Chairperson and CEO’s Report
What a roller coaster of a year for us all, where we have needed to adjust to the dual health and economic threats brought about by the COVID-19 pandemic.
As a business, we have had to be agile and responsive to the circumstances, adjusting how we work, where we work, and how we undertake our core tasks. Throughout this, WATC has been able to continue to support the needs of the State, by ensuring good access to funds, quality management of the investment portfolio, and ongoing high‑quality financial products and services to clients.
The year started off strongly, with improvements in the State’s finances increasing the forecast 2019/20 operating surplus to $2.6 billion during the Mid-year Review update, an invaluable position that assisted the State in navigating the fiscal challenges to come. While measures required to contain the spread of the virus took their toll on the economy, the underlying strength of the State’s economy has supported a phased recovery, reflected in Real State Final Demand increasing by 1.1 per cent in 2019/20.
Notwithstanding this positive development, economic conditions remain challenging, with the most severe downturn in the global economy since WWII and Australia entering its first recession in almost 30 years. The borrowing task of the Commonwealth and all State Governments is expected to increase, although the full extent will not be known until budgets are released during October 2020.
Intervention by the RBA, through cuts to the cash rate, the introduction of yield curve control out to 3-years and a large purchasing program of sovereign and semi-government bonds, helped stabilise market conditions. The strong focus by the RBA in lowering the cash rate and the large bond and semi purchasing program has been successful in allowing markets to return to a degree of normality, allowing the Australian central bank to pause in its intervention in the semi-government market from early May.
During 2019/20, WATC sourced a record level of borrowings of $11 billion, to meet the year’s refinancing commitments of $7.3 billion, refinance $3.3 billion of 2020/21 maturities and meet new funding requirements for the State of $400 million. The ongoing management of key balance sheet metrics saw debt maturing within 12 months of 16.6 per cent and, reflecting strong liquidity in the market, liquid asset portfolio cover of 181.6 per cent. These were comfortably within WATC’s Board targets (less than 20 per cent and above 100 per cent respectively).
In raising these funds, we enjoyed good market access, providing a range of products that met investor needs. We continue to have a strong floating rate note program, with $9 billion outstanding across five lines at 30 June, and we took the opportunity to lengthen our maturity profile with two longer dated bonds (2034 and 2041) during the year.
Pleasingly, WATC was the first semi-government entity to raise funds through a syndicated primary issue following the period of market disruption over March and April, successfully issuing a new 2031 benchmark bond in May with strong domestic and offshore support.
We made a profit before tax of $40.7 million, and will contribute $33.6 million in dividends and tax equivalent payments to the Consolidated Account.
Our client teams continue to take a leadership role in supporting good financial outcomes for the State, with an increased focus on liquidity management across the public sector and developing new lending products to support the liquidity of the university and local government sectors in response to the impact of COVID-19 on the cashflows of those sectors. We have continued our strong focus on partnering with clients to provide strategic financial advice and solutions, including the management of foreign exchange exposures.
A huge achievement during the year was the change over to the Quantum treasury management system – a culmination of over two years of work. While we now move into Phase 2 work to maximise the new system’s capabilities, the initial Phase has been a great success – on time and on budget.
During the year, Directors Cathy Nance and Grahame Searle retired from our Board after many years of service. We thank them both for their long-term commitment and stewardship of WATC and support of the State. At the beginning of 2020, we welcomed Pippa Hobson and David Brumby as Directors, and look forward to their contribution as we steer WATC through the coming years.
The year ahead will continue the roller coaster ride, as we operate in volatile markets, amplified by the current global uncertainty. Ongoing access to markets to support the objectives of the State Government will remain the key priority, as well as managing risk, supporting investments through the low return environment, and supporting clients through material and complex financial projects.
A big thank you to all of our people, whose hard work and dedication to achieving great outcomes has never been more important than in the last 12 months; to our clients, who have shown great flexibility and responsiveness as we have sought to meet their funding needs in trying conditions; to our financial market partners for their ongoing engagement, support and willingness to understand the ‘WA Story’; and to our Board, auditors and other suppliers of goods and services to WATC who have contributed strongly to our successful year.
1 September 2020
Chief Executive Officer
1 September 2020