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

Note 20: Budgetary Reports and Explanation of Major Variances

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

Note 20A: Departmental Budgetary Reports

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

no new investments would be entered into by the CEFC post 30 June 2014;
revenue from those contracts planned to be executed prior to 30 June 2014 was forecast to continue through the life of the investments (including revenue associated with the unwind of previously recorded concessionality charges);
no additional concessionality charges were forecast to be incurred (consistent with the assumption of no new investments being entered into by the CEFC post 30 June 2014);
all operational expenses (employee benefits and supplier costs) were anticipated to cease effective 30 June 2014;
an allowance for possible loan impairment was provided in each period of the forward estimates in relation to the existing investment portfolio; and
all outstanding liabilities to suppliers and employees were assumed to be settled at 30 June 2014.

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

Statement of Comprehensive Income

for the period ended 30 June 2015

NET COST OF SERVICES
	Actual $’000	Budget^[1] $'000	Variance^[2] $’000
EXPENSES
Employee benefits	14,544	-	(14,544)
Suppliers	4,688	-	(4,688)
Depreciation and amortisation	455	313	(142)
Finance costs	6	-	(6)
Concessional loan charges	1,392	-	(1,392)
Write-down and impairment of assets	2,271	3,396	1,125
Provision for irrevocable loan commitments	266	-	(266)
Total expenses	23,622	3,709	(19,913)
Own-Source Income
Own-source revenue
Interest and loan fee revenue	54,619	37,125	17,494
Other revenue	19	-	19
Total own-source revenue	54,638	37,125	17,513
Gains
Other gains	139	-	139
Total gains	139	-	139
Total own-source income	54,777	37,125	17,652
Net contribution by / (cost of) services	31,155	33,416	(2,261)
Revenue from Australian Government	-	-	-
Surplus before income tax on continuing operations	31,155	33,416	(2,261)
Income tax expense	-	-	-
Surplus after income tax on continuing operations	31,155	33,416	(2,261)
Surplus after income tax	31,155	33,416	(2,261)
OTHER COMPREHENSIVE INCOME
Items not subject to subsequent classification to net cost of services
Changes in asset revaluation surplus	1,138	-	1,138
Total other comprehensive income before income tax	1,138	-	1,138
Income tax expense – other comprehensive income	-	-	-
Total other comprehensive income after income tax	1,138	-	1,138
Total comprehensive income	32,293	33,416	(1,123)

The Corporation’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the Corporation’s 2014-15 PBS).
Difference between the actual and original budgeted amounts for 2014–15. Explanations of major variances are provided further below.

Statement of Financial Position

as at 30 June 2015

ASSETS
	Actual $’000	Budget^[1] $'000	Variance^[2] $’000
Financial assets
Cash and cash equivalents	149,577	-	149,577
Short-term investments	100,000	-	100,000
Trade and other receivables	6,451	3,924	2,527
Loans and receivables at amortised cost	322,871	408,311	(85,440)
Available for sale financial assets	77,057	565	76,492
Other financial assets	597,875	413,574	184,301
Total financial assets	1,253,831	826,374	427,457
Non-financial Assets
Property, plant and equipment	314	134	180
Intangibles	338	-	338
Prepayments and other assets	515	-	515
Total non-financial assets	1,167	134	1,033
Total assets	1,254,998	826,508	428,490
LIABILITIES
Payables and unearned income
Suppliers	1,617	-	(1,617)
Unearned income	6,530	7,140	610
Other payables	3,004	-	(3,004)
Total payables and unearned income	11,151	7,140	(4,011)
Provisions
Employee provisions	878	-	(878)
Other provisions	10,860	21,508	10,648
Total provisions	11,738	21,508	9,770
Total liabilities	22,889	28,648	5,759
Net assets	1,232,109	797,860	434,249
EQUITY
Contributed equity	1,168,363	742,307	426,056
Reserves	1,138	-	1,138
Retained surplus	62,608	55,553	7,055
Total equity	1,232,109	797,860	434,249

The Corporation’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the Corporation’s 2014-15 PBS).
Difference between the actual and original budgeted amounts for 2014/15. Explanations of major variances are provided further below.

Statement of Changes in Equity

for the period ended 30 June 2015

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

Cash Flow Statement

for the period ended 30 June 2015

OPERATING ACTIVITIES
	Actual $’000	Budget^[1] $’000	Variance^[2] $’000
Cash received
Interest and fees	51,620	38,166	13,454
Distributions from equity investments	6	-	6
Total cash received	51,626	38,166	13,460
Cash used
Employees	14,576	3,883	10,693
Suppliers	4,805	960	3,845
Total cash used	19,381	4,843	14,538
Net cash from operating activities	32,245	33,323	(1,078)
INVESTING ACTIVITIES
Cash received
Principal loan repayments received	18,605	16,411	2,194
Redemption of short-term investments	375,000	160,000	215,000
Redemption of other financial assets	201,333	26,241	175,092
Total cash received	594,938	202,652	392,286
Cash used
Purchase of property, plant and equipment	254	-	254
Purchase of intangibles	388	-	388
Loans made to other parties	108,650	162,972	(54,322)
Purchase of AFS financial assets	74,514	-	74,514
Purchase of short-term investments	205,000	-	205,000
Acquisition of other financial assets	179,700	-	179,700
Total cash used	568,506	162,972	405,534
Net cash from (used by) investing activities	26,432	39,680	(13,248)
FINANCING ACTIVITIES
Cash received
Contributed equity	18,398	-	18,398
Total cash received	18,398	-	18,398

	Actual $’000	Budget^[1] $’000	Variance^[2] $’000
Cash used
Return of equity	50,600	474,710	(424,110)
Total cash used	50,600	474,710	(424,110)
Net cash from / (used by) financing activities	(32,202)	(474,710)	442,508
Net increase in cash held	26,475	(401,707)	428,182
Cash and cash equivalents at the beginning of the reporting period	123,102	401,707	(278,605)
Cash and cash equivalents at the end of the reporting period	149,577	-	149,577

The Corporation’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the Corporation’s 2014-15 PBS).
Difference between the actual and original budgeted amounts for 2014/15. Explanations of major variances are provided further below.

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

Statement of Comprehensive Income
Explanations of Major Variances	Affected Line Items
Employee Benefits	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) employee benefit costs were incurred for the full 2014–15 financial year. In order to meet the obligations of the CEFC Act, it was necessary for the Corporation to continue to employ executives and staff across all key functions including investment, legal, risk management, finance, corporate affairs, human resources, etc.
Suppliers	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) supplier costs were incurred in the normal course operations of the Corporation for the full 2014–15 financial year.
Concessional loan charges	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) additional concessional loan charges were incurred on a number of new investments made during the 2014–15 financial year. The budget had assumed that no new investments would be made after 1 July 2014.
Interest and loan fee revenue	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to The Department of the Treasury but instead were invested to generate income for the Corporation throughout the financial year.
Statement of Financial Position
Cash and Cash Equivalents; and Short Term investments	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation.

Statement of Changes in Equity
Explanations of Major Variances	Affected Line Items
Loans and receivables at amortised cost	A number of investments made by the Corporation in the 2013–14 financial year were expected to draw-down and become new receivables during the 2014–15 financial year. However, due to market uncertainty surrounding energy prices, including as a result of the proposed changes to the RET, a number of major projects did not proceed to construction and investment. Another significant investment by the Corporation was subsequently able to be funded by third party commercial banks, so the Corporation stepped aside and relinquished this investment to commercial banks.
Available for sale financial assets	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15. The largest component of the variance to budget in available for sale financial assets was an investment made during 2014–15 in a Climate Bond issuance by National Australia Bank.
Other financial assets	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15 and this is reflected in the other financial assets category.
Other provisions	The positive variance to budget in other provisions is due to (a) the fact that less concessionality was granted in 2013–14 than was anticipated at the time of preparing the 2014–15 budget and (b) the status of various investments in the Corporation’s portfolio at 30 June 2015. Once an investment draws-down, the provision for concessionality is classified as an offset to the loan and receivable. In preparing a budget it is not possible to anticipate exactly at what stage each investment will be at any given point in time.
Contributed equity	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation. This meant that returns of equity to the CEFC Special Account held by Treasury were lower than budgeted.
Retained Surplus	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), it continued operations and generated a larger retained surplus than would have been the case had it been abolished.
Retained Surplus	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), it continued operations and retained earnings are larger than would have been the case had it been abolished.
Contributed Equity	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation. This meant that returns of equity to the CEFC Special Account held by Treasury were lower than budgeted. The only return of equity in 2014/15 was an amount of $50.6 million from investments that had been realised during the normal course of operations.

Cash Flow Statement
Explanations of Major Variances	Affected Line Items
Interest and fees	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to The Department of the Treasury but instead were invested and generated income for the Corporation.
Employees	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) employees were retained in the Corporation and employment related payments were made throughout the 2014–15 financial year in the normal course of the Corporation fulfilling its investment obligations under the CEFC Act.
Suppliers	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget) supplier costs were paid throughout the 2014–15 financial year for costs associated with operating the Corporation in the normal course.
Redemption of other financial assets; and Acquisition of other financial assets	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15 and this is reflected in the redemption and acquisition of other financial assets in the Cash Flow Statement.
Loans made to other parties	A number of investments made by the Corporation in the 2013–14 financial year were expected to draw-down and become new receivables during the 2014–15 financial year. However, due to market uncertainty surrounding energy prices, including as a result of the proposed changes to the RET, a number of major projects did not proceed to construction and investment. Another significant investment by the Corporation was subsequently able to be funded by third party commercial banks, so the Corporation stepped aside and relinquished this investment to commercial banks.
Purchase of AFS financial assets	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), the Corporation continued to make new investments in 2014–15 including the purchase of AFS financial assets. The main component of AFS financial assets acquired was a climate bond issued by a major Australian Bank.
Redemption of short-term investments; and Purchase of short-term investments	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were used to fund short-term investments and then subsequently redeemed by the Corporation to funds loans made to other parties, purchases of AFS financial assets and acquisitions of other financial assets.
Contributed equity	The Corporation received a final distribution of cash from LCAL upon the formal dissolution of that Company during the 2014–15 financial year. The 2014–15 budget had assumed that this would be received prior to 30 June 2014.
Return of equity; and Cash and cash equivalents at the beginning of the reporting period	Since the Corporation was not abolished effective 30 June 2014 (as anticipated in the budget), funds held for new investments were not returned to the CEFC Special Account held by Treasury but instead were held to fund new investments by the Corporation.

Note 19: Reporting of Outcomes Appendices, Glossary & Abbreviations