6. Financial performance

The financial results for 2021-22 through to 2023-24, along with the estimates and underlying assumptions for the 2024-25 budget and forward years are set out in Table 23 (below), prepared on an accrual basis.⁵

Table 24 – AICIS financial performance ($’000)

6.1 Financial Estimates

Material variance commentary: The financial estimates are based on predicted levels of fee for service applications and the number of expected registrants at each level. The estimates also include a substantial increase to appropriation funding in the form of an interest equivalency payment from interest earned on funds held in the Industrial Chemicals Special Account.  Revenue forecast for 2024-25 are subject to fluctuations in:

• numbers of fees for services applications
• number of companies per level listed on the Register of Industrial Chemical Introducers

The annual rolling CRIS and future pricing reviews will ensure transparency and ongoing accuracy of revenue and expenditure and detect any upward or downward variations.

Balance Management Strategy: A reserve is used as a risk mitigation measure to allow established charging arrangements to balance and lessen the impact of variable demand on the ongoing delivery of regulatory activities.  The AICIS Reserve is fully committed to the following three components, which are maintained to facilitate business continuity requirements, to help fund the ongoing resourcing requirements of AICIS and to allow the Scheme to operate in a sustainable manner:

• Capital investment (49%): Includes costs recovered from regulatory charges where funding for replacement or enhancement to a capital asset has been provided by government. This revenue will be maintained in reserves earmarked to support future replacement or enhancements to capital assets;
• Three months operating reserves (28%); and
• Employee entitlements (22%): Consistent with best practice, the reserve retains employee entitlements such as leave provisions.

Higher than the anticipated number of registrants at the higher registration levels, and revenue from prior year registration level upgrades, due to initial under declarations of introduction value of some registrants, has resulted in an accumulation of prior year revenue. 

AICIS notes the increasing reserve balance and has considered the cost base estimates relative to the projected revenue across the CRIS annual review process.  The proposed adjustment in registration level thresholds and associated charges, in addition to the reduction in charges in 2022 23 & 2023 24, is anticipated to address this issue by reducing unbudgeted revenue to deliver a balanced budget preventing further accumulation.

AICIS remains committed to its defined Balance Management Strategy which is applied as a risk mitigation measure to manage the impact of variable demand on the ongoing delivery of regulatory activities while minimising any revenue over and above its cost base. This has been demonstrated over consecutive years through significant price reductions across the levy charge (2022-23: 8% and 2023-24: 11.7%). The proposed levy pricing approach for 2024-25 also seeks to maintain this ongoing commitment through the application of a data-driven approach to regulatory charging. No specific charge reduction has been applied in 2024-25 due to the reprofiling of the charging structure.

Existing reserve balances will continue to be maintained for their defined purposes enabling AICIS to continue operating in a sustainable manner including future capital investments, employee entitlements and a 3-month operating reserve. Any supplementary balances accumulated (typically through increased program demand) will be actively monitored, with any impact on pricing outcomes to be communicated through future CRIS publications.

6.2 Financial Outcomes

The financial results for the 2020-21,2021-22, 2022-23 and 2023-24 years are shown in Table 25 (below).

Table 25 – Financial performance ($'000)

The costs of AICIS’s activities are recovered from industry except for appropriation funding in the form of an interest equivalency payment from interest earned on funds held in the Industrial Chemicals Special Account. 

The net operating result for 2023-24 is a deficit of $219k, a variance of –$224k against the budget. 

The 11% increase in total cost recovered revenue over budget stems from higher than forecasted top tier introducers (over > $5m introduction value) and contribution from prior year registration level upgrades. Upgrades occur when registrants are identified through compliance monitoring, or self-reporting as having under-declared their introduction value and fall within a higher registration level requiring them to pay a higher registration charge. 

Target for operational expenses exceeded the budget for the full year and represented a variance of 11%. This was due AICIS’s contribution of $2.7 million towards the department’s New Ways of Working (NWOW) program to replace the Surry Hills office fit-out, which has reached the end of its useful life.

In response to the budget surplus experienced over the first 3 years of the scheme, registration levies were reduced in 2022-23 and 2023-24 by 8% and 11.7% respectively. 

Depreciation equivalence is accumulated in cash reserves for the replacement of assets. The Government expects AICIS to manage within its cost recovery resources and therefore investment in new, or replacement of existing IT assets must come from the responsible management of cash reserves.

5 Figures reported in the Portfolio Budget Statements may differ as they are reported on a cash basis in accordance with the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015.

6 Actuals for 2021-22 and 2022-23 have been corrected and 23-24 forecast has been replaced with Actuals.

7 IEP for the Forward Estimates is dependent on interest rates and cash balance in each year and hence AICIS has used the 24-25 IEP.