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Western Australian Treasury Corporation 2012 Annual Report - Page 8Western Australian Treasury Corporation 2012 Annual Report - Page 9
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COTTESLOE BEACH TIMOTHY MARNEY CHAIRPERSON CHAIRPERSON'S AND CHIEF EXECUTIVE OFFICER'S REVIEW OVERVIEW WATC HAD A VERY SUCCESSFUL TWENTY-SIXTH YEAR OF OPERATION IN 2011/12, IN ANOTHER DYNAMIC FINANCIAL ENVIRONMENT. AT THE BEGINNING OF THE FINANCIAL YEAR, AUSTRALIAN INTEREST RATES WERE EXPECTED TO INCREASE. HOWEVER, RESERVE BANK OF AUSTRALIA (RBA) CASH RATE REDUCTIONS TOTALLING 125 BASIS POINTS ACTUALLY EVENTUATED. DECLINES IN COMMONWEALTH GOVERNMENT BOND YIELDS LED THE CURVE DOWN INITIALLY, APPARENTLY THE RESULT OF PURCHASES FROM OFFSHORE INVESTORS. HOME LOAN RATES ALSO FELL, BUT BY LESS THAN RBA CASH RATES, AS BANKS' COSTS OF FUNDING DECLINED MORE SLOWLY THAN CASH RATES. WATC RATES ALSO FELL TO LOW ABSOLUTE LEVELS BUT, LIKE THE RATES OF THE OTHER TWO AAA-RATED AUSTRALIAN STATES, REMAINED AT SUBSTANTIAL PREMIUMS TO COMMONWEALTH GOVERNMENT SECURITIES. THE OVERALL REDUCTION IN THE AUSTRALIAN INTEREST RATE STRUCTURE WAS PROMPTED, IN PART, BY AN EASING DOMESTIC ECONOMY DISPLAYING SOFTNESS IN MANUFACTURING AND RETAIL SPENDING. HOWEVER, THE MAIN STORY WAS EUROPE, WITH A FOCUS ON GREECE, ITALY AND GLOBAL BANKS, AND THEN SPAIN AS THE YEAR CLOSED. THE AUTHORITIES IN EUROPE HAVE COMMENCED POSITIVE STEPS IN THE PAST SIX MONTHS, THOUGH THE FRAMEWORK FOR A LONG-TERM SOLUTION REMAINS ELUSIVE. ADDITIONALLY, THE US HAS NOT GAINED SIGNIFICANT FORWARD ECONOMIC MOMENTUM AND CHINA'S GROWTH RATE HAS EASED. THIS HAS RESULTED IN A MODEST REDUCTION TO COMMODITIES PRICES OVER THE YEAR, BUT WITHOUT THE CORRESPONDING EXPECTED DEPRECIATION IN THE AUSTRALIAN DOLLAR. THE RATINGS AGENCIES HAVE HAD AN ACTIVE YEAR IN TERMS OF DOWNGRADES. IN NOVEMBER/DECEMBER 2011, AND AGAIN IN MAY/JUNE 2012, THEY REDUCED THE RATINGS OF A NUMBER OF FORMERLY BLUE CHIP SOVEREIGNS AND BANKS. AUSTRALIA, THE STATE OF WESTERN AUSTRALIA AND WATC HAVE MAINTAINED THEIR AAA RATINGS, BENEFITING FROM THE CUMULATIVE IMPACT OF MANY YEARS OF SOUND FINANCIAL MANAGEMENT AS AAA RATINGS BECOME A RARER COMMODITY. AGAINST THIS BACKDROP, WATC PROVIDED NEARLY $3.9 BILLION IN NET NEW LOANS FOR CLIENTS DURING THE YEAR, COMPARED TO THE $4.9 BILLION ESTIMATED AT THE OUTSET. A NUMBER OF WATC CLIENTS TOOK ADVANTAGE OF HISTORICALLY LOW INTEREST RATES TO LOCK IN ATTRACTIVE LONG-TERM FUNDING. WATC HAD POSITIVE OUTCOMES IN TERMS OF FINANCIAL RESULTS AND SERVICES PROVIDED THIS YEAR, AS ACKNOWLEDGED BY WATC CLIENTS AND COUNTERPARTIES. A VERY SUCCESSFUL YEAR IN ANOTHER DYNAMIC FINANCIAL ENVIRONMENT. 6 WESTERN AUSTRALIAN TREASURY CORPORATION
IMPROVING THE KNOWLEDGE OF AND RELATIONSHIP WITH CLIENTS CLIENT SERVICE AND SATISFACTION IS OF CRITICAL IMPORTANCE TO WATC. TOWARD THIS END, INVESTMENT IN CUSTOMER RELATIONSHIP MANAGEMENT TRAINING CONTINUED AND THE IMPLEMENTATION OF A CUSTOMER RELATIONSHIP MANAGEMENT SYSTEM COMMENCED THIS YEAR. WATC ALSO HELD A SECOND BOARD TO BOARD MEETING WITH ANOTHER OF ITS MAJOR CLIENTS, TO MUTUAL BENEFIT. A WEIGHTED AVERAGE COST OF CAPITAL (WACC) FORUM WAS CONDUCTED FOR APPROXIMATELY 100 FEE-PAYING CLIENTS AND STAFF ON 22 AUGUST 2011. IT WAS PRESENTED BY STEPHEN GRAY, PROFESSOR OF FINANCE FROM THE UNIVERSITY OF QUEENSLAND, A LEADING EXPERT IN THIS SUBJECT. FOREIGN EXCHANGE SERVICES AGAIN RECEIVED INCREASED EMPHASIS, WITH ANOTHER POSITION CREATED TO ASSIST CLIENTS TO IDENTIFY AND MANAGE RISKS IN THIS AREA. THE QUANTITATIVE FINANCIAL SERVICES AND ASSET AND PROJECT FINANCE ADVISORY TEAMS WERE COMBINED INTO ONE ADVISORY UNIT IN MARCH 2012, INCREASING THE EFFICIENCY OF RESOURCES DEPLOYED IN THIS UNIT. TEN STAFF ARE NOW ENGAGED IN THIS ADVISORY UNIT, SUPPORTED BY OTHER WATC EMPLOYEES AS REQUIRED, IN THIS IMPORTANT WORK. PROJECTS SUCH AS ASSISTING UTILITIES WITH THEIR ECONOMIC REGULATION AUTHORITY (ERA) RATE SETS AND WORK ON SEVERAL PUBLIC PRIVATE PARTNERSHIPS (PPPS) – INCLUDING THE MIDLAND HEALTH CAMPUS – ARE EXAMPLES OF WORK UNDERTAKEN BY THE UNIT. A SECOND DEBT MODELLING EXERCISE WAS COMPLETED FOR A CLIENT AND A THIRD COMMENCED. WORK ALSO COMMENCED ON THE MANAGEMENT OF THE NEW WESTERN AUSTRALIAN FUTURE FUND. DEEPENING AND BROADENING ACCESS TO FINANCIAL MARKETS IN A COST-CONSCIOUS, OPPORTUNISTIC MANNER, WATC CONTINUED ITS IMPORTANT INVESTOR MARKETING PROGRAM. INVESTORS INCLUDE CENTRAL BANKS, COMMERCIAL BANKS, FUND MANAGERS AND INSURANCE COMPANIES IN ASIA, EUROPE, NORTH AMERICA AND SOUTH AMERICA. WATC ALSO PARTICIPATED WITH OTHER AUSTRALIAN STATES AT A NUMBER OF INVESTOR BOND CONFERENCES IN AUSTRALIA. THIS HELPED TO FACILITATE A REDUCTION IN FUNDING COSTS THIS YEAR AND INTO THE FUTURE BY MAKING MORE INVESTORS AWARE OF THE STRONG ECONOMIC AND FISCAL MANAGEMENT IN AUSTRALIA AND WESTERN AUSTRALIA. AS A RESULT, WATC'S BONDS NOW TRADE AT YIELDS ROUGHLY IN LINE WITH ITS TWO AAA-RATED AUSTRALIAN STATE PEERS. IN LATE MAY 2012, WATC SOLD $1 BILLION OF ITS 8.00% COUPON 2017 BENCHMARK BOND BY SYNDICATION, LED SUCCESSFULLY BY JOINT MANAGERS ANZ, UBS AND WESTPAC. LATER, A JUNE 2016 FLOATING RATE NOTE FOR $200 MILLION WAS CREATED, THE FIRST FOR WATC. OTHER BONDS WERE SOLD THROUGHOUT THE YEAR BY REVERSE INQUIRY INTO WATC'S BENCHMARK BOND LINES. A TOTAL OF $25.35 BILLION IN SHORT- TERM DEBT (SHORT-TERM INSCRIBED STOCK, EURO COMMERCIAL PAPER AND BONDS WITH MATURITIES OF LESS THAN 12 MONTHS FROM ISSUANCE) WAS SOLD IN VARYING MATURITIES, WHILE OVER $6.83 BILLION OF LONG-TERM DEBT WAS ISSUED IN THE PAST FINANCIAL YEAR. SIMILARLY TO PREVIOUS YEARS, PORTIONS OF DEBT WERE SWAPPED INTO FLOATING RATE AND CPI STRUCTURES FOR CLIENTS AT FAVOURABLE RATES. WATC'S SECOND YEAR OF AUSTRALIAN FINANCIAL MARKETS ASSOCIATION (AFMA) ACCREDITATION FOR FINANCIAL MARKETS AND CLIENT-FACING STAFF HAS SEEN AN INCREASE IN ACCREDITED STAFF FROM 18 TO 26. THE NUMBER OF BANK BOND PANEL MEMBERS FELL FROM 14 TO 13 THIS YEAR, WITH THE WITHDRAWAL OF ROYAL BANK OF SCOTLAND IN FEBRUARY. REVIEWING AND REFINING THE BUSINESS MODEL WATC IS CONTINUING TO BUILD A SYSTEMICALLY SUPPORTED, CONTINUOUS IMPROVEMENT CULTURE TO PRODUCE BETTER STAKEHOLDER OUTCOMES. SURVEYS WILL IDENTIFY AREAS TO IMPROVE, RATHER THAN SOLELY MEASURE SUCCESS. BETTER EXECUTION IN INDIVIDUAL PERFORMANCE AND STRATEGIC DEVELOPMENT PLANNING WILL PRODUCE A MORE ALIGNED, OBJECTIVE AND TRANSPARENT SET OF OUTCOMES. WORKSAFE ACKNOWLEDGED EFFORTS IN OCCUPATIONAL SAFETY AND HEALTH BY PRESENTING ITS PLATINUM AWARD TO WATC IN NOVEMBER 2011. THIS WAS ONE OF ONLY SEVEN SUCH AWARD PRESENTATIONS DURING THE YEAR. THIS CONFIRMS WATC'S COMMITMENT TO STAFF TO PRODUCE THE BEST WORKING CONDITIONS IT CAN. 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 (BCP) PURPOSES. BUILDING CAPACITY ALTHOUGH TOTAL STAFF NUMBERS REMAINED CONSTANT OVER THE YEAR, TURNOVER WAS SLIGHTLY HIGHER THAN NORMAL, AT ABOUT 16 PER CENT. THROUGH NATURAL ATTRITION, TWO ADMINISTRATIVE POSITIONS WERE ELIMINATED TO SUPPORT INCREASES IN CLIENT-FACING ROLES THIS YEAR. BRINGING THE PROJECT MANAGEMENT FUNCTION BACK IN HOUSE TWO YEARS AGO HAS ALLOWED WATC TO CONTINUE TO REDUCE EXTERNAL CONSULTING EXPENSES AND MAINTAIN BETTER CONTROL OVER THE PROJECTS BEING COMPLETED. ANNUAL REPORT 2012 7
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