THE TWENTY-EIGHTH ANNUAL REPORT TO PARLIAMENT
OF
NEW SOUTH WALES TREASURY CORPORATION
FOR THE YEAR ENDED 30 JUNE 2010
New South Wales Treasury Corporation
TABLE OF CONTENTS PAGE
TCORP’S OBJECTIVES 1
REVIEW OF OPERATIONS 4
YEAR IN REVIEW 8
PERFORMANCE INDICATORS – FIVE YEAR SUMMARY 9
NATURE AND RANGE OF ACTIVITIES AND SIGNIFICANT OPERATIONS 10
LOANS OUTSTANDING TO AUTHORITIES 12
FUNDING FACILITIES 15
ADVISORY SERVICES 26
GUARANTEES 26
EXEMPTIONS FROM THE REPORTING PROVISIONS 47
PROMOTION 48
WASTE REDUCTION AND PURCHASING POLICY 50
PAYMENTS 51
BUDGETS FOR THE YEARS ENDED 30 JUNE 2010 AND 30 JUNE 2011 52
LEGAL CHANGE 52
CONTROLLED ENTITIES 52
ISSUES RAISED BY THE AUDITOR 53
POST BALANCE DATE EVENTS 53
FINANCIAL STATEMENTS 53
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TCORP’S OBJECTIVES
TCorp’s charter
TCorp is the central financing authority for the New South Wales public sector. The Treasury Corporation Act 1983 states that TCorp’s principal objective is “to provide financial services for, or for the benefit of, the Government, public authorities and other public bodies”.
In pursuing its objectives, TCorp has the same legal capacity, powers and authorities as a company under the Corporations Act 2001 (Cth). Activities in which TCorp can engage include:
. provision of finance for the Government and NSW public authorities; . management or advice on management of Government and public authority assets and liabilities; . acceptance of funds for investment from the Government and public authorities; . investment of funds; and . management of TCorp’s own assets and liabilities.
TCorp’s powers to borrow, invest and undertake financial management transactions are regulated under the Public Authorities (Financial Arrangements) Act 1987.
TCorp’s mission statement
TCorp exists to deliver for New South Wales the best that the financial markets can offer.
TCorp’s corporate objectives
In line with the mission statement, the corporate objectives of TCorp are to:
. achieve cost-effective funding; . effectively execute portfolio assignments; . effectively execute risk management and structured finance assignments; and . meet client and market needs through enhanced resource management and allocation.
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Objectives Performance measures Results for 2009/10 To achieve cost effective To ensure a cost effective To further diversify TCorp’s access to global finance for clients through funding mix through funding markets, a new US Shelf management of TCorp’s diversification of sources of Registration was established to facilitate funding programme and finance and professional issuance into the US capital markets. balance sheet activities. implementation of the annual funding programme. With limited opportunities to diversify funding into non-Australian dollar bond markets, new issuance held at $100m.
Three new Benchmark Bonds were launched in the domestic bond programme as part of a strategy to re- establish this series under the NSW State guarantee. During 2009/10, the net outstandings on the benchmark programme increased by $4.5bn. The gross new issuance including the refinancing of the October 2009 maturity was $7.3bn. Activity continued in TCorp’s Capital Indexed Bond programme, with an issue of $2.1bn. A new November 2020 Capital Indexed Bond was established. To meet or exceed budgeted Managing the market risks inherent in revenue from managing TCorp’s balance sheet produced results in TCorp’s balance sheet risk excess of budget. activities. Contributing to the strong revenues were healthy margins on holdings of short term liquidity assets and on positions held for balance sheet risk management purposes. In addition, TCorp’s balance sheet was well positioned throughout the periods of market turmoil. To effectively execute To outperform neutral TCorp’s management of debt portfolios in portfolio assignments for benchmarks for managed debt line with client mandates resulted in clients through portfolios. performance being marginally behind management of debt and benchmark for the financial year. Longer asset management term bond yields were range-bound portfolios and Hour-Glass around fair value, reducing the Investment Facilities. opportunity to add value through strategic duration positioning. To achieve the debt interest The debt interest outcome was well within cost forecast for the General the agreed target range. Government sector.
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To generate strong returns for 2009/10 was marked as one of recovery for the Hour-Glass Investment global financial markets. The Hour-Glass Facilities and outperform Investment Facilities, on the back of this industry benchmarks. recovery, posted strong results in both absolute and relative terms.
All four flagship Facilities – Cash, Strategic Cash, Medium Term Growth and Long Term Growth – outperformed their respective benchmarks. Importantly, prudent management of the Hour-Glass products meant that the funds navigated the global financial crisis without major incident. The funds remained liquid at all times; experienced no defaults and provided protection to investors during times of market volatility. To outperform neutral Discretely managed cash portfolios benchmarks for discretely performed significantly in excess of their managed fixed income asset individual benchmarks. The fixed income portfolios. asset portfolios also generated strong outperformance of benchmarks.
Cash and fixed income portfolio performance outcomes were consistent with first quartile or above-median comparator rankings. To effectively execute risk To add economic value Advice is provided during various phases of management and through TCorp’s involvement procurement and ongoing management of structured finance in corporate advisory work for transactions. TCorp had an active year in assignments for clients. clients. terms of number of assignments, spread of clients, and type of work. Value add for the State was clearly demonstrated in several instances and client feedback was highly positive. To meet client and market To provide cost efficient Cost effective lending, investment, needs through enhanced services to TCorp’s client base. portfolio management, reporting and resource management advisory services were provided to some and allocation. 180 public sector clients, with business continuing to grow during the year. To maintain or improve client The 2009/10 survey showed excellent satisfaction as measured by an results, confirming TCorp’s strong annual survey. reputation and high service standards with clients throughout our business activities.
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REVIEW OF OPERATIONS
Chairperson and Chief Executive’s Review
Global financial markets continued to face fresh challenges and substantial uncertainty over the past year. The actions of governments, locally and globally, in responding to the financial crisis have been broadly effective. However, the legacy of growing sovereign debt is causing lingering concerns for many economies. Australia has performed exceptionally well in this context, although uncertainties and challenges remain.
Pleasingly, TCorp has maintained its record of strong performance for its clients and shareholder throughout and beyond the financial crisis. We have kept a “clean sheet” with no credit losses incurred for clients, or on TCorp’s balance sheet. Profitability has held strong and significant value has been generated for clients across a broad range of portfolio assignments. The application, and subsequent removal, of the Commonwealth Government’s guarantee arrangements gave rise to a range of issues over the year. TCorp was able to anticipate and respond to these issues in a way which provided optimal outcomes for our borrowing clients and institutional investors.
Environment
The first signs of the global financial crisis emerged in mid-2007. The past three years have seen three distinct, but interrelated, periods of global economic and market performance.
The first of these periods was the most dramatic and gave rise to the term “global financial crisis”. The period from mid-2007 to the end of 2008 saw severe and widespread losses among private sector financial institutions, with a significant knock-on effect to economic growth in the developed world.
The second period, which ran from late 2008 to the end of 2009, was characterised by government rescue packages and significant fiscal and monetary stimuli. These measures were effective in turning around the performance of global equity and credit markets and providing a much-needed boost to ailing economies.
The third period, which emerged early in 2010, is centred on the legacy issue of heavy sovereign deficits and debt ratios in a range of developed economies, most notably in Europe but also for the US. This legacy will affect a number of economies for many years.
The healthy performance of the Australian economy in these circumstances is virtually unparalleled in the developed world. The combination of strong government balance sheets (both at Commonwealth and State levels), significant trade links with China, a flexible and well diversified economy, and a robust regulatory framework have all helped Australia through the past three years.
With the Australian economy reverting to trend growth over the past year, the Reserve Bank of Australia (RBA) began the process of returning the official cash rate towards neutral settings. The RBA raised the cash rate six times during 2009/10, from 3.0 per cent to finish the year at 4.5 per cent, with underlying inflation remaining stubbornly high throughout the year.
After experiencing an extraordinarily wide trading range in 2008/09, 10 year Commonwealth Bond yields traded in a relatively narrow range between 5 per cent and 6 per cent during the past financial year. Yields finished the period at the lower end of this range, as concerns about global sovereign debt burdens and the prospects of a “double-dip” recession weighed on global bond yields.
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Sentiment in equity markets was volatile over the course of the year. The local ASX 200 Index rallied from below 4000 at the start of the year to touch 5000 in April, before falling back to around 4300 at financial year end.
Funding
The dominant theme for semi-government bond markets over the past year was the impact of the Commonwealth guarantee arrangements for banks and state governments. The Commonwealth’s announcement in March 2009 that it would extend to the states the offer of guarantees had a significant and immediate positive impact on spreads. TCorp announced its intention to apply the guarantee to Benchmark Bond lines beyond three years, and this guarantee came into effect in July 2009. Combined with generally improving market sentiment and reinforcement of NSW’s AAA rating over the balance of 2009, the guarantee scheme helped to lower TCorp’s funding costs dramatically. TCorp’s spread over Commonwealth Bonds contracted from historical highs in early 2009 of more than 130 basis points to around 40 basis points by June 2010.
The Commonwealth Government’s announcement in February 2010 that it would terminate the wholesale funding guarantees for banks and state governments was timely and appropriate, and reflected the healthy state of Australia’s financial institutions. TCorp announced shortly thereafter its strategy for moving away from Commonwealth guaranteed issuance back to “standard” NSW guaranteed Benchmark Bond lines. This strategy consisted of issuing three new Benchmark Bond lines between February and April, with maturities of 2013, 2016 and 2020, and switching investors out of the Commonwealth guaranteed 2013 and 2020 bonds into these new lines. The approach was clearly communicated to the market and well accepted by investors and the dealer panel. A total of $6.1 billion was issued into these new benchmark bond lines by year end.
The extension of the Commonwealth guarantee for the states, while not ideal, was necessary because of the impact of the bank guarantee scheme. Pleasingly, both schemes were effective and were able to be terminated much earlier than expected. Most importantly for TCorp, the guarantee arrangements ensured continuous access for our clients to debt funding, at competitive rates, at a time when access to funding continued to be a challenge for many borrowers.
TCorp was able to keep ahead of its funding requirements over the course of the year. We took advantage of some excellent cost-effective opportunities to raise $12 billion in domestic and offshore markets. This places TCorp in the very healthy position of entering the new funding year having raised about $5.5 billion of the current year’s requirement. During the year, TCorp continued to build issuance into the Capital Indexed Bond market, and this has become an increasingly important form of funding for many of TCorp’s clients. By year end there was just over $4 billion of outstandings in capital indexed debt, over three maturity dates.
The strength of the NSW balance sheet was confirmed during the year under review, with the State Budget in June showing a return to surplus for the past year and the forecast period. NSW’s AAA rating was immediately reaffirmed by both major rating agencies.
Business trends and performance
TCorp’s profit before tax of $65.9 million was an excellent result. The second-highest profit in TCorp’s history, it is outranked only by 2009’s extraordinarily high profit, acknowledged at the time as a unique outcome. As was the case in 2009, TCorp has again this year not suffered credit losses arising from exposures to financial assets or derivative positions.
TCorp continued to add value for clients in managed debt and asset portfolios. During the year, TCorp’s client debt management mandates grew to more than $30 billion, reflecting the increased capital expenditure programmes of our public sector clients. These portfolios performed broadly in line with
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TCorp again generated excellent outcomes on the cash and fixed income portfolios managed on behalf of clients, delivering strong results which outperformed benchmarks. Our conservative approach to credit meant that we suffered no credit losses on client portfolios following the onset of the financial crisis. Importantly, this enabled TCorp to take advantage of the wide spreads available for a range of top-quality issuers throughout 2009 and position client portfolios accordingly. Pleasingly, we were also able to add new client mandates during the course of the year.
TCorp’s managed funds products, commonly known as the Hour-Glass Facilities, also generated healthy outright returns and solid benchmark outperformance. The Cash and Strategic Cash products were top- quartile performers, generating very solid results with a conservative risk profile. TCorp’s Medium Term Growth and Long Term Growth Facilities also delivered strong outright and relative performance, as equity markets reversed some of the losses of the previous year and recorded double-digit growth.
TCorp’s investment products continued to attract funds during the year, and by year end funds managed in cash and fixed income mandates and TCorp’s investment facilities totalled $14.6bn.
TCorp’s Corporate Finance team had another active and successful year. We worked closely with NSW Treasury and a range of clients on various projects across many sectors. More generally, TCorp’s scope of advisory work with clients continued to grow. Changing conditions in capital markets have seen TCorp working more closely with key clients in analysing all aspects of their financial risks and how they correlate with other risks in their businesses. The outlook is for another busy year as we continue to lift our level of engagement with our clients.
Operating framework
During the year, TCorp implemented a new IT platform, the Reuters Kondor system, for its balance sheet and debt management activities. A number of other supporting IT initiatives were also implemented, resulting in a substantially more robust and timely system for monitoring risks and processing transactions.
We continued to monitor and review our risk management framework in line with evolving external market conditions and regulatory issues. The continued growth in TCorp’s balance sheet, and business in general, prompted a further review of TCorp’s capital needs. As a result, the Board approved an increase in TCorp’s capital base from $75 million to $85 million.
People
The financial markets environment in recent years has been characterised by turmoil and continuous challenge. Successful organisations are those whose people have embraced change rather than resisted its impact, and have looked to take advantage of the opportunities that change provides. TCorp’s staff have again performed extremely well over the past year and can rightly feel proud of their achievements. They have consistently sought to provide better outcomes for TCorp’s clients, aligned with TCorp’s mandate of managing a broad range of financial risks throughout the NSW public sector.
In November 2009, we welcomed Phil Chronican to TCorp’s Board, filling the vacancy arising from the retirement in September of The Hon Andrew Rogers. Phil brings a wealth of relevant banking and financial markets experience to the Board.
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We would like to acknowledge and thank the Board for its energy, focus and guidance throughout the past year. They have provided sound direction for management in a constantly evolving market environment.
TCorp’s operating environment is dynamic and there are many challenges facing us in the year ahead. While we have performed well for our clients and shareholder over recent years, there is no room for complacency. Our people remain focused on what we need to do to maintain our success. Our sincere gratitude goes to them for their achievements and their dedication.
We are confident that the combination of the organisation’s skills and capabilities, and clear vision of our mandate, provides a solid foundation for TCorp as we navigate through the turmoil of financial markets. We are equally confident that we will continue to serve our stakeholders well in the years to come.
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YEAR IN REVIEW
. A pre-tax operating profit of $65.9m, with strong contribution from all business sectors. . A growing and healthy balance sheet with total assets reaching $57.4bn by year end. . Maintained record of no credit losses or expected write-downs on exposures. . Successful utilisation of Commonwealth guarantee scheme and subsequent transition away from the guarantee, with $6.1bn issued across new State guaranteed lines in the second half. . Continued to build outstandings in the Capital Indexed Bond programme, with more than $2.1bn in issuance over the year. . Debt portfolios managed on behalf of clients grew to more than $30bn, reflecting increased capital expenditure programmes for many clients. . Excellent performance of cash and fixed income portfolios managed for clients, with substantial value added against benchmarks. . Strong results for TCorp’s Hour-Glass Investments, with all facilities generating robust returns and generally exceeding benchmarks. . AAA credit rating for NSW re-affirmed by rating agencies following the NSW Budget. . Significant value-add for clients across a range of advisory assignments. Continued to work closely with key clients, particularly in the regulated utility sector, to develop and enhance risk management methodologies.
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PERFORMANCE INDICATORS – Five Year Summary
2009/10 2008/09 2007/08 2006/07 2005/06 $m $m $m $m $m
Profitability
Profit before income tax 66 167 32 46 59 equivalent expense
Balance sheet
Loans to public sector 44,628 37,889 30,333 27,704 26,660
Other assets 12,768 11,131 6,720 4,666 3,048
Total Assets 57,396 49,020 37,053 32,370 29,708
Domestic benchmark bonds 37,106 30,815 13,790 12,419 12,000
Global exchangeable bonds 6,453 7,366 14,275 14,431 11,048
Due to Government Clients 1,005 889 539 409 950
Other borrowings and Liabilities 12,747 9,875 8,406 5,068 5,667
Total Liabilities 57,311 48,945 37,010 32,327 29,665
Difference represented by equity: 85 75 43 43 43
Asset management for State authorities
Funds under management
-Investment Facilities1 10,105 7,478 10,362 11,559 10,451
-specific fund mandates1 4,479 3,811 3,397 4,028 10,793
Liability portfolio management for State authorities
Liability portfolio management1 31,039 25,357 18,900 18,969 18,497
1Refer to note 24 – Fiduciary Activities
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NATURE AND RANGE OF ACTIVITIES AND SIGNIFICANT OPERATIONS
DEBT ISSUANCE
During a second consecutive year of unusually tight conditions in credit markets, with severely restricted liquidity worldwide, TCorp again raised substantial new borrowings to fund the infrastructure investment programmes of public sector clients.
Strong demand continued for funding of infrastructure investments by State enterprises engaged in electricity supply, water catchment and supply, and rail and ports development. Aggregate loans to clients showed a net increase of $6.7 billion over the year to a total of $44.6 billion.
Under the NSW Government's infrastructure investment programme, capital spending over the four years to June 2014 is projected to reach $62.2 billion, and this will be the major driver in an estimated $18 billion rise in TCorp's loans to clients over that period.
A variety of loan products for clients
TCorp provides a range of efficient standard loan products for public sector clients. These include:
. medium and long term fixed interest loans with semi-annual interest payments, repayable on a fixed maturity date. Interest coupons and maturity dates normally correspond with those of TCorp Benchmark Bonds issued in the wholesale market; . floating rate loans with interest rates periodically adjusted in line with market rates on bank bills, again with a fixed maturity date; . the Come and Go Facility, which provides ready access to short term finance. Clients can draw down or repay funds on same-day notice, enabling them to rely on TCorp for short term liquidity, rather than hold substantial investments for liquidity purposes, with associated credit and market risks; and . long term inflation-linked (CPI) loans with a fixed percentage interest coupon, but with the capital value adjusted periodically in line with the CPI. This product has been adopted in significant volume in the Government's Crown debt portfolio, and can also be an appropriate form of funding for public sector businesses subject to regulatory frameworks in which CPI movements are a major factor.
For individual clients whose funding requirements are not fully met by these standard products, TCorp can consider providing other structures, for example, loans with regularly reducing principal.
TCorp borrows with the benefit of the NSW Government’s guarantee, and from July 2009 the Commonwealth guarantee also applied to funding with maturities in a specified range. In March 2010, TCorp began the transition from Commonwealth Government guarantee issuance back into NSW State Government guarantee Benchmark Bond lines. This followed the Commonwealth’s decision to end the States’ use of the guarantee by December 2010. .
Rates on new fixed interest loans are based on the current TCorp Benchmark Bond yield curve in the Australian fixed interest market, plus a small margin representing TCorp’s administration fee. From July 2009, an additional margin was applied to client loans representing the impost to the State of the Commonwealth guarantee scheme. This margin was removed in April 2010 after TCorp began issuing bonds backed by the State guarantee.
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Most Public Trading Enterprises (PTEs) also pay NSW Treasury an annual guarantee fee based on their average volume of loans, but TCorp is not involved in charging or collecting this fee.
Infrastructure investment changes the pattern of borrowings
As a consequence of the Government's infrastructure programme, TCorp's volume of loans to the PTEs ― (mainly State Owned Corporations) ― is increasing strongly. The Crown Finance Entity’s volume of borrowings declined for a decade but remains substantial. The improved economic conditions in the past year saw increased Government revenues, resulting in a reduced borrowing requirement for the Crown Finance Entity.
TCorp’s largest borrowers at 30 June 2010 were electricity generation and distribution ($17.1 billion) and the Crown Finance Entity ($15.8 billion), followed by water catchment and supply ($8.0 billion), transport ($1.2 billion) and ports ($0.8 billion).
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LOANS OUTSTANDING TO AUTHORITIES
New South Wales Authorities 30 June 30 June 2010 2010 $mil $mil Market Market Value Value Barangaroo Delivery Authority 112.30 Newcastle Port Corporation 75.75 Corporation Sole, EPA Act 307.59 NSW Businesslink Pty Ltd 12.98 Country Rail Infrastructure Authority 92.82 Office of Community Housing 30.00 Country Energy 3,481.21 Port Kembla Port Corporation 62.86 Crown Finance Entity 15,281.69 Public Transport Ticketing Corporation 114.67 Department of Planning 6.98 Redfern Waterloo Authority 44.48 Delta Electricity 1,238.79 Registry of Births, Deaths and Marriages 5.75 Housing NSW 167.22 Roads and Traffic Authority 676.56 EnergyAustralia 6,109.65 State Fleet Crown Debt 1,056.83 State Records Authority of New South Eraring Energy 652.38 Wales 3.91 State Transit Authority of New South Forests NSW 148.68 Wales 237.81 Growth Centres Commission 10.54 State Water Corporation 111.33 Hawkesbury District Health Services 14.16 Sydney Catchment Authority 500.18 Hunter Development Corporation 4.23 Sydney Cricket & Sports Ground Trust 41.69 Hunter Region Sporting Venues Authority 0.15 Sydney Desalination Plant 1,168.05 Hunter Water Corporation 677.76 Sydney Harbour Foreshore Authority 10.55 Integral Energy 2,511.35 Sydney Ports Corporation 633.20 Jenolan Caves Reserve Trust 1.18 Sydney Water Corporation 5,565.16 Landcom 90.42 Transport Construction Authority 43.19 Legal Profession Admission Board 0.95 TransGrid 2,287.05 Macquarie Generation 854.81 WSN Environmental Solutions 96.23 Taronga Conservation Society Australia 42.44
Total New South Wales Authorities 44,585.50
Other entities, guaranteed by NSW New South Wales Authorities Local Government University of Technology, Sydney 42.38 0.00
42.38 0.00 Total loans outstanding to Authorities Total 44,627.88
Refer Note 8 of the audited financial statements
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Funding of TCorp’s loans to clients
TCorp funds its lending to the NSW General Government and PTEs through successive issues of debt into the domestic and offshore capital markets. We have developed a range of offerings that suit investor requirements and these, backed by the strength of the State’s AAA credit rating, enable us to deliver cost-effective funding for our clients.
TCorp recorded another successful year of funding activities, despite very limited opportunities in non- Australian-dollar markets. However, TCorp was able to issue into strong Australian-dollar investor demand.
For the 2009/10 year, TCorp raised $12 billion from debt capital markets. This reflected the need to finance net client borrowing of $6.7 billion and to refinance existing liabilities of $5.5 billion. TCorp had pre-funded $5.0 billion of the 2009/10 requirement in the previous financial year. Capitalising on strong domestic and offshore investor demand, TCorp pre-funded a further $5.5 billion of the 2010/11 funding requirement in the 2009/10 financial year.
The year’s funding activities were executed in an environment where Australian short term interest rates increased in response to improved economic conditions. The Reserve Bank of Australia raised the official cash rate six times during the financial year, from 3.0 per cent to 4.5 per cent. Conversely, longer term bond yields fell over the 12 month period, with longer term TCorp interest rates (based on the May 2023 maturity) falling from 6.23 per cent to 5.60 per cent.
Benchmark Bond issuance
TCorp’s Benchmark Bond programme, as provider of price transparency and liquidity to public sector borrowers and institutional investors in TCorp Bonds, continues to be the cornerstone of our funding strategy.
Benchmark Bond issuance is concentrated in a small number of maturity dates (Benchmark line), generally over a 12 year period. Benchmark Bonds are marketed to domestic investors and as Global Exchangeable Bonds to offshore investors. The Benchmark Bond programme is supplemented by a more specifically directed issuance, particularly to offshore investors, under TCorp’s Euro Medium Term Note programme.
In October 2008, the Commonwealth Government announced the establishment of a guarantee facility for wholesale funding of Australian banks. This initiative adversely affected the semi-government market and initially resulted in semi-government spreads moving from around 65 basis points above the Commonwealth Government Bond curve to around 100 basis points.
On 25 March 2009, the Commonwealth Government announced that it would provide a time-limited, voluntary guarantee on state government borrowings. On 23 June 2009, the NSW Government announced its intention to take up the Commonwealth Government’s guarantee for TCorp Benchmark Bonds for maturities from May 2013 to May 2023. This reflected TCorp’s advice to the NSW Government that accessing the guarantee, given prevailing forecast annual funding requirements, would provide more certainty and broader access to long term investors, particularly larger offshore institutional and sovereign investors.
In February 2010, the Commonwealth Government announced that, from 31 December 2010, the states could no longer issue using the guarantee facility. In early March 2010 TCorp commenced the transition back to the State Government guaranteed curve with the issue of the August 2013 bond by tender. TCorp offered consolidation out of the May 2013 bond for the new August 2013 bond. In late
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March, TCorp issued a new April 2016 State Government guaranteed bond through syndication. A total of $1billion was issued in one day.
In April, TCorp issued $1billion of the May 2020 State Government guaranteed bond through syndication. As with the 2013 bonds, TCorp offered consolidations out of the Commonwealth Government guaranteed June 2020 bond for the State Government guaranteed May 2020 bond.
TCorp increased the outstandings of Benchmark Bonds from $37.6 billion in 2008/09 to $42.1 billion in 2009/10.
Following December 2008’s legislative amendments, which extended eligibility of the section 128F Interest Withholding Tax exemption to TCorp’s Domestic Bonds, outstandings of Exchangeable Benchmark Bonds has continued to decline. Outstandings fell from $7.4 billion in June 2009 to $6.5 billion in June 2010.
Continuing its commitment to the Capital Indexed Bond programme, TCorp issued $800 million of a new 3.75 per cent 20 November 2020 Capital Indexed Bond in August. By year end, TCorp had issued $1.05 billion of 20 November 2020, $0.77 billion of 20 November 2025 and $0.31 billion of 20 November 2035 Capital Indexed Bonds. A total of $2.1 billion was issued in the 2009/2010 financial year.
Offshore issuance
TCorp operates in the international debt capital markets to achieve investor diversification and to provide cost savings to the Benchmark Bond curve; over time, TCorp has used offshore issuance to smooth the maturity profile. During the year, TCorp secured $1.7 billion through the rollover of existing deals in the Japanese market.
Opportunities to issue cost-effective funding in non-Australian-dollar currencies were limited in the 2009/10 financial year. However, TCorp did establish a US Medium Term Note programme in late 2009. As part of the establishment process, TCorp issued a US $150 million 18-month deal in September 2009 and is now a registered issuer with the US’s Securities and Exchange Commission.
Attractive investment fundamentals, underpinned by NSW’s AAA credit rating, continued to win support, particularly from Japanese and European institutional investors. TCorp continued to use short term promissory note markets to meet cash flow volatility and short term requirements. By 30 June 2010, TCorp had $3.2 billion of Domestic Promissory Notes outstanding. The offshore Commercial Paper programme remained dormant during the year.
TCorp’s funding strategy constantly evolves in response to changing market dynamics and investor requirements. Maintaining strong relationships with our borrowing clients, dealer panel members, financial markets institutions and investors has been critical in helping us accomplish our funding needs. We thank our dealer groups and investors for their continued support.
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FUNDING FACILITIES
DOMESTIC BENCHMARK BOND PROGRAMME
Coupon (%) Maturity $Million (Fair Value) 6.0 1-Oct-09 2,897 7.0 1-Dec-10 6,420 6.0 1-May-12 8,083 5.25 1 May-13 970 5.5 1-Aug-13 2,191 5.5 1-Aug-14 5,353 6.0 1-Apr-16 1,597 5.5 1-Mar-17 7,218 6.0 1-Apr-19 4,840 6.0 1-May-20 2,601 6.0 1-Jun-20 1,125 6.0 1-May-23 3,162
PANEL MEMBERS
Australia and New Zealand Banking Group Ltd Nomura International Plc Citigroup Global Markets Australia Royal Bank of Canada Commonwealth Bank of Australia RBS Group (Australia) Pty Limited Deutsche Bank AG, Sydney Branch The Toronto-Dominion Bank JP. Morgan Australia Ltd UBS AG, Australia Branch National Australia Bank Ltd Westpac Banking Corporation
GLOBAL EXCHANGEABLE BOND PROGRAMME
Coupon (%) Maturity $Million (Fair Value)
7.0 1-Dec-10 889 6.0 1-May-12 1,631 5.5 1-Aug-14 1,169 5.5 1-Mar-17 2,686 6.0 1-Apr-19 79
PANEL MEMBERS
Australian and New Zealand Banking Group Ltd RBC Capital Markets Citi RBS Plc Commonwealth Bank of Australia TD Securities Deutsche Bank UBS Investment Bank National Australia Bank Ltd Westpac Banking Corporation Nomura International Plc
CAPITAL INDEXED BONDS
Coupon (%) Maturity $Million (Fair Value)
3.75 20-Nov-2020 1,129 2.75 20-Nov-2025 1,831 2.50 20-Nov-2035 858
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PANEL MEMBERS
Australian and New Zealand Banking Group Ltd JP. Morgan Australia Limited Citigroup Global Markets Australia Pty Ltd RBS Commonwealth Bank of Australia UBS AG, Australia Branch Deutsche Bank AG, Australia Branch Westpac Banking Corporation
EURO MEDIUM TERM NOTE
$Million (Fair Value)
3,401
PANEL MEMBERS
BofA Merrill Lynch National Australia Bank Ltd Citi Nomura International plc Commonwealth Bank of Australia RBC Capital Markets Daiwa Securities SMBC Europe Ltd TD Securities JP Morgan UBS Investment Bank Mitsubishi UFJ Securities International plc
$Million (Fair Value) Domestic cash market raisings (including client deposits) 1,005
Miscellaneous funding through non-programme bond issuance structured financing and other term borrowings 332 Refer Notes 12 and 13 of the audited financial statements 52,116
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DEBT MANAGEMENT
In addition to providing cost efficient funding to the NSW Government, its agencies and the Public Trading Enterprises (PTEs), TCorp performs a key role in managing clients' portfolios of outstanding debt. This activity not only manages clients' debt costs, but also provides debt structures that diversify risk and thus add strength to their balance sheets. TCorp agrees with each client the policies, benchmarks and risk constraints under which debt management is carried out.
Initially appointed as debt manager for NSW Treasury's Crown debt portfolio 2 decades ago, TCorp has since built up a debt management clientele representing a large proportion of the State's major borrowers. At year end, TCorp was managing the debt portfolios of 20 clients with total portfolio volume of $31 billion.
While the largest client portfolio is the $15.8 billion Crown debt portfolio managed on behalf of NSW Treasury, other substantial portfolios are managed for agencies and PTEs, in the electricity, water, ports, roads and transport sectors. The large scale of these managed portfolios reflects that the businesses are required by the NSW Government to maintain specified levels of gearing (borrowings) in their capital structure, reinforced by new borrowings to fund infrastructure development.
Innovation in debt management
During the year, existing processes were enhanced to improve the governance framework under which client portfolios are managed. Portfolio modified durations are now calibrated to adjust to movements in market prices rather than fixed modified duration rates. The tighter governance framework significantly lowered the market risk in the core debt portfolios, and provided a better framework for lengthening decisions, which then translated into a lower cost outcome for clients.
TCorp continued to lengthen client debt portfolios during the course of the year. The average tenor of TCorp’s benchmark bonds rose from 5.9 years to 6.5 years. Much of the portfolio lengthening occurred when rates fell during the risk aversion bond rallies of December 2009 (triggered by concerns about Dubai) and May 2010 (Greek sovereign debt worries).
In February 2010, the Commonwealth Government announced the end of the Commonwealth Government guarantee over State government issuance. As TCorp introduced the 2013, 2016 and 2020 State guaranteed benchmark series, some client loans were restructured to match TCorp’s liability profile and to lock in cost savings.
For regulated utility PTE clients, the continued focus was the management of inflation-linked revenues within the debt portfolios. Most regulated utilities continued to borrow inflation-linked debt, designed to minimise both the risks of the regulatory mechanism and the cost of future debt.
For many clients, the management of the refinancing profile ahead of the December 2010 Benchmark Bond maturity was a key priority. Most clients had refinanced their loans, well in advance of the maturity and by 30 June just $1.9billion of December 2010 client loans remain.
Management techniques and outcome
In addition to providing cost efficient physical funding that meets individual client requirements for funding and risk, TCorp uses derivatives to manage the interest rate risk of the actively managed debt portfolios. The active management style adopted is a low risk approach that seeks to achieve or reduce
- 17 - New South Wales Treasury Corporation budgeted borrowing costs over the medium term, by taking advantage of shorter term movements in market interest rates.
Strategic portfolio positions are based on TCorp’s modelling of the macroeconomic drivers and fundamental valuations for interest rates. These positions are intended to reduce borrowing costs over an interest rate cycle and are supplemented with tactical management strategies that take advantage of market volatility over shorter timeframes. All active interest rate risk management is conducted using interest rate risk management products and in line with individual client risk appetites and limits. Positions are implemented within a transparent, disciplined framework that is rigorously monitored and reported to clients.
TCorp is well placed to offer active interest rate risk management, given its expertise in this area and its role in capital markets. The active management of interest rate risk for client debt portfolios is conducted in-house given economies of scale and capability to provide cost effective outcomes. In a year when yields traded in a tight range around the fair value rate, market opportunities to execute active risk management positions were limited; short term active risk management was undertaken, but this resulted in an insignificant (1 basis point) underperformance against client benchmarks.
Other treasury risk management transactions, including foreign exchange and commodity hedging, were executed on behalf of clients during the year.
Debt YTD Performance Volume of Funds (as at 30 June 2010): Net % $m Managed Portfolios Crown Debt1 (0.021) 13,652 Other Debt Clients (0.015) 17,387 Total Managed Portfolios (0.017) 31,039 1 Nominal Only
ASSET MANAGEMENT
TCorp continued during the year to develop its asset management services, which comprise:
. the Investment Facilities, through which TCorp outsources the management of funds and acts as manager of managers; and . the internally managed cash and bond portfolios, which use TCorp’s comparative advantage in managing fixed interest risk.
Hour-Glass products and global market recovery
2009/2010 was characterised as one of recovery from the global financial crisis (GFC). All major markets rebounded strongly, particularly from March 2009 to April 2010. In this environment, TCorp’s Hour- Glass products fared well, posting strong absolute returns, and outperforming their respective benchmarks.
TCorp’s prudent approach to managing investment risk resulted in our clients being well protected throughout the GFC. Our products maintained liquidity at all times, did not experience any defaults, were not exposed to any highly structured or opaque instruments such as collateralised debt obligations or hedge funds and performed well against their benchmarks throughout the GFC and subsequent recovery. The ability of the Hour-Glass products to navigate the GFC relatively unscathed is testimony to TCorp’s risk management strategies and has ensured our clients remain committed to our
- 18 - New South Wales Treasury Corporation investment approach. TCorp’s direct access to capital market intelligence proved beneficial in facilitating the risk strategies.
The market recovery, as well as the incorporation of the TMF Managed Bond Portfolio into the Hour- Glass Australian Bonds Sector, saw funds under management in the Hour-Glass products increase from $7.5 billion at 30 June 2009 to $10.1 billion at 30 June 2010.
The performance of the flagship Cash Facility rewarded TCorp’s commitment to prudent risk management. The Cash Facility performed very well against its peers throughout the GFC, although it suffered some modest, benchmark-relative underperformance through 2008/09. In 2009/10, this modest underperformance was more than recouped as the credit spreads on high-quality residential mortgage backed securities, prime bank paper and floating rate notes returned to more normal levels. As a result, the Cash Facility outperformed its benchmark, the UBS Bank Bill Index, by 0.57 per cent. This result was strong not only in a benchmark-relative sense but also against the peer comparators, with the Cash Facility a top performing fund over all time periods in the AAA Cash Fund surveys.
The Strategic Cash Facility seeks to gain opportunistic exposure to high-quality, low credit risk, cash and short duration assets at attractive valuations. This strategy proved successful throughout the year as clients benefited from a recovery in spreads on prime bank paper and floating rate notes. The Strategic Cash Facility outperformed its benchmark, the UBS Bank Bill Index, by 0.74 per cent.
While equity markets around the globe continued to be volatile over the year, they generally benefited from the renewed, post-GFC, market confidence and return to risk assets. For the Australian market, the turning point came in March 2009 and a strong rally continued, albeit with some volatility, until April 2010. By mid-April, the S&P/ASX 300 Index had gained 25 per cent for the financial year. From then, risk aversion returned and some of the early gains receded. The net result for the S&P/ASX 300 Index for the financial year was a rise of 13.5 per cent. The Hour-Glass Australian Shares Sector was well positioned to benefit from the recovery, particularly given the product’s structural tilt to value stocks. The Australian banks, which had been consistently sold during the GFC, were some of the biggest beneficiaries of the equity market rebound.
Internationally, the MSCI World Index (excluding Australia) followed a similar pattern to the Australian market with strong gains made over most of the year, dampened somewhat by a general sell-off in May and June. The market index, in local currency terms, finished the year up by 11.7 per cent. Currency movements affected the return for unhedged Australian investors, with the unhedged version of the MSCI index, in Australian dollar terms, returning 5.6 per cent. The elevated market volatility and dispersion of stock returns provided ample opportunities for active global equity managers to distinguish themselves from the index. Pleasingly, the Hour-Glass managers were able to capture this opportunity and, collectively, outperformed the index by 1.4 per cent for the year.
One very successful strategic initiative over the year was the establishment of the Emerging Markets Sector Trust in March 2010. In the short period from inception to 30 June, the Emerging Markets Sector became the best performing sector for the year, returning 8.0 per cent against its benchmark return of 1.3 per cent.
The Hour-Glass Australian Bonds Sector invests only in highly-rated sovereign-issued or government- guaranteed debt instruments. The Australian yield curve flattened sharply over the year, with the cash rate and short term yields rising while long term yields fell. The Australian Bond Sector benefited from duration positioning and security selection, returning 8.0 per cent against its benchmark return of 7.6 per cent.
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The International Bonds Sector was closed out in July 2009 as funds under management had fallen below critical mass and, at the time, there were concerns over the relative valuation of the sector. The close-out proved to be a prudent course of action, given the subsequent unfolding of the sovereign debt crisis.
The Hour-Glass Listed Property Sector was the highest yielding sector for the year, returning 30.3 per cent. Global Real Estate Investment Trusts (REITs), being at depressed valuations, benefited from a rebound in investor sentiment. Moreover, the hedged structure of this asset class helped Australian dollar investors avoid the reduction in return from the appreciation, during the financial year, in the Australian dollar. Like all equities, global REITs were not immune to the May and June falls and lost some of the gains, at one stage more than 50 per cent. Global REITs, as represented by the UBS Global Real Estate Investors Index, returned 39.1 per cent in hedged Australian dollar terms over the financial year.
TCorp’s Medium Term Growth Facility and Long Term Growth Facility, which cater to clients’ longer term investment needs, outperformed their benchmarks. Outperformance was achieved through tactical asset allocation, such as an overweight position in Australian shares, active management of all asset classes, and successful management of currency exposures.
The Hour-Glass products remain constructed in a way which targets investments in quality companies with sustainable longer term earnings. This strategy seeks to minimise the risk of large unrecoverable capital losses and positions the products well to deliver solid long term results.
Internally managed cash and bond portfolios
TCorp continued to reinforce the strength of the State balance sheet through internal management of specific cash and bond portfolios for NSW Treasury and other agencies. In addition, TCorp is one of the fund managers for the Hour-Glass Cash Sector (including managing the sector's day-to-day liquidity) and in March 2009 became the fund manager for the Hour-Glass Core Bond Fund. TCorp was previously appointed manager of the Hour-Glass Liquidity Fund and the Strategic Cash Facility. In carrying out these assignments for the Hour-Glass Investment Facilities, TCorp draws on its long experience in cash and fixed interest markets and its understanding of public sector cash flows.
Major agencies whose portfolios have been managed by TCorp for a number of years include the NSW Trustee & Guardian, the Office of Fair Trading and, until the lotteries business was sold in early 2010, NSW Lotteries.
TCorp also directly manages cash and long term bond investments for the Lifetime Care & Support Authority and in 2009 entered investment mandate agreements with State Super and WorkCover Nominal Insurer. These new investment mandates were awarded to TCorp in recognition of the value that TCorp’s internal fixed income management service can provide to public sector clients and include the management of nominal and inflation-linked bond portfolios.
The total volume of investment funds managed internally by TCorp rose from $6.7 billion at 30 June 2009 to $8.25 billion at 30 June 2010, of this amount, $3.77bn was managed for the Hour-Glass Cash, Strategic Cash and Core Bond funds..
TCorp takes a conservative approach to credit risk for managed portfolios, consistent with the risk profile of client mandates. TCorp's ability to add value arises from its flexibility to make judgements about portfolio construction, the timing of investments and security selection. The investment process seeks to add value to client portfolios, using duration and yield curve management allocation between sovereign, semi-government and supranational sectors, with credit exposures limited to high-quality banks. The increase in sovereign and sovereign guaranteed debt during 2009 and into 2010 has
- 20 - New South Wales Treasury Corporation broadened opportunities for TCorp’s investment style and enhanced the risk and return profile of the internally managed fixed income portfolios.
Over the year, investment returns on all managed portfolios were considerably above benchmarks and consistent with outperforming the broader universe of cash and fixed income fund managers.
DISCRETE CLIENT FUNDS
Manager: TCorp
2010 2010 2009 2009 2010 2009 Benchmark Total Benchmark Total Statistics Return Return Return Deposits Return Deposits % pa % pa % pa $m % pa $m Treasury Managed Fund 1 - - - 12.50 11.38 1,059 Hour-Glass Cash Sector Trust 1 3.95 3.89 1,374 5.65 5.48 1,746 NSW Lotteries 1 - - - 5.98 5.48 198 Treasury Surplus Working Fund 1 4.21 3.68 104 0.00 0.00 0 Office of Fair Trading 2 6.33 6.31 784 6.39 6.36 722 NSW Trustee & Guardian 2 6.34 6.32 1,013 6.45 6.42 941 NSW Trustee & Guardian - Interest 6.09 6.09 96 6.32 6.32 90 Suspense 2 NSW Trustee & Guardian - Estate & 6.34 6.34 8 6.37 6.37 8 Guarantee Reserve 2 Electricity Tariff Equalisation Fund 1 3.74 3.89 67 4.91 5.48 28 Financial Counselling Trust 2 5.89 5.89 12 5.84 5.84 12 Hour-Glass TCorp Alpha Cash 1 4.70 3.89 1,632 5.89 5.48 990 NSW Lotteries Transition Fund 1 & 3 6.93 3.89 31 4.72 5.48 42 Lifetime Care and Support Fund-Cash 1 4.69 3.89 581 6.13 5.48 430 Lifetime Care and Support Fund-Bond 1 10.49 9.94 389 -2.19 -4.51 281 TCorp Core Bond Portfolio1 8.18 7.59 765 -1.00 -1.76 185 NSW State Superannuation1 1.77 0.52 101 - - - WorkCover Nominal Insurer1 0.83 1.25 1,293 - - -
Total Funds at June 30 8,250 6,732
1 Market value based returns. 2 Historical cost based returns. 3 TCorp is assisting NSW Lotteries on an advisory basis to manage the remaining life of a portfolio previously managed externally by a private sector manager.
AUTHORITY DEPOSITS
TCorp accepts deposits as principal and provides a firm rate to clients. Consequently only average annual volumes on deposit are shown.
Statistics 2010 2009 2008 2007 2006 2005 2004 Average annual volume on deposit $m 455 510 571 478 985 1,193 1,096
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ASSET MANAGEMENT PERFORMANCE
HOUR-GLASS INVESTMENT FACILITIES
Sector Manager Macquarie Investment Management Ltd Cash NSW Treasury Corporation Strategic Cash NSW Treasury Corporation Australian Bonds NSW Treasury Corporation BT Investment Management Dimensional Fund Advisors Australia Ltd Integrity Investment Management Australia Ltd Active Australian Shares Northcape Capital Pty Ltd Perpetual Investment Management Ltd Solaris Investment Management Ltd Tribeca Investment Partners Pty Ltd Indexed Australian Shares State Street Global Advisors (Aust) Ltd AllianceBernstein Australia Ltd Axiom International Investors LLC Capital International Inc Active International Shares Dimensional Fund Advisors Australia Ltd Franklin Templeton Investments Australia Ltd Schroder Investment Management Ltd Indexed International Shares State Street Global Advisors (Aust) Ltd Emerging Markets Shares Eastpoint Global Pty Ltd Listed Property Perennial investment Partners Ltd
Medium Long Term Asset Allocation (%) Cash Strategic Term Growth Growth Facility Cash Facility Facility Facility Cash 80.0 - 5.0 2.00 Strategic Cash 20.0 100.0 14.0 - Australian Bonds - - 25.0 14.00 International Bonds - - 26.0 14.00 Indexed Australian Shares - - 3.0 7.75 Active Australian Shares - - 9.0 23.25 Indexed International Shares - - 3.0 7.75 Active International Shares - - 9.0 23.25 Listed Property - - 6.0 8.00 Total 100.0 100.0 100.0 100.0
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POOLED CLIENT FACILITIES
Statistics 2010 2009 2008 2007 2006
Hour-Glass Cash Facility Return (% pa) 4.46 5.35 6.82 6.41 5.69
Benchmark Index Return (% pa) 3.89 5.48 7.34 6.42 5.76
Total Deposits $m June 30 3,465 3,053 3,270 3,157 2,809
Hour-Glass Strategic Cash Facility Return (% pa) * 4.62 5.80 0.27
Benchmark Index Return (% pa) 3.89 5.48 0.28
Total Deposits $m June 30 1,632 990 602
Hour-Glass Bond Market Facility Return( % pa) ** - - 5.02 4.68 3.86
Benchmark Index Return (% pa) - - 5.44 4.75 4.04
Total Deposits $m June 30 - - 0 68 134 Hour-Glass Medium Term Growth Facility Return (% 8.69 0.73 (0.57) 8.48 8.76 pa) Benchmark Index Return (% pa) 8.39 0.15 (0.79) 8.80 8.44
Total Deposits $m June 30 372 337 288 417 288
Hour-Glass Long Term Growth Facility Return (% pa) 11.28 (10.33) (10.27) 13.80 16.88
Benchmark Index Return (% pa) 10.86 (10.88) (10.51) 14.67 15.88
Total Deposits $m June 30 938 843 905 1,081 826
*For period since inception (17 June 2008), not annualised. ** For period until closure (17 June 2008), not annualised.
DIRECT SECTOR INVESTMENTS
Statistics 2010 2009 2008 2007 2006
Hour-Glass Cash Sector Return (% pa) 4.41 5.22 6.82 6.42 5.68
Benchmark Index Return (% pa) 3.89 5.48 7.34 6.42 5.76
Total Deposits $m June 30 2566 2,528 2,839 3,323 3,037
Hour-Glass Australian Bonds Sector Return (% pa) 8.05 11.05 4.69 3.53 2.76
Benchmark Index Return (% pa) 7.59 11.48 5.08 3.63 2.89
Total Deposits $m June 30 765 184 211 316 268
Hour-Glass International Bonds Sector Return (% pa) 12.03 9.60 4.45 0.46
Benchmark Index Return (% pa) 11.46 8.93 5.27 0.72
Total Deposits $m June 30 553 585 5.59 92
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DIRECT SECTOR INVESTMENTS (CONTINUED)
Statistics 2010 2009 2008 2007 2006 Hour-Glass Active Australian Shares Sector Return (% 13.51 (14.02) (17.06) 27.17 23.77 pa) Benchmark Index Return (% pa) 13.05 (20.34) (13.67) 29.21 24.02
Total Deposits $m June 30 2,659 1,131 978 1,218 1,280 Hour-Glass Indexed Australian Shares Sector Return % 13.04 (19.89) (13.55) 28.38 23.67 pa Benchmark Index Return % pa 13.15 (20.14) (13.40) 28.66 23.93
Total Deposits $m June 30 607 459 491 5.91 685
Hour-Glass International Shares Sector Return % pa 6.68 (18.34) (21.89) 6.58 21.77
Benchmark Index Return % pa 5.22 (16.24) (21.26) 7.76 19.88
Total Deposits $m June 30 1,067 932 983 999 1,115 Hour-Glass Indexed International Shares Sector Return 5.64 (16.03) (21.00) 7.84 20.10 (% pa) Benchmark Index Return % pa 5.22 (16.24) (21.26) 7.76 19.88
Total Deposits $m June 30 411 400 314 342 372
Hour-Glass Listed Property Sector Return % pa 30.33 (44.37) (21.27) 16.00 18.50
Benchmark Index Return % pa 39.05 (43.37) (22.45) 13.36 18.05
Total Deposits $m June 30 350 303 273 281 296
Hour-Glass Emerging Markets Sector(1) Return % pa 8.18 - - - -
Benchmark Index Return % pa 7.99 - - - -
Total Deposits $m June 30 55 - - - -
(1) For period since inception (8 March 2010).
SPECIFIC CLIENT FACILITY (1)
Statistics 2010 2009 2008 2007 2006
Combined Treasury Managed Fund Return % pa 8.99 (2.78) (7.36) 9.45 10.13
Benchmark Index Return % pa 9.33 (3.99) (6.66) 9.82 9.88
Total Deposits $m June 30 4,614 3,901 3,996 4,699 4,935
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ADVISORY AND OTHER SERVICES
CORPORATE FINANCE
The dedicated personnel in TCorp’s Corporate Finance unit - which sits within the broader Treasury, Client and Risk Services team - provide analytical, commercial and financial advice to NSW Treasury and other public sector agencies. Such advice covers a range of activities including structured finance transactions, asset and infrastructure procurement and financing, and asset or business sales. Corporate advisory services are provided during the various phases of procurement or disposal and also during the ongoing management of transactions. TCorp seeks to ensure that the State achieves value for money and that results are within acceptable risk limits.
Corporate Finance staff have considerable financial and commercial experience of public and private sector transactions, as well as highly developed quantitative and financial modelling skills. Their experience covers a wide range of asset types and procurement and disposal structures, from relatively straightforward tenders to the most complex public-private partnership transactions. In carrying out its activities, the Corporate Finance unit is able to draw on the financial markets expertise of TCorp’s treasury and economic resources.
Corporate Finance also liaises with private sector participants and intermediaries, as part of TCorp’s role as a bridge to the private sector financing community.
The unit had a very active year in terms of number of assignments, spread of clients and type of work. Specific assignments included:
. NSW Treasury: various roles as assessment panel members in the proposed divestment of the non-core lotteries, waste services, and superannuation management businesses; . NSW Treasury: advisory and evaluation panel work in relation to aspects of the proposed energy reform programme. TCorp also arranged and managed the early termination of cross- border lease arrangements over NSW power generation assets; . NSW Treasury: funding and managing oversight (in conjunction with StateFleet) for the budget sector agencies motor vehicle fleet which covers more than 23,000 vehicles valued at more than $500 million; . NSW Treasury: participated in the business case Gateway review of a major RailCorp project; . Public Transport Ticketing Corporation: evaluation panel member for the electronic ticketing system tender. TCorp also advised on and oversaw the foreign exchange hedging at financial close; . Housing NSW: initiation and coordination of the early termination of a complex private sector financing arrangement that resulted in an immediate cash benefit and continuing savings for Housing NSW; . Housing NSW/NSW Treasury: financial adviser and evaluation panel member for the Riverwood North and Kamira Court Villawood social housing and urban renewal projects; . Sydney Harbour Foreshore Authority: financial adviser in the review of responses to a tender for the potential divestment of property assets at Darling Harbour and The Rocks. TCorp’s involvement focused on assessing the capacity of the proponents; . RailCorp: management of various cross-border leases over rolling stock including attending to the scheduled termination of several leases; . NSW state owned electricity generators: financial advice in a project seeking private sector participation in developing a large-scale coal mine and rail infrastructure;
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. NSW Health: advice to Health Infrastructure on the Liverpool Hospital car park redevelopment project; . Department of Services, Technology and Administration: assistance with the evaluation of tender responses and finalisation of documentation for the fixed wing aircraft contracts; . Department of Services, Technology and Administration: advice relating to the proposed new imaging devices contract; and . The University of Newcastle: evaluation panel member reviewing private sector responses for a potential further campus development of the university.
In addition to advisory work directly with clients, the unit provided valuable analytical and commercial support to other areas of Treasury, Client and Risk Services.
Advisory Services
TCorp continues to develop its capacity to provide financial risk management advice. In many cases, this activity is undertaken as part of TCorp's role as discretionary debt or asset manager for the General Government sector and Public Trading Enterprises (PTEs). TCorp advises clients on matters such as treasury management policies, benchmarks, portfolio risk constraints and hedging of interest rate exposures. An example of this activity during the year was providing a debt benchmark review for the Sydney Ports Corporation.
TCorp has a highly experienced economics team which makes regular presentations to debt and asset management clients, as well as emailing a weekly economics and markets brief and providing input to clients’ monthly portfolio management reports.
For clients who have opted for the time being not to use the discretionary debt management service, TCorp can provide a tailored advisory service. This may entail regular advice, such as recommendations on refinancing of maturing loans, or single projects such as a review of policies.
Guarantees
Several agencies and PTEs require performance guarantees in the course of their operations. TCorp can provide this back-up, supported by NSW Treasury. The largest example of this activity is the substantial guarantees provided to Australian Energy Market Operator Limited (AEMO) on behalf of the State owned electricity retailers.
Another key example is guarantees provided by TCorp to the WorkCover Authority on behalf of SOCs that self-insure their obligations under the Workers Compensation Act 1987. In addition, TCorp provides a small number of agencies with performance guarantees for other purposes.
Although a relatively minor part of TCorp business, these guarantee activities are an illustration of the breadth of TCorp’s role in providing financial accommodation to its clients.
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ECONOMIC OVERVIEW
The NSW economy represents about one third of Australia’s gross domestic product. The State has a diversified economic base encompassing the construction, finance, telecommunications, high-value manufacturing, business services and transport sectors.
NSW is rated AAA by two leading international rating agencies, Moody’s Investors Service and Standard & Poor’s. These ratings reflect the strong balance sheet of the State and the disciplined fiscal strategy adopted by the Government over the past decade. The State’s net financial liabilities are expected to stabilise at around 20 per cent of gross state product (GSP) from 2009 to 2014. This level is around 5 per cent higher than the average of the years from 2000 to 2008. State net debt is forecast to rise over the next five years, reaching 10.3 per cent of GSP by June 2014. The increase follows substantial growth in Public Trading Enterprise sector borrowings to fund capital works. The forecast level remains significantly below mid-1990 levels, and is well below mid-1980 levels, when state net debt was more than 20 per cent of GSP.
The NSW economy has rebounded more quickly than expected in 2009/10 with state final demand increasing by 4.3 per cent. The improvement was supported by fiscal and monetary stimulus, high population growth, strong trade links with Asia and a sound domestic financial system. Business and consumer confidence lifted sharply during the first half of 2009/10 and has since stabilised at relatively high levels.
The year under review is one of economic recovery rather than contraction. As expected, state final demand growth moderated a little in the second half of 2009/10 reflecting slower growth in household consumption, a reversal of the stimulus-related gains in machinery and equipment investment and ongoing soft private non-residential construction. State final demand grew at an annualised rate of 5.6 per cent in the six months to December 2009 and slowed to a still strong 4.8 per cent in the six months to June 2010.
There is a risk of some near term weakness in demand as the economy transitions from public demand and stimulus lead growth to private sector demand growth. The forecast pick-up in private demand could occur more slowly than expected and not fully offset the contraction in public investment and cessation of other indirect stimulus measures (FHB incentives and tax concessions for business investment). However, the outlook for economic growth remains strong.
Encouragingly, consumer spending and dwelling investment recorded strong growth in the June quarter as public investment began to detract from growth. Solid household consumption, improving net exports, farm sector recovery and a continued recovery in dwelling investment will drive growth in 2010/11. A stronger recovery in business investment is expected in 2011/12.
Household spending has moderated, rising by 1.1 per cent in the second half of 2009/10 after rising by 1.9 per cent in the first half of 2009/10. Despite the recent moderation, consumer spending is expected to remain solid reflecting higher employment and wage growth, improved purchasing power from a strong exchange rate, as well as improving household wealth. Partially offsetting these factors will be higher interest rates and petrol prices, and a more cautious consumer.
Dwelling investment has continued its recovery, rising by 2.1 per cent in the second half of 2009/10 after rising by 4.0 per cent in the first half of 2009/10. There has been a strong lift in alterations and additions, while new construction remained soft. Investment is expected to continue to improve given previous increases in housing finance and building approvals. In the broader housing market, Sydney established house prices have recovered strongly, increasing by 21.4 per cent through-the-year to the
- 27 - New South Wales Treasury Corporation
June quarter 2010. However, recent anecdotal evidence suggests that growth in house prices has moderated.
Business investment remains subdued, falling by 2.2 per cent in the second half of 2009/10 after rising by 5.5 per cent in the first half of 2009/10. This reflected the cessation of temporary tax concessions for machinery and equipment in December 2009 and ongoing soft private non-residential construction. Investment intentions are continuing to recover but businesses remain cautious outside the mining sector.
State and local public investment increased by 18.7 per cent in 2009/10 after rising by 23.5 per cent in 2008/09. Over the period ahead, public sector investment is expected to detract from growth as stimulus related programs slow. However, State capital expenditure will remain at historically high levels.
Reflecting the improved economy, employment in NSW grew by 1.2 per cent in 2009/10 after growing by 0.7 per cent in 2008/09. Through the first half of 2009/10, full-time employment declined while part- time employment grew strongly. However, in the second half of 2009/10 full-time employment increased while part-time employment growth slowed, consistent with the improvement in average hours worked.
Conditions in the labour market continue to improve. Employment growth has accelerated in the first quarter of 2010/11, growing by 1.2 per cent (driven by full-time employment), while the unemployment rate has declined to an average of 5.2 per cent (after averaging 5.7 per cent in 2009/10).
Wage costs increased modestly in the second half of 2009/10, but remain well below long-run average levels. Business surveys and the strengthening labour market point to further wage growth increases over the period ahead.
Population growth has reached levels not seen since 1987/88, increasing by 1.6 per cent through the year to March 2010 after averaging 1.7 per cent in 2008/09. Strong population growth will support employment, consumption and housing investment.
Outlook for 2010/11
The challenges for the NSW economy in the year ahead are likely to be similar to those faced by Australia as a whole.
There is a risk of some near term weakness in demand as the economy transitions from public demand and stimulus lead growth to private sector demand growth. However, the outlook for economic growth remains strong.
Despite increased uncertainty around the global economic recovery and renewed volatility in financial markets, the global economy is expected to continue to recover. Strong growth in developing Asian economies is fostering a return to higher terms of trade and strong mining investment. This will underpin the Australian economy over the period ahead. NSW will benefit from increased terms of trade through higher incomes, increased interstate trade and the thermal coal industry. An improving labour market and stronger household income growth are also expected.
After solid growth in 2009/10, at around or slightly above the national growth of 2.3 per cent, the NSW economy is expected to accelerate to an above-trend pace of 3 per cent in 2010/11 and 3½ per cent in 2011/12 based on NSW Treasury forecasts. NSW GSP growth is expected to be slightly below the
- 28 - New South Wales Treasury Corporation national average in 2010/11 and 2011/12, reflecting higher mining investment growth in the resource- based states in 2010/11 and 2011/12.
NSW will continue to be exposed to some headwinds in the form of a high Australian dollar and higher interest rates.
. NSW is relatively more exposed to interest rates due to higher house prices and household gearing . The NSW industry structure relies more on business and financial services than on resource industries which makes it less of a direct beneficiary of returning strong mining investment but more exposed to a high exchange rate . Some NSW industries will face competition for labour and capital from the resource industries.
NSW Treasury estimates that state final demand is expected to grow at an above-trend rate of 3½ per cent in 2010/11 and 2011/12. In 2010/11, planned declines in public investment will detract from growth and business investment will be modest, but dwelling investment will continue to recover, household consumption growth will remain solid, and net exports will improve. A stronger recovery in business investment is expected in 2011/12.
Inflation and wages are forecast to rise modestly in 2010/11 and 2011/12 but remain contained as solid growth in the economy absorbs much of the spare capacity generated during the past two years.
With the global economy still recovering from a recession and financial crisis, the outlook remains clouded by a fairly high degree of uncertainty. However, risks around the outlook appear to be more balanced than was the case in mid 2009.
Downside risks to the economic outlook for 2010/11 and 2011/12 include a slower recovery in the world economy and the possible adverse impacts from deteriorating fiscal positions overseas. Upside risks include faster global growth and higher commodity prices leading to stronger-than-expected national domestic demand growth in the short term.
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Corporate Governance
The Board of TCorp is committed to high standards of performance, accountability, ethical behaviour and corporate governance.
Role of the Board
The Board, constituted by the Treasury Corporation Act 1983, is to direct management in achieving the TCorp mission and to fulfil the annual agreement between the Board and the NSW Treasurer as set out in the Statement of Business Intent. The Board’s primary responsibilities and corporate governance functions include:
. providing strategic direction and reviewing corporate strategy; . identifying the principal risks of TCorp’s business and monitoring the risk management processes through rigorous inquiry; . determining an appropriate policy regime to control those risks within a risk spectrum acceptable to the NSW Government; . regularly measuring financial performance against the Board approved annual budget; . monitoring the conduct and the performance of TCorp and its senior management; and . overseeing management’s succession plans. . Role of management . The Board has established a policy that documents the roles of the Board and the Chief Executive. . The Chairman of the Board is independent of the role of the Chief Executive. . Board composition and appointments
The Board consists of:
. two ex-officio members from NSW Treasury; . the Chief Executive, appointed by the NSW Governor on the recommendation of the NSW Treasurer; and . five non-executive directors, appointed by the NSW Governor for a specified term on the recommendation of the NSW Treasurer.
The Chairman of the Board is the Secretary of NSW Treasury and the other member from NSW Treasury holds the position of Deputy Chairman.
Conduct of Board business
The Board normally holds at least 12 Board meetings each year, and will meet whenever necessary to carry out its responsibilities.
The Board has established a policy and a Code of Conduct & Ethics in relation to how it conducts Board business. The Board aims not only to comply with the requirements set out in the Treasury Corporation Act 1983 (NSW), but also to incorporate practices commonly required by entities regulated by the Corporations Act 2001 (Cth). The Board recognises that corporate governance is not an aspect of business that can be put in place and then forgotten; rather, it involves continuing review and improvement, keeping track of industry trends and, after consideration and where appropriate, embracing them.
Board discussions, deliberations and decisions that are not required to be publicly disclosed are kept confidential by directors.
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Conflicts of interest
Directors must monitor and disclose any actual or potential conflicts of interest as these arise. The Treasury Corporation Act 1983 requires any director who has a pecuniary interest in a matter being considered or to be considered by the Board, to declare the nature of the interest. These declared interests are recorded in a publicly available register. Unless the NSW Treasurer determines otherwise, the director is required not to attend Board meetings about matters relating to declared pecuniary interests or to take part in decisions about these matters.
Attendance at Board and Board Committee meetings
1 July 2009 — 30 June 2010
Board Board Audit and Risk Audit and Risk HR HR Held Attended Committee Committee Committee Committee Board Members Held Attended Held Attended Michael Schur 12 8 Chairman Kevin Cosgriff(1) 12 11 3 3 Deputy Chairman Philip Chronican(2)(4) 8 8 1 1 Cristina Cifuentes(2) 12 11 4 4 Michael Cole(1) 12 11 3 3 Bruce Hogan(2) 12 12 4 4 Stephen Knight(3) 12 12 4 4 3 3 Hon Andrew Rogers(2)(5) 1 1 1 1 Hon Alan Stockdale(1) 12 12 3 3 (1) Member of HR Committee. (2) Member of Audit and Risk Committee. (3) Observer at both Audit and Risk Committee and HR Committee meetings. (4) Appointed as a director effective 1 November 2009, appointed to Audit and Risk Committee on 28 January 2010. (5) Term as director finished effective 1 September 2009.
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TCorp’s Directors in 2009/20 10 were:
Director Term expires Qualifications and experience M A (Michael) Ex-officio MSc (Econ), MCom (Econ) Schur, Secretary, NSW Treasury. Previously, Deputy Secretary, Office Chairperson (Since 1/12/0 8 ) of Infrastructure Management, NSW Treasury (3 years); Senior Advisor, The World Bank (5 years); Advisor, South African Ministry of Finance. K F (Kevin) Ex-officio M.A, BSc (Hons) Cosgriff, Deputy NZ Treasury, UK Treasury – micro, macro policy. Deputy Chairperson (since 3/10/06) Secretary, Fiscal and Economic NSW Treasury since 2001. P W (Philip) 1/11/1 2 BCom (Hons), MBA (Dist) Chronican Banking and finance industry for 30 years. Chief Executive Officer Australia, Australia and New Zealand Banking Group Limited. Former Group Executive Westpac Institutional Bank, and Chief Financial Officer, Westpac Banking Corporation. C P (Cristina) 1 5/1/1 2 BEc, LLB (Hons) Cifuentes Economics and investment management for 27 years. Director, FSS Trustee Corporation. M J (Michael) 30/9/11 BEc, MEc, FFin Cole Banking and investment management for 37 years. Chairman, Platinum Asset Management Limited; Chairman, IMB Limited; Chairman, Indemnified Loans Committee; Chairman, Ironbark Capital Limited; Director, OneVue Limited and Director, Challenger Listed Investments Limited. B A (Bruce) 1 5/1/1 2 BEc (Hons), FAICD Hogan AM Finance and industry for 40 years. Former Joint Managing Director, Bankers Trust Australia. Director, Hogan & Company Pty Limited; and Director, Snowy Hydro Limited. S W (Stephen) Ex-officio BA, FAICD Knight Banking and public sector, financial management for 29 (appointed years. Chief Executive, TCorp and Director, TCorp Nominees 1/9/05) Pty Limited. Director, Australian Financial Markets Association. Hon A J 1/9/09 LLB (Hons), DUniv (Andrew) Barrister and QC for 23 years; Judge then Chief Judge of the Rogers QC (Retired 1/9/09) Supreme Court of NSW for 13 years; Commercial Arbitrator and Mediator. Director, EnDispute Pty Limited; Chairman, Capital Markets CRC Limited and Probity Advisor to Leighton Holdings Limited and its operating subsidiaries. Hon A R (Alan) 4/1/11 BA, LLB Stockdale Barrister for 13 years. Member of Victorian Parliament for 15 years. Former Treasurer of Victoria and Minister for Information Technology and Multimedia. Former Executive Director, Macquarie Bank Limited; Chairman, Senetas Corporation Limited; Chairman, Medical Research Commercialisation Fund Pty Ltd; and Federal President, Liberal Party of Australia.
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The Board adopts a balanced scorecard approach to assess and measure the effectiveness of TCorp’s business and senior management. The Performance Related Incentive Payments are derived from the results of the balanced scorecard and individual performance indicators for the year ended 30 June 2010.
Name Position Remuneration & Performance Statement of Performance Payment S. Knight Chief Executive Remuneration: $575,000 The Chief Executive’s Performance Related Incentive Payment is directly correlated to the Performance payment: outcome of TCorp’s corporate balanced $221,000 scorecard. These components include cost effective funding, debt and asset portfolio management, investment facilities, organisational capability, client service, and project & structured finance. The Chief Executive can earn a maximum incentive reward of 60% of his fixed remuneration in any one year. The assessment for each of the components of the balanced scorecard for the financial year resulted in an outcome of 64.1%. M. Allen General Remuneration: $390,000 The General Manager Treasury and Client Risk Manager Services’ Performance Related Incentive Payment Treasury and Performance payment: is directly correlated to the outcomes of those Client Risk $187,500 components of the corporate balanced scorecard Services that fall under his responsibility. These components include cost effective funding, debt and asset portfolio management, investment facilities, organisational capability, client service, and project & structured finance. For the 2009/10 year, the General Manager Treasury and Client Risk Services could earn a maximum incentive reward of 75% of his fixed remuneration. The assessment for each of the relevant components of the balanced scorecard for the financial year resulted in an outcome of 64.1%. P. Smith Chief Operating Remuneration: $268,000 The Chief Operating Officer Performance Related Officer Incentive Payment is based on 80% individual Performance payment: $92,500 performance indicators and 20% corporate balanced scorecard. For the 2009/10 year, the Chief Operating Officer achieved a Commendable/Proficient result against established key performance indicators. The maximum eligible incentive reward is 45% of his fixed remuneration. M. Swan Chief Risk Remuneration: $232,000 The General Manager Risk’s Performance Related Officer Incentive Payment is based on 80% individual Performance payment: $74,500 performance indicators and 20% corporate balanced scorecard. For the 2009/10 year, the Chief Risk Officer achieved a Commendable/Proficient result against established key performance indicators. The
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maximum eligible incentive reward is 45% of his fixed remuneration. S. Mannix General Remuneration: $232,000 The General Manager Legal Performance Related Manager Legal Incentive Payment is based on 80% individual Performance payment: $82,000 performance indicators and 20% corporate balanced scorecard. For the 2009/10 year, the General Manager Legal achieved a Commendable/Proficient result against established key performance indicators. The maximum eligible incentive reward is 45% of his fixed remuneration.
2010 2009 Number of Executive Officers 6 6 Number of Female Executive Officers 1 1
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COMPLIANCE AND RISK MANAGEMENT
Responsibility for risk management and compliance extends across the entire TCorp organisation.
The risk management framework and key financial parameters are established by the Board and documented in Board policies. This framework includes the establishment and regular monitoring of limits for market, credit and other risks.
The Board’s Audit and Risk Committee acts as an advisory body on audit, operational risk management and financial matters. In respect of risk management and compliance, the Audit and Risk Committee reports on whether management has in place a current and appropriate ‘enterprise risk management’ process and a sound and effective internal control framework. To assist in this process, the Audit and Risk Committee receives regular reports from internal audit, external audit and TCorp management.
The Executive Risk and Compliance Committee (ERiCC) is a management committee reporting to the Chief Executive. It is charged with ensuring that Board policies are adequately embedded in business practice and that there are appropriate levels of supervision, controls, procedures, monitoring and training within the business units. ERiCC’s activities are also subject to oversight by the Audit and Risk Committee.
The Risk and Compliance department is the centralised function responsible for the day-to-day monitoring of Board policies, client mandates, management procedures and any other risk matters identified as potentially requiring attention. The department is responsible for daily reporting to management, monthly reporting to ERiCC and the Board, and quarterly reporting to the Audit and Risk Committee.
In conjunction with the Risk and Compliance department, the individual business units identify risks specific to their areas and develop controls to reduce those risks to acceptable levels. This decentralised approach ensures comprehensive identification of risks and entrenches management of them in the most appropriate areas.
This organisation-wide approach to risk management fosters a culture of risk awareness, with all levels of TCorp contributing to the framework and the detailed systems and processes that identify, control, monitor and report on risk.
Legal and regulatory compliance
TCorp is regulated by several items of NSW legislation, including its own Act, the Treasury Corporation Act 1983, as well as the Public Finance and Audit Act 1983, the Annual Reports (Statutory Bodies) Act 1984 and the Public Authorities (Financial Arrangements) Act 1987. TCorp is ultimately accountable to the NSW Parliament, through the NSW Treasurer.
TCorp is not regulated by the Australian Prudential Regulation Authority (APRA) or the Australian Securities and Investments Commission, which govern most operators in the Australian financial markets. However, TCorp voluntarily adopts relevant industry practices which impose conventional market constraints.
TCorp’s activities are subject to review and monitoring by a number of external parties including:
. the NSW Treasurer, who is a Member of Parliament and the NSW Government shareholder representative;
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. the NSW Treasury, which maintains a shareholder monitoring role through quarterly and annual reporting requirements common to all NSW Government agencies and by representation on the TCorp Board; and . the NSW Auditor-General, who reports to Parliament, provides an independent audit of TCorp’s financial reports and expresses an opinion on those financial reports in line with the requirements of the Public Finance and Audit Act 1983.
Compliance is a key element of risk management and TCorp’s compliance framework is structured to ensure adherence to applicable laws, regulations, contracts, industry standards and internal policies. Consistent with TCorp’s risk management approach, compliance measures are subject to continuous monitoring and improvement. Any compliance issues are referred to the Chief Executive, ERiCC, the Audit and Risk Committee and/or the Board as appropriate.
Use of capital
TCorp does not hold subscribed share capital in the conventional commercial sense. In consultation with its shareholder, the NSW Government, TCorp has retained from past profits an amount of $85 million.
TCorp operates under self-imposed capital requirements based on prudential statements published by APRA. Within these TCorp-specific capital constraints, TCorp manages market, credit and operational risks to ensure that the level of capital is sufficient to cover the financial risks incurred in its daily business.
Capital usage is calculated daily and monitored against Board-approved limits. Management reports are produced daily and summary reports are presented monthly to the Board.
Market risk
TCorp uses a Value-At-Risk model based on historical simulation to assess capital requirements arising from market risk. The model captures the potential for loss of earnings or changes in the value of TCorp’s assets and liabilities arising from movements in interest rates and key credit spreads and from fluctuations in the prices of bonds or other financial instruments.
Credit risk
In conducting its business, TCorp invests in high-grade financial assets issued by parties external to the whole of the NSW Government grouping. The return achieved on these financial assets must be sufficient to protect against loss in value caused by a decline in the counterparty’s creditworthiness or ultimate default.
Credit exposures are monitored daily against Board-approved limits.
Operational risk
Operational risk can arise from events such as settlement errors, system failures, procedure breakdowns and external factors. TCorp reviews all possible risks of this nature, assesses the mitigating factors and controls and evaluates the residual risks. TCorp uses “Cura” software to aid the identification and measurement of risk and implementation of associated internal controls. High risks are managed by improving procedures and process flows, ensuring appropriate segregation of duties, insurance cover and business continuity plans. TCorp allocates capital to cover operational risk.
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Auditor independence
TCorp is audited annually by the Audit Office of NSW. The Public Finance and Audit Act 1983 further promotes independence of the Audit Office by ensuring that only Parliament, not the Executive Government, can remove the Auditor-General and by precluding the provision of non-audit services to all public sector agencies.
Deloitte Touche Tohmatsu is engaged by TCorp to undertake internal audit projects as agreed by the Audit and Risk Committee under TCorp’s Audit and Risk Committee and Internal Audit Charters and to report findings independently to the Audit and Risk Committee.
Code of Conduct and Ethics
All TCorp staff members sign the TCorp Code of Conduct and Ethics. The code sets out what is expected of staff in their business affairs and in dealings with clients and other parties. It demands high standards of personal integrity and honesty in all dealings and a respect for the privacy of clients and others. By signing a copy of the code, staff acknowledge that they have read and understood it and agree to act according to its requirements.
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INTERNAL AUDIT AND RISK MANAGEMENT STATEMENT
Internal Audit and Risk Management Statement for the 2009-2010- Financial Year for NSW Treasury Corporation
The Directors are of the opinion that NSW Treasury Corporation has internal audit and risk management processes in place that are, in all material respects, compliant with the core requirements set out in Treasury Circular NSW TC 09/08 Internal Audit and Risk Management Policy.
The Directors are of the opinion that the Audit and Risk Committee for NSW Treasury Corporation is constituted and operates in accordance with the independence and governance requirements of Treasury Circular NSW TC 09/08. At 30 June 2010, the Chair and Members of the Audit and Risk Committee were:
Member Qualifications Status Mr Bruce Hogan (Chairman) AM, BEc (Hons), FAICD Independent Ms Cristina Cifuentes BEc, LLB (Hons) Independent Mr Philip Chronican BCom (Hons), MBA (Dist) Independent
These processes provide a level of assurance that enables the senior management of NSW Treasury Corporation to understand, manage and satisfactorily control risk exposures.
In recognition of TCorp’s size, and in order to ensure independence of the function, the internal audit function is outsourced to a suitably qualified organisation.
The Directors declare that this Internal Audit and Risk Management Attestation is made on behalf of the following controlled entities:
. Treasury Corporation Division of the Government Service . TCorp Nominees Pty Limited
Stephen Knight in accordance with a resolution of the Directors of NSW Treasury Corporation
27 August 2010
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STATEMENT OF CHIEF EXECUTIVE’S PERFORMANCE
The Board found the Chief Executive to have displayed consistently competent overall performance. The scorecard rating of 64.1% is lower than the previous financial year’s rating of 83.3% and TCorp’s longer term average rating of around 70%.
The rating for the current year reflects a solid performance in a year where financial markets were recovering after the worst of the global financial crisis. TCorp generated an above budget profit for the year. Performance against set targets and outright results for TCorp across business activities were achieved with outstanding results for asset management, above target results for TCorp’s balance sheet
Service Delivery
TCorp provides comprehensive liability and asset management services for NSW Treasury and Government businesses, supported by an excellent back office team.
Many major Government businesses contract out their liability management to TCorp or retain TCorp as an advisor. Also, TCorp’s asset management business has seen continued increase in number of clients serviced. These are fully contestable activities and it is pleasing that TCorp has such a strong presence in these businesses.
In addition to portfolio management, major clients receive ancillary ‘value add’ services such as provision of accounting data and input from TCorp’s economics and risk advisory team. During the year TCorp’s Risk Advisory Group developed a new debt management framework for regulated utilities within NSW, which has been well received by the client base. TCorp’s core lending business for the Government and agencies continued its significant growth over the year, and this involved considerable client servicing from TCorp, especially through advising on and implementing loan structures.
TCorp and its products and services again achieved high results in the annual client satisfaction survey. Client loyalty is strong in all facets of our business.
Credit Card Certification
In accordance with Treasury Policy and Guidelines Paper 05-01, the Chief Executive certifies that credit card use by TCorp staff complies with Board approved policies and procedures.
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HUMAN RESOURCES
The key issues for human resource (HR) management and their outcomes were:
• Workforce Planning and Resource Management
TCorp continues to address the challenge of anticipating change management to ensure TCorp is pro active in its organisational development. As part of this ongoing process, TCorp conducted an organisational review, in FY10. The aim of the review was recognise the strengths and synergies across TCorp’s business activities, seek to preserve and build on these strengths, while also identifying the changing dynamics of our operating environment and business mix.
As a result of this review, TCorp appointed a Chief Information Officer role at the Executive level. This appointment provides recognition of the importance of the IT function within the formal structure, with IT becoming a direct report to the CEO. This is consistent with the significant investment TCorp has made in IT over recent years, and its critical importance to TCorp’s ongoing success. It is also more aligned with organisational structures in private sector financial institutions.
• Increased Focused on our Change Management Capabilities
Another key outcome of the organisational review also was the focus on our capacity to identify, co- ordinate, and manage the change process across TCorp in the most effective manner.
As a result, TCorp established a new Strategy and Change Management group. The group is actively working across TCorp’s businesses on key change projects, co-ordinating the efforts of relevant individuals across the organisation to ensure optimal planning, consideration of all relevant issues, scoping of tasks, resourcing and project management.
A key aim of this new structure will be to imbed more of a “cross functional” team based approach, particularly as it relates to change initiatives that impact across the organisation. This aligns with the ongoing focus on collaboration in the organisation as a key driver of employee engagement.
• Employee Engagement
The second Employee Engagement Survey was released in October 2009, and has driven a number of new initiatives aimed at minimising the key ‘threats’ to employee engagement.
Particular focus has been on the cultural elements relating to Performance Management, Collaboration, Brand Alignment and Work Processes.
One of the major initiatives to address these threats has been to prioritise Communications on the organisational strategic agenda. This has involved developing an internal communications strategy, and prioritising the development and implementation of the Intranet as a key strategic priority. Communications is also now part of the General Manager Human Resources role.
• Remuneration and Reward
The Balanced Scorecard methodology continues to provide alignment between organisational objectives and individual performance. HR have reviewed the Incentive Reward model to provide an even greater alignment between the Balanced Scorecard, the TCorp Values, and individual Incentive Reward. This model was signed off by the Board to take effect in FY11 financial year.
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TCorp continues to encourage non-monetary recognition programs in order to support extraordinary employee efforts, and is developing a formal Reward and Recognition Program which is intrinsically linked to the TCorp Values. The program will be officially launched in FY11.
• Improving the Performance Management Framework
The Employee Engagement survey resulted in a significant amount of work to improve the internal processes and resource capabilities in TCorp’s Performance Management framework. The changed have included process improvements, education, more robust communication, and a measurement system that is more fully aligned to the TCorp values and Balances Scorecard. FY11 will see ongoing measurement and further improvement of the Performance Management framework in the organisation.
Senior Officers
Chief Executive S W Knight, BA FAICD
General Manager – Treasury and Client Risk Services M J Allen, B.Ec
General Manager – Chief Operating Officer P A Smith, BCom, CA, FFin
General Manager – Legal S P Mannix, BCom, LLB, MLM
General Manager – Chief Risk Officer M A Swan, B.Bus
General Manager - Human Resources & Communications L A Goodyer, Prof Dip HR, CAHRI
Chief Information Officer – Vacant Position at 30 June 2010
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Organisation Chart (current as at 30 June 2010)
Number of Employees
F10 F09 F08 F07 F06 F05 F04 F03
Chief Executive 1 1 1 1 1 1 1 1
General Managers 5 5 5 6 6 4 4 3
Senior Employees 53.23 45.43 41.027 38.5 34.7 39 42.5 37.7 Support 23.08 25.06 20.28 24.2 19 19.7 17.3 19.5 Employees Total 81.31 76.49 67.31 69.7 60.7 62.7 64.8 61.2
Training, Development and Communication
TCorp continues to promote a culture of learning and development to support individuals ability to perform their varied roles across the organisation. 100% of employees undertook training and development which is equivalent to the previous year. This included 37% females and 63% male employees. Training activities include Industry Events, Financial Markets Training, In-house training, e- learning. Tertiary Education and Leadership Development.
A total of 14% of employees undertook reimbursable study programs in 2009/2010. The programs included Master of Applied Finance, Bachelor of Technology, Diploma in Law, and Executive MBA.
Senior management participated in various strategic industry conferences during the year hosted mainly by financial institutions including the Women in Banking & Finance NSW Network (WIB&F), the Committee for Economic Development of Australia (CEDA), and the Australian Financial Markets Association (AFMA).
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Performance Reviews
The outcome of all audits and reviews were satisfactory and received a rating of well controlled.
Exceptional Movements in Salaries
There were no exceptional movements salaries in 2009/10.
Occupational Health and Safety
There was one workers compensation injury for the year. The injury was caused when a staff member injured his knee during a lunch time TCorp basket ball game. TCorp followed due process in accordance with the OH&S policies and procedures and Injury Management Plan. The staff member had consultations with treating specialist and was deemed fit to return to normal duties. The claim has been closed.
Industrial Relations Policies
There were no unfair dismissal claims during the year and no time was lost as a result of industrial disputes.
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EEO STATISTICAL INFORMATION
Table A. Trends in the Representation of EEO Groups (1)
% of Total staff (2) Benchmark 2007 2008 2009 2010 or Target % % % % Women 50% 49 51 45 39 Aboriginal people and Torres Strait Islanders 2.6%(3) 0 0 0 0 People whose first language was not English 19% 21 23 28 35 People with a disability 12% 0 0 0 0 People with a disability requiring work-related adjustment 7% 0 0 0 0
Table B. Trends in the Distribution of EEO Groups (4)
Distribution Index(3) Benchmark 2007 2008 2009 2010 or Target Women 100 86 85 85 84 Aboriginal people and Torres Strait Islanders 100 0 0 0 0 People whose first language was not English 100 n/a n/a 86 86 People with a disability 100 0 0 0 0 People with a disability requiring work-related adjustment 100 0 0 0 0
(1) Staff numbers are as at 30 June.
(2) Excludes casual staff.
(3) Minimum target by 2015.
(4) A Distribution Index of 100 indicates that the centre of the distribution of the EEO group across salary levels is equivalent to that of other staff. Values less than 100 mean that the EEO group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced this tendency is, the lower the index will be. In some cases the index may be more than 100, indicating that the EEO group is less concentrated at lower salary levels
(5) Excludes casual staff.
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MULTICULTURAL POLICIES AND SERVICES PROGRAM
Achievements for 2009/10
Corporate Strategy: Enhance resource management and allocation (including Human Resources). Key Result Area: Social Justice Responsibility: Human Resources Ethnic Affairs Initiative Ensure all employment and promotion of employees continues to be based on merit. Performance Indicators: . Recruitment and promotion policies and practice reflecting the merit principle. . Totality of applicants to reflect cultural diversity. . Appointments/promotions to reflect cultural diversity. Outcomes Achieved: . 4 employees recruited in 2009/010 were from culturally diverse backgrounds.
Corporate Strategy: Facilitate a harmonious workplace Key Result Area: Community Harmony Ethnic Affairs Initiatives: . Obtain feedback (where appropriate) from all employees through their Managers on key HR policies and practices prior to implementation. . Reinforce awareness of TCorp’s anti-bullying, harassment and diversity policies including ethnic affairs legislative requirements. . Promote awareness of TCorp’s diversity. Responsibility: Human Resources Performance Indicators: . Adherence by employees to ethnic affairs legislative requirements. . Exception reporting of complaints. Outcomes Achieved: . No complaints reported. . Code of Conduct Policy forms part of the offer of employment for new employees.
Corporate Strategy: Meet Client Needs Key Result Area: Social Justice Ethnic Affairs Initiatives: Ensure adequate client access to the retail bond program, including designated and capital investments, by:
. providing an interpreter service to clients as required; and . translating documentation into other languages other than English as required. Responsibility: Administration Performance Indicators: Client satisfaction with interpreter and translation services, measured by feedback from clients. Outcomes Achieved: An interpreter service was provided for clients during the year when and as required. There were no requests for translations during the year.
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Plans for 2010/11
Corporate Strategy: Enhance resource management and allocation (including Human Resources). Key Result Area: Social Justice Ethnic Affairs Initiatives: . Provide Equal Employment Opportunity training for all managers and staff to ensure compliance with diversity, anti harassment and ethnic affairs legislative requirements. Responsibility: Human Resources Performance Indicators: . Increased awareness by managers of diversity issues and legislative obligations reflected in the recruitment outcomes. . Totality of applicants, appointments and promotions to reflect community cultural diversity. . Exception reporting of complaints. Corporate Strategy: Facilitate a harmonious workplace Key Result Area: Community Harmony Ethnic Affairs Initiatives: Continue to maintain awareness among employees of TCorp’s anti- harassment and diversity policies including ethnic affairs legislative requirements. Responsibility: Human Resources Performance Indicators: . Initiatives implemented in maintaining employee awareness such as in- house workshops. . Exception reporting of complaints.
Corporate Strategy: Meet Client Needs Key Result Area: Social Justice Ethnic Affairs Initiatives: TCorp to continue to provide client access to the Investment - Linked category of the Business Skills Class of migration and Skilled - Independent and Skilled - Australian Sponsored Subclasses of migration and other retail products by:
. providing an interpreter service to clients as required; and . translating documentation into languages other than English as required. Responsibility: Administration
Performance Indicators: Client satisfaction with interpreter and translation services, measured by feedback from clients.
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CONSULTANTS
Consultant Cost (inclusive of GST) Consultancies equal to or more than $50,000
Total Consultancies equal to or more than $50,000 $ -
Consultancies Less than $50,000 Management services $15,974 Management services $15,675 Management services $29,999 Organisational review $12,400 Organisational review $29,920
Total Consultancies Less than $50,000 $103,968
From time to time, TCorp may also engage consultants on behalf of other government agencies. To the extent that these costs are ultimately borne by those agencies, they are not reported here.
EXEMPTIONS FROM THE REPORTING PROVISIONS
TCorp has received an ongoing exemption from the provisions of clause 12(1) of the Public Finance and Audit Regulation 2010 pertaining to the location of disclosures concerning deferred employee entitlements. In accordance with clause 12(4) of these Regulations, details have been disclosed in the financial statements.
TCorp has also been granted exemptions from clauses 12 and 13 of the Annual Reports (Statutory Bodies) Regulation 2010, relating to reporting on the performance of the liability portfolio, benchmark portfolio and investments.
TCorp’s prime business is the raising of debt in the private sector capital markets and the onlending to the New South Wales government sector. The profile of the borrowings from the private sector is substantially determined by the amounts and maturities required by the government and public authorities. As such, unlike other authorities that fall under this legislation, TCorp is not in a position to actively manage its “liability portfolio” in a manner that is readily comparable with a “benchmark portfolio” as contemplated by the Regulation. Any savings made by TCorp in connection with its debt are however reflected in the statutory accounts for the year.
In conducting its prime business activity, TCorp maintains, for appropriate prudential reasons, a pool of financial assets that provide a necessary liquidity buffer. As such, unlike other authorities that fall under this legislation, with minor and immaterial exceptions, all of TCorp’s assets, as well as its liabilities, are financial. The assets are not considered “surplus funds” in terms of the legislation, and can be seen as directly related to the prime business of TCorp, rather than an ancillary activity of an authority.
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PROMOTION
Overseas Visits Undertaken
Officer Visit Undertaken Purpose S Knight Sep 2009 Euro Investor Roadshow (Kazakhstan, Sweden, Finland, Austria, Poland, UK) S. Long Sep 2009 UK part of Euro Roadshow (Dealer Group Meetings) A. Schuman, T. Hext Sep 2009 Investor Meetings (Singapore, HK & Malaysia) Deutsche Mission (HK, Germany, Italy, UK, US)- A.S. Only M. Allen & F. Trigona Sep 2009 Japan & Korea – Investor Meetings & Euromoney Conference S. Knight, T. Hext Oct 2009 US Investor Roadshow S. Knight, Nov 2009 Japan – Nomura & Daiwa Capital Markets Seminar V. Gibson Nov 2009 Singapore – Asset Liability Mgmt Conference M. Allen, F. Trigona Jan/Feb 2010 North Asia Roadshow (Taiwan (MA only), HK, Japan, Korea) Investor meetings and CBA Conference on Australian Economy (MA presenting) Citi Annual Asia Pacific Investor Conference (MA participating on Panel) D.Choi Mar 2010 UK – Training Course (BNP Asian Central Banking) Korea – meetings with market counterparties. A. Schuman Apr 2010 Japan – Nomura Conference G. Mork Apr 2010 Jana Roadshow (US & UK) – meetings with Investment Managers S. Knight May 2010 Asia Roadshow/Euromoney Conference (HK & Singapore) S. Knight Jun 2010 South America & UK Roadshow (Chile, Brazil & UK) – Investor Meetings. T. Hext Jun 2010 New Zealand – Presenting at Bank of NZ Seminar, Investor Meetings.
Annual Report Cost
The total external cost to produce this report is approximately $1,505.42 (including GST).
Electronic Service Delivery
TCorp has provided two primary interfaces for electronic communication with its customers and the general public at large. These sites provide information about the various areas of service and product that TCorp makes available.
Website [www.tcorp.nsw.gov.au]
This site provides information relating to TCorp and the various activities in which it is engaged. The site has been designed to cater for the needs of all users including the financial markets, government agencies and retail investors. The design aims at ensuring that the website is useable for all users irrespective of the technology employed or level of technical skill.
Clients’ secure data site
This site is only accessible to TCorp’s agency customers and requires a valid user-ID and password for use. It provides information for agencies that outsource to TCorp the management of their debt or asset portfolios.
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For those agencies investing with the Hour-Glass, information is provided including both daily transactional and balance information and statements at month end. The data is updated each business day reflecting status as at the close of the previous business day.
For agencies which are using TCorp for management of their debt portfolio, the site again provides data refreshed each business day. It supplies reports showing transactional information and portfolios relating to cash positions and securities.
Consumer response
During the year, TCorp continued to promote its products and services to public sector agencies and businesses. This was carried out by means of visits to clients (including their senior executives and boards of directors), as well as functions, educational seminars and publications. Similar promotional work was directed at private sector financial intermediaries and institutional investors, both in Australia and overseas.
TCorp again received largely positive feedback from clients and market participants, including excellent feedback through formal surveys.
TCorp strives to achieve an ethical and honest workplace. If your experience is otherwise please contact our Chief Executive, Mr Stephen Knight, on (02) 9325 9325. i) Hour-Glass Investment Facilities
TCorp’s Hour-Glass Investment Facilities are managed investment funds for NSW public sector investors. The Hour-Glass offers funds designed for the differing investment purposes and horizons of individual public sector investors. As at 30 June 2010 investments totalled $10.1 billion. A register is kept of any significant complaints made regarding the Hour-Glass Investment Facilities.
No complaints were recorded during the year. ii) Retail Bonds
TCorp offers NSW Treasury Bonds to the public and a register is maintained of any complaints received.
No complaints were recorded during the year.
Freedom of Information Statistics
As a matter of course, all new staff are advised during induction, and existing staff are regularly advised, of the importance of directing all FOI requests immediately to the FOI Coordinator so that they can be processed in accordance with the Act. TCorp’s Statement of Affairs is set out in Appendix A.
During the year, no FOI applications were received (2008-09 comparative; no applications received).
There are no major issues to report on TCorp’s compliance with FOI requirements.
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WASTE REDUCTION AND PURCHASING POLICY
TCorp’s waste reduction strategies include the following:
• New desktops, monitors and servers use active energy manager functionality to reduce power used when this equipment is not in use; • We have reduced the number of physical servers and replaced them with virtual servers that use less energy; • In our data centre we use hot aisle and cold aisle containment to reduce the amount of cooling needed and therefore the amount of energy required; • Where possible, we recycle obsolete technology equipment; • Our used printer and fax toner cartridges are recycled; • We use recycled paper wherever possible; • Each staff member has two rubbish bins at their desk, one for recycling paper and cardboard and the other for non-paper materials; • Larger bins to separate recycled and non-recycled materials are located throughout the office so that all waste is recycled appropriately and all security destruction is appropriately recycled; • Glass, cans and plastic containers are recycled; • Lights are turned out when not in use and there is an automatic system in place to turn off lights after hours; • TCorp purchases 25% of its power through an accredited Green Power contract; and • Light “eco” devices are installed on the fluoro light circuits in the premises. This has significantly reduced the power used for lights and helped to lower CO2 emissions generally.
- 50 - New South Wales Treasury Corporation
PAYMENTS
Payment performance indicators
30-Jun-10 31-Mar-10 31-Dec-09 30-Sep-09 $ ' 000 $ ' 000 $ ' 000 $ ' 000 Footnote Creditors as per general ledger 8,084 9,489 8,864 6,734
Amounts payable to suppliers 1 320 7 84 79 Interest payable on short term borrowings 2 14 - - - Interest payable (Authorities) 2 4,725 6,548 5,883 3,858 Amount due for unpresented cheques 3 - - - - mainly in respect of interest payments Fringe benefits and fringe benefits tax 3 75 124 110 86 payable Goods & Services Tax payable 550 20 135 108 Administration expense accruals 4 2,400 2,790 2,652 2,603
Total Creditors 8,084 9,489 8,864 6,734
Footnote 1: Schedule of accounts payable at: Current (within due date) 96 7 - 79 Less than 30 days overdue - - 84 - Between 30 and 60 days overdue - - - - Between 60 and 90 days overdue 224 - - - More than 90 days overdue - - - - 320 7 84 79
Percentage of accounts paid on time 95% 100% 99% 100% Accounts paid on time ($ ' 000) 4,310 5,242 7,364 7,960 Total accounts paid / payable ($ ' 000) 4,535 5,242 7,448 7,960
Footnote 2: This represents interest payable on short-term borrowings. These amounts are paid within seven days of the month end.
Footnote 3: The nature of these amounts is such that there is no fixed “due date” and as consequence it is inappropriate to measure them.
Footnote 4: Includes such items as accrued annual leave and long service leave.
Late payment interest
No late payment interest was incurred in the year ended 30 June 2010.
- 51 - New South Wales Treasury Corporation
BUDGETS FOR THE YEARS ENDED 30 JUNE 2010 AND 30 JUNE 2011
$’000 $’000 $’000 BUDGET ACTUAL PROFORMA Market Value Market Value BUDGET 30/06/10 30/06/10 Market Value 30/06/11
Income
Management of balance sheet/capital markets activity 73,684 84,029 79,009 Management of client liabilities 10,905 10,156 11,391 Management of client assets 9,925 11,689 12,299 Corporate finance activity, guarantees and other fees 1,889 2,326 1,780 Total income 96,403 108,200 104,479
Transaction costs 2,329 9,801 2,218 Administration expenses Staff costs 18,475 18,530 20,773 Finance services costs 1,637 1,546 1,798 Promotion costs 919 747 985 Computer costs 7,376 7,547 8,701 Premises and administration costs 4,254 4,146 4,802 Total transaction and administration costs 34,990 42,317 39,277
Operating surplus before tax equivalent expense 61,413 65,883 65,202
LEGAL CHANGE
The following significant legal changes occurred during the financial year.
Australian Government Guarantee of State and Territory Borrowing Scheme and the Guarantee of State and Territory Borrowing Appropriation Act 2009 (Cth)
On 23 March 2009, the Commonwealth Treasurer announced the introduction of the Scheme to guarantee selected borrowings of State and Territory governments, in response to the impact of the global financial crisis on the Australian State central financing agencies ability to issue raise required levels of funding. On 23 June 2009, the NSW Treasurer announced that the State would be participating in this Scheme. The Scheme Rules became operational on 24 July 2009, with NSW’s application becoming effective on 16 September 2009. Under the Scheme Rules, NSW will pay 0.15% of the face value of existing debt and 0.30% of the face value of new debt raised to the Commonwealth for securities issued under the Scheme. The Scheme will also require NSW to provide regular reporting of information to the Reserve Bank of Australia, acting as the Scheme Administrator. The purpose of the Appropriation Act is to provide for the contingency of payment by the Commonwealth under the guarantee it has provided. On 7 February 2010, the Commonwealth Treasurer announced that the Scheme will close to new issuance of guaranteed liabilities on 31 December 2010. All benchmark bonds issued by TCorp in existence as at the Final Issuance Date will remain guaranteed by the Commonwealth, in accordance with the terms of the Scheme.
CONTROLLED ENTITIES
TCorp has two controlled entities; Treasury Corporation Division of the Government Service (Treasury Corporation Division) and its wholly owned subsidiary, TCorp Nominees Pty Limited.
The principal activity and objective of Treasury Corporation Division is to provide employment services to TCorp, pursuant to the requirements of the Public Sector Employment and Management Act 2002
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(NSW). Treasury Corporation Division is deemed a controlled entity of TCorp, in accordance with Treasury Circular NSW TC 06/13.
TCorp Nominees Pty Limited’s principal activity and objective is to act as a security trustee in relation to financing of a hospital for which TCorp has advanced funds.
The audited financial reports of the controlled entities are included in this report.
ISSUES RAISED BY THE AUDITOR
The Auditor-General’s report under Section 43 of the Public Finance and Audit Act 1983 for the years ended 30 June 2010 and 30 June 2009 raised no significant issues.
The Auditor-General’s Volume Five 2009 Report to Parliament, tabled in November 2009, included a report on TCorp which raised no significant audit issues.
The Auditor-General’s 2010 Report to Parliament concerning the year ended 30 June 2010 has not been received as at the date of this report.
POST BALANCE DATE EVENTS
No material post balance events have occurred up to the date of this report.
FINANCIAL STATEMENTS
TCorp
The audited financial statements for TCorp for the year ended 30 June 2010 commence on the next page and finish on page 85.
Controlled Entity – Treasury Corporation Division
The audited financial statements for TCorp for the period ended 30 June 2010 commence on page 89 and finish on page 99.
Controlled Entity – TCorp Nominees Pty Ltd
The audited financial statements for TCorp Nominees Pty Ltd for the year ended 30 June 2010 commence on page 103 and finish on page 110.
All financial information quoted before this section and after page 113 is unaudited.
- 53 - NEW SOUTH WALES TREASURY CORPORATION STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
CONSOLIDATED CORPORATION 2010 2009 2010 2009 Note $’000 $’000 $’000 $’000 Income from changes in fair value 2 4,150,538 4,191,300 4,150,538 4,191,300 Less: Expenses from changes in fair 3 (4,064,989) (4,011,789) (4,064,989) (4,011,789) value Net income from changes in fair 85,549 179,511 84,549 179,511 value Fees and commissions 4 22,651 25,757 22,651 25,757 Total net income 108,200 205,268 108,200 205,268 Less: General administrative expenses Staff costs (18,469) (16,026) (1,559) (1,401) Personnel services costs - - (16,971) (14,851) Financial services costs (1,546) (1,592) (1,546) (1,592) Information technology costs (7,547) (7,943) (7,547) (7,943) Premises and administration costs (4,893) (4,835) (4,893) (4,835) Total general administrative (32,455) (30,396) (32,516) (30,622) expenses Transaction issuance fees (7,360) (4,328) (7,360) (4,328) Other transaction costs (2,441) (2,933) (2,441) (2,933) Total transaction costs (9,801) (7,261) (9,801) (7,261) Total general administrative and 4 (42,256) (37,657) (42,317) (37,883) transaction costs Profit before income tax equivalent 65,944 167,611 65,883 167,385 expense Income tax equivalent expense 1(c) (17,130) (43,520) (17,130) (43,520) Profit for the year 48,814 124,091 48,753 123,865 Other comprehensive income/(loss) 4 Actuarial loss on defined benefit (61) (226) - - plans Total comprehensive income for the 48,753 123,865 48,753 123,865 year
The accompanying notes form part of these financial statements.
- 54 - NEW SOUTH WALES TREASURY CORPORATION BALANCE SHEET AS AT 30 JUNE 2010
CONSOLIDATED CORPORATION Note 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Assets Cash and liquid assets 5 484,568 233,128 484,568 233,128 Outstanding settlements receivable 1(e) 155,227 1,054,096 155,227 1,054,096 Due from financial institutions 6 4,837,483 1,481,762 4,837,483 1,481,762 Securities held 7 6,907,417 7,753,148 6,907,417 7,753,148 Derivative financial instruments 14 347,273 572,192 347,273 572,192 receivable Loans to government clients 8 44,627,907 37,888,685 44,627,907 37,888,685 Other assets 9 34,221 33,891 34,023 33,697 Plant and equipment 10 2,313 2,865 2,313 2,865 Total assets 57,396,409 49,019,767 57,396,211 49,019,573 Liabilities Due to financial institutions 11 4,740,957 3,776,459 4,740,957 3,776,459 Outstanding settlements payable 1(e) 52,112 290,142 52,112 290,142 Due to government clients 12 1,004,965 888,936 1,004,965 888,936 Borrowings 13 51,110,297 43,455,468 51,110,297 43,455,468 Derivative financial instruments 14 344,630 425,543 344,630 425,543 payable Income tax equivalent payable 7,506 2,762 7,506 2,762 Other liabilities and provisions 15 50,674 105,442 50,476 105,248 Total liabilities 57,311,141 48,944,752 57,310,943 48,944,558 Net assets 85,268 75,015 85,268 75,015 Represented by: Equity Retained profits 18 85,268 75,015 85,268 75,015 Total equity 85,268 75,015 85,268 75,015
The accompanying notes form part of these financial statements.
- 55 - NEW SOUTH WALES TREASURY CORPORATION STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010
CONSOLIDATED CORPORATION Note 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Total equity at the beginning of the 75,015 43,150 75,015 43,150 year Profit for the year 48,814 124,091 48,753 123,865 Other comprehensive income/(loss) 4 (61) (226) - - Total comprehensive income for the 48,753 123,865 48,753 123,865 year Less: Dividend payable 15 (38,500) (92,000) (38,500) (92,000)
Total equity at year end 18 85,268 75,015 85,268 75,015
The accompanying notes form part of these financial statements.
- 56 - NEW SOUTH WALES TREASURY CORPORATION CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2010
CONSOLIDATED CORPORATION Note 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Cash inflows/(outflows) from operating activities Interest and other costs of finance received 2,936,931 2,371,214 2,936,931 2,371,214
Interest and other costs of finance paid (2,683,547) (2,491,177) (2,683,547) (2,491,177) Fees and commissions received 27,731 17,919 27,731 17,919 Payments of tax equivalents (12,386) (43,095) (12,386) (43,095) Receipt of Goods and Services Tax 1,779 2,294 1,779 2,294 Payments of administrative expenses (45,913) (34,478) (45,913) (34,478) Loans to government clients made (17,598,767) (11,055,628) (17,598,767) (11,055,628) Loans to government clients repaid 12,094,828 4,666,991 12,094,828 4,666,991 Net cash used in operating activities 29 (5,279,344) (6,565,960) (5,279,344) (6,565,960) Cash inflows/(outflows) from investing activities Purchases of plant and equipment (2,892) (2,799) (2,892) (2,799) Net cash to securities held (2,487,640) (3,337,551) (2,487,640) (3,337,551) Net cash used in investing activities (2,490,532) (3,340,350) (2,490,532) (3,340,350) Cash inflows/(outflows) from financing activities Proceeds from issuance of borrowings and 66,947,738 59,962,846 66,947,738 59,962,846 short term securities Repayment of borrowings and short term (58,677,635) (50,386,797) (58,677,635) (50,386,797) securities Net cash used in the purchase or repayment 145,191 (24,910) 145,191 (24,910) of other short term financial instruments Dividend paid (92,000) (23,500) (92,000) (23,500)
Net cash provided by financing activities 8,323,294 9,527,639 8,323,294 9,527,639
Net increase/(decrease) in cash held 553,418 (378,671) 553,418 (378,671) Cash and cash equivalents at the beginning of (163,896) 214,775 (163,896) 214,775 the year Cash and cash equivalents at the end of the 28 389,522 (163,896) 389,522 (163,896) year
The accompanying notes form part of these financial statements.
- 57 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of preparation
The financial statements of New South Wales Treasury Corporation (‘the Corporation’) are general purpose financial statements and have been prepared in accordance with the provisions of the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010 and the New South Wales Treasurer’s Directions. They have also been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB).
Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (IFRS). Compliance with the Australian equivalents to IFRS ensures this financial report, comprising the financial statements and accompanying notes for the consolidated entity, complies with IFRS.
Standards affecting presentation and disclosure
The following new and revised Standards have been adopted in the current period and have affected the presentation and disclosure in these financial statements.
New and revised standard Impact on financial statements AASB 101 Presentation of Financial AASB 101 (September 2007) has introduced terminology Statements (as revised in September 2007), changes (including revised titles for the financial statements) AASB 2007-8 Amendments to Australian and changes in the format and content of the financial Accounting Standards arising from AASB 101 statements. and AASB 2007-10 Further Amendments to Australian Accounting Standards arising from AASB 101, and AASB 2009-6 Amendments to Australian Accounting Standards and Erratum General Terminology Changes The amendments to AASB 7 expand the disclosures required AASB 2009-2 Amendments to Australian in respect of fair value measurements. The Corporation has Accounting Standards – Improving Disclosures elected not to provide comparative information for these about Financial Instruments expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments. AASB 8 applies to entities which have on issue debt securities AASB 8 Operating Segments, AASB 2007-3 that are traded in a public market. The Corporation has Amendments to Australian Accounting provided the entity wide disclosures required for a single Standards arising from AASB 8 reportable segment in note 27.
- 58 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective.
Effective for annual Expected to be initially Standard/Interpretation reporting periods applied in the financial beginning on or after year ending AASB 2009-5 Further Amendments to Australian Accounting Standards arising 1 January 2010 30 June 2011 from the Annual Improvements Project AASB 2009-14 Amendments to Australian Interpretation – Prepayments of a Minimum 1 January 2011 30 June 2012 Funding Requirement AASB 124 Related Party Disclosures (revised 1 January 2011 30 June 2012 December 2009) AASB 2009-12 Amendments to Australian 1 January 2011 30 June 2012 Accounting Standards AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting 1 January 2013 30 June 2014 Standards arising from AASB 9
AASB 9 Financial Instruments and its associated amending standards specify new recognition and measurement requirements for financial assets within the scope of AASB 139 Financial Instruments: Recognition and Measurement. Broadly, the amendments will require the Corporation to continue to measure financial assets at fair value through profit or loss. Therefore when applied, all of these standards will impact only on the presentation of the financial statements and disclosures in the notes.
The financial statements are prepared on the basis of a ‘for-profit‘ entity as determined by the accounting standards.
The financial statements are prepared using the accrual basis of accounting. Financial assets and financial liabilities are stated on a fair value basis of measurement. Plant and equipment is stated at the fair value of the consideration given at the time of acquisition. Employee benefits are recognised on a present value basis, as detailed in note 1(i). All other assets, liabilities and provisions are initially measured at historical cost and reported based on their recoverable or settlement amount.
All amounts are shown in Australian dollars and are rounded to the nearest thousand dollars unless otherwise stated. Assets and liabilities are presented on the balance sheet in order of liquidity.
Accounting policies and the presentation adopted in these financial statements are consistent with the previous year. Comparative information has been reclassified, where necessary, to be consistent with the current year.
- 59 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Principles of consolidation
The financial statements of the consolidated entity include the accounts of the Corporation, being the parent entity, its wholly-owned subsidiary, TCorp Nominees Pty Limited, and the special purpose service entity, Treasury Corporation Division of the Government Service (‘TCorp Division’).
TCorp Division is deemed to be a reporting entity, and a controlled entity of the Corporation, in accordance with New South Wales Treasury Circular TC 06/13 Financial Reporting and Annual Reporting Requirements Arising from Employment Arrangements. The effect of all transactions and balances between entities in the consolidated entity are eliminated in full. Information provided in the notes to these financial statements refers to the consolidated entity only, unless otherwise stated (refer notes 4, 9, 15 and 26), as there is no material difference between the results or financial position of the consolidated entity and the Corporation.
c. Tax equivalents
The Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 exempt the Corporation and its controlled entities from liability for Commonwealth income tax. However, the Corporation is subject to tax equivalent payments to the New South Wales Government.
The Corporation’s liability was determined to be an amount equal to 26% of the profit for the year to 30 June 2010 (2009: 26%). Tax equivalents will be payable at a rate equal to 30% from 1 July 2010, consistent with the Commercial Policy Framework issued by the New South Wales Government.
d. Financial assets and financial liabilities
The Corporation has elected to designate all financial assets and financial liabilities as ‘fair value through profit or loss’, consistent with the provisions of accounting standard AASB 139 Financial Instruments: Recognition and Measurement. The eligibility criteria for this election have been satisfied as the Corporation manages its balance sheet on a fair value basis. This is actively demonstrated through the measurement and reporting of risks, limits, valuations and performance, consistent with risk management policies approved by the Board. Derivative financial instruments are deemed to be ‘held for trading’ under AASB 139 and must be accounted as ‘fair value through profit or loss’. Therefore all financial assets, financial liabilities and derivative financial instruments are valued on a fair value basis as at balance date with resultant gains and losses from one valuation date to the next recognised in the statement of comprehensive income.
Where an active market exists, fair values are determined by reference to the specific market quoted prices/yields at the year end. If no active market exists, judgement is used to select the valuation technique which best estimates fair value by discounting the expected future cash flows arising from the securities to their present value using market yields and margins appropriate to the securities. These margins take into account credit quality and liquidity of the securities. Market yields used for valuing loans to clients are derived from yields for similar debt securities issued by the Corporation which are detailed in note 19.
All financial assets, liabilities and derivatives are recognised on the balance sheet at trade date being the date the Corporation becomes party to the contractual provisions of the instrument.
- 60 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial assets are de-recognised when the Corporation’s contractual rights to cash flows from the financial assets expire. Financial liabilities are de-recognised when the Corporation’s contractual obligations are extinguished.
Securities sold under repurchase agreements are retained in the Securities Held classification on the balance sheet (note 7). The Corporation’s obligation to buy back these securities is recognised as a liability and disclosed in Due to Financial Institutions (note 11).
Transactions conducted on behalf of others are disclosed in Fiduciary Activities (note 24) and those transactions offset or contingent on future events are disclosed in Contingent Liabilities and Commitments (note 25).
e. Outstanding settlements
Outstanding settlements receivable comprise the amounts due to the Corporation for transactions that have been recognised, but not yet settled, as at the balance date. Outstanding settlements payable comprise amounts payable by the Corporation for transactions that have been recognised, but not yet settled, as at the balance date.
f. Other assets and liabilities
Other assets, including debtors, intangible assets, prepayments and deposits, and other liabilities, including creditors, expense accruals, and provisions, are all reported based on their recoverable or settlement amount.
Computer software is classified as an intangible asset and amortised on a straight line basis over the estimated useful life of the asset. Estimated useful lives are generally five years from the date the computer software is commissioned. The assets’ useful lives are reviewed and adjusted if appropriate at each balance date. Systems projects that are implemented in stages are recorded as work-in- progress within the computer software classification until they are commissioned and commence amortising.
g. Plant and equipment
Plant and equipment comprising leasehold improvements, office furniture and equipment, computer hardware and motor vehicles are stated at cost less accumulated depreciation and impairment which approximates fair value. Cost includes expenditure that is directly attributable to the acquisition or construction of the item. Depreciation is calculated on a straight-line basis, from the date the assets are commissioned, over their estimated useful lives as follows:
. Leasehold improvements over the term of the lease, which currently expires on 19 May 2012. . Equipment and vehicles - Computer hardware - three years - Motor vehicles - five years - Furniture and fittings – over the term of the lease, which expires on 19 May 2012.
The assets’ residual values, useful lives and depreciation method are reviewed at the end of each annual reporting period with the effects of any changes recognised on a prospective basis.
- 61 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The gain or loss arising on disposal or retirement of an item of plant or equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.
h. Impairment of assets
Items of plant and equipment and intangible assets are assessed annually for any evidence of impairment. Where evidence of impairment is found, the carrying amount is reviewed and, if necessary, written down to the asset’s recoverable amount.
i. Employee benefits
Provision for annual leave is recognised on the basis of statutory and contractual requirements and is measured at nominal values using the remuneration rate expected to apply at the time of settlement. The provision for long service leave represents the present value of the estimated future cash outflows to employees in respect of services provided by employees up to the year end, with consideration being given to expected future salary levels, previous experience of employee departures and periods of service.
j. Foreign currency transactions
Foreign currency transactions are initially translated into Australian dollars at the rate of exchange at the date of the transaction. At year end, foreign currency monetary items are translated to Australian dollars at the spot exchange rate current at that date. Resulting exchange differences are recognised in the statement of comprehensive income.
k. Cash and liquid assets
Cash and liquid assets includes cash and liquid assets that are readily convertible to cash. For the purpose of the cash flow statement, cash and cash equivalents includes cash and liquid assets net of outstanding short-term borrowings.
l. Leased assets
Operating lease payments are recognised as an expense on a straight-line basis over the lease term.
m. Fiduciary activities
The Corporation acts as agent and manager for various client asset and debt portfolios and as trustee and manager of the Hour-Glass unit trust investment facilities (refer note 24). The associated liabilities and assets are not recognised in the balance sheet of the Corporation. Management fees earned by the Corporation in carrying out these activities are included in the statement of comprehensive income on an accruals basis.
n. Set-off of assets and liabilities
The Corporation from time to time may facilitate certain structured financing arrangements for clients. In such arrangements where a legally recognised right to set-off the assets and liabilities exists, and the Corporation intends to settle on a net basis, the assets and liabilities arising are set-off and the net amount is recognised in the balance sheet. - 62 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Income recognition
Income is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Specific types of income are recognised as follows:
. Interest income
Interest income includes accrued interest, discount and premium.
. Fees and commissions
Fees and commissions for services provided are recognised in the period in which the service is provided.
p. Goods and Services Tax (GST)
Income, expenses and assets (other than receivables) are recognised net of the amount of GST. The amount of GST on expenses that is not recoverable from the taxation authority is recognised as a separate item of administration expense. The amount of GST on assets that is not recoverable is recognised as part of the cost of acquisition. Receivables and payables are recognised inclusive of GST.
q. Dividends
The Corporation’s commitment to pay a dividend to the New South Wales Government is ratified in a Statement of Business Intent. Additionally, the basis for determination of the year’s dividend is recorded in a Board resolution prior to the end of the financial year.
- 63 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
2. INCOME FROM CHANGES IN FAIR VALUE
2010 2009 $’000 $’000 Income from changes in fair value is comprised of: Interest income received or receivable – government clients 2,400,647 2,110,129 - financial institutions 484,446 451,136 Gains on derivative financial instruments 44,218 491,240 Net foreign exchange gain 9 - Increase/(decrease) in fair value of financial assets/(liabilities) 1,221,218 1,138,795 4,150,538 4,191,300
3. EXPENSES FROM CHANGES IN FAIR VALUE
2010 2009 $’000 $’000 Expenses from changes in fair value is comprised of: Interest expense paid or payable – government clients 15,448 22,075 - financial institutions 2,688,969 2,420,192 Losses on derivative financial instruments 122,247 58,613 Net foreign exchange loss - 78 Decrease/(increase) in fair value of financial assets/(liabilities) 1,238,325 1,510,831 4,064,989 4,011,789
Derivative financial instruments are used to manage interest rate risk and exchange rate risk. Gains or losses on derivative financial instruments are largely offset by changes in the fair value of financial assets and liabilities.
- 64 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
4. TOTAL COMPREHENSIVE INCOME FOR THE YEAR
CONSOLIDATED CORPORATION 2010 2009 2010 2009 $’000 $’000 $’000 $’000 (a) The profit for the year includes the following specific items: Fees and Commissions 22,651 25,757 22,651 25,757 Comprising: Specific client mandates 14,559 18,721 14,559 18,721 - asset portfolios 4,403 4,245 4,403 4,245 - debt portfolios 10,156 14,476 10,156 14,476
Hour-Glass facility trusts 5,766 4,740 5,766 4,740
Other fees and commissions from NSW government 2,326 2,297 2,326 2,297 entities
Total general administrative and transaction costs 42,256 37,657 42,317 37,883 Includes: Auditors remuneration to the Audit Office of NSW 290 267 290 267 - for audit of the financial report 268 257 268 257 - other services 22 10 22 10
Consultants’ fees 95 38 95 38
Depreciation and amortisation 3,045 2,243 3,045 2,243
Key Management Personnel compensation(1) 2,985 3,118 2,985 3,118 - Short-term employee benefits 2,825 2,978 2,825 2,978 - Post-employment benefits 125 124 125 124 - Other long-term employee benefits 35 16 35 16
Rental on operating leases 1,613 1,542 1,613 1,542
Superannuation expense 959 967 - - - Defined Contribution Plans 961 887 - - - Defined Benefit Plans (2) 80 - -
(b) Other comprehensive (income)/loss: Actuarial loss on defined benefit plans 61 226 - -
(1) Key Management Personnel includes the directors and executives with the authority and responsibility for managing the consolidated entity (note 26). The total compensation for non-executive directors for 2010 was $333,000 (2009: $324,000).
- 65 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
5. CASH AND LIQUID ASSETS
2010 2009 $’000 $’000 Cash on hand and at bank 9,626 11,646 Overnight and short term placements (unsecured) 474,942 221,482 484,568 233,128
The overnight and short term placements for up to seven days are made to domestic financial institutions with principal and interest repayable at maturity date.
6. DUE FROM FINANCIAL INSTITUTIONS
2010 2009 $’000 $’000 Term placements (unsecured) - 20,115 Short-term bank deposits 4,837,483 1,461,647 4,837,483 1,481,762
7. SECURITIES HELD
2010 2009 $’000 $’000 Floating rate notes(1) 2,992,549 - Bank bills, certificates of deposit 1,562,583 3,972,055 Securities sold under repurchase agreements(1) 1,469,795 64,231 Government, semi-government and supranational bonds(1) 860,678 3,288,514 Commercial paper - 407,527 Indexed annuity bonds 21,812 20,821 6,907,417 7,753,148
(1) Includes securities guaranteed by the Commonwealth of Australia totalling $3,877.9 million (2009: nil), which are effective until maturity.
Securities held are used mainly to cover liquidity requirements and to support client deposits accepted.
8. LOANS TO GOVERNMENT CLIENTS
2010 2009 $’000 $’000 New South Wales public sector clients: — Crown Entity 15,795,552 13,055,292 — Electricity Sector 17,135,231 14,929,359 — Transport Sector 1,165,053 1,155,895 — Water Sector 8,022,487 6,728,825 — Other Sectors 2,467,208 1,978,570 — Universities 42,376 40,744 44,627,907 37,888,685
- 66 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
8. LOANS TO GOVERNMENT CLIENTS (Continued)
Loans to clients comprise financial accommodation on simple interest, discount, fixed interest, floating rate or capital indexed bases.
For capital indexed loans, coupons and face value are indexed quarterly in line with changes in inflation. The fair value of these loans at balance date totalled $3,825.3 million (2009: $1,520.0 million).
Loans to New South Wales public sector clients and universities are guaranteed by the New South Wales Government.
9. OTHER ASSETS
CONSOLIDATED CORPORATION 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Debtors and fee accruals 18,507 18,986 18,507 18,986 Intangible assets 5,905 6,561 5,905 6,561 Security deposits 8,432 6,673 8,432 6,673 Prepaid superannuation (note 22) 146 144 - - Other prepayments 1,231 1,527 1,179 1,477 34,221 33,891 34,023 33,697 Reconciliation of Intangible assets Opening carrying value 6,561 2,527 6,561 2,527 Additions 1,439 5,179 1,439 5,179 Amortisation (1,804) (1,002) (1,804) (1,002) Write-offs of redundant assets (291) (143) (291) (143) Carrying value at year end 5,905 6,561 5,905 6,561
10. PLANT AND EQUIPMENT
Leasehold Equipment & Total Improvements Vehicles 2010 2009 2010 2009 2010 2009 $’000 $’000 $’000 $’000 $’000 $’000 Opening fair value 1,139 663 3,447 2,734 4,586 3,397 Less: Opening accumulated depreciation 459 90 1,262 619 1,721 709 Opening carrying amount 680 573 2,185 2,115 2,865 2,688
Changes during the year: Additions at fair value - 476 886 1,183 886 1,659 Disposals and write-offs of redundant (9) - (187) (241) (196) (241) assets Depreciation expense (241) (369) (1,001) (872) (1,242) (1,241) Closing carrying amount 430 680 1,883 2,185 2,313 2,865
Closing fair value 1,117 1,139 3,624 3,447 4,741 4,586 Less: Closing accumulated depreciation 687 459 1,741 1,262 2,428 1,721 Carrying amount at year end 430 680 1,883 2,185 2,313 2,865
- 67 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
11. DUE TO FINANCIAL INSTITUTIONS
2010 2010 2009 2009 Face Value Fair Value Face Value Fair Value $’000 $’000 $’000 $’000 Short term borrowings 95,058 95,046 397,056 397,023 Repurchase agreements and other collateral 1,448,726 1,453,789 64,455 64,511 Promissory notes 3,204,000 3,192,122 3,329,000 3,314,925 4,747,784 4,740,957 3,790,511 3,776,459
Short term borrowings include overnight, call and monthly deposits borrowed from domestic financial institutions on an unsecured basis, with face value and interest repayable at maturity date.
Securities sold under repurchase agreements are secured by cash collateral (note 20). The Corporation has an obligation to buy back the securities on the dates agreed, usually for terms ranging up to thirty days.
Promissory notes are short term securities issued by the Corporation, usually for terms ranging up to ninety days.
12. DUE TO GOVERNMENT CLIENTS
2010 2010 2009 2009 Face Value Fair Value Face Value Fair Value $’000 $’000 $’000 $’000 Client deposits 1,004,326 1,004,965 863,521 864,473 Client annuity - - - 24,463 1,004,326 1,004,965 863,521 888,936 Deposits are received from clients on an unsecured basis. The majority of deposits have face value and interest repayable at maturity date.
13. BORROWINGS
2010 2010 2009 2009 Face Value Fair Value Face Value Fair Value $’000 $’000 $’000 $’000 Benchmark bonds - domestic 35,820,801 37,105,988 30,324,388 30,814,791 - global exchangeable 6,254,622 6,453,292 7,265,752 7,365,980 42,075,423 43,559,280 37,590,140 38,180,771 Euro Medium Term Notes 3,500,781 3,400,794 3,522,018 3,340,110 Capital indexed bonds 4,030,332 3,818,318 1,765,178 1,518,585 Other borrowings 329,225 331,905 425,036 416,002 49,935,761 51,110,297 43,302,372 43,455,468 Domestic benchmark bonds and global exchangeable bonds pay semi-annual coupons with the face value repayable on maturity. Global exchangeable bonds are convertible to domestic benchmark bonds at the option of the holder.
Euro Medium Term Notes (EMTN) are issued via lead managers into both the Euro market and Japanese retail market. They are repayable at maturity with coupons payable either annually or semi-annually. - 68 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
13. BORROWINGS (Continued)
Callable Notes are also issued under the EMTN programme. These notes have a maturity date of greater than five years, with an optional redemption date of one year or more. The fair value of Callable Notes at the balance date totalled $1,712.5 million (2009: $1,768.9 million).
Capital indexed bonds are domestic bonds with quarterly coupons and face value indexed in line with changes in inflation.
The Corporation does not provide any security in the form of asset and other pledges in relation to its borrowings and other amounts due to financial institutions.
Other borrowings include retail and non-benchmark domestic bonds.
The benchmark bonds on issue, by maturity were:
Maturity Coupon 2010 2010 2009 2009 Face Value Fair Value Face Value Fair Value $’000 $’000 $’000 $’000 1 October 2009 6.0% - - 2,834,259 2,896,602 1 December 2010 7.0% 6,325,516 6,420,058 7,080,267 7,439,335 1 May 2012 6.0% 7,831,237 8,082,845 6,955,831 7,198,927 1 May 2013(1) 5.25% 948,918 969,844 2,905,000 2,912,102 1 August 2013 5.5% 2,109,882 2,191,302 - - 1 August 2014(1) 5.5% 5,133,917 5,352,548 5,982,367 6,046,866 1 April 2016 6.0% 1,526,000 1,597,355 - - 1 March 2017(1) 5.5% 6,999,122 7,217,714 7,021,575 6,914,408 1 April 2019(1) 6.0% 4,587,354 4,839,941 3,726,834 3,720,806 1 May 2020 6.0% 2,508,995 2,600,799 - - 1 June 2020(1) 6.0% 1,074,875 1,125,024 - - 1 May 2023(1) 6.0% 3,029,607 3,161,850 1,084,007 1,051,725 42,075,423 43,559,280 37,590,140 38,180,771
(1) Commonwealth Government guaranteed borrowings at 30 June 2010 total $22,666.9 million, fair value (2009: nil). Refer to Other Disclosures Concerning Financial Liabilities (note 16).
14. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument is a contract or agreement whose value depends on (or derives from) the value of (or changes in the value of) an underlying instrument, reference rate or index.
Derivative financial instruments include swaps, forward-dated client loans, futures, forward foreign exchange contracts and interest rate options. Forward dated loans are priced on a consistent basis to other client loans. For all other derivative financial instruments the Corporation is not a price maker, but is a price taker in its use of derivatives.
The policy of the Corporation is to account for derivative financial instruments on a fair value basis consistent with all other financial assets or liabilities as detailed in note 1(d). Accordingly, resultant profits and losses from one valuation date to the next are included in the statement of comprehensive income as they arise.
- 69 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
14. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Net Exposure
The fair value of the Corporation’s transactions in derivative financial instruments outstanding at year end are as follows:
2010 2009 $’000 $’000 Derivative Financial Instruments Receivable Cross currency swaps(1) 90,105 177,592 Interest rate swaps 229,342 357,680 Commodity swaps - 921 Forward foreign exchange contracts 22,651 35,999 Forward dated loans 3,353 - Interest rate options 1,822 - 347,273 572,192 Derivative Financial Instruments Payable Cross currency swaps(1) (77,316) (115,835) Interest rate swaps (234,850) (266,411) Commodity swaps - (921) Forward foreign exchange contracts (22,651) (35,999) Exchange traded futures (7,991) (893) Forward dated loans - (5,484) Interest rate options (1,822) - (344,630) (425,543) Net amount receivable under derivative financial instruments 2,643 146,649
(1)Includes cross currency swaps to cover exposure to callable notes. Refer to note 17.
15. OTHER LIABILITIES AND PROVISIONS
CONSOLIDATED CORPORATION 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Provisions for employee benefits 4,831 4,525 - - Amounts due to service entity - - 4,662 4,374 Creditors and expense accruals 7,343 8,917 7,314 8,874 Dividend payable 38,500 92,000 38,500 92,000 50,674 105,442 50,476 105,248
The Corporation’s obligations relating to employee benefits are reflected as amounts due to service entity at the balance date. Refer to note 26.
- 70 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
16. OTHER DISCLOSURES CONCERNING FINANCIAL LIABILITIES
Guarantee of the State
All financial liabilities of the Corporation are guaranteed by the New South Wales Government under Sections 22A and 22B of the Public Authorities (Financial Arrangements) Act 1987.
Guarantee of the Commonwealth
Certain benchmark bonds issued by the Corporation, identified in Borrowings (note 13) are guaranteed by the Commonwealth of Australia pursuant to the Australian Government Guarantee of State and Territory Borrowing Scheme dated 24 July 2009 (the “Scheme”). On 7 February 2010, the Commonwealth announced that the “Final Issuance Date” under the Scheme will be 31 December 2010. All Commonwealth Guaranteed benchmark bonds issued by the Corporation in existence as at the Final Issuance Date will remain guaranteed by the Commonwealth, in accordance with the terms of the Scheme.
Financing Arrangements
The Corporation is able to access readily both domestic and offshore capital markets to ensure an adequate funding base. In addition to the Corporation’s domestic benchmark, non-benchmark and promissory note issuances, the following offshore programmes are in place:
2010 2009 Global exchangeable bonds AUD 18 billion AUD 18 billion Multi-currency Euro medium term note USD 10 billion USD 10 billion Multi-currency Euro commercial paper USD 5 billion USD 5 billion Multi-currency US medium term note USD 10 billion -
This ready market access is due to the Corporation having the highest level of credit ratings available to any Australian borrower, which derives from the guarantee of the New South Wales Government and the guarantee of the Commonwealth. The programmes are not contractually binding on any provider of funds.
17. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
All financial assets and liabilities are designated as fair value through profit or loss.
The Corporation’s loans and borrowings are guaranteed by the New South Wales State Government, and certain benchmark borrowings are guaranteed by the Commonwealth Government (note 13). As a result credit risk is not a significant factor in the determination of the fair value. Changes in fair value are therefore mainly attributable to fluctuations in market yields and prices arising from changes in market conditions.
The Corporation has classified fair value measurements using a fair value hierarchy that reflects the subjectivity of inputs used in making the measurements. The fair value hierarchy has the following levels:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). - 71 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
17. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (Continued)
There were no transfers between levels within the fair value hierarchy during the year.
The table below sets out the Corporation’s financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at 30 June 2010. Comparative information has not been provided as permitted by the transitional provisions of AASB 7 - Financial Instruments: Disclosures.
Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000
Financial Assets Cash and liquid assets 484,568 - - 484,568 Outstanding settlements receivable 155,227 - - 155,227 Due from financial institutions - 4,837,483 - 4,837,483 Securities held 4,259,549 2,647,868 - 6,907,417 Derivatives receivable - 306,381 40,892 347,273 Loans to government clients 9,172 44,618,735 - 44,627,907 Financial Assets 4,908,516 52,410,467 40,892 57,359,875
Financial Liabilities Due to financial institutions - 4,740,957 - 4,740,957 Outstanding settlements payable 52,112 - - 52,112 Due to government clients 5,538 999,427 - 1,004,965 Borrowings – Callable Notes - - 1,712,486 1,712,486 – Other 40,924,306 8,473,505 - 49,397,811 Derivatives payable 7,991 262,327 74,312 344,630 Financial Liabilities 40,989,947 14,476,216 1,786,798 57,252,961
Financial instruments classified at level 3 in the hierarchy include Power Reverse Dual Currency Bonds (PRDC's – Callable Notes – refer note 13) and Cross Currency Swaps. PRDC’s are structured callable notes denominated in Japanese Yen and issued into the Japanese market. The cashflows on each bond are hedged by entering into a structured cross currency swap, callable on the same basis as the corresponding bond.
The Corporation forecasts the cashflows on each bond and swap using the original contractual terms, and where known, the Yen cashflows. The fair value of each bond and swap is calculated as the present value of the Australian dollar cashflows using the original issue margin. The Corporation is of the opinion that no secondary market exists for PRDC's and there are no reasonably possible alternative assumptions that would significantly change the fair value.
- 72 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
17. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (Continued)
Reconciliation of level 3 fair value movements
2010 $’000 Opening balance (1,867,383) Total gains and (losses) – realised(1) 314 Total gains and (losses) – unrealised(1) (3,025) Issues - Settlements 124,188 Transfers in or out of level 3 - Closing balance (1,745,906)
2010 $’000 Level 3 Financial Instruments: Callable Notes (note 13) (1,712,486) Cross currency swaps receivable (note 14) 40,892 Cross currency swaps payable (note 14) (74,312) Closing balance (1,745,906)
(1) Included in Net Income from changes in fair value in the statement of comprehensive income.
18. FINANCIAL RISK
Objectives and Policies
The Corporation manages and monitors a variety of financial risks including Market Risk (interest rate risk and foreign exchange risk), Credit Risk and Liquidity Risk (refer notes 19, 20 & 21 respectively).
The boundaries within which these risks are undertaken and managed are established under Board policies, management guidelines and client defined mandates. The Corporation monitors compliance with Board policies and management and client constraints. This monitoring is appropriately segregated from the operating business units. Information is summarised daily and reported monthly to the Board.
All aspects of the treasury process are segregated between dealing, settlement, accounting and compliance. In addition, position limits, liquidity limits and counterparty credit limits have been established. These limits are monitored independently of the dealing and settlement functions, with utilisation of these limits summarised and reported to management on a daily basis.
The nature of the Corporation’s core business gives rise to maturity and repricing gaps within the Corporation’s balance sheet which alter from day to day. The Board of the Corporation has identified the risks that arise from these gaps and has established Board policies to prudently limit these risks. In managing the risks in accordance with the Board limits, the Corporation utilises derivative financial instruments.
Derivatives are used to manage interest rate risk and exchange rate risk for certain assets and liabilities within the balance sheet. Derivatives are accounted on a fair value basis with all gains and losses recognised in the statement of comprehensive income.
- 73 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
18. FINANCIAL RISK (Continued)
Equity
The New South Wales Government is not required under legislation to contribute equity to the Corporation. Retained profits are held in lieu of contributed equity and provide a capital base commensurate with the risks inherent in the Corporation’s business.
19. MARKET RISK
Interest Rate Risk
Interest rates equal to, or derived from, the Corporation’s debt securities and used for valuation purposes were:
Average Quoted Market Average Quoted Market Coupon Rates at 30 June 2010 Rates at 30 June 2009 % pa % pa % pa Nominal Overnight - 4.500 3.000 90 days - 4.770 3.070 180 days - 4.850 3.170 1 December 2010 7.0 4.850 3.710 1 May 2012 6.0 4.715 5.040 1 May 2013(1) 5.25 4.735 5.430 1 August 2013 5.5 4.935 - 1 August 2014(1) 5.5 4.955 5.775 1 April 2016 6.0 5.345 - 1 March 2017(1) 5.5 5.265 6.055 1 April 2019(1) 6.0 5.415 6.225 1 May 2020 6.0 5.640 - 1 June 2020(1) 6.0 5.455 - 1 May 2023(1) 6.0 5.625 6.435 1 Nov 2028 5.5 5.860 6.660 25 Feb 2039 4.62 5.585 6.370 Capital Indexed 20 November 2020 3.75 3.190 - 20 November 2025 2.75 3.365 3.800 20 November 2035 2.5 3.355 3.470
(1) Securities covered by Commonwealth guarantee – refer note 16.
The Corporation measures its exposure to interest rate risk in terms of cash flows or notional cash flows generated by financial instruments. These cash flows are discounted to present values at appropriate market yields and margins as described in note 1(d). Interest rate risk can be in the form of ‘fair value interest rate risk’, such as fixed interest rate instruments which change in value as interest rates move and ‘cash flow interest rate risk’, such as floating interest rate instruments that are reset as market rates change.
- 74 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
19. MARKET RISK (Continued)
The Corporation uses a Value at Risk (VaR) model to measure the market risk exposures inherent in the balance sheet. VaR is measured on a rolling 2-year historical simulation basis using a 99% confidence interval and a 10-day holding period.
VaR is calculated daily and represents an estimate of the loss that can be expected over a 10-day period, with a 1% probability that this amount may be exceeded.
The historical database comprises observations relevant to the major market risk exposures faced by the Corporation including bank bills, bank bill futures, bond futures, semi-government bonds and interest rate swaps. The simulation process captures movements in outright interest rate levels, yield curve tilts and changes in the basis spread between various groups of securities. All historical observations are equally weighted.
As an estimate of market risk, VaR has certain limitations including:
a. Calculating VaR on an historical simulation basis implicitly assumes that returns in the future will have the same distribution as they had in the past. If this is not the case, VaR may overstate or understate the actual losses experienced. b. In rapidly changing markets, the model can be slow to react with the result that VaR at the confidence interval is exceeded more often than statistically expected. c. The model quantifies the expected loss at the confidence interval. It does not however indicate the potential size of losses on days VaR is exceeded.
Given the Corporation’s balance sheet positions at 30 June 2010, the maximum potential loss expected over a 10-day period is $18.8 million (2009: $22.9 million), with a 1% probability that this maximum may be exceeded. The average VaR over the year ended 30 June 2010 was $15.7 million (2009: $17.7 million).
Foreign Exchange Risk
The Corporation has policies and procedures in place to ensure that it has no material exposure to changes in foreign exchange rates. Foreign exchange risk arising from offshore borrowings undertaken in foreign currencies to fund Australian dollar assets is covered by entering into Australian dollar cross- currency swaps.
Forward foreign exchange contracts with clients are covered by corresponding forward foreign exchange contracts with market counterparties. In the majority of these arrangements, the clients indemnify the Corporation for any credit exposure arising from the corresponding transaction with the market counterparty.
Other Price Risk
The Corporation has no material exposure to other price risk in relation to commodity swaps as transactions with clients are covered by corresponding commodity swaps with market counterparties. The clients indemnify the Corporation for any credit exposure arising from the corresponding transaction with the market counterparty.
- 75 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
20. CREDIT RISK
For all classes of financial assets, with the exceptions noted below, the maximum credit risk is equal to the fair value already disclosed.
As loans to government clients are guaranteed by the New South Wales Government, no credit risk is deemed to arise.
Certain securities held by the Corporation are guaranteed by the Commonwealth of Australia (refer to note 16). These securities are separately identified by footnote.
Derivative financial instruments include swaps, forward dated loans, forward foreign exchange contracts, forward rate agreements, futures and options. The Corporation does not use credit derivatives, such as credit default swaps, to mitigate credit risks.
The market convention for the calculation of credit exposure for derivative financial instruments is to add to the market value an amount of potential exposure as determined by reference to the length of time to maturity and face value. The additional credit exposure is noted in the concentration of credit risks below.
For financial instruments where face value is greater than market value, the face value is disclosed to reflect the maximum potential credit exposure.
The Corporation’s exposure to settlement risk is represented by the amount of outstanding settlements receivable shown on the balance sheet. These amounts were settled within seven days after the balance date and are excluded from the concentration of credit risk below.
Collateral
The Corporation obtains collateral in relation to securities sold under repurchase agreements (refer to note 11). The terms and conditions of the repurchase agreements are governed by standard industry agreements, reflecting current Australian market practice. In the event of default the Corporation is immediately entitled to offset the cash collateral against the amounts owed by the defaulting counterparty. Cash collateral received for repurchase agreements outstanding at the balance date totalled $1,455.1 million (2009: $64.5 million).
The Corporation may obtain, or provide, collateral to support amounts due under swap transactions with certain counterparties. The collateral may include cash or eligible securities obtained, or provided, when agreed market value thresholds are exceeded. These arrangements are agreed between the Corporation and each counterparty and take the form of annexures to the standard industry agreement governing the underlying swap transaction. There was no collateral received, or provided, under these arrangements at balance date (2009: nil).
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20. CREDIT RISK (Continued)
Concentration of Credit Risk
By credit rating – 2010(1)
AAA AA+ AA AA- A+ A Other (2) Total $’000 $’000 $’000 $’000 $’000 $’000 Ratings $’000 $’000 Cash and liquid assets 5 - 210,515 19,998 254,050 - - 484,568 Due from financial institutions - - 4,837,483 - - - - 4,837,483 Securities held 4,165,152(5) 153,747 1,314,068 - 732,637 371,621 170,192 6,907,417 Derivative financial 28,800 - 123,857 75,419 119,197 - - 347,273 instruments 4,193,957 153,747 6,485,923 95,417 1,105,884 371,621 170,192 12,576,741
Additional potential exposure 10,048 - 39,424 64,869 58,696 - 144 173,181 to derivatives Additional potential exposure 60,049 - 175 - 7,363 379 2,508 70,474 to financial instruments 4,264,054 153,747 6,525,522 160,286 1,171,943 372,000 172,844 12,820,396
By credit rating – 2009(1)
AAA AA+ AA AA- A+ A Other (2) Total $’000 $’000 $’000 $’000 $’000 $’000 Ratings $’000 $’000 Cash and liquid assets 5 - 88,265 144,488 370 - - 233,128 Due from financial institutions - - 1,481,762 - - - - 1,481,762 Securities held 1,446,284 1,906,460 2,111,282 477,150 1,233,853 413,003 165,116 7,753,148 Derivative financial 42,926 - 197,202 174,990 157,074 - - 572,192 instruments 1,489,215 1,906,460 3,878,511 796,628 1,391,297 413,003 165,116 10,040,230
Additional potential exposure 30,856 - 40,938 72,533 77,595 - 719 222,641 to derivatives Additional potential exposure - 69 10,587 2,850 6,147 2,997 2,585 25,235 to financial instruments 1,520,071 1,906,529 3,930,036 872,011 1,475,039 416,000 168,420 10,288,106
- 77 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
20. CREDIT RISK (Continued)
By classification of counterparty – 2010
Governments(3) Banks(4) Other(4) Total $’000 $’000 $’000 $’000 Cash and liquid assets 5 484,563 - 484,568 Due from financial institutions - 4,837,483 - 4,837,483 Securities held 4,318,899(5) 2,566,706 21,812 6,907,417 Derivative financial instruments 26,615 314,227 6,431 347,273
4,345,519 8,202,979 28,243 12,576,741
Additional potential exposure to derivatives 1,770 163,133 8,278 173,181 Additional potential exposure to financial 60,049 9,537 888 70,474 instruments 4,407,338 8,375,649 37,409 12,820,396
By classification of counterparty – 2009
Governments(3) Banks(4) Other(4) Total $’000 $’000 $’000 $’000 Cash and liquid assets 5 233,123 - 233,128 Due from financial institutions - 1,481,762 - 1,481,762 Securities held 3,018,579 4,630,228 104,341 7,753,148 Derivative financial instruments 40,014 529,724 2,454 572,192
3,058,598 6,874,837 106,795 10,040,230
Additional potential exposure to derivatives 500 204,872 17,269 222,641 Additional potential exposure to financial 69 23,288 1,878 25,235 instruments 3,059,167 7,102,997 125,942 10,288,106 (1) Credit rating as per Standard & Poor’s or equivalent (2) Short term ratings of A-2 or better, when counterparty has no long term rating or the long term rating is A- or lower. (3) Governments – foreign, Commonwealth and other Australian states. (4) All counterparties are required to be operating in an OECD country which is rated A+ or better. (5) Includes securities guaranteed by the Commonwealth of Australia totalling $3,877.9 million (2009: Nil).
21. LIQUIDITY RISK
The Corporation maintains adequate levels of liquidity within minimum prudential and maximum ranges set by the Board. The minimum prudential level is defined as a percentage of total liabilities and is held to meet unanticipated calls and to cover temporary market disruptions. Additional levels of liquidity are maintained up to the maximum approved range to satisfy a range of circumstances, including client funding requirements, maturing commitments, and balance sheet management activities.
- 78 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
21. LIQUIDITY RISK (Continued)
The following table summarises contractual (undiscounted) cashflows by time ranges. The amounts differ from the balance sheet which is based on fair value or discounted cash flows.
Up to 3 3 to 12 1 to 2 2 to 5 Over 5 2010 At call months months years years years Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial Assets Cash and liquid assets 9,626 475,000 - - - - 484,626 Outstanding settlements receivable 155,280 - - - - - 155,280 Due from financial institutions - 3,188,435 1,702,633 - - - 4,891,068 Securities held - 4,470,982 332,964 1,034,251 663,944 953,053 7,455,194 Loans to government clients - 3,248,777 3,821,581 7,572,107 13,518,927 34,011,209 62,172,601 Financial Assets 164,906 11,383,194 5,857,178 8,606,358 14,182,871 34,964,262 75,158,769
Financial Liabilities Due to financial institutions - (4,754,132) - - - - (4,754,132) Outstanding settlements payable (52,146) - - - - - (52,146) Due to government clients - (987,994) (18,428) - - - (1,006,422) Borrowings Callable Notes - (615,542) (1,066,245) - (34,630) - (1,716,417) Other - (1,094,154) (8,357,204) (10,121,431) (13,224,094) (33,888,087) (66,684,970) Financial Liabilities (52,146) (7,451,822) (9,441,877) (10,121,431) (13,258,724) (33,888,087) (74,214,087)
Net Financial Assets/(Liabilities) 112,760 3,931,372 (3,584,699) (1,515,073) 924,147 1,076,175 944,682
Derivatives Derivatives receivable - 1,114,253 1,398,097 372,802 532,490 1,643,149 5,060,791 Derivatives payable (7,991) (1,167,387) (1,342,404) (291,384) (599,987) (1,989,601) (5,398,754) Net Derivatives (7,991) (53,134) 55,693 81,418 (67,497) (346,452) (337,963) Net 104,769 3,878,238 (3,529,006) (1,433,655) 856,650 729,723 606,719 Cumulative 104,769 3,983,007 454,001 (979,654) (123,004) 606,719 -
- 79 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
21. LIQUIDITY RISK (Continued)
Up to 3 3 to 12 1 to 2 2 to 5 Over 5 2009 At call months months years years years Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial Assets Cash and liquid assets 11,646 221,500 - - - - 233,146 Outstanding settlements receivable 1,054,344 - - - - - 1,054,344 Due from financial institutions - 967,777 509,911 3,334 7,424 12,341 1,500,787 Securities held - 3,738,181 1,595,314 1,070,101 1,499,359 310,421 8,213,376 Loans to government clients - 4,283,472 4,110,226 5,970,104 11,556,560 25,580,087 51,500,449 Financial Assets 1,065,990 9,210,930 6,215,451 7,043,539 13,063,343 25,902,849 62,502,102
Financial Liabilities Due to financial institutions - (3,790,572) - - - - (3,790,572) Outstanding settlements payable (290,189) - - - - - (290,189) Due to government clients - (812,972) (56,645) (3,844) (8,963) (15,949) (898,373) Borrowings – Callable Notes - (608,335) (1,132,428) - (33,489) - (1,774,252) – Other (424,806) (4,764,745) (9,522,983) (14,156,888) (27,123,587) (55,993,009) Financial Liabilities (290,189) (5,636,685) (5,953,818) (9,526,827) (14,199,340) (27,139,536) (62,746,395)
Net Financial Assets/(Liabilities) 775,801 3,574,245 261,633 (2,483,288) (1,135,997) (1,236,687) (244,293)
Derivatives Derivatives receivable - 766,861 1,645,334 575,026 619,063 2,238,790 5,845,074 Derivatives payable (893) (1,100,853) (1,658,445) (231,620) (431,138) (2,023,134) (5,446,083) Net Derivatives (893) (333,992) (13,111) 343,406 187,925 215,656 398,991 Net 774,908 3,240,253 248,522 (2,139,882) (948,072) (1,021,031) 154,698 Cumulative 774,908 4,015,161 4,263,683 2,123,801 1,175,729 154,698 -
Callable Notes are issued under the Multi Currency Euro Medium Term Note Programme. These notes are issued with a maturity date greater than five years however are disclosed in the financial report at the first optional redemption date. Each of these notes is fully matched with a derivative transaction.
Contractual commitments and undrawn loan commitments are disclosed in note 25.
22. SUPERANNUATION
Any unfunded superannuation liabilities arising from defined benefit schemes for employees are recognised as a liability and included in provisions for employee benefits (note 15). Amounts representing prepaid superannuation contributions are recognised as an asset and included in other assets (note 9). Actuarial gains and losses are recognised in the statement of comprehensive income in the year they occur (note 4).
- 80 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
22. SUPERANNUATION (Continued)
The funds below hold in trust the investments of the closed New South Wales public sector superannuation schemes:
. State Authorities Superannuation Scheme (SASS) . State Superannuation Scheme (SSS) . State Authorities Non-contributory Superannuation Scheme (SANCS)
These funds are all defined benefit schemes, where at least a component of the employee’s final benefit is derived from a multiple of member salary and years of membership. All schemes are closed to new members.
All fund assets are invested at arms length. Payments may be made to Pillar Administration to reduce the superannuation liability. These payments are held in investment reserve accounts by Pillar Administration.
Superannuation obligations are the responsibility of Treasury Corporation Division of the Government Service (note 26).
The 2010 actuarial assessment of SASS, SANCS and SSS was based on the requirements of Australian Accounting Standard AASB 119 Employee Benefits. This standard requires that a market determined risk-adjusted discount rate be applied as a valuation interest rate in the calculation of the value of accrued benefits. To satisfy the AASB 119 requirements, the following principal actuarial assumptions were applied at the report date.
2010 2009 % pa % pa Discount Rate at 30th June(1) 5.2 5.6 Expected return on assets backing current pension liabilities 8.6 8.1 Expected salary increases - next financial year 3.5 3.5 - thereafter 3.5 3.5 Expected rate of CPI Increase 2.5 2.5
(1) This rate reflects market yields of government bonds at balance date.
Reconciliation of the movement in (net) Unfunded Liability/Prepaid Contribution
TOTALS SASS SANCS SSS 2010 2009 $’000 $’000 $’000 $’000 $’000 Net (asset)/liability at start of year (120) (1) (23) (144) (225) Net (credit)/expense recognised in the statement of comprehensive income (31) 4 25 (2) 81 Contributions - - - - - Net (asset)/liability at end of year (151) 3 2 (146) (144)
- 81 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
23. CONTRACTUAL COMMITMENTS
2010 2009 $’000 $’000 Capital Commitments Not later than one year - 20 - 20
Operating Lease Not later than one year 2,296 2,193 Later than one year but not later than five years 2,112 4,401 4,408 6,594
Operating lease commitments relate to the Corporation’s lease rental of its business premises with remaining lease term of twenty three months. The Corporation has an option to extend for a further five years. The operating lease commitments include cleaning, outgoings and car parking. The current rental agreement expires on 19 May 2012.
Capital and operating lease commitments have been stated with the amount of Goods and Services Tax included, where applicable.
24. FIDUCIARY ACTIVITIES
The Corporation acts both as Trustee and as manager of funds under the Hour-Glass facility trusts and actively manages asset and debt portfolios on behalf of clients.
2010 2009 $’000 $’000 At the year end, the funds under management were: - Hour-Glass facility trusts 10,104,755 7,477,514 - Specific client mandates 4,478,807 3,811,193 14,583,562 11,288,707 These funds were managed by: - External fund managers 6,332,588 4,557,348 - The Corporation 8,250,974 6,731,359 14,583,562 11,288,707 Additionally, the Corporation has mandates from clients to manage their debt portfolios. At the year end the debt portfolios under management were: 31,039,071 25,357,007
- 82 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
25. CONTINGENT LIABILITIES AND COMMITMENTS a. During the year, the Corporation provided short term liquidity facilities to approved client authorities. These facilities are offered on a revolving basis. At the year end, the total facilities were $5,808.50 million (2009: $5,325.50 million) and undrawn commitments were $5,591.22 million (2009: $4,498.42 million). Drawn commitments are recognised as loans to government clients on the balance sheet. b. The Corporation has issued unconditional payment undertakings on behalf of some New South Wales public sector clients to pay to the system operator, The Australian Energy Market Operator (AEMO) on demand in writing any amount up to an aggregate maximum agreed with individual participants. At balance date, the amounts of these undertakings were as follows:
2010 2009 $ million $ million Market participants National Electricity Market (NEM) 739.20 480.20 Short Term Trading Market (STTM) 12.80 2.00 752.00 482.20
The Corporation has also issued undertakings on behalf of other New South Wales public sector clients in respect of those clients’ performance under contracts with third parties. At balance date, the amounts of these undertakings totalled $86.78 million (2009: $173.22 million).
Amounts paid under these undertakings are recoverable from the New South Wales public sector agency participants. This financial accommodation is New South Wales Government guaranteed. c. The Corporation has a commitment totalling $650.00 million (2009: $650.00 million) to provide motor vehicle finance to the New South Wales Government. As at year end, the undrawn commitments under these commitments are $107.28 million (2009: $97.86 million). Drawn commitments are recognised as loans to government clients on the balance sheet.
26. RELATED PARTIES
KEY MANAGEMENT PERSONNEL
Key management personnel include the directors and executives with the authority and responsibility for managing the consolidated entity. Compensation for key management personnel is disclosed in note 4.
Where certain of the Corporation’s key management personnel are also considered to be key management personnel of entities with whom the Corporation transacts, those transactions are conducted on an arms length basis, under the Corporation’s normal commercial terms and conditions.
CONSOLIDATED GROUP
The consolidated group consists of the Corporation, its wholly owned subsidiary, TCorp Nominees Pty Limited and the special purpose service entity, Treasury Corporation Division of the Government Service.
- 83 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
26. RELATED PARTIES (Continued)
TCorp Nominees Pty Limited is incorporated in New South Wales and all ongoing costs of incorporation and audit are borne by the Corporation. Details in relation to TCorp Nominees Pty Limited are:
2010 & 2009 Class of shares held Ordinary Interest held 100% Amount of investment $2 Dividends received or receivable Nil Contribution to profit Nil Principal activity Security Trustee
There were no material transactions with or balances between TCorp Nominees Pty Limited and the Corporation or external parties.
From 17 March 2006, all employees of the Corporation (and concomitantly, legal responsibility to pay employee benefits including on-costs and taxes) and related administrative services were transferred from the Corporation to the Treasury Corporation Division of the Government Service in accordance with the Public Sector Employment Legislation Amendment Act 2006. This legal change has no financial effect on the financial performance or position of the Corporation or the consolidated entity as the Corporation fully reimburses the Treasury Corporation Division of the Government Service for all employee-related costs and services. The Treasury Corporation Division is a not-for-profit entity.
In the financial report of the Corporation, on-going obligations to provide employee benefits are shown as amounts due to service entity under the heading Other Liabilities and Provisions in the balance sheet. Staff costs incurred from 17 March 2006 are classified as personnel services costs in the statement of comprehensive income. There are no material impacts on the financial results or position of the consolidated entity.
OTHER STATUTORY RELATIONSHIPS
The Corporation is a statutory authority established under the Treasury Corporation Act 1983. Dividends payable by the Corporation are determined by the New South Wales Treasurer in accordance with the Public Finance and Audit Act 1983. The financial results of the Corporation are consolidated annually in the New South Wales Report on State Finances.
The Public Authorities (Financial Arrangements) Act 1987 requires New South Wales government authorities to borrow only from the Corporation unless a specific exemption is granted by the New South Wales Treasurer.
OTHER NSW GOVERNMENT ENTITIES
Under the Treasury Corporation Act 1983 the Corporation’s principal objective is to provide financial services for, or for the benefit of, the New South Wales government, public authorities and other public bodies. More specifically, the Corporation may engage in the following activities in relation to New South Wales government and New South Wales public authorities:
• The provision of finance; • The management or advice on management of assets and liabilities; • The acceptance of funds for investment.
- 84 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
All clients of the Corporation are New South Wales government entities. The Corporation transacts with its clients under the Corporation’s normal terms and conditions.
27. SEGMENT INFORMATION
The Corporation has a single reportable operating segment. As the central financing authority for the New South Wales government, the entity operates solely within the capital markets, banking and finance industry to provide financial services to the New South Wales Public Sector.
The Corporation’s major customer is the New South Wales government and all its agencies, which are considered to be under common control. Interest income (expense) received from (paid to) government clients are disclosed in notes 2 and 3. Revenues received from government clients in the form of fees and commissions are disclosed in note 4.
Given the nature of its core functions and the legislative intent, the Corporation operates within Australia, apart from a proportion of funding raised offshore. As such, no geographic location segment reporting is presented within these financial statements.
28. CASH FLOW STATEMENT – RECONCILIATION OF CASH AND LIQUID ASSETS
Cash and liquid assets as at the end of the year as shown in the Cash Flow Statement is reconciled to the related items in the balance sheet.
2010 2009 ’000 $’000 Cash and liquid assets (note 5) 484,568 233,128 Short term borrowings (note 11) (95,046) (397,024) Cash and cash equivalents 389,522 (163,896)
29. RECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES TO NET PROFIT
2010 2009 $’000 $’000 Net cash used in operating activities (5,279,344) (6,565,960) Add/(less) adjustments arising from: - net loans to clients 5,503,939 6,388,637 - net change in coupons accrued at each year end on financial assets and 4,610 207,260 liabilities - net change in other assets 167 13,503 - net change in other liabilities and provisions, excluding dividend (3,475) 987 225,897 44,427 Add/(less) amounts contributing to net profit but not generating
operating cash flows: - actuarial loss on defined benefit plans 61 226 - (loss)/gain on disposal of plant and equipment (236) 72 - (loss) on sale of financial instruments (53,379) (471,875) - fair value (loss)/gain (unrealised) (120,484) 553,936 - depreciation and amortisation (3,045) (2,695) Profit for the year 48,814 124,091
- 85 - NEW SOUTH WALES TREASURY CORPORATION NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
30. AUTHORISATION DATE
This financial report was authorised for issue in accordance with a resolution of the directors of New South Wales Treasury Corporation on 27 August 2010.
- End of Audited Financial Report -
- 86 - NEW SOUTH WALES TREASURY CORPORATION
Certificate under Section 41C(1B) and 41C(1C) of the Public Finance and Audit Act 1983 and Clause 11 of the Public Finance and Audit Regulation 2005.
In the opinion of the directors of New South Wales Treasury Corporation:
(a) the financial report and consolidated financial report have been prepared in accordance with the provisions of the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2005 and the Treasurer’s Directions. They have also been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. (b) the financial report and consolidated financial report for the year ended 30 June 2010 exhibit a true and fair view of the position and transactions of New South Wales Treasury Corporation and its controlled entities; and the directors are not aware of any circumstances as at the date of this certificate which would render any particulars included in the financial report and consolidated financial report misleading or inaccurate.
Signed in accordance with a resolution of the Board of Directors:
M A Schur S W Knight Director Director
Sydney, 27 August 2010
- 87 - NEW SOUTH WALES TREASURY CORPORATION
GPO Box 12 Sydney NSW 2001
INDEPENDENT AUDITOR’S REPORT
New South Wales Treasury Corporate and controlled entities
To Members of the New South Wales Parliament
I have audited the accompanying financial statements of New South Wales Treasury Corporation (TCorp), which comprises the statements of comprehensive income, the balance sheets as at 30 June 2010, the statements of changes in equity and cash flow statements for the year then ended, a summary of significant accounting policies and other explanatory notes for both TCorp and the consolidated entity. The consolidated entity comprises TCorp and the entities it controlled at the year’s end or from time to time during the financial year.
Auditor’s Opinion
In my opinion, the financial statements:
. present fairly, in all material respects the financial position of TCorp and the consolidated entity as at 30 June 2010, and of their financial performance for the year then ended in accordance with Australian Accounting Standards (including the Australian Accounting interpretations) . are in accordance with section 41B of the Public Finance and Audit Act 1983 (the PF&A Act) and the Public Finance and Audit Regulation 2010 . comply with International Financial Reporting Standards as disclosed in Note 1a.
My opinion should be read in conjunction with the rest of this report.
Board’s Responsibility for the Financial Report
The members of the Board are responsible for the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) and the PF&A Act. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1a, the Board members also state, in accordance with Accounting Standard AASB 101 ‘Presentation of Financial Statements’ that the financial statements comply with International Financial Reporting Standards.
Auditor’s Responsibility
My responsibility is to express an opinion on the financial statements based on my audit. I conducted my audit in accordance with Australian Auditing Standards. These Auditing Standards require that I comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures - 88 - NEW SOUTH WALES TREASURY CORPORATION that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by members of the Board, as well as evaluation the overall presentation of the financial statements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
My opinion does not provide assurance:
. about the future viability of TCorp or the consolidated entity . that they have carried out their activities effectively, efficiently and economically . about the effectiveness of their internal controls.
Independence
In conducting this audit, the Audit Office of New South Wales has complied with the independence requirements of the Australian Auditing Standards and other relevant ethical requirements. The PF&A Act further promotes independence by:
. providing that only Parliament, and not the executive government, can remove an Auditor- General, and . mandating the Auditor-General as auditor of public sector agencies but precluding the provision on non-audit services, thus ensuring the Auditor-General and the Audit Office of New South Wales are not compromised in their role by the possibility of losing clients or income.
Peter Achterstraat Auditor-General
3 September 2010 SYDNEY
- 89 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
Notes 2010 2009 $’000 $’000 INCOME Personnel services income 5 17,453 15,322 Total income 17,453 15,322
EXPENSES Staff costs 2 (17,392) (15,096) Total expenses (17,392) (15,096) SURPLUS FOR THE YEAR 61 226
OTHER COMPREHENSIVE INCOME/(LOSS) Actuarial gain/(loss) on defined benefit plans 7 (61) (226) Other comprehensive income/(loss) for the year (61) (226) TOTAL COMPREHENSIVE INCOME FOR THE YEAR NIL NIL
The accompanying notes form part of these financial statements.
- 90 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE BALANCE SHEET AS AT 30 JUNE 2010
Notes 2010 2009 $’000 $’000 CURRENT ASSETS Amounts receivable from parent entity 5 4,662 4,374 Other assets 3 199 194 Total current assets 4,861 4,568
CURRENT LIABILITIES Payables 30 43 Employee benefit provisions 4 4,831 4,525 Total current liabilities 4,861 4,568 Net assets NIL NIL
EQUITY Retained Surplus NIL NIL Total equity NIL NIL
The accompanying notes form part of these financial statements.
- 91 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 30 JUNE 2010
Notes 2010 2009 $’000 $’000
Total equity at the beginning of the year NIL NIL Surplus for the year 61 226 Other comprehensive income/(loss) (61) (226) TOTAL COMPREHENSIVE INCOME FOR THE YEAR NIL NIL
Total equity at year end NIL NIL
The accompanying notes form part of these financial statements.
- 92 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2010
Notes 2010 2009 $’000 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Net cash flows provided by operating activities 5 NIL NIL
Cash at the beginning of the year NIL NIL CASH AT THE END OF THE YEAR NIL NIL
The accompanying notes form part of these financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Reporting entity
Treasury Corporation Division (‘the Division’) is a Division of the New South Wales Government Service, established pursuant to Part 2 of Schedule 1 to the Public Sector Employment and Management Act 2002. It is a not-for-profit entity as profit is not its principal objective. The Division is consolidated as part of the NSW Total State Sector Accounts. It is domiciled in Australia and its principal office is at Level 22, Governor Phillip Tower, 1 Farrer Place, Sydney, NSW, 2000.
The Division’s objective is to provide personnel services to New South Wales Treasury Corporation.
The Division commenced operations on 17 March 2006 when it assumed responsibility for the employees, employee-related liabilities and related administrative services of New South Wales Treasury Corporation.
The financial report was authorised for issue by S W Knight the Division Head on 25 August 2010.
(b) Basis of preparation
The Division is deemed to be a reporting entity in accordance with NSW Treasury Circular NSW TC 06/13 Financial Reporting and Annual Reporting Requirements Arising from Employment Arrangements.
These are general purpose financial statements which are prepared in accordance with the requirements of Australian Accounting Standards, the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010, and specific directions issued by the Treasurer.
Generally, the historical cost basis of accounting has been adopted and the financial statements do not take into account changing money values or current valuations except for certain assets and provisions which are measured at fair value (see notes 3 and 4). Cost is based on the fair values of the consideration given in exchange for assets.
The accrual basis of accounting has been adopted in the preparation of the financial statements, except for cash flow information.
Standards affecting presentation and disclosure
The following new and revised Standards have been adopted in the current period and have affected the presentation and disclosure in these financial statements.
- 93 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
New and revised Standard Impact on financial statements AASB 101 Presentation of Financial Statements (as AASB 101 (September 2007) has introduced revised in September 2007), AASB 2007-8 terminology changes (including revised titles Amendments to Australian Accounting Standards for the financial statements) and changes in the arising from AASB 101 and AASB 2007-10 Further format and content of the financial statements. Amendments to Australian Accounting Standards arising from AASB 101, and AASB 2009-6 Amendments to Australian Accounting Standards and Erratum General Terminology Changes
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective.
Standard/Interpretation Effective for annual Expected to be initially reporting periods applied in the financial beginning on or after year ending AASB 2009-5 Further Amendments to 1 January 2010 30 June 2011 Australian Accounting Standards arising from the Annual Improvements Project AASB 2009-14 Amendments to Australian 1 January 2011 30 June 2012 Interpretation – Prepayments of a Minimum Funding Requirement AASB 124 Related Party Disclosures 1 January 2011 30 June 2012 (revised December 2009) AASB 2009-12 Amendments to Australian 1 January 2011 30 June 2012 Accounting Standards
When applied, these standards will impact only on the presentation of the financial statements and disclosures in the notes.
Management’s judgements, key assumptions and estimates are disclosed in the relevant notes to the financial statements. All amounts are rounded to the nearest one thousand dollars and are expressed in Australian dollars.
(c) Comparative information
Accounting policies and presentation adopted in these financial statements are consistent with the previous year. Comparative information has been reclassified, where necessary, to be consistent with the current year.
(d) Income
Income is measured at the fair value of the consideration received or receivable. Revenue from the rendering of personnel services is recognised when the service is provided and only to the extent that the associated recoverable expenses are recognised.
- 94 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
(e) Receivables
A receivable is recognised when it is probable that the future cash inflows associated with it will be realised and it has a value that can be measured reliably. It is derecognised when the contractual or other rights to future cash flows from it expire or are transferred.
(f) Payables
Payables include creditors and accrued wages, salaries, and related on costs (such as fringe benefits tax and workers’ compensation insurance) where there is certainty as to the amount and timing of settlement.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A payable is recognised when a present obligation arises under a contract or otherwise. It is derecognised when the obligation expires or is discharged, cancelled or substituted.
A short-term payable with no stated interest rate is measured at historical cost if the effect of discounting is immaterial.
(g) Employee benefit provisions and expenses
Provisions are recognised when the Division has a present obligation (legal or constructive) as a result of a past event, it is probable that the Division will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Employee benefit provisions represent expected amounts payable in the future in respect of unused entitlements accumulated as at the reporting date and associated liabilities (such as payroll tax).
Superannuation liabilities associated with defined benefit schemes and leave liabilities are recognised as expenses and provisions when the obligations arise, which is usually through the rendering of service by employees.
Superannuation is actuarially assessed prior to each reporting date and is measured at the present value of the estimated future payments.
All other employee benefit liabilities are assessed by management and are measured at the undiscounted amount of the estimated future payments.
The amount recognised for superannuation is the net total of the present value of the defined benefit obligation at the reporting date, minus the fair value at that date of any plan assets out of which the obligations are to be settled directly.
The amount recognised in the statement of comprehensive income for superannuation is the net total of current service cost, interest cost and the expected return on any plan assets. Actuarial gains or losses are recognised immediately as ‘other comprehensive income’ in the year in which they occur.
The actuarial assessment of superannuation uses the Projected Unit Credit Method and reflects estimated future salary increases and the benefits set out in the terms of the plan. The liabilities are discounted using the market yield rate on government bonds of similar maturity to those obligations.
- 95 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
Actuarial assumptions are unbiased and mutually compatible and financial assumptions are based on market expectations for the period over which the obligations are to be settled.
(h) Tax Equivalents
The Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 exempts the Division, as a controlled entity of New South Wales Treasury Corporation (refer note 5), from liability for Commonwealth income tax.
Since the Division is legally established as a Division of the New South Wales Government Service (refer note 1 (a)), it is not subject to tax equivalents payments to the New South Wales Government.
2. STAFF COSTS
2010 2009 $’000 $’000 Staff costs for the period include: Remuneration costs 15,186 13,291 Defined contribution superannuation 912 755 Defined benefit superannuation (note 7) (14) (14) Other 1,308 1,064 17,392 15,096
3. OTHER ASSETS
2010 2009 $’000 $’000 Prepaid superannuation (note 7) 146 144 Other 53 50 199 194
4. EMPLOYEE BENEFIT PROVISIONS
2010 2009 $’000 $’000 Opening Balance 4,525 4,175 Increase in provisions (net) 4,813 4,217 Payments (4,507) (3,867) 4,831 4,525
5. RELATED PARTIES
Controlling Entity & Economic Dependency
- 96 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
New South Wales Treasury Corporation is deemed to control the Treasury Corporation Division in accordance with Treasury Circular NSW TC 06/13. The controlling entity is incorporated under the Treasury Corporation Act 1983 of the New South Wales Parliament.
Transactions and balances in this financial report relate only to the Division’s function as provider of personnel services to the controlling entity.
The Division’s total income is sourced from the New South Wales Treasury Corporation. Cash receipts and payments are affected by the New South Wales Treasury Corporation on the Division’s behalf.
New South Wales Treasury Corporation guarantees payment of all the Division’s liabilities.
6. AUDITORS REMUNERATION
Auditor’s remuneration for the review of this financial report is borne by the controlling entity. The applicable audit fee amounted to $6,400 (2009: $6,200).
7. SUPERANNUATION
As per note 1(a), superannuation obligations were transferred from New South Wales Treasury Corporation to the Division on 17 March 2006.
Any unfunded superannuation liabilities arising from defined benefit schemes for employees are recognised as a liability and included in employee benefit provisions in note 4. Amounts representing prepaid superannuation contributions are recognised as an asset and included in note 3. Actuarial gains and losses are recognised as other comprehensive income in the ‘statement of comprehensive income’ in the year they occur.
The funds below hold in trust the investments of the closed New South Wales public sector superannuation schemes:
. State Authorities Superannuation Scheme (SASS) . State Superannuation Scheme (SSS) . State Authorities Non-contributory Superannuation Scheme (SANCS)
These funds are all defined benefit schemes, where at least a component of the employee’s final benefit is derived from a multiple of member salary and years of membership. All schemes are closed to new members.
All fund assets are invested at arms length. Payments may be made to Pillar Administration to reduce the superannuation liability. These payments are held in investment reserve accounts by Pillar Administration.
The 2010 actuarial assessment of SASS, SANCS and SSS was based on the requirements of Australian Accounting Standard AASB 119 Employee Benefits. This required that a market determined risk- adjusted discount rate be applied as a valuation interest rate in the calculation of the value of accrued benefits. To satisfy the AASB 119 requirements, the following principal actuarial assumptions were applied at the report date.
- 97 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
2010 2009 %pa %pa Discount Rate at 30 June(1) 5.17 5.59 Expected return on assets backing current pension liabilities 8.6 8.1 Expected salary increases - to next financial year 3.5 3.5 - thereafter 3.5 3.5 Expected rate of CPI Increase 2.5 2.5
(1In accordance with AASB 119 this rate reflects market yields of government bonds at balance date.
Actual return on fund assets 2010 2009 $’000 $’000 Actual return on fund assets 144 (150) 144 (150)
The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each class. The returns used for each class are net of investment tax and investment fees.
Fund assets 2010 2009 % % Australian equities 31.0 32.1 Overseas equities 26.8 26.0 Australian fixed interest securities 6.1 6.2 Overseas fixed interest securities 4.3 4.7 Property 9.5 10.0 Cash 9.6 8.0 Other 12.7 13.0
Funding arrangements for Employer Contributions
The following is a summary of the financial position of the Funds calculated in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’:
(Surplus)/deficit 2010 2009 $’000 $’000 Accrued benefits 1,338 1,200 Net market value of fund assets (1,777) (1,570) Net surplus (439) (370)
Contribution recommendations Method 2010 2009 SASS Multiple of member contributions 0.00 0.00 SANCS % Member Salary 0.00% 0.00% SSS Multiple of member contributions 0.00 0.00
- 98 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
7. SUPERANNUATION (Continued)
Funding method
The method used to determine the employer contribution recommendations in the 2009 triennial actuarial review was the Aggregate Funding method. The method adopted affects the timing of the cost to the employer.
Under the Aggregate Funding method, the employer contribution rate is determined so that sufficient assets will be available to meet the benefit payments to existing members, taking into account the current value of assets and future contributions.
Weighted-average assumptions 2010 2009 % % Expected rate of return on Fund assets backing current pension liabilities 8.3 8.3 Expected rate of return on Fund assets backing other liabilities 7.3 7.3 Expected salary increase rate 4.0 4.0 Expected rate of CPI increase 2.5 2.5
The AAS 25 surplus will be higher than the AASB 119 net defined benefit asset recognised in the balance sheet, because the expected after tax rate of return on the plan assets is typically higher than the long-term government bond rate.
Components recognised in the Statement of Comprehensive Income 2010 2009 $’000 $’000 Current service cost 41 36 Interest on obligation 78 76 Expected return on fund assets (133) (126) Total (14) (14)
The charge for the year is included in staff costs in the statement of comprehensive income.
Net asset recognised in the balance sheet Total Total Total Total Total 2010 2009 2008 2007 2006 $’000 $’000 $’000 $’000 $’000 Fair value of fund assets at the beginning of the year 1,569 1,586 1,684 1,461 1,231 Expected return on fund assets 133 126 131 111 94 Actuarial gains/(losses) 32 (251) (221) 117 113 Employer contributions 49 132 - - 14 Employee contributions 17 16 16 15 14 Benefits paid (23) (40) (24) (20) (5) Fair value of fund assets at the end of the year 1,777 1,569 1,586 1,684 1,461 Present value of partly funded defined benefit (1,631) (1,425) (1,200) (1,143) (1,077) obligations at the end of the year Adjustment for limitation on net asset - - (161) (311) (134) Net asset recognised in balance sheet at the end of the 146 144 225 230 250 year Experience adjustments – Fund liabilities 92 137 (40) (26) (68) Experience adjustments – Fund assets (31) 251 221 (118) (113)
- 99 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
7. SUPERANNUATION (Continued)
Amounts recognised in the statement of comprehensive income 2010 2009 $’000 $’000 Actuarial losses incurred during the year and recognised in the statement of 61 388 comprehensive income Adjustments recognised in the statement of comprehensive income for restrictions on - (162) the defined benefit asset Actuarial loss for the year as per the statement of comprehensive income 61 226 Cumulative actuarial losses recognised in the statement of comprehensive income 305 244
- End of Audited Financial Report -
- 100 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE FOR THE YEAR ENDED 30 JUNE 2010
Certificate under Section 41C(1B) and 41C(1C) of the Public Finance and
Audit Act, 1983 and Clause 11 of the Public Finance and
Audit Regulation, 2010.
In the opinion of the Division Head of Treasury Corporation Division of the Government Service.
(a) the financial report has been prepared in a form for consolidation in accordance with the provisions of the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010 and the Treasurer’s Directions. It has also been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standard Board; (b) the financial report for the year ended 30 June 2010 exhibits a true and fair view of the financial position and transactions of Treasury Corporation Division of the Government Service; and (c) I am not aware, as at the date of this Certificate, of any circumstances which would render any particulars included in the financial report to be misleading or inaccurate.
S W Knight Division Head
25 August 2010 Sydney
- 101 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE FOR THE YEAR ENDED 30 JUNE 2010
GPO Box 12 Sydney NSW 2001
INDEPENDENT AUDITOR’S REPORT
Treasury Corporation Division of the Government Service
To Members of the New South Wales Parliament
I have audited the accompanying financial statements of New South Wales Treasury Corporation Division of the Government Service (the Division), which comprises the statements of comprehensive income, the balance sheets as at 30 June 2010, statements of changes in equity and cash flow statements for the year then ended, a summary of significant accounting policies and other explanatory notes.
Auditor’s Opinion
In my opinion, the financial statements:
. present fairly, in all material respects the financial position of the Division as at 30 June 2010, and its financial performance for the year then ended in accordance with Australian Accounting Standards (including the Australian Accounting interpretations) . are in accordance with section 41B of the Public Finance and Audit Act 1983 (the PF&A Act) and the Public Finance and Audit Regulation 2010
My opinion should be read in conjunction with the rest of this report.
Chief Executive’s Responsibility for the Financial Statements
The Chief Executive of New South Wales Treasury Corporation is responsible for the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) and the PF&A Act. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
My responsibility is to express an opinion on the financial statements based on my audit. I conducted my audit in accordance with Australian Auditing Standards. These Auditing Standards require that I comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial staetments, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Division’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Division’s internal controls. An audit also includes evaluating the
- 102 - TREASURY CORPORATION DIVISION OF THE GOVERNMENT SERVICE FOR THE YEAR ENDED 30 JUNE 2010
appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Chief Executive, as well as evaluation the overall presentation of the financial statements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
My opinion does not provide assurance:
. about the future viability of the Division . that they have carried out their activities effectively, efficiently and economically . about the effectiveness of their internal controls. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Independence
In conducting this audit, the Audit Office of New South Wales has complied with the independence requirements of the Australian Auditing Standards and other relevant ethical requirements. The PF&A Act further promotes independence by:
. providing that only Parliament, and not the executive government, can remove an Auditor- General, and . mandating the Auditor-General as auditor of public sector agencies but precluding the provision on non-audit services, thus ensuring the Auditor-General and the Audit Office of New South Wales are not compromised in their role by the possibility of losing clients or income.
Steven Martin Director, Financial Audit Services
1 September 2010 SYDNEY
- 103 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
Notes 2009 2008 $ $
Income NIL NIL
Income tax equivalent expense NIL NIL
Profit for the year NIL NIL
Other comprehensive income NIL NIL
Total comprehensive income for the year NIL NIL
The accompanying notes form part of these financial statements.
- 104 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 BALANCE SHEET AS AT 30 JUNE 2010
Note 2010 2009 $ $ ASSETS Cash 2 2 TOTAL ASSETS 2 2
TOTAL LIABILITIES NIL NIL NET ASSETS 2 2
EQUITY Contributed equity 2 2 2 Retained profits NIL NIL Total Equity 2 2
The accompanying notes form part of these financial statements.
- 105 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010
Notes 2010 2009 $ $
Total equity at beginning of the year 2 2
Profit for the year NIL NIL
Other comprehensive income NIL NIL
Total comprehensive income for the year NIL NIL
TOTAL EQUITY AT THE END OF THE YEAR 2 2 2
The accompanying notes form part of these financial statements.
- 106 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2010
2010 2009 $ $ CASH INFLOWS/(OUTFLOWS) FROM OPERATING ACTIVITIES Net cash flows from operating activities NIL NIL CASH INFLOWS/(OUTFLOWS) FROM INVESTING ACTIVITIES Purchase of trust units (10) NIL Redemption of trust units 10 NIL Net cash flows from investing activities NIL NIL CASH INFLOWS/(OUTFLOWS) FROM FINANCING ACTIVITIES Proceeds from issuance of loans 10 NIL Repayment of loans (10) NIL Net cash flows from financing activities NIL NIL
NET INCREASE IN CASH HELD NIL NIL Cash at the beginning of the year 2 2 CASH AT THE END OF THE YEAR 2 2
The accompanying notes form part of these financial statements.
- 107 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation
These general purpose financial statements have been prepared in accordance with Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board, and comply with other requirements of the law.
Australian Accounting Standards include Australian Equivalents to International Financial Reporting Standards (IFRS). Compliance with Australian Equivalents to IFRS ensures this financial report complies with IFRS.
The financial statements also have regard to the requirements of the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010 and the Treasurer’s Directions as the parent entity is required to report in accordance with provisions contained within that New South Wales legislation.
Standards affecting presentation and disclosure
The following new and revised Standards have been adopted in the current period and have affected the presentation and disclosure in these financial statements.
AASB 101 Presentation of Financial Statements (as AASB 101 (September 2007) has introduced revised in September 2007), AASB 2007-8 terminology changes (including revised titles for the Amendments to Australian Accounting Standards financial statements) and changes in the format and arising from AASB 101 and AASB 2007-10 Further content of the financial statements. Amendments to Australian Accounting Standards arising from AASB 101, and AASB 2009-6 Amendments to Australian Accounting Standards and Erratum General Terminology Changes
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective.
Standard/Interpretation Effective for annual Expected to be reporting periods beginning initially applied in on or after the financial year ending AASB 2009-5 Further Amendments to Australian 1 January 2010 30 June 2011 Accounting Standards arising from the Annual Improvements Project AASB 2009-14 Amendments to Australian 1 January 2011 30 June 2012 Interpretation – Prepayments of a Minimum Funding Requirement AASB 124 Related Party Disclosures (revised 1 January 2011 30 June 2012 December 2009) AASB 2009-12 Amendments to Australian 1 January 2011 30 June 2012 Accounting Standards
- 108 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
When applied, all of these standards will impact only on the presentation of the financial statements and disclosures in the notes.
The financial statements are prepared using the accrual basis of accounting. Financial assets and financial liabilities are stated on a fair value basis of measurement unless otherwise indicated. Other assets and liabilities are stated on an historical cost basis of measurement.
Management’s judgements, key assumptions and estimates are disclosed in the relevant notes to the financial statements.
(b) Company Information and activities
TCorp Nominees Pty Ltd (the company) is a company registered under the Corporations Act 2001 and incorporated in New South Wales, Australia. The address of its registered office is:
Level 22 Governor Phillip Tower 1 Farrer Place SYDNEY NSW 2000
During the year the parent entity, New South Wales Treasury Corporation (refer note 6), lent the company an amount of $10. These funds were used to apply for 10 units ($1 per unit) in the Hour-Glass Emerging Markets Shares Sector Trust as a settlement amount prior to investment by clients. The units were redeemed for $10 in the same year after the initial investment by clients, and the loan to the parent was repaid.
There were no other transactions undertaken by the company with any other party, including related parties, during the reporting period or the previous period. All ongoing costs of incorporation and audit are borne by the parent entity.
The company acts as a security trustee in relation to financing of a hospital for which the parent entity has advanced funds. As a security trustee, the company holds rights under a number of mortgages and charges on trust for the parent entity. Should the company take enforcement action against the security providers under the transaction, any moneys realised are to be paid to the parent entity. The company’s actions as security trustee are supported by indemnities from the parent entity for losses incurred in connection with this role. As at 30 June 2010, the amount outstanding under the lending arrangements was approximately $14.2 million (2009: $16.8 million). At the date of this report, the company has not taken any enforcement action under the security held, nor are there any issues pending that would likely require such action to be taken in the future.
(c) Income Tax
The Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997 exempts the company and its parent entity from liability for Commonwealth Income Tax. The parent entity is subject to a tax equivalent payment to the New South Wales Government on its consolidated results.
- 109 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
(d) Cash
Cash comprises cash on hand.
(e) Presentation
The financial report is presented in Australian dollars and amounts are rounded off to the nearest dollar.
Comparative information has been restated where necessary to be presented on a consistent basis to the current year information.
2. CONTRIBUTED EQUITY
2010 2009 $ $ 2 Ordinary shares issued and fully paid 2 2
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held.
3. DIVIDENDS
The directors recommend that no dividend be paid in respect of the current year. No dividend has previously been declared or paid.
4. REMUNERATION OF AUDITORS
Fees for services rendered to the company by the auditors are borne by the parent entity (note 6). The audit fee applicable to this company amounted to $3,600 (2009: $3,600).
5. KEY MANAGEMENT PERSONNEL
The key management personnel of the company during the year were the directors. The company has no employees.
The names of each person who were directors of the company at any time during the financial year are as follows:
Stephen William Knight Scott Patrick Mannix Paul Anthony Smith
The directors of the company did not receive any remuneration from the company or any related entity in relation to the management of the company.
- 110 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
6. RELATED PARTIES
Parent entity
TCorp Nominees Pty Limited is a wholly-owned controlled entity of the parent entity, New South Wales Treasury Corporation. The parent entity was incorporated under the Treasury Corporation Act 1983 of the New South Wales Parliament.
7. SUBSEQUENT EVENTS
No matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect:
a) the company’s operations in future years; or b) the results of those operations in future years; or c) the company’s state of affairs in future years.
8. AUTHORISATION DATE
This financial report was authorised for issue in accordance with a resolution of the directors of TCorp Nominees Pty Limited on 25th August 2010.
- End of Audited Financial Report -
- 111 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162
Certificate under Section 41C (1B) and 41C (1C) of the Public Finance and Audit Act 1983 and Clause 11 of the Public Finance and Audit Regulation 2010.
In the opinion of the Directors of TCorp Nominees Pty Limited:
a. the financial statements have been prepared in accordance with the provisions of the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010 and the Treasurer’s Directions. They have also been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standard Board; b. the financial statements for the year ended 30 June 2010 exhibit a true and fair view of the financial position and transactions of TCorp Nominees Pty Limited; and c. The Directors are not aware, as at the date of this Certificate, of any circumstances which would render any particulars included in the financial statements to be misleading or inaccurate.
Signed in accordance with a resolution of the Board of Directors:
S W Knight P A Smith Director Director
25 August 2010 Sydney
- 112 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162
GPO Box 12 Sydney NSW 2001
INDEPENDENT AUDITOR’S REPORT
TCorp Nominees Pty Ltd
To Members of the New South Wales Parliament
I have audited the accompanying financial statements of TCorp Nominees Pty Limited, which comprises the statements of comprehensive income, the balance sheets as at 30 June 2010, statements of changes in equity and cash flow statements for the year then ended, a summary of significant accounting policies and other explanatory notes.
Auditor’s Opinion
In my opinion, the financial statements:
. present fairly, in all material respects the financial position of TCorp Nominees Pty Limited as at 30 June 2010, and its financial performance for the year then ended in accordance with Australian Accounting Standards (including the Australian Accounting interpretations) . are in accordance with section 41B of the Public Finance and Audit Act 1983 (the PF&A Act) and the Public Finance and Audit Regulation 2010
My opinion should be read in conjunction with the rest of this report.
Chief Executive’s Responsibility for the Financial Statements
The Chief Executive of New South Wales Treasury Corporation is responsible for the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) and the PF&A Act. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
My responsibility is to express an opinion on the financial statements based on my audit. I conducted my audit in accordance with Australian Auditing Standards. These Auditing Standards require that I comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial staetments, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Division’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Chief Executive, as well as evaluation the overall presentation of the financial statements. - 113 - TCORP NOMINEES PTY LIMITED A.B.N. 81 003 747 162
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
My opinion does not provide assurance:
. about the future viability of TCorp Nominees Pty Limited . that they have carried out their activities effectively, efficiently and economically . about the effectiveness of their internal controls. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Independence
In conducting this audit, the Audit Office of New South Wales has complied with the independence requirements of the Australian Auditing Standards and other relevant ethical requirements. The PF&A Act further promotes independence by:
. providing that only Parliament, and not the executive government, can remove an Auditor- General, and . mandating the Auditor-General as auditor of public sector agencies but precluding the provision on non-audit services, thus ensuring the Auditor-General and the Audit Office of New South Wales are not compromised in their role by the possibility of losing clients or income.
Steven Martin Director, Financial Audit Services
1 September 2010 SYDNEY
- 114 - NEW SOUTH WALES TREASURY CORPORATION
INDEX - LEGISLATIVE REQUIREMENTS Topic Reference* Page Access Section 9(1)(c) ARSBA, Schedule 1 ARSBR Inside covers After balance date events Clause 8(1) ARSBR 53 Aims and objectives Section 9(1)(b) ARBSBA, Schedule 1 ARSBR 1 Budget – current year and next year Section 7(1)(a)(iii) ARSBA, Clauses 7-8 ARSBR 52 Charter Section 9(1)(a) ARSBA, Schedule 1 ARSBR 1 Consultants PM 02-07, Schedule 1 ARSBR 47 Consumer response Schedule 1 ARBSR 49 Credit card certification TD 205.1 39 Disclosure of controlled entities Schedule 1 ARSBR 52 Economic and other factors Schedule 1 ARSBR 27 Electronic service delivery PM 00-12 48 Equal employment opportunity TC08/08, TC10/05, Schedule 1 ARSBR c20, 44 Exemptions Clause 19(4) ARSBR 47 Financial statements Section 7(1)(a)(i-ii) ARSBA 53 Form of annual reports Clause 16, ARSBR ii, 115 Freedom of Information Section 5A(2) ARSBA, Section 68 FOIA, S9 FOIR , 49 Appendix B FOIM Human resources Schedule 1 ARSBR 37 Identification of audited financial Clause 5 ARSBR 53 information Investment management performance Clause 12 ARSBR, TC 03/0 9 21 Internal audit and risk management TPP09-5, TC09/08 38 policy attestation Legal change Section 9(1)(f) ARSBA, Schedule 1 ARSBR 52 Letter of submission Section 9A ARSBA I Liability management performance Clause 13 ARSBR, TC 09/0 7 18 Management and activities Schedule 1 ARSBR 1, 4, 10 Management and structure Schedule 1 ARSBR 29, 42 Multicultural Policies & Services Program TC08/08, Schedule 1 ARSBR , c20 45 Occupational health and safety Schedule 1 ARSBR, c20 43 Payment of accounts TC 06/26 Schedule 1 ARSBR 51 Performance and numbers of executive ARSBR c11, 14 33 officers Printing requirements PC 2000-68, PM 2000-15 48 Production costs PM 98-4, TC 00/16, Clause 8(2)(C) ARSBR 48 Promotion Schedule 1 ARSBR 48 Risk management and insurance Schedule 1 ARSBR 35, 36 activities Summary review of operations Section 9(1)(e) ARSBA, Schedule 1 ARSBR 4 Time for payment of accounts TC 06/26, Schedule 1 ARSBR 51 Unaudited financial information Clause 9 ARSBR 53 distinguished Waste TC08/08, ARSBR c19A 50
* Key to Legislative Reference Codes ARSBA Annual Reports (Statutory Bodies) Act, 1984 ARSBR Annual Reports (Statutory Bodies) Regulation 2005 FOIA Freedom of Information Act, 1989 FOIM Freedom of Information Manual FOIR Freedom of Information Regulation 2005 PM Premier’s Memorandum TC Treasury Circular TD Treasurer’s Direction
- 115 - NEW SOUTH WALES TREASURY CORPORATION
INDEX – TOPIC ORDER Topic Page ADVISORY AND OTHER SERVICES 25 ANNUAL REPORT STATISTICS 44 ASSET MANAGEMENT 18 ATTENDANCE AT BOARD MEETINGS 31 AUDITOR INDEPENDENCE 37 BOARD OF DIRECTORS 32 BUDGET FOR THE YEARS ENDED 30 JUNE 2008 AND 30 JUNE 2009 52 CHAIRPERSON AND CHIEF EXECUTIVE’S REVIEW 4 CHARTER 1 CODE OF CONDUCT 37 CONSULTANTS 47 CONSUMER RESPONSE 49 CONTROLLED ENTITIES 52 CORPORATE GOVERNANCE 29 CORPORATE OBJECTIVES 1 CREDIT CARD CERTIFICATION 39 DEBT MANAGEMENT 17 ECONOMIC OVERVIEW 27 EQUAL EMPLOYMENT OPPORTUNITY 44 ELECTRONIC SERVICE DELIVERY 48 ETHNIC AFFAIRS PRIORITY STATEMENT 45 EXCEPTIONAL MOVEMENTS IN SALARIES 43 EXEMPTIONS FROM THE REPORTING PROVISIONS 47 FINANCIAL STATEMENTS 53 FREEDOM OF INFORMATION 49 HUMAN RESOURCES 37 INDUSTRIAL RELATIONS POLICIES 43 INSURANCE 36 INTERNAL AUDIT AND RISK MANAGEMENT STATEMENT 38 ISSUES RAISED BY THE AUDITOR 53 LATE PAYMENT INTEREST 51 LEGAL CHANGE 52 LOANS OUTSTANDING TO AUTHORITIES 12 MISSION STATEMENT 1 OCCUPATIONAL HEALTH AND SAFETY 43 REVIEW OF OPERATIONS 4, 10 ORGANISATIONAL STRUCTURE 42 OVERSEAS VISITS UNDERTAKEN 48 PAYMENT PERFORMANCE INDICATORS 51 PERFORMANCE INDICATORS – FIVE YEAR SUMMARY 9 PERFORMANCE REVIEWS 42 POST BALANCE DATE EVENTS 53 PROMOTION 48 RISK MANAGEMENT 35 SENIOR OFFICERS 41 STATEMENT OF CHIEF EXECUTIVE’S PERFORMANCE 39 TRAINING, DEVELOPMENT AND COMMUNICATION 42 WASTE REDUCTION AND PURCHASING POLICY 50
- 116 -
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