Financial Statements

Wellington City Council and Group​
Consolidated Financial Statements
For the year ended 30 June 2018

      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 160
     
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 168
8 Depreciation and amortisation XX
9 Share of associates’ and jointly controlled entity’s surplus or deficit 171
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 177
14 Other financial assets 179
15 Non-current assets classified as held for sale XX
16 Intangibles XX
17 Investment properties 177
18 Property, plant and equipment XX
19 Investment in controlled entities 195
20 Investment in associates and jointly controlled entity 196
21 Exchange transaction, transfers and taxes payable XX
22 Revenue in advance XX
23 Borrowings 201
24 Employee benefits and liabilities provision 203
25 Provisions for other liabilities 205
26 Deferred tax XX
       
      Statement of Changes in Equity 210
  – Major budget variations XX
     
27 Revaluations XX
28 Hedging reserve 214
29 Fair value through other comprehensive revenue and expense reserve XX
30 Restricted funds XX
       
       
      Statement of Cash Flows XX
  – Major budget variations XX
31 Reconciliation of net surplus to net cash flows from operating activities XX
     
  Other disclosures  
32 Financial instruments 221
33 Commitments XX
34 Contingencies 231
35 Jointly controlled assets 233
36 Related party disclosures 234
37 Remuneration and staffing 238
38 Financial impacts of the Kaikoura earthquake 242
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 includes the results and operations of Wellington City Council and the Council’s interests in the joint ventures as disclosed in Note 35: Jointly controlled assets (page 233).

The reported Group figures includes the Council (as defined above), its controlled entities as disclosed in Note 19 (page 195) and the Council’s equity accounted interest in the associates and a jointly controlled entity as disclosed in Note 20 (page 196). 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 26 September 2018.

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 2018 fairly reflect 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
26 September 2018 26 September 2018 26 September 2018

Council and Group Structure

Wellington City Council Reporting Entity (Council)

Diagram: Council Structure

Wellington City Council Group Reporting Entity (Group)

Diagram: 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 195 to 196) for more information

Basis of Consolidation

Joint ventures

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

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

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

Controlled entities

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

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

Associates

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

Council Controlled Organisations

The Council has established several Council Controlled Organisations (CCO’s) and Council Controlled Trading Organisations (CCTO’s) to help it achieve its goals for Wellington. These organisations were set up to independently manage Council facilities, or deliver specific services and developments on behalf of Wellington residents. A report on these organisations is found on page 144. 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 2018Top

    Council Group
  Note Actual
2018
$000
Budget
2018
$000
Actual
2017
$000
Actual
2018
$000
Actual
2017
$000
Revenue            
Rates 1 296,409 296,806 286,015 296,409 286,015
Revenue from operating activities            
Development contributions 2 3,305 2,000 3,025 3,305 3,025
Grants, subsidies and reimbursements 2 50,643 55,913 33,881 64,501 46,538
Other operating activities 2 142,450 130,702 144,215 162,266 162,461
Investments revenue 3 24,362 22,454 24,585 11,752 12,648
Vested assets and other revenue 4 9,740 1,050 8,565 9,741 12,652
Fair value gains 5 6,941 3,058 23,500 6,947 23,404
Finance revenue   1,603 704 2,367 1,864 2,601
Total revenue   535,453 512,687 526,153 556,785 549,344
             
Expense            
Finance expense 6 (24,082) (25,420) (23,960) (24,094) (23,970)
Expenditure on operating activities 7 (371,749) (348,489) (368,625) (402,525) (398,986)
Depreciation and amortisation expense 8 (107,415) (106,417) (101,889) (109,048) (103,653)
Total expense   (503,246) (480,326) (494,474) (535,667) (526,609)
             
Share of equity accounted surplus/(deficit) from associates and jointly controlled entity 9 - - - 16,243 13,313
             
Net surplus before taxation   32,207 32,361 31,679 37,361 36,048
             
Income tax credit/(expense) 10 - - - (429) 102
             
NET SURPLUS for the year   32,207 32,361 31,679 36,932 36,150
             
Net surplus attributable to:            
Wellington City Council and Group   32,207 32,361 31,679 36,648 35,866
Non-controlling interest   - - - 284 284
    32,207 32,361 31,679 36,932 36,150

The notes on pages 160 to 246 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 2018
Top

    Council Group
  Refer Actual
2018
$000
Budget
2018
$000
Actual
2017
$000
Actual
2018
$000
Actual
2017
$000
Net surplus for the year   32,207 32,361 31,679 36,932 36,150
             
Other comprehensive revenue and expense 1            
             
Items that will be reclassified to surplus/(deficit)            
Cash flow hedges:            
Fair value movement - net SCIE 2 (4,079) - 17,447 (4,380) 17,447
Fair value through other comprehensive revenue and expense            
Fair value movement - net SCIE 856 - 1,240 1,615 1,195
             
Items that will not be reclassified to surplus/(deficit)            
Non-contolling interest:            
Movement in non-controlling interest   - - - - -
Revaluations:            
Fair value movement - property, plant and equipment - net SCIE 180,413 122,876 295,254 180,413 295,254
Share of other comprehensive revenue and expense of associates and jointly controlled entity:            
Fair value movement - property, plant and equipment - net SCIE - - - 20,588 24,165
             
Total other comprehensive revenue and expense   177,190 122,876 313,941 198,236 338,061
             
TOTAL COMPREHENSIVE REVENUE and EXPENSE for the year   209,397 155,237 345,620 235,168 374,211
             
Total comprehensive revenue and expense attributable to:            
Wellington City Council and Group   209,397 155,237 345,620 234,884 373,927
Non-controlling interest   - - - 284 284
    209,397 155,237 345,620 235,168 374,211
  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 210

The notes on pages 160 to 246 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 $22.766m higher than budgeted primarily due to:

Expenses were $22.920m higher than budgeted primarily due to:

Net finance expense was $2.237m lower than budgeted principally reflecting the lower than planned capital expenditure, which is debt funded, resulting in lower interest charges.

Note 1: Rates revenue

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
General rates 169,409 160,558 169,409 160,558
Targeted rates 111,151 109,788 111,151 109,788
Metered water supply 14,782 14,519 14,782 14,519
Penalties and adjustments 1,067 1,150 1,067 1,150
         
TOTAL RATES REVENUE 296,409 286,015 296,409 286,015

The total amount of rates charged on Council owned properties that have not been eliminated from revenue and expenditure is $13.915m (2017: $13.258m). For the Group, rates of $13.981m (2017: $13.298m) have not been eliminated.

The revenue from rates for Wellington City Council was billed on the following rating information held as at 30 June 2017.

The number of rating units: 78,192 (30 June 2016: 77,802).

     
  2018
$000
2017
$000
Total capital value of rating units 55,577,812 55,116,216
Total land value of rating units 23,373,780 23,300,843
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 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 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 targeted rate. The Council committed itself at the start of the year to certain remissions, which for the reporting period ended 30 June 2018 totalled $0.888m (2017: $0.751m).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Development contributions 3,305 3,025 3,305 3,025
         
Grants, subsidies and reimbursements        
Operating 7,614 6,606 21,253 18,961
Capital 43,029 27,275 43,248 27,577
Total grants, subsidies and reimbursements 50,643 33,881 64,501 46,538
         
Other operating activities        
Fines and penalties 6,176 7,196 6,176 7,196
Rendering of services 129,686 130,569 144,969 144,658
Sale of goods 6,588 6,450 11,121 10,607
Total other operating activities 142,450 144,215 162,266 162,461
         
TOTAL REVENUE FROM OPERATING ACTIVITIES 196,398 181,121 230,072 212,024

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

For the Group, the additional principal subsidy was $4.194m (2017: $3.616m) from Greater Wellington Regional Council to Wellington Cable Car Limited for the maintenance of the overhead wire trolley system up to 31 October 2017 when the power was switched off and decommissioning of the system commenced on 1 November 2017. The higher subsidy compared to the previous period reflects decommissioning costs reimbursed.

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

Relevant significant accounting policies

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

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

See Note 13: Receivables and recoverables (page 177), 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 and library overdue book fines) is recognised when infringement notices are issued or when the fines/penalties are otherwise imposed. In particular the fair value of parking related fines is determined based on the probability of collecting fines considering previous collection history and a discount for the time value of money.

Rendering of services

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

Sale of goods

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

Note 3: Investments revenue

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Dividend from associates 12,610 11,937 - -
Dividend from equity investments 104 104 104 104
Investment property revenues 11,648 12,544 11,648 12,544
         
TOTAL INVESTMENTS REVENUE 24,362 24,585 11,752 12,648

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

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

Graph: Dividends – Wellington International Airport Limited

For further information refer to Note 20: Investment in associates and jointly controlled entity (page 196).

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

For further information refer to Note 17: Investment properties (page 177).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Vested assets 8,087 6,250 8,087 6,250
Gain on business combination - - - 4,072
Other revenue 1,653 2,315 1,654 2,330
         
TOTAL VESTED ASSETS AND OTHER REVENUE 9,740 8,565 9,741 12,652

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. Although vested assets are non-cash in nature and represent a future obligation to the Council, as the Council will have the on-going costs associated with maintaining the assets, they are recognised as revenue in accordance with the applicable accounting standard.

The values of principal vested assets received were:

Other revenue is principally Fuel Tax – $1.132m (2017: $1.120m)

For the group, the $4.072m gain on business combination in 2017 related to the Council acquiring control of the Karori Sanctuary Trust. For more information refer to Note 19 – Investment in Controlled entities (page 195).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Investment property revaluation 6,937 18,222 6,937 18,222
Amortisation of loans to related parties 4 3 10 8
Fair value adjustment on loans to related parties - 5,275 - 5,174
         
TOTAL FAIR VALUE GAINS 6,941 23,500 6,947 23,404

Investment properties, which are revalued annually, are held primarily to earn lease 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 177).

The $5.275m adjustment to the related party loan in 2017 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 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 179).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Interest on borrowings 23,062 22,956 23,074 22,966
Interest on finance leases - 2 - 2
Re-discounting of interest on provisions 1,020 1,002 1,020 1,002
         
TOTAL FINANCE EXPENSE 24,082 23,960 24,094 23,970
         
Less        
Finance revenue – interest earned 1,603 2,367 1,864 2,601
         
NET FINANCE COST 22,479 21,593 22,230 21,369
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 203) and Note 25: Provision for other liabilities (page 205).

Interest earned

Interest earned is recognised using the effective interest rate method.

Note 7: Expenditure on operating activities

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Governance and employment        
Elected member remuneration 1,559 1,550 1,559 1,550
Independent directors/trustees fees for controlled entities - - 437 489
Employee benefits expense:        
– Remuneration 86,778 84,822 113,945 110,458
– Superannuation contributions (including Kiwisaver) 2,505 2,336 3,059 2,884
Other personnel costs 4,025 3,666 4,981 4,140
         
Impairments        
Bad debts written off not previously provided for 175 123 175 123
Increase in provision for impairment of receivables and recoverables 167 896 167 896
Impairment loss from property, plant and equipment 4 11,446 4 11,446
Impairment loss on shares - - 153 27
         
Insurance        
Insurance premiums 12,181 9,671 12,609 10,149
Insurance reserve costs – net 2,750 6,910 2,750 6,910
         
General        
Administration Costs 6,477 6,467 20,600 18,334
Auditor's remuneration 454 308 626 555
Contractors 5,267 4,846 8,209 7,629
Contracts, services and materials 134,741 131,212 139,289 135,541
Grants – general 12,161 22,363 11,881 19,098
Grants to controlled entities 24,907 21,032 - -
Information and communication technology 16,342 12,119 17,326 13,147
Loss on disposal of intangibles 35 - 35 -
Loss on disposal of property, plant and equipment 1,573 542 1,576 886
Operating lease – minimum lease payments 2,043 1,737 3,208 4,734
Other general costs 425 620 1,149 2,959
Professional costs 16,250 14,406 16,855 16,216
Reassessment of weathertight provision 12,523 4,429 12,523 4,429
Utility costs 28,407 27,124 29,409 26,386
         
TOTAL EXPENDITURE ON OPERATING ACTIVITIES 371,749 368,625 402,525 398,986

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.

During the year $0.907m (2017: $0.943m) of termination benefits were incurred by the Council and $1.077m (2017: $1.278m) by the Group. Termination benefits include all payments relating to the end of employment other than unpaid salary and leave entitlements. Termination benefits include both contractual (eg redundancy, in lieu of notice) and non-contractual (eg severance) payments.

For further information refer to Note 37: Remuneration and staffing levels (page 238)

Impairments

The $11.446m 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.

General

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Auditor's remuneration        
Audit services – Audit New Zealand – Financial Statements 300 297 406 471
Audit services – Audit New Zealand – Long-Term Plan 143 - 143 -
Audit services – Audit New Zealand – other 11 11 11 11
Audit services – Other Auditors - - 66 73
  454 308 626 555

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.

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 (2017: $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 234).

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

The reassessment of provisions primarily relates to the Weathertight homes provision. Refer to Note 25: Provisions for other liabilities (page 205) 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 $13.872m (2017: $13.250m) 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 which have finite lives are stated at cost less accumulated amortisation and are amortised on a straight-line basis over their useful lives.

Note 8: Depreciation and amortisation

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Depreciation        
Buildings 21,490 21,784 21,861 22,199
Civic Centre complex 2,675 2,592 2,675 2,592
Restricted buildings 1,621 1,577 1,621 1,577
Drainage, waste and water infrastructure 35,309 32,386 35,309 32,386
Landfill post closure 283 132 283 132
Library collections 1,767 2,352 1,767 2,352
Plant and equipment 11,178 11,106 12,352 12,387
Roading infrastructure 28,786 25,039 28,786 25,039
         
Total depreciation 103,109 96,968 104,654 98,664
         
Amortisation        
Computer software 4,306 4,921 4,394 4,989
         
Total amortisation 4,306 4,921 4,394 4,989
         
TOTAL DEPRECIATION AND AMORTISATION 107,415 101,889 109,048 103,653

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 of the major classes of property, plant and equipment are as follows:

  2018
Asset Category Useful Life (years)
Land unlimited
Buildings 2 - 150
Civic Centre Complex 2 - 67
Plant and equipment 1 - 296
Library collection 4 - 11
Restricted assets (excluding buildings) unlimited
Infrastructure assets:  
Land (including land under roads) unlimited
Roading 2 - 266
Drainage, waste and water 7 - 402

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 of these assets are as follows:

  2018
Asset Category Useful Life (years)
Computer software 2 - 11

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
  2018
$000
2017
$000
Associates    
Chaffers Marina Holdings Limited (17) (31)
Wellington International Airport Limited 16,270 13,432
     
Jointly controlled entity    
Wellington Water Limited (10) (88)
     
TOTAL SHARE OF ASSOCIATES' AND JOINTLY CONTROLLED ENTITY'S SURPLUS OR (DEFICIT) 16,243 13,313

Further information on the cost and value of the above investments is found in Note 20: Investments in Associates and Jointly Controlled Entity (page 196).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Current tax expense        
Current year - - 144 293
Prior period adjustment - - 183 1
         
Total current tax expense - - 327 294
         
Deferred tax expense        
Origination and reversal of temporary differences (6) (73) - -
Change in unrecognised temporary differences - - 102 (396)
Recognition of previously unrecognised tax losses 6 73 - -
         
Total deferred tax expense - - 102 (396)
         
TOTAL INCOME TAX EXPENSE / (CREDIT) - - 429 (102)
Reconciliation of tax on the surplus and tax expense Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Surplus for the period before taxation 32,207 31,679 37,361 36,048
         
Prima facie income tax based on domestic tax rate – 28% 9,018 8,870 10,461 10,093
Effect of non-deductible expenses and tax exempt income (9,024) (8,897) (11,491) (10,321)
Effect of tax losses utilised - 73 - -
Current years loss for which no deferred tax asset was recognised 6 27 6 27
Recognition of prior year loss - (73) - (134)
Previously unreognised tax losses now utilised - - 22 -
Change in unrecognised temporary differences - - 42 208
Prior period adjustment - - 88 (407)
Share of income tax of equity accounted associates - - 1,206 385
Under / (over) provision of income tax in previous period - - 95 47
         
TOTAL INCOME TAX EXPENSE / (CREDIT) - - 429 (102)
Imputation credits Group
  2018
$000
2017
$000
Imputation credits available in subsequent periods 154 99
Relevant significant accounting policies

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

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

Statement of Financial Position
As at 30 June 2018Top

    Council Group
  Note Actual
2018
$000
Budget
2018
$000
Actual
2017
$000
Actual
2018
$000
Actual
2017
$000
ASSETS            
Current assets            
Cash and cash equivalents 11 95,996 1,144 76,907 106,856 85,366
Receivables and recoverables 13 55,815 48,542 45,179 58,049 46,515
Other financial assets 14 10,515 - 263 11,948 304
Prepayments   15,221 13,414 14,012 15,518 14,303
Inventories   1,285 932 1,149 1,601 1,503
Non-current assets classified as held for sale 15 - - - - -
Total current assets   178,832 64,032 137,510 193,972 147,991
             
Non-current assets            
Derivative financial assets 12 381 - 1,283 381 1,283
Receivables and recoverables 13 - - 4,185 - 4,185
Other financial assets 14 12,201 17,016 9,996 14,231 11,337
Intangibles 16 25,678 28,306 26,528 25,800 26,613
Investment properties 17 236,905 221,512 230,194 236,905 230,194
Property, plant and equipment 18 7,226,974 7,004,869 6,972,168 7,242,418 6,988,405
Investment in controlled entities 19 5,071 5,071 5,071 - -
Investment in associates and jointly controlled entity 20 19,465 19,465 19,465 187,880 163,960
Total non-current assets   7,526,675 7,296,239 7,268,890 7,707,615 7,425,977
             
TOTAL ASSETS   7,705,507 7,360,271 7,406,400 7,901,587 7,573,968
             
LIABILITIES            
Current liabilities            
Derivative financial liabilities 12 659 - 975 659 975
Exchange transactions and transfers payable 21 60,686 62,060 58,155 64,620 59,639
Taxes payable 21 6,113 - 3,498 6,375 3,627
Revenue in advance 22 16,184 13,132 28,922 18,511 30,717
Borrowings 23 131,058 269,984 100,096 131,058 100,196
Employee benefit liabilities and provisions 24 7,731 7,807 7,811 9,559 9,808
Provision for other liabilities 25 15,743 12,028 13,584 15,743 13,584
Total current liabilities   238,174 365,011 213,041 246,525 218,546
             
Non-current liabilities            
Derivative financial liabilities 12 25,083 - 21,591 25,083 21,591
Exchange transactions and transfers payable 21 630 630 630 630 630
Borrowings 23 451,086 258,167 395,724 451,086 395,792
Employee benefit liabilities and provisions 24 772 1,467 889 826 924
Provision for other liabilities 25 50,244 28,110 44,404 50,244 44,404
Deferred tax 26 - - - 882 938
Total non-current liabilities   527,815 288,374 463,238 528,751 464,279
             
TOTAL LIABILITIES   765,989 653,385 676,279 775,276 682,825
             
EQUITY            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,819,629 3,808,695 3,793,827 3,818,478 3,788,286
Revaluation reserves 27 1,857,464 1,611,454 1,677,312 2,016,078 1,815,338
Hedging reserve 28 (25,362) - (21,283) (25,663) (21,283)
Fair value through other comprehensive revenue and expense reserve 29 3,744 1,648 2,888 4,836 3,221
Non-controlling interest   - - - 284 284
Restricted funds 30 14,909 15,955 8,243 19,136 12,135
TOTAL EQUITY   6,939,518 6,706,886 6,730,121 7,126,311 6,891,143
             
TOTAL EQUITY AND LIABILITIES   7,705,507 7,360,271 7,406,400 7,901,587 7,573,968

The notes on pages 160 to 246 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 $114.800m higher than budgeted primarily due to:

Non-current assets are $230.436m higher than budgeted primarily due to:

Total liabilities are $112.604m higher than budget primarily due to:

Note 11: Cash and cash equivalents

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Cash at bank 1,976 4,886 11,288 10,978
Cash on hand 20 21 39 39
Short term bank deposits up to 3 months 94,000 72,000 95,529 74,349
         
TOTAL CASH AND CASH EQUIVALENTS 95,996 76,907 106,856 85,366

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

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

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

Note 12: Derivative financial instruments

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Assets        
Non-current assets        
Interest rate swaps - cash flow hedges 380 1,283 380 1,283
Interest rate cap 1 - 1 -
         
Total non-current assets 381 1,283 381 1,283
         
TOTAL DERIVATIVE FINANCIAL INSTRUMENT ASSETS 381 1,283 381 1,283
         
Liabilities        
Current liabilities        
Interest rate swaps - cash flow hedges 659 975 659 975
         
Total current liabilities 659 975 659 975
         
Non-current liabilities        
Interest rate swaps - cash flow hedges 25,083 21,591 25,083 21,591
         
Total non-current liabilities 25,083 21,591 25,083 21,591
         
TOTAL DERIVATIVE FINANCIAL INSTRUMENT LIABILITIES 25,742 22,566 25,742 22,566

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 214) and Note 32: Financial instruments (page 221).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Current 55,815 45,179 58,049 46,515
Non-Current - 4,185 - 4,185
         
TOTAL RECEIVABLES AND RECOVERABLES – NET 55,815 49,364 58,049 50,700
Receivables and recoverables Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Trade receivables and recoverables – debtors – net 16,753 18,119 18,300 17,394
Trade recoverables – fines – net 3,630 3,439 3,630 3,439
Accrued revenue 12,287 8,058 12,352 8,094
Sundry receivables 6,365 7,617 6,987 9,779
GST recoverable 6,314 2,803 6,314 2,666
Rates recoverable 10,466 9,328 10,466 9,328
         
TOTAL RECEIVABLES AND RECOVERABLES – NET 55,815 49,364 58,049 50,700

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
  2018
$000
2017
$000
2018
$000
2017
$000
Receivables and recoverables from related parties        
– Controlled entities 210 1,294 - -
– Associates and jointly controlled entity 308 187 308 187
Total receivables and recoverables from related parties 518 1,481 308 187

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
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance 6,960 6,183 6,960 6,183
New provisions made 165 896 165 896
Release of unused provision (142) (91) (142) (91)
Amount of provision utilised (31) (28) (31) (28)
         
Provision for impairment of total receivables and recoverables – closing balance 6,952 6,960 6,952 6,960

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

Council 2018 2017
  Gross
$000
Impaired
$000
Net
$000
Gross
$000
Impaired
$000
Net
$000
Trade and other receivables and recoverables            
Not past due 38,414 (183) 38,231 29,904 (179) 29,725
Past due 0–3 months 6,857 (55) 6,802 7,947 (57) 7,890
Past due 3–6 months 3,654 (193) 3,461 4,209 (227) 3,982
Past due more than 6 months 13,842 (6,521) 7,321 14,264 (6,497) 7,767
             
TOTAL RECEIVABLES AND RECOVERABLES 62,767 (6,952) 55,815 56,324 (6,960) 49,364
Group 2018 2017
  Gross
$000
Impaired
$000
Net
$000
Gross
$000
Impaired
$000
Net
$000
Trade and other receivables and recoverables            
Not past due 40,225 (183) 40,042 30,852 (179) 30,673
Past due 0-3 months 7,271 (55) 7,216 8,224 (57) 8,167
Past due 3-6 months 3,655 (193) 3,462 4,240 (227) 4,013
Past due more than 6 months 13,850 (6,521) 7,329 14,344 (6,497) 7,847
             
TOTAL RECEIVABLES AND RECOVERABLES 65,001 (6,952) 58,049 57,660 (6,960) 50,700

The net receivables and recoverables past due for more than six months primarily relates to fines. Due to their nature, the collection pattern for fines is longer than for 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
  2018
$000
2017
$000
2018
$000
2017
$000
Represented by:        
Current 10,515 263 11,948 304
Non-current 12,201 9,996 14,231 11,337
TOTAL OTHER FINANCIAL ASSETS 22,716 10,259 26,179 11,641
         
Comprised of:        
Financial assets at fair value through other comprehensive revenue and expense        
Equity investments:        
– Civic Financial Services Ltd 798 806 798 806
– NZ Local Government Funding Agency (LGFA) 5,339 4,475 5,339 4,475
– Creative HQ incubator/accelerator shareholdings - - 2,030 1,341
         
Loans and deposits        
Bank deposits – term greater than 3 months 10,000 - 11,401 -
LGFA – borrower notes 6,304 4,688 6,304 4,688
Loans to related parties – other organisations 31 27 31 27
Loans to external organisations 244 263 276 304
         
TOTAL OTHER FINANCIAL ASSETS 22,716 10,259 26,179 11,641
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% (2017: 4.78%) shareholding in this entity and has 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
  2018
$000
2017
$000
2018
$000
2017
$000
Loans to related parties – other organisations        
         
Wellington Regional Stadium Trust        
(nominal value $15,394,893)        
Opening balance 27 24 27 24
Amortisation of fair value adjustment 4 3 4 3
Closing balance at fair value 31 27 31 27
         
Karori Sanctuary Trust        
(nominal value was $10,346,689 – repaid 2016/17)        
Opening balance - 5,072 - 5,072
Movement in fair value - 5,275 - 5,275
Loan repayment received - (10,347) - (10,347)
Closing balance at fair value - - - -
         
Loans to other external organisations        
Opening balance 263 315 304 366
Loan repayments received (19) (13) (34) (28)
Loan forgiveness - (39) - (39)
Amortisation of fair value adjustment - - 6 5
         
Closing balance at fair value 244 263 276 304
         
TOTAL LOANS 275 290 307 331

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

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 in 2017 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 external organisations

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

Further information on the related parties is disclosed in Note 36: Related party disclosures (page 234).

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

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance - 1,504 - 1,504
Disposals - - - -
Transfers to property, plant and equipment - (1,504) - (1,504)
         
TOTAL NON-CURRENT ASSETS CLASSFIED AS HELD FOR SALE - - - -
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
  2018
$000
2017
$000
2018
$000
2017
$000
Computer software        
Cost – opening balance 73,340 66,989 74,210 67,730
Accumulated amortisation (49,435) (44,304) (50,220) (44,967)
Computer software opening balance 23,905 22,685 23,990 22,763
Acquired by direct purchase 1,545 6,281 1,670 6,357
Amortisation (4,306) (4,921) (4,394) (4,990)
Net disposals (60) - (60) -
Transfer to property, plant and equipment - (140) - (140)
Transfer between classes 7 - 7 -
Total computer software – closing balance 21,091 23,905 21,213 23,990
         
Cost 59,625 73,340 60,808 74,210
Accumulated amortisation (38,534) (49,435) (39,595) (50,220)
         
Total computer software – closing balance 21,091 23,905 21,213 23,990
         
Work in progress        
Computer software 1,723 640 1,723 640
         
Total work in progress 1,723 640 1,723 640
         
Carbon credits        
Cost – Opening Balance 1,983 1,791 1,983 1,791
Additions 1,231 369 1,231 369
Net disposals (350) (177) (350) (177)
         
Total Carbon credits – closing balance 2,864 1,983 2,864 1,983
         
TOTAL INTANGIBLES 25,678 26,528 25,800 26,613

Disposals and transfers are reported net of accumulated amortisation.

Carbon credits

As part of the Emissions Trading Scheme (ETS) the Council receives 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 2018 the Council received 1,044 credits (2017: 1,094).

The Council purchased 62,507 credits (2017: 21,473) in the market to cover the expected liabilities associated with landfill operations. During the year, 32,715 credits (2017: 32,425) were surrendered to meet the Council’s ETS obligations for the 2017 calendar year.

A further 3,900 credits were purchased to offset sales made to Air New Zealand for them to offer as credits to offset air miles.

At 30 June 2018 the total number of credits held is 382,017 (2017: 347,731).

At 30 June 2018 the liability relating to landfill carbon emissions is $0.359m (2017: $0.173m).

More information on carbon credits can be found in the Statements of Service Provision under activity 2.2: Waste reduction and energy conservation (page 56).

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 of these assets are as follows:

Asset Category 2018
  Useful Life (years)
Computer software 2 - 11

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
  2018
$000
2017
$000
2018
$000
2017
$000
Ground leases, other land and buildings        
Opening balance 229,306 211,237 229,306 211,237
Additions by acquisition 201 153 201 153
Adjustment - (269) - (269)
Disposals - - - -
Fair value revaluation movements taken to surplus/(deficit) 6,937 18,222 6,937 18,222
Transfer to property, plant and equipment 41 (37) 41 (37)
         
Total ground leases, other land and buildings 236,485 229,306 236,485 229,306
         
Work in progress        
Other land and buidings 420 888 420 888
         
Total work in progress 420 888 420 888
         
TOTAL INVESTMENT PROPERTIES 236,905 230,194 236,905 230,194

Wellington City Council’s investment properties including the waterfront investment properties were valued as at 30 June 2018 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 $192.693m (2017: $185.208m) and land and buildings (including work in progress) of $44.212m (2017: $44.986m) held for investment purposes.

Investment properties are properties which are held primarily to earn lease 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 leases are charged on a commercial market basis.

Investment properties exclude those properties held for strategic purposes or to provide a social service. This includes properties which generate cash inflows as the lease 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 lease 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 lease payments.

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

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

Note 18: Property, plant and equipment

Summary Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Property, plant and equipment – Opening balance 6,972,168 6,645,975 6,988,405 6,659,487
Additions 87,742 83,497 88,270 87,774
Disposals (876) (1,094) (877) (2,151)
Depreciation expense (103,109) (96,968) (104,654) (98,663)
Impairment losses (4) (11,446) (4) (11,446)
Revaluation adjustment (413) - (413) -
Revaluation movement 181,386 295,254 181,386 295,254
Transfer between asset classes (48) 179 (48) 178
Transfer from non-current assets held for sale - 1,504 - 1,504
Movement in work in progress 90,128 55,267 90,353 52,819
Acquistion of controlled entity - - - 3,649
         
TOTAL PROPERTY, PLANT AND EQUIPMENT 7,226,974 6,972,168 7,242,418 6,988,405
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 three-year cycle by the Council’s library staff in accordance with guidelines outlined in Valuation Guidance for Cultural and Heritage Assets, published by the Treasury Accounting Team, November 2002.

Operational Land & Buildings

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

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

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

Restricted assets

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

Infrastructure assets

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

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

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

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

Other Assets

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

Impairment

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

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

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

Disposal

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

Work in progress

Work in progress represents the cost of capital expenditure projects that are not financially complete. The cost of projects within work in progress is transferred to the relevant asset class when the project is completed and is then subject to depreciation.

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

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Operational assets        
         
Land        
Land – at cost – opening balance 21,862 21,741 21,862 21,741
Land – at valuation – opening balance 222,243 222,907 222,243 222,907
Total land – opening balance 244,105 244,648 244,105 244,648
Additions 1,297 120 1,297 120
Revaluation movement 49,035 - 49,035 -
Revaluation adjustment (563) - (563) -
Transfer between asset classes (460) (663) (460) (663)
Total land – closing balance 293,414 244,105 293,414 244,105
         
Land – at cost – closing balance - 21,862 - 21,862
Land – at valuation – closing balance 293,414 222,243 293,414 222,243
Total land – closing balance 293,414 244,105 293,414 244,105
         
Buildings        
Buildings – at cost – opening balance 46,914 25,906 55,457 25,906
Buildings – at valuation – opening 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 – opening balance 564,756 562,509 569,252 562,509
Additions 15,663 18,613 15,663 19,091
Depreciation expense (21,490) (21,784) (21,861) (22,199)
Disposals (390) (419) (390) (419)
Revaluation adjustment 132,351 - 132,351 -
Transfer between asset classes 55,733 5,837 55,733 8,770
Acquisition of controlled entity - - - 1,500
Total buildings – closing balance 746,623 564,756 750,748 569,252
         
Buildings – at cost – closing balance - 46,914 - 55,457
Buildings – at valuation – closing balance 746,623 561,635 754,983 561,635
Total cost/valuation 746,623 608,549 754,983 617,092
Accumulated depreciation - (43,793) (4,235) (47,840)
Total buildings – closing balance 746,623 564,756 750,748 569,252
         
Landfill post closure costs 1        
Landfill post closure – at cost – opening balance 4,561 3,265 4,561 3,265
Accumulated depreciation (2,834) (2,333) (2,834) (2,333)
Total landfill post closure costs – opening balance 1,727 932 1,727 932
Depreciation expense (283) (132) (283) (132)
Transfer between asset classes (152) - (152) -
Movement in post closure costs (115) 927 (115) 927
Total landfill post closure costs – closing balance 1,177 1,727 1,177 1,727
         
Landfill post closure – at cost – closing balance 4,174 4,561 4,174 4,561
Accumulated depreciation (2,997) (2,834) (2,997) (2,834)
Total landfill post closure costs – closing balance 1,177 1,727 1,177 1,727
  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
  2018
$000
2017
$000
2018
$000
2017
$000
Civic Centre complex        
Civic Centre complex – at cost – opening balance 161,576 173,965 161,576 173,965
Accumulated depreciation (63,902) (61,443) (63,902) (61,443)
Total Civic Centre complex – opening balance 97,674 112,522 97,674 112,522
Additions 2,327 767 2,327 767
Depreciation expense (2,675) (2,592) (2,675) (2,592)
Disposals (13) - (13) -
Impairment - (11,446) - (11,446)
Transfer between asset classes (4) (2,631) (4) (2,631)
Transfer from non-current assets held for sale - 1,054 - 1,054
Total Civic Centre complex – closing balance 97,309 97,674 97,309 97,674
         
Civic Centre complex – at cost – closing balance 163,833 161,576 163,833 161,576
Accumulated depreciation (66,524) (63,902) (66,524) (63,902)
Total Civic Centre complex – closing balance 97,309 97,674 97,309 97,674
         
Plant and equipment        
Plant and equipment – at cost – opening balance 239,658 216,102 257,450 231,319
Accumulated depreciation (109,549) (100,714) (120,540) (109,808)
Total plant and equipment – opening balance 130,109 115,388 136,910 121,511
Additions 13,011 7,535 13,539 11,334
Depreciation expense (11,178) (11,106) (12,352) (12,386)
Disposals (161) (29) (162) (1,086)
Impairment (4) - (4) -
Transfer between asset classes (58,059) 18,321 (58,059) 15,388
Acquisition of controlled entity - - - 2,149
Total plant and equipment –​ closing balance 73,718 130,109 79,872 136,910
         
Plant and equipment – at cost 175,029 239,658 192,696 257,450
Accumulated depreciation (101,311) (109,549) (112,824) (120,540)
Total plant and equipment – closing balance 73,718 130,109 79,872 136,910
         
Library collections        
Library collections – at cost – opening balance - 3,545 - 3,545
Library collections – at valuation – opening 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 – opening balance 14,841 14,107 14,841 14,107
Additions 2,629 1,709 2,629 1,709
Depreciation expense (1,767) (2,352) (1,767) (2,352)
Revaluation movement - 1,377 - 1,377
Total library collections – closing balance 15,703 14,841 15,703 14,841
         
Library collections – at cost – closing balance 2,629 - 2,629 -
Library collections – at valuation – closing balance 14,841 14,841 14,841 14,841
Total cost/valuation 17,470 14,841 17,470 14,841
Accumulated depreciation (1,767) - (1,767) -
Total library collections – closing balance 15,703 14,841 15,703 14,841
         
Total operational assets 1,227,944 1,053,212 1,238,223 1,064,509

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Infrastructure assets        
         
Drainage, waste and water        
Drainage, waste and water – at cost – opening balance - 63,847 - 63,847
Drainage, waste and water – at valuation – opening balance 1,466,792 1,352,086 1,466,792 1,352,086
Total cost/valuation 1,466,792 1,415,933 1,466,792 1,415,933
Accumulated depreciation - (64,014) - (64,014)
Total drainage, water and waste – opening balance 1,466,792 1,351,919 1,466,792 1,351,919
Additions 16,748 22,995 16,748 22,995
Depreciation expense (35,309) (32,386) (35,309) (32,386)
Disposals (6) - (6) -
Revaluation movement - 146,458 - 146,458
Revaluation adjustment (457) - (457) -
Transfer between asset classes 2,636 (22,195) 2,636 (22,195)
Total drainage, water and waste – closing balance 1,450,404 1,466,792 1,450,404 1,466,792
         
Drainage, waste and water – at cost – closing balance 16,748 - 16,748 -
Drainage, waste and water – at valuation – closing balance 2,973,091 1,466,792 2,973,091 1,466,792
Total cost/valuation 2,989,839 1,466,792 2,989,839 1,466,792
Accumulated depreciation (1,539,435) - (1,539,435) -
Total drainage, water and waste – closing balance 1,450,404 1,466,792 1,450,404 1,466,792
         
Roading        
Roading – at cost – opening balance - 88,659 - 88,659
Roading – at valuation – opening 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 – opening balance 1,014,334 868,101 1,016,934 870,701
Additions 33,366 26,867 33,366 26,867
Depreciation expense (28,786) (25,039) (28,786) (25,039)
Revaluation movement - 144,434 - 144,434
Revaluation adjustment 44 - 44 -
Transfer between asset classes 813 (29) 813 (29)
Total roading – closing balance 1,019,771 1,014,334 1,022,371 1,016,934
         
Roading – at cost – closing balance 33,365 - 33,365 -
Roading – at valuation – closing balance 1,452,141 1,014,334 1,454,741 1,016,934
Total cost/valuation 1,485,506 1,014,334 1,488,106 1,016,934
Accumulated depreciation (465,735) - (465,735) -
Total roading – closing balance 1,019,771 1,014,334 1,022,371 1,016,934
         
Infrastructure land        
Infrastructure land – at cost – opening balance - 3,720 - 3,720
Infrastructure land – at valuation – opening balance 38,793 35,818 38,793 35,818
Total infrastructure land – opening balance 38,793 39,538 38,793 39,538
Revaluation movement - 2,985 - 2,985
Transfer between asset classes 463 (3,730) 463 (3,730)
Total infrastructure land – closing balance 39,256 38,793 39,256 38,793
         
Infrastructure land – at cost – closing balance - - - -
Infrastructure land – at valuation – closing balance 39,255 38,793 39,255 38,793
Total infrastructure land – closing balance 39,255 38,793 39,255 38,793

Disposals and transfers are reported net of accumulated depreciation.

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Land under roads        
Land under roads – at cost – opening balance 2,956,261 2,950,144 2,956,261 2,950,144
Additions 194 1,833 194 1,833
Disposals (57) (506) (57) (506)
Transfer between asset classes (595) 4,413 (595) 4,413
Transfer from non-current assets held for sale - 377 - 377
Land under roads – closing balance 2,955,803 2,956,261 2,955,803 2,956,261
         
Total infrastructure assets 5,465,233 5,476,180 5,467,833 5,478,780
         
Restricted assets 1        
         
Art and cultural assets        
Art and cultural assets – at cost – opening balance 8,730 8,667 11,069 11,006
Additions 178 19 178 19
Transfer between asset classes (36) 44 (36) 44
Art and cultural assets – closing balance 8,872 8,730 11,211 11,069
         
Restricted buildings        
Restricted buildings – at cost – opening balance 42,294 40,865 42,294 40,865
Accumulated depreciation (12,408) (10,870) (12,408) (10,870)
Total restricted buildings – opening balance 29,886 29,995 29,886 29,995
Additions 921 1,168 921 1,168
Depreciation expense (1,621) (1,577) (1,621) (1,577)
Disposals (249) - (249) -
Transfer between asset classes (387) 300 (387) 300
Restricted buildings – closing balance 28,550 29,886 28,550 29,886
         
Restricted buildings – at cost – closing balance 42,198 42,294 42,198 42,294
Accumulated depreciation (13,648) (12,408) (13,648) (12,408)
Total restricted buildings – closing balance 28,550 29,886 28,550 29,886
         
Parks and reserves        
Parks and reserves – at cost – opening balance 216,333 211,888 216,333 211,888
Additions 1,399 943 1,399 943
Disposals - (140) - (140)
Transfer between asset classes (7,059) 3,569 (7,059) 3,569
Transfer from non-current assets held for sale - 73 - 73
Parks and reserves – closing balance 210,673 216,333 210,673 216,333
         
Town Belt        
Town Belt – at cost – opening balance 81,486 84,544 81,486 84,544
Additions 124 - 124 -
Transfer between asset classes 7,622 (3,058) 7,622 (3,058)
Town Belt – at cost 89,232 81,486 89,232 81,486
         
Zoo animals – at cost 500 500 500 500
         
Total restricted assets 337,827 336,935 340,166 339,274
  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
  2018
$000
2017
$000
2018
$000
2017
$000
Work in progress        
Land 2,623 3,155 2,623 3,155
Buildings 84,676 50,573 84,902 50,573
Civic Centre complex 924 1,227 924 1,227
Plant and equipment 22,722 17,149 22,722 17,149
Library 194 781 194 781
Drainage, waste and water 45,853 18,261 45,853 18,261
Roading 38,870 14,517 38,870 14,517
Art and cultural 108 179 108 179
Total work in progress 195,970 105,842 196,196 105,842
         
TOTAL PROPERTY, PLANT AND EQUIPMENT 7,226,974 6,972,168 7,242,418 6,988,405

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 2018, 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 2017 and 30 June 2018 for infrastructural network and infrastructural land assets were assessed using appropriate indices. The increase in asset value of 0.6% of Total Assets was not considered material by management and accordingly the assets were not revalued at 30 June 2018.

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

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 2018
  Closing book
value
Additions Replacement
​Cost
  Constructed Vested
  $000 $000 $000 $000
Water supply        
– treatment plants and facilities - - - -
– other assets 348,289 4,328 1,772 900,660
         
Sewerage        
– treatment plants and facilities 171,857 695 - 234,835
– other assets 514,476 4,786 1,163 1,074,607
         
Stormwater drainage 415,782 1,990 2,015 836,471
         
Flood protection and control works - - - -
         
Roads and footpaths 1,019,771 31,264 2,102 1,511,737
         
TOTAL CORE ASSETS 2,470,175 43,063 7,052 4,558,310
Council 2017
  Closing book
value
Additions Replacement
​Cost
  Constructed Vested
  $000 $000 $000 $000
Water supply        
– treatment plants and facilities - - - -
– other assets 386,880 8,393 1,554 878,743
         
Sewerage        
– treatment plants and facilities 174,369 1,200 431 230,000
– other assets 486,333 7,856 - 1,018,655
         
Stormwater drainage 419,210 2,901 660 817,747
         
Flood protection and control works - - - -
         
Roads and footpaths 1,014,334 24,341 2,526 1,450,806
         
TOTAL CORE ASSETS 2,481,126 44,691 5,171 4,395,951

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.

Service concession arrangements

The service concession arrangement assets 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. These assets are included in the infrastructure assets class and are valued consistently with other waste infrastructure network assets.

The carrying value of these service concession assets for the Group is $151.431m (2017: $154.231m).

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 infrastructure assets class above.

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

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

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

Insurance of assets
  Council
  2018
$000
2017
$000
Total value of property, plant and equipment 7,226,974 6,972,168
less assets (primarily land) excluded from insurance contracts (3,784,347) (3,642,819)
     
Value of assets covered by insurance contracts 3,442,627 3,329,349
     
The maximum amount to which assets are insured under Council insurance policies 1,144,000 1,293,000

In addition to Council’s insurance, in the event of natural disaster it is assumed that Central Government will contribute 60% towards the restoration of Council owned underground drainage, waste and water assets and the 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 $11.406m (2017: $4.156m) 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 (2017: $1.500m). The net cost of claims applied to the reserve during the year amounted to $2.750m (2017: $6.910m). The majority of the cost in 2017 related to the Kaikoura earthquake in November 2016. The reserve was replenished from previous surpluses by $8.500m to achieve the desired level of cover.

For more information on the claims applied against the reserve refer to Note 38: Financial impacts of the Kaikoura earthquake (page 242).

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 2018
$000
2017
$000
Wellington Cable Car Limited 3,809 3,809
Wellington Regional Economic Development Agency Limited (WREDA) 1,262 1,262
     
TOTAL INVESTMENT IN CONTROLLED ENTITIES 5,071 5,071

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

Information on inter-company transactions is included in the Note 36: Related party disclosures (page 234).

The following entities are controlled entities of Council:

Controlled entities Accounting Interest
2018
Accounting Interest
2017
Nature of business
Karori Sanctuary Trust (Trading as Zealandia) 100% 100% 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 (Trading as Experience Wellington) 100% 100% Administers the Cable Car Museum, Capital E, the City Gallery, the Nairn Street Cottage, the Space Place (Carter Observatory), theWellington 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.

Note 20: Investment in associates and jointly controlled entity

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

Investment in associates and jointly controlled entity Council
  2018
$000
2017
$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
2018
Accounting Interest
2017
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 42.11% 42.11% Manages all water services for Wellington, Lower Hutt, Upper Hutt and Porirua City Councils and the 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 2018 Council held a 10.52% interest in Chaffers Marina Holdings Limited (2017:10.52%) 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

Jointly created with Hutt City Council on 9 July 2003 the company has expanded its operations and ownership to include Upper Hutt and Porirua City Councils from 1 November 2013 and Greater Wellington Regional Council from 16 September 2014.

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

The structure is as follows:

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

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

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

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

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

  Assets
2018
$000
Liabilities
2018
$000
Revenues
2018
$000
Surplus/(Deficit)
2018
$000
Associates        
Chaffers Marina Holdings Limited 591 184 132 (17)
Wellington International Airport Limited 403,591 204,600 43,737 16,270
         
Jointly controlled entity        
Wellington Water Limited 9,388 8,676 11,340 (10)
  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)
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:

  Council
  2018
$000
2017
$000
Chaffers Marina Holdings Limited    
Opening balance 872 903
Equity accounted earnings of associate (17) (31)
Closing balance – investment in Chaffers Marina Holdings Limited 855 872
     
Wellington International Airport Limited    
Opening balance 162,366 136,706
Dividends (12,610) (11,937)
Equity accounted earnings of associate 16,270 13,432
Share of net revaluation of property, plant and equipment – movement 20,588 24,165
Share of hedging reserve – movement (301) -
Closing balance – investment in Wellington International Airport Limited 186,313 162,366
     
Wellington Water Limited    
Opening balance 722 810
Equity accounted earnings of jointly controlled entity (10) (88)
Closing balance – investment in Wellington Water Limited 712 722
     
TOTAL INVESTMENT IN ASSOCIATES AND JOINTLY CONTROLLED ENTITY 187,880 163,960

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 171).

Note 21: Exchange transaction, transfers and taxes payable

Exchange transactions, transfers and taxes payable Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Current        
Exchange transactions and transfers payable 60,686 58,155 64,620 59,639
Taxes payable 6,113 3,498 6,375 3,627
         
Non-current        
Exchange transactions and transfers payable 630 630 630 630
         
TOTAL EXCHANGE TRANSACTIONS, TRANSFERS AND TAXES PAYABLE 67,429 62,283 71,625 63,896

Comprised of:

Exchange transactions and transfers payable Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Trade payables and accruals 52,752 51,293 56,686 52,780
Interest payable 3,231 3,113 3,231 3,113
Sundry payables 5,333 4,379 5,333 4,376
         
Total exchange transactions and transfers payable 61,316 58,785 65,250 60,269
Taxes payable Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
GWRC rates 4,539 3,207 4,539 3,207
Other 1,574 291 1,836 420
         
Total taxes payable 6,113 3,498 6,375 3,627
         
TOTAL EXCHANGE TRANSACTIONS, TRANSFERS AND TAXES PAYABLE 67,429 62,283 71,625 63,896
Exchange transactions, transfers and payable to related parties Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Controlled entities 570 2,354 - -
Associates and jointly controlled entity 2,267 4,333 2,267 4,333
         
Total exchange transactions, transfers and payable to related parties 2,837 6,687 2,267 4,333

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

Note 22: Revenue in advance

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Exchange        
Lease rentals 2,569 2,910 2,569 2,910
Other - - 425 250
         
Taxes        
Rates 1,423 1,345 1,423 1,345
         
Transfers        
Wellington Venues operations 1,182 1,048 1,182 1,048
Inspection and licensing fees 3,770 3,639 3,770 3,639
Other 1,058 1,202 1,585 1,876
         
Liabilities recognised under conditional transfer agreements 6,182 18,778 7,557 19,649
         
TOTAL REVENUE IN ADVANCE 16,184 28,922 18,511 30,717
Relevant significant accounting policies

Liabilities recognised under conditional transfer agreements

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

The primary liability recognised as being under a conditional transfer agreement in the 2017/18 year relates to funding received from NZTA in relation to roading and urban cycle ways.

The primary liability recognised as being under a conditional transfer agreement in the 2016/17 year related to the remaining $15.127m capital grant received from the Crown for the housing upgrade project, which has been fully utilised in 2017/18.

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
  2018
$000
2017
$000
2018
$000
2017
$000
Current        
Bank loans – term 58 96 58 196
Commercial paper 85,000 85,000 85,000 85,000
Debt securities – fixed rate bonds 5,000 - 5,000 -
Debt securities – floating rate notes 41,000 15,000 41,000 15,000
Finance leases - - - -
Total current 131,058 100,096 131,058 100,196
         
Non-current        
Bank loans – term 4,586 4,224 4,586 4,292
Debt securities – fixed rate bonds 15,000 20,000 15,000 20,000
Debt securities – floating rate notes 431,500 371,500 431,500 371,500
Total non-current 451,086 395,724 451,086 395,792
         
TOTAL GROSS BORROWINGS 582,144 495,820 582,144 495,988
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
  2018
$000
2017
$000
2018
$000
2017
$000
Total gross borrowings 582,144 495,820 582,144 495,988
         
Less        
Cash and cash equivalents (see Note 11) (95,996) (76,907) (106,856) (85,366)
Term deposits > 3 months (10,000) - (10,000) -
         
TOTAL NET BORROWINGS 476,148 418,913 465,288 410,622

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 221).

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 4,644 4,644 2019-2041 7.00
Commercial paper 100,000 85,000 2018 2.05 - 2.10
Debt securities – fixed rate bonds 20,000 20,000 2018-2023 4.06 - 5.48
Debt securities – floating rate notes 472,500 472,500 2018-2033 2.30 - 3.08
         
Total 723,644 582,144    
Security

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

Internal Borrowings

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

Ring fenced funds

The Council holds $45.796m (2017: $61.135m) 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 $34.502m (2017: $51.175m), representing any unused grant funding (2017: $15.172m) 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. The last of the Crown funding was utilised during the 2017/18 year.

Waste reduction and energy

An amount of $11.294m (2017: $9.960m) related to accumulated surpluses and deficits from the Waste Reduction and Energy Conservation activity which, under the Waste Minimisation Act 2008, must be ring fenced for future investment in waste activities. Council is committed to a number of waste minimisation projects that will utilise these funds.

Note 24: Employee benefits and liabilities provision

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Current        
         
Short-term benefits        
Payroll accruals 1,984 2,213 2,530 2,922
Holiday leave 5,527 5,324 6,809 6,612
Total short-term benefits 7,511 7,537 9,339 9,534
         
Termination benefits        
Other contractual provisions 220 274 220 274
Total termination benefits 220 274 220 274
         
Total current 7,731 7,811 9,559 9,808
         
Non-current        
         
Long-term benefits        
Long service leave provision - - 54 35
Retirement gratuities provision 772 889 772 889
Total long-term benefits 772 889 826 924
         
TOTAL EMPLOYEE BENEFIT LIABILITIES AND PROVISIONS 8,503 8,700 10,385 10,732
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
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance 889 995 889 1,007
Movement in required provision 31 9 31 9
Release of unused provision (29) (49) (29) (49)
Rediscounting of interest 22 27 22 27
Amount utilised (141) (93) (141) (105)
         
Retirement gratuities – closing balance 772 889 772 889

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 1.84%) as at 30 June 2018, before discounting, is $0.917m (2017: $1.088m). The discount factor of 4.75% is based on the Treasury risk-free rate.

Other contractual provisions Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance 274 55 274 55
New provision 220 274 220 274
Release of unused provision (19) - (19) -
Amount utilised (255) (55) (255) (55)
         
Other contractual provisions – closing balance 220 274 220 274

Background

The above provision is to cover estimated redundancy costs as at 30 June 2018 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
  2018
$000
2017
$000
2018
$000
2017
$000
Current        
Landfill post closure costs 1,556 1,508 1,556 1,508
Weathertight homes 13,646 11,236 13,646 11,236
Unreinforced masonary grants 541 840 541 840
Total current 15,743 13,584 15,743 13,584
         
Non-current        
Landfill post closure costs 17,615 16,205 17,615 16,205
Weathertight homes 32,629 28,199 32,629 28,199
Total non-current 50,244 44,404 50,244 44,404
         
TOTAL PROVISIONS FOR OTHER LIABILITIES 65,987 57,988 65,987 57,988
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
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance 17,713 16,771 17,713 16,771
Movement in provision 981 491 981 491
Re-discounting of interest 999 627 999 627
Amount utilised (522) (176) (522) (176)
Landfill post closure costs – closing balance 19,171 17,713 19,171 17,713
         
Current 1,556 1,508 1,556 1,508
Non-current 17,615 16,205 17,615 16,205
Landfill post closure costs – closing balance 19,171 17,713 19,171 17,713

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 Treasury risk free rate of 3.83%. The gross provision (inflation adjusted at 2.57%), before discounting, is $23.396m (2017: $23.152m). 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 453,130m3 (2017: 545,530m3) and is expected to close in 2022. 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 2052.

Weathertight homes Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance 39,435 44,420 39,435 44,420
Additional or increased provision made 12,523 4,429 12,523 4,429
Amount utilised (5,683) (9,414) (5,683) (9,414)
Weathertight homes – closing balance 46,275 39,435 46,275 39,435
         
Current 13,646 11,236 13,646 11,236
Non-current 32,629 28,199 32,629 28,199
Weathertight homes – closing balance 46,275 39,435 46,275 39,435

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 $14.234m (2017: $5.377m) as a provision for future claims relating to weathertightness issues not yet identified or not yet reported.

Movement in the provision

During the year $5.683m was paid as either part or full settlement of claims. An additional $12.523m was added to the provision after an actuarial re-assessment of the likely future costs to be incurred as explained below. The current / non-current split above reflects the expected timing of payments but is reassessed each year to take account of delays in claim negotiations and any mediation outcomes.

Estimation

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

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

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

Amount claimed

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

Settlement amount

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

Amount expected to be paid by the Council

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

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 2018
$000
  +10% -10%
Assumption Effect on Surplus
or Deficit
Amount claimed 4,627 (4,628)
Settlement level award 4,627 (4,628)
Council contibution to settlement 4,627 (4,628)
Change in percentage of homeowners who will make a successful claim 1,423 (1,424)
  +2% -2%
Assumption Effect on Surplus
or Deficit
Discount rate (2,821) 2,256

Funding of weathertight homes settlements

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

Funding for weathertight homes liability Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance (30,966) (26,883) (30,966) (26,883)
Rates funding for weathertight homes liability 7,227 7,227 7,227 7,227
Total amounts paid (5,683) (9,414) (5,683) (9,414)
Interest allocation (1,710) (1,896) (1,710) (1,896)
         
Closing balance funded through borrowings (31,132) (30,966) (31,132) (30,966)

Note 26: Deferred tax

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Deductible temporary differences - - 542 852
Tax losses 120 394 365 394
TOTAL DEFERRED TAX 120 394 907 1,246
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 $0.00m (2017: $0.110m) and for the Group $0.254m (2017: $0.349m).

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.

As at 30 June 2018, the Group has a deferred tax liability of $0.882m (2017: $0.938m).

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 2018Top

    Council Group
  Note Actual
2018
$000
Budget
2018
$000
Actual
2017
$000
Actual
2018
$000
Actual
2017
$000
EQUITY – Opening balances            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,793,827 3,777,087 3,756,048 3,788,286 3,745,251
Revaluation reserves   1,677,312 1,488,578 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 1,648 1,648 3,221 2,026
Non-controlling interest   - - - 284 284
Restricted funds   8,243 15,202 14,064 12,135 18,741
TOTAL EQUITY – Opening balance   6,730,121 6,551,649 6,384,501 6,891,143 6,516,932
             
CHANGES IN EQUITY            
             
Retained earnings            
Net surplus for the year   32,207 32,361 31,679 36,932 36,150
Transfer to restricted funds   (13,018) (4,518) (4,518) (13,701) (5,147)
Transfer from restricted funds   6,352 3,765 10,339 6,700 11,753
Transfer from revaluation reserves   261 - 279 261 279
             
Revaluation reserves 27          
Fair value movement – property, plant and equipment – net   180,413 122,876 295,254 201,001 319,419
Transfer to retained earnings   (261)   (279) (261) (279)
             
Hedging reserve 28          
Movement in hedging reserve   (4,079) - 17,447 (4,380) 17,447
             
Fair value through other comprehensive revenue and expense reserve 29          
Movement in fair value – Equity investments   856 - 1,240 856 1,240
Movement in fair value – Available for sale equities   - - - 759 (45)
             
Non-controlling interest            
Movement of non-controlling interest   - - - - -
             
Restricted funds 30          
Transfer to retained earnings   (6,352) (3,765) (10,339) (6,700) (11,753)
Transfer from retained earnings   13,018 4,518 4,518 13,701 5,147
Total comprehensive revenue and expense   209,397 155,237 345,620 235,168 374,211
             
EQUITY – Closing balances            
Accumulated funds   1,269,134 1,269,134 1,269,134 1,293,162 1,293,162
Retained earnings   3,819,629 3,808,695 3,793,827 3,818,478 3,788,286
Revaluation reserves   1,857,464 1,611,454 1,677,312 2,016,078 1,815,338
Hedging reserve   (25,362) - (21,283) (25,663) (21,283)
Fair value through other comprehensive revenue and expense reserve   3,744 1,648 2,888 4,836 3,221
Non-controlling interest   - - - 284 284
Restricted funds   14,909 15,955 8,243 19,136 12,135
TOTAL EQUITY – Closing balance   6,939,518 6,706,886 6,730,121 7,126,311 6,891,143
             
Total comprehensive revenue and expense attributable to:            
Wellington City Council and Group   209,397 155,237 345,620 234,884 373,927
Non-controlling interest   - - - 284 284
    209,397 155,237 345,620 235,168 374,211

The notes on pages 160 to 246 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 $232.630m higher than budget primarily due to:

The above movements reflect the primary changes in total comprehensive revenue and expense of $54.160m offset by an opening balance budget variance for total equity of $178.472m, primarily for revaluation reserves, due to the fact that the 2016/17 revaluations which were much higher than budget as these were only finalised after the Annual Plan budget for 2017/18 was approved by Council.

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
  2018
$000
2017
$000
2018
$000
2017
$000
Land – opening balance 155,091 155,091 155,091 155,091
Revaluation recognised in other comprehensive revenue and expense 49,035 - 49,035 -
Transfer between classes (463) - (463) -
Revaluations adjustment (560) - (560) -
Land – closing balance 203,103 155,091 203,103 155,091
         
Buildings – opening balance 230,355 230,634 230,355 230,634
Revaluation recognised in other comprehensive revenue and expense 132,351 - 132,351 -
Transfer to retained earnings on disposal of assets (261) (279) (261) (279)
Buildings – closing balance 362,445 230,355 362,445 230,355
         
Library collections – opening balance 8,392 7,015 8,392 7,015
Revaluation recognised in other comprehensive revenue and expense - 1,377 - 1,377
Library collections – closing balance 8,392 8,392 8,392 8,392
         
Drainage, waste and water – opening balance 764,610 618,152 764,610 618,152
Revaluation recognised in other comprehensive revenue and expense - 146,458 - 146,458
Prior year revaluation adjustments (457) - (457) -
Drainage, waste and water – closing balance 764,153 764,610 764,153 764,610
         
Infrastructure land – opening balance 18,395 15,410 18,395 15,410
Revaluation recognised in other comprehensive revenue and expense - 2,985 - 2,985
Transfer between classes 463 - 463 -
Infrastructure land – closing balance 18,858 18,395 18,858 18,395
         
Roading – opening balance 500,469 356,035 500,469 356,035
Revaluation recognised in other comprehensive revenue and expense - 144,434 - 144,434
Prior year revaluation adjustments 44 - 44 -
Roading – closing balance 500,513 500,469 500,513 500,469
         
Associates' revaluation reserves – opening balance - - 138,026 113,861
Revaluation recognised in other comprehensive revenue and expense - - 20,588 24,165
Associates' revaluation reserves – closing balance - - 158,614 138,026
         
Total revaluation reserves – closing balance 1,857,464 1,677,312 2,016,078 1,815,338

These revaluation reserves are represented by:

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance 1,677,312 1,382,337 1,815,338 1,496,198
Revaluation recognised in other comprehensive revenue and expense 181,386 295,254 201,974 319,419
Transfer to retained earnings on disposal of assets (261) (279) (261) (279)
Prior year revaluation adjustments (413) - (413) -
Revaluations adjustment (560) - (560) -
         
TOTAL REVALUATION RESERVES 1,857,464 1,677,312 2,016,078 1,815,338

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 2018 Council has revalued its investment properties, which are revalued annually – refer to Note 17 – Investment properties, for more information.

Council has also revalued its operational land and building assets with the revaluation movements shown above.

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
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance (21,283) (38,730) (21,283) (38,730)
Cash flow hedge net movement recognised in other comprehensive revenue and expenses (4,079) 17,447 (4,380) 17,447
         
TOTAL HEDGING RESERVE (25,362) (21,283) (25,663) (21,283)

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

The Group movement reflects the hedging related to Wellington International Airport Limited.

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

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Opening balance 2,888 1,648 3,221 2,026
Movements:        
Civic Financial Services Limited (8) 40 (8) 40
Local Government Funding Agency 864 1,200 864 1,200
Creative HQ shareholdings – available for sale - - 759 (45)
         
TOTAL FAIR VALUE THROUGH OTHER COMPREHENSIVE REVENUE AND EXPENSE RESERVE 3,744 2,888 4,836 3,221

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 179).

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

Note 30: Restricted funds

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

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Special reserves and funds 14,448 7,800 17,753 11,115
Trusts and bequests 461 443 1,383 1,020
         
TOTAL RESTRICTED FUNDS 14,909 8,243 19,136 12,135
Special reserves and funds Opening
Balance
​2018
$000
Additional
Funds
2018
$000
Funds
Utilised
2018
$000
Closing
Balance
2018
​$000
Council        
City growth fund 2,862 3,000 (3,602) 2,260
Reserve purchase and development fund 782 - - 782
Insurance reserve 4,156 10,000 (2,750) 11,406
Total Council 7,800 13,000 (6,352) 14,448
         
Controlled entities' reserve funds 3,294 123 (112) 3,305
         
Total Group – Special reserves and funds 11,094 13,123 (6,464) 17,753
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 $3.601m 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 Council’s insurance policies. Annual additions to the reserve of $1.500m (2017: $1.500m) are funded through rates as identified in the Annual Plan. During the year $2.750m (2017: $6.910m) was used to meet under-excess insurance costs.

A further amount of $8.500m was added to the fund from previous Council surpluses to replenish the fund following the costs incurred from the Kaikoura earthquake in November 2016, up to the desired level. For more information on the cost of claims refer to Note 38 - Financial impacts of the Kaikoura earthquake.

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
​2018
$000
Additional
Funds
2018
$000
Funds
Utilised
2018
$000
Closing
Balance
2018
​$000
Council        
A Graham Trust 3 - - 3
A W Newton Bequest 333 15 - 348
E A McMillan Estate 6 - - 6
E Pengelly Bequest 15 1 - 16
F L Irvine Smith Memorial 8 - - 8
Greek NZ Memorial Association 5 - - 5
Kidsarus 2 Donation 4 - - 4
Kirkcaldie and Stains Donation 17 - - 17
QEII Memorial Book Fund 21 1 - 22
Schola Cantorum Trust 7 1 - 8
Terawhiti Grant 10 - - 10
Wellington Beautifying Society Bequest 14 - - 14
Total Council – Trusts and bequests 443 18 - 461
         
Controlled entities' trusts and bequests 598 560 (236) 922
         
Total Group – Trusts and bequests 1,041 578 (236) 1,383
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

This bequest is held and administered by the Public Trust and is primarily used for major beautification projects. As the sole beneficiary, Wellington City Council applies for distribution of available funds 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.

The value of the funds held by the Public Trust is approximately $16.362m but the distributions to the beneficiary are only available from an agreed percentage of revenue generated. The distributions are only drawn down as required.

During the year:

Statement of cash flows
For the year ending 30 June 2018Top

    Council Group
    Actual
2018
$000
Budget
2018
$000
Actual
2017
$000
Actual
2018
$000
Actual
2017
$000
CASH FLOWS FROM OPERATING ACTIVITIES            
Receipts from rates – Council   295,301 278,112 286,658 295,301 286,658
Receipts from rates – Greater Wellington Reginal Council   63,284 60,573 60,589 63,284 60,589
Receipts from activities and other revenue   148,467 140,506 145,185 180,802 160,648
Receipts from grants and subsidies – Operating   8,635 9,600 7,994 17,004 22,797
Receipts from grants and subsidies – Capital   27,039 46,313 12,899 27,185 13,347
Receipts from investment properties   11,648 11,214 12,038 11,648 12,038
Cash paid to suppliers and employees   (324,275) (317,801) (312,227) (385,572) (367,290)
Rates paid to GWRC   (62,304) (60,573) (59,324) (62,304) (59,324)
Grants paid   (37,068) (45,651) (43,395) (10,814) (17,388)
Income tax paid   - - - (535) (165)
Net GST (paid) / received   (3,630) - 2,753 (4,261) 2,202
NET CASH FLOWS FROM OPERATING ACTIVITIES   127,097 122,293 113,170 131,738 114,112
             
CASH FLOWS FROM INVESTING ACTIVITIES            
Dividends received   12,714 11,240 12,041 12,714 12,041
Interest received   1,603 704 2,367 1,792 2,579
Loan repayments   19 - 10,399 34 10,414
Proceeds from sale of property, plant and equipment   234 10,350 1,248 236 1,248
Increase in investments   (11,616) - (960) (13,017) (856)
Cash from aquisition of controlled entity   - - - - 941
Purchase of investment properties   (548) - (153) (548) (153)
Purchase of intangibles   (3,456) (8,162) (5,029) (3,476) (5,057)
Purchase of property, plant and equipment   (170,339) (187,584) (132,617) (171,192) (135,841)
NET CASH FLOWS FROM INVESTING ACTIVITIES   (171,389) (173,452) (112,704) (173,457) (114,684)
             
CASH FLOWS FROM FINANCING ACTIVITIES            
New borrowings   101,324 313,020 85,659 101,324 85,659
Repayment of borrowings   (15,000) (224,977) (80,323) (15,168) (80,431)
Interest paid on borrowings   (22,943) (26,863) (22,904) (22,947) (22,913)
NET CASH FLOWS FROM FINANCING ACTIVITIES   63,381 61,180 (17,568) 63,209 (17,685)
             
Net increase/(decrease) in cash and cash equivalents   19,089 10,021 (17,102) 21,490 (18,257)
Cash and cash equivalents at beginning of year   76,907 (8,877) 94,009 85,366 103,623
             
CASH AND CASH EQUIVALENTS AT END OF YEAR   95,996 1,144 76,907 106,856 85,366

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 160 to 246 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 $45.796m (2017: $61.135m) relating to the housing upgrade project and waste activities. For more information see Note 23: Borrowings (page 201).

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 $4.804m higher than budgeted primarily due to:

Net cash flows from investing activities were $2.063m lower than budget primarily due to:

Net cash flows from financing activities were $2.200m higher 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
  2018
$000
2017
$000
2018
$000
2017
$000
Net surplus for the period 32,207 31,679 36,932 36,150
         
Add/(deduct) non-cash items:        
Vested assets (8,087) (6,250) (8,087) (6,250)
Bad debts written off not prevously provided for 152 151 154 151
Depreciation and amortisation 107,415 101,889 109,047 103,623
Impairment of property, plant and equipment 3 11,446 3 11,446
Fair value changes in investment properties (6,937) (18,222) (6,937) (18,222)
Other fair value changes (4) (5,278) 143 (5,278)
Movement in provision for impairments of doubtful debts 27 777 27 777
Tax expense/(credit) - - (151) (22)
Gain on business combination - - - (4,072)
Non-cash movement in provisions 11,049 4,440 11,235 4,596
Total non-cash items 103,618 88,953 105,434 86,749
         
Add/(deduct) movement in working capital: 1        
Exchange receivables and non-exchange recoverables (7,049) 537 (4,121) 3,677
Prepayments (1,209) (2,512) (1,058) (2,019)
Inventories (136) (48) (118) 205
Exchange transactions, taxes and transfers payables 6,018 7,852 4,535 4,855
Revenue in advance (12,738) (14,176) (12,315) (14,604)
Employee benefit liabilities (197) 516 (490) 219
Provision for other liabilities (3,503) (7,632) (3,429) (7,809)
Total working capital movement (18,814) (15,463) (16,996) (15,476)
         
Add/(deduct) investing and financing activities:        
Net (gain)/loss on disposal of property, plant and equipment 1,459 (495) 1,458 (153)
Dividends received (12,714) (12,041) (104) (104)
Interest received (1,603) (2,367) (1,671) (2,442)
Tax paid and subvention receipts - - (53) (213)
Interest paid on borrowings 22,944 22,904 22,948 22,914
Share of equity accounted surplus in associates - - (16,210) (13,313)
Total investing and financing activities 10,086 8,001 6,368 6,689
         
NET CASH FLOWS FROM OPERATING ACTIVITIES 127,097 113,170 131,738 114,112
  1. Excluding non-cash items

Other disclosuresTop

Note 32: Financial instruments

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

Relevant significant accounting policies

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

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 Group 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 Group’s financial assets and financial liabilities by reporting category as described in the accounting policies:

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Financial assets        
         
Loans and receivables        
Cash and cash equivalents 95,996 76,907 106,856 85,366
Receivables and recoverables 55,815 49,364 58,049 50,700
Other financial assets 16,579 4,978 18,012 5,019
Total loans and receivables 168,390 131,249 182,917 141,085
         
Financial assets at fair value through other comprehensive revenue and expense        
Other financial assets 6,137 5,281 8,167 6,622
Total financial assets at fair value through other comprehensive revenue and expense 6,137 5,281 8,167 6,622
         
Hedged derivative financial instruments        
Derivatives designated as cash flow hedges 381 1,283 381 1,283
Total hedged derivative financial instruments 381 1,283 381 1,283
         
Total financial assets 174,908 137,813 191,465 148,990
Total non-financial assets 7,530,599 7,268,587 7,710,122 7,424,978
         
TOTAL ASSETS 7,705,507 7,406,400 7,901,587 7,573,968
         
Financial liabilities        
         
Financial liabilities at amortised cost        
Exchange transactions and transfers payable 61,316 58,785 65,250 60,269
Taxes payable 6,113 3,498 6,375 3,627
Borrowings 582,144 495,820 582,144 495,988
Total financial liabilities at amortised cost 649,573 558,103 653,769 559,884
         
Derivative financial instruments        
Derivatives designated as cash flow hedges 25,742 22,566 25,742 22,566
Total derivative financial instruments 25,742 22,566 25,742 22,566
         
Total financial liabilities 675,315 580,669 679,511 582,450
Total non-financial liabilities 90,674 95,610 95,765 100,375
         
TOTAL LIABILITIES 765,989 676,279 775,276 682,825

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 2018 2017
  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 - - 8,167 - - 6,622
             
Derivative financial instruments            
– Cash flow hedges - 381 - - 1,283 -
             
Financial liabilities            
Derivative financial instruments            
– Cash flow hedges - 25,742 - - 22,566 -
Reconciliation of fair value movements in Level 3 Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Financial assets at fair value through other comprehensive revenue and expense        
– Equity investments        
         
Opening balance – 1 July 5,281 4,041 6,622 5,468
Purchases - - 95 -
Disposals - - (110) (11)
Impairment - - (168) (27)
Gains or losses recognised in other comprehensive revenue and expense 856 1,240 1,728 1,192
         
Closing balance – 30 June 6,137 5,281 8,167 6,622

The level 3 equity investments comprise the Group’s shareholdings in the Local Government Funding Agency $5.339m (2017: $4.475m), Civic Assurance $0.798m (2017: $0.806m) and the Creative HQ incubator/accelerator shareholdings $2.030m (2017: $1.341m). Refer to Note 14: Other financial assets (page 179) 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 231)). 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
  2018
$000
2017
$000
2018
$000
2017
$000
Financial instruments with credit risk        
         
Cash and cash equivalents 95,996 76,907 106,856 85,366
         
Derivative financial instrument assets 381 1,283 381 1,283
         
Receivables and recoverables 55,815 49,364 58,049 50,700
         
Other financial assets        
– Bank deposits – term 10,000 - 11,401 -
– LGFA borrower notes 6,304 4,688 6,304 4,688
– Loans to related parties – other organisations 31 27 31 27
– Loans to external organisations 244 263 276 304
         
Financial guarantees to related parties - 168 - 168
         
Total financial instruments with credit risk 168,771 132,700 183,298 142,536

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 Group 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 231).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Cash – registered banks        
AA- 1,976 4,886 11,288 10,978
         
Short term deposits – registered banks        
AA- 94,000 66,000 94,000 68,349
A - 6,000 - 6,000
         
Term deposits (greater than 3 months) – registered banks        
AA- 10,000 - 11,401 -
         
Term deposits – borrower notes – NZ LGFA        
AA+ 6,304 4,688 6,304 4,688
         
Derivative financial instrument assets        
AA- 381 1,283 381 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.

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Contractual cash flows of financial liabilities excluding derivatives        
0–12 months 205,502 173,575 209,436 175,288
1–2 years 52,911 58,193 52,911 58,261
2–5 years 239,930 158,914 239,930 158,914
More than 5 years 240,407 257,441 240,407 257,441
Total contractual cash flows of financial liabilities excluding derivatives 738,750 648,123 742,684 649,904
         
Represented by:        
Carrying amount as per the Statement of Financial Position 643,460 557,973 647,394 559,754
Future interest payable 95,290 90,150 95,290 90,150
Total contractual cash flows of financial liabilities excluding derivatives 738,750 648,123 742,684 649,904

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
  2018
$000
2017
$000
2018
$000
2017
$000
Contractual cash flows of derivative financial liabilities        
0–12 months 8,194 8,719 8,194 8,719
1–2 years 7,368 6,321 7,368 6,321
2–5 years 11,914 8,510 11,914 8,510
More than 5 years 34 1,690 34 1,690
Total contractual cashflow of derivative financial liabilities 27,510 25,240 27,510 25,240
         
Represented by:        
Future interest payable 27,510 25,240 27,510 25,240
Total contractual cash flows of derivative financial liabilities 27,510 25,240 27,510 25,240

In addition to cash to be received in 2018/19 the Group currently has $121.550m in unutilised committed bank facilities available to settle obligations as well as $164.905m of cash, cash equivalents and receivables and is expected to have sufficient cash to meet all contractual liabilities as they fall due.

The Group 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 231).

The Group 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% 38%
3–5 years 20% 60% 29%
More than 5 years 15% 60% 33%
Market risk

Market risk is the risk that the value of an investment will decrease or a liability will increase due to changes in market conditions. The Group uses interest rate swaps in the ordinary course of business to manage interest rate risks. A Treasury Committee, headed by senior management personnel and the Council’s treasury management advisors (presently PwC), provides oversight for financial risk management and derivative activities and ensures any activities are in line with the Liability Management Policy which is formally approved by the Council as part of the 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% 5% 83%

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

  Council Group
  2018
$000
2017
$000
2018
$000
2017
$000
Financial instruments subject to interest rate volatility – before effect of interest rate swaps        
Cash and cash equivalents 95,996 76,907 106,856 85,366
Bank deposits – term greater than 3 months 10,000 - 11,401 -
Commercial paper (85,000) (85,000) (85,000) (85,000)
Debt securities – floating rate notes (472,500) (386,500) (472,500) (386,500)
Total financial instruments subject to interest rate volatility – before effect of interest rate swaps (451,504) (394,593) (439,243) (386,134)
         
Effect of interest rate swaps in reducing interest rate volatility        
Effect of Cash flow interest rate swaps – hedged 365,500 372,500 365,500 372,500
Effect of Cash flow interest rate swaps – non-hedged 60,000 - 60,000 -
         
Total effect of interest rate swaps in reducing interest rate volatility 425,500 372,500 425,500 372,500
         
Total financial instruments subject to interest rate volatility – after effect of interest rate swaps (26,004) (22,093) (13,743) (13,634)

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 2018 the fair value of the interest rate swaps was -$25.362m (2017: -$21.283m). This liability will reduce to zero as the swaps reach the end of their lives, and therefore do not represent a liability that the Group 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
  2018
%
2017
%
2018
%
2017
%
Investments        
Cash and cash equivalents 2.33 2.54 2.17 2.40
Bank deposits – term 2.34 - 2.36 -
LGFA – borrower notes 2.50 2.47 2.50 2.47
Loans to related parties 4.00 4.00 4.00 4.00
Loans to external organisations - - - -
         
Borrowings        
Bank loans 7.00 7.00 7.00 7.00
Commercial paper 2.06 2.02 2.06 2.02
Debt securities – fixed 4.84 4.84 4.84 4.84
Debt securities – floating 2.63 2.59 2.63 2.59
Derivative financial instruments – hedged 4.30 4.52 4.30 4.52
Derivative financial instruments – non-hedged 3.50 - 3.50 -

The related party loan to the Wellington Regional Stadium Trust is on interest free terms.

Sensitivity analysis

While the Group 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 Group’s exposures at the end of the reporting period:

Group   2018
$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 1,069 (1,069) - -
LGFA – borrower notes   63 (63) - -
Term deposits > 3 months   114 (114) - -
Derivatives – Interest rate swaps – hedged b - - 987 (1,141)
           
Financial liabilities          
Derivatives – interest rate swaps – hedged b - - 26,181 (28,376)
Debt securities – floating rate notes c 1,590 (1,590) - -
Debt securities – fixed rate bonds d - - - -
Bank term loans e - - - -
Commercial paper f 280 (280) - -
           
Total sensitivity to interest rate risk   3,116 (3,116) 27,168 (29,517)

a. Cash and cash equivalents

Group 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 $1.069m accordingly.

b. Derivatives – hedged interest rate swaps

Derivatives include hedged interest rate swaps with a fair value totalling -$25.362m. A movement in interest rates of plus 1% has an effect on increasing the unrealised value of the hedged interest rate swap assets by $0.987m. A movement in interest rates of minus 1% has an effect on reducing the unrealised value of the hedged interest rate swap assets by $1.141m. A movement in interest rates of plus 1% has an effect on increasing the unrealised value of the hedged interest rate swap liabilities by $26.181m. A movement in interest rates of minus 1% has an effect on reducing the unrealised value of the hedged interest rate swap liabilities by $28.376m.

c. Debt securities – floating rate notes

Debt securities at floating rates total $472.500m. The full exposure to changes in interest rates has been reduced because the Group has $313.500m of this debt at fixed rates through interest rate swaps. A movement in interest rates of plus or minus 1% has an effect on the interest expense of $1.590m accordingly.

d. Debt Securities – fixed rate bonds

The Group has $20.000m of fixed rate bonds which are not exposed to interest rate changes.

e. Bank Loan

The Group, through the Council’s joint ventures with Porirua City Council has a bank term loan of $4.644m. 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 Group has a Commercial Paper programme which is subject to floating rates and totals $100.000m of which only $85.000m is presently utilised. The full exposure to changes in interest rates has been reduced because the Group has $57.000m 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
  2018
$000
2017
$000
2018
$000
2017
$000
Approved and contracted – property, plant and equipment 61,577 36,519 61,577 36,519
Approved and contracted – investment properties - - - -
Approved and contracted – intangibles - 80 - 80
Approved and contracted – share of associates - - 14,004 10,958
Approved and contracted – share of joint ventures - - - -
         
TOTAL CAPITAL COMMITMENTS 61,577 36,599 75,581 47,557

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 2017/18 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 168).

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
  2018
$000
2017
$000
2018
$000
2017
$000
Plant and equipment        
Not later than one year 19 43 80 397
Later than one year and not later than five years 4 25 92 288
Later than five years - - - -
         
Land and buildings        
Not later than one year 4,052 1,982 6,481 3,525
Later than one year and not later than five years 17,147 4,718 24,430 10,213
Later than five years 1,100 845 4,039 2,549
         
TOTAL NON-CANCELLABLE OPERATING LEASE COMMITMENTS AS LESSEE 22,322 7,613 35,122 16,972

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 leases 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
  2018
$000
2017
$000
2018
$000
2017
$000
Investment properties        
Not later than one year 10,209 9,972 10,209 9,972
Later than one year and not later than five years 36,070 37,499 36,070 37,499
Later than five years 56,684 64,280 56,684 64,280
         
Land and buildings        
Not later than one year 2,407 2,405 2,455 2,425
Later than one year and not later than five years 6,392 6,719 6,392 6,719
Later than five years 5,338 5,787 5,338 5,787
         
TOTAL NON-CANCELLABLE OPERATING LEASE COMMITMENTS AS LESSOR 117,100 126,662 117,148 126,682
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
  2018
$000
2017
$000
2018
$000
2017
$000
Financial guarantees to community groups - 168 - 168
Uncalled capital – LGFA 1,866 1,866 1,866 1,866
Other legal proceedings 495 393 522 393
Share of associates' and jointly controlled entity's contingent liabilities - - 27 -
Share of joint ventures' contingent liabilities - - - -
         
TOTAL CONTINGENT LIABILITIES 2,361 2,427 2,415 2,427
Contingent assets

The Council and Group have no contingent assets that can be quantified as at 30 June 2018 (2017: $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 does not mature until 30 June 2020 but early repayment during the current period ending 30 June 2018 has extinguished the loan and the guarantee ahead of schedule.

NZ Local Government Funding Agency Limited (LGFA)

Council is one of 30 local authority shareholders and 8 local authority guarantors of the LGFA. In that regard Council has uncalled capital of $1.866m. When aggregated with the uncalled capital of other shareholders, $20m is available in the event that an imminent default is identified. Also, together with the other shareholders and guarantors, Council is a guarantor of all of LGFA’s borrowings. At 30 June 2018, LGFA had borrowings totalling $8,272m (2017: $7,945m).

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

Other legal proceedings

Other legal proceedings are current claims against the Council and Group as a result of past events which are currently being contested. The amounts shown reflect potential liability for financial reporting purposes only and do not represent an admission that any claim is valid. The outcome of these remains uncertain at the end of the reporting period. The maximum exposure to the Group is anticipated to be less than $0.522m.

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% (2017: 25%) of agreed repair costs and affected homeowners funding the remaining 50% (2017: 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 205)). 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 were partially successful in having parts of the claims struck out.  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

As at 30 June 2018, the Council had a contingent asset for 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 (2017: $33m). 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 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 242).

Note 35: Jointly controlled assets

The Council has significant interests in the following joint ventures:

Joint Venture Interest
2018
Interest
2017
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) 2018
$000
2017
$000
ASSETS    
     
Current    
Inventory 22 22
Receivables and recoverables 2,516 2,045
     
Non-current    
Property, plant and equipment 24,183 23,882
     
Share of total assets 26,721 25,949
     
LIABILITIES    
     
Non-current    
Borrowings 4,644 4,320
Provisions for other liabilities 2,497 2,340
     
Share of total liabilities 7,141 6,660
     
SHARE OF NET ASSETS 19,580 19,289

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 2018
$000
2017
$000
Operating revenue 1,601 1,279
Operating expenditure (1,298) (1,081)
     
Share of net surplus or (deficit) 303 198
     
Share of current year revaluation movement (14) 1,338

The Council’s and Group’s share of the joint ventures’ capital commitments is $Nil (2017: $Nil) and contingent liabilities is $Nil (2017: $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
  2018
$
2017
$
Council Members    
Remuneration 1,493,628 1,492,887
     
Chief Executive and Executive Leadership Team    
Remuneration 2,176,138 2,531,744
     
TOTAL REMUNERATION PAID TO KEY MANAGEMENT PERSONNEL 3,669,766 4,024,631

As at 30 June 2018 key management personnel comprised of 21 individuals: 15 elected members or 15 fulltime equivalents (2017: 15) and 6 executive leaders or 6 fulltime equivalents (2017: 8).

For further disclosure of the remuneration payable to the Mayor, Councillors and the Chief Executive refer to Note 37: Remuneration and staffing (page 238).

Material related party transactions – key management personnel

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

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

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

There are no commitments from Council to key management personnel.

Material related party transactions – other organisations

Basin Reserve Trust (BRT)

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

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

During the year ending 30 June 2018 Council contributed $0.399m (2017: $0.383m) to fund the core operations of the Trust and $0.250m (2017: 0.250m) for turf management services.

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 2018 Council transacted directly with WRST to the amount of $0.830m as part of the original $5.000m funding grant recognised in 2016/17 for the upgrade of the concourse.

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 Council
  2018
$000
2017
$000
Expenditure incurred by the Council to fund the operation and management of:    
Porirua – waste water treatment plant 1,922 2,011

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 Council
  2018
$000
2017
$000
Revenue for services provided by the Council to:    
Karori Sanctuary Trust 30 43
Wellington Cable Car Limited 55 48
Wellington Museums Trust 1,729 1,469
Wellington Regional Economic Development Agency 431 166
Wellington Zoo Trust 260 1,054
  2,505 2,780
     
Grant funding by Council for the operations and management of:    
Karori Sanctuary Trust 980 875
Wellington Cable Car Limited - 1,000
Wellington Museums Trust 8,759 8,628
Wellington Regional Economic Development Agency 11,928 7,404
Wellington Zoo Trust 3,240 3,125
  24,907 21,032
     
Expenditure for services provided to the Council by:    
Karori Sanctuary Trust 16 11
Wellington Cable Car Limited 57 37
Wellington Museums Trust 587 313
Wellington Regional Economic Development Agency 6,490 10,044
Wellington Zoo Trust 723 1,967
  7,873 12,372
     
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 2
Wellington Museums Trust - 40
Wellington Regional Economic Development Agency 4 63
Wellington Zoo Trust 204 1,189
  210 1,294
     
Current payables owed by the Council to:    
Karori Sanctuary Trust 9 1
Wellington Cable Car Limited 58 5
Wellington Museums Trust 235 251
Wellington Regional Economic Development Agency 87 366
Wellington Zoo Trust 181 1,731
  570 2,354
  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 $32.780m (2017: $33.404m) when the grant funding of $24.907m (2017: $21.032m) and expenditure for services provided to Council of $7.873m (2017: $12.372m) 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 Council
  2018
$000
2017
$000
Dividend received from:    
Wellington International Airport Limited 12,610 11,937
     
Revenue for services provided by the Council to:    
Wellington International Airport Limited 65 61
Wellington Water Limited 1,083 517
  1,148 578
     
Expenditure for services provided to the Council from:    
Wellington International Airport Limited 244 1,132
Wellington Water Limited 36,437 26,995
  36,681 28,127
     
Current receivables and recoverables owing to the Council from:    
Wellington International Airport Limited 1 -
Wellington Water Limited 307 187
  308 187
     
Current payables owed by the Council to:    
Wellington Water Limited 2,267 4,333

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 2017 to 30 June 2018 was $1,493,628 (2017: $1,492,887) and is broken down and classified as follows:

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

$
Total
$
Lester, Justin (Mayor) 173,212 - 2,200 175,412
         
Calvert, Diane 91,581 400 2,200 94,181
Calvi-Freeman, Chris 91,581 400 2,200 94,181
Dawson, Brian 91,581 400 2,200 94,181
Day, Jill 111,263 400 2,200 113,863
Eagle, Paul (resigned September 2017) 29,264 100 550 29,914
Fitzsimons, Fleur (elected December 2017) 36,131 200 917 37,248
Foster, Andy 91,581 400 2,200 94,181
Free, Sarah 91,581 400 2,200 94,181
Gilberd, Peter 91,581 400 2,200 94,181
David, Lee 91,581 400 2,200 94,181
Marsh, Simon 91,581 400 2,200 94,181
Pannett, Iona 98,600 400 2,200 101,200
Sparrow, Malcolm 91,581 400 2,200 94,181
Woolf, Simon 91,581 400 2,200 94,181
Young, Nicola 91,581 400 2,200 94,181
         
TOTAL REMUNERATION PAID TO COUNCIL MEMBERS 1,455,861 5,500 32,267 1,493,628
Total monetary remuneration 1,461,361
Total non-monetary remuneration 32,267

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 2017/18 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
2018
$
TAWA COMMUNITY BOARD        
Herbert, Richard (Chair) 18,168 540 - 18,708
Lucas, Margaret (Deputy Chair) 9,084 - - 9,084
Hansen, Graeme 9,084 - - 9,084
Langham, Liz 9,084 - - 9,084
Marshall, Jack (includes Youth Council attendance fee) 9,084 - 660 9,744
Parkinson, Robyn 9,084 - - 9,084
Day, Jill (see Councillor remuneration above) - - - -
Sparrow, Malcolm (see Councillor remuneration above) - - - -
         
MAKARA-OHARIU COMMUNITY BOARD        
Grace, Christine (Chair) 9,290 540 - 9,830
Apanowicz, John (Deputy Chair) 4,646 - - 4,646
Liddell, Judy 4,646 - - 4,646
Renner, Chris 4,646 - - 4,646
Rudd, Wayne 4,646 - - 4,646
Todd, Hamish 4,646 - - 4,646
         
TOTAL REMUNERATION TO COMMUNITY BOARD MEMBERS 96,108 1,080 660 97,848

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 2018.

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
  2018
$
2017
$
Short-term employee benefits    
     
Kevin Lavery    
Salary 425,160 413,160
Motor vehicle park 3,000 3,000
     
TOTAL REMUNERATION OF THE CHIEF EXECUTIVE 428,160 416,160
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 2018 the Council made severance payments to 21 employees totalling $405,695 (2017: 15 employees, $261,259).

The individual values of each of these severance payments are: $700; $54,762; $71,125; $6,000; $22,835; $7,878; $6,019; $4,591; $4,312; $15,410; $4,680; $14,650; $2,076; $30,000; $6,083; $26,925; $10,256; $3,560; $68,864; $28,969; $16,000.

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
  2018 2017
Full-time and full-time equivalent employee numbers    
Full-time employees (based on a 40 hour week) as at 30 June 1,038 1,037
Full-time equivalents for all other non full-time employees 264 265
     
     
Remuneration bands    
The number of employees receiving total annual remuneration of less than $60,000 1,106 1,115
The number of employees receiving total annual remuneration of more than $60,000 in bands of $20,000    
$60,000 - $79,999.99 272 269
$80,000 - $99,999.99 182 175
$100,000 - $119,999.99 91 80
$120,000 - $139,999.99 53 56
$140,000 - $159,999.99 36 30
$160,000 - $179,999.99 12 12
$180,000 - $199,999.99 9 8
$200,000 - $239,999.99* 9 6
$240,000 - $299,999.99* 6 6
$300,000 - $419,999.99* 4 5
TOTAL EMPLOYEES 1,780 1,762

Of the 1,780 (2017: 1,762) individual employees, 742 (2017: 725) work part-time or casually.

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

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

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

Grade Salary Range 2018
Q $33,705 - $42,132 402
9 $42,132 - $55,672 414

The Q grade includes 2 training level rates applicable to certain ‘Parks, Sports and Recreation’ positions that require people employed in these positions to meet specified core competencies before moving to the either level 2, or to the fully qualified rate of $20.20

The current living wage rate for WCC is $20.20. Each year the living wage rate for WCC will be reviewed in accordance with the latest Living Wage rate announced/published by Living Wage Aotearoa.

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 Council’s own Civic Administration Building (CAB) in Civic Square.

Assets affected

Buildings

The Civic Administration Building (CAB) in Civic Square 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 operational 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 were demolished in 2017.

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 2017/18 year a total of $2.026m (2017: $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 an impairment loss of $11.446m was recognised. CAB is not a revalued asset therefore the loss was included within Expenditure on operating activities in the Statement of Comprehensive Revenue and Expense for the period ending 30 June 2017.

Contingent Asset – Insurance recoveries

As at 30 June 2018, the Council had a contingent asset for 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 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

In August 2018 the Council and The Movie Museum Limited announced a mutually-agreed parting of the ways for a joint project to construct a convention centre and movie museum. The Council are to consider continuing with the project which would now combine the convention centre with an exhibition space. $0.132m of costs that were directly attributable to the Movie Museum arrangement, that had previously been included within work in progress, have now been expensed in the year ended 30 June 2018.

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

Approximately equal value

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

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

Change of accounting policies

There have been no elected changes in accounting policies during the financial period.

Changes to PBE accounting standards

There have been no new accounting standards issued with mandatory effect for the accounting period. However, amendments to standards have been made with effect for periods beginning after 1 January 2017.

2016 Omnibus amendments to PBE standards – These amendments were issued in parts in January 2017, being effective for periods beginning on or after 1 January 2017 or 1 January 2018, but not all parts being able to be early adopted. A relevant amendment for the Council that is able to be adopted is to PBE IPSAS 32 Service Concession Arrangements: Grantor. This amendment requires that service concession assets are grouped with similar property, plant and equipment assets for the purpose of subsequent measurement and disclosure under PBE IPSAS 17 Property, Plant and Equipment. In effect, this means that the Service Concession assets that have been previously disclosed as a separate class of asset will now be included within the Drainage, water and waste asset class.

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:

1A Tier 1 entity is defined as being either, publicly accountable or large (ie. expenses over $30m). Council exceeds the expenses threshold.