FINANCING WA’S GROWTH - Western Australian …€¦ · · 2017-09-12FINANCING WA’S GROWTH ......

WESTERN AUSTRALIAN

TREASURY CORPORATIONFINANCING WA’S GROWTH

FINANCIAL SOLUTIONS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS


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ANNUAL REPORT 2013

SUPPORTING THE WAY

Contents1 Statement of Compliance

2 Highlights 2012/13

3 Five-Year Summary

4 Performance Against Targets for 2012/13

6 Chairperson’s and Chief Executive Officer’s Review

8 Overview of Western Australian Treasury Corporation

10 Board of Directors

11 Organisational Structure

12 Economic and Financial Markets

14 Capital Markets Activity

20 Client Services

26 Our People

28 Risk Management

30 Corporate Governance

35 Corporate Services

36 Future Outlook & Budget 2013/14

37 Financial Statements 2013

84 Contact Details

VISION

To be respected in financial markets, valued by stakeholders and sought out for our financial expertise.

MISSION

To provide leadership and innovation in the delivery of effective and efficient financial solutions for our Western Australian public sector clients.

VALUES

WATC is committed to transacting all business in accordance with its corporate values of:

Leadership: We provide an environment where our clients and colleagues feel valued and inspired. We have courage to pursue ambitious outcomes and to innovate and improve.

Integrity: We are open and honest. We adhere to the highest professional and ethical standards.

Partnership: We work collaboratively with common purpose. We act with care and respect.

Accountability: We honour our commitments. We take ownership of our actions and behaviours and accept responsibility for the results.

Excellence: We are committed to delivering excellence. We continuously improve to be the best we can.

WESTERN AUSTRALIAN TREASURY CORPORATION ANNUAL REPORT 2013

Statement of Compliance

The Hon. Troy Buswell, MLA Treasurer of Western Australia; Minister for Transport; Fisheries

In accordance with Section 63 of the Financial Management Act 2006, we hereby submit for your information and presentation to Parliament, the Annual Report of the Western Australian Treasury Corporation for the financial year ended 30 June 2013.

The Annual Report has been prepared in accordance with the provisions of the Financial Management Act 2006.

T M MARNEY CHAIRPERSON

WESTERN AUSTRALIAN TREASURY CORPORATION

16 August 2013

J M COLLINS CHIEF EXECUTIVE OFFICER


16 August 2013


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Highlights 2012/13

$8.4 billionlong-term debt and floating rate notes issued during the year.

$1.0 billionnew 2018 Floating Rate Note by syndication in May 2013.

Contributions to the State

WATC contributed

$18.3 million in income tax equivalents and dividend income to the State in 2012/13. Over the past five years, this has totalled

$67.7 million.

$millions

80

70

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60

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

40

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$67m

Client Solutions

3%increase in administrative costs during 2012/13 and a total of

8% over the past four years, while Loans to Authorities have

increased by 104% over the same period.

WATC advanced $3.5 billion

in net new loan funding to Western Australian

public sector entities, and was responsible

for client funds under management of

$5.94 billion at 30 June 2013.

59participants of Foreign Exchange workshops for clients to raise awareness of FX from a theoretical, practical and operational viewpoint.

Administration Costs

WATC’s Administration Cost Ratio

declined to 0.050%, by WATC

estimates the lowest for any Australian

State to date, and has halved over the

last 5 years.

%

0.12

0.10

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0.02

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0.06

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2011

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2012

/13

Return on Capital (after tax)

23.8%Cost Ratio

Successful Client EngagementsMuseum of Modern Art (MoMA) • Fiona Stanley Hospital • Department of the Premier and Cabinet Western Australian Future Fund • Weighted Average Cost of Capital • FX risk management Lotterywest • Forest Products Commission • Department of Planning

5/6WATC exceeded its targets for five of six KPIs.

Best PracticeWATC was one of WA’s “best practice”

agencies with respect to financial

reporting as determined by the Office

of the Auditor General for the 2011/12

reporting year.

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Financial Summary2012/13 2011/12 2010/11 2009/10 2008/09

$m $m $m $m $m

FINANCIAL PERFORMANCEProfit Before Income Tax Equivalent 22.9 25.0 16.2 6.8 34.4

Gross Administration Expenses 15.5 15.0 14.8 14.0 14.3

Income Tax Equivalent Expense 6.9 7.5 4.9 2.0 10.3

Dividends Paid 11.4 7.4 3.1 12.0 2.2

FINANCIAL POSITIONInvestments 4,192.4 5,383.9 3,346.2 2,586.7 2,702.2

Loans to Authorities 33,429.7 30,414.8 24,054.3 22,078.0 15,886.9

Other Assets 812.9 1,098.9 862.3 904.4 522.2

Total Assets 38,435.0 36,897.6 28,262.8 25,569.1 19,111.3

Percentage Change in Assets (%) 4.2 30.6 10.5 33.8 27.9

Borrowings 36,434.3 34,720.2 27,609.9 25,173.3 18,580.9

Other Liabilities 1,897.8 2,079.1 564.7 315.9 443.2

Total Liabilities 38,332.1 36,799.3 28,174.6 25,489.2 19,024.1

Equity 102.9 98.3 88.2 79.9 87.2

Key Performance Indicator Summary2012/13 2011/12 2010/11 2009/10 2008/09

Estimated Interest Rate Savings > 0.00% > 0.00% > 0.00% > 0.00% > 0.00%

Administration Cost Ratio 0.050% 0.056% 0.063% 0.072% 0.101%

Return on Capital (after tax) 23.80% 29.39% 20.60% 8.40% 53.27%

Pre-tax Profit $22.9 m $25.0 m $16.2 m $6.8 m $34.4 m

Client Satisfaction 100% 100% 100% 92% n/a*

Staff Engagement Rating ** 44% 55% 38% 78% 84%

n/a: not available. * Client survey not conducted. ** Prior to 2010/11, the survey assessed employee satisfaction as distinct from employee engagement.

Five-Year Summary

WATC assisted the Department of Parks and Wildlife with its procurement tender and hedging of payments for the purchase of two new fixed-wing spotter planes. The light fixed-wing aircraft are used to detect fires in south-west regions of Western Australia.

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Performance Against Targets for 2012/13

The Board sets annual performance targets for WATC. These targets form part of the Statement of Corporate Intent which is published at the start of each financial year in accordance with Section 16(1) of the Western Australian Treasury Corporation Act 1986.

ESTIMATED INTEREST RATE SAVINGS

In order to gauge its effectiveness in providing competitively priced loan funds to clients, WATC calculates the estimated interest rate savings to clients borrowing from WATC compared to the estimated cost to clients of borrowing in the corporate bond market. The following table shows the average of the estimated month-end savings for the year. (See page 75 for a more detailed explanation.)

Target: Savings > 0.00% Outcome: Refer to Table 1 below.

Table 1: 2012/13 Estimated Interest Rate Savings to Clients by Reference Bond Credit Rating and Term to Maturity*

Maturity Bucket (Years)

AAA AA+ AA AA-

1 to 2 0.21% 0.84% 0.91% 0.65%

2 to 3 0.80% 0.85% 1.10% 0.75%

3 to 4 0.76% 0.44% 0.77%

4 to 5 0.30% 1.16% 0.92%

5 to 6 0.83% 1.09%

6 to 7 0.47% 0.87% 0.87% 0.98%

7 to 8 0.25%

8 to 9 0.49% 0.80%

* A blank entry in the table means there is no reference bond available in the corporate bond market for comparative purposes.

RETURN ON CAPITAL

WATC operates to achieve a return on capital consistent with the risk carried within its business. The Capital Asset Pricing Model is used as the basis for the determination of this return target.

Return (%) = Pre-Tax Profit x 100

Adjusted Average Capital for the Year

1

Adjusted Average Capital for the Year is opening equity adjusted to take into account the timing and amount of any dividends paid to government during the year.

Target: Return = 6.2% Outcome: Return = 23.8%

PRE-TAX PROFIT

Target: Profit = $15.16 million Outcome: Profit = $22.88 million

ADMINISTRATION COST RATIO

WATC monitors its administrative efficiency by measuring its Administration Cost Ratio. The Administration Cost Ratio is a measure of the average administrative on-cost that must be borne by WATC’s clients.

Administration Cost Ratio (%) =

Net Administration Expense x 100

Average Lending Assets 1

Net Administration Expense is defined as total administration expenses less non-interest revenue. Average Lending Assets is defined as the average of the opening and closing book value of loans to clients for the period.

Target: Administration Cost Ratio < 0.10% Outcome: Administration Cost Ratio = 0.05%

WATC is well above related financial industry benchmarks and achieved

significant improvements...

4


CLIENT SATISFACTION

Each year, WATC undertakes a survey of a different client segment on a rolling three-year cycle to formally measure client satisfaction. The large semi-government client segment (as determined by value of debt outstanding and representing 92 per cent of total client debt), originally surveyed in 2010, was resurveyed in 2013. The 2010 and 2013 surveys obtained feedback from a range of client contacts from executive, management and operational staff.

Target: 90% client satisfaction level Outcome: 89% (92% in 2010) excellent or above average satisfaction with the alignment of debt finance products to client needs.

100% (92% in 2010) excellent or above average satisfaction with the overall quality of service provided.

The survey results indicated that WATC is well above related financial industry benchmarks and achieved significant improvements from the previous survey in terms of quality of service, understanding of clients’ financial needs and relationship management. WATC’s key strength cited by clients is its client service, with WATC seen as a business partner with financial expertise who understands its clients’ business.

STAFF ENGAGEMENT RATING

The Staff Engagement Rating for 2012/13 is composed of dimensions of the Aon Hewitt Best Employer Survey report and uses employee engagement as a key performance measure, enabling WATC to benchmark against ‘best employer’ standards within the region. WATC’s goal is to achieve ‘best employer’ accreditation from Aon Hewitt.

Target: Employee Engagement Rating > 65% Outcome: Employee Engagement Rating = 44%

Although the headline number showed only 44 per cent of staff ‘engaged’ against a target of 65 per cent, the combined total of ‘engaged’ and ‘nearly engaged’ showed an increase from the previous year to 81 per cent. In addition, the participation rate increased from 80 per cent to 90 per cent, a sign of improved engagement in itself.

WATC provided technical and methodological advice to Forest Products Commission for estimating cost of capital in its annual valuation of managed natural resources.

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OVERVIEW

In a dynamic financial environment, Western Australian Treasury Corporation (WATC) has had another successful year. The State’s borrowing program was successfully achieved, the Western Australia Future Fund was launched and numerous other advisory engagements with state government agencies were completed.

Australian short-term interest rates continued to fall throughout the year. However, long-term Australian interest rates have begun to increase, influenced by evidence that the US may begin to bring its GFC-induced accommodative monetary policy to a gradual conclusion in the next six to twelve months. The resulting narrowing interest rate differentials between US and Australian interest rates have prompted a recent and significant sell-off in the Australian dollar – from a high of $1.06 in January 2013 to a low of $0.91 in June 2013.

Against this backdrop, WATC funded a net increase of $3.5 billion in new loans, creating a new 2016 benchmark bond in November 2012 and a 2018 Floating Rate Note (FRN) in May 2013. WATC managed two benchmark bond maturities – July 2012 and June 2013 – and sold additional term debt into its existing benchmark issues, extending the weighted average maturity of its debt by approximately six months over the past twelve months.

The State election was held in March 2013, resulting in a deferral of the State budget to 8 August 2013.

The ratings agencies have had another active year with negative outlooks and downgrades. Western Australia did not escape their attention. Standard and Poor’s, having re-affirmed Western Australia’s AAA/stable outlook rating as recently as late August 2012, decided to place it on negative outlook on 24 October 2012. Moody’s followed suit on 20 December 2012. In spite of more than 20 years of strong GSP and fiscal management, the ratings agencies have apparently become concerned about the growth in debt and potential revenue volatility.

WATC had positive outcomes, in terms of both financial results and services provided during 2012/13, as acknowledged by our various stakeholders.

IMPROVING THE KNOWLEDGE OF AND RELATIONSHIP WITH CLIENTS

Positive financial outcomes for agencies are of critical importance to WATC. Towards this end, investment in Client Relationship Management systems continued productively during the year, using the Microsoft Dynamics software package. WATC continued to visit clients on a regular basis to assess and assist with their financial needs. WATC’s Client Services Division has become increasingly proactive in working strategically with its client agencies.

Foreign exchange (FX) training sessions were held with agencies to educate and assist them to identify and manage FX risks in accordance with Treasurer’s Instruction 826.

The Financial and Commercial Advisory Services Branch worked on a range of engagements during the year, including the provision of advice and execution of Economic Regulation Authority rate sets related to hedging weighted average cost of capital exposures for several utilities; investment engagements including the Western Australian Future Fund; and other debt and financial modelling projects. Ten staff are presently engaged in this advisory unit, supported by specialist WATC employees from Corporate Treasury, Risk, Finance, Originations and Governance and ICT units as required.

DEEPENING AND BROADENING ACCESS TO FINANCIAL MARKETS

WATC continued its investor marketing program during 2012/13. Investors include central banks, commercial banks, fund managers and insurance companies in Australia, Asia, Europe, North America and South America. WATC also participated with other Australian states at a number of investor bond conferences in Australia. These raise investor awareness of the strong economic and fiscal management in Western Australia and were particularly important in light of the negative ratings outlooks assigned to the State during the year. While our yields have increased somewhat, relative to other AAA-rated states, particularly during the last financial quarter, these have been minimised as much as possible in the circumstances.

Chairperson’s and Chief Executive Officer’s Review

WATC had positive outcomes, in terms of both financial results

and services provided during 2012/13, as acknowledged by

our various stakeholders.

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In late November 2012, a week after the surprising outlook change, WATC sold $1 billion of a new 3.00% coupon 2016 bond by syndication, led successfully by joint lead managers ANZ Banking Group, UBS AG, Australia Branch, Westpac Banking Corporation and co-manager Commonwealth Bank of Australia. In May 2013, a May 2018 Floating Rate Note for $1.0 billion was launched by syndication and joint lead managed by Commonwealth Bank of Australia and National Australia Bank.

This is the longest term FRN with over $1.0 billion in outstandings for an Australian semi-government issuer and helped to bring total WATC FRN outstandings at year end to almost $2.2 billion. Other bonds were sold throughout the year by reverse inquiry into WATC’s benchmark bond lines. A total of $28.3 billion (versus $25.3 billion last year) in short-term debt was sold in varying maturities (short-term inscribed stock, euro commercial paper and bonds with maturities of less than 12 months from issuance), while $8.3 billion (versus $6.8 billion last year) of net long-term debt including FRNs was issued in the past financial year.

WATC’s third year of Australian Financial Markets Association (AFMA) accreditation for financial markets and client-facing staff has seen 26 staff maintain or achieve accreditation again this year. The number of bank benchmark bond panel members remained at thirteen.

REVIEWING AND REFINING THE BUSINESS MODEL

WATC is continuing to build a systemically supported, continuously improving culture to produce better outcomes. Improved execution in Individual Performance Plans and Strategic Development Planning is producing a more aligned, objective and transparent set of outcomes.

Improvements in WATC’s Risk Management capabilities saw additional benefits in credit, market and operational risk this year, and included upgraded hardware and software for Business Continuity Planning purposes.

BUILDING CAPACITY

Although total staff numbers remained constant at 66 employees, staff turnover was slightly lower this year, at about 12 per cent.

FINANCIAL PERFORMANCE AND KEY PERFORMANCE INDICATORS

Profit before tax was $23 million, a slight decrease from last year’s $25 million.

This will provide for a return to the State of just above $17 million in tax equivalent payments and dividends on the approximately $105 million of average capital deployed at WATC for the year (a return of around $258,000 per full-time equivalent).

In spite of lending growth of almost 10 per cent, WATC’s net administration cost increases were slightly above inflation at 3.0 per cent, in keeping with the Western Australian Government’s ‘efficiency dividend’ initiative. This demonstrates the increasing productivity of resources deployed at WATC.

Two of WATC’s other three financial KPIs were achieved this year, including the Return on Capital measure of 23.8 per cent against a target minimum of 6.2 per cent. WATC’s Administration Cost Ratio was 0.050 per cent as a percentage of funds lent to clients, an improvement from 0.056 per cent last year and well below the 0.10 per cent target. In WATC’s estimation, this remains the lowest cost ratio for any Australian state since 1996. Similarly, WATC’s Estimated Interest Rate Savings compared favourably, though less so, to benchmarks established in previous years.

WATC’s third employee opinion survey conducted by Aon Hewitt highlighted some interesting results. Although the headline number showed a decrease from 55 per cent to 44 per cent of staff ‘engaged’ against a target of 65 per cent, the combined total of ‘engaged’ and ‘nearly engaged’ increased from 79 per cent to 81 per cent. The participation rate increased from 80 per cent to 90 per cent of staff, a sign of improved engagement in itself. ‘Engagement’ is not simply a measure of staff satisfaction but rather a measure of the number of staff willing to apply discretionary effort required to meet WATC’s goals.

WATC’s fourth annual Client Survey using Peter Lee Associates was conducted during 2012/13, revisiting the large client agencies initially canvassed three years ago. The results were pleasing, and are being used to help promote WATC, assess previous initiatives and identify ways to advance its client service proposition. WATC intends to continue to revisit each client segment every three years to measure specific improvements and identify future opportunities.

We thank our employees and Board for their hard work and dedication again this year to achieve these positive outcomes for the State of Western Australia.



16 August 2013



16 August 2013


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WATC fulfils the role of the State’s corporate treasury services provider, working with its public sector clients to assist them to achieve sound financial risk management. Within this broader role, WATC’s principal activities involve debt and interest rate risk management, the investment of the State’s surplus funds, assisting clients in the management of foreign exchange risk and the provision of financial advisory services.

ENABLING LEGISLATION

WATC was established on 1 July 1986 under the Western Australian Treasury Corporation Act 1986 (the Act) as the State’s central borrowing authority. Amendments to the Act during 1998 expanded WATC’s role to include the provision of financial management services to the Western Australian public sector.

RESPONSIBLE MINISTER

The Hon Troy Buswell, BEc, MLA; Treasurer; Minister for Transport; Fisheries.

PURPOSE

To provide efficient debt funding, effective financial solutions and leadership in financial risk management to the public sector for the benefit of all Western Australians.

SERVICES PROVIDED TO THE PUBLIC SECTOR IN WESTERN AUSTRALIA

WATC provides a range of financial services to the public sector in Western Australia, principally:

• lending to clients through a range of debt funding structures;

• providing financial risk management services (primarily interest rate risk management and the management of foreign exchange risk);

• investing its clients’ and the State’s short- to medium-term cash surpluses with the aim of maximising returns within a conservative risk management framework; and

• providing advice to its clients and the State.

BOARD OF DIRECTORS

At 30 June 2013, WATC’s Board comprised:

Timothy M Marney ChairpersonAnthony M Kannis Deputy Chairperson John M Collins Chief Executive OfficerGaye M McMathCatherine A NanceGrahame J Searle

The Secretary to the Board was Steven L Luff, Chief Financial Officer.

STATE GUARANTEE

Under Section 13(1) of the Act, the financial liabilities incurred or assumed by WATC are guaranteed by the Treasurer on behalf of the State. This guarantee is secured upon the Consolidated Account of the State.

CREDIT RATINGS

The debt of WATC is rated as follows:

Rating Agency Long-Term Outlook Short-Term

Standard and Poor’s

AAA Negative A-1+

Moody’s Investors Service

Aaa Negative Prime-1

Overview of Western Australian Treasury Corporation

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WATC was engaged by the Department of Environment and Conservation (now known as the Department of Parks and Wildlife) to conduct a financial review of the final submissions for an ecotourism development in the François Peron National Park.

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The Zone Youth Space is a purpose-built, two-storey youth space catering for the young people in Kwinana between the ages of 12 and 24 years. Featuring a multipurpose sports stadium, multimedia facilities, an art area and music rehearsal/performance spaces, the Zone is a youth friendly, safe place where young people can develop new skills, enhance existing abilities and socialise with peers. WATC assisted the City of Kwinana with this major project through the provision of loan funds for its construction.

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Board of Directors

TIMOTHY M MARNEY, CHAIRPERSON

Mr Marney has been Chairperson of the Board since his appointment to the position of Under Treasurer of the State of Western Australia on 20 June 2005, before which he had been Acting Chairperson since July 2004. He is also Chairperson of the Remuneration Committee. Mr Marney holds an Honours degree in Economics and has over twenty years experience in economics and finance, which includes working with the Reserve Bank of Australia prior to joining the Department of Treasury and Finance (now Department of Treasury).

ANTHONY M KANNIS, DEPUTY CHAIRPERSON

Mr Kannis was appointed to the Board as Deputy Chairperson in March 2009. He is also a member of the Audit and Risk Committee. Mr Kannis holds the position of Executive Director, Infrastructure and Finance, in the Department of Treasury. In May 2008, he was appointed to the Board of Infrastructure Australia.

GRAHAME J SEARLE

Mr Searle was appointed to the Board as a director on 1 January 2009 and is a member of the Remuneration Committee. He is the Director General of the Department of Housing. Prior to this, Mr Searle held a number of executive positions, including Chief Executive Officer at Landgate, following a range of senior leadership and management roles in Victoria. Mr Searle holds a Bachelor of Business degree. He is an honorary Fellow of the Spatial Sciences Institute of Australia, past President of the Institute of Public Administration (WA Division) and a member of the WA Planning Commission.

GAYE M MCMATH

Ms McMath has been a director of WATC since 1 January 2003 and is also a member of the Audit and Risk Committee. She is the Executive Director, Finance and Resources, with the University of Western Australia. Prior to this, Ms McMath was the Pro Vice Chancellor (Resource Management) at Murdoch University (Perth) after a twenty-three year career with BHP Billiton in a wide range of financial, strategic planning, treasury and commercial management positions. She holds a Bachelor of Commerce degree, a Master of Business Administration degree and completed the Advanced Management Program, Harvard Business School, in 2008. She is a Fellow of the Australian Institute of Company Directors and CPA Australia. Ms McMath is a director of Gold Corporation.

CATHERINE A NANCE

Ms Nance has been a director of WATC since 1998 and is also Chairperson of the Audit and Risk Committee and a member of the Remuneration Committee. She is an Actuary and Partner of PricewaterhouseCoopers with over twenty years experience in the financial services industry advising governments and companies on actuarial and finance-related matters. Ms Nance has a Bachelor of Science degree in Pure and Applied Mathematics and Physics and a Bachelor of Arts degree in Statistics. She is a Fellow of the Institute of Actuaries of Australia, an Affiliate of the Institute of Actuaries (London), a Fellow of the Financial Services Institute of Australasia and a member of the CFA Institute. Ms Nance is a director of the Government Employees Superannuation Board and a member of the advisory panel for the Centre of Excellence in Population Ageing Research and Actuaries Institute taskforces on superannuation and retirement-related issues.

JOHN M COLLINS

Mr Collins was appointed CEO of WATC and a director of the Board effective 15 October 2009. He serves as a member of the Remuneration Committee. Mr Collins has previously worked in senior banking and financial markets capacities in the US, Australia and Indonesia. This included almost 10 years with Cargill Incorporated and nearly 15 years with ANZ Bank, most recently as President Director of PT ANZ Panin Bank in Indonesia. Mr Collins has a Bachelor of Science in Business Administration degree with a major in Finance from the Ohio State University in Columbus, Ohio, and a Master of Business Administration degree with a specialisation in International Finance from the University of St Thomas in St Paul, Minnesota. He is currently AFMA accredited, is a graduate of the AICD Company Directors Course, is a member of the School of Economics and Finance Advisory Board for Curtin Business School and a Fellow of the Australian Institute of Management.

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WESTERN AUSTRALIAN TREASURY CORPORATION ANNUAL REPORT 2013WESTERN AUSTRALIAN TREASURY CORPORATION ANNUAL REPORT 2013

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WATC provided loan funding to the Town of Port Hedland to facilitate the construction of a multi-purpose recreation centre to support the needs of its rapidly growing population. The $35 million Wanangkura Stadium features high-quality sporting, function, conference, meeting and office facilities, and is a spectacular piece of architecture that will become a landmark for Port Hedland. The project has been shortlisted for the 2013 World Architecture Festival awards.

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Organisational Structure

BOARD

John Collins Chief Executive Officer

Stephen Morhall Director Client Services

Melvin Nunes Deputy Chief Executive Officer

Lisa BradyManager Foreign Exchange and Liquidity

Marco MottoliniManager Financial and Commercial Advisory Services

ClientServices

Richard McKenzieManager Client Services

Steve LuffChief Financial Officer

CorporateServices

Robert BeckettManager Information and Communications Technology

CorporateTreasury

Wayne Currie Corporate Treasurer

Bill McEwenChief Risk Officer

Governance and Risk

Peter SeedsManager Originations and Governance

Executive Unit


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The Western Australian Economy

OVERVIEW

Western Australia is a leading producer and exporter of a wide variety of minerals, with the State accounting for 46 per cent of the total value of Australia’s merchandise exports in 2012. The value of Western Australia’s merchandise exports was $114.2 billion in 2012, of which 87 per cent comprised minerals and petroleum exports.

Western Australia’s real Gross State Product (GSP) increased by an estimated 5.75 per cent in 2012/13, after rising 6.7 per cent in 2011/12. The domestic economy was the major driver of GSP growth during 2012/13, with real state final demand increasing an estimated 6.0 per cent, led by an estimated 9.0 per cent increase in private business investment. The external sector was a solid contributor to state income, with export volumes rising an estimated 9.5 per cent.

OUTLOOK

Growth is expected to edge back a little in 2013/14. Real GSP is forecast to rise 3.25 per cent, with an 11.25 per cent increase in dwelling investment being a major driver. Business investment is expected to decline 9.0 per cent after several years of exceptional growth, although the overall level of business investment will remain historically high. Export volumes are expected to increase 6.25 per cent in 2013/14. The State unemployment rate is expected to average 5.5 per cent in 2013/14, after averaging 4.4 per cent in 2012/13.

FISCAL OUTLOOK

The State Budget forecasts a general government operating surplus of $386 million for 2013/14, following a surplus of $239 million in 2012/13. The forecast rise in the surplus in 2013/14 is due to forecast increases in income from state taxes and mining royalties partially offset by a 16 per cent decline in the State’s share of national GST revenue. A forecast of flat revenue growth in 2014/15 is expected to see the operating balance record a deficit in that financial year before recording small surpluses in 2015/16 and 2016/17.

Economic and Financial Markets

Figure 2: Western Australian Government Net Operating Balance

Figure 1: Gross Domestic Product/Gross State Product – Annual Growth

Source: Department of Treasury, Commonwealth Treasury, Australian Bureau of Statistics

Western Australia Actual

Western Australia Forecast

Forecast

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

(%)

1990

/91

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

Australia Actual

Australia Forecast

Source: Department of Treasury

3,500

3,000

2,500

2,000

1,500

1,000

500

0

-500

($ million)

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

Actual

Forecast

2016

/17

Forecast

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

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/09

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2015

/16

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The Global Economy

OVERVIEW

Growth in the global economy during 2012/13 turned out to be weaker than expected. The sovereign debt crisis continued to weigh on growth in Europe and a resolution still seems quite distant. In addition, growth in emerging market and developing economies, led by China, slowed during the year.

The highly stimulatory monetary policies pursued by major central banks look to have had a meaningful impact, though the debate over the risks involved in such policies, and the timing of a withdrawal, has been ongoing. In particular, strong market reactions to a potential winding down of the US Federal Reserve’s quantitative easing program has illustrated the importance of central bank support.

In its July World Economic Outlook Update, the International Monetary Fund (IMF) downgraded its global growth forecasts to just above 3 per cent for 2013, recovering to 3.75 per cent in 2014. For the advanced economies, the IMF projects growth of 1.2 per cent in 2013 and 2.1 per cent in 2014, arguing that some tail risks have diminished but that policy support and reform would be required in order to stop such risks from resurfacing. For emerging market and developing economies, the IMF is projecting growth of 5.0 per cent for 2013 and 5.4 per cent for 2014.

The Australian Economy

OVERVIEW

The Australian economy grew at a moderate pace during 2012/13, while inflation was well-contained and the unemployment rate was slightly higher, though still at low levels. Annual real GDP growth in the June quarter 2013 was 2.6 per cent, following 2.5 per cent in the previous quarter, which was also lower than the GDP growth of 3.4 per cent in 2011/12.

Inflation outcomes remained favourable over 2012/13 and the high value of the Australian dollar continued to apply downward pressure on consumer prices over most of the period. The headline CPI rose 2.4 per cent from the June quarter 2012 to the June quarter 2013, while the RBA’s preferred core measure of consumer prices also rose 2.4 per cent for the same period, comfortably within the bank’s target range of 2 to 3 per cent.

FINANCIAL MARKETS

Given the favourable inflation situation, and with domestic growth slightly below trend, the RBA cut the cash rate on three occasions during 2012/13, by a total of 75 basis points, to 2.75 per cent. The RBA expects resource sector investment levels to peak this year, with other sectors of the economy seeing stronger growth over the medium term.

The 10-year Commonwealth government bond yield began the 2012/13 financial year at 3.12 per cent and traded higher towards the end of the period to finish at 3.78 per cent, trading down at one stage to a record low of 2.71 per cent and peaking at 4.03 per cent. The 3-year Commonwealth government bond yield opened the financial year at 2.55 per cent, rising towards the end to finish at 2.73 per cent, reaching as high as 3.14 per cent in March 2013 and as low as 2.18 per cent in July 2012.

The Australian dollar eased off post-float record highs against the US dollar over the 2012/13 financial year. Having started the year trading at US$1.0255, the currency reached a high of US$1.0624 in September 2012 and continued to trade above parity until May 2013, eventually easing to US$0.9224 by the end of June 2013. The catalyst for the decline appeared to be a general strengthening in the US dollar, following signals from the Federal Reserve that it could wind down its quantitative easing program.

Figure 3 below shows that while, for the past two financial years, the Australian dollar has tracked above parity against the US dollar on a sustained basis (for the first time since it was floated in 1983), it made a decisive break below that level in May 2013.

Source: Reuters

Figure 3: AUD/USD Currency Chart

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OVERVIEW

WATC’s borrowing activities during 2012/13 centred primarily on:

• issuing across the yield curve to fund lending to its clients;

• maintaining sufficient volumes on issue and enhancing the liquidity in its existing lines of benchmark bonds maturing in 2014, 2015, 2016, 2017, 2019, 2021 and 2023;

• refinancing its maturing July 2012 and June 2013 benchmark bond lines;

• issuing Floating Rate Notes (FRNs) in response to investor demand to accommodate the term floating rate borrowing requirements of clients;

• examining opportunities to issue through its Euro Medium Term Note (EMTN) Program and other offshore markets to generate term fixed and floating rate funding;

• issuing short-term paper, either through domestic inscribed stock or the Euro Commercial Paper (ECP) Program for liquidity funding;

• transacting in interest rate swaps to meet WATC’s asset and liability management requirements and to generate floating rate funding for its clients; and

• monitoring investor demand for off-the-run stocks, which are fixed interest bonds issued into maturity dates longer than benchmark bond maturity dates.

WATC utilised four of its five funding facilities during the year to complete the borrowing program. Funding for liquidity and short-term requirements was met through the domestic short-term and offshore ECP programs. Long-term fixed rate funding was generated through the domestic benchmark bond program while term floating rate funding was generated through FRN issuance.

The primary source of WATC’s long-term borrowings is the domestic fixed interest market. Domestic benchmark bonds comprise approximately 65 per cent of total borrowings. 2012/13 also saw the emergence of FRNs as an important component of WATC’s suite of products, accounting for 6 per cent of total borrowings by 30 June 2013.

Overseas, WATC’s ongoing strategy is to tap markets on an opportunistic basis through bond issues, private loans and its range of continuous note issuance facilities, such as its EMTN Program. When borrowing overseas, WATC aims to:

i. save on the interest cost of borrowing, where it can obtain funding for the borrowing program at rates below equivalent domestic rates after hedging any foreign currency exposure;

ii. undertake issues in a range of currencies, with specific structures or of particular terms to meet any special portfolio or client requirements; and

iii. diversify its investor base.

LONG-TERM BORROWINGS

Domestic Fixed Interest

WATC successfully completed its borrowing program for the year in the face of what continued to be a volatile and challenging global market environment. During the year, WATC partnered with a number of its Market Making Panel to present to domestic and offshore institutional investors on the strengths of the Western Australian economy and on WATC’s borrowing program and associated market activities.

As well as tapping into its existing benchmark bond maturities during the year, WATC also launched a new 3.0% 8 June 2016 maturity benchmark bond line by syndication in November 2012. ANZ Bank, UBS AG, Australia Branch and Westpac Banking Corporation were appointed joint lead managers and Commonwealth Bank of Australia was the co-manager. The issue was well received by investors, with 76 per cent of the issue being taken up by domestic investors and 24 per cent by offshore investors. At close of business on the day of issue, there was $2.0 billion outstanding in the new bond line.

Capital Markets Activity

WATC successfully completed its borrowing program for the year

in the face of what continued to be a volatile and challenging

global market environment.

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During the course of the year, two WATC benchmark bond lines matured. On maturity, the amount on issue of the 17 July 2012 and the 15 June 2013 benchmark bond lines was $2.995 billion and $2.665 billion respectively. These amounts were reduced from their peak outstandings through successful repurchase programs in the 12 months prior to maturity. At their peaks, in excess of $4 billion was on issue in each of these lines. By the end of the financial year, benchmark bonds outstanding had decreased from $23.28 billion in 2011/12 to $21.92 billion in 2012/13. The net decrease is the result of $6.45 billion of new issuance over the year against $7.81 billion on issue of maturing debt at the commencement of the year and the issuance of FRNs in combination with the use of swapped bond issues to generate floating rate funding.

Spreads between yields on WATC benchmark bonds and Commonwealth bonds generally trended narrower over the year. This was due primarily to improvements in credit spreads globally. Figure 4 shows the movement in spreads for selected WATC benchmark bond lines to the equivalent Commonwealth bond.

Floating Rate Notes

WATC continued to issue FRNs in response to investor demand to accommodate the term floating rate borrowing requirements of its clients.

WATC launched the longest maturity benchmark FRN undertaken by an Australian state central borrowing authority to date with the syndicated issue of its 21 May 2018 maturity FRN. The joint lead managers appointed for the issue were the Commonwealth Bank of Australia and National Australia Bank. The volume at launch was $1.0 billion.

In addition to the 2018 syndicated launch, WATC issued a further $985 million of FRNs in 2013, 2015, 2016 and 2018 maturities throughout 2012/13.

Market Making Panel

WATC’s Market Making Panel plays an ongoing key role in price-making and distribution of WATC’s benchmark bonds and FRNs. The Market Making Panel and contacts at 30 June 2013 are shown below in Table 2.

Table 2: Market Making Panel at 30 June 2013

Panel Member Contact Telephone

ANZ Investment Bank Mr Tim Wood 03 9095 0016Barclays Bank plc, Australia Branch Mr Stephen Ritchie 02 9334 6160Citigroup Global Markets Australia Pty Ltd Mr Simon Walters 03 8643 9820Commonwealth Bank of Australia Mr Stephen Powell 03 9675 7498Deutsche Capital Markets Australia Ltd Mr Matthew Yencken 02 8258 1444JP Morgan Australia Limited Ms Suzanne Long 02 9003 7907Merrill Lynch (Australia) Pty Limited Mr Craig Maggs 02 9226 5569National Australia Bank Limited Mr Kris Bernie 02 9295 1166Nomura International plc Mr Simon Novak 02 8062 8625Royal Bank of Canada Mr Michael Hall 02 9033 3222Toronto Dominion Securities Mr Jack Bao 1800 646 497UBS AG, Australia Branch Mr Timothy Riley 02 9324 2222Westpac Banking Corporation Mr Neil Easton 02 8204 2740

2019 WATC margin 2023 WATC margin2015 WATC margin

Figure 4: WATC Benchmark Bond Spread above Commonwealth Government Securities – 2012/13

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Taking into account overall performance throughout the year, the leading institutions on WATC’s Market Making Panel for 2012/13 were:

1. UBS AG, Australia Branch

2. Commonwealth Bank of Australia

3. National Australia Bank

4. ANZ Investment Bank

5. Westpac Banking Corporation.

Turnover

Turnover in WATC’s benchmark bonds for the financial year ended 30 June 2013 was $230 billion (see Figure 5 above).

WATC’s domestic benchmark bond volumes on issue at 30 June 2013 and the turnover volumes for the financial year were as follows:

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($ million)5.50 23/04/2014 3,266 51,732

7.00 15/04/2015 3,477 41,337

3.00 08/06/2016 2,792 33,038

8.00 15/07/2017 4,658 21,781

7.00 15/10/2019 3,704 12,447

7.00 17/07/2021 2,904 16,936

6.00 16/10/2023 1,121 6,169

WATC’s FRN volumes on issue at 30 June 2013 were as follows:

Maturity Date Volume on Issue

($ million)15/10/2013 150

19/12/2013 75

21/12/2015 250

25/06/2016 530

21/05/2018 1,180

Retail Borrowing

During 2012/13, retail investors contributed $61.8 million towards the completion of WATC’s domestic borrowing program. Of this amount, $43.3 million was borrowed from applicants required to purchase a designated investment to qualify for a visa issued by the Commonwealth Department of Immigration and Citizenship under one of the following subclasses:

• State/Territory Sponsored Investor (Provisional) (subclass 165)

• Investor (Provisional) (subclass 162)

• Investor Retirement (subclass 405).

The remaining amount was raised in the form of principal reinvested at maturity by existing stockholders and from new capital.

To ensure retail investors receive a competitive interest rate, WATC regularly monitors market yields and adjusts rates in accordance with its approved pricing policy.


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Figure 5: WATC Benchmark Bond Turnover – 2012/13

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WATC was instrumental in assisting the Perth Theatre Trust and Perth Concert Hall with developing and executing its hedging strategy for the upcoming Royal Concertgebouw Orchestra’s first ever performances in Australia. Internationally regarded by audiences and critics alike as the world’s greatest symphony orchestra, the Royal Concertgebouw Orchestra begins its historic premier tour of Australia at the Perth Concert Hall in this its 125th anniversary year, under the baton of Chief Conductor Mariss Jansons.

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Euro Medium Term Note Program

Since the establishment of WATC’s US$2 billion EMTN Program in 1990, 35 issues have been made in Australian dollars and other currencies.

Issues under this program can be made for terms from one month to 30 years, either through the dealer panel or on a reverse inquiry basis.

The dealer panel for the Program comprises:

• Australia and New Zealand Banking Group Limited

• Citigroup Global Markets Limited

• Commonwealth Bank of Australia

• Credit Suisse Securities (Europe) Limited

• Daiwa Capital Markets Europe Limited

• Deutsche Bank AG, London Branch

• Merrill Lynch International

• Mizuho International plc

• National Australia Bank Limited

• Nomura International plc

• RBC Europe Limited

• SMBC Nikko Capital Markets Limited

• UBS Limited

• Westpac Banking Corporation.

Citibank, N.A. London, is the Fiscal Agent, Registrar and Transfer Agent for the Program. Citigroup Global Markets Deutschland AG & Co. KGaA is the Paying Agent.

During the year, the volume of offshore funding sourced by Australian banks continued to impact on the foreign exchange basis swap pricing and meant that offshore funding was comparatively more expensive than equivalent domestic issuance. Opportunities in the Japanese market were assessed but were outside WATC’s pricing targets.

There were no Notes outstanding under the Program at 30 June 2013.

SHORT-TERM BORROWINGS

Domestically, short-term funds are raised through the issue of short-term notes in the form of inscribed stock. In overseas markets, WATC utilises its multicurrency ECP Program.

Short-Term Inscribed Stock

During 2012/13, WATC issued a total of $18.803 billion of short-term inscribed stock with an average weighted maturity of 103 days. This continued to be a reliable source of domestic short-term funds for WATC. At 30 June 2013, $7.043 billion was outstanding in short-term inscribed stock.


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Aggregate monthly issuance activity for short-term inscribed stock is shown in Figure 6 below.

The leading investors in WATC’s short-term inscribed stock facility for 2012/13 were:

1. Deutsche Capital Markets Australia Ltd

2. Lloyds TSB Bank Limited

3. ANZ Banking Group Limited

4. Commonwealth Bank of Australia

5. United Overseas Bank Limited.

Euro Commercial Paper Program

WATC maintains a multicurrency ECP Program. During the year, WATC issued ECP in a number of currencies including US dollars, Australian dollars, British pounds sterling, Swiss francs, Singapore dollars and New Zealand dollars. The limit on the Program is US$6 billion.

The total amount of ECP outstandings peaked at an amount equivalent to US$3.661 billion in May 2013.

Demand for WATC’s ECP has remained strong as investors’ preference for the security offered by high-rated debt paper prevailed. At 30 June 2013, on a transaction settlement basis, US$1,844 million of US dollar-denominated debt, £20 million of British pound sterling-denominated debt and A$10 million of Australian dollar-denominated debt was outstanding on this Program.

Aggregate monthly issuance activity for ECP is shown in Figure 6 below.

Issues under this Program can be made for terms from seven to 364 days through the dealer panel.

The dealer panel for the Program comprises:

• Banc of America Securities Limited

• Barclays Bank plc

• Citibank International plc

• Commonwealth Bank of Australia, Hong Kong Branch

• Credit Suisse Securities (Europe) Limited

• Deutsche Bank AG, London Branch

• National Australia Bank Limited, Hong Kong Branch

• UBS Limited

• Westpac Banking Corporation, Singapore Branch.

Citibank, N.A. London, is the Issuing and Paying Agent for the Program.

The leading institutions on WATC’s ECP Dealer Panel for 2012/13 were:

1. Citibank International plc

2. Banc of America Securities Limited

3. Barclays Bank plc.

Foreign Exchange Management

During the year, all non-Australian dollar-denominated borrowing commitments arising through the ECP Program were swapped into Australian dollars through the foreign exchange market.


CONTINUED

Figure 6: Short-Term Borrowings Monthly Issuance – 2012/13

(A$ million) Euro Commercial Paper – A$ Equivalent Short-Term Inscribed Stock

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WATC is proud to provide continued foreign currency risk management to the Art Gallery of Western Australia for its ongoing art acquisition and continuing Museum of Modern Art (MoMA) partnership.

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WATC provided loan funding to the City of Swan for the Percy Cullen Pavilion project, which included two new change rooms, upgrades to the existing pavilion and a new building adjacent to the existing pavilion connected by an integrated central courtyard. The Percy Cullen Pavilion is a multi-use, shared community facility in Gidgegannup which caters to a range of community and sporting groups, positioning it as the central hub of community activity in Gidgegannup.

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WATC is the primary provider of corporate treasury services to the Western Australian public sector and provides a comprehensive range of financial products and services. The Client Services Division is responsible for ensuring the efficient and effective delivery of financial solutions to meet clients’ individual requirements to facilitate the achievement of their financial objectives.

WATC provides:

• Lending Services – a comprehensive range of cost-effective debt funding products including transactional and ongoing debt management support.

• Advisory Services – specialist financial risk management and corporate finance advisory services.

• Foreign Exchange (FX) Services – transactional and foreign exchange risk management advisory services.

• Investment Services – transactional and investment management advisory services.

WATC has a strong focus on building, improving and strengthening its client relationship management skills, practises and processes and ensuring the targeted delivery of value-adding products and services to its clients. WATC’s client objective is to have:

“ Satisfied and committed clients who actively engage WATC as a business partner to deliver their financial needs.”

Each year, WATC undertakes an independent survey of a different client segment on a rolling three-year cycle to measure and compare performance to determine whether its client objective is being achieved.

For the 2012/13 survey, the large semi-government client segment (as determined by debt outstanding, representing approximately 92 per cent of total client debt) was surveyed. The results of the survey were very positive and reaffirmed that WATC continues to deliver on all the aspects of its client objective.

Key highlights of the 2013 survey were:

Satisfied and Committed Clients

In terms of quality of service, understanding of clients’ financial needs and relationship management, WATC is well above a range of related financial industry benchmarks.

Eighty-nine per cent of clients rated excellent or above average satisfaction with the alignment of WATC debt finance products to their needs, with 100 per cent of clients rating excellent or above average satisfaction with the overall quality of service provided by WATC.

Actively Engaged

Two thirds of clients regard WATC as their ‘most trusted advisor’ – the firm they would turn to first to discuss financial or risk management challenges or opportunities.

Business Partner

WATC’s key strength cited by clients is its client service, with WATC seen as a business partner with financial expertise who understands its clients’ business. The 2013 survey result reflects a significant shift from previous client perceptions of WATC as a provider of low cost debt products.

Delivering Financial Needs

WATC’s debt finance capability remains very highly regarded – and closely aligned to client needs. The capability and alignment to clients’ needs of FX risk management and transaction services was also very highly regarded.

Whilst the survey results are very satisfying and reflect its strong customer focus, WATC recognises the challenging and dynamic environment that its clients operate in and will continue to strive to satisfy its clients’ requirements.

LENDING AND INVESTMENT SERVICES

State Government

In the year to 30 June 2013, borrowings by state government authorities increased by $3.5 billion to $30.56 billion, a similar outcome to 2011/12 when borrowings increased by $3.83 billion. Approximately 61 per cent of the net increase in borrowings was on behalf of the Department of Treasury for the purpose of capital expenditure within the general government sector, supporting the development of infrastructure within public health, education, law and order, recreation, roads and other important public services.

Client Services

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Other significant increases in borrowings were realised by Western Power ($702 million) and Water Corporation ($449 million), directed at developing new, and improving existing, infrastructure for these important utility services provided to the people of Western Australia. Housing, public transport, port authorities, electricity generation and universities continued to be important government services provided by statutory authorities and government trading enterprises that are debt funded by WATC.

The distribution of WATC lending across the respective sectors representing its client base is shown in Figure 8. The most significant change in recent years is the continued increasing proportion of debt outstanding afforded to the general government sector, principally through borrowings by the Department of Treasury, and utilities. By contrast, the proportion of lending to ports has dropped from 3.2 per cent to 2.3 per cent over the past three years, reflecting government policy preference to attract private investment for the development of port infrastructure.

Figure 8: Lending by Broad Sector – Evolution of Debt Outstanding – 2010/11 to 2012/13

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FX and Liquidity is working with the Fiona Stanley Hospital to provide pricing oversight to the funding of equipment procured under the Pre-Operational Period in association with the Master Lease Agreement.

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Local Government

WATC continued to be the financier of choice to the State’s local government authorities. WATC has seen a consistent increase in the level of debt provided to local government authorities to finance a range of capital and community projects across the State including:

• construction of administration facilities and libraries;

• recreation, sporting and aquatic facilities;

• underground power;

• roadworks;

• commercial and residential land development; and

• aged care facilities.

In the year to 30 June 2013, net lending to local government authorities amounted to $23.1 million, taking the total amount of debt provided to local government authorities to more than $667 million. In addition, WATC has worked closely with its local government client base to improve the value-added of its service offering. During the year, WATC developed a debt capacity calculator capable of being inserted within each local government’s long-term financial plan to provide important information on expected future debt funding capacity within prudent loan servicing limits.

Loan Products

WATC offers its clients an extensive range of loan products including:

• Portfolio Lending Arrangements;

• Short-term Loans;

• Compound Cash Rate Lending;

• Term Floating Rate Loans;

• Term Fixed Rate Lending, including;

– interest only loans;

– amortising loans;

– zero-coupon loans;

– structured loans designed to meet individual client needs; and

• Capital Indexed Lending.

WATC’s loan products provide clients with access to cost-effective funding with the flexibility to structure loans to satisfy specific financing needs for terms from one day to more than 20 years.

During 2012/13 WATC worked closely with its client base to determine the most appropriate structure for a number of major funding initiatives. The two most significant of these, in respect of the amount of debt financed, were:

• A $1 billion June 2016 benchmark bond was issued by way of bank syndication to partially hedge a major client’s risk associated with the cost of debt component within their regulatory pricing framework.

• A $1 billion May 2018 Floating Rate Note was issued by way of bank syndication to extend the maturity profile of three major clients’ floating rate debt portfolios and hedge one client’s exposure to its regulatory pricing framework. The latter was achieved through the use of derivatives to create a fixed interest rate for a sub-period of the May 2018 maturity.

Figure 9 shows the mix of WATC’s loan products at 30 June 2013 by broad product type.

Investment Products

During 2012/13, WATC’s clients continued to take advantage of its State Government Guaranteed, AAA-rated at call and fixed term investment products. At 30 June 2013, WATC managed $126.5 million of client investment funds across 27 agencies.

FOREIGN EXCHANGE AND LIQUIDITY

The Foreign Exchange and Liquidity Branch strives to promote sound financial risk management practices throughout the Western Australian public sector by working closely with clients to understand their business and support both their decision-making and risk management processes. FX and Liquidity has expanded its educational offering to clients with the launch of a series of seminars to raise awareness of FX from a theoretical, practical and operational viewpoint. By understanding the risks associated with FX exposure and having access to cost-effective FX advisory and transactional services, WATC’s clients are well placed to manage their FX risk in line with their individual business requirements.

FX and Liquidity has assisted clients to identify and manage exposures that have arisen in anything from day-to-day operational transactions through to large-scale asset procurement projects. These included:

Client Services

CONTINUED

Figure 9: Debt Outstanding by Product Type at 30 June 2013

Capital Indexed Lending

Short-term Debt

Long-term Fixed Rate Debt

Term Floating Rate Debt

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The Mid West Energy Project (MWEP) is one of the most important infrastructure projects in Western Australia. WATC provided strategic and timely advice in the evaluation of currency risk within respondents’ bids and the pricing of risk transfer.

• Art Gallery of Western Australia’s collaboration with the Museum of Modern Art (MoMA) for the MoMA exhibition series;

• Perth Theatre Trust’s engagement of the Royal Concertgebouw Orchestra to perform in Perth in November 2013;

• Stage 2 expansion of the Southern Seawater Desalination Plant by Water Corporation;

• Department of Environment and Conservation’s procurement of two new spotter planes;

• Tourism WA’s annual overseas marketing activities; and

• assisting the Department of the Premier and Cabinet with international currency transactions for the operation of the Government’s three overseas offices.

FX and Liquidity is working with the Fiona Stanley Hospital to provide pricing oversight to the funding of equipment procured under the Pre-Operational Period in association with the Master Lease Agreement.

Treasury Services

WATC continued to fulfil a treasury services role for the Department of Treasury in relation to the investment of surplus funds standing to the credit of the Public Bank Account. The balance of funds invested at 30 June 2013 was $5.630 billion.

In addition, the Department of Treasury assigned responsibility for the investment of the Western Australian Future Fund to WATC on 30 November 2012. The balance of funds invested at 30 June 2013 was $305.931 million.

FINANCIAL AND COMMERCIAL ADVISORY SERVICES

WATC’s Financial and Commercial Advisory Services Branch provides corporate finance and financial risk management expertise to the State and Western Australian public sector entities. WATC applies innovation and sophisticated financial modelling, in collaboration with its clients’ business expertise, to resolve complex financial problems, with the aim of adding value to its clients. Key achievements and service offerings over the past year are described below.

South West Settlement Fund

During the year, WATC assisted the Department of the Premier and Cabinet with analysis of the proposal to create a trust fund that would settle native title claims across Perth and the South West of Western Australia. Over a number of engagements, WATC simulated the performance of the proposed Trust Fund, providing key insights into how the fund may perform under a range of different scenarios. The analysis involved the construction of a financial model to compare the portfolio performance under multiple scenarios assuming different State contribution structures, portfolio asset allocations and fund distribution policies.

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Key metrics specifically measured included the simulated future value of the Trust as measured at the end of the contribution period, the simulated future value of the Trust as measured at the end of the analysis period and the simulated annual distributions.

Department of Treasury

WATC continued to work closely with the Department of Treasury, advising on a wide range of financial risk management issues, including providing advice on the structuring of robust and appropriate debt and investment portfolios. WATC was heavily involved in developing investment proposals and guidelines for the investment and management of funds in the Western Australian Future Fund. This involved working with Treasury to clearly specify the investment objectives for the Fund. Once this was achieved, modelling was undertaken to analyse the likelihood of different asset allocations achieving the desired objectives. The modelling quantified the potential risk and return of various portfolio combinations. WATC worked with Treasury on arriving at an acceptable neutral investment portfolio, which forms the basis for benchmarking the performance of the Fund.

Lotterywest

WATC worked collaboratively with Lotterywest to review and update Lotterywest’s investment management policy and operational implementation. WATC provided quantitative analysis support to optimise the composition of the Lotterywest Investment Portfolio and expected portfolio risk and return characteristics. The changes to investment management processes will also provide enhanced governance, risk and operational controls.

Department of Planning

The Department of Planning and the City of Stirling initiated a project team to investigate different options for reducing traffic congestion within the city’s precinct. The options for consideration included road-based solutions and rail-based solutions. It was recognised that each of these solutions will have a potential impact on property values in the surrounding areas. WATC was engaged to conduct a value capture analysis in cooperation with the Curtin University Sustainability Policy (CUSP) Institute. The value capture analysis involved WATC modelling the flow-on effect of increased property values on the fees and taxes collected by the three tiers of government.

Department of Transport

WATC is working with the Department of Transport to develop a framework to determine a target rate of return for Western Australian port authorities. This involved discussion with each of the ports to understand the business operating environments for the port so as to enable a consistent methodology to be developed for estimating the relative risks faced by the port.

Department of Environment and Conservation

The Department of Environment and Conservation is exploring an ecotourism development in the François Peron National Park. WATC was engaged to conduct a financial review of the submission of the preferred proponent. WATC reviewed the cash flow assumptions and determined an appropriate discount rate. A sensitivity analysis was performed on the project NPV and issues for consideration in the submission were highlighted.

Forest Products Commission

The Forest Products Commission requires a discount rate for the annual valuation of its managed natural resource assets. The traditional methods for estimating the cost of equity could no longer be used due to the limited number of peer comparator firms, so WATC considered a variety of alternative methodologies to determine a weighted average cost of capital. A peer review was conducted domestically and internationally to estimate the cost of equity. WATC also applied the accounting beta technique to check for consistency.

Broome Port Authority

WATC analysed the impact on the Broome Port Authority’s financial position and performance as a result of defined capital works requiring debt funding. Two projects were identified for analysis – the refurbishment work for Broome wharf, which is nearing the end of its design life of 50 years, and the development of staff accommodation.

Department of Housing

The Department of Housing offers two forms of housing assistance for regionally based government employees, the first being a rental subsidy and the second a Home Ownership Subsidy Scheme. The subsidised rent is provided through a mixture of government owned properties and leased properties from the private rental market. Due to increasing demand for housing in selected regions of Western Australia, the cost of providing rental subsidies has grown substantially. WATC assisted the Department of Housing to construct a number of alternate versions of the subsidy scheme with the aim to be more attractive to government officers in the region and produce savings to the government.

Department of Finance

The Department of Finance has deployed a number of procurement managers to various government agencies to assist with procurement and tendering evaluation. Procurement managers positioned at a number of agencies have engaged WATC to assist with the validation and evaluation of leasing quotes.

Client Services

CONTINUED

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WATC provided payment certainty to the Western Australian Museum for its collaboration with the British Museum in bringing the spellbinding exhibition, Secrets of the Afterlife: Magic, Mummies and Immortality in Ancient Egypt, exclusively to Perth.

WATC provided the debt finance component for the University Hall student housing development and assisted The University of Western Australia in structuring the loan so that the repayment aligns with the term of the Commonwealth and State Government funding received through the National Rental Affordability Scheme.

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WATC’s people management strategy focuses on building capacity to ensure that it has a workforce and work environment capable of delivering WATC’s current and future strategic and operational business goals and objectives.

OVERVIEW OF THE WORKFORCE

WATC’s workforce numbers remained stable during 2012/13, with a total of 66 employees at 30 June 2013. Annual staff turnover decreased slightly to 12.1 per cent.

WATC’s workforce possesses a high level of strategic, technical and professional capability. During 2012/13, WATC undertook a series of initiatives to help maintain and build its workforce capability, including:

• supporting technical development, professional development and tertiary studies, with 12 employees undertaking tertiary studies and 26 employees obtaining or maintaining accreditation with the Australian Financial Markets Association;

• creating a matrix of high performance behaviours and competencies as the next step towards developing a high performance culture; and

• continuing work on employee engagement through ongoing participation in the Aon Hewitt Employee Engagement Survey and implementation of initiatives through the establishment of the Employee Engagement Working Group.

OVERVIEW OF THE WORK ENVIRONMENT

WATC’s Values outline the key characteristics of the work environment and this is supported through a range of policies, procedures and initiatives.

WATC continued to demonstrate its commitment to consultation and continuous improvement in the workplace through support of the Joint Consultative Committee, which reviews and discusses employment conditions and issues. More than 90 per cent of eligible staff participated in the third Aon Hewitt Employee Engagement Survey, and an Employee Engagement Working Group was established to provide employees with an opportunity to put forward ideas and actions that will improve engagement. WATC also undertook a series of cross-branch projects delivering efficient and improved outcomes for clients.

A strategic initiative to develop a high performance culture commenced in 2012/13. Staff workshops were conducted to ascertain WATC’s view of what a high performance culture would look like and what behaviours characterise a high performance culture. Aon Hewitt was engaged to facilitate the workshops and subsequently develop a matrix of behavioural competencies to be used by staff as a development tool.

OVERVIEW OF SAFETY, HEALTH AND ILLNESS/INJURY MANAGEMENT

WATC is committed to an Occupational Safety and Health (OSH) management system that is comprehensive and consultative and allows for continuous improvement in working towards a safe and healthy workplace. The Chief Executive Officer leads the way as an active member of the OSH Committee and is supported by other members of the Executive Management Committee.

The formal mechanism for consultation is the OSH Committee, which comprises management representatives, safety and health representatives and employee representatives. The OSH Committee meets on a quarterly basis and four meetings were held during the reporting period. OSH information, including access to OSH Committee minutes, is made available to all employees through WATC’s intranet.

The OSH system is supported by delivery of training to employees. All new employees receive OSH training as part of their induction program. This is reinforced through annual information sessions for employees. All employees have attended at least one safety and health training session in the past two years.

Our People

WATC continued to demonstrate its commitment to consultation

and continuous improvement in the workplace...

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WATC provided loan funds to the City of Greater Geraldton for an extensive phase one of refurbishment to the Aquarena which is a multi-purpose swimming facility offering a range of activities and services to the local community, including an outdoor 50 metre pool, an indoor 25 metre lap pool, leisure pool, water slide and hydrotherapy facilities.

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The OSH system was evaluated through an external audit, based on Australian Standard AS4801: Occupational Health and Safety Management Systems, by an approved auditor. Although the audit indicated that WATC has a very good system in place that is working well, the alternative benchmark of the Australian Standard (compared with previous audits against the WorkSafe Plan) has provided WATC with opportunities to further improve its OSH system.

WATC also has a Wellness program to promote, encourage and support employee safety and health. This includes providing employees with access to health checks, skin cancer checks and flu injections, fruit, information sessions on health issues and participation in individual and team sport activities.

WATC had no fatalities or injuries in the workplace leading to lost-time injury during the reporting period, as outlined below.

Measure Actual Results Results Against Target

2010/11 2012/13 Target Comment

Number of fatalities 0 0 0

Lost time injury/disease (LTI/D) incidence rate 0 0 0

Lost time injury severity rate 0 0 0

Percentage of injured workers returned to work within 13 weeks.

n/a n/a 100% No lost time injuries during reporting period.

Percentage of injured workers returned to work within 26 weeks.

n/a n/a ≥ 80% No lost time injuries during reporting period.

Percentage of managers and supervisors trained in occupational safety, health and injury management responsibilities.

100% 100% ≥ 80% Training attended within the last two years.

n/a: not applicable


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A key focus of WATC’s risk management is to monitor and assess the risks to which it is exposed in order to avoid adverse surprises and ensure that its risk profile remains aligned with the Board’s risk appetite. Ultimately, a successful risk management program helps WATC to satisfy its stakeholder obligations in a timely and cost-effective manner.

WATC operates under a Board approved Risk Management Framework which uses systems, policies and processes to ensure that its risks are appropriately managed and communicated in a timely manner. WATC also maintains capital provisions guided by APRA standards and the Basel Accord to cover the financial impact of any adverse events.

The key risks faced by WATC, including any changes in risk profile or the approach to the management of these risks, are outlined in the following sections.

CREDIT RISK

Credit risk is the risk that WATC’s counterparties are unable to meet their financial obligations when due. WATC’s largest credit exposures arise from the need to maintain a portfolio of liquid investments in financial institutions in order to manage liquidity risk and to support the market in its debt paper. The use of derivatives to manage the market and liquidity risk associated with WATC’s funding activities is another source of credit risk. Collateral posting arrangements with derivative counterparties allowed WATC to reduce this risk to minimal levels during the year. Credit risk exposure is also generated from WATC’s lending to local government authorities (LGAs) and is mitigated by assessing the LGA’s ability to repay debt before advancing new loan funds.

The credit risk for WATC’s investment portfolio is managed using various control measures including a risk-based limit system. Rating agencies’ downgrades on WATC’s bank counterparties slowed in 2012/13 but the agencies’ future outlooks remained biased toward further downgrades. Despite these downgrades and the growth of WATC’s balance sheet, WATC’s average credit risk capital provisioning requirements fell during the year.

The global credit environment continued to present concerns in 2012/13 and these were centred on the Eurozone. Although financially stressed European sovereigns were able to access funds from capital markets or bailout programs during the year, questions about the long-term solvency of some sovereigns and financial institutions remain. Meanwhile, stagnating European economies, slowing growth in China and a weak recovery in the US mean retail and corporate defaults will continue to occur and could potentially spark instability in financial markets.

In this context, during 2012/13, WATC’s credit risk management focused on positioning WATC to avoid credit losses; monitoring WATC’s credit exposure to ensure that it remained within agreed limits; and identifying and assessing emerging credit risks. In the 12 months to 30 June 2013, no counterparty failed to meet its financial obligations to WATC.

MARKET RISK

WATC funds its clients on a portfolio basis through a range of domestic and overseas borrowing activities and seeks to minimise the market risk it carries when funding and lending activities are not aligned. As a result, WATC maintained a relatively small but variable market risk exposure to movements in interest rates across the yield curve during the year. In addition, and as a matter of policy, WATC’s net foreign exchange exposure in 2012/13 was negligible.

Market risk controls are principally based on Value at Risk and stress testing metrics. In addition, the market risk carried by WATC is mitigated through the retention of capital commensurate with the level of risk retained. Movements in portfolio exposure are monitored and assessed on a daily basis, with risk treatment plans developed where market risk exceeds, or is expected to exceed, the levels authorised by the Board.

WATC’s market risk management strategy remained much the same as in previous years, with minor adjustments required to account for portfolio aging, the development of new funding lines and client lending preferences. On average, market risk exposure was lower than 2011/12, due largely to the combined impact of these factors. Lower market volatility for much of the year was also a contributing factor, although bond, swap and futures markets remained volatile by historical standards. Portfolio movements and exposure did, however, remain well within control limits and both the controls and portfolio hedging strategies have remained satisfactory despite the challenging market conditions that have prevailed in the post-Global Financial Crisis environment.

Risk Management

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LIQUIDITY RISK

WATC defines liquidity risk as the risk of having insufficient funds available to meet its financial obligations, as and when they fall due, without having to incur excessive losses or funding costs. WATC’s liquidity risk is managed through a combination of maintaining a diverse range of funding sources and a level of liquid assets that is adjusted in accordance with balance sheet size and cash flow projections. The key liquidity risk control is to maintain a liquidity portfolio sufficient to cover WATC’s net outflows for at least the next 10 business days.

Market liquidity remained variable in 2012/13 due to ongoing global macroeconomic concerns. However, WATC was able to access short- and long-term funding to ensure sufficient liquidity coverage throughout the year, including the periods preceding two large benchmark bond maturities. In light of concerns regarding the potential for short-term reductions in market liquidity, as well as to maintain consistency with industry practice, it has been decided to move to holding a liquidity portfolio sufficient to cover net outflows over a period of 30 calendar days from 1 July 2013.

OPERATIONAL RISK

Operational risk-related losses can result from “inadequate or failed internal processes, people, and systems or from external events”. Such risks are inherent in all aspects of the operations of financial entities such as WATC.

In order to manage these risks, WATC’s Operational Risk Management Framework aims to maintain a high degree of integrity and quality in the delivery of funds and services to clients by assessing and monitoring risks and ensuring that existing controls keep risks within the Board’s tolerance level. In addition, capital is set aside to mitigate WATC’s operational risk exposure.

During 2012/13 the Risk Management Branch reviewed WATC’s risk management processes, monitored risks and reported to senior management and the Board on a regular basis. The branch also acted as an advisor to line managers in the identification and control of operational risks. Operational risk capital provisioning increased proportionally to the growth in total debt during 2012/13. There were no significant operational risk events during the year.

Business continuity planning is a key element of WATC’s Operational Risk Management Framework. WATC has a mature and regularly tested Business Continuity Plan (BCP) that facilitates the continuation of key operations in the face of a range of business disruption events. The BCP was reviewed and tested during 2012/13. Testing confirmed the ability of WATC’s BCP and WATC’s external disaster recovery site to facilitate the continuance of operations with minimal disruption.

Average Peak

Source of risk

2012/13

($m)

2011/12

($m)

2010/11

($m)

2012/13

($m)

2011/12

($m)

2010/11

($m)

Credit Risk 29.5 32.2 26.4 40.7 40.3 32.8

Market Risk 8.4 9.8 8.9 18.3 14.7 15.6

Operational Risk 11.0 9.2 9.9 11.7 10.2 10.0

Overall 48.8 51.3 45.2 61.6 61.9 51.3

In 2012/13 WATC provided Geraldton Port Authority with a range of options for debt repayment strategies for the Port Enhancement Project loans which facilitated the expansion of Port facilities in recent years.

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The Board of Directors of WATC is responsible for the performance of the functions of WATC under the Western Australian Treasury Corporation Act 1986.

In order to ensure that WATC carries out its functions in the best interests of the State, its clients and other stakeholders, the Board of Directors (the Board) sets the strategic direction of WATC (with the agreement of the Minister) and establishes the policies and principles under which WATC operates.

The corporate governance processes established by the Board ensure that it is able to fulfil its statutory obligations, guide the affairs of WATC and oversee its performance.

The Board relies on, and holds to account, the Chief Executive Officer for the operational management of WATC and implementation of the strategic direction.

BOARD COMPOSITION

The membership of the Board is determined in accordance with Section 5B of the West Australian Treasury Corporation Act 1986 (the Act) and comprises:

i. the Under Treasurer as Chairperson;

ii. a Treasury officer nominated by the Under Treasurer from time to time as the Deputy Chairperson;

iii. the Chief Executive Officer or Acting Chief Executive Officer of WATC; and

iv. up to three other persons with relevant commercial or financial experience appointed by the Minister (appointed directors).

An appointed director may hold office for a term not exceeding three years, as is specified in the instrument of appointment, but may be reappointed from time to time.

At 30 June 2013, the directors of WATC were:

BOARD RESPONSIBILITIES

The Board is responsible for the performance of the functions of WATC under the Act.

These functions include:

• to borrow moneys and lend moneys to the Western Australian public sector;

• to develop and implement borrowing programs for the purposes of the Act;

• to manage the financial rights and obligations of WATC;

• to advise on financial matters, including debt management, asset management and project and structured financing;

• to manage investments for the Department of Treasury and other government agencies;

• to assist authorities with managing their financial exposures; and

• to assist the State with the management of any debt raised prior to the establishment of WATC.

In fulfilling this role, the Board guides and monitors the affairs of WATC. This includes:

• reviewing and establishing (with the Minister’s agreement) WATC’s Strategic Development Plan and Statement of Corporate Intent each year;

• monitoring the performance of WATC; and

• ensuring that appropriate accounting, risk management, budgeting, compliance, information technology and internal control policies, systems and reporting processes are in place. These include its Risk Management Policy and Business Continuity Plan.

Corporate Governance

Name PositionFirst Appointed

Term Expires

Timothy Michael Marney Chairperson Statutory Statutory

Anthony Michael Kannis Deputy Chairperson 01/03/2009 n/a

John MacPherson Collins 1 Chief Executive Officer Statutory Statutory

Gaye Marie McMath Director 01/01/2003 31/12/2013

Catherine Anne Nance Director 15/07/1998 31/12/2015

Grahame John Searle Director 01/01/2009 31/12/2013

n/a: not applicable. 1 The Chief Executive Officer is the only director with executive responsibilities. All other directors are independent directors.

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The City of Kalgoorlie-Boulder embarked on a $2.3 million alternative energy project for the Goldfields Oasis Leisure Centre, using the alternative technologies of a solar thermal water heating system, a solar PV system and a ground source heat pump system. WATC assisted the City to secure debt finance for this project which is estimated will save approximately $250,000 per annum in electricity and gas costs for the Centre.

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BOARD COMMITTEES

To assist in the execution of its responsibilities, the Board has established an Audit and Risk Committee and a Remuneration Committee.

Audit and Risk Committee

The role of the Audit and Risk Committee, as set out in the Terms of Reference approved by the Board, is to give the Board additional assurance regarding the quality, integrity, reliability and adequacy of WATC’s accounting and internal control systems, financial reporting and compliance processes.

The Audit and Risk Committee is responsible for contact with WATC’s external and internal auditors to ensure that significant issues and information arising from the auditors’ activities are brought to the attention of the Board. At meetings of the Audit and Risk Committee, the external and internal auditors are invited to address the Audit and Risk Committee without management present.

The Chairperson reports to the Board after each meeting, including any findings and recommendations of the Committee.

The members of the Audit and Risk Committee at 30 June 2013 were:

Name Position

Catherine Anne Nance Chairperson

Anthony Michael Kannis Member

Gaye Marie McMath Member

All members of the Audit and Risk Committee are non-executive directors.

Remuneration Committee

The Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to the employment terms and conditions of all members of WATC’s staff, including the Chief Executive Officer and the directors themselves.

With the approval of the Board, the Remuneration Committee uses the services of external remuneration experts to advise it on appropriate levels of remuneration and other terms and conditions of employment for WATC staff, including the Chief Executive Officer.


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The remuneration and allowances payable to appointed directors are determined by the Treasurer on the recommendation of the Minister for Public Sector Management. The terms and conditions of service for the Chief Executive Officer require the concurrence of the Minister.

The members of the Remuneration Committee at 30 June 2013 were:

Name Position

Timothy Michael Marney Chairperson

John MacPherson Collins Member

Catherine Anne Nance Member

Grahame John Searle Member

Attendance at Meetings by Directors

Details of attendance at the Board and Board Committee meetings by each director during the year are shown below in Table 3.

CONSTITUTION AND PROCEEDINGS OF THE BOARD

The Constitution and Proceedings of the Board are provided for in Schedule 2 of the Act.

STATUTORY CORPORATIONS (LIABILITY OF DIRECTORS) ACT 1996

WATC’s directors are bound by the provisions of the Statutory Corporations (Liability of Directors) Act 1996. Accordingly, directors are required to comply with the same fiduciary responsibilities and duties of loyalty and good faith owed by directors of companies incorporated under the Corporations Act 2001.

In accordance with Clause 18 of Schedule 2 to the Act, directors are required to leave the room and not take part in deliberations of matters in which they have some material personal interest.

INSURANCE POLICY

An insurance policy has been taken out to indemnify members of the Board against liabilities under Sections 13 and 14 of the Statutory Corporations (Liability of Directors) Act 1996. The amount of the insurance premium paid for 2012/13 was $62,854.

ETHICAL STANDARDS AND CODES OF CONDUCT

The Board acknowledges the need for, and the continued maintenance of, the highest standards of corporate governance practices and ethical conduct by WATC’s directors and staff and has established codes of conduct for directors and staff respectively.

Table 3: Attendance at Meetings by Directors

Director Board Audit and Risk Committee Remuneration Committee

Held Attended Held Attended Held Attended

T M Marney 11 8 3 2

A M Kannis 11 7 4 0 12

J M Collins 1 11 11 4 4 3 3

G M McMath 11 10 4 4

C A Nance 11 9 4 4 3 3

G J Searle 11 8 3 3

1 John Collins was invited to attend Audit and Risk Committee Meetings.

2 Anthony Kannis attended a Remuneration Committee meeting to represent Timothy Marney in his absence.


CONTINUED

…continued maintenance of the highest standards of

corporate governance practices and ethical conduct…

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WATC provided loan funds to the Shire of Beverley for the development of the Shire’s recreation precinct. The development included new change room and first aid facilities, a separate kitchen and drinks service area, a multipurpose meeting room and crèche facilities, providing modern and convenient facilities to cater for all ages in the district.

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The staff Code of Conduct (the Code) reflects and supports WATC’s Values and provides employees with a clear, concise and relevant guide to standards of behaviour in the workplace.

The Code also applies to directors unless there is an inconsistency, in which case the Directors’ Code of Conduct will apply.

WATC has also adopted the Western Australian Public Sector’s Code of Ethics and endorsed, in principle, the code of conduct developed by the Australian Financial Markets Association.

PROFESSIONAL ADVICE

Directors are entitled, with the prior approval of the Chief Executive Officer, to obtain such resources and information from WATC, including direct access to management and professional advisers, as they may require in order to carry out their duties as directors. Directors are also entitled, with the prior approval of the Chairperson, to seek independent professional advice, at the expense of WATC, to assist them to carry out their duties as directors.

PERFORMANCE EVALUATION

The Board evaluates its performance each year.

COMPLIANCE

The role of WATC’s compliance function is to ensure that WATC maintains its high prudential standards and has the appropriate procedures in place to comply with the Act and other relevant legislation, its policies and industry standards.

Auditors

External Audit

Section 21 of the Act states:

“ The provisions of the Financial Management Act 2006 and the Auditor General Act 2006 regulating the financial administration, audit and reporting of statutory authorities apply to and in respect of the Corporation and its operations.”

In accordance with the provisions of the Financial Management Act 2006 and the Auditor General Act 2006, WATC’s external auditor is the Auditor General for Western Australia. The Auditor General utilised the services of Ernst & Young to conduct the annual audit.

Internal Audit

WATC’s internal audit function is outsourced to KPMG. Appointment to this role by WATC is subject to the Common Use Arrangements authorised by the Department of Finance for accessing audit services and financial advice.


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FREEDOM OF INFORMATION (FOI)

WATC has an FOI Coordinator to facilitate the handling of requests and to be the first point of contact for FOI enquiries and requests.

For the year ended 30 June 2013, WATC received no FOI access applications in accordance with the Freedom of Information Act 1992.

In accordance with Part 5 of the Freedom of Information Act 1992, WATC has prepared an Information Statement. This document is available for inspection on the WATC website or at WATC’s office at Level 12, St Georges Square, 225 St Georges Terrace, Perth, Western Australia.

RECORDKEEPING PLAN

In accordance with Section 61 of the State Records Act 2000 and the State Records Commission Standards (Standard 2 – Principle 6), WATC has an approved Recordkeeping Plan.

The efficiency and effectiveness of WATC’s recordkeeping systems is evaluated on a regular basis, with a major review of WATC’s recordkeeping plan and supporting policies, procedures and recordkeeping tools scheduled for early 2014.

All staff are required to undertake an online recordkeeping awareness training program on a regular basis. All new employees are required to undertake this training as part of their induction.

A program of refresher training focusing on electronic document management is planned for all employees and this will coincide with the upgrade of the corporate electronic recordkeeping system.

Mechanisms used to review and assess the effectiveness of recordkeeping training include staff surveys, compliance audits and monitoring the use of recordkeeping systems.

The recordkeeping component of WATC’s induction program includes comprehensive training covering recordkeeping responsibilities, processes and practices, the use and application of the corporate electronic recordkeeping system and completion of the online recordkeeping awareness training program.

ELECTORAL ACT DISCLOSURES

Under the Electoral Act, WATC is required to disclose any expenditure it makes to:

• advertising agencies;

• market research organisations;

• polling organisations;

• direct mail organisations; and

• media advertising organisations.

For the year ended 30 June 2013, the only disclosable expenditure incurred was in relation to advertising, where an amount of $28,807 was spent for advertising of staff vacancies.

LEGISLATION

Legislation Administered

Western Australian Treasury Corporation Act 1986

Legislation Impacting on WATC’s Activities

State Legislation Impacting on Activities

• Auditor General Act 2006• Corruption and Crime Commission Act 2003• Disability Services Act 1993• Electoral Act 1907• Electronic Transactions Act 2003• Equal Opportunity Act 1984• Fair Trading Act 1987• Financial Management Act 2006• Freedom of Information Act 1992• Occupational Safety and Health Act 1984• Pay-roll Tax Assessment Act 2002• Public and Bank Holidays Act 1972• Public Interest Disclosure Act 2003• Public Sector Management Act 1994• Stamp Act 1921• State Records Act 2000• State Superannuation Act 2000• State Supply Commission Act 1991• Statutory Corporations (Liability of Directors) Act 1996• Workers Compensation and Injury

Management Act 1981

Commonwealth Legislation Impacting on Activities

• A New Tax System (Goods and Services Tax) Act 1999• Anti-Money Laundering and Counter-

Terrorism Financing Act 2006• Census and Statistics Act 1905• Copyright Act 1968• Fair Work Act 2009• Fringe Benefits Tax Act 1986• Income Tax Assessment Act 1936• Superannuation Guarantee (Administration) Act 1992• Taxation Administration Act 1953

Changes in Written Law

There were no changes to the Western Australian Treasury Corporation Act 1986 during the financial year.

MINISTERIAL DIRECTIVES

No ministerial directives were received during the financial year.


CONTINUED

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INFORMATION AND COMMUNICATIONS TECHNOLOGYThe Information and Communications Technology (ICT) Branch is focused on ensuring that WATC’s business applications and information technology systems and infrastructure continue to meet WATC’s evolving business needs in a reliable, efficient and cost effective manner.

To this end, the highlights for 2012/13 included maintaining the Summit treasury management system to ensure its continuing seamless operation, the implementation of the Western Australian Future Fund, the introduction of the Client Relationship Management (CRM) system and the upgrade of the Storage Area Network (SAN) and business continuity facilities.

Business Applications2012/13 was a year of consolidation for WATC’s core Summit treasury management system. Minor changes were made to streamline operations with greater use and refinement of inflation-linked trades and the application of patches for functional improvement.

Additional reporting functionality was introduced to meet client needs with the piloting of an Enterprise Data Warehouse (EDW). The pilot proved the EDW was capable of easily providing a single reporting source, with the collection of data from different systems and storing historical data for analysis and reporting. The success of the pilot project ensured that the EDW will be expanded to provide greater flexibility for users when accessing data for analysis and reporting.

One of the key business initiatives for 2012/13 was the introduction of the Microsoft Dynamics CRM system. The CRM was implemented to bring greater efficiency to client relationship management and service delivery. The project was implemented in the first quarter of the financial year. The CRM production operation has proved successful and projects to extend its functionality and coverage are proposed for the next financial year.

InfrastructureIn order to maintain and improve system capability and capacity, upgrades were made to both the Microsoft Windows server and Microsoft Windows 7 desktop operating environments. As forecast in the ICT 3-Year Strategic Plan, it was necessary to upgrade the capacity of the SAN to cater for the EDW, the CRM and natural growth of systems and data.

Product and Service Delivery

A significant achievement for the year was the implementation of the Western Australian Future Fund in December 2012. This project required the development of new products and specialised risk and performance reporting within a tight timeframe. As a result of leadership, organisational commitment, cooperation and dedication of staff across WATC, this project was successfully completed within the tight project parameters.

During the year, significant improvement was made to client reporting with the introduction of new suites of reporting for client foreign exchange and investment transactions.

In addition, the application of new functionality in the Summit treasury management system enabled WATC to streamline internal operations by replacing a manually generated yield curve, used to price and value forward dated bonds, with an automated process through the Summit system.

Business ContinuityBusiness continuity is an essential aspect of the services delivered by ICT. The reliability, responsiveness and integrity of the business continuity facilities are monitored and upgraded to cope with the increasing data storage and the number of systems required at the disaster recovery site. This included the upgrading of data transfer capability between sites. The business continuity facilities are regularly tested to ensure they meet requirements.

REGISTRY AND TREASURY OPERATIONSDuring 2012/13, WATC retained Link Market Services Limited (Link) as agent for the provision of registry services to WATC’s stockholders. Address details of the branch offices of Link appear on the last page of this report.

During the financial year, the following suppliers provided systems and services to facilitate confirmation and settlement of financial transactions:

ASX Austraclear Limited for A$ cash, short-term money market, fixed interest and foreign exchange transactions

Bank of America Merrill Lynch (CashPro Online) for foreign currency payments

Clearstream (CreationOnline) for repurchase of offshore issues

Citibank NA (CitiDirect for Securities) for transactions in Euro Commercial Paper and Euro Medium Term Notes

QUARTERLY REPORTWith the exception of the June quarter, WATC submits a report on its operations during the preceding quarter to the Treasurer. This report is tabled in Parliament by the Treasurer.

PRICING POLICYWATC operates in a dynamic market where the price of its lending to the public sector is primarily driven by the costs of its borrowings. This cost fluctuates according to the prevailing level of interest rates. WATC sets its lending rates at a competitive level after taking into account the cost of funds, market risk, administration costs and the return on capital. The pricing for financial advice and funds management is determined on a cost recovery basis.

Corporate Services


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Future Outlook & Budget 2013/14

ESTIMATED BORROWING PROGRAM 1 – 2013/14 $ million $ million

Funding RequirementsNew Lending To Clients 4,168Projected Maturities Benchmark Bonds 3,266 Floating Rate Notes 225 Short-Term (Commercial Paper Outstandings) 9,254 12,745Total Funding Requirement 16,913

Source of FundingBorrowings Long-Term

Benchmark Bonds 5,000 to 8,000Floating Rate Notes 2,000 to 4,000

Short-Term (Commercial Paper Outstandings) 6,000 to 8,000 16,913Total Funding 16,913

1 The sourcing of WATC’s funding is subject to conditions in the various markets and the market mix during the year may be amended as necessary to meet WATC’s pricing, liquidity, lending and capital usage targets.

BORROWING STRATEGY

In order to meet its funding and debt management needs for 2013/14, WATC proposes to:

• issue across the yield curve to fund lending to its clients;

• enhance the liquidity in its existing lines of benchmark bonds by:

– maintaining sufficient volumes on issue to retain benchmark bond status;

– supporting these securities in the market; and

– issuing through its Fixed Interest Market Making Panel, either by tender, private placement or syndication;

• issue a new intermediate benchmark bond line maturing in 2018 as well as a new long benchmark bond which will extend its current maturity profile beyond 10 years;

• continue to issue floating rate notes in response to investor demand to accommodate the term floating rate borrowing requirements of clients;

• continue to be responsive to opportunities to issue bonds longer than 10 years to hedge specific client lending and target maturities of future benchmark bond lines;

• continue to issue short-term paper through its domestic short-term inscribed stock or Euro Commercial Paper Program to meet its short-term lending or liquidity funding requirements;

• continue to examine opportunities to issue through its Euro Medium Term Note Program and other offshore markets to generate term fixed and floating rate funding; and

• transact interest rate swaps to meet WATC’s asset and liability management requirements and to generate floating rate funding for its clients.

BUDGET 2013/14 $’000

Income Interest on Investments 110,500 Interest from Authorities 1,579,712 Fee Income 840

1,691,052

Expenses Interest on Borrowings 1,651,948 Depreciation/Amortisation 634 Borrowing Related Expenses 3,804 Administration Expenses 15,313

1,671,699

Profit before income tax equivalent 19,353Income Tax equivalent expense 5,806Profit for the period 13,547

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38 Statement of Comprehensive Income

39 Statement of Financial Position

40 Statement of Changes in Equity

41 Statement of Cash Flows

42 Notes to the Financial Statements

74 Certification of Financial Statements

75 Key Performance Indicators

78 Independent Auditor’s Report

80 Client Authorities


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WESTERN AUSTRALIAN

TREASURY CORPORATIONFINANCING WA’S GROWTH



FINANCIAL STATEMENTS 2013

Financial Statements 2013

For the year ended 30 June 2013

Statement of Comprehensive Income

2013 2012Note $’000 $’000

INCOME

Revenue

Interest on Investments 121,488 164,388

Interest from Authorities 1,274,580 1,296,209

Fee Income 797 595

Total Revenue 1,396,865 1,461,192

Gains Foreign Exchange Gain 6 3 0

Net Fair Value Movement 7 176,749 37,016

Gains from Sale of Plant and Equipment 4 2 0

Total Other Income 176,754 37,016

Total Income 1,573,619 1,498,208

EXPENSES

Expenses Interest on Borrowings 1,535,208 1,458,216

Borrowing Related Expenses 1,650 1,260

Depreciation 210 196

Amortisation of Intangible Assets 177 289

Administration Expenses 5 13,490 13,228

Foreign Exchange Loss 6 0 1

Total Expenses 1,550,735 1,473,190

Profit before income tax equivalent expense 22,884 25,018

Income Tax Equivalent Expense 8 6,868 7,514

Profit for the period 16,016 17,504

Other Comprehensive Income 0 0

Total Comprehensive Income for the period 16,016 17,504

The Statement of Comprehensive Income should be read in conjunction with the accompanying notes.


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As at 30 June 2013

Statement of Financial Position

2013 2012Note $’000 $’000

ASSETS Cash Assets 9 1,980 2,369

Investments 10 4,192,430 5,383,868

Receivables and other financial assets 11 809,165 1,094,980

Loans to Authorities 12 33,429,670 30,414,845

Tax Assets 13 1,024 1,014

Plant and Equipment 14 420 315

Intangible Assets 15 336 183

Total Assets 38,435,025 36,897,574

LIABILITIES Payables and other financial liabilities 17 1,885,559 2,073,707

Borrowings 18 36,434,259 34,720,211

Tax Liabilities 19 8,888 2,009

Provisions 20 3,412 3,378

Total Liabilities 38,332,118 36,799,305

NET ASSETS 102,907 98,269

EQUITY Retained Earnings 99,907 95,269

Reserves 3,000 3,000

Total Equity 102,907 98,269

The Statement of Financial Position should be read in conjunction with the accompanying notes.


39

Statement of Changes in Equity

ReservesRetainedEarnings Total Equity

$'000 $'000 $'000

Balance at 1 July 2011 3,000 85,142 88,142

Profit for the period 0 17,504 17,504

Other comprehensive income 0 0 0

Total comprehensive income for the period 0 17,504 17,504

Transactions with owners in their capacity as owners:

Capital appropriations 0 0 0

Distributions to owners 0 (7,377) (7,377)

Total 0 (7,377) (7,377)

Balance at 30 June 2012 3,000 95,269 98,269

Balance at 1 July 2012 3,000 95,269 98,269

Profit for the period 0 16,016 16,016

Other comprehensive income 0 0 0

Total comprehensive income for the period 0 16,016 16,016

Transactions with owners in their capacity as owners:

Capital appropriations 0 0 0

Distributions to owners 0 (11,378) (11,378)

Total 0 (11,378) (11,378)

Balance at 30 June 2013 3,000 99,907 102,907

The Statement of Changes in Equity should be read in conjunction with the accompanying notes.



40

Statement of Cash Flows

2013 2012Note $’000 $’000

CASH FLOWS FROM OPERATING ACTIVITIES Interest received on Loans to Authorities 1,268,084 1,254,922

Interest received on Investments 147,446 156,232

Proceeds from Sale and Maturity of Investments 5,271,848 4,241,847

Payment for Investments (4,483,288) (4,882,504)

Loans to Authorities (13,711,178) (8,616,209)

Loans repaid by Authorities 10,216,665 4,746,598

Other Receipt/(Payment) on behalf of Authorities 241 (1,683)

Proceeds from Issuance of Borrowings 37,572,604 30,746,125

Repayment of Borrowings (35,079,429) (24,884,523)

Fee Income 797 595

Interest and other Cost of Finance paid (1,552,717) (1,344,183)

Administration and Borrowing Related Expenses (15,210) (14,028)

Payment of Taxation Equivalents 0 (6,774)

Net Cash provided by/(used in) Operating Activities 22b (364,137) 1,396,415

CASH FLOWS FROM INVESTING ACTIVITIES Payment for Plant and Equipment (315) (137)

Payment for Intangible Assets (330) (128)

Proceeds from Sale of Plant and Equipment 2 0

Net Cash used in Investing Activities (643) (265)

CASH FLOWS FROM FINANCING ACTIVITIES Payment of Dividend (11,378) (7,377)

Net Cash used in Financing Activities (11,378) (7,377)

Net Increase/(Decrease) in Cash and cash equivalents (376,158) 1,388,773

Cash and cash equivalents at the Beginning of the Financial Year 2,869,375 1,480,603

Unrealised foreign exchange gain/(loss) 3 (1)

Cash and cash equivalents at the End of the Financial Year 22a 2,493,220 2,869,375

Included in the above are the following

Cash Flows to State Government

Payment of Dividend (11,378) (7,377)

Payment of Taxation Equivalents 0 (6,774)

Net Cash provided to State Government (11,378) (14,151)

The Statement of Cash Flows should be read in conjunction with the accompanying notes.



41

NOTE 1

The Western Australian Treasury Corporation (WATC) was established on 1 July 1986 under the Western Australian Treasury Corporation Act 1986 as the State’s central borrowing authority. WATC is located at Level 12, 225 St Georges Terrace, Perth, Western Australia.

General

WATC’s financial statements for the year ended 30 June 2013 have been prepared in accordance with Australian Accounting Standards. The term “Australian Accounting Standards” includes Standards and Interpretations issued by the Australian Accounting Standards Board (AASB). The financial report also complies with International Financial Reporting Standards.

In preparing these financial statements, WATC has adopted, where relevant to its operations, new and revised Standards and Interpretations from their operative dates as issued by the AASB.

The Australian Accounting Interpretations are adopted through AASB 1048 ‘Interpretation and Application of Standards’ and are classified into those corresponding to International Accounting Standards Board (IASB) Interpretations and those only applicable in Australia.

Early adoption of standards

WATC cannot early adopt an Australian Accounting Standard or Interpretation unless specifically permitted by Treasurer’s Instruction (TI) 1101 ‘Application of Australian Accounting Standards and Other Pronouncements’. There has been no early adoption of Australian Accounting Standards that have been issued or amended (but not operative) by WATC for the annual reporting period ended 30 June 2013.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) General Statement

i. WATC is a not-for-profit reporting entity that prepares general purpose financial statements in accordance with Australian Accounting Standards, the Framework, Statements of Accounting Concepts and other authoritative pronouncements of the AASB as applied by the Treasurer’s Instructions. Several of these are modified by the Treasurer’s Instructions to vary application, disclosure, format and wording.

The Financial Management Act and the Treasurer’s Instructions are legislative provisions that govern the preparation of financial statements and take precedence over Australian Accounting Standards, the Framework, Statements of Accounting Concepts and other authoritative pronouncements of the AASB.

Where modification is required and has a material or significant financial effect upon the reported results, details of that modification and the resulting financial effect are disclosed in the notes to the financial statements.

ii. The financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars unless otherwise stated.

iii. The accounting policies adopted in the preparation of the financial statements have been consistently applied throughout all periods presented unless otherwise stated.

iv. Comparative information has been adjusted to conform with current year presentation.


Notes to the Financial Statements


4242

b) Basis of Preparation

The financial statements have been prepared on the accrual basis of accounting using the historical cost convention except as noted below.

WATC maintains Investments, Loans to Authorities and Borrowings to fulfil its functions and has elected to designate these Financial Assets and Financial Liabilities as fair value through profit or loss, consistent with the provisions of AASB 139 ‘Financial Instruments: Recognition and Measurement’. WATC satisfies the eligibility criteria for this election as it manages its business daily on a fair value basis. In accordance with AASB 139, all derivative financial instruments are also accounted for on a fair value basis through profit or loss. By nature, the market quoted rates used for valuation of financial assets and financial liabilities include an allowance for credit risk.

Critical accounting judgements and estimates

The judgements that have been made in the process of applying accounting policies that have the most significant effect on the amounts recognised in the financial statements relate to the use of mid prices instead of bid-offer prices for the measurement of Investments, Loans to Authorities and Borrowings. WATC aims to minimise its exposure to risk in these financial assets and liabilities. To the extent that the risk positions in these items are offset, mid prices are used with bid-offer prices being applied to any net open position, if WATC had them.

Key assumptions made in the valuation of financial assets and financial liabilities are disclosed in Note 21.

c) Revenue

Revenue is recognised and measured at the fair value of consideration received or receivable. Revenue is recognised as shown below.

Fee Income

Fee Income in respect of services provided is recognised in the period in which the service is provided.

Interest

Interest revenue is recognised as it accrues using the effective interest method and includes items of a similar nature realised in managing the relevant portfolios. Any realised gains or losses on financial assets are also recognised as interest.

d) Plant and Equipment

Items of Plant and Equipment costing $5,000 or more are recognised as assets and the cost of utilising assets is expensed (depreciated) over their useful lives. Items of Plant and Equipment costing less than $5,000 are expensed direct to the Statement of Comprehensive Income (other than where they form part of a group of similar items which are significant in total).

All items of Plant and Equipment are initially recognised at cost. After initial recognition, Plant and Equipment are stated at cost less any accumulated depreciation and any impairment in value. Depreciation is calculated based on their estimated useful lives using the straight line method. The estimated useful lives for each class of depreciable asset are as follows:

2013 2012Computer Equipment 3-5 years 3-5 years

Other Equipment 5-10 years 5-10 years

Impairment

The carrying values of Plant and Equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of Plant and Equipment is the greater of fair value less costs to sell and the depreciated replacement cost.

Impairment losses are recognised in the Statement of Comprehensive Income.


43

CONTINUED



NOTE 2 (CONTINUED)

e) Intangible Assets

Computer software is the only Intangible Asset which WATC has in its financial statements. The cost of utilising the assets is expensed (amortised) over their useful life.

Intangible Assets acquired separately are capitalised at cost as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these assets are assessed to be finite. Intangible Assets are amortised over a period of three years.

Intangible assets are tested for impairment where an indicator of impairment exists. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

f) Investments

WATC classifies its investments as financial assets at fair value through profit or loss. WATC does not hold any investments that are classified as held to maturity or available for sale.

Investments are initially recognised at fair value on trade date and subsequently measured at fair value applicable at reporting date. Unrealised gains or losses arising from this policy are brought to account in the Statement of Comprehensive Income. Fair values are derived using market quoted mid point prices to the extent that investments are held in offsetting risk positions, otherwise bid prices are applied. Commonwealth and State Government investments are held for portfolio management purposes. Whilst these investments generally have maturity dates greater than twelve months, they are used in the ordinary course of business to economically hedge WATC’s benchmark bonds and are therefore held in the expectation of being realised within twelve months.

g) Loans to Authorities

Loans to Authorities are initially recognised at fair value on trade date and subsequently measured at fair value applicable at reporting date and are recorded as assets in the Statement of Financial Position. Unrealised gains or losses arising from this policy are brought to account in the Statement of Comprehensive Income. Fair values are derived using market quoted mid point prices to the extent that loans to authorities are held in offsetting risk positions, otherwise bid prices are applied. In normal circumstances, upon maturity, Loans to Authorities are either rolled over or refinanced.

h) Borrowings

Borrowings are initially recognised at fair value on trade date and subsequently measured at the fair value applicable at reporting date. Unrealised gains or losses arising from this policy are brought to account in the Statement of Comprehensive Income. Fair values are derived using market quoted mid point prices to the extent that borrowings are held in offsetting risk positions, otherwise ask prices are applied. In normal circumstances, maturities of borrowings are either rolled over or refinanced. Borrowing related expenses are charged to the Statement of Comprehensive Income as incurred.

i) Derivative Financial Instruments

Derivatives are used exclusively to provide an economic hedge of interest rate and foreign currency exposures. All derivatives are recognised in the Statement of Financial Position at fair value on trade date. All derivatives are classified as held for trading. The carrying value of a derivative is remeasured at fair value throughout the life of the contract. Unrealised gains or losses arising from this policy are brought to account in the Statement of Comprehensive Income.

j) Foreign Currency Translation

Foreign currency transactions are brought to account in Australian dollars at trade date at the rate of exchange applying at that date. At the end of the reporting period, all monetary assets and liabilities are translated at the exchange rates existing at 30 June 2013. Exchange gains or losses are brought to account in the Statement of Comprehensive Income.

Both the functional and presentation currency of WATC is Australian dollars (AUD).


44

k) Borrowing Costs

Borrowing Costs are recognised as an expense when incurred. Interest expense is recognised as it accrues and includes items of a similar nature realised in managing the relevant portfolios. Any realised gains or losses on financial liabilities are also recognised as interest.

l) Employee Benefits

i. Sick Leave

No provision is made for sick leave benefits as they are non-vesting and the sick leave taken in a financial year is not expected to exceed the benefit accruing in a year.

ii. Annual Leave

This benefit is recognised at the reporting date in respect of employees’ services up to that date and is measured at the nominal amounts expected to be paid when the liabilities are settled.

iii. Long Service Leave

The liability for long service leave expected to be settled within 12 months after the reporting date is recognised in the provision for employee benefits, and is measured at the nominal amounts expected to be paid when the liability is settled. The liability for long service leave expected to be settled more than 12 months after the end of the reporting period is recognised in the provision for employee benefits and is measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given, when assessing expected future payments, to expected future salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.

iv. Superannuation

The Government Employees Superannuation Board (GESB) and other fund providers administer the superannuation schemes detailed hereunder in accordance with legislative requirements. Eligibility criteria for membership in particular schemes for employees varies according to commencement and implementation dates.

Eligible employees contribute to the Pension Scheme, a defined benefit pension scheme closed to new members since 1987, or the Gold State Superannuation Scheme (GSS), a defined benefit lump sum scheme closed to new members since 1995. Employees commencing employment prior to 16 April 2007 who were not members of either of these schemes became non-contributory members of the West State Superannuation Scheme (WSS). Employees commencing employment on or after 16 April 2007 became members of the GESB Super Scheme (GESBS). From 30 March 2012, existing members of the WSS or GESBS and new employees have been able to choose their preferred superannuation fund provider. WATC makes contributions to GESB or other fund providers on behalf of employees in compliance with the Commonwealth Government’s Superannuation Guarantee (Administration) Act 1992. Contributions to these accumulation schemes extinguish WATC’s liability for superannuation charges in respect of employees who are not members of the Pension Scheme or GSS.

WATC also has an unfunded superannuation liability as a result of prior service of current staff who were previously within the public service. The liability for these future payments is provided for at reporting date in the Statement of Financial Position. The liability under this scheme has been calculated annually by Mercer Human Resource Consulting using the projected unit credit method. The expected future payments are discounted to present value using market yields at the reporting date on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.

The GSS, the WSS and the GESBS, where the current service superannuation charge is paid by WATC to GESB, are defined contribution schemes. The liabilities for current service superannuation charges under the GSS, the WSS and the GESBS are extinguished by the concurrent payment of employer contributions to GESB.

The GSS is a defined benefit scheme for the purposes of employees and whole-of-government reporting. However, from an agency perspective, apart from the transfer benefits, it is a defined contribution plan under AASB 119.


45

CONTINUED



NOTE 2 (CONTINUED)

l) Employee Benefits (CONTINUED)

iv. Superannuation (CONTINUED)

The superannuation expense of the defined benefit plan is made up of the following elements:

– Current service cost;

– Interest cost (unwinding of the discount);

– Actuarial gains and losses; and

– Past service cost.

Actuarial gains and losses of the defined benefit plan are recognised immediately as income or expense in the Statement of Comprehensive Income.

The superannuation expense of the defined contribution plan is recognised as and when the contributions fall due.

m) Dividend Policy

WATC’s dividend policy has been formulated to ensure that WATC pays an appropriate dividend to the State which is consistent with sound commercial practice and has regard to the financial health of WATC. WATC’s policy provides for dividends to be paid to the State Consolidated Account at a level of 65% of WATC’s after tax equivalent profit subject to adjustments which have been agreed with the Treasurer. Dividends for the current financial year will be declared by the Board and paid in the subsequent financial year.

n) Income Tax

WATC operates within a tax equivalent regime (TER) whereby an equivalent amount in respect of income tax is payable to the Western Australian Treasury. The calculation of the liability in respect of income tax is governed by TER guidelines and directions approved by Government.

As a consequence of participation in the TER, WATC is required to comply with Australian Accounting Standard AASB 112 “Income Taxes”.

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rate expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Current and deferred tax balances attributable to amounts recognised in other comprehensive income are recognised in other comprehensive income, and directly in equity are recognised directly in equity.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.


46

o) Impairment of Assets

At each reporting date, WATC assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, WATC makes a formal estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and depreciated replacement cost. The risk of impairment is generally limited to circumstances where an asset’s depreciation is materially understated, where the replacement cost is falling or where there is a significant change in useful life. Each relevant class of assets is reviewed annually to verify that the accumulated depreciation/amortisation reflects the level of consumption or expiration of the asset’s future economic benefits and to evaluate any impairment risk from falling replacement costs.

p) Receivables

Receivables are recognised at cost. The carrying amount approximates fair value, as they are generally settled within thirty days. An allowance for uncollectible amounts is made when there are indications that an asset is impaired. There is no previous evidence of amounts being uncollected, due to the nature of WATC’s clients.

q) Payables

Payables are recognised at the amounts payable when WATC becomes obliged to make future payments as a result of a purchase of assets or services. The carrying amount approximates fair value, as they are generally settled within thirty days.

r) Cash and Cash Equivalents

Cash assets in the Statement of Financial Position comprise cash at bank and in hand. The carrying amount approximates fair value as these items are short term in nature. For the purpose of the Statement of Cash Flows, cash and cash equivalents includes cash in hand and short term deposits with original maturities of three months or less that are readily convertible to a known amount of cash and which are subject to insignificant risk of changes in value.

s) Accrued Salaries

Accrued salaries represent the amount due to staff but unpaid at the end of the financial year, as the end of the last pay period for that financial year does not coincide with the end of the financial year.

Accrued salaries are settled within a fortnight of the financial year end. WATC considers the carrying amount of accrued salaries to be equivalent to the fair value.

t) Swap Fair Value Reserve

WATC enters into interest rate and currency swaps to mitigate interest rate and foreign exchange exposure on medium and long term debt raised to fund its clients’ long term funding requirements.

In accordance with accounting standards, changes in swap fair values are brought to account in the Statement of Comprehensive Income. A discretionary capital reserve has been established which may be used to separately identify net profits created by this policy and which may, in the future, be transferred to retained earnings upon maturity of the transactions.


47

CONTINUED



NOTE 3 DISCLOSURE OF CHANGES IN ACCOUNTING POLICY

Initial application of an Australian Accounting Standard

WATC has adopted all Australian Accounting Standards effective for annual reporting periods beginning on or after 1 July 2012 but none have impacted on WATC.

Future impact of Australian Accounting Standards issued but not yet operative

WATC cannot early adopt an Australian Accounting Standard unless specifically permitted by TI 1101 ‘Application of Australian Accounting Standards and Other Pronouncements’. Consequently, WATC has not applied early any of the following Australian Accounting Standards that have been issued that may impact WATC. Where applicable, WATC plans to apply these Australian Accounting Standards from their application date:

AASB 9 ‘Financial Instruments’ supersedes AASB 139 ‘Financial Instruments: Recognition and Measurement’, introducing a number of changes to accounting treatments. WATC does not expect any financial impact when the Standard is first applied in the year ending 30 June 2016.

AASB 2012-6 ‘Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures’ amended the mandatory application date of this Standard to 1 January 2015.

AASB 13 ‘Fair Value Measurement’ defines fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. WATC does not expect any financial impact when the Standard is first applied in the year ending 30 June 2014.

The following new standards and amendments are not expected to have any impact on WATC:

AASB Amendment Affected Standards

AASB 10 ‘Consolidated Financial Statements’

AASB 11 ‘Joint Arrangements’

AASB 12 ‘Disclosure of Interests in Other Entities’

AASB 127 ‘Separate Financial Statements’

AASB 128 ‘Investments in Associates and Joint Ventures’

AASB 1053 ‘Application of Tiers of Australian Accounting Standards’

AASB 1055 ‘Budgetary Reporting’

AASB 2011-2 ‘ Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project – Reduced Disclosure Requirements [AASB 101 & 1054]’

AASB 2011-6 ‘ Amendments to Australian Accounting Standards – Extending Relief from Consolidation, the Equity Method and Proportionate Consolidation – Reduced Disclosure Requirements [AASB 101 & 1054]’

AASB 2011-7 ‘ Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards [AASB 1, 2, 3, 5, 7, 9, 2009-11, 101, 107, 112, 118, 121, 124, 132, 133, 136, 138, 139, 1023 & 1038 and Interpretations 5, 9, 16 & 17]’

AASB 2011-8 ‘ Amendments to Australian Accounting Standards arising from AASB 13 (September 2011) [AASB 1, 2, 3, 4, 5, 7, 9, 2009-11, 2010-7, 101, 102, 108, 110, 116, 117, 118, 119, 120, 121, 128, 131, 132, 133, 134, 136, 138, 139, 140, 141, 1004, 1023 & 1038 and Interpretations 2, 4, 12, 13, 14, 17, 19, 131 & 132]’

AASB 2011-10 ‘ Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) [AASB 1, 8, 101, 124, 134, 1049 & 2011-8 and Interpretation 14]’


48

AASB Amendment Affected Standards (continued)

AASB 2011-11 ‘Amendments to AASB 119 (September 2011) arising from Reduced Disclosure Requirements’

AASB 2012-1 ‘ Amendments to Australian Accounting Standards – Fair Value Measurement – Reduced Disclosure Requirements [AASB 3, 7, 140 & 141]’

AASB 2012-2 ‘Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities [AASB 7 & 132]’

AASB 2012-3 ‘Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities [AASB 132]’

AASB 2012-5 ‘Amendments to Australian Accounting Standards arising from Annual Improvements 2009-11 Cycle [AASB 1, 101, 116, 132 & 134 and Interpretation 2]’

AASB 2012-7 ‘Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 7, 12, 101 & 127]’

AASB 2012-11 ‘Amendments to Australian Accounting Standards – Reduced Disclosure Requirements and Other Amendments [AASB 1, 2, 8, 10, 107, 128, 133, 134 & 2011-4]’

The impact of the following new standards and amendments has not yet been fully determined:

AASB Amendment Affected Standards

AASB 119 ‘Employee Benefits’

AASB 2010-2 ‘Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements’

AASB 2010-7 ‘Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127]’

AASB 2012-10 ‘Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments [AASB 1, 5, 7, 8, 10, 11, 12, 13, 101, 102, 108, 112, 118, 119, 127, 128, 132, 133, 134, 137, 1023, 1038, 1039, 1049 & 2011-7 and Interpretation 12]’


49

CONTINUED



2013 2012$’000 $’000

NOTE 4 GAIN/(LOSS) FROM SALE OF PLANT AND EQUIPMENT

COMPUTER HARDWARE Gross proceeds of disposed hardware 2 0

Book Value of disposed hardware 0 0

Gain/(Loss) on disposal of hardware 2 0

NOTE 5ADMINISTRATION EXPENSES

The following employee benefit expenses are included in Administration Expenses.

Salaries 8,072 7,744

Workers Compensation costs 30 35

Superannuation expense 758 1,116

Long Service Leave Provision 151 76

9,011 8,971

NOTE 6FOREIGN EXCHANGE GAIN/LOSS

WATC maintains balances in its foreign currency bank accounts for the payment of expenses incurred through its overseas borrowings. At 30 June 2013, after taking account of exchange fluctuations, a gain of A$3 thousand (2012, loss of A$1 thousand) had resulted on this balance.

NOTE 7NET FAIR VALUE MOVEMENT

Unrealised (Loss)/Gain – Investments (1,065) 949

Unrealised (Loss)/Gain – Loans to Authorities (395,704) 824,270

Unrealised Gain/(Loss) – Borrowings 648,823 (924,750)

Unrealised (Loss)/Gain – Derivatives (75,305) 136,547

Net Fair Value Movement 176,749 37,016

Add Interest movements

Interest on Investments 121,488 164,388

Interest from Authorities 1,274,580 1,296,209

Interest on Borrowings (1,535,208) (1,458,217)

(139,140) 2,380

Net gain on financial assets and financial liabilities at fair value through profit and loss 37,609 39,396

WATC manages its operations on a portfolio basis to achieve its long term objective. Realised gains and losses totalling A$251,280 thousand (2012, A$60,542 thousand) are reflected in interest revenue and expense. The net fair value movement represents unrealised fair value adjustments to be realised over the term of the underlying securities.


50

2013 2012$’000 $’000

NOTE 8INCOME TAX EQUIVALENT EXPENSE

The prima facie income tax equivalent expense on accounting profit reconciles to the income tax equivalent expense in the accounts as follows:

Accounting Profit 22,885 25,018

Income tax equivalent expense at 30% (2012, 30%) 6,865 7,505 Tax effect of expenses that are not deductible/assessable in determining taxable profit

Sundry expenses 3 9

Income tax equivalent expense 6,868 7,514

Income tax equivalent expense comprises movements in:

Current income tax equivalent expense 6,878 7,588 Deferred tax income relating to the origination and reversal of temporary differences

(10) (74)

Total income tax equivalent expense 6,868 7,514

Deferred Tax Assets:

Employee Provisions 1,024 1,014

Total (Note 13) 1,024 1,014

Deferred Tax Liabilities:

Payables 4 5

Foreign Currency Revaluation 1 0

Total (Note 19) 5 5

NOTE 9CASH ASSETS

Bank Deposits 1,845 2,315

Overseas Bank Accounts 135 54

1,980 2,369

Average Balance 2,180 2,632

Interest Revenue 1,007 106

Average Interest Rate 46.19% 4.03%

Cash Assets represent only those funds held in accounts with banks and does not include money market investments. During 2012/13, to facilitate the maturity of two of WATC’s benchmark bond lines, a larger than normal cash balance was left in the bank account overnight prior to the maturity. This resulted in higher interest revenue and a distortion of the average rate, which in normal circumstances is in the range of 4% to 5%.


51

CONTINUED



2013 2012$’000 $’000

NOTE 10INVESTMENTS – AT FAIR VALUE

10a. Investments – non derivative

Investments comprise the following: Short Term Money Market Investments 3,577,655 4,554,222 Government Stock 614,775 829,646 Total 4,192,430 5,383,868

Maturity Profile At Call 513,800 392,000 Up to 3 Months 3,222,544 4,412,891 3 to 12 Months 456,086 578,977 1 to 5 Years 0 0 Over 5 Years 0 0 Total 4,192,430 5,383,868

Repricing Profile At Call 513,800 392,000 Up to 3 Months 3,222,544 4,412,891 3 to 12 Months 456,086 578,977 1 to 5 Years 0 0 Over 5 Years 0 0 Total 4,192,430 5,383,868

10b. Investments – derivative (32) 0

Maturity Profile Up to 3 Months (32) 0 3 to 12 Months 0 0 1 to 5 Years 0 0 Over 5 Years 0 0 Total derivatives shown as receivables and other financial assets (Note 11) (32) 0

Repricing Profile Up to 3 Months (32) 0 3 to 12 Months 0 0 1 to 5 Years 0 0 Over 5 Years 0 0 Total derivatives shown as receivables and other financial assets (Note 11) (32) 0

Credit Exposure Rating % % AAA 8.16 14.48AA 66.21 43.62A 25.63 41.90

100.00 100.00

Average Balance 3,579,120 3,720,449Interest Revenue 120,481 164,282Average Interest Rate 3.37% 4.42%

WATC invests its surplus funds in accordance with the Western Australian Treasury Corporation Act. Further information on valuation methods is shown in Note 21. All Investments are classified as financial assets at fair value through profit and loss.


52

2013 2012$’000 $’000

NOTE 11RECEIVABLES AND OTHER FINANCIAL ASSETS

Accrued Interest Receivable 267,054 309,086 Foreign Currency Receivable 184,572 0 Other Debtors 60,362 280,398

511,988 589,484 Other Financial Assets (Notes 10b, 12b and 18b) 297,177 505,496

809,165 1,094,980

Accrued Interest Receivable comprises accruals relating to advances made to clients and investments with financial institutions. Other debtors represent financial instrument transactions undertaken prior to 30 June 2013 and due for settlement after 30 June 2013. Other financial assets and foreign currency receivables are discussed in more detail in Note 21.

NOTE 12LOANS TO AUTHORITIES – AT FAIR VALUE

12a. Loans to Authorities – non derivative 33,429,670 30,414,845

Maturity Profile Up to 3 Months 3,493,764 5,202,936 3 to 12 Months 5,164,103 6,528,318 1 to 5 Years 15,159,871 10,163,044 Over 5 Years 9,611,932 8,520,547 Total 33,429,670 30,414,845

Repricing Profile Up to 3 Months 9,122,994 10,217,752 3 to 12 Months 4,502,560 4,937,080 1 to 5 Years 11,008,835 7,689,721 Over 5 Years 8,795,281 7,570,292 Total 33,429,670 30,414,845

12b. Loans to Authorities – derivative 1,030 4,725

Maturity Profile Up to 3 Months (158) 1,864 3 to 12 Months 215 686 1 to 5 Years 973 2,175 Over 5 Years 0 0 Total derivatives shown as receivables and other financial assets (Note 11) 1,030 4,725

Repricing Profile Up to 3 Months (158) 1,864 3 to 12 Months 215 686 1 to 5 Years 973 2,175 Over 5 Years 0 0 Total derivatives shown as receivables and other financial assets (Note 11) 1,030 4,725 Average Balance 29,933,253 25,671,151 Interest Revenue 1,274,580 1,296,209 Average Interest Rate 4.26% 5.05%

WATC advances funds to State Government and Local Government authorities within Western Australia. In normal circumstances, most advances are either rolled over or refinanced. State Government advances (97.9% of total (2012, 97.7%)) are guaranteed by the State whilst Local Government advances (2.1% of total (2012, 2.3%)) are secured by debenture and are charged in accordance with the provisions of the Local Government Act upon the general funds of the Local Government. Loans to Authorities are not readily traded on organised markets in standardised form. Further information on valuation methods is shown in Note 21.


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2013 2012$’000 $’000

NOTE 13TAX ASSETS

Deferred Tax Asset 1,024 1,014

NOTE 14PLANT AND EQUIPMENT

Equipment (at cost) 1,987 1,749

Less Accumulated Depreciation 1,567 1,434

Total Plant and Equipment 420 315

Reconciliation

Equipment

Opening balance 315 374

Additions 315 137

Disposals/Write-Offs (77) (33)

Depreciation (210) (196)

Accumulated depreciation on disposal 77 33

Closing balance 420 315

NOTE 15INTANGIBLE ASSETS

Intangible Assets (at cost) 8,167 7,837

Less Accumulated Amortisation 7,831 7,654

Total Intangible Assets 336 183

Reconciliation

Intangible Assets

Opening balance 183 344

Additions 330 128

Disposals 0 0

Amortisation (177) (289)

Accumulated amortisation on disposal 0 0

Closing balance 336 183

NOTE 16IMPAIRMENT OF ASSETS

There were no indications of impairment to Plant and Equipment and Intangible Assets at 30 June 2013. WATC held no goodwill or intangible assets with an indefinite useful life during the reporting period and at reporting date, there were no intangible assets not yet available for use.


54

2013 2012$’000 $’000

NOTE 17PAYABLES

Interest Accrued (at amortised cost) 434,815 441,972

Other Creditors (at amortised cost) 1,450,744 1,587,668

Foreign Currency Payable 0 44,067

1,885,559 2,073,707

Other Financial Liabilities (at fair value) 0 0

1,885,559 2,073,707

Payables comprises accrued interest and sundry creditors relating to debt instruments and unpresented cheques. Interest Accrued is owed to financial institutions. Other financial liabilities and foreign currency payables are discussed in more detail in Note 21. There are no foreign currency amounts included which are not effectively economically hedged. Other creditors includes financial instrument transactions undertaken prior to 30 June 2013 and due for settlement after 30 June 2013.

NOTE 18BORROWINGS – AT FAIR VALUE

18a. Borrowings – non derivative 36,434,259 34,720,211

Maturity Profile

Up to 3 Months 7,520,893 9,017,509

3 to 12 Months 5,780,849 7,366,002

1 to 5 Years 14,057,611 7,906,970

Over 5 Years 9,074,906 10,429,730

Total borrowings at fair value 36,434,259 34,720,211

Repricing Profile

Up to 3 Months 9,706,178 9,217,514

3 to 12 Months 5,555,797 7,366,002

1 to 5 Years 12,097,378 7,706,965

Over 5 Years 9,074,906 10,429,730

Total borrowings at fair value 36,434,259 34,720,211


55

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2013 2012$’000 $’000

NOTE 18 (CONTINUED)

18b. Borrowings – derivative (296,179) (500,770)

Maturity Profile

Up to 3 Months (54) (47,454)

3 to 12 Months (48,178) (154,211)

1 to 5 Years (195,137) (184,306)

Over 5 Years (52,810) (114,799)

Total derivatives shown as receivables and other financial assets (Note 11) (296,179) (500,770)

Repricing Profile

Up to 3 Months 76,810 36,418

3 to 12 Months (19,987) (125,930)

1 to 5 Years (224,723) (211,552)

Over 5 Years (128,279) (199,706)

Total derivatives shown as receivables and other financial assets (Note 11) (296,179) (500,770)

Average Balance 33,546,415 29,413,329

Interest Expense 1,535,208 1,458,217

Average Interest Rate 4.58% 4.96%

WATC raises its funds in the domestic and offshore capital markets. Under Section 13(1) of the Western Australian Treasury Corporation Act, the financial liabilities of WATC are guaranteed by the Treasurer on behalf of the State of Western Australia. WATC’s borrowings are well diversified across markets and maturities. Further information on valuation methods is shown in Note 21.

BORROWINGS – AT FACE VALUE

Payable 12 months or less from 30 June

– Domestic 11,112,831 13,306,198

– Overseas 2,207,950 2,892,381

13,320,781 16,198,579

Payable more than 12 months from 30 June

– Domestic 20,741,653 15,783,204

– Overseas 0 0

20,741,653 15,783,204

Balance 30 June at face value 34,062,434 31,981,783


56

OVERSEAS BORROWINGS

Includes Australian currency and foreign currency loans. Foreign currency loans have been translated using the exchange rates applicable at 30 June 2013 and are shown below:

Exchange Rate Translation at 30/06/13

Payable 12Months or Less

from 30/06/13

Payable More than 12 Months

from 30/06/13

A$’000 A$’000

Foreign Currency Borrowing

USD 1,842,013,849 1,985,427 Nil

GBP 19,979,079 32,895

Exchange Rate Translation at 30/06/12

Payable 12Months or Lessfrom 30/06/12

Payable More than 12 Months

from 30/06/12

A$’000 A$’000

Foreign Currency Borrowing

USD 2,847,747,693 2,793,353 Nil

At reporting date, all foreign currency loans have either been economically hedged, swapped or covered forward specifically or invested in the foreign currency. Consequently, any gain or loss on the translation of the overseas borrowing is matched by a corresponding loss or gain made on the foreign currency contract, the overseas investment or the back to back lending and the net exchange gain or loss is therefore zero.

2013 2012$’000 $’000

NOTE 19TAX LIABILITIES

Current Income Tax Equivalent Liability 8,883 2,004

Deferred Tax Liability 5 5

8,888 2,009

NOTE 20PROVISIONS

Annual Leave 1,035 978

Long Service Leave 1,658 1,507

Superannuation – defined benefit plans 719 893 3,412 3,378


57

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NOTE 20 (CONTINUED)

Gold State Superannuation Scheme

Accounting Policy

Actuarial gains and losses are recognised immediately in the Statement of Comprehensive Income in the year in which they occur.

Scheme Information

Some former Pension Scheme members have transferred to Gold State Super. In respect of their transferred benefit, the members receive a lump sum benefit at retirement, death or invalidity which is related to their salary during their employment and indexed during any deferral period after leaving public sector employment.

The following disclosures are in respect of the employer-financed benefits only.

2013 2012$’000 $’000

Reconciliation of the Present Value of the Defined Benefit Obligation

Present Value at beginning of year 893 765

(+) Interest cost 25 39

(+) Actuarial (gains)/losses (122) 239

(-) Benefits paid 77 150

Present Value at end of year 719 893

These defined benefit obligations are wholly unfunded, such that there are no assets. WATC contributes, as required, to meet the benefits paid.

Reconciliation of the Fair Value of Scheme Assets

Fair Value at beginning of year 0 0

(+) Expected return on Scheme assets 0 0

(+) Actuarial (gains)/losses 0 0

(+) Employer contributions 77 150

(+) Contributions by Scheme participants 0 0

(-) Benefits paid 77 150

(+) Transfers in 0 0

(+) Contributions to accumulation section 0 0

(+) Settlements 0 0

(+) Exchange rate changes 0 0

Present Value at end of year 0 0

Reconciliation of the Assets and Liabilities Recognised in the Statement of Financial Position

Defined Benefit Obligation 719 893

(-) Fair value of assets 0 0

Deficit/(surplus) 719 893

(-) Unrecognised past service cost 0 0

(-) Unrecognised net (gain)/loss 0 0

(+) Adjustment for limitation on net asset 0 0

Liability/(asset) 719 893


58

2013 2012$’000 $’000

Expense Recognised in Statement of Comprehensive Income

Interest cost 25 39

Actuarial (gains)/losses (122) 239

Superannuation expense/(income) (97) 278

Scheme Assets There are no assets in Gold State Super for current employees to support the transferred benefits. Hence, there is:

– No fair value of Scheme assets;

– No asset allocation of Scheme assets;

– No assets used by the employer;

– No expected return of Scheme assets; and

– No actual return on Scheme assets. 2013 2012

% %

Principal Actuarial Assumptions Used

Discount rate (active members) 3.38 2.84

Discount rate (pensioners) 3.38 2.84

Expected salary increase rate 5.00 5.50

Expected pension increase rate 2.50 2.50

The discount rate is based on the 10-year Government bond rate. The decrement rates used (e.g. mortality and retirement rates) are based on those used at the last actuarial valuation for the Schemes.

2013 2012 2011 2010 2009$’000 $’000 $’000 $’000 $’000

Historical Information

Present value of defined benefit obligation 719 893 765 708 720

Fair value of Scheme assets 0 0 0 0 0

(Surplus)/Deficit in Scheme 719 893 765 708 720

Experience adjustments (gain)/loss – Scheme assets 0 0 0 0 0

Experience adjustments (gain)/loss – Scheme liabilities (14) 6 10 (41) 69

The experience adjustment for Scheme liabilities represents the actuarial loss/(gain) due to a change in the liabilities arising from the Scheme’s experience (e.g. membership movements, unit entitlements) and excludes the effect of the changes in assumptions (e.g. movements in the bond rate).

2014$’000

Expected Contributions

Expected employer contributions 86


59

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NOTE 20 (CONTINUED)

Funding arrangements for employer contributions

a) Contribution recommendations

WATC is contributing as required to pay benefits, when they fall due.

b) Funding method

The funding method used by WATC and other agencies, whose employees are members of Gold State Super, is the Pay-As-You-Go method. This method affects the timing of the cost to WATC.

Nature of asset/liability

WATC has recognised a liability in the Statement of Financial Position in respect of its defined benefit superannuation arrangements. GESB does not impose a legal liability on WATC to cover any deficit that exists in the Scheme.

NOTE 21 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

POLICY

WATC incurs risk in relation to the financial services it provides to its clients. These services include lending, financial risk management and investment activities. The key risks that WATC manages are:

– Interest Rate Risk;

– Exchange Rate Risk;

– Credit Risk;

– Liquidity Risk;

– Funding Risk; and

– Operational Risk.

WATC’s philosophy is to ensure that it maintains appropriate capital cover to mitigate these risks. In this regard, the Australian Prudential Regulation Authority (APRA) sets guidelines for the quantification of the interest rate, credit and operational risk capital requirements of banks. WATC is guided by these standards and pronouncements under the Basel Accord in determining its capital and operational risk requirements.

WATC, as a matter of policy, does not take any material exchange rate risk and seeks to minimise its liquidity and funding risk.

WATC enters into interest rate and currency swaps to mitigate foreign exchange and interest rate exposure on debt raised to fund its clients’ funding requirements. In accordance with accounting standards, changes in swap fair values are brought to account in the Statement of Comprehensive Income. Unrealised gains or losses do not represent cash profit or loss to WATC.


60

2013 2012$’000 $’000

Unrealised Fair Value on Swap Portfolio Credit Sensitivity Analysis

Unrealised fair value gain/(loss) (5,766) (2,662)

Basis Point Sensitivity 43.622 19.396

Increase of 80 basis points in credit spreads 3,490 1,552

Increase of 50 basis points in credit spreads 2,181 970

Increase of 30 basis points in credit spreads 1,309 582

Decrease of 80 basis points in credit spreads (3,490) (1,552)

Decrease of 50 basis points in credit spreads (2,181) (970)

Decrease of 30 basis points in credit spreads (1,309) (582)

Interest Rate Risk

Interest rate risk is the risk that a movement in interest rates will cause a loss.

WATC’s interest rate risk capital requirement is determined using a risk multiplier of between 3 and 4 depending on back testing results for its Value-at-Risk (VaR) model which is based on a 99% confidence level and a 10-day liquidation period.

VaR models are designed to measure market risk in a normal market environment. The models assume that any changes occurring in the risk factors affecting the normal market environment will follow a normal distribution. The distribution is calculated using exponentially weighted historical data. Due to the fact that VaR relies heavily on historical data to provide information and can not clearly predict the future changes and modifications of the risk factors, the probability of large market moves may be underestimated if changes in risk factors fail to align with the normal distribution assumption. VaR may also be under or over estimated due to the assumptions placed on risk factors and the relationship between such factors for specific instruments. Even though positions may change throughout the day, VaR only represents the risk of the portfolios at the close of each business day, and it does not account for any losses that may occur beyond the 99% confidence level. In practice, actual results will differ from the VaR calculation and, in particular, the calculation does not provide a meaningful indication of profits and losses in stressed market conditions. To determine the reliability of the VaR model, actual outcomes are monitored to test the validity of the assumptions and the parameters used in the VaR calculation.

WATC gives high regard to the minimisation of interest rate risk. As a matter of course, all of WATC’s interest rate risk exposures resulting from lending and market support activities are economically hedged. The effectiveness of these hedging arrangements is reviewed on an ongoing basis in order to minimise WATC’s VaR and capital requirements.

Market exposures using VaR and other interest rate sensitivity measures are assessed daily. Risk control is further enhanced by the use of stress testing which is performed on a monthly basis or more frequently if required. Stress testing gives an indication of the level of possible losses that can be incurred under extreme market conditions. It also highlights those areas on the curve where WATC is highly sensitive to interest rate movements.

WATC’s VaR measure related to market risk is detailed below:

Value at Risk (VaR)

Average Daily Balance for Year 879 1,038

Lowest for Year 510 659

Highest for Year 1,927 1,550

Closing Balance 976 1,222


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NOTE 21 (CONTINUED)

Interest Rate Risk Exposure

The following table details WATC’s exposure to interest rate risk as at the reporting date:

Weighted Average Effective Interest Rate At Call

Up to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Non Interest Bearing Total

% $’000 $’000 $’000 $’000 $’000 $’000 $’000

2013

Financial Assets:

Cash and Cash Equivalents 46.19 1,980 1,980

Receivables

– non derivative 511,988 511,988

– derivative (77,000) 20,202 225,696 128,279 297,177

Investments 3.37 513,800 3,222,544 456,086 4,192,430

Loans to Authorities 4.26 9,122,994 4,502,560 11,008,835 8,795,281 33,429,670

515,780 12,268,538 4,978,848 11,234,531 8,923,560 511,988 38,433,245

Financial Liabilities:

Payables 1,885,559 1,885,559

Borrowings 4.58 9,706,178 5,555,797 12,097,378 9,074,906 36,434,259

0 9,706,178 5,555,797 12,097,378 9,074,906 1,885,559 38,319,818

2012

Financial Assets:

Cash and Cash Equivalents 4.03 2,369 2,369

Receivables

– non derivative 589,484 589,484

– derivative (34,554) 126,616 213,727 199,707 505,496

Investments 4.42 392,000 4,412,891 578,977 5,383,868

Loans to Authorities 5.05 10,217,752 4,937,080 7,689,721 7,570,292 30,414,845

394,369 14,596,089 5,642,673 7,903,448 7,769,999 589,484 36,896,062

Financial Liabilities:

Payables 2,073,707 2,073,707

Borrowings 4.96 9,217,514 7,366,002 7,706,965 10,429,730 34,720,211

0 9,217,514 7,366,002 7,706,965 10,429,730 2,073,707 36,793,918


62

Exchange Rate Risk

Foreign exchange risk is the risk of loss due to changes in foreign exchange rates. WATC’s policy is not to take any foreign exchange risk apart from the minor exposure created by the need to maintain small balances in foreign bank accounts for operational purposes.

In practice, all of the foreign currency denominated liabilities of WATC are matched or backed off against foreign currency denominated assets in one or more of the following forms:

– a foreign currency denominated lending;

– a foreign currency denominated receivable under a cross currency swap;

– a foreign currency denominated receivable under a forward exchange rate contract; and/or

– a foreign currency denominated investment.

WATC undertakes foreign exchange transactions and currency options on behalf of clients in accordance with Section 9(1)(g) of the Western Australian Treasury Corporation Act. Each market transaction is offset by a transaction with the client so that no exchange rate risk is borne by WATC.

Credit Risk

Credit risk is the risk of financial loss due to a counterparty not meeting its financial obligations to WATC.

WATC’s governing legislation only permits lending to Western Australian public sector agencies or to entities that have approval to borrow from WATC conferred by a written law. WATC does not set aside capital to cover its exposure to public sector agencies due to the nature of its relationship to such entities. As a result, WATC’s credit risk is primarily limited to derivative, investment and local government counterparties.

WATC has a comprehensive Credit Policy that is designed to reduce credit risk by ensuring diversification of WATC’s credit exposures and by setting minimum standards for the credit quality of counterparties. WATC also reduces credit risk in relation to derivative instruments with the use of ISDA Master Agreements with netting provisions and Credit Support Annexes (CSAs).

The capital required to cover credit risk varies depending on the market value of the investment, the maturity of the investment and the credit standing of the counterparty. Capital is also set aside to cover the credit risk associated with WATC’s derivative exposures.

2013 2012% %

Credit Exposure of Investments by Rating

AAA 8.16 14.48

AA 66.21 43.62

A 25.63 41.90

100.00 100.00

Credit Exposure of Derivatives by Rating

AAA 0.00 0.00

AA 87.21 79.24

A 12.79 20.76

100.00 100.00


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NOTE 21 (CONTINUED)

Liquidity Risk

Liquidity risk relates to WATC’s ability to have sufficient funds available to meet its financial obligations as and when they fall due, without having to incur excessive losses or funding costs.

WATC minimises this risk in a number of ways, including:

• ensuring that its holdings of liquid assets and/or standby facilities are equal to or above a minimum level guided by APRA’s prudential standard “APS 210”;

• preparing 50-day cash flow forecasts on a daily basis and 10-day and 10-week cash flow forecasts on a weekly basis;

• carrying out scenario analysis for adverse market conditions;

• diversifying its funding activity across markets and across the maturity spectrum; and

• having access to an intra day overdraft facility in order to handle its intra day liquidity requirements.

By maintaining a minimum level of liquid assets, WATC ensures that it has sufficient liquidity to meet unforeseen large net cash outflows or temporary market disruptions. The policy mandated minimum level of liquid assets was maintained throughout the year.

Liquidity Table

The following are contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting arrangements:

Up to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Total

$’000 $’000 $’000 $’000 $’000

2013Financial Liabilities:Borrowings– non derivative 7,853,445 6,901,655 17,116,450 9,273,646 41,145,196

7,853,445 6,901,655 17,116,450 9,273,646 41,145,196Derivatives– derivative payable 1,690,418 194,399 47,858 150,540 2,083,215– derivative receivable 1,858,226 389,996 257,535 51,352 2,557,109Derivatives Net (167,808) (195,597) (209,677) 99,188 (473,894)

Total 7,685,637 6,706,058 16,906,773 9,372,834 40,671,302

2012Financial Liabilities:Borrowings– non derivative 9,350,498 8,436,213 10,719,064 9,882,727 38,388,502

9,350,498 8,436,213 10,719,064 9,882,727 38,388,502Derivatives– derivative payable 2,034,695 871,991 46,348 166,040 3,119,074– derivative receivable 2,042,129 1,168,986 301,841 83,107 3,596,063Derivatives Net (7,434) (296,995) (255,493) 82,933 (476,989)

Total 9,343,064 8,139,218 10,463,571 9,965,660 37,911,513


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Funding Risk

Funding risk is the risk that funding may not always be available because it is sourced from too small or concentrated a range of facilities.

This risk is minimised through the diversification of WATC’s funding activity across domestic and offshore markets and across the maturity spectrum.

The Board requires the Asset and Liability Management Committee to ensure that appropriate facilities and funding sources are maintained to minimise this risk.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

WATC has adopted an Operational Risk Management Framework (ORMF) that sets out the methodology by which its operational risks are identified, assessed, controlled and monitored. The key objectives of the framework are:

• to promote a culture which allows operational risk to be managed in a consistent manner;

• to ensure staff have a clear understanding of their responsibilities with respect to operational risk management;

• to effectively identify and manage operational risks so that strategic and business objectives can be met; and

• to calculate the level of capital that is commensurate with WATC’s operational risk exposures.

Risk Management Governance

WATC’s Board of Directors (the Board) is responsible for the performance of the functions of WATC under the Western Australian Treasury Corporation Act 1986.

In carrying out these functions, the Board ensures that appropriate risk management policies, systems and reporting processes are in place. To assist in fulfilling its obligations in this regard, the Board has implemented risk management policies covering market (interest rate and exchange rate), credit, liquidity and funding and operational risks.

WATC has established the Asset and Liability Management Committee which is responsible for:

• the provision of risk management policy advice to the CEO;

• the formulation of strategy in managing WATC’s assets and liabilities;

• the oversight of risk management activities within WATC; and

• maintaining WATC’s Risk Management Policies and reviewing them annually.

The Asset and Liability Management Committee meets on a monthly basis prior to each Board meeting.

Capital Requirements

Under WATC’s capital policy, a defined minimum amount of capital must be retained to cover its market, credit and operational risk exposures. WATC considers retained earnings and reserves as its capital.

The minimum market, credit and operational risk capital requirement calculation is guided by APRA’s prudential standards and the Basel Accord. The calculation of WATC’s total capital requirement is carried out on a daily basis and compared to WATC’s available capital.

WATC’s total capital requirements can vary significantly over time as a function of the level of client lending, the volume of market support activity and the availability of suitable funding/hedge instruments. Therefore, to prudently manage its capital retention levels, WATC makes forward projections (normally over a 3-year period) of its capital requirements. This information is used by the Board to determine the minimum amount of capital that must be retained to ensure sufficient capital is available to cover expected exposures over the projection period.

A review of WATC’s capital requirements is carried out at least annually.


65

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NOTE 21 (CONTINUED)

Capital Requirements (CONTINUED)

In accordance with WATC’s Market Risk Management policy (and consistent with APRA standards), VaR is calculated using a 10-day liquidation period and a 99% confidence interval. To determine WATC’s market risk capital requirement, the calculated VaR statistic is multiplied by 3.

Consistent with the APRA standards, WATC will monitor “back testing” results and increase the risk multiplier to a level consistent with APRA’s guidelines if back testing results indicate weaknesses in WATC’s VaR model. The minimum multiplier allowed under the APRA standards is 3 and the maximum is 4.

MANAGEMENT

Investments, Loans to Authorities, Borrowings and Derivative financial instruments have been designated as fair value through profit and loss. Balances are recorded at fair value in the Statement of Financial Position and unrealised gains or losses are brought to account in the Statement of Comprehensive Income. Fair values are derived using market quoted mid point prices to the extent that financial assets and liabilities are held in offsetting risk positions. Credit risk is not a significant determinant of fair value as WATC’s liabilities are guaranteed by the Treasurer on behalf of the State and therefore changes in fair value are largely attributable to market related movements in prices and yields.

In carrying out its mission, WATC is a net borrower from the capital markets. WATC’s funding preferences in terms of term structure and product usage must be balanced against investor preferences in order to source funds at the lowest cost. In this regard, WATC accepts a degree of market risk by allowing the maturity profile of its funding portfolio to only approximate the maturity profile of its lending portfolio. Derivative instruments, including swaps, forward rate agreements and futures, are used to economically hedge and minimise the risks incurred.

The amounts to be exchanged on these contracts are calculated with reference to the notional amount and other terms of the derivatives. Credit exposure represents WATC’s estimate of its exposure at reporting date in the event of non-performance by counterparties. WATC has adopted APRA’s “Current Exposure Method” to determine the credit exposure arising from its derivative transactions. At 30 June 2013, WATC is confident that all its counterparties will meet their obligations.

Details of the notional amount, net fair value and credit exposure of the derivative instruments used for managing interest rate risk are shown below.

Notional Amount Net Fair Value Credit Exposure$’000 $’000 $’000

As at 30 June 2013

Futures 393,200 (104) 0

Interest Rate Swaps 7,471,870 251,211 463,115

Forward Rate Agreements 2,232,000 42 184

As at 30 June 2012

Futures 516,900 (263) 0

Interest Rate Swaps 12,521,490 434,018 673,275

Forward Rate Agreements 1,675,000 (884) 24


66

Interest rate swaps are used from time to time to manage funding risk by issuing fixed rate benchmark bonds and interest rate swaps to generate floating rate exposures. At times, floating to fixed swaps are used to change floating rate borrowings to fixed rate borrowings in order to match WATC’s lending to client authorities. With interest rate swaps, WATC agrees with counterparties to exchange at predetermined intervals the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional face value. Interest rate swaps are also used to provide term floating rate funds for client authorities. At 30 June 2013, WATC had lent funds amounting to A$6,359,963 thousand (2012, A$8,593,568 thousand) on this basis.

Forward rate agreements are used by WATC to secure a guaranteed return or cost on known cash flows as and when they fall due. These agreements establish an interest rate on a notional principal over a specified period. Futures contracts are used essentially for the same purpose as forward rate agreements. The contracts used by WATC are the bank bill, 3-year and 10-year bond contracts.

WATC borrows in foreign currencies when the all in cost after swapping back into Australian dollars is cheaper than the equivalent domestic borrowing. Whereas WATC manages interest rate risk on a portfolio basis, it manages the exchange rate risk on foreign currency borrowings as part of the borrowing transaction.

At 30 June, WATC had foreign currency swaps and forwards amounting to A$2,018,393 thousand (2012, A$2,791,586 thousand) with a fixed future obligation in Australian dollars of A$1,833,821 thousand (2012, A$2,835,652 thousand). Additionally, WATC has arranged foreign exchange transactions for clients amounting to A$61,708 thousand (2012, A$185,054 thousand). These transactions are arranged with clients on a back to back basis and therefore WATC does not have any net exposure. The fair value of $1,030 thousand relating to these forward foreign exchange transactions receivable from authorities and payable to third parties is included in Notes 12(b) and 18(b) respectively.

All financial assets and liabilities have been recognised at the reporting date at their fair value. For valuation purposes, WATC uses quoted market rates wherever possible to discount cash flows to present values. Those stocks without quoted market rates are valued using WATC’s Zero Coupon Yield curves, which include adequate consideration for credit risk, to closely approximate market. As at 30 June, the market interest rates used by WATC for valuation purposes were:

Coupon Market Rate asat 30 June 2013

Market Rate as at 30 June 2012

Overnight - 2.75% 3.50%

90 days - 2.82% 3.48%180 days - 2.84% 3.44%15 April 2015 7.00% 2.79% 3.22%15 July 2017 8.00% 3.43% 3.51%15 October 2019 7.00% 3.93% 3.78%15 July 2021 7.00% 4.30% 3.94%


67

CONTINUED



NOTE 21 (CONTINUED)

Fair Value Hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

• Level 1: quoted prices in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1 Level 2 Level 3 Total$’000 $’000 $’000 $’000

30 June 2013

Financial assets designated at fair value through profit or loss 513,800 37,108,300 0 37,622,100

Derivative financial assets 0 204,381 0 204,381

Total Assets 513,800 37,312,681 0 37,826,481

Financial liabilities designated at fair value through profit or loss 24,868,494 11,565,765 0 36,434,259

Derivative financial liabilities 0 (296,179) 0 (296,179)

Total Liabilities 24,868,494 11,269,586 0 36,138,080

30 June 2012

Financial assets designated at fair value through profit or loss 391,999 35,406,714 0 35,798,713

Derivative financial assets 0 4,725 0 4,725

Total Assets 391,999 35,411,439 0 35,803,438

Financial liabilities designated at fair value through profit or loss 26,534,367 8,185,844 0 34,720,211

Derivative financial liabilities 0 (495,912) 0 (495,912)

Total Liabilities 26,534,367 7,689,932 0 34,224,299


68

2013 2012$’000 $’000

NOTE 22NOTES TO THE STATEMENT OF CASH FLOWS

22a. Reconciliation of Cash

For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the reporting period as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows:

Bank Deposits (Note 9) 1,845 2,315

Short Term Money Market Investments 2,491,240 2,867,006

Overseas Bank Accounts (Note 9) 135 54

2,493,220 2,869,375

22b. Reconciliation of Net Cash provided by Operating Activities to Profit for the period

Profit for the period after tax equivalent 16,016 17,504

Depreciation 210 196

Amortisation of Intangible Assets 177 289

Unrealised Foreign Exchange Loss (3) 1

Gain on Sale of Equipment (2) 0

Decrease/(Increase) in Receivables 21,635 (18,077)

Increase in Accrued Interest Payable 23,504 57,180

(Decrease)/Increase in Other Creditors (104) 203

Current income tax equivalent expense 6,878 7,588

Other Receipt/(Payment) on behalf of Client Authorities 241 (1,683)

(Increase) in deferred tax asset (10) (74)

Tax Equivalent Payment 0 (6,774)

Increase in Employee Benefits 34 257

Premium/discount amortisation (43,186) 25,488

Fair Value Adjustment (176,749) (37,016)

Cash Decrease/(Increase) in Investments 788,560 (640,657)

Cash (Increase) in Lending (3,494,513) (3,869,611)

Cash Increase in Borrowings 2,493,175 5,861,601

Net Cash (used in)/provided by Operating Activities (364,137) 1,396,415

22c. Financing/Lending Facilities

WATC holds a substantial portfolio of liquid assets that can be readily converted into cash. These assets comprise highly liquid money market investments and longer term State Government and Commonwealth Government securities.


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CONTINUED



NOTE 23REMUNERATION OF DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL

Directors’ Remuneration

T M Marney, Chairperson, A M Kannis, Deputy Chairperson, J M Collins, Chief Executive Officer, G J Searle, Director, G M McMath, Director and C A Nance, Director are the current directors of WATC. All directors other than J M Collins are non executive. The number of directors whose total of fees, salaries, superannuation and other benefits for the financial year fall within the following bands are:

2013 2012 2013 2012$ $ $

0 3 2

30,001-40,000 1 1

40,001-50,000 1 2

360,001-370,000 - 1

370,001-380,000 - -

380,001-390,000 1 -

The total remuneration of the directors of WATC is: 462,721 485,056

Which comprises:

Short Term Employment Benefits 419,584 444,828

Other Long Term Employment Benefits 4,009 2,494

Post Employment Benefits 39,128 37,734

The superannuation included here represents the superannuation expense incurred by WATC in respect of the directors.

No directors are members of the Pension Scheme.


70

Other Key Management Personnel Remuneration

Other Key Management Personnel are T W Currie, Corporate Treasurer, S L Luff, Chief Financial Officer and Board Secretary, W L McEwen, Chief Risk Officer, S J B Morhall, Director Client Services, M A Nunes, Deputy Chief Executive Officer and R L Ridgway, Human Resource Manager. The number of other key management personnel, other than directors, whose total fees, salaries, superannuation and other benefits, including payout of entitlements, for the financial year, fall within the following bands are:

2013 2012 2013 2012$ $ $

40,001-50,000 *1 -

80,001-90,000 *1 -

140,001-150,000 - 1

190,001-200,000 - 1

200,001-210,000 1 1

210,001-220,000 2 1

230,001-240,000 - -

240,001-250,000 - 1

250,001-260,000 1 -

290,001-300,000 - 1

330,001-340,000 1 -

The total remuneration of other key management personnel is:

1,360,041 1,296,942

Which comprises:

Short Term Employment Benefits 1,155,738 1,114,423



*Ms Ridgway joined WATC during the year replacing Ms Udwadia and therefore these salaries represent part year only.

The superannuation included here represents the superannuation expense incurred by WATC in respect of other key management personnel other than directors.

No other key management personnel are members of the Pension Scheme.

2013 2012$’000 $’000

The total remuneration of directors and key management personnel is: 1,822,762 1,781,998

Which comprises:

Short Term Employment Benefits 1,575,322 1,559,251



NOTE 24AUDITOR’S REMUNERATION

Amounts paid or due and payable to the Office of the Auditor General for auditing the financial statements and performance indicators. 170,000 170,000


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CONTINUED



NOTE 25RELATED PARTY TRANSACTIONS

In its role as the State’s central borrowing authority, WATC advances funds, which are guaranteed by the State, to various State Government authorities. As at 30 June 2013, 97.9% (2012, 97.7%) of total loans to authorities were advanced to State Government authorities. The loans are provided at the cost of borrowing to WATC plus a margin to cover administration expenses and have various maturities. Details of maturity profile, interest earned and average interest earned are shown in Note 12.

In addition, WATC receives services from various government departments and agencies in the normal course of business. These transactions take place on an arm’s length basis.

NOTE 26EXPLANATORY STATEMENT

Actual Budget Variance Comment$’000 $’000 $’000

26a. Actual/Budget Comparison 2012/13

Revenue

Interest on Investments 121,488 210,000 (88,512) 1

Interest from Authorities 1,274,580 1,642,407 (367,827) 2

Fee Income 797 580 217

1,396,865 1,852,987 (456,122)

Gains

Foreign Exchange Gain 3 0 3


Net Fair Value Movement 176,749 0 176,749 3

Total Income 1,573,619 1,852,987 (279,368)

Expenses

Interest on Borrowings 1,535,208 1,818,463 (283,255) 4

Borrowing Related Expenses 1,650 3,487 (1,837)

Depreciation 210 391 (181)

Amortisation of Intangible Assets 177 636 (459)

Administration Expenses 13,490 14,851 (1,361)

Foreign Exchange Loss 0 0 0

1,550,735 1,837,828 (287,093)

Profit before income tax equivalent 22,884 15,159 7,725

Comments – Reasons for Variations from Budgeted Amounts

1. The decrease in Interest on Investments compared to budget was due to lower than anticipated interest rates and a lower than anticipated balance invested.

2. The decrease in Interest from Authorities compared to budget was due to lower than anticipated interest rates and a lower than anticipated client authority borrowing program.

3. The relationship between net fair value movement and interest income and expense is discussed at Note 7. The budget does not separately identify unrealised gains or losses.

4. The decrease in Interest on Borrowings compared to budget was due to lower than anticipated interest rates and debt levels. There was a corresponding decrease in Loans to Authorities.


72

2013 2012 Change Comment$’000 $’000 $’000

26b. Comparison Between 2012/13 and the Previous Year

Revenue

Interest on Investments 121,488 164,388 (42,900) 1

Interest from Authorities 1,274,580 1,296,209 (21,629) 2

Fee Income 797 595 202

1,396,865 1,461,192 (64,327)

Gains

Foreign Exchange Gain 3 0 3


Net Fair Value Movement 176,749 37,016 139,733 3

Total Income 1,573,619 1,498,208 75,411

Expenses

Interest on Borrowings 1,535,208 1,458,216 76,992 4

Borrowing Related Expenses 1,650 1,260 390

Depreciation 210 196 14

Amortisation of Intangible Assets 177 289 (112)

Administration Expenses 13,490 13,228 262

Foreign Exchange Loss 0 1 (1)

1,550,735 1,473,190 77,545

Profit before income tax equivalent 22,884 25,018 (2,134)

1. Interest on Investments has decreased by $42.900 million from the previous year mainly due to a decrease in interest rates.

2. Interest from Authorities has decreased by $21.629 million from the previous year mainly due to a decrease in interest rates.

3. Net Fair Value Movement has increased by $139.733 million from the previous year mainly due to changes in interest rates.

4. Interest on Borrowings has increased by $76.992 million from the previous year as a result of increased borrowings during the year.

NOTE 27 COMMITMENTS

There are no expenditure commitments contracted for and payable at 30 June 2013 (2012, nil).

NOTE 28 SUBSEQUENT EVENTS

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


73

The accompanying financial statements of the Western Australian Treasury Corporation have been prepared in compliance with the provisions of the Financial Management Act 2006 from proper accounts and records to present fairly the financial transactions for the financial year ended 30 June 2013 and the financial position as at 30 June 2013.

At the date of signing, we are not aware of any circumstances which would render the particulars included in the financial statements misleading or inaccurate.


Certification of Financial Statements

S L LUFF B.BUS, CPA CHIEF FINANCIAL OFFICER


16 August 2013



16 August 2013



16 August 2013


74

MISSION STATEMENT (2012/13)

To provide leadership and innovation in the delivery of effective and efficient financial solutions for our Western Australian public sector clients.

KEY OUTCOME

The key outcome of this mission is that clients are able to borrow from WATC at a commercially competitive cost.

KEY OUTPUT

A key output flowing from the pursuit of this mission is providing service of the highest quality to our clients through understanding their needs, offering expert financial risk management advice and providing financial products and services that are competitively priced.

GLOSSARY OF TERMS

A glossary of terms is provided at the end of this report to assist with the interpretation of the performance indicators.

KEY EFFECTIVENESS INDICATOR – ESTIMATED INTEREST RATE SAVINGS

In order to gauge its effectiveness in providing competitively priced loan funds to clients, WATC monitors the Australian corporate bond market.

The following table shows the estimated savings to clients borrowing from WATC compared to the estimated cost to clients of borrowing in the corporate bond market for the past three years. A direct cost comparison is impossible because none of WATC’s clients currently issue bonds in their own name.

Table 1: Estimated Interest Rate Savings to Clients by Reference Bond Credit Rating and Term to Maturity*

Term to Maturity as at 28/6/13 (Years)

AAA AA+ AA AA-

12/13 11/12 10/11 12/13 11/12 10/11 12/13 11/12 10/11 12/13 11/12 10/11

1 to 2 0.21% 0.66% 0.48% 0.84% 1.63% 0.91% 0.88% 0.65% 0.65% 1.83% 1.30%

2 to 3 0.80% 0.68% 0.66% 0.85% 1.25% 2.71% 1.10% 1.40% 0.77% 0.75% 2.43%

3 to 4 0.76% 1.20% 0.54% 0.44% 1.34% 1.59% 1.46% 0.99% 0.77% 2.29%

4 to 5 0.30% 1.18% 1.12% 1.16% 1.43% 1.08% 0.92% 1.43%

5 to 6 0.83% 0.84% 1.00% 1.09% 1.98% 1.24% 1.61%

6 to 7 0.47% 1.13% 0.87% 1.58% 0.87% 0.98%

7 to 8 0.25% 1.03% 1.15% 1.67% 1.75% 1.76%

8 to 9 0.49% 0.51% 0.84% 0.80% 1.36%

9 to 10

10 to 11

11 to 12

12 to 13

13 to 14

* A blank entry in the table means there is no reference bond available in the corporate bond market for comparative purposes.

Key Performance Indicators


75

CONTINUED


Key Performance Indicators

By way of example, the saving of 0.21% identified in the first row of the AAA 12/13 column represents the estimated interest rate saving to a client (able to borrow in the corporate bond market with an AAA credit rating) when borrowing from WATC.

The savings identified in Table 1 would be significantly greater than shown for all but the largest of WATC’s clients due to the relatively small size of individual client borrowing requirements. In reality, most clients would be unable to borrow at the interest rates available in the corporate bond market due to this constraint. In general, the market imposes a liquidity risk premium because a small issue volume implies a small secondary market in the bond. The premium compensates for the increased difficulty of selling at fair market prices in a small secondary market. As a guide, in the current market environment, issue volumes need to be of the order of $500-$750 million to avoid the risk of incurring a significant liquidity risk premium.

In this regard, WATC’s effectiveness is further demonstrated by its ability to make available competitively priced loan funds to clients, with borrowing terms from 1 day to greater than 10 years, regardless of the size of client borrowing programs. By way of contrast, only the largest of corporate bond market participants are able to issue bonds with different terms to maturity. Having multiple bond issues helps to reduce the initial interest cost of bond issues by improving the secondary market and hence liquidity of a borrower’s bonds.

Cost Estimation Methodology

A number of corporate bonds were selected for the purpose of comparison to WATC’s Portfolio Lending Arrangement (PLA) interest rates. To be selected, a bond had to satisfy the following:

• be rated between AAA and AA-;

• be on issue at 30 June 2012 and have at least one year until maturity at 30 June 2013;

• not be guaranteed by the Commonwealth or other central governments; and

• not be subordinated debt (i.e. debt issued by banks for capital adequacy purposes).

The month end traded interest rates for the selected corporate bonds were tracked over the year. The rate for each bond was compared to the rate for an equivalent term PLA bond net of WATC’s on-cost margin. This margin was removed because it represents the loan issue and administration costs that clients would reasonably be expected to incur in arranging their own borrowing programs.

The estimated saving to the client for a given observation is defined as the observed corporate bond rate minus the net PLA rate. The savings shown in Table 1 are defined as the average of the monthly observations. Where more than one bond falls into a particular maturity category, the results are also averaged.

KEY EFFICIENCY COST EFFECTIVENESS INDICATOR – ADMINISTRATION COST RATIO

In order to monitor its efficiency and cost effectiveness in funding client borrowing requirements over time, WATC monitors its administration cost ratio.

The administration cost ratio is defined as the ratio of net administration expense to average loan funds outstanding expressed as a percentage. Net administration expense is defined as administration expenses (including loan raising expenses) less non-interest revenue, while average loan funds outstanding is defined as the average of the opening and closing book value of loans to clients for the relevant year. WATC’s administration cost ratio for the previous five years is shown in Table 2.

Table 2: WATC Administration Cost Ratio 2008/09 to 2012/13

YearNet Administration

Expense $mAverage Loan Funds

Outstanding $mAdministration

Cost Ratio

2008/09 13.910 13,741 0.101%

2009/10 13.593 18,790 0.072%

2010/11 14.310 22,778 0.063%

2011/12 14.378 25,755 0.056%

2012/13 14.728 29,466 0.050%


76

Clients are able to benefit from the economies of scale that result from the centralised or pooled borrowing arrangements of WATC. Through this pooling, WATC is able to reduce the administration cost per dollar of lending to the client.

The economies of scale achieved by WATC generate savings to the client that would not be available to individual clients attempting to fund their borrowing requirements directly from the market. In general, the level of specialisation and expertise provided by WATC would not be cost effective for an individual client to maintain.

WATC’s administration cost ratio will fluctuate from time to time due to changes in aggregate debt levels as well as direct management action. Changes in aggregate debt levels are impacted by government asset sales and debt management policy in general which is beyond the control of WATC.

GLOSSARY OF TERMS

Term Explanation

Liquidity Risk The risk that a bond owner, wanting to sell a bond in the secondary market, is not able to find a buyer willing to pay a fair price for the bond having regard to currently observed market rates and the initial liquidity risk premium.

Liquidity Risk Premium The increase in the interest rate required by the buyer of a bond to compensate for liquidity risk.

Maturity Date The date on which the final bond payment is to be made.

Term to Maturity The amount of time until the final bond payment is due.

Issue Volume The face value amount at issue date. This is the amount that a bond issuer must repay on the maturity date of the bond.

Corporate Bond Market The market in which bonds issued in the name of individual corporate entities are bought and sold.

Reference Bond A corporate bond selected for comparison to WATC’s lending rates.

CERTIFICATION OF PERFORMANCE INDICATORS

We hereby certify that the key performance indicators are based on proper records, are relevant and appropriate for assisting users to assess Western Australian Treasury Corporation’s performance and fairly represent the performance of Western Australian Treasury Corporation for the financial year ended 30 June 2013.



16 August 2013



16 August 2013


77

To the Parliament of Western Australia


Report on the Financial Statements

I have audited the accounts and financial statements of the Western Australian Treasury Corporation.

The financial statements comprise the Statement of Financial Position as at 30 June 2013, the Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and Notes comprising a summary of significant accounting policies and other explanatory information.

Board’s Responsibility for the Financial Statements

The Board is responsible for keeping proper accounts, and the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards and the Treasurer’s Instructions, and for such internal control as the Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

As required by the Auditor General Act 2006, my responsibility is to express an opinion on the financial statements based on my audit. The audit was conducted in accordance with Australian Auditing Standards. Those Standards require compliance with relevant ethical requirements relating to audit engagements and that the audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Corporation’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Board, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial statements are based on proper accounts and present fairly, in all material respects, the financial position of the Western Australian Treasury Corporation at 30 June 2013 and its financial performance and cash flows for the year then ended. They are in accordance with Australian Accounting Standards and the Treasurer’s Instructions.

Report on Controls

I have audited the controls exercised by the Western Australian Treasury Corporation during the year ended 30 June 2013.

Controls exercised by the Western Australian Treasury Corporation are those policies and procedures established by the Board to ensure that the receipt, expenditure and investment of money, the acquisition and disposal of property, and the incurring of liabilities have been in accordance with legislative provisions.

Board’s Responsibility for Controls

The Board is responsible for maintaining an adequate system of internal control to ensure that the receipt, expenditure and investment of money, the acquisition and disposal of public and other property, and the incurring of liabilities are in accordance with the Financial Management Act 2006 and the Treasurer’s Instructions, and other relevant written law.


As required by the Auditor General Act 2006, my responsibility is to express an opinion on the controls exercised by the Western Australian Treasury Corporation based on my audit conducted in accordance with Australian Auditing and Assurance Standards.

An audit involves performing procedures to obtain audit evidence about the adequacy of controls to ensure that the Corporation complies with the legislative provisions. The procedures selected depend on the auditor’s judgement and include an evaluation of the design and implementation of relevant controls.


Independent Auditor’s Report


78

Opinion

In my opinion, the controls exercised by the Western Australian Treasury Corporation are sufficiently adequate to provide reasonable assurance that the receipt, expenditure and investment of money, the acquisition and disposal of property, and the incurring of liabilities have been in accordance with legislative provisions during the year ended 30 June 2013.

Report on the Key Performance Indicators

I have audited the key performance indicators of the Western Australian Treasury Corporation for the year ended 30 June 2013.

The key performance indicators are the key effectiveness indicators and the key efficiency indicators that provide information on outcome achievement and service provision.

Board’s Responsibility for the Key Performance Indicators

The Board is responsible for the preparation and fair presentation of the key performance indicators in accordance with the Financial Management Act 2006 and the Treasurer’s Instructions and for such controls as the Board determines necessary to ensure that the key performance indicators fairly represent indicated performance.


As required by the Auditor General Act 2006, my responsibility is to express an opinion on the key performance indicators based on my audit conducted in accordance with Australian Auditing and Assurance Standards.

An audit involves performing procedures to obtain audit evidence about the key performance indicators. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the key performance indicators. In making these risk assessments the auditor considers internal control relevant to the Board’s preparation and fair presentation of the key performance indicators in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the relevance and appropriateness of the key performance indicators for measuring the extent of outcome achievement and service provision.


Opinion

In my opinion, the key performance indicators of the Western Australian Treasury Corporation are relevant and appropriate to assist users to assess the Corporation’s performance and fairly represent indicated performance for the year ended 30 June 2013.

Independence

In conducting this audit, I have complied with the independence requirements of the Auditor General Act 2006 and Australian Auditing and Assurance Standards, and other relevant ethical requirements.

Matters Relating to the Electronic Publication of the Audited Financial Statements and Key Performance Indicators

This auditor’s report relates to the financial statements and key performance indicators of the Western Australian Treasury Corporation for the year ended 30 June 2013 included on the Corporation’s website. The Corporation’s directors are responsible for the integrity of the Corporation’s website. This audit does not provide assurance on the integrity of the Corporation’s website. The auditor’s report refers only to the financial statements and key performance indicators described above. It does not provide an opinion on any other information which may have been hyperlinked to/from these financial statements or key performance indicators. If users of the financial statements and key performance indicators are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial statements and key performance indicators to confirm the information contained in this website version of the financial statements and key performance indicators.

COLIN MURPHY AUDITOR GENERAL FOR WESTERN AUSTRALIA

Perth, Western Australia 22 August 2013


79

Authority NameBalance at

1 July 2012Net Advances

During YearBalance at

30 June 2013

$'000 $'000 $'000

Albany City Council 16,832 (1,553) 15,280

Albany Port Authority 1,250 (1,250) 0

Armadale City Council 19,805 (798) 19,008

Ashburton Shire Council 3,835 (369) 3,466

Augusta-Margaret River Shire Council 11,080 (654) 10,427

Bassendean Town Council 3,638 (634) 3,004

Bayswater City Council 288 (64) 224

Belmont City Council 3,670 (534) 3,136

Beverley Shire Council 246 962 1,208

Boddington Shire Council 1,996 (335) 1,660

Boyup Brook Shire Council 411 355 766

Bridgetown-Greenbushes Shire Council 818 (62) 757

Brookton Shire Council 2,148 (95) 2,053

Broome Port Authority 12,088 2,927 15,015

Broome Shire Council 8,125 (1,234) 6,891

Broomehill-Tambellup Shire Council 275 76 350

Bunbury City Council 6,643 1,975 8,619

Bunbury Port Authority 8,862 (1,879) 6,983

Bunbury Water Board 0 610 610

Busselton City Council 4,442 (435) 4,007

Busselton Water Board 2,567 (214) 2,353

Cambridge Town Council 14,074 (125) 13,949

Canning City Council 6,505 11,428 17,933

Capel Shire Council 3,987 964 4,951

Carnamah Shire Council 527 424 950

Carnarvon Shire Council 557 (94) 463

Chapman Valley Shire Council 550 (168) 382

Chittering Shire Council 386 899 1,285

Claremont Town Council 9,585 (64) 9,521

Cockburn City Council 0 4,865 4,865

Collie Shire Council 403 89 492

Commissioner of Main Roads 20,766 (5,000) 15,766

Coolgardie Shire Council 1,678 (262) 1,416

Coorow Shire Council 311 (100) 211

Corrigin Shire Council 708 (165) 544

Cottesloe Town Council 6,208 (337) 5,871

Country High School Hostels Authority 18,756 (971) 17,785

Country Housing Authority 41,363 1,937 43,300

Cranbrook Shire Council 568 (67) 501

Cuballing Shire Council 206 (34) 172

Cue Shire Council 61 (19) 42

Client AuthoritiesFace Value Net Debt Outstanding to WATC at 30 June 2013


80




30 June 2013

$'000 $'000 $'000

Cunderdin Shire Council 838 (149) 689

Curtin University of Technology 63,835 (2,264) 61,571

Dalwallinu Shire Council 1,516 (100) 1,417

Dampier Port Authority 64,005 (1,998) 62,007

Dandaragan Shire Council 1,572 (189) 1,383

Dardanup Shire Council 2,153 604 2,757

Denmark Shire Council 2,741 (288) 2,453

Derby-West Kimberley Shire Council 2,792 (173) 2,618

Donnybrook-Balingup Shire Council 1,251 219 1,469

Dowerin Shire Council 637 (53) 584

Dumbleyung Shire Council 132 (19) 114

Dundas Shire Council 66 (37) 29

East Fremantle Town Council 359 (150) 208

East Pilbara Shire Council 8,313 (871) 7,442

Edith Cowan University 43,975 47,791 91,767

Electricity Generation Corporation 782,218 (143,029) 639,189

Electricity Networks Corporation 5,426,241 702,492 6,128,734

Esperance Port Authority 76,722 (10,089) 66,633

Esperance Shire Council 9,102 (3,030) 6,072

Exmouth Shire Council 1,888 (220) 1,668

Fremantle City Council 9,917 (616) 9,301

Fremantle Port Authority 242,664 (15,898) 226,766

Geraldton Port Authority 140,518 (6,970) 133,548

Gingin Shire Council 2,964 (302) 2,661

Gnowangerup Shire Council 871 1,031 1,902

Gosnells City Council 12,612 (5,326) 7,286

Government Employees Superannuation Board 389,600 (32,594) 357,006

Greater Geraldton City Council 12,812 2,296 15,108

Halls Creek Shire Council 1,448 (80) 1,368

Harvey Shire Council 1,488 (279) 1,209

Housing Authority 4,293,809 (251,245) 4,042,564

Independent Market Operator 13,014 3,409 16,423

Irwin Shire Council 3,792 (71) 3,722

Jerramungup Shire Council 455 428 883

Joondalup City Council 10,457 (1,565) 8,892

Kalamunda Shire Council 8,669 (559) 8,110

Kalgoorlie-Boulder City Council 3,618 1,665 5,283

Katanning Shire Council 1,203 (54) 1,149

Kellerberrin Shire Council 1,979 (130) 1,848

Kent Shire Council 658 (61) 596

Kojonup Shire Council 582 (39) 544


81




30 June 2013

$'000 $'000 $'000

Kondinin Shire Council 516 770 1,287

Kulin Shire Council 634 (34) 600

Kwinana City Council 18,156 7,051 25,206

Lake Grace Shire Council 1,718 755 2,473

Laverton Shire Council 1,017 (88) 930

Mandurah City Council 36,349 (1,970) 34,379

Manjimup Shire Council 4,416 287 4,703

Melville City Council 3,763 (54) 3,709

Menzies Shire Council 62 (30) 32

Merredin Shire Council 1,124 (106) 1,018

Metropolitan Redevelopment Authority 106,575 61,792 168,367

Mingenew Shire Council 1,282 (119) 1,164

Minister for Education 227,352 (2,785) 224,567

Minister for Emergency Services 75,823 8,383 84,206Minister for Finance (utilising powers under the State Supply Commission Act 1991 as amended) 147,577 (10,162) 137,415Minister for Fisheries 34,862 1,999 36,861

Moora Shire Council 2,140 (318) 1,822

Morawa Shire Council 433 (59) 375

Mosman Park Town Council 6,728 41 6,769

Mount Magnet Shire Council 379 (31) 348

Mount Marshall Shire Council 679 (119) 560

Mukinbudin Shire Council 798 (100) 698

Mundaring Shire Council 4,919 (172) 4,746

Murdoch University 9,690 (628) 9,062

Murray Shire Council 4,384 828 5,212

Nannup Shire Council 366 (65) 301

Narembeen Shire Council 707 (57) 650

Narrogin Shire Council 338 (72) 267

Narrogin Town Council 651 624 1,275

Nedlands City Council 7,162 (1,153) 6,009

Northam Shire Council 4,996 (417) 4,578

Northampton Shire Council 693 241 934

Nungarin Shire Council 475 (52) 422

Peppermint Grove Shire Council 946 (18) 928

Perenjori Shire Council 1,870 (148) 1,722

Perth City Council 36,308 18,952 55,259

Perth Market Authority 44,684 (1,321) 43,363

Pilbara Institute 387 (387) 0

Pingelly Shire Council 976 (67) 909

Plantagenet Shire Council 2,206 1,391 3,598

Port Hedland Port Authority 208,700 (4,000) 204,700

Client Authorities

CONTINUED

Face Value Net Debt Outstanding to WATC at 30 June 2013


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30 June 2013

$'000 $'000 $'000

Port Hedland Town Council 21,566 5,168 26,734

Public Transport Authority 1,316,602 221,971 1,538,573

Quairading Shire Council 266 (11) 255

Ravensthorpe Shire Council 1,889 (166) 1,723

Regional Power Corporation 392,181 184,167 576,348

Rockingham City Council 19,807 (4,082) 15,725

Roebourne Shire Council 14,594 (14,538) 56

Serpentine-Jarrahdale Shire Council 4,776 1,358 6,134

Shark Bay Shire Council 451 230 681

South Perth City Council 14,291 (1,446) 12,845

Southern Metropolitan Regional Council 47,076 (12,408) 34,668

Subiaco City Council 3,031 (735) 2,296

Swan City Council 23,625 6,956 30,581

Tammin Shire Council 426 (93) 333The State of Western Australia through the Minister for Agriculture and Food under the Loans (Co-operative Companies) Act 2004 6,170 618 6,788The Treasurer on behalf of the State of Western Australia 7,985,766 2,153,330 10,139,096

Three Springs Shire Council 758 (121) 638

Toodyay Shire Council 1,367 1,678 3,045

Trayning Shire Council 494 (89) 405

University of Western Australia 75,000 57,000 132,000

Upper Gascoyne Shire Council 0 2,500 2,500

Victoria Park Town Council 12,612 3,849 16,461

Victoria Plains Shire Council 248 (29) 219

Vincent City Council 21,282 (1,089) 20,193

Wagin Shire Council 912 (51) 861

Wanneroo City Council 60,778 0 60,778

Waroona Shire Council 210 (24) 186

Water Corporation 4,655,775 449,225 5,105,000

West Arthur Shire Council 622 (34) 588

Western Australian Land Authority 130,478 95,475 225,953

Westonia Shire Council 633 (72) 561

Wickepin Shire Council 404 (44) 360

Williams Shire Council 337 (37) 300

Wiluna Shire Council 0 1,700 1,700

Wongan-Ballidu Shire Council 1,608 (82) 1,526

Wyalkatchem Shire Council 370 (62) 308

Wyndham-East Kimberley Shire Council 2,104 3,647 5,752

Yalgoo Shire Council 489 (29) 460

Yilgarn Shire Council 45 (45) 0

York Shire Council 2,260 (94) 2,165

TOTAL 27,703,854 3,523,553 31,227,406

Note: Due to rounding some figures do not add.


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Contact DetailsWestern Australian Treasury Corporation

ADDRESSES

Head Office Postal Address

Level 12, St Georges Square 225 St Georges Terrace PERTH WA 6000

PO Box 7282 Perth Cloisters Square WA 6850

Telephone: (+61) 8 9235 9100 Email: [email protected]

Facsimile: (+61) 8 9235 9199 Website: www.watc.wa.gov.au

REGISTRY INFORMATION

Link Market Services Limited is the agent for supplying registry services to WATC’s stockholders.

Following are address details relating to offices of Link Market Services Limited:

Western Australia Ground Floor 178 St Georges Terrace PERTH WA 6000

Victoria Level 1 333 Collins Street MELBOURNE VIC 3000

New South Wales Level 12 680 George Street SYDNEY NSW 2000

Queensland Level 15 324 Queen Street BRISBANE QLD 4000

STOCKHOLDING ENQUIRIES

Please call Link Market Services Limited on Freecall 1800 098 828 for all stockholding enquiries.


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mailto:watc%40watc.wa.gov.au?subject=Annual%20Report%202013%20Enquiry

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www.watc.wa.gov.au

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