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Discounted Cash Flow Valuation Model Water Infrastructure Assets - - PowerPoint PPT Presentation
Discounted Cash Flow Valuation Model Water Infrastructure Assets - - PowerPoint PPT Presentation
Discounted Cash Flow Valuation Model Water Infrastructure Assets Situated in the heart of South East Queensland Situated in the heart of South East Queensland Situated in the heart of South East Queensland Situated in the heart of South East
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Situated in the heart of South East Queensland
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Situated in the heart of South East Queensland
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Situated in the heart of South East Queensland
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300,000+ residents
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Fifth largest local government area (by population) in Australia
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Third largest budget
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- During 2013/2014 Logan City Council
(LCC) worked with QAO, QTC & Deloittes to change the valuation methodology of its Water Infrastructure Assets Change in Accounting Policy
- We moved from Depreciated
Replacement Cost (DRC) to Discounted Cash Flow (DCF)
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Change in Accounting Policy
- Initial valuation of $1.827 billion based on
DRC as at 1 July 2012 after the return of water from Allconnex Water (AW)
- Revised to $1.15 billion based on
changed valuation methodology to DCF
- $677 million or 37% reduction in
value
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How we made the change
- Reviewed the nature of the water business
- Reviewed the accounting standards
- Developed a water and sewerage assets
valuation position paper
- Held initial meetings with key stakeholders
- Developed a water and sewerage assets
valuation methodology
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How we made the change
- Made changes to Council’s Revaluation of
Non- Current Assets Policy
- Refined our 10 year water business
financial model
- Established a DCF valuation model
- Input 10 year financial model
information into DCF valuation tool
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How we made the change
- Reviewed DCF model results for
reasonableness
- Reviewed impact on financial
statements –change in accounting policy
- Prepared final valuation work papers
for audit
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Consequence of change
- A reduction in depreciation
- Move from operating deficit to surplus
- An improvement in our asset
sustainability ratios
- Alignment of valuation approach with
- ther water service providers in South
East Queensland which are subject to the QCA Regulatory Framework ie QUU, Unitywater and SEQWater.
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Consequence of change con’t
- An opportunity to smooth asset valuations
- n a year by year basis by using future
cashflows of the business
- An alignment of pricing and depreciation
methodologies
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LCC Sustainability Ratios
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LCC Sustainability Ratios
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Where to from here
But we can’t stand still as:
- Spending on renewals changes each year
(impact on asset sustainability ratio)
- Asset base increase yearly (donated
assets, assets constructed and annual revaluations)
- Still a large value of other council assets
under DRC valuation methodology
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Where to from here
- LCC now has a focus on Stormwater
Drainage Assets to review:
- The componentisation of assets
- The use of new technology as modern
equivalent (pipe relining)
- The assets estimated useful lives
- Early indications are that the overall
life of the stormwater drainage assets may be able to be extended.
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Where to from here
- Continued improvement in asset
management systems to refine identification of renewals spending
- Continued use of prudency and efficiency
principles in the development of the capital program
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