Agenda item

Report of the Executive Director, Resources

The Cabinet considered a report of the Executive Director, Place, which set sought approval of proposals in relation to Preference Shares Redemption from Coventry and Solihull Waste Disposal Company (CSWDC).

The Council currently owned 66 of the 99 ordinary shares in the Coventry and Solihull Waste Disposal Company.  The remaining 33 ordinary shares were held by Solihull Council.  Coventry and Solihull Councils also held preference shares in CSWDC, in the same proportions as the ordinary shareholding. Coventry Council held £7.55m of preference shares.  These preference shares were used historically to provide initial financing into CSWDC by the Council.  They were shown as a liability in the CSWDC balance sheet and as an investment in the Council accounts.  This meant they could be paid back in full or in part to the Councils at any time, subject to agreement by both Council shareholders and CSWDC.

CSWDC had paid dividends on the ordinary shares as the profitability and cash position of the Company have allowed.  The Council’s Medium Term Financial Strategy (MTFS) currently assumed a £1.3m ordinary dividend in 2013/14 and ongoing.  No dividends were paid in relation to the preference shares.

Over recent months, the Council, along with Solihull Council, had engaged with CSWDC to see what additional returns the Company might be able to provide to the shareholders, given the significant financial challenges that both Councils face.  CSWDC had sufficient distributable reserves and cash to enable up to £3.6m (of which £2.4m (2/3) would relate to Coventry City Council), rather than the estimated £1.33m to be released to the Council in 2013/14.  The proposal was that this cash be released as a redemption of a proportion of the preference shares held in the Company by each of the Councils rather than a dividend.  The proposal would have benefits for the Council as it would enable a significant increase in the amount of cash that could be released in 2013/14.  It would also benefit the Company in that it strengthens their balance sheet by reducing their liabilities.  The redemption of the preference shares by the Council would mean that the total value of the preference shares Coventry held in the Company would reduce from £7.55m at 31^st March 2013 to £5.15m, releasing the value during 2013/14 in cash.

Officers in the Resources Directorate were currently working up proposals on the Budget report for 2014/15, which would be considered by the Cabinet in February 2014.  This work would take account of both the benefit described in this report and the longer term financial returns from CSWDC in seeking to balance the medium term financial position of the Council in the current challenging context.  It was proposed that the capital receipt arising from the redemption be switched to revenue, to support the medium term financial strategy.

RESOLVED that the Cabinet:-

1.  Make a recommendation to Council through the Budget Report in February 2014 on the proposals for allocation of the additional £1.06m arising from this decision.

2.  Approve the switching of the capital receipt to revenue to support the medium term financial strategy.