Treasury solutions Treasury Management – Challenges for 2014 Society of District Council Treasurers 10 th January 2014 Presented by Cecilie Booth, Director

Treasury solutions Treasury Management – Challenges for 2014

Society of District Council Treasurers10th January 2014

Presented byCecilie Booth, Director

January 2014 2

2014 Challenges:

• Market Update

• Capita Asset Services’ forecast

• The Balance Sheet / Balance Sheet Review

• Investment Opportunities

• Debt Management

• Potential areas for budget savings

3

Economic Summary – UK

• The UK economy continued to show positive growth in Q3 2013 at 0.8%

• BoE’s November Inflation Report indicate CPI will drop below 2% by Q1 2015

• Debt as a percentage of GDP (currently 76.6%) to start falling from 2015/16

• Loss of the UK’s ‘AAA’ credit rating emphasised the performance in the economy.

• UK economy is still in danger of weak growth in the next two years.

• Consumers are likely to remain focused on paying down debt

• Coalition government - promoting growth vs. the need to tackle the budget deficit

• Little sign of private sector funding to finance major expansion of infrastructure

January 2014

January 2014 4

GDP

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

(%)

GDP q/q

UK q/q US q/q EZ q/q

January 2014 5

U.K. Interest Rate ForecastsBank Rate

NOW Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

Capita Asset Services 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.75% 1.00% 1.00% 1.25%

UBS 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.75% 1.00% - - - - -

Capital Economics 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% - - - - -

5yr PWLB Rate



UBS 2.72% - - - - - - - - - - - - -


10yr PWLB Rate



UBS 3.85% 3.70% 3.80% 3.90% 4.10% 4.10% 4.30% 4.60% 4.60% - - - - -


25yr PWLB Rate



UBS 4.41% 4.60% 4.60% 4.80% 4.80% 5.10% 5.10% 5.30% 5.30% - - - - -


50yr PWLB Rate



UBS 4.35% 4.50% 4.50% 4.70% 4.70% 4.90% 4.90% 5.10% 5.10% - - - - -


Please note – The current PWLB rates and forecast shown above have taken into account the 20 basis point certainty Rate reduction effective as of the 1st November 2012

January 2014 6

The Balance Sheet

The Balance Sheet provides information as of the end of the yearIt includes:-

• balances, reserves and cash investments• Sets out capital (indebtedness) and treasury position (borrowings)• working capital (debtors and creditors)

The Balance Sheet is also a powerful tool for forward planningIt identifies:-

• under-borrowed positions• lower or higher cash / investment balances• potential for falling CFR’s • Reserve / Balance positions in the years ahead.

7January 2014

Investments - Asset Yield Curves

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

O/N 15 Day 1 Month 3 Month 6 Month 9 Month 1 Year 2 Years 3 Years 4 Years 5 Years

Yiel

d

Fixed Deposit Building Socs. DMADF T-Bill Gilt CD - Banks

CD - Building Socs. MMF EIB Bonds Call Account (Instant) Call Account (15 day) Call Account (30 Days)

• Given their same credit risk, T-Bills should be chosen over DMADF in the 6 month period.• Bank deposits give the best yield in all periods.• Overnight (call) bank deposits provide plenty of credit premium over DMADF overnight. • Call accounts, notice accounts and MMFs are offering competitive rates.• All rates are obtainable in the market by counterparties suggested by Capita Asset Services.

January 2014 8

Debt Management

• We expect short term rates to remain low in the near term

• Inter-authority borrowing is available in the region of 0.3% - 0.4%

• Long-term rates (25-50 years) are expected to stay at around 4.5% for a

year or so, but the Euro-zone & US developments mean some volatility

• These are only forecasts – not fact! Always keep an eye on managing the

refinancing risk and internal borrowing position

• Some market based options continue to provide an attractive option to

manage risk out of future dates

January 2014 9

Funding options

Borrow internally (partially) and draw down on cash balances:

• suits a low risk appetite authority with significant cash resources in the short to medium term

• typical cost of this activity is 0.5% - 1%

Temporary borrowing up to 2 years, typically at:

• 1 year 0.3% - 0.5%• 18 months 0.8%• makes sense for internally borrowed and budget pressured authorities

January 2014 10

Other funding options

Fund forward

• tie back to your TMSS PIs and appetite for certainty

LA Bond (LGA initiative)

• an alternative to PWLB funding - just in case margins are increased

January 2014 11

Potential areas for savings / income generation

• Budget pressures and cash levels vary considerably

• Capital Programme modelling and forecasting

• MRP Policy

• Options Appraisals – Lease or Purchase

• Advance payment to the Pension Fund

• Passport – streamlining information and communication

• Staffing levels and technical support

• High Level Cash Flow Management, e.g. Balance Sheet Review and Cash Flow model

January 2014 12


• Alternative investment options – e.g. Property Funds

• Enhanced rates and access to good quality counterparties available from our Agency Treasury Services

• Filling resource / skills gaps

• Benchmarking Security / Liquidity / Yield – improved performance and reduced risk

• Salary Sacrifice Car Scheme

• Help negotiate lease expiry terms – substantial savings identified

• Asset management on outsourced services

January 2014 13


• Housing related schemes, e.g. LAMS, Self Build, Regeneration Grants / Loans – different ways to raise funding • Loans to RPs / Housing Associations

• Client Focus Group

Documents

Treasury solutions Treasury Management – Challenges for 2014 Society of District Council Treasurers 10 th January 2014 Presented by Cecilie Booth, Director