We are mandated by legislation to be a minimum-cost and cost-efficient service provider. But keeping costs low is only one part of our fiscal obligations. We are also ensuring that we invest in providing safe and reliable services not just today but for decades to come.
The past year saw a significant increase in our capital expenditure, to $447 million from $340 million in 2017/18. Work commenced or was completed on many of our capital projects including the Pukekohe Trunk Sewer Upgrade ($45 million), Army Bay Wastewater Treatment Plant Outfall Upgrade ($31 million) and the new Warkworth Wells Water Treatment Plant and network improvements ($30 million). Construction has also commenced on the 13-kilometre Central Interceptor wastewater tunnel, Hūnua 4 Watermain, North Harbour Watermain and the Northern Interceptor.
Despite our capital expenditure being at an all-time high, our debt has risen by only $84 million, to $1.7 billion. This is primarily due to a lower annual capex spend against budget, our lower than budgeted interest charge, strong operating surplus and efficient management of cash flow to repay debt.
In 2018/19, we continued to exceed our revenue target. For this year, our revenue was $715 million, exceeding a target of $651 million, due to higher levels of demand from customers and increased residential development across the region.
The impact of weather on our operations, and consequently on unforeseen operational costs, was a challenge. To keep up with demand, the ongoing dry weather and rainfall deficit has meant more production from the Waikato Water Treatment Plant instead of our water storage dams in the Hūnua Ranges. Water from the Waikato River has to be pumped using electricity and, as a result, costs more to supply than the gravity-fed water from our storage dams.
The dry weather also impacted the functioning of the digesters at our Māngere Wastewater Treatment Plant. The digesters experienced a temporary bacterial imbalance and while they were nursed back to health, sludge had to be transported to landfill at a cost of $1.2 million.
We continued to proactively explore opportunities for efficiencies across the business and achieved just under
$7.7 million in efficiency gains. Efficiency for us means delivering best value for money and doing more with less. Some of the initiatives in this area include in-sourcing of our after-hours contact centre to bring the function back within the business. This has optimised the use of our people and improved the way we prioritise faults and assign crews for dealing with them, saving us $0.3 million in the process.
Further efficiency savings of $1.9 million were achieved in the procurement of chemicals, including lime and polymers. In addition, a saving of $0.2 million was also achieved with a change to a dual-sourcing strategy for the purchase of chemicals where our suppliers will compete yearly on price and best value.
We have invested significantly in our enterprise-wide Strategic Transformation Programme to deliver better tools and systems for our business. The next few years will see us reaping the benefits of this investment through better use of our staff, increased productivity and more efficient processes and systems.
Another area that will deliver efficiency gains for us over the coming years is the enterprise model for infrastructure programme delivery which will see us partnering with two construction companies to deliver our 10-year infrastructure programme. This model will deliver benefits through standardisation of designs, secure the pipeline of work and promote innovation. We aim to leverage the scale and scope of our programme to achieve 20% savings through cost efficiencies.
We are also looking to use our industry expertise to expand our business. We have signed a contract with Waikato District Council to provide water and wastewater services to the region. We are also in discussions with a number of large organisations about managing their water and wastewater systems. Increasing compliance regimes are driving active conversations in this space and we are confident that we can lend our expertise in supporting businesses regionally and nationally.
Auckland is growing at a rapid pace and this is reflected in the increasing demand for water and wastewater services.
Over the next decade we expect to invest $5.5 billion in capital projects to meet this demand and to maintain or improve levels of service to existing customers.
The way we pay for this infrastructure is through a combination of revenue from water and wastewater charges, Infrastructure Growth Charges, and external borrowing.
The long life of our assets means any new infrastructure is likely to serve several generations of Aucklanders. Balancing these funding sources and managing our debt ensures that future generations are not unduly burdened by the cost of growth or constrained by under-investment in essential infrastructure.
In July 2018, we dis-established our treasury function and began utilising Auckland Council’s centralised treasury team. This enabled us to borrow at a lower cost of funds and saved us $7.4 million in interest costs during the 2019 financial year. This is particularly significant as our capital investment in 2018/19 is the highest it has ever been at $447 million.
By carefully managing our debt levels, we are ensuring that our services remain affordable to the communities we serve and are strengthening our shareholder Auckland Council’s financial position.