Financially significant issues in the
year
During 2010/11 G-MW undertook a review
of its financial management area. This review
identified an underestimation of its borrowing
requirements for the year of approximately
$50 million. Through discussions with
Government, approval was granted for these
additional funding requirements.
Through this process, G-MW identified a
number of business initiatives to improve its
systems, processes and capabilities to ensure
sound and robust financial management for
the future. These initiatives included integration
of all financial management systems, integrated
budget tools and the addition to the finance
team of specialist expertise. These projects
have commenced and will continue to
provide the sound footing for robust financial
management into the future.
The result for 2010/11 shows an accounting
loss before tax of $53 million compared
to $62 million the previous year. These
accounting losses are not considered an
indicator of financial failure or of impending
cash management issues, but rather are
largely a result of changes in the asset base of
the business as additional NVIRP assets are
transferred and re-valued, which increases the
statutory depreciation charge.
On an Earnings Before Interest, Tax
Depreciation and Amortisation level
(EBITDA), G-MW is expected to achieve
positive results from 2011/12 onwards,
supported by strong positive cash flows from
operations.
An explanation of each of these is given below:
Depreciation - depreciation based on
accounting standards is an expense item in the
operating statement and is based on all assets
owned by G-MW. It includes the impact of the
recent revaluation, the NVIRP asset transfer of
$102.9 million, and other funded programs in
drain construction, dam improvement works
and major new pipelines. None of these
asset value increases are used in calculating
regulatory depreciation, the key asset value
used to calculate price.
For this reason there is a very large difference
between accounting and regulatory
depreciation as shown in the following pages.
Written down value of asset disposed - each
year G-MW capital works programme are
tested against alternative treatments that
may allow for the removal of assets after
negotiation with customers on alternative
water supply source. During 2010/11, G-MW
recorded asset disposals mainly comprised
of infrastructure assets abandoned after
decommissioning of sections of the irrigation
delivery networks as part of reconfiguration
projects.
These are primarily the result of NVIRP
projects that have been successfully completed
by 30 June 2011 and resulted in parts of
G-MW infrastructure being decommissioned.
It is anticipated that asset abandonments will
accelerate next year and continue for the
remaining years of the project. The value of
these assets is written off as an expense in the
operating statement, but does not involve any
actual cash payments.
Decommissioning of these assets provide
for positive returns in future years through
avoided asset costs and also contribute to
future water savings.
Asset transfers - during 2010/11 capital
works valued at $102.9 million were
transferred to G-MW representing capital
works completed by NVIRP on G-MW
infrastructure. In 2009/10 $87.7 million
in capital works were transferred. This
transfer is treated as a capital contribution
by Government and added in the ewquity
section of the Balance Sheet.
Expenditure funded from prior year
payments - also included in the operating
statement as expenditure are items funded
by DSE in prior years, but with expenditure
included in this year. These include amounts
attributable to the Lake Mokoan project and
FutureFlow Alliance.
