Chapter One - Overview > Financial Overview > page 4 of 16
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Financial Overview

Operating Performance

Explanation of Major Variations

Expenses (+$1,358m)

Expenses were $1,358m higher than budget due to:

  • Employee Expenses (-$520m) - Employee Expenses were lower than anticipated due to:
    • an overestimate of accrued leave expenses including bringing to account leave expenses in late 2003-04 rather than in 2004-05 as budgeted (-$248m). There was no cash impact;
    • an overestimate of Employee Expenses in the original budget (-$155m);
    • lower than anticipated full time employees in Navy (-78), Army (-379) and Air Force (-25) (-$40m);
    • a one time adjustment to Fringe Benefit Tax expenses to correct timing differences between the Fringe Benefit Tax year and the financial year (-$32m);
    • lower than expected Fringe Benefits Tax costs due in part to lower than anticipated staffing level ( $25m);
    • lower than planned average full-time equivalent civilian staffing strength (-$16m);
    • reduced housing costs, due in part to lower than planned ADF strength (-$8m) and lower than expected commercial rent payments to the Defence Housing Authority (-$12m);
    • lower than anticipated expenditure on military employee allowances in relation to overseas operations with funds to be returned to Government under no win - no loss arrangements (-$5m);
    • lower than projected use of Reserve days by non-Service Groups (-$5m);
    • the net effect of increased redundancy costs, civilian health services and workers compensation premiums (+$3m); and
    • increases in health costs relating to medical and professional fees (+$22m).
  • Supplier Expenses (+$18m) - The variation is made up of an increase in inventory consumption (+$104m) and a lower level of expenses in other suppliers (-$86m). The increase in inventory consumption was due to:
    • increased operational tempo combined with an understatement of the inventory consumption budget (+$61m); and
    • the impact of higher fuel prices (+$43m).
    The variation in other suppliers (-$86m) was due mainly to:
    • purchase rather than repairing of rotable items, as maintenance of these items had become uneconomical ( $36m);
    • the return of funding for a project which is being managed under no win-no loss arrangements (-$22m);
    • the continued appreciation of the Australian Dollar relative to other currencies, and in particular the United States Dollar (-$20m);
    • reduced property disposal costs in line with the reduction in property disposal proceeds in 2004-05 ( $11m);
    • lower than anticipated Air Force training activities due to higher operational tempo and related aircraft availability (-$11m); and
    • additional expenses for classified projects (+$14m).
  • Grants (-$7m) - The lower than anticipated expenditure on grants was as a result of timing issues.
  • Depreciation and Amortisation (-$65m) - The variation in depreciation and amortisation mainly relates to:
    • the impact of extending the life of a number of ADF assets (-$33m); and
    • an overestimate of depreciation expense for infrastructure, plant and equipment due to a change in the asset recognition policy (-$32m).
  • Value of Assets Sold (-$70m) - The variation in value of assets sold is due to:
    • deferrals, into 2005-06, of a number of properties in the Property Sales Program, including Ermington, Maribyrnong and the Fremantle Oil Fuel Installation ( $71m);
    • an overestimation of the value of other property, plant and equipment sold during the year (-$14m); and
    • sale of housing for which Defences owed an annuity to the Defence Housing Authority (+$15m).
  • Write down of Assets and Inventory (+$1,997m) - The variation comprises write downs of the value of assets (+$518m) and write-downs of inventory (+$1,479m). The increase in the write-down of assets was mainly in relation to:
    • Defence undertaking a significant review of financial records for completed estate infrastructure projects (+$255m);
    • a 100 per cent revaluation of the Defence estate within Australia by the Australian Valuation Office which identified a number of other infrastructure, plant and equipment to be written down, including at RAAF base Curtin, Holsworthy and HMAS Stirling (+$89m);
    • specialist military equipment, including for assets under construction where the value of work completed was adjusted to align with the accumulated costs incurred (+$89m);
    • the 100 per cent revaluation of the Defence estate also identified a number of assets required to be written down, including at Holsworthy, RAAF bases Williamtown and Amberley and HMAS Albatross (+$77m); and
    • the write down of intangibles, including software that was previously capitalised (+$8m).
    Additional write-downs of inventory (+$1,479m) resulted mainly from:
    • extensive stocktaking undertaken throughout the year as part of remediation activity (+$763m); and
    • inventory review identifying items that are being held for contingency purposes, but are unlikely to be used. This includes excess items related to platforms scheduled to be withdrawn from service (+$716m).
  • Other Expenses (+$5m) - Defence did not budget for, or forecast, any other expenses. In the event, other expenses totalling $5m were incurred during 2004-05, including for Defective Administration Scheme payments and other minor expenses (+$5m).
  • Borrowing Cost Expenses (-$6m) - Borrowing cost expense was lower than anticipated due to the buy out of on base Defence Housing Authority annuities.
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