Note 8: Other Information

8.1: Budgetary Reports and Explanation of Major Variances

The following tables provide a comparison of the original Budget, as presented in the 2016-17 Portfolio Budget Statements (PBS) for the Environment Portfolio, to the Actual 2016-17 outcome as presented in accordance with AAS for the Group. The Budget is not audited.

8.1A: Budgetary Reports

Consolidated Statement of Comprehensive Income

for the period ended 30 June 2017

	Actual $’000	Budget¹$’000	Variance²$’000
NET COST OF SERVICES
Expenses
Employee benefits	21,058	22,393	(1,335)
Suppliers	6,544	8,205	(1,661)
Depreciation and amortisation	745	742	3
Concessional loan charges	11,433	21,400	(9,967)
Write-down and impairment of assets	2,129	3,508	(1,379)
Provision for irrevocable loan commitments	292	254	38
Total expenses	42,201	56,502	(14,301)
Own-source income
Own-source revenue
Interest and loan fee revenue	59,275	54,741	4,534
Distributions from trusts and equity investments	5,328	-	5,328
Total own-source revenue	64,603	54,741	9,862
Gains and losses
Other (losses) / gains	(92)	-	(92)
Total (losses) / gains	(92)	-	(92)
Total own-source income	64,511	54,741	9,770
Net contribution by / (cost of) services	22,310	(1,761)	24,071
Share of associates and joint ventures	(639)	(625)	(14)
Surplus / (deficit) from continuing operations	21,671	(2,386)	24,057
OTHER COMPREHENSIVE INCOME
Items subject to subsequent reclassification to net cost of services
Gains on Available-for-Sale financial assets	7,674	78	7,596
Net fair value loss taken to equity on cash flow hedge	(42)	-	(42)
Total other comprehensive income	7,632	78	7,554
Total comprehensive income / (loss)	29,303	(2,308)	31,611

The Group’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the CEFC section in the 2016-17 PBS for the Environment Portfolio).
Difference between the actual and original budgeted amounts for 2016-17. Explanations of major variances are provided further below.

Consolidated Statement of Financial Position

as at 30 June 2017

	Actual $’000	Budget¹$’000	Variance²$’000
ASSETS
Financial assets
Cash and cash equivalents	401,974	150,068	251,906
Trade and other receivables	8,227	3,710	4,517
Loans and advances	771,202	872,479	(101,277)
Available-for-Sale financial assets	802,945	189,703	613,242
Other financial assets	278,380	254,492	23,888
Equity accounted investments	8,401	-	8,401
Derivative financial assets	225	-	225
Total financial assets	2,271,354	1,470,452	800,902
Non-financial assets
Property, plant and equipment	944	540	404
Computer software	484	260	224
Prepayments	504	559	(55)
Total non-financial assets	1,932	1,359	573
Total assets	2,273,286	1,471,811	801,475
LIABILITIES
Payables and unearned income
Suppliers	2,162	1,245	917
Unearned income	15,678	5,696	9,982
Other payables	5,106	507	4,599
Total payables and unearned income	22,946	7,448	15,498
Provisions
Employee provisions	1,660	4,738	(3,078)
Provision for concessional loans	19,505	33,472	(13,967)
Other provisions	741	129	612
Total provisions	21,906	38,339	(16,433)
Total liabilities	44,852	45,787	(935)
Net assets	2,228,434	1,426,024	802,410
EQUITY
Contributed equity	2,108,363	1,348,363	760,000
Reserves	14,655	3,321	11,334
Retained surplus	105,416	74,340	31,076
Total equity	2,228,434	1,426,024	802,410

The Group’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the CEFC section in the 2016-17 PBS for the Environment Portfolio).
Difference between the actual and original budgeted amounts for 2016-17. Explanations of major variances are provided further below.

Consolidated Statement of Changes in Equity

for the period ended 30 June 2017

	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	83,745	76,726	7,019	7,023	3,243	3,780	1,108,363	1,008,363	100,000	1,199,131	1,088,332	110,799
Comprehensive income
Surplus / (deficit) for the period	21,671	(2,386)	24,057	-	-	-	-	-	-	21,671	(2,386)	24,057
Other comprehensive income	-	-	-	7,632	78	7,554	-	-	-	7,632	78	7,554
Total comprehensive income	21,671	(2,386)	24,057	7,632	78	7,554	-	-	-	29,303	(2,308)	31,611
Transactions with owners
Contributions by owners
Equity injection from Special Account	-	-	-	-	-	-	1,000,000	340,000	660,000	1,000,000	340,000	660,000
Total transactions with owners	-	-	-	-	-	-	1,000,000	340,000	660,000	1,000,000	340,000	660,000
Closing balance as at 30 June	105,416	74,340	31,076	14,655	3,321	11,334	2,108,363	1,348,363	760,000	2,228,434	1,426,024	802,410

The Group’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the CEFC section in the 2016-17 PBS for the Environment Portfolio).
Difference between the actual and original budgeted amounts for 2016-17. Explanations of major variances are provided further below.

Consolidated Cash Flow Statement

for the period ended 30 June 2017

	Actual $’000	Budget¹$’000	Variance²$’000
OPERATING ACTIVITIES
Cash received
Interest and fees	62,744	50,977	11,767
Distributions from trusts and equity investments	3,437	-	3,437
Total cash received	66,181	50,977	15,204
Cash used
Employees	20,186	21,757	(1,571)
Suppliers	5,668	8,204	(2,536)
Total cash used	25,854	29,961	(4,107)
Net cash from operating activities	40,327	21,016	19,311
INVESTING ACTIVITIES
Cash received
Principal loan repayments received	21,858	60,482	(38,624)
Redemption of short-term investments	90,000	-	90,000
Redemption of other financial assets	249,427	26,924	222,503
Redemption of AFS financial assets	12,366	194	12,172
Total cash received	373,651	87,600	286,051
Cash used
Purchase of property, plant and equipment	283	315	(32)
Purchase of computer software	360	200	160
Loans made to other parties	391,150	420,370	(29,220)
Purchase of AFS financial assets	532,910	25,000	507,910
Purchase of short-term investments	90,000	-	90,000
Acquisition of other financial assets	221,212	-	221,212
Investment in associates and joint ventures	8,867	-	8,867
Total cash used	1,244,782	445,885	798,897
Net cash from / (used by) investing activities	(871,131)	(358,285)	(512,846)
FINANCING ACTIVITIES
Cash received
Contributed equity	1,000,000	340,000	660,000
Total cash received	1,000,000	340,000	340,000
Net cash from financing activities	1,000,000	340,000	660,000
Net increase in cash held	169,196	2,731	166,465
Cash and cash equivalents at the beginning of the reporting period	232,778	147,337	85,441
Cash and cash equivalents at the end of the reporting period	85,441	150,068	251,906

The Group’s original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from the CEFC section in the 2016-17 PBS for the Environment Portfolio).
Difference between the actual and original budgeted amounts for 2016-17. Explanations of major variances are provided further below.

8.1B: Major Budget Variance for 2016-17

Affected Line Items	Explanations of Major Variances
Consolidated Statement of Comprehensive Income:
Employee Benefits	The budget for employee benefits anticipated an increase in salaries approximating CPI effective 1 July 2016, however, there were very limited salary adjustments made in January 2017, resulting in lower than budget costs.
Suppliers	With the introduction of the Clean Energy Innovation Fund, that was anticipated to be a $1bn fund at the time the 2016-17 budget was prepared, we expected to incur substantial legal and consultant costs on evaluating early stage investments. With the reduction in the size of the Innovation Fund (to $200m) and the fact that we have been able to recover the majority of transaction related costs on those investments completed, we have achieved a lower than forecast supplier cost for 2016-17.
Concessional loan charges	Concessional loan charges are significantly lower than budget notwithstanding the actual investments made during the year are higher than budgeted. This is due to: the mix in investments which saw less loans written than budgeted and more AFS securities (including a number of large equity investments) purchased; lower concessional charges on a number of the aggregation arrangements as the tenor of the underlying loans being written by the aggregators was shorter than anticipated; The compression in margins and lower overall rate environment generally have reduced the need for the CEFC to provide as much concessionality as anticipated in many instances, as we have been able to be appropriately compensated for the longer tenor or fixed rate aspects of the loans written, without jeopardising the project economics of the transactions; and a facility with one of the major Australian banks expired during the period and was replaced with a different (less concessional) aggregation facility.
Write-down and impairment of assets	Write-down and impairment of assets is lower than budget as the calculated impairment provision is lower than budget as a result of the Group investing in a higher proportion of AFS financial assets, than Loans and Advances, in the 2016-17 financial year. AFS financial assets are accounted for at fair value rather than amortised cost and are not generally subject to the same credit exposure as typical loans and advances.
Interest and loan fee revenue	Interest and loan fee revenue commitment fees were higher than forecast due to some borrowers not drawing or drawing more slowly than expected; higher than anticipated interest income on secured funding accounts established for some major renewables construction contracts; higher average bank account balances than originally anticipated; and an improved interest rate negotiated with a major Australian bank on short-term cash holdings.
Distributions from trusts and equity investments	CEFC had not forecast any distributions from trusts and equity investments as the budget anticipated that all investments providing a significant return would be by way of loans and advances in 2016-17. However, a number of new investments have been in the form of units in trusts and equity investments which have current period earnings, and have therefore provided distributions during the 2016-17 financial year.
Other Comprehensive Income	Other comprehensive income relates entirely to market movements in the fair value of AFS securities. This is typically a result of a change in the market interest rates on bonds (given CEFC is a fixed rate lender) or a change in the market value of underlying assets of a trust in which CEFC holds an investment. It is not possible to accurately forecast the change in the fair value of AFS investments that may arise from a change in market conditions.
Consolidated Statement of Financial Position:
Cash and cash equivalents	Cash and cash equivalents are $252 million higher than budget as the CEFC drew down an additional $660 million from the CEFC Special Account, over and above what was budgeted, to meet its funding obligations under the contracts entered into during 2016-17. Two specific investments that were expected to reach financial close and draw down in June 2017, when the CEFC Special Account funds were withdrawn, have experienced minor delays and are now expecting to reach financial close and draw down within 60-90 days of their original dates.
Loans and advances	When the budget was prepared the CEFC expected the majority of new investments to take the form of loans and advances. However, as the year evolved, a substantial number of new investments were in the form of AFS securities. The increase in AFS more than offsets the lower than budget loan and advance balances.
Available for sale financial assets	As stated above, when the budget was prepared the CEFC expected the majority of new investments to take the form of loans and advances. However, as the year evolved, a substantial number of new investments were in the form of AFS securities. This includes quoted debt securities such as climate bonds and longer tenor bank bond arrangements as part of the aggregation facilities, unquoted units in trusts as well as unquoted equity investments. The change to bonds rather than term deposits in support of aggregation facility arrangements was to achieve longer tenor and a better return on investment. The opportunity to influence the carbon intensity of entire property funds through small equity investments rather than single properties by way of concessional loans was a key driver in the decision to pursue certain unquoted equity investments rather than solely unquoted debt arrangements which are classified as loans and advances.
Payables and unearned income	Unearned income is significantly higher than budget as a substantial number of new loans reached financial close in the last 3-6 months of the financial year which triggered substantial establishment fees payable to the CEFC by these customers. While the facilities have reached financial close, they have not drawn down significant amounts by 30 June 2017 as we typically require the equity investors to fund the initial construction before drawing on the debt facilities. Since the establishment fees are deferred and recognised using the effective interest rate method, the majority of the fees sat in unearned income at 30 June 2017.
Provision for concessional loans	The provision for concessional loans was significantly lower than budget at 30 June 2017 as the CEFC had not provided the extent of concessionality during 2016-17 that it budgeted to provide. Refer to the explanation of lower concessional loan charges under the Statement of Comprehensive Income explanations above for further details. In addition, a facility with one of the major Australian banks expired during the period and was replaced with a different (less concessional) aggregation facility.
Contributed equity	The Corporation drew an additional $660 million from the CEFC Special Account and returned $100m less than forecast in the prior financial year as a result of the very large number of transactions that have been contracted in 2016-17. In 2016-17 in excess of $2 billion of new investments were contractually committed. Some of these new investments were funded during 2016-17 (using the additional monies from the CEFC Special Account) and additional amounts will continue to be funded under these contractual commitments during the 2017-18 financial year.
Retained Surplus	The retained surplus is significantly higher than budgeted due to the higher than budgeted surplus that was generated in 2016-17 off the back of a significantly higher than budgeted asset base.
Consolidated Statement of Changes in Equity:
Reserves	Reserves relate entirely to market movements in the fair value of AFS securities. This is typically a result of a change in the market interest rates on bonds (given CEFC is a fixed rate lender) or a change in the market value of underlying assets of a fund in which CEFC holds an equity investment. It is not possible to accurately forecast/budget for the change in the fair value of AFS investments that may arise from a change in market conditions.
Contributed equity	The Corporation drew an additional $660 million from the CEFC Special Account and returned $100 million less than forecast in the prior financial year as a result of the very large number of transactions that have been contracted in 2016-17.
Consolidated Cash Flow Statement:
Operating cash received	The positive variance to budget is a direct reflection of the higher than budgeted earnings off a higher than budgeted asset base in the 2016-17 financial year. As mentioned above, interest and fee revenue as well as equity distributions have a favourable variance to budget as: commitment fees were higher than forecast due to some borrowers not drawing or drawing more slowly than expected; higher than anticipated interest income on secured funding accounts established for some major renewables construction contracts; higher average bank account balances than originally anticipated; an improved interest rate negotiated with a major Australian bank on short-term cash holdings, and a number of new property trust investments had current period earnings and have therefore provided distributions to the CEFC during the 2016-17 financial year.
Principal loan repayments received	In the budget, CEFC had anticipated being re-financed out of one of its wind farm debt facilities during the 2016-17 financial year. This did not occur during the 2016-17 financial year but is still being considered by the equity sponsor. The break costs, related to the other debt providers in the syndicate, are prohibitively expensive at this time, so the owners have deferred their refinancing considerations at least in the short term.
Redemption and Purchase of short term investments	The $90m positive variance to budget in both purchase and redemption of short term investments is a result of CEFC retaining an additional $100m from the CEFC Special Account in the prior financial year. The majority of this ($90m) was invested as a short-term investment to maximise the return on these funds until such time as they were drawn down by the CEFC’s customer.
Redemption of other financial assets; and Acquisition of other financial assets	The redemption and acquisition of other financial assets is a gross-up to show the gross inflows/outflows related to the secured funding accounts. These were budgeted on a net basis as it is not possible during the budget process to estimate the number of times particular term deposits will be rolled, as it depends on the construction draw-down timetable as well as the forward rate curve for term deposits at the time each deposit is rolled. The net variance to budget of these two items is only $1.3 million.
Loans made to other parties	Loans made to other parties are lower than forecast as some investments which were forecast as loans, were completed as AFS securities instead.
Purchase of AFS financial assets	As stated above, when the budget was prepared the CEFC expected the majority of new investments to take the form of loans and advances. However, as the year evolved, a substantial number of new investments were in the form of AFS securities. This includes quoted debt securities such as climate bonds and longer tenor bank bond arrangements as part of the aggregation facilities, unquoted units in trusts as well as unquoted equity investments.
Contributed equity	As stated above, the Corporation drew an additional $660 million from the CEFC Special Account (in addition to the $340 million budgeted) as a result of the very large number of investment transactions that have been contracted in 2016-17.
Cash and cash equivalents at the beginning of the reporting period	The Corporation had budgeted to return $100 million of funds at 30 June 2016 to the CEFC Special Account, however, these were retained due to transactions that needed to be funded shortly after the end of the 2015-16 financial year, causing the cash and cash equivalents at the beginning of the reporting period to be $85 million higher than the budget had anticipated.
Cash and cash equivalents at the end of the reporting period	As stated above, cash and cash equivalents at the end of the reporting period are $252 million higher than budget as the CEFC drew down an additional $660 million from the CEFC Special Account, over and above what was budgeted, to meet its funding obligations under the contracts entered into during 2016-17. Two specific investments that were expected to reach financial close and draw down in June 2017 when the CEFC Special Account funds were withdrawn have experienced minor delays and are now expecting to reach financial close and draw down within 60-90 days of their original dates.