Executive Board

Date:  29TH JULY 2019

 

ANNUAL TREASURY MANAGEMENT AND PRUDENTIAL INDICATOR REPORT

2018-19

 

 

1.   Introduction

 

The Treasury Management Policy and Strategy for 2018-19 was approved by Council on 21st February 2018. Section B 1.1(2) stated that a year end annual report would be produced.

 

This report meets the requirements of both the CIPFA Code of Practice on Treasury Management, (the Code), and the CIPFA Prudential Code for Capital Finance in Local Authorities, (the Prudential Code) and outlines the Treasury Management activities in the 2018-19 financial year.

 

 

2.   Investments

 

One of the primary activities of the Treasury Management operation is the investment of surplus cash for which the Authority is responsible. As well as the Authority’s own cash the County Council invests School Funds, Trust Funds and other Funds, with any interest derived from these investments being passed over to the relevant Fund.  

 

All surplus money is invested daily with the approved counterparties either via brokers on the Money Markets or direct. The security of the investments is the main priority, appropriate liquidity should be maintained and returns on the investments a final consideration. It continues to be difficult to invest these funds as the market continues to be insecure and as a consequence appropriate counterparties are limited.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For 2018-19 investments to individual counterparties were limited to:

 

 

 

Maximum to Lend

£m

Upper Limit

Any one British Bank and Building Society with a credit rating of at least F1, P-1 or A-1 short term or AA-, Aa3 or AA- long term

 

 

 

10

Middle Limit

Any one British Bank and Building Society with a credit rating of at least F1, P-1 or A-1 short term

 

 

7

UK Banks Part Nationalised

Included as investment counterparties, as long as they continue to have appropriate UK Government support

 

 

7

Any one Local Authority

 

10

Any one AAA Rated Money Market Fund

 

5

Debt Management Office

 

40

 

 

The total investments at 1st April 2018 and 31st March 2019 are shown in the following table:

 

Investments

01.04.18

31.03.19

Call and

Fixed

 

 

Call and

Fixed

 

 

notice

Term

Total

 

notice

Term

Total

 

 

 

 

 

 

 

 

 

£m

£m

£m

%

£m

£m

£m

%

 

 

 

 

 

 

 

 

 

Banks and 100% Wholly Owned Subsidiaries

19.00

0.58

19.58

45

23.00

0.57

23.57

42

Building Societies

0.00

0.00

0.00

0

0.00

0.00

0.00

0

Money Market Funds

10.00

0.00

10.00

23

15.00

0.00

15.00

27

DMADF (DMO)

0.00

0.00

0.00

0

0.00

2.50

2.50

4

Local Authorities

0.00

14.00

14.00

32

0.00

15.00

15.00

27

TOTAL

29.00

14.58

43.58

100

38.00

18.07

56.07

100

 

 

 

An analysis of the daily cash schedules indicates that the minimum balance lent over the twelve month period was £32.57m and the maximum balance lent was £94.48m. The average balance for the year was £62.96m.

 

 

 

 

 

The total investments made by the Council and repaid to the Council (the turnover) amounted to £1,196.11m.This averaged approximately £22.94m per week or £3.28m per day. A summary of the turnover is shown below:

 

 

 

£m

 

 

Total Investments 1st April 2018

43.58

 

 

Investments made during the year

604.30

 

 

Sub Total

647.88

 

 

Investments Repaid during the year

(591.81)

 

 

Total Investments 31st March 2019

56.07


 

 

The main aim of the Treasury Management Strategy is to manage the cash flows of the Council and the risks associated with this activity. Lending on the money market secures an optimum rate of return, allows for diversification of investments and consequently reduction of risk, which is of paramount importance in today’s financial markets.

 

 

The benchmark return for the money market is the “7 day LIBID rate”. For 2018-19 the Council has compared its performance against this “7 day LIBID rate”. The average “7 day LIBID rate” was 0.51% whereas the actual rate the Council earned was 0.68%, an out performance of 0.17%.

 

This outperformance can be quantified as £105k additional interest earned compared to the “7 day LIBID rate”.

 

The gross interest earned on investments for 2018-19 amounted to £0.417m, which was more than the estimated figure of £0.300m. The Bank of England Official Rate was raised from 0.5% to 0.75% on 2nd August 2018 which resulted in an increase in investment returns.

 

 

The income from investments is used by the Authority to reduce the net overall costs to the Council taxpayer.

 

3.   Update on the investments with Kaupthing Singer & Friedlander (KSF)

 

The latest position with the Council’s investments with KSF was reported in the Treasury Management and Prudential Indicator Reports to Executive Board during the year.

 

In August 2018 the Council received a seventeenth dividend from the Administrators. This equated to 0.25p in the £ and amounted to £10k principal.

 

 

As at 31st March 2019 the sum of £3.43m principal and £210k interest had been received from the Administrators, which equates to 85.75% of the claim submitted. Further dividends are expected to be paid in 2019-20 and 2020-21. The Administrators estimate total dividends payable to non-preferential creditors at 86.75%.

 

 

 

4.   Security, Liquidity and Yield (SLY)

 

Within the Treasury Management Strategy Statement for 2018-19, the Council’s investment priorities are:

·          Security of Capital

·          Liquidity and

·          Yield

The Council aims to achieve the optimum return (yield) on investments commensurate with proper levels of security and liquidity. In the current economic climate it is still considered appropriate to keep investments short term to cover cash flow requirements.

 

Attached at Appendix 1 is a list of the individual investments (excluding the £0.57m in KSF) held as at the 31st March 2019 together with their credit ratings, historic risk of default and the risk weighting attached to each investment.

 

 

5.    Borrowing

 

As Members are aware the Authority has a substantial capital investment programme. For 2018-19 actual capital expenditure was £66.32m.  This was financed from:

 

 

 

£m

Borrowing

13.92

 

 

Grants and Contributions

26.26

 

 

Usable Capital Receipts Applied

4.23

 

 

Revenue and Reserves

21.91

 

 

Total

66.32

 

 

Under the Treasury Management Strategy it was resolved:

 

 

 

 

 

 

 

 

The following loans were borrowed during 2018-19 to fund the capital programme:

 

Loan Reference

Amount (£m)

Interest Rate

Start Date

Period

Maturity Date

 

 

 

 

 

 

507942

2.00

2.59%

25th October 2018

15yrs

28th March 2034

507943

3.00

2.72%

25th October 2018

30yrs

28th March 2049

508360

2.00

2.46%

14th January 2019

49yrs

28th March 2068

508361

5.00

2.46%

14th January 2019

50yrs

28th September 2068

508995

2.00

1.63%

28th March 2019

7yrs

28th March 2026

508996

2.00

2.01%

28th March 2019

13yrs

28th March 2032

508997

2.00

2.27%

28th March 2019

32yrs

28th September 2051

508998

2.00

2.16%

28th March 2019

49yrs

28th September 2068

Total

20.00

 

 

 

 

 

 

 

The weighted average interest rate of these new loans was 2.36% which compares favourably with the weighted average rate of the respective loan periods throughout the year.

 

The total loans outstanding at 1st April 2018 and 31st March 2019 were:

 

 

Loans

Balance at

Balance at

Net Increase/

01.04.18

31.03.19

(Net Decrease)

£m

£m

£m

 

 

 

 

Public Works Loan Board (PWLB)

392.11

405.42

13.31

 

 

 

 

Market Loan

3.00

3.00

0.00

 

 

 

 

Salix, Invest-to-Save, HILS & TCL

4.74

4.40

(0.34)

Total

399.85

412.82

12.97

 

 

 

The total external interest paid in 2018-19 amounted to £17.45m, which compares favourably with the budget of £19.39m. The savings have arisen due to under borrowing on the capital programme and borrowing at lower than anticipated interest rates.

 

 

 

 

 

 

 

 

 

 

6. Treasury Management Prudential Indicators

 

Under the requirements of the Prudential Code of Practice for Capital Finance in Local Authorities, the Council are required to set a number of treasury management prudential indicators for the year 2018-19.  The indicators set and the performance against those indicators is shown below:

 

6.1 The estimated and actual interest exposure limits as at 31st March 2019 were:

 

 

Estimate 31.03.19

Actual 31.03.19

 

£m

£m

 

Fixed Interest Rate

Variable Interest Rate

Total

Fixed Interest Rate

Variable Interest Rate

Total

 

 

 

 

 

 

 

Borrowed

420.00

3.00

423.00

409.82

3.00

412.82

Invested

(20.00)

(30.00)

(50.00)

(18.07)

(38.00)

(56.07)

Net

400.00

(27.00)

373.00

391.75

(35.00)

356.75

 

 

 

 

 

Proportion of Total Net Borrowing

107%

(7%)

100%

110%

(10%)

100%

 

 

 

 

 

Limit

125%

5%

 

 

 

 

 

 

 

6.2 Maximum principal sums invested > 365 days

 

2018-2019 Limit

2018-2019 Actual

 

£m

£m

 

 

 

Maximum principal sums invested > 365 days

10

NIL

 

6.3 Interest rate exposure limits

 

 

2018-2019

2018-2019

 

Limit

Actual

 

£m

£m

Limits on fixed interest rates based on net debt

467.00

391.75

 

 

 

Limits on variable interest rates based on net debt

47.00

(35.00)

 

 

6.4 The upper and lower limits set for the maturity structure of borrowing along with the actual maturity structure as at 31st March 2019.

 

 

 

Estimated

Estimated

Actual

 

Upper

Lower

 

 

Limit

Limit

 

 

2018-2019

2018-2019

31.03.19

 

%

%

%

Under 12 months

15

0

1.28

12 months to 2 years

25

0

3.10

2 years to 5 years

50

0

6.28

5 years to 10 years

50

0

9.88

10 years to 20 years

50

0

18.66

20 years to 30 years

50

0

19.33

30 years to 40 years

50

0

24.59

40 years and above

50

0

16.88

Total

 

 

100.00

 

 

 

Details of the above maturity structure are shown below:

 

Loan Maturities

PWLB Debt

Average Interest Rate

Market Loans/ Invest to Save/Salix/HILS/TCL

Average Rate

Total Debt Outstanding

 

 

 

 

£m

%

£m

%

£m

 

 

 

 

 

 

 

 

 

 

Before 1st April 2020

5.00

8.09

0.29

0

       5.29

 

 

 

 

 

 

 

 

 

 

1st April 2020

12.04

6.74

0.75

0

12.79

 

 

to 31st March 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1st April 2021

25.93

5.50

0.00

0

25.93

 

 

to 31st March 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1st April 2024

40.79

4.43

0

0

40.79

 

 

to 31st March 2029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1st April 2029

73.66

4.36

3.36

0

77.02

 

 

to 31st March 2039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1st April 2039

79.80

4.01

0

0

79.80

 

 

to 31st March 2049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1st April 2049

98.50

5.19

3.00

4.72

101.50

 

 

to 31st March 2059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After March 2059

69.70

2.53

0

0

69.70

 

 

 

 

 

 

 

 

 

 

Total as at 31.03.19

405.42

 

7.40

 

412.82

 

 

 

 

7. Prudential Indicators

 

7.1 Affordability

 

7.1.1 Actual and estimated ratio of financing costs to net revenue stream.

 

Ratio of Financing Costs to Revenue Stream

 

2018-2019

Estimate

%

2018-2019

Actual

%

Non-HRA

  5.15

4.80

HRA

34.39

33.20

 

 

The indicator shows the proportion of income taken up by capital financing costs.

 

7.2 Prudence

 

7.2.1 The Capital Financing Requirement (CFR).

           

 

31.03.19 Estimate

31.03.19

Actual

 

£m

£m

Non-HRA

271

266

HRA

142

144

HRAS

74

74

 

 

 

Total

487

484

 

 

The Capital Financing Requirement reflects the underlying need to borrow for capital purposes.

 

7.2.2 Gross Borrowing against the Capital Finance Requirement indicator.

 

To ensure that borrowing levels are prudent over the medium term the Council’s external borrowing must only be for a capital purpose. Gross borrowing must not exceed the CFR for 2018-19 plus the expected changes to the CFR over 2019-20 and 2020-21 but can in the short term due to cash flows. The table below highlights the Council’s gross borrowing position against the CFR. The Council has complied with this prudential indicator.

 

 

£m

2018-2019 Estimate

2018-2019 Actual

 

Debt at 1st April 2018

413

400

Expected Change in Debt

18

13

Gross debt at 31st March 2019

431

413

CFR

487

484

Under / (Over) borrowing

56

71

 

The Section 151 Officer reports that the authority had no difficulty meeting this requirement in 2018-19.

 

7.2.3 The Authorised Limit and Operational Boundary.

 

The Authorised Limit is the “Affordable Borrowing Limit” required by Section 3 of the Local Government Act 2003.  The Council does not have the power to borrow above this level. The table below demonstrates that during 2018-19 the Council has maintained gross borrowing within its Authorised Limit.

 

The Operational Boundary is the expected borrowing position of the Council during the year.  Periods where the actual position is either below or over the Boundary is acceptable subject to the Authorised Limit not being breached.

 

The actual financing costs as a proportion of net revenue stream identifies the trend in the cost of capital (borrowing and other long term obligation costs net of investment income) against the net revenue stream.

 

 

 

 

 

 

 

2018-2019

 

 

 

 

 

 

£m

 

 

 

 

 

 

 

Authorised Limit

 

 

 

 

 

536.00

Gross borrowing

 

 

 

 

 

412.82

 

 

 

 

 

 

 

Operational Boundary

 

 

 

 

487.00

Average gross borrowing position

 

 

 

398.55

 

 

 

 

 

 

 

Financing costs as a proportion of net revenue stream

 

7.82%

 

 

8. Leasing

 

No finance leases were negotiated during the year.

 

 

9. Rescheduling

 

No rescheduling was undertaken during the year.

 

 

10. Conclusion

 

This report demonstrates compliance with the reporting requirements of the CIPFA Treasury Management Code of Practice.

 

 

11. Recommendations

 

It is recommended that this report be received by the Executive Board.