Chairperson and CEO’s Report
The challenges of the second half of 2019–20 continued into 2020–21,
with heightened uncertainty from the COVID-19 pandemic weighing
on all aspects of our business.
Like so much of the world, we have had to continue to be agile and responsive to the circumstances, adjusting how we work, where we work and how we undertake our core tasks. Throughout this, it is pleasing to note that 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 the ongoing provision of high-quality financial products and services to our clients.
Unprecedented monetary and fiscal support by governments and central banks around the world continued to determine global financial market conditions. Intervention by the Reserve Bank of Australia (RBA), through cuts to the cash rate, the introduction of yield curve control out to three years and a large purchasing program of sovereign and semi-government bonds, helped stabilise local market conditions throughout most of 2020–21, and has seen the RBA become one of the largest holders of semi-government debt.
The underlying strength and resilience of the Western Australian economy over this period has seen the State continue to deliver operating surpluses, with a record general government operating surplus delivered in 2020–21. As a result, the original funding task for the State was revised downwards over the course of the year, with new funding of $264 million delivered to 30 June 2021 being substantially less than the $2.3 billion estimated at the start of the year. During 2020–21, WATC issued approximately $7.9 billion in benchmark bonds and floating rate notes, which included prefunding for the July 2021 benchmark maturity.
The ongoing management of key balance sheet metrics saw the proportion of our debt maturing within 12 months standing at just 17.3 per cent at 30 June 2021. Reflecting strong liquidity in the public sector, our liquid asset portfolio cover was a healthy 182.5 per cent. Both of these outcomes were comfortably within WATC’s Board targets (less than 20 per cent and above 100 per cent, respectively).
COVID-19 travel restrictions led to the suspension of all offshore marketing travel. Consequently, WATC partnered with members of our Fixed Interest Dealer Panel to deliver updates virtually to a number of offshore investors. Domestic marketing was also undertaken virtually and included participation in fixed income conferences and delivering an online post budget economic and fiscal update presented by the Treasurer of Western Australia to investors and market intermediaries in October 2020. We continue to look for opportunities to engage with our investors and financial market partners in the virtual world through economic updates, investor presentations, our website and conference calls, to name a few.
Client funds under management totalled $2.9 billion at 30 June 2021. During the year, we supported changes to the Future Health Research and Innovation Fund. This involved the repurposing of the Future Fund whereby the capital of the fund remains preserved in perpetuity and managed by WATC, and the annual investment income will be accessed by the Department of Health to drive health and medical research, innovation and commercialisation.
The low interest rate environment reduced our own investment returns and resulted in an annual pre-tax profit of $31.7 million, slightly behind previous years. We will contribute $26.3 million in dividends and tax equivalent payments to the Consolidated Account.
On an operational front, WATC staff have been exceptionally busy. A focus for the year has been the consolidation of the new treasury management system, ongoing upgrades to our information and communications technology (ICT) hardware and software, completing an office refurbishment with purpose-built collaboration and flexible working spaces, and improving our associated ICT capabilities to support efficient working from any location.
Our client teams continued to build on and share our knowledge and experience to support good financial outcomes for the State, including facilitating a number of training and development opportunities for our clients to build knowledge more broadly. A key focus of the year was developing and implementing new lending products to support the liquidity of the university and local government sectors in response to the impacts of COVID-19.
The year ahead will likely continue the roller-coaster ride, with volatile markets and global uncertainty expected to remain key features of our operating environment. Ongoing access to markets to support the objectives of the State Government will remain our key priority, as well as managing risk, supporting investments through the current 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, at times, uncertain 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 in what has been our 35th year providing high-quality products and services to Western Australia.