EX-99.(C)(I) 2 c75905_ex99-ci.htm

Exhibit (c)(i)

 

NEW SOUTH WALES TREASURY CORPORATION
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2013

 

Statements of comprehensive income

 

        CONSOLIDATED     CORPORATION  
        2013     2012     2013     2012  
    Note   $’000     $’000     $’000     $’000  
Income from changes in fair value   2   4,970,893     8,174,991     4,970,893     8,174,991  
Less: Expenses from changes in fair value   3   (4,823,167 )   (8,076,666 )   (4,823,167 )   (8,076,666 )
Net income from changes in fair value       147,726     98,325     147,726     98,325  
Fees and commissions   4   24,340     22,057     24,340     22,057  
Total net revenue       172,066     120,382     172,066     120,382  
                             
Less: General administrative expenses                            
Staff costs       (23,901 )   (18,331 )   (1,902 )   (1,333 )
Personnel services costs               (21,673 )   (17,508 )
Financial services costs       (1,624 )   (1,681 )   (1,624 )   (1,681 )
Information technology costs       (8,088 )   (10,102 )   (8,088 )   (10,102 )
Premises and administration costs       (6,262 )   (6,265 )   (6,262 )   (6,265 )
Total general administrative expenses       (39,875 )   (36,379 )   (39,549 )   (36,889 )
Transaction issuance fees       (3,172 )   (4,501 )   (3,172 )   (4,501 )
Other transaction costs       (2,119 )   (2,351 )   (2,119 )   (2,351 )
Total transaction costs       (5,291 )   (6,852 )   (5,291 )   (6,852 )
Total general administrative and transaction costs   4   (45,166 )   (43,231 )   (44,840 )   (43,741 )
Profit before income tax equivalent expense       126,900     77,151     127,226     76,641  
Income tax equivalent expense   1(c)   (38,168 )   (22,992 )   (38,168 )   (22,992 )
Profit for the year       88,732     54,159     89,058     53,649  
                             
Other comprehensive income/(loss)                            
Items that will not be reclassified to profit or loss:                            
Actuarial gain/(loss) on defined benefit plans   4   326     (510 )        
Total comprehensive income for the year       89,058     53,649     89,058     53,649  

 

The accompanying notes form part of these financial statements.

55 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2013

 

Balance sheets

 

        CONSOLIDATED     CORPORATION  
        2013     2012     2013     2012  
    Note   $’000     $’000     $’000     $’000  
Assets                            
Cash and liquid assets   5   952,827     1,650,752     952,827     1,650,752  
Outstanding settlements receivable   1(e) 34,802         34,802      
Due from financial institutions   6   6,285,218     3,353,203     6,285,218     3,353,203  
Securities held   7   5,559,197     6,216,622     5,559,197     6,216,622  
Derivative financial instruments receivable   14   553,068     594,085     553,068     594,085  
Loans to government clients   8   59,330,677     58,406,519     59,330,677     58,406,519  
Other assets   9   15,202     26,653     14,983     26,589  
Plant and equipment   10   6,052     5,980     6,052     5,980  
Total assets       72,737,043     70,253,814     72,736,824     70,253,750  
                             
Liabilities                            
Due to financial institutions   11   4,240,775     6,639,725     4,240,775     6,639,725  
Outstanding settlements payable   1(e) 144,249     25,155     144,249     25,155  
Due to government clients   12   219,520     748,128     219,520     748,128  
Borrowings   13   67,337,267     61,968,874     67,337,267     61,968,874  
Derivative financial instruments payable   14   584,371     693,865     584,371     693,865  
Income tax equivalent payable       7,381     5,322     7,381     5,322  
Other liabilities and provisions   15   71,499     69,322     71,280     69,258  
Total liabilities       72,605,062     70,150,391     72,604,843     70,150,327  
                             
Net assets       131,981     103,423     131,981     103,423  
Represented by:                            
Equity                            
Retained earnings   18   131,981     103,423     131,981     103,423  
Total equity       131,981     103,423     131,981     103,423  

 

 The accompanying notes form part of these financial statements.

56 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2013

 

Statements of changes in equity

 

        CONSOLIDATED     CORPORATION  
        Retained     Total     Retained     Total  
        earnings     equity     earnings     equity  
    Note   $’000     $’000     $’000     $’000  
Total equity at 30 June 2011       100,274     100,274     100,274     100,274  
Profit for the year       54,159     54,159     53,649     53,649  
Other comprehensive loss   4   (510 )   (510 )        
Total comprehensive income for the year       53,649     53,649     53,649     53,649  
Dividend payable   15   (50,500 )   (50,500 )   (50,500 )   (50,500 )
Total equity at 30 June 2012   18   103,423     103,423     103,423     103,423  
Profit for the year       88,732     88,732     89,058     89,058  
Other comprehensive income   4   326     326          
Total comprehensive income for the year       89,058     89,058     89,058     89,058  
Dividend paid       (5,000 )   (5,000 )   (5,000 )   (5,000 )
Dividend payable   15   (55,500 )   (55,500 )   (55,500 )   (55,500 )
Total equity at 30 June 2013   18   131,981     131,981     131,981     131,981  

 

The accompanying notes form part of these financial statements.

57 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

Cash flow statements

 

        CONSOLIDATED     CORPORATION  
        2013     2012     2013     2012  
    Note   $’000     $’000     $’000     $’000  
Cash (outflows)/inflows from operating activities                            
Interest and other costs of finance received       3,611,774     3,636,256     3,611,774     3,636,256  
Interest and other costs of finance paid       (3,323,246 )   (3,520,270 )   (3,323,246 )   (3,520,270 )
Fees and commissions received       26,531     29,031     26,531     29,031  
Payments of tax equivalents       (36,109 )   (30,971 )   (36,109 )   (30,971 )
Payments of Goods and Services Tax       (890 )   (1,108 )   (890 )   (1,108 )
Payments of administrative expenses       (39,448 )   (42,176 )   (39,448 )   (42,176 )
Loans to government clients made       (8,206,831 )   (19,698,969 )   (8,206,831 )   (19,698,969 )
Loans to government clients repaid       5,777,372     15,330,253     5,777,372     15,330,253  
Net cash used in operating activities   29   (2,190,847 )   (4,297,954 )   (2,190,847 )   (4,297,954 )
                             
Cash outflows from investing activities                            
Purchases of plant and equipment and intangible assets       (4,085 )   (9,655 )   (4,085 )   (9,655 )
Net cash to securities held       (2,236,695 )   (447,643 )   (2,236,695 )   (447,643 )
Net cash used in investing activities       (2,240,780 )   (457,298 )   (2,240,780 )   (457,298 )
                             
Cash inflows/(outflows) from financing activities                            
Proceeds from issuance of borrowings and short term securities       61,595,580     52,251,192     61,595,580     52,251,192  
Repayment of borrowings and short term securities       (57,354,313 )   (46,357,824 )   (57,354,313 )   (46,357,824 )
Net cash outflows from the purchase and repayment of other short term financial instruments       (452,065 )   (409,174 )   (452,065 )   (409,174 )
Dividends paid       (55,500 )   (91,000 )   (55,500 )   (91,000 )
Net cash provided by financing activities       3,733,702     5,393,194     3,733,702     5,393,194  
                             
Net (decrease)/increase in cash held       (697,925 )   637,942     (697,925 )   637,942  
Cash and cash equivalents at the beginning of the year       1,650,752     1,012,810     1,650,752     1,012,810  
Cash and cash equivalents at the end of the year   28   952,827     1,650,752     952,827     1,650,752  

 

The accompanying notes form part of these financial statements.

58 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

Notes to the financial statements

 

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). This financial report, comprising the financial statements and accompanying notes for the consolidated entity and Corporation, complies with IFRS.
   
  Standards and Interpretations issued but not yet effective
   
  At the date of authorisation of the financial statements, the Standards and Interpretations listed below were issued but not yet effective.

 

  Standard/Interpretation   Effective for annual
reporting periods
beginning on or
after
  Expected to be
initially applied in
the financial year
ending
           
  AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13   1 January 2013   30 June 2014
           
  AASB 127 (2011) Separate Financial Statements   1 January 2013   30 June 2014
           
  AASB 119 (2011) Employee Benefits   1 January 2013   30 June 2014
           
  AASB 10 Consolidated Financial Statements   1 January 2013   30 June 2014
           
  AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements   1 July 2013   30 June 2014
           
  AASB 9 Financial Instruments, AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures, AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)   1 January 2015   30 June 2016

 

  AASB 13 Fair Value Measurement does not establish new requirements for when fair value is required but provides a single source of guidance on how fair value is measured.
59 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

a) Basis of preparation (continued)
   
  AASB 9 Financial Instruments and its associated amending standards specify new recognition and measurement requirements for financial assets and financial liabilities within the scope of AASB 139 Financial Instruments: Recognition and Measurement.
   
  Broadly, all of the amendments will require the Corporation to continue to measure financial assets and financial liabilities at fair value through profit or loss using current principles. 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 sheets 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.
   
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 11/19 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 and the Corporation 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 30% of the profit for the year to 30 June 2013 (2012: 30%).
60 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

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.
   
  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.
61 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

f) Other assets and liabilities (continued)
   
  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 up to 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 (including the lease make good provision) over the term of the lease, which currently expires on 19 May 2018.
   
  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 2018.

 

  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. Due to the nature of the assets an independent valuation is not required.
   
  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 Statements of comprehensive income.
   
h) Impairment of assets
   
  Items of plant and equipment, intangible assets and receivables 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.
62 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

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 Statements 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 statements, 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 as incurred over the lease term. Lease incentives received are recognised in the Statements of comprehensive income as an integral part of the total lease expense (included in premises costs) and spread 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 Investment Trusts (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.
   
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.
63 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

p) Goods and Services Tax (GST)
   
  Income, expenses and assets (other than receivables) are recognised net 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.
   
2 Income from changes in fair value

 

   2013   2012 
   $’000   $’000 
Income from changes in fair value is comprised of:          
Interest income received or receivable – government clients   3,037,768    2,905,434 
Interest income received or receivable – financial institutions   486,517    634,130 
Gains on derivative financial instruments   80,334    28,084 
Increase/(decrease) in fair value of financial assets/(liabilities)   1,366,274    4,607,343 
    4,970,893    8,174,991 

 

3 Expenses from changes in fair value

 

   2013   2012 
   $’000   $’000 
Expenses from changes in fair value is comprised of:          
Interest expense paid or payable – government clients   9,314    14,692 
Interest expense paid or payable – financial institutions   3,190,254    3,265,723 
Losses on derivative financial instruments   67,059    246,341 
Net foreign exchange loss   276    174 
Decrease/(increase) in fair value of financial assets/(liabilities)   1,556,264    4,549,736 
    4,823,167    8,076,666 

 

Derivative financial instruments are used to manage interest rate risk and foreign exchange risk. Gains or losses on derivative financial instruments are largely offset by changes in the fair value of financial assets and liabilities.

64 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

4 Total comprehensive income for the year

 

   CONSOLIDATED   CORPORATION 
   2013   2012   2013   2012 
   $’000   $’000   $’000   $’000 
(a) The profit for the year includes the following specific items:                    
Fees and commissions   24,340    22,057    24,340    22,057 
Comprising:                    
Specific client mandates   12,771    13,491    12,771    13,491 
- asset portfolios   6,054    6,807    6,054    6,807 
- debt portfolios   6,717    6,684    6,717    6,684 
Hour-Glass Investment Trusts   7,869    6,760    7,869    6,760 
Other fees and commissions from NSW government entities   3,243    1,800    3,243    1,800 
Other fees and commissions from financial institutions   457    6    457    6 
Total general administrative and transaction costs   45,166    43,231    44,840    43,741 
Includes:                    
Auditors remuneration to the Audit Office of NSW   325    307    325    307 
- for audit of the financial report   294    284    294    284 
- other services   31    23    31    23 
Consultants’ fees   220    136    220    136 
Depreciation and amortisation   4,412    4,608    4,412    4,608 
Key management personnel compensation1   3,962    2,516    3,962    2,516 
- Short-term employee benefits   3,766    2,345    3,766    2,345 
- Post-employment benefits   161    143    161    143 
- Other long-term employee benefits   35    28    35    28 
Rental on operating leases   1,505    1,863    1,505    1,863 
Superannuation expense   1,121    1,065         
- Defined contribution plans   1,169    1,098         
- Defined benefit plans   (48)   (33)        
(b) Other comprehensive (income)/loss:                    
Actuarial (gain)/loss on defined benefit plans   (326)   510         
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 2013 was $371,000 (2012: $367,000).
65 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

5 Cash and liquid assets

 

   2013   2012 
   $’000   $’000 
Cash on hand and at bank   11,898    22,908 
Overnight and short term placements (unsecured)   940,929    1,627,844 
    952,827    1,650,752 

 

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

 

   2013   2012 
   $’000   $’000 
Short-term bank deposits   6,191,335    3,318,206 
Cash collateral   93,883    34,997 
    6,285,218    3,353,203 

 

Cash collateral may be provided by the Corporation to support amounts payable to financial institutions in respect of certain derivative transactions (note 20).

 

7 Securities held

 

   2013   2012 
   $’000   $’000 
Floating rate notes1   1,152,789    2,495,869 
Bank bills and certificates of deposit   2,393,296    1,725,941 
Securities sold under repurchase agreements       1,295,676 
Commonwealth government bonds   207,602     
Semi-government bonds   1,708,606    597,829 
Other NSW Government related securities   96,904    101,307 
    5,559,197    6,216,622 
1 Includes securities guaranteed by the Commonwealth of Australia totalling $145.8 million (2012: $881.9 million), which remains effective until maturity.

 

Securities held are used mainly to cover liquidity requirements and to support client deposits accepted. Of the above amounts, $1,420.9 million (2012: $2,430.6 million) is scheduled to mature more than twelve months from the balance date.

66 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

8 Loans to government clients

 

   2013   2012 
   $’000   $’000 
New South Wales public sector clients:          
- Crown entity   26,225,667    25,651,454 
- Electricity sector   21,902,270    21,554,379 
- Transport sector   1,760,840    1,299,296 
- Water sector   8,127,766    7,851,155 
- Other sectors   1,269,987    2,005,175 
- Universities   44,147    45,060 
    59,330,677    58,406,519 

 

Loans to clients comprise financial accommodation on simple interest, fixed interest, floating rate or inflation indexed bases. 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 $6,780.6 million (2012: $6,427.1 million). Year-on-year loans comprise a constant face value and a variable coupon that includes the fixed real rate and latest adjusted CPI. The fair value of these loans at balance date totalled $2,546.7 million (2012: $1,462.4 million).

 

Loans to New South Wales public sector clients and universities are guaranteed by the New South Wales Government. Of the above amounts, $56,777.1 million (2012: $56,253.9 million) is scheduled to mature more than twelve months from the balance date.

67 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

9 Other assets

 

      CONSOLIDATED     CORPORATION  
      2013     2012     2013     2012  
  Note   $’000     $’000     $’000     $’000  
Debtors and fee accruals     7,836     14,437     7,836     14,437  
Intangible assets     2,718     3,702     2,718     3,702  
Security deposits     3,563     7,736     3,563     7,736  
Lease incentive receivable         92         92  
Prepaid superannuation 22   161              
Other prepayments     924     686     866     622  
      15,202     26,653     14,983     26,589  
                           
Reconciliation of Intangible assets                          
Opening carrying value     3,702     5,993     3,702     5,993  
Additions     2,172     1,523     2,172     1,523  
Amortisation     (2,689 )   (3,588 )   (2,689 )   (3,588 )
Write-offs of redundant assets     (467 )   (226 )   (467 )   (226 )
Carrying value at year end     2,718     3,702     2,718     3,702  
68 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

10 Plant and equipment

 

   Leasehold   Equipment &         
   Improvements   Vehicles   Total 
   2013   2012   2013   2012   2013   2012 
   $’000   $’000   $’000   $’000   $’000   $’000 
Opening fair value   4,200    975    2,547    2,905    6,747    3,880 
Opening accumulated depreciation   (110)   (710)   (657)   (1,621)   (767)   (2,331)
Opening carrying amount   4,090    265    1,890    1,284    5,980    1,549 
Changes during the year:                              
Additions at fair value   498    4,378    1,475    1,370    1,973    5,748 
Net disposals and write-offs of redundant assets       (133)   (178)   (164)   (178)   (297)
Depreciation expense   (805)   (420)   (918)   (600)   (1,723)   (1,020)
Closing carrying amount   3,783    4,090    2,269    1,890    6,052    5,980 
                               
Closing fair value   4,652    4,200    3,356    2,547    8,008    6,747 
Closing accumulated depreciation   (869)   (110)   (1,087)   (657)   (1,956)   (767)
Carrying amount at year end   3,783    4,090    2,269    1,890    6,052    5,980 

 

11 Due To financial institutions

 

   2013   2013   2012   2012 
   Face Value   Fair Value   Face Value   Fair Value 
   $’000   $’000   $’000   $’000 
Promissory notes   4,120,224    4,110,085    5,320,327    5,307,868 
Cash collateral   130,700    130,690    34,920    34,917 
Repurchase agreements           1,293,917    1,296,940 
    4,250,924    4,240,775    6,649,164    6,639,725 

 

Promissory notes are short term securities issued by the Corporation, usually for terms ranging up to six months.

 

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.

69 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

12 Due to Government clients

 

   2013   2013   2012   2012 
   Face Value   Fair Value   Face Value   Fair Value 
   $’000   $’000   $’000   $’000 
Client deposits   219,497    219,520    748,014    748,128 
    219,497    219,520    748,014    748,128 

 

Deposits are received from clients on an unsecured basis either at call or for fixed terms of one year or less, with interest payable at maturity.

 

13 Borrowings

 

   2013   2013   2012   2012 
   Face Value   Fair Value   Face Value   Fair Value 
   $’000   $’000   $’000   $’000 
Benchmark bonds                    
- domestic   49,395,679    53,560,823    44,309,592    49,623,451 
- global exchangeable   1,411,326    1,527,191    1,943,080    2,135,634 
Total benchmark bonds   50,807,005    55,088,014    46,252,672    51,759,085 
Euro Medium Term Notes   2,162,586    2,009,063    3,234,472    2,949,216 
Capital indexed bonds   6,398,077    6,857,031    5,875,361    6,505,372 
Floating rate notes   3,050,000    3,075,859    550,000    553,645 
Other borrowings   295,200    307,300    192,690    201,556 
    62,712,868    67,337,267    56,105,195    61,968,874 

 

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. In fair value terms, $1,993.1 million (2012: $2,949.2 million) is scheduled to mature more than twelve months from the balance date.

 

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 $306.56 million (2012: $722.6 million).

 

Capital indexed bonds are domestic bonds with quarterly coupons and face value indexed in line with inflation. Capital indexed bonds are scheduled to mature more than twelve months from the balance date.

 

Floating rate notes are scheduled to mature more than twelve months from the balance date.

70 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

13 Borrowings (continued)

 

Other borrowings include Waratah bonds and non-benchmark domestic bonds. In fair value terms, $275.0 million (2012: $113.6 million) is scheduled to mature more than twelve months from the balance date.

 

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.

 

The benchmark bonds on issue, by maturity were:

 

       2013   2013   2012   2012 
   Coupon   Face Value   Fair Value   Face Value   Fair Value 
Maturity  % p.a.   $’000   $’000   $’000   $’000 
1 May 20131  5.25            497,048    510,289 
1 August 2013  5.50    3,958,641    4,057,832    5,142,274    5,389,735 
8 July 2014  2.75    1,646,253    1,670,753         
1 August 20141  5.50    1,637,741    1,726,408    2,930,232    3,151,347 
1 April 2015  6.00    2,813,950    3,011,690    2,651,350    2,883,915 
1 April 2016  6.00    4,871,175    5,323,010    5,001,570    5,537,594 
20 February 2017  4.00    3,396,742    3,526,977    2,502,683    2,590,621 
1 March 20171  5.50    2,429,328    2,662,398    2,717,369    3,021,986 
1 February 2018  6.00    5,136,934    5,798,013    5,336,620    6,096,957 
20 March 2019  3.50    2,887,511    2,871,914         
1 April 20191  6.00    1,759,596    1,996,367    2,561,851    2,974,719 
1 May 2020  6.00    5,834,382    6,579,610    5,931,760    6,828,273 
1 June 20201  6.00    183,392    207,539    1,056,974    1,237,719 
1 March 2022  6.00    6,648,981    7,580,098    5,049,461    5,935,068 
20 April 2023  4.00    1,472,245    1,424,362         
1 May 20231  6.00    2,177,997    2,482,416    2,486,010    2,968,594 
20 August 2024  5.00    3,734,150    3,922,650    2,175,000    2,373,360 
1 May 2030  6.00    217,987    245,977    212,470    258,908 
        50,807,005    55,088,014    46,252,672    51,759,085 
1 Commonwealth Government guaranteed borrowings at 30 June 2013 total $9,075.13 million, fair value (2012: $13,864.65 million, fair value). 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

71 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

14 Derivative financial instruments (continued)

 

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.

 

Collateral may be obtained, or provided, by the Corporation when the market value of certain derivative transactions exceed thresholds agreed with the counterparty (note 20).

 

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.

 

Net exposure

 

The fair value of the Corporation’s transactions in derivative financial instruments outstanding at year end is as follows:

 

   2013   2012 
   $’000   $’000 
Derivative financial instruments receivable          
Cross currency swaps1   23,910    3,586 
Interest rate swaps   415,856    544,535 
Forward foreign exchange contracts   107,312    29,235 
Exchange traded futures   1,436     
Forward dated loans   7    11,453 
Interest rate options   4,547    5,276 
    553,068    594,085 
           
Derivative financial instruments payable          
Cross currency swaps1   (124,664)   (171,896)
Interest rate swaps   (444,735)   (513,078)
Forward foreign exchange contracts   (1,495)   (2,510)
Exchange traded futures       (1,105)
Forward dated loans   (8,930)    
Interest rate options   (4,547)   (5,276)
    (584,371)   (693,865)
           
Net amount payable under derivative financial instruments   (31,303)   (99,780)
1 Includes cross currency swaps to cover exposure to callable notes. Refer to note 17.
72 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

14 Derivative financial instruments (continued)

 

The majority of derivative financial instruments (with the exception of forward foreign exchange contracts and exchange traded futures) are scheduled to be recovered or due to be settled more than twelve months from the balance date.

 

15 Other liabilities and provisions

 

       CONSOLIDATED   CORPORATION 
       2013   2012   2013   2012 
   Note   $’000   $’000   $’000   $’000 
Provisions for employee benefits        6,367    2,436         
Amounts due to service entity                6,204    2,630 
Creditors, expense accruals and other provisions        7,567    13,653    7,511    13,640 
Lease incentive        2,065    2,488    2,065    2,488 
Unfunded superannuation liability   22        245         
Dividend payable        55,500    50,500    55,500    50,500 
         71,499    69,322    71,280    69,258 

 

The Corporation’s obligations relating to employee benefits are reflected as amounts due to service entity at the balance date. Refer to note 26.

 

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 would be 31 December 2010. All Commonwealth Guaranteed benchmark bonds issued by the Corporation in existence as at the Final Issuance Date 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. 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.

 

In addition to the Corporation’s domestic benchmark, non-benchmark and promissory note issuances, the following offshore programmes are in place:

73 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

16 Other disclosures concerning financial liabilities (continued)

 

   2013   2012 
   $bn   $bn 
Global exchangeable bonds  AUD 18   AUD 18 
Multi-currency Euro medium term note  USD 10   USD10 
Multi-currency Euro commercial paper  USD 5   USD 5 
Multi-currency US medium term note  USD10   USD10 

 

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).

 

There were no significant 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.

74 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

17 Fair value of financial assets and liabilities (continued)

 

2013  Level 1   Level 2   Level 3   TOTAL 
   $’000   $’000   $’000   $’000 
Financial assets                   
Cash and liquid assets   952,827            952,827 
Outstanding settlements receivable   34,802            34,802 
Due from financial institutions   93,883    6,191,335        6,285,218 
Securities held   2,061,971    3,497,226        5,559,197 
Derivative financial instruments receivable   1,436    551,632        553,068 
Loans to government clients   8,813    59,321,864        59,330,677 
Debtors and fee accruals   7,836            7,836 
Security deposits   3,563            3,563 
Financial assets   3,165,131    69,562,057        72,727,188 
                     
Financial liabilities                    
Due to financial institutions   (130,690)   (4,110,085)       (4,240,775)
Outstanding settlements payable   (144,249)           (144,249)
Due to government clients       (219,520)       (219,520)
Borrowings - callable notes           (306,556)   (306,556)
Borrowings - other   (65,142,224)   (1,888,487)       (67,030,711)
Derivative financial instruments payable       (504,755)   (79,616)   (584,371)
Creditors, expense accruals and other provisions   (7,567)           (7,567)
Financial liabilities   (65,424,730)   (6,722,847)   (386,172)   (72,533,749)
75 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

17 Fair value of financial assets and liabilities (continued)

 

2012  Level 1   Level 2   Level 3   TOTAL 
   $’000   $’000   $’000   $’000 
Financial assets                    
Cash and liquid assets   1,650,752            1,650,752 
Due from financial institutions   34,997    3,318,206        3,353,203 
Securities held   3,380,186    2,836,436        6,216,622 
Derivative financial instruments receivable       590,499    3,586    594,085 
Loans to government clients   178,750    58,227,769        58,406,519 
Debtors and fee accruals   14,437            14,437 
Security deposits   7,736            7,736 
Financial assets   5,266,858    64,972,910    3,586    70,243,354 
                     
Financial liabilities                    
Due to financial institutions   (34,917)   (6,604,808)       (6,639,725)
Outstanding settlements payable   (25,155)           (25,155)
Due to government clients   (491)   (747,637)       (748,128)
Borrowings - callable notes           (722,564)   (722,564)
Borrowings - other   (58,264,456)   (2,981,854)       (61,246,310)
Derivative financial instruments payable   (1,105)   (619,296)   (73,464)   (693,865)
Creditors, expense accruals and other provisions   (13,653)           (13,653)
Financial liabilities   (58,339,777)   (10,953,595)   (796,028)   (70,089,400)

 

Financial instruments classified at level 3 in the hierarchy include Power Reverse Dual Currency Bonds (PRDC’s – callable notes – refer note 13) and associated 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.

76 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

17 Fair value of financial assets and liabilities (continued)

 

Reconciliation of level 3 fair value movements

 

       2013   2012 
   Note   $’000   $’000 
Opening balance       (792,442)   (1,118,989)
Total gains and (losses) – realised1        166    5,869 
Total gains and (losses) – unrealised1        82,302    30,111 
Issues             
Settlements        323,802    290,567 
Transfers in or out of level 3             
Closing balance        (386,172)   (792,442)
                
         2013    2012 
         $’000    $’000 
Level 3 Financial Instruments:               
Callable Notes   13    (306,556)   (722,564)
Cross currency swaps receivable   14        3,586 
Cross currency swaps payable   14    (79,616)   (73,464)
Closing balance        (386,172)   (792,442)
1 Included in Net income from changes in fair value in the Statements 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.

77 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

18 Financial risk (continued)

 

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 foreign exchange risk for certain assets and liabilities within the Balance sheets. Derivatives are accounted on a fair value basis with resultant gains and losses recognised in the Statements of comprehensive income.

 

Equity

 

The New South Wales Government is not required under legislation to contribute equity to the Corporation. Retained earnings are held in lieu of contributed equity and provide a capital base commensurate with the risks inherent in the Corporation’s business.

78 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

19 Market risk

 

Interest rate risk

 

Interest rates equal to, or derived from, the Corporation’s debt securities and used for valuation purposes were:

 

   Coupon
% pa
   Quoted Market
Rates at
30-Jun-13
% pa
   Quoted Market
Rates at
30-Jun-12
% pa
 
Nominal            
Overnight        2.750    3.500 
90 days       2.740    3.390 
180 days       2.680    3.340 
1 May 20131     5.250        3.040 
1 August 2013    5.500    2.730    3.110 
8 July 2014    2.750    2.585     
1 August 20141     5.500    2.545    2.875 
1 April 2015    6.000    2.743    3.215 
1 April 2016    6.000    3.035    3.365 
20 February 2017    4.000    3.313    3.525 
1 March 20171     5.500    3.233    3.310 
1 February 2018    6.000    3.528    3.653 
20 March 2019    3.500    3.810     
1 April 20191     6.000    3.670    3.543 
1 May 2020    6.000    4.010    3.890 
1 June 20201     6.000    3.890    3.590 
1 March 2022    6.000    4.323    4.040 
20 April 2023    4.000    4.518     
1 May 20231     6.000    4.360    3.898 
20 August 2024    5.000    4.623    4.223 
1 May 2030    6.000    4.953    4.310 
25 February 2039    4.750    5.184    4.270 
26 April 2041    6.000    5.159    4.255 
Capital Indexed               
20 November 2020    3.750    1.808    1.610 
20 November 2025    2.750    2.225    1.925 
20 August 2030    3.500    2.420    2.123 
20 November 2035    2.500    2.590    2.373 
1 Securities covered by Commonwealth guarantee – refer note 16.
79 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

19 Market risk (continued)

 

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.

 

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, Commonwealth and semi-government bonds, Commonwealth government guaranteed floating rate notes, capital indexed 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 overestimate or underestimate 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 2013, the maximum potential loss expected over a 10-day period is $14.1 million (2012: $8.2 million), with a 1% probability that this maximum may be exceeded. The average VaR over the year ended 30 June 2013 was $12.8 million (2012: $10.5 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 borrowings undertaken in foreign currencies through Promissory Notes (refer note 11) or Euro Medium Term Notes (refer note 13), to fund Australian dollar assets is covered by entering into Australian dollar cross currency swaps and forward foreign exchange contracts.

 

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.

80 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

19 Market risk (continued)

 

Other price risk

 

The Corporation has no material exposure to other price risk in relation to interest rate options as transactions with clients are covered by corresponding interest rate options with market counterparties. The clients indemnify the Corporation for any credit exposure arising from the corresponding transaction with the market counterparty.

 

20 Credit risk

 

For all classes of financial assets, with the exceptions noted below, the maximum credit risk exposure is equal to the fair value already disclosed.

 

As loans and debtors from 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 difference between the face value and the market value is disclosed to reflect the maximum potential credit exposure. The additional credit exposure is noted in the concentration of credit risks below.

 

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

 

At year end, the Corporation had transferred no securities (2012: $1,295.7 million) to counterparties under repurchase agreements. Securities transferred under repurchase agreements are secured by cash collateral. 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.

 

Due to retention of substantially all the risks and rewards of these securities, the Corporation continues to recognise the assets on the Balance sheet and the collateral received as liabilities. The counterparties have an obligation to return the securities to the Corporation and the Corporation has an obligation to buy back the securities on the dates agreed, usually for terms ranging up to thirty days.

 

The following table sets out the carrying amount of transferred financial assets and the related liabilities along with the net impact on credit risk at the reporting date.

81 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

20 Credit risk (continued)

 

       2013   2012 
   Note   $’000   $’000 
Carrying amount of Repurchase Agreements (transferred assets)   7        1,295,676 
Carrying amount of collateral received   11        (1,296,940)
Net credit risk            Nil 

 

The Corporation may obtain, or provide, collateral to support amounts due under derivative 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 derivative transaction. There was $130.69 million of collateral received under these arrangements at balance date (2012: $34.92 million). Refer below for the net impact of collateral received on credit risk.

 

       2013   2012 
       $’000   $’000 
Derivative financial instruments        101,686    45,118 
Carrying amount of collateral received   11    (130,690)   (34,917)
Net credit risk        Nil    10,201 

 

The Corporation had paid $93.88 million of collateral under these arrangements at balance date (Amount paid in 2012: $35.00 million). Refer note 6.

82 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

20 Credit risk (continued)

 

Concentration of credit risk

 

By credit rating – 20131

 

                           Other2     
   AAA   AA+   AA   AA-   A+   A   Ratings   Total 
   $’000   $’000   $’000   $’000   $’000   $’000   $’000   $’000 
Cash and liquid assets   10            650,760        301,977    80    952,827 
Due from financial institutions               6,215,533    5,490    64,195        6,285,218 
Securities held6   1,088,597    920,593    52,781    1,206,558    954,483    1,187,777    148,408    5,559,197 
Derivative financial instruments   6,050            304,433    46,644    195,941        553,068 
Security deposits                           3,563    3,563 
    1,094,657    920,593    52,781    8,377,284    1,006,617    1,749,890    152,051    13,353,873 
                                         
Additional potential exposure to derivatives   871    580        91,561    57,250    60,121        210,383 
Additional potential exposure to financial instruments   281            468    2,421    12,223    1,592    16,985 
    1,095,809    921,173    52,781    8,469,313    1,066,288    1,822,234    153,643    13,581,241 

 

By credit rating – 20121

 

                           Other2     
   AAA   AA+   AA   AA-   A+   A   Ratings   Total 
   $’000   $’000   $’000   $’000   $’000   $’000   $’000   $’000 
Cash and liquid assets   7            1,094,731    385,963    169,984    67    1,650,752 
Due from financial institutions               3,332,255    20,948            3,353,203 
Securities held6   1,580,209    1,195,181        2,013,194    935,626    354,259    138,153    6,216,622 
Derivative financial instruments   17,035            401,749    79,743    93,699    1,859    594,085 
Security deposits                           7,736    7,736 
    1,597,251    1,195,181        6,841,929    1,422,280    617,942    147,815    11,822,398 
                                         
Additional potential exposure to derivatives   13,483            80,820    66,339    47,290    1,500    209,432 
Additional potential exposure to financial instruments               790    27,681    741    1,847    31,059 
    1,610,734    1,195,181        6,923,539    1,516,300    665,973    151,162    12,062,889 
83 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

20 Credit risk (continued)

 

By classification of counterparty – 2013

 

   Governments3   Banks4, 5   Other5   Total 
   $’000   $’000   $’000   $’000 
Cash and liquid assets   10    952,817        952,827 
Due from financial institutions       6,285,218        6,285,218 
Securities held6   2,061,971    3,400,322    96,904    5,559,197 
Derivative financial instruments   6,050    527,726    19,292    553,068 
Security deposits           3,563    3,563 
    2,068,031    11,166,083    119,759    13,353,873 
                     
Additional potential exposure to derivatives       207,836    2,547    210,383 
Additional potential exposure to financial instruments   281    16,704        16,985 
    2,068,312    11,390,623    122,306    13,581,241 

 

By classification of counterparty – 2012

 

   Governments3   Banks4, 5   Other5   Total 
   $’000   $’000   $’000   $’000 
Cash and liquid assets   7    1,650,745        1,650,752 
Due from financial institutions       3,353,203        3,353,203 
Securities held6   2,775,390    3,339,925    101,307    6,216,622 
Derivative financial instruments   16,827    567,775    9,483    594,085 
Security deposits           7,736    7,736 
    2,792,224    8,911,648    118,526    11,822,398 
                     
Additional potential exposure to derivatives       197,860    11,572    209,432 
Additional potential exposure to financial instruments       31,059        31,059 
    2,792,224    9,140,567    130,098    12,062,889 
1 Credit rating as per Standard & Poor’s or equivalent
   
2 Other Ratings includes long term ratings of A- or lower, or when the counterparty has no long term rating, a short term rating of A-2 or lower.
   
3 Governments – foreign, Commonwealth and other Australian states.
   
4 Banks - An entity licensed as a Bank under the relevant Australian Law, or equivalent in offshore jurisdiction.
   
5 A counterparty is required to carry a Standard and Poor’s Banking Industry Country Risk Assessment (BICRA) rating of 1, 2 or 3.
   
6 AAA rated government securities held include amounts guaranteed by the Commonwealth of Australia totalling $145.8 million (2012: $881.9 million).
84 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

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.

 

The following table summarises contractual (undiscounted) cash flows by time ranges. The amounts differ from the Balance sheet which is based on fair value or discounted cash flows.

 

2013  Up to 1   1 to 3   3 to 12   1 to 2   2 to 5   Over 5     
   month   months   months   years   years   years   Total 
   $’000   $’000   $’000   $’000   $’000   $’000   $’000 
Financial assets                                   
Cash and liquid assets   952,898                        952,898 
Outstanding settlements receivable   34,807                        34,807 
Due from financial institutions   902,758    3,241,848    2,184,531                6,329,137 
Securities held   1,238,561    1,342,857    1,651,811    161,632    1,279,538    87,502    5,761,901 
Loans to government clients   884,065    1,874,479    2,150,750    7,910,066    19,791,282    43,819,350    76,429,992 
Debtors and fee accruals   7,836                        7,836 
Security deposits   3,563                        3,563 
Financial assets   4,024,488    6,459,184    5,987,092    8,071,698    21,070,820    43,906,852    89,520,134 
                                    
Financial liabilities                                   
Due to financial institutions   (2,077,973)   (1,969,567)   (203,385)               (4,250,925)
Outstanding settlements payable   (144,269)                       (144,269)
Due to government clients   (209,097)   (8,595)   (1,920)               (219,612)
Borrowings - callable notes   (18,632)   (98,641)   (189,610)               (306,883)
Borrowings - other   (43,211)   (4,818,792)   (2,048,941)   (9,138,207)   (25,346,935)   (42,991,386)   (84,387,472)
Creditors, expense accruals and other provisions   (7,567)                       (7,567)
Financial liabilities   (2,500,749)   (6,895,595)   (2,443,856)   (9,138,207)   (25,346,935)   (42,991,386)   (89,316,728)
                                    
Net financial assets/(liabilities)   1,523,739    (436,411)   3,543,236    (1,066,509)   (4,276,115)   915,466    203,406 
                                    
Derivatives                                   
Derivatives receivable   98,580    133,552    313,670    408,834    859,764    822,028    2,636,428 
Derivatives payable   (33,461)   (130,151)   (280,262)   (260,859)   (502,148)   (814,168)   (2,021,049)
Net derivatives   65,119    3,401    33,408    147,975    357,616    7,860    615,379 
                                    
Net   1,588,858    (433,010)   3,576,644    (918,534)   (3,918,499)   923,326    818,785 
                                    
Cumulative   1,588,858    1,155,848    4,732,492    3,813,958    (104,541)   818,785     
85 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

21 Liquidity Risk (continued)

 

2012  Up to 1   1 to 3   3 to 12   1 to 2   2 to 5   Over 5     
   month   months   months   years   years   years   Total 
   $’000   $’000   $’000   $’000   $’000   $’000   $’000 
Financial assets                                   
Cash and liquid assets   1,650,908                        1,650,908 
Due from financial institutions   35,000    758,658    2,603,062                3,396,720 
Securities held   2,121,555    1,311,190    1,220,766    614,473    1,149,642    32,040    6,449,666 
Loans to government clients   859,852    2,450,958    3,062,355    4,413,910    21,537,873    42,513,833    74,838,781 
Debtors and fee accruals   14,437                        14,437 
Security deposits   7,736                        7,736 
Financial assets   4,689,488    4,520,806    6,886,183    5,028,383    22,687,515    42,545,873    86,358,248 
                                    
Financial liabilities                                   
Due to financial institutions   (5,077,576)   (1,071,234)   (503,829)               (6,652,639)
Outstanding settlements payable   (25,157)                       (25,157)
Due to government clients   (694,856)   (13,418)   (40,563)               (748,837)
Borrowings - callable notes   (40,209)   (212,355)   (451,090)   (20,104)           (723,758)
Borrowings - other   (1,876)   (1,356,311)   (2,646,964)   (7,891,877)   (22,538,424)   (43,068,327)   (77,503,779)
Creditors, expense accruals and other provisions   (13,653)                       (13,653)
Financial liabilities   (5,853,327)   (2,653,318)   (3,642,446)   (7,911,981)   (22,538,424)   (43,068,327)   (85,667,823)
                                    
Net financial assets/(liabilities)   (1,163,839)   1,867,488    3,243,737    (2,883,598)   149,091    (522,454)   690,425 
                                    
Derivatives                                   
Derivatives receivable   137,186    337,374    656,630    407,242    813,819    3,593,310    5,945,561 
Derivatives payable   (105,241)   (1,626,181)   (902,995)   (347,584)   (626,349)   (2,207,169)   (5,815,519)
Net derivatives   31,945    (1,288,807)   (246,365)   59,658    187,470    1,386,141    130,042 
                                    
Net   (1,131,894)   578,681    2,997,372    (2,823,940)   336,561    863,687    820,467 
                                    
Cumulative   (1,131,894)   (553,213)   2,444,159    (379,781)   (43,220)   820,467     

 

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 are disclosed in note 23 and undrawn loan commitments are disclosed in note 25.

86 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

22 Superannuation

 

Amounts representing prepaid superannuation contributions arising from defined benefit schemes are recognised as an asset and included in other assets (note 9). (2012: Unfunded superannuation contributions arising from defined benefit schemes are recognised as a liability and included in other liabilities and provisions (note 15)). Actuarial gains and losses are recognised in the Statement of comprehensive income in the year they occur (note 4).

 

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 2013 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.

 

   2013  2012
   % pa  % pa
Discount rate at 30th June1  3.8  3.1
Expected return on assets backing current pension liabilities  8.6  8.6
Expected salary increases  - next financial year  2.3  2.5
  - 2014 / 2015  2.3  2.5
- 2015 / 2016 to 2019 / 2020  2.0  2.5
- thereafter  2.5  2.5
Expected rate of CPI Increase  2.5  2.5
1 This rate reflects market yields of Commonwealth Government bonds at balance date.
87 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

22 Superannuation (continued)

 

Reconciliation of the movement in (net) Unfunded Liability/Prepaid Contribution

 

               TOTALS 
   SASS   SANCS   SSS   2013   2012 
   $’000   $’000   $’000   $’000   $’000 
Net (asset)/liability at start of year   (109)   31    323    245    (196)
Net (credit)/expense recognised in the Statement of comprehensive income   (130)   (31)   (245)   (406)   441 
Net (asset)/liability at end of year   (239)       78    (161)   245 

 

23 Contractual commitments

 

   2013   2012 
   $’000   $’000 
Capital commitments          
Not later than one year   90    1,064 
    90    1,064 
           
Operating leases          
Not later than one year   2,886    2,752 
Later than one year but not later than five years   12,367    12,154 
Later than five years   93    3,064 
    15,346    17,970 

 

Operating lease commitments primarily relate to obligations to Government Property NSW (“GPNSW”) in respect of the business premises occupied by the Corporation.

 

The Corporation has entered into Occupancy Agreements (“Agreements”) with GPNSW. Under these Agreements:

 

·GPNSW agrees to grant the right of occupancy of premises to the Corporation until 19 May 2018;

 

·The Corporation is liable for rent, charges and expenses in respect of the premises; and

 

·The Corporation must pay GPNSW a management fee of 2% (excluding GST) of gross rent, charges and expenses on the leased premises.

 

2013 Capital commitments relate to obligations associated with the purchase of computer software (2012: Capital commitments relate to obligations associated with the refurbishment of the Corporation’s business premises).

 

Capital and operating lease commitments have been stated with the amount of Goods and Services Tax included, where applicable.

88 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

24Fiduciary activities

 

   2013   2012 
   $’000   $’000 
At the year end, the funds under management were:          
- Hour-Glass Investment Trusts   12,861,813    11,951,127 
- Specific client mandates   4,061,361    6,597,030 
    16,923,174    18,548,157 
These funds were managed by:          
- External fund managers   9,232,073    7,773,043 
- The Corporation   7,691,101    10,775,114 
    16,923,174    18,548,157 
Additionally, the Corporation has mandates from clients to manage their debt portfolios.     
At the year end the debt portfolios under management were:   45,388,982    45,519,283 

 

The Corporation acts both as Trustee and as manager of funds for the Hour-Glass Investment Trusts and actively manages asset and debt portfolios on behalf of clients.

 

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 $5,718.00 million (2012: $6,173.50 million) and undrawn commitments were $5,488.36 million (2012: $5,982.01 million). Drawn commitments are recognised as loans to government clients on the Balance sheet.
   
d) 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) can 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:

 

     2013   2012 
     $m   $m 
  Market participants          
  National Electricity Market (NEM)   0.06    14.17 
  Short Term Trading Market (STTM)   1.00    1.10 
      1.06    15.27 

 

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 $142.85 million (2012: $122.95 million).
89 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

25 Contingent liabilities and commitments (continued)

 

  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.
   
e) The Corporation has a commitment totalling $650.00 million (2012: $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 $107.47 million (2012: $93.29 million). Drawn commitments are recognised on the Balance sheet as loans to government clients (note 8), included within Crown entity.

 

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 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.

 

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:

 

   2013 & 2012
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 arrangement has no financial effect on the financial performance or position of the Corporation or

90 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

26 Related parties (continued)

 

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 of the Government Service 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 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 of the New South Wales Parliament. 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.

 

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.

91 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

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.

 

       2013   2012 
   Note   $’000   $’000 
Cash and liquid assets   5    952,827    1,650,752 
Cash and cash equivalents        952,827    1,650,752 

 

29 Reconciliation of cash flow from operating activities to net profit

 

   2013   2012 
   $’000   $’000 
Net cash used in operating activities   (2,190,847)   (4,297,954)
Add/(less) adjustments arising from:          
- net loans to clients   2,429,459    4,368,716 
- net change in coupons accrued at each year end on financial assets and liabilities   54,296    44,302 
- net change in other assets   (10,591)   (17,108)
- net change in other liabilities and provisions, excluding dividends   763    8,369 
    283,080    106,326 
Add/(less) amounts contributing to net profit but not generating operating cash flows:          
- actuarial (gain)/loss on defined benefit plans   (326)   510 
- loss on disposal of plant and equipment and intangible assets   (460)   (343)
- loss on sale of financial instruments   (479,703)   (509,535)
- unrealised fair value gain on financial instruments   290,553    461,809 
- depreciation and amortisation   (4,412)   (4,608)
Profit for the year   88,732    54,159 

 

30 Subsequent events

 

There have been no events subsequent to balance date which would have a material effect on the consolidated entity’s financial statements as at 30 June 2013.

 

31 Authorisation date

 

This financial report was authorised for issue in accordance with a resolution of the directors of New South Wales Treasury Corporation on 30 August 2013.

 

- End of Audited Financial Report -

92 of 131 / TCorp Annual Report
NEW SOUTH WALES TREASURY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2013

 

Certificate under Section 41C(1B) and 41C(1C) of the Public Finance and Audit Act 1983 and Clause 7 of the Public Finance and Audit Regulation 2010.

 

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 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 Standards Board.
   
f) the financial report and consolidated financial report for the year ended 30 June 2013 exhibit a true and fair view of the position and transactions of New South Wales Treasury Corporation and its controlled entities; and
   
g) 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:

 

   
P Gaetjens S W Knight
Director Director

 

Sydney, 30 August 2013

93 of 131 / TCorp Annual Report

NEW SOUTH WALES TREASURY CORPORATION

 

 

 

INDEPENDENT AUDITOR’S REPORT

New South Wales Treasury Corporation 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 comprise the statements of comprehensive income, the balance sheets as at 30 June 2013, the statements of changes in equity and the cash flow statements for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information of the 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.

 

Opinion

 

In my opinion, the financial statements:

 

· give a true and fair view of the financial position of TCorp and the consolidated entity as at 30 June 2013, and of their financial performance and cash flows for the year then ended in accordance with Australian Accounting Standards
   
· 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.

 

The Board’s Responsibility for the Financial Statements

 

The members of the Board are responsible for the preparation of the financial statements that give a true and fair view in accordance with Australian Accounting Standards and the PF&A Act, and for such internal control as the members of the Board determine is necessary to enable the preparation of the financial statements that give a true and fair view and that are free from material misstatement, whether due to fraud or error.

 

In note 1a, the members of the Board 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. Those standards require that I comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

94 of 131 / TCorp Annual Report

NEW SOUTH WALES TREASURY CORPORATION

 

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 statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view 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 entity’s internal control. 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 evaluating the overall presentation of the financial statements.

 

I believe 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