QTC Half-Yearly Report July-December 2014

Vision

Securing Queensland’s financial success

Mission

To deliver optimal financial outcomes through sound funding and financial risk management

Values

Client focus

We build strong partnerships with our clients to deliver simple and well-designed solutions that achieve quality outcomes for Queensland.

Team spirit

We work as one team taking joint responsibility for achieving our vision and collaborating to achieve outstanding performance.

Excellence

We aim for excellence using flexible and agile processes to continuously improve.

Respect

We show respect by recognising contributions, welcoming ideas, acting with honesty, being inclusive and embracing diversity.

Integrity

We inspire trust and confidence in our colleagues, clients, stakeholders and investors by upholding strong professional and ethical standards.

As the Queensland Government’s central financing authority, Queensland Treasury Corporation (QTC) plays a pivotal role in securing the State’s financial success.

With a focus on whole-of-State outcomes, QTC provides a range of financial services to the State and its public sector entities, including local governments. These services include debt funding and management, cash management facilities, financial risk management advisory services, and specialist public finance education.

Debt funding and management

QTC borrows funds in the domestic and global markets in the most cost-effective manner and in a way that minimises liquidity risk and refinancing risk. QTC achieves significant economies of scale and scope by issuing, managing and administering the State’s debt funding.

QTC works closely with Queensland’s public sector entities, including local governments, to assist them to effectively manage their financial transactions, minimise their financial risk and achieve the best financial solutions for their organisation and the State.

Cash management facilities

QTC assists the State’s public sector entities to make the best use of their surplus cash balances within a conservative risk management framework. It offers overnight and fixed-term facilities and a managed short-term fund.

Financial risk management advisory services

QTC offers a range of financial risk management advisory services to clients, including:

• support to ensure financial risks are identified and effectively managed
• advice on financial and commercial considerations
• expertise in financial transactions and structures
• project management support to deliver key fiscal outcomes, and
• collaboration with the financial markets and private sector institutions.

Specialist public finance education

QTC offers a range of education and training courses that complements its products and advisory services and allows it to share its specialist financial, commercial, treasury management and risk management expertise with clients. Courses are developed and delivered by QTC’s experienced professionals and industry experts.

Borrowing program

Following the release of the Queensland State Government’s Mid-Year Fiscal and Economic Review on 18 December 2014, QTC announced it would reduce its $13 billion indicative borrowing program for 2014-15 by $1 billion. This reduction was primarily the result of pre-funding undertaken in June 2014, after the borrowing program was released.

QTC will use its term debt facilities to raise $7 billion of the $12 billion borrowing program for 2014-15. As at 31 December 2014, QTC had raised $4.5 billion of this target, largely through public issuance, which has included syndicated taps and tenders and the launch of a new 2018 floating rate note.

AUD benchmark bonds will remain QTC’s principal source of funding for the remaining $2.5 billion of term debt before 30 June 2015, with other instruments, including floating rate notes, considered subject to investor preference, market conditions and clients’ funding requirements.

QTC will also maintain approximately $5 billion of short-term debt under its commercial paper and treasury-note programs.

Credit ratings

On 10 October, Standard & Poor’s affirmed Queensland’s and QTC’s credit rating at AA+/A-1+ with the outlook remaining stable, citing Australia’s strong institutional framework, Queensland’s strengthening economy, positive financial management and strong liquidity.

On 3 December, Moody’s Investors Service released its credit opinion for Queensland and QTC, with no change to the current Aa1/P1 credit rating and the negative outlook.

Operating profit

For the half-year ended 31 December 2014, QTC achieved an operating profit from its capital markets operations of $43.9 million (HY2013: $97.9 million). In addition to these capital markets activities, QTC’s long-term assets operations recorded a $44.9 million loss (HY2013: $446.0 million profit)*.

G P Bradley

Chairman

P C Noble

Chief Executive

* Under an administrative arrangement, QTC on behalf of the State receives returns from investments held to meet the State’s long-term obligations, primarily superannuation, which are managed by QIC Limited. In return, QTC has issued to the State fixed-rate notes at a current interest rate of 7.1%, which is the expected long-term average rate of return on the portfolio. This has resulted in the State receiving a fixed rate of return on the notes while QTC bears the impact of fluctuations in the value of and returns on the long-term asset portfolio. There is no cash flow effect; any losses incurred have no impact on QTC’s capital markets activities or its ability to meet its obligations.