APA Annual Report 2012 | Quarterlytics

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more than... pipelines: redefining our potential Annual Report 2012 2 23 29 30 32 34 35 88 89 90 australian pipeline trust Directors’ report Corporate governance statement Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Declaration by the Directors of Australian Pipeline Limited Auditor’s independence declaration Independent Auditor’s report 116 Additional information 92 94 95 95 96 97 112 113 114 apt inVestMent trust Directors’ report Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Declaration by the Directors of Australian Pipeline Limited Auditor’s Independence Declaration Independent Auditor’s report australian pipeline trust and its controlled entities arsn 091 678 778 AuS tRALIAN PIPeLINe t R uS t AND It S C oNtRoLLeD eNtItIeS Directors’ report the directors of Australian Pipeline Limited (“Responsible entity”) submit their Details of the directors, their qualifications, experience, special responsibilities report and the annual financial report of Australian Pipeline trust (“APt”) and and directorships of other listed entities are set out on pages 10 to 12. its controlled entities (together “APA” or “Consolidated entity”) for the financial year ended 30 June 2012. this report refers to the consolidated results of APt and APt Investment trust (“APtIt”). Directors the names of the directors of the Responsible entity during the year and since the year end are: leonard Bleasel aM Chairman Muri Muhammad gave notice on 25 July 2012 of his resignation from the board of Australian Pipeline Limited with effect from 24 october 2012. George Ratilal resigned as alternate director for Muri Muhammad on 9 May 2012. company secretary Mark Knapman Details of the Company Secretary, his qualifications and experience are set out Michael McCormack Chief executive officer and Managing Director on page 11. steven Crane John Fletcher russell Higgins aO patricia McKenzie Muri Muhammad robert Wright principal activities the principal activities of APA during the course of the year were the ownership and operation of energy infrastructure assets and businesses, including: – energy infrastructure, primarily gas transmission businesses located across Australia and the emu Downs wind farm in Western Australia; – energy investments in listed and unlisted entities; and – Asset management and operations services for the majority of APA’s energy investments and for third parties. Financial anD operational review the following table provides a summary of key financial data for the year: Year ended 30 June Operating results including significant items total revenue Pass-through revenue (1) total revenue excluding pass-through eBitda Depreciation and amortisation expense eBit Net interest expense Pre-tax profit Income tax expense Minorities profit after tax and minorities, including significant items Significant items after income tax (2) profit after income tax and minorities, excluding significant items operating cash flow (3) operating cash flow per security (cents) earnings per security (cents) Distribution per security (cents) Distribution payout ratio (4) Net tangible asset per security Weighted average number of securities (000) 2012 $000 2011 $000 CHanges $000 % 1,060,661 302,633 758,028 525,825 (110,409) 415,416 (234,326) 181,090 (50,435) (5) 130,650 (9,663) 140,313 335,569 52.5 20.4 35.0 67.0% $1.58 639,743 1,101,989 381,733 720,256 492,109 (100,350) 391,759 (247,072) 144,687 (35,862) (316) 108,509 (432) 108,941 290,029 52.6 19.7 34.4 65.7% $1.51 551,222 (41,328) (79,100) 37,772 33,716 (10,059) 23,657 12,746 36,403 (14,573) 311 22,141 (9,231) 31,372 45,540 (0.1) 0.7 0.6 $0.07 (3.8) (20.7) 5.2 6.9 10.0 6.0 (5.2) 25.2 40.6 (98.5) 20.4 28.8 15.7 (0.2) 3.6 1.7 4.6 (1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to envestra in respect of the operation of the envestra assets. It also arises in the Nt Gas business for FY 2011. (2) Significant items: FY 2012 - Profit on the sale of APA Gas Network business (Allgas) less transaction costs; FY 2011 - APA’s equity accounted share of the Investment Allowance Concession benefit recognised on the commencement of generation of the North Brown Hill Wind Farm. APA has referenced the significant items to more accurately reflect the actual trading results of the Group. the significant items have been audited. (3) operating cash flow = net cash from operations after interest and tax payments, adjusted for significant items. (4) Distribution payout ratio = total distributions in relation to the financial year as a percentage of operating cash flow. 2 APA grouP AnnuAl rePort 2012operating profit after tax and minorities for the year was $130.7 million, an these new facilities were used to repay loans drawn under APA’s existing increase of 20.4% on last year. APA’s profit contained one significant item with revolving bank facilities, with the additional headroom created being available an overall net negative impact of $9.7 million. to support APA’s ongoing investment in the growth of its infrastructure assets, Revenue (excluding pass-through) increased by $37.8 million to $758.0 million, an increase of 5.2% on last year, while earnings before interest, tax, depreciation including the acquisition of Hastings Diversified utilities Fund (“HDF”) if it proceeds, and for general corporate purposes. and amortisation (“eBItDA”) and after significant items increased by on 9 August 2012, APA lodged a prospectus with the Australian Securities and $33.7 million to $525.8 million, an increase of 6.9%. Investments Commission (“ASIC”) for an offer of long-dated, unsecured, the main factors driving the increase in operating profit and eBItDA include: subordinated, cumulative notes (“Notes”) to raise $350 million, with the ability to raise more or less. A replacement prospectus was lodged with the ASIC on – the additional earnings from new expansions; 17 August 2012 following the closure of the “exposure” period and finalisation – full year contribution of the emu Downs wind farm business in Western of the margin and revised offer size of $475 million. the Notes provide 50% Australia; equity credit from Standard & Poor’s and Moody’s and are not convertible into – contribution of the new gas haulage contract on the Amadeus Gas Pipeline; stapled securities or any other securities. the Notes will be issued in mid- and September 2012 and will begin trading on the ASX under the code “AQHHA” in – reduced interest costs primarily due to the reduction in drawn debt late September 2012. following the sale of the Allgas business. the increase has been partially offset by the cessation of contributions from the Allgas gas distribution network following its sale in December 2011. operating cash flow increased by 15.7% to $335.6 million (2011: $290.0 million), while operating cash flow per security decreased by 0.2% or 0.1 cents to 52.5 At 30 June 2012, APA’s debt portfolio has a broad spread of maturities extending out to 2022, with a weighted average maturity of drawn debt of 4.8 years. APA has gearing of 65.0%1 at 30 June 2012, down from 66.2% at 30 June 2011, primarily due to the reduction in net debt following receipt of funds from the sale of APA’s Queensland Gas Network business. cents per security (2011: 52.6 cents per security). At 30 June 2012, APA had in excess of $1.1 billion in cash and committed APA’s distributions for the financial year total 35.0 cents per security, an increase of 1.7% or 0.6 cents on the prior financial year. APA achieved its undrawn facilities available to meet the continued capital growth needs of the business and to fund the acquisition of HDF should the transaction proceed. guidance of paying distributions in the 2012 financial year at least equal to APA has a prudent treasury policy which requires conservative levels of distributions in the 2011 financial year. the distribution payout ratio for 2012 hedging of interest rate exposures to minimise the potential impacts from was 67.0%, further demonstrating APA’s ability to fully fund its distributions out adverse movements in rates. All interest rates and foreign currency exposures of operating cash flows, while retaining significant operating cash flow in the on uS Private Placement Notes and foreign currency denominated Medium business to fund organic growth. Capital ManageMent During the year, APA issued the following two tranches of new securities under its Distribution Reinvestment Plan: – on 15 September 2011, 5,218,596 securities at $3.88 per security raising $20.2 million; and – on 15 March 2012, 5,150,958 securities at $4.73 per security raising $24.4 million. At 30 June 2012, there were 644,485,583 securities on issue (30 June 2011: 634,116,029) an increase of 1.6%. term Notes have been hedged into fixed rate AuD obligations. APA also enters into interest rate hedges for a proportion of the interest rate exposure on its other floating rate borrowings. At 30 June 2012, 80.9% of interest obligations were either hedged or set at fixed interest rates for varying periods extending out for up to 9.9 years. A level of interest rate protection is also provided through Consumer Price Index (“CPI”) indexing in most revenue contracts and the regulatory revenue setting process operating on a number of APA’s assets. BOrrOWings and FinanCe COsts As at 30 June 2012, APA had borrowings of $3,223.8 million ($3,239.9 million at 30 June 2011), principally from syndicated bank debt facilities, bilateral debt APA continues to use the Distribution Reinvestment Plan in providing equity to facilities, uS Private Placement notes, european Medium term Notes and support its strong ongoing stock of organic growth and investment projects. Australian Medium term Notes. Following the CAD 300 million european During the year APA completed the following debt refinancing programs: Medium term Note issue in June 2012, significant cash, in the order of $280 million, was available to repay loans drawn under existing bank facilities – on 23 August 2011, APA entered into a new $75 million bilateral bank facility and so create additional facility headroom. for a term of three years, maturing in August 2014; – on 12 october 2011, APA entered into a new $150 million bilateral bank facility for a term of five years, maturing in october 2016; – on 3 November 2011, APA announced the completion of a $1.45 billion syndicated bank facility, with equal-sized two, three and four year tranches, to refinance syndicated facilities due to mature in June 2012 and July 2013. APA repaid these loans, with the final payment being made on 9 January 2012; – on 24 January 2012, APA issued JPY 10 billion (A$125.9 million) six-year five-month fixed-rate Medium term Notes utilising documentation in place Net underlying finance costs decreased by $12.7 million, or 5.2%, to $234.3 million (2011: $247.1 million) over last year primarily as a result of lower drawn debt on average before the CAD bond issue, and lower floating interest rates throughout the year ended 30 June 2012. this was somewhat offset by acceleration of amortisation of borrowing costs related to bank debt facilities being repaid early. the average interest rate (including credit margins) applying to drawn debt was 7.39% for the year (2011: 7.47%). this figure excludes commitment fees and borrowing costs. under its established european MtN program; and APA’s interest cover ratio for the year increased to 2.48 times from 2.03 times – on 28 June 2012, APA issued CAD 300 million (A$289.5 million) seven-year last year, remaining well in excess of its debt covenant default ratio of 1.1 times, one-month fixed rate Medium term Notes utilising documentation in place and distribution lock up ratio of 1.3 times. under its established european MtN program. 1 Gearing ratio determined in accordance with covenants in all debt facilities as net debt to net debt plus book equity. 3 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDCredit rating Capital and inVestMent expenditure APt Pipelines Limited, the borrowing entity of APA, maintained its two Capital and investment expenditure for the year totalled $295.5 million compared investment grade credit ratings during the year: with $516.1 million last year. of this amount, $271.1 million was in respect of – BBB long term corporate credit rating (outlook Stable) from Standard and Poor’s; and – Baa2 long term corporate credit rating (outlook Stable) from Moody’s Investors Service. inCOMe tax the effective income tax rate before significant items for the year 26.4%, up from 24.8% last year. the increase has arisen predominantly as a result of the investment and growth projects, including pipeline capacity expansion in Queensland, New South Wales, Victoria and Western Australia, and the expansion of the Mondarra Gas Storage Facility. the remaining $24.4 million of capital expenditure related to stay in business or maintenance capital expenditure. Growth expenditure was generally either fully underwritten through long-term gas transportation agreements or had regulatory approval through a relevant access arrangement. Federal Government’s reversal of previously legislated changes to tax During the period, APA increased its interest in Hastings Diversified utilities consolidation rules dealing with “rights to future income”, together with the Fund (“HDF”) to 20.7% for $11.7 million, and increased its interest in envestra to prior year impact of investment allowances credits no longer being available. 33.4% for $28.8 million through participation in envestra’s Dividend Reinvestment Plan in october 2011 and April 2012. Capital and investment expenditure for the year is detailed in the table below. Capital and inVestMent expenditure (1) desCriptiOn OF 2012 MaJOr prOJeCts 2012 $ million 2011 $ million growth expenditure Regulated Victorian transmission System euroa compression; Sunbury lateral looping project APA Gas Networks (Qld) Includes southern network expansion Major projects Queensland New South Wales Western Australia other Acquisitions energy Infrastructure Roma Brisbane Pipeline expansion Moomba Sydney Pipeline expansion; Young Marsden compression project Mondarra Gas Storage Facility; Goldfields Gas Pipeline expansions National customer management system; Victorian metering Purchase adjustments for Amadeus Gas Pipeline and emu Downs wind farm acquisitions in FY 2011 energy Investments Increased interest in eNV and HDF total growth capex stay in business capex total capex 35.1 8.4 43.5 35.7 18.9 116.4 10.2 181.2 6.0 40.4 46.4 271.1 24.4 295.5 33.4 16.1 49.5 19.6 34.3 39.8 12.2 105.9 228.8 113.9 342.7 498.1 18.0 516.1 (1) the capital expenditure shown in this table represents actual cash payments as disclosed in the cash flow statement; it excludes accruals brought forward from the prior year and carried forward to next year. 4 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012Distributions Distributions paid to securityholders during the year were: APt profit distribution APt capital distribution APtIt profit distribution APtIt capital distribution total Final FY 2011 distriButiOn paid 15 septeMBer 2011 interiM FY 2012 distriButiOn paid 15 MarCH 2012 Cents per security total distribution $000 Cents per security total distribution $000 3.42 8.41 3.41 2.66 17.90 19,054 46,761 18,295 15,449 99,559 4.54 6.52 3.88 2.06 17.00 29,034 41,655 24,797 13,201 108,687 on 22 August 2012, the directors declared a final distribution for APA for the year of 18.0 cents per security payable 15 September 2012, made up of: APt profit distribution APt capital distribution APtIt profit distribution APtIt capital distribution total Final FY 2012 distriButiOn paYaBle 14 septeMBer 2012 Cents per security total distribution $000 5.09 7.32 3.28 2.31 18.00 32,786 47,182 21,160 14,879 116,007 total distribution for the financial year ended 30 June 2012 is 35.0 cents per security, an increase of 0.6 cents, or 1.7%, on the year ended 30 June 2011. Distribution information is presented on an accounting classification basis. the APA Group Annual tax Statement and Annual tax Return Guide (to be released in September 2012) provide the classification of distribution components for the purposes of preparation of securityholder income tax returns. signiFicant changes in state oF aFFairs the following significant changes in the state of affairs of APA occurred during the year: – In December 2011 APA divested its Queensland Gas Network business (Allgas) into the newly established joint venture, GDI (eII) Pty Limited (“GDI”). APA retains a 20% equity interest in GDI with the remaining interest held by Marubeni Corporation and RReeF, each holding a 40% interest. APA remains as asset manager and operator of the network under a long term agreement. the net proceeds of the transaction totalled $476 million. – on 14 December 2011, APA announced an off-market takeover offer for HDF through APt Pipelines Limited for all the HDF securities which APA did not then own. APA currently owns 20.7% per cent of HDF securities. HDF is an Australian Securities exchange (ASX) listed investment vehicle whose assets include epic energy’s three natural gas transmission pipeline systems, and is managed by Hastings Funds Management Limited. Further details of this transaction are found on page 8 of this report. 5 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDBusiness segMent perFOrManCes APA’s operational and financial result reflects the steady growth across all business segments. Statutory reported revenue and eBItDA performance of APA’s business segments is set out in the following table: Year ended 30 June revenue (continuing business) Energy Infrastructure Queensland (1) New South Wales Victoria South Australia Western Australia Northern territory energy Infrastructure total Asset Management energy Investments total segment revenue Pass-through revenue (4) unallocated revenue Divested business – Allgas (2) Significant items (3) total revenue eBitda (continuing business) Energy Infrastructure Queensland (1) New South Wales Victoria South Australia Western Australia Northern territory energy Infrastructure total Asset Management energy Investments total segment eBItDA Divested business – Allgas (2) total eBitda before significant items Significant items (3) total eBitda 2012 $000 2011 $000 CHanges $000 % 112,225 138,443 161,297 2,109 174,166 21,734 609,974 69,295 41,747 721,016 302,633 6,317 30,695 - 107,708 126,657 151,209 2,049 143,643 13,850 545,116 68,647 27,121 640,884 381,733 12,932 56,600 9,839 4,517 11,786 10,088 60 30,523 7,884 64,858 648 14,626 80,132 (79,100) (6,615) 4.2 9.3 6.7 2.9 21.2 56.9 11.9 0.9 53.9 12.5 (20.7) (51.2) 1,060,661 1,101,989 (41,327) (3.8) 79,566 113,098 121,549 1,521 117,397 8,541 441,672 31,910 41,751 515,333 20,155 535,488 (9,663) 525,825 71,685 101,266 114,263 1,618 94,223 5,578 388,633 38,740 27,102 454,475 35,114 489,589 2,521 492,109 7,881 11,832 7,286 (97) 23,174 2,963 53,039 (6,830) 14,649 60,858 45,899 33,715 11.0 11.7 6.4 (6.0) 24.6 53.1 13.6 (17.6) 54.1 13.4 9.4 6.9 (1) excludes the Allgas business contribution in 2011 and 2012. (2) APA Gas Network Queensland (Allgas) was sold into GDI (eII) Pty Ltd in December 2011. (3) FY12 - relates to the profit less transaction costs on the sale of Allgas in December 2011. FY11 – relates to APA’s equity share of the eII2 Investment Allowance Concession benefit ($9.8m in revenue & eBItDA), sale of CAMS ($1.7m) reduced by transaction costs on the emu Downs wind farm acquisition ($9.0m). (4) Pass-through revenue of Nt Gas business ceased following acquisition of the Amadeus Gas Pipeline (June 2011). 6 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012energY inFrastruCture the energy Infrastructure segment includes gas transmission and distribution assets along with the emu Downs wind farm. the energy Infrastructure segment (continuing business) contributed 85% of segment revenue (excluding pass-through revenue) and 86% of segment eBItDA. Revenue (excluding pass-through revenue) was $610.0 million, an increase of 11.9% on the $545.1 million reported last year. eBItDA increased by 13.6% to $441.7 million (2011: $388.7 million). the following key factors contributed to this result: new south Wales – Moomba Sydney Pipeline Work continued on the $100 million five-year capacity expansion program of the Moomba Sydney Pipeline. Capital expenditure for the year was $15 million, bringing the total spent thus far to $71 million. the Young compressor station was completed in the first half of the year. Victoria – Victorian Transmission System total gas volume transported through the Victorian transmission System was 229.7 PJ, down 6.5% on last year (245.7 PJ) due to milder weather, – Queensland revenue and eBItDA increased with new contracts and the lower industrial demand and lower gas demand for power generation. Peak recovery of costs in connection with flood damage incurred in FY2011; day volume of 1,151 tJ was down 3.3% on last year (1,190 tJ). – New South Wales increase in revenue and eBItDA is mainly due to new gas haulage contracts; – Victorian revenue and eBItDA increase reflects the annual increase in tariffs, offset by lower gas volumes through the Victorian transmission System due to milder weather; – Western Australia experienced the greatest increase, primarily as a result of the inclusion of the first full year of contribution from the emu Downs wind farm business; and – the Northern territory result reflects the acquisition of the Amadeus Gas APA continued work on capital projects which provide both additional capacity and security of supply for the Victorian Gas transmission System. these projects include installation of additional compression at euroa, part of the northern augmentation project, and looping of the Sunbury lateral, with funding approved within the system’s current (2008-2013) regulatory arrangements. Western australia – Goldfields Gas Pipeline Pipeline and the new gas transportation agreement – the pipeline was In December 2011 and January 2012, APA announced two new capacity previously leased and contracted on a cost based system. expansions on the pipeline totalling 44 tJ/day, an increase of 28% of the APA continues to focus on the operation, development and enhancement of its gas transmission and distribution assets across mainland Australia. Queensland – Roma Brisbane Pipeline APA completed the $50 million expansion of the pipeline in August 2012, increasing capacity by approximately 10%. the project included additional compression, pipeline pressure upgrades and augmentation of the pipeline in the Brisbane metropolitan area. the additional capacity has been substantially contracted under long term transportation agreements with an energy retailer and a major industrial gas user. pipeline’s capacity. these expansions are underpinned by a new 20-year gas transportation agreement with Rio tinto and a new 15-year gas transportation agreement with the Mount Newman Joint Venture (85% BHP Billiton) respectively. Work has commenced on these two expansions, namely design and purchase of long lead time equipment and material. the work primarily involves the upgrade of compression at two existing compressor stations (Yarraloola and Paraburdoo) and the construction of two new compressor stations (turee Creek and Newman inlet), for a total capital cost of approximately $150 million. APA is managing the construction project on behalf of the Goldfields Gas transmission Joint Venture through which APA the project to repair damage to the pipeline easement caused by the 2011 owns 88.2% of the Goldfields Gas Pipeline. the additional capacity will be floods was largely completed, with some work continuing in the Marburg available in 2014. region, west of Brisbane. During the year APA recovered some of the repair cost from its insurance provider and it is expected to recover the remaining amount in FY2013. – Mondarra Gas Storage Facility APA is expanding its Mondarra Gas Storage Facility following execution of a 20-year foundation contract for storage capacity with Verve energy in May – Carpentaria Gas Pipeline and Diamantina Power Station 2011. Construction work is continuing on the surface facilities, which includes In october 2011 APA announced that it will jointly develop the Diamantina pipeline interconnects and treatment plants. Power Station at Mount Isa with AGL energy. the 242 MW gas fired power station will be supplied with gas via the Carpentaria Gas Pipeline. the power station is underpinned by 17-year energy supply agreements with Mount Isa Mines Limited, a wholly owned subsidiary of Xstrata, and ergon energy, the Completion of the expanded capacity is scheduled for mid-2013. the facility is continuing to operate its existing contracted storage services during this expansion period. State owned regional electricity supplier. under the arrangements, AGL has the expansion will provide APA’s customers with supply options and contracted transportation capacity in the Carpentaria Gas Pipeline for an flexibility to better manage their gas supply and demand portfolios. initial ten year period. – Emu Downs wind farm the 242 MW power station is being constructed under a turn-key contract In June 2011, APA acquired the 80 MW emu Downs wind farm and adjoining with CteC Pty Limited and is expected to be fully operational in early 2014. development site in Western Australia. the first year of financial and once project financing is in place and construction of the power station is completed, APA’s investment in the power station of approximately $100 million is expected to be funded from headroom under existing debt facilities. operational performance of the wind farm under APA’s ownership has been in line with APA’s expectations. 7 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDasset ManageMent on 19 July 2012, the Australian Competition and Consumer Commission APA provides asset management and operational services to the majority of its announced that it would not oppose the proposed acquisition by APA of HDF energy investments and a number of third parties. Its main customers are on the basis of the undertaking from APA to divest HDF’s Moomba Adelaide envestra Limited, ethane Pipeline Income Fund, SeA Gas Pipeline, Diamantina Pipeline System once APA changes the responsible entity of HDF. Power Station joint venture, energy Infrastructure Investments, GDI and eII2. Asset management and operational services are provided to these customers under long term contracts. on 17 August 2012 APA announced a revised offer consideration and will shortly issue a further Supplementary Bidder’s Statement. the HDF takeover offer is open until 4 September 2012 unless extended or withdrawn and is Revenue (excluding pass-through revenue) from such services increased by currently subject to a number of conditions. APA has reserved the right to 0.9% to $69.3 million (2011: $68.6 million) and eBItDA decreased by 17.6% to waive these conditions. $31.9 million, (2011: $38.7 million), mainly due to reduction in envestra incentive payments partially offset by additional third party work in Western Australia and Northern territory. energY inVestMents tOtal seCuritYHOlder returns During the year APA’s market capitalisation increased by 37% to $3.24 billion at 30 June 2012. Distributions declared during the year amounted to $0.35 per APA security. APA’s total securityholder returns, which accounts for the capital APA has an interest in a number of energy investments across Australia, appreciation of APA’s security price and assumes the reinvestment of including envestra Limited, SeA Gas Pipeline, energy Infrastructure distributions at the declared time, was placed in the top 90th percentile of total Investments, ethane Pipeline Income Fund, eII2 (investment in the North Shareholder Returns for ASX listed companies. Brown Hill wind farm), GDI and Hastings Diversified utilities Fund (HDF). All investments are equity accounted, with the exception of APA’s interest in ethane Pipeline Income Fund and Hastings Diversified utilities Fund. regulatory matters Key regulatory matters addressed during the current period included: roma Brisbane pipeline access arrangement eBItDA increased by 54.1% to $41.8 million, up from $27.1 million last year, on 12 october 2011, APA submitted a revised access arrangement proposal for mainly due to increases in envestra’s and SeA Gas’s profitability. the Roma Brisbane Pipeline to the Australian energy Regulator (“AeR”). the APA participated in envestra’s Distribution Reinvestment Plan during the year, with the total value of distributions reinvested of $28.8 million. As at 30 June 2012, APA’s interest in envestra was 33.4%. sale OF apa gas netWOrK Business and estaBlisHMent OF gdi on 14 December 2011, APA announced the sale of its Queensland Gas Network business (Allgas) into a minority-owned joint venture, GDI (eII) Pty Limited. APA retains a 20% equity interest in the joint venture, with equity partners AeR issued its final decision on 10 August 2012 in which it determined to approve and publish its own access arrangement for the pipeline. the AeR’s decision provides for an initial 8.75% increase in the reference tariff followed by annual increases thereafter. this decision has minimal impact on APA’s revenue. the majority of APA’s Roma Brisbane Pipeline revenue is derived from haulage contracts which have set terms, including pricing for the life of the contract, and therefore is not impacted by the AeR’s final decision. Marubeni Corporation and RReeF each holding a 40% interest. APA also goldfields gas pipeline access arrangement remains as asset manager and operator of the network under a 10-year asset on 5 August 2010 the economic Regulation Authority of Western Australia management agreement, with two 5-year extension options. Financial close (“eRA”) released its further final decision and installed its own access occurred on 16 December 2011. the net enterprise value (after transaction costs) of the new joint venture is $526 million, with equity contributions totalling $247 million and a new three and five-year, non-recourse project debt facility of $310 million. the net funds released from the sale of $475.7 million have been used to reduce APA debt and provide further headroom to support APA’s growth strategy. APA recorded a $12.0 million profit on sale before transaction costs. After taking transaction costs of $21.7 million (including stamp duty) into account, arrangement. APA, on behalf of the Goldfields Gas Pipeline owners, pursued a merits review of the eRA’s decision. this review was completed during the year. APA was successful in the coverage test for expansion of pipeline capacity and cost allocation methodology. Victorian transmission system access arrangement In April 2012 APA submitted a revised access arrangement proposal for the Victorian Gas transmission System to the AeR. the AeR is currently assessing the proposal and its draft decision is expected in September 2012. APA reported a loss of $9.7 million in respect of the transaction. amadeus gas pipeline access arrangement taKeOVer OFFer FOr Hastings diVersiFied utilities Fund (HdF) on 14 December 2011, APA announced an off-market takeover offer for Hastings Diversified utilities Fund (HDF) through APt Pipelines Limited for all the HDF securities which APA did not then own. APA currently owns 20.7% per cent of HDF securities. HDF is an ASX listed investment vehicle whose assets include epic energy’s three natural gas transmission pipeline systems, and is managed by Hastings Funds Management Limited. each of the epic energy pipelines can be interconnected with pipelines owned or managed by APA. At the conclusion of the access arrangement review process the AeR approved and published its own access arrangement and access arrangement information for the Amadeus Gas Pipeline on 27 July 2011. the gas transportation agreement between APA and Power and Water Corporation is not impacted by this access arrangement. proposed changes to the national gas rules In october 2011 the AeR proposed amendments to the National Gas Rules that would change the process and methodology to determine the allowed rate of return. APA, together with other industry participants is opposing the proposed amendments. the Australian energy Market Commission is currently APA lodged its Bidder’s Statement on 15 December 2011 and dispatched this undertaking an extensive review of the proposed amendments and a final document together with a First Supplementary Bidder’s Statement on determination is expected in November 2012. 3 January 2012. APA lodged a Second Supplementary Bidder’s Statement in response to HDF’s target’s Statement on 31 January 2012, and a third Supplementary Bidder’s Statement on 22 February 2012. 8 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012health, saFety anD environment Health and safety reporting the Lost time Injury Frequency Rate (“LtIFR”)2 for APA employees was 2.2 for the year, significantly down from 6.2 last year. there were five reportable lost time injuries during the year, compared with 13 last year. APA remains committed to a ‘zero harm’ environment and in September 2011 implemented a National APA Group Health Safety & environment Management System, integrating the various legacy systems and adopting best practice for the management of environmental matters associated with all aspects of the high pressure pipeline industry. environmental management plans satisfying Part A of the Australian Pipeline Industry Association Code of environmental Practice are prepared and independently audited for construction activities. In accordance with Part 3 of AS 2885, environmental management plans satisfying Part B of the Code are in place for all operating pipelines and are managed in accordance with APA’s contracts and the terms and conditions of the licences that APA has been across the Group. environmental regulations All pipeline, distribution and gas processing assets owned and/or operated by issued. the Safety and operating Plan for APA’s distribution networks have been audited in accordance with the Queensland and New South Wales technical APA are designed, constructed, tested, operated and maintained in accordance regulatory requirements. with pipeline and distribution licences issued by the relevant state and territory technical regulators. All licences require compliance with relevant federal, state and territory environmental legislation and Australian standards. the pipeline licences also require compliance with the Australian Standard AS 2885 “Pipelines – Gas and Liquid Petroleum”, which has specific requirements environmental reporting the board reviews external audit reports and, on a monthly basis, the internal reports prepared relating to environmental issues. No breaches have been reported during the year and APA has managed the assets in accordance with the environmental management plans that are in place. In the year, APA complied with Australia’s National Greenhouse and energy Reporting obligations. energy reporting for financial year 2012 will be submitted in october 2012. APA’s performance on two key measures is set out in the following table: FinanCial Year Scope 1 Co2 emissions (tonnes) energy consumption (GJ) 2011 2010 CHange 297,099 3,361,679 305,076 3,248,069 (7,977) 113,610 (2.6)% 3.5 % introduction of carbon legislation A major element of the Clean energy Act 2011, passed by the Senate on subsequent events except as disclosed elsewhere in this report, the directors are unaware of any 8 November 2011, is the introduction of legislation to reduce carbon emissions. matter or circumstance that has occurred since the end of the year that has the legislation put a price on carbon from 1 July 2012. this carbon price significantly affected or may significantly affect the operations of the mechanism will eventually act as an incentive for major emitters to switch to Consolidated entity, the results of those operations or the state of affairs of the less carbon intensive ways of doing business, such as switching from coal-fired Consolidated entity in future years. generation to gas-fired and renewable generation. APA’s emissions are mainly the result of the combustion of natural gas in compressor stations and from fugitive emissions within our networks. APA assets and investments impacted by the new carbon legislation are the Roma Brisbane Pipeline, Moomba Sydney Pipeline, Goldfields Gas Pipeline, the Future Developments Disclosure of information regarding likely developments in the operation of the Consolidated entity in future years and the expected results of those operations, other than information disclosed elsewhere in this report, is likely to result in unreasonable prejudice to the Consolidated entity. Accordingly, this information Victorian transmission System, Allgas gas distribution network, X41 Power has not been disclosed in this report. Station and Daandine Power Station. APA’s carbon costs exposure is immaterial. APA expects to recover all carbon related costs from its regulated assets under the access arrangement review process. For non-regulated assets, APA has implemented changes to its contracts with carbon pass-through clauses included in all new contracts. APA has also implemented changes to systems and processes across the business to meet the requirements of the new legislation. 2 Lost time Injury Frequency Rate is work hours lost as a result of injury at work, multiplied by one million, divided by the total hours worked. 9 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDinFormation on Directors anD company secretary Information relating to the qualifications and experience of the directors and Company Secretary is set out below: leonard Bleasel aM FaiCd FaiM Leonard (Len) Bleasel is a lead non-executive director of QBe Insurance Group Limited and a director of o’Connell Street Associates Pty Limited. He is Chairman of the taronga Conservation Society Australia and Chairman of the Advisory Council Independent Chairman for RBS Group (Australia) Pty Limited. Appointed 28 August 2007 Appointed Chairman 30 october 2007 Len had a long career in the energy industry before retiring from management in 2001. He started his career in AGL in 1958 and worked in a variety of roles, culminating in the position of Managing Director and Chief executive officer from 1990 to 2001. Len’s past appointments have included Chairman of Foodland Associated Limited, ABN AMRo Australia Holdings Pty Limited, Solaris Power, the Australian Gas Association, Natural Gas Corporation Holdings Ltd (New Zealand), elgas Ltd, Auscom Holdings Pty Ltd, Industrial Pipe Systems Pty Ltd and east Australian Pipeline Ltd, a director of St George Bank Limited and Gas Valpo (Chile), and Vice President of the Royal Blind Society. Len was awarded an AM in the General Division of the order of Australia for services to the Australian gas and energy industries and the community. Michael (Mick) McCormack has been Chief executive officer of APA since 1 July 2005 and Managing Director since 1 July 2006. Mick has over 25 years’ experience in the gas infrastructure sector in Australia, and his career has encompassed all aspects of the sector, including commercial development, design, construction, operation and management of most of Australia’s natural gas pipelines and gas distribution systems. Michael McCormack Bsurv graddipeng MBa FaiCd Chief Executive Officer and Managing Director Appointed Chief executive officer 1 July 2005 Mick is a director of envestra Limited and the Australian Pipeline Industry Association. Appointed Managing Director 1 July 2006 steven Crane BComm FaiCd sFFin Independent Director Appointed 1 January 2011 Steven Crane has over 30 years’ experience in the financial services industry. Steven’s background is in investment banking, having previously been Chief executive officer of ABN AMRo Australia (now RBS Group Australia) and BZW Australia. He has considerable experience as a non-executive director of listed entities. He is currently Chairman of nib holdings limited, a director of Bank of Queensland Limited, transfield Services Limited, taronga Conservation Society Australia, a member of the Advisory Council for RBS Group (Australia) Pty Limited , and was formerly Chairman of Adelaide Managed Funds Limited, Investa Property Group Limited and formerly a director of Adelaide Bank Limited, Foodland Associated Limited and APA ethane Limited, the responsible entity of ethane Pipeline Income Fund. Steven is a member of the Audit and Risk Management Committee and the Remuneration Committee. John Fletcher Bsc MBa FaiCd John Fletcher has over 35 years’ experience in the energy industry, having held a number of executive positions in AGL prior to his retirement in 2003, including Chief Financial officer. John has previously been a director of Integral energy, Natural Independent Director Gas Corporation Holdings Ltd (New Zealand), Foodland Associated Limited and Alinta energy Group. He brings a wide Appointed 27 February 2008 commercial and financial practical knowledge to the board. John was previously an AGL appointed director of Australian Pipeline Limited from 2000 to 2005. He is also a director of Sydney Water. John is the Chairman of the Remuneration Committee and a member of the Audit and Risk Management Committee. Russell Higgins has extensive experience both locally and internationally in the energy sector and in economic and fiscal policy. He was Secretary and Chief executive officer of the Department of Industry, Science and Resources from 1997 to 2002 and Chairman of the Australian Government’s energy task Force from 2003 to 2004. Russell is a director of telstra Corporation Limited and Argo Investments Limited. He is the Chairman of the Global Carbon Capture and Storage Institute and the CSIRo energy transformed Flagship Advisory Committee, and a director of Ricegrowers Limited (trading as SunRice) and the St James ethics Foundation. He is a former Chairman of the Snowy Mountains Council and the Australian Government’s Management Improvement Advisory Committee and a former director of Australian Biodiesel Group Limited, eFIC, CSIRo, Austrade and Australian Industry Development Corporation, as well as a former member of the Australian Government’s Joint economic Forecasting Group. In 2006-07, he was a member of the Prime Ministerial task Group on emissions trading. Russell is Chairman of the Health, Safety and environment Committee and a member of the Audit and Risk Management Committee. russell Higgins aO Bec FaiCd Independent Director Appointed 7 December 2004 10 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012patricia McKenzie llB MaiCd Independent Director Patricia McKenzie has considerable expertise and experience in energy market regulation and, as a qualified solicitor, extensive corporate legal experience. She was formerly a director of Australian energy Market operator Limited (AeMo), the national energy market operator for electricity and gas, and the Chief executive officer of Gas Market Company Limited, the Appointed 1 January 2011 market administrator for retail competition in the gas industry in New South Wales and the Australian Capital territory. Patricia is also Chair of Diabetes Australia Limited and a director of National Health Call Centre Network Limited. Patricia is a member of the Health, Safety and environment Committee and the Remuneration Committee. Muri Muhammad Muri Muhammad retired from Petronas in August 2002 and was reappointed as Petronas’ Adviser, Gas Business in the Msc Director President’s office until 30 March 2005. He brings 30 years’ experience in the chemicals and petroleum industry as well as expertise in the domestic and international gas transmission and distribution, gas utilisation, cogeneration and conversion Appointed 8 March 2000 businesses where he has held various senior executive positions. Muri was Petronas’ Vice President for Gas Business from 1998 until his retirement and held several directorships, some as Chairman, of a number of Petronas’ subsidiaries and associate companies in Malaysia and abroad. He currently sits on the boards of Petronas Gas Berhad of Malaysia, Papua New Guinea’s national petroleum and minerals corporation and Petromin PNG Holdings Limited. He was also a member of the Malaysian energy Commission, a Malaysian Government regulatory body. Muri is a member of the Remuneration Committee and the Health, Safety and environment Committee. Muri gave notice on 25 July 2012 of his resignation from the board of Australian Pipeline Limited with effect from 24 october 2012. robert Wright BComm FCpa Robert Wright has over 30 years’ financial management experience, having held a number of Chief Financial officer positions, including Finance Director of David Jones Limited. He is currently the Chairman of SAI Global Limited, Super Retail Independent Director Group Limited and APA ethane Limited, the responsible entity of ethane Pipeline Income Fund and was previously Chairman Appointed 11 February 2000 of Dexion Limited and RCL Group Limited. Mark Knapman BComm llB FCsa FCis Company Secretary Appointed 16 July 2008 Robert is the Chairman of the Audit and Risk Management Committee and a member of the Health Safety and environment Committee. In addition to being responsible for the secretariat function, Mark oversees corporate governance and the legal, internal audit and financial services compliance functions. Mark has extensive experience as a Company Secretary. He was Company Secretary and General Counsel of an ASX-listed company and Asia Pacific Legal Counsel and Company Secretary for a uS multinational company prior to joining APA. Prior to those roles he was a partner of an Australian law firm. Mark is a Fellow of Chartered Secretaries Australia and the Institute of Chartered Secretaries and Administrators, and is admitted to practice as a solicitor. 11 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDDirectorships oF other listeD companies Directorships of other listed companies held by directors at any time in the three years immediately before the end of the year are as follows: naMe COMpanY periOd OF direCtOrsHip Leonard Bleasel AM Michael McCormack Steven Crane QBe Insurance Group Limited envestra Limited transfield Services Limited Since January 2001 Since July 2007 Since February 2008 Bank of Queensland Limited Since December 2008 John Fletcher Russell Higgins Ao Patricia McKenzie Muri Muhammad Robert Wright NIB Holdings Limited APA ethane Limited (1) Alinta energy Group Ricegrowers Limited Since September 2010 July 2008 to June 2011 october 2006 to April 2010 Since December 2005 telstra Corporation Limited Since September 2009 Argo Investments Limited Since September 2011 - - - - SAI Global Limited Since october 2003 Super Retail Group Limited APA ethane Limited (1) Dexion Limited RCL Group Limited Since May 2004 Since July 2008 March 2005 to August 2010 May 2006 to February 2012 (1) APA ethane Limited is the responsible entity of the registered investment schemes that comprise ethane Pipeline Income Fund, the securities in which are quoted on the ASX. options granteD In this report, the term “APA securities” refers to the stapled securities each comprising a unit in Australian Pipeline trust stapled to a unit in APt Investment inDemniFication oF oFFicers anD external auDitor During the year, the Responsible entity paid a premium in respect of a contract trust and traded on the Australian Securities exchange (“ASX”) under the code insuring the directors of the Responsible entity, the Responsible entity’s “APA”. No options over unissued APA securities were granted during or since the end of the year. Company Secretary, and all executive officers of the Responsible entity and any related body corporate of APA against any liability incurred in performing those roles to the extent permitted by the Corporations Act 2001. the contract of insurance prohibits disclosure of the nature of the liability and the amount of No unissued APA securities were under option as at the date of this report. the premium. No APA securities were issued during or since the end of the year as a result of Australian Pipeline Limited, in its capacity as Responsible entity of Australian the exercise of an option over unissued APA securities. Pipeline trust and APt Investment trust, indemnifies each person who is or has been a director or Company Secretary of the Responsible entity or of any related body corporate of APA under a range of deed polls and indemnity agreements which have been in place since 1 July 2000. this indemnity may extend to such other officers or former officers of APA as the board, at its sole discretion, in each case determines. the indemnity operates to the full extent allowed by law but only to the extent not covered by insurance and is on terms the board considers usual for arrangements of this type. under its constitution, Australian Pipeline Limited (in its personal capacity) indemnifies each person who is or has been a director, Company Secretary or executive officer of that company. the Responsible entity has not otherwise, during or since the end of the year, indemnified or agreed to indemnify an officer or external auditor of the Responsible entity or of any related body corporate of APA against a liability incurred as such an officer or auditor. 12 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012Directors’ meetings During the year, 18 board meetings, three Remuneration Committee meetings, four Audit and Risk Management Committee meetings and four Health, Safety and environment Committee meetings were held. the following table sets out the number of meetings attended by each director while they were a director or a committee member: direCtOrs Leonard Bleasel AM (1) Michael McCormack Steven Crane John Fletcher Russell Higgins Ao Patricia McKenzie Muri Muhammad Robert Wright BOard reMuneratiOn COMMittee audit and risK ManageMent COMMittee HealtH, saFetY and enVirOnMent COMMittee a 18 18 18 18 18 18 18 18 B 18 18 18 18 17 18 16 18 a - - 3 3 - 3 3 - B - - 3 3 - 3 3 - a - - 4 4 4 - - 4 B - - 4 4 4 - - 4 a - - - - 4 4 4 4 B - - - - 4 4 3 3 A: Number of meetings held during the time the director held office or was a member of the committee during the year. B: Number of meetings attended. (1) the Chairman also attends all committee meetings ex officio. Directors’ securityholDings the aggregate number of APA securities held directly, indirectly or beneficially by directors or their related entities at the 30 June 2012 is 980,057 (2011: 862,442). the following table sets out directors’ relevant interests in APA securities as at 30 June 2012: direCtOrs Leonard Bleasel AM Michael McCormack Steven Crane John Fletcher Russell Higgins Ao Patricia McKenzie Muri Muhammad Robert Wright FullY paid seCurities as at 1 JulY 2011 seCurities aCQuired seCurities dispOsed FullY paid seCurities as at 30 June 2012 375,405 170,619 100,000 60,026 79,503 - 42,818 34,071 862,442 67,688 24,645 - 3,272 6,657 12,500 - 2,853 117,615 - - - - - - - - - 443,093 195,264 100,000 63,298 86,160 12,500 42,818 36,924 980,057 the directors hold no other rights or options over APA securities. there are no contracts to which a director is a party or under which the director is entitled to a benefit that confers a right to call for or deliver APA securities. the Company Secretary holds 7,000 APA securities. 13 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDremuneration report introduction At APA, we are committed to disclosing a clear and transparent summary of our remuneration arrangements. this report explains our approach to remuneration and sets out key 2012 remuneration details for the directors of the Responsible entity and key management personnel of APA. the people currently in these positions are listed below: direCtOrs OF tHe respOnsiBle entitY leonard Bleasel aM Michael McCormack steven Crane John Fletcher russell Higgins aO patricia McKenzie Muri Muhammad robert Wright KeY ManageMent persOnnel Michael McCormack peter Fredricson ross gersbach robert Wheals John Ferguson Kevin lester (1) stephen Ohl Mark Knapman peter Wallace Chairman APA Group Chief executive officer and Managing Director Chairman Remuneration Committee Chairman Health, Safety and environment Committee Chairman Audit and Risk Management Committee Chief executive officer and Managing Director Chief Financial officer Chief executive Strategy and Development Group executive transmission Group executive Networks Group executive Infrastructure Development Group executive Strategic Projects Company Secretary Group executive Human Resources (1) Kevin Lester joined APA as Group executive Infrastructure Development on 6 August 2012. Have there been any changes to the executive remuneration structure in the members of the Remuneration Committee, all of whom are non-executive respect to 2012? there have been no changes to the remuneration structure in respect to 2012. However, the remuneration structure remains continuously under review to ensure that that the organisation maintains appropriate pay structures to attract and retain suitably qualified staff. remuneration Committee What is the role of the Remuneration Committee? the Remuneration Committee has been established by the board to govern and oversee executive remuneration. the role of the Remuneration Committee directors, are: – John Fletcher (Chairman); – Steven Crane; – Patricia McKenzie; and – Muri Muhammad. the Chairman of the board attends all meetings of the Remuneration Committee and the Managing Director attends by invitation. the Remuneration Committee met three times during the year. is to: the Remuneration Committee may seek external professional advice on any – ensure the provision of a robust remuneration and reward system that matter within its terms of reference. provides for the alignment of employee and securityholder interests; Our approach to non-executive director remuneration – consider and make recommendations to the board on remuneration policies We seek to attract and retain a high calibre of directors who are equipped with and packages applicable to directors and to senior executives of APA; diverse skills to oversee all functions of APA in an increasingly complex – facilitate effective attraction, retention and development of talented environment. employees; – ensure compliance with relevant legislation and corporate governance principles on remuneration practices and employment policies; and We aim to fairly remunerate directors for their services relative to similar sized organisations. – promote diversity, on the basis of gender and other factors, in APA Group’s Non-executive director remuneration comprises: workforce and to review the effectiveness of diversity practices and initiatives. – a base board fee; – an additional fee for serving on a committee of the board; and – superannuation contributions. 14 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012the board determines base board fees and committee fees annually. the board made under this arrangement in this reporting period. acts on advice from the Remuneration Committee which obtains external professional advice from independent remuneration specialists. Such advice includes market comparisons paid by comparable companies in the ASX 200. In 2003, the board terminated the non-executive directors’ retirement benefit plan so that the benefits to participating directors that had accrued up to that termination date were then quantified and preserved for payment on retirement Non-executive directors do not receive incentive payments of any type. one off of those directors. Robert Wright is the only current director entitled to benefits ‘per diems’ may be paid in exceptional circumstances. No payments have been under the plan on his retirement from the board. Board approved fees and committee fees Following external benchmarking and a review of APA’s performance relative to other companies, base board fees and fees for serving on a committee of the board were increased effective 1 January 2012. Base board fees and committee fees are outlined below: (1) Fees Board fees Remuneration Committee fees Audit and Risk Management Committee fees Health, Safety and environment Committee fees Board fees Remuneration Committee fees Audit and Risk Management Committee fees Health, Safety and environment Committee fees Effective 1 January 2012 Effective 1 January 2011 to 31 December 2011 (1) excludes superannuation levy. CHairMan $000/pa MeMBer $000/pa 298 26 34 24 280 23 32 23 110 13 17 12 102 11.5 16 11.5 Actual payments for period Actual remuneration received by non-executive directors during the year is outlined in the table below: nOn-exeCutiVe direCtOrs (1) FeeS $ SuPeRANNuAtIoN $ tOtal paid 2012 $ totAL PAID 2011 $ Leonard Bleasel AM Steven Crane John Fletcher Russell Higgins Ao Patricia McKenzie Muri Muhammad Robert Wright George Ratilal (2) total 289,000 134,750 117,000 146,000 130,000 130,000 150,750 - 1,097,500 24,400 12,128 43,250 13,145 11,675 - 13,550 - 118,148 313,400 146,878 160,250 159,145 141,675 130,000 164,300 - 293,250 63,084 149,335 158,452 61,858 121,500 153,965 16,000 1,215,648 1,017,444 (1) the remuneration for the Chief executive officer and Managing Director, Michael McCormack, is included with the actual remuneration disclosures for key management personnel for FY 2012 on page 19. (2) George Ratilal resigned as a director on 26 August 2010. 15 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDOur approach to executive remuneration What is our executive remuneration strategy? our executive remuneration strategy is to: – attract and retain key executives who will create long-term sustainable value for securityholders; – motivate and reward executives having regard to the overall performance of APA, the performance of the executive measured against pre-determined objectives and the external compensation environment; – target at least the market median using external benchmark data; – appropriately align the interests of executives with those of securityholders; and – comply with applicable legal requirements and appropriate standards of governance. We aim to pay competitive remuneration and this is communicated as total Remuneration opportunity (“tRo”). Total Remuneration Opportunity = Total Fixed Remuneration (TFR) + Short-term Incentive (STI) + Long-term Incentive (LTI) Performance based ‘at risk’ remuneration each individual’s tRo is dependent on their level in the organisation and their capacity to influence outcomes. What is the remuneration mix? APA’s remuneration mix for senior executives is structured as a mix of fixed remuneration and ‘at risk’ short and long-term incentive components. the proportion of fixed versus ‘at risk’ remuneration varies at different levels within APA, reflecting the varying capacity of employees to influence APA’s operational performance and returns to securityholders. For the Managing Director and other key management personnel, the remuneration mix is: Managing Director other key management 3 personnel 40% 30% 30% ‘at risk’ components 50% 25% 25% ‘at risk’ components TFR STI L LtI TI An overview of remuneration components each remuneration component has a different purpose: reMuneratiOn COMpOnent purpOse HOW reWard is deliVered total Fixed Remuneration (“tFR”) to reflect the market value of the role and the the total of base salary (which includes cash, individual’s skills and experience. superannuation levy, vehicles and parking) and incidental benefits paid in monthly instalments. ‘at risK’ COMpOnents Short-term incentive (“StI”) to reward strong performance against the Cash-based incentive based on a mix of financial and achievement of specific business objectives. non-financial key performance indicators paid annually after the audited accounts are approved. Long-term incentive (“LtI”) to link executive reward with securityholder Cash-settled incentive based on achievement of an value. annual board mandated key financial hurdle paid in three equal annual instalments starting one year after the year of allocation. 3 other than the Company Secretary who has a mix of 58%, 21% and 21%. 16 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012total Fixed remuneration (“tFr”) – various financial measures such as cost control, revenue and cash generation The total of base salary, including cash, superannuation levy, vehicles and and capital expenditure management. this reflects APA’s strategic goal of parking and incidental benefits. tFR is reviewed annually and is determined by reference to independent external remuneration benchmarking information, taking into account an individual’s responsibilities, performance, qualifications and experience. ‘at risk’ remuneration ’At risk’ remuneration is made up of two elements, StI and LtI. Before any StI payments or LtI allocations are made the organisation must achieve at least the board approved performance hurdle. each of these components is discussed in more detail below. What is the key performance hurdle for ‘at risk’ remuneration? operating cash flow per security (”oCFPS”) has been chosen by the board as the current key performance hurdle for ‘at risk’ remuneration. this is directly linked to APA’s strategic goal of increasing operating cash flows over the medium term, thereby improving total securityholder value. using oCFPS as the key performance hurdle ensures the interests of executives and securityholders are aligned. If the security price rises over the period of allocation, both parties benefit and likewise if it falls, both are similarly affected. At the start of the year, the board, having regard to the longer term strategy and annual budget, established the oCFPS gateway that needs to be achieved before any StI and LtI was triggered. the oCFPS gateway was not changed over the course of the year. Short-term incentive (“STI”) A cash-based incentive used to reward strong performance against the achievement of financial and non-financial targets or key performance indicators. What is the purpose of the STI plan? the StI plan is designed to put a proportion of executive remuneration ’at risk’ against meeting key performance indicators (“KPIs”) linked to: increasing oCFPS over the medium term, thereby increasing securityholder returns and aligning the interests of StI participants with those of securityholders; and – non-financial targets through the delivery of individual KPIs linked to long- term strategic measures including health, safety and environment targets, and reinforcement of an ethical and values based culture. At least 50% of the key management personnels’ KPIs are linked to financial measures. How is performance measured? At the beginning of the financial year, the board, at the recommendation of the Remuneration Committee, determines the appropriate financial and non- financial KPIs for the Chief executive officer. the board also reviews the KPIs the Chief executive officer will use to assess the performance of his direct reports. At the end of the financial year, after the audited financial results are available and provided that the performance hurdle is met, the board determines the performance against KPIs of the Chief executive officer and the Chief executive officer’s direct reports and approves the StI amounts to be paid. What is the performance hurdle? StI payments are made from the general operating budget. executives participating in the StI will not receive any incentive payments unless the performance hurdle for the financial year is reached and individual KPIs have been achieved. What is the value of the STI opportunity? the StI amount payable is capped at the StI target amount. that is, the Chief executive officer’s StI is capped at 30% of tRo and for his direct reports at 25% of tRo4. How is the STI reward delivered? All StI payments are made in cash and paid in September of the new financial year following the completion of audit of the annual accounts. For FY 2012, the StI outcomes are shown in the table below for all key management personnel: KeY ManageMent persOnnel sti earned ($) sti earned (%) sti FOrFeited ($) sti FOrFeited (%) Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals (1) John Ferguson (1) Stephen ohl Mark Knapman Peter Wallace 700,350 292,395 321,563 117,369 119,747 182,125 132,922 147,345 92.00 96.50 93.75 90.00 94.00 77.50 88.25 94.00 60,900 10,605 21,437 13,041 7,643 52,875 17,698 9,405 (1) Appointed to key management positions on 1 April 2012. StI has been prorated. 4 other than for the Company Secretary whose StI is capped at 21% of tRo. 8.00 3.50 6.25 10.00 6.00 22.50 11.75 6.00 17 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDLong-term incentive (“LTI”) Changes to sti and lti hurdles for the 2013 reporting period A cash-settled incentive used to link executive reward to securityholder value the board has conducted a review of the total Package opportunity Incentive based on the achievement of key financial measures. Plan (“tPoI Plan”) over the course of the previous year and have decided to What is the purpose of the LTI? the LtI plan is designed to put a proportion of executive remuneration at risk against meeting financial targets linked to oCFPS. this reflects APA’s strategic goal of increasing oCFPS over the medium term, thereby increasing total securityholder value and aligning the interests of LtI participants with those of securityholders. What form does the LTI take? eligible participants are entitled to an LtI allocation in the form of reference units which exactly mirror the value of APA securities. the reference units allocated under the LtI plan are not actual APA securities, but notional securities with a value equivalent to the LtI allocation. each reference unit is valued at the equivalent of the 30 trading day volume weighted average market price (“VWAP”) of an APA security immediately prior to the opening of the APA security trading window, following the announcement of APA’s annual financial results to the ASX. What is the value of the LTI opportunity? LtI participants are advised of their maximum LtI opportunity, expressed as a percentage of their tRo. the actual individual LtI allocation is determined at the completion of the financial year and is based on oCFPS performance relative to the achievement of the performance target. the maximum LtI allocation is capped at 120% of the participant’s maximum LtI opportunity. implement changes within the plan. these changes have been made to more directly align the interests of plan participants and security holders and secondly to allow the board to reward superior performance. the StI component will remain linked to oCFPS and executive StI awards, once this hurdle has been met, will remain a factor of individual KPIs as set by the board. the LtI component will adopt two new hurdles in place of the previous hurdle (being oCFPS). these hurdles, which will be weighted equally, will firstly be total Securityholder Returns (“tSR”) performance against the ASX 100 comparator group and secondly, performance against targets set for earnings Before Interest, tax, Depreciation and Amortisation divided by Funds employed (“eBItDA/Fe”). these new LtI measures of tSR and eBItDA/Fe are appropriate longer term award hurdles based on the integrity of earnings performance against the funds employed and the experience of APA securityholders compared to the general shareholder market. the tSR hurdle is linked to APA’s ranking relative to the ASX 100. Rewards do not commence until APA achieves a relative position of P50. on achieving P50 than executive awards increase as the APA performance increases relative to the ASX 100. the eBItDA/Fe hurdle has been set to reflect improvement on the previous year. Awards do not commence until this improvement has been achieved. on achieving this improvement then executive awards increase as the eBItDA/Fe What is the performance target? performance increases. No LtI allocations are made unless APA achieves the target oCFPS and the oCFPS result determines the size of participants’ LtI allocations up to their maximum LtI allocation. How are the LTI allocations delivered? An LtI allocation vests in three equal instalments over the three financial years following the allocation, with the initial one-third vesting at the end of the first financial year, one-third at the end of the second financial year, and one-third at the end of the third financial year. As LtI allocations are subject to the achievement of a pre-allocation performance hurdle, they are not subject to further performance tests at the vesting dates. However, participants must remain employed by APA to access the vested benefit. upon vesting, the LtI is delivered in cash. the cash payment is equal to the number of reference units vesting on the vesting date multiplied by the 30 trading day VWAP of APA securities immediately prior to the opening of the APA security trading window, following the announcement of APA’s annual For both StI and LtI measures, executives can earn from zero (minimum hurdle has not been achieved) to 150% of available award (stretch hurdles have been achieved) with the target reward being approximately 80% of the total possible. All other aspects of the tPoI Plan structure and design will remain the same. It is felt these changes create an even closer link between the interests of all stakeholders in the Group. Because the remuneration structure must remain flexible to meet ever changing circumstances the board will continue to monitor the tPoI plan to ensure its continued relevance. actual remuneration received during FY 2012 Actual remuneration received by the Managing Director and other key management personnel is defined as the ‘take home’ pay received by them in the relevant year. Actual LtI payments represent the amount of reference units that vested and were converted to cash payments to the individual during the year, regardless of when the LtI was initially allocated. financial results to the ASX. APA provides fully in its accounts for the obligations What amounts are excluded? of the LtI in the year in which the LtI allocation is made. the table below does not show LtI allocations in FY 2012 or previous years that What rights are attached to an LTI reference unit? the LtI is a cash-settled plan and participants are not allocated APA securities. are still subject to performance or employment conditions because those LtI allocations are still at-risk of forfeiture. LtI allocations do not entitle participants to vote at securityholders meetings or the table below sets out actual cash payments made to the relevant key to be paid distributions. No options or other equity instruments are issued to APA employees or directors under the LtI plan. management personnel during FY 2012. this table differs from the information disclosed in Note 46 of the financial report for Australian Pipeline trust that reflects the total remuneration earned by key management personnel in FY 2012, but not yet fully paid due to future vesting of LtI earned. the major differences are in respect of StI entitlements for which the amount paid in FY 2012 represents the amount earned in FY 2011, and LtI allocations for which the amounts paid in FY 2012 relate to allocations made in prior years that have vested in FY 2012. 18 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012the following table outlines the actual remuneration received by key management personnel during FY 2012: KeY ManageMent persOnnel Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals (2) John Ferguson (2) Stephen ohl Mark Knapman Peter Wallace (1) total tOtal Fixed reMuneratiOn $ 1,015,000 606,000 686,000 346,980 340,723 470,000 415,780 304,872 sti $ 621,000 270,750 308,750 100,000 91,300 201,375 130,706 34,356 lti $ 755,517 107,105 328,457 90,407 101,221 248,334 130,897 - tOtal paid 2012 $ 2,391,517 983,855 1,323,207 537,387 533,244 919,709 677,383 339,228 tOtal paid 2011 $ 1,980,114 798,125 1,102,722 - - 799,684 589,081 73,809 4,185,355 1,758,237 1,761,938 7,705,530 5,343,535 (1) Peter Wallace joined APA as Group Manager Human Resources on 4 April 2011. StI and LtI earned for FY 2011 but not paid until future years are disclosed in the financial report. (2) Robert Wheals and John Ferguson were internal appointments to key management positions on 1 April 2012. total StI and LtI remuneration relates to the full financial year FY12. Current lti reference units outstanding the following table sets out the number of reference units that have been allocated to key management personnel but have not yet vested or been paid, and the years in which they will vest, based on an estimated VWAP of $4.79: KeY ManageMent persOnnel Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals (3) John Ferguson (3) Stephen ohl Mark Knapman Peter Wallace BalanCe OF reFerenCe units (1) 616,281 215,717 285,555 99,937 100,779 200,675 128,943 50,163 (1) Includes reference units subject to allocation by the board in August 2012. (2) Reference units multiplied by 30 trading day VWAP to be paid as cash in September 2012. (3) Robert Wheals and John Ferguson were appointed to key management positions on 1 April 2012. (2) 2012 220,638 55,593 103,598 33,810 36,235 74,224 47,471 3,640 Vesting Year 2013 199,171 80,880 92,012 33,275 32,488 64,592 41,762 16,721 2014 132,945 53,958 61,321 21,969 21,425 42,248 27,141 16,721 2015 63,527 25,286 28,624 10,883 10,631 19,611 12,569 13,081 19 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDexecutive contracts the terms of the contractual arrangements for each of the key management personnel are set out below: naMe, title and COMMenCeMent date terM and terMinatiOn prOVisiOns/BeneFits Michael McCormack Managing Director since 1 July 2006 Chief Executive Officer 1 July 2005 to 30 June 2006 Commenced 1 March 2000 peter Fredricson Chief Financial Officer Commenced 1 June 2009 No defined term. on termination with cause or following long-term illness or incapacity, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 52 weeks tFR, any incentives earned but not paid on their due date and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. Mr McCormack is required to give APA twelve months’ notice. No defined term. on termination with cause, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 13 weeks tFR, any notice period not worked, any bonus entitlement not yet paid and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. Mr Fredricson is required to give APA six months’ notice. In return for increased notice, non-compete and non-solicitation provisions, and due to the critical nature of the role of Chief Financial officer over the next three years with regard to the growth, integration and financial challenges facing APA, Mr Fredricson was placed on a loyalty and performance bonus of $202,000 per year for the three years commencing 1 April 2013. ross gersbach No defined term. Chief Executive Strategy and Development Commenced 1 February 2008 on termination with cause, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 13 weeks tFR, any notice period not worked, any bonus entitlement not yet paid and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. Mr Gersbach is required to give APA six months’ notice. In return for increased notice, non-compete and non-solicitation provisions, and due to the critical nature of the role of Chief executive Strategy and Development over the next three years with regard to the growth, integration and financial challenges facing APA, Mr Gersbach was placed on a loyalty and performance bonus of $228,667 per year for the three years commencing 1 April 2013. robert Wheals No defined term. Group Executive Transmission Commenced 22 September 2008 on termination with cause, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 13 weeks tFR, any notice period not worked, any bonus entitlement not yet paid and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. Mr Wheals is required to give APA six months’ notice. In return for increased notice, non-compete and non-solicitation provisions, and due to the critical nature of the role of Group executive transmission under the major restructure of the business, Mr Wheals will be paid $60,000 per year for the two years commencing 1 April 2013. 20 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012naMe, title and COMMenCeMent date terM and terMinatiOn prOVisiOns/BeneFits John Ferguson No defined term. Group Executive Networks Commenced 29 September 2008 on termination with cause, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 13 weeks tFR, any notice period not worked, any bonus entitlement not yet paid and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. Mr Ferguson is required to give APA six months’ notice. In return for increased notice, non-compete and non-solicitation provisions, and due to the critical nature of the role of Group executive Networks under the major restructure of the business, Mr Ferguson will be paid $60,000 per year for the two years commencing 1 April 2013. Kevin lester No defined term. Group Executive Infrastructure Development Commenced 6 August 2012 on termination with cause, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 13 weeks tFR, any notice period not worked, any bonus entitlement not yet paid and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. stephen Ohl No defined term. Mr Lester is required to give APA six months’ notice. Group Executive Strategic Projects Commenced 2 May 2005 on termination with cause, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 26 weeks tFR, any incentives earned but not paid on their due date and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. Mark Knapman Company Secretary Commenced 16 July 2008 Mr ohl is required to give APA six months’ notice. No defined term. on termination with cause or following long-term illness or incapacity, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 26 weeks tFR, any incentives earned but not paid on their due date and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. peter Wallace No defined term. Mr Knapman is required to give APA three months’ notice. Group Executive Human Resources Commenced 4 April 2011 on termination with cause, APA will pay any tFR due and owing at the date of termination and any accrued leave entitlements. on termination without cause, APA will pay 13 weeks tFR, any notice period not worked, any bonus entitlement not yet paid and any accrued leave entitlement. APA will also pay any tRo due and owing at the date of termination. Mr Wallace is required to give APA six months’ notice. 21 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDremuneration advisers During FY 2012, the following remuneration information was sought: – egan & Associates were appointed by the Chairman of the Remuneration Committee to provide remuneration benchmarking information for all directors; and – ernst & Young were appointed by the Chairman of the Remuneration Committee to provide benchmarking information for the Chief executive officer and Managing Director and key management personnel. Both those advisers were engaged directly on instruction by the committee, reported directly to the committee and were independent and free from influence by key management personnel. inFormation requireD For registereD schemes Fees paid to the Responsible entity and its associates (including directors and secretaries of the Responsible entity, related bodies corporate and directors and secretaries of related bodies corporate) out of APA scheme property during the year are disclosed in Note 47 to the financial statements. except as disclosed in this report, neither the Responsible entity nor any of its auDitor’s inDepenDence Declaration A copy of the Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 89. rounDing oF amounts APA is an entity of the kind referred to in ASIC Class order 98/0100 dated 10 July 1998 and, in accordance with that Class order, amounts in the directors’ report and the financial report are rounded to the nearest thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of the directors of the Responsible entity made pursuant to section 298(2) of the Corporations Act 2001. on behalf of the directors leonard Bleasel aM Chairman robert Wright Director associates holds any APA securities. SYDNeY, 22 August 2012 the number of APA securities issued during the year, and the number of APA securities at the end of the year, are disclosed in Note 29 to the financial statements. the value of APA’s assets as at the end of the year is disclosed in the balance sheet in total assets, and the basis of valuation is included in Note 3 to the financial statements. 22 AustrAliAn PiPeline trust And its controlled entitiesDirectors’ report continueDAPA grouP AnnuAl rePort 2012corporate governance statement APA Group (“APA”) comprises two registered investment schemes, Australian non-executive directors’ letter of appointment Pipeline trust and APt Investment trust, the securities in which are “stapled” the current non-executive directors have each received a letter of appointment together, and their controlled entities. documenting, among other issues: Australian Pipeline Limited (“Responsible entity”) is the responsible entity of those trusts and is responsible for APA’s corporate governance practices. the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations articulate eight core principles of good corporate governance and, for each of those principles, recommendations as to their implementation. Adoption of the Council’s recommendations is not compulsory. However, under the Listing Rules of ASX Limited (“ASX”) companies are required to provide a statement in their annual report disclosing the extent to which they have followed the recommendations in the reporting period and, where companies have not followed all the recommendations, they must identify which ones they have not followed and give reasons for not following them. each of the principles of good corporate governance has been responded to in turn in this statement and the table at the rear of this statement provides a checklist of APA’s adoption of the ASX Corporate Governance Council’s recommendations. explanations for departures from the recommendations are set out in this statement. Various references are made below to APA’s website as a source of information on corporate governance practices and documentation. the home page for APA’s website is www.apa.com.au, and the link entitled “About APA” leads to the corporate governance material. Securityholders who do not have internet access but wish to read that material should telephone 1800 992 312 (or +61 2 8280 7132, if calling from outside Australia) and ask for a copy of the relevant material to be sent to them. In this statement the term “Reporting Period” means the period of 12 months to 30 June 2012. prinCiple 1: laY sOlid FOundatiOns FOr ManageMent and OVersigHt Board and its committees – the roles and responsibilities of the board and each of its committees; – expectations of the time commitment to be made by directors in serving on the board and its committees, and of their participation in an annual review of the board, its committees and individual directors; – requirements with respect to the disclosure of directors’ interests; – the fees payable to the directors; and – key policies that directors are required to comply with, such as APA’s securities trading policy. Management: service contracts, induction and performance evaluations the Managing Director, Chief Financial officer and other senior management have service contracts setting out their responsibilities, conditions of service and termination entitlements. Newly appointed senior executives complete an induction program on the management of the business covering topics that include financial matters, strategic direction, operations, risk management, health and safety, environmental issues and governance matters. APA also conducts annual processes relating to talent and succession management, and the development of leadership capabilities. APA has processes in place to review the performance of senior management. each senior executive, including the Managing Director, has personal objectives as well as objectives related to the performance of business or functional units and APA as a whole. they are reviewed against those objectives at least annually. A performance review of senior management has been conducted during the Reporting Period in accordance with that process. Performance evaluation of the Managing Director is handled by the Chairman with the assistance of the Remuneration Committee and a report is provided to and reviewed by the board. Assessment and monitoring of the performance of other senior executives are handled by the Managing Director who reports on those matters to the Chairman and the Remuneration Committee. the board of directors of the Responsible entity (“board”) is accountable to prinCiple 2: struCture tHe BOard tO add Value securityholders for the proper management of APA’s business and affairs. It Board membership operates in accordance with a charter, which is published on APA’s web site. the board normally meets 11 times each year, with additional meetings being held as required. the number of times it met during the Reporting Period and directors’ attendance at those meetings are set out in the directors’ report for that period. to assist the board in carrying out its responsibilities, the following standing committees of its members have been established: the board determines its size and composition, subject to limits imposed by the Responsible entity’s constitution. the constitution provides for a minimum of three directors and a maximum of 12. the names of the current directors and their experience, terms of office and membership of board committees are set out in the directors’ report for the Reporting Period. the composition of the board is determined in accordance with the following – Audit and Risk Management Committee; – Remuneration Committee; and – Health, Safety and environment Committee. principles: – a majority of the board will be comprised of independent directors; – the Chairman will be an independent director; and – a person cannot hold the positions of both Chairman and Chief executive each committee has its own charter that describes the roles and responsibilities officer. delegated to the committee by the board, and those charters are published on APA’s web site. the charters for the board and its committees are reviewed by the board annually, and were last reviewed in July 2012. under the Responsible entity’s constitution, Petronas Australia Pty Limited was entitled to appoint one director of the Responsible entity while the Petronas Group held not less than 10% of the issued securities in APA but, with the Petronas the board delegates responsibility for implementing the strategic direction and Group having sold its APA securities in May 2012, Petronas Group has ceased to managing the day-to-day operations of APA to the Managing Director. the have that right. Managing Director consults with the Chairman, in the first instance, on matters that are sensitive, extraordinary or of a strategic nature. the board has approved specific limits of authority for management with respect to approval of expenditure, contracts and other matters, and regularly reviews those limits. the Responsible entity’s constitution requires one-third of its directors (excluding the Managing Director and any director who is standing for re- election after having been appointed as an additional director or to fill a vacancy) to retire from office at the annual general meeting of the Responsible entity each year. If the calculation of that one-third is not a whole number, the number of directors required to retire by this “rotation” process is rounded to the nearest whole number. Retiring directors are eligible for re-election. 23 the Responsible entity’s constitution also provides that if the board appoints a In the interest of gender diversity, the board has determined that the short- director to fill a vacancy or as an addition to the board, the new director will listed candidates for an available board position must include at least one hold office until the end of the next annual general meeting of the Responsible qualified female candidate and, where a search firm is engaged, the board will entity and is eligible for re-election. instruct them accordingly. securityholders’ right to nominate a director and to vote on nominees annual review of performance of the board, its committees and directors the Deed Poll initially executed by the Responsible entity in 2004 and A review process to assess the performance of the board, its committees and amended with APA securityholders’ approval in 2011 (a copy of which is individual directors is undertaken each year. the last review was conducted in available on APA’s web site) affords APA securityholders certain rights in october 2011 and the review for the Reporting Period will be completed in respect to nominees for the position of director on the board. october 2012. At least 75 days before annual general meetings of the Responsible entity, each director completes a questionnaire, the responses are collated and the securityholders are notified by an announcement to ASX that they may board then meets to discuss and consider the results of that process and to nominate a person to fill a vacancy on the board that arises on retirement of determine any actions arising from the review. the Chairman also meets with either a director under the “rotation” process or a director appointed by the each director to discuss the review and the director’s own performance. board since the last annual general meeting. Matters covered by the review include the role and performance of the board If securityholders wish to exercise that right, at least 60 days before the annual and its committees, directors’ understanding of APA’s long-term objectives and general meeting they must send the Responsible entity a signed nomination key risks to the business and achievement of those objectives, succession form and the nominee’s signed consent to act as a director. planning and the effectiveness of the Chairman in leading the board. the Responsible entity advises securityholders of all candidates who have directors’ access to records and information, management and professional been validly nominated and presents its nominations to the annual meeting of advice securityholders. independence of directors the board assesses the independence of non-executive directors on appointment and annually having regard to the independence of directors policy (published on APA’s website). the directors’ report for the Reporting Period identifies which directors are considered to be independent at the date of the report. A majority of the current directors are independent. selection and appointment of directors the former Nominations and Remuneration Committee of the board became the Remuneration Committee in early 2008 so that the functions with respect to selection and appointment of new directors and related matters previously Subject to normal privacy requirements, directors have access to APA’s records and information, and to the Company Secretary and other relevant senior management personnel. they receive regular detailed reports on financial and operational aspects of APA’s business and may request elaboration or explanation of those reports. While most board meetings are held in Sydney, where APA’s head office is located, some are held in other locations where APA has a presence, providing directors with the opportunity to receive presentations from and speak to local APA employees about the business and to inspect APA’s assets and facilities. the board collectively, and each director individually, may seek independent professional advice at APA’s expense. Prior approval of the Chairman is required, but this may not be unreasonably withheld. handled by that committee then reverted to the board. ultimate responsibility Directors and senior management are encouraged to broaden their knowledge for such matters rests with the full board and the board considers the efficient of APA’s business and to keep abreast of developments in business more handling of those matters is not diminished by the absence of a Nominations generally by attending relevant courses, seminars and conferences. Where Committee. appropriate, APA will meet expenses involved in such activities. the board considers that a diverse range of skills, experience and backgrounds prinCiple 3: prOMOte etHiCal and respOnsiBle deCisiOn-MaKing is required on the board to effectively govern the business. It determines and Code of conduct and policies reviews from time to time the mix of skills and diversity that it looks to achieve the board and senior management are firmly committed to ensuring that they in its membership. Having regard to the nature of APA’s business, that mix and all employees observe high standards of ethical behaviour and conduct. includes financial, strategic, operational, legal, regulatory and general commercial expertise. APA’s code of conduct sets out the behaviour required of directors and employees and recognises the responsibilities of APA and its personnel to When looking to appoint a new director, the board predefines the skills and securityholders, customers, suppliers, employees and the community. It also experience required of candidates for the role to ensure that the required mix requires that breaches of the code are reported and provides a mechanism to of skills and experience will be represented on the board and, based on that enable breaches to be reported without fear of retribution. the code is work, seeks a list of potential candidates believed to satisfy those requirements. published on APA’s web site. If the board is not satisfied with the quality or diversity of the candidates A number of APA’s policies aim to foster a culture of compliance and ethical identified in that process, it may consider it appropriate to instruct a search and responsible decision-making. APA’s whistleblower policy encourages the firm to identify additional suitable candidates. the board recognises that an reporting of matters of concern and suspected wrongdoing, such as dishonest experienced search firm with a clear brief from the board as to the required or fraudulent conduct, breaches of legislation and other conduct that may characteristics of candidates can assist in identifying potentially suitable cause financial loss to APA or be otherwise detrimental to its reputation or candidates from diverse backgrounds. the Chairman conducts an initial interview of the short-listed candidates and, subject to them being available for and interested in the position, they are then interests, and describes the protection to be afforded to whistleblowers who report such conduct against reprisals, discrimination, harassment or other disadvantage resulting from their reports. interviewed by the board. the board assesses potential candidates against the APA’s securities trading policy, published on its web site, provides that subject predefined requirements and also considers their qualifications, backgrounds to some exceptions directors and designated management personnel must not and personal qualities before the new director is appointed. buy or sell APA securities during either of the following “closed periods”: 24 corporate governance statement continuedAPA grouP AnnuAl rePort 2012 – in the period starting 1 January and ending on the second business day after broader community demographics. these will be analysed and, where specific the release of APA’s half yearly results to the ASX, or initiatives are undertaken, included in subsequent reporting periods. – in the period starting 1 July and ending on the second business day after the release of APA’s annual results to the ASX, prinCiple 4: saFeguard integritY in FinanCial repOrting audit and risk Management Committee unless exceptional circumstances apply, and they may only buy or sell APA the board has established an Audit and Risk Management Committee, the securities outside those closed periods if they obtain clearance to do so in composition of which is determined in accordance with the following principles: accordance with the process described in the policy. Directors and employees are precluded from buying or selling securities at any time if they are aware of any price-sensitive information which has not been made public. – the committee will have at least three members; – all members of the committee will be independent, non-executive directors; and diversity – the committee Chairman cannot also be the Chairman of the board. APA values diversity and recognises that to continue to be a relevant and innovative organisation, it must leverage the full potential of its people. embracing individual diversity encourages diversity of thought, which is conducive to better decision making and opportunity for innovation. It is also about taking advantage of all available talent for the benefit of the organisation. the directors’ report for the Reporting Period identifies the current members of the committee and their qualifications and experience. the Chairman of the board, although not a member of the committee, usually attends committee meetings. APA also recognises that creating sustainable shareholder wealth depends on the roles and responsibilities delegated to the committee are set out in the its ability to attract and retain an engaged, highly skilled and motivated committee’s charter which is published on APA’s web site. workforce. therefore, diversity makes good business sense. APA has developed a diversity policy that is available on its website. Workforce gender profile (2012) the Managing Director, Chief Financial officer, Company Secretary, Business Risk Manager, other senior management personnel, as required, and the external and internal auditors attend committee meetings at the discretion of Currently within APA, women represent 27% of the total workforce (a 2% the committee. the external and internal auditors receive all committee papers increase from the previous year), 14% of leadership roles (the top three levels and regularly meet with the committee, without management present, at of management) and 4% of technical roles, while 12.5% of directors on the committee meetings. board are female. diversity objectives (2013) the minutes of each meeting of the Audit and Risk Management Committee are reviewed at the subsequent meeting of the board and the committee While the APA workforce gender profile is consistent with organisations within Chairman reports to the board on the committee’s activities and APA’s industry and similar male dominated sectors, APA is committed to increasing recommendations. the participation of women in the workforce in order to broaden the talent pool from which leaders can be drawn and to strengthen the diversity of APA. the committee is required by its charter to meet at least four times each year. the number of times it met during the Reporting Period and the committee A working party was established to analyse APA’s current diversity status and members’ attendance at those meetings are set out in the directors’ report for to determine trends and developments in addressing the diversity challenge. that period. As a result, the following objectives and initiatives have been agreed by the board: audit functions and independence of external auditor – Attraction – focus on attracting new talent into APA: Apart from reviewing the integrity of APA’s financial reporting, the committee • wherever possible, include at least one woman on the shortlist of receives reports from the external and internal auditors, monitors their applicants for all management roles; effectiveness and the independence of the external auditor, and makes • include at least one woman in the selection panel for all senior recommendations to the board on the appointment or replacement (subject to management roles; and securityholders’ approval, if applicable) of the external auditor. • expand recruitment training materials to include diversity awareness and the value of a diverse workforce. – Retention – focus on retaining talent in APA: • continue to offer flexible work arrangements through part-time hours, job sharing, flexible start and finish times and purchase of additional annual leave; and • maintain breastfeeding accreditation in relevant APA offices. – opportunities – provide both career and development opportunities for women: the external auditor appointment and independence policy (published on APA’s web site) documents the process for appointment of the auditor and for monitoring the auditor’s independence. Pursuant to that policy, the lead partner and the review or concurring partner of the external auditor must be rotated at least every five years, followed by a two year minimum time-out period during which they may not take part in the audit. APA’s auditor is Deloitte touche tohmatsu and Greg Couttas of that firm was appointed the lead audit partner for the APA audit in December 2009. • implement an APA Women in Leadership seminar at least annually; the external auditor’s independence could be impaired or compromised, or be • maintain or improve women’s participation rates in leadership and interpreted as being impaired or compromised, through the provision of some management development programs; and non-audit services or by the quantum of fees paid to the auditor for such • all nominees in the talent pool, both male and female, to have a services. Accordingly, the Audit and Risk Management Committee has completed development plan. APA will report on the progress in achieving these objectives in its 2013 annual report. diversity aspirations In addition to the above objectives and consistent with its diversity policy, APA will also be exploring its profile and opportunities for improvement with regard to the age profile and workforce demographics, equity of pay and benefits, and approved a list of non-audit services that the external auditor may perform and the process for those services being approved, identified a list of prohibited services and determined a maximum dollar limit on any non-audit services provided by the auditor in any financial year. reimbursement of responsible entity’s costs the Responsible entity’s costs incurred in acting as responsible entity of Australian Pipeline trust and APt Investment trust are reimbursed by APA. the 25 corporate governance statement continuedactual cost recovery in the Reporting Period was $2,545,000. the Responsible the external auditor attends the annual meetings and is available to respond to entity does not make a profit, nor seek performance fees. questions from securityholders about the conduct of the audit and the the constitutions of Australian Pipeline trust and APt Investment trust enable preparation and content of the independent audit report. the Responsible entity to charge fees up to 0.5% per annum of the value of the 2012 annual meeting of securityholders will be held in Sydney on 25 gross assets; however, the right to charge such fees has been waived to the october 2012. A notice of that meeting and a proxy form will be sent to extent it exceeds the Responsible entity’s costs. securityholders some weeks before the meeting, and details of the meeting are prinCiple 5: MaKe tiMelY and BalanCed disClOsure also available from APA’s web site. APA’s market disclosure policy, published on APA’s web site, aims to ensure prinCiple 7: reCOgnise and Manage risK that information that a person could reasonably expect to have a material the identification and effective management of risk, including calculated risk- effect on the APA security price, whether the information is positive or taking, are viewed as an essential part of APA’s approach to creating long-term negative, is announced to the market by release to ASX in accordance with the securityholder value. ASX Listing Rules and the Corporations Act 2001. the board is responsible for adopting and reviewing APA’s approach to the the Company Secretary is the nominated continuous disclosure officer. identification, evaluation and management of business risks that are material to All ASX announcements are posted on APA’s web site as soon as reasonably possible after notification to ASX. prinCiple 6: respeCt tHe rigHts OF sHareHOlders Communications with securityholders APA aims to ensure its securityholders are informed of all significant developments affecting APA’s state of affairs and business. Information is the fulfilment of APA’s business objectives. the board has delegated certain activities to its Audit and Risk Management Committee, the charter for which is published on APA’s web site. With respect to business risk, the committee’s primary function is to maintain and oversee a sound system of internal risk management controls based on the board’s adopted risk management approach. communicated to securityholders by a number of means, including the following: Specific risk management responsibilities of the Audit and Risk Management – an annual statutory report (comprising the financial report, directors’ report Committee include: and audit report) sent to securityholders who have elected to receive the – reviewing and approving APA’s updated risk profile, and risk management report; policy and framework; – an annual review sent to securityholders who elect to receive either the – reviewing at least annually APA’s implementation of the risk management statutory report or the annual review alone; policy and framework; and – a biannual newsletter sent to securityholders who have not elected to – receiving and reviewing management’s report on the effectiveness of risk receive the annual report, and to all securityholders on the announcement management and internal control systems and otherwise monitoring the of the half year results; effectiveness of the risk management framework and the system of internal – the interim (half yearly) report and directors’ commentary on that report; control, and progress against agreed risk management plans. – announcements to ASX and media releases; – “open Briefings” prepared from time to time to provide an update to investors, and released to ASX; – analyst briefings and investor presentations released to ASX; the Managing Director is accountable for ensuring that a risk management system is established, implemented and maintained in accordance with APA’s risk management policy and framework. – the Investor Centre section of APA’s web site on which the reports, ASX Senior management is accountable for risk management within the areas and media releases, presentations and other documents referred to above under their control, including devolution of the risk management process to are posted; – the annual meeting of securityholders; and – webcasting of half year and full year results presentations, the annual meeting and announcements of major events. operational managers, and is responsible for: – reviewing the measures of risk impact severity that underlies the identification of material business risks, to ensure the measures remain current to APA’s context; Securityholders and others may elect on APA’s web site to receive ASX and – identifying material business risks that may impact on APA’s business plans media announcements and newsletters by email. and objectives and the development, implementation, performance and annual meeting of securityholders APA encourages securityholders to participate in its annual meetings. A notice of annual meeting setting out the agenda for the meeting and explaining resolutions on which securityholders may vote is sent to all securityholders and to ASX prior to the meeting. Securityholders who cannot attend a meeting in person may appoint a proxy and may also read the Chairman and Managing Directors’ addresses that are sent to ASX and posted on APA’s web site, and review of risk management plans. In doing so, senior management considers both financial risk and non-financial risk, including operational, environmental, strategic, market related, compliance and reputation risk; – aggregating operational risk data across APA, and monitoring external factors, to facilitate monitoring of APA’s risk profile; and – contributing advice, leadership and facilitation in the development of group-wide risk control solutions. listen to a web cast of the meeting available through the web site. the Business Risk Manager, who reports to the Chief Financial officer and At the annual meeting the Chairman encourages questions and comments from securityholders and seeks to ensure the meeting is managed to give usually attends meetings of the Audit and Risk Management Committee, is responsible for: securityholders an opportunity to participate. In the interests of clarity, – overseeing and facilitating the co-ordination of the risk management questions on operational matters may be answered by the Managing Director activities of senior management; or another appropriate member of senior management. Securityholders are – reporting regularly to the Audit and Risk Management Committee on APA’s risk also invited to send written questions ahead of the meeting and, where there is profile and the implementation and effectiveness of risk management plans; a common theme to a number of questions, either the Chairman or the – contributing leadership and facilitation of the implementation of group- Managing Director will commonly seek to provide an answer in their address. wide risk control solutions; and 26 corporate governance statement continuedAPA grouP AnnuAl rePort 2012 – working with senior management to design and develop risk education and external advice communication forums. APA’s management has reported to the Audit and Risk Management Committee as to its assessment of the effectiveness of management by APA of its material risks. In the course of approving the financial statements for the Reporting Period, the committee can seek external professional advice on any matter within its terms of reference. As stated in APA’s remuneration report referred to below, independent remuneration consultants were engaged by the Chairman of the Remuneration Committee to provide comparative market data with respect to non-executive director and executive remuneration during the Reporting the board considered a written statement from the Chief executive officer and Period. the Chief Financial officer to the effect that, to the best of their knowledge and belief, their declaration pursuant to section 295A of the Corporations Act 2001 remuneration report (broadly, that the financial statements give a true and fair view in all material the Corporations Act 2001 does not require registered investment schemes like respects of APA’s financial position and comply in all material respects with Australian Pipeline trust and APt Investment trust to include a remuneration relevant accounting standards) is founded on a sound system of risk report as part of the annual directors’ report, but APA has chosen to do so for management and internal control and that system is operating effectively in all the Reporting Period and prior periods. material respects in relation to financial reporting risks, based on the management framework adopted by APA. the remuneration report distinguishes the structure of non-executive directors’ remuneration from that of the Managing Director and other senior executives, prinCiple 8: reMunerate FairlY and respOnsiBlY and sets out details of the components of remuneration and total remuneration remuneration Committee paid to those individuals over the Reporting Period. the board has established a Remuneration Committee to consider and make recommendations to the board on, among other things, remuneration policies applicable to board members and senior management. the composition of the Remuneration Committee is determined in accordance with the following principles: – the committee will have at least three members; unvested benefits under apa’s long term incentive plan the remuneration report also describes the APA long term incentive (LtI) plan under which the benefits to executives who participate in the plan are related to the price of APA securities and vest over three years. An aim of the LtI plan is to align the interests of the LtI participants with the interests of APA securityholders. APA recognises that the use of arrangements such as hedging – all members of the committee will be non-executive directors and a majority or derivative financial products that operate to limit for LtI participants the of them will be independent directors; and economic risk of their unvested LtI benefits are likely to reduce the intended – the committee Chairman will be an independent director. alignment of those interests. Consequently, it is APA policy that LtI participants the directors’ report for the Reporting Period identifies the current members of the committee and their qualifications and experience. the Chairman of the board, must not use, nor allow to be used, any such arrangements in relation to their unvested LtI benefits. although not a member of the committee, usually attends committee meetings. retirement benefits the roles and responsibilities delegated to the Remuneration Committee are set out in the committee’s charter which is published on APA’s web site. the Managing Director attends meetings of the committee by invitation when required to report on and discuss senior management performance and other remuneration matters. In 2003 the board terminated the non-executive directors’ retirement benefit plan so that the benefits to participating directors that had accrued up to termination were then quantified and preserved for payment on retirement of those directors. under the plan, after three years service a director was entitled to the equivalent of the emoluments received over the most recent 12 months. After 10 years service, the entitlement increased to the equivalent of the committee Chairman reports to the board on the committee’s activities emoluments received during the most recent three years. No additional and recommendations. the committee is required by its charter to meet at least twice each year. the entitlement accrued after 10 years. For periods between three and 10 years, the entitlement was calculated on a pro-rata basis. number of times it met during the Reporting Period and the committee members’ Robert Wright is the only current director entitled to benefit under the plan on attendance at those meetings are set out in the directors’ report for that period. retirement from the board. COrpOrate gOVernanCe prinCiples and reCOMMendatiOns issued BY asx COrpOrate gOVernanCe COunCil COMplY Yes/nO prinCiple 1: laY sOlid FOundatiOns FOr ManageMent and OVersigHt Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions Yes 1.1 1.2 1.3 Companies should disclose the process for evaluating the performance of senior executives Companies should provide the information indicated in the Guide to reporting on Principle 1 prinCiple 2: struCture tHe BOard tO add Value A majority of the board should be independent directors the chair should be an independent director the roles of chair and chief executive officer should not be exercised by the same individual the board should establish a nomination committee Companies should disclose the process for evaluating the performance of the board, its committees and individual directors Companies should provide the information indicated in the Guide to reporting on Principle 2 2.1 2.2 2.3 2.4 2.5 2.6 Note 1. the board has chosen not to have a separate nomination committee, as explained in the section of this statement entitled “Principle 2: Structure the board to add value” under the heading “Selection and appointment of directors”. 27 Yes Yes Yes Yes Yes No (note 1) Yes Yes corporate governance statement continuedprinCiple 3: prOMOte etHiCal and respOnsiBle deCisiOn-MaKing 3.1 Companies should establish a code of conduct and disclose the code or a summary of that code as to: – the practices necessary to maintain confidence in the company’s integrity – the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders – the responsibility and accountability of individuals for reporting and investigating reports of unethical practices COMplY Yes/nO Yes 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. the policy should include Yes requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them 3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in Yes accordance with the diversity policy and progress towards achieving them 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior Yes management positions and women on the board. 3.5 Companies should provide the information indicated in the Guide to reporting on Principle 3 prinCiple 4: saFeguard integritY in FinanCial repOrting 4.1 4.2 4.3 4.4 the board should establish an audit committee the audit committee should be structured so that it: – consists only of non-executive directors – consists of a majority of independent directors – is chaired by an independent chair, who is not chair of the board – has at least three members the audit committee should have a formal charter Companies should provide the information indicated in the Guide to reporting on Principle 4 Yes Yes Yes Yes Yes prinCiple 5: MaKe tiMelY and BalanCed disClOsure 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to Yes ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies 5.2 Companies should provide the information indicated in the Guide to reporting on Principle 5 Yes prinCiple 6: respeCt tHe rigHts OF sHareHOlders 6.1 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their Yes participation at general meetings and disclose their policy or a summary of that policy 6.2 Companies should provide the information indicated in the Guide to reporting on Principle 6 Yes prinCiple 7: reCOgnise and Manage risK 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those Yes policies 7.2 the board should require management to design and implement the risk management and internal control system to manage the Yes company’s material business risks and report to it on whether those risks are being managed effectively. the board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks 7.3 the board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial Yes officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks 7.4 Companies should provide the information indicated in the Guide to reporting on Principle 7 prinCiple 8: reMunerate FairlY and respOnsiBlY 8.1 8.2 the board should establish a remuneration committee the remuneration committee should be structured so that it: – consists of a majority of independent directors – is chaired by an independent director – has at least three members Yes Yes Yes 8.3 Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior Yes executives 8.4 Companies should provide the information indicated in the Guide to reporting on Principle 8 Yes 28 corporate governance statement continuedAPA grouP AnnuAl rePort 2012AuS tRA LIA N PIPeLINe tR uS t AND It S C oNtRoLLeD eNtItIeS statement oF comprehensive income For the financial year ended 30 June 2012 COnsOlidated trust Note 2012 $000 2011 $000 2012 $000 2011 $000 6 6 7 7 7 7 7 9 COntinuing OperatiOns Revenue Share of net profits of associates and jointly controlled entities accounted for using the equity method Asset operation and management expenses Depreciation and amortisation expense other operating costs - pass-through Finance costs employee benefit expense other expenses Profit before tax Income tax expense profit for the year Other comprehensive income Gain on available-for-sale investments taken to equity transfer of (loss)/gain on cash flow hedges to profit or loss Loss on cash flow hedges Loss on associate hedges taken to equity Actuarial (loss)/gain on defined benefit plan Income tax relating to other comprehensive income components other comprehensive income/(expense) in the year (net of tax) 1,032,398 1,078,113 58,386 63,019 28,263 1,060,661 (75,995) (110,409) (302,633) 23,876 1,101,989 (82,190) (100,350) (381,733) (240,643) (260,004) (132,913) (16,978) 181,090 (50,435) 130,655 93,189 (29,867) (37,774) (22,666) (32,677) 9,265 (20,530) (114,923) (18,102) 144,687 (35,862) 108,825 29,643 192,900 (228,392) (2,100) 3,072 2,606 (2,271) - 58,386 - 63,019 - - - - - (506) 57,880 (8,517) 49,363 - - - (45) - (31) 62,943 (3,555) 59,388 2,261 880 - - - - (678) 1,583 - - - - (263) 617 total comprehensive income for the year 110,125 106,554 50,946 60,005 profit attributable to: equityholders of the parent Minority interest - APt Investment trust equityholders APA stapled securityholders Minority interest - other total comprehensive income attributable to: equityholders of the parent Minority interest - APt Investment trust equityholders APA stapled securityholders Minority interest - other 84,693 45,957 130,650 5 69,585 38,924 108,509 316 49,363 - 49,363 - 59,388 - 59,388 - 130,655 108,825 49,363 59,388 63,073 47,047 110,120 5 66,679 39,559 106,238 316 50,946 60,005 - - 50,946 60,005 - - 110,125 106,554 50,946 60,005 earnings per seCuritY Basic and diluted (cents per security) 36 20.4 19.7 Diluted earnings per security is exactly the same as basic earnings per security. the profit for the year includes a significant item which has been audited. The above statement of comprehensive income should be read in conjunction with the accompanying notes. 29 AuS tRALIAN PIPeLINe t R uS t AND It S C oNtRoLLeD eNtItIeS statement oF Financial position As at 30 June 2012 COnsOlidated trust Note 2012 $000 2011 $000 2012 $000 2011 $000 Current assets Cash and cash equivalents trade and other receivables other financial assets Inventories other total current assets nOn-Current assets Receivables other financial assets Investments accounted for using the equity method Property, plant and equipment Goodwill other intangible assets Deferred tax assets other total non-current assets total assets Current liaBilities trade and other payables Borrowings other financial liabilities Provisions other total current liabilities nOn-Current liaBilities Borrowings other financial liabilities Deferred tax liabilities Provisions other 37 11 12 13 14 15 16 17 18 19 20 9 21 22 23 24 25 26 27 28 9 25 26 329,934 238,519 420 11,504 4,134 95,368 145,698 - 11,076 3,357 110 49 402,273 486,830 - - - - - - 584,511 255,499 402,383 486,879 22,244 299,070 512,948 25,860 182,282 479,409 3,472,198 3,768,342 411,883 183,659 - 9,541 515,344 192,903 - 7,966 - - 696,523 665,507 - - - - - - - - 149,760 192 148,242 192 4,911,543 5,172,106 846,475 813,942 5,496,054 5,427,605 1,248,858 1,300,822 175,028 135,651 98,427 98,675 - 900,000 59,307 65,883 761 300,979 44,986 54,731 2,347 1,137,715 - - - - - - - - 98,427 98,675 2,905,946 1,990,446 286,592 319,282 65,135 4,078 263,786 336,171 30,840 802 - - - - - - - - - - - - total non-current liabilities 3,581,033 2,622,045 total liabilities net assets 3,882,012 3,759,760 98,427 98,675 1,614,042 1,667,845 1,150,431 1,202,147 The above statement of financial position should be read in conjunction with the accompanying notes. 30 APA grouP AnnuAl rePort 2012AuS tRA LIA N PIPeLINe tR uS t AND It S C oNtRoLLeD eNtItIeS statement oF Financial position continueD As at 30 June 2012 COnsOlidated trust Note 2012 $000 2011 $000 2012 $000 2011 $000 eQuitY Australian Pipeline trust equity: Issued capital Reserves Retained earnings equity attributable to securityholders of the parent Minority interests: APt Investment trust: Issued capital Reserves Retained earnings equity attributable to securityholders of APt Investment trust other minority interest total minority interests total equity 29 30 31 32 32 32 32 1,138,205 1,192,779 1,138,205 1,192,779 56,153 32,785 54,899 19,054 2,345 9,881 762 8,606 1,227,143 1,266,732 1,150,431 1,202,147 364,066 382,001 1,624 21,160 534 18,295 386,850 400,830 49 386,899 283 401,113 - - - - - - - - - - - - 1,614,042 1,667,845 1,150,431 1,202,147 The above statement of financial position should be read in conjunction with the accompanying notes. 31 ) 1 7 2 2 ( , 5 4 1 , 5 9 3 , 1 5 2 8 8 0 1 , 2 3 1 6 1 3 - 4 5 5 6 0 1 , 6 1 3 7 2 1 6 1 3 - 6 1 3 ) 7 6 7 2 0 1 ( , ) 5 6 1 ( ) 5 6 1 ( 2 7 3 2 5 , ) 1 6 6 3 ( , 4 2 8 ) 2 2 6 0 8 ( , 0 0 0 0 0 3 , - - - - - - - - - - , 5 4 8 7 6 6 , 1 3 8 2 8 7 2 5 5 6 0 3 1 , ) 0 3 5 0 2 ( , 5 2 1 , 0 1 1 5 - 5 5 - 5 , 5 4 8 7 6 6 , 1 3 8 2 8 7 2 ) 9 1 4 , 1 9 ( ) 9 3 2 ( ) 9 3 2 ( ) 1 7 ( 6 1 2 1 6 4 4 , ) 6 6 0 7 1 1 ( , - - - - - - - - , 2 4 0 4 1 6 , 1 9 4 4 4 1 - - - - - - - - - 1 1 - - - - - - - - 1 4 - - - - - - - - - 4 4 - - - - - - - - 4 0 0 0 $ L A t o t 0 0 0 $ t S e R e t N I R e H t o I Y t R o N M I 0 0 0 $ I D e N A t e R I S G N N R A e 0 0 0 $ R e H t o 0 0 0 $ D e u S S I I L A t P A C 0 0 0 $ t S u R t t P A t N e M t S e V N I 5 3 6 , 8 5 7 0 4 3 4 2 9 8 3 , - 8 2 9 9 1 , 4 2 9 8 3 , 0 9 5 2 1 , 2 7 8 9 6 , - ) 5 1 9 ( ) 7 7 4 0 2 ( , - - - - - 9 5 5 9 3 , 4 2 9 8 3 , ) 7 5 5 0 4 ( , ) 7 5 5 0 4 ( , - ) 1 0 1 ( 5 3 6 5 3 6 - - - - - - - ) 8 1 ( 3 3 7 0 1 , ) 0 5 6 8 2 ( , - - - - ) 2 9 0 3 4 ( , ) 2 9 0 3 4 ( , - - - - - 7 5 9 5 4 , 0 9 0 , 1 7 5 9 5 4 , - - 0 9 0 , 1 7 4 0 7 4 , 7 5 9 5 4 , 0 9 0 , 1 , 0 3 8 0 0 4 5 9 2 8 1 , 4 3 5 , 1 0 0 2 8 3 , 2 3 7 6 6 2 , 1 4 5 0 9 1 , 3 0 0 8 2 , 7 2 2 8 1 , 9 6 6 8 , , 9 7 7 2 9 1 , 1 1 1 0 2 e n u J 0 3 t a e c n a l a B , 0 3 8 0 0 4 5 9 2 8 1 , 4 3 5 , 1 0 0 2 8 3 , 2 3 7 6 6 2 , 1 4 5 0 9 1 , 3 0 0 8 2 , 7 2 2 8 1 , 9 6 6 8 , , 9 7 7 2 9 1 , 1 1 1 0 2 y l u J 1 t a e c n a l a B , 1 3 9 0 2 3 , 5 5 2 4 5 0 , 1 4 6 3 9 , 8 1 3 4 5 , ) 2 3 0 3 ( , 9 6 6 8 , , 6 3 9 4 8 9 0 1 0 2 y l u J 1 t a e c n a l a B - - - - - - - - 0 9 5 2 1 , 2 8 7 9 3 , ) 5 1 9 ( ) 6 4 7 2 ( , 2 7 8 9 6 , 8 2 1 , 0 3 2 - 4 2 8 ) 7 7 4 0 2 ( , ) 5 4 1 , 0 6 ( - - - - - ) 5 4 0 2 6 ( , ) 5 4 0 2 6 ( , 5 8 5 9 6 , ) 6 0 9 2 ( , 5 8 5 9 6 , - - 0 5 1 , 2 ) 5 1 3 6 2 ( , 9 5 2 , 1 2 9 7 6 6 6 , 5 3 7 , 1 7 ) 5 1 3 6 2 ( , 9 5 2 , 1 2 3 3 7 0 1 , 9 7 8 3 3 , ) 8 1 ( - ) 3 5 ( 6 1 ) 0 5 6 8 2 ( , ) 6 1 4 8 8 ( , - - - - ) 8 8 0 8 4 ( , ) 8 8 0 8 4 ( , 3 9 6 4 8 , 3 9 6 4 8 , - - ) 0 2 6 , 1 2 ( ) 4 7 8 2 2 ( , ) 5 1 2 3 6 ( , 9 6 4 4 6 , 3 7 0 3 6 , 9 1 8 , 1 6 ) 5 1 2 3 6 ( , 9 6 4 4 6 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 8 7 9 3 , ) 6 4 7 2 ( , 8 2 1 , 0 3 2 e m o c n i e v i s n e h e r p m o c r e h t o e m o c n i e v i s n e h e r p m o c l a t o t s n o i t u b i r t s i d f o t n e m y a P n o i t u b i r t s i d r e d n u d e u s s I r a e y e h t r o f r a e y e h t r o f t fi o r P t n e m e c a P l l a n o i t u t i t s n I s e i t i r u c e s f o t s o c e u s s I l n a p t n e m t s e v n e r i 4 2 8 s t s o c e u s s i y t i r u c e s o t g n i t a e r l x a t ) 5 4 1 , 0 6 ( l s r e d o h y t i r u c e s o t n r u t e r l a t i p a C - - - - - - - - - - - - ) 3 5 ( 6 1 9 7 8 3 3 , e m o c n i e v i s n e h e r p m o c r e h t o e m o c n i e v i s n e h e r p m o c l a t o t s n o i t u b i r t s i d f o t n e m y a P n o i t u b i r t s i d r e d n u d e u s s I r a e y e h t r o f r a e y e h t r o f t fi o r P l n a p t n e m t s e v n e r i s t s o c e u s s i y t i r u c e s o t g n i t a e r l x a t s e i t i r u c e s f o t s o c e u s s I ) 6 1 4 8 8 ( , l s r e d o h y t i r u c e s o t n r u t e r l a t i p a C 0 5 8 6 8 3 , 0 6 1 , 1 2 4 2 6 , 1 6 6 0 4 6 3 , 3 4 1 , 7 2 2 , 1 5 8 7 2 3 , ) 2 1 2 5 3 ( , 6 9 6 2 8 , 9 6 6 8 , , 5 0 2 8 3 1 , 1 2 1 0 2 e n u J 0 3 t a e c n a l a B i . s e t o n g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s e v o b a e h T t s e r e t n i i Y t i r O n M r e H t O t s u r t t n e M t s e V n i t p a t s u r t e n i l e p i p n a i l a r t s u a d e t a d i l O s n O C i y t u q e n i s e g n a h c F o t n e m e t a t s 2 1 0 2 e n u J 0 3 d e d n e r a e y l i a c n a n fi e h t r o F I S e t t N e I D e L L o R t N o C S t I D N A t S u R t e N I L e P I P N A I L A R t S u A 32 0 0 0 $ 0 0 0 $ I D e N A t e R I S G N N R A e e V R e S e R e L A S - R o F - e L B A L A V A I t N e M t S e V N I I N o t A u L A V e R 0 0 0 $ D e u S S I I L A t P A C 0 0 0 $ t N e R A P e H t e L B A t u B R t t A I F o R e N W o o t 0 0 0 $ I D e N A t e R I S G N N R A e 0 0 0 $ I G N G D e H e V R e S e R 0 0 0 $ 0 0 0 $ e V R e S e R e L A S - R o F - e L B A L A V A I t N e M t S e V N I I N o t A u L A V e R t e S S A e V R e S e R I N o t A u L A V e R 0 0 0 $ D e u S S I I L A t P A C APA grouP AnnuAl rePort 2012 AuS tRA LIA N PIPeLINe tR uS t AND It S C oNtRoLLeD eNtItIeS statement oF changes in equity continueD For the financial year ended 30 June 2012 Balance at 1 July 2010 Profit for the year other comprehensive income total comprehensive income for the year Payment of distributions Issued under distribution reinvestment plan Institutional Placement Issue cost of securities tax relating to security issue costs Capital return to securityholders Balance at 30 June 2011 Balance at 1 July 2011 Profit for the year other comprehensive income total comprehensive income for the year Payment of distributions Issued under distribution reinvestment plan Issue cost of securities tax relating to security issue costs Capital return to securityholders Balance at 30 June 2012 trust AVAILABLe-FoR-SALe INVeStMeNt ReVALuAtIoN ReSeRVe $000 145 - 617 617 - - - - - - RetAINeD eARNINGS $000 11,263 59,388 - 59,388 (62,045) - - - - - AttRIButABLe to oWNeR oF tHe PAReNt $000 996,344 59,388 617 60,005 (62,045) 39,782 230,128 (2,746) 824 (60,145) 762 8,606 1,202,147 762 - 1,583 1,583 - - - - - 8,606 49,363 - 49,363 1,202,147 49,363 1,583 50,946 (48,088) (48,088) - - - - 33,879 (53) 16 (88,416) 2,345 9,881 1,150,431 ISSueD CAPItAL $000 984,936 - - - - 39,782 230,128 (2,746) 824 (60,145) 1,192,779 1,192,779 - - - - 33,879 (53) 16 (88,416) 1,138,205 The above statement of changes in equity should be read in conjunction with the accompanying notes. 33 AuS tRALIAN PIPeLINe t R uS t AND It S C oNtRoLLeD eNtItIeS statement oF cash Flows For the financial year ended 30 June 2012 CasH FlOWs FrOM Operating aCtiVities Receipts from customers Payments to suppliers and employees Dividends received Proceeds from repayment of finance leases Interest received Interest and other costs of finance paid Income tax paid COnsOlidated trust Note 2012 $000 2011 $000 1,104,107 (604,786) 51,294 3,131 7,198 1,165,338 (704,597) 45,890 6,748 6,162 (225,375) (229,954) - 442 2012 $000 - (272) 2011 $000 217 - 58,322 62,842 - 64 - - - 177 (45) - net cash provided by operating activities 37(c) 335,569 290,029 58,114 63,191 CasH FlOWs FrOM inVesting aCtiVities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for available-for-sale investments Payments for equity accounted investments Payments for controlled entities net of cash acquired Payments for intangible assets Proceeds from sale of businesses Proceeds from sale of equity accounted investments 37(b) 37(b) 41 42 (249,112) (231,051) 522 (11,665) (28,548) (5,714) (443) 475,523 - 265 (22,481) (91,392) (171,077) (8,000) 3,145 4,500 - - - - - - (28,755) (24,812) - - - - - - - - net cash (used in)/provided by investing activities 180,563 (516,091) (28,755) (24,812) CasH FlOWs FrOM FinanCing aCtiVities Proceeds from borrowings Repayments of borrowings Proceeds from issue of securities Payment of debt issue costs Payments of security issue costs Distributions paid to: Securityholders of APt Securityholders of minority interests - APtIt other minority interest 1,999,697 700,100 73,380 (2,103,500) (620,633) 44,612 (13,819) (72) (136,504) (71,741) (239) 352,372 (4,300) (3,661) (122,189) (61,034) (165) - 33,879 - (53) - (183,598) 269,910 - (2,746) (136,504) (122,189) - - - - net cash provided by/(used in) by financing activities (281,566) 240,490 (29,298) (38,623) net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 37(a) 234,566 95,368 329,934 14,428 80,940 95,368 61 49 110 (244) 293 49 The above statement of cash flows should be read in conjunction with the accompanying notes. 34 APA grouP AnnuAl rePort 2012AuS tRA LIA N PIPeLINe tR uS t AND It S C oNtRoLLeD eNtItIeS notes to the Financial statements For the financial year ended 30 June 2012 1. general inFOrMatiOn Australian Pipeline trust (“APt”) is one of two stapled entities of APA Group (“APA”). the other stapled entity is APt Investment trust (“APtIt”). APA is listed on the Australian Securities exchange (trading under the code ‘APA’), registered in Australia and operating in Australia. the financial statements represent the consolidated financial results of the two stapled entities Australian Pipeline trust and APt Investment trust, together “APA”. APt’s registered office and principal place of business is as follows: registered office and principal place of business Level 19, HSBC Building 580 George Street, SYDNeY NSW 2000 tel: (02) 9693 0000. the principal activities of the Consolidated entity during the course of the year were the ownership and operation of energy infrastructure, including: – energy Infrastructure businesses located across Australia; – energy investments, including envestra Limited (“envestra”), SeA Gas Pipeline, ethane Pipeline Income Fund (“ePX”), energy Infrastructure Investments Pty Limited (“eII”), energy Infrastructure Investments 2 Pty Limited (“eII2”), GDI (eII) Pty Ltd (“GDI”), Diamantina Power Station Pty Ltd (“DPS”); and – Asset management and operations services for the majority of APA’s energy investments and other third parties. 2. adOptiOn OF neW and reVised aCCOunting standards (a) standards and interpretations affecting amounts reported in the current period (and/or prior periods) the following new and revised Standards and Interpretations have been adopted in the current period and have affected the amounts reported in these financial statements. Details of other Standards and Interpretations adopted in these financial statements but that have had no effect on the amounts reported are set out in part b. Standards affecting presentation disclosure standard iMpaCt – Amendments to AASB 7 ‘Financial Instruments: Disclosures’. the amendments (part of AASB 2010-4 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project’) clarify the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. – Amendments to AASB 101 ‘Presentation of Financial Statements’. the amendments (part of AASB 2010-4 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project’) clarify that an entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements. – AASB 1054 ‘Australian Additional Disclosures’ AASB 1054 sets out the Australian-specific disclosures for entities that have adopted Australian Accounting Standards. this standard contains disclosure requirements that are in addition to IFRS in areas such as compliance with Australian Accounting Standards, the nature of financial statements, audit fees, imputation (franking) credits and the reconciliation of net operating cash flow to profit. (b) standards and interpretations adopted with no effect on financial statements the following new and revised Standards have also been adopted in these financial statements. their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions and arrangements. standard iMpaCt – AASB 124 ‘Related Party Disclosures’ (revised December 2009) AASB 124 (revised December 2009) has been revised on the following two aspects: (a) has changed the definition of a related party and (b) includes an explicit requirement to disclose commitments involving related parties. – AASB 2009-14 ‘Amendments to Australian Interpretation - Prepayments of Interpretation 114 addresses when refunds or reductions in future contributions Minimum Funding Requirement’. should be regarded as available in accordance with paragraph 58 of AASB 119, the impact on future contributions and when it might give rise to a liability. the amendments now allow recognition of an asset in the form of prepaid minimum funding contributions. – AASB 2009-12 ‘Amendments to Australian Accounting Standards’. the application of AASB 2009-12 makes amendments to AASB 8 ‘operating Segments’ as a result of the issuance of AASB 124 ‘Related Party Disclosures’ (2009). the Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations. 35 2. adOptiOn OF neW and reVised aCCOunting standards (COntinued) (b) standards and interpretations adopted with no effect on financial statements (continued) standard iMpaCt – AASB 2010-5 ‘Amendments to Australian Accounting Standards’ the Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations. – AASB 2010-6 ‘Amendments to Australian Accounting Standards - the application of AASB 2010-6 makes amendments to AASB 7 ‘Financial Disclosures on transfers of Financial Assets’ Instruments - Disclosures’ to introduce additional disclosure requirements for transactions involving transfer of financial assets. these amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred and derecognised but the transferor retains some level of continuing exposure in the asset. (c) standards and interpretations issued not yet adopted At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. standard/interpretatiOn eFFeCtiVe FOr annual repOrting periOds Beginning On Or aFter expeCted tO Be initiallY applied in tHe FinanCial Year ending – AASB 9 ‘Financial Instruments’, AASB 2009-11 ‘Amendments to Australian 1 January 2013 30 June 2014 Accounting Standards arising from AASB 9’ and AASB 2010-7 ‘Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)’ (effective date deferred by IASB to 1 January 2015) – AASB 10 ‘Consolidated Financial Statements’ – AASB 11 ‘Joint Arrangements’ – AASB 12 ‘Disclosure of Interests in other entities’ – AASB 127 ‘Separate Financial Statements’ (2011) – AASB 128 ‘Investments in Associates and Joint Ventures’ (2011) – AASB 13 Fair Value Measurement and AASB 2010-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’ 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 30 June 2014 30 June 2014 30 June 2014 30 June 2014 30 June 2014 30 June 2014 – AASB 119 ‘employee Benefits’ (2011) and AASB 2011-8 Amendments to 1 January 2013 30 June 2014 Australian Accounting Standards arising from AASB 119 (2011) – AASB 2010-8 ‘Amendments to Australian Accounting Standards - Deferred 1 January 2012 30 June 2013 tax: Recovery of underlying Assets’ – AASB 2011-4 ‘Amendments to Australian Accounting Standards to Remove 1 July 2013 30 June 2014 Individual Key Management Personnel Disclosure Requirements’ – AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from 1 January 2013 30 June 2014 the Consolidation and Joint Arrangements standards’ – AASB 2011-9 ‘Amendments to Australian Accounting Standards - Presentation 1 July 2012 30 June 2013 of items of other Comprehensive Income’ – Amendments to IFRS 10, 11 and 12 transitional Guidance 1 January 2013 30 June 2014 APA has yet to determine any change in accounting for existing arrangements under AASB 10, 11 and 12. In addition, should any arrangements take place which change existing interests and create new interests in controlled entities, the accounting for such transactions may be different to that applied to transactions in the past. Implementation of AASB 119 is expected to result in changes to the accounting treatment for APA’s defined benefit superannuation plan and provisions for employee benefits which will impact amounts reported in profit or loss and net assets. the potential impact of the initial application of the remaining above Standards has not yet been determined. 36 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20123. signiFiCant aCCOunting pOliCies statement of compliance Where applicable, the consideration for the acquisition includes any asset or the financial report is a general purpose financial report which has been liability resulting from a contingent consideration arrangement, measured at its prepared in accordance with the Corporations Act 2001, Accounting Standards acquisition-date fair value. Subsequent changes in fair values are adjusted and Interpretations, and complies with other requirements of the law. against the cost of acquisition where they qualify as measurement period the financial report includes the separate financial statements of the trust and the consolidated financial statements of the Group. adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant standards. Changes in the fair value of contingent consideration Accounting Standards include Australian equivalents to International Financial classified as equity are not recognised. Reporting Standards (“A-IFRS”). Compliance with A-IFRS ensures that the financial report and notes of the trust and the Consolidated entity comply with International Financial Reporting Standards (“IFRS”). Where a business combination is achieved in stages, the Consolidated entity’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date and the resulting gains or losses, if any, are recognised in the financial report was authorised for issue by the Directors on 22 August 2012. profit or loss. Amounts arising from interests in the acquiree prior to the Basis of preparation the financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. based on the fair values of the consideration given in exchange for assets. the the acquiree’s identifiable assets, liabilities and contingent liabilities that meet financial report is presented in Australian dollars and all values are rounded to the conditions for recognition under AASB 3 are recognised at their fair value the nearest thousand dollars ($000) unless otherwise stated under the option at the acquisition date, except that: available to APA under ASIC Class order 98/0100. APA is an entity to which the class order applies. – deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised in accordance with AASB 112 ‘Income the following significant accounting policies have been adopted in the taxes’ and AASB 119 ‘employee Benefits’ respectively; preparation and presentation of the financial report: (a) Basis of consolidation the financial report incorporates the financial statements of the trust and entities (including special purpose entities) controlled by the trust (its controlled entities) (referred to as the “Consolidated entity”, “Group” or “APA Group” in this financial report). Control is achieved where the trust has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. the results of controlled entities acquired during the financial year are included in the statement of comprehensive income from the effective date of acquisition. Where necessary, adjustments are made to the financial reports of controlled entities to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. In the separate financial report of the trust, the intra- – liabilities or equity instruments related to the replacement by the consolidated entity of an acquiree’s share-based payment awards are measured in accordance with AASB 2 ‘Share-based Payment’; and – assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued operations’ are measured in accordance with that standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Consolidated entity reports provisional amounts for the items for which the accounting is incomplete. those provisional amounts are adjusted for during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date, that, if known, would have affected the amounts recognised as at that date. the measurement period is the period from the date of acquisition to the date the Consolidated entity obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year. group transactions (“common control transactions”) are generally accounted for by reference to the existing (consolidated) book value of the items. Where (c) Joint venture arrangements Jointly controlled operations the transaction value of common control transactions differs from their Interests in jointly controlled operations are reported in the financial report by consolidated book value, the difference is recognised as a contribution by or including the Consolidated entity’s share of assets employed in the joint distribution to equity participants by the transaction entities. Minority interests in the net assets (excluding goodwill) of consolidated controlled entities are identified separately from the Consolidated entity’s ventures, the share of liabilities incurred in relation to joint ventures and the share of any expenses incurred in relation to joint ventures in their respective classification categories. equity therein. Minority interests consist of the amount of those interests at the Jointly controlled entities date of the original business combination and the minority’s share of changes Interests in jointly controlled entities are accounted for under the equity method in equity since the date of the combination. Losses applicable to the minority in the consolidated financial report and the cost method in APt’s financial report. in excess of the minority’s interest in the controlled entity’s equity are allocated against the interests of the Consolidated entity except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. (b) Business combinations (d) investments in associates An associate is an entity over which the Consolidated entity has significant influence and that is neither a subsidiary nor a joint venture. the results and assets and liabilities of associates are accounted for using the equity method of accounting. under the equity method, investments in associates are carried in Acquisitions of subsidiaries and businesses are accounted for using the the consolidated statement of financial position at cost as adjusted for post- acquisition method. the consideration for each acquisition is measured as the acquisition changes in the Consolidated entity’s share of the net assets of the aggregate of the fair values (at the date of exchange) of assets given, liabilities associate, less any impairment in the value of individual investments. Losses of incurred or assumed, and equity instruments issued by the Consolidated entity an associate in excess of the Consolidated entity’s interest are recognised only in exchange for control of the acquiree. Acquisition costs directly attributable to the extent that there is a legal or constructive obligation or the Consolidated to the business combination are recognised in profit or loss as incurred. entity has made payments on behalf of the associate. 37 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20123. signiFiCant aCCOunting pOliCies (COntinued) (d) investments in associates (continued) Any excess of the cost of acquisition over the Consolidated entity’s share of the net fair value of identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. this is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Consolidated entity’s share of the net fair value of assets and liabilities over the cost of acquisition amounts of cash, which are subject to insignificant risk of changes in values. (g) acquisition of assets Assets acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the date of acquisition. Cost includes expenditure that is directly attributable to the acquisition or construction of the asset. after reassessment is recognised immediately in profit or loss. In the event that settlement of all or part of the cash consideration given in the (e) Financial assets and liabilities Available-for-sale financial assets Certain shares and redeemable notes held by the Group are classified as being acquisition of an asset is deferred, the fair value of the purchase consideration is determined by discounting the amounts payable in the future to their present values as at the date of acquisition. available-for-sale and are stated at fair value. Gains and losses arising from (h) Borrowings changes in fair value are recognised directly in the available-for-sale investment Borrowings are recorded initially at fair value, net of transaction costs. revaluation reserve with the exception of impairment losses, interest calculated Subsequent to initial recognition, borrowings are measured at amortised cost using the effective interest method and foreign exchange gains and losses on with any difference between the initial recognised amount and the redemption monetary assets which are recognised directly in profit or loss. Where the value being recognised in the statement of comprehensive income over the investment is disposed of or is determined to be impaired, the cumulative gain period of the borrowing using the effective interest method. or loss previously recognised in the available-for-sale investment revaluation reserve is included in profit or loss for the period. Dividends on available-for- sale equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established. the change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in equity. Loans and receivables (i) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying trade receivables, loans, and other receivables that have fixed or determinable assets is deducted from the borrowing costs eligible for capitalisation. payments that are not quoted in an active market are classified as ‘loans and receivables’. trade and other receivables are stated at their amortised cost less impairment. Trade and other payables trade and other payables are recognised when the Consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services. trade and other payables are stated at amortised cost. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that as a result All other borrowing costs are recognised in profit or loss in the period in which they are incurred. (j) property, plant and equipment Land and buildings held for use are carried in the consolidated statement of financial position at cost, less any subsequent accumulated depreciation and impairment losses. Leasehold improvements and plant and equipment are stated at cost less accumulated depreciation and impairment. Work in progress is stated at cost. Cost includes expenditure that is directly attributable to the acquisition or construction of the item. of one or more events that occurred after the initial recognition of the financial (k) depreciation asset the estimated future cash flows of the investments have been impacted. Depreciation is provided on property, plant and equipment, including freehold For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. the carrying amount of financial assets including uncollectible trade receivables is reduced by the impairment loss through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is buildings but excluding land. Depreciation is calculated on either a straight-line or throughput basis depending on the nature of the asset so as to write off the net cost of each asset over its estimated useful life. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method. the estimated useful lives and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes recognised on a prospective basis. the following estimated useful lives are used in the calculation of depreciation: – buildings – compressors 30 - 50 years; 10 - 50 years; – gas transportation systems 10 - 80 years; – meters 20 - 30 years; and – other plant and equipment 3 - 20 years. reversed, does not exceed what the amortised cost would have been had the (l) employee benefits impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income. (f) Cash and cash equivalents Provision is made for benefits accruing to employees in respect of wages and salaries, incentives, annual leave, long service leave and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the Cash comprises cash on hand and demand deposits. Cash equivalents are remuneration rates expected to apply at the time of settlement. Provisions short-term, highly liquid investments that are readily convertible to known made in respect of employee benefits which are not expected to be settled 38 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20123. signiFiCant aCCOunting pOliCies (COntinued) (l) employee benefits (continued) within 12 months are measured as the present value of the estimated future Embedded derivatives cash outflows to be made by the Consolidated entity in respect of services Derivatives embedded in other financial instruments or other host contracts provided by employees up to reporting date. are treated as separate derivatives when their risks and characteristics are not Defined contribution plans Contributions to defined contribution plans are expensed when incurred. Defined benefit plans For defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each reporting date. Actuarial gains and losses are recognised directly to closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss. Hedge accounting the Consolidated entity designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges or cash flow hedges. retained earnings in the period in which they occur. Hedges of foreign exchange and interest rate risk on firm commitments are Past service cost is recognised immediately to the extent that the benefits are accounted for as cash flow hedges. already vested, and otherwise amortised on a straight-line basis over the At the inception of the hedge relationship, the Consolidated entity documents average period until the benefits become vested. the relationship between the hedging instrument and hedged item, along with the defined benefit obligation recognised in the consolidated statement of financial position represents the present value of the defined benefit obligation, adjusted for unrecognised actuarial gains and losses and unrecognised past service costs, net of the fair value of the plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Consolidated entity documents whether the hedging instrument that is used in the hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. plus the present value of available refunds and reductions in future contributions Note 38 contains details of the fair values of the derivative instruments used for to the plan. hedging purposes. Movements in the hedging reserve in equity are also (m) intangible assets Intangible assets acquired separately detailed in Note 30. Fair value hedges Intangible assets acquired separately are carried at cost less accumulated Changes in the fair value of derivatives that are designated and qualify as fair amortisation and accumulated impairment losses. Amortisation is recognised value hedges are recorded in profit or loss immediately, together with any on a straight-line basis over their estimated useful lives. the estimated useful changes in the fair value of the hedged item that is attributable to the hedged life and amortisation method are reviewed at the and of the each annual risk. Hedge accounting is discontinued when the Consolidated entity revokes reporting period, with the effects of any changes in estimate being accounted the hedging relationship or the hedging instrument expires or is sold, for on a prospective basis. Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and terminated, or exercised, or no longer qualifies for hedge accounting. the adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date. recognised separately from goodwill and are initially recognised at their fair Cash flow hedges value at the acquisition date. Subsequent to initial recognition, intangible the effective portion of changes in the fair value of derivatives that are assets acquired in a business combination are reported at cost less accumulated designated and qualify as cash flow hedges is deferred in equity. the gain or amortisation and accumulated impairment losses, on the same basis as loss relating to the ineffective portion is recognised immediately in profit or intangible assets acquired separately. loss as part of other expenses or other income. (n) derivative financial instruments Amounts deferred in equity are recycled in profit or loss in the periods when the Group enters into a variety of derivative financial instruments to manage the hedged item is recognised in profit or loss in the same line of the statement its exposure to interest rate and foreign exchange rate risk, including foreign of comprehensive income as the recognised hedged item. However, when the exchange forward contracts and interest rate swaps. Further details of forecast transaction that is hedged results in the recognition of a non-financial derivative financial instruments are disclosed in Note 38. asset or a non-financial liability, the gains and losses previously deferred in Derivatives are initially recognised at fair value at the date a derivatives contract is entered into and subsequently remeasured to their fair value at each reporting equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. period. the resulting gain or loss is recognised in profit or loss immediately Hedge accounting is discontinued when the Consolidated entity revokes the unless the derivative is designated and effective as a hedging instrument, in hedging relationship or the hedging instrument expires or is sold, terminated, which event the timing of the recognition in profit or loss depends on the or exercised, or no longer qualifies for hedge accounting. Any cumulative gain nature of the hedge relationship. the Consolidated entity designates certain or loss deferred in equity at that time remains in equity and is recognised when derivatives as hedges of the fair value of recognised assets or liabilities or firm the forecast transaction is ultimately recognised in profit or loss. When a commitments (fair value hedges) or, hedges of highly probable forecast forecast transaction is no longer expected to occur, the cumulative gain or loss transactions or of foreign currency risk of firm commitments (cash flow hedges). that was deferred in equity is recognised immediately in profit or loss. the fair value of hedging derivatives is classified as a non-current asset or a (o) Financial instruments issued by the Consolidated entity non-current liability if the remaining maturity of the hedge relationship is more Debt and equity instruments than 12 months and as a current asset or a current liability if the remaining Debt and equity instruments are classified as either liabilities or equity in maturity of the hedge relationship is less than 12 months. Derivatives not accordance with the substance of the contractual arrangement. An equity designated into an effective hedge relationship are classified as a current asset instrument is any contract that evidences a residual interest in the assets of an or a current liability. entity after deducting all of its liabilities. equity instruments issued by the Consolidated entity are recorded at the proceeds received, net of direct issue costs. 39 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20123. signiFiCant aCCOunting pOliCies (COntinued) (o) Financial instruments issued by the Consolidated entity (continued) Financial guarantee contract liabilities circumstances indicate that the carrying amount may not be recoverable. An Financial guarantee contract liabilities are measured initially at their fair values impairment loss is recognised for the amount by which the asset’s carrying and subsequently at the higher of the amount recognised as a provision and amount exceeds its recoverable amount. the recoverable amount is the higher the amount initially recognised less cumulative amortisation in accordance of an asset’s fair value less costs to sell, and value in use. For the purposes of with the revenue recognition policies. Transaction costs arising on the issue of equity instruments transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. transaction costs are the costs that are incurred directly assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting period. in connection with the issue of those equity instruments and which would not (t) distributions have been incurred had those instruments not been issued. A provision is recognised for distributions only when they have been declared, Interest and distributions determined or publicly recommended by the Directors. Interest and distributions are classified as expenses or as distributions of profit (u) inventories consistent with the consolidated statement of financial position classification of the Inventories are stated at the lower of cost and net realisable value. Costs, related debt or equity instruments or component parts of compound instruments. including an appropriate portion of fixed and variable overhead expenses, are (p) Foreign currency transactions Both the functional and presentation currency of the Consolidated entity and the trust is Australian dollars (A$). All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the assigned to inventories by the method most appropriate to each particular class of inventory, with the majority being valued on a first-in, first-out basis. Net realisable value represents the estimated selling price for the inventories less all estimated costs of completion and costs necessary to make the sale. date of the transaction. Foreign currency monetary items at reporting date are (v) security-based payments translated at the exchange rate existing at that date and resulting exchange the Group provides benefits to certain employees in the form of cash settled differences are recognised in profit or loss in the period in which they arise. security-based payments. For cash settled security-based payments, a liability (q) goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and equal to the portion of services received is recognised at the current fair value determined at each reporting date. services tax (“GSt”), except: (w) income tax – where the amount of GSt incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or – for receivables and payables which are recognised inclusive of GSt, except for accrued revenue and accrued expense at balance dates which exclude GSt. Income tax on the profit or loss for the financial year comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the financial year, using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in the net amount of GSt recoverable from, or payable to, the taxation authority respect of previous financial years. Current tax for current and prior periods is is included as part of receivables or payables. GSt receivable or GSt payable is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). only recognised once a tax invoice has been issued or received. Deferred tax is provided using the balance sheet liability method, providing for Cash flows are included in the statement of cash flows on a gross basis. the temporary differences between the carrying amounts of assets and liabilities GSt component of cash flows arising from investing and financing activities for financial reporting purposes and the amounts used for taxation purposes. which is recoverable from, or payable to, the taxation authority is classified the following temporary differences are not provided for: initial recognition of within operating cash flows. (r) goodwill Goodwill arising in a business combination is recognised as an asset at the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in goodwill, initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in wholly-owned entities to the extent that they will probably not reverse in the foreseeable future. the amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using the tax rates enacted or substantively enacted by the end of the reporting period. the acquiree (if any) over the net of the acquisition-date amounts of the A deferred tax asset is recognised only to the extent that it is probable that identifiable assets acquired and the liabilities assumed. future taxable profits will be available against which the asset can be utilised. If, after reassessment, the Consolidated entity’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration, the Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. amount of any non-controlling interests in the acquiree and the fair value of the Tax consolidation acquirer’s previously held equity interest, the excess is recognised immediately the trust and its wholly-owned Australian tax resident entities are part of a in the profit or loss as a bargain purchase gain. tax-consolidated group under Australian taxation law. the head entity within on disposal of a subsidiary, the attributable amount of goodwill is included in the tax-consolidated group is Australian Pipeline trust. the determination of the profit or loss on disposal. tax expense/income, deferred tax liabilities and deferred tax assets arising (s) impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. other assets are reviewed for impairment whenever events or changes in from temporary differences of the members of the tax-consolidated group are recognised in the separate financial reports of the members of the tax- consolidated group using the ‘separate taxpayer within group’ approach, by reference to the carrying amounts in the separate financial reports of each entity and the tax values applying under tax consolidation. 40 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20123. signiFiCant aCCOunting pOliCies (COntinued) (w) income tax (continued) Any current tax liabilities (or assets) and deferred tax assets arising from Sales revenue unused tax losses of the wholly-owned entities are assumed by the head entity Sales revenue represents revenue earned for the transportation of gas, in the tax-consolidated group and are recognised as amounts payable transmission of electricity and other related services and is recognised when (receivable) to (from) other entities in the tax-consolidated group in the services are provided. conjunction with any tax funding arrangement amounts. Pass-through revenue the head entity recognises deferred tax assets arising from unused tax losses Pass-through revenue is revenue on which no margin is earned and is offset by of the tax-consolidated group to the extent that it is probable that future corresponding pass-through costs. taxable profits of the tax-consolidated group will be available against which the assets can be utilised. (x) leased assets Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to the ownership of the leased asset to the lessee. All other leases are classified as operating leases. Group as lessor Interest revenue Interest revenue is recognised as it accrues using the effective interest method. Sale of non-current assets the net gain or loss on sale of a non-current asset is included as income at the date control of an asset passes to the buyer. this is usually when an unconditional contract of sale is signed. the gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the Amounts due from a lessee under finance leases are recorded as receivables. time of disposal and the net proceeds on disposal (including incidental costs). Finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease income is allocated to accounting periods so as to reflect a Dividend revenue Dividend revenue is recognised when the right to receive a dividend has been established. constant periodic rate of return on the net investment outstanding in respect of Finance lease income the leases. Group as lessee Assets held under finance leases are initially recognised at their fair value or, if Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. lower, at amounts equal to the present value of the minimum lease payments, 4. CritiCal aCCOunting JudgeMents and KeY sOurCes OF each determined at the inception of the lease. the corresponding liability to the estiMatiOn unCertaintY lessor is included in the consolidated statement of financial position as a In the application of the Consolidated entity’s accounting policies, management finance lease obligation. Lease payments are allocated between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance lease assets are amortised on a straight-line basis over the estimated useful life of the asset. is required to make judgements, estimates and assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. the estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from estimates. the estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the operating lease payments are recognised as an expense on a straight-line basis estimate is revised if the revision affects only that period, or in the period of the over the lease term, except where another systematic basis is more revision and future periods if the revision affects both current and future representative of the time patterns in which economic benefits from the leased periods. asset are consumed. (y) provisions impairment of assets Determining whether property, plant and equipment, identifiable intangible A provision is recognised when there is a legal, equitable or constructive assets and goodwill are impaired requires an estimation of the value-in-use or obligation as a result of a past event, it is probable that a future sacrifice of fair value of the cash-generating units. the calculations require the Consolidated economic benefits will be required to settle the obligation and the amount of entity to estimate the future cash flows expected to arise from cash-generating the provision can be measured reliably. units and suitable discount rates in order to calculate the present value of cash- the amount recognised as a provision is the best estimate of the consideration generating units. required to settle the present obligation at the end of the financial year, taking estimates and assumptions used are reviewed on an ongoing basis. into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Determining whether available-for-sale investments are impaired requires an assessment as to whether declines in value are significant or prolonged. Management has taken into account a number of qualitative and quantitative When some or all of the economic benefits required to settle a provision are factors in making this assessment. Any assessment of whether a decline in expected to be recovered from a third party, the receivable is recognised as an value represents an impairment would result in the transfer of the decrement asset if it is probable that recovery will be received and the amount of the from reserves to the statement of comprehensive income. receivable can be measured reliably. (z) revenue recognition useful lives of non-current assets the Consolidated entity reviews the estimated useful lives of property, plant Revenue is recognised to the extent that it is probable that the economic and equipment at the end of each annual reporting period. Any reassessment benefits will flow to the Consolidated entity and the revenue can be reliably of useful lives in a particular year will affect the depreciation or amortisation measured. Amounts disclosed as revenue are net of duties and taxes paid. expense. Revenue is recognised for the major business activities as follows: 41 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20125. segMent inFOrMatiOn the Consolidated entity operates in one geographical segment, being Australia. (a) description of reportable segments the Consolidated entity comprises the following reportable segments: – energy infrastructure; – asset management; and – energy investments. (b) reportable segments 2012 segMent reVenue (b) external sales revenue equity accounted net profits Pass-through revenue Finance lease and investment interest income Distributions - other entities total segment revenue other interest income Consolidated revenue segMent result energY inFrastruCture (a) $000 asset ManageMent $000 energY inVestMents $000 COnsOlidated $000 637,851 69,296 - - 28,263 707,147 28,263 296,007 - 302,633 - - 2,331 11,153 5,148 11,153 - 6,626 2,817 - 647,294 365,303 41,747 1,054,344 6,317 1,060,661 earnings before interest, tax, depreciation and amortisation (“eBItDA”) 449,347 31,910 11,157 492,414 Share of net profits of associates and jointly controlled entities accounted for using the equity method Finance lease and investment interest income total eBItDA Depreciation and amortisation earnings before interest and tax (“eBIt”) Net finance costs (c) profit before tax Income tax expense profit for the year segMent assets and liaBilities Segment assets - 2,817 452,164 (105,620) 346,544 - - 31,910 (4,789) 27,121 28,263 2,331 41,751 28,263 5,148 525,825 - (110,409) 41,751 415,416 (234,326) 181,090 (50,435) 130,655 4,016,910 244,106 391,737 4,652,753 Carrying value of investments accounted for using the equity method - - 512,948 unallocated assets (d) total assets Segment liabilities unallocated liabilities (e) total liabilities 229,613 81,272 - 512,948 330,353 5,496,054 310,885 3,571,127 3,882,012 (a) Revenue of $30.7 million (2011: $56.6 million), expenses of $10.5 million (2011: $21.5 million), profit before income tax of $14.2 million (2011: $22.4 million), profit after income tax of $10.0 million (2011: $15.7 million) are attributable to the Allgas business which was divested into the APA minority owned unlisted investment vehicle GDI (eII) Pty Ltd in December 2011. Within Asset operation and management expenses a significant item of $9.7 million results from transaction costs incurred on the divestment of the APA Gas Networks business of $21.7 million offsetting a gain on sale of $12.0 million. (b) the revenue reported above represents revenue generated from external customers, any intersegment sales were immaterial. (c) excluding finance lease income and any gains or losses on revaluation of derivatives included as part of eBIt for segment reporting purposes. (d) unallocated assets consist of cash and cash equivalents, current tax assets, fair value of interest rate swaps and foreign exchange contracts. (e) unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts. 42 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20125. segMent inFOrMatiOn (COntinued) (b) reportable segments (continued) 2011 segMent reVenue (a) external sales revenue equity accounted net profits Pass-through revenue Finance lease and investment interest income Distributions - other entities total segment revenue other interest income Consolidated revenue segMent result eNeRGY INFRAStRuCtuRe $000 ASSet MANAGeMeNt $000 eNeRGY INVeStMeNtS $000 CoNSoLIDAteD $000 599,085 68,647 - 170,024 2,630 - - 211,709 - - 549 23,876 - 1,520 11,017 668,281 23,876 381,733 4,150 11,017 771,739 280,356 36,962 1,089,057 12,932 1,101,989 earnings before interest, tax, depreciation and amortisation (“eBItDA”) 412,146 38,740 13,197 464,083 Share of net profits of associates and jointly controlled entities accounted for using the equity method Finance lease and investment interest income total eBItDA Depreciation and amortisation earnings before interest and tax (“eBIt”) Net finance costs (b) profit before tax Income tax expense profit for the year segMent assets and liaBilities Segment assets - 2,630 414,776 (95,779) 318,997 - - 38,740 (4,571) 34,169 23,876 1,520 38,593 23,876 4,150 492,109 - (100,350) 38,593 391,759 (247,072) 144,687 (35,862) 108,825 4,430,652 235,219 186,957 4,852,828 Carrying value of investments accounted for using the equity method - - 479,409 unallocated assets (c) total assets Acquisition of segment assets Segment liabilities unallocated liabilities (d) total liabilities 186,781 172,194 - 52,101 - 75 479,409 95,368 5,427,605 186,781 224,370 3,535,390 3,759,760 (a) the revenue reported above represents revenue generated from external customers, any intersegment sales were immaterial. (b) excluding finance lease income and any gains or losses on revaluation of derivatives included as part of eBIt for segment reporting purposes. (c) unallocated assets consist of cash and cash equivalents, current tax assets, fair value of interest rate swaps and foreign exchange contracts. (d) unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts. (c) Other segment information Revenue from major products and services the revenue from major products and services is shown by the reportable segments. No further analysis is required. Information about major customers Included in revenues arising from energy infrastructure of $637.9 million (2011: $599.1 million) are revenues of approximately $266.6 million (2011: $250.9 million) which arose from sales to the Consolidated entity’s top three customers. 43 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20126. reVenue An analysis of the Consolidated entity’s revenue for the year is as follows: Continuing operations COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 Operating reVenue energy infrastructure revenue: – energy infrastucture revenue – pass-through revenue Asset management revenue: – asset management revenue – pass-through revenue energy investments 637,316 6,626 643,942 69,296 296,007 365,303 - 598,562 170,024 768,586 68,647 211,709 280,356 549 1,009,245 1,049,491 Share of net profits of associates and jointly controlled entities accounted for using the equity method 28,263 23,876 FinanCe inCOMe Interest Redeemable ordinary shares (eII) and redeemable preference shares (GDI) 6,317 12,932 interest income Finance lease income diVidends Wholly-owned controlled entities other entities OtHer inCOMe Rental income 2,331 2,817 11,465 - 11,153 11,153 535 535 1,520 2,630 17,082 - 11,017 11,017 523 523 - - - - - - - - - 64 - - 64 - - - - - - - - - 177 - - 177 29,567 28,755 58,322 - - 37,752 25,090 62,842 - - 1,060,661 1,101,989 58,386 63,019 44 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20127. expenses Profit before tax includes the following expenses: depreCiatiOn and aMOrtisatiOn expense Depreciation of non-current assets Amortisation of non-current assets OtHer Operating COsts - pass-tHrOugH operating lease rental expenses Gas pipeline costs Management, operating and maintenance costs (a) FinanCe COsts Interest on bank overdrafts and borrowings Amortisation of deferred borrowing costs Finance lease charges other finance costs Less: amounts included in the cost of qualifying assets Loss on fair value of other derivatives unwinding of discount on non-current liabilities COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 104,459 5,950 110,409 - 6,626 6,626 296,007 302,633 225,517 16,013 - 9,568 251,098 (11,136) 239,962 - 681 94,458 5,892 100,350 24,678 145,346 170,024 211,709 381,733 241,619 11,883 70 10,023 263,595 (5,842) 257,753 - 2,251 - - - - - - - - - - - - - - - - - - - - - - - - - - - 506 506 - - - - - - - - 45 - - - 45 - 45 - - 45 - - - - - - - - - 31 31 the average interest rate on funds borrowed is 8.14% p.a. (2011: 8.11% p.a.) including amortisation of borrowing costs and other finance costs. 240,643 260,004 eMplOYee BeneFit expense Post-employment benefits: Defined contribution plans Defined benefit plans termination benefits Cash settled share-based payments other employee benefits OtHer expenses Goodwill write-off Loss on disposal of property, plant and equipment other 6,863 1,145 8,008 1,384 17,843 105,678 132,913 - 278 16,700 16,978 5,994 1,622 7,616 738 18,434 88,135 114,923 5,435 1,068 11,599 18,102 (a) the management, operating and maintenance costs for FY12 included Amadeus Gas Pipelines, Nt Gas & emu Downs Wind Farm which were included in gas pipeline costs in FY11. 45 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20128. signiFiCant iteMs Individually significant revenue/(expenses) included in profit after related income tax expense are as follows: COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 12,032 (21,695) (9,663) - - - (9,663) - (9,663) - - - 9,839 1,652 (8,970) 2,521 (2,953) (432) - - - - - - - - - - - - - - - - - - signiFiCant (expense)/inCOMe iteMs Profit on sale of Allgas Distribution Network before transaction costs Less: transaction costs Loss on sale of Allgas Distribution Network after transaction costs equity accounted share of eII2 investment allowance benefit Profit on sale of investment in CAMS transaction costs on acquisition of emu Downs Windfarm (Loss)/profit from significant items before related income tax Income tax related to significant items above Loss from significant items after related income tax 9. inCOMe tax income tax recognised in profit or loss tax expense/(inCOMe) COMprises: Current tax expense/(income) in respect of the current year (1,418) 6,354 Adjustments recognised in the current year in relation to current tax of prior years Deferred tax expense relating to the origination and reversal of temporary differences total tax expense attriButaBle tO: Profit from continuing operations 482 (936) 51,371 50,435 (6,995) (641) 36,503 35,862 63 (63) - 8,517 8,517 3,143 (3,336) (193) 3,748 3,555 50,435 35,862 8,517 3,555 the prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Profit before tax Income tax expense calculated at 30% Non deductible interest Non-assessable trust distribution transactions within the tax-consolidated group that are exempt from taxation Non deductible expenses Non assessable income unfranked dividends from associates Investment allowance other Adjustment recognised in the current year in relation to the current tax of prior years 181,090 54,327 - (13,787) - 7,185 (6,400) 8,626 - 2 49,953 482 50,435 144,687 43,406 2,777 (11,677) 57,880 17,364 - - 62,943 18,883 - - - (8,784) (11,326) 7,198 (4,781) 7,615 (1,009) (672) 42,857 (6,995) 35,862 - - - - - 8,580 (63) 8,517 6 - - - (672) 6,891 (3,336) 3,555 the tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under the Australian tax law. there has been no change in the corporate tax rate when compared with the previous reporting period. 46 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20129. inCOMe tax (COntinued) income tax recognised directly in equity the following deferred amounts were charged/(credited) directly to equity during the period: deFerred inCOMe tax Revaluation of financial instruments treated as cash flow hedges Actuarial movements on defined benefit plans Revaluation of available-for-sale financial assets Security issue costs Income tax (benefit)/expense reported in equity deFerred tax BalanCes deferred tax liabilities temporary differences deferred tax assets temporary differences tax losses deferred tax balances Deferred tax (liabilities)/assets arise from the following: 2012 grOss deFerred tax liaBilities Intangible assets Property, plant and equipment Deferred revenue Deferred expenses Cash flow hedges Investments equity accounted Available-for-sale investments other grOss deFerred tax assets Provisions Defined benefit obligation Security issue costs tax losses COnsOlidated trust 2012 $000 2011 $000 2012 $000 (27,091) (9,803) 27,631 (16) (9,279) (512,520) (512,520) 43,004 150,234 193,238 (319,282) (11,278) 922 7,750 (824) (3,430) (515,582) (515,582) 31,357 148,054 179,411 (336,171) - - 678 (16) 662 (1,005) (1,005) 531 150,234 150,765 149,760 2011 $000 - - 264 (824) (560) (471) (471) 659 148,054 148,713 148,242 COnsOlidated Opening BalanCe $000 CHarged tO inCOMe $000 CHarged tO eQuitY $000 aCQuisitiOns/ dispOsals $000 ClOsing BalanCe $000 (4,740) 142 (442,189) (34,840) (892) 381 (41,243) (18,079) (7,875) (6,533) (7,812) (4,298) (515,582) 26,928 3,770 659 148,054 179,411 (336,171) (449) (264) - (2,269) (55,378) 3,156 (1,185) (144) 2,180 4,007 (51,371) - - - - 20,734 6,357 (27,631) - - (4,598) 58,790 (418,239) - 190 - - - - (511) (59,132) 12,410 (440) (35,443) (6,567) (540) 58,980 (512,520) - 9,804 16 - 9,820 9,280 - - - - - 30,084 12,389 531 150,234 193,238 58,980 (319,282) 47 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20129. inCOMe tax (COntinued) deferred tax balances (continued) presented in the statement of financial position as follows: Deferred tax liabilities attributable to: Continuing operations Deferred tax assets attributable to: Continuing operations Deferred tax (liabilities)/assets arise from the following: COnsOlidated 2012 $000 2011 $000 (319,282) (319,282) (336,171) (336,171) - - - - (319,282) (336,171) COnsOlidated oPeNING BALANCe $000 CHARGeD to INCoMe $000 CHARGeD to eQuItY $000 ACQuISItIoNS/ DISPoSALS $000 CLoSING BALANCe $000 - - - - 10,160 1,118 (7,750) - - (4,740) (5,523) (442,189) (7) - - - - - (892) (41,243) (7,875) (6,533) (7,812) (4,298) 3,528 (5,530) (515,582) - (922) 824 - (98) 240 - - - 240 (5,290) 26,928 3,770 659 148,054 179,411 (336,171) 2011 grOss deFerred tax liaBilities Intangible assets Property, plant and equipment Deferred revenue Deferred expenses Cash flow hedges Investments equity accounted Available for sale investments other grOss deFerred tax assets Provisions Defined benefit obligation Security issue costs tax losses (5,056) (408,180) 5,511 (30,688) (18,034) (4,725) (62) (1,059) (462,293) 21,668 5,488 - 137,329 164,485 316 (28,486) (6,396) (10,555) (1) (2,926) - (3,239) (51,287) 5,020 (796) (165) 10,725 14,784 (297,808) (36,503) 3,430 48 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20129. inCOMe tax (COntinued) deferred tax balances (continued) 2012 grOss deFerred tax liaBilities Available for sale investments other grOss deFerred tax assets Security issue costs tax losses 2011 grOss deFerred tax liaBilities Available for sale investments other grOss deFerred tax assets Investments equity accounted tax losses unrecognised deferred tax assets the following deferred tax assets have not been brought to account as assets: tax losses - capital tax consolidation Relevance of tax consolidation to the Group oPeNING BALANCe $000 CHARGeD to INCoMe $000 trust CHARGeD to eQuItY $000 tRANSFeRS $000 CLoSING BALANCe $000 (326) (145) (471) 659 148,054 148,713 148,242 (62) (145) (207) - 137,030 137,030 136,823 - 145 145 (144) (8,518) (8,662) (8,517) - - - (165) (3,583) (3,748) (3,748) (679) - (679) 16 - 16 (663) (264) - (264) 824 - 824 560 - - - - 10,698 10,698 10,698 - - - - 14,607 14,607 14,607 (1,005) - (1,005) 531 150,234 150,765 149,760 (326) (145) (471) 659 148,054 148,713 148,242 COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 16,875 10,863 16,875 10,863 the trust and its wholly-owned Australian resident entities formed a tax- payment to or from the head entity, based on the current tax liability or current consolidated group with effect from 1 July 2003 and are therefore taxed as a tax asset of the entity. Such amounts are reflected in amounts receivable from single entity from that date. the head entity within the tax-consolidated group or payable to other entities in the tax-consolidated group. is Australian Pipeline trust. the members of the tax-consolidated group are identified at Note 40. the tax sharing agreement entered into between members of the tax- consolidated group provides for the determination of the allocation of income Nature of tax funding arrangement and tax sharing agreement tax liabilities between the entities should the head entity default on its tax entities within the tax-consolidated group have entered into a tax funding payment obligations or if an entity should leave the tax-consolidated group. arrangement and a tax sharing agreement with the head entity. under the the effect of the tax sharing agreement is that each member’s liability for the terms of the tax funding arrangement, Australian Pipeline trust and each of the tax payable by the tax-consolidated group is limited to the amount payable to entities in the tax-consolidated group have agreed to pay a tax equivalent the head entity under the tax funding arrangement. 49 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012trust 2012 Cents per seCuritY 2012 tOtal $000 2011 CeNtS PeR SeCuRItY 2011 totAL $000 3.42 8.41 4.54 6.52 22.89 5.09 7.32 12.41 19,054 46,761 29,034 41,655 136,504 32,786 47,182 79,968 1.73 8.58 9.55 2.46 22.32 3.42 8.41 11.83 2012 Cents per seCuritY apt and aptit 2012 tOtal $000 2011 CeNtS PeR SeCuRItY 3.42 3.41 8.41 2.66 4.54 3.88 6.52 2.06 19,054 18,295 46,761 15,449 29,034 24,797 41,655 13,201 34.90 208,246 1.73 3.67 8.58 3.01 9.55 3.74 2.46 0.75 33.50 9,364 46,552 52,681 13,592 122,189 19,054 46,761 65,815 2011 totAL $000 9,364 19,928 46,552 16,350 52,681 20,629 13,592 4,127 183,223 10. distriButiOns reCOgnised aMOunts Final distribution paid on 15 september 2011 (2011: 15 September 2010) Profit distribution (a) Capital distribution semi-annual distribution paid on 15 March 2012 (2011: 17 March 2011) Profit distribution (a) Capital distribution unreCOgnised aMOunts Final distribution payable on 14 september 2012 (2011: 15 September 2011) Profit distribution (a) Capital distribution reCOgnised aMOunts Final distribution paid on 15 september 2011 (2011: 15 September 2010) Profit distribution - APt (a) Profit distribution - APtIt (a) (Note 32) Capital distribution - APt (Note 29) Capital distribution - APtIt (Note 32) semi-annual distribution paid on 15 March 2012 (2011: 17 March 2011) Profit distribution - APt (a) Profit distribution - APtIt (a) (Note 32) Capital distribution - APt (Note 29) Capital distribution - APtIt (Note 32) (a) Profit distributions were unfranked (2011: unfranked). 50 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201210. distriButiOns (COntinued) unreCOgnised aMOunts Final distribution payable on 14 september 2012 (2011: 15 September 2011) Profit distribution - APt (a) Profit distribution - APtIt (a) Capital distribution - APt Capital distribution - APtIt (a) Profit distributions were unfranked (2011: unfranked). 2012 Cents per seCuritY apt and aptit 2012 tOtal $000 2011 CeNtS PeR SeCuRItY 5.09 3.28 7.32 2.31 32,786 21,160 47,182 14,879 18.00 116,007 3.42 3.41 8.41 2.66 17.90 2011 totAL $000 19,054 18,295 46,761 15,449 99,559 the final distribution in respect of the financial year has not been recognised in this financial report because the final distribution was not declared, determined or publicly confirmed prior to the end of the financial year. Adjusted franking account balance (tax paid basis) 11. trade and OtHer reCeiVaBles trade receivables Allowance for doubtful debts Receivables from associates and related parties Finance lease receivables (Note 33) Interest receivable other debtors trade receivables are non-interest bearing and are generally on 30 day terms. ageing of past due but not impaired 30 - 60 days 60 - 90 days 90 - 120 days total Movement in the allowance for doubtful debts Balance at beginning of year (Credited)/charged to statement of comprehensive income Balance at end of year COnsOlidated trust 2012 $000 3,522 92,607 - 92,607 142,062 3,590 239 21 2011 $000 3,522 103,520 - 103,520 38,429 3,252 262 235 2012 $000 3,522 - - - 2011 $000 3,522 - - - 402,270 486,827 - 3 - - 3 - 238,519 145,698 402,273 486,830 4,367 139 2,266 6,772 - - - 5,304 194 2,648 8,146 2,211 (2,211) - - - - - - - - - - - - - - - In determining the recoverability of a trade receivable, the Consolidated entity considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the reporting date. the concentration of credit risk is limited due to the customer base being large and unrelated. ageing of impaired receivables 90 - 120 days total - - - - - - - - 51 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201212. OtHer Current FinanCial assets Derivatives at fair value: Interest rate swaps Financial assets carried at amortised cost: Redeemable preference share interest 13. inVentOries Spare parts - at cost Gas stock 14. OtHer Current assets Prepayments 15. nOn-Current reCeiVaBles Finance lease receivables (Note 33) 16. OtHer nOn-Current FinanCial assets Investments carried at cost: Investments in controlled entities envestra energy Infrastructure Investment Available-for-sale investments carried at fair value: ethane Pipeline Income Fund Hastings Diversified utilities Fund other Financial assets carried at amortised cost: Redeemable ordinary shares Redeemable preference shares Derivatives - at fair value: Interest rate swaps - cash flow hedges COnsOlidated trust 2011 $000 2012 $000 2011 $000 2012 $000 135 285 420 - - - 10,759 745 11,504 10,605 471 11,076 4,134 4,134 3,357 3,357 22,244 22,244 25,860 25,860 - - - - - - - - - - - - - - - - - - - - - - - 9,564 263,441 - 15,339 10,400 326 - - - 6,720 161,929 5 13,628 - - 371,551 318,764 329 371,551 290,009 329 5,879 3,618 - - - - - - - - - - 299,070 182,282 696,523 665,507 Available-for-sale investments consist of investments in ordinary securities, and therefore have no fixed maturity date or coupon rate. the fair value of listed available-for-sale investments has been determined directly by reference to published price quotations in an active market. Redeemable ordinary shares relate to APA Group’s 19.9% investment in energy Infrastructure Investments Pty Ltd where APL, as responsible entity for APtIt, acquired the redeemable ordinary shares, which include a debt component. this debt component amortises over ten years from December 2008 at 12% per annum. Redeemable preference shares relate to APA Group’s 20% interest in GDI (eII) Pty Ltd. In December 2011, APA sold 80% of its gas distribution network in South east Queensland (Allgas) into an unlisted investment vehicle, GDI (eII) Pty Ltd. At that date GDI issued 52 million Redeemable Preference Shares (RPS) to its owners. the shares attracts periodic interest payments and have a redemption date 10 years from issue. 52 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201217. inVestMents aCCOunted FOr using tHe eQuitY MetHOd naMe OF entitY prinCipal aCtiVitY COuntrY OF inCOrpOratiOn Jointly Controlled entities: SeA Gas GDI (eII) (a) Gas transmission unlisted energy vehicle Diamantina Power Station (b) Power Generation energy Infrastructure Investments unlisted energy vehicle unlisted energy vehicle Australia Australia Australia Australia Australia eII 2 Associates: envestra Limited (c) oWNeRSHIP INteReSt % 2012 2011 50.00 20.00 50.00 19.90 20.20 50.00 - - 19.90 20.20 Gas transmission Australia 33.44 33.01 COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 Investments in jointly controlled entities and associates 512,948 479,409 Reconciliation of movements in investments accounted for using the equity method: Balance at 1 July Acquisitions during the year Share of net profit for the year Disposal Movement in reserves Dividends Balance at 30 June 479,409 403,528 67,768 28,263 - (22,666) 552,774 (39,826) 512,948 91,191 23,876 (2,848) (2,099) 513,648 (34,239) 479,409 Summarised financial information in respect of the jointly controlled entities is set out below: FinanCial pOsitiOn total assets total liabilities Net assets Consolidated entity’s share of jointly controlled entities and associates net assets FinanCial perFOrManCe total revenue total profit for the year Consolidated entity’s share of jointly controlled entities and associates profit - - - - - - - - - - - - - - - - - - COnsOlidated 2012 $000 2011 $000 5,415,250 4,558,821 856,429 257,824 501,023 102,732 28,263 4,532,327 3,792,793 739,534 215,770 475,880 104,262 23,876 (a) APA sold 80% of its gas distribution network in South east Queensland (Allgas) into an unlisted investment vehicle, GDI (eII) Pty Ltd. APA retained a 20% interest in GDI. (b) APA acquired a 50% interest in Diamantina Power station during the year. (c) APA participated in envestra’s Distribution Reinvestment Plan under envestra’s october and April Distribution, increasing its interest in envestra from 33.01% to 33.44%. Contingent liabilities and capital commitments the Consolidated entity’s share of the contingent liabilities, capital commitments and other expenditure commitments of joint venture entities is disclosed in Notes 48 and 43 respectively. 53 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201218. prOpertY, plant and eQuipMent grOss CarrYing aMOunt Balance at 1 July 2010 Additions Disposals Acquisitions through business combinations transfer to assets classified as finance leases transfers Balance at 1 July 2011 Additions Disposals Derecognised on disposal of subsidiary (Note 42) transfers Balance at 30 June 2012 aCCuMulated depreCiatiOn Balance at 1 July 2010 Disposals Depreciation expense Balance at 1 July 2011 Disposals Derecognised on disposal of subsidiary (Note 42) Depreciation expense Balance at 30 June 2012 net BOOK Value As at 30 June 2011 as at 30 June 2012 COnsOlidated FReeHoLD LAND AND BuILDINGS - At CoSt $000 LeASeHoLD IMPRoVeMeNtS - At CoSt $000 PLANt AND eQuIPMeNt - At CoSt $000 WoRK IN PRoGReSS - At CoSt $000 113,516 2,905 3,670,120 totAL $000 3,911,677 229,107 (5,143) 162,950 (10,878) (639) 57,838 (4,911) 156,460 - 125,136 171,269 - 4,934 (10,878) 160,053 (164,629) 4,039,560 125,832 4,287,074 6,877 (15,876) (520,891) 69,363 273,198 - (1,868) (72,113) 280,075 (15,900) (527,349) (1) - (59) - - (415) 2,431 - (15) (227) 33 2,222 3,579,033 325,049 4,023,899 (1,572) 59 (327) (1,840) 15 206 (308) (1,927) 591 295 (414,418) 4,003 (90,940) (501,355) 15,131 55,867 (102,025) (532,382) - - - - - - - - (428,349) 4,075 (94,458) (518,732) 15,147 56,343 (104,459) (551,701) 3,538,205 125,832 3,768,342 3,046,651 325,049 3,472,198 - (173) 1,556 - 4,352 119,251 - (9) (4,363) 2,716 117,595 (12,359) 13 (3,191) (15,537) 1 270 (2,126) (17,392) 103,714 100,203 All property, plant & equipment is held by companies within the Group. the trust has no property, plant and equipment, in either the current or comparative years. 54 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201219. gOOdWill grOss CarrYing aMOunt Balance at beginning of financial year Acquisitions Disposals (Note 42) Goodwill write-off Balance at end of financial year COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 515,344 520,779 802 (104,263) - 411,883 - - (5,435) 515,344 - - - - - - - - - - allOCatiOn OF gOOdWill tO CasH-generating units Goodwill has been allocated for impairment testing purposes to the following individual cash-generating units: Individual cash-generating units – Asset management business; – Gas transmission pipelines in New South Wales, Queensland and Western Australia; – Victorian transmission system; and – APA Gas Networks. the carrying amount of goodwill allocated to cash-generating units that are significant individually or in aggregate is as follows: Asset management business energy infrastructure in New South Wales, Queensland and Western Australia Victorian transmission system APA Gas Networks COnsOlidated 2012 $000 33,328 273,494 105,061 - 411,883 2011 $000 33,328 272,692 105,061 104,263 515,344 the recoverable amounts of cash-generating units are determined based on Asset management cash flow projections reflect long term agreements with value-in-use calculations. these calculations use cash flow projections based assumptions of renewal on similar terms and conditions based on management on a five year financial business plan and thereafter a further 15 year financial expectations. model, being the basis of the Group’s forecasting and planning processes. Cash flow projections are estimated for a period of up to 20 years, with a For fully regulated assets, cash flows have been extrapolated on the basis of terminal value, recognising the long term nature of the assets. the pre-tax existing transportation contracts and government policy settings, and expected discount rates used are 8.5% p.a. (2011: 9.25% p.a.) for energy infrastructure contract renewals with a resulting average annual growth rate of 1.7% p.a. assets and 8.5% p.a. (2011: 9.25% p.a.) for asset management. these expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the CGu operates. For non-regulated assets, APA has assumed no capacity expansion beyond installed and committed levels; utilisation of capacity is based on existing contracts, government policy settings and expected market outcomes. these assumptions have been determined with reference to historic information, current performance and expected changes taking into account external information. 55 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012 2012 $000 2011 $000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - COnsOlidated trust 20. OtHer intangiBle assets Right to receive pipeline tariff (a) Contract and other intangibles (b) (a) rigHt tO reCeiVe pipeline tariFF gross carrying amount Balance at beginning of financial year Balance at end of financial year accumulated amortisation and impairment Balance at beginning of financial year Amortisation expense Balance at end of financial year net book value (b) COntraCt and OtHer intangiBles gross carrying amount Balance at beginning of financial year Reclassed from other non current assets Adjustments to amounts recognised from business combinations Acquisitions Impairment Disposals (Note 42) 2012 $000 - 183,659 183,659 15,677 15,677 (15,677) - (15,677) - 210,389 - (2,632) 443 (473) (697) 2011 $000 - 192,903 192,903 15,677 15,677 (14,624) (1,053) (15,677) - 190,875 2,805 - 16,709 - - Balance at end of financial year 207,031 210,389 accumulated amortisation and impairment Balance at beginning of financial year Amortisation expense Disposals (Note 42) Balance at end of financial year net book value (17,486) (5,950) 64 (23,372) 183,659 (12,646) (4,840) (17,486) 192,903 the Consolidated entity holds various third party operating and maintenance contracts. the combined gross carrying amount of $207.031 million amortises over terms ranging from one to 60 years. useful life is determined based on the underlying contractual terms plus estimations of renewal of up to two terms where considered probable by management. Amortisation expense is included in the line item of depreciation and amortisation expense in the statement of comprehensive income. 4,356 4,993 192 9,541 4,356 2,229 1,381 7,966 - - 192 192 - - 192 192 21. OtHer nOn-Current assets Line pack gas Gas held in storage other assets 56 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201222. trade and OtHer paYaBles trade payables (a) other payables (b) Non-trade payables to: Wholly-owned controlled entities (c) COnsOlidated trust 2012 $000 14,347 160,681 2011 $000 15,270 120,381 2012 $000 - - - - 175,028 135,651 98,427 98,427 2011 $000 - 248 98,427 98,675 (a) trade payables are non-interest bearing and are normally settled on 15 - 30 day terms. (b) Predominantly consists of capital expenditure accruals and external interest payable accruals. (c) Includes amounts arising from APA’s tax sharing agreement between APA and each of the entities in the tax-consolidated group (Note 9). 23. Current BOrrOWings unseCured - at aMOrtised COst Bank borrowings (a) Guaranteed Senior Notes seCured - at aMOrtised COst Bank Borrowings - - - - - 900,000 - - - 900,000 (a) Relates to the current portion of long-term borrowings. (Refer to Note 38 for details of interest rates). 24. OtHer Current FinanCial liaBilities derivatives Derivatives that are designated and effective as hedging instruments carried at fair value: Forward foreign exchange contracts Interest rate swaps - cash flow hedges Foreign exchange hedges - cash flow hedges 365 21,832 37,110 59,307 1,172 11,899 31,915 44,986 - - - - - - - - - - - - - - - - - - 57 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 55,117 10,766 65,883 59,667 5,468 65,135 48,279 6,452 54,731 26,825 4,015 30,840 11,441 3,976 32,862 48,279 10,498 12,567 3,760 26,825 2,347 2,347 802 802 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25. prOVisiOns Current employee benefits (a) other (Note 34) nOn-Current employee benefits (a) other (Note 34) (a) the aggregate employee benefit liability recognised and included in the financial statements is as follows: 13,430 6,263 35,424 55,117 12,875 41,295 5,497 59,667 761 761 4,078 4,078 Current Incentives Cash settled security-based payments Leave balances nOn-Current Cash settled security-based payments Retirement benefit obligation (Note 35) Leave balances 26. OtHer liaBilities Current unearned revenue - other nOn-Current unearned revenue - other 58 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201227. nOn-Current BOrrOWings unseCured - at aMOrtised COst Bank borrowings (a) Guaranteed Senior Notes (b) Medium term Notes (c) Less: amortised borrowing costs COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 1,123,667 1,095,597 705,578 (18,896) 655,500 1,059,681 294,947 (19,682) 2,905,946 1,990,446 - - - - - - - - - - (a) Relates to the non-current portion of long-term borrowings. (Refer to Note 38 for details of interest rates). (b) Represents uS denominated notes of uS$799 million (2011: uS$799 million) measured at the exchange rate at reporting date, and A$314.9 million of A$ denominated notes (2011: A$314.9 million). (c) Represents notes issued under the Australian and european Medium term Notes programs ranging from 6.5 years to 10 years. the notes were issued to institutional investors. 28. OtHer nOn-Current FinanCial liaBilities Derivatives - at fair value: Interest rate swaps - cash flow hedges Foreign exchange hedges - cash flow hedges 29. issued Capital securities 44,081 242,511 286,592 16,902 246,884 263,786 - - - - - - 644,485,583 securities, fully paid (2011: 634,116,029 securities, fully paid) (a) 1,138,205 1,192,779 1,138,205 1,192,779 Movements Balance at beginning of financial year Issue of securities under Distribution Reinvestment Plan Capital return to securityholders (Note 10) Institutional placement of units Issue cost of securities tax relating to security issue costs Balance at end of financial year 2012 nO. OF seCurities 000 634,116 10,370 - - - - COnsOlidated and trust 2012 $000 2011 No. oF SeCuRItIeS 000 1,192,779 33,879 (88,416) - (53) 16 542,319 13,875 - 77,922 - - 2011 $000 984,936 39,782 (60,145) 230,128 (2,746) 824 644,486 1,138,205 634,116 1,192,779 (a) Fully paid securities carry one vote per security and carry the right to distributions. Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to issued capital from 1 July 1998. therefore, the trust does not have a limited amount of authorised capital and issued securities do not have a par value. 59 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201230. reserVes Hedging Asset revaluation Available-for-sale investment revaluation Hedging reserVe Balance at beginning of financial year Gain/(loss) recognised: Interest rate swaps/currency swaps Deferred tax related to gains/losses recognised transferred to profit or loss: Interest rate swaps/currency swaps Deferred tax related to amounts transferred to profit or loss Share of hedge reserve of associate Deferred tax related to share of hedge reserve Balance at end of financial year COnsOlidated trust 2012 $000 (35,212) 8,669 82,696 56,153 2011 $000 28,003 8,669 18,227 54,899 28,003 54,318 (37,774) 11,332 (29,867) 8,960 (22,666) 6,800 (35,212) (228,392) 68,517 192,900 (57,870) (2,100) 630 28,003 2012 $000 - - 2,345 2,345 - - - - - - - - 2011 $000 - - 762 762 - - - - - - - - the hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. the cumulative deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts profit or loss, or is included as a basis adjustment to the non-financial hedge item, consistent with the applicable accounting policy. asset reValuatiOn reserVe Balance at beginning of financial year Balance at end of financial year 8,669 8,669 8,669 8,669 - - - - the asset revaluation reserve arose on the revaluation of the existing interest in a pipeline as a result of a business combination. Where revalued pipelines are sold, the portion of the asset revaluation reserve which relates to that asset is effectively realised and is transferred directly to retained earnings. the reserve can be used to pay distributions only in limited circumstances. aVailaBle-FOr-sale inVestMent reValuatiOn reserVe Balance at beginning of financial year Revaluation gain/(loss) recognised Deferred tax related to gains/losses recognised Balance at end of financial year 18,227 92,099 (27,630) 82,696 (3,032) 29,008 (7,749) 18,227 762 2,261 (678) 2,345 145 880 (263) 762 the available-for-sale investment revaluation reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, the portion of the reserve which relates to that financial asset is effectively realised and is recognised in profit or loss. Where a revalued financial asset is impaired, that portion of the reserve which relates to that financial asset is recognised in profit or loss. 60 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201231. retained earnings Balance at beginning of financial year Net profit attributable to securityholders Distributions paid (Note 10) Actuarial gain/(loss) on defined benefit plans recognised directly to retained earnings after tax (Note 35) COnsOlidated trust 2012 $000 19,054 84,693 2011 $000 9,364 69,585 2012 $000 8,606 49,363 2011 $000 11,263 59,388 (48,088) (62,045) (48,088) (62,045) (22,874) 32,785 2,150 19,054 - 9,881 - 8,606 32. MinOritY interests APt Investment trust other minority interest apt inVestMent trust issued capital: Balance at beginning of financial year Issue of securities under distribution reinvestment plan Institutional placement of units Distribution - capital return (Note 10) Issue cost of securities Balance at end of financial year reserves: Available for sale investment revaluation reserve: Balance at beginning of financial year Valuation gain recognised retained earnings: Balance at beginning of financial year Net profit attributable to APtIt equityholders Distributions paid (Note 10) Balance at end of financial year OtHer MinOritY interest Issued capital Reserves Retained earnings 386,850 400,830 49 386,899 283 401,113 382,001 10,733 - (28,650) (18) 364,066 534 1,090 1,624 18,295 45,957 (43,092) 21,160 4 1 44 49 320,931 12,590 69,872 (20,477) (915) 382,001 (101) 635 534 19,928 38,924 (40,557) 18,295 4 1 278 283 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 61 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201233. leases leasing arrangements - receivables Finance lease receivables relate to the lease of a metering station, a natural gas vehicle facility and X41 expansion. COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 FinanCe lease reCeiVaBles Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable (a) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current trade and other receivables (Note 11) Non-current receivables (Note 15) 6,071 19,946 10,767 36,784 36,784 (10,950) 25,834 3,590 22,244 25,834 5,957 22,649 14,278 42,884 42,884 (13,772) 29,112 3,252 25,860 29,112 (a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual. nOn-CanCellaBle Operating leases – OtHer Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years 7,435 20,238 11,285 38,958 5,938 8,832 1,159 15,929 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 62 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201234. prOVisiOns Balance at 30 June 2011 Additional provisions recognised (b) unwinding of discount Reductions arising from payments/other sacrifices of future economic benefits Balance at 30 June 2012 Current (Note 25) Non-current (Note 25) ABANDoNMeNt (a) $000 4,015 57 282 - 4,354 - 4,354 4,354 COnsOlidated otHeR $000 6,452 6,084 - (656) 11,880 10,766 1,114 11,880 totAL $000 10,467 6,141 282 (656) 16,234 10,766 5,468 16,234 (a) Costs of dismantling pipelines and restoring the sites on which the pipelines are located is to be included in the cost of the asset at inception and required to be accounted for in accordance with AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’. (b) Includes rectification works due to Queensland floods and lease incentives. Balance at 30 June 2010 Additional provisions recognised (b) unwinding of discount Reductions arising from payments/other sacrifices of future economic benefits Balance at 30 June 2011 Current (Note 25) Non-current (Note 25) 3,040 801 174 - 4,015 - 4,015 4,015 3,460 3,568 - (576) 6,452 6,452 - 6,452 6,500 4,369 174 (576) 10,467 6,452 4,015 10,467 (a) Costs of dismantling pipelines and restoring the sites on which the pipelines are located is to be included in the cost of the asset at inception and required to be accounted for in accordance with AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’. (b) Includes rectification works due to Queensland floods. 63 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201235. eMplOYee superannuatiOn plans All employees of the Consolidated entity are entitled to benefits on retirement, the most recent actuarial valuations of plan assets and the present value of the disability or death from an industry sponsored fund, or an alternative fund of defined benefit obligation were carried out at 30 June 2012 by Mercer their choice. the Consolidated entity has three plans with defined benefit (Australia) Pty Ltd and Russell Investments (2011: Mercer (Australia) Pty Ltd sections (due to the acquisition of businesses) and a number of other plans and Russell Investments). the present value of the defined benefit obligation, with defined contribution sections. the defined benefit sections provide lump and the related current service cost and past service cost, were measured using sum benefits upon retirement based on years of service. the defined the projected unit credit method. contribution sections receive fixed contributions from the Consolidated entity and the Consolidated entity’s legal and constructive obligations are limited to these amounts. the following sets out details in respect of the defined benefit plans only: COnsOlidated 2012 $000 2,980 4,889 (6,724) 1,145 1 (32,677) 100,658 (141,953) (41,295) (12,567) (1,145) (32,677) 5,094 (41,295) 111,325 2,980 4,889 1,563 25,955 (4,046) (713) 141,953 2011 $000 3,133 4,601 (6,112) 1,622 9,823 3,071 98,758 (111,325) (12,567) (18,294) (1,622) 3,071 4,278 (12,567) 109,640 3,133 4,601 1,419 640 (7,315) (793) 111,325 aMOunts reCOgnised in tHe stateMent OF COMpreHensiVe inCOMe Current service cost Interest cost on benefit obligation expected return on plan assets total included in superannuation costs which form part of employee benefit expense Actual return on plan assets Actuarial (losses)/gains incurred during the year and recognised in the statement of comprehensive income aMOunts reCOgnised in tHe stateMent OF FinanCial pOsitiOn Fair value of plan assets Present value of benefit obligation Net liability - non-current (Note 25) MOVeMents in liaBilitY during tHe Year Balance at beginning of year expense recognised in statement of comprehensive income Amount recognised in retained earnings (prior to tax effect) Contributions from employer Balance at end of year (a) (a) the above balances are recorded within the provisions section of the statement of financial position; refer to Note 25. Movements in the present value of the defined benefit obligations in the current period were as follows: opening defined benefit obligation Current service cost Interest cost Contributions from plan participants Actuarial losses Benefits paid taxes and premiums paid Closing defined benefit obligation 64 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201235. eMplOYee superannuatiOn plans (COntinued) Movements in the present value of the plan assets in the current period were as follows: opening fair value of plan assets expected return on plan assets Actuarial (losses)/gains Contributions from employer Contributions from plan participants Benefits paid taxes and premiums paid Closing fair value of plan assets COnsOlidated 2012 $000 98,758 6,724 (6,722) 5,094 1,563 (4,046) (713) 2011 $000 91,346 6,112 3,711 4,278 1,419 (7,315) (793) 100,658 98,758 the average principal actuarial assumptions used in determining post-employment obligations for the Consolidated entity’s plans are shown below (expressed as weighted averages): COnsOlidated Discount rate (p.a.) expected return on plan assets (p.a.) expected salary rate increase (p.a.) the invested defined benefit assets were held in the following classes: Australian equities International equities Fixed income Property Alternatives Cash the history of experience adjustments is as follows: Fair value of plan assets Present value of defined benefit obligation (Deficit)/surplus experience adjustments on plan liabilities experience adjustments on plan assets 2012 $000 100,658 141,953 (41,295) 2,313 4,766 2011 $000 98,758 111,325 (12,567) 3,090 (3,167) 2010 $000 91,346 109,640 (18,294) 4,739 (821) 2012 % 2.6 6.8 4.0 33.7 27.2 11.8 8.2 13.1 6.0 2009 $000 84,023 98,679 (14,656) (6,753) 8,450 the Consolidated entity expects $4,940,000 in contributions to be paid to the defined benefit plans during the year ending 30 June 2013. 2011 % 4.6 7.0 4.5 33.7 27.2 11.8 8.5 13.8 5.0 2008 $000 90,227 97,042 (6,815) (1,515) 8,533 65 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201236. earnings per seCuritY Basic and diluted earnings per security (cents) COnsOlidated 2012 20.4 2011 19.7 the earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows: Net profit attributable to securityholders for calculating basic and diluted earnings per security ($000) 130,650 108,509 Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security (000) 639,743 551,222 37. nOtes tO tHe stateMent OF CasH FlOWs (a) reconciliation of cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash at bank and on hand (a) Short-term deposits Restricted cash COnsOlidated trust 2012 $000 88,944 240,990 329,934 2011 $000 90,706 4,662 95,368 2012 $000 110 - 110 2011 $000 49 - 49 (a) As at 30 June 2012, Australian Pipeline Limited held $5.0 million (2011: $5.0 million) on deposit to meet its financial requirements as the holder of an Australian Financial Services Licence. (b) Businesses acquired and disposed of Consolidated During the financial year, the consolidated entity divested its gas distribution During the prior year, the Consolidated entity acquired the emu Downs Wind network in South east Queensland (Allgas) into the APA minority owned Farm (“eDWF”). Net cash outflow on this acquisition was $167,219,000. In unlisted investment vehicle GDI (eII) Pty Ltd. Net cash inflow on this divestment addition a further 16.7% interest was acquired in the SeA Gas Pipeline for was $475,678,000. Refer to Note 42 for further details of this Allgas divestment. $46,904,000 increasing APA’s overall interest to 50% and the $19,676,000 $28,755,000 (2011: $24,812,000) has been reinvested in envestra through the Dividend Reinvestment Plan. $5,000 was invested in Diamantina and $211,800 equity contribution payable upon construction completion was made to eII2 (owner of the Hallett 4 Wind Farm project). was recovered from the finalisation of fees recoverable from ReSt following the Trust SeA Gas transaction in the prior year. $11,669,000 (2011: $22,481,000) has been During the financial year, the trust has reinvested $28,755,000 (2011: invested in the purchase of shares in Hastings Diversified utilities Fund. As per $24,812,000) in envestra through the Dividend Reinvestment Plan. the cash flow note, $4,000 related to a separate transaction. 66 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201237. nOtes tO tHe stateMent OF CasH FlOWs (COntinued) (c) reconciliation of profit for the year to the net cash provided by operating activities COnsOlidated trust Profit for the year Loss on disposal of business Impairment of intangible Loss on disposal of property, plant and equipment Gain from sale of equity accounted investments Impairment of goodwill Share of net profits of jointly controlled entities accounted for using the equity method Dividends/distributions received Depreciation and amortisation expense Finance costs Changes in assets and liabilities: trade and other receivables Inventories other assets trade and other payables Provisions other liabilities Income tax balances net cash provided by operating activities 2012 $000 130,655 9,663 473 278 - - (28,263) 39,826 110,409 16,919 (19,669) (428) 25,168 8,078 12,416 (23,038) 53,082 335,569 - - 1,068 (1,652) 5,435 (23,876) 34,239 100,350 12,895 (5,158) (2,381) 7,458 1,205 12,351 (2,331) 41,601 2011 $000 2012 $000 2011 $000 108,825 49,363 59,388 - - - - - - - - - - - 28,755 24,812 - - 482 - - - - - - - (20,486) (20,147) - - - 290,029 58,114 (d) Financing facilities unseCured FaCilities Bank borrowings (a) Amounts used Amounts unused guaranteed senior notes (b) Amounts used Amounts unused Medium term Notes (c) seCured FaCilities Bank borrowings Amounts used Amounts unused 1,123,667 1,555,500 776,333 234,500 1,900,000 1,790,000 1,095,597 1,059,681 - 705,578 1,801,175 - 294,947 1,354,628 - - - - - - - - - - - - - - - - (a) Relates to long-term borrowings. (Refer to Note 38 for details of interest rates). (b) Represents uS denominated notes of uS$799 million (2011: uS$799 million) measured at the exchange rate at reporting date, and A$314.9 million of A$ denominated notes (2011: A$314.9 million). (c) Represents notes issued under the Australian and european Medium term Notes programs, including JPY and CAD bonds, ranging from 6.5 years to 10 years. the notes were issued to institutional investors. 67 - - (862) 63,191 - - - - - - - - - - AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201238. FinanCial instruMents (a) Capital risk management the Consolidated entity seeks to minimise the effects of these risks through the Consolidated entity manages its capital structure to ensure that entities in natural hedges and by using derivative instruments to directly hedge the the Group will be able to continue as a going concern while maximising the exposures. the use of financial derivatives is governed by the Consolidated return to security holders through the optimisation of the debt to equity entity’s Board approved treasury Policy, which provides written principles on structure. the Consolidated entity’s overall capital management strategy is to continue to target strong BBB/Baa2 investment grade ratings through maintaining sufficient flexibility to fund organic growth and investment from internally generated and retained cash flows, equity and, where appropriate, additional debt funding. the capital structure of the Consolidated entity consists of debt, which includes borrowings disclosed in Notes 23 and 27, cash and cash equivalents, and equity foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. the Consolidated entity does not enter into or trade financial instruments, including derivative financial instruments for speculative purposes. the Corporate treasury function reports monthly to the Consolidated entity’s Board of Directors, which monitors risks and policies implemented to mitigate risk exposures. attributable to equity holders of the parent, comprising issued capital, reserves (c) Market risk management and retained earnings as disclosed in Notes 29, 30 and 31 respectively. the Consolidated entity’s activities exposure is primarily to the financial risk of the Consolidated entity’s operations are conducted primarily through its subsidiaries. operating cash flows are used to maintain and expand the Consolidated entity’s assets, as well as to make distributions to security holders and to repay maturing debt. changes in interest rates and foreign currency exchange rates. the Consolidated entity enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: – foreign exchange forward contracts to hedge the exchange rate risk arising on the importation of equipment from a range of international suppliers; – currency swaps to manage the foreign currency risk associated with foreign the Consolidated entity’s policy is to borrow from overseas and locally, using a currency denominated borrowings; variety of capital markets and bank loan facilities, to meet anticipated funding – interest rate forward contracts to manage interest rate risk; and requirements. – interest rate swaps to mitigate the risk of rising interest rates. Controlled entities are subject to externally imposed capital requirements. there has been no change to the Consolidated entity’s exposure to market these relate to the Australian Financial Services Licence held by Australian risks or the manner to which it manages and measures the risk from the Pipeline Limited, the Responsible entity of the Consolidated entity and were previous period. adhered to for the entirety of the 2011 and 2012 periods. Gearing ratio the Consolidated entity is also exposed to price risk arising from its investments in and forward purchase contracts over listed equities. the majority of this the Consolidated entity’s Board of Directors reviews the capital structure on a exposure arises from the Consolidated entity’s investment in two entities regular basis. As part of the review, the board considers the cost of capital and (Hastings Diversified utilities Fund and ethane Pipeline Income Fund) both of the state of the markets. the Consolidated entity targets gearing in a range of which are publicly traded on the Australian Securities exchange (ASX). 65% to 70%. Gearing is determined as the proportion of net debt to net debt plus equity. Based on recommendations of the board, the Consolidated entity balances its overall capital structure through new equity issues, through the issue of new debt or the redemption of existing debt, and through a disciplined distribution payment policy. (b) Financial risk management objectives APA’s Corporate treasury function provides services to the business, co- ordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the Consolidated entity. these risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. (d) Foreign currency risk management the Consolidated entity undertakes certain transactions denominated in foreign currencies and hence exposures to exchange rate fluctuations arise. exchange rate exposures are managed within approved policy parameters utilising foreign exchange contracts, including forward contracts and cross currency contracts. there was no unmanaged exposure in either 2011 or 2012. the carrying amount of the Consolidated entity’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: 68 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201238. FinanCial instruMents (COntinued) (d) Foreign currency risk management (continued) uS dollar borrowings Cross currency swaps Japanese yen borrowings Cross currency swaps Canadian dollar borrowings Cross currency swaps Foreign exchange contracts COnsOlidated liaBilities assets 2012 $000 780,731 (780,731) 122,256 (122,256) 287,986 (287,986) - 365 365 2011 $000 744,815 (744,815) - - - - - 1,172 1,172 2012 $000 2011 $000 - - - - - - - 126 126 - - - - - - - - - Forward foreign exchange contracts It is the policy of the Consolidated entity to enter into various foreign exchange contracts to cover 100% of all foreign currency exposures in excess of uS$1 million that are certain. Basis adjustments are made to the carrying amounts of non-financial hedged items when the anticipated purchase takes place. the following table details the forward foreign currency contracts outstanding at reporting date: Outstanding COntraCts 2012 Buy us dollars Less than 3 months 3 to 6 months 6 to 12 months 2011 Buy us dollars Less than 3 months 3 to 6 months 6 to 12 months COnsOlidated aVerage exCHange rate FOreign CurrenCY us$000 COntraCt Value $000 Fair Value $000 0.9480 1.0297 1.0257 0.9583 0.9694 0.9721 4,675 3,660 1,485 9,821 4,179 3,672 6,343 14,195 4,931 3,555 1,448 9,934 4,361 3,789 6,525 14,675 (350) 75 36 (239) (441) (308) (423) (1,172) the Consolidated entity has entered into contracts to purchase equipment in As at reporting date, the aggregate amount of unrealised losses under forward foreign currencies from overseas suppliers. the Consolidated entity has foreign exchange contracts deferred in the hedging reserve relating to these entered into forward foreign exchange contracts to hedge the exchange rate anticipated future transactions is $390,000 (2011: $1,172,000). It is anticipated risk arising from these anticipated future transactions, which are designated as that the capital purchases will take place within the next financial year at which cash flow hedges. stage unrealised mark to market amounts in equity will be included in the carrying amount of the asset being purchased. 69 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012 38. FinanCial instruMents (COntinued) (d) Foreign currency risk management (continued) Cross currency swap contracts the Consolidated entity receives fixed amounts in uS$ and pays both variable under cross currency swap contracts, the Consolidated entity agrees to interest rates (based on Australian BBSW) and fixed interest rates based on exchange specified principal and interest foreign currency amounts at agreed future dates at a specified exchange rate. Such contracts enable the Consolidated entity to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising under the agreed interest rate swap rates. under the medium term notes issued in 2012 the Consolidated entity receives fixed amounts in JPY and CAD based on agreed interest rate swap rates. 2003, 2007 and 2009 uS dollar note issues and the 2012 Japanese yen and the following table details the swap contracts principal balances over various Canadian dollar medium term note issues. durations as at the reporting date: exCHange rate aMOunt 2012 $ 2011 $ 2012 $000 2011 $000 2003 nOte issue Buy us dollars - interest Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more Buy us dollars - principal 1 year to 2 years 2 years to 5 years 5 years and more 2007 nOte issue Buy us dollars - interest Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more Buy us dollars - principal 2 years to 5 years 5 years and more 2009 nOte issue Buy us dollars - interest Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more Buy us dollars - principal 2 years to 5 years 5 years and more 70 0.6573 0.6573 0.6573 0.6573 0.6573 0.6573 0.6573 0.8068 0.8068 0.8068 0.8068 0.6573 0.6573 0.6573 0.6573 - 0.6573 0.6573 0.8068 0.8068 0.8068 0.8068 (22,863) (19,671) (33,374) (8,655) (84,564) (112,582) (185,608) (95,847) (22,863) (22,863) (47,276) (14,425) (107,427) - (298,190) (95,847) (394,037) (394,037) (29,737) (29,737) (29,737) (124,774) (213,986) 0.8068 0.8068 - (190,878) 0.8068 (304,908) 0.7576 0.7576 0.7576 0.7576 0.7576 0.7576 0.7576 0.7576 0.7576 0.7576 - 0.7576 (495,786) (15,934) (15,934) (44,221) (21,927) (98,016) (85,787) (98,997) (184,784) (29,737) (29,737) (89,212) (95,037) (243,723) - (495,786) (495,786) (15,934) (15,934) (47,803) (34,279) (113,951) - (184,784) (184,784) AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201238. FinanCial instruMents (COntinued) (d) Foreign currency risk management (continued) 2012 JpY Mtn issue Buy Japanese yen - interest Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more Buy Japanese yen - principal 5 years and more 2012 Cad Mtn issue Buy Canadian dollars - interest Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more Buy Canadian dollars - principal 5 years and more exCHange rate aMOunt 2012 $ 2011 $ 2012 $000 2011 $000 79.4502 79.4502 79.4502 79.4502 79.4502 1.0363 1.0363 1.0363 1.0363 1.0363 - - - - - - - - - - - - (1,543) (1,543) (4,629) (1,543) (9,259) (125,865) (12,289) (12,289) (36,867) (30,723) (92,168) (289,494) - - - - - - - - - - - - Foreign currency sensitivity analysis forward foreign exchange contracts. the following table details the the Consolidated entity is exposed to movements in the uS$, JPY and CAD Consolidated entity’s sensitivity to a 10% decrease and increase in the through its fully hedged borrowings via Global Debt Capital markets and its Australian dollar against the relevant foreign currencies. the sensitivity rate current obligations to future purchases of capital equipment. the entire foreign used is 10% and represents management’s assessment of the greatest possible currency cash flows arising from the uSPP and MtN issues have been swapped; change in foreign exchange rates. the sensitivity analysis includes only as such, the Consolidated entity has no currency risk associated with those outstanding foreign currency denominated monetary items and adjusts their note issues. therefore, the sensitivity analysis has only been performed on the translation at the period end for a 10% change in foreign currency rates. COnsOlidated a$ depreciating by 10% Profit other equity (a) a$ appreciating by 10% Profit other equity (a) 2012 $000 - (871) - 1,065 (a) this is as a result of the changes to the fair value of forward foreign exchange contracts designated as cash flow hedges. Negative amounts denote a credit to equity. 2011 $000 - (1,201) - 1,468 71 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201238. FinanCial instruMents (COntinued) (e) interest rate risk management the Consolidated entity is exposed to interest rate risk as it borrows funds at amounting to $329.9 million as at 30 June 2012 (2011: $95.4 million). both fixed and floating interest rates. this risk is managed by the Consolidated entity by maintaining an appropriate mix between fixed and floating rate borrowings, through the use of interest rate swap contracts and forward interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and defined policy, ensuring appropriate hedging strategies are applied. Hedging activity is complemented by “natural hedges” from regulatory resets and CPI adjusted revenues. Interest rate swap contracts under interest rate swap contracts, the Consolidated entity agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Consolidated entity to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt held and cash flow exposures on the issued variable rate debt held. the fair value of interest rate swaps at the reporting date is determined by the trust and the Consolidated entity’s exposures to interest rate risk on discounting the future cash flows using the yield curves at reporting date. the financial liabilities are detailed in the liquidity risk management section of this average interest rate is based on the outstanding balances at the end of the note. exposure to financial assets is limited to cash and cash equivalents financial year. the following table details the notional principal amounts and remaining terms of the cross currency and interest rate swap contracts outstanding as at the end of the financial year: WeigHted aVerage interest rate 2012 % p.a. 2011 % p.a. nOtiOnal prinCipal aMOunt Fair Value 2012 $000 2011 $000 2012 $000 2011 $000 CasH FlOW Hedges pay fixed aud interest - receive floating aud or fixed/floating foreign currency Consolidated Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more 5.39 7.03 7.52 7.57 7.10 5.39 6.88 8.36 200,000 187,582 687,272 915,111 200,000 200,000 598,190 776,416 1,989,965 1,774,606 (2,760) (45,620) (151,358) (133,806) (333,543) trust - - - - - (31,474) (37,637) (147,510) (78,640) (295,261) - the Consolidated entity had no fair value hedges in 2012 or 2011. the Consolidated entity’s profit sensitivity to interest rates has decreased the interest rate swaps settle on a quarterly or semi-annual basis. the floating rate benchmark on the interest rate swaps is Australian BBSW. the Consolidated entity will settle the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the Consolidated entity’s cash flow exposure resulting from variable interest rates on borrowings. Interest rate sensitivity analysis during the current period due to the overall decrease in the level of the Consolidated entity’s unhedged floating rate borrowings. the valuation of the increase/decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. the decrease in sensitivity in equity is due to a decrease in the notional value of interest rate swaps held from 2011. (f) price risk management the Consolidated entity is exposed to price risk arising from its investments in and forward purchase contracts over listed equities. the investments and forward purchase contracts are held to meet strategic or hedging objectives rather than for trading purposes. the Consolidated entity does not actively the sensitivity analysis below has been determined based on the exposure to trade any of these holdings. interest rates for both derivative and non-derivative instruments held. A 100 basis point increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, the Consolidated entity’s: – net profit would decrease by $6,237,000 or increase by $6,237,000 (2011: decrease by $7,555,000 or increase by $7,555,000). this is mainly attributable to the Consolidated entity’s exposure to interest rates on its variable rate borrowings; and – equity reserves would increase by $17,387,000 or decrease by $17,960,000 (2011: increase by $23,873,000 or decrease by $24,909,000). this is due to the changes in the fair value of derivative interest instruments. Equity price sensitivity the sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting date. At the reporting date, if the prices of the Consolidated entity’s equity investments had been 5% p.a. higher or lower: – net profit would have been unaffected as the equity investments are classified as available-for-sale and no investments were disposed of or impaired, there is also nil effect from the forwards as the corresponding exposure will offset in full (2011: $nil); and – equity reserves would decrease/increase by $5,947,547 (2011: $6,601,144), due to the changes in the fair value of available-for-sale shares. 72 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201238. FinanCial instruMents (COntinued) (f) price risk management (continued) the Consolidated entity’s analysis of its exposure to equity prices has the carrying amount of financial assets recorded in the financial statements, established that, overall, its sensitivity declined during the current period net of any allowances, represents the Consolidated entity’s maximum exposure compared to the prior period. this outcome is largely a result of a relative to credit risk in relation to those assets. convergence to the market benchmark of equity beta observations for Hastings Diversified utilities Fund which is the most substantial shareholding held by the Consolidated entity as available-for-sale. (g) Credit risk management Cross guarantee In accordance with a deed of cross guarantee, APt Pipelines Limited, a subsidiary of APA Group, has agreed to provide financial support, when and as required, to all wholly-owned controlled entities with either a deficit in Credit risk refers to the risk that a counterparty will default on its contractual shareholders’ funds or an excess of current liabilities over current assets. the obligations resulting in financial loss to the Consolidated entity. the fair value of the financial guarantee as at 30 June 2012 has been determined to Consolidated entity has adopted the policy of only dealing with creditworthy be immaterial and no liability has been recorded (2011: $nil). counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, the Consolidated entity’s policy is to deal with highly rated counterparties. As at the reporting date, all counterparties of this type were A- (Standard & Poor’s)/A3 (Moody’s) or higher. the Consolidated entity’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the treasury Policy approved by the board. these limits are regularly reviewed by the board. trade receivables consist of mainly corporate customers which are diverse and geographically spread. Most significant customers have an investment grade rating from either Standard & Poor’s or Moody’s. ongoing credit monitoring of the financial position of customers is maintained. (h) liquidity risk management the Consolidated entity has a policy dealing with liquidity risk which requires an appropriate liquidity risk management framework for the management of the Consolidated entity’s short, medium and long-term funding and liquidity management requirements. Liquidity risk is managed by maintaining adequate cash reserves and banking facilities, by monitoring and forecasting cash flow and where possible arranging liabilities with longer maturities to more closely match the underlying assets of the Consolidated entity. Details of undrawn facilities available to the Consolidated entity are shown in the table below: FinanCing FaCilities unsecured bank facilities with various maturity dates through to 2013 – amount used – amount unused unsecured long term private placement notes with various maturity dates through to 2022 – amount used – amount unused unsecured Australian Dollar medium term note with maturity in 2020 – amount used – amount unused unsecured Japanese Yen medium term note with maturity in 2018 – amount used – amount unused unsecured Canadian Dollar medium term notes with maturity in 2019 – amount used – amount unused COnsOlidated 2012 $000 2011 $000 1,123,667 1,555,500 776,333 234,500 1,900,000 1,790,000 1,389,472 1,389,472 - - 1,389,472 1,389,472 300,000 300,000 - - 300,000 300,000 125,865 - 125,865 289,494 - 289,494 - - - - - - 73 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201238. FinanCial instruMents (COntinued) (h) liquidity risk management (continued) Liquidity and interest risk table Detailed below are the Consolidated entity’s remaining contractual maturities All foreign currency note exposures (both principal and interest) have been fully for its non-derivative financial liabilities. the table has been drawn up based on hedged back into Australian dollars at fixed interest rates for the entire duration the undiscounted cash flows of financial liabilities taking account of the earliest of the note exposure. therefore the table below shows the undiscounted date on which the Consolidated entity can be required to pay. the table Australian dollar cash flows associated with the foreign currency notes, cross includes both interest and principal cash flows. currency interest rate swaps and fixed interest rate swaps in aggregate. COnsOlidated AVeRAGe INteReSt RAte % p.a. LeSS tHAN 1 YeAR $000 1 - 5 YeARS $000 MoRe tHAN 5 YeARS $000 2012 FinanCial liaBilities trade and other payables unsecured bank borrowings (a) Interest Rate Swaps (Net Settled) guaranteed senior notes: denominated in a$ 2007 Series A (b) 2007 Series C (b) 2007 Series e (c) 2007 Series G (d) 2007 Series H (d) 2010 AuD Medium term Note (j) denominated in us$ (rates shown are the coupon rate of the us dollar notes) 2003 Series B (e) 2003 Series C (f) 2003 Series D (g) 2007 Series B (b) 2007 Series D (c) 2007 Series F (d) 2009 Series A (h) 2009 Series B (i) 2012 JPY Medium term Note (k) 2010 CAD Medium term Note (l) Financial lease liabilities Other: unearned revenue - interest unearned revenue - other - 5.24 - 7.33 7.38 7.40 7.45 7.45 7.75 5.67 5.77 6.02 5.89 5.99 6.14 8.35 8.86 1.23 4.25 - - - 175,028 55,246 11,624 - 1,179,453 17,123 367 7,318 5,045 6,002 4,617 23,250 8,532 14,292 6,968 13,986 11,111 11,354 9,752 11,761 8,606 11,248 - - 6,466 128,428 20,178 24,008 18,468 93,000 116,813 221,123 27,702 246,824 44,442 45,416 119,879 47,108 34,212 78,171 - - 761 4,078 - - - - - 78,260 110,592 85,071 381,375 - - 106,290 - 173,436 210,496 - 128,286 134,424 338,237 - - - (a) Facilities mature on 2 November 2013 ($483 million limit), 15 July 2014 ($225 million limit), 24 August 2014 ($75 million limit), 2 November 2014 ($483 million limit), 2 November 2015 ($483 million limit, undrawn at year end) and 12 october 2016 ($150 million limit, undrawn at year end). 396,867 2,472,892 1,746,466 (b) Matures on 15 May 2017. (c) Matures on 15 May 2019. (d) Matures on 15 May 2022. (e) Matures on 9 September 2013. (f) Matures on 9 September 2015. (g) Matures on 9 September 2018. (h) Matures on 1 July 2016. (i) Matures on 1 July 2019. (j) Matures on 22 July 2020. (k) Matures on 22 Jun 2018. (l) Matures on 24 July 2019. 74 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201238. FinanCial instruMents (COntinued) (h) liquidity risk management (continued) 2011 FinanCial liaBilities trade and other payables unsecured bank borrowings (a) Interest Rate Swaps (Net Settled) guaranteed senior notes: denominated in a$ 2007 Series A (b) 2007 Series C (b) 2007 Series e (c) 2007 Series G (d) 2007 Series H (d) 2010 Medium term Note (j) denominated in us$ (rates shown are the coupon rate of the us dollar notes) 2003 Series B (e) 2003 Series C (f) 2003 Series D (g) 2007 Series B (b) 2007 Series D (c) 2007 Series F (d) 2009 Series A (h) 2009 Series B (i) Financial lease liabilities Other: unearned revenue - interest unearned revenue - other COnsOlidated AVeRAGe INteReSt RAte % p.a. LeSS tHAN 1 YeAR $000 1 - 5 YeARS $000 MoRe tHAN 5 YeARS $000 - 6.59 6.20 7.33 7.38 7.40 7.45 7.45 7.75 5.67 5.77 6.02 5.89 5.99 6.14 8.35 8.86 - - - 135,651 1,111,875 12,173 367 7,318 5,045 6,002 4,617 23,250 8,508 14,253 6,949 13,986 11,111 11,354 9,725 11,729 - - - 167,721 18,686 1,466 29,271 20,178 24,008 18,468 93,000 125,344 235,414 27,740 55,946 44,442 45,416 39,061 47,108 - - 2,347 802 - - 184 5,367 106,475 83,304 116,595 89,688 404,625 - - 113,220 204,864 184,546 221,850 90,569 140,047 - - - (a) Matures on 1 July 2011 ($103 million limit, undrawn at year end), 8 June 2012 ($900 million limit), 1 July 2013 ($515 million limit), 15 July 2014 ($225 million limit) and 24 August 2014 1,396,259 994,073 1,761,334 ($150 million limit). (b) Matures on 15 May 2017. (c) Matures on 15 May 2019. (d) Matures on 15 May 2022. (e) Matures on 9 September 2013. (f) Matures on 9 September 2015. (g) Matures on 9 September 2018. (h) Matures on 1 July 2016. (i) Matures on 1 July 2019. (j) Matures on 22 July 2020. 75 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201238. FinanCial instruMents (COntinued) (i) Fair value of financial instruments Fair value of financial instruments carried at amortised cost pricing models where the main assumptions are the probability of default the fair values of financial assets and financial liabilities are determined as by the specified counterparty extrapolated from market-based credit follows: information and the amount of loss, given the default. – the fair values of financial assets and financial liabilities with standard terms Fair value measurements recognised in the statement of financial position and conditions and traded on active liquid markets are determined with the following table provides an analysis of financial instruments that are reference to quoted market prices; measured subsequent to initial recognition at fair value, grouped into Levels 1 – the fair values of other financial assets and financial liabilities (excluding to 3 based on the degree to which the fair value is observable. derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets; – the fair values of derivative instruments, included in hedging assets and liabilities, are calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments; and – the fair value of financial guarantee contracts is determined using option – Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. – Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). – Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). COnsOlidated leVel 1 $000 leVel 2 $000 leVel 3 $000 tOtal $000 263,442 9,564 - - 273,005 - - - - 161,929 6,720 5 168,654 - - - - - - 259 126 385 62,699 270,844 365 333,909 - - - - 10,168 285,093 1,172 296,433 - - - - - - - - - - - - - - - - - 263,442 9,564 259 126 273,390 62,699 270,844 365 333,909 161,929 6,720 5 168,654 10,168 285,093 1,172 296,433 2012 Financial assets measured at fair value Available-for-sale listed equity securities Hastings Diversified utilities Fund ethane Pipeline Income Fund equity forwards designated as fair value through profit and loss Forward foreign exchange contracts used for hedging total Financial liabilities measured at fair value Interest rate swaps used for hedging Cross Currency Interest Rate Swaps used for hedging Forward foreign exchange contracts used for hedging total 2011 Financial assets measured at fair value Available-for-sale listed equity securities Hastings Diversified utilities Fund ethane Pipeline Income Fund other total Financial liabilities measured at fair value Interest rate swaps used for hedging Cross Currency Interest Rate Swaps used for hedging Forward foreign exchange contracts used for hedging total 76 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201238. FinanCial instruMents (COntinued) (i) Fair value of financial instruments (continued) Derivatives equity forward contracts are measured by reference to quoted equity prices and the carrying value of financial assets and liabilities recorded at amortised cost discounted using yield curves with tenors matching maturities of the contracts. in the financial statements approximate their fair value having regard to the Foreign currency forward contracts are measured using quoted forward specific terms of the agreements underlying those assets and liabilities. exchange rates and yield curves derived from quoted interest rates matching Fair value measurements of financial instruments measured at amortised cost maturities of the contracts. Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in the financial statements approximate their fair values. CarrYing aMOunt Fair Value 2012 $000 2011 $000 2012 $000 2011 $000 FinanCial liaBilities unsecured long term private placement notes 1,389,472 1,389,472 1,389,909 unsecured Australian Dollar medium term notes unsecured Japanese Yen medium term note unsecured Canadian Dollar medium term notes 300,000 125,865 289,494 300,000 - - 382,457 127,752 334,037 1,266,551 340,582 - - total 2,104,831 1,689,472 2,234,155 1,607,133 the financial liabilities included in the table above are fixed rate borrowings. the unsecured bank debt held by the Consolidated entity is at a floating rate and therefore its amortised cost approximates its fair value. 39. JOintlY COntrOlled OperatiOns and assets the Consolidated entity is a venturer in the following jointly controlled operations and assets: naMe OF Venture prinCipal aCtiVitY Goldfields Gas transmission Gas pipeline operation - Western Australia Mid West Pipeline Gas pipeline operation - Western Australia Output interest 2012 % 88.2 (a) 50.0 (b) 2011 % 88.2 (a) 50.0 (b) (a) on 17 August 2004, APA acquired a direct interest in the Goldfields Gas transmission jointly controlled operations as part of the SCP Gas Business acquisition. (b) Pursuant to the joint venture agreement, the Consolidated entity receives a 70.8% share of operating income and expenses. the Consolidated entity’s interest, as a venturer, in assets employed in the above jointly controlled operations and assets is detailed below. the amounts are included in the consolidated financial statements under their respective asset categories: COnsOlidated Current assets Cash and cash equivalents trade and other receivables Inventories other total current assets nOn-Current assets Property, plant and equipment other total non-current assets total assets 2012 $000 6,510 1,397 2,391 143 10,441 543,214 765 543,979 554,420 2011 $000 3,397 204 2,389 1,106 7,096 525,541 1,783 527,324 534,420 77 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201239. JOintlY COntrOlled OperatiOns and assets (COntinued) Contingent liabilities and capital commitments Contingent liabilities and capital commitments arising from the Consolidated entity’s interest in jointly controlled operations are disclosed in Notes 48 and 43 respectively. 40. suBsidiaries naMe OF entitY parent entitY Australian Pipeline trust (a) suBsidiaries APt Pipelines Limited (b),(c) Agex Pty Ltd (b),(c) Amadeus Gas trust APt Goldfields Pty Ltd (b),(c) APt Management Services Pty Limited (b),(c) APt Parmelia Gas Pty Ltd (b),(c) APt Parmelia Holdings Pty Ltd (b),(c) APt Parmelia Pty Ltd (b),(c) APt Parmelia trust (b) APt Petroleum Pipelines Holdings Pty Limited (b),(c) APt Petroleum Pipelines Pty Limited (b),(c) APt Pipelines (NSW) Pty Limited (b),(c) APt Pipelines (Nt) Pty Limited (b),(c) APt Pipelines (QLD) Pty Limited (b),(c) APt Pipelines (WA) Pty Limited (b),(c) APt Pipelines Investments (NSW) Pty Ltd (b),(c) APt Pipelines Investments (WA) Pty Ltd (b),(c) east Australian Pipeline Pty Limited (b),(c) Gasinvest Australia Pty Limited (b),(c) Goldfields Gas transmission Pty Ltd (b) Nt Gas Distribution Pty Limited (b),(c) Nt Gas easements Pty Limited (b),(c) Nt Gas Pty Limited Roverton Pty Ltd (b),(c) SCP Investments (No 1) Pty Limited (b),(c) SCP Investments (No 2) Pty Limited (b),(c) SCP Investments (No 3) Pty Limited (b),(c) Sopic Pty Ltd (b),(c) Southern Cross Pipelines (NPL) Australia Pty Ltd (b),(c) Southern Cross Pipelines Australia Pty Limited (b),(c) trans Australia Pipeline Pty Limited (b),(c) Western Australia Gas transmission Company 1 Pty Ltd (b),(c) GasNet Australia trust (b) APA GasNet Australia (Holdings) Pty Ltd (b),(c) APA GasNet Australia (operations) Pty Ltd (b),(c) 78 COuntrY OF registratiOn/ inCOrpOratiOn OWnersHip interest 2012 % 2011 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201240. suBsidiaries (COntinued) naMe OF entitY APA GasNet A Pty Ltd (b),(c) GasNet A trust APA GasNet Australia (NSW) Pty Ltd (b),(c) APA GasNet B Pty Ltd (b),(c) APA GasNet Australia Pty Limited (b),(c) GasNet B trust (b) GasNet Australia Investments trust Allgas energy Pty Limited (d) APt Allgas Pipelines operations Pty Limited (b),(c) Allgas toowoomba Pty Limited (d) APA operations Pty Limited (b),(c) APt AM Holdings Pty Limited (b),(c) APt o&M Holdings Pty Ltd (b),(c) APt o&M Services Pty Ltd (b),(c) APt o&M Services (QLD) Pty Ltd (b),(c) APt Water Management Pty Ltd (b),(c) APt Water Management Holdings Pty Ltd (b),(c) APt AM Stratus Pty Ltd (b),(c) APt Facility Management Pty Ltd (b),(c) APt AM employment Pty Ltd (b),(c) APt Sea Gas Holdings Pty Limited (b),(c) APt SPV2 Pty Ltd (b) APt SPV3 Pty Ltd (b) APt Pipelines (SA) Pty Ltd (b),(c) APt (MIt) Services Pty Limited (b),(c) APA operations (eII) Pty Limited (b),(c) APA Pipelines (QNSW) Pty Limited (b),(c) Central Ranges Pipeline Pty Ltd (b),(c) APA Country Pipelines Pty Ltd (b),(c) North Western Natural Gas Company Pty Limited (b),(c) APA Facilities Management Pty Limited (b),(c) APA (NBH) Pty Limited (b),(c) APA Pipelines Investments (BWP) Pty Limited (b),(c) APA Power Holdings Pty Ltd (b),(c) Diamantina Holdings Company Pty Ltd (formerly APA Power Pty Ltd) (e) Diamantina Power Station Pty Ltd (formerly APA DPS Pty Ltd) (e) APA (eDWF HoLDCo) PtY LtD (b),(c) APA (BWF HoLDCo) PtY LtD (b),(c) eDWF Holdings 1 Pty Ltd (b),(c) eDWF Holdings 2 Pty Ltd (b),(c) eDWF Manager Pty Ltd (b),(c) Wind Portfolio Pty Ltd (b),(c) Griffin Windfarm 2 Pty Ltd (b) APA AM (Allgas) Pty Limited (b),(c) COuntrY OF registratiOn/ inCOrpOratiOn Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia OWnersHip interest 2012 % 100 100 100 100 100 100 100 - 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 2011 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 79 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201240. suBsidiaries (COntinued) naMe OF entitY APA DPS Holdings Pty Limited (b),(c) APA Power PF Pty Limited (b),(c) COuntrY OF registratiOn/ inCOrpOratiOn Australia Australia OWnersHip interest 2012 % 100 100 2011 % - - (a) Australian Pipeline trust is the head entity within the tax-consolidated group. (b) these entities are members of the tax-consolidated group. (c) these wholly-owned subsidiaries have entered into a deed of cross guarantee with APt Pipelines Limited pursuant to ASIC Class order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report. (d) these entities were disposed of during the year. (e) these entities changed to be an associate during the year. 41. aCQuisitiOn OF Businesses naMes OF Business aCQuired prinCipal aCtiVitY date OF aCQuisitiOn during the financial year ended 30 June 2011 prOpOrtiOn aCQuired COst OF aCQuisitiOn % $000 emu Downs Windfarm Power Generation 30 June 2011 100 179,332 eMu dOWns WindFarM net assets aCQuired Current assets Cash and cash equivalents trade and other receivables other non-current assets Receivables Property, plant and equipment Intangible assets Goodwill Current liabilities trade and other payables non-current liabilities Deferred tax liabilities Provisions Fair value of net assets acquired Discount on acquisition Cost of acquisition Cash balances acquired Consideration not yet paid transaction costs - paid net cash outflow on acquisition - prior year net cash outflow on acquisition - current year total cash outflow on acquisition 80 FAIR VALue oN ACQuISItIoN $000 7,416 5,759 197 1,189 165,715 6,077 802 (801) (6,222) (800) 179,332 - 179,332 (7,416) (5,533) 836 167,219 5,714 172,933 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201242. dispOsal OF Businesses During the financial year APA divested its gas distribution network in South east Queensland (Allgas) into the APA minority owned unlisted investment vehicle GDI (eII) Pty Ltd. APA established GDI in December 2011. APA retains a 20.0% interest in GDI and remains operator of the assets. the net proceeds received from the new equity partners, Marubeni Corporation and RReeF totalled $475.7 million after transaction costs. net assets dispOsed Current assets trade and other receivables non-current assets Property, plant and equipment Goodwill Intangibles total assets Current liabilities trade and other payables other non-current liabilities Deferred tax liabilities total liabilities net assets Profit on sale of Allgas Distribution Network before transaction costs transactions costs Loss on disposal (after transaction costs) Less: Redeemable preference shares acquired Fair value of equity accounted interest retained Payables - sale of business net cash inflow on disposal of allgas 43. COMMitMents FOr expenditure Capital expenditure commitments plant and eQuipMent Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years COnsOlidated entitY’s sHare OF JOintlY COntrOlled OperatiOn’s COMMitMents Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years 16/12/2011 $000 13,770 471,006 104,263 633 589,672 (1,266) (1,086) (58,979) (61,331) 528,341 12,032 (21,695) (9,663) (10,400) (39,020) 6,420 475,678 COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 55,087 41,101 - - - - 55,087 41,101 79,806 49,655 - 129,461 - - - - - - - - - - - - - - - - - - - - 81 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201244. reMuneratiOn OF external auditOr Amounts received or due and receivable by Deloitte touche tohmatsu for: Auditing the financial report Compliance plan audit tax compliance and advice (a) other assurance services (a) COnsOlidated trust 2012 $ 570,300 20,700 5,500 646,400 1,242,900 2011 $ 578,500 20,000 19,700 87,015 705,215 2012 $ 2011 $ 5,500 5,500 - - - - - - 5,500 5,500 (a) Services provided were in accordance with the external auditor independence policy. other assurance services comprise financial due diligence, preparation of investigating accountants reports and assurance services in relation to debt raisings and a takeover offer. 45. direCtOr COMpensatiOn (a) details of directors the Directors of the APA group of entities during the financial year were: L F Bleasel AM (Independent, Non-executive Chairman) M J McCormack (Managing Director/Chief executive officer) S Crane (Independent Non-executive Director) J A Fletcher (Independent Non-executive Director) R A Higgins AO (Independent Non-executive Director) P M McKenzie (Independent Non-executive Director) M Muhammad (Non-executive Director) R J Wright (Independent Non-executive Director) (b) director compensation the aggregate compensation made to directors of the Consolidated entity and the trust is set out below: Short-term employment benefits Post-employment benefits Cash settled share-based payments COnsOlidated and trust 2012 $ 2011 $ 2,762,850 2,409,250 168,148 1,021,548 149,194 773,281 3,952,546 3,331,725 82 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201245. direCtOr COMpensatiOn (COntinued) (b) director compensation (continued) the compensation of each director of the Consolidated entity is set out below. sHOrt-terM eMplOYMent BeneFits pOst- eMplOYMent lOng-terM inCentiVe plans SALARY/FeeS $ SHoRt-teRM INCeNtIVe SCHeMe $ SuPeR- ANNuAtIoN $ SHARe-BASeD PAYMeNtS (a) $ totAL $ nOn-exeCutiVe direCtOrs L F Bleasel AM 2012 2011 S Crane 2012 2011 J A Fletcher 2012 2011 R A Higgins Ao 2012 2011 P M McKenzie 2012 2011 M Muhammad 2012 2011 M (George) Ratilal (b) 2012 2011 R J Wright 2012 2011 tOtal reMuneratiOn: nOn-exeCutiVe direCtOrs 2012 2011 exeCutiVe direCtOrs M J McCormack 2012 2011 tOtal reMuneratiOn: direCtOrs 2012 2011 289,000 272,500 134,750 57,875 117,000 107,000 146,000 145,375 130,000 56,750 130,000 121,500 - 16,000 150,750 141,250 1,097,500 918,250 - - - - - - - - - - - - - - - - - - 965,000 870,000 700,350 621,000 2,062,500 1,788,250 700,350 621,000 24,400 20,750 12,128 5,209 43,250 42,335 13,145 13,077 11,675 5,108 - - - - 13,550 12,715 118,148 99,194 50,000 50,000 168,148 149,194 (a) Cash settled share-based payments. (b) Directors fees paid to Petronas Australia Pty Ltd, retired 26 August 2010. - - - - - - - - - - - - - - - - - - 313,400 293,250 146,878 63,084 160,250 149,335 159,145 158,452 141,675 61,858 130,000 121,500 - 16,000 164,300 153,965 1,215,648 1,017,444 1,021,548 2,736,898 773,281 2,314,281 1,021,548 3,952,546 773,281 3,331,725 83 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201246. KeY ManageMent persOnnel COMpensatiOn (a) details of key management personnel the members of key management personnel of the APA group of entities during the financial year were: M J McCormack (Managing Director/Chief executive officer) P J Fredricson (Chief Financial officer) R M Gersbach (Chief executive Strategy & Development) S P Ohl (Group executive Strategic Projects) M T Knapman (Company Secretary) P J Wallace (Group executive Human Resources) R A Wheals (Group executive transmission, appointed 1 May 2012) J L Ferguson (Group executive Networks, appointed 1 May 2012) K Lester (Group executive Infrastructure Development, appointed 6 August 2012) (b) Key management personnel compensation the aggregate compensation made to key management personnel of the Consolidated entity and the trust is set out below: Short-term employment benefits Post-employment benefits Cash settled share-based payments the executive remuneration strategy is to: COnsOlidated and trust 2012 $ 2011 $ 5,922,156 298,160 2,638,476 8,858,792 4,449,055 181,691 1,688,799 6,319,545 – attract and retain key executives who will create long-term sustainable total fixed remuneration is reviewed annually and is determined by reference to value for securityholders; appropriate remuneration benchmarking information, taking into account an – motivate and reward executives having regard to the overall performance of individual’s responsibilities, performance, qualifications and experience. APA, the performance of the executive measured against pre-determined objectives and the external compensation environment; – appropriately align the interests of executives with those of securityholders; and – comply with applicable legal requirements and appropriate standards of operating cash flow per security has been chosen by the board as the key performance measure for ‘at risk’ remuneration. this is directly linked to the strategic goal of increasing operating cash flows over the medium term, thereby improving returns to securityholders. governance. Refer to the Remuneration Report for further details of APA’s executive APA’s remuneration mix is structured as a mix of base pay and ‘at risk’ short remuneration policy. and long-term incentive components. 84 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201246. KeY ManageMent persOnnel COMpensatiOn (COntinued) (b) Key management personnel compensation (continued) the compensation of each member of the key management personnel of the Consolidated entity is set out below. sHOrt-terM eMplOYMent BeneFits pOst- eMplOYMent lOng-terM inCentiVe plans SALARY/FeeS $ SHoRt-teRM INCeNtIVe SCHeMe $ NoN- MoNetARY $ SuPeR- ANNuAtIoN $ SHARe-BASeD PAYMeNtS (a) $ totAL $ KeY ManageMent persOnnel M J McCormack 2012 2011 P J Fredricson 2012 2011 R M Gersbach 2012 2011 S P ohl 2012 2011 M t Knapman 2012 2011 P J Wallace 2012 2011 R A Wheals (b) 2012 2011 J L Ferguson (b) 2012 2011 965,000 870,000 700,350 621,000 590,225 554,801 658,303 622,879 415,377 376,069 366,000 350,000 272,243 67,715 292,395 270,750 321,563 308,750 182,125 201,375 132,922 130,706 147,345 34,356 329,000 117,369 - - 295,422 119,747 - - - - - - 11,922 11,922 4,848 28,732 - - - - - - - - 50,000 50,000 1,021,548 2,736,898 773,281 2,314,281 15,775 15,199 15,775 15,199 49,775 45,199 50,000 50,000 41,257 6,094 290,755 1,189,150 165,780 1,006,530 475,330 1,482,893 343,688 1,302,438 337,336 253,636 215,843 141,560 60,110 10,854 989,461 905,011 764,765 672,266 520,955 119,019 25,000 119,753 591,122 - - - 50,578 117,801 583,548 - - - tOtal reMuneratiOn 2012 2011 (a) Cash settled share-based payments. 3,891,570 2,013,816 2,841,464 1,566,937 16,770 40,654 298,160 2,638,476 8,858,792 181,691 1,688,799 6,319,545 (b) R A Wheals and J L Ferguson were appointed to KMP positions on 1 April 2012. Remuneration disclosed is for the full financial year. 47. related partY transaCtiOns (a) equity interest in related parties Details of the percentage of ordinary securities held in subsidiaries are (c) transactions with key management personnel disclosed in Note 40 and the details of the percentage held in jointly controlled Details of directors and key management personnel compensation are operations are disclosed in Note 39. Details of interests in jointly controlled disclosed in Note 45 and 46 respectively. entities and associates are disclosed in Note 17. (i) Loans to key management personnel (b) responsible entity – australian pipeline limited No loans have been made to key management personnel. the Responsible entity is wholly owned by APt Pipelines Limited. 85 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012 47. related partY transaCtiOns (COntinued) (c) transactions with key management personnel (continued) (ii) Key management personnel equity holdings FuLLY PAID SeCuRItIeS oPeNING BALANCe SeCuRItIeS ACQuIReD DuRING tHe FINANCIAL YeAR SeCuRItIeS DISPoSeD DuRING tHe FINANCIAL YeAR FuLLY PAID SeCuRItIeS CLoSING BALANCe 2012 L F Bleasel AM S Crane J A Fletcher R A Higgins Ao P M McKenzie M Muhammad R J Wright M J McCormack P J Fredricson R M Gersbach S P ohl M t Knapman P J Wallace R A Wheals J L Ferguson 2011 L F Bleasel AM S Crane J A Fletcher R A Higgins Ao P M McKenzie M Muhammad M (George) Ratilal R J Wright M J McCormack P J Fredricson R M Gersbach S P ohl M t Knapman P J Wallace 375,405 100,000 60,026 79,503 - 42,818 34,071 170,619 3,269 9,796 14,896 4,484 - 1,500 1,967 67,688 - 3,272 6,657 12,500 - 2,853 24,645 2,947 454 - 2,516 - - - 359,771 15,634 - 100,000 56,807 72,954 - 42,818 - 31,265 147,005 3,000 24,569 14,896 4,484 - 3,219 6,549 - - - 2,806 23,614 269 1,525 - - - - - - - - - - - 9,796 - - - - - - - - - - - - - - - 16,298 - - - 443,093 100,000 63,298 86,160 12,500 42,818 36,924 195,264 6,216 454 14,896 7,000 - 1,500 1,967 375,405 100,000 60,026 79,503 - 42,818 - 34,071 170,619 3,269 9,796 14,896 4,484 - (iii) Other transactions with key management personnel of the Group and – operational services provided between entities; the Responsible Entity – payments of distributions; other than directors compensation (Note 45) and key management personnel – payments of capital distributions (returns of capital); and compensation (Note 46) and equity holdings in Note 47(c)(ii), there are no – equity issues. other transactions with key management personnel of the Group and the Responsible entity. (d) transactions with related parties within apa group transactions between the entities that comprise APA Group during the financial year consisted of: – dividends; – system lease rentals; – loans advanced and payments received on long-term inter-entity loans; – management fees; 86 the above transactions were made on normal commercial terms and conditions. the Group charges interest on inter-entity loans from time to time. All transactions between the entities that comprise APA Group have been eliminated on consolidation. Refer to Note 40 for details of the entities that comprise APA Group. AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201247. related partY transaCtiOns (COntinued) (d) transactions with related parties within apa group (continued) Australian Pipeline Limited Australian Pipeline Limited, in its capacity as trustee and Responsible entity of Management fees of $2,760,079 (2011: $2,238,000) were paid to the the trust, has guaranteed the payment of principal, interest and other amounts Responsible entity as reimbursement of costs incurred on behalf of APA. No as provided in the Note and Guarantee Agreement relating to the issue of amounts were paid directly by APA to the Directors of the Responsible entity, Guaranteed Senior Notes. except as disclosed at Note 45(b). (e) transactions with other related parties Transactions with associates and jointly controlled entities the following transactions occurred with the APA Group’s associates on normal market terms and conditions: SALeS to ReLAteD PARtIeS $ PuRCHASeS FRoM ReLAteD PARtIeS $ AMouNt oWeD BY ReLAteD PARtIeS $ AMouNt oWeD to ReLAteD PARtIeS $ 2012 SeA Gas energy Infrastructure Investments eII 2 APA ethane Ltd Diamantina Power Station GDI (eII) envestra Limited At the year end, APA had receivables with related parties of $7,284,791. 2011 SeA Gas energy Infrastructure Investments eII 2 APA ethane Ltd CAMS (a) envestra Limited 2,602,524 28,509,775 637,376 200,000 5,385,943 21,050,337 - - - - - - 78,326 2,730,398 - - 89,749,008 3,907,990 296,428,404 566,250 38,311,409 354,814,359 566,250 134,777,131 3,752,891 23,002,158 3,428,097 200,000 348,881 539 256,438 - - - - 4,528,545 55,783 - 66,712 228,323,940 187,980 29,244,768 259,055,967 188,519 34,152,246 - - - - - - - - - - - - - - - (a) APA disposed of its 50% interest in CAMS on 30 June 2011. transactions with all related parties have taken place at arm’s length and in the ordinary course of business. Transactions between the Trust and its related parties During the financial year ended 30 June 2012, the following transactions occurred between the trust and its other related parties: – the trust received dividends from its wholly-owned controlled entities (see Note 6). the following balances arising from transactions between the trust and its other related parties are outstanding at reporting date: – Receivables of nil (2011: $481,974) are owing from associates; and – Receivables of $402,269,587 (2011: $486,345,026) are owing from subsidiaries; and – total payables of $98,427,045 are repayable to subsidiaries (2011: $98,427,045). No guarantees have been given or received and no expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties. transactions and balances between the trust and its subsidiaries were eliminated in the preparation of the consolidated financial statements of the APA Group. 87 AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201248. COntingenCies COntingent liaBilities Bank guarantees COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 31,632 8,051 - - - - COntingent assets - - 49. eVents OCCurring aFter repOrting date on 9 August 2012, APA lodged a prospectus with the Australian Securities and Investments Commission (ASIC) for an offer of long-dated, unsecured, subordinated, cumulative notes (Notes) to raise $350 million, with the ability to raise more or less. A replacement prospectus was lodged with the ASIC on 17 August 2012 following the closure of the “exposure” period and finalisation of the margin and revised offer size of $475 million. on 17 August 2012 APA announced an increased offer to acquire HDF and a Fourth Supplementary Bidder’s Statement is expected to be issued on 27 August 2012. these developments followed an announcement from the ACCC on 19 July 2012 that they would not oppose any bid for HDF by APA, subject to certain undertakings from APA. on 22 August 2012, the Directors declared a final distribution of 18.0 cents per security ($116.0 million) for the APA Group (comprising a distribution of 12.41 cents per security from APt and a distribution of 5.59 cents per security from APtIt), made up of 8.37 cents per security profit distribution (unfranked) and 9.63 cents per security capital distribution. the distribution will be paid on 14 September 2012. other than the events disclosed above, there have not been any events or transactions that have occurred subsequent subsequent to year end that would require adjustment to or disclosure in the accounts. AuS tRALIAN PIPeLINe t R uS t AND It S C oNtRoLLeD eNtItIeS Declaration by the Directors For the financial year ended 30 June 2012 the Directors declare that: (a) in the Directors’ opinion, there are reasonable grounds to believe that Australian Pipeline trust will be able to pay its debts as and when they become due and payable; (b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of Australian Pipeline trust and the Consolidated entity; (c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards as stated in Note 3 to the financial statements; and (d) the Directors have been given the declarations by the Managing Director and Chief Financial officer required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors of the Responsible entity made pursuant to section 295(5) of the Corporations Act 2001. on behalf of the Directors leonard Bleasel aM Chairman SYDNeY, 22 August 2012 88 robert Wright Director AustrAliAn PiPeline trust And its controlled entitiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 2012 AuS tRA LIA N PI PeLINe tR uS t AND It S C oNtRoLLeD eNtItIeS auDitor’s inDepenDence Declaration For the financial year ended 30 June 2012 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au The Directors Australian Pipeline Limited as responsible entity for Australian Pipeline Trust HSBC Building Level 19, 580 George Street Sydney NSW 2000 22 August 2012 Dear Directors Auditors Independence Declaration to Australian Pipeline Limited as responsible entity for Australian Pipeline Trust In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Australian Pipeline Limited as responsible entity for Australian Pipeline Trust. As lead audit partner for the audit of the financial statements of Australian Pipeline Trust for the financial year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU G Couttas Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 89 AuS tRALIAN PIPeLI Ne t R uS t AND It S C oNtRoLLeD eNtItIeS inDepenDent auDitor’s report For the financial year ended 30 June 2012 Deloitte Touche Tohmatsu ABN 74 490 121 060 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place Grosvenor Place 225 George Street 225 George Street Sydney NSW 2000 Sydney NSW 2000 PO Box N250 Grosvenor Place PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Sydney NSW 1220 Australia DX: 10307SSE DX: 10307SSE Tel: +61 (0) 2 9322 7000 Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au www.deloitte.com.au Independent Auditor’s Report Independent Auditor’s Report to the Unitholders of Australian Pipeline Trust to the Unitholders of Australian Pipeline Trust We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the statement of financial position as at 30 June 2012, the statement of comprehensive income, the statement of financial position as at 30 June 2012, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the Trust and the entities it controlled at directors’ declaration of the consolidated entity, comprising the Trust and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 29 to 88. the year’s end or from time to time during the financial year as set out on pages 29 to 88. Directors’ Responsibility for the Financial Report Directors’ Responsibility for the Financial Report The directors of Australian Pipeline Limited are responsible for the preparation of the financial report The directors of Australian Pipeline Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 3, the directors also state, in accordance with misstatement, whether due to fraud or error. In Note 3, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. comply with International Financial Reporting Standards. Auditor’s Responsibility Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. our audit opinion. Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited Member of Deloitte Touche Tohmatsu Limited 90 APA grouP AnnuAl rePort 2012 AuS tRA LIA N PI PeLINe tR uS t AND It S C oNtRoLLeD eNtItIeS inDepenDent auDitor’s report continueD For the financial year ended 30 June 2012 Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Australian Pipeline Limited as responsible entity for Australian Pipeline Trust would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Australian Pipeline Trust is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Trust’s and consolidated entity’s financial position as at 30 June 2012 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 3. DELOITTE TOUCHE TOHMATSU G Couttas Partner Chartered Accountants Sydney, 22 August 2012 91 apt investment trust and its controlled entities arsn 115 585 441 APt INVeS tMeNt t R uS t AN D It S C oNtRoLLeD eNtItIeS Directors’ report the directors of Australian Pipeline Limited (“Responsible entity” or “APL”) Details of the directors, their qualifications, experience, special responsibilities submit the annual financial report of APt Investment trust (“APtIt”) and its and directorships of other listed entities are set out on pages 10 to 12. controlled entities (together “Consolidated entity”) for the year ended 30 June 2012. this report and the financial statements attached refer to the consolidated results of APtIt, one of the two stapled entities of APA Group, with the other Muri Muhammad gave notice on 25 July 2012 of his resignation from the board of Australian Pipeline Limited with effect from 24 october 2012. stapled entity being Australian Pipeline trust (together “APA”). George Ratilal resigned as alternate director for Muri Muhammad on 9 May 2012. Directors the names of the directors of the Responsible entity during the year and since company secretary Mark Knapman the year end are: Details of the Company Secretary, his qualifications and experience are set out leonard Bleasel aM Chairman Michael McCormack Managing Director and Chief executive officer steven Crane John Fletcher russell Higgins aO patricia McKenzie Muri Muhammad robert Wright on page 11. principal activities APtIt operates as an investment and financing entity within the Australian Pipeline trust stapled group. signiFicant changes in state oF aFFairs In the opinion of the directors of the Responsible entity, no significant changes in the state of affairs of APtIt occurred during the year. review anD results oF operations APtIt reported net profit after tax of $46.0 million (2011: $38.9 million) for the year ended 30 June 2012 on total revenue of $46.0 million (2011: $38.9 million). Distributions Distributions paid to securityholders during the financial year were: APtIt profit distribution APtIt capital distribution total Final FY 2011 distriButiOn paid 15 septeMBer 2011 interiM FY 2012 distriButiOn paid 15 MarCH 2012 Cents per security total distribution $000 Cents per security total distribution $000 3.41 2.66 6.07 18,295 15,449 33,744 3.88 2.06 5.94 24,797 13,201 37,998 on 22 August 2012, the directors declared a final distribution for APtIt for the current financial year of 5.59 cents per security payable 14 September 2012, made up of: APtIt profit distribution APtIt capital distribution total Final FY 2012 distriButiOn paYaBle 14 septeMBer 2012 Cents per security total distribution $000 3.28 2.31 5.59 21,160 14,879 36,039 Distribution information is presented on an accounting classification basis. the APA Group Annual tax Statement and Annual tax Return Guide (released in September 2012) provide the classification of distribution components for the purposes of preparation of securityholder income tax returns. As at 30 June 2012, 644,485,583 securities were on issue (2011: 634,116,029). 92 APA grouP AnnuAl rePort 2012subsequent events except as disclosed elsewhere in this report, the directors are unaware of any auDitor’s inDepenDence Declaration A copy of the Auditor’s independence declaration as required under section matter or circumstance that has occurred since the current period end that has 307C of the Corporations Act 2001 is included on page 113. significantly affected or may significantly affect the operations of the Consolidated entity, the results of those operations or the state of affairs of the Consolidated entity in future years. Future Developments Disclosure of information regarding likely developments in the operation of the Consolidated entity in future financial years and the expected results of those operations, other than information disclosed elsewhere in this report, is likely to result in unreasonable prejudice to the Consolidated entity. Accordingly, this rounDing oFF oF amounts APA Group is an entity of the kind referred to in ASIC Class order 98/0100 dated 10 July 1998, and in accordance with that Class order, amounts in the Directors’ report and the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of the directors of the Responsible entity made pursuant to section 298(2) of the Corporations Act 2001. information has not been disclosed in this report. on behalf of the directors leonard Bleasel aM Chairman robert Wright Director SYDNeY, 22 August 2012 other inFormation Details of directors and the Company Secretary are on pages 10 to 11. Further information on directorships, attendance at meetings, security holdings, remuneration, options granted and indemnification of officers and external auditor are found in the APt directors’ report, pages 12 to 22. inFormation requireD For registereD schemes Fees paid to the Responsible entity and its associates (including directors and secretaries of the Responsible entity, related bodies corporate and directors and secretaries of related bodies corporate) out of APA scheme property during the year are disclosed in Note 19 to the financial statements. except as disclosed in this report, neither the Responsible entity nor any of its associates holds any APA securities. the number of APA securities issued during the year, and the number of APA securities at the end of the year, are disclosed in Note 10 to the financial statements. the value of APA’s assets as at the end of the year is disclosed in the balance sheet in total assets, and the basis of valuation is included in Note 2 to the financial statements. 93 APT invesTmenT TrusT And iTs conTrolled enTiTiesdirectors’ report continuedAPt INVeS tMeNt t R uS t AN D It S C oNtRoLLeD eNtItIeS statement oF comprehensive income For the financial year ended 30 June 2012 COntinuing OperatiOns Revenue expenses Profit before tax Income tax expense profit for the year Note 4 4 COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 45,969 (12) 45,957 38,936 (12) 38,924 45,969 (12) 45,957 38,936 (12) 38,924 - - - - 45,957 38,924 45,957 38,924 Other comprehensive income Gain on available-for-sale investments taken to equity other comprehensive income for the year (net of tax) 1,090 1,090 635 635 1,090 1,090 635 635 total comprehensive income for the year 47,047 39,559 47,047 39,559 profit attributable to: equityholders of the parent total comprehensive income attributable to: equityholders of the parent earnings per seCuritY 45,957 45,957 38,924 38,924 45,957 45,957 38,924 38,924 47,047 39,559 47,047 39,559 Basic and diluted earnings per security (cents) 12 7.2 7.1 Diluted earnings per security is exactly the same as basic earnings per security. The above statement of comprehensive income should be read in conjunction with the accompanying notes. 94 APA grouP AnnuAl rePort 2012A Pt I NVeS tMeNt tR uS t AND It S C oNtRoLLeD eNtItIeS statement oF Financial position As at 30 June 2012 Current assets Receivables nOn-Current assets Receivables other financial assets total non-current assets total assets Current liaBilities trade and other payables total liabilities net assets eQuitY Issued capital Reserves Retained earnings total equity COnsOlidated trust Note 2012 $000 2011 $000 2012 $000 2011 $000 6 7 8 9 10 11 755 720 755 720 11,869 374,236 386,105 12,448 387,671 400,119 11,869 374,236 386,105 12,448 387,671 400,119 386,860 400,839 386,860 400,839 10 10 9 9 10 10 9 9 386,850 400,830 386,850 400,830 364,066 382,001 364,066 382,001 1,624 21,160 534 18,295 1,624 21,160 534 18,295 386,850 400,830 386,850 400,830 The above statement of financial position should be read in conjunction with the accompanying notes. A Pt I NVeS tMeNt tR uS t AND It S C oNtRoLLeD eNtItIeS statement oF changes in equity For the financial year ended 30 June 2012 Balance at 1 July 2010 Profit for the year Valuation gain recognised total comprehensive income for the year Issue of capital (net of issue costs) Distributions to securityholders Balance at 30 June 2011 Balance at 1 July 2011 Profit for the year Valuation gain recognised total comprehensive income for the year Issue of capital (net of issue costs) Distributions to securityholders Balance at 30 June 2012 Note 11 10 5 11 10 5 ISSueD CAPItAL $000 320,931 - - - 81,547 (20,477) 382,001 382,001 - - - 10,715 (28,650) 364,066 The above statement of changes in equity should be read in conjunction with the accompanying notes. COnsOlidated and trust ReSeRVeS $000 (101) - 635 635 - - RetAINeD eARNINGS $000 19,928 38,924 - 38,924 - totAL $000 340,758 38,924 635 39,559 81,547 (40,557) (61,034) 534 18,295 400,830 534 - 1,090 1,090 - - 18,295 45,957 - 45,957 - 400,830 45,957 1,090 47,047 10,715 (43,092) (71,742) 1,624 21,160 386,850 95 APt INVeS tMeNt t R uS t AN D It S C oNtRoLLeD eNtItIeS statement oF cash Flows For the financial year ended 30 June 2012 CasH FlOWs FrOM Operating aCtiVities trust distribution - related party trust distribution - subsidiary Capital distribution received - external Dividends received Interest received - related parties Finance lease receivable repayments Receipts from customers Payments to suppliers COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 31,270 32,641 - 521 152 9,906 1,167 150 (12) - 518 161 6,615 1,167 110 (12) - 31,270 521 152 9,906 1,167 150 (12) - 32,641 518 161 6,615 1,167 110 (12) net cash provided by operating activities 43,154 41,200 43,154 41,200 CasH FlOWs FrOM inVesting aCtiVities Repayment received from/(advances to) related parties net cash provided by/(used in) investing activities CasH FlOWs FrOM FinanCing aCtiVities Proceeds from issue of securities Distributions to securityholders net cash (used in)/provided by financing activities 17,873 17,873 (61,714) (61,714) 17,873 17,873 (61,714) (61,714) 10,715 (71,742) (61,027) 81,548 (61,034) 20,514 10,715 (71,742) (61,027) 81,548 (61,034) 20,514 net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year - - - - - - - - - - - - The above statement of cash flows should be read in conjunction with the accompanying notes. 96 APA grouP AnnuAl rePort 2012A Pt I NVeS tMeNt tR uS t AND It S C oNtRoLLeD eNtItIeS notes to the Financial statements For the financial year ended 30 June 2012 1. general inFOrMatiOn Basis of preparation APt Investment trust (“APtIt” or “trust”) is one of the two stapled entities of the financial report has been prepared on the basis of historical cost, except for APA Group (“APA”), the other stapled entity being Australian Pipeline trust the revaluation of certain non-current assets and financial instruments. Cost is (“APt”), listed on the Australian Securities exchange (trading under the symbol based on the fair values of the consideration given in exchange for assets. ‘APA’), registered in Australia and operating in Australia. the financial report is presented in Australian dollars and all values are rounded APtIt’s registered office and its principal place of business are as follows: to the nearest thousand dollars ($000) unless otherwise stated under the registered office and principal place of business Level 19, HSBC Building 580 George Street SYDNeY NSW 2000 tel: (02) 9693 0000. APtIt operates as an investment and financing entity within the Australian Pipeline trust stapled group. 2. signiFiCant aCCOunting pOliCies statement of compliance option available to APtIt under ASIC Class order 98/0100. APtIt is an entity to which the class order applies. Critical accounting judgements and key sources of estimation uncertainty In the application of the Consolidated entity’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. the estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. the financial report is a general purpose financial report which has been the estimates and underlying assumptions are reviewed on an ongoing basis. prepared in accordance with the Corporations Act 2001, Accounting Standards Revisions to accounting estimates are recognised in the period in which the and Interpretations, and complies with other requirements of the law. estimate is revised if the revision affects only that period, or in the period of the the financial report includes the separate financial statements of the trust and the consolidated financial statements of the Consolidated entity. Accounting Standards include Australian equivalents to International Financial Reporting revision and future periods if the revision affects both current and future periods. Refer to Note 3 for a discussion of critical judgements in applying the entity’s accounting policies, and key sources of estimation uncertainty. Standards (“A-IFRS”). Compliance with A-IFRS ensures that the financial adoption of new and revised accounting standards statements and notes of the trust and the Consolidated entity comply with In the current year, the Consolidated entity has adopted all of the new and International Financial Reporting Standards (“IFRS”). revised Standards and Interpretations issued by the Australian Accounting the financial statements were authorised for issue by the directors on 22 August 2012. Standards Board (“AASB”) that are relevant to its operations and effective for the current annual reporting period. Details of the impact of the adoption of these new accounting standards are set out in the individual accounting policy notes set out below: (i) Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) the following new and revised Standards and Interpretations have been adopted in the current period and have affected the amounts reported in these financial statements. Details of other Standards and Interpretations adopted in these financial statements but that have had no effect on the amounts reported are set out in part b. Standards affecting presentation disclosure standard iMpaCt – Amendments to AASB 7 ‘Financial Instruments: Disclosure’. the amendments (part of AASB 2010-4 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project’) clarify the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. – Amendments to AASB 101 ‘Presentation of Financial Statements’. the amendments (part of AASB 2010-4 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project’) clarify that an entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements. – AASB 1054 ‘Australian Additional Disclosures’ AASB 1054 sets out the Australian-specific disclosures for entities that have adopted Australian Accounting Standards. this standard contains disclosure requirements that are in addition to IFRS in areas such as compliance with Australian Accounting Standards, the nature of financial statements, audit fees, imputation (franking) credits and the reconciliation of net operating cash flow to profit. 97 2. signiFiCant aCCOunting pOliCies (COntinued) (ii) Standards and Interpretations adopted with no effect on financial statements the following new and revised Standards have also been adopted in these financial statements. their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions and arrangements. standard iMpaCt – AASB 124 ‘Related Party Disclosures’ (revised December 2009) AASB 124 (revised December 2009) has been revised on the following two aspects: (a) has changed the definition of a related party and (b) includes an explicit requirement to disclose commitments involving related parties. – AASB 2009-14 ‘Amendments to Australian Interpretation - Prepayments Interpretation 114 addresses when refunds or reductions in future contributions of Minimum Funding Requirement’. should be regarded as available in accordance with paragraph 58 of AASB 119; the impact on future contributions and when it might give rise to a liability. the amendments now allow recognition of an asset in the form of prepaid minimum funding contributions. – AASB 2009-12 ‘Amendments to Australian Accounting Standards’. the application of AASB 2009-12 makes amendments to AASB 8 ‘operating Segments’ as a result of the issuance of AASB 124 ‘Related Party Disclosure’ (2009). the Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations. – AASB 2010-5 ‘Amendments to Australian Accounting Standards’ the Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations. – AASB 2010-6 ‘Amendments to Australian Accounting Standards - the application of AASB 2010-6 makes amendments to AASB 7 ‘Financial Disclosures on transfers of Financial Assets’ instruments - Disclosures’ to introduce additional disclosure requirements for transactions involving transfer of financial assets. these amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred and derecognised but the transferor retains some level of continuing exposure in the asset. (iii) Standards and Interpretations issued not yet adopted At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. standard/interpretatiOn eFFeCtiVe FOr annual repOrting periOds Beginning On Or aFter expeCted tO Be initiallY applied in tHe FinanCial Year ending – AASB 9 ‘Financial Instruments’, AASB 2009-11 ‘Amendments to 1 January 2013 30 June 2014 Australian Accounting Standards arising from AASB 9 and AASB2010-7 ‘Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)’ (effective date deferred by IASB to 1 January 2015) – AASB 10 ‘Consolidated Financial statements’ – AASB 11 ‘Joint Arrangements’ – AASB 12 ‘Disclosure of Interest in other entities’ – AASB 127 ‘Separate Financial statements’ (2011) – AASB 128 ‘Investments in Associates and Joint Ventures’ (2011) – AASB 13 Fair Value measurement and AASB 2010-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’ 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 30 June 2014 30 June 2014 30 June 2014 30 June 2014 30 June 2014 30 June 2014 – AASB 119 ‘employee Benefits’ (2011) and AASB 2011-8 ‘Amendments to 1 January 2013 30 June 2014 Australian Accounting Standards arising from AASB 119’ (2011) – AASB 2010-8 ‘Amendments to Australian Accounting Standards - 1 January 2012 30 June 2013 Deferred tax: Recovery of underlying Assets’ – AASB 2011-4 ‘Amendments to Australian Accounting Standards to 1 July 2013 30 June 2014 Remove Individual Key Management Personnel Disclosure Requirements’ – AASB 2011-7 ‘Amendments to Australian Accounting Standards arising 1 January 2013 30 June 2014 from the Consolidation and Joint Arrangements standards’ – AASB 2011-9 ‘Amendments to Australian Accounting Standards - 1 July 2012 30 June 2013 Presentation of items of other Comprehensive Income’ – Amendments to IFRS 10, 11 and 12 transitional Guidance 1 January 2013 30 June 2014 APA has yet to determine any change in accounting for existing arrangements under AASB 10, 11 and 12. In addition, should any arrangements take place which changes existing interest and creates new interests in controlled entities, the accounting for such transactions, may be different to that applied to transactions in the past. the potential impact of the initial application of the remaining above Standards has not yet been determined. 98 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20122. signiFiCant aCCOunting pOliCies (COntinued) (a) Basis of consolidation consideration classified as an asset or liability are accounted for in accordance the consolidated financial statements incorporate the financial statements of with relevant standards. Changes in the fair value of contingent consideration the trust and entities controlled by the trust (its subsidiaries) (referred to as classified as equity are not recognised. the Consolidated entity in these financial statements). Control is achieved where the trust has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. the results of subsidiaries acquired during the financial year are included in the statement of comprehensive income from the effective date of acquisition. Where necessary, adjustments are made to financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Consolidated entity. All intra-group transactions, balances, income and Where a business combination is achieved in stages, the consolidated entity’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date and the resulting gains or losses, if any, are recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. expenses are eliminated in full on consolidation. In the separate financial the acquiree’s identifiable assets, liabilities and contingent liabilities that meet statements of the trust, the intra-group transactions (“common control the conditions for recognition under AASB 3 are recognised at their fair value transactions”) are generally accounted for by reference to the existing at the acquisition date, except that: (consolidated) book value of the items. Where the transaction value of common control transactions differs from their consolidated book value, the difference is recognised as a contribution by or distribution to equity participants by the transaction entities. – deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised in accordance with AASB 112 ‘Income taxes’ and AASB 119 ‘employee Benefits’ respectively; – liabilities or equity instruments related to the replacement by the Minority interests in the net assets (excluding goodwill) of consolidated Consolidated entity of an acquiree’s share-based payment awards are subsidiaries are identified separately from the Consolidated entity’s equity measured in accordance with AASB 2 ‘Share-based payments’; and therein. Minority interests consist of the amount of those interests at the date – assets (or disposal groups) that are classified as held for sale in accordance of the original business combination and the minority’s share of changes in with AASB 5 ‘Non-current Assets Held for Sale and Discontinued operations’ equity since the date of the combination. Losses applicable to the minority in are measured in accordance with that standard. excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Consolidated entity except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. (b) Cash and cash equivalents If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Consolidated entity reports provisional amounts for the items for which the accounting is incomplete. those provisional amounts are adjusted for during the measurement period, or additional assets or liabilities are recognised, to reflect Cash comprises cash on hand and demand deposits. Cash equivalents are new information obtained about facts and circumstances that existed as of the short-term, highly liquid investments that are readily convertible to known acquisition date, that, if known, would have affected the amounts recognised amounts of cash, which are subject to insignificant risk of changes in values. as at that date. (c) trade and other payables the measurement period is the period from the date of acquisition to the date trade and other payables are recognised when the Consolidated entity the Consolidated entity obtains complete information about facts and becomes obliged to make future payments resulting from the purchase of circumstances that existed as of the acquisition date, and is subject to a goods and services. trade and other payables are stated at amortised cost. maximum of one year. (d) acquisition of assets (f) Financial instruments issued by the Consolidated entity Assets acquired are recorded at the cost of acquisition, being the purchase Debt and equity instruments consideration determined as at the date of acquisition. Cost includes Debt and equity instruments are classified as either liabilities or equity in expenditure that is directly attributable to the acquisition or construction of accordance with the substance of the contractual arrangement. An equity the asset. In the event that settlement of all or part of the cash consideration given in the acquisition of an asset is deferred, the fair value of the purchase consideration is determined by discounting the amounts payable in the future to their present instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. equity instruments issued by the Consolidated entity are recorded at the proceeds received, net of direct issue costs. values as at the date of acquisition. Transaction costs arising on the issue of equity instruments (e) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. the consideration for each acquisition is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Consolidated entity transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. in exchange for control of the acquiree. Acquisition costs directly attributable Interest and distributions to the business combination are recognised in profit or loss as incurred. Interest and distributions are classified as expenses or as distributions of profit Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its consistent with the statement of financial position classification of the related debt or equity instruments or component parts of compound instruments. acquisition-date fair value. Subsequent changes in fair values are adjusted (g) goods and services tax against the cost of acquisition where they qualify as measurement period Revenues, expenses and assets are recognised net of the amount of goods and adjustments. All other subsequent changes in the fair value of contingent services tax (“GSt”), except: 99 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20122. signiFiCant aCCOunting pOliCies (COntinued) (g) goods and services tax (continued) – where the amount of GSt incurred is not recoverable from the taxation Receivables and loans trade receivables, loans, and other receivables that have fixed or determinable authority, it is recognised as part of the cost of acquisition of an asset or as payments that are not quoted in an active market are classified as ‘loans and part of an item of expense; or receivables’. trade and other receivables are stated at their amortised cost less – for receivables and payables which are recognised inclusive of GSt, except for impairment. accrued revenue and accrued expenses at balance dates which exclude GSt. Impairment of financial assets the net amount of GSt recoverable from, or payable to, the taxation authority Financial assets are assessed for indicators of impairment at each balance is included as part of receivables or payables. sheet date. Financial assets are impaired where there is objective evidence that GSt receivable or GSt payable is only recognised once a tax invoice has been issued or received. Cash flows are included in the statement of cash flows on a gross basis. the GSt component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows. (h) impairment of assets Assets are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. the recoverable amount is the higher of an asset’s fair value less costs to sell, and value in use. as a result of one or more events that occurred after initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. (k) revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Consolidated entity and the revenue can be reliably measured. Amounts disclosed as revenue are net of duties and taxes paid. Revenue is recognised for the major business activities as follows: Interest revenue Interest is recognised by applying the effective interest method, agreed between the parties at the end of each month and is determined by reference to market rates. For the purpose of assessing impairment, assets are grouped at the lowest Distribution revenue levels for which there are separately identifiable cash inflows which are largely Distribution revenue is recognised when the right to receive a distribution has independent of the cash inflows from other assets or groups of assets: (cash- been established. generating units). Assets other than goodwill that have previously suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (i) income tax Income tax expense is not brought to account in respect of APtIt as, pursuant to the Australian taxation laws APtIt is not liable for income tax provided that Dividend revenue Dividend revenue is recognised when the right to receive a dividend has been established. Finance lease income Finance lease income is recognised when receivable. its realised taxable income (including any assessable realised capital gains) is (l) leased assets fully distributed to its securityholders each year. Leases are classified as finance leases when the terms of the lease transfer (j) Financial assets and liabilities Investments in subsidiaries are measured at cost. other financial assets are substantially all the risks and rewards incidental to the ownership of the leased asset to the lessee. All other leases are classified as operating leases. classified into the following specified categories: financial assets ‘held-to- Consolidated Entity as lessor maturity investments’, ‘available-for-sale’ financial assets, and ‘loans and Amounts due from a lessee under a finance lease are recorded as receivables. receivables’. the classification depends on the nature and purpose of the Finance lease receivables are initially recognised at the amount equal to the financial assets and is determined at the time of initial recognition. present value of the minimum lease payments receivable plus the present value Effective interest method the effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. the effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or where appropriate, a shorter period. Fair value through profit or loss Financial assets at fair value through profit or loss are stated at fair value, with of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease receipts are allocated between interest revenue and reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease. (m) segment information APtIt has one reportable segment being energy infrastructure investment and operation. any resultant gain or loss recognised in profit or loss. the net gain or loss APtIt is an investing and financing entity within the Australian Pipeline trust recognised in profit or loss incorporates any dividend or interest earned on the stapled group. As the trust only operates in one segment, it has not disclosed financial asset. Available-for-sale financial assets Financial assets classified as being available-for-sale are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in the available-for-sale investment revaluation reserve. segment information separately. 100 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20123. CritiCal aCCOunting JudgeMents and KeY sOurCes OF estiMatiOn unCertaintY In the application of the Consolidated entity’s accounting policies, management entity to estimate the future cash flows expected to arise from cash-generating is required to make judgements, estimates and assumptions about the carrying units and suitable discount rates in order to calculate the present value of cash- values of assets and liabilities that are not readily apparent from other sources. generating units. the estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from estimates. the estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the estimates and assumptions used are reviewed on an ongoing basis. Determining whether available-for-sale investments are impaired requires an assessment as to whether declines in value are significant or prolonged. Management has taken into account a number of qualitative and quantitative factors in making this assessment. Any assessment of whether a decline in value represents an impairment would result in the transfer of the decrement revision and future periods if the revision affects both current and future from reserves to the statement of comprehensive income. periods. impairment of assets useful lives of non-current assets the Consolidated entity reviews the estimated useful lives of property, plant Determining whether property, plant and equipment, identifiable intangible and equipment at the end of each annual reporting period. Any reassessment assets and goodwill are impaired requires an estimation of the value-in-use or of useful lives in a particular year will affect the depreciation or amortisation fair value of the cash-generating units. the calculations require the Consolidated expense. 4. prOFit FrOM OperatiOns Profit before income tax includes the following items of income and expense: reVenue distributions trust distribution - related party trust distribution - subsidiary other entities FinanCe inCOMe Interest - related parties Gain/(loss) on financial asset held at fair value through profit and loss Finance lease income - related party OtHer reVenue other total revenue expenses Audit fees total expenses COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 31,270 32,641 - 177 - 113 31,447 32,754 9,758 4,000 614 14,372 6,838 (1,398) 640 6,080 - 31,270 177 31,447 9,758 4,000 614 14,372 - 32,641 113 32,754 6,838 (1,398) 640 6,080 150 45,969 102 38,936 150 45,969 102 38,936 (12) (12) (12) (12) (12) (12) (12) (12) 101 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 20125. distriButiOns reCOgnised aMOunts: Final distribution paid on 15 september 2011 (2011: 15 September 2010) Profit distribution (a) Capital distribution semi-annual distribution paid on 15 March 2012 (2011: 17 March 2011) Profit distribution (a) Capital distribution unreCOgnised aMOunts: Final distribution payable on 14 september 2012 (b) (2011: 15 September 2011) Profit distribution (a) Capital distribution (a) Profit distributions unfranked (2011: unfranked). (b) Record date 29 June 2012 COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 18,295 15,449 33,744 24,797 13,201 37,998 19,928 16,350 36,278 20,629 4,127 24,756 18,295 15,449 33,744 24,797 13,201 37,998 19,928 16,350 36,278 20,629 4,127 24,756 21,160 14,879 36,039 18,295 15,449 33,744 21,160 14,879 36,039 18,295 15,449 33,744 the final distribution in respect of the financial year has not been recognised in this financial report because the final distribution was not declared, determined or publicly confirmed prior to the end of the financial year. 6. Current reCeiVaBles other debtors Finance lease receivable - related party (Note 14) 175 580 755 167 553 720 175 580 755 167 553 720 In determining the recoverability of a receivable, the Consolidated entity considers any change in the credit quality of the receivable from the date the credit was initially granted up to the reporting date. the directors believe that there is no credit provision required. None of the above receivables is past due. 7. nOn-Current reCeiVaBles Finance lease receivable - related party (Note 14) 11,869 12,448 11,869 12,448 102 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 20128. nOn-Current OtHer FinanCial assets Receivable from subsidiary Advance to related party Investments carried at cost: Investment in subsidiary Investment in related party (a) Financial assets carried at fair value: Redeemable ordinary shares (b) Available-for-sale investments carried at fair value (c) COnsOlidated trust 2012 $000 - 2011 $000 - 226,556 244,429 2012 $000 112,810 71,937 2011 $000 81,541 121,079 - 107,379 333,935 36,614 3,687 374,236 - 149,188 149,188 107,379 351,808 32,761 3,102 387,671 - - 333,935 351,808 36,614 3,687 374,236 32,761 3,102 387,671 (a) the investment in related party reflects GasNet Australia Investments trust’s (“GAIt”) investment in 100% of the B Class units in GasNet A trust. the B Class units give GAIt rights to the income and capital of GasNet A trust, but hold no voting rights. As such, GAIt neither controls nor has a significant influence over GasNet A trust. GasNet Australia trust, a related party wholly owned by APA, owns 100% of the A Class units in GasNet A trust and, accordingly, GasNet A trust is included in the consolidation of the APA entities. (b) Financial assets carried at fair value relate to APA Group’s 19.9% investment in energy Infrastructure Investments Pty Ltd where APL, as Responsible entity for APtIt, acquired the redeemable ordinary shares. (c) Available-for-sale investments reflect a 6% unitholding in ethane Pipeline Income Fund. ethane Pipeline Income Fund paid capital distributions of $380,860 during the year and declared a $123,021 capital distribution as part of its June 2012 quarter distribution. Also included is a small shareholding in HDuF with a fair value of $2,400. 9. trade and OtHer paYaBles other payables 10. issued Capital 10 9 10 9 644,485,583 securities, fully paid (2011: 634,116,029 securities, fully paid) (a) 364,066 382,001 364,066 382,001 Movements Balance at beginning of financial year Issue of securities under Distribution Reinvestment Plan Issue of securities under Institutional Placement Issue cost of securities Capital distributions paid (Note 5) Balance at end of financial year 2012 nO. OF units 000 COnsOlidated and trust 2012 $000 2011 No. oF uNItS 000 634,116 10,370 - - - 382,001 10,733 - (18) (28,650) 542,319 13,875 77,922 - - 644,486 364,066 634,116 2011 $000 320,931 12,590 69,872 (915) (20,477) 382,001 (a) Fully paid securities carry one vote per security and carry the right to distributions. Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to issued capital from 1 July 1998. therefore, the trust does not have a limited amount of authorised capital and issued securities do not have a par value. 103 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201211. reserVes available-for-sale investment revaluation reserve Balance at beginning of financial year Valuation gain recognised Balance at end of financial year COnsOlidated trust 2012 $000 534 1,090 1,624 2011 $000 (101) 635 534 2012 $000 534 1,090 1,624 2011 $000 (101) 635 534 the available-for-sale investment revaluation reserve arises on the revaluation of available-for-sale financial assets. When a revalued financial asset is sold, the portion of the reserve which relates to that financial asset is effectively realised, and is recognised in profit or loss. When a revalued financial asset is impaired, the portion of the reserve which relates to that financial asset is recognised in profit or loss. 12. earnings per seCuritY Basic and diluted earnings per security (cents) COnsOlidated 2012 7.2 2011 7.1 the earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows: Net profit attributable to securityholders for calculating basic and diluted earnings per security ($’000) Weighted average number of ordinary securities on issue used in the calculation (000) 45,957 639,743 38,924 551,222 13. reMuneratiOn OF external auditOr Amounts received or due and receivable by Deloitte touche tohmatsu for: COnsOlidated trust 2012 $ 2011 $ 2012 $ 2011 $ Auditing the financial report 11,958 11,555 11,958 11,555 104 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201214. leases FinanCe leases leasing arrangements - receivables Finance lease receivables relate to the lease of a pipeline lateral. there are no contingent rental payments due. Finance lease receivables Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable (a) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current receivables (Note 6) Non-current receivables (Note 7) COnsOlidated trust 2012 $000 2011 $000 2012 $000 2011 $000 1,167 4,669 11,673 17,509 17,509 (5,060) 12,449 580 11,869 12,449 1,167 4,669 12,840 18,676 18,676 (5,675) 13,001 553 12,448 13,001 1,167 4,669 11,673 17,509 17,509 (5,060) 12,449 580 11,869 12,449 1,167 4,669 12,840 18,676 18,676 (5,675) 13,001 553 12,448 13,001 (a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual. 15. FinanCial instruMents (a) Financial risk management objectives (c) Credit risk management APA’s Corporate treasury function provides services to the business, co- Credit risk refers to the risk that a counterparty will default on its contractual ordinates access to domestic and international financial markets, and monitors obligations resulting in financial loss to the Consolidated entity. the and manages the financial risks relating to the operations of the Consolidated Consolidated entity has adopted the policy of only dealing with creditworthy entity. these risks include market risk (including currency risk, interest rate risk counterparties and obtaining sufficient collateral or bank guarantees where and price risk), credit risk and liquidity risk. appropriate as a means of mitigating the risk of any loss. the carrying amount the Consolidated entity seeks to minimise the effects of these risks through natural hedges and by using derivative instruments to directly hedge the exposures. the use of financial derivatives is governed by the Consolidated of financial assets recorded in the statement of financial position, net of any allowances, represents the Consolidated entity’s maximum exposure to credit risk in relation to those assets. entity’s Board approved treasury Policy, which provides written principles on (d) Market risk management foreign exchange risk, interest rate risk, credit risk, the use of financial the Consolidated entity’s activities exposure is primarily to the financial risk of derivatives and non-derivative financial instruments, and the investment of changes in interest rates. there has been no change to the Consolidated entity’s excess liquidity. the Consolidated entity does not enter into or trade financial exposure to market risk or the manner in which it manages and measures the instruments, including derivative financial instruments for speculative purposes. risk from the previous period. the Consolidated entity is also exposed to price the Corporate treasury function, via the CFo, reports on an ad hoc basis to APA Group’s Audit and Risk Management Committee, an independent body risk from its investments in listed equities. the majority of the shareholdings rest with one company that is publicly traded in the major financial markets. that monitors risks and policies implemented to mitigate risk exposures. (e) Fair values of financial instruments (b) liquidity risk management the Consolidated entity has a policy dealing with liquidity risk which requires an appropriate liquidity risk management framework for the management of the Consolidated entity’s short, medium and long-term funding and liquidity Fair value measurements recognised in the statement of financial position the following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. management requirements. Liquidity risk is managed by maintaining adequate – Level 1 fair value measurements are those derived from quoted prices cash reserves and banking facilities, by monitoring and forecasting cash flow (unadjusted) in active markets for identical assets or liabilities. and where possible arranging liabilities with longer maturities to more closely – Level 2 fair value measurements are those derived from inputs other than match the underlying assets and revenue streams of the Consolidated entity. quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). – Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or that are not based on observable market data (unobservable inputs). 105 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201215. FinanCial instruMents (COntinued) (e) Fair values of financial instruments (continued) 2012 Financial assets measured at fair value Available-for-sale listed equity securities ethane Pipeline Income Fund Hastings Diversified utilities Fund unlisted Redeemable ordinary Shares energy Infrastructure Investments Pty Limited total 2011 Financial assets measured at fair value Available-for-sale listed equity securities ethane Pipeline Income Fund unlisted Redeemable ordinary Shares energy Infrastructure Investments Pty Limited total COnsOlidated and trust level 1 $000 level 2 $000 level 3 $000 total $000 3,685 2 - 3,687 3,102 - 3,102 - - - - - - - - - 36,614 36,614 3,685 2 36,614 40,301 - 3,102 32,761 32,761 32,761 35,863 Fair Value tHrOugH prOFit Or lOss 2012 $000 2011 $000 32,761 33,936 3,894 4,000 (4,041) 36,614 3,500 (1,398) (3,277) 32,761 Reconciliation of Level 3 fair value measurements of financial assets Opening balance total gains or losses: – – in profit or loss: Interest - related parties in profit or loss: Gain/(Loss) on financial asset held at fair value through profit and loss Distributions Closing balance Significant assumptions used in determining fair value of financial assets and liabilities Redeemable ordinary shares – the risk free rate of return is 2.72% per annum and is based upon an the financial statements include redeemable ordinary shares (“RoS”) held in interpolation of the five and ten year Government bond rates at the an unlisted entity which are measured at fair value (Note 8). the fair market valuation date; and value of the RoS is derived from a binomial tree model, which includes some assumptions that are not able to be supported by observable market prices or rates. the model maps different possible valuation paths of three distinct components: – value of the debt component; – value of the RoS discretionary dividends; and – value of the option to convert to ordinary shares. In determining the fair value, the following assumptions were used: – the volatility of the ordinary shares (beta) is estimated from obtaining the average industry beta of peers and then imputing the volatility relative to market. (f) interest rate sensitivity analysis the sensitivity analysis below has been determined based on the exposure to interest rates on loans with related parties. A 10% increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 10% higher or lower – the risk adjusted rate for the RoS is estimated as the required rate of return and all other variables were constant, the Consolidated entity’s net profit would based on projected cash flows to equity at issuance assuming the RoS price decrease by $608,000 or increase by $608,000 (2011: $345,000). this is at issuance ($0.99) and the ordinary price at issuance ($0.01) are at their mainly attributable to the Consolidated entity’s exposure to interest rates on its fair value; variable rate inter-entity balances. 106 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201216. suBsidiaries naMe OF entitY parent entity APt Investment trust Controlled entity COuntrY OF registratiOn OWnersHip interest 2012 % 2011 % GasNet Australia Investments trust Australia 100 100 17. direCtOr COMpensatiOn (a) details of directors the Directors of the APA group of entities during the financial year were: L F Bleasel AM (Independent, Non-executive Chairman) M J McCormack (Managing Director/Chief executive officer) S Crane (Independent Non-executive Director) J A Fletcher (Independent Non-executive Director) R A Higgins AO (Independent Non-executive Director) P M McKenzie (Independent Non-executive Director) M Muhammad (Non-executive Director) R J Wright (Independent Non-executive Director) (b) director compensation the aggregate compensation made to directors of the Consolidated entity and the trust is set out below: Short-term employment benefits Post-employment benefits Cash settled share-based payments COnsOlidated and trust 2012 $ 2011 $ 2,762,850 2,409,250 168,148 1,021,548 149,194 773,281 3,952,546 3,331,725 107 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201217. direCtOr COMpensatiOn (COntinued) (b) director compensation (continued) the compensation of each director of the Consolidated entity is set out below. nOn-exeCutiVe direCtOrs L F Bleasel AM 2012 2011 S Crane 2012 2011 J A Fletcher 2012 2011 R A Higgins Ao 2012 2011 P M McKenzie 2012 2011 M Muhammad 2012 2011 M (George) Ratilal (b) 2012 2011 R J Wright 2012 2011 tOtal reMuneratiOn: nOn-exeCutiVe direCtOrs 2012 2011 exeCutiVe direCtOr M J McCormack 2012 2011 tOtal reMuneratiOn: direCtOrs 2012 2011 sHOrt-terM eMplOYMent BeneFits pOst- eMplOYMent lOng-terM inCentiVe plans SALARY/FeeS $ SHoRt-teRM INCeNtIVe SCHeMe $ SuPeRANNuAtIoN $ SHARe-BASeD PAYMeNtS (a) $ totAL $ 289,000 272,500 134,750 57,875 117,000 107,000 146,000 145,375 130,000 56,750 130,000 121,500 - 16,000 150,750 141,250 1,097,500 918,250 - - - - - - - - - - - - - - - - - - 965,000 870,000 700,350 621,000 2,062,500 1,788,250 700,350 621,000 24,400 20,750 12,128 5,209 43,250 42,335 13,145 13,077 11,675 5,108 - - - - 13,550 12,715 118,148 99,194 50,000 50,000 168,148 149,194 - - - - - - - - - - - - - - - - - - 313,400 293,250 146,878 63,084 160,250 149,335 159,145 158,452 141,675 61,858 130,000 121,500 - 16,000 164,300 153,965 1,215,648 1,017,444 1,021,548 2,736,898 773,281 2,314,281 1,021,548 3,952,546 773,281 3,331,725 (a) Cash settled share-based payments. (b) Directors fees paid to Petronas Australia Pty Ltd, retired 26 August 2010. 108 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201218. KeY ManageMent persOnnel COMpensatiOn (a) details of key management personnel the members of key management personnel of the APA group of entities during the financial year were: M J McCormack (Managing Director/Chief executive officer) P J Fredricson (Chief Financial officer) R M Gersbach (Chief executive Strategy & Development) S P Ohl (Group executive Strategic Projects) M T Knapman (Company Secretary) P J Wallace (Group executive Human Resources) R A Wheals (Group executive transmission, appointed 1 May 2012) J L Ferguson (Group executive Networks, appointed 1 May 2012) K Lester (Group executive Infrastructure Development, appointed 6 August 2012) (b) Key management personnel compensation the aggregate compensation made to key management personnel of the Consolidated entity and the trust is set out below: Short-term employment benefits Post-employment benefits Cash settled share-based payments the executive remuneration strategy is to: COnsOlidated and trust 2012 $ 2011 $ 5,922,156 298,160 2,638,476 8,858,792 4,449,055 181,691 1,688,799 6,319,545 – attract and retain key executives who will create long-term sustainable total fixed remuneration is reviewed annually and is determined by reference to value for securityholders; appropriate remuneration benchmarking information, taking into account an – motivate and reward executives having regard to the overall performance of individual’s responsibilities, performance, qualifications and experience. APA, the performance of the executive measured against pre-determined objectives and the external compensation environment; – appropriately align the interests of executives with those of securityholders; and – comply with applicable legal requirements and appropriate standards of operating cash flow per security has been chosen by the board as the key performance measure for ‘at risk’ remuneration. this is directly linked to the strategic goal of increasing operating cash flows over the medium term thereby improving returns to securityholders. governance. Compensation for each member of the key management personnel of the APA’s remuneration mix is structured as a mix of base pay and ‘at risk’ short and long-term incentive components. Consolidated entity is set out below. 109 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201218. KeY ManageMent persOnnel COMpensatiOn (COntinued) (b) Key management personnel compensation (continued) sHOrt-terM eMplOYMent BeneFits pOst- eMplOYMent lOng-terM inCentiVe plans SALARY/FeeS $ SHoRt-teRM INCeNtIVe SCHeMe $ NoN-MoNetARY $ SuPeRANNuAtIoN $ SHARe-BASeD PAYMeNtS(a) $ totAL $ KeY ManageMent persOnnel M J McCormack 2012 2011 P J Fredricson 2012 2011 R M Gersbach 2012 2011 S P ohl 2012 2011 M t Knapman 2012 2011 P J Wallace 2012 2011 R A Wheals 2012 2011 J L Ferguson 2012 2011 965,000 870,000 700,350 621,000 590,225 554,801 658,303 622,879 415,377 376,069 366,000 350,000 272,243 67,715 292,395 270,750 321,563 308,750 182,125 201,375 132,922 130,706 147,345 34,356 329,000 117,369 - - 295,422 119,747 - - - - - - 11,922 11,922 4,848 28,732 - - - - - - - - 50,000 50,000 1,021,548 2,736,898 773,281 2,314,281 15,775 15,199 15,775 15,199 49,775 45,199 50,000 50,000 41,257 6,094 290,755 1,189,150 165,780 1,006,530 475,330 1,482,893 343,688 1,302,438 337,336 253,636 215,843 141,560 60,110 10,854 989,461 905,011 764,765 672,266 520,955 119,019 25,000 119,753 591,122 - - - 50,578 117,801 583,548 - - - tOtal reMuneratiOn 2012 2011 (a) Cash settled share-based payments. 3,891,570 2,013,816 2,841,464 1,566,937 16,770 40,654 298,160 2,638,476 8,858,792 181,691 1,688,799 6,319,545 110 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 201219. related partY transaCtiOns (a) responsible entity – australian pipeline limited the Responsible entity is wholly owned by APt Pipelines Limited (2011: 100% owned by APt Pipelines Limited). (b) equity interest in related parties Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 16. (c) transactions with key management personnel Details of directors and key management personnel compensation are disclosed in Note 17 and 18 respectively. (i) Loans to key management personnel No loans have been made to key management personnel. (ii) Key management personnel equity holdings in APTIT FuLLY PAID SeCuRItIeS oPeNING BALANCe SeCuRItIeS ACQuIReD DuRING tHe FINANCIAL YeAR SeCuRItIeS DISPoSeD DuRING tHe FINANCIAL YeAR FuLLY PAID SeCuRItIeS CLoSING BALANCe 2012 L F Bleasel AM M J McCormack S Crane J A Fletcher R A Higgins Ao P M McKenzie M Muhammad R J Wright P J Fredricson R M Gersbach R A Wheals J L Ferguson S P ohl M t Knapman 2011 L F Bleasel AM M J McCormack S Crane J A Fletcher R A Higgins Ao P M McKenzie M Muhammad R J Wright P J Fredricson R M Gersbach S P ohl M t Knapman 375,405 170,619 100,000 60,026 79,503 - 42,818 34,071 3,269 9,796 1,500 1,967 14,896 4,484 359,771 147,005 100,000 56,807 72,954 - 42,818 31,265 3,000 24,569 14,896 4,484 67,688 24,645 - 3,272 6,657 12,500 - 2,853 2,947 454 - - - 2,516 15,634 23,614 - 3,219 6,549 - - 2,806 269 1,525 - - - - - - - - - - 9,796 - - - - - - - - - - - - - 16,298 - - 443,093 195,264 100,000 63,298 86,160 12,500 42,818 36,924 6,216 454 1,500 1,967 14,896 7,000 375,405 170,619 100,000 60,026 79,503 - 42,818 34,071 3,269 9,796 14,896 4,484 111 APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 201219. related partY transaCtiOns (COntinued) (d) transaction with related parties within the Consolidated entity 20. COntingent liaBilities and COntingent assets During the financial year, the following transactions occurred between the trust At 30 June 2012, there are no material contingent liabilities or contingent and its other related parties: assets (2011: $nil). – loans advanced and payments received on long-term inter-entity loans; and 21. suBseQuent eVents – payments of distributions. All transactions between the entities that comprise the Consolidated entity have been eliminated on consolidation. Refer to Note 16 for details of the entities that comprise the Consolidated entity. on 9 August 2012, APA lodged a prospectus with the Australian Securities and Investments Commission (ASIC) for an offer of long-dated, unsecured, subordinated, cumulative notes (Notes) to raise $350 million, with the ability to raise more or less. A replacement prospectus was lodged with the ASIC on 17 August 2012 following the closure of the “exposure” period and finalisation (e) transactions with other related parties of the margin and revised offer size of $475 million. APtIt and its controlled entity have a number of loan receivable balances with other entities in APA. these loans have various terms; however, they can be repayable on agreement of the parties. Interest is recognised by applying the effective interest method, agreed between the parties at the end of each month and is determined by reference to market rates. the following balances arising from transactions between the trust and its other related parties are outstanding at reporting date: on 17 August 2012 APA announced an increased offer to acquire HDF and a Fourth Supplementary Bidder’s Statement is expected to be issued on 27 August 2012. these developments followed an announcement from the ACCC on 19 July 2012 that they would not oppose any bid for HDF by APA, subject to certain undertakings from APA. on 22 August 2012, the Directors declared a final distribution for the 2012 financial year of 5.59 cents per security ($36.0 million). the distribution represents – current receivables totalling $580,065 are owing from a subsidiary of APt a 3.28 cents per security unfranked profit distribution and 2.31 cents per for amounts due under a finance lease arrangement (2011: $552,828); security capital distribution. the distribution will be paid on 14 September 2012. – non-current receivables totalling $11,868,272 are owing from a subsidiary of APt for amounts due under a finance lease arrangement (2011: $12,448,336); and – non-current receivables totalling $226,556,406 (2011: $244,428,764) are other than the events disclosed above, there have not been any events or transactions that have occurred subsequent subsequent to year end that would require adjustment to or disclosure in the accounts. owing from a subsidiary of APt. Australian Pipeline Limited Management fees of $630,345 (2011: $536,021) were paid to the Responsible entity as reimbursement of costs incurred on behalf of APtIt. No amounts were paid directly by APtIt to the Directors of the Responsible entity. Australian Pipeline Trust Management fees of $630,345 (2011: $536,021) were reimbursed by APt. APt INVeS tMeNt t R uS t AN D It S C oNtRoLLeD eNtItIeS Declaration by the Directors For the financial year ended 30 June 2012 the Directors declare that: (a) in the Directors’ opinion, there are reasonable grounds to believe that APt Investment trust will be able to pay its debts as and when they become due and payable; (b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of APt Investment trust and the Consolidated entity; (c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards as stated in Note 2 to the financial statements; and (d) the Directors have been given the declarations by the Managing Director and Chief Financial officer required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors of the Responsible entity made pursuant to section 295(5) of the Corporations Act 2001. on behalf of the Directors leonard Bleasel aM Chairman SYDNeY, 22 August 2012 112 robert Wright Director APT invesTmenT TrusT And iTs conTrolled enTiTiesNotes to the fiNaNcial statemeNts coNtiNuedFor the financial year ended 30 June 2012APA grouP AnnuAl rePort 2012 A Pt I NVeS tMeNt tR uS t AND It S C oNtRoLLeD eNtItIeS auDitor’s inDepenDence Declaration For the financial year ended 30 June 2012 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au The Directors Australian Pipeline Limited as responsible entity for APT Investment Trust HSBC Building Level 19, 580 George Street Sydney NSW 2000 22 August 2012 Dear Directors Auditors Independence Declaration to Australian Pipeline Limited as responsible entity for APT Investment Trust In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Australian Pipeline Limited as responsible entity for APT Investment Trust. As lead audit partner for the audit of the financial statements of APT Investment Trust for the financial year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU G Couttas Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 113 APt INVeS tMeNt t R uS t AN D It S C oNtRoLLeD eNtItIeS inDepenDent auDitor’s report For the financial year ended 30 June 2012 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au Independent Auditor’s Report to the Unitholders of APT Investment Trust We have audited the accompanying financial report of APT Investment Trust, which comprises the statement of financial position as at 30 June 2012, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the Trust and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 94 to 112. Directors’ Responsibility for the Financial Report The directors of Australian Pipeline Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 114 APA grouP AnnuAl rePort 2012 A Pt I NVeS tMeNt tR uS t AND It S C oNtRoLLeD eNtItIeS inDepenDent auDitor’s report continueD For the financial year ended 30 June 2012 Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Australian Pipeline Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of APT Investment Trust is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Trust’s and consolidated entity’s financial position as at 30 June 2012 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2. DELOITTE TOUCHE TOHMATSU G Couttas Partner Chartered Accountants Sydney, 22 August 2012 115 aDDitional inFormation Additional information required by the Listing Rules of Australian Securities exchange Limited and not provided elsewhere in this report (the information is applicable as at 31 August 2012). tWentY largest HOlders National Nominees Limited HSBC Custody Nominees (Australia) Limited JP Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Custodial Services Limited Cogent Nominees Pty Limited AMP Life Limited Argo Investments Limited uBS Nominees Pty Ltd QIC Limited Bond Street Custodians Limited RBC Dexia Investor Services Australia Nominees Pty Limited Questor Financial Services Limited Marich Nominees No 2 Pty Ltd Merrill Lynch (Australia) Nominees Invia Custodian Pty Limited M F Custodians Ltd Bt Portfolio Services Limited Aust executor trustees SA Ltd Navigator Australia Limited total for top 20 distriButiOn OF HOlders RANGeS 1 – 1,000 1,001 - 5,000 5,001 – 10,000 10,001 - 100,000 100,001 and over total No. oF SeCuRItIeS 87,392,069 74,342,098 56,685,257 20,779,526 14,716,133 9,070,630 6,749,919 6,138,230 4,716,273 4,454,680 3,759,790 3,165,444 2,120,057 1,804,316 1,662,683 1,598,357 1,574,552 1,543,952 1,444,480 1,392,401 % 13.56 11.54 8.80 3.22 2.28 1.41 1.05 0.95 0.73 0.69 0.58 0.49 0.33 0.28 0.26 0.25 0.24 0.24 0.22 0.22 305,110,847 47.34 No. oF HoLDeRS % No. oF SeCuRItIeS 28,241 27,241 10,837 7,948 157 74,424 37.95 36.60 14.56 10.68 0.21 100 10,547,580 72,717,887 78,345,049 152,955,993 329,919,074 644,485,583 100.00 % 1.64 11.28 12.16 23.73 51.19 2,759 holders hold less than a marketable parcel of securities (market value less than $500 or 104 securities based on a market price on 31 August 2012 of $4.82). suBstantial HOlders By notice dated 7 June 2012, BlackRock Group advised that it had an interest in 32,242,480 ordinary stapled securities; By notice dated 28 August 2012, National Australia Bank Limited advised that it had an interest in 42,159,164 ordinary stapled securities. VOting rigHts on a show of hands, each holder has one vote. on a poll, each holder has one vote for each dollar of the value of the total interests they have in the scheme. On-MarKet BuY-BaCK there is no current on-market buy-back. 116 APA grouP AnnuAl rePort 2012aDDitional inFormation continueD Calendar OF eVents distriButiOn paYMents Final distribution FY2012 record date 29 June 2012 Distributions will be paid semi-annually in March and September. Securityholders Final distribution FY2012 payment date 14 September 2012 will receive annual tax statements with the final distribution in September. Annual meeting Interim result announcement 25 october 2012 20 February 2013* Interim distribution FY2013 record date 31 December 2012* Interim distribution FY2013 payment date *Subject to change 13 March 2013* annual Meeting details date: 25 October 2012 Venue: City recital Hall angel place, sydney nsW time: 10.30am registration commences at 10.00am asx listing An APA Group security comprises a unit in Australian Pipeline trust and a unit in APt Investment trust. these units are stapled together to form an APA Group stapled security which is listed on the ASX (ASX Code: APA). Australian Direct payment can be made to an Australian bank, building society or credit union account. If you would like to arrange direct payment, please contact the APA Group registry. Online annual repOrt, annual reVieW and sustainaBilitY repOrt APA Group’s 2012 Annual Report, Annual Review and Sustainability Report are available at www.apa.com.au. Online inFOrMatiOn Further information on APA is available at www.apa.com.au, including: – Company history, results, market releases and news – Asset and business information – Corporate responsibility and sustainability reporting – Securityholder information such as the current APA security price, distribution and tax information. Pipeline Limited is the Responsible entity of those trusts. eleCtrOniC COMMuniCatiOn apa grOup respOnsiBle entitY and registered OFFiCe Australian Pipeline Limited ACN 091 344 704 Securityholders can elect to receive communication from APA electronically by registering their email address with the APA Group registry. HSBC Building, Level 19, 580 George Street, Sydney NSW 2000 electing to receive the report electronically will reduce the adverse impact we Po Box R41, Royal exchange NSW 1225 have on the environment. telephone: +61 2 9693 0000 Facsimile: +61 2 9693 0093 www.apa.com.au seCuritYHOlder details It is important that securityholders notify the registry immediately if there is a change to their address or banking arrangements. Securityholders with enquiries should also contact the APA Group registry. apa grOup registrY Link Market Services Limited Level 12, 680 George Street, Sydney NSW 200 Locked Bag A14, Sydney South NSW 1235 Australia toll Free: 1800 992 312 telephone: +61 2 8280 7132 Facsimile: +61 2 9287 0303 www.linkmarketservices.com.au disClaiMer Australian Pipeline Limited (ACN 091 344 704) is the responsible entity of Australian Pipeline trust (ARSN 091 678 778) and APt Investment trust (ARSN 115 585 441) (APA Group). Please note that Australian Pipeline Limited is not licensed to provide financial product advice in relation to securities in the APA Group. this publication does not constitute financial product advice and has been prepared without taking into account your objectives, financial situation or particular needs. Before relying on any statements contained in this publication, you should consider the appropriateness of the information, having regard to your own objectives, financial situations and needs and consult an investment adviser if necessary. Whilst due care and attention have been used in preparing this publication, certain forward looking statements (including forecasts or projections) are made in this publication which are not based on historical fact and necessarily involve assumptions as to future events and analysis, which may or may not be correct. these forward looking statements should not be relied upon as an indication or guarantee of future performance. apa.com.au

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