“TASCORP continues to generate a very respectable return on equity”

TASCORP’s net profit after tax for the 2003/04 financial year was $6.289 million, 1.8% higher than the record profit reported last year and the sixth successive year of record profit. The Board has once again recommended that the full $6.289 million be paid to the Government by way of dividend.

During the year, TASCORP undertook a review of its capital structure and reassessed the capital that is required to support its activities. The capital available to support TASCORP’s activities comprises equity in the form of $10 million of retained earnings, together with the potential claim under the State of Tasmania guarantee provided by Section 15 of the Tasmanian Public Finance Corporation Act 1985. Applying the Bank for International Settlements methodology (Basle II) for measuring and reporting financial exposures in banks to TASCORP’s current business activities and balance sheet, TASCORP has assessed this potential claim to be $35 million.

Together, the potential claim under the State of Tasmania guarantee and TASCORP’s equity capital of $10 million, comprise the amount of capital TASCORP is effectively using (effective capital employed). Henceforth TASCORP will report its performance against the effective capital employed in the business. The 2003/04 net profit after tax of $6.289 million represents a 14% return on $45 million of effective capital employed. The Board regards this return as a very respectable return on equity having regard for TASCORP’s low risk appetite.

Maintaining this level of return is the challenge for the corporation going forward. Income from client lending is declining as the Tasmanian Government continues to repay general government sector debt, margins on cash and fixed interest investments are tighter than they have been historically, and the growth in our funds management business is proving to be slower than expected. These factors are likely to produce a marginally lower return on effective capital employed over the next two or three years.

Adding to these challenges is the move to International Accounting Standards. On 1 July 2005, TASCORP will change the way it values its assets and liabilities. Under current Australian Accounting Standards, TASCORP values the majority of its assets and liabilities at their historic cost. Under International Accounting Standards, TASCORP will be required to value its assets and liabilities at fair market value. The consequence of this change in accounting policy is that movements in market value will result in unrealised gains and losses being reported through the Statement of Financial Performance. TASCORP’s results in 2005/06 and beyond will therefore be impacted by changes in the market value of its assets and liabilities.

TASCORP is fortunate to have a very high quality team of staff. Under the leadership of CEO John Hindmarsh, they have again produced creditable financial results in 2003/04 while improving the efficiency of TASCORP’s operations, and continuing a high standard of compliance with TASCORP’s policies consistent with our low risk appetite. As Chairman, I am also fortunate to have the support of a quality Board. I would like to thank my fellow directors and TASCORP’s staff for their contributions in 2003/04. It was another good year for TASCORP, an outcome that in no small part was due to the efforts of the people involved.

Don Challen
Chairman
August 2004