collections - at valuation - opening 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 - opening balance 14,107 14,385 14,107 14,385
Additions 1,709 1,887 1,709 1,887
Depreciation expense (2,352) (2,165) (2,352) (2,165)
Revaluation movement 1,377 - 1,377 -
Total library collections - closing balance 14,841 14,107 14,841 14,107
         
Library collections - at cost - closing balance - 3,545 - 3,545
Library collections - at valuation - closing balance 14,841 14,818 14,841 14,818
Total cost/valuation 14,841 18,363 14,841 18,363
Accumulated depreciation - (4,256) - (4,256)
Total library collections - closing balance 14,841 14,107 14,841 14,107
         
Total operational assets 1,053,212 1,050,106 1,064,509 1,056,229

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Infrastructure assets        
         
Drainage, waste and water        
Drainage, waste and water - at cost - opening balance 63,847 25,215 63,847 25,215
Drainage, waste and water - at valuation - opening 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 - opening balance 1,207,090 1,195,142 1,207,090 1,195,142
Additions 22,995 39,538 22,995 39,538
Depreciation expense (27,475) (27,586) (27,475) (27,586)
Revaluation movement 132,146 - 132,146 -
Transfer between asset classes (22,195) (4) (22,195) (4)
Total drainage, water and waste - closing balance 1,312,561 1,207,090 1,312,561 1,207,090
         
Drainage, waste and water - at cost - closing balance - 63,847 - 63,847
Drainage, waste and water - at valuation - closing balance 1,312,561 1,197,319 1,312,561 1,197,319
Total cost/valuation 1,312,561 1,261,166 1,312,561 1,261,166
Accumulated depreciation - (54,076) - (54,076)
Total drainage, water and waste - closing balance 1,312,561 1,207,090 1,312,561 1,207,090
         
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 (9,938) (4,969) (9,938) (4,969)
Total service concession assets - opening balance 144,829 149,798 144,829 149,798
Depreciation expense (4,911) (4,969) (4,911) (4,969)
Revaluation movement 14,312 - 14,312 -
Total service concession assets - closing balance 154,231 144,829 154,231 144,829
         
Service concession assets - at cost - closing balance - - - -
Service concession assets - at valuation - closing balance 154,231 154,767 154,231 154,767
Total cost/valuation 154,231 154,767 154,231 154,767
Accumulated depreciation - (9,938) - (9,938)
Total service concession assets - closing balance 154,231 144,829 154,231 144,829
         
Roading        
Roading - at cost - opening balance 88,659 29,927 88,659 29,927
Roading - at valuation - opening 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 - opening balance 868,101 832,173 870,701 834,773
Additions 26,867 58,732 26,867 58,732
Depreciation expense (25,039) (23,341) (25,039) (23,341)
Revaluation movement 144,434 - 144,434 -
Transfer between asset classes (29) 537 (29) 537
Total roading - closing balance 1,014,334 868,101 1,016,934 870,701
         
Roading - at cost - closing balance - 88,659 - 88,659
Roading - at valuation - closing balance 1,014,334 824,639 1,016,934 827,239
Total cost/valuation 1,014,334 913,298 1,016,934 915,898
Accumulated depreciation - (45,197) - (45,197)
Total roading - closing balance 1,014,334 868,101 1,016,934 870,701

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Infrastructure land        
Infrastructure land - at cost - opening balance 3,720 192 3,720 192
Infrastructure land - at valuation - opening balance 35,818 35,818 35,818 35,818
Total infrastructure land - opening balance 39,538 36,010 39,538 36,010
Additions - 3,208 - 3,208
Revaluation movement 2,985 - 2,985 -
Transfer between asset classes (3,730) - (3,730) -
Transfer from non-current assets held for sale - 320 - 320
Total infrastructure land - closing balance 38,793 39,538 38,793 39,538
         
Infrastructure land - at cost - closing balance - 3,720 - 3,720
Infrastructure land - at valuation - closing balance 38,793 35,818 38,793 35,818
Total infrastructure land - closing balance 38,793 39,538 38,793 39,538
         
Land under roads        
Land under roads - at cost - opening balance 2,950,144 2,950,197 2,950,144 2,950,197
Additions 1,833 224 1,833 224
Disposals (506) (258) (506) (258)
Transfer between asset classes 4,413 - 4,413 -
Transfer from non-current assets held for sale 377 358 377 358
Transfer to non-current assets held for sale - (377) - (377)
Land under roads - closing balance 2,956,261 2,950,144 2,956,261 2,950,144
         
Total infrastructure assets 5,476,180 5,209,702 5,478,781 5,212,302
         
Restricted assets 2        
         
Art and cultural assets        
Art and cultural assets - at cost - opening balance 8,667 8,927 11,006 11,266
Additions 19 21 19 21
Transfer between asset classes 44 (281) 44 (281)
Art and cultural assets - closing balance 8,730 8,667 11,069 11,006
         
Restricted buildings        
Restricted buildings - at cost - opening balance 40,865 36,627 40,865 36,627
Accumulated depreciation (10,870) (9,497) (10,870) (9,497)
Total restricted buildings - opening balance 29,995 27,130 29,995 27,130
Additions 1,168 4,386 1,168 4,386
Depreciation expense (1,577) (1,521) (1,577) (1,521)
Transfer between asset classes 300 - 300 -
Restricted buildings - closing balance 29,886 29,995 29,886 29,995
         
Restricted buildings - at cost - closing balance 42,294 40,865 42,294 40,865
Accumulated depreciation (12,408) (10,870) (12,408) (10,870)
Total restricted buildings - closing balance 29,886 29,995 29,886 29,995
  1. For restricted assets, valuation at cost means they are not subject to revaluation. Please refer to the relevant significant accounting policies above for a more detailed explanation.

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
 
 
2017
$000
2016
$000
2017
$000
2016
$000
Parks and reserves        
Parks and reserves - at cost - opening balance 211,888 211,888 211,888 211,888
Additions 943 284 943 284
Disposals (140) - (140) -
Transfer between asset classes 3,569 (252) 3,569 (252)
Transfer from non-current assets held for sale 73 41 73 41
Transfer to non-current assets held for sale - (73) - (73)
Parks and reserves - closing balance 216,333 211,888 216,333 211,888
         
         
Town Belt        
Town Belt - at cost - opening balance 84,544 84,544 84,544 84,544
Transfer between asset classes (3,058) - (3,058) -
Town Belt - at cost 81,486 84,544 81,486 84,544
         
Zoo animals - at cost 500 500 500 500
         
Total restricted assets 336,935 335,594 339,274 337,933
         
Work in progress        
Land 3,155 143 3,155 143
Buildings 50,573 23,569 50,573 23,569
Civic Centre complex 1,227 4,639 1,227 4,639
Plant and equipment 17,149 10,238 17,149 12,688
Library 781 474 781 474
Drainage, waste and water 18,261 5,038 18,261 5,038
Roading 14,517 6,173 14,517 6,173
Art and cultural 179 181 179 181
Restricted buildings - 118 - 118
Total work in progress 105,842 50,573 105,842 53,023
         
TOTAL PROPERTY, PLANT AND EQUIPMENT 6,972,168 6,645,975 6,988,405 6,659,487

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 2017 by William Bunt (FNZIV, FPINZI), registered valuer and Director of Valuation Services for CBRE Limited.

Library collections were valued as at 30 June 2017 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.

The drainage, waste and water infrastructure and roading networks and the service concession assets were valued as at 30 June 2017 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 2015 and 30 June 2017 for the land and building assets were assessed using appropriate indices. The increase in asset value of 0.5% of Total Assets was not considered material by management and accordingly the assets were not revalued at 30 June 2017.

Further information on revaluation reserves and movements is contained in Note 27: Revaluation reserves on page 186.

Finance leases

The net carrying amount of plant and equipment assets held by the Council under finance leases is nil (2016: $0.216m) as all finance leases have ended.

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 2017
  Closing book
value
Additions Replacement
​Cost
  Constructed Vested
  $000 $000 $000 $000
Water supply        
- treatment plants and facilities - - - -
- other assets 386,880 14,431 1,554 878,743
         
Sewerage        
- treatment plants and facilities 171,176 - 431 230,000
- other assets 463,665 10,672 - 1,018,655
         
Stormwater drainage 419,210 7,217 660 817,747
         
Flood protection and control works - - - -
         
Roads and footpaths 722,067 33,837 - 944,597
         
TOTAL CORE ASSETS 2,162,998 66,157 2,645 3,889,742
Council 2016
  Closing book
value
 
Additions Replacement
Cost
 
  Constructed Vested
  $000 $000 $000 $000
Water supply        
- treatment plants and facilities - - - -
- other assets 340,231 15,033 1,644 778,239
         
Sewerage        
- treatment plants and facilities 166,979 - - 222,587
- other assets 437,986 10,852 1,296 913,422
         
Stormwater drainage 415,480 4,867 3,042 683,418
         
Flood protection and control works - - - -
         
Roads and footpaths 624,743 34,444 502 850,940
         
TOTAL CORE ASSETS 1,985,419 65,196 6,484 3,448,605

Drainage, waste, water and roads assets were revalued for the year ending 30 June 2017 by Opus International Limited as part of the normal revaluation cycle.

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 $292m (2016: $243.4m) 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 section 100 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
 
 
2017
$000
2016
$000
Total value of property, plant and equipment 6,972,168 6,645,975
less assets (primarily land) excluded from insurance contracts (3,642,819) (3,581,335)
     
Value of assets covered by insurance contracts 3,329,349 3,064,640
     
The maximum amount to which assets are insured under Council insurance policies 1,293,000 1,305,000

In addition to the 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 New Zealand Transport agency 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 of $4.156m (2016: $9.566m) 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 (2016: $1.500m). The net cost of claims applied to the reserve during the year amounted to $6.910m (2016: $0.661m). The majority of this cost related to the Kaikoura earthquake in November 2016. The Council will look to return the reserve back to required levels.

For more information on the claims applied against the reserve refer to Note 38: Financial impacts of the Kaikoura earthquake (page 216).

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 2017
$000
2016
$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 (ie $100) made in respect of Trusts, for which the 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 208).

The following entities are controlled entities of the Council:

Controlled entities Accounting Interest
2017
Accounting Interest
2016
Nature of business
Karori Sanctuary Trust (Trading as Zealandia) 100% 0% Owns and manages the activities of the urban eco-sanctuary in Karori.
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, City Gallery, Nairn Street Cottage, Space Place at Carter Observatory, Wellington Museum 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.
- Creative HQ Limited 80% 80% Business incubators
Wellington Waterfront Limited 100% 100% Acts as bare trustee for the Waterfront project
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.

Karori Sanctuary Trust

The Karori Sanctuary Trust (trading as Zealandia) became a Council controlled organisation on 30 September 2016 following the signing of a variation to the original Deed of trust. By virtue of now being able to appoint five to six members of the seven member board, the Council effectively has control and will consolidate the Trust’s financial statements into the Group.

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 2017
$000
2016
$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
2017
Accounting Interest
2016
Nature of business
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 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.
Basin Reserve Trust 0%
(see below)
0% Manages, operates and maintains the Basin Reserve
Wellington Regional Stadium Trust 0%
(see below)
0% Owns and manages the Westpac Stadium.

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

Associates

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 2017, the Council held a 10.52% interest in Chaffers Marina Holdings Limited (2016:10.52%), 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).

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.

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. Wellington City 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
2017
$000
Liabilities
2017
$000
Revenues
2017
$000
Surplus/(Deficit)
2017
$000
Associates        
Chaffers Marina Holdings Limited 596 172 114 (31)
Wellington International Airport Limited 369,134 194,761 40,651 13,432
Jointly controlled entity        
Wellington Water Limited 5,067 4,345 24,050 (88)
  Assets
2016
$000
Liabilities
2016
$000
Revenues
2016
$000
Surplus/(Deficit)
2017
$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

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
 
 
2017
$000
2016
$000
Chaffers Marina Holdings Limited    
Opening balance 903 939
Change in shares during the year - -
Change in equity due to changed shareholding - -
Equity accounted earnings of associate (31) (36)
     
Closing balance - investment in Chaffers Marina Holdings Limited 872 903
     
Wellington International Airport Limited    
Opening balance 136,706 135,960
Dividends (11,937) (12,059)
Equity accounted earnings of associate 13,432 12,805
Share of net revaluation of property, plant and equipment - movement 24,165 -
     
Closing balance - investment in Wellington International Airport Limited 162,366 136,706
     
Wellington Water Limited    
Opening balance 810 768
Change in equity due to changed shareholding - -
Equity accounted earnings of jointly controlled entity (88) 42
     
Closing balance - investment in Wellington Water Limited 722 810
     
TOTAL INVESTMENT IN ASSOCIATES AND JOINTLY CONTROLLED ENTITY 163,960 138,419

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 144).


Note 21: Exchange transaction, transfers and taxes payable

Exchange transactions, transfers and taxes payable Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Current        
Exchange transactions and transfers payable 58,155 50,422 59,639 53,934
Taxes payable 3,498 2,852 3,627 3,068
         
Non-current        
Exchange transactions and transfers payable 630 630 630 630
         
TOTAL EXCHANGE TRANSACTIONS, TRANSFERS AND TAXES PAYABLE 62,283 53,904 63,896 57,632

Comprised of:

Exchange transactions and transfers payable Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Trade payables and accruals 51,293 43,872 52,780 47,350
Interest payable 3,113 3,059 3,113 3,059
Sundry payables 4,379 4,121 4,376 4,155
         
Total exchange transactions and transfers payable 58,785 51,052 60,269 54,564
Taxes payable Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
GWRC rates 3,207 1,861 3,207 1,861
Other 291 991 420 1,207
         
Total taxes payable 3,498 2,852 3,627 3,068
         
TOTAL EXCHANGE TRANSACTIONS, TRANSFERS AND TAXES PAYABLE 62,283 53,904 63,896 57,632
Exchange transactions, transfers and payable to related parties Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Controlled entities 2,354 1,515 - -
Associates and jointly controlled entity - 2,078 - 2,078
         
Total exchange transactions, transfers and payable to related parties 2,354 3,593 - 2,078

Payables under exchange transactions, transfers and taxes payable are non-interest bearing and are normally settled on terms varying between 7 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
  2017
$000
2016
$000
2017
$000
2016
$000
Exchange        
Lease rentals 2,910 3,416 2,910 3,416
Other - - 250 366
         
Taxes        
Rates 1,345 1,350 1,345 1,350
         
Transfers        
Wellington Venues operations 1,048 1,256 1,048 1,256
Inspection and licensing fees 3,639 3,393 3,639 3,393
Other 1,202 1,042 1,876 1,818
         
Liabilities recognised under conditional transfer agreements 18,778 32,641 19,649 33,594
         
TOTAL REVENUE IN ADVANCE 28,922 43,098 30,717 45,193
Relevant significant accounting policies

Liabilities recognised under conditional transfer agreements

The 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 $15.172m relating to the capital grant received from the Crown for the housing upgrade project (2016: $28.474m)

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 Long-Term Plan processes.

Gross Borrowings

The gross borrowings are comprised as follows:

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Current        
         
Bank loans - term 96 22 196 22
Commercial paper 85,000 100,000 85,000 100,000
Debt securities - fixed rate bonds - - - -
Debt securities - floating rate notes 15,000 40,000 15,000 40,000
Finance leases - 55 - 55
         
Total current 100,096 140,077 100,196 140,077
         
Non-current        
         
Bank loans - term 4,224 3,907 4,292 3,907
Debt securities - fixed rate bonds 20,000 20,000 20,000 20,000
Debt securities - floating rate notes 371,500 326,500 371,500 326,500
         
Total non-current 395,724 350,407 395,792 350,407
         
TOTAL GROSS BORROWINGS 495,820 490,484 495,988 490,484
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
  2017
$000
2016
$000
2017
$000
2016
$000
Total gross borrowings 495,820 490,484 495,988 490,484
         
Less        
Cash and cash equivalents (see Note 11) (76,907) (94,009) (85,366) (103,623)
         
TOTAL NET BORROWINGS 418,913 396,475 410,622 386,861

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 195).

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 4,488 4,488 2018 - 2041 7.00
Commercial paper 100,000 85,000 2017 1.99 - 2.04
Debt securities - fixed rate bonds 20,000 20,000 2018 - 2023 4.06 - 5.48
Debt securities - floating rate notes 386,500 386,500 2017 - 2033 3.10 - 5.37
Total 637,488 495,988    
Security

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

Internal Borrowings

The 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 $61.135m (2016: $62.906m) 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 $51.175m (2016: $57.578m), 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 $9.960m (2016: $5.328m) 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. The Council is committed to a number of waste minimisation projects that will utilise these funds.

Note 24: Employee benefits and liabilities provision

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Current        
         
Short-term benefits        
Payroll accruals 2,213 1,878 2,922 2,267
Holiday leave 5,324 5,256 6,612 6,385
         
Total short-term benefits 7,537 7,134 9,534 8,652
         
Termination benefits        
Other contractual provisions 274 55 274 55
         
Total termination benefits 274 55 274 55
         
Total current 7,811 7,189 9,808 8,707
         
Non-current        
         
Long-term benefits        
Long service leave provision - - 35 49
Retirement gratuities provision 889 995 889 1,007
         
Total long-term benefits 889 995 924 1,056
         
TOTAL EMPLOYEE BENEFIT LIABILITIES AND PROVISIONS 8,700 8,184 10,732 9,763
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
  2017
$000
2016
$000
2017
$000
2016
$000
         
Opening balance 995 1,096 1,007 1,108
Movement in required provision 9 (32) 9 (32)
Release of unused provision (49) (7) (49) (7)
Rediscounting of interest 27 59 27 59
Amount utilised (93) (121) (105) (121)
         
Retirement gratuities - closing balance 889 995 889 1,007

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 1.56%) as at 30 June 2017, before discounting, is $1.088m (2016: $1.262m). The discount rate used is 6.10%.

Other contractual provisions Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 55 112 55 112
New provision 274 55 274 55
Release of unused provision - - - -
Amount utilised (55) (112) (55) (112)
         
Other contractual provisions - closing balance 274 55 274 55

Background

The above provision is to cover estimated redundancy costs as at 30 June 2017 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
  2017
$000
2016
$000
2017
$000
2016
$000
Current        
ACC Partnership programme - 12 - 12
Landfill post closure costs 1,508 1,441 1,508 1,441
Weathertight homes 11,236 9,500 11,236 9,500
Unreinforced masonary grants 840 - 840 -
         
Total current 13,584 10,953 13,584 10,953
         
Non-current        
Landfill post closure costs 16,205 15,330 16,205 15,330
Weathertight homes 28,199 34,920 28,199 34,920
         
Total non-current 44,404 50,250 44,404 50,250
         
TOTAL PROVISIONS FOR OTHER LIABILITIES 57,988 61,203 57,988 61,203
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
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 16,771 15,820 16,771 15,820
Movement in provision 491 479 491 479
Re-discounting of interest 627 932 627 932
Amount utilised (176) (460) (176) (460)
         
Landfill post closure costs - closing balance 17,713 16,771 17,713 16,771
         
Current 1,508 1,441 1,508 1,441
Non-current 16,205 15,330 16,205 15,330
         
Landfill post closure costs - closing balance 17,713 16,771 17,713 16,771

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; 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 3.25%), before discounting, is $23.152m as at 30 June 2017 (2016: $23.576m). 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 545,530m3 (2016: 664,018m3) 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 a remaining life out to 2030 to coincide with the end of its resource consent.

Weathertight homes Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 44,420 41,200 44,420 41,200
Additional or increased provision made 4,429 12,006 4,429 12,006
Amount utilised (9,414) (8,786) (9,414) (8,786)
         
Weathertight homes - closing balance 39,435 44,420 39,435 44,420
         
Current 11,236 9,500 11,236 9,500
Non-current 28,199 34,920 28,199 34,920
         
Weathertight homes - closing balance 39,435 44,420 39,435 44,420

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 $5.377m (2016: $2.056m) as a provision for future claims relating to weathertightness issues not yet identified or not yet reported.

Movement in the provision

During the year $9.414m was paid as either part or full settlement of claims. An additional $4.429m 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 that 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. For 2016/17 this applicable discount rate has changed from the Council’s cost of borrowing to the Treasury’s risk-free rate, which is considerably lower. The effect has been to increase the provision by $2.600m. 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.

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.

Sensitivity

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

Council and Group 2017
$000
  +10% -10%
Assumption Effect on Surplus
or Deficit
Amount claimed 3,943 (3,943)
Settlement level award 3,943 (3,943)
Council contibution to settlement 3,943 (3,943)
Change in percentage of homeowners who will make a successful claim 537 (537)
  +2% -2%
Assumption Effect on Surplus
or Deficit
Discount rate (1,523) 1,642

Funding of weathertight homes settlements

The 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
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance (26,883) (23,207) (26,883) (23,207)
Rates funding for weathertight homes liability 7,227 6,661 7,227 6,661
Total amounts paid (9,414) (8,786) (9,414) (8,786)
Interest allocation (1,896) (1,551) (1,896) (1,551)
         
Closing balance funded through borrowings (30,966) (26,883) (30,966) (26,883)

Note 26: Deferred tax

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Deductible temporary differences - - 852 559
Tax losses 394 1,037 394 1,165
TOTAL DEFERRED TAX 394 1,037 1,246 1,724
Unrecognised temporary differences and tax losses

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

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 $0.110m (2016: $0.290m) and for the Group $0.349m (2016: $0.483m).

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 2017 $0.260m (2016: $0.357m) previously unrecognised tax losses, with a tax effect of $0.073m (2016: $0.100m) were recognised by the Group by way of a loss transfer arrangement.

As at 30 June 2017, the Group has a deferred tax liability of $0.938m (2016: $1.482m).

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 ending 30 June 2017

    Council Group
   Note Actual
2017
$000
Budget
2017
$000
Actual
2016
$000
Actual
2017
$000
Actual
2016
$000
EQUITY - Opening balances            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,756,048 3,730,334 3,722,229 3,745,251 3,709,806
Revaluation reserves   1,382,337 1,383,201 1,383,201 1,496,198 1,497,062
Hedging reserve   (38,730) - (17,462) (38,730) (17,462)
Fair value through other comprehensive revenue and expense reserve   1,648 106 106 2,026 505
Non-controlling interest   - - - 284 316
Restricted funds   14,064 13,663 13,124 18,741 16,923
TOTAL EQUITY - Opening balance   6,384,501 6,396,438 6,370,332 6,516,932 6,500,312
             
CHANGES IN EQUITY            
             
Retained earnings            
Net surplus for the year   31,679 12,761 34,106 36,150 36,610
Transfer to restricted funds   (4,518) (4,518) (5,118) (5,147) (6,367)
Transfer from restricted funds   10,339 3,380 4,178 11,753 4,549
Transfer from revaluation reserves   279 - 653 279 653
             
Revaluation reserves 27          
Fair value movement - property, plant and equipment - net   295,254 106,241 (211) 319,419 (211)
Transfer to retained earnings   (279) - (653) (279) (653)
             
Hedging reserve 28          
Movement in hedging reserve   17,447 - (21,268) 17,447 (21,268)
             
Fair value through other comprehensive revenue and expense reserve 29          
Movement in fair value - Equity investments   1,240 - 1,542 1,240 1,542
Movement in fair value - Available for sale equities   - - - (45) (21)
             
Non-controlling interest            
Movement of non-controlling interest   - - - - (32)
             
Restricted funds 30          
Transfer to retained earnings   (10,339) (3,380) (4,178) (11,753) (4,549)
Transfer from retained earnings   4,518 4,518 5,118 5,147 6,367
Total comprehensive revenue and expense   345,620 119,002 14,169 374,211 16,620
             
EQUITY - Closing balances            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,793,827 3,741,957 3,756,048 3,788,286 3,745,251
Revaluation reserves   1,677,312 1,489,442 1,382,337 1,815,338 1,496,198
Hedging reserve   (21,283) - (38,730) (21,283) (38,730)
Fair value through other comprehensive revenue and expense reserve   2,888 106 1,648 3,221 2,026
Non-controlling interest   - - - 284 284
Restricted funds   8,243 14,801 14,064 12,135 18,741
TOTAL EQUITY - Closing balance   6,730,121 6,515,440 6,384,501 6,891,143 6,516,932
             
             
Total comprehensive revenue and expense attributable to:            
Wellington City Council and Group   345,620 119,002 14,169 373,927 16,336
Non-controlling interest   - - - 284 284
    345,620 119,002 14,169 374,211 16,620

The notes on pages 132 to 220 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 $214.681m higher than budget primarily due to:

The above movements reflect the primary changes in total comprehensive revenue and expense of $226.618m offset by an opening balance budget variance for total equity of $11.937m.

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 Long-Term Plan (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: Revaluations

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
         
         
Land - opening and closing balance 155,091 155,091 155,091 155,091
         
Buildings - opening balance 230,634 231,498 230,634 231,498
Revaluation adjustment - (211) - (211)
Transfer to retained earnings on disposal of assets (279) (653) (279) (653)
         
Buildings - closing balance 230,355 230,634 230,355 230,634
         
Library collections - opening balance 7,015 7,015 7,015 7,015
Revaluation recognised in other comprehensive revenue and expense 1,377 - 1,377 -
         
Library collections - closing balance 8,392 7,015 8,392 7,015
         
Drainage, waste and water - opening balance 547,533 547,533 547,533 547,533
Revaluation recognised in other comprehensive revenue and expense 132,146 - 132,146 -
Transfer between asset classes 27,824 - 27,824 -
         
Drainage, waste and water - closing balance 707,503 547,533 707,503 547,533
         
Service concession assets - opening balance 70,619 70,619 70,619 70,619
Revaluation recognised in other comprehensive revenue and expense 14,312 - 14,312 -
Transfer between asset classes (27,824) - (27,824) -
         
Service concession assets - closing balance 57,107 70,619 57,107 70,619
         
Infrastructure land - opening balance 15,410 15,410 15,410 15,410
Revaluation recognised in other comprehensive revenue and expense 2,985 - 2,985 -
         
Infrastructure land - closing balance 18,395 15,410 18,395 15,410
         
Roading - opening balance 356,035 356,035 356,035 356,035
Revaluation recognised in other comprehensive revenue and expense 144,434 - 144,434 -
         
Roading - closing balance 500,469 356,035 500,469 356,035
         
Associates' revaluation reserves - opening balance - - 113,861 113,861
Revaluation recognised in other comprehensive revenue and expense - - 24,165 -
         
Associates' revaluation reserves - closing balance - - 138,026 113,861
         
Total revaluation reserves - closing balance 1,677,312 1,382,337 1,815,338 1,496,198

These revaluation reserves are represented by:

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 1,382,337 1,383,201 1,496,198 1,497,062
Revaluation recognised in other comprehensive revenue and expense 295,254 (211) 319,419 (211)
Transfer to retained earnings on disposal of assets (279) (653) (279) (653)
         
TOTAL REVALUATION RESERVES 1,677,312 1,382,337 1,815,338 1,496,198

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 2017 Council has revalued its investment properties, which are revalued annually. Council has also revalued its infrastructure land, infrastructure network assets (Drainage, waste, water, service concession and roading), and the Library collection 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
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance (38,730) (17,462) (38,730) (17,462)
Cash flow hedge net movement recognised in other comprehensive revenue and expenses 17,447 (21,268) 17,447 (21,268)
         
TOTAL HEDGING RESERVE (21,283) (38,730) (21,283) (38,730)

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
  2017
$000
2016
$000
2017
$000
2016
$000
Opening balance 1,648 106 2,026 505
Movements:        
Civic Financial Services Limited 40 133 40 133
Local Government Funding Agency 1,200 1,409 1,200 1,409
Creative HQ shareholdings - available for sale - - (45) (21)
         
TOTAL FAIR VALUE THROUGH OTHER COMPREHENSIVE REVENUE AND EXPENSE RESERVE 2,888 1,648 3,221 2,026

This reserve reflects the accumulated fair value movement in the Council’s investment in Civic Financial Services Limited 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 52).

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 the Council holds for specific purposes and trusts and bequests that have been bestowed upon the the Council for the benefit of all Wellingtonians.

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Special reserves and funds 7,800 13,639 11,115 17,094
Trusts and bequests 443 425 1,020 1,647
         
TOTAL RESTRICTED FUNDS 8,243 14,064 12,135 18,741
Special reserves and funds Opening
Balance
​2017
$000
Additional
Funds
2017
$000
Funds
Utilised
2017
$000
Closing
Balance
2017
​$000
Council        
City growth fund 3,291 3,000 (3,429) 2,862
Reserve purchase and development fund 782 - - 782
Insurance reserve 9,566 1,500 (6,910) 4,156
Total Council 13,639 4,500 (10,339) 7,800
         
Controlled entities' reserve funds 3,455 - (140) 3,315
         
Total Group - Special reserves and funds 17,094 4,500 (10,479) 11,115
Nature and purpose, funding and utilisation

City growth fund

This fund is part of an integrated approach to fostering growth in the economy. Funding of $3m was provided from previous surpluses and $3.429m 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 no purchases were made.

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 the Council’s insurance policies. Annual additions to the reserve of $1.500m (2016: $1.500m) are funded through rates as identified in the Annual Plan. During the year $6.910m (2016: $0.661m) was used to meet under-excess insurance costs. For more information on the cost of claims refer to Note 38 - Financial impacts of the Kaikoura earthquake (page 216).

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 Opening
Balance
​2017
$000
Additional
Funds
2017
$000
Funds
Utilised
2017
$000
Closing
Balance
2017
​$000
Council        
A Graham Trust 3 - - 3
A W Newton Bequest 318 15 - 333
E A McMillan Estate 6 - - 6
E Pengelly Bequest 14 1 - 15
F L Irvine Smith Memorial 7   - 7
Greek NZ Memorial Association 5 - - 5
Kidsarus 2 Donation 3 1 - 4
Kirkcaldie and Stains Donation 17 - - 17
QEII Memorial Book Fund 20 1 - 21
Schola Cantorum Trust 8   - 8
Terawhiti Grant 10 - - 10
Wellington Beautifying Society Bequest 14 - - 14
Total Council - Trusts and bequests 425 18 - 443
         
Controlled entities' trusts and bequests 1,222 629 (1,274) 577
         
Total Group - Trusts and bequests 1,647 647 (1,274) 1,020
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.

Nature and purpose

Other than 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 – https://wellingtonzoo.com/about-us/about-our-zoo/

Charles Plimmer Bequest

The bequest is held and administered by the Public Trust for the benefit of Wellington City Council. Funds available for distribution are requested for particular projects after consultation with the Plimmer family. The receipt and use of these funds is shown outside of the table above to record the generous contribution the bequest makes to the benefit of the city.

Statement of cash flows

For the year ending 30 June 2017

    Council Group
    Actual
2017
$000
Budget
2017
$000
Actual
2016
$000
Actual
2017
$000
Actual
2016
$000
CASH FLOWS FROM OPERATING ACTIVITIES            
             
Receipts from rates - Council   286,658 292,828 272,802 286,658 272,802
Receipts from rates- Greater Wellington Reginal Council   60,589 56,838 55,622 60,589 55,622
Receipts from activities and other revenue   145,185 100,082 119,920 160,648 131,199
Receipts from grants and subsidies - Operating   7,994 8,020 7,108 22,797 15,839
Receipts from grants and subsidies - Capital   12,899 33,017 38,918 13,347 39,679
Receipts from investment property lease rentals   12,038 9,335 11,025 12,038 11,025
Cash paid to suppliers and employees   (312,227) (298,973) (288,166) (367,290) (324,047)
Rates paid to GWRC   (59,324) (56,838) (56,288) (59,324) (56,288)
Grants paid   (43,395) (42,672) (38,384) (17,388) (18,543)
Income tax paid   - - - (165) (244)
Net GST (paid) / received   2,753 - (925) 2,202 (2,329)
             
NET CASH FLOWS FROM OPERATING ACTIVITIES   113,170 101,637 121,632 114,112 124,715
             
CASH FLOWS FROM INVESTING ACTIVITIES            
             
Dividends received   12,041 11,112 12,179 12,041 12,218
Interest received   2,367 650 3,103 2,579 3,311
Loan repayments   10,399 - 277 10,414 277
Proceeds from sale of property, plant and equipment   1,248 4,600 592 1,248 1,023
Proceeds from sale of Investment property   - - 6,843 - 6,843
Loan advance made   - - (442) - (442)
Increase in investments   (960) - (1,520) (856) (1,520)
Cash from aquisition of controlled entity   - - - 941 -
Purchase of investment properties   (153) - (1,862) (153) (1,862)
Purchase of intangibles   (5,029) (5,102) (9,521) (5,057) (9,521)
Purchase of property, plant and equipment   (132,617) (165,583) (136,816) (135,841) (140,648)
             
NET CASH FLOWS FROM INVESTING ACTIVITIES   (112,704) (154,323) (127,167) (114,684) (130,321)
             
CASH FLOWS FROM FINANCING ACTIVITIES            
             
New borrowings   85,659 298,783 148,855 85,659 148,855
Repayment of borrowings   (80,323) (227,516) (92,099) (80,431) (92,099)
Interest paid on borrowings   (22,904) (26,690) (23,125) (22,913) (23,125)
             
NET CASH FLOWS FROM FINANCING ACTIVITIES   (17,568) 44,577 33,631 (17,685) 33,631
             
Net increase/(decrease) in cash and cash equivalents   (17,102) (8,109) 28,096 (18,257) 28,025
Cash and cash equivalents at beginning of year   94,009 9,823 65,913 103,623 75,598
             
CASH AND CASH EQUIVALENTS AT END OF YEAR   76,907 1,714 94,009 85,366 103,623

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 132 to 220 form part of and should be read in conjunction with the financial statements

Wellington City Council acts as a collection agency for Greater Wellington Regional Council (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 $61.135m (2016: $62.906m) relating to the housing upgrade project and waste activities. For more information see Note 23: Borrowings (page 175).

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 $11.533m higher than budgeted primarily due to:

Net cash flows from investing activities were $41.619m lower than budget primarily due to:

Net cash flows from financing activities were $62.145m lower than budget primarily due to:

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

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
  2017
$000
2016
$000
2017
$000
2016
$000
Net surplus for the period 31,679 34,106 36,150 36,610
         
Add/(deduct) non-cash items:        
         
Vested assets (6,250) (10,181) (6,250) (10,181)
Bad debts written off not prevously provided for 151 282 151 282
Depreciation and amortisation 101,889 99,183 103,623 100,971
Impairment of property, plant and equipment 11,446 132 11,446 581
Fair value changes in investment properties (18,222) (13,773) (18,222) (13,773)
Other fair value changes (5,278) (400) (5,278) (400)
Movement in provision for impairments of doubtful debts 777 153 777 153
Tax expense - - (22) -
Gain on business combination - - (4,072) -
Non-cash movement in provisions 4,440 12,079 4,596 12,550
         
Total non-cash items 88,953 87,475 86,749 90,183
         
Add/(deduct) movement in working capital: 1        
Exchange receivables and non-exchange recoverables 537 (10,826) 3,677 (6,962)
Prepayments (2,512) 953 (2,019) 572
Inventories (48) (202) 205 (123)
Exchange transactions, taxes and transfers payables 7,852 (4,623) 4,855 (8,555)
Revenue in advance (14,176) 13,805 (14,604) 12,837
Employee benefit liabilities 516 782 219 879
Provision for other liabilities (7,632) (7,908) (7,809) (7,908)
         
Total working capital movement (15,463) (8,019) (15,476) (9,260)
         
Add/(deduct) investing and financing activities:        
Net (gain)/loss on disposal of property, plant and equipment (495) 1,115 (153) 1,461
Net (gain)/loss on disposal of investment property - (888) - (888)
Dividends received (12,041) (12,179) (104) (160)
Interest received (2,367) (3,103) (2,442) (3,334)
Tax paid and subvention receipts - - (213) (205)
Interest paid on borrowings 22,904 23,125 22,914 23,119
Share of equity accounted surplus in associates - - (13,313) (12,811)
         
Total investing and financing activities 8,001 8,070 6,689 7,182
         
NET CASH FLOWS FROM OPERATING ACTIVITIES 113,170 121,632 114,112 124,715
  1. Excluding non-cash items

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
  2017
$000
2016
$000
2017
$000
2016
$000
Financial assets        
         
Loans and receivables        
Cash and cash equivalents 76,907 94,009 85,366 103,623
Receivables and recoverables 49,364 50,325 50,700 51,799
Other financial assets 4,978 9,139 5,019 9,190
Total loans and receivables 131,249 153,473 141,085 164,612
         
Financial assets at fair value through other comprehensive revenue and expense        
Other financial assets 5,281 4,041 6,622 5,468
Total financial assets at fair value through other comprehensive revenue and expense 5,281 4,041 6,622 5,468
         
Hedged derivative financial instruments        
Derivatives designated as cash flow hedges 1,283 - 1,283 -
Total hedged derivative financial instruments 1,283 - 1,283 -
         
Total financial assets 137,813 157,514 148,990 170,080
Total non-financial assets 7,268,587 6,922,590 7,424,978 7,051,339
         
TOTAL ASSETS 7,406,400 7,080,104 7,573,968 7,221,419
         
Financial liabilities        
         
Financial liabilities at amortised cost        
Exchange transactions and transfers payable 58,785 51,052 60,269 54,564
Taxes payable 3,498 2,852 3,627 3,068
Borrowings 495,820 490,484 495,988 490,484
Total financial liabilities at amortised cost 558,103 544,388 559,884 548,116
         
Derivative financial instruments        
Derivatives designated as cash flow hedges 22,566 38,730 22,566 38,730
Total derivative financial instruments 22,566 38,730 22,566 38,730
         
Total financial liabilities 580,669 583,118 582,450 586,846
Total non-financial liabilities 95,610 112,485 100,375 117,641
         
TOTAL LIABILITIES 676,279 695,603 682,825 704,487

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:

Level 1 - Quoted market price - Financial instruments with quoted prices for identical instruments in active markets.

Level 2 - Valuation technique using observable inputs – Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

Level 3 - Valuation techniques with significant non-observable inputs – Financial instruments valued using models where one or more significant inputs are not observable.

Group 2017 2016
  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 - - 6,622 - - 5,468
             
Derivative financial instruments            
- Cash flow hedges - 1,283 - - - -
             
Financial liabilities            
Derivative financial instruments            
- Cash flow hedges - 22,566 - - 38,730 -
Reconciliation of fair value movements in Level 3 Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Financial assets at fair value through other comprehensive revenue and expense        
         
- Equity investments        
         
Opening balance - 1 July 4,041 2,499 5,468 3,900
Purchases - - - 65
Disposals - - (11) -
Impairment - - (27) (18)
Gains or losses recognised in other comprehensive revenue and expense 1,240 1,542 1,192 1,521
         
Closing balance - 30 June 5,281 4,041 6,622 5,468

The level 3 equity investments comprise the Council’s shareholdings in the Local Government Funding Agency $4.475m (2016: $3.275m) and Civic Assurance $0.806m (2016:$0.766m). Refer to Note 14: Other financial assets (page 152) 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 205)). 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
  2017
$000
2016
$000
2017
$000
2016
$000
Financial instruments with credit risk        
         
Cash and cash equivalents 76,907 94,009 85,366 103,623
         
Derivative financial instrument assets 1,283 - 1,283 -
         
Receivables and recoverables 49,364 50,325 50,700 47,035
         
Other financial assets        
- Bank deposits - term - - - -
- LGFA borrower notes 4,688 3,728 4,688 3,728
- Loans to related parties - other organisations 27 5,096 27 5,096
- Loans to external organisations 263 315 304 366
         
Financial guarantees to related parties 168 278 168 278
         
Total financial instruments with credit risk 132,700 153,751 142,536 160,126

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 205).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Cash - registered banks        
AA- 4,886 7,986 10,978 13,711
         
Short term deposits - registered banks        
AA- 66,000 84,500 68,349 88,377
A 6,000 1,500 6,000 1,500
         
Term deposits (greater than 3 months) - registered banks        
AA- - - - -
         
Term deposits - borrower notes - NZ LGFA        
AA+ 4,688 3,728 4,688 3,728
         
Derivative financial instrument assets        
AA- 1,283 - 1,283 -

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.

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
  2017
$000
2016
$000
2017
$000
2016
$000
Contractual cash flows of financial liabilities excluding derivatives        
0-12 months 173,575 205,279 175,288 209,010
1-2 years 58,193 49,843 58,261 49,843
2-5 years 158,914 162,570 158,914 162,570
More than 5 years 257,441 186,650 257,441 186,650
Total contractual cash flows of financial liabilities excluding derivatives 648,123 604,342 649,904 608,073
         
Represented by:        
Carrying amount as per the Statement of Financial Position 557,973 544,388 559,754 548,119
Future interest payable 90,150 59,954 90,150 59,954
Total contractual cash flows of financial liabilities excluding derivatives 648,123 604,342 649,904 608,073

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
  2017
$000
2016
$000
2017
$000
2016
$000
Contractual cash flows of derivative financial liabilities        
0-12 months 8,719 8,532 8,719 8,532
1-2 years 6,321 8,268 6,321 8,268
2-5 years 8,510 16,795 8,510 16,795
More than 5 years 1,690 9,372 1,690 9,372
Total contractual cashflow of derivative financial liabilities 25,240 42,967 25,240 42,967
         
Represented by:        
Future interest payable 25,240 42,967 25,240 42,967
Total contractual cash flows of derivative financial liabilities 25,240 42,967 25,240 42,967

In addition to cash to be received in 2017/18 the Council currently has $121.500m in unused committed bank facilities available to settle obligations as well as $122.756m 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 205).

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% 31%
3 - 5 years 20% 60% 27%
More than 5 years 15% 60% 42%

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 Long-Term Plan (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% 95%

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

  Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Financial instruments subject to interest rate volatility - before effect of interest rate swaps        
Cash and cash equivalents 76,907 94,009 85,366 103,623
Bank loans (4,320) (3,929) (4,488) (3,929)
Commercial paper (85,000) (100,000) (85,000) (100,000)
Debt securities - floating rate notes (386,500) (366,500) (386,500) (366,500)
Total financial instruments subject to interest rate volatility - before effect of interest rate swaps (398,913) (376,420) (390,622) (366,806)
         
Effect of interest rate swaps in reducing interest rate volatility        
Effect of Cash flow interest rate swaps - hedged 372,500 367,500 372,500 367,500
         
Total effect of interest rate swaps in reducing interest rate volatility 372,500 367,500 372,500 367,500
         
Total financial instruments subject to interest rate volatility - after effect of interest rate swaps (26,413) (8,920) (18,122) 694

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 2017 the fair value of the interest rate swaps was -$21.283m (2016: -$38.730m). 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
  2017
%
2016
%
2017
%
2016
%
Investments        
Cash and cash equivalents 2.54 2.99 2.40 2.89
Bank deposits - term - - - -
LGFA - borrower notes 2.47 2.80 2.47 2.80
Loans to related parties - - - -
Loans to external organisations - - - -
         
Borrowings        
Bank facilities - short term - - - -
Bank loans 7.00 7.00 7.00 7.00
Commercial paper 2.02 2.41 2.02 2.41
Debt securities - fixed 4.84 4.84 4.84 4.84
Debt securities - floating 2.59 2.96 2.59 2.96
Derivative financial instruments - hedged 4.52 4.63 4.52 4.63
Finance leases - 10.22 - 10.24

The related party loan to the Wellington Regional Stadium Trust is 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 exposures at the end of the reporting period:

Council   2017
$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 769 (769) - -
LGFA - borrower notes   47 (47) - -
Derivatives - Interest rate swaps - hedged b - - 2,606 (2,971)
Financial liabilities          
Derivatives - interest rate swaps - hedged b - - 17,614 (18,803)
Debt securities - floating rate notes c (710) 710 - -
Debt securities - fixed rate bonds d - - - -
Bank term loans e - - - -
Commercial paper f (280) 280 - -
           
Total sensitivity to interest rate risk   (174) 174 20,220 (21,774)

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 $0.769m accordingly.

b. Derivatives – hedged interest rate swaps

Derivatives include interest rate swaps with a fair value totalling -$21.283m. A movement in interest rates of plus 1% has an effect on increasing the unrealised value of the hedged interest rate swap assets by $2.606m. A movement in interest rates of minus 1% has an effect on reducing the unrealised value of the hedged interest rate swap assets by $2.971m. A movement in interest rates of plus 1% has an effect on increasing the unrealised value of the hedged interest rate swap liabilities by $17.614m. A movement in interest rates of minus 1% has an effect on reducing the unrealised value of the hedged interest rate swap liabilities by $18.803m.

c. Debt securities – floating rate notes

Debt securities at floating rates total $386.5m. The full exposure to changes in interest rates has been reduced because the Council has $315.5m 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 $0.710m accordingly.

d. Debt Securities – fixed rate bonds

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

e. Bank Loan

The Council, through its joint venture with Porirua City Council, has a bank term loan of $4.320m. 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

The Council has a Commercial Paper programme, which is subject to floating rates and totals $100m, of which only $85m is presently utilised. The full exposure to changes in interest rates has been reduced because the Council has $57m 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 accordingly.

Note 33: Commitments

Capital commitments Council Group
  2017
$000
2016
$000
2017
$000
2016
$000
Approved and contracted - property, plant and equipment 36,519 9,771 36,519 9,771
Approved and contracted - investment properties - 130 - 130
Approved and contracted - intangibles 80 461 80 461
Approved and contracted - share of associates - - 10,958 20,190
Approved and contracted - share of joint ventures - - - -
         
TOTAL CAPITAL COMMITMENTS 36,599 10,362 47,557 30,552

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 2016/17 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 140).

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
  2017
$000
2016
$000
2017
$000
2016
$000
Plant and equipment        
Not later than one year 43 21 397 281
Later than one year and not later than five years 25 2 288 311
Later than five years - - - -
         
Land and buildings        
Not later than one year 1,982 1,246 3,525 3,453
Later than one year and not later than five years 5,644 4,121 10,213 8,449
Later than five years 4,922 2,213 6,626 4,695
         
TOTAL NON-CANCELLABLE OPERATING LEASE COMMITMENTS AS LESSEE 12,616 7,603 21,049 17,189

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
  2017
$000
2016
$000
2017
$000
2016
$000
Investment properties        
Not later than one year 9,972 9,605 9,972 9,605
Later than one year and not later than five years 37,499 37,258 37,499 37,258
Later than five years 64,280 69,521 64,280 69,521
         
Land and buildings        
Not later than one year 2,405 2,986 2,425 3,033
Later than one year and not later than five years 6,996 8,383 6,996 8,402
Later than five years 8,100 10,657 8,100 10,657
         
TOTAL NON-CANCELLABLE OPERATING LEASE COMMITMENTS AS LESSOR 129,252 138,410 129,272 138,476
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
  2017
$000
2016
$000
2017
$000
2016
$000
Financial guarantees to community groups 168 278 168 278
Uncalled capital - LGFA 1,866 1,866 1,866 1,866
Other legal proceedings 393 268 393 268
Share of associates' contingent liabilities - - - -
Share of joint ventures' contingent liabilities - - - -
         
TOTAL CONTINGENT LIABILITIES 2,427 2,412 2,427 2,412
Contingent assets

The Council and Group have no contingent assets that can be quantified as at 30 June 2017 (2016: $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 contracts

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 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 made ahead of schedule.

NZ Local Government Funding Agency Limited (LGFA)

The Council is one of 30 local authority shareholders and 8 local authority guarantors of the LGFA. In that regard the 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, the Council is a guarantor of all of LGFA’s borrowings. At 30 June 2017, LGFA had borrowings totalling $7,945m (2016: $6,220m).

Financial reporting standards require the 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. The 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 the Council is anticipated to be less than $0.393m.

Unquantified contingent liabilities

Weathertight Homes

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 179)). 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.

Defective product

In April 2013, the Ministry of Education (MOE) initiated High Court proceedings against Carter Holt Harvey (CHH) and others alleging inherent defects in the cladding sheets and cladding systems manufactured and prepared by CHH. Subsequently, in December 2016, CHH commenced third party proceedings against 48 Councils, including Wellington City Council alleging a breach of duty in the processing of building consents, undertaking building inspections and issuing Code Compliance Certificates. The Councils have applied for orders setting aside and striking out CHH’s claims against them. The MOE’s claim against CHH is for 833 school buildings, 27 of which are located within Wellington City. At present there is insufficient information to conclude on potential liability and claim quantum, if any.

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.

Unquantified contingent asset

At as 30 June 2017 the Council has a contingent asset for the insurance recoveries. The insurance claim related to the Civic Administration Building (CAB), which covers both the repair costs and the relocation costs, is still in progress. The Council’s preliminary assessment of earthquake repairs is in the region of $33.0 million. The indemnity value of CAB under Council’s insurance value is $48.7 million. The insurance policy has a deductible of $5.0 million. While an estimate of the repair and relocation costs has been obtained by the Council and provided to the insurer there are still a significant number of uncertainties in the numbers and it is still subject to discussion and agreement with the insurer. This means that the amount that the Council will receive cannot be reliably measured.

For further information please refer to Note 38: Financial impacts of the Kaikoura earthquake (page 216).

Note 35: Jointly controlled assets

The Council has significant interests in the following joint ventures:

Joint Venture Interest
2017
Interest
2016
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) 2017
$000
2016
$000
ASSETS    
     
Current    
Inventory 22 42
Receivables and recoverables 2,045 1,420
     
Non-current    
Property, plant and equipment 23,882 22,249
     
Share of total assets 25,949 23,711
     
LIABILITIES    
     
Non-current    
Borrowings 4,320 3,929
Provisions for other liabilities 2,340 2,029
     
Share of total liabilities 6,660 5,958
     
SHARE OF NET ASSETS 19,289 17,753

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 2017
$000
2016
$000
Operating revenue 1,279 993
Operating expenditure (1,081) (967)
     
Share of net surplus or (deficit) 198 26
     
Share of current year revaluation movement 1,338 -

The Council’s and Group’s share of the joint ventures’ capital commitments is $Nil (2016: $Nil) and contingent liabilities is $Nil (2016: $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
  2017
$
2016
$
Council Members    
     
Short-term benefits 1,492,887 1,464,085
     
Chief Executive and Executive Leadership Team    
     
Short-term employee benefits 2,490,472 2,335,591
Post employment benefits 41,272 48,109
     
TOTAL REMUNERATION PAID TO KEY MANAGEMENT PERSONNEL 4,024,631 3,847,785

As at 30 June 2017 key management personnel comprised of 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 212).

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 Councillors disclose their personal interests in a register available on the Council website.

There are no commitments from the 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 2017 Council contributed $0.383m (2016: $0.368m) to fund the core 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.

Wellington Regional Stadium Trust (WRST)

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 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 Greater Wellington Regional Council.

During the year ending 30 June 2017 Council transacted directly with WRST to the amount of $0.500m in relation to the upgrade of the concourse. The remaining $4.500m of the $5.000m that Council has committed to fund was also recognised in the period. In 2015/16 $0.275m was contributed 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 2017
$000
2016
$000
Expenditure incurred by the Council to fund the operation and management of:    
Porirua - waste water treatment plant 2,011 2,023

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 2017
$000
2016
$000
Revenue for services provided by the Council to:    
Karori Sanctuary Trust 43 -
Positively Wellington Tourism - 24
Wellington Cable Car Limited 48 309
Wellington Museums Trust 1,469 1,436
Wellington Regional Economic Development Agency 166 306
Wellington Zoo Trust 1,054 841
  2,780 2,916
     
Grant funding by Council for the operations and management of:    
Karori Sanctuary Trust 875 -
Wellington Cable Car Limited 1,000 1,500
Wellington Museums Trust 8,628 8,313
Wellington Regional Economic Development Agency 7,404 7,135
Wellington Zoo Trust 3,125 2,894
  21,032 19,842
     
Expenditure for services provided to the Council by:    
Karori Sanctuary Trust 11 -
Wellington Cable Car Limited 37 32
Wellington Museums Trust 313 2,476
Wellington Regional Economic Development Agency 10,044 6,013
Wellington Zoo Trust 1,967 2,749
  12,372 11,270
     
Expenditure for the purchase of assets by the Council from:1    
Karori Sanctuary Trust 10,347 -
     
Loan repayment to the Council by:2    
Karori Sanctuary Trust 10,347 -
     
Current receivables and recoverables owing to the Council from:    
Karori Sanctuary Trust 2 -
Wellington Museums Trust 40 161
Wellington Regional Economic Development Agency 63 6
Wellington Zoo Trust 1,189 213
  1,294 380
     
Current payables owed by the Council to:    
Karori Sanctuary Trust 1 -
Wellington Cable Car Limited 5 419
Wellington Museums Trust 251 171
Wellington Regional Economic Development Agency 366 729
Wellington Zoo Trust 1,731 196
  2,354 1,515
  1. The Council purchased the Karori Sanctuary Trust visitor centre building on 7 October 2016.
  2. The Karori Sanctuary Trust repaid its loan from the Council on 7 October 2016.

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 $33.404m (2016: $31.112m) when the grant funding of $21.032m (2016: $19.842m) and expenditure for services provided to the Council of $12.372m (2016: $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 2017
$000
2016
$000
Dividend received from:    
Wellington International Airport Limited 11,937 12,059
     
Revenue for services provided by the Council to:    
Wellington International Airport Limited 61 -
Wellington Water Limited 517 -
  578 -
     
Expenditure for services provided to the Council from:    
Wellington International Airport Limited 1,132 2,179
Wellington Water Limited 26,995 22,348
  28,127 24,527
     
Current receivables and recoverables owing to the Council from:    
Wellington Water Limited 187 -
     
Current payables owed by the Council to:    
Wellington Water Limited 4,333 2,078

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.

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 2016 to 30 June 2017 was $1,492,887 (2016: $1,464,085) and is broken down and classified as follows:

Council Member Monetary
​Remuneration
Non-monetary
Remuneration
 
  Salary
$
Allowances
$

$
Total
$
Current Council        
Lester, Justin (Mayor) 151,797 120 2,200 154,117
Calvert, Diane 63,652 283 1,555 65,490
Calvi-Freeman, Chris 63,652 283 1,555 65,490
Dawson, Brian 63,652 283 1,555 65,490
Day, Jill 63,652 283 1,555 65,490
Eagle, Paul 105,435 388 2,200 108,023
Foster, Andy 91,756 388 2,200 94,344
Free, Sarah 89,040 388 2,200 91,628
Gilberd, Peter 63,652 283 1,555 65,490
David, Lee 89,040 388 2,200 91,628
Marsh, Simon 90,130 388 2,200 92,718
Pannett, Iona 96,635 388 2,200 99,223
Sparrow, Malcolm 89,040 388 2,200 91,628
Woolf, Simon 89,040 388 2,200 91,628
Young, Nicola 89,040 388 2,200 91,628
         
Previous Council        
Wade-Brown, Celia (Mayor) 49,929 - 645 50,573
Ahipene-Mercer, Ray 26,478 120 645 27,243
Coughlan, Jo 28,104 - 645 28,749
Peck, Mark 25,388 120 645 26,153
Ritchie, Helene 25,388 120 645 26,153
TOTAL REMUNERATION PAID TO COUNCIL MEMBERS 1,454,500 5,387 33,000 1,492,887
Total monetary remuneration 1,459,887
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 2016/17 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 $400 per annum (applicable from the start of the new triennium) 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
2017
$
TAWA COMMUNITY BOARD        
Current Board        
Herbert, Richard (Chair) 15,246 405 - 15,651
Lucas, Margaret (Deputy Chair) 8,932 - - 8,932
Hansen, Graeme 8,932 - - 8,932
Langham, Liz 3,108 - - 3,108
Marshall, Jack (includes Youth Council attendance fee) 8,932 - 510 9,442
Parkinson, Robyn 4,992 - - 4,992
Day, Jill (see Councillor remuneration above)        
Sparrow, Malcolm (see Councillor remuneration above)        
Previous Board        
Tredger, Robert (Chair) 5,237 180 - 5,417
Sutton, Alistair 2,618 - - 2,618
MAKARA-OHARIU COMMUNITY BOARD        
Current Board        
Grace, Christine (Chair) 9,135 585 - 9,720
Apanowicz, John (Deputy Chair) 2,553 - - 2,553
Liddell, Judy 4,568 - - 4,568
Renner, Chris 2,553 - - 2,553
Rudd, Wayne 4,568 - - 4,568
Todd, Hamish 4,568 - - 4,568
Previous Board        
Burden, Murray 1,339 - - 1,339
Scotts, Margie 1,339 - - 1,339
TOTAL REMUNERATION TO COMMUNITY BOARD MEMBERS 88,620 1,170 510 90,300

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.

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 2017.

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
  2017
$
2016
$
Short-term employee benefits    
     
Kevin Lavery    
Salary 413,160 413,160
Motor vehicle park 3,000 3,000
     
TOTAL REMUNERATION OF THE CHIEF EXECUTIVE 416,160 416,160

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 or other contractual entitlement.

For the year ending 30 June 2017 the Council made severance payments to 15 employees totalling $261,259 (2016: 18 employees, $226,458).

The individual values of each of these severance payments are: $3,232; $5,000; $5,500; $5,617; $6,329; $6,588; $10,537; $10,974, $11,529; $15,469; $15,604; $19,737; $35,000; $40,358; $69,785.

Employee numbers and remuneration bands

The following table identifies the number of full-time employees as at the 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
  2017
2016
Full-time and full-time equivalent employee numbers    
     
Full-time employees (based on a 40 hour week) as at 30 June 1,037 1,059
Full-time equivalents for all other non full-time employees 265 237
     
     
Remuneration bands    
     
The number of employees receiving total annual remuneration of less than $60,000 1,115 1,105
     
The number of employees receiving total annual remuneration of more than $60,000 in bands of $20,000    
$60,000 - $79,999.99 269 274
$80,000 - $99,999.99 175 178
$100,000 - $119,999.99 80 78
$120,000 - $139,999.99 56 43
$140,000 - $159,999.99 30 35
$160,000 - $179,999.99 12 13
$180,000 - $199,999.99 8  
$180,000 - $219,999.99*   10
$200,000 - $239,999.99* 6  
$220,000 - $299,999.99*   7
$240,000 - $299,999.99* 6  
$300,000 - $419,999.99* 5 5
TOTAL EMPLOYEES 1,762 1,748

Of the 1,762 (2016: 1,748) individual employees, 725 (2016: 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 five 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 2 years shown.

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

Grade Salary Range 2017 2016
B1 $33,030 - $44,687  150 152
B2 $38,858 - $52,573  662 627

The current living wage rate for Wellington City Council is $18.63. Each year the living wage rate for Wellington City Council is reviewed in accordance with the Consumer Price Index rate for salary and wages.

Note 38: Financial impacts of the Kaikoura earthquake

Background

The devastating 14 November 2016 earthquake, while centred in the upper South Island also impacted on the Wellington region and particularly certain buildings in Wellington City including the Council’s own Civic Administration Building (CAB) in Civic Square.

Assets affected

Buildings

CAB suffered significant damage during the 14 November 2016 earthquake. The building was immediately closed and has remained closed since the event. This building is subject to an insurance claim, which covers both the repair costs and the relocation costs.

Two other buildings: 221 Wakefield Street and St John's Hall in Karori; both of which were already scheduled for demolition, were also damaged during the earthquake and have since been demolished.

Some other buildings suffered minor cosmetic damage and have since either been repaired or are scheduled for repair.

Other assets

All plant and equipment assets within CAB were recovered with no significant write offs.

Some other Council assets suffered minor cosmetic damage and have since either been repaired or are scheduled for repair.

Estimated costs to repair damage and impairment of CAB

In the 2016/17 year a total of $4.143m was paid out of the Council’s insurance reserve fund related to earthquake repairs and relocation costs. This includes some items related to CAB which will be paid out of the fund until the excess level for the claim has been reached.

As a result of the damage suffered to CAB, the building was assessed for impairment as at 30 June 2017 and it was concluded that there should be an impairment loss recognised of $11.446m. CAB is not a revalued asset therefore the loss has been included within Expenditure on operating activities in the Statement of Comprehensive Revenue and Expense.

The impairment of CAB has been calculated by comparing the carrying value of CAB to its recoverable amount. The recoverable amount is based on the building’s value in use using the restoration cost approach which uses an estimate of the expected cost of repairs.

Due to the uncertainty around repair costs estimates the Council has performed the following sensitivity analysis to the estimated building impairment.

Council and Group 2017
$000
  +10% -10%
  Effect on Surplus or Deficit
Impairment - repair cost estimate  (1,111)  3,257
Contingent Asset – Insurance recoveries

At as 30 June 2017 the Council has a contingent asset for the insurance recoveries. The insurance claim related to CAB, which covers both the repair costs and the relocation costs, is still in progress. The Council’s preliminary assessment of earthquake repairs is in the region of $33.0 million. The indemnity value of CAB under Council’s insurance value is $48.7 million. The insurance policy has a deductible of $5.0 million. While an estimate of the repair and relocation costs has been obtained by the Council and provided to the insurer there are still a significant number of uncertainties in the numbers and it is still subject to discussion and agreement with the insurer. This means that the amount that the Council will receive cannot be reliably measured.

Note 39: 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 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 the 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 the Council provides (eg the sale of goods at market rates) are defined as being exchange transactions. Only a few services provided by the 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 the 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 the 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.

Changes to PBE accounting standards

There have been no new accounting standards issued with mandatory effect for the accounting period. However a number of amendments to standards have been made with effect for periods beginning after 1 January 2016.

PBE IPSAS 1: Presentation of financial statements;

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

Standards, amendments and interpretations issued but not yet effective and not early adopted which are relevant to the Group are:

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: