3 August 2020

Media: Local Democracy Reporter

Topic: Infracore capital injection

Enquiry

My original questions are in bold italic. The council's earlier answers are in italic:

My follow up questions are in bold yellow highlighted

Working in collaboration with Union partners, InfraCore has streamlined the collective agreement into a tiered structure that enables better management of the business, based upon wage tiers within.

How, and to what extent (in dollar figures) has this impacted the financial situation of Infracore? Does it mean wages have cost more as a result of a renegotiated collective agreement? What does 'streamlined' mean - does that mean a renegotiation? Please use plain language.

During the 2018 financial year, InfraCore implemented a new financial system which encompasses the field management add-on NextService. InfraCore is now a fully mobile and agile workforce, with the ability to dispatch employees to jobs efficiently, enabling better outcomes for the community. InfraCore respond to around 400 reactive jobs a month (across the infrastructure and recreational spaces contracts).

How, and to what extent (in dollar figures) has this impacted the financial situation of Infracore?

During the 2020 financial year, InfraCore rolled out three new values for the organisation being Dynamic, Authentic, Accountable. These values have been driven by the Senior Leadership Team, through the appointment of the Chief Executive, Matt Scott in July 2019. The realignment in workplace values has seen an improvement in employee engagement (as measured through an employee engagement survey) and increased metrics from a health and safety perspective.

How, and to what extent (in dollar figures) has this impacted the financial situation for Infracore? What does 'realignment' mean in this context? Are there higher costs for health and safety requirements as a result? Or do you just mean expectations have been raised in that area in terms of 'values'?

During the 2020 year, the Senior Leadership Team was also realigned. There was no additional overhead spend as a result of this realignment.

What does 'realignment' mean in this context? Do you mean restructured? If there was no additional overhead spend as a result of the 'realignment' how is it relevant to Infracore's financial situation and its requirement of $750,000?

InfraCore are working in partnership with Rotorua Lakes Council to deliver efficient business outcomes while also delivering positive social good via employment opportunities.

How, and to what extent (in dollar figures) has this impacted the financial situation for Infracore?

For the 2020 financial year, InfraCore met all non-financial KPI's in relation to the Service Level Agreements held with Council. The current unaudited position, draft, for the year ending 30 June 2020 indicates a small net surplus result.

How, and to what extent (in dollar figures) has this impacted the financial situation for Infracore?If Infracore is indicating a (draft) net surplus result, why does it require $750,000?

InfraCore provides services that benefit the wider community through the provision of the maintenance of the 3 waters network, as well as the provision of maintenance for the parks and recreational spaces. The investment for capital will enable the purchase of new machinery, which will in turn reduce the increased repair costs seen in the current fleet.

This answer addresses why the capital injection might benefit Infracore and therefore the community, not why the method (buying shares and acquiring equity) is beneficial to the council / ratepayers. I understand that in the private sector at least, acquiring equity means you have greater ability to borrow. Is that how this works in this case? How does it benefit the council to own more shares in Infracore?

Is the council 'bailing out' Infracore?

InfraCore is budgeting a break-even position for the FY2021 year, including introducing social initiatives for employment opportunities.

Can you please provide a yes or no answer to this question (Is the council 'bailing out' Infracore?) and explain why?

Could Infracore's current financial situation have been foreseen, mitigated or avoided?

The current unaudited position, draft, for the year ending 30 June 2020 indicates a small net surplus result.

Could Infracore's current financial situation have been foreseen, mitigated or avoided?

Response

The CFO was not available today but the following was provided to assist the reporter who indicated he was unable to hold off any longer on publishing the article:

The following points, from the Council meeting agenda and as explained by CFO Thomas Coll during last week's Council meeting, provide information and clarification regarding InfraCore's financial position, actions taken to rebuild the CCO, reasons for using purchase of shares as a mechanism to provide a capital injection, and how this will help the CCO [and therefore the community].

For direct quotes regarding these matters or to hear the full report from the CFO please refer to the meeting recording HERE where Mr Coll is addressing the Council - 3hrs29mins in:

• InfraCore's draft financial results for the 2019/20 year show a small surplus and the CCO is budgeting a break-even position for the 2020/21 financial year.
• The CCO has had challenges in the past [Felix these have been reported through quarterly reports to O&M Committee] and has been rebuilding with new management and new systems now in place.
• InfraCore is in a positive trajectory but hasn't been able to invest in needed equipment renewals as a result of past challenges.
• This mechanism - ie purchase of shares - is a common way for companies to raise capital and was considered the most effective way for Council to support InfraCore's ongoing positive trajectory and provide a capital injection to help set up its future.
• This capital injection will free up operational funding for InfraCore, contributing to ongoing improvement in efficiencies and effectiveness that will enable it to take on further work streams.
• Ultimately, the aim is for InfraCore to become self-sustaining.
• This capital injection will provide funding to enable InfraCore to replace ageing equipment and the purchase of shares - as opposed to a Council funding increase - was considered the most effective mechanism. Reasons include that it is not advisable to fund capital equipment via taxable funding (a straight Council funding increase would have been taxable) and while InfraCore could borrow the funds itself, it is more efficient for Council to hold the debt as councils are able to borrow at lower rates.