The Hon Robyn Lambley MLA Treasurer Parliament House DARWIN NT 0800 Dear Treasurer I have pleasure in presenting to you the Annual Report of the Northern Territory Treasury Corporation. The report details the activities and operations of Treasury Corporation for the year ended 30 June 2012, in accordance with the provisions of section 31 of the Northern Territory Treasury Corporation Act and section 28 of the Public Sector Employment and Management Act. Pursuant to the Financial Management Act, I advise that to the best of my knowledge and belief: records of all transactions affecting Treasury Corporation are kept and that employees under my control observe the provisions of that Act, the Financial Management Regulations and the Treasurer’s Directions; within Treasury Corporation afford proper internal control, and all procedures and policies are documented; indication of fraud, malpractice, major breach of legislation or delegation, major error in or omission from the accounts and records exists; accordance with the requirements of section 15 of the Act, the internal capacity available to Treasury Corporation is adequate and the results of internal audits have been reported to me; financial statements included in the Annual Report have been prepared from proper accounts and records, and are in accordance with Treasurer’s Directions; and pursuant to section 131 of the Information Act, I advise that to the best of my knowledge and belief, Treasury Corporation has implemented processes to achieve compliance with the archives and records management provisions as prescribed in Part 9 of the Information Act. I can also advise you that the has audited Treasury Corporation’s financial statements for the year ended 30 June 2012 and his report is included. Yours sincerely Alan Tregilgas Under Treasurer and Chair 28 September 2012
Financial Markets Table 3: Borrowing Composition Refinance maturing Territory debt New borrowings Borrowing requirement $M 427 479 906 492 $M $M $M $M 363 376 295 441 207 325 46 570 701 295 487 - 190 Total borrowing program 1 398 570 891 295 487 Borrowing Activity The borrowing requirement was significantly higher than last year, with approximately $906 million raised to refinance maturing debt and additional borrowings to fund capital and operating expenditure for Northern Territory Government agencies, business divisions and corporations. In addition, the Corporation committed to part of the program, which resulted in raising a further $492 million, taking the total borrowing program for to $1398 million. This follows $570 million raised in and $891 million in as shown in Table 3. As in recent years, the Corporation’s entire borrowing requirement was met from domestic financial and retail markets. The bulk of the funds were raised through a number of medium to fixed interest securities, issued to institutional investors via tap increases of existing bond series and creation of new bond issues on a syndication basis. A full listing of the Corporation’s issued debt is provided in Appendix A on page 31. The Corporation’s funding requirement in resulted in the establishment of two new benchmark lines of bonds maturing in November 2017 and September 2018. As at 30 June 2012, the Corporation had seven institutional benchmark bond issues as detailed in Table 4. Table 4: Institutional Bond Issues as at 30 June 2012 Maturity Date Coupon Amount on Table 5: Borrowing Performance as at 30 June Average borrowing margin – margin to bank bill swap (BBSW) rate (floating rate) – margin to swap (fixed rate) – margin to AAA rated security Cost of borrowing achieved during the year Weighted average cost of borrowing Total cost of funds Weighted average cost of funds % - 0.04 0.38 4.86 5.67 % % % % - 0.04 0.05 0.21 0.14 - 0.10 0.22 0.24 0.13 0.11 5.29 5.70 5.96 6.67 6.10 6.15 6.10 6.34 -
Funding The Corporation manages the Northern Territory Government’s exposure to funding risk by ensuring it is not exposed to a significant refinancing risk in any financial year. The Corporation’s approach to minimise funding risk involves the diversification of borrowing and investment activities across the maturity spectrum and utilising a variety of funding sources to meet the Corporation’s requirements. The Corporation’s funding sources are as follows: » Wholesale Market fixed interest securities floating rate notes promissory » Retail Market Territory Migration Linked Bonds Trading Margin An important influence on trading margins is the perception of liquidity. The relatively small size of the Territory’s borrowing program does not promote significant trading activity and, as such, the borrowing margin is more of a reflection of the liquidity premium demanded by institutional investors for supporting the Corporation’s bond issuances. The implied trading margin between a Northern Territory bond and an interpolated AAA rated state government fixed interest security has deteriorated throughout the course of the year, increasing by around 0.16 per cent. This can be primarily attributed to the ongoing uncertainty in Europe, which resulted in a deterioration in credit markets and placed further pressure from investors for liquidity on all borrowers. The Corporation accepts the widening spread reflects the increased liquidity premium demanded by investors and the strategy to increase the term and duration of bonds on issue. Figure 3 on page 8 shows the Corporation’s borrowing margin relative to the Commonwealth and AAA rated central financing authorities. Promissory Notes The Corporation’s funding requirement is met through its promissory note facility. These notes are issued by way of tender to our main banking counterparties. The Corporation had $50 million of promissory notes outstanding as at 30 June 2012. The promissory note facility was used throughout the year to meet funding requirements. The weighted average yield achieved for the financial year was 4.49 per cent, with an average margin to bank bill swap (BBSW) reference rate of per cent. The issuing margins to BBSW in ranged from per cent to per cent. Migration Linked Bonds The bonds offered by the Corporation satisfy the criteria of a Designated Investment under the following programs administered by the Department of Immigration and Citizenship (DIAC): Business Skills Migration Investor Retirement Migration The Corporation did not receive any applications for Designated Investments
interest securities Total 451.5 912.0 621.4 657.9 Table 9: Investment Performance against Objective/Comparison to Benchmark Weighted average return (mark to market) Weighted UBS performance indices % 5.02 4.70 % % % % 5.27 4.39 6.71 7.08 4.96 3.91 6.73 7.10 0
Human Resource Management Staffing The Corporation’s staff are employed under the Public Sector Employment and Management Act Section 10 of the Northern Territory Treasury Corporation Act permits the Under Treasurer to assign employees to the Corporation from Northern Territory Treasury, on either a or basis. As at 30 June 2012, the Corporation had eight employees: five females and three males. Staff are required to comply with the PSEMA, Code of Conduct and the codes of ethics of all relevant professional associations. Employee Performance Management The Corporation, in conjunction with Northern Territory Treasury, operates an Employee Development Framework (EDF), which provides a feedback structure between managers and staff. The framework is designed to identify and develop the work performance of employees, so that the Corporation’s and employees’ objectives and goals are achieved. Staff and management undertake two performance reviews each year. Development requirements are recorded and followed up using the Northern Territory Treasury EDF database. Training and Professional Memberships undertake training and professional development aligned with organisational requirements which are generally identified through the EDF process. In addition to training, staff are encouraged to undertake finance and study through various professional bodies and institutions at the level. Formal study is supported by Northern Territory Treasury’s Study Assistance program which provides up to 2.5 hours paid study per week and reimbursement of course costs upon successful completion (capped at $1500 per unit). Staff undertook training and professional development in the following areas: risk management; report writing; taxation; cultural awareness; systems; and business administration. Employees are reimbursed half the cost of their annual professional membership fees where membership is relevant to their work role. Management and staff hold memberships with the following professional bodies: Australian Financial Markets Association; Australian Society of Certified Practising Accountants; Australian Institute of Company Directors; and Financial Services Institute of Australasia. Equal Opportunity and Workplace Harassment The Corporation is an equal opportunity employer and is committed to providing a workplace that is free from discrimination and harassment. All employees are required to take sessions on and harassment awareness to promote an understanding of such issues and inform staff of policies in place to address any incidents. In addition, Northern Territory Treasury has formal and informal complaints processes as well as a
grievance resolution procedure in place that staff can access. Employee Wellness Corporation staff have access to Northern Territory Treasury’s Employee Assistance Program (EAP). This program provides an important service to the agency’s employees and part of our occupational health and safety (OHS) commitments. The Corporation recognises that
Figure 7: Northern Territory Treasury Corporation’s Organisational Structure staff may be affected by personal, family or issues and EAP is one way that the Corporation supports staff. The EAP offers up to five free confidential counselling sessions for employees and their family members, with either of Northern Territory Treasury’s EAP providers. Also, flu vaccinations are available to Northern Territory Treasury employees on an annual basis. Flexible Work Arrangements The Corporation continues to recognise the need for employees to balance their work and family commitments and has a flexible work arrangements policy. The policy, which is consistent with the Union Collective Agreement for Northern Territory public sector employees, emphasises the need for employees and their managers to negotiate arrangements that suit both the individual and the needs of the workplace and provides a structured approach to making arrangements that are clear and equitable for those involved. Finance Officer in Training (FOIT) Scheme Throughout the year, graduates employed through the Northern Territory Treasury FOIT scheme are provided with placement opportunities in the Corporation. The FOIT program consists of graduates engaged on a contract who undertake work experience in several work areas in Northern Territory Treasury over the year. This is coupled with regular training through a comprehensive series of workshops and seminars outlining Northern Territory Treasury’s functions and government processes and structures. Employment Opportunities Information on employment opportunities within the Corporation can be found on the Northern Territory Government’s website atand Northern Territory Treasury’s website ator by contacting: Mr Alex Pollon General Manager (08) 8999 6318 Ms Vicky Coleman Manager Financial Administration (08) 8999 5599 Mr Richard Ting Manager Financial Assets and Liabilities (08) 8999 6767
Figure 9: Northern Territory Treasury Corporation’s Reporting Structure Strategic Direction Corporate Objectives The Corporation’s objectives are to: safeguard the Territory’s financial resources by establishing and regularly reviewing credit limits and maintaining adequate internal controls and staffing; reduce the Territory’s cost of borrowings through the effective control and management of its interest rate risk and to maintain the exposure to interest rate risk at an acceptable level; ensure the Corporation’s continued ability to meet the Territory’s finance obligations in an orderly manner, as and when they fall due, in both the and long term, through liquidity management; minimise the Territory’s cost of foreign currency requirements through the effective control and management of its foreign exchange risk and to remove the exposure to foreign exchange risk; and improved risk management strategies through the ongoing evaluation and review of appropriate risk management techniques by utilising specialist resources available to the Corporation. Northern Territory Treasury’s Senior Management Group The Corporation reports to Northern Territory Treasury’s Senior Management Group (SMG), which is responsible for the strategic policy direction of Northern Territory Treasury and its business units. This includes managing performance and improving management and business practices. The main role of SMG is corporate governance and developing corporate capabilities, such as people, systems and environment in Northern Territory Treasury. Northern Territory Treasury’s Risk and Audit Committee Audit and compliance reports submitted to Northern Territory Treasury’s Senior Executive are reviewed by Northern Territory Treasury’s Risk and Audit Committee. The committee oversees the internal risk management and compliance with legislative requirements.
Insurance Arrangements Insurable risks are risks that are generally related to workers compensation, assets and inventories, public liabilities and indemnities. They exclude financial risk and legal costs in action. In line with Northern Territory Government policy, the Corporation self insures. As a GBD, the Corporation can and has elected to pay a premium to Northern Territory Treasury as its host agency for workers compensation insurance, in lieu of purchasing commercial insurance. In there were no claims. This is consistent with Occupational Health and Safety Occupational health and safety (OHS) services are provided to the Corporation as part of Northern Territory Treasury’s OHS program. Northern Territory Treasury’s OHS committee meets quarterly and regularly reports to Northern Territory Treasury’s SMG. The committee reports and advises on workplace safety and systems of work, developing, implementing and monitoring OHS measures, advocating acceptable and responsible practices by employees and others, and promoting a health and safety ethos. All managers and supervisors are required to undertake a training session facilitated by the Department of Business and Employment to ensure appropriate awareness of the OHS requirements within the Northern Territory Public Service. Table 13: Audits Undertaken During the Year Compliance As part of its corporate governance framework, the Corporation undergoes several audits and review processes during the year. These are undertaken by both internal and external auditors. Policy and Procedures Formal policy and procedure manuals have been created and provided to all staff members. Policy and procedure manuals are updated annually or as required. Internal Audit The Corporation has an internal function reporting directly to the Corporation’s Advisory Board, Audit Committee and Northern Territory Treasury’s Senior Executive. The internal auditor, KPMG, audits the Corporation’s financial statements and reviews its risk and operational environments. External Audit The of the Northern Territory reviews the Corporation’s financial statements and operating environment and reports these findings annually to the Under Treasurer and Northern Territory Parliament. The also attends the Corporation’s Audit Committee meetings as requested. External inion Unqualified audit opinion Compliance Review Internal No significant matters identified Information technology controls Audit 30/06/12 Internal No significant matters identified Interim period review Audit 30/06/12 Internal/external No significant matters
Outstanding Issued Debt (continued) Face Value $000 857 457 3 296 40 1 089 10 146 10 17 86 490 117 22 667 224 TOTAL 5.76 411 378 Maturity Date Coupon Rate Face Value TOTAL 6.66 434 136 5.75 500 000 5.00 5 000 4.75 383 4.80 720 4.90 512 4.95 7 5.00 260 5.10 16 5.25 48
Statement of Financial Position AS AT 30 JUNE 2012 Note 2012 2011 TOTAL ASSETS Cash and cash equivalents Trade and other receivables 10 Prepayments 11 LIABILITIES Deposits held Trade and other payables 12 Provisions 13 Tax liabilities 13 Borrowings 14 $000 4 098 068 529 072 10 065 41 558 890 076 438 942 51 205 21 101 8 978 3 994 212 $000 3 113 897 26 587 8 507 58 3 078 745 3 092 267 786 40 878 16 587 7 053 3 026 963 NET ASSETS 21 630 21 630 TOTAL EQUITY 21 630 21 630 Contributed capital 9 21 630 21 630 Notes to the financial statements are included on pages 47 to 70.
Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 INTEREST REVENUE 2012 2011 Interest from: General government agencies Government owned corporation Government business divisions Local government authorities Gain on extinguishment $000 144 828 74 888 13 104 27 133 $000 123 194 62 672 10 518 29 378 TOTAL INTEREST REVENUE 232 980 196 791 2012 2012 2011 2011 Loans to: General government agencies1 Government owned corporation Government business divisions Local government authorities Average Balance Average Rate Average Balance Average Rate $000 1 951 669 1 140 204 226 565 380 % $000 % 6.74 1 684 686 6.93 6.57 993 481 6.31 5.78 203 965 5.16 7.01 416 7.01 TOTAL 3 318 818 2 882 548 2012 2011 on extinguishment: Gains on extinguishment of loans at amortised costs Gains on extinguishment of borrowings at amortised costs $000 90 43 $000 378 TOTAL GAINS ON EXTINGUISHMENT 133 378 OTHER REVENUE 2012 2011 revenue Management fees Other revenue $000 471 2 $000 471 TOTAL OTHER REVENUE 473 471 1 The average rate has been calculated by excluding the interest income earned from cash balances. The comparative for 2011 has been to conform to the current year’s presentation.
Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 INTEREST EXPENSE 2012 2011 Interest to: Wholesale borrowings Debt to Australian Government Retail borrowings Promissory Losses on extinguishment $000 177 608 11 853 7 410 4 231 40 $000 145 706 12 110 8 177 4 144 1 328 TOTAL INTEREST EXPENSE 201 142 171 465 2012 2012 2011 2011 Borrowings from: Wholesale market Fixed interest securities Promissory notes Debt to Australian Government Retail market Average Balance Average Rate Average Balance Average Rate $000 3 079 940 94 520 251 506 129 496 % $000 % 5.76 2 496 773 5.84 4.54 85 616 4.87 4.71 257 044 4.72 5.72 145 800 5.60 3 555 462 2 985 233 2012 2011 Losses on extinguishment: Losses on extinguishment of at amortised costs Losses on extinguishment of borrowings at amortised $000 2 38 $000 1 328 TOTAL LOSSES ON EXTINGUISHMENT 40 1 328
Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 OTHER EXPENSES 2012 2011 Administration Salaries and related employee expenses Agent service arrangements service arrangements Consultants Marketing and promotion Document production Legal fees General property management Subscriptions Training and Official duty fares Travelling allowance Other operating expenses $000 894 768 505 9 1 61 59 64 12 5 1 6 $000 834 743 495 6 18 35 7 57 49 18 4 1 19 TOTAL OTHER EXPENSES 2 385 2 286 RETAINED PROFITS 2012 2011 Balance at the beginning of the financial year Net profit Dividends provided for Dividends paid $000 20 948 (20 948) $000 16 458 (16 458) Balance at the end of the financial year CONTRIBUTED CAPITAL 2012 2011 Balance at the beginning of the financial year Movement for the year $000 21 630 $000 21 630 Balance at the end of the financial year 21 630 21 630
Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 TRADE AND OTHER RECEIVABLES 2012 2011 Accrued interest on loans Debtors $000 10 058 7 $000 8 507 TOTAL TRADE AND OTHER RECEIVABLES 10 065 8 507 Due from external bodies Due from Northern Territory Government agencies 7 10 058 8 507 TOTAL TRADE AND OTHER RECEIVABLES 10 065 8 507 2012 2011 General government agencies rate loans Credit foncier loans Government owned corporations Fixed rate loans Floating rate loans Credit foncier loans Government business divisions Fixed rate loans Floating rate loans Credit foncier loans Local government authorities Credit foncier loans $000 1 925 200 188 636 77 000 1 111 805 9 124 25 000 51 881 169 883 361 $000 1 598 200 191 301 77 000 994 465 11 013 28 381 177 986 399 TOTAL LOANS 3 558 890 3 078 745 TRADE AND OTHER PAYABLES 2012 2011 Creditors and accruals Accrued interest on borrowings Accrued salaries $000 282 50 904 19 $000 241 40 622 15 TRADE AND OTHER PAYABLES 51 205 40 878 Due to external bodies Due to Northern Territory Government agencies 51 135 70 40 864 14 TOTAL TRADE AND OTHER PAYABLES 51 205 40 878
to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Note 16 continued The fair of loans and domestic borrowings not recorded at fair value is as follows: FAIR VALUES 30 June 2012 30 June 2012 Carrying Value Fair Value 30 June 2011 30 June 2011 Carrying Value Fair Value Financial assets – loans Northern Territory of Australia Fixed rate loans Floating rate loans Credit foncier loans Local government authorities Credit foncier loans $000 $000 2 027 200 2 180 045 1 163 686 1 214 207 367 643 463 797 361 383 $000 $000 1 675 200 1 719 314 1 022 846 1 038 213 380 300 440 607 399 405 TOTAL LOANS 3 558 890 3 858 432 3 078 745 3 198 539 Financial liabilities – borrowings Wholesale market Fixed interest securities Promissory notes Retail market Territory Migration Linked Bonds Australian Government Credit foncier 3 574 854 3 854 628 49 759 49 751 118 425 124 303 2 500 2 614 248 674 258 362 2 585 026 2 685 749 49 531 49 533 135 567 137 899 2 500 2 534 254 339 224 397 TOTAL BORROWINGS 3 994 212 4 289 658 3 026 963 3 100 112