CENTRAL FINANCING UNIT
Objectives
The Central Financing Unit (CFU) manages the central finances of the Territory through the Territory Banking Account.  CFU provides services to the Government that include financial asset and liability management through the establishment of investment and borrowing policies and objectives, and the coordination of investment and borrowing activities.
CFU manages the surplus cash balances of the Government and invests funds through external managers within known cash flow requirements and established investment policies.  CFU is also responsible for the administration of the Government’s debt portfolio and the management of the Territory’s debt servicing liabilities, including overseeing the Territory’s motor vehicle financing facility and overseeing the Territory’s transactional banking arrangements.
The objective of the CFU is to effectively manage the capital markets functions through the maximisation of returns on investments within relevant risk tolerances, the achievement of competitive borrowing rates commensurate with the Territory’s credit rating and the development of effective financial risk management strategies.
CFU, through the Territory Banking Account, recognises and manages the general government’s debt liability.  Revenues on behalf of the Territory are transferred to the Territory Banking Account and fortnightly appropriation disbursements are made to agencies from the Territory Banking Account.
CFU utilises the services of a Finance and Investment Advisory Board which has been established to provide advice in respect of the assets and liabilities of the Territory that are managed through the CFU.
2005‑06 Highlights
Strategic and operational issues to be pursued in 2005‑06 include:
•	refinancing of the maturing $52m Inscribed Stock borrowing consistent with the Territory’s debt management strategy;
•	reviewing options for realigning the total general government debt portfolio with the debt management benchmark and implementing the preferred option;
•	procuring the services of a specialist debt liability risk management adviser when the incumbent adviser’s contract term expires; and
•	providing recommendations to Government outlining the financing options for the motor vehicle fleet when the current financing facility expires.

Output Classes
	Total Cost	Expenses on Behalf of the Territory	
	2004-05
Est. Outcome
$’000	2005-06
Budget
$’000	2004-05
Est. Outcome 
$’000	2005-06
Budget
$’000	
EBT
Central Financing Unit	2  396  953	2  662  930	11  331	12  939	
EBT 1 Central Financing Unit	2  396  953	2  662  930 	11  331	12  939	
Output Description
Management of the investment and borrowing activities of the Central Financing Unit will provide for:
•	investment management – maximise the returns on investments within acceptable risk tolerances.
•	borrowing management – achieve competitive borrowing rates commensurate with the ACT Government’s credit rating.
•	risk management – develop and maintain effective financial risk management strategies.

Strategic Indicators
Strategic Indicator 1
Investment returns exceeding benchmark
Investment Performance Against Benchmark

Investment performance is measured against a standard market benchmark to ensure that the performance reflects the underlying investment policies and objectives.  The conservative policy for general government investments is such that returns equal to or marginally in excess of benchmark are expected.
Accountability Indicators
	2004‑05
Targets	2004-05
Est. Outcome	2005-06 Target	
1.1 Central Financing Unit	
a.	Ratio of investment earnings rate divided by the established benchmark	≥ 1	≥ 1	≥ 1	
Ratio of average investment earnings rate divided by the established benchmark is a measure of whether investments have outperformed established benchmarks.
				
Budgeted Financial Targets
Section 31 of the Financial Management Act 1996 (FMA) advises that Chief Executives are responsible for achievement of financial results.  For the purpose of Section 31 of the FMA, key budgeted results are specified in the Budget Papers to improve accountability.  An outcome of the increased accountability will be the requirement for Chief Executives to explain material variances from specified budgeted results.
In accordance with Section 31 of the FMA, following are the key budgeted results for the Central Financing Unit in 2005‑06:
•	Returns on Investments - maintaining an investment strategy supported by an underlying investment configuration that will deliver investment returns exceeding the UBSWA Bank Bill Index plus 0.10% before fees for the Cash Enhanced Fund, and exceeding the UBSWA Composite All Maturities Bond Index before fees for the Fixed Interest Fund; and
•	Cost of Debt1 (6.24%) - this target focuses on the Department’s strategy to minimise borrowing cost
1.	Cost of Debt is the weighted average interest rate the Territory is paying on its borrowings managed by the Central Financing Unit.

Changes to Appropriation
Changes to Appropriation - Territorial						
 	2004-05	2005-06	2006-07	2007-08	2008-09	
Payment for Expenses on Behalf of Territory	Est. Outc.	Budget	Estimate	Estimate	Estimate	
 	$'000	$'000	$'000	$'000	$'000	
						
2004-05 Budget	  11  687	  10  686	  10  686	  10  686	  10  687	
						
2005-06 Budget Technical Adjustments						
Interest Rate Adjustment	-356	  1  770	    572	    572	    572	
Transfer of Loan from the Department of Urban Services	    0	    483	    456	    429	    403	
						
2005-06 Budget 	  11  331	  12  939	  11  714	  11  688	  11  662	

Changes to Appropriation - Territorial	 	 	 	 	 	
	2004-05	2005-06	2006-07	2007-08	2008-09	
Capital Injections	Est. Outc.	Budget	Estimate	Estimate	Estimate	
 	$'000	$'000	$'000	$'000	$'000	
						
2004-05 Budget	    0	    0	    0	    0	    0	
						
2005-06 Budget Technical Adjustments						
Transfer of Loan from the Department of Urban Services	    0	    214	    214	    214	    214	
						
2005-06 Budget	    0	    214	    214	    214	    214	

Central Financing Unit	
Statement of Income and Expenses on Behalf of the Territory	
  2004-05			  2004-05	   2005-06		  2006-07	  2007-08	  2008-09		
    Budget			Est.Outcome	   Budget	   Var	  Estimate	   Estimate	  Estimate		
    $'000			   $'000	   $'000	    %	   $'000	    $'000	   $'000		
		Income								
		Revenue								
11  686		Payment for Expenses on behalf of Territory	11  331	12  939	14	11  714	11  688	11  662		
70  372		Interest	73  521	64  139	-13	52  324	48  980	50  230		
110  020		Other Revenue	107  232	105  550	-2	99  960	93  449	86  993		
2  098  954		Transfer Revenue	2  121  305	2  226  075	5	2  309  299	2  449  258	2  553  710		
2  291  032		Total Revenue	2  313  389	2  408  703	4	2  473  297	2  603  375	2  702  595		
		Gains								
0		Total Gains	0	0	-	0	0	0		
2  291  032		Total Income	2  313  389	2  408  703	4	2  473  297	2  603  375	2  702  595		
		Expenses								
56  885		Borrowing Costs	56  301	58  749	4	57  310	57  098	56  341		
529		Other Expenses	516	4  209	716	227	211	248		
2  367  506		Transfer Expenses	2  340  136	2  599  972	11	2  547  293	2  530  771	2  580  513		
2  424  920		Total Ordinary Expenses	2  396  953	2  662  930	11	2  604  830	2  588  080	2  637  102		
-133  888		Operating Result	-83  564	-254  227	-204	-131  533	15  295	65  493		

Central Financing Unit	
Statement of Assets and Liabilities on Behalf of the Territory	
    Budget			Est.Outcome	   Planned		   Planned	   Planned	   Planned		
as at 30/6/05			as at 30/6/05	as at 30/6/06	   Var	as at 30/6/07	as at 30/6/08	as at 30/6/09		
   $'000			   $'000	    $'000	    %	    $'000	    $'000	    $'000		
		Current Assets								
16  845		Cash	4  166	6  079	46	6  416	7  171	7  352		
68  634		Receivables	119  839	109  305	-9	107  391	105  310	101  733		
527  024		Investments	584  531	298  749	-49	228  093	269  277	348  911		
14  379		Other	12  874	12  875	..	12  875	12  875	12  875		
626  882		Total Current Assets	721  410	427  008	-41	354  775	394  633	470  871		
		Non Current Assets								
369  947		Receivables	370  108	354  334	-4	341  109	326  018	308  933		
139  654		Investments	217  224	236  355	9	190  457	170  956	173  019		
27  949		Property, Plant and Equipment	28  244	28  244	-	28  244	28  244	28  244		
537  550		Total Non Current Assets	615  576	618  933	1	559  810	525  218	510  196		
1  164  432		TOTAL ASSETS	1  336  986	1  045  941	-22	914  585	919  851	981  067		
		Current Liabilities								
12  603		Payables	18  587	23  495	26	22  032	20  438	17  419		
271  873		Interest Bearing Liabilities	271  050	214  842	-21	223  424	249  446	263  045		
15  145		Finance Leases	11  517	11  517	-	11  517	11  517	11  517		
299  621		Total Current Liabilities	301  154	249  854	-17	256  973	281  401	291  981		
		Non Current Liabilities								
644  748		Interest Bearing Liabilities	720  862	730  130	1	722  974	688  303	673  232		
12  805		Finance Leases	16  727	16  727	-	16  727	16  727	16  727		
657  553		Total Non Current Liabilities	737  589	746  857	1	739  701	705  030	689  959		
957  174		TOTAL LIABILITIES	1  038  743	996  711	-4	996  674	986  431	981  940		
207  258		NET ASSETS	298  243	49  230	-83	-82  089	-66  580	-873		
		REPRESENTED BY FUNDS EMPLOYED								
207  258		Accumulated Funds	298  243	49  230	-83	-82  089	-66  580	-873		
207  258		TOTAL FUNDS EMPLOYED	298  243	49  230	-83	-82  089	-66  580	-873		

Central Financing Unit	
Budgeted Statement of Cashflows on Behalf of the Territory	
  2004-05			  2004-05	   2005-06		  2006-07	  2007-08	  2008-09		
    Budget			Est.Outcome	   Budget	   Var	  Estimate	   Estimate	  Estimate		
    $'000			   $'000	   $'000	    %	   $'000	    $'000	   $'000		
		CASH FLOWS FROM OPERATING ACTIVITIES								
		Receipts								
11  687		Cash from Government for EBT	11  331	12  939	14	11  714	11  688	11  662		
69  845		Interest Received	73  006	63  773	-13	52  097	48  767	49  979		
109  732		Other Revenue	105  067	104  963	..	99  376	92  890	86  433		
2  094  965		Territory Receipts transferred from Agencies	2  120  827	2  248  244	6	2  323  231	2  464  806	2  570  886		
2  286  229		Operating Receipts	2  310  231	2  429  919	5	2  486  418	2  618  151	2  718  960		
		Payments								
56  378		Borrowing Costs	56  843	58  706	3	57  326	57  115	56  358		
38		Other	46	34	-26	22	18	18		
29  987		Payments to PTE Agencies for Outputs	29  845	30  228	1	29  942	30  246	30  538		
1  570  334		Payments to GGS Agencies for Outputs	1  635  115	1  702  652	4	1  716  013	1  753  869	1  805  209		
368  058		Payments to Agencies for EBT	361  904	405  344	12	437  656	480  762	522  174		
2  024  795		Operating Payments	2  083  753	2  196  964	5	2  240  959	2  322  010	2  414  297		
261  434		NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES	226  478	232  955	3	245  459	296  141	304  663		
		CASH FLOWS FROM INVESTING ACTIVITIES								
		Receipts								
9  593		Proceeds from Sale/Maturities of Investments	0	0	-	45  898	19  501	0		
16  048		Repayment of Advance	15  655	10  599	-32	12  144	13  226	15  089		
2  200		Capital Distributions from Government Agencies	2  295	5  000	118	0	0	0		
27  841		Investing Receipts	17  950	15  599	-13	58  042	32  727	15  089		
		Payments								
0		Purchase of Investments	6  107	19  131	213	0	0	2  063		
24  768		Advances Issued to Government Agencies	24  768	0	-100	0	0	0		
403  635		Capital Payments to Government Agencies	317  074	466  568	47	375  456	278  496	236  618		
428  403		Investing Payments	347  949	485  699	40	375  456	278  496	238  681		
-400  562		NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES	-329  999	-470  100	-42	-317  414	-245  769	-223  592		
		CASH FLOWS FROM FINANCING ACTIVITIES								
		Receipts								
0		Capital Injection from Government	0	214	#	214	214	214		
16  156		Borrowings Received	16  602	0	-100	13  642	4  687	13  701		
16  156		Financing Receipts	16  602	214	-99	13  856	4  901	13  915		
		Payments								
555		Repayment of Borrowings	554	10  641	#	12  220	13  334	15  171		
18  927		Repayment of Investments to Agencies (CFU only)	61  720	36  297	-41	0	0	0		
19  482		Financing Payments	62  274	46  938	-25	12  220	13  334	15  171		
-3  326		NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES	-45  672	-46  724	-2	1  636	-8  433	-1  256		
-142  454		NET INCREASE/(DECREASE) IN CASH HELD	-149  193	-283  869	-90	-70  319	41  939	79  815		
686  320		CASH AT BEGINNING OF REPORTING PERIOD	737  880	588  687	-20	304  818	234  499	276  438		
543  866		CASH AT THE END OF THE REPORTING PERIOD	588  687	304  818	-48	234  499	276  438	356  253		

Central Financing Unit	
Statement of Changes in Equity on Behalf of the Territory	
    Budget			Est.Outcome	   Planned		   Planned	   Planned	   Planned		
as at 30/6/05			as at 30/6/05	as at 30/6/06	   Var	as at 30/6/07	as at 30/6/08	as at 30/6/09		
   $'000			   $'000	    $'000	    %	    $'000	    $'000	    $'000		
338  946		Opening Balance	419  784	298  243	-29	49  230	-82  089	-66  580		
		Accumulated Funds								
0		Net Effect of Change in Accounting Policy	-40  272	0	100	0	0	0		
-133  888		Operating Result for the Period	-83  564	-254  227	-204	-131  533	15  295	65  493		
		Reserves								
-133  888		Total Income And Expense For The Period	-123  836	-254  227	-105	-131  533	15  295	65  493		
		Transactions Involving Equity Holders Affecting Accumulated Funds								
0		Capital Injections	0	214	#	214	214	214		
2  200		Capital (Distributions)	2  295	5  000	118	0	0	0		
207  258		Closing Balance	298  243	49  230	-83	-82  089	-66  580	-873		
Notes to the Budget Statements
Significant variations are as follows:
Many of the variations within the CFU budget statements are driven by agency activity during and between financial years.  This will be disclosed in relevant explanations below.
Statement of Income and Expenses on Behalf of the Territory
•	payment for expenses on behalf of the Territory:  represents the appropriation paid to meet the debt servicing expenses incurred on general government borrowings.  The decrease of $0.355m in the 2004-05 estimated outcome from the original budget is due to lower interest costs on the variable rate borrowings.  The increase of $1.608m in the 2005-06 Budget from the 2004-05 estimated outcome, is due to higher interest costs on the variable rate borrowings and the transfer of appropriation from the Department of Urban Services (DUS) to the CFU as the result of the removal of an internal loan payable by DUS in 2005-06;
•	interest:  includes investment interest returns received from banks and fund managers and interest paid by agencies on loans with CFU.  The increase of $3.149m in the 2004-05 estimated outcome from the original budget is due mainly to a combination of higher balances of funds under investment and higher investment returns.  The decrease of $9.382m in the 2005-06 Budget from the 2004-05 estimated outcome reflects a lower level of funds under investment during the year;
•	transfer revenue:  represents the transfer from agencies of revenue received on behalf of the Territory.  Variances are driven by agency activity;
•	borrowing costs:  comprise interest payments made in respect of borrowings undertaken by CFU on behalf of the general government sector and ACTEW Corporation, and investment interest payments to agencies.  The decrease of $0.584m in the 2004-05 estimated outcome from the original budget is mainly due to lower debt servicing interest payments on variable rate borrowings due to lower interest rates than those originally anticipated.  The increase of $2.448m in the 2005-06 Budget from the 2004-05 estimated outcome reflects anticipated higher interest costs on variable rate borrowings and higher payments of investment interest to agencies;
•	other expenses:  comprise the investment related management fees paid to external fund managers and the master custodian in respect of the general government investments.  The increase of $3.693m in the 2005‑06 Budget from the 2004‑05 estimated outcome reflects an internal loan of $3.842m payable by the Department of Urban Services to the CFU which will be removed; and
•	transfer expenses:  represents the transfer of appropriated funds to agencies.  Variances are driven by agency activity.
Statement of Assets and Liabilities on Behalf of the Territory
•	receivables (current and non current):  comprises loans receivable from the general government sector and from the public trading enterprise sector and transfer revenue receivable from agencies.  
The increase of $51.205m in the 2004-05 estimated outcome from the original budget for current receivables is mainly due to higher transfer revenue accruals.  The decrease of $10.534m in 2005-06 is mainly due to lower transfer revenue accruals.  These variances are mainly driven by agency activity in respect of transfer revenues.
The non-current receivables decrease of $15.774m in the 2005-06 Budget from the 2004‑05 estimated outcome reflects the reduction in loans receivable from agencies.  The significant reductions include ACTEW ($7.559m) and DUS ($7.621m).
•	investments (current and non current):  represents the pooled total of each individual government agency, and the Territory Banking Account, that invests surplus funds through the CFU.  The decrease in total investments of $266.651m in the 2005-06 Budget from the 2004‑05 estimated outcome is due to lower than anticipated levels of cash being generated mainly by the Territory Banking Account during the year;
•	other current assets:  represents prepayments of appropriations to agencies;
•	property, plant and equipment:  this represents the Territory’s motor vehicle assets leased through the ACT Fleet Financing Facility; 
•	interest bearing liabilities (current and non current):  comprises agencies investment deposits with the CFU and external market borrowings.  External borrowings include commercial paper, inscribed stock and indexed annuity bonds.  The 2005-06 estimate comprises $558.067m being external borrowings and $386.905m being agency investments; and
•	accumulated funds:  the decrease of $249.013m in 2005‑06 from 2004‑05 estimated outcome includes an opening balance adjustment representing a reversal of a transfer revenue receivable from the ACT Planning and Land Authority as a result of a review of the accounting treatment adopted for the transaction after the 2003-04 year.
Statement of Cashflows on Behalf of the Territory
•	cash at the end of the reporting period:  represents the total of cash at bank and cash equivalent investments, generally at call, which are readily convertible to cash and are not subject to significant risk of changes in value.