Gawler 2013-14 Annual Report - page 20

Town of GawlerAnnual Report 2013/14
Page20
introduction •
summary
• strategic directions • statutory information • index
Theseabove factorshavemeant thatCouncil hasbeenable to incrementally reduce the level ofGeneral Rate revenue
increases required– from8% (2011/12), 5% for (2012/13and2013/14) to4% (2014/15).
Theactual result of a$169,000surplus favourablycompares to theoriginal budget estimateof a$1.042mdeficit.
2. Net Financial LiabilitiesRatio
TheNet Financial LiabilitiesRatioexpressesCouncil’snet financial liabilities (i.e. total liabilities lessfinancial assets) asa
percentageof the total operating revenue,withCouncil policybeing that the ratio result not exceed100% (i.e. thevalueof net
financial liabilities tonot exceedCouncil’sannual operating revenue).
In relatively recent times (until 30June2011) the ratio resultwasmarkedly increasing towards thepolicy thresholdpositionof
100%,with the increasebeingpredominantlydrivenbyCouncil’sannual approach (at the time) of undertakingfixed long term
loansof $3m topart fund thedeliveryof itsannual capital worksprogram. In thiscontext, it is important tonote that, due to
thehighoperatingdeficitsof the time,Council wasconsiderably reliant onexternal loanborrowings to fund itscapital works
programs.
Asystematicanddramaticchange inCouncil’s treasurymanagement approachduring the2011/2012financial year hassince
been themajor catalyst behindamarked reduction in the ratio result, fromapeakof 86% (asat 30June2011) to the ratio
result of 49% (asat 30June2014).
The fundamental changes inCouncil’s treasurymanagement approach, instigatedduring the2011/2012financial year, have
been:
(a) Onlyutilisingexternal loan fundsasandwhen theyarephysically required for cashflowpurposes - i.e.Council should
utilise itsownfinancial resourcesfirst (at aconsiderablycheaper effective internal interest rate) prior toutilisingany
external loan funds (whichattract asubstantiallyhigher external interest rate);
(b) Not borrowingexternal loan fundsviafixed long-termDebentureLoans (which incorporatefixedprincipal/interest
repaymentsover the lifeof the loan–generally15years), but rather accessing loan funding (onlyascashflow
requires) fromabankoverdraft facility (at relativelycheap interest ratesavailable from theLocalGovernment Finance
Authority),which importantlycanbe repaidat any timeascashflowpermits.Basedoneffective treasurymanagement,
thebankoverdraft facilityhasonlybeen required for ashort twomonthperiodsince2010/11;
(c) Restricting the level of capital works toanamountwhich isfinanciallysustainable.
The ratio result of a49% favourablycompares to theoriginal budget estimateof 61%.
2009/10
Actual
2010/11
Actual
2011/12
Actual
10%
20%
40%
50%
0
Net Financial LiabilitiesRatio
30%
60%
70%
2012/13
Actual
2013/14
Actual
80%
90%
Net Financial LiabilitiesRatio
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