Concise Consolidated Income Statement

for the year ended 30 June 2008

	2008 $m	2007 $m
Income from changes in fair value	2,755.6	2,558.8
Less: Expenses from changes in fair value	(2,718.6)	(2,512.6)
Net income from changes in fair value	37.0	46.2
Fees and commissions	21.3	23.2
Total net income	58.3	69.4
Less: General administrative expenses
Staff costs	(13.9)	(12.9)
Financial services costs	(1.2)	(1.3)
Information technology costs	(4.6)	(3.0)
Premises and administration costs	(4.9)	(4.5)
Transaction costs	(1.9)	(2.0)
Total general administrative expenses	(26.5)	(23.7)
Profit before income tax equivalent expense	31.8	45.7
Income tax equivalent expense	(8.3)	(11.9)
Profit after income tax equivalent expense	23.5	33.8

 

The accompanying discussion and analysis, and notes form part of these concise financial statements.

This concise report is derived from the full financial report for the year ended 30 June 2008.

The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of New South Wales Treasury Corporation (TCorp) and its controlled entities as the full financial report.

The full financial report will be sent on request free of charge. Requests can be made on TCorp’s website at www.tcorp.nsw.gov.au or by telephone on 02 9325 9325..

Discussion and Analysis of the Concise Consolidated Income Statement

TCorp continued to generate a sound profit in a year of extreme market turmoil which saw a number of severe losses elsewhere across the financial services sector.

A number of factors influence net income from changes in fair value, which decreased compared to the previous financial year. On the positive side, TCorp benefited from:

• an increase in balance sheet size driven by increased lending to clients; and
• higher average holdings of liquid assets held to facilitate the repayment of the March 2008 Benchmark Bond maturity

Net income from changes in fair value was adversely impacted primarily by the valuation requirements of Accounting Standards, in particular:

• timing differences relating to unrealised accounting valuations on certain funding transactions which have been entered into to provide certainty around funding margins on some of TCorp’s loan assets. These revaluation impacts will reverse in future periods and will net to zero over the life of the transactions;
• an increase in the buy/sell spreads arising from the reduction in market liquidity adversely impacted the valuation of TCorp’s liquidity portfolio. Where TCorp holds these assets to maturity, this is also a timing difference.
• It is also worth noting, particularly in context of the experiences faced by many others across the financial services sector, that the result was not impacted by:
• any credit defaults. TCorp transacts only with highly creditworthy counterparties and as a result has not suffered, nor expects to suffer, any credit losses arising from exposures on its financial assets or derivative positions;
• any increases in lending margins to clients. Unlike many other financial service providers which had to increase lending margins, over the year TCorp did not increase its lending margins.

Fee income decreased primarily due to the transfer of the General Government Liability Managed Fund to SAS Trustee Corporation at the end of the previous financial year. This transfer was part of a pre-determined investment strategy and resulted in a decrease in internally managed funds under management and therefore fee income for the current financial year.

Expenses increased in line with TCorp’s approved budget. The key areas of increase were:

• A $1 million increase in staff expenses. This is a combination of underlying increases in market salaries and an increase in headcount to support the continued growth of TCorp’s balance sheet;
• A $1.6 million increase in information technology expenses. TCorp is in the process of updating its IT infrastructure and capabilities to improve support of existing business and to support the planned growth of TCorp’s balance sheet activity.

Expenses in other areas remained broadly in line with the previous year.

TCorp is subject to tax equivalent payments to the New South Wales Government at an amount equal to 26 per cent of profit.