Demystifying FinancialDemystifying FinancialManagementManagement

24th April 200124th April 2001

AWA Asset Management Special Interest GroupAWA Asset Management Special Interest Group(AMSIG)(AMSIG)

Presentation OutlinePresentation Outline

–– Part 1Part 1 -- Financial ManagementFinancial Management (Chris Adam)(Chris Adam)�� Overview of Financial ManagementOverview of Financial Management�� Coming to terms with Financial Management:Coming to terms with Financial Management:

–– TheThe ‘‘Big pictureBig picture’’..–– Investment analysis.Investment analysis.

–– Part 2Part 2 -- Depreciation of Infrastructure AssetsDepreciation of Infrastructure Assets (Dr John Sing)(Dr John Sing)�� Overview and OptionsOverview and Options�� How is Noosa Council dealing with the issueHow is Noosa Council dealing with the issue

What is Financial Management?What is Financial Management?�� Financial management is the process of balancing theFinancial management is the process of balancing the

commercial needs of the business against the technicalcommercial needs of the business against the technicalrequirements and service standards:requirements and service standards:

�� Service standards drive capital works planning (new and replacemService standards drive capital works planning (new and replacement) whichent) whichthen have to be tempered by funding restrictions.then have to be tempered by funding restrictions.

ServiceStds

TechnicalReqts

FinancialM.ment

Business Activities (eg, O&M, Capex)

Fin. M.ment ConceptsFin. M.ment Concepts–– Financial Management incorporates the following:Financial Management incorporates the following:

»» Financial PlanningFinancial Planning -- Establishing a Strategic DirectionEstablishing a Strategic Direction–– Infrastructure/CapX planningInfrastructure/CapX planning–– Pricing Strategy (OpX Revenue/Expenses)Pricing Strategy (OpX Revenue/Expenses)–– Links to Service StandardsLinks to Service Standards–– Link to Corporate PlanLink to Corporate Plan–– Better Decision Making/Corporate ManagementBetter Decision Making/Corporate Management

»» Financial ManagementFinancial Management -- Control MechanismsControl Mechanisms–– Modeling future Revenue and Expenses (Cap X and O&M)Modeling future Revenue and Expenses (Cap X and O&M)–– Improved Performance MeasurementImproved Performance Measurement–– Internal Control (Budgeting)Internal Control (Budgeting)–– AuditingAuditing–– CostingCosting

Why is Financial ManagementWhy is Financial ManagementImportant?Important?

–– Increasing pressure on efficiency andIncreasing pressure on efficiency andfinancial accountability.financial accountability.

–– Increasing awareness of problems andIncreasing awareness of problems andfuture liabilities (ie, limited funds and agingfuture liabilities (ie, limited funds and aginginfrastructure).infrastructure).

–– Water Service Providers are nowWater Service Providers are nowmeasured in terms of financial (not justmeasured in terms of financial (not justtechnical) performance.technical) performance.

What is Driving the Process?What is Driving the Process?

YourWater

ServicesBusiness

YourWater

ServicesBusiness

Statutory/regulatoryrequirements

Statutory/regulatoryrequirements

OwnersOwners

CustomersCustomers

CompetitorsCompetitors

• NCP/QCA/NCC/COAG• Water Act 2000

• NCP/QCA/NCC/COAG• Water Act 2000

• Increased emphasis oncommercial issues

• Increased emphasis oncommercial issues

• Increased expectations of anefficient/quality service

• Increased globalisation pressureon downstream industries

• Increased expectations of anefficient/quality service

• Increased globalisation pressureon downstream industries

• Benchmarking• Competition for capital funds

• Benchmarking• Competition for capital funds

What do we want to get out ofWhat do we want to get out ofFinancial Management?Financial Management?

�� Act as aAct as a ““Long Range RadarLong Range Radar”” to identify potentialto identify potentialproblems.problems.

�� Demonstrate that the business will remain viable inDemonstrate that the business will remain viable inthe short and long term.the short and long term.

�� Keep the process SIMPLE without compromising theKeep the process SIMPLE without compromising theintegrity of the results.integrity of the results.

�� Get the technical and financial functions workingGet the technical and financial functions workingtogether.together.

�� Customer requirements are met (value for money).Customer requirements are met (value for money).�� Managers have financial information to allow them toManagers have financial information to allow them to

manage their business more efficiently.manage their business more efficiently.

Coming to Terms with FinancialComing to Terms with FinancialManagementManagement

�� Financial management in an organisational sense:Financial management in an organisational sense:–– How do we make our business more effective?How do we make our business more effective?

�� Statement of CashflowStatement of Cashflow�� Operating StatementOperating Statement�� Balance SheetBalance Sheet

�� Financial management at the coal face:Financial management at the coal face:–– Investment AnalysisInvestment Analysis

�� Where do we spend our limited $Where do we spend our limited $

Financial ManagementFinancial Management -- thethe ““BigBigPicturePicture””

�� Statement of Cashflows:Statement of Cashflows:–– Are we cashflow positive? (ie, do we have enough money to payAre we cashflow positive? (ie, do we have enough money to pay

bills as and when they fall due?)bills as and when they fall due?)–– Are significant revenue increases required to fund capital worksAre significant revenue increases required to fund capital works??

�� Operating Statement:Operating Statement:–– Does the organisation generate enough revenue to meet its longDoes the organisation generate enough revenue to meet its long

term requirements (ie, does it sufficiently cover depreciation)?term requirements (ie, does it sufficiently cover depreciation)?–– Is the organisation profitable?Is the organisation profitable?

�� Balance Sheet:Balance Sheet:–– Does the net value of assets increase over time?Does the net value of assets increase over time?–– Are our borrowing's manageable?Are our borrowing's manageable?

Water Service Provider 1 Financial ModelWATER PROGRAM

Line 0 1 2 3 4 5

1999/00 2000/01 2001/2 2002/3 2003/4 2004/5

$'000 $'000 $'000 $'000 $'000 $'000OPERATIONS

REVENUE 1.01 1.00 1.00 1.00 1.00Base Charge per Property 280$ 283$ 283$ 283$ 283$ 283$

1 Rates and charges 3,574.3 3,512.9 3,530.4 3,548.1 3,565.8 3,583.72 Interest earned 19.7 20.0 0.0 0.0 0.0 0.03 Non-capital grants & subsidies 0 12.5 12.75 13.005 13.2651 13.5304024 Capital subsidies & grants 31.0 17.6 28.0 4.0 0.0 0.09 Infrastructure charges 1,314.4 646.0 40.0 40.0 40.0 40.0

Donated assets 75.0 75.0 75.0 75.0 75.0 75.0Other revenue 326.9 503.1 327.0 327.0 327.0 327.0

Total Revenue 5,621.3 5,069.9 4,296.0 4,289.9 4,303.9 4,322.0EXPENDITURE

10 Operating costs 883.0 974.0 974.0 974.0 108.6 120.611 Maintenance 589.0 650.0 650.0 650.0 650.0 650.0

TMP initiatives (not included elsewhere) 0.0 0.0 0.0 0.0 0.0 0.012 Administration 568.4 606.7 606.7 606.7 606.7 606.713 Loan interest 25.4 40.3 53.5 72.1 86.7 96.214 Depreciation 949.2 962.7 967.9 980.8 993.3 1,002.315 Other operating expenses (specify by way of note) 0.0 1,530.0

Total Expenditure 3,015.0 4,763.7 3,252.1 3,283.6 2,445.3 2,475.816 OPERATINGSURPLUS/(DEFICIENCY) 2,606.3 306.2 1,043.9 1,006.3 1,858.6 1,846.2

APPROPRIATIONS

To Capital Account:

17 (Revenue used for capital purposes) 0.0 0.0 0.0 0.0 0.0 0.0

18 (Capital subsidies & grants) (31.0) (17.6) (28.0) (4.0) 0.0 0.0

19 (Donated assets) (75.0) (75.0) (75.0) (75.0) (75.0) (75.0)

20 Unfunded depreciation 0.0 0.0 0.0 0.0 0.0 0.0

21 (Repayment of internal loans) 0.0 0.0 0.0 0.0 0.0 0.0

22 Total transfer to Capital Account (106.0) (92.6) (103.0) (79.0) (75.0) (75.0)

To Reserve Accounts:

23 (Constrained Works Reserve re infrastructure charges) 0.0 0.0 0.0 0.0 0.0 0.0

24 (Other reserve)

25 SURPLUS / (DEFICIENCY) 2,500.3 213.6 940.9 927.3 1,783.6 1,771.2

CAPITAL FUNDING DECISIONS.26 Newcapital works constructed 1,378.3 720.0 261.0 645.0 622.0 450.027 Donated assets (75.0) (75.0) (75.0) (75.0) (75.0) (75.0)28 Total 1,303.3 645.0 186.0 570.0 547.0 375.0

Funded by:29 1. Subsidies & grants in relation to these works 31.0 17.6 28.0 4.0 0.0 0.030 2. Constrained Works Reserve 1,314.4 646.0 40.0 40.0 40.0 40.031 3. Donated assets 75.0 75.0 75.0 75.0 75.0 75.032 4. Other reserves for the purpose AND CASH 0.0 (144.1) 86.4 412.8 397.6 260.033 5. Loans raised 254.5 125.5 31.6 113.2 109.4 75.034 6. Internal loans 0.0 0.0 0.0 0.0 0.0 0.035 7. Revenue from current year used for capital purposes 0.0 0.0 0.0 0.0 0.0 0.036 TOTAL 1,674.9 720.0 261.0 645.0 622.0 450.037 Replacement capital works. (see definition) 270.0 380.0 820.0 830.0 720.0 700.038 Loan redemption's 21.0 36.5 52.9 76.3 99.9 122.839 Total 291.0 416.5 872.9 906.3 819.9 822.8

Funded by:40 1. Subsidies & grants in relation to these works 0.0 0.0 0.0 0.0 0.0 0.041 2. Disposal proceeds from non-current assets 0.0 0.0 0.0 0.0 0.0 0.042 3. Depreciation funds from current & previous years 0.0 0.0 3.5 980.8 993.3 1,002.343 4. Constrained Works Reserve 0.0 0.0 0.0 0.0 0.0 0.044 5. Other reserves for the purpose AND CASH 237.0 340.5 705.4 (240.5) (317.4) (319.5)45 6. Loans raised 54.0 76.0 164.0 166.0 144.0 140.0

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CASH AND INVESTMENTS

49 Balance B/F 0.0 2,269.6 2,678.4 3,827.0 4,617.0 6,355.4

50 Movement in year 2,269.6 408.8 1,148.6 790.0 1,738.4 1,865.7

51 Balance C/F 2,269.6 2,678.4 3,827.0 4,617.0 6,355.4 8,221.1

RECONCILIATION OF CASH

52 Unspent depreciation funds 0.0 949.2 1,911.9 2,876.3 2,876.3 2,876.3 2,876.3

Deduct internal loans 0.0 0.0 0.0 0.0 0.0 0.0

53 Constrained Works Reserve (1,314.4) (1,960.4) (2,000.4) (2,040.4) (2,080.4) (2,120.4)

54 Other reserves (237.0) (433.5) (1,225.3) (1,397.5) (1,477.7) (1,418.2)

55 Total should balance to cash (602.2) (482.0) (349.3) (561.6) (681.8) (662.3)

BALANCESHEET. As at end of year.

56 Non-current assets at current replacement cost 64,898.0 64,898.0 65,543.0 65,729.0 66,299.0 66,846.0 67,221.057 Accumulated depreciation 31,600.0 31,600.0 32,182.7 32,330.6 32,481.4 32,754.7 33,057.057A Net book value 33,298.0 33,298.0 33,360.3 33,398.4 33,817.6 34,091.3 34,164.0

58 Cash & investments 0.0 2,269.6 2,678.4 3,827.0 4,617.0 6,355.4 8,221.159 Internal loans (Asset) 0.0 0.0 0.0 0.0 0.0 0.0 0.060 ( Internal loans (Liability) ) 0.0 0.0 0.0 0.0 0.0 0.0 0.061 Net other current assets/(current liabilities) 0.0 0.0 0.0 0.0 0.0 0.0 0.062 Total assets less current liabilities 33,298.0 35,567.6 36,038.7 37,225.3 38,434.5 40,446.7 42,385.1

63 Capital account 29,968.2 30,074.2 30,507.3 31,315.7 31,154.2 30,911.8 30,667.364 Accumulated surplus /(deficiency) 0.0 2,500.3 2,713.8 3,654.7 4,582.0 6,365.6 8,136.865 Constrained Works Reserve 0.0 (1,314.4) (1,960.4) (2,000.4) (2,040.4) (2,080.4) (2,120.4)66 Other reserves 0.0 (237.0) (433.5) (1,225.3) (1,397.5) (1,477.7) (1,418.2)67 Equity 29,968.2 31,023.0 30,827.3 31,744.8 32,298.2 33,719.2 35,265.468 Loans from external lenders 0.0 287.4 452.4 595.1 798.0 951.6 1,043.869 Total equity and loans 29,968.2 31,310.5 31,279.6 32,339.9 33,096.3 34,670.8 36,309.2

DATA AND PERFORMANCEINDICATORS 0 1 2 3 4 51999/00 2000/01 2001/2 2002/3 2003/4 2004/5

$'000 $'000 $'000 $'000 $'000 $'000Projections for:Population 26,200 26,331 26,463 26,595 26,728 26,862Percentage of population served 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Number of assessments 12,360 12,422 12,484 12,546 12,609 12,672Volume of water supplied (ML/annum) 4,234 4,255 4,276 4,298 4,319 4,341

Performance indicators:Average rates & charges per assessment $289 $283 $283 $283 $283 $283Average rates & charges per head of population served $136 $133 $133 $133 $133 $133Volume per assessment (kL/annum) 342.6 342.6 342.6 342.6 342.6 342.6Cost per ML $712 $1,120 $760 $764 $566 $570Administration costs per assessment $46 $49 $49 $48 $48 $48Rate of return on physical assets (%) 6.7% -0.2% 2.0% 1.9% 4.4% 4.4%

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Myths and MisconceptionsMyths and Misconceptions

–– Level of Accuracy:Level of Accuracy:�� Model are models.Model are models.�� Any forward forecasts are estimates only, not an exact science.Any forward forecasts are estimates only, not an exact science.�� Look for general trends, not precise answers.Look for general trends, not precise answers.

–– Depreciation Funding:Depreciation Funding:�� It is not necessary to fully fund depreciation in order to haveIt is not necessary to fully fund depreciation in order to have aa

““viableviable”” business (in terms of cashflow). (Dr John Sing tobusiness (in terms of cashflow). (Dr John Sing toexplain)explain)

–– Taxation Equivalents and Dividend Payments:Taxation Equivalents and Dividend Payments:�� Larger (commercial) WSPs need to take into account theLarger (commercial) WSPs need to take into account the

payment of taxation equivalents and dividends to the parentpayment of taxation equivalents and dividends to the parentgroup (typically Council).group (typically Council).

�� Payment of dividends is discretionaryPayment of dividends is discretionary -- a dividend payout ratioa dividend payout ratioof 0% is acceptable.of 0% is acceptable.

business level strategy(system performance)

Organisation-Wide Issues

System-Wide Issues

Facilities

Individual Assets andComponents

functional level strategy(capital and maintenance activity)

strategic/corporate objectives

Investment AnalysisInvestment Analysis -- Making aMaking aContribution to the BusinessContribution to the Business

�� How do we decide where to spend the limitedHow do we decide where to spend the limitedCapital Works Budget?Capital Works Budget?

»» Discounted Cash Flow Analysis (NPV)Discounted Cash Flow Analysis (NPV)»» Risk Issues:Risk Issues:

–– Commercial risk (what if planned development doesCommercial risk (what if planned development doesnot eventuate?)not eventuate?)

–– Social/technical risk (what if we DO NOT do theseSocial/technical risk (what if we DO NOT do theseworks?)works?)

Investment Analysis (Multicriteria) ModelsInvestment Analysis (Multicriteria) ModelsWATER MAIN REPLACEMENT ASSESSMENT MODELWATER MAIN INFRASTRUCTURE DETAILS

Water Supply Zone :Street :Main :Diameter (mm) :Length (m) :Locality Code :

1 Easy access2 Average access constraints3 Difficult access constraints

Age (years) :Material (Steel or other) :Number of Previous Failures :Years since Previous Failure :Operating Pressure (kPa)Useful Life (years) :Estimated Residual Life (years) :Condition rating :Augmentation proposed in next 10 yrs? :Approx No. of Customers Supplied by Main :

Likelihood Rating Weight Probability(Probability) 0=Low 0=Low Score

5=High 5=High (RxW)Age of Main 5 5 25No. of Previous Failures per 100 m 3 5 15Condition of Main 1 3 3Operating Pressure 2 3 6Traffic Loading 3 2 6Soil Characteristics 4 2 8

TOTAL PROBABILITY SCORE 63

Consequence Rating Weight Consequence(if failure occurs) 0=Low 0=Low Score

5=High 5=High (RxW)No. of Customers Supplied 5 4 20Social/Political 3 4 12Workplace & Public Safety 3 3 9Commercial (i.e lost revenue) 2 3 6Environmental 4 3 12Legislation/Legal 3 3 9

TOTAL CONSEQUENCE SCORE 68

DECISION MATRIX ZONE 1

POSSIBILITY x MATRIX SCORE 4284

MODEL RECOMMENDATION

No8000

2

100-11

350

Replace Main

Ipswich WSZ 3East St

450Node 7 to Node 8

5001

101Steel

3

COST ANALYSIS RESULTS

OPTION Capital NPV NPV

Cost 5% 10%

Do Nothing -$33,868.25 -$22,990.57

Replace Main $152,630.00 -$106,610.29 -$134,480.02

DECISION MATRIX ZONES

1. = Replace main

2. = Replace main if NPV (5%) of replacement > NPV (5%) for "Do Nothing"

3. = Replace main if NPV (10%) of replacement > NPV (10%) for "Do Nothing"

4. = Do nothing

Decision Matrix

0

20

40

60

80

100

0 20 40 60 80 100

Probability

Con

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COMMENTS:

SummarySummary

�� Financial Management should be:Financial Management should be:»» SIMPLESIMPLE»» Focus on CASHFLOWFocus on CASHFLOW»» Look for General Direction (not exact)Look for General Direction (not exact)

�� Investment Analysis Should consider:Investment Analysis Should consider:»» How will this project add value to the organisation?How will this project add value to the organisation?»» BUT take a wider frame of reference than just $BUT take a wider frame of reference than just $

Questions?Questions?

““DEPRECIATION OFDEPRECIATION OFINFRASTRUCTURE ASSETSINFRASTRUCTURE ASSETS””

& Resource Allocation Decision& Resource Allocation DecisionMakingMaking

Dr John Sing

Director – Corporate Services

Noosa Council

OBJECTIVESOBJECTIVES�� General:General:�� To determine the purpose of accounting forTo determine the purpose of accounting for

the depreciation of IAthe depreciation of IA’’ss

OBJECTIVES ContOBJECTIVES Cont

�� Specific:Specific:�� 1) Review fin. accounting requirements1) Review fin. accounting requirements�� 2) Consider the need to depreciate2) Consider the need to depreciate�� 3) Develop a framework for IA depreciation3) Develop a framework for IA depreciation�� 4) Examine the4) Examine the ‘‘conflict/problemconflict/problem’’ faced byfaced by

accountants, engineers & asset managersaccountants, engineers & asset managers�� 5) Offer a solution to the conflict/problem5) Offer a solution to the conflict/problem

IA AccountingInformation

Resource providersRecipients of G&SO’sight/review gpsManagement

IA AccountingPol. & Proc.

Internal requirements

External requirements

1) FIN. ACCOUNTING REQUIREMENTS

2) DEPRECIATION2) DEPRECIATIONREQUIREMENT(S)REQUIREMENT(S)

�� MandatoryMandatory�� Aust Accounting standardsAust Accounting standards�� Prescribe traditional methodsPrescribe traditional methods

–– Systematic allocation of cost conceptSystematic allocation of cost concept–– Relies on:Relies on:

»» estimating useful life & residualestimating useful life & residualvalue of the IAvalue of the IA

�� PrescribePrescribe ‘‘backward looking focusbackward looking focus’’

MANDATORY REQUIREMENTSMANDATORY REQUIREMENTS

Issue Financial Accounting

Requirement AAS4

Method S/L, R/B, U/U, S/D

Concept “Allocation of Cost”

IAIA’’S DEFINEDS DEFINED

�� According to supply & demandAccording to supply & demandcharacteristics ie:characteristics ie:–– a)a) ‘‘composite assetcomposite asset’’ where life extended bywhere life extended by

replacement of components and;replacement of components and;–– b) demand for the service makes it desirableb) demand for the service makes it desirable

�� ImpliesImplies ‘‘maintenancemaintenance’’ of infrastructure toof infrastructure toensure service provisionensure service provision

ALTERNATIVE PURPOSE(S) FORALTERNATIVE PURPOSE(S) FORCHARGING DEPRECIATIONCHARGING DEPRECIATION

�� Asset managementAsset management�� Full cost pricing & recoveryFull cost pricing & recovery�� Therefore essential to determine:Therefore essential to determine:

–– The funding required to supportThe funding required to supportrenewal/reinstatement of any loss in servicerenewal/reinstatement of any loss in servicepotential?potential?

MANAGEMENT REQUIREMENTSMANAGEMENT REQUIREMENTS

�� Adopting a method that:Adopting a method that:�� Tracks more closely the pattern ofTracks more closely the pattern of

consumptionconsumption�� Views depreciation as aViews depreciation as a ‘‘measure ofmeasure of

consumptionconsumption’’�� Is arguably more relevant and reliable forIs arguably more relevant and reliable for

‘‘allocation decisionsallocation decisions’’�� IsIs ‘‘forward lookingforward looking’’

Estimated Renewals Expenditure

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Ren.ExpAnnu

$000’s

ALTERNATIVE APPROACH

� Function of advanced asset management program� Based on life-cycle cost analysis� Not just a ‘wish list’ for maintenance� ie Produce an optimised list of renewal activities� Subject to ‘engineering’ audit

3) IA DEPRECIATION3) IA DEPRECIATIONFRAMEWORKFRAMEWORK

PURPOSE CONCEPT

Requirement ObjectiveConsumption

or loss inservice pot.

Allocation ofcost

InternalFull Cost Pricing

Asset Man.

Cell 1

#

Cell 2

External AAS4

Cell 3 Cell 4

#

4) CONFLICT/PROBLEM

�� Fin. Accounting requires accounting forFin. Accounting requires accounting forwhat has happened in the pastwhat has happened in the past

�� Man. Accounting requires forecasting whatMan. Accounting requires forecasting whatis to happen in the futureis to happen in the future

�� Therefore:Therefore:�� Determining 2Determining 2 ‘‘depreciationdepreciation’’ measures onmeasures on

the one IAthe one IA

5) WHAT WE NEED5) WHAT WE NEED

�� AA ‘‘tooltool’’ that enables the 2 measures to bethat enables the 2 measures to bedetermined (easily)determined (easily)

�� Use this tool as the basis for comparingUse this tool as the basis for comparingbackward measure with forward measurebackward measure with forward measure(ie. S/L V Renewals annuity)(ie. S/L V Renewals annuity)

�� The ability to objectively determine theThe ability to objectively determine theamount ofamount of ‘‘depreciationdepreciation’’ to beto befunded/unfunded.funded/unfunded.

NSC ExampleNSC Example

�� ““AIM 21AIM 21”” is a microsoft based applicationis a microsoft based applicationthat provides Noosa Council with a uniquethat provides Noosa Council with a uniquesolution for dealing with this conflict.solution for dealing with this conflict.

OverviewOverview

�� ““AIM 21AIM 21”” solution:solution:�� Based on asset class and catchment basisBased on asset class and catchment basis�� DrawsDraws ‘‘engineeringengineering’’ andand ‘‘accountingaccounting’’

information togetherinformation together�� Produces a comparison of book deprn. withProduces a comparison of book deprn. with

renewal annuity based conceptrenewal annuity based concept�� Enables level of funding/unfunding of depn.Enables level of funding/unfunding of depn.

to be objectively determinedto be objectively determined

AssetAsset EnquiryEnquiry –– GraphicalGraphical

ConclusionConclusion�� Given that:Given that:

–– depn. means different things to differentdepn. means different things to different ‘‘economiceconomicdecision makersdecision makers’’

�� As accountants we need to be mindful of theseAs accountants we need to be mindful of thesedifferencesdifferences

�� Expected to produce relevant and reliableExpected to produce relevant and reliableinformationinformation

�� Ultimate aim is to ensure IAUltimate aim is to ensure IA’’s are appropriately:s are appropriately:--–– Managed in an operational sense and;Managed in an operational sense and;–– Monitored in a financial sense.Monitored in a financial sense.

Questions and further discussionQuestions and further discussion

Na viga tion Pane l

Case Be ing Mode lled

Population Growth Medium 2 High = 1; Medium = 2; Low =3

Consumption Growth Rate Medium 2 High = 1; Medium = 2; Low =3

Globa l Inputs W ater Demand Inputs

CPI (Indexation) CPI 2% Current Equivalent Population (EP) - Townsville T OW NSPOP 90,413Starting Year for Analysis YEAR 2000/01 Current Equivalent Population (EP) - Townsville 2000-05 2005-10 2010-15

Weighted Average Cost of Capital WACC 9.0% T _LOW POP 1-4 0% 0% 0%

Forecast Debt/Equity Ratio DERAT IO 100% T _MEDPOP 1-4 1.5% 1.5% 1.5%

Dividend Payout Ratio (Years 5 onward) DPR 65% T _HIGHPOP 1-4 3% 3% 3%

Current Loan Balance LOANBAL 8,782,284$Interest on Current Loans LOANINT 6.40% Current Equivalent Population (EP) - Townsville T hPOP 50,000Current Loan Term (Years) T ERM 11 Current Equivalent Population (EP) - Townsville 2000-05 2005-10 2010-15

Interest on NEW Loans NEWINT EREST 8.00% T h_LOWPOP 1-4 1% 1% 1%

Loan Term (New Loans) NEW T ERM 20 T h_MEDPOP 1-4 2.5% 2.5% 2.5%

Subsidy on New Works (DAM) SUBSIDY 1 50% T h_HIGHPOP 1-4 3% 3% 3%

Subsidy on New Works (OTHER) SUBSIDY 40%Subsidy on Replacement Works SUBSIDYOLD 0%Interest on Cash and Investmants (Revenue) INT EREST REV 3% Assumed Consumptionm (L/EP/day) - Townsville 2000-05 2005-10 2010-15

% Depreciation Funded DEPRECIAT ION 100% LOWGRO1-4 600 600 600

Total Length of Mains (km) MAINS - MEDGRO 1-4 912 870 870

Interest on surplus cash SURPLUS 3% HIGHGRO 1-4 1000 1000 1000

Effective Tax Rate (1999-2000) T AX1 36%Effective Tax Rate (2000-01) T AX2 34% Assumed Consumptionm (L/EP/day) - Thuringowa 2000-05 2005-10 2010-15

Effective Tax Rate (2001- ) T AX3 30% T hLOWGRO1-4 500 500 500

T hMEDGRO 1-4 588 625 625

T hHIGHGRO 1-4 750 750 750

Variable Inputs 0 0 1Year Yr 2000 2001-05 2005-10

ResultsForecast Growth in Charges NA 5.0% 0.0%

Internal rate of return (20 years) 12.7%Growth in Other Revenue (rentals etc) 0.0% 0.0% 2.0%

Growth in Community Service Obligations NA 2.0% 2.0%

10.39392 Growth in Expenses 5.6% 3.0% 3.0%

TTWSB Draft Financial PlanInputs Sheet

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