Meeting: Audit Risk & Finance Committee - 28 March 2018 ... · the Ngawha Industrial development. 2) Discussion and options Subsequent due diligence . Whilst Council has been able

Document number A2076843 Page 1 of 8

Item: #.#

Meeting: Audit Risk & Finance Committee - 28 March 2018

Name of item: Far North Holdings Limited Equity Investment Decision Amendment

Author: Samantha Edmonds – General Manager Corporate Services

Date of report: 30 May 2018

Document number: A2076843

Purpose of the report Audit Risk & Finance Committee to consider a recommendation to Council to revoke the decision made on 28 March 2018 and propose an alternative resolution in respect of further equity investment in Far North Holdings Limited (FNHL). The equity investment is to enable the purchase of land in order to create an Industrial Park at Ngawha, and will enable FNHL to leverage the equity investment for borrowings to deliver other projects in the FNHL portfolio, whilst considering protecting and minimising the risk to Council.

Executive summary On 13 December 2017, Council adopted a Statement of Proposal (SOP) to increase its equity investment in FNHL and agreed to proceed to formal public consultation. The consultation period opened in early January and culminated with hearings on 28 February at which 20 submitters spoke.

The option proposed in the SOP was to invest (up to) an additional $6 million, bringing Council’s total investment in FNHL to $19 million, including the $1 million investment that has already been agreed for the Bay of Islands airport terminal.

It was proposed that the investment would be made through increasing the perpetual loan for Council’s current investment in FNHL, only paying the interest costs on the additional equity investment (alongside the original loan interest).

Assuming an interest rate of 4.2% rising to a maximum of 4.8%, an additional loan of $6 million would increase Council’s current interest costs under the perpetual loan by $252,000 to $288,000 per annumi. It was proposed in the SOP that Council’s borrowing (interest) cost be covered by FNHL by way of a special / fixed dividend equal to or greater than the interest cost incurred.

On 28 March 2018 Council carried the below decision:

a) Provides equity investment to FNHL of $5 million to enable it to purchase the property to create an industrial park and support the economic development of the District and purchase the Fonterra shares.

b) Proceeds with the necessary legal and administrative activities to ensure that:


b).1 FNHL will pay borrowing/interest costs by way of a fixed dividend equal to or greater than the interest costs, in addition to the current dividend of 50% of FNHL’s after-tax operating profit per annum.\ b).2 Once the property has been purchased, FNHL may use it as security for a loan. b).3 Should the development potential of the site not lead to business and industry locating at the site, having given FNHL a minimum of 3 years to do so, Council may request, if it so wishes, that Far North Holding Ltd re-pay the original $5m investment by way of shares to be redeemed over a period of 5 years from the date Notice of Redemption is forwarded to Far North Holdings Ltd; this to be over and above the dividend, representing 50% of profit, currently received by Council. If Far North Holding Ltd sell the site this will also trigger the repayment option as outlined. The 2018 statement of intent and a formal agreement for Far North Holding Ltd will reflect these arrangements pursuant to the adopted recommendation to protect the Council’s equity investment. b).4 Amendment to the Constitution of FNHL for provision of clause to issue redeemable shares.

Subsequent due diligence completed by FNHL has highlighted that the reference to FNHL payment of borrowing/interest costs (b).1) and Council having right to request re-payment of the $5m (b).4) is deemed to be a loan rather than equity investment in FNHL and therefore precluding FNHL ability to leverage further borrowings against the $5m equity investment from Council.

The subsequent due diligence received by Council suggests that Council should retain the requirement for the shares to be non participating preference shares but that the right to call for repayment would need to remain with FNHL. This will protect Council from any future potential tax complications.

Recommendations That Audit Risk & Finance Committee:

a) Propose an alternate resolution for Council to consider on 28 June 2018, option 1;

b) Or, propose an alternate resolution for Council to consider on 28 June 2018, Option 2;

c) And, recommend that Council revoke the decision made at Council meeting held 28 March 2018.

1) Background Council agreed at its 7 December 2017 meeting for FNHL to negotiate a sale and purchase agreement with Top energy on its behalf for 204ha of rural production land adjacent to the geothermal power plant at Ngawha. The property is currently a dairy farm.

The option proposed in the Statement of Proposal (SOP) was that the investment would be made through increasing the perpetual loan for Council’s current investment in FNHL, only paying the interest costs on the additional equity investment (alongside the original loan interest).


Assuming an interest rate of 4.2% rising to a maximum of 4.8%, an additional loan of $6 million would increase Council’s current interest costs under the perpetual loan by $252,000 to $288,000 per annum. It was proposed in the SOP that Council’s borrowing (interest) cost be covered by FNHL by way of a special / fixed dividend equal to or greater than the interest cost incurred.

Alternatives considered as part of the SOP 1. Providing a loan to FNHL. This would be treated as a loan and therefore

classified as a liability for FNHL and would not provide the leverage for increased borrowing capacity they are seeking.

2. A combination of a loan of $3 million and equity investment of $3 million. Minimum 50% of this option would also be treated as a loan and therefore would not provide the leverage for increased borrowing capacity they are seeking.

3. No contribution. This option does not provide for FNHL to acquire the land for the Ngawha Industrial development.

2) Discussion and options Subsequent due diligence Whilst Council has been able to proceed to a position to implement the necessary legal and administrative activities as directed by the decision on Council on 28 March 2018, FNHL have advised Council that the accounting advice they have received is that the draft share subscription agreement would have not have the desired effect on their banking covenant obligations that they anticipated.

The advice provide to FNHL is that the retention by Council of the right to require a dividend to be paid in respect of the interest on the new share capital and the right to require repayment of those funds in certain circumstances means that the injection of funds must be reported as a liability, rather than equity.

Those circumstances where Council may require repayment include,

• Development potential of the site not leading to business and industry locating at the site, having given FNHL a minimum of 3 years to do so

• Far North Holding Ltd sell the site

BDO Northland has advised FNHL that to be considered equity of FNHL, the decision to pay a dividend can not be linked to the interest and that the decision to redeem the shares must remain with FNHL.

Options for consideration by Council Amendment to draft Statement of Intent (SOI)

FNHL have received advice and suggest that the share subscription agreement be amended to record that the right to redeem the shares remains with the FNHL at its option and that the SOI between Council and Far North Holdings Limited be amended to provide:

a) That the dividend payment to FNDC be increased from 50% to 60% of FNHL’s after-tax profit; and


b) That the Statement of Intent records the intention of the parties that the shares would be redeemed if the development potential of the site is not realised within a period of three years.

Benefits to amend the SOI

• The intention for FNHL as the Council CCTO to have recorded the intention of both parties that if the potential of the site is not realised within a period of three years the shares would be redeemed.

Disadvantages to consider

• The increased dividend from 50% to 60% does not guarantee to Council payment of an amount equal to or greater than Council’s cost of borrowing the funds to be invested.

• The decision to pay the dividend or redeem the shares remains with FNHL and not Council.

Risks

• Part 5 of the Local Government Act 2002 provides for the establishment, objectives and operations of a Council Controlled Organisation (CCO). It is unlikely that changes would be made to legislation that removed the current controls in place regarding how the CCO can operate and its obligations to its shareholder, however this risk should be considered.

Amended form of Agreement

Council should consider the option to also amend the draft form of agreement regarding the share subscription agreement to include,

• The shares remain as non-participating redeemable preference shares; and • That the redemption of shares is at the option of FNHL, rather than Council;

and • Requirement that the funds are used to purchase the land at Ngawha for the

purposes of development of the industrial park. Benefits to formalise an agreement

• The agreement is specific to the decision of Council on the Ngawha industrial park development, unlike the SOI which is reviewed annually.

• Council can be assured the further equity investment is for the purposes intended.

Disadvantages to consider

• Council is unable to include the right to request repayment from FNHL under the circumstances mentioned in the SOI.

• However, Council is the shareholder and is still in the position of being able to give direction to the directors, and if necessary in a worst case scenario, able to replace the directors.

Risks

• The agreement will include the right of redemption decision is at the option of FNHL rather than Council.

• Council may view this as a low risk to allow the leveraging of borrowing for FNHL to deliver other projects in the FNHL portfolio as moderate to low.


Proposed resolution for Audit Risk & Finance Committee to consider for recommendation to Council Option 1

That Council:



b.1) That FNHL amend the SOI for the three year period to 2021, to include a dividend payment of 60% of its after-tax profit to the Council.

b.2) That FNHL undertake to purchase the farm property and Fonterra shares for the purposes of developing it into an Industrial park, and that FNHL may use the property as security for a loan.

b.3) That the SOI reflect the Councils wishes for the property to be developed into an Industrial Park and that should the development potential of the site not lead to business and industry locating at the site, having given FNHL a minimum of 3 years to do so, that the company will look to dispose of the farm, or to refund to Council, over a 5 year period, the equivalent of the additional funds invested.

b.4 That the share issue be in the form of non-participating redeemable preference shares.

Option 2

Audit, Risk & Finance Committee may wish to consider an alternate to b.1) to ensure that the interest costs of the perpetual loan are covered and a separate Agreement for the transaction in addition to the SOI.

That Council:



b.1) That FNHL amend the SOI for the three year period to 2021, to include a dividend payment of 2018/19 $1,097,000, 2019/20 $1,215,000, 2020/21 $1,340,000, 2021/22 $1,340,000 or 60% of its after-tax profit to the Council, whichever amount is higher.

b.2) That FNHL undertake to purchase the farm property and Fonterra shares for the purposes of developing it into an Industrial park, and that FNHL may use the property as security for a loan.

b.3) That the SOI reflect the Councils wishes for the property to be developed into an Industrial Park and that should the development potential of the site not lead to business and industry locating at the site, having given FNHL a minimum of 3 years to do so, that the company will look to dispose of the farm, or to refund to Council, over a 5 year period, the equivalent of the additional funds invested.

b.4 That the share issue be in the form of non-participating redeemable preference shares.

b.5) That Council and FNHL, in addition to the SOI, form a separate Agreement outlining the share subscription agreement to include the following;


• The shares remain as non-participating redeemable preference shares; and • That the redemption of shares is at the option of FNHL, rather than Council;

and • Requirement that the funds are used to purchase the land at Ngawha for the

purposes of development of the industrial park.

3) Financial implications and budgetary provision There are no further financial implications or necessary budgetary provision from the Council report prepared 28 March 2018 and whilst we have not yet received the invoicing it is not anticipated the due diligence costs for Council would exceed $50,000, with a provision of $100,000 accepted.

Manager: Kathryn Ross – Acting CEO

Attachment 1: Far North Holdings Limited Statement of Intent 2018 to 2021 DRAFT update 29 May 2018 – Document number A2078033 Attachment 2: 2018-03-28 Council 7.1 FNHL Equity Investment Decision – Document number A2001437 Attachment 3: FNHL Equity Investment Consultation 2018 Statement of Proposal with Submission Form – Document number A2078465


Compliance schedule:

Full consideration has been given to the provisions of the Local Government Act 2002 S77 in relation to decision making, in particular:

1. A Local authority must, in the course of the decision-making process,

a) Seek to identify all reasonably practicable options for the achievement of the objective of a decision; and

b) Assess the options in terms of their advantages and disadvantages; and c) If any of the options identified under paragraph (a) involves a significant

decision in relation to land or a body of water, take into account the relationship of Māori and their culture and traditions with their ancestral land, water sites, waahi tapu, valued flora and fauna and other taonga.

2. This section is subject to Section 79 - Compliance with procedures in relation to decisions.

Compliance requirement Staff assessment

State the level of significance (high or low) of the issue or proposal as determined by the Council’s Significance and Engagement Policy

Because this proposal involves increasing Council’s shares in FNHL (and the shares are listed as Strategic Assets in Council’s current policy on significance), and there has historically been community interest in the activities undertaken by and the performance of FNHL, the decision is significant and therefore Council has undertaken a Special Consultative Procedure under the Local Government Act 2002.

State the relevant Council policies (external or internal), legislation, and/or community outcomes (as stated in the LTP) that relate to this decision.

Local Government Act 2002.

In addition, this matter aligns with regional economic strategies and plans, community outcomes and the Council vision He Whenua Rangatira.

State whether this issue or proposal has a District wide relevance and, if not, the ways in which the appropriate Community Board’s views have been sought.

District and regional relevance.

State the possible implications for Māori and how Māori have been provided with an opportunity to contribute to decision making if this decision is significant and relates to land and/or any body of water.

The 7 December 2018 report noted the significant interest that has been taken in the development of the geothermal resource and the likely issues that will need to be addressed in any future consenting or plan change processes as well as the economic development opportunities for Māori/Iwi/hapu. In addition there are opportunities for the owners of Māori freehold land.

http://intranet.fndc.govt.nz/your-council/councils-policies

http://intranet.fndc.govt.nz/your-council/councils-policies


Identify persons likely to be affected by or have an interest in the matter, and how you have given consideration to their views or preferences.

Interests are likely to be district and region wide as well as at the national and potentially for business and investment, international scale.

State the financial implications and where budgetary provisions have been made to support this decision.

$100,000 from the economic development budget is available for due diligence work and professional fees. An equity investment would be unbudgeted but the expectation is that it would be cost neutral to the Council and the ratepayer as Council would agree that FNHL covers the interest on its borrowings and receives the proceeds from any sale / has security over an asset.

Chief Financial Officer review. CFO has reviewed this report.

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Statement of Intent 2018 - 2021

Presented to Far North District Council on Wednesday 28th February 2018 – updated 29 May 2018

Statement of Intent 2018 - 2021 • • •

1

Far North Holdings Limited, Presented to Far North District Council 28 February 2018

Contents Purpose of Statement of Intent ................................................................................................ 2

Abbreviations .......................................................................................................................... 2

About FNH ................................................................................................................................... 3

Nature and Scope of Activity .................................................................................................. 3

FNH Strategic Direction ............................................................................................................. 5

Decision for which prior Council approval is required ...................................................... 5

FNH Objective............................................................................................................................. 6

3-Year work plan to deliver on Strategic Objectives ........................................................ 6

Financials ..................................................................................................................................... 9

Operating Profit 3-year Forecast .......................................................................................... 9

Consolidated Shareholders’ Funds and Total Assets ........................................................ 9

Distribution Policy ..................................................................................................................... 10

Accounting Policies .............................................................................................................. 10

Reporting to Shareholders ................................................................................................... 10

Transactions with Far North District Council ...................................................................... 10

Acquisition of Shares ............................................................................................................ 10

Performance Targets ............................................................................................................... 11

Performance Outlook .......................................................................................................... 11

Performance Measures ......................................................... Error! Bookmark not defined.

Board’s Approach to Governance ....................................................................................... 14

Current Board Membership ................................................................................................ 14

Engagement with the Shareholder ................................................................................... 15


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Statement of Intent 2018 - 2021 Purpose of Statement of Intent This Statement of Intent (SOI) is presented by Far North Holdings Limited (FNH) in accordance with Section 64(1) of the Local Government Act 2002. This SOI takes Shareholder comments into consideration and represents the objectives, nature and scope of activities and performance targets by which FNH is to be measured as the basis of accountability. It covers the period from 1st July 2018 to 30 June 2021.

Abbreviations Abbreviation / Term Description

BOI Bay of Islands

CCO Council Controlled Organisation

CrusieNZ Cruise New Zealand

FNDC Far North District Council

FNH Far North Holdings Limited

LTP Long Term Plan

SLT Far North District Council’s Strategic Leadership Team

SOI Statement of Intent


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About FNH As Council’s commercial vehicle, FNH facilitates and creates commercial and infrastructural assets in the Far North District, in doing so, it will:

- Operate under good governance; - Seek new business development opportunities; - Identify, collaborative or joint ventures opportunities; - Manage existing assets and bring commercial expertise in property management; and - Create profits for its Shareholder and improve the Shareholder asset value.

FNH leads the delivery of property and infrastructure assets in its ownership and under its management. These actions contribute to the development of the Far North District.

FNH primary roles are: - To plan, manage, operate and develop; land, maritime, aviation and public assets

within its ownership, or under the terms of any management agreement entered into; and

- To plan, facilitate and secure commercial outcomes in its area of Influence that support the growth of the Far North District.

Nature and Scope of Activity FNH currently owns and operates commercial and infrastructural assets in the maritime, aviation and property sectors.

FNH may:

- Elect to investigate and invest in any other commercial opportunities that may arise including any proposed by its Shareholder; and

- Carry out asset management, and may enter into management agreements for defined services on behalf of its Shareholder, or third party

- Divest any of the assets held, subject to any restrictions that may apply in specific cases (such as where the Council has the right of first refusal, or where the offer-back requirements of the Public Works Act apply).

FNH will align itself with the Shareholder’s broader strategic objectives by leveraging off these assets to undertake the following business activities (but not limited to) over the next three years being:

Developing and enhancing a maritime economy - Complete the BOI Marina Stage II Development and associated land developments; - Further development Waitangi Wharf to cater for the cruise ship tenders; - Further develop both the Paihia and Russell wharves, maximizing benefits from Provincial

Growth Fund (PGF); - Attract business and investment in the maritime economy; - Ensure all maritime assets owned by FNH are cost effectively maintained through asset

management plans that appropriately balance care of asset with expenditure; and - Seek funding sources to further develop or upgrade such maritime assets

Comment [KC1]: Consider amend for Russell Wharf and Ngawha

Comment [IW2]: This first section should be the general policies, and then the specific in next part and then finer detail and KPIs at end


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Developing and enhancing property in its ownership including: - Re-develop Kerikeri Airport Terminal, and its associated infrastructure; - To purchase the farm property at Kaikohe from Top Energy for the development of an

industrial park; - Complete development opportunities at Opua; and - Evaluate the benefit of property management as part of a shared services agreement. -

Where agreed with the Shareholder, enter into a management contract for commercial, strategic and non-strategic property assets in order to:

- Undertake acquisitions of strategic property on behalf of Council; - Undertake disposals or re-development of non-strategic land; - Negotiate third party leases where Council is the tenant; - Undertake management of commercial leases; and

Evaluate any other properties, developments, businesses and investments as to their current and future potential

Comment [KC3]: Include Russell Wharf and Ngawha

Comment [KC4]: IW thinks we still need this general ability?

Comment [KC5]: For example, Walker farm, Waipapa, Pear Tree Restaurant KKE, (current examples) Kaitaia Airport, Maritime assets, Russell Wharf?


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FNH Strategic Direction This SOI sets the strategic framework, activities, and performance measures we have set for the next three years to deliver the outcomes its Shareholder seeks.

At the time of preparation of this Statement of Intent FNH has several projects seeking high level funding and approvals. For the moment, this SOI is based on known projects. FNH will liaise with Council on the new projects and update the SOI reflecting any change.

FNH is to be cognisant of and, where appropriate, seeks to align itself with the Far North District Council’s vision, mission and principles statement as outlined in the 2018/28 Long Term Plan (LTP).

For community outcomes FNH will be guided by the 2018/28 LTP and Council’s “Our Voices Our District Vision” which has the vision statement “A District of sustainable prosperity and well-being” and a Statement of Collective Values and Statement of Expectations.

Over the period of the SOI, Far North District Council will provide FNH with any other documents that it should have knowledge of, whether they be in the consultation stage, or have been formally adopted, that reflect any changes to the Council’s vision or aspirations that FNH needs to align with.

Decision for which prior Council approval is required The following criteria are used to guide and demonstrate what types of decisions require Shareholder approval:

1. Decisions which will affect the CCO’s ability to meet any statutory responsibility; 2. Decisions which will impact on any intended service levels for a CCO activity (except if the

impact is minor or has been agreed by the council through the SOI process); 3. Decisions which will commit the council to future provision of funding; and 4. Decisions which are not based on a “full arm’s length” commercial basis requiring FNDC

approval will to be shown in the accounts as such.

Comment [KC6]: Update of projects secured funding 1/5/18


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FNH Objective As the FNDC’s commercial vehicle, FNH will facilitate and create commercial and infrastructural assets in the Far North District, or if outside the Far North District, with the Shareholders approval, with the aim of creating profits for its Shareholder and creating shareholder value.

3-Year work plan to deliver on Strategic Objectives The table below shows the key capital projects and initiatives we plan to undertake in the 2018/21 SOI period to deliver on our strategic objectives.

Key Project / Initiative

Description Contribution to Strategic Objectives

Delivery in 2018-21

Capital Projects

Marina Extension & Boatyard

Completion of landscaping and associated amenities.

New berths are all now available and landscaping and preparation for future carparking and boatyard extension to begin.

Planning and design work to be completed June 2019.

Waitangi Wharf Additional pontoon to cater for increased passenger numbers and tours.

This will further improve the infrastructure needed to support the growth in cruise ships numbers, and size, visiting the Bay of Islands, and the economic benefit that retail and tourist businesses benefit from the passengers that travel in this manner.

Delivery September 2018.

Russell Wharf Kiosk To redevelop the kiosk to provide greater public amenity and more user-friendly environment on the Russell Wharf.

Increase passenger and terminal traffic on the wharf to enhance visitor experience.

R Tucker Thompson To develop new workshop and offices on Opua Wharf.

Provides infrastructure to ensure the longer-term continuation of the Trust and R Tucker Thompson operations in the Bay.

Dec 2018.


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Key Project / Initiative Description Contribution to Strategic

Objectives Delivery in

2018-21

Bay of Islands Airport Terminal

The development of a new terminal building, and new rental facilities.

Reflecting the investment made by Air NZ in the apron / taxiway to accommodate larger aircraft, and more frequent flights, a new terminal is needed to accommodate this passenger growth.

Delivery December 2018.

Kaikohe Industrial Park

To purchase the property from Top Energy, and to commence process to provide for future use as industrial hub.

To create commercial business opportunities to grow the economic and employment opportunities in Northland.

On-going with view that within 3 years all planning requirements completed and to have potential tenants.

Russell Wharf To develop and repair the Russell Wharf.

To increase and improve public and community benefits from the facility under best ownership and management model.

To enhance and increase the longevity and benefits from the structure.

May 2018.

Anticipated completion December 18.

Paihia Wahrf To develop and repair the Paihia Wharf

To increase the capacity of the facility to allow continued growth in traffic and operators thus to function effectively and with pride from the facility

Anticipated full completion May 19, parts completed Dec 18.

In addition to the above new capital projects, FNH shall continue to review, maintain and re-invest in existing assets and operations to ensure maximum benefit to the Company, plus review on an ongoing basis other capital investment opportunities as they arise.


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As referred above the Company is working with both Council and Central Government on the following projects.

- Manea (Cultural and Arts Centre, Hokianga); - Te Hononga, Kawakawa (tourism hub); - Kerikeri Airport – additional opportunities in addition to the new terminal; - Paihia Waterfront (additional infrastructure); - Russell Wharf (additional infrastructure); - Kaikohe Industrial Park; - MOU’s with domestic and international companies, including those from recent China

visit; - Kaikohe Community / Cultural / Tourism Hub.

These projects may come to fruition in the period 2018/22.


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Financials Operating Profit 3-year Forecast FNH anticipates its operating profit for the 2018/19 year to increase to $1.985 million. This projected profit is ahead of that forecasted last year of: $1.775 million again due to better returns from certain business areas and continuing increased trading volumes; particularly with the new marina extension and the increased cruise ship numbers.

In the 2019/20 year, the marina extension will provide an increased return and the Company’s operating profit for this year is expected to be $2.242 million, again a substantial increase over previous forecasts of $2.010 million. This increase reflects the full returns on its new investment properties and further increased marina usage. For the 2020/21 year a further increase (15%) to $2.311 million is forecast.

The forecasts are based on current known incomes with allowances for increase return from the marina extension, and the new properties completed. Interest cost assume no significant change in rates and a small debt reduction related to the Opua Marina Retail, No2, (Dockside 5) building.

Consolidated Shareholders’ Funds and Total Assets For the period from July 2018, the Company will continue to maximise its ability to borrow funds, or source other funding activities, which will see the continued growth in total assets and Shareholders funds. As a part of the Councils desire for the company to have this ability to continue to grow, an equity injection of $5.0 million is planned from the Shareholder in early July 18 by means of an ordinary share issue. These funds to be used for the purchase of the Kaikohe farm for development into a commercial park.The loan of $6 million in redeemable preference shares should be completed by the 30th June 2018.see a slower growth in total assets reflecting the lower level of forecasted borrowing in the next three years.

With the marina expenditure all but complete, and no further borrowings required for this project, the Company’s new Bank borrowing and asset growth will revolve around the new terminal at the Kerikeri Airport and a new building in Kaitaia for the Ministry of Education. No allowance has been made for any possible asset revaluations over the period.

In addition, the Company is working to complete parts of the new projects under Central Governments’ new Partnership Growth Funding (PGF) Program, and will continue to explore other projects and opportunities of utilizing this funding source.

Consolidated Shareholders’ funds are budgeted to total $52.8 million by June 2019, increasing to $54.08 million for June 2020 and $55.3 million by June 2021, which includes the $5.0 million of new ordinary shares. During this period, the Company is also budgeting to pay dividends of $2.98 million to Council, plus a special dividned in relationship to the new redeemable preference shares of $630,000..


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Asset values are forecast to increase to $94.8 million by June 2019 and increase to $97.9 million by June 2021.

Distribution Policy Dividends

The Shareholder may require FNH to pay a dividend of 650% of its after tax operating profit no later than 28th February in the following financial year; however, FNH may from time to time present commercial proposals to the Shareholder for an alternative use of the Shareholder’s share of after tax operating profit for its consideration. In addition to the above dividend, the Company shall pay Council a special dividend each year, to cover the Councils cost of borrowing on the $5 million capital funding under the redeemable preference shares issued. For accounting purposes, FNHL will treat the special dividend as interest, and will be deducting such amount from its operating profits before calculating the 50% dividend payment.

Share Redemption.

In the event that the company has not within a period of three years been able to develop the Kaikohe farm site to its potential as a commercial park, and thus not lead to the establishment of businesses or industry thereon, that the company will look to dispose of the farm, and from those proceeds or other resources, will look to repay to its shareholder, over a period no longer than 5 years, the sum of $5.0 million by means of share redemption.

Accounting Policies FNH’s current Accounting Policies are set out in the notes to its annual financial statements at 30 June 2017. There is no material change in accounting policies envisaged over the period covered by this SOI.

Reporting to Shareholders FNH will provide quarterly reports to its Shareholder in November, February, May and an Annual Report in September. FNH will provide details of its forecasts of earnings, cash flow and balance sheet structure, if requested by its Shareholder.

Transactions with Far North District Council In transactions with FNDC for the provision of goods and / or services, FNH will seek trading terms and conditions applicable to external customers.

Acquisition of Shares If FNH wishes to acquire shares in another company or organization, it will notify its Shareholder at least 30 days in advance.

Comment [KC7]: Needs updating for the agreed interest cost repayments and the non-participating redeemable shares

Comment [KC8]: Needs updating for the special dividend interest cost

Formatted: Highlight


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Performance Targets A schedule of the detailed non-financial and financial Performance Indicators for the 3 years of the SOI can be seen on pages 11 and 12.

Performance Outlook FNH has an agreed set of performance measures and targets which form the basis for accountability to delivering on Council’s strategic direction, priorities and targets. These are reported on a quarterly basis, in accordance with the CCO Governance Manual. These include measures agreed as part of the 2018/28 LTP.

FNH has worked closely with FNDC to develop a new, improved, streamlined and robust set of performance measures for the 2018/28 LTP and 2018-21 SOI. A comprehensive performance measurement and reporting framework also exists outside of the SOI process.


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Financial Performance Objectives SOI Target 2018/19

SOI Target 2019/20

SOI Target 2020/21

Performance Objective Engage in successful commercial transactions

Measure Growth in Shareholder value

Shareholders’ funds increase by $1.0m, after payment of dividend

Shareholders’ funds increase by $1.12m, after payment of dividend

Shareholders’ funds increased by $1.28m, after payment of dividend

Target 2014/15 Achieved



Comments 2016/17 Shareholders funds increased $1.88 million

Performance Objective Provide a commercial return to FNDC

Measure Dividend return to FNDC

Pay $887,000 for 2018/19 year

Pay $1,000,000 for 2019/20 year

Pay $1.12 million for the 2020/21 year

Target 2014/15 Proposed Dividend of $461,870

Target 2015/16 Dividend paid $538,000

Target 2016/17 Dividend paid (Feb) $594,000

Comments Dividend of $719,000 to be paid on the 28th February 2018 for the June 2017 year

Performance Objective Effective Financial Management

Measure Annual operating profit to exceed $500,000

$1.985 million $2.24 million $2.24 million

Target 2014/15 Achieved $1,076,762



Comments

Performance Objective To achieve a return on funds invested

Measure Return on Investment (ROI) is higher than the average cost of borrowing on its commercial assets

ROI 9.7% AV cost of borrowings 4.5%



Target 2014/15 Achieved ROI 6.36%



Comments

Performance Objective Asset growth and development

Measure Capital Expenditure $4.329.30

million $2.02 million $2.015 million




Comments Capital Expenditure of $11,012 million in the 2016/17 year

Performance Objective Effective Governance and Financial Control

Measure Clean audit sign off each year from Audit NZ Annual Board Review with appointed Audit NZ representative To remain within Banking covenants Quarterly audit review by BDO Board Audit and Finance committee meetings to be conducted semi-annually

To achieve

To be held To achieve

To perform To be held

To achieve



To achieve



Comment [KC9]: Figure changed for allowing farm


13


Financial Performance Objectives SOI Target 2017/18

%

SOI Target 2018/19

%

SOI Target 2019/20

% Council Controlled Organisation Initiatives Ensure that the Bay of Islands Airport operates within regulatory requirements

Measure CAA Certification To

achieve To achieve

To achieve




Comments

Non-Financial Performance Objectives

SOI Target 2018/19

%

SOI Target 2019/20

%

SOI Target 2020/21

% Performance Objective Enhancing the Far North as a visitor destination

Measure Each year complete at least one customer and airline industry survey that demonstrates satisfaction levels with facilities and services at either Kerikeri or Kaitaia Airports

85% 85% 85%

Target 2014/15 Not achieved



Comments FNH working with Air New Zealand on terminal

Performance Objective Enhancing and developing a maritime economy

Measure Each year complete at least one marina user or maritime services customer satisfaction survey that demonstrates satisfaction levels with facilities and services available

94% 95% 95%

Target 2014/15 Achieved 88.45%

Target 2015/16 Achieved 80%

Target 2016/17 No survey undertaken – Marina under construction

Comments Bio Security and MPI Surveys

Performance Objective Enhancing the Far North as a destination

Measure Complete bi-annual customer satisfaction surveys with Cruise Ship industry that demonstrates satisfaction levels with FNH as security authority and provider of disembarking infrastructure

Only every second year

85% or higher satisfaction

Only every second year

Target 2014/15 Achieved Cruise line rating of 90.05%

Target 2015/16 N/A

Target 2016/17 Achieved Cruise line rating of 86%

Comments Survey completed with one operator with two brands, rating across all areas was 86%

Performance Objective Position Rating of Cruise Ship destinations within New Zealand

Measure As per relevant measures and information from Cruise NZ

Results no longer available



Target 2014/15 Position achieved (2)

Target 2015/16 Stats not yet available from CruiseNZ

Target 2016/17 Stats not yet available from CruiseNZ

Comments Cruise NZ no longer provides this statistic, but the CE CruiseNZ recently commented in the NZ Herald (5.9.17) “The Bay of Islands is wonderful, Its one of the highest rating destinations in New Zealand”. BOI has highest % increase in ship numbers over any established port in NZ for the 2017/18 year and expects increased numbers for 2018/19.


14


Board’s Approach to Governance Current Board Membership (as at 7 May 2018)

Bill Birnie CNZM (Chairman - term ends 30 October 2019) Ian Walker (Chair Audit & Risk - term ends 30 June 2018) Kevin Baxter (term ends 30 June 2020) Murray McCully (term ends 28 February 2021) Ross Blackman (term ends 30 September 2019) Sarah Peterson (term ends 28 February 2021)

In undertaking its activities, the Board of FNH will exhibit and ensure:

1. Sound business practice in its commercial undertakings, operating as an efficient and effective business;

2. Ethical and good behavior in dealing with all parties; 3. An active partnership approach with Maori, and all other people in business throughout the

Far North, promoting effective communication where appropriate; 4. To comply with all relevant legislative requirements including those relating to the principles

of the Treaty of Waitangi; 5. An open and transparent approach to decision-making with its Shareholder, while

respecting the need for commercially sensitive information to be protected; 6. Operate according to the best practice statements produced from time to time by the

Institute of Directors in New Zealand (Incorporated); 7. That Council’s vision and aspirations are considered and that FNH is conscious that it needs

to contribute to the overall financial performance of Council; and 8. FNH is a good employer in accordance with the legislation guidelines set by Government.

The Board will adopt the following approach to its fiduciary responsibilities to ensure good governance:

Prepare a 3-year SOI setting out its strategic goals and obtain the Shareholder’s agreement to this statement;

Define its organisation structure and individual accountabilities by ensuring management have clearly defined job descriptions;

Set corporate budgets for earnings and cash flow;

Delegate both responsibility and authority to its Chief Executive;

To hold regular board meetings to monitor progress towards the Company’s goals and objectives; and

Prepare Quarterly and Annual Reports to its Shareholder as required and in accordance with current business plan.


15


Engagement with the Shareholder To ensure the implementation of good governance within FNH and within the Shareholder, both parties agree to maintain a high level of communication between each other.

The Chief Executives will use their best endeavours to communicate in a timely manner and ensure that matters are raised so there will be ‘no surprises’.

FNH’s relationship with the governing body of Council will generally be for the purposes of developing strategic direction, agreeing statements of intent, service agreements and levels of funding, and performance monitoring and reporting.

The Board believes that regular communication with the Shareholder is essential to the good governance of the business and therefore FNH will, in addition, seek to meet informally with FNDC as required by either FNH or its Shareholder, to deal with any other matter of mutual interest.

Processes will be established for on-going and regular contact with senior management (SLT) to share information, provide a commercial dimension when required and to ensure alignment with Council’s strategic direction.

FNH will attend Iwi Forums, where invited, and attend Community Board meetings where appropriate or invited to if agenda items warrant their presence.

Far North District Council | Statement of Proposal Increasing Council’s equity Investment in FNHL for the Economic Development of the Far North District 1

A1947658

Introduction

Council is considering investing (up to) an additional $6 million in Far North Holdings Limited (FNHL), increasing Council’s total share investment in FNHL to $19 million. The investment is intended to enable the creation of an

industrial park and support the economic development of the district.

Because this proposal involves increasing Council’s shares in FNHL by approximately 50% (and the shares are

listed as Strategic Assets in Council’s current policy on significance), and there has historically been community

interest in the activities undertaken by and the performance of FNHL, Council is undertaking a Special Consultative Procedure under the Local Government Act 2002. This Statement of Proposal has therefore been prepared in accordance with the requirements set out in sections 83 and 83AA of the Local Government Act 2002.

A number of options were considered by Council to enable the creation of the industrial park. An equity investment (i.e. the purchase of additional shares) of up to $6 million in FNHL was chosen as the proposed option, with accompanying measures to reduce the investment risk for Council and the ratepayer.

This Statement of Proposal sets out Council’s views on the proposal and invites comment from Far North

residents and ratepayers. Consultation opens on 15 January 2018. The last day for submissions is 4.30pm 14 February 2018. You can make a submission by email, on our website or by post. You will be given the opportunity to be heard and your feedback will be considered prior to Council making its decision in March 2018.

Background

FNHL is a Council Controlled Trading Organisation that is wholly owned by Council. Council currently holds $12 million fully-paid ordinary redeemable shares in the company.

In December 2017, Council committed to a $1 million equity injection (i.e. the purchase of $1 million worth of additional shares) into FNHL, subject to satisfactory agreements being concluded, to enable the expansion of the Bay of Islands (Kerikeri) airport terminal. With Council’s contribution, this expansion, will improve and grow

district connectivity for people, businesses and tourists while enabling the economic development of the district.

FNHL delivers commercial activities, support for businesses, and manages assets to achieve a commercial return and commercial outcomes. Council’s relationship with FNHL is governed by a Statement of Intent (SOI). Under the current SOI the Council is entitled to receive a dividend from FNHL of 50% of FNHL’s after-tax operating profit no later than 28th February of the following financial year. Council budgets to receive this dividend, as it is income that reduces the annual rating requirement (effectively subsiding rates and returning value to our communities).

As a result of strong performance, FNHL will pay Council a dividend of $719,000 (being 50% of the operating profit from the last financial year) in February 2018. This amount is higher than what Council originally budgeted ($500,000).

As part of the development of the SOI for 2017-2020, Council and FNHL agreed to explore the expansion of the nature and scope of FNHL’s activity (for example to deliver wider economic development objectives). Council has requested that FNHL explore a number of economic development opportunities for Council’s consideration.

This Statement of Proposal relates to one of those opportunities.

www.fndc.govt.nz

Memorial Ave, Kaikohe 0440 Private Bag 752, Kaikohe 0440

[email protected] Phone 0800 920 029

Phone 09 401 5200

STATEMENT OF PROPOSAL

Increasing Council’s equity Investment in FNHL for the Economic Development

of the Far North District

http://www.fndc.govt.nz/

mailto:[email protected]


A1947658

The proposal: An equity investment to enable FNHL to purchase the property and develop

it - Option 1

Council is proposing to invest (up to) an additional $6 million in FNHL, increasing Council’s total share

investment in FNHL up to $19 million, to enable FNHL to purchase land and assets (some of which already provide a commercial return) to create an industrial park and support the economic development of the district.

Reasons for the proposal

An industrial park has already been identified as a key economic opportunity in the Tai Tokerau Northland Economic Action Plan. The concept piggy backs the expansion of the Ngawha geothermal power plant, which has resource consent to expand (which will be done in stages to match electricity demand) up to 53MW, with a further 25MW of generation capacity to be developed later if required Civil works contracts were awarded in December 2017 and public announcements indicate that by September 2018 it will be known whether there is a viable geothermal resource to support the expansion1.

The types of business, industry and/or cluster that would benefit from the development include dry industries (such as data processing / warehousing etc. that don’t require access to water but are energy intensive) and

industry based on primary production such as forestry processing (sawmills / pulp etc.) and dairy processing (which require access to water, including water storage for processing).

While no private investor has been secured to advance the industrial / energy park concept, the Council considers that the project aligns well with the District and Council’s vision He Whenua Rangatira, our community outcomes and economic development activity as well as regional economic strategies and plans, such as He Tangata, He Whenua, He Oranga and the the Tai Tokerau Northland Economic Action Plan.

Council therefore wishes to step in and enable the industrial / energy park concept to be de-risked and market tested, preserving and growing the opportunity for future investment in a way that is cost neutral or better for the ratepayer. Council is not a developer and thinks it’s company, FNHL, has the commercial acumen and experience to lead this opportunity, including:

• owning the assets

• removing some of the risk for private investors and creating market certainty around the potential future activities that could occur on the site (applying for consents, marketing the opportunity etc.)

• ensuring the current commercial activities are optimised

• negotiating with potential investors, tenants and purchasers

• managing the risk to Council and ratepayers.

Council is therefore proposing to invest further in FNHL shares to enable FNHL to purchase the site and prepare it for development and investment. Council is also proposing measures to de-risk the investment (to Council and the ratepayer) and will take legal and financial advice on the best instruments and agreements to ensure it is secured, entitled to interest, dividends, return of capital and a share of capital gain (as it expects higher returns in the near to medium term from its investment). For example, it will:

• anticipate and budget for a dividend from FNHL of $750,000 (assumed to be 50% per annum of FNHL’s after tax operating profit), plus a special (preferred) fixed dividend equal to or greater than any

interest costs to Council as a result of an/the equity injection

1 The Top Energy website states that “drilling geothermal wells typically has between a 50% and 80% success rate of finding wells that will deliver to the needs of the power station as well as achieving sustainable reservoir management” http://topenergy.co.nz/ngawha-expansion- project/construction/well-drilling/

http://www.northlandnz.com/business/ttneap



http://topenergy.co.nz/ngawha-expansion-


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• require Council approval for any transactions (e.g. sale, security, exchange etc.) relating to the property or any asset encumbrance by FNHL (not contained in the original sale and purchase agreement) for a minimum of 10 years; Council approval can only be given by a resolution of Council

• retain the right to approve any transaction by FNHL that pertains to the property / asset (all such transactions will be classified as significant transactions requiring Council approval as currently provided for in the SOI) beyond 10 years.

Council will also ensure that due diligence on the purchase is completed (including independent valuation), and that the merits and risks of funding and share options, and legal advice are fully considered alongside community feedback before any sale and purchase agreement becomes unconditional. It may consider whether it is appropriate to request or demand a higher annual dividend (i.e. a higher percentage of FNHL operating profit after tax) in future years based on the equity investment and the need to achieve shareholder (and ratepayer) value.

Environmental and cultural issues, including implications for Maori, their land and/or any body of water, will be addressed in any future consenting or plan change processes and consultation and engagement.

The advantages and disadvantages of the proposed option

Equity investments carry the risk that if the company fails, the investor will not get its money back. They also provide the opportunity for a share of capital gains and income by way of dividend distribution.

While further equity investment in FNHL was not anticipated post 2010/11 (SOI’s post the 2010/11 transfer of

assets contained a nil equity demand objective) this objective is not contained in the current SOI. An equity investment of $6 million would enable FNHL to purchase the property, and prepare it for development and investment (including applying for relevant consents). It would also allow FNHL increase its liquidity and/or financial capacity to increase debt to fund its activities. The investment agreement will therefore ensure that the purpose of investment - purchasing the property to develop an industrial park – is achieved.

Council holds a perpetual loan for its current investment in FNHL and would therefore only pay the interest costs on the additional equity investment (alongside the original loan interest) on the basis that should the principle ever need to be repaid this would come from the equity held. The interest costs on an additional $6 million loan, assuming interest at 4.2% rising to $4.8%, would increase against Council’s current baseline interest costs

under this loan by $252,000 – $288,000 per annum2. It is proposed that Council’s borrowing (interest) cost is

covered by FNHL by way of a special / fixed dividend equal to or greater than the interest costs. This would be in addition to a budgeted and anticipated dividend based on 50% per annum of FNHL’s after tax operating profit.

As the property currently provides a return to the owner, this arrangement would ensure that FNHL is incentivised to optimise the current commercial activities on the property and the ratepayer is not paying more in rates as a result of the equity investment. In effect, FNHL will guarantee the borrowing costs of Council for this investment.

Once the property has been purchased by FNHL, FNHL could use it as security for a loan. To ensure that the Council has first call on the property as a result of its equity investment and / or proceeds from a sale of the property (e.g. should the market not respond to the economic development opportunity created) Council approval will be required for any transactions or any asset encumbrance by FNHL (not contained in the original sale and purchase agreement). This will include but is not limited to sale, security, and exchange agreements relating to the property and will last for a minimum of 10 years.

FNHL anticipate that should the development potential of the site not lead to businesses and industry locating at the site that the site would be sold and the initial capital investment would be recovered. Unless directed by Council the proceeds from any disposal of the property will be returned by FNHL to Council, and legal advice

2 If the investment was combined with Council’s already agreed $1 million equity investment the increase would be a total of $294,000 - $336,000 on Council’s current baseline interest costs under this loan.


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will be sought to further protect the ratepayer from potential loss. Council may agree a higher percentage per annum (of FNHL’s after tax operating profit) dividend in future.

While the borrowing would be on Council's balance sheet for a long time, the risk that the investment will result in Council exceeding any of its quantified limits on rates, rates increases or borrowing (as set out in the current financial strategy for any of the years included in the Long Term Plan 2015-2025) is low.

Council's current borrowing limit, set by the Local Government Funding Agency (LGFA) is that borrowing is not greater than 175% of revenue excluding capital revenue (such as subsidies). Any borrowing to invest in FNHL would be included within this limit and could potentially restrict the capital works Council is able to do in the future. The risk of a breach of this borrowing limit in the next 10 to 13 years (the period covered by the current Long Term Plan and the Long Term Plan 2018-2028, currently in development) is considered to be low because Council borrowing as at October 2017 was $47.5m and our planned debt ratio is 54.1%.

The risk that the borrowing limit would be reached does, however, increase beyond the 10 year horizon based on the draft Infrastructure Strategy. This is due to a large renewals profile in these outer years, the potential for growth related investment (particularly around Kerikeri, Waipapa, and Kaitaia), known water availability and quality, stormwater issues and aspirations for roading improvements, particularly for our unsealed network. There is also risk if rates revenue reduces for any reason. Council will regularly evaluate risk if this option is pursued and ensure appropriate treatment, monitoring and review occurs.

Independent tax advice will be sought to maximise tax efficiencies prior to Council making its decision.

The cost of this option is estimated to be less than $100,000 (for professional advice) and there is a risk that any sale of the property does not cover the initial capital investment (and this is not offset through tax efficient arrangements on FNHL borrowings).

Alternative options considered:

2. Council provides a loan to FNHL to enable it to purchase the property and develop it

Council could loan $6 million to FNHL (subject to the agreement of the FNHL Board) to enable it to purchase the property and develop it. The loan would be funded by Council taking out a long-term loan (over 30 years) and security for the loan would be agreed.

Council cannot lend money FNHL on terms and conditions that are more favourable to FNHL than it can get itself. Therefore any loan to FNHL must be in an “arms length” arrangement with interest at a commercial level - about +1% over Council’s current interest rate. Council would get an assessed rate to ensure the transaction did

not breach legal requirements.

To ensure the loan is cost neutral to the ratepayer (with no year to year impact on rates) the loan would be conditional on FNHL repaying the principal and interest at a commercial level (assumed to be @5%). The loan would cost FNHL circa $500,000 per annum, increase FNHL’s debt levels and reduce its liquidity. This would negatively affect current and/or future projects and investments, delay profits and, as a consequence, reduce future dividend payments to Council. This funding option would, however, motivate the development and marketing of the property to secure third party investors and tenants to achieve a solid cashflow and / or capital gains.

As above the $6 million of borrowing would be on Council's balance sheet for a long time. Monitoring the debt would incur administration costs that would need to be woven into the agreement. The risk that Council would breach its current 175% borrowing limit (set by LGFA) is low in the short to medium term. This risk would be regularly evaluated if this option is pursued and Council would need to ensure appropriate treatment, monitoring and review occurs.

Subject to suitable security and agreement from FNHL to cover the principal and interest (at commercial rates) the cost of this option is estimated to be less than $100,000 (for professional advice), so long as forecast dividends are maintained.


3. Combination of loan and equity investment

Under this option Council would make an equity investment of $3 million in FNHL and loan fund $3 million to FNHL on the same terms and conditions that are outlined in options 1 and 2, however the equity return would be less than 75% to reflect the lower equity taken. A 25% increase in equity may in future justify a higher annual dividend.

Under this option the FNHL’s annual costs would be less than those in option 2 by approximately $120,000, with a partial offset available through tax efficient arrangements on FNHL borrowings, and the income from the property.

This arrangement is anticipated to reduce the potential negative effect on FNHL’s current and/or future projects

and investments, profits and, as a consequence, future dividend payments to Council.

Subject to suitable security and agreement from FNHL to cover the principal and interest (at commercial rates) the cost of this option is estimated to be less than $100,000 (for professional advice), so long as forecast dividends are maintained.

4. No contribution (the do nothing option)

The advantage of the do nothing option is that no further Council time, resources or ratepayer contribution is required. However the disadvantage is that the project and the potential economic development benefits to the district are unlikely to be realised.

To date no private investor has been secured to advance the industrial / energy park concept, despite efforts by the current owner, Northland Inc, and New Zealand Trade and Enterprise. Investors generally require certainty and without consents or alternative zoning, the site is less attractive to the range of potential investors.

The cost of this option is nil.

5. Other options considered and rejected

Council debt funding the purchase of the land and developing the land itself has been rejected because:

• Commercial property development is not Council’s area of expertise

• All of the risk lies with Council and the ratepayer

• Council is the consenting authority (for land use, subdivision, and building consents) and administers the current District Plan, which is under review. Council could be accused of entering into the fray rather than merely acting as a responsible territorial authority under the Resource Management Act if a plan change (for example to change the underlying zoning) or resource consents were required.

Council has also rejected

• rating for the purchase of the land in year one of the LTP 2018 because this is not affordable to our ratepayers. Approximately $750,000 equates to a 1% increase in rating revenue.

• engaging FNHL to manage the asset on its behalf as this does not adequately reduce the risk to Council and the ratepayer, nor does it sufficiently incentivise FNHL to maximise the current commercial return and future potential of the project.

Have your say

Thank you for taking the time to read through this proposal. Before making any final decisions, we would like to have your input. We welcome feedback (submissions) from any interested person or organisation on any aspect of the proposed equity injection into FNHL to enable the economic development of the Far North.


Timeframe

The Council is seeking feedback (submissions) on the options presented in this proposal, including the level of equity investment. Consultation opens on 15 January 2018. The last day for submissions is 4.30pm Friday 16 February 2018. Hearings are currently scheduled to be held on 28 February 2018 from 2pm.

How do I have my say

We would really like you to have your say on this issue. If you would like to share your views, your feedback (submission) must be received by 4:30 pm on Friday 16 February 2018.

To make a submission you can:

• Complete the form at the back of this document and send it back to us: FNDC Submissions, Far North District Council, Private Bag 752, Kaikohe 0440 or drop it in to any of our service centres, libraries or Council offices; or

• Complete it online at www.fndc.govt.nz/fnhl2018

http://www.fndc.govt.nz/fnhl2018

Documents

Meeting: Audit Risk & Finance Committee - 28 March 2018 ... · the Ngawha Industrial development. 2) Discussion and options Subsequent due diligence . Whilst Council has been able