Download Treasury Management Strategy

CONFIDENTIAL
MEETING:
BOARD
DATE:
12 DECEMBER 2013
REPORT OF:
DEPUTY CHIEF EXECUTIVE
SUBJECT:
TREASURY MANAGEMENT STRATEGY 2014-15
STATUS
FOR DECISION
KEY THEMES
Funding, Efficiency, Business Plan
SUMMARY
This report reflects the treasury strategy taking into account the new funding arrangements.
PLEASE RAISE MATTERS OF DETAIL WITH THE REPORT AUTHOR PRIOR TO THE MEETING
IMPLICATIONS OF REPORT
Financial: There are significant financial implications when managing the loans and the strategy
aims to minimise this risk and therefore the associated interest costs.
Equality and Diversity: N/A
Risk: There is always a risk when deciding on the borrowing strategy for a company due to the
uncertainty that surrounds interest rates.
Consultation: N/A
RECOMMENDATION
The Board approve the Treasury Management arrangements, as detailed in the report.
Jo Reece
Deputy Chief Executive
Tel: 01626 322 702
Email: [email protected]
ANNEX 14: TREASURY MANAGEMENT STRATEGY 2014-15
1
1.
OVERVIEW
1.1
The Treasury Management strategy detailed in this report sets out the arrangements
recognising that the new funding arrangements with Barclays and GBSH are now in place.
Due to the high level of fixed rate debt that will be in place for the next two years it is unlikely
that any material change in strategy will be required before March 2016. However, the
situation will be kept under review in the light of market conditions and the strategy will be
brought back for approval/ratification annually in accordance with the treasury policy.
2.
BACKGROUND
2.1
The 2013 Business Plan will assume LIBOR rates of:
2.2
2014-15
3.0%
2015-16
4.0%
2016-17
5.0%
2017-18 on
5.5%
At the end of October 2013 the company had the following fixed rate loans:
Amount
Rate
Period
Barclays £3.5m
5.1875%
4 Feb 2004 – 3 Feb 2014
10
Barclays £8m
4.9%
30 May 2008 – 30 May 2028
20 (multi callable)
Barclays £3m
4.97%
11 July 2008 – 11 July 2028
20 (multi callable)
Barclays £3.5m
4.38%
11 July 2008 – 11 July 2028
20 (multi callable)
Barclays £3.5m
5.3225%
2 Feb 2009 – 30 Sept 2016
7
TOTAL
Years
£21.5m
In addition there was a total of £13.2m of loans under the Barclays revolving loan facility.
This gives a total of £34.7 m of loans drawn at end of October 2013.
2.3
The current forecast loan balance for the end of 2013-14 is £37.2m
2.4
The GBSH loan facility of £25m is still held on deposit by the Prudential (Security Trustee)
whilst the security arrangements are being finalised. The GBSH loan has a fixed rate of
5.193%.
2014-16
2.5
Once the GBSH loan is drawn the company will have a high level of fixed rate loans fully
drawn. Based on the 2012 Business Plan there will be no requirement to use the Barclays
revolving loan facility until early in 2016-17. This may change once the Business Plan is
ANNEX 14: TREASURY MANAGEMENT STRATEGY 2014-15
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updated in the next few months and if so the strategy will be reviewed and brought back to
the Board.
2.6
There is a fixed rate loan (with Barclays) of £3.5m maturing in February 2014 This loan is not
part of the revolving facility and therefore we would not wish to repay the loan as we will be
unable to redraw it at a point in the future. When the fixed rate matures this will convert to a
variable rate loan based on 3 or 6 month LIBOR unless market conditions indicate that longer
LIBOR periods or short-term fixing are desirable, in which case approval will be sought in
accordance with the Treasury Management Policy.
3.
INVESTMENTS
3.1
Currently the only funds we have invested are the £25m from GBSH which is invested with
Barclays and HSBC. Once the security is finalised this investment will cease and we will
revert back to the investment arrangements detailed in the Treasury Management Policy.
3.2
The Treasury Management Policy details, in section 17, the requirements that institutions
must meet before we will invest in them and also the maximum amount that can be invested
in one institution. Any deviation from this will require Board approval prior to any investment
being made subject to the caveat at clause 17.6 of the Treasury Management Policy.
3.3
Investment decisions will be guided by our Treasury Management advisors.
4.
OVERDRAFT AND BANK CHARGES
4.1
The company no longer has an approved overdraft facility. Therefore if we were to become
overdrawn we would incur costs of 29% of the overdrawn balance for the period that the
account is overdrawn. Given the fact that we rarely use the overdraft coupled with projected
cash balances, it is considered more cost effective not to have an approved overdraft facility
than to incur fees to keep a facility available.
4.2
Closely monitoring the cash balance and reviewing investment arrangements will also be
used to further mitigate the risk of being overdrawn.
4.3
In 2008-09 Barclays introduced the following bank charges for day to day banking:
50% of standard tariff charge to commence from 1 April 2009
charges payable quarterly in arrears.
This equates to approximately £4,000 per annum.
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4.4
Whilst they have discounted the charges to 50% we will need to keep this under review to
ensure it remains competitive.
5.
STRATEGY
5.1
Now that we have secured new funding the Treasury Management strategy reflects the
arrangements with the new loan facilities:

The total of fixed rate debt as a percentage of total borrowings will be between 55%
and 95%.

Maturing fixed rate loans will be redrawn as variable rate loans based on 3 or 6
month LIBOR rates. This will mean that £3.5m will be redrawn on LIBOR rates from
February 2014 unless market conditions at the time require that this should be reassessed.

Investment of surplus funds will be made in accordance with the Treasury
Management Policy

The company will not have an approved overdraft facility
5.2
The Treasury Strategy will be kept under constant review.
6.
RECOMMENDATION
The Board approve the Treasury Management Strategy as detailed in the report
ANNEX 14: TREASURY MANAGEMENT STRATEGY 2014-15
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