Agenda of Finance and Performance Committee

Finance and Performance Committee

12 March 2018

Green Bond Framework Establishment And Potential Green Bond Issuance

File No.: CP2018/02562

Te take mō te pūrongo / Purpose of the report

1. To inform committee members of council’s intention to establish a green bond framework and potentially issue Green Bonds in 2018.

Whakarāpopototanga matua / Executive summary

2. Green Bonds are debt instruments where proceeds are used to (re)finance climate-friendly or environmental projects. This market has grown rapidly offshore over the last decade but the New Zealand market is in its early stages of development.

3. Auckland Council is establishing a Green Bond Framework and will potentially issue NZD Green Bonds during calendar 2018.

4. The benefits of Auckland Council issuing Green Bonds are likely to be: (1) diversity of the investor base and access to a broader range of investors; (2) a lift in the quality of investors as many ‘green’ funds tend to be buy and hold investors; (3) deeper engagement with investors through increased visibility; (4) reinforcement of our commitments to the environment and sustainability; (5) leadership opportunity. This is an opportunity to demonstrate council’s commitment to a sustainable future as outlined in the Auckland Plan and whilst being a pioneer in helping to develop a NZD Green Bond market.

5. Issuing Green Bonds demonstrates Auckland Council’s commitment to embedding sustainability into our decision-making and how we finance our activities.

Ngā tūtohunga / Recommendation/s

That the Finance and Performance Committee:

a) note the contents of this report.

Horopaki / Context

6. Green Bonds are debt instruments where the proceeds are earmarked to finance or refinance projects, assets or business activities with a “green” environmental benefit, such as low carbon transport, renewable energy, water and waste management, and low carbon buildings.

7. The first green bond was issued in 2007, but volumes have increased exponentially, from USD3bn in 2012 to over USD150bn in 2017. (see Attachment A). The green bond market is projected to increase to USD250bn in 2018 with municipalities expected to see considerable growth in green bond issuance in 2018 (ref: https://cop23.unfccc.int/news/green-bonds-issuance-set-to-reach-record-high-in-2018-moody-s)

8. Other municipalities around the world have issued Green Bonds including Capetown, Gothenburg, Honolulu, Johannesburg, Long Beach, Los Angeles, Malmo, Napa, Oslo, Ottawa, Paris, San Francisco, St Paul and Venice.

9. The key difference between conventional and green bonds is the specified use of proceeds. Investors are increasingly focused on integrating Environment, Social and Governance (ESG) factors into their investment processes and actively seeking investments that can demonstrate broader social and environmental outcomes. Recently, in his annual letter to public company CEOs, the CEO of the world’s largest investment firm, BlackRock Inc., highlighted that: “a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process”. (ref: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter). Locally, this increased focus on responsible investment has seen a 2500% growth in New Zealand funds with some form of ESG screening, reaching a total of NZ$42.7billion in 2016 (ref: https://responsibleinvestment.org/wp-content/uploads/2017/08/Media-Release_RIAA_NZ-RI-Benchmark-Report.pdf).

10. Increasing public scrutiny of investment funds has further accelerated investors’ shifts to more responsible and transparent portfolios. In New Zealand, discovery of Kiwisaver investments in controversial armaments manufacturing generated significant public interest (http://www.radionz.co.nz/news/national/311225/kiwisavers-fund-cluster-bombs,-land-mines), whilst globally, the response to the Marjory Stoneman Douglas High School shooting in Parkland, Florida has seen widespread divestment and disassociation from the gun manufacturer industry (https://www.vox.com/2018/2/28/17058342/wall-street-gun-stocks-divestment).

11. The basic steps to issue are: (1) establishing a green bond framework; (2) identify assets that meet the criteria; (3) external verification of assets and process; (4) engage with investors and bond issuance; and (5) ongoing verification and reporting.

12. Auckland Council, with input from ANZ and independent external verification from EY, has developed a draft Green Bond Framework (Attachment B). The framework sets out the use of proceeds (including eligible assets), the process for evaluation and selection of eligible assets, the management of proceeds and ongoing reporting. The framework will be finalised following further input from council’s sustainability team and ANZ, and assurance sign off from EY.

13. Auckland Council is targeting an issue of Green Bonds during calendar 2018 to help promote and develop the Green Bond market in New Zealand. The establishment of a Green Bond Framework will enable eligible future assets to be (re)financed in this way.

14. The benefits of Auckland Council issuing Green Bonds are likely to be: (1) diversity of the investor base and access to a broader range of investors; (2) a lift in the quality of investors as many ‘green’ funds tend to be buy and hold investors; (3) deeper engagement with investors through increased visibility; (4) reinforcement of our commitments to the environment and sustainability; (5) leadership opportunity. This is an opportunity to demonstrate council’s commitment to a sustainable future as outlined in the Auckland Plan and whilst being a pioneer in helping to develop a NZD Green Bond market.

15. Issuing Green Bonds also demonstrates Auckland Council’s commitment to embedding sustainability into our decision-making and how we finance our activities.

16. The pricing of a Green Bond will be no more than a traditional bond. Overtime, as more Green Bond funds are established, pricing may evolve to be slightly lower than traditional bond pricing. Set-ups costs have been estimated at around NZD250,000 (excluding bond arranger fees). This includes the costs in preparing a Product Disclosure Statement as Green Bonds will not qualify under the “same class exemption” (which only allow bonds of the same class as existing listed bonds to be issued under that exemption). Ongoing costs (over and above normal borrowing costs such as trustee and listing fees) are limited to annual reporting and assurance confirmation (approximately NZD20,000 per annum).

17. To date, the only Green Bond issuance in New Zealand has been by the World Bank in July 2017. No New Zealand entity has issued a Green Bond in any currency. Contact Energy has established a Green Bond Framework which has been retrospectively applied to all of their current outstanding debt and will apply to all future debt issuance. While the NZD Green Bond market is in the early stages of development, we believe that the NZ market will follow a similar trend to the rest of the world, in that more funds will develop as they have products to invest in. There is growing demand from retail and institutional investors in NZ for Green Bonds.

Tātaritanga me ngā tohutohu / Analysis and advice

18. Council has engaged with ANZ, Mayne Wetherell and EY to assist with this process.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

19. Local boards were not consulted on this report as this is a region-wide issue and not specific to a particular local board.

Tauākī whakaaweawe Māori / Māori impact statement

20. Māori are more likely to be negatively affected by the impacts of climate change. Many Māori communities and marae are located in coastal areas, and Māori hold significant investments in climate-exposed primary industries. Māori also have Treaty of Waitangi interests in the protection of their ancestral lands and waterways. Therefore, issuing Green Bonds and directing finance towards low carbon and climate adaptation projects has the potential to improve outcomes for Māori.

Ngā ritenga ā-pūtea / Financial implications

21. The financial implications of issuing Green Bonds relative to a traditional bond are minor. There is likely to be pricing benefit (although difficult to quantify given the early development stage of the market in New Zealand) offset by marginally higher set-up costs and ongoing assurance and reporting costs.

Ngā raru tūpono / Risks

22. The risks of Green Bonds are very similar to that of a traditional bond, (for example, lack of investor demand or pricing exceeding expectations).

23. The additional risks are mainly associated with reputational issues (for example, ineffective messaging) or failing to comply with ongoing audit and reporting requirements.

24. There is also a risk resulting from the fact that the NZD Green Bond market is largely untested, so investor reaction is less certain.

Ngā koringa ā-muri / Next steps

25. Following endorsement of this report a communication strategy to media, the NZX, other exchanges and investors is planned. A draft media release has been prepared from the Mayor and Chair of the Finance and Performance Committee. An update to debt investors is planned for 13 March 2018. This will be fronted by the Finance and Sustainability teams.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Green Bond Issuance Growth	15
b ⇩	Green Bond Framework	17

Ngā kaihaina / Signatories

Authors

John Bishop - Treasurer and General Manager Financial Transactions

John Mauro - Chief Sustainability Officer

Authorisers

Matthew Walker - Acting Group Chief Financial Officer

Finance and Performance Committee

12 March 2018

Auckland Council Group – six monthly financial results to 31 December 2017

File No.: CP2018/00359

Te take mō te pūrongo / Purpose of the report

1. To provide the interim report and inform the councillors of the financial performance of the Auckland Council Group for the six months to 31 December 2017.

Whakarāpopototanga matua / Executive summary

2. This report is part of the regular quarterly reporting to the Finance and Performance Committee on the Auckland Council Group’s financial performance, financial position and cash flows for the six months to 31 December 2017.

3. The Auckland Council Group New Zealand Stock Exchange Announcement and Interim Report for the six-month period 31 December 2017 was published to the New Zealand Stock Exchange on 28 February 2018, after appropriate authorisations.

4. Auckland Council Group generated an operating surplus before gains and losses of $1,053 million for the six months to 31 December 2017, compared to the phased budget of $1,219 million.

5. The unfavourable variance of $166 million is driven by the accounting treatment for the $229m City Rail Link transaction, which differs between where it was budgeted for and where it now actually appears, and a favourable variance on vested asset revenue of $83 million.

6. During the six months, the group has invested $760 million, to expand and renew community and infrastructure assets. These were funded by operating cash flows and the balance from borrowings.

7. The Auckland Council Parent and Council Controlled Organisations will be reporting their individual performance to this meeting in separate reports.

8. The key performance highlights for councillors to discuss with the council and Council Controlled Organisations during their presentations at this committee meeting are:

· Auckland Council is below budget on resource and building consent volumes and revenue as well as development contributions revenue.

· Weathertightness provision costs have increased due to provision assumption changes and increases in repair costs for multi-unit dwelling claims.

· Auckland Transport’s operating revenue is $7.4 million higher than budget, mainly due to additional revenue from rental, enforcement and petrol tax. Capital expenditure is ahead of budget due to the accelerated property purchase for Mill Road and advanced construction for Pukekohe Station and rail crossing separation.

· Capital expenditure of Panuku for the six-month period was $4 million, against a budget of $13.2 million (approved adjusted budget).

· Regional Facilities Auckland’s revenue was lower against the approved revised budget; however, costs have not reduced proportionately, resulting in an unfavourable net direct expenditure variance for the half year.

· Full time equivalents were higher than prior year materially for Auckland Transport, Watercare and Regional Facilities Auckland.

Ngā tūtohunga / Recommendation/s

That the Finance and Performance Committee:

a) note the Auckland Council Group, for the six months to 31 December 2017, generated operating surplus before gains and losses of $1,053 million, and an increase in net assets of $989 million to $36,765 million.

b) note that overall the financial performance, net of the City Rail Link budget accounting treatment difference, is in line with the phased annual plan.

Horopaki / Context

9. This report discloses the financial performance, financial position and cash flows of the Auckland Council Group for the six months ended 31 December 2017. This paper has been prepared to inform councillors and to enable them to ask questions of officers at the committee meeting.

Overall financial performance is in line with phased annual plan

10. Auckland Council Group generated an operating surplus before gains and losses of $1,053 million for the six months to 31 December 2017, compared to the phased budget of $990 million, net of City Rail Link accounting treatment difference of $229 million.

Quarter 2 Financial Performance (in $ million)	Actual	Net Phased Budget	Variance
Revenue	3,003	3,135	(132)
Expenses	1,950	1,916	34
Operating surplus before gains and losses	1,053	1,219	(166)
Net other losses	(62)	33	(95)
Surplus before income tax	991	1,252	(261)

11. The operating surplus before gains and losses unfavourable variance of $166 million is largely driven by the accounting treatment of the City Rail Link of $229 million, partly offset by the favourable variance on vested asset revenue of $83 million.

12. Total revenue excluding gains was $132 million lower than phased budget, mainly driven by the following:

(in $ million)	Variance to budget	Favourable/ Unfavourable	Explanation
Grants and subsidies	(218)		When the Annual Budget 2017/18 was approved, the accounting treatment for City Rail Link had not been finalised. Subsequently with the execution of the contracts the accounting treatment has differed from that included in the Annual Budget 2017/18 with the budgeted grant recognised as a reduction against “Property, plant and equipment” in the statement of financial position and only the finance charge from the Crown recognised in the statement of financial performance
Vested assets	83		Higher due to timing and volume of vesting of assets in Auckland Council Group
Finance revenue	16		Higher than expected mainly driven by the Crown’s reimbursement of finance charges on City Rail Link stage 1 works and first quarter initial funding to City Rail Link Limited totaling $14.5 million
Port operations	7		Driven by two new subsidiaries acquired, Nexus and Conlinxx
Others	7		Higher than expected dividend income, infringement and fines and other income such as AT Hop card sales
Development and financial contributions	(16)		Lower than expected due to timing of developments
Consents, licenses and permits	(11)		Mainly due to lower than expected volumes of resource and building consents

13. Total expenditure excluding gains and losses is higher than budget by $34 million, mainly driven by the following:

(in $ million)	Variance to budget	Favourable/ Unfavorable	Explanation
Weathertightness expense	(69)		Weathertightness provision increase due to provision assumption changes and increase in repair costs for multi-unit dwelling claims
Depreciation and amortisation	28		Lower than budget mainly driven by delays in the completion of some projects and revised useful lives of transport assets as a result of the latest revaluation cycle
Consultancy and professional services	7		Lower than expected driven by the timing of the projects

14. The net other losses of $104 million are primarily non-cash book entries, driven by the decrease in the fair value of the interest rate swaps, resulting from lower long-term interest rates.

Group net assets increased by $989 million

15. The group net assets increased by $989 million, to $36,765 million, during the six months to 31 December 2017.

	Actual	Actual
	31-Dec-17	30-Jun-17	Movement
Assets	49,163	47,359	1,804
Liabilities	12,398	11,583	815
Borrowings, net of cash and cash equivalents	8,246	7,969	277
Net assets	36,765	35,776	989

The principal contributors being the:

· movement in receivables of $780 million mainly due to net uncollected rates receivables not yet due but recognised at the time of the issuance of the 2017/2018 rating notices;

· net increase of $489 million in property, plant and equipment, intangible assets, investment property and investments in associates and joint ventures, principally City Rail Link Limited for the construction of City Rail Link; and,

partly offset by:

· increase in borrowings, net of cash and cash equivalents, of $277 million.

Cash flows applied to fund infrastructure asset expansion and renewals

16. During the six months, the group has invested $760 million to expand and renew community and infrastructure assets. These were funded by operating cash flows and the balance from borrowings.

Capital expenditure for the six months amounted to $760 million

17. The group’s capital expenditure for the six months to 31 December 2017 of $760 million is 90% of the total phased budget of $843 million. Refer to Appendix One for more information.

Credit rating financial ratio continues to be managed within threshold

18. The credit rating ratio has increased closer to the threshold of 270% from 251.0% at 30 June 2017 to 260.3% at 31 December 2017.

19. This ratio increase is due to an increase in debt by 8% from 30 June 2017 compared to only 4% increase in adjusted revenue. The adjusted revenue is net of revenue directly related to capital expenditure such as development contributions and capital grants and subsidies.

20. The higher level of borrowings reflects the higher level of pre-funding for this financial year.

21. The increase in the net present value of the operating lease commitments was mainly driven by the finalisation of further agreements since 30 June 2017 under the Public Transport Operating Model of Auckland Transport, which has been determined to contain a lease.

Quarterly financial performance review

22. A review of the operating financial performance for the Auckland Council Group, for the half year ended 31 December 2017, was completed in conjunction with the Council Controlled Organisations. The aim of the quarterly review is to provide an alignment of performance reporting for the Auckland Council Group and highlight key items of interest for the councillors to discuss with Auckland Council and Council Controlled Organisations.

23. The Auckland Council Group for the half year ended 31 December 2017 incurred net direct expenditure of $312 million, which was favourable by $17 million against the annual plan.

24. The key performance highlights for councillors to discuss with the council and Council Controlled Organisations during their presentations at this committee meeting are:

· Auckland Council is below budget on resource and building consent volumes and revenue as well as development contributions revenue.

· Weathertightness provision costs have increased due to provision assumption changes and increases in repair costs for multi-unit dwelling claims.

· Capital expenditure of Panuku for the six-month period was $4 million, against a budget of $13.2 million (approved adjusted budget).

· Full time equivalents were higher than prior year materially for Auckland Transport, Watercare and Regional Facilities Auckland.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

25. This report relates to the financial performance of the Auckland Council Group, which does not include reporting at a local board level. Each local board receives reports specific to their area. Accordingly, the views of local boards have not been sought.

Tauākī whakaaweawe Māori / Māori impact statement

26. The report is limited to financial performance of the Auckland Council Group and does not affect the achievement or reporting of council’s contribution to Māori outcomes. The council’s contributions to Māori outcomes are reported in the annual report.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Auckland Council Group Quarterly Financial Report December 2017	27

Ngā kaihaina / Signatories

Authors

Francis Caetano - Group Financial Controller

Gina Cruz - Group Accountant - Policies & Standards

Dan Keys - Senior Financial Accountant

Authorisers

Kevin Ramsay - General Manager Corporate Finance and Property

Matthew Walker - Acting Group Chief Financial Officer

Finance and Performance Committee

12 March 2018

Council-controlled organisation second quarter report ending 31 December 2017

File No.: CP2018/00811

Te take mō te pūrongo / Purpose of the report

1. To receive the reports of each substantive council-controlled organisation (CCO) for the quarter ending 31 December 2017.

Whakarāpopototanga matua / Executive summary

2. The CCO quarterly reports provide an update on strategic issues, achievements, risks, key projects, financial results and performance results. These reports support the consolidated group financial statements for the quarter ending 31 December 2017.

3. In line with current reporting obligations, it is the responsibility of the board of each CCO to keep the committee, as the shareholder, informed of key risks and issues, and the status of their operating and financial performance.

4. Representatives of the CCO boards, Chief Executives and Chief Financial Officers of the CCOs will be presenting at the meeting.

5. This report summarises the contents of the CCO quarterly reports. More details are available in the full reports from the CCOs in the attachments.

Ngā tūtohunga / Recommendation/s

That the Finance and Performance Committee:

a) receive the second quarter reports from the following council-controlled organisations:

i) Auckland Transport (AT)

ii) Watercare Services Limited (Watercare)

iii) Regional Facilities Auckland (RFA)

iv) Auckland Tourism, Events and Economic Development Limited (ATEED)

v) Panuku Development Auckland (Panuku)

vi) Auckland Council Investments Limited (ACIL).

Summary of CCO second quarter reports (ending 31 December 2017)

Auckland Transport (approximately 11.00am)

Highlights

· Increase in public transport patronage (91.1 million boardings) for the 12 months to December 2017, up 7.4 per cent compared with the same period last year.

· Arterial road productivity, which measures the efficiency of key arterial routes in moving people during the peak hour, continues to exceed the Statement of Intent (SOI) target of 55 per cent, with the 12-month rolling average result in December 2017 reaching 63.5 per cent.

· New bus network for East Auckland launched, creating more services especially between 7am and 7pm, 7 days a week and at least every 15 minutes between Howick and Botany.

· Year to date travel times on all 10 of the key freight routes met or exceeded their SOI targets.

· Whangaparaoa Dynamic Lanes system switch-on is being staged to pre-condition drivers to the changing road environment. The first stage is a static lane mode, which was switched on 21 December 2017. The trial for dynamic lane operation formally commenced on 24 January 2018.

Financial

· AT’s surplus before tax for the six months ending 31 December 2017 was $240.6 million, $85.2 million higher than budget, mainly due to unbudgeted vested assets revenue of $49.4 million.

· Deficit from operations (excluding funding for capital items) was $149 million, $18.6 million favourable to budget mainly due to $15.1 million lower in depreciation cost. The full year deficit from operations is forecast to be favourable by $38.9 million due to continuing lower depreciation cost as a result of the revised useful life of roading assets.

· Capital expenditure excluding vested assets was $295.6 million, $19.4 million above budget mainly due to property acquisition deferred from last year. The full year forecast spend is expected to be $729 million, $37 million lower than the original budget of $766 million. The decrease in planned spend is mainly due to the likely deferral of the Light Rail Depot purchase into next year.

· Given both the reduced capital spend and a likely small cash surplus from operations, the full year cash requirement from Auckland Council is likely to be $50 million under budget.

Performance Measure

· Of 36 performance measures set out in the SOI, 11 were exceeded, 11 were met, seven were not on target for the reporting period and seven are annual measures.

Measures not on target	Reasons & Resolutions
Customer satisfaction index: Road quality (62%; 70% target) Footpath quality (56%, 65% target)	In Dec 2017, resident satisfaction with the quality of roads in the Auckland region (62%) was up one percentage point compared with last quarter. Resident satisfaction with quality of footpaths in the Auckland region (56%) was down one percentage point compared with last quarter. These scores are below the SOI targets of 70% and 65% respectively.
Percentage of local board members satisfied with AT engagement (56% Reporting; 42% consultation; 60% target)	AT’s elected member relationship unit has a plan to improve the overall quality of reports to local boards, which includes receiving monthly feedback and focusing on providing advice to support local boards with their capital fund decisions.
Change from the previous financial year in the number of fatalities and serious injury crashes on the local road network, expressed as a number (741 – 12mth rolling total; reduce by at least 9 [2017 year-end target of 537])	A Speed Management Implementation Plan will be delivered in early 2018 to change speeds on 10% of the rural and urban network. An Auckland Safe Roads Strategy is also being finalised to direct combined AT, Police, NZ Transport Agency and ACC actions to reduce road trauma. Combined infrastructure, education and enforcement activities continue to be delivered at high-risk locations and communities through three local Road Safety Action Plans.
Percentage of the sealed local road network that is resurfaced (2.9% Year-To-Date; 7.5% target)	Due to the need to prioritise funding to undertake urgent emergency repairs to our asset base including storm event generated renewals and the sea wall, the 2017/18 programme is not forecast to meet this target.
PT farebox recovery (45.9%, 47-50% target)	The lower than target ratio reflects the impact of the introduction of Simpler Fares in August 2016, which reduced fares for most users. A fare review was agreed by the AT Board in November and took effect on 11 February 2018.

Financial Performance

$’m	Budget to Date	Actual	Full Year Budget	Comments
Opex
Revenue/External funding	266.0	273.4	539.3	External funding is higher than budget mainly due to additional revenue from rental, enforcement and petrol tax revenue
AC funding	137.5	137.5	275.2
Expenditure excluding depreciation, amortisation	397.9	401	808.4
Depreciation and amortisation	173.2	158.1	363.0	The variance is mainly due to revised useful life of roading assets following June 2017 revaluations
Gain (loss) on derivatives and disposal of assets	-	(3.2)	-	Unrealised foreign exchange contract losses relating to the purchase of additional electric trains.
Income Tax benefit	-	0.3	-
Capex
Expenditure excluding vested assets	276.2	295.6	765.9	The variance is mainly due to accelerated property purchase for Mill Road and advanced construction for Pukekohe Station and rail crossing separation
Vested assets	46.8	96.2	103.0	Roading vested assets received from AC higher than expected
AC funding – subsidy	190.5	204.2	591.9	AC’s capital funding is higher as a result of capital expenditure being above budget
External funding	85.7	91.4	174.0	Transport Agency capital funding is higher than budget as a result of capital expenditure being above budget

Watercare Services Limited (approximately 12.00noon)

Highlights

· Section 17A Reviews: A joint report outlining the feasibility and timeframe for each of the Three Waters Value for Money s17A recommendations will be presented at the Finance and Performance Committee Meeting of Auckland Council in February. Continuing to work with Auckland Council on implementing the Communications and Engagement review recommendations.

· Western Isthmus Water Quality Improvement Programme: A series of joint presentations by Healthy Waters and Watercare management held to provide a high-level overview of the programme to local boards and community groups.

· Tradewaste Bylaw review: Watercare working with Auckland Council’s Social Policy and Bylaws team to review the Tradewaste Bylaw.

· Water Efficiency Strategy: The strategy was launched in November 2017 and is available on the Watercare website. Watercare is planning and implementing the initiatives.

· New website: Watercare launched a new, refreshed external website with updated features and new functions in November 2017.

· Havelock North Drinking Water Inquiry: The report of the Inquiry into Havelock North’s drinking water was released in December 2017. Watercare’s expertise contributed to the inquiry and the report.

· Awards: Gold Standard for utility performance at American Water Summit 2017; Gold Award and Chairman’s commendation for sustained excellence in reporting award at Australasian Reporting Awards; Kāwanatanga/Government section of the Tohu Reo Māori Awards; Hynds Construction Award; Hunua 4 won project of the year.

Financial

· Year to date revenue was $14 million favourable to budget primarily due to water and wastewater revenue $6.4 million favourable with volumes 0.8 per cent higher than budget, infrastructure growth charge revenue $0.5 million favourable, vested asset revenue $6.4 million favourable, and sundry customer charges $0.4 million favourable.

· Operating expenses of $149 million was $2 million unfavourable to budget. This comprised $1.1 million for net labour due to lower capitalisations/recoveries, maintenance, asset operating costs, professional services, as well as interest expense $0.9 million unfavourable as a result of lower capitalised interest due to capital expenditure lower than budget.

· Depreciation and amortisation was $3 million favourable to budget.

· Capital expenditure was under budget by $24 million (13 per cent) due primarily to unexpected timing delays, project efficiencies and favourable contract negotiations, consenting delays or purchase deferrals, as well as reprioritisation of some electrical and control system projects. As a result, overall net borrowings were $10 million below budget.

Performance Measure

· Of 23 performance measures set out in the SOI, two are annual measures and all remainder but two targets were met.

Measures not on target	Reasons & Resolutions
Percentage of voluntary leavers relative to number of permanent staff on a 12 month rolling average. (13.28%; ≤12% target)	The increasing trend in voluntary staff turnover is not unusual given the time of year and associated market activity.
The average consumption of drinking water per day per resident (gross PCC) on a 12 month rolling average (276; 268 ±2.5% target)	The significant increase from November to December 2017 is an exceptional situation. This was due to a very hot December 2017 where water was the highest on record and included six highest demand days ever. Gardens were watered more than normal for this time of year, and rainwater tanks were refilled from the Watercare network earlier than usual. ATEED also reported a record growth of 7% in the number of tourists visiting Auckland this summer compared to last summer.

Regional Facilities Auckland (approximately 1.30pm)

Highlights

· Auckland Zoo: Wet weather conditions have contributed to low visitor numbers. The Zoo has experienced 16 more wet days compared to the previous year so far. The second quarter was also a slower season for the Zoo’s experience products, particularly Safari Nights and Tawharanui schools education programme. The Bug Lab exhibition opened in December 2017.

· Stadiums: Tonga v England Rugby League World Cup semi-final at Mt Smart Stadium late November 2017. Sir Paul McCartney and Sia played in Mt Smart Stadium in December.

· Aotea Centre: Renewal of the exterior and interior commenced in February 2018 through to February 2019 to address weather tightness issues and to improve customer experience.

· Conventions: Auckland City Mission Christmas lunch held at the ANZ Viaduct Events Centre on 25 December 2017.

· Art Gallery: Investigating implementing entry fees for international visitors, which commenced early 2018.

Financial

· RFA finished the second quarter with net direct expenditure of $18.5 million, which is $2.2m unfavourable to budget.

· External revenue to date was $27.5 million, which was $1.7 million (six per cent) unfavourable to budget primarily due to decreasing zoo revenue (affected by wet weather), conventions revenue negatively impacted by lower event and commission revenue from the new catering contract, stadiums revenue unfavourable due to fewer concerts than planned, and declining other revenue as a result of a decrease in sponsorship revenue.

· Direct expenditure was $46.0 million, which was $0.5 million (one per cent) unfavourable to budget as a result of higher costs associated with revenue partially offset by savings in employee costs and other expenses.

· Capital expenditure was $16.7 million, representing 64 per cent of the funding allocated for this period. The lower than forecast spend is mainly driven by unexpected timing delays in the construction of the shared services facility, the refurbishment of the interior and exterior of the Aotea centre, and the Zoo Administration building extension project.

Performance Measures

· Of 15 measures set out in the SOI, nine were on target, two were not on target but on track for end of the year, and three were not on track. The remaining one is a new measure, where the data is not yet available for the percentage of Mana Whenua satisfaction with quality of engagement.

Measures not on target	Reasons & Resolutions
Number of community event days at stadiums (237 YTD; 645 target)	The increased volume of commercial activities at Auckland Stadiums venues resulted in reduced capacity for community events at certain times of the year
Percentage of visitors reporting an enhanced appreciation of wildlife (77% YTD; 80% target)	Adverse weather conditions, exhibit closures due to construction and constraints to running experience products contributed to the low appreciation.
Visitor satisfaction on the condition of facilities (87% YTD; 90% target)	The result is influenced by visitor satisfaction ratings with the condition of stadiums. RFA’s capital plan is expected to increase visitor satisfaction.

Auckland Tourism, Events and Economic Development Limited (approximately 2.00pm)

Highlights

· Governing body approved governance arrangements for the Accommodations Providers Targeted Rate (APTR) in December. Auckland Council will appoint a director with accommodation sector experience to fill a future ATEED board vacancy and establish an APTR sub-committee within ATEED.

· As at 31 December 2017, the average satisfaction score for the 3 Auckland i-SITEs was 98 per cent, one of the highest in the country.

· Regional Business Partner Network programme: strong demand with 524 clients actively engaged, almost 75 per cent of annual target.

· The Media Design School has signed a lease in the Wynyard innovation precinct.

· GridAKL’s 12 Madden Street was officially opened in October. There are now 91 businesses located across all GridAKL properties.

· 2.67 million international visitors to Auckland for the year ending December 2017, up 6.8 per cent year on year.

Financial

· Revenue was $1.3 million lower than budget, whereas the operational expenditure was $1.5 million lower than budget. Both were due to delayed opening of the two new GridAKL buildings and consequently delayed rental revenue and occupancy costs.

· The capital expenditure full year forecast has increased from budget due to the carry forward of underspent capex from FY17. This does not increase ATEED’s overall funding.

Financial Performance for the Period Ended 31 December 2017
$'m	Actual	Budget	Variance f/(u)	Full Year Budget	Comments
Operational
External Revenue	6.4	7.7	(1.3)	15.4	Delayed opening of the buildings resulted in lower rental revenue for the two new GridAKL buildings. There is a corresponding decrease in property rental expense as a result.
AC Funding	24.7	24.2	0.4	46.9

Operational expenditure excl. depreciation	30.2	31.7	1.5	63.2	Lower due to a decrease in occupancy costs relating to the GridAKL buildings as noted above.
Depreciation	1.1	0.7	(0.4)	1.4

Capex
Expenditure	5.5	0.0	(5.5)	0.2	The capex full year forecast has increased from budget due to the carry forward of underspent capex from FY17
AC Funding	5.5	0.6	(4.9)	0.2

Performance Measure

· Of 26 performance measures that ATEED reports under the SOI, seven are annual measures, 15 were on target, two were off track based on the current projection and two will not have their targets met by 30 June 2018.

Measures not on target	Reasons & Resolutions
Total visits to www.aucklandnz.com (1.06million YTD; 3.8million target)	Total user sessions to aucklandnz.com are tracking below target for the year. The relevance of the current single measure is being reviewed as it is aligned to the old website design, rather than the new website drivers measuring targeted engagement. This review will determine new improved metrics for digital engagement that align with the objectives of the new website and ATEED’s market focus. New KPIs will be included in the drafting process of the 2018-2021 SOI.
Percentage of visitors to www.aucklandnz.com located outside of Auckland (46% YTD; 50% target)

Panuku Development Auckland (approximately 2.30pm)

Highlights

· Transform Wynyard Quarter: Design of Curran Street sewer line upgrade for Skypath enabling works are complete and would go out to tender in February 2018.

· Transform Manukau: Agreement reached with Manukau DHB regarding extending public access along the Puhinui stream to enhance community activity and connection to a green network.

· Transform Onehunga: Negotiating the development of a carpark site adjacent to Dressmart.

· Unlock Panmure Town Centre: Work continues on High Level Project Plan and programme business case for Panmure Town Centre.

· Unlock Takapuna: Recommendation to change the use of 30 Anzac Street for mixed use development presented for approval at November 2017 Planning Committee meeting.

· Unlock Hobsonville: Three of 7 AV Jennings Superlots settled earlier than expected in December 2017.

· Unlock Northcote: The Awataha Greenway masterplan is complete and endorsed by Kaipātiki Local Board. Ongoing negotiation for the acquisition of strategic leasehold interest in town centre.

· Unlock The Airfields, Hobsonville Point: Investigating a mixed use development on the balance of the Hobsonville site.

· Unlock Papatoetoe Town Centre: Progressing Papatoetoe Mall refurbishment. Foodstuffs supermarket and Wallace Road carpark construction expected to start in April 2018.

· Unlock Ormiston Town Centre: Construction of Residential Block expected completion in 2018. Town Centre Block estimated settlement mid-2018.

Financial

· The Net Surplus After Tax was $4.2 million higher than budget year to date.

· Revenue and External funding was ($0.6 million) behind budget due to:

o $1.5 million less in recharges of Panuku staff to capital budgets, acquisitions and disposals of council properties and development opportunities

o Marina income ahead of budget ($0.4 million) due to additional occupancy and an increase in rates

o release of a 2015 revenue provision and Maritime Museum revenue to fund the capital project at Hobson Wharf $0.5 million.

· Expenditure excluding depreciation was $4.1m favourable compared to budget due to various savings:

o interest expense ($1.8 million)

o consultancy cost ($0.3 million)

o people costs ($0.8 million)

o repairs and maintenance ($0.8 million)

o marketing and communications ($0.6 million)

o electricity expense at Silo Marina ($0.2 million).

· Depreciation cost was $1.7 million favourable compared to budget due to slower than anticipated capitalisation of assets from both the prior and current years.

· Year to date capital spend was $8.8 million less than budget due to timing differences to phased budget for projects ($6.3 million) and external funded/commercial projects ($2.5 million).

Performance Measure

• Of 21 performance measures set out in the SOI, 16 are annual measures and remaining five are on track.

Auckland Council Investments Limited (approximately 3.00pm)

Highlights

· Auckland International Airport Limited (AIAL): Paid a final dividend of $27.9 million on 20 October 2017. AIAL’s share price decreased from $7.13 (30 June 2017) to $6.48 (31 December 2017). Auckland Airport exceeded one million international passengers (excluding transits) in a single calendar month for the first time. The 5.5 per cent increase compared to December 2016 was driven by increased capacity on Asia/Middle Eastern routes, Americas, and the Pacific. For the 2017 calendar year there were more than 10 million international passengers (excluding transits), an increase of 7.9 per cent compared to 2016. As at 31 December 2017, the market value of the investment in AIAL was $1.7 billion.

· Ports of Auckland Limited (POAL): POAL spent $69 million on capex projects for the six months to December 2017, $17 million less than the year to date budget ($86 million). Year to date operating costs are above last year due to consolidation of Nexus and Conlinxx costs, higher repair costs on ‘Awanuia’, higher wages with increased volumes, and increases in supply chain, legal and professional costs. Overall POAL volumes were above last year by three per cent but below YTD budget by 1.2 per cent.

· Auckland Film Studios Limited (AFSL): ACIL sold its shares in AFSL to Auckland Council on 3 October 2017 for $22.5 million, which was the book value of the company. Auckland Council was immediately paid a dividend of the same amount.

Financial

· ACIL’s parent year to date net surplus after tax was $53.7 million, $8.1 million higher than the year to date budget of $45.6 million. This was mainly due to the higher than planned POAL dividend of $26.1 million (which included a tax benefit of $9.2 million), compared to the budget of $19.1 million.

Performance Measure

· ACIL met the targets for all seven performance measures set out in the SOI for the reporting period. AFSL’s measure has been removed due to the transfer to Auckland Council.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	AT second quarter report for the period ending 31 December 2017	47
b ⇩	Watercare second quarter report for the period ending 31 December 2017	77
c ⇩	RFA second quarter report for the period ending 31 December 2017	107
d ⇩	ATEED second quarter report for the period ending 31 December 2017	129
e ⇩	Panuku second quarter report for the period ending 31 December 2017	155
f ⇩	ACIL second quarter report for the period ending 31 December 2017	177

Ngā kaihaina / Signatories

Authors

Neil Huang - Principal Advisor

Susan Jiang Su – Finance Graduate

Authorisers

Ross Tucker - Acting General Manager, Financial Strategy and Planning

Matthew Walker - Acting Group Chief Financial Officer

Finance and Performance Committee

12 March 2018

Auckland Council parent performance report for the period 1 July 2017 to 31 December 2017

File No.: CP2018/02462

Te take mō te pūrongo / Purpose of the report

1. To provide an overview of the Auckland Council organisation (the parent entity) performance results for the period 1 July 2017 to 31 December 2017.

Whakarāpopototanga matua / Executive summary

Service Performance

2. This report includes results against LTP performance measures. Only some of the total set of measures are reported on a quarterly frequency.

3. This quarter, 43 measures are reported. 25 measures (58 per cent) reached their target and 18 (42 per cent) did not.

4. Within the themes subsections, the status of each performance measure is indicated with the following icons:

· Ο indicates performance measures that have achieved, or are better, than target

· Ο indicates performance measures that have not achieved the target

5. For performance measures showing a red status, an explanation of the performance is provided.

Financial Performance

6. This report shows how the organisation is performing against the revised budget and outlines any associated financial risks.

7. The December 2017 quarter’s net operating result was $12 million better than budget. This was mainly due to lower than budgeted interest rates being applied across a lower than planned level of borrowing. Staff costs are forecast to be aligned to budget at year end.

8. At the end of December, $220 million (or 36 per cent) of the full-year $605 million capital expenditure budget had been spent. The current forecast is that year end capital expenditure will be $511 million.

9. For Treasury management, the forecast year end closing debt of $8 billion is $165 million above budget.

10. Appendices to this report include information on professional services expenditure, LGOIMAs and customer services. Group financial results and CCO performance results are in separate agenda papers.

Ngā tūtohunga / Recommendation/s

That the Finance and Performance Committee:

a) receive the performance report for the Auckland Council parent for the period of 1 July 2017 to 31 December 2017.

Horopaki / Context

11. The following subsections outline performance by each theme used in the Annual Report. For each theme, highlights, financial performance and service performance are summarised. The themes are:

· Auckland Development

· Environmental Management and Regulation

· Parks Community and Lifestyle

· Governance and support.

12. Following the subsections on themes, an additional subsection provides a consolidated commentary on financial performance.

Tātaritanga me ngā tohutohu / Analysis and advice

Auckland Development theme

Auckland Development Highlights

13. Highlights for the Auckland Development theme include:

· The next steps forward for the development of the city centre were showcased using a combination of animation and live footage in the City Centre Masterplan video: "Auckland City Centre - the next stage".

· The Low Carbon Auckland Annual Report 2017 was published. It reports successes in the low carbon transformation and notes an overall increase in regional emissions that needs addressing to meet existing targets and increasing national and international ambitions.

· The National Policy Statement on Urban Development Capacity (NPS-UDC) 2016: Housing and Business Development Capacity Assessment for Auckland was published. Growth pressures and the changing nature of urban areas have led to the creation of the NPS-UDC. The NPS-UDC provides direction to local councils to help them make informed decisions about planning in urban environments for future populations to happily live and work.

Auckland Development Financial Performance

$million

YTD Actual

YTD Revised

Budget

YTD Variance

FY18

Annual Plan

Net operating expenditure

16%

138

Capital expenditure

34%

141

14. Net operating expenditure to the end of the second quarter for the Auckland Development theme was $6 million favourable to budget. This was due to higher rental property revenue and higher government agency grants, together with lower staff costs resulting from Planning staff vacancies after restructures.

15. Capital expenditure is $22 million below budget, reflecting delays in strategic development land acquisitions, the Hobsonville residential development project, and the Built Heritage Protection project. This was offset by the Totara Stormwater Ponds project which progressed ahead of plan.

Auckland Development Service Performance

16. The following table summarises the performance against the LTP measures relating to Auckland Development that were able to be measured this quarter.

Auckland Development	FY18			FY17
Performance measures	Quarter 2 result	Quarter 2 target	Status	Actual Result
Percentage of Unitary and Area Plan changes and Notices of Requirement processed within statutory timeframes	100%	100%	Ο	100%
Proportion of actions from strategies and action plans that are being implemented according to timeframes (LTP)	90%	80%	Ο	90%

Environmental Management and Regulation theme

Environmental Management and Regulation Highlights

17. Highlights for the Environmental Management and Regulation theme include:

· Auckland Council won the award for Best Commercial or Public-Sector Project at the annual WasteMINZ conference this month. The award was for the Resource Recovery Network which is a network of community recycling centres that provide a facility where residents can drop off unwanted items and materials for reuse and repurposing

· Auckland Council was awarded the Cities for Zero Waste Award, as part of the C40 Cities Bloomberg Philanthropies Awards. The Awards recognise cities that demonstrate climate action leadership.

· Online consent applications are continuing on a steady growth path, with 35% of applications being received in December being online applications.

· The Environmental Health team of Auckland Council has been recommended for accreditation under ISO17020 for its Food Safety verification services. This is a first for a New Zealand council. The accreditation will give Aucklanders greater confidence that food sold at food businesses in Auckland is safe.

· Representatives from the Top of the North marine biosecurity partnership presented to the Upper North Island Strategic Alliance (UNISA) mayors and chairs on the first steps of the Inter-Regional Marine Pathway Management Plan (IRMPMP) for the upper North Island.

· Live Lightly was launched in October with a website and Facebook page. Live Lightly is a collaboration between Auckland Council, community groups and partners, and showcases everyday lifestyle choices we can all make to save money, have a healthier life and care for the planet. The Live Lightly website can be viewed at https://livelightly.nz/

· The Drury Structure Plan (which guides the future development of the Future Urban Zone in Drury) is progressing well and workshops on the Plan involving key developers were held in December.

· To assist in engaging stakeholders on issues around water management, Healthy Waters have developed a map-based tool to show the current state of Auckland’s freshwater, estuarine and coastal areas and summarising key interventions already occurring. The tool can be viewed at https://aucklandcouncil.maps.arcgis.com/apps/MapJournal/index.html?appid=13c6b96541884d8099da216a2206a2d0

· A number of community meetings were held to engage the public on increasing infrastructure to improve water quality in streams and at beaches, as part of the Western Isthmus Water Quality Improvement Project.

· The highest ever number of applications were received for the Waste Minimisation and Innovation Fund. The 102 applications will be assessed by the Environment and Community Committee.

· The Waiheke Collective’s expression of interest (EOI) to Predator Free 2050 has been selected to proceed to the next round of funding assessment. It is one of seven successful EOIs out of an original 50 and the only Auckland project to proceed to the next round.

Environmental Management and Regulation Financial Performance

$million

YTD Actual

YTD Revised

Budget

YTD Variance

FY18

Annual Plan

Net operating expenditure

(4)

(9%)

290

Capital Expenditure

(3)

(4%)

117

18. Net operating expenditure for the Environmental Management and Regulation theme is over budget by $4 million. This reflects operating revenue being lower than budget due to lower than expected building and resource consent volumes, together with higher outsourced services costs due to vacancies following restructures, partially offset by lower staff costs from those vacancies.

19. Capital expenditure is $3 million ahead of budget. Healthy Waters, Development Programme Office and Waste Management projects have progressed ahead of schedule.

Environmental Management and Regulation Service Performance

20. The following table summarises the performance against the LTP measures relating to Building and Resource Consents that were able to be measured this quarter.

Building and Resource Consents	FY18			FY17
Performance measures	Quarter 2 result	Quarter 2 target	Status	Actual Result
Percentage of customers satisfied with the overall quality of building control service delivery	49%	65%	Ο	55%
The latest result of 49% is a minor improvement on the prior score of 48% - the target is however 65%. A monthly phone survey to a continuous monitor that now reaches almost all customers and asks for opinions at all stages of the consenting process is contributing to a better customer experience. The Consenting Made Easy initiative coupled with the Future Shape Restructure should further help propel towards the next target of 70%.
Percentage of Building Consent applications processed within 20 working days	83%	100%	Ο	80%
Processing times have been impacted by the introduction of new systems and processes, and the recent restructure.
Percentage of customers satisfied with the overall quality of resource consents service delivery	49%	55%	Ο	58%
Consenting Made Easy, the introduction of new customer friendly technology, and the newly introduced Regulatory Services structure, will improve customer service.
Percentage of non-notified Resource Consent applications processed within 20 working days	74%	100%	Ο	78%
As with Building Consents, processing times have been impacted by the introduction of new systems and processes, and the recent restructure.
Percentage of notified Resource Consent applications processed within 70 working days.	56%	100%	Ο	45%
Processing times have been impacted by the introduction of new systems and processes, and the recent restructure.

21. Issued building consent volumes over the six months to December 2017 is 6% lower compared to the previous year. For the first two quarters of 2017/18, there were 10,398 consents issued, compared with 11,071 for the first two quarters of 2016/17. This is having a detrimental impact on revenue, which for YTD December 2017 was $46.5 million, $6.7 million below budget. With lower volume, there is reduced outsourced works costs ($2.6 million underspent against the $7.4 million budget) however these savings are not enough to offset the fall in revenue. The operating surplus for Building Consents as at 31 December 2017 was $17.3 million, which is $4.9 million lower than budget. As a result, the year-end forecast operating surplus is $38.1 million, which is $5.1 million unfavourable to the revised budget.

22. Issued resource consent volumes are also lower than budgeted, being 12% lower than last year (11,013 consents issued for the first two quarters of 2017/18 compared with 12,369 for the first two quarters of 2016/17). This is having a detrimental impact on revenue, which at $27.2 million is $2.1 million under budget. There are significant staff vacancies (in December there were 303 FTEs against an approved FTE level of 396) with many of these vacancies being key technical roles. Despite the lower volumes, the vacancies in technical roles means that reliance is being placed on outsourced services (which is $6.2m overspent compared to the $4.1 million budget). The operating surplus as at 31 December 2017 for Resource Consents is $0.7 million, which is $5.3 million lower than budget. The year end forecast is an operating surplus of $14.6 million, which is $5.1 million unfavourable to the year-end revised budget.

23. When the performance report for the first quarter was presented to the Committee on 20 November 2017, the Committee was advised that all outstanding/overdue Code of Compliance Certificates (CCC) would be cleared by the end of the year. As at end of December 2017, all the outstanding “overtime” CCC’s have been cleared, a dedicated team has been monitoring the progress on a weekly basis and is bringing the remaining balance to well inside the 20 working day service level.

24. The following table summarises the performance against the LTP measures relating to Licensing and Compliance Services that were able to be measured this quarter.

Licensing and Compliance Services	FY18			FY17
Performance measures	Quarter 2 result	Quarter 2 target	Status	Actual Result
Percentage of urgent animal management complaints such as dog attacks responded to within one hour	99%	95%	Ο	99.5%
Percentage of known dogs that are registered	87%	100%	Ο	88%
The dog database requires ongoing maintenance to update records for dogs who have died or moved out of the area.
Percentage of noise complaints responded to within 30 minutes for urban areas or 60 minutes for rural areas	62%	80%	Ο	77%
This result reflects poor contractor performance and the seasonal peak. Contractors in the North and West are not meeting their contracted service KPIs. In order to address the issue we have applied a 3 per cent reduction to monthly invoicing to sanction for repeated poor performance. Contracts expire in mid-2018 and the current performance of contractors will be taken into account when renewing contracts.
Percentage of complainants satisfied with noise control services	56%	52%	Ο	59%
Percentage of registered food premises graded annually	82%	95%	Ο	95%
Result is below target due to renewal of licenses and transition to Food Act. Those businesses that renew will be graded; however those who apply for transition will be verified in accordance with Food Act requirements.
Percentage of customers satisfied with the food and hygiene licensing service	77%	70%	Ο	82%
Percentage of D/E graded food premises re-inspected within one month	97%	95%	Ο	98%
Pressures remain on the licensing area to meet the workload required under the Food Act 2016. The current measures relate to food businesses inspected in terms of Food Hygiene Regulations
Percentage of high-risk alcohol premises inspected annually	70%	100%	Ο	100%
The result is below target, which is normal for this time of year, as inspectors focus on other areas. Inspections are scheduled across regular evening shifts across the year, with 100% of premises to be inspected by year end.
Percentage of customers satisfied with the alcohol licensing service	84%	68%	Ο	83%
Percentage of bylaw-related requests for service (e.g. illegal signs, public nuisance, street trading) responded to within three days	87%	83%	Ο	80%
Percentage of requests by iwi that are relevant and within their area of interest that are responded to within three statutory days	100%	100%	Ο	100%

25. The following table summarises the performance against the LTP measures relating to Solid Waste and Environmental Services that were able to be measured this quarter.

Solid Waste and Environmental Services	FY18			FY17
Performance measures	Quarter 2 result	Quarter 2 target	Status	Actual Result
Domestic kerbside refuse per capita per annum	145kg	110kg	Ο	144kg
Domestic rubbish sent to landfills has significantly reduced. However the target will not be met until food waste initiatives are implemented from 2020 (given food waste comprises 45% of domestic waste).
Total number of Resource Recovery Facilities	4	4	Ο	4
Percentage of the council-controlled closed landfill discharge consents achieving Category 1 or 2 compliance rating	100%	98%	Ο	100%
Percentage of threatened species under active management	25%	34%	Ο	34%
A review of the species programme has been conducted by Council officers. 127 threatened species have been identified in the Auckland region requiring management. Of these, 32 are under active management.
Percentage of indigenous ecosystems under active management	68%	68%	Ο	68%
Number of hectares under community pest control	124,000	90,000	Ο	124,000
Percentage of land area with less the 5% residual trap catch for possums	38%	52%	Ο	52%
The methods for reporting this measure have been reviewed. To date the measure has been based on an inaccurate assumption that the landscape scale pest control work (largely on rural peninsulas) has been achieving the required possum density numbers over the whole control areas, whereas this has only likely been achieved in a proportion of the total control area. Based on this review, the percentage of land area achieving the required densities has dropped to 38 per cent.
Proportion of kauri areas on Auckland Council land that have active management or exclusion measures in place for kauri dieback disease	63%	70%	Ο	68%
The area that Auckland Council manages with kauri is 51,750 ha which includes Waitakere and Hunua regional parks. Management occurs on 35,200 ha and includes exclusion areas, track closure and hygiene stations with associated signage. The target for this measure has grown from 60 per cent in 2016-2017 to 70 per cent in 2017-2018, but resourcing has not been enough to keep expanding the area protected without compromising the quality of protection in the areas already under management. This is apparent in the Waitakere Ranges, where our latest survey shows that Kauri dieback continues to spread despite protection measures. There are many drivers for this, but significant investment is required to upgrade tracks to prevent the spread from mud, better public compliance with track closures and protection areas and improved hygiene stations to increase the effectiveness and likelihood of the public using them.
Proportion of schools participating in sustainability education programmes	54%	58%	Ο	73%
There has been a steady increase in the engagement from quarter one to quarter two, and we expect this to increase over the next two quarters to reach the target. Some programmes will not run until quarters three and four, where we then expect an increase in the total number of schools engaged.

26. The following table summarises the performance against the LTP measures relating to Stormwater Management that were able to be measured this quarter.

Stormwater Management	FY18			FY17
Performance measures	Quarter 2 result	Quarter 2 target	Status	Actual Result
Stormwater manholes that pop open in flood events are made safe within two hours	100%	100%	Ο	66%
Auckland Council stormwater compliance with resource consents for discharge from the stormwater system, measured by the number of: a) abatement notices, and b) infringement notices, and c) enforcement notices, and d) successful prosecutions received in relation to those resource consents	0	0	Ο	0
The number of complaints received about the performance of the stormwater system per 1000 properties connected to Auckland Council’s system	0.51	3.0	Ο	1.01
Proportion of environmental programmes led or supported, with Māori participation	50%	15%	Ο	41%

Parks, Community and Lifestyle theme

Parks, Community and Lifestyle Highlights

27. Highlights for the Parks, Community and Lifestyle theme include:

· Kia Māia te Whai - Dare to Explore was launched with a new website. The new website for the flagship summer reading programme for children integrates with the look and feel of the new Libraries website and includes a simple online registration page, making it easy for families and children to enroll quickly. The website can be viewed at https://www.daretoexplore.nz/

· Central City Library featured in a real-world game, The Problem. The Problem was created by a newly established social enterprise of the same name. It was played via an app which mobilised players to raise awareness of social justice challenges in Auckland’s CBD area.

· The John A. Lee Collection and J. T. Diamond Collection have been inscribed onto the UNESCO Memory of the World New Zealand documentary heritage register at an event in the Central City Library. This recognition highlights the significance of these collections and the work that Auckland Libraries do to protect and preserve our local history.

· ACE partnered with Auckland Live to create the Secondary Schools music and dance competition which featured within Auckland Live’s Summer in the Square music programme. Stand Up Stand Out (SUSO) presented a showcase of 16 vocal, instrumental and band performances from 10 schools across Auckland.

· Music and Movies in Parks was launched featuring 24 free outdoor concerts and 26 free outdoor movie screenings.

· The Three Kings Salvage and Recovery project won the Partnering for Good award at the NZI Sustainable Business Network Awards. The project developed partnerships which generated positive impacts on people’s lives. It diverted valuable materials from a demolition to community groups and local Marae. It also provided training and employment to unemployed members of the community.

· The launch of peddle cars in Whangateau & Orewa Holiday Parks and Glamping tents in Orewa, Martins Bay and Wenderholm Regional Parks have been extremely popular, and will generate increase non-rates revenue for this business area.

Parks, Community and Lifestyle Financial Performance

$million

YTD Actual

YTD Revised

Budget

YTD Variance

FY18

Annual Plan

Net operating expenditure

247

255

497

Capital expenditure

130

39%

279

28. Net operational expenditure for the Parks, Community and Lifestyle theme is $8 million below budget due to lower Repair and Maintenance costs resulted from slower than scheduled community facilities programmes, and lower Outsourced services costs resulted from slower progress with community events.

29. Capital expenditure is $51 million behind schedule as at 31 December 2017, mainly due to timing of land acquisition for parks and sports development, together with slower than planned renewals for pool facilities and major sports fields, as well as slower than expected progress for new build projects such as Westgate multi-purpose community facility. The forecast is that the capital expenditure budget will be spent by the year end.

Parks, Community and Lifestyle Service Performance

30. The following table summarises the performance against the LTP measures relating to Parks, Community and Lifestyle that were able to be measured this quarter.

Parks, community and lifestyle	FY18				FY17
Performance measures	Quarter 2 result		Quarter 2 target	Status	Actual Result
Total permitted events taking place across the city	596		1100	Ο	1610
Since targets were set, opportunities have been identified for relaxing permitting requirements to ensure that permits are only required where there is a clear reason and benefit for doing so. This reduces administrative cost end effort for event organisers. Most events occur during the warmer months of the year and our full year outlook is similar to what was achieved last year.
Percentage of community facilities bookings used for health and wellbeing related activity	22%		20%	Ο	23%
Number of visits to Auckland Libraries website	3.74m		3.65m	Ο	6.71m
Number of library items borrowed	7.19m		7.5m	Ο	15.34m
Use of libraries as digital community hubs: number of internet sessions per capita (PC and WIFI)	2.38m		1m	Ο	4.61m
Percentage of items borrowed that are e-collections (e.g. eBooks, Audiobooks)	13%		12.5%	Ο	11.5%
Percentage of city park service requests completed on time	66%		90%	Ο	88.8%
The result to date has been influenced by migration to the new RUA contract for City Parks, an internal restructure and the implementation of new IT systems. Results are expected to improve as systems and processes are embedded.
Percentage of all assets that are graffiti free across the city	93%		94%	Ο	94%
The September 2017 survey of graffiti free assets in Auckland scored 93 out of a possible 100 maintaining the consistently high score for the region. This result is 1% below the target but maintains the high results compared to 94 in 2016, 92 in 2015, 94 in 2014 and 85 in 2011. The most significant improvements since the last survey were in Papakura (+9), Howick (+4) and Rodney, Mangere-Otahuhu and Waitakere Ranges (+3). Scores are from a graffiti grading system (NI195) that grades visible graffiti in various locations.
Number of volunteer hours worked in regional parks each year	42,000		80,000	Ο	84,860
Number of key sites of significance on Tūpuna Maunga with mitigation measures to improve or maintain their condition		32	25	Ο	6
Number of activities that mana whenua are engaged in on Tūpuna Maunga		23	7	Ο	17

Governance and Support theme

Governance and Support Highlights

31. Highlights for the Governance and Support theme include:

· The Safeswim integrated communication campaign that went live mid-November continues to perform. We have had over 100,000 visits to the Safeswim website. To date the integrated campaign, included our ‘own’ channels: Our Auckland promo tiles and the email footer; ‘earned’ channels 42 proactive published articles; and ‘paid’ digital channels, including Search, Metservice and other websites, it has had a reach of 2,400,000 impressions and 19,000 clicks. The Safeswim website can be viewed at https://www.safeswim.org.nz/

· In December, our social media influence continued to grow, with our followers on Twitter passing the 100,000 mark and likes on Facebook reaching over 70,000.

· The Environment Court decision confirmed Council’s decision to decline Ahuareka’s consent application to establish a hamlet of 186 households and ancillary buildings, a country pub and commercial units on property at Whitford. This is an important decision that upholds the integrity of the Unitary Plan in respect of rural subdivision provisions.

· The LGOIMA team had its busiest week ever recorded in December, closing 44 requests with a 17 day average. The previous record was 38 requests.

Governance and Support Financial Performance

$million

YTD Actual

YTD Revised

Budget

YTD Variance

FY18

Annual

Plan

Net operational expenditure

124

139

11%

181

Capital expenditure

33%

32. Net operational expenditure is $15 million lower than budget due to lower interest expenses and unbudgeted interest income related to the CRLL Crown Contribution.

33. Capital expenditure is $15 million behind budget. This is mainly due to timing of the ICT Lifecycle Management project where spending on new hardware and software will be done later in the year, and projects for Business Enablement Portfolio which are yet to be approved.

Governance and Support Financial Service Performance

34. The following table summarises the performance against the LTP measures relating to Governance and Support theme that were able to be measured this quarter.

Governance and Support	FY18			FY17
Performance measures	Quarter 2 result	Quarter 2 target	Status	Actual Result
Number of complaints regarding council demographic processes upheld by the Auditor-General or Ombudsman	0	0	Ο	0

Financial Performance

35. This section summarises financial results for the quarter ended 31 December 2017 for the Parent.

36. Operating revenue is $241 million, $10 million below the year-to-date budget. Fees and user charges revenue is $11 million below budget due to lower volumes of building and resource consent applications.

37. Operating expenditure was $1092 million, $25 million less than the year-to-date budget. Major items which are under budget include:

· Staff costs $6.9 million favourable to budget due to timing of filling vacancies after restructures in prior financial year;

· Finance expenses $13 million favourable to budget due to lower than expected interest rates, a lower opening debt balance and lower than planned levels of borrowing;

· Depreciation and amortisation due to the timing and completion of capital work programmes.

38. The net operating surplus is $856 million, $12 million higher than the year-to-date budget. This is driven predominantly by lower net finance expenditure.

39. The net non-operating deficit is $211 million, $296 million less than the year-to-date budget due to variances arising from City Rail Link transactions recognised in the Annual Budget 2017/2018. With the execution of the contracts, these City Rail Link transactions were recognised in the balance sheet.

40. The net surplus is $645 million, which is $284 million less than the year-to-date budget.

Capital expenditure

41. For the year to date December 2017 capital expenditure is $220 million, which is 36 per cent of the full programme of $605 million approved for the year. The full year capital expenditure is forecast to be $511 million.

42. Capital projects that have been completed over the quarter were:

· Refurbishment of the ground floor, and levels one and two, of the Auckland Central Library

· Te Rangi Hiroa Youth Park

· The Stonefields Heritage Trail development, along the edge of the former quarry

· Renewals of paths, furniture and play space at Marlborough Park

· The renewal of the Thomas Park car park, including pavement, landscaping, planting and signage

· Splash Pads in Lloyd Elsmore Park, Pakuranga, and in the Stanmore Bay Pool and Leisure Centre, Whangaparāoa

· The physical works for the Artillery Drive Stormwater Tunnel.

Balance sheet

$million	Actual as at December 2017	Actual audited June 2017
Assets
Property, plant and equipment	13,740	13,660
Other assets and investments	25,721	24,494
Less liabilities
Borrowings	8,362	7,705
Other liabilities	1,858	1,854
Net assets (ratepayers’ equity)	29,240	28,597

43. The increase in property, plant and equipment since June 2017 is due to a high level of work in progress for Commercial Property, Healthy Waters, and various capital projects for Community Facilities. Other assets and investments is higher than June 2017, mainly due to the investment in the City Rail Link project, together with profit shares from joint ventures.

44. Total borrowing at 30 September 2017 was $8.4 billion, higher than Annual Plan projections due to prefunding foreign bonds issued.

Treasury management

45. Treasury management information can be found in Appendix 2 - Treasury report. This report includes treasury compliance information together with information about the performance of treasury activities against benchmarks.

46. The December 2017 cost of funds was 5 per cent which is below the budgeted cost of funds of 5.30 per cent but above the 7 year benchmark. The average duration of our debt portfolio at December 2017 was 6.15 years.

47. The Diversified Financial Assets portfolio was liquidated in September (as approved by the Governing Body).

Employee numbers

48. Employee numbers are expressed in full-time equivalent (FTE) terms - which means everyone is converted to the equivalent of forty hours per week.

49. The table below shows the trend of both FTE and FTE per 1,000 residents in Auckland for the council parent organisation. Overall the FTE number has increased by 23 compared to end of June 2017. This increase is due to vacancies are being filled following the restructure in Regulatory and Community Services.

	Q2 FY18	Q4 FY17	Q4 FY16
Number of full-time equivalents (FTE)	6,114	6,091	6,102
FTE per 1,000 residents	3.69	3.70	3.78

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

50. Local boards receive their own reporting for their respective areas. The local board quarterly performance reports have been enhanced to improve the quality of information to track LTP measures. These changes will give local boards more visibility, earlier, about how performance is tracking against targets.

Tauākī whakaaweawe Māori / Māori impact statement

51. This report’s high-level content and recommendations have no particular benefit or adverse effect on Māori. Individual items in the highlights and achievements section may have benefits or adverse effects on Māori that are specific to those initiatives.

Ngā ritenga ā-pūtea / Financial implications

52. There are no legal financial or resourcing implications arising from receipt of this report.

Ngā raru tūpono / Risks

53. There are no risks arising from the receipt of this report.

Ngā koringa ā-muri / Next steps

54. There are no next steps from this report.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Q2 FY18 Appendices 1-7	205

Ngā kaihaina / Signatories

Authors

David Gurney - Manager Corporate Performance & Reporting

Authorisers

Kevin Ramsay - General Manager Corporate Finance and Property

Matthew Walker - Acting Group Chief Financial Officer

Chairperson	Cr Ross Clow
Deputy Chairperson	Cr Desley Simpson, JP
Members	Cr Josephine Bartley	IMSB Member Terrence Hohneck
	Cr Dr Cathy Casey	Cr Penny Hulse
	Deputy Mayor Bill Cashmore	Cr Mike Lee
	Cr Fa’anana Efeso Collins	Cr Daniel Newman, JP
	Cr Linda Cooper, JP	Cr Dick Quax
	Cr Chris Darby	Cr Greg Sayers
	Cr Alf Filipaina	Cr Sharon Stewart, QSM
	Cr Hon Christine Fletcher, QSO	IMSB Chair David Taipari
	Mayor Hon Phil Goff, CNZM, JP	Cr Sir John Walker, KNZM, CBE
	Cr Richard Hills	Cr Wayne Walker
		Cr John Watson