Quarterly financial report - treasury management

Report: 3
Date: 17 October 2000
By: Treasurer

Summary

This report reviews treasury management performance for the period 1 April to 30 September 2000.

A. Supporting information

Introduction

1. On 20 July this Committee received a report (Ref. 12) which recommended approval of a Treasury Management Policy Statement which set out a framework for treasury management operations in the MPA, together with a Treasury Management Strategy for 2000/01. These recommendations were accepted with an acknowledgment that the CIPFA Code of Practice on Treasury Management requires that a suitable committee of the MPA should receive a periodic report on treasury and debt management operations throughout the financial year. This report is the first of a series of quarterly financial reports to give effect to this requirement in the Code.

Overview

2. Investment operations have been undertaken successfully and there are indications that the income receivable from investment activities will exceed the previous forecast. To date debt management operations have not been undertaken although it is possible that such operations will be undertaken during the Autumn.

Investment operations

3. All investment operations have been undertaken in line with the Strategy for 2000/01 approved by committee on 20 July 2000.

4. The value of the investments portfolio at the end of September 2000 was £213 million, compared with £212 million at the 3 July. This variation is influenced by the timing of large receipts and payments, as well as the MPA’s expenditure profile as the financial year progresses.

5. The latest budget figure for interest receivable in 2000/01 is £10 million. To 30 September, £7.711 million has been received. The level of receipts recorded is in excess of the budget profile. There are indications that seasonal effects in the expenditure profile and changes to the timetable by which grant is received from the Greater London Authority have been contributory factors in the generation of this additional income: further review work is underway.

Figure 1: Interest Receivable 2000/01 - actual and forecast

Structure of portfolio

6. The structure of the portfolio in terms of the instruments selected for investment purposes reflects the assumptions underpinning the Treasury Management Strategy. Figure 2 below shows the value of investments using different instruments.

Figure 2 : Mean investment by market sector - April to September 2000

7. It will be noted that the approach adopted to risk management entails, in practice, the holding of significant volumes of UK Treasury Bills.

Performance measurement

8. Investment performance is benchmarked using two rates.

1. The London Interbank Bid Rate (LIBID).
2. A local rate (1% below base rate this period) based on the return achieved if no investment operations were undertaken, and funds were left on deposit with the MPA’s bankers. This rate allows comparison with a neutral position as required by the CIPFA Code.

9. In summary the key conclusions are:

1. In cash terms the team earned £7.7 million from investment activities to the half year position, of which £3.0 million represents returns derived from investment operations as against the neutral position of leaving funds on deposit with the MPA’s bankers.
2. The mean investment term during the two quarters to 30 September was 25 days which entails that the return achieved, 5.853%, is best compared with the 1 month LIBID rate at 5.91%. The close tracking of the LIBID rate is regarded as a satisfactory performance given the significant proportion of the portfolio held in Treasury Bills. These high quality instruments, although generally returning a small reduction in yield against other sectors, are held as part of the approach to risk management within the portfolio.

Debt management operations

10. The Strategy for the current year resolved to undertake limited debt re-scheduling to reduce the mean rate of interest payable on the portfolio, to consider raising the proportion of the portfolio held as variable rate debt and to use these limited re-scheduling operations to achieve greater consistency in the level of debt that matures between years. No operations have been undertaken during the July - September quarter, although prior to 3 July a new loan of £10 million was taken out in line with the approach subsequently endorsed in the Treasury Management Strategy approved by Committee on 20 July.

Policy amendments

11. Since the approval of the Policy Statement on 20 July, the Treasurer, under delegated authority, has authorized the advance of short term loans to certain Foreign Banks registered in the UK whose credit rating accords with the MPA’s policy.

12. In addition the Treasurer has amended the investment sector limits used to constrain the value of investments placed in different sectors of the market. The sector limits have been adjusted as follows:

13. The effect of these changes will be to allow greater flexibility in the selection of suitable counter parties during investment operations.

B. Recommendation

1. That the report be noted.

C. Financial implications

The budgetary assumptions discussed in this report are consistent with those included in the MPA budget for 2000/01.

D. Review arrangements

The Quarterly Financial Report for Treasury Management will be prepared periodically through the financial year. It is expected that the next report will be prepared for the January committee cycle.

E. Background papers

The following is a statutory list of background papers (under the Local Government Act 1972 S.100 D) which disclose facts or matters on which the report is based and which have been relied on to a material extent in preparing this report. They are available on request to either the contact officer listed below or to the Clerk to the Police Authority at the address indicated on the agenda.

• The Treasury Management Policy Statement approved by this Committee on 20 July 2000
• The Treasury Management Strategy for 2000/01 approved by this Committee on 20 July 2000
• CIPFA Code of Practice on Treasury Management in Local Authorities

F. Contact details

The author of this report is Brendan Arnold, Metropolitan Police Service.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Send an e-mail linking to this page

Feedback