QTC Half-Yearly Report July-December 2016

Queensland Treasury Corporation has a statutory responsibility to advance the financial position of the State, and a mandate to manage and minimise financial risk in the public sector and provide value-adding financial solutions to its public sector clients. Established under the Queensland Treasury Corporation Act 1988, QTC is a corporation sole, reporting through the Under Treasurer to the Treasurer and Queensland Parliament.

Vision

Securing Queensland’s financial success

Mission

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

Values

Client focus

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

Team spirit

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

Excellence

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

Respect

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

Integrity

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

2016-20 Strategic Plan

Strategic Goals

1. State and client value
2. Sustainable funding
3. Organisational excellence

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

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

Debt funding and management

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

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

Cash management facilities

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

Financial risk management advisory services

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

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

Specialist public finance education

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

Borrowing program

Following the release of the Queensland State Government’s Mid-Year Fiscal and Economic Review on 13 December 2016, QTC announced it would reduce its 2016-17 borrowing program by AUD1.4 billion. QTC’s forecast term debt borrowing program is now AUD5.9 billion and, as at end of December 2016, QTC had raised AUD4.1 billion toward this target.

During the reporting period, QTC lengthened its yield curve by issuing a new 2027 AUD benchmark bond and a new 2046 Euro medium-term note. The 2027 benchmark bond issue raised AUD1.5 billion; 30 per cent from offshore investors and 70 per cent from the Australian investor base.

QTC’s AUD benchmark bonds will remain QTC’s principal source of funding as it seeks to finalise its borrowings for the 2016-17 fiscal year. The issuance of short-term debt through QTC’s commercial paper and treasury note programs will be maintained at a minimum of AUD5 billion.

In October 2016, QTC hosted 28 fixed-income domestic and international investors in partnership with the Commonwealth Bank at QTC’s investor conference ‘Unlocking North Queensland’s vast potential’. Held in Port Douglas, North Queensland, the conference program showcased the region, Queensland’s strong and diverse economy and the industries that underpin North Queensland’s growth. With the Treasurer of Queensland in attendance, the event successfully contributed to QTC’s transparent communication with the market and investor engagement strategy.

Credit ratings

On 14 October 2016, Moody’s Investors Service released its credit opinion on Queensland/QTC, keeping the existing rating of Aa1/P-1 with a negative outlook. Moody’s cites that Queensland’s credit quality reflects the State’s strong budget flexibility, which allows it to adjust revenues and expenditures as required to meet fiscal challenges.

Standard & Poor’s affirmed Queensland’s and QTC’s credit rating at AA+/A-1+ with a stable outlook on 26 October 2016. Their view reflected Queensland’s exceptional liquidity, very strong economy, strong financial management and low contingent liabilities.

Operating profit

For the half-year ended 31 December 2016, QTC achieved an operating profit after tax from its capital markets operations of $66.2 million (HY2015: $25.1 million). In addition to these capital markets activities, QTC’s long-term assets operations recorded a positive contribution of $96.9 million (HY2015: $855.1 million loss)*.

G P Bradley

Chairman

P C Noble

Chief Executive

* Under an administrative arrangement, QTC on behalf of the State receives returns from investments held to meet the State’s long-term obligations, primarily superannuation, which are managed by QIC Limited. In return, QTC has issued to the State fixed-rate notes at a current interest rate of 7.0 per cent, which is the expected long-term average rate of return on the portfolio. This has resulted in the State receiving a fixed rate of return on the notes while QTC bears the impact of fluctuations in the value of and returns on the long-term asset portfolio. There is no cash flow effect; any losses incurred have no impact on QTC’s capital markets activities or its ability to meet its obligations.