Report to follow.
Minutes:
The Committee received a verbal update from the Chief Financial Officer and a representative of Deloitte, the financial advisors to the Council.
The Chief Financial Officer introduced the item and made the following points:
· The cash-flow test was necessary to provide assurance to the Council that Mercia Waste Management (Mercia) were able to sustain sufficient cash to qualify as equity. Two tests had been submitted both of which had satisfied the Council's criteria by some distance. The first test showed an in excess cash-flow of £1.6m against a target of £4.7m and the second test an in excess cash-flow of £1.19 against a target of £7.05m. Deloitte had been asked to confirm those numbers
· The majority of the cash-flow tests had been completed and Deloitte were now proceeding with the Partner Review process. He would liaise with the Chairman and Vice-Chairman to demonstrate that the Chief Financial Officer had signed-off the cash-flow test, following the Partner Review
· As the project moved onto the construction phase, ratio tests would be undertaken, which were financial health indicators. However these tests would not be required to be undertaken for some time
· The Council would only be concerned if the cash-flow test failed which was not the case at this stage. He expected that following the partner review, Deloitte would be in a position to sign-off the cash-flow certificate.
Tim Dean on behalf of Deloitte addressed the Committee. He commented that:
· The cash-flow tests would be carried out through the construction period on a quarterly basis with reference to the model agreed as part of the financial close in May 2014. In December 2014, Deloitte agreed the methodology for the cash-flow testing with all parties. An updated test for the previous period May – September 2014 and a test for October – December had been completed
· Two or three clarification questions had been raised with Mercia. However as explained by the Chief Financial Officer, the initial opinion was that the tests were satisfactory. The clarifications sought from Mercia were not significant or complicated and should Mercia be unable to supply satisfactory responses to them, it would not be a major issue. He anticipated a response from Mercia imminently.
In the ensuing debate, the following principal points were raised:
· It appeared to take a significant period of time to receive the outcome of these tests, was there any way that the process could be speeded up? Tim Dean commented that the initial test had taken some time to provide because it was necessary to find an agreement with Mercia over the methodology for the cash-flow tests. This had now been agreed and there should not be any difficulty in providing timely information for future quarterly reports
· Was the representative of Deloitte concerned about the variation in both the ceiling of the cash-flow and the excess levels results between the two tests? Tim Dean responded that he was not concerned at this stage that the variations indicated a trend. He argued that the timing of the initial cash-flow tests had had an impact on the variations and he anticipated that there would be a natural variation in the figures as the project progressed. However he would wish to challenge and ask questions of Mercia if it was felt that the expected cash-flow figures were at variance with the agreed model over a sustained period of time. The Chief Financial Officer added that should the cash-flow test prove to be unsatisfactory, the Council could decide not issue any further loan requests and request Mercia to inject sufficient cash-flow from Shareholders to meet the test
· Had a timescale been established for the signing-off of cash-flow test reports which aligned with meetings of this Committee? The Chief Financial Officer stated that meetings of this Committee had been scheduled on a bi-monthly basis. However, the cash-flow reports and the technical reports were quarterly reports. It was therefore proposed that meetings of the Committee be held on a quarterly basis. A timescale was being established to ensure that these reports accorded with the Committee meeting dates. A schedule of timings and responsibilities had been agreed with Mercia for the future
· A verbal report was satisfactory for the purposes of this meeting however, the Committee needed to be assured that the cash-flow tests had been signed-off. Future items should therefore incorporate a written report. The Chief Financial Officer agreed to provide these at future meetings.
RESOLVED that:
a) the verbal update report from Deloitte – Financial Advisors be noted;
b) the Chairman and Vice-Chairman be authorised in liaison with the Chief Financial Officer to sign-off the Cash-Flow test, following the Partner Review; and
c) future final Cash-Flow test update information be received on a quarterly basis in written form.