03 Financial Statements NOTE 20: BUDGETARY REPORTS AND EXPLANATION OF MAJOR VARIANCES

CEFC ANNUAL REPORT / 2014–15

Note 20: Budgetary Reports and Explanation of Major Variances

The following tables provide a comparison of the original budget as presented in the 2014-15 Treasury Portfolio Budget Statements (PBS) to the 2014-15 final outcome as presented in accordance with AAS for the Corporation. The Budget is not audited.

Note 20A: Departmental Budgetary Reports

The budgeted financial statements for 2014/15 were prepared on the basis of the Australian Government’s intention to abolish the CEFC. Legislation to abolish the CEFC and transfer the CEFC’s existing assets and liabilities to the Commonwealth was before Parliament at that time. Given the uncertainty regarding the timing of the passage of legislation, the budgeted financial statements assumed the CEFC was to be abolished from 1 July 2014. Accordingly, the 2014/15 budget assumed:

  • no new investments would be entered into by the CEFC post 30 June 2014;

  • revenue from those contracts planned to be executed prior to 30 June 2014 was forecast to continue through the life of the investments (including revenue associated with the unwind of previously recorded concessionality charges);

  • no additional concessionality charges were forecast to be incurred (consistent with the assumption of no new investments being entered into by the CEFC post 30 June 2014);

  • all operational expenses (employee benefits and supplier costs) were anticipated to cease effective 30 June 2014;

  • an allowance for possible loan impairment was provided in each period of the forward estimates in relation to the existing investment portfolio; and

  • all outstanding liabilities to suppliers and employees were assumed to be settled at 30 June 2014.

The Corporation was not abolished at 1 July 2014, and therefore has continued to fulfil its obligation to invest in accordance with the CEFC Act. There has been no material change in the direction of the Corporation or the operations of the Corporation during the 2014/15 financial year, and as a consequence there are a large number of material variances to a budget that was based on assumption of abolition on the first day of the financial period. In explaining variances to the budget, the Corporation has therefore focussed on those items which are considered of most significance to the operations of the CEFC. 

Statement of Comprehensive Income

for the period ended 30 June 2015 

 

Actual 

$’000

Budget[1]

$'000

Variance[2]

$’000

NET COST OF SERVICES

   

EXPENSES

     

Employee benefits

14,544

-

(14,544)

Suppliers

4,688

-

(4,688)

Depreciation and amortisation

455

313

(142)

Finance costs

6

-

(6)

Concessional loan charges

1,392

-

(1,392)

Write-down and impairment of assets

2,271

3,396

1,125

Provision for irrevocable loan commitments

266

-

(266)

Total expenses

23,622

3,709

(19,913)

Own-Source Income

     

Own-source revenue

     

Interest and loan fee revenue

54,619

37,125

17,494

Other revenue

19

-

19

Total own-source revenue

54,638

37,125

17,513

Gains

     

Other gains

139

-

139

Total gains

139

-

139

Total own-source income

54,777

37,125

17,652

Net contribution by / (cost of) services

31,155

33,416

(2,261)

Revenue from Australian Government

-

-

-

Surplus before income tax on continuing operations

31,155

33,416

(2,261)

Income tax expense

-

-

-

Surplus after income tax on continuing operations

31,155

33,416

(2,261)

Surplus after income tax

31,155

33,416

(2,261)

OTHER COMPREHENSIVE INCOME

   

Items not subject to subsequent classification to net cost of services

     

Changes in asset revaluation surplus

1,138

-

1,138

Total other comprehensive income before income tax

1,138

-

1,138

Income tax expense – other comprehensive income

-

-

-

Total other comprehensive income after income tax

1,138

-

1,138

Total comprehensive income

32,293

33,416

(1,123)

    1. The Corporation’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the Corporation’s 2014-15 PBS).

    2. Difference between the actual and original budgeted amounts for 2014–15. Explanations of major variances are provided further below.

Statement of Financial Position

as at 30 June 2015

 

Actual

$’000

Budget[1]

$'000

Variance[2]

$’000

ASSETS

Financial assets

     

Cash and cash equivalents

149,577

-

149,577

Short-term investments

100,000

-

100,000

Trade and other receivables

6,451

3,924

2,527

Loans and receivables at amortised cost

322,871

408,311

(85,440)

Available for sale financial assets

77,057

565

76,492

Other financial assets

597,875

413,574

184,301

Total financial assets

1,253,831

826,374

427,457

Non-financial Assets

     

Property, plant and equipment

314

134

180

Intangibles

338

-

338

Prepayments and other assets

515

-

515

Total non-financial assets

1,167

134

1,033

Total assets

1,254,998

826,508

428,490

LIABILITIES

Payables and unearned income

     

Suppliers

1,617

-

(1,617)

Unearned income

6,530

7,140

610

Other payables

3,004

-

(3,004)

Total payables and unearned income

11,151

7,140

(4,011)

Provisions

     

Employee provisions

878

-

(878)

Other provisions

10,860

21,508

10,648

Total provisions

11,738

21,508

9,770

Total liabilities

22,889

28,648

5,759

Net assets

1,232,109

797,860

434,249

EQUITY

Contributed equity

1,168,363

742,307

426,056

Reserves

1,138

-

1,138

Retained surplus

62,608

55,553

7,055

Total equity

1,232,109

797,860

434,249

  1. The Corporation’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the Corporation’s 2014-15 PBS).

  2. Difference between the actual and original budgeted amounts for 2014/15. Explanations of major variances are provided further below.

Statement of Changes in Equity

for the period ended 30 June 2015

  Retained Surplus Reserves Contributed Equity Total Equity
  Actual
$'000
Budget1
$'000
Variance2
$'000
Actual
$'000
Budget1
$'000
Variance2
$'000
Actual
$'000
Budget1
$'000
Variance2
$'000
Actual
$'000
Budget1
$'000
Variance2
$'000
Opening balance                        
Balance carried forward from previous period 31,453 22,137 9,316 - - - 1,200,565 1,217,439 (16,874) 1,232,018 1,239,576 (7,558)
Comprehensive income                        
Surplus for the period 31,155 33,416 (2,261) - - - - - - 31,155 33,416 (2,261)
Other comprehensive income - - - 1,138 - 1,138 - - - 1,138 - 1,138
Total comprehensive income 31,155 33,416 (2,261) 1,138 - 1,138 - - - 32,293 33,416 (1,123)
Transactions with owners                        
Distributions to owners                        
Return of equity to Special Account - - - - - - (50,600) (475,132) 424,532 (50,600) (475,132) 424,532
Contributions by owners                        
Equity injection from
Low Carbon Australia Limited
- - - - - - 18,398 - 18,398 18,398 - 18,398
Total transactions with owners - - - - - - (32,202) (475,132) 442,930 (32,202) (475,132) 442,930
Closing balance as at 30 June 62,608 55,553 7,055 1,138 - 1,138 1,168,363 742,307 426,056 1,232,109 797,860 434,249

Cash Flow Statement

for the period ended 30 June 2015

 

Actual

$’000

Budget[1]

$’000

Variance[2]

$’000

OPERATING ACTIVITIES

 

Cash received

     

Interest and fees

51,620

38,166

13,454

Distributions from equity investments

6

-

6

Total cash received

51,626

38,166

13,460

Cash used

     

Employees

14,576

3,883

10,693

Suppliers

4,805

960

3,845

Total cash used

19,381

4,843

14,538

Net cash from operating activities

32,245

33,323

(1,078)

INVESTING ACTIVITIES

 

Cash received

     

Principal loan repayments received

18,605

16,411

2,194

Redemption of short-term investments

375,000

160,000

215,000

Redemption of other financial assets

201,333

26,241

175,092

Total cash received

594,938

202,652

392,286

Cash used

     

Purchase of property, plant and equipment

254

-

254

Purchase of intangibles

388

-

388

Loans made to other parties

108,650

162,972

(54,322)

Purchase of AFS financial assets

74,514

-

74,514

Purchase of short-term investments

205,000

-

205,000

Acquisition of other financial assets

179,700

-

179,700

Total cash used

568,506

162,972

405,534

Net cash from (used by) investing activities

26,432

39,680

(13,248)

FINANCING ACTIVITIES

 

Cash received

     

Contributed equity

18,398

-

18,398

Total cash received

18,398

-

18,398

 

 

Actual

$’000

Budget[1]

$’000

Variance[2]

$’000

Cash used

     

Return of equity

50,600

474,710

(424,110)

Total cash used

50,600

474,710

(424,110)

Net cash from / (used by) financing activities

(32,202)

(474,710)

442,508

Net increase in cash held

26,475

(401,707)

428,182

Cash and cash equivalents at the beginning of the reporting period

123,102

401,707

(278,605)

Cash and cash equivalents at the end of the reporting period

149,577

-

149,577

 

  1. The Corporation’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the Corporation’s 2014-15 PBS).

  2. Difference between the actual and original budgeted amounts for 2014/15. Explanations of major variances are provided further below.

Note 20B: Departmental Major Budget Variance for 2014–15

 

Explanations of Major Variances

Affected Line Items

Statement of Comprehensive Income

Employee Benefits

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) employee benefit costs were incurred for the full 2014–15 financial year. In order to meet the obligations of the CEFC Act, it was necessary for the Corporation to continue to employ executives and staff across all key functions including investment, legal, risk management, finance, corporate affairs, human resources, etc.

Suppliers

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) supplier costs were incurred in the normal course operations of the Corporation for the full 2014–15 financial year.

Concessional loan charges

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) additional concessional loan charges were incurred on a number of new investments made during the 2014–15 financial year. The budget had assumed that no new investments would be made after 1 July 2014.

Interest and loan fee revenue

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to The Department of the Treasury but instead were invested to generate income for the Corporation throughout the financial year.

Statement of Financial Position

Cash and Cash Equivalents; and Short Term investments

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation.

 

Explanations of Major Variances

Affected Line Items

Loans and receivables at amortised cost

A number of investments made by the Corporation in the 2013–14 financial year were expected to draw-down and become new receivables during the 2014–15 financial year. However, due to market uncertainty surrounding energy prices, including as a result of the proposed changes to the RET, a number of major projects did not proceed to construction and investment. Another significant investment by the Corporation was subsequently able to be funded by third party commercial banks, so the Corporation stepped aside and relinquished this investment to commercial banks.

Available for sale financial assets

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15. The largest component of the variance to budget in available for sale financial assets was an investment made during 2014–15 in a Climate Bond issuance by National Australia Bank.

Other financial assets

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15 and this is reflected in the other financial assets category.

Other provisions

The positive variance to budget in other provisions is due to (a) the fact that less concessionality was granted in 2013–14 than was anticipated at the time of preparing the 2014–15 budget and (b) the status of various investments in the Corporation’s portfolio at 30 June 2015. Once an investment draws-down, the provision for concessionality is classified as an offset to the loan and receivable. In preparing a budget it is not possible to anticipate exactly at what stage each investment will be at any given point in time.

Contributed equity

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation. This meant that returns of equity to the CEFC Special Account held by Treasury were lower than budgeted.

Retained Surplus

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), it continued operations and generated a larger retained surplus than would have been the case had it been abolished.

Statement of Changes in Equity

Retained Surplus

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), it continued operations and retained earnings are larger than would have been the case had it been abolished.

Contributed Equity

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation. This meant that returns of equity to the CEFC Special Account held by Treasury were lower than budgeted. The only return of equity in 2014/15 was an amount of $50.6 million from investments that had been realised during the normal course of operations.

 

Explanations of Major Variances

Affected Line Items

Cash Flow Statement

 

Interest and fees

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to The Department of the Treasury but instead were invested and generated income for the Corporation.

Employees

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) employees were retained in the Corporation and employment related payments were made throughout the 2014–15 financial year in the normal course of the Corporation fulfilling its investment obligations under the CEFC Act.

Suppliers

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) supplier costs were paid throughout the 2014–15 financial year for costs associated with operating the Corporation in the normal course.

Redemption of other financial assets; and Acquisition of other financial assets

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15 and this is reflected in the redemption and acquisition of other financial assets in the Cash Flow Statement.

Loans made to other parties

A number of investments made by the Corporation in the 2013–14 financial year were expected to draw-down and become new receivables during the 2014–15 financial year. However, due to market uncertainty surrounding energy prices, including as a result of the proposed changes to the RET, a number of major projects did not proceed to construction and investment. Another significant investment by the Corporation was subsequently able to be funded by third party commercial banks, so the Corporation stepped aside and relinquished this investment to commercial banks.

Purchase of AFS financial assets

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15 including the purchase of AFS financial assets. The main component of AFS financial assets acquired was a climate bond issued by a major Australian Bank.

Redemption of short-term investments; and Purchase of short-term investments

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were used to fund short-term investments and then subsequently redeemed by the Corporation to funds loans made to other parties, purchases of AFS financial assets and acquisitions of other financial assets.

Contributed equity

The Corporation received a final distribution of cash from LCAL upon the formal dissolution of that Company during the 2014–15 financial year. The 2014–15 budget had assumed that this would be received prior to 30 June 2014.

Return of equity; and Cash and cash equivalents at the beginning of the reporting period

Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation.