Financial Summary
This section summarises IBA’s financial performance in 2008–09. For detailed information see the financial statements in Appendix E.
Economic background
In 2008–09, the credit crisis significantly affected global financial markets and the national economy. The crisis resulted in a sharp decline in interest rates, asset valuations and commercial growth and a rise in unemployment and underemployment. IBA, however, continued to grow its net assets base through a combination of new investments and increased loan base.
Funding
IBA’s corporation income base is a combination of departmental receipts from the Australian Government and self-funded revenue. In 2008–09, IBA received $41.508 million as equity infusion and $37.402 million as a departmental CAC Act body receipts from the Australian Government. Revenue from self-funded operations for the year amounted to $74.441 million.
Financial results
IBA’s financial statements are presented separately consolidated with investments and for the corporation. Total consolidated assets grew by 6.3 per cent, from $977 million in 2007–08 to $1,039 million in 2008–09. In the same period, its net assets grew by 7.4 per cent, from $918 million to $986 million.
Figure 22 shows a steady accretion to IBA’s net asset base over the past five years.
Figure 22: IBA’s net asset growth
The consolidated surplus declined by $105 million, or 77 per cent, from $135.8 million to $30.7 million. However, the 2007–08 result included the one-off profit of $118 million from the sale of the Foxleigh coal mining joint venture.
Analysis
IBA’s financial performance and balance sheet must be considered in the context of its enabling legislation, the Aboriginal and Torres Strait Islander Act 2005 (ATSI Act) and the impact of accounting standards on financial assets valuation.
The ATSI Act provides that available funds, including interest earnings, under the New Housing Fund (NHF) must be used exclusively for housing loans. Consequently, interest earned on the NHF cannot be used for operational expenses, and must be ploughed back into new loans. Therefore, a significant quantum of the operational surplus and retained earnings attributable to NHF interest income does not form part of IBA’s available cash reserves.
The accounting standards require IBA’s financial assets to be valued at their fair market value. The housing and business loans portfolio are issued at concessional rates of interest and a market valuation of the portfolio would imply discounting the value of the portfolio to equate the interest earned to market rates for comparable risk. The annual incremental discount is taken as a non-cash charge to the income statement.
Income statement
The corporation’s surplus for 2008–09 was $46.6 million. The corresponding consolidated surplus was $30.7 million. The key components are as follows:
- Funding from the Australian Government of $37.4 million constituted 35 per cent of IBA’s total revenue of $108.2 million.
- Reduced income from the sale of goods and services and the corresponding decrease in supplier expenses were due to the reduced volume of operations in the Constructions branch.
- Dividend income for the year was $9 million, significantly less than the previous year’s dividend income of $128.4 million. However, the 2007–08 dividend included a one-off distribution of profit of $118 million from the sale of the Foxleigh coal mining joint venture.
- Interest income from the New Housing Fund amounted to $25 million, which was ploughed back into new loans.
- The valuation of the combined loan portfolio resulted in a gain of $12.8 million credited to the income statement. This was contrary to the impact in previous years, when the revaluation resulted in a decline in value charged to the income statement. The 2008–09 gain was triggered by the substantial fall in cash and market interest rates during the year, resulting in a reversal of previous years’ discounts.
The net available cash surplus for 2008–09, before accounting for the NHF interest income and loan revaluation gain, amounted to $8.8 million.
Balance sheet
IBA’s corporation net assets increased from $894 million in 2007–08 to $972 million in 2008–09. The significant constituents of the corporation asset base are:
- the market value of the combined loan portfolio ($467 million), made up of housing loans ($428 million) and business loans ($39 million)
- the market value of investments in subsidiary entities ($166 million), associated entities ($42 million), and term deposits and other investments ($197 million).
Consolidated net assets increased from $918 million to $986 million in the same period. The consolidated assets include the market value of investment properties ($116 million) and other non-financial assets ($35 million).
Equity infusion for the year amounted to $41.5 million from the Australian Government and $1.5 million from minority equity partners.
Outlook
IBA’s net asset base is expected to grow to $1,025 million by the end of 2009–10, funded in part by an equity infusion of $33.2 million from the Australian Government. Total revenue is budgeted at $99 million, made up of CAC Act body government revenue ($38.8 million) and interest and dividend income ($47 million). Interest rates are expected to be steady, and a gradual increase is expected in the latter half of the year.
IBA upgraded its SAP financial accounting system to the latest version (ECC 6) in
2008–09. Further functional enhancements are planned during 2009–10 to produce tighter and more analytical management accounting information.