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Queensland Treasury Corp – ‘18-K/A’ for 6/30/03 – EX-99.(C)(III)

On:  Thursday, 6/3/04, at 6:06am ET   ·   For:  6/30/03   ·   Accession #:  1047469-4-19199   ·   File #:  33-29689

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/03/04  Queensland Treasury Corp          18-K/A      6/30/03    5:1.4M                                   Merrill Corp/New/FA

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 5: EX-99.(H)(II)  Exhibit (H)(Ii)                                  HTML     16K 

EXHIBIT (c)(iii)

Queensland Treasury Corporation Half-Yearly Report
for the Six Months ended December 31, 2003

QUEENSLAND TREASURY CORPORATION

HALF YEARLY REPORT

JULY–DECEMBER 2003

i

CONTENTS

ii

Vision, Mission and Values

Vision

        To work in partnership with our customers to maximise outcomes and minimise financial risk for their organisations and for Queensland.

Mission

        As Queensland's corporate treasury services provider, we have a dual responsibility to our customers and to the State. We will meet these responsibilities by striving to understand our customers' current and future business requirements under our core strategy of customer intimacy. Based on this understanding, we aim to be disciplined and innovative in arriving at solutions to their needs. Finally, we aim to deliver these solutions to our customers based on an underlying commitment to operating excellence.

Values

        We demonstrate commitment to our people, our customers and the State through valuing:

•

Openness in communication



•

Integrity and credibility



•

Respect for the individual



•

Teamwork, and



•

Knowledge sharing.

1

QTC's ROLE

        As the State's corporate treasury services provider, our role is to implement the operational functions of a corporate treasury for the benefit of our customers and the State. In performing this role, our primary responsibilities include:

•

sourcing the State's long-term debt funding requirements in the most cost effective manner



•

investing the State's short to medium-term cash surpluses with the aim of maximising returns to Queensland's public sector bodies within a conservative risk management framework, and



•

providing financial risk management services and advice to the State and its public sector organisations.

        We do not formulate Government policy, but work within the policy frameworks developed by Queensland Treasury and the Government.

Debt Funding

        In our funding role, we borrow funds in the domestic and international markets in a manner that minimises the State's and QTC's liquidity and rollover risk. We then lend these funds to our customers, or use them to manage our customers' debt or refinance maturing debt.

        Through our responsibility for more than 99 per cent of the State's debt raisings, we are able to capture significant economies of scale and scope in the issuance, management and administration of debt.

        These economies, together with our AAA rating (from the State of Queensland's guarantee of our securities), result in a lower cost of debt for Queensland's public sector. This funding is used to provide tailored financial solutions for our customers.

Short to Medium-Term Investments

        We use our financial markets expertise, developed through our relationships with the domestic and international markets, together with our understanding of debt management and experience in implementing systems, to provide our customers with investment solutions that achieve a high return within a conservative risk environment. Customers have a choice of a managed short-term fund, an overnight facility, or fixed term facilities.

Financial Risk Management Services

        We work closely with our public sector customers, using our combined skills and knowledge, to assist them to minimise risk in their financial transactions and achieve the best financial solution for their organisations and the State. In assisting our customers, we do not provide advice that is contrary to the interests of the State.

        We encourage our customers and Queensland Treasury, our major stakeholder, to use our organisation as an extension of their resources, by:

•

Providing them with access, on a cost-recovery basis, to uniform corporate treasury skills and resources to ensure that their risks are identified and managed on a consistent basis.



•

Acting as a central store of knowledge and expertise on financial structures and transactions, and the risks and benefits that they encompass.



•

Providing Queensland Treasury with independent advice on matters of financial and commercial policy and financial and commercial risk relating to the State and its entities.



•

Working as a conduit between the Government and the private sector using our economies of scale and scope to ensure that the best possible solutions are obtained.

        Unlike other semi-government treasury corporations, our corporate treasury services are provided to our customers on a cost-recovery basis, thereby maximising the benefits our customers receive and ensuring transparency in our work.

2

Key Financial and Performance Indicators—Five Year Summary

3

4

Chairman's Report

        In the half year to December 2003, the tone of the world's financial markets improved as the recent geo-political uncertainty surrounding the Iraq war, terrorism and SARS, eased.

        The economic climate for our major trading partners, including Asia and the United States of America, steadily improved and this was reflected in higher share prices, rising commodity prices and a lift in market interest rates over the past six months.

        In this period of rising interest rates, Queensland Treasury Corporation's (QTC) active debt management has achieved total interest cost savings for customers of $72.4 million, bringing cumulative savings since 1991 to $1.25 billion. In addition, QTC itself performed positively for the half year to December, achieving an operating surplus of $19.2 million.

Queensland's Economy

        In the six months to December 2003, Queensland's economy performed well, with the negative effects of a lingering drought and the rising Australian dollar (A$) more than offset by solid domestic demand. Household consumption and property market activity were the stand-out features of the Queensland economy during this time, with official interest rate settings remaining supportive, and the State's population continuing to grow solidly.

        In terms of the State's budget, taxation revenue has performed strongly in the first half of 2003-04 as a result of the continuing strength of the property market and the State's economy. Commonwealth Goods and Services Tax (GST) payments to Queensland are expected to be higher than originally estimated, given the resilience of the national economy. In addition, the returns on the State's financial assets are exceeding expectations year-to-date, mainly due to the performance of the global share markets.

Borrowing for Infrastructure

        Better than expected Queensland Budget outcomes have reduced the State's debt funding requirements in the short term, but fast economic growth and the rising population is expected to place a continuing strain on existing infrastructure over the medium term.

        This, together with growing interest from home and abroad in high quality A$ denominated investments, will ensure that Queensland's presence in, and reliance on, the global financial markets will be long lasting.

Financial Markets Relationships

        As part of our commitment to ensuring the financial markets are fully informed on matters concerning the State, representatives of QTC and the Queensland Government conducted a series of financial intermediary and investor meetings in Asia, the United Kingdom, Europe and the United States of America. In addition to these meetings, QTC hosted its biennial investor conference and the Board took the opportunity to meet with our interstate financial markets intermediaries following its meeting in Sydney in August.

        QTC has maintained its overall position as the strongest semi-government issuer in Australia over the past six months, and we expect to maintain this relative position in the year to come.

Sir Leo Hielscher

Chairman

5

Chief Executive's Report

        In the past six months, Queensland Treasury Corporation (QTC) has met unprecedented demand from the State's public sector for its corporate advisory and risk management, debt funding, and short-to-medium term investment services. This demand has resulted from our customers' placing increasing importance on the ability to identify, measure, manage and mitigate risk.

        At 31 December 2003, QTC's total borrowings were $22.79 billion, with $6.45 billion of refinancings and new capital being raised in the 2003 calendar year. Using our significant economies of scale and scope in the issuance, management and administration of debt, our borrowings funded virtually all of the Queensland public sector's total borrowings.

        QTC also has $4.69 billion of funds on deposit, providing customers with a competitively priced and strongly performing vehicle for short- to medium-term cash or investment requirements.

International Interest

        The past six months has seen renewed interest from global financial markets for Australian dollar (A$) denominated assets, particularly out of Japan. With most industrialised countries experiencing historically low interest rates, international investors have sought high quality, higher yielding investments. Australia is seen as an attractive investment destination in this sense, and the fact that the A$ is strengthening has been an added incentive for investors to send their funds to our shores. This has diversified our funding sources compared with previous years and improved our ability to provide competitively priced funding solutions to our customers.

Strategic and Corporate Planning

        In our role as Queensland's corporate treasury services provider, and in recognition of the risky environment in which we and our customers operate—such as an increasingly complex business environment, greater scrutiny of performance and an increasingly litigious society—we have focused on developing our services to best meet the needs of our public sector customers.

        We have reviewed and revised our strategic and corporate plan, confirming our primary objective of providing corporate treasury financing and risk management services to our customers. To achieve this, we are developing a comprehensive understanding of our customers' current and emerging requirements. We use this information to design and develop solutions with our customers that meet their needs. This plan also outlines our responsibility to deliver outcomes that provide value on a whole-of-State basis.

        The strategic and corporate plan also recognises the foundation on which our operations have been built—our capacity to source cost effective funding from domestic and offshore financial markets, as well as the ability to identify, measure, mitigate and manage the associated risks—and commits us to continuing to leverage this capability to meet the constantly changing needs of our diverse customer base.

        With our renewed plan, and QTC's talented and dedicated staff, I am confident we will continue to develop and deliver innovative solutions which meet our customers' current and emerging needs and deliver value-for-money outcomes for Queensland in 2004 and beyond.

Stephen Rochester

Chief Executive

6

Consolidated Financial Statements

Statement of Financial Performance
For the Half-Year Ended 31 December 2003

The accompanying notes form part of these financial statements.

7

Statement of Financial Position

As at 31 December 2003

The accompanying notes form part of these financial statements.

8

Statement of Cash Flows

For the Half-Year Ended 31 December 2003

The accompanying notes form part of these financial statements.

9

Notes to and Forming Part of the Financial Statements

For the Half-Year Ended 31 December 2003

1.     Statement of Accounting Policy

Basis of Accounts

        Queensland Treasury Corporation is constituted under the Queensland Treasury Corporation Act 1988 (the "Act"), with the Under Treasurer designated as the corporation sole under section 5(2) of the Act.

        Although there is no statutory requirement for the preparation of half-year financial statements, in order to better meet the needs of users of QTC's financial information, these general purpose financial statements for the half year ended 31 December 2003 have been prepared taking account of the standards set out in AASB 1029: Interim Financial Reporting issued in October 2000 and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) with additional disclosures as considered necessary.

        For the purpose of preparing the half-year financial statements, the half year has been treated as a discrete reporting period. The accounting policies adopted are consistent with those of the previous financial year and corresponding half-year. The statements should be read in conjunction with the 30 June 2003 Consolidated Financial Statements and do not include all notes normally included in those statements. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

Rounding

        Amounts have been rounded to the nearest thousand dollars.

10

2.     Interest Income and Interest Expense

For the half year ended 31 December 2003

For the half year ended 31 December 2002

*

The majority of onlendings are provided to customers on a pooled fund basis. Interest costs are allocated to customers based on the daily movement in the market value of the pooled fund. In periods of rising interest rates, the market value of the funding pool will fall leading to lower than normal interest income from onlendings. During the half year ended 31 December 2003, interest rates increased in comparison to the previous half year when rates fell, leading to a substantial decrease in interest income for the period.

3.     Management Fees

        Management fees represent income earned from the management of various assets and liabilities. A further amount of $3.021 million (2002 $2.697 million) derived from interest rate margins on certain managed funds and pools has been included under interest income.

For the half year ended 31 December 2002

4.     Cash

        Cash includes only those funds held at bank and does not include money market deposits.

11

5.     Other Financial Assets

The total includes investments made to manage

•

deposits of $4,909.231 million (30 June 2003 $4 194.787 million),



•

surpluses and reserves of $220.499 million (30 June 2003 $208.566 million),



•

cross border lease deferred income of $155.256 million (30 June 2003 $159.580 million).

The remaining investments are used to facilitate yield curve management or result from QTC borrowing in advance of requirements.

^*

QTC maintains holdings of its own stocks. These holdings have been excluded from both Other Financial Assets and Interest Bearing Liabilities (refer note 8).

^#

After accounting for derivatives, overseas investments result in no exposure to foreign currency.

6.     Onlendings

(1)

Included in the above figure is an onlending to DBCT Holdings Pty Ltd to fund the purchase and lease of operating rights to the Dalrymple Bay Coal Terminal (refer note 7 and note 12). The onlending is offset by a deposit of $482 million (30 June 2003 $509 million) held by QTC on behalf of the lessee of the terminal (refer note 7).

12

7.     Deposits

(1)

Includes a security deposit of $482 million (30 June 2003: $509 million) held on behalf of the lessee of the Dalrymple Bay Coal Terminal.

8.     Interest Bearing Liabilities

        The overseas debt results in no exposure to foreign currencies after accounting for derivatives.

        QTC borrowings are guaranteed by the Queensland Government under the Queensland Treasury Corporation Act 1988 and in respect of borrowings undertaken under the name of the Queensland Government Development Authority under the Statutory Bodies Financial Arrangements Act 1982. Other debt for which QTC has assumed debt service responsibility has been guaranteed under the appropriate Act which covered each borrowing at the time the loan was raised.

13

9.     Cash Flows Presented on a Net Basis

        Cash flows arising from the following activities are presented on a net basis in the statement of cash flows:

•

sales and purchases of other financial assets



•

loan advances to and redemptions from borrowing authorities



•

receipt and withdrawal of client deposits and



•

interest bearing liabilities.

10.   Contingent Liabilities

        The following contingent liabilities existed at balance date:

•

A total of $639 million (30 June 2003: $641 million) of Queensland Treasury Corporation inscribed stock was lent to various financial institutions. These loans are made to support the liquidity of QTC bonds in the financial markets and form part of QTC's total exposure to these financial institutions.



•

With regard to certain cross border lease transactions, QTC has assumed responsibility for a significant portion of the transaction risk. If certain events occur, QTC could be liable to make additional payments under the transactions. However external advice and history to date indicate the likelihood of these events occurring is remote. In addition, QTC has provided certain guarantees and indemnities to various participants in the cross border lease transactions. Expert external advisors consider, that unless exceptional and extreme circumstances arise, QTC will not be required to make a significant payment under these guarantees and indemnities.



•

To facilitate the merger of the former State owned financial institutions, Suncorp and QIDC with Metway Bank Ltd, QTC provided guarantees relating to certain obligations of the Queensland Government and Suncorp General Insurance Ltd. These guarantees are supported by counter indemnities from the Treasurer on behalf of the State of Queensland.



•

QTC has provided guarantees relating to the trading activities of subsidiaries of Ergon Energy, Energex and Enertrade, Queensland Government owned corporations, in the national electricity market to the value of $380 million (30 June 2003: $398.9 million) which are supported by counter indemnities from these Queensland Government owned corporations.



•

QTC has provided guarantees to the value of $66.1 million (30 June 2003: $132.8 million) to support the commercial activities of various Queensland public sector entities. In each case, a counter indemnity has been obtained by QTC from the appropriate public sector entity.



•

To provide support in relation to the sale by Tarong Electricity Corporation Ltd of a 50% share in the Tarong North Power Station, QTC provided a guarantee of certain payment obligations of Tarong Electricity Corporation Ltd under the transaction together with providing an irrevocable put option for 50% of the power station exercisable by the option holder under certain circumstances. This guarantee and put option are supported by an indemnity from Tarong Electricity Corporation Ltd and an indemnity from the Treasurer for and on behalf of the State of Queensland.

14

11.   Funding Facilities

12.   Investments in Companies

        Investments in the following companies are held at cost:

*

Beneficial interest and voting rights in the company are held indirectly through QTC's holdings in Queensland Treasury Holdings Pty Ltd.

13.   Investments in Controlled Entities

        Sunshine Locos Pty. Limited has issued capital of 2 fully paid ordinary shares of $1 each. The company has been dormant throughout the period.

14.   Segment Information

        QTC operates predominately in the finance and investment industry through liability and fund management activities. Liability management activities relate to the borrowing of funds to finance the capital works programs of the State and the management of these borrowings so as to achieve the lowest cost to borrowers. The fund management activities of QTC relate to the investment of the short term surpluses of these bodies in order to achieve the highest possible return for a given level of risk.

        QTC operates in Queensland, Australia.

15

Certificate of the Queensland Treasury Corporation

        We certify that the foregoing financial statements and notes to and forming part thereof are in agreement with the accounts and records of the Queensland Treasury Corporation.

        In our opinion:

(i)

the prescribed requirements for establishing and keeping the accounts have been complied with in all material respects; and



(ii)

the foregoing half yearly financial statements have been drawn up in accordance with AASB 1029: Interim Financial Reporting so as to present a true and fair view of the transactions of the Queensland Treasury Corporation for the period 1 July 2003 to 31 December 2003 and of the financial position as at the close of that half year.

16

INDEPENDENT REVIEW REPORT
to Queensland Treasury Corporation

Scope

The financial statements

        The financial statements of Queensland Treasury Corporation consist of the statement of financial performance, statement of financial position, statement of cash flows, notes to and forming part of the financial statements and certificates given by the Under Treasurer-Queensland Treasury as the corporation sole, Chief Executive and Team Leader Corporate Services for the half year ended 31 December 2003.

The corporation sole's responsibility

        The corporation sole is responsible for the preparation and true and fair presentation of the financial statements, the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial statements.

Audit approach

        The financial statements have been prepared for the information of management and the Corporation. I disclaim any assumption of responsibility for any reliance on this review report or on the financial statements to which it relates to any person other than management and the Corporation.

        My review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. A review is limited primarily to inquiries of Corporation personnel and analytical procedures applied to the financial data, and other procedures as considered necessary. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than that given in an audit. I have not performed an audit and, accordingly, I do not express an audit opinion.

Independence

        The Financial Administration and Audit Act 1977 promotes the independence of the Auditor-General and QAO authorised auditors.

        The Auditor-General is the auditor of all public sector entities and can only be removed by Parliament.

        The Auditor-General may conduct an audit in any way considered appropriate and is not subject to direction by any person about the way in which powers are to be exercised.

        The Auditor-General has for the purposes of conducting an audit, access to all documents and property and can report to Parliament matters which in the Auditor-General's opinion are significant.

Statement

        Based on my review, which is not an audit, nothing has come to my attention that causes me to believe that the financial statements of Queensland Treasury Corporation for the half year ended 31 December 2003 do not present fairly the transactions of the Queensland Treasury Corporation and the financial position of the Queensland Treasury Corporation for the period then ended in accordance with prescribed accounting standards and other mandatory professional reporting requirements in Australia.

17

Appendix A:    Funding Facilities, Distribution and Dealer Group Panels

31 December 2003

A$ Bond Facility Distribution Groups

*

Lead Manager—Europe

18

*

Lead Manager—United States

QTC Treasury Note Facility Dealer Panel

Multicurrency US Commercial Paper Facility Dealer Panel

19

Multicurrency Euro Commercial Paper Facility Dealer Panel