Overview of financial performance
Total departmental and administered expenditure managed during 2015–16 was $1.15billion, compared with $1.27billion in 2014–15. The Department delivers major Government initiatives to promote the conservation and sustainable use of Australia’s natural resources across four purposes: environment and heritage, climate change, Antarctica, and water(seePart 2, ‘Annual performance statements’, page 20). In 2015–16, we continued to successfully implement key government programs, notably Green Army, National Landcare, Reef 2050 Long-Term Sustainability Plan, Reef Trust and 20Million Trees. We ran significant operations, including in remote locations such as Commonwealth national parks and the Antarctic. TheDepartment managed 10 special accounts established through legislation and several cost recovery schemes.
In 2015–16, the Department managed assets with a total value of $5.38billion compared with $4.22billion in 2014–15, including the Commonwealth water entitlements of $2.91billion (2014–15: $2.52billion) and assets relating to Australia’s strategic, scientific, environmental and economic interests in the Antarctic region of $415.68million (2014–15: $332.75million). The$82.93million increase in Antarctic region assets is largely due to the start of construction of the new icebreaker (see Part 2, ‘Annual performance statements’, page 68).
Water entitlements represent the most significant component of administered assets. TheAdministrative Arrangements Orders made on 21 September 2015 transferred responsibility for most water reform functions under the Department’s water purpose to the Department of Agriculture and Water Resources. The responsibility, however, in relation to holding and managing the Commonwealth’s environmental water entitlements, and accounting for their value on behalf of the Australian Government, still remain with the Department. Accurately determining the value of water assets is complex because of the relatively new and developing market for trading of water assets and volatility of water entitlement trade prices, spanning multiple Basin states. The value is also affected by demand for water and climatic conditions.
Under the Madrid Protocol, the Australian Government is required to remediate its scientific bases in Antarctica in case of closure, and this risk must notionally be accounted for in financial accounts. The Department’s assessment of the requirements and cost associated with these restoration obligations involves significant judgement that is informed by a complex model based on knowledge about operations in Antarctica. The costs of meeting the obligations, including the make-good provision and base restitution liability, are susceptible to changes in several variables such as the Australian Government bond rates, asset replacement costs and asset useful lives.
Departmental finances
Figure 1.1 outlines the Department’s financial performance over the past four years and the budget for 2016–17.
Figure 1.1: Departmental financial performance, 2012–13 to 2016–17 ($ million)
The financial performance of departmental activities for 2015–16 is summarised in Table 1.1.
Table 1.1: Departmental financial performance, 2014–15 and 2015–16
Indicator / 30 June 2016($’000) / 30 June 2015
($’000) / Variance
($’000)
Operating expenses / 526,971 / 575,814 / (48,843)
Own-source revenue / (42,830) / (58,487) / 15,657
Gains / (2,350) / (5,937) / 3,587
Net cost of services / (481,791) / (511,390) / 29,599
Revenue from government / 398,902 / 419,596 / (20,694)
Operating (deficit)/surplus / (82,889) / (91,794) / 8,905
Changes in asset revaluation surplus / (37,739) / 12,326 / (50,065)
Total comprehensive income/(loss) / (120,628) / (79,468) / (41,160)
The Department’s net cost of services was $481.79million, with own-source revenue of $42.83million and operating expenses of $526.97million. Revenue from Government was $398.90million, resulting in an operating deficit of $82.89million. The total comprehensive loss (deficit net asset revaluation) was $120.63million. This is an approved operating loss and includes non-cash expenses such as depreciation, amortisation and provision for restoration obligations in the Australian Antarctic regions.
Our operating expenses in 2015–16 were $48.84million lower than in 2014–15. Thiswas primarily due to a reduction in employee and supplier expenses. The changes that accompanied the Administrative Arrangements Orders made on 21September2015 and 18February 2016 and the Department’s voluntary redundancy program resulted in a reduction of 190 staff. The machinery-of-government changes led to an overall decrease in operational expenditure on consultants, travel, general goods and services and workers compensation.
The reduction in own-source revenue of $15.66million was largely due to a decrease in Official Development Assistance funding from the Department of Foreign Affairs and Trade for natural conservancy engagement and Kokoda Track assistance. A further factor that contributed to the decrease in own-source revenue was the reduction in contracted activity charges and air charter services provided by the Australian Antarctic Division.
Gains were $3.59million higher in 2014–15. This was primarily due to the recognition of leasehold improvements provided by the Department of Industry, Innovation and Science as part of the transfer of climate change functions to the Department.
The $20.69million decrease in revenue from the Government primarily reflected the net result of the Administrative Arrangements Orders made on 21September2015 and 18February2016 and measures announced through the 2015–16 Budget. The budget measures included expense and saving measures.
Changes in asset revaluation surplus largely relate to changes in the relevant Australian Government bond rates used to calculate make-good provisions for buildings at Antarcticbases.
Table 1.2: Departmental financial position, 2014–15 and 2015–16
30 June 2016($’000) / 30 June 2015
($’000) / Variance
($’000)
Total assets / 544,142 / 484,304 / 59,838
Total liabilities / 644,823 / 582,069 / 62,754
Total equity / (100,681) / (97,765) / (2,916)
In 2015–16, the Department managed a total asset base of $544.14million, an increase of $59.84million over 2014–15, mainly due to commencing the construction of the new icebreaker. This increase was offset by decreases in trade and other receivables due to the timing of receipts for services provided by the Department.
Total liabilities managed by the Department increased by $62.75million during 2015–16 to $644.82million as at 30June2016. This was mainly due to the Department’s make good provisions increasing to reflect the time value of future cash flows. This increase was partially offset by lower employee provisions resulting from the active management of recruitment to ensure an affordable staffing level in future years.
As at 30June2016, the Department’s total liabilities exceeded its total assets. This is the result of provisions for Madrid Protocol restoration obligations in Antarctica and the sub-Antarctic Macquarie Island and is reflected in the shortfall in total equity of $100.68 million. This does not make the Department insolvent and has no bearing on whether the Department’s debts will be paid, as the Department is part of the legal entity that is the Australian Government, which is ultimately responsible for all the Department’s debts. Further detail is provided in Part4, ‘Financial statements’, page 141.
Administered finances
Figure 1.2 outlines the Department’s financial performance in relation to administered activities over the past four years and the administered budget for 2016–17.
Figure 1.2: Administered activities, 2012–13 to 2016–17 ($ million)
The financial performance of the Department’s administered activities for 2015–16 is summarised in Table 1.3.
Table 1.3: Administered financial performance, 2014–15 and 2015–16
Indicator / 30 June 2016($’000) / 30 June 2015
($’000) / Variance
($’000)
Expenses administered on behalf of Government / 618,906 / 691,283 / (72,377)
Income administered on behalf of Government / 521,300 / 371,679 / 149,621
Net cost of services / 97,606 / 319,604 / (221,998)
The Department’s total administered expenditure during 2015–16 was $618.91million. Thisexpenditure comprised grants, supplier expenses, payments to corporate Commonwealth entities and non-cash write-down and impairment of water entitlement assets. Theoverall decrease in administered expenses of $72.38million compared with 2014–15 was mainly driven by a reduction in grant expenditure as a result of the September 2015 machinery‑of‑government changes that transferred responsibility for the majority of water related grant programs to the Department of Agriculture and Water Resources. The reduction in administered expenses was also due to upward movements in water entitlement prices, which reduced the expense associated with the decline in value of water entitlement assets.
These decreases were offset by increases in suppliers expenses associated with the Green Army program and the Murray-Darling Basin joint programs[1] and increases in payments to corporate Commonwealth entities.
In 2015–16, we administered income from activities on behalf of the Government totalling $521.30million. The increase in administered revenue of $149.62million was primarily due to non-cash gains from the reversal of previous impairments recorded against water entitlement assets. The reversals resulted from annual impairment testing of water entitlement assets, which saw upward movement in water entitlement prices due to the high demand for water and decline in water allocated to entitlements under dry conditions.
Table 1.4: Administered assets and liabilities, 2014–15 and 2015–16
30 June 2016($’000) / 30 June 2015
($’000) / Variance
($’000)
Total assets / 4,832,518 / 3,736,560 / 1,095,958
Total liabilities / 13,389 / 23,917 / (10,528)
Net assets / 4,819,129 / 3,712,643 / 1,106,486
As at 30 June 2016, the Department administered assets valued at $4.83billion consisting predominately of water entitlements and the Government’s interest in the net assets of the Director of National Parks, the Sydney Harbour Federation Trust, the Australian Renewable Energy Agency and the Clean Energy Finance Corporation.
As at 30 June 2016, the Department had administered liabilities of $13.39million consisting predominately of end of year supplier and grant payables.
The agency resource statement provides additional information about the various funding sources that the Department may draw upon during the year (see Appendix 2). For a summary of total expenses by outcomes, see Appendix 3.
[1] The Murray–Darling Basin joint programs promote and coordinate effective planning, management and sharing of the water and other natural resources of the Basin. It is a partnership between the Australian, New South Wales, Victorian, South Australian, Queensland and Australian Capital Territory governments.