APA
Annual Report 2014

Plain-text annual report

| A P A G r o u p A n n u a l R e p o r t 2 0 1 4 I N N O V A T I N G T O D A Y T R A N S F O R M I N G T O M O R R O W | 2 18 30 38 39 41 42 43 96 97 98 AUSTRALIAN PIPELINE TRUST Directors’ report Remuneration report Corporate governance statement Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Declaration by the Directors of Australian Pipeline Limited Auditor’s Independence Declaration Independent Auditor’s Report 1 1 8 Additional information 100 102 102 103 103 104 1 1 4 1 1 5 1 1 6 APT INVESTMENT TRUST Directors’ report Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Declaration by the Directors of Australian Pipeline Limited Auditor’s Independence Declaration Independent Auditor’s Report 1 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES ARSN 091 678 778 DIRECTORS’ REPORT The Directors of Australian Pipeline Limited (“Responsible Entity”) submit their APA is listed on the Australian Securities Exchange (“ASX”) and is included in report and the annual financial report of Australian Pipeline Trust (“APT”) and the S&P ASX 50 Index. Since listing in June 2000, its market capitalisation has its controlled entities (together “APA” or “Consolidated Entity”) for the financial increased more than 13‑fold to $6.46 billion (as at 19 August 2014), and it has year ended 30 June 2014. This report refers to the consolidated results of APT and APT Investment Trust (“APTIT”). achieved total securityholder returns of 978% or annual compound growth rate of 18.4%1 at the end of the financial year. DIRECTORS The names of the Directors of the Responsible Entity during the financial year and since the financial year end are: Leonard Bleasel AM Chairman Michael McCormack Chief Executive Officer and Managing Director Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright Details of the Directors, their qualifications, experience, special responsibilities and directorships of other listed entities are set out on pages 13 to 15. APA regulated and contracted revenue APA derives its revenue streams through a mix of regulated revenue, long‑term negotiated revenue contracts, asset management fees and investments. Earnings are underpinned by strong cash flows generated from high quality, well positioned, geographically diversified assets and a portfolio of highly creditworthy customers. A national regulatory regime provides mechanisms for regulatory pricing, amongst other things, which is encapsulated in the National Gas Law and National Gas Rules. The economic regulation aspects of the regime apply to most gas distribution networks and a number of gas transmission pipelines in Australia. The regime provides for two forms of regulation based on a pipeline’s relative market power – full regulation and light regulation. For assets under full regulation, the regulator approves price and other terms of access for standard The Company Secretary of the Responsible Entity during and since the financial (“reference”) services as part of an access arrangement process, such that the year end is Mark Knapman. 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: asset owner has a reasonable opportunity to recover at least the efficient costs of owning and operating the asset to provide the reference services. Access arrangement periods usually run for five years. For assets under light regulation, contractual terms (including price) are negotiated between the service provider and customer with recourse to arbitration by the regulator in the absence of – energy infrastructure, primarily gas transmission businesses located across agreement. APA assets subject to full regulation or light regulation are detailed Australia; below. – asset management and operations services for the majority of APA’s energy investments and for third parties; and – energy investments in listed and unlisted entities. FINANCIAL AND OPERATIONAL REVIEW APA OVERVIEW APA is Australia’s largest natural gas infrastructure business. It owns or has an Contracted revenues are sourced from unregulated assets, assets under light regulation and assets under full regulation. Contracts are generally for the reservation of capacity, with the majority of the revenue fixed. Weighted average contract term is greater than 10 years, and where new infrastructure is required, terms tend to be 15 years or greater to fully underwrite the investment by APA in any necessary expansion. interest in approximately $12.3 billion of energy infrastructure across Australia, Approximately 23% of APA’s FY14 revenue (excluding pass‑through revenue) and operates these with a skilled workforce of in excess of 1,600 people. APA has a diverse portfolio of 14,100 kilometres of gas transmission pipelines that span every state and territory on mainland Australia and deliver about half was subject to prices determined under full regulation. The majority of the remaining 77% of APA’s revenue is generated from contracts which have set terms, including negotiated pricing for the life of the contract. the nation’s natural gas. It also owns other related energy infrastructure assets APA ASSETS AND OPERATIONS such as gas storage facilities and power generation assets. APA has ownership interests in, and operates, the GDI (EII) Pty Ltd (“GDI”) gas distribution network, and also operates the gas distribution network owned by Envestra Limited (“Envestra”), which together comprise approximately 27,100 kilometres of gas mains and pipelines, and approximately 1.3 million gas consumer connections. On 7 August 2014, APA accepted the Cheung Kong Group’s (“CKI Consortium”) takeover offer for its 33.0% interest in Envestra. APA retains its Operations and Management Agreement on the Envestra assets, which runs to 2027 – see page 16. APA also has minority interests in and operates other energy infrastructure assets and businesses, including SEA Gas Pipeline, Energy Infrastructure Investments, EII2 and Ethane Pipeline Income Fund. APA’s objective of maximising securityholder value is achieved through expanding and enhancing its infrastructure portfolio, securing low risk, long‑term revenue on its assets, operating the business safely and efficiently and generating further value through its many and varied service offerings. APA is a major participant in developing, owning and operating natural gas transportation infrastructure across Australia. APA’s assets and operations are reported in three principal business segments: – Energy Infrastructure, which includes all APA’s wholly or majority owned pipelines, gas storage assets and the Emu Downs Wind Farm; – Asset Management, which provides commercial, operating services and/or asset maintenance services to the majority of its energy investments for appropriate fees; and – Energy Investments, which includes APA’s strategic stakes in a number of investment vehicles that house energy infrastructure assets, generally characterised by long‑term secure cash flows, with low ongoing capital expenditure requirements. 1 Total securityholder return is the capital appreciation of the company’s security price, adjusted for capital management (such as security splits and consolidations) and assuming reinvestment of distribution at the declared distribution rate per security. Figures quoted are sourced from IRESS and measured as at 30 June 2014. 2 APA GROUP / ANNUAL REPORT 2014Energy Infrastructure assets East coast gas grid Roma Brisbane Pipeline (including Peat Lateral) South West Queensland Pipeline Carpentaria Gas Pipeline Berwyndale Wallumbilla Pipeline Moomba Sydney Pipeline Central West Pipeline Central Ranges Pipeline and distribution network Victorian Transmission System Dandenong LNG Storage Facility SESA Pipeline West Australian and Northern Territory assets Goldfields Gas Pipeline (88.2%) Pilbara Pipeline System Parmelia Gas Pipeline Mid West Pipeline (50%) Mondarra Gas Storage Facility Emu Downs Wind Farm Amadeus Gas Pipeline LENGTH/CAPACITY REGULATORY STATUS 583 km / 233 TJ/d 936 km / 384 TJ/d 944 km / 119 TJ/d 112 km Full regulation Not regulated Light regulation Not regulated 2,029 km / 439 TJ/d Light regulation (partial) 255 km 295 km 1,847 km / 1,030 TJ/d 12,000 tonnes 45 km Total 7,044 km Light regulation Full regulation Full regulation Not regulated Not regulated 1,590 km / 175 TJ/d Full regulation 248 km 448 km 362 km 15 PJ 80 MW 1,673 km Not regulated Not regulated Not regulated Not regulated Not regulated Full regulation Energy Investments and Asset Management ENERGY INVESTMENT Envestra (1) OWNERSHIP INTEREST 33.0% (1) DETAIL Gas distribution: 22,762 km of gas mains and pipelines, 1.19 million gas consumer connections, 1,124 km of pipelines across SA, Vic, NSW, Qld and NT ASSET MANAGEMENT Operational services GDI 20% Gas distribution: 3,060 km of gas mains, 92,700 gas consumer connections in Qld Operational services SEA Gas Pipeline 50% Gas pipeline: 680 km pipeline from Iona and Port Campbell, Vic to Adelaide, SA Energy Infrastructure Investments 19.9% Gas pipelines: Telfer Gas Pipeline and lateral (488 km); Bonaparte Gas Pipeline (286 km); Wickham Point Pipeline (13 km) Electricity transmission cables: Murraylink (176 km) and Directlink (63 km) Gas-fired power stations: Daandine power station (27 MW) and X41 power station (32 MW) Gas processing facilities: Kogan North (12 TJ/day) and Tipton West (29 TJ/day) EII2 20.2% Wind generation: North Brown Hill Wind Farm (132 MW), SA Ethane Pipeline Income Fund 6.1% Ethane pipeline: 1,375 km from Moomba to Port Botany, Sydney Diamantina Power Station joint venture 50% Gas-fired power stations: Diamantina Power Station (242 MW) currently under development and Leichhardt Power Station (60 MW) Management services Corporate support services Maintenance services only Operational services Management services Corporate support services Corporate support services Operational services Management services Corporate support services Corporate support services (1) On 7 August 2014, APA accepted the CKI Consortium’s takeover offer for its 33.0% interest in Envestra. APA retains its Operations and Management Agreement on the Envestra assets, which runs to 2027, see page 11. 3 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA’s objective and strategy APA’s objective to maximise the value of APA for its investors is supported by This strategy has been relatively unchanged since listing. Consistent with this its strategy to: – focus on expanding and enhancing its natural gas infrastructure portfolio to strategy, over the 2014 financial year APA commenced, continued or completed the following growth development projects and acquisitions: meet the increasing demand for natural gas services throughout Australia; – expansion of the Mondarra Gas Storage Facility; – capture revenue and operational synergies from its significant asset base; – pipeline capacity expansions on the Victorian Transmission System and – pursue asset development opportunities which leverage APA’s existing Goldfields Gas Pipeline; assets and utilise the depth of its comprehensive asset management and – compressor facility projects at Wallumbilla and Moomba; operational skills; – development of the east coast grid services and operating framework; and – enhance APA’s services to customers, including the development of more – development of the Diamantina and Leichhardt gas fired power stations. flexible and tailored services to better satisfy customer requirements; and – strengthen its financial capability. FINANCIAL REVIEW The following table provides a summary of key financial data for the financial year: YEAR ENDED 30 JUNE Operating results including significant items Total revenue Pass‑through revenue (2) Total revenue excluding pass-through EBITDA Depreciation and amortisation expense EBIT Finance costs and interest income Profit before income tax and non-controlling interests Income tax benefit/(expense) Non‑controlling interests Profit after income tax and non-controlling interests, including significant items Significant items after income tax (3) Profit after income tax and non-controlling interests, excluding significant items Operating cash flow (4) Operating cash flow per security (cents) Normalised operating cash flow (5) Normalised operating cash flow per security (cents) (4) Earnings per security – reported (cents) Earnings per security – normalised (cents) (6) Distribution per security (cents) Distribution payout ratio (7) Net tangible asset per security ($) 2014 $000 2013 (1) $000 1,395,992 1,272,267 403,477 992,515 747,334 (156,228) 591,106 (325,084) 266,022 77,684 (1) 343,705 144,060 199,645 431,541 51.6 439,742 52.6 41.1 23.9 36.25 68.9% 1.41 352,743 919,524 763,628 (130,461) 633,167 (290,916) 342,251 (49,869) 2,764 295,146 120,030 175,116 374,381 48.5 432,639 56.0 38.2 22.7 35.50 68.2% 1.42 $000 123,725 50,734 72,991 (16,294) (25,767) (42,061) (34,168) (76,229) 127,553 (2,765) 48,559 24,030 24,529 57,160 3.1 7,103 (3.4) 2.9 1.2 0.75 CHANGES % 9.7 14.4 7.9 (2.1) (19.8) (6.6) (11.7) (22.3) NM NM 16.5 20.0 14.0 15.3 6.4 1.6 (6.1) 7.6 5.3 2.1 (0.01) (0.7) Weighted average number of securities (000) 835,751 772,314 (1) APA has adopted revised AASB 119 during the financial year. As the revised standard must be applied retrospectively, comparative numbers have been restated. (2) 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 and GDI in respect of, the operation of the Envestra and GDI assets respectively. (3) Significant items: 2014 relate to a once‑off adjustment to APA’s tax expense for the financial year to reflect a change in the treatment, for tax depreciation purposes only, of various capital assets; 2013 relate to the acquisition of Hastings Diversified Utilities Fund and the reversal of some costs booked in relation to the sale of the Allgas business in December 2011. (4) Operating cash flow = net cash from operations after interest and tax payments. (5) Normalised operating cash flow excludes significant items. (6) Normalised earnings exclude significant items – see page 5. (7) Distribution payout ratio = total distribution payments as a percentage of normalised operating cash flow. 4 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014Profit after tax and non‑controlling interest, earnings before interest and tax (“EBIT”), and EBIT before depreciation and amortisation (“EBITDA”) excluding significant items, are financial measures not prescribed by Australian Accounting Standards (“AIFRS”) and represent the profit under AIFRS adjusted for specific significant items. The Directors consider these measures to reflect the core earnings of the Consolidated Entity, and these are therefore described in this report as ‘normalised’ measures. The following table summarises key reconciling items between statutory profit after tax attributable to the APA securityholders and the normalised financial measures described above: Revenue excluding pass-through (4) EBITDA Depreciation and amortisation expense EBIT Finance costs and interest income Profit before income tax and non-controlling interests 2014 (1) $000 SIGNIFICANT ITEMS – – – – – – NORMALISED 992,515 747,334 (156,228) 591,106 (325,084) 266,022 Income tax benefit/(expense) (66,376) 144,060 Non‑controlling interests Profit after income tax and non-controlling interests Operating cash flow (5) (1) – (1) 199,645 439,742 144,060 (8,201) 343,705 431,541 STATUTORY NORMALISED 992,515 747,334 (156,228) 591,106 919,524 661,943 (130,461) 531,482 (325,084) (299,629) 266,022 77,684 231,853 (59,501) 2,764 175,116 432,639 2013 (2,3) $000 SIGNIFICANT ITEMS – 101,685 STATUTORY 919,524 763,628 – (130,461) 101,685 8,713 110,398 9,632 – 120,030 (58,258) 633,167 (290,916) 342,251 (49,869) 2,764 295,146 374,381 (1) Significant items: 2014 relate to a once‑off adjustment to APA’s tax expense for the financial year to reflect a change in the treatment, for tax depreciation purposes only, of various capital assets. (2) Significant items: 2013 relate to the acquisition of Hastings Diversified Utilities Fund and the reversal of some costs booked in relation to the sale of the Allgas business in December 2011. (3) APA has adopted revised AASB 119 during the financial year. As the revised standard must be applied retrospectively, comparative numbers have been restated, but without any material impact on previously reported results. (4) 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 and GDI in respect of, the operation of the Envestra and GDI assets. (5) Significant items for operating cash flow: 2014 relate to fees paid to Hastings Funds Management Limited ($8.2 million); 2013 relate to fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited and advisers in respect of the takeover of the fund by APA ($58.3 million). APA reported profit after tax and non‑controlling interests and including Operating cash flow increased by 15.3% to $431.5 million (2013: $374.4 million), significant items of $343.7 million, an increase of 16.5% compared with $295.1 and operating cash flow per security increased by 6.4%, or 3.1 cents, to 51.6 million reported last financial year. APA’s 2014 profit includes the significant cents per security (2013: 48.5 cents). item of $144.1 million relating to a once‑off adjustment to tax expense for the financial year to reflect a change in the treatment, for tax depreciation purposes only, of various capital assets acquired in 2006. This is compared with profit in 2013, which also includes a number of one‑off significant items, primarily associated with the Hastings Diversified Utilities Fund (“HDF”) acquisition (totalling $120.0 million). Normalised profit after tax and non‑controlling interests (that is, excluding significant items) increased by 14.0% to $199.6 million (2013: $175.1 million). Operating cash flow was impacted by the one‑off payment of $8.2 million during the financial year relating to the NSW Supreme Court’s decision in a matter regarding fees payable to Hastings Funds Management Limited, which APA is appealing, and the significant one‑off fees of $58.3 million paid by HDF to Hastings Funds Management Limited and HDF’s advisers in respect of the takeover by APA in the previous corresponding period. Excluding these significant items, normalised operating cash flow was up by 1.6% to $439.7 million (2013: $432.6 million) and corresponding operating cash Revenue (excluding pass‑through revenue) increased by $73.0 million to flow per security was down 6.1%, or 3.4 cents, to 52.6 cents per security. This $992.5 million, an increase of 7.9% on last financial year. Normalised EBITDA of decrease is primarily due to an 8.2% increase in the average number of $747.3 million was $85.4 million or 12.9% above last financial year (2013: $661.9 securities on issue this financial year. million), and in line with APA’s guidance for the 2014 financial year of $740 million to $750 million. APA’s distributions for the financial year totalled 36.25 cents per security, an increase of 2.1%, or 0.75 cents, on last financial year, and in line with its guidance The main factors driving the increase in normalised profit and EBITDA include: of at least 36 cents per security. The distribution payout ratio of 68.9% based – the full 12 months’ contribution of the South West Queensland Pipeline and the Pilbara Pipeline System, consolidated since 9 October 2012; – additional earnings from the expanded Mondarra Gas Storage Facility commissioned July 2013; – increased performance of Energy Investments; and – increased customer contributions in Asset Management. These increases were partially offset by reduced Victorian Gas Transmission earnings as a result of the new access arrangement and the removal of contributions from the Moomba Adelaide Pipeline System, which was consolidated 9 October 2012 and sold 1 May 2013. on normalised operating cash flow was slightly higher than the 68.2% ratio last financial year, mainly due to the increased securities on issue. APA continues to fully fund its distributions out of operating cash flows whilst also retaining significant cash in the business to support ongoing growth. 5 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDCAPITAL MANAGEMENT CREDIT RATINGS APA securities on issue were unchanged during the financial year, with APT Pipelines Limited, the borrowing entity of APA, maintained the following 835,750,807 securities on issue at 30 June 2014. two investment grade credit ratings during the financial year: During the financial year, APA completed the following financings: – BBB long‑term corporate credit rating (outlook Stable) assigned by – in December 2013, four existing $75 million bilateral bank facilities, due to mature in mid‑2014, were extended. The limit of each facility was increased to $100 million and their terms extended from three years to five years from their new effective dates, to December 2018; and – in June 2014, APA completed the refinancing of two syndicated bank debt Standard & Poor’s (S&P) in June 2009, and last confirmed on 14 May 2014; and – Baa2 long‑term corporate credit rating (outlook Stable) assigned by Moody’s Investors Service (Moody’s) in April 2010, and last confirmed on 20 February 2014. facilities with three new facilities totalling $1.25 billion. The three new INCOME TAX facilities of $400 million, $425 million and $425 million have terms of 2.25 APA’s 2014 profit after tax includes a significant item of $144.1 million relating years, 3.25 years and 5.25 years, maturing in September 2016, 2017 and to a once‑off adjustment to tax expense for the financial year to reflect a 2019 respectively. change in the treatment, for tax depreciation purposes only, of various capital Loans already drawn under the bilateral bank facilities and the syndicated bank assets acquired in 2006. This resulted in an income tax credit for the financial facilities have subsequently rolled into the new facilities and the additional year of $77.7 million. headroom is available to support APA’s ongoing investment in the growth of its infrastructure assets and for general corporate purposes. Excluding significant items for this financial year and last financial year, the effective income tax rate for the financial year is 25.0%, slightly lower than At 30 June 2014, APA’s debt portfolio has a broad spread of maturities 25.7% last financial year. extending out to 2024, with an average maturity of drawn debt of 5.4 years. APA’s gearing 2 of 64.2% at 30 June 2014 was up from 62.8% at 30 June 2013, as funding for APA’s growth infrastructure over the period under review has been drawn from debt as well as operating cash flow remaining in the business. At 30 June 2014, APA had around $800 million in cash and committed undrawn facilities available to meet the continued capital growth needs of the business. CAPITAL AND INVESTMENT EXPENDITURE 4 Capital expenditure (including stay‑in‑business capex) for the financial year totalled $446.7 million compared with $397.4 million last financial year. Growth project expenditure of $382.5 million was in respect of pipeline capacity expansion in Western Australia, Victoria and New South Wales, and additional compression facilities at Moomba and Wallumbilla. These capital APA has a prudent treasury policy which requires conservative levels of expenditures were generally either fully underwritten through long‑term hedging of interest rate exposures to minimise the potential impacts from contractual arrangements or have regulatory approval through a relevant adverse movements in interest rates. All interest rate and foreign currency access arrangement. Investment expenditure for the financial year of $126.1 million is the increase in APA’s net investment in the Diamantina Power Station joint venture through the provision of shareholder loans as part of its long‑term funding commitment to the project. exposures on debt raised in foreign currencies have been hedged. APA also enters into interest rate hedges for a proportion of the interest rate exposure on its floating rate borrowings. As at 30 June 2014, 72.8% of interest obligations on gross borrowings were either hedged or issued at fixed interest rates for varying periods extending out in excess of 10 years. BORROWINGS AND FINANCE COSTS As at 30 June 2014, APA had borrowings of $4,789 million ($4,412 million at 30 June 2013) from a mix of syndicated bank debt facilities, bilateral debt facilities, US Private Placement notes, European Medium Term Notes in several currencies, Australian Medium Term Notes, United States 144A Notes and APA Group Subordinated Notes. Excluding significant items, net finance costs increased by $25.5 million, or 8.5%, to $325.1 million (2013: $299.6 million). The increase is primarily due to increased borrowings. The average interest rate (including credit margins) applying to drawn debt was 7.12 % for the financial year (2013: 7.35%). APA’s interest cover ratio 3 for the financial year, at 2.31 times (2013: 2.30 times), remains well in excess of its debt covenant default ratio of 1.1 times, and distribution lock up ratio of 1.3 times. 2 Gearing ratio determined in accordance with covenants in certain senior debt facilities as net debt to net debt plus book equity. 3 For the calculation of interest cover, significant items are excluded from the EBITDA used. 4 Capital expenditure represents actual cash payments as disclosed in the cash flow statement, and it excludes accruals brought forward from the prior period and carried forward to the next period. 6 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014Capital and investment expenditure for the financial year is detailed in the table below: CAPITAL AND INVESTMENT EXPENDITURE (1) Growth expenditure Regulated DESCRIPTION OF 2014 MAJOR PROJECTS Victorian Transmission System Winchelsea compression; Northern Interconnect looping 2014 $ MILLION 2013 $ MILLION 65.5 22.6 Major projects Queensland New South Wales Western Australia Other Total growth capex Stay‑in‑business capex Customer contributions Total capital expenditure Acquisitions Energy Investments Total investment expenditure Total capital and investment expenditure Wallumbilla and Moomba compression Moomba Sydney Pipeline southern expansion Goldfields Gas Pipeline expansions Victorian metering and LNG; maintenance system Pilbara Pipeline relocation Diamantina Power Station joint venture 206.6 13.2 73.4 23.8 317.0 382.5 45.1 19.1 446.7 – 126.1 126.1 572.8 80.8 23.8 208.9 29.0 342.6 365.2 24.7 7.5 397.4 330.8 – 330.8 728.2 (1) The capital expenditure shown in this table represents actual cash payments as disclosed in the cash flow statement, and excludes accruals brought forward from the prior financial year and carried forward to next financial year. DISTRIBUTIONS Distributions paid to Securityholders during the financial year were: APT profit distribution APT capital distribution APTIT profit distribution APTIT capital distribution Total FINAL FY2013 DISTRIBUTION PAID 11 SEPTEMBER 2013 INTERIM FY2014 DISTRIBUTION PAID 12 MARCH 2014 CENTS PER SECURITY TOTAL DISTRIBUTION $000 CENTS PER SECURITY TOTAL DISTRIBUTION $000 16.02 – 2.32 0.16 18.50 133,877 – 19,424 1,313 154,614 14.56 0.49 2.30 0.15 17.50 121,663 4,056 19,241 1,295 146,255 On 20 August 2014, the Directors declared a final distribution for APA for the financial year of 18.75 cents per security which is payable on 10 September 2014 and will comprise the following components: APT profit distribution APT capital distribution APTIT profit distribution APTIT capital distribution Total FINAL FY2014 DISTRIBUTION PAYABLE 10 SEPTEMBER 2014 CENTS PER SECURITY TOTAL DISTRIBUTION $000 16.42 – 2.33 – 18.75 137,239 – 19,464 – 156,703 Total distribution for the financial year ended 30 June 2014 is 36.25 cents per security, an increase of 0.75 cents, or 2.1%, on the prior year. 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 2014) will provide the classification of distribution components for the purpose of preparation of Securityholder income tax returns. 7 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDSIGNIFICANT CHANGES IN STATE OF AFFAIRS In March 2014, APA and Envestra entered into a Scheme Implementation Agreement, which was subsequently terminated by Envestra in May 2014 after it received an alternative proposal from the CKI Consortium for a price of $1.32 per Envestra share, plus an entitlement to Envestra’s final dividend for the 2014 financial year. The CKI Consortium formalised its bid for Envestra in its Bidder’s Statement issued on 20 June 2014. On 7 August 2014, APA accepted this offer for its entire interest in Envestra of 33.0%. APA will receive $784 million in consideration in late August 2014, in addition to the $21 million it received on 25 July 2014, being the final dividend of 3.5 cents per share paid by Envestra on that date. APA retains its Operations and Management Agreement on the Envestra assets, which runs to 2027. Further information of APA’s disposal of its interest in Envestra is found on page 11. BUSINESS SEGMENT PERFORMANCES AND OPERATIONAL REVIEW Statutory reported revenue and EBITDA performance of APA’s business segments is set out in the table below: YEAR ENDED 30 JUNE Revenue (continuing business) Energy Infrastructure Queensland (2) New South Wales Victoria South Australia Western Australia (3) Northern Territory Energy Infrastructure total Asset Management Energy Investments Total segment revenue Pass‑through revenue Unallocated revenue (interest income) Divested business (4) Total revenue EBITDA (continuing business) Energy Infrastructure Queensland (2) New South Wales Victoria South Australia Western Australia (3) Northern Territory Energy Infrastructure total Asset Management Energy Investments Total segment EBITDA Divested business (4) Total EBITDA before significant items Significant items (5) Total EBITDA 2014 $000 2013 (1) $000 CHANGES $000 % 271,747 133,554 153,669 2,687 237,564 24,848 824,069 99,171 68,133 991,373 403,477 1,142 – 217,530 139,321 162,582 2,164 196,878 23,001 741,476 82,293 51,180 874,949 352,743 11,697 32,878 1,395,992 1,272,267 212,833 106,615 114,702 2,204 173,139 13,520 623,013 56,188 68,133 747,334 – 747,334 – 163,748 112,085 122,973 1,732 135,980 11,748 548,266 41,889 51,177 641,332 20,611 661,943 101,685 54,217 (5,767) (8,913) 523 40,686 1,847 82,593 16,878 16,953 116,424 50,734 (10,555) (32,878) 123,725 49,085 (5,470) (8,271) 472 37,159 1,772 74,747 14,299 16,956 106,002 (20,611) 85,391 (101,685) 24.9 (4.1) (5.5) 24.2 20.7 8.0 11.1 20.5 33.1 13.3 14.4 (90.2) NM 9.7 30.0 (4.9) (6.7) 27.3 27.3 15.1 13.6 34.1 33.1 16.5 NM 12.9 NM 747,334 763,628 (16,294) (2.1) (1) APA has adopted revised AASB 119 during the financial year. As the revised standard must be applied retrospectively, comparative numbers have been restated. (2) Includes the South West Queensland Pipeline revenue and EBITDA contributions from 9 October 2012. (3) Includes the Pilbara Pipeline System revenue and EBITDA contributions from 9 October 2012. (4) 2013: Consolidation of the Moomba Adelaide Pipeline System on 9 October 2012 until divestment on 1 May 2013. (5) Significant items: 2013 relate primarily to one‑off items associated with the Hastings Diversified Utilities Fund acquisition. 8 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014APA’s operations and financial performance during the financial year principally Transmission System. The agreement has an initial term of 4.5 years, reflects the additional revenue from assets acquired in the 2013 financial year commencing January 2015, and will replace a current contract between APA and asset expansions, partially offset by the reduced Victorian Transmission and EnergyAustralia for the transportation of gas from Moomba; and System revenue. EBITDA in APA’s continuing business, which excludes the Moomba Adelaide Pipeline System that was divested on 1 May 2013, increased by $106.0 million, or 16.5%, to $747.3 million. APA continues to focus on the operation, development and enhancement of its gas transmission and distribution assets, and energy investments across mainland Australia. ENERGY INFRASTRUCTURE The Energy Infrastructure segment includes gas transmission and storage assets and the Emu Downs Wind Farm. Revenue from these assets is derived from either regulatory arrangements or capacity‑based contracts. Regulatory arrangements on major assets are reviewed every five years. Contracts have a weighted average length in excess of 10 years. – in November 2013, APA announced a new gas transportation agreement with Lumo Energy providing a revised suite of services from Victoria through to Sydney using the Victorian Transmission System and Moomba Sydney Pipeline. The agreement has a term of five and a half years, commencing January 2015. The Victorian Transmission System will be expanded to increase the firm peak winter gas flows from Victoria into New South Wales by 145%, at a total cost of approximately $160 million. See Victorian Transmission System (page 10) and Moomba Sydney Pipeline (below) for more detail. There were also a number of additional gas transportation and storage services agreements executed during the financial year which utilise one or more pipelines on the east coast grid, the most significant being, as announed in June 2014, a new agreement with an existing customer for flexible gas transportation services from multiple receipt and delivery points on the grid – in The Energy Infrastructure segment contributed 83% of revenue and EBITDA. particular utilising the Moomba Sydney Pipeline – as well as gas storage Revenue (excluding pass‑through revenue) was $824.1 million, an increase of services. The agreement, which commences in September 2015, is for an initial 11.1% on last financial year (2013: $741.5 million). EBITDA increased by 13.6% to term of seven years with a further three year option. $623.0 million on last financial year (2013: $548.3 million). Against the backdrop of a very dynamic gas market in the south east of The following key factors contributed to this result: Australia, APA continues to adapt and progressively develop its gas pipeline – additional contribution from the expanded Mondarra Gas Storage Facility, infrastructure and services in response to the changing needs of customers. which commenced commercial operation in July 2013; An update on projects and developments is listed below by geographic region: – full 12 months’ contribution from the South West Queensland Pipeline and the Pilbara Pipeline System, compared with nine months last financial year; – additional contribution from the expanded Goldfields Gas Pipeline; and – an increase in volumes through the Victorian Transmission System to New South Wales offset by the reduced regulatory tariffs of the new access arrangement which commenced on 1 July 2013. Queensland – Wallumbilla compression facilities In December 2012, APA announced it would proceed with the development of expanded compression capacity and associated services at Wallumbilla in Queensland. The expansion, totalling $125 million, is underpinned by a 15‑year revenue agreement with GLNG Operations Pty Ltd, with a further East coast gas grid five to 10 year option. With the addition of the South West Queensland Pipeline as part of the acquisition of HDF, APA now has a 7,000 km integrated pipeline grid on the east coast of Australia, with the ability to transport gas seamlessly from Construction continued during the financial year with completion expected prior to January 2015. multiple gas production facilities to gas users across four states. – Moomba compression facilities and South West Queensland Pipeline Customers using the grid now have flexibility in relation to receipt and delivery points, with the potential to move between 30 receipt points and about 100 delivery points on the east coast. APA has developed the commercial and operational framework to deliver this flexibility and other related services, such as multi asset services, bi‑directional transportation and gas storage and parking facilities. eastern haul capital works APA continued the $125 million compression capacity expansion project on the Moomba end of the South West Queensland Pipeline. The project, which commenced during HDF ownership of the asset, will support the west to east gas transportation agreements on the South West Queensland Pipeline. In addition, APA continued capital works on the South West Queensland Pipeline, totalling $75 million, which facilitates eastern haul transportation During the financial year, three new gas transportation agreements on the services and pipeline bi‑directional capability. Both capital projects are Moomba Sydney Pipeline System were executed to facilitate the increased underpinned by long term revenue contracts. transportation of gas from Victoria to New South Wales via the Victorian Transmission System. The net revenue impact of these agreements is positive, with the resultant increase in revenue on the Victorian Transmission System more than offsetting reduced revenue on the Moomba Sydney Pipeline. The agreements are summarised below: – in September 2013, APA announced a new gas transportation and storage services agreement with Origin Energy Limited on the Moomba Sydney Pipeline. The agreement has a term of six years, commencing January 2014 and replacing a previous contract transporting gas from Moomba; – in October 2013, APA announced a new gas transportation agreement with EnergyAustralia Pty Ltd for the delivery of gas sourced from Victoria into New South Wales via APA’s Moomba Sydney Pipeline and Victorian Construction continued during the financial year with completion of Moomba compression expected in the second quarter of the 2015 financial year. New South Wales – Moomba Sydney Pipeline New gas transportation agreements to provide increased gas flow from Victoria into New South Wales were executed during the financial year (see east coast grid on this page). These agreements underpin the $160 million project to increase gas transportation capacity from Victoria into New South Wales, which includes expanding capacity of the Culcairn compressor in southern New South Wales. Capital works commences this financial year, and are scheduled for completion by winter 2015. 9 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA is actively marketing capacity in the medium term to replace contracts – Eastern Goldfields Pipeline expiring in 2016. Options include delivery of supplies from new fields, In July 2014, APA announced it will further expand its portfolio with the storage services and the potential for the delivery of southern sourced gas development of a new 292 km gas transmission pipeline, the Eastern to northern markets. Victoria – Victorian Transmission System Total gas volume transported through the Victorian Transmission System was 233.1 PJ, down 3.0% on last financial year (2013: 240.5 PJ) due to much warmer weather in the financial year and lower industrial demand. This was Goldfields Pipeline, to supply mining operations in the eastern Goldfields region of Western Australia. The pipeline is underpinned by two new, long term gas transportation agreements with AngloGold Ashanti Australia Limited for the transportation of gas through the Goldfields Gas Pipeline, Murrin Murrin Lateral and the new Eastern Goldfields Pipeline to AngloGold’s Sunrise Dam and Tropicana gold mining operations. partially offset by increased gas exports to New South Wales (17.9 PJ in APA will construct the Eastern Goldfields Pipeline and associated FY14; 16.0 PJ in FY13). Peak day volume of 1,132 TJ was lower than last infrastructure for an estimated total capital cost of $140 million, with financial year (2013: 1,212 TJ). completion expected prior to January 2016 when gas transportation In March 2013, the Australian Energy Regulator (“AER”) issued its final services are due to commence. decision which did not accept APA’s revised access arrangement proposal. – Pilbara Pipeline System The AER subsequently published its own access arrangement for the APA signed a new gas transportation agreement with Sub 161 for one year, Victorian Transmission System. APA sought review of the AER’s decision to with options to extend the term of the agreement. This required the the Australian Competition Tribunal, whose decision was handed down on construction of a new lateral and delivery station totalling $4 million, which 18 September 2013. APA was successful in respect of two aspects of the is underwritten by the agreement. Sub 161 produces compressed natural AER’s decision, which together represent approximately $20 million in gas, supplying mining operations in the Pilbara region. additional revenue over the current access arrangement period. Northern Territory APA commenced construction of the new $40 million compression facilities – Pipeline link between the Northern Territory and south east Australia at Winchelsea as part of the South West Pipeline augmentation approved in In early 2014, APA commenced a feasibility study to link its pipeline the current access arrangement. Completion is expected in December 2014. infrastructure in the Northern Territory with its east coast gas grid. The Construction of the first stage of looping of the Northern Interconnect commenced, as part of the $160 million capital projects to provide additional capacity in the northern zone of the system in accordance with regulatory arrangements (Northern Zone augmentation) and new contractual proposed pipeline link will create the opportunity for gas sourced from onshore and offshore fields in the Northern Territory to supply markets in the east, as well as supplying additional gas security for the Northern Territory. agreements – see east coast grid on page 9. APA expects to complete the feasibility study within two years, at a total Western Australia – Goldfields Gas Pipeline cost of approximately $2 million. Any commitment to develop the link will require appropriate long term revenue agreements to underpin the project. In December 2011 and January 2012, APA announced two new capacity – Gas supply to the Australian Agricultural Company meat processing facility expansions on the Goldfields Gas Pipeline to supply a new 20‑year gas In March 2014, APA executed a long term agreement to deliver natural gas transportation agreement with Rio Tinto and a new 15‑year gas transportation to the Australian Agricultural Company meat processing facility near agreement with the Mount Newman Joint Venture (85% BHP Billiton). The Darwin, starting in mid‑2014. Under the agreement, gas sourced from the expansions totalling $150 million (APA’s share: $132 million) neared Amadeus Basin will be transported north to the customer’s facility via APA’s completion during the financial year and will increase the pipeline’s capacity Amadeus Gas Pipeline. by 28% to 205 TJ/d. This additional capacity progressively became available as required under the agreements, with some revenues commencing in October 2013 and set to ramp up fully in the 2015 financial year. ASSET MANAGEMENT APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are APA has been managing the construction project on behalf of the Goldfields Envestra, Ethane Pipeline Income Fund, Energy Infrastructure Investments and Gas Transmission Joint Venture through which APA owns 88.2% of the GDI. Asset management services are provided to these customers under long Goldfields Gas Pipeline. term contracts. APA and Murrin Murrin Operations Pty Limited recontracted for a further 15 Revenue (excluding pass‑through revenue) from asset management services years of gas transportation services on the Goldfields Gas Pipeline and increased by $16.9 million or 20.5% to $99.2 million (2013: $82.3 million) and Murrin Murrin Lateral, commencing July 2014. EBITDA increased by $14.3 million or 34.1% to $56.2 million (2013: $41.9 million). – Mondarra Gas Storage Facility The increase in revenue is due to an increase in customer contributions for APA completed the expansion of its Mondarra Gas Storage Facility during relocating APA infrastructure, totalling $23.4 million (2013: $10.2 million), as the financial year, with commercial operations commencing 23 July 2013. well as an increase in asset management fees from Envestra, which are Work commenced in May 2011 following execution of a long‑term foundation calculated as a percentage of revenue. contract for storage capacity with Synergy (previously Verve Energy). The facility’s commercial storage capacity has been increased from 3 PJ to 15 PJ and provides APA’s customers with supply options and flexibility to better manage their gas supply and demand portfolios. ENERGY INVESTMENTS APA has an interest in a number of energy investments across Australia, including Envestra, SEA Gas Pipeline, Energy Infrastructure Investments, Ethane Pipeline Income Fund, EII2 and GDI. APA holds a number of roles in Most of the facility’s capacity is contracted for at least 20 years with respect of the majority of these investments, in addition to its ownership Synergy. During the financial year, APA executed several short term gas interest. All investments are equity accounted, with the exception of APA’s storage service agreements with other Western Australian customers, interest in Ethane Pipeline Income Fund. which utilise some of the remaining capacity of the facility. 10 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014EBITDA from these investments increased by 33.1% to $68.1 million, up from TOTAL SECURITYHOLDER RETURN $51.2 million last financial year, mainly due to the increase in Envestra’s During the financial year, APA’s market capitalisation increased by 15.0% to profitability. At 30 June 2014, APA’s interest in Envestra was 33.0%. On 7 August 2014, APA accepted CKI Consortium’s offer for all its Envestra shares, exiting its investment in Envestra. However, APA will continue to operate Envestra’s assets under an Operating and Management agreement that expires in 2027 – see below. PROJECT UNDER DEVELOPMENT – DIAMANTINA POWER STATION AND LEICHHARDT POWER STATION APA and AGL Energy are jointly developing the Diamantina Power Station and Leichhardt Power Station at Mount Isa, Queensland through a 50:50 owned joint venture. The Diamantina Power Station is a 242 MW combined cycle gas‑ $5.76 billion at 30 June 2014. Distributions declared during the financial year amounted to 36.25 cents per APA security. APA’s total securityholder return for the financial year, which accounts for the capital appreciation of APA’s security price and assumes the reinvestment of distributions at the declared time, was 21.6%, placing APA in the top 39th percentile of one year total shareholder returns for the financial year and top 14th percentile of three year total shareholder returns for ASX 100 listed companies 5. APA’s 10‑year total securityholder return is 492%, a compound annual growth rate of 19.5%. REGULATORY MATTERS Key regulatory matters addressed during the financial year included: fired power station. The adjacent Leichhardt Power Station is a 60 MW open Victorian Transmission System access arrangement cycle gas‑fired power station which will provide back‑up generation in support In April 2012, APA submitted a revised access arrangement proposal for the of availability commitments to customers. The power stations will be supplied Victorian Gas Transmission System for the period 2013 to 2017. In March 2013, with gas via APA’s Carpentaria Gas Pipeline. the AER issued its final decision in which it did not accept APA’s proposal. The The power stations are underpinned by long term energy supply agreements through to 2031 with Mount Isa Mines Limited, a wholly owned subsidiary of AER subsequently published its own access arrangement for the Victorian Transmission System. Glencore Xstrata, and Ergon Energy, Queensland’s state‑owned regional The AER’s final decision includes a reduction in revenue that resulted from, electricity supplier. Under the arrangements, AGL has contracted transportation among other matters, a lower capital base reflecting lower actual capital capacity in the Carpentaria Gas Pipeline for an initial ten‑year period. expenditure in the previous access arrangement period and a significantly In early October 2013, the Diamantina Power Station delivered its first power lower allowed rate of return. into the Mount Isa electricity grid as part of the commissioning of the first APA sought review of the AER’s decision by the Australian Competition 40MW open cycle gas turbine generator. In January 2014, it commenced Tribunal, whose decision was issued on 18 September 2013. APA was successful supplying power commercially to one of its two major customers. Full in respect of two aspects of the review of the AER’s decision, which together combined cycle operation is due to commence in the last quarter of calendar represent approximately $20 million in additional revenue over the current 2014. The Leichhardt Power Station was commissioned and became fully access arrangement period. operational in July 2014. Rate of return guidelines APA EXITS ITS INVESTMENT IN ENVESTRA In December 2013, each of the AER and the Economic Regulation Authority On 17 December 2013, APA and Envestra agreed to progress a scheme of (“ERA”) published their respective initial Rate of Return Guideline, as required arrangement proposal to combine the two businesses following a revised by changes to the National Gas Rules implemented in 2012. The guidelines proposal from APA, which implied a value of $1.17 per Envestra share (based on highlight that the Capital Asset Pricing Model continues to dominate each of an APA share price of $6.0974, the APA 30 day VWAP at close of business on the Regulators’ respective approaches to determining the cost of equity. These 11 December 2013). Following completion of confirmatory due diligence, receipt guidelines are not binding and service providers in their access arrangements of certain binding confirmations from Envestra’s financiers and the issue of an proposals to the AER and ERA can argue for departure from the relevant Independent Expert Report, APA and Envestra entered into a Scheme guideline. Implementation Agreement, with an expected implementation date of early June 2014. However, on 8 May 2014, Envestra received a non‑binding proposal from the CKI Consortium. Following due diligence and relevant approvals, on 30 May HEALTH, SAFETY AND ENVIRONMENT Health and safety reporting The Lost Time Injury Frequency Rate (“LTIFR”) 6 for APA employees was 0.7 for the financial year, down from 2.1 last financial year. There were two employee 2014 Envestra entered into a Bid Implementation Agreement with the CKI and three contractor lost time injuries during the financial year, which is four Consortium for a price of $1.32 per Envestra share, plus an entitlement to a final fewer lost time injuries compared with the prior financial year. dividend of 3.5 cents per share, which was paid on 25 July 2014. As a result, Envestra terminated the Scheme Implementation Agreement with APA. APA aims to be a “zero harm” workplace for its employees, contractors and the broader communities in which it operates. During the financial year, APA The CKI Consortium formalised its bid for Envestra in its Bidder’s Statement launched its three year Strategic Improvement Plan, introducing 12 of its 17 dated 20 June 2014, with the offer open for acceptance from 4 July 2014 to initiatives, including Leading Zero Harm. These initiatives were implemented 8 August 2014 (unless extended or withdrawn). across all areas of APA’s business, and have contributed to the improvement in On 7 August 2014, APA accepted the CKI Consortium offer for all its Envestra this financial year’s health and safety performance. shares. APA will receive $784 million in consideration, in addition to the The Strategic Improvement Plan was developed following a corporate wide $21 million final dividend paid by Envestra on 25 July 2014. health and safety cultural survey in early 2013. Implementation of the plan is The CKI Consortium offer is now expected to close on 21 August 2014. improving APA’s understanding of the hazards and risks in its business, identifying the controls needed to eliminate or mitigate these risks and APA retains its Operations and Management Agreement on the Envestra validating this with a robust assurance framework. assets, which runs to 2027. Under that agreement, APA is paid all actual costs and disbursements reasonably incurred or outlaid by APA in the performance of its obligations under the agreement, and a management fee of 3% of the total network revenue Envestra receives from the assets that APA manages. 5 Figures quoted are sourced from IRESS and measured as at 30 June 2014. 6 Lost Time Injury Frequency Rate is calculated as the work hours lost as a result of injury at work, multiplied by one million, divided by the total hours worked. 11 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDOther activities implemented during the financial year include: APA’s summary of Scope 1 emissions and energy consumption for the 2013 – a new risk‑based approach to health and safety audits, which provides more targeted compliance with APA’s Health, Safety and Environment system; – an improved hazard profiling process that allows for a better understanding of the workplace health and safety risks in each business unit and operational site across APA; and financial year are set out in the following table: FINANCIAL YEAR 2013 2012 CHANGE Scope 1 CO2 emissions (tonnes) 322,827 327,239 (4,412) (1.4)% Energy consumption (GJ) (1) 2,791,839 2,886,506 (94,667) (3.3)% – a new suite of safety performance measures, which include lead indicators that measure performance against the proactive safety measures. (1) In 2013 APA amended its NGER reporting methodology for energy consumption. 2012 figures have been adjusted to reflect this change APA encourages healthy living and for the sixth year sponsored employees are participating in the Global Corporate challenge. 37 teams (259 APA employees) commenced a 16 week walking challenge with the aim of increasing the number of steps they take and improving overall physical fitness. In addition, APA provided an annual flu vaccination program and a confidential employee Carbon legislation and repeal A major element of the Clean Energy Act 2011, passed by the Senate on 8 November 2011, was the introduction of legislation to reduce carbon emissions. The legislation put a price on carbon emissions from 1 July 2012. assistance program that provides services to employees and their immediate However, in July 2014, the carbon price legislation was repealed effective 1 July families. Environmental regulations All pipeline, distribution and gas processing assets owned and/or operated by 2014. Consequently, the 2014 financial year is the final year for carbon liability compliance. The Federal Government has proposed the Emissions Reduction Fund as a replacement for the existing carbon legislation. APA are designed, constructed, tested, operated and maintained in accordance During the financial year APA recovered all its carbon related costs. From 1 July with pipeline and distribution licences issued by the relevant state and territory 2014 APA will no longer have a carbon liability and will remove any pass‑ technical regulators. All licences require compliance with relevant federal, state through carbon charges from customers’ charges. and territory environmental legislation and Australian standards. RISK OVERVIEW The pipeline licences also require compliance with the Australian Standard AS APA identifies risks to the business and puts in place mitigation actions to 2885 “Pipelines – Gas and Liquid Petroleum”, which has specific requirements remove or minimise the negative impact and maximise the opportunities in for the management of environmental matters associated with all aspects of respect of these risks. Material risks are reviewed on an ongoing basis by APA’s the high pressure pipeline industry. Construction Environmental Management Plans satisfying Section 6 of the Australian Pipeline Industry Association Code of Environmental Practice are prepared as needed. Major project construction activities are audited or Executive Risk Management Committee and the Board Audit and Risk Management Committee, together with the relevant business units and internal experts. Further information on this process is provided in APA’s Corporate Governance Statement (refer to Principle 7). inspected in accordance with the Environmental Management Plan Risk assessment considers a combination of the probability and consequence of requirements. In accordance with Part 3 of AS 2885, Environmental risks occurring. Listed below are the key risks identified that could materially Management Plans satisfying Section 7 of the Code are in place for all operating affect APA negatively. However, the materiality of risks may change and previously pipelines and are managed in accordance with APA’s contracts and the terms unidentified risks may emerge. These risks should be considered in connection and conditions of the licences that APA has been issued. with any forward looking statement by APA in this document or elsewhere. The Safety and Operating Plan for APA’s distribution network has been audited Key risks in accordance with New South Wales technical regulatory requirements. Economic regulation Senior management reviews audit reports and any material breaches are communicated to the Board. No significant breaches have been reported during the financial year and APA has managed its assets in accordance with the Environmental Management Plans that are in place. Environmental reporting APA has a number of price regulated assets and investments in its portfolio. Regulatory pricing periods generally run for five years and reflect the regulator’s determination of, amongst other matters, APA’s projected operating and capital costs, and weighted average cost of capital. The price regulation outcomes determined by the AER or ERA (for Western Australia) under an access arrangement process for a full regulation asset may adversely affect In October 2013, APA complied with Australia’s National Greenhouse and APA’s revenue in respect of that asset. Energy Reporting (“NGER”) obligations for the 2013 financial year. Energy reporting for the 2014 financial year will be submitted in October 2014. Bypass and competitive risk Bypass and competitive risk occurs when a new transmission pipeline offers APA’s main sources of emissions are from the combustion of natural gas in gas transportation services to the same end market serviced by existing compressor stations and from fugitive emissions associated with natural gas pipelines. If a bypass risk eventuates, APA’s future earnings could be reduced if pipelines. NGER compliance reporting applied to assets under APA’s operational customers purchase gas transportation services from new pipelines, rather control, which include Roma Brisbane Pipeline, Moomba Sydney Pipeline, than from APA’s existing pipelines. South West Queensland Pipeline, Northern Territory Natural Gas Distribution Network, Goldfields Gas Pipeline (88.2% ownership), Diamantina Power Station (50% equity ownership) and Allgas (20% equity ownership). Gas demand risk Reduced demand for gas, increased use of gas swap contracts by customers, and increased use of non‑APA gas storage facilities may reduce the future demand for pipeline capacity and transportation services and adversely impact APA’s future revenue, profits and financial position. 12 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014Gas supply risk Operational risk A long‑term shortage of competitively priced gas, either as a result of gas APA is exposed to a number of operational risks such as equipment failures or reserve depletion, allocation of gas to other markets, or the unwillingness or breakdowns, rupture of pipelines, information technology systems failures or inability of gas production companies to produce gas, may adversely affect breakdowns, employee or equipment shortages, contractor default, unplanned APA’s revenue and the carrying value of APA’s assets. interruptions, damage by third parties and unforeseen accidents. Operational Counterparty risk The failure of a counterparty to meet its contractual commitments to APA, whether in whole or in part, would reduce future anticipated revenue unless and until APA is able to secure an alternative customer. Counterparty risk also disruption, or the cost of repairing or replacing damaged assets, could adversely impact APA’s earnings. Insurance policies may only provide protection for some, but not all, of the costs that may arise from unforeseen events. arises when contracts are entered into for derivatives with financial institutions. Construction and development risk Exposures are regularly monitored in accordance with APA’s Treasury Risk APA develops new assets and undertakes expansion of its existing assets. This Management Policy. Interest rates and refinancing risks APA is exposed to movements in interest rates where floating interest rate funds are not effectively hedged. There is a risk that adverse interest rate movements may affect APA’s earnings, both directly (through increased interest payments) and indirectly (through the impact on asset carrying values). APA has borrowings extending through to 2022. Access to continuing financing sources to extend and/or refinance debt facilities will be important. An inability to secure new debt facilities at a similar quantum and cost to existing debt involves a number of typical construction risks, including the failure to obtain necessary approvals, employee or equipment shortages, higher than budgeted construction costs and project delays, which may impact the commerciality and economics of the development or otherwise impact on APA’s other assets. If these risks materialise, this may adversely affect APA’s operations and/or financial position and performance. Disputes and litigation risks In the course of its operations, APA may be involved in disputes and litigation. There is a risk that material or costly disputes or litigation could affect APA’s financial position and performance. facilities may adversely affect APA’s operations and/or financial position and GUIDANCE FOR 2015 FINANCIAL YEAR performance. Investment risk APA may acquire infrastructure and related assets or undertake additional or incremental investment in its existing assets. There is a risk that assumptions and forecasts used in making investment decisions may ultimately not be realised, and this may adversely affect APA’s financial position and performance. Contract renewal risk A large part of APA’s revenues are the subject of long‑term, negotiated revenue contracts with end customers. Due to a range of factors, including customer Based on current operating plans, APA expects statutory EBITDA for the full year to 30 June 2015 to be in a range of $1,170 million to $1,190 million, inclusive of a once‑off profit on sale of APA’s Envestra shares of around $430 million. APA expects normalised EBITDA to be in the range of $740 million to $760 million, which represents an increase of approximately 6% to 9% on the 2014 financial year EBITDA of APA’s continuing business, which excludes equity accounted earnings from Envestra of $50.1 million. Net interest cost for the 2015 financial year is expected to be in a range of $315 million to $325 million. demand risk, gas supply risk, counterparty risk, shorter term contracts and Distribution per security for the 2015 financial year is expected to be at least bypass and competitive risk, APA may not be successful in recontracting the equal to that paid in respect of the 2014 financial year, that is, at least 36.25 available pipeline capacity when it comes due for contract renewal, and cents per security. consequently may adversely impact APA’s future revenue, profits and financial position. SUBSEQUENT EVENTS Except as disclosed elsewhere in this report, the Directors are unaware of any matter or circumstance that has occurred since the end of the financial year that has significantly affected or may significantly affect the operations of APA, the results of those operations or the state of affairs of APA in future years. INFORMATION 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 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 CEO from 1990 Independent Chairman to 2001. Appointed 28 August 2007 Appointed Chairman 30 October 2007 Len is Chairman of the Taronga Conservation Society Australia and the Advisory Council for CIMB Securities International (Australia) Pty Limited. Len’s past appointments have included lead non‑executive director of QBE Insurance Group Limited, 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. 13 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDMichael McCormack BSurv GradDipEng MBA FAICD Michael (Mick) McCormack has been Chief Executive Officer of APA since 1 July 2005 and Managing Director since 1 July 2006. He 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 Chief Executive Officer and Australia’s natural gas pipelines and gas distribution systems. Managing Director Appointed Managing Director 1 July 2006 Steven Crane BComm FAICD SF Fin Independent Director Appointed 1 January 2011 Mick is a Director of Envestra Limited and formerly a Director of the Australian Pipeline Industry Association and the Australian Brandenburg Orchestra. Steven (Steve) Crane has over 30 years’ experience in the financial services industry. His background is in investment banking, having previously been Chief Executive Officer of ABN AMRO Australia and BZW Australia. Steve 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 and Taronga Conservation Society Australia, and a member of the Advisory Council for CIMB Securities International (Australia) Pty Limited. He was formerly Chairman of Adelaide Managed Funds Limited and Investa Property Group Limited, a Director of Adelaide Bank Limited, Foodland Associated Limited and APA Ethane Limited, the responsible entity of Ethane Pipeline Income Fund, and a member of the Advisory Council RBS Group (Australia) Pty Limited. Steve 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, Sydney Water Corporation and Alinta Energy Appointed 27 February 2008 Group. He brings a wide commercial and financial practical knowledge to the Board. John was previously an AGL appointed Director of Australian Pipeline Limited from 2000 to 2005. John is the Chairman of the Remuneration Committee and a member of the Audit and Risk Management Committee. Russell Higgins AO BEc FAICD Independent Director Appointed 7 December 2004 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, Argo Investments Limited and the St James Ethics Foundation. He is a former Chairman of the CSIRO Energy Transformed Flagship Advisory Committee, the Snowy Mountains Council and the Australian Government’s Management Improvement Advisory Committee, and a former Director of Leighton Holdings Limited, Ricegrowers Limited (trading as SunRice), Australian Biodiesel Group Limited, EFIC, CSIRO, Austrade and the Australian Industry and 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. Patricia McKenzie LLB FAICD Independent Director Patricia McKenzie has considerable expertise and experience in energy market regulation and, as a qualified solicitor, extensive corporate legal experience. She is currently Chair of Healthdirect (National Health Call Centre Network Limited) and a Director of Macquarie Generation, and was formerly a Director of Australian Energy Market Operator Limited (AEMO), Appointed 1 January 2011 the national energy market operator for electricity and gas, and the Chief Executive Officer of Gas Market Company Limited, the market administrator for retail competition in the gas industry in New South Wales and the Australian Capital Territory. Patricia is a member of the Health Safety and Environment Committee and the Remuneration Committee. Robert Wright BCom 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 Super Retail Group Limited and Independent Director APA Ethane Limited, the responsible entity of Ethane Pipeline Income Fund, and was previously Chairman of SAI Global Appointed 11 February 2000 Limited, Dexion Limited and RCL Group Limited. 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 Knapman 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 the Governance Institute of Australia (formerly Chartered Secretaries Australia) and the Institute of Company Secretaries and Administrators, and is admitted to practice as a solicitor. Mark Knapman BCom LLB FGIA FCIS Company Secretary Appointed 16 July 2008 14 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014DIRECTORSHIPS 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 financial year are as follows: NAME COMPANY PERIOD OF DIRECTORSHIP Leonard Bleasel AM QBE Insurance Group Limited January 2001 to September 2012 Michael McCormack Envestra Limited Steven Crane Transfield Services Limited Bank of Queensland Limited nib holdings limited John Fletcher – Russell Higgins AO Telstra Corporation Limited Argo Investments Limited Ricegrowers Limited Since July 2007 Since February 2008 Since December 2008 Since September 2010 – Since September 2009 Since September 2011 December 2005 to August 2012 Patricia McKenzie Robert Wright Leighton Holdings Limited June 2013 to May 2014 – Super Retail Group Limited APA Ethane Limited (1) SAI Global Limited RCL Group Limited – Since May 2004 Since July 2008 October 2003 to October 2013 May 2006 to February 2012 (1) APA Ethane Limited is the responsible entity of the registered managed 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 financial year, the Responsible Entity paid a premium in respect of a Trust and traded on the Australian Securities Exchange (“ASX”) under the code contract insuring the Directors and officers of the Responsible Entity and any “APA”. No options over unissued APA securities were granted during or since the end of the financial year, no unissued APA securities were under option as at the date of this report, and no APA securities were issued during or since the end APA Group entity 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 the premium. of the financial year as a result of the exercise of an option over unissued APA Australian Pipeline Limited, in its capacity as Responsible Entity of Australian 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 any APA Group entity 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 Group entities as the Board, in its 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 financial year, indemnified or agreed to indemnify an officer or external auditor of the Responsible Entity or any APA Group entity against a liability incurred by such an officer or auditor. 15 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDDIRECTORS’ MEETINGS During the financial year, 20 Board meetings, three Remuneration Committee meetings, four Audit and Risk Management Committee meetings and three 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 Robert Wright BOARD REMUNERATION COMMITTEE AUDIT AND RISK MANAGEMENT COMMITTEE HEALTH SAFETY AND ENVIRONMENT COMMITTEE A 20 20 20 20 20 20 20 B 20 20 20 20 20 20 20 A – – 3 3 – 3 – B – – 3 3 – 3 – A – – 4 4 4 – 4 B – – 4 4 4 – 4 A – – – – 3 3 3 B – – – – 3 3 3 A: Number of meetings held during the time the Director held office or was a member of the committee during the financial year. B: Number of meetings attended. (1) The Chairman attended all committee meetings ex officio. DIRECTORS’ SECURITYHOLDINGS The aggregate number of APA securities held directly, indirectly or beneficially by Directors or their Director related entities at the 30 June 2014 is 979,426 (2013: 979,426). The following table sets out Directors’ relevant interests in APA securities as at 30 June 2014: DIRECTORS Leonard Bleasel AM Michael McCormack Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright FULLY PAID SECURITIES AS AT 1 JULY 2013 SECURITIES ACQUIRED SECURITIES DISPOSED FULLY PAID SECURITIES AS AT 30 JUNE 2014 460,664 208,590 100,000 66,188 92,040 12,500 39,444 979,426 – – – – – – – – – – – – – – – – 460,664 208,590 100,000 66,188 92,040 12,500 39,444 979,426 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 and that confer a right to call for or deliver APA securities. 16 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014REMUNERATION REPORT The Remuneration Report is attached to and forms part of this report. AUDITOR AUDITOR’S INDEPENDENCE DECLARATION A copy of the independence declaration of the auditor, Deloitte Touche Tohmatsu (“Auditor”) as required under section 307C of the Corporations Act 2001 is included at page 97. NON-AUDIT SERVICES 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 financial year are disclosed in Note 46 to the financial statements. Except as disclosed in this report, neither the Responsible Entity nor any of its associates holds any APA securities. Non‑audit services have been provided during the financial year by the Auditor. The number of APA securities issued during the financial year, and the number A description of those services and the amounts paid or payable to the Auditor of APA securities at the end of the financial year, are disclosed in Note 31 to the for the services are set out in Note 45 to the financial statements. financial statements. The Board has considered those non‑audit services provided by the Auditor The value of APA’s assets as at the end of the financial year is disclosed in the and, in accordance with written advice from the Audit and Risk Management balance sheet in total assets, and the basis of valuation is included in Note 3 to Committee (“Committee”), is satisfied that the provision of those services by the financial statements. the Auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 and did not compromise the auditor independence requirements of the Act. The Board’s reasons for concluding that the non‑audit services provided did not compromise the Auditor’s independence are: – all non‑audit services were subject to APA’s corporate governance procedures with respect to such matters and have been reviewed by the Committee to ensure they do not impact on the impartiality and objectivity 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. of the Auditor; On behalf of the Directors – the non‑audit services provided did not undermine the general principles relating to auditor independence as they did not involve reviewing or auditing the Auditor’s own work, acting in a management or decision making capacity for APA, acting as an advocate for APA or jointly sharing risks and rewards; and – the Auditor has provided a letter to the Committee with respect to the Leonard Bleasel AM Auditor’s independence and the Auditor’s independence declaration Chairman Robert Wright Director referred to above. SYDNEY, 20 August 2014 17 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED AUSTRALIA N PI PELIN E T RUST AND ITS CO NTRO LLE D E NTI TI E S REMUNERATION 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 2014 remuneration details for the Directors of the Responsible Entity and key management personnel of APA. The people in those positions during or since the end of the financial year are listed below. DIRECTORS OF THE RESPONSIBLE ENTITY (1) Leonard Bleasel AM Michael McCormack Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright KEY MANAGEMENT PERSONNEL Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Stephen Ohl (2) 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) The Directors are defined as “key management personnel” under accounting standard AASB 124 – Related Party Disclosures (“AASB 124”) and are presented separately in this report. (2) Stephen Ohl retired with effect from 1 July 2013. HAVE THERE BEEN ANY CHANGES TO THE EXECUTIVE REMUNERATION – facilitate effective attraction, retention and development of talented STRUCTURE DURING FY2014? employees; There have been no changes to the remuneration structure during FY2014. – consider and make recommendations to the Board on remuneration policies For the year ending 30 June 2013 the Board restructured the ‘at risk’ aspects of the Total Package Opportunity Incentive Plan (“TPOI Plan”) to more directly align the interests of plan participants and securityholders, and importantly to allow the Board to reward superior performance. Firstly, the Long Term Incentive (“LTI”) plan which had only one hurdle, operating cash flow per security (“OCFPS”), was changed to include two hurdles. The first hurdle is total shareholder return (“TSR”) performance against the S&P ASX 100 and packages applicable to Directors and to senior executives of APA; – ensure compliance with relevant legislation and corporate governance principles on remuneration practices and employment policies; and – promote diversity, on the basis of gender and other factors, in APA’s workforce and to review the effectiveness of diversity practices and initiatives. The members of the Remuneration Committee, all of whom are non‑executive Directors, are: comparator group and the second hurdle, performance against targets set for – John Fletcher (Chairman); growth in earnings before interest, tax, depreciation and amortisation divided by – Steven Crane; and funds employed (“EBITDA/FE”). – Patricia McKenzie. Secondly, both the Short Term Incentive (“STI”) plan and the LTI plan have a The Chairman of the Board attends all meetings of the Remuneration maximum opportunity of 150% subject to achieving exceptional or superior Committee and the Managing Director attends by invitation. The Remuneration performance. Committee met three times during the year. Thirdly, consistent with emerging good governance, last year the Board The Remuneration Committee may seek external professional advice on any introduced an Executive Remuneration Clawback Policy which provides that, in matter within its terms of reference. the event of a material misstatement in the year end accounts for the preceding three years (which may affect one or more key management personnel), the Board at its discretion may clawback some or all of any STI or LTI award or LTI grant not yet vested. The policy appears on the Group website. REMUNERATION COMMITTEE The Remuneration Committee has been established by the Board to govern OUR APPROACH TO NON-EXECUTIVE DIRECTOR REMUNERATION We seek to attract and retain high calibre directors who are equipped with diverse skills to oversee all functions of APA in an increasingly complex environment. We aim to fairly remunerate Directors for their services relative to similarly sized organisations. and oversee Director and executive remuneration. The role of the Remuneration Non‑executive Director remuneration comprises: Committee is to: – a base board fee; – ensure the provision of a robust remuneration and reward system that – an additional fee for serving on a committee of the Board; and provides for the alignment of employee and securityholder interests; – superannuation contributions. 18 APA GROUP / ANNUAL REPORT 2014The Board determines base board fees and committee fees annually. It acts on In 2003, the Board terminated the non‑executive Directors’ retirement benefit advice from the Remuneration Committee which obtains external benchmark plan so that the benefits to participating Directors that had accrued up to that information from independent remuneration specialists. Such information termination date were then quantified and preserved for payment on retirement includes market comparisons paid by comparable companies in the ASX 100. of those Directors. Robert Wright is the only current Director entitled to Non‑executive Directors do not receive incentive payments of any type. One off ‘per diems’ may be paid in exceptional circumstances. No payments have been made under this arrangement in this reporting period. Board and committee fees benefits under the plan on his retirement from the Board. 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 2014. Base board fees and committee fees are outlined below. Effective 1 January 2014 Effective 1 January 2013 to 31 December 2013 (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 (1) Excludes superannuation guarantee levy. Total remuneration earned and received CHAIRMAN $000/PA MEMBER $000/PA 370 32 38 32 330 31 37 31 129 16 19 16 120 15.5 18.5 15.5 The following table outlines the total remuneration earned and received by non‑executive Directors during FY2014, calculated in accordance with applicable accounting standards. Non-Executive Directors (1) L F Bleasel AM 2014 2013 S Crane 2014 2013 J A Fletcher 2014 2013 R A Higgins AO 2014 2013 P M McKenzie 2014 2013 M Muhammad (2) 2014 2013 R J Wright 2014 2013 Total Remuneration: Non-Executive Directors 2014 2013 SHORT-TERM EMPLOYMENT BENEFITS POST-EMPLOYMENT BENEFITS SALARY/FEES $ SUPERANNUATION $ TOTAL $ 353,252 317,252 158,970 146,970 160,598 156,723 174,723 160,223 156,000 143,000 – 43,043 177,738 164,238 1,181,281 1,131,449 28,698 24,998 14,530 13,230 30,078 19,012 15,953 14,427 14,250 12,850 – – 16,226 14,763 119,735 99,280 381,950 342,250 173,500 160,200 190,676 175,735 190,676 174,650 170,250 155,850 – 43,043 193,964 179,001 1,301,016 1,230,729 (1) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is included with the remuneration disclosures for key management personnel for FY2014 on page 26. (2) Muri Muhammad resigned as a Director on 24 October 2012. 19 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUED OUR 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: Chief Executive Officer and Managing Director Other key management personnel 7 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 guarantee 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 set of performance hurdles paid in three equal annual instalments starting one year after the year of allocation. 7 Other than the Company Secretary who has a mix of 58%, 21% and 21%. 20 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014 TOTAL FIXED REMUNERATION (“TFR”) What is the purpose of the individual executive’s KPIs ? The total of base salary, including cash, superannuation guarantee levy, vehicles The KPIs are designed to put a proportion of executive remuneration ’at risk’ and parking and incidental benefits. against meeting individual KPIs linked to: TFR is reviewed annually and is determined by reference to independent – various financial measures such as cost control, revenue and cash generation external remuneration benchmarking information, taking into account an and capital expenditure management. This reflects APA’s strategic goal of individual’s responsibilities, performance, qualifications and experience. increasing OCFPS over the medium term, thereby increasing securityholder ‘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 hurdles. Each of these components is discussed in more detail below. 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. returns and aligning the interests of executives with those of securityholders; and – non‑financial measures through the delivery of individual KPIs linked to long‑term strategic measures, including health, safety and environment targets, project delivery and reinforcement of an ethical and values‑based culture. How is performance measured? At the beginning of the financial year, the Board, at the recommendation of the Remuneration Committee, determines the appropriate level of OCFPS performance that will form the basis of the STI and the appropriate financial What are the performance hurdles of the STI plan? and non‑financial KPIs for the Chief Executive Officer. The Board also reviews The STI is structured around two interlocked components: firstly, the business the KPIs that the Chief Executive Officer will use to assess the performance of achieving a predetermined level of financial return or performance hurdle his direct reports. defined by reference to OCFPS and, secondly, executives achieving their predetermined, individual key performance indicators (“KPIs”). Notwithstanding executives’ performance against their KPIs, should APA not reach the predetermined minimum OCFPS, no STI will be payable. Conversely, should APA achieve exceptional or superior OCFPS performance, up to a maximum of At the end of the financial year, after the audited financial results are available and provided that the performance hurdles are 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. 150% of STI could be payable. This plan structure is directly linked to APA’s What is the value of the STI opportunity? strategic goal of increasing operating cash flows over the medium term, thereby improving total securityholder value. Using OCFPS as the key The STI amount payable is capped, the Chief Executive Officer’s STIs at 150% of 30% of TRO, and his direct reports’ STI at 150% of 25% of TRO 8. performance hurdle for STIs ensures the interests of executives and securityholders are aligned. The predetermined, minimum OCFPS at which the “gate opens” for STI awards is followed by increasingly more difficult OCFPS hurdles which must be achieved before higher STIs are payable, dependent at all times on the individual executive achieving their respective KPIs. How is the STI reward delivered? All STI awards are paid in cash usually in September of the new financial year following the completion of the audit of the annual accounts. For FY2014, the STI outcomes are shown in the table below for key management personnel: KEY MANAGEMENT PERSONNEL (1) Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Mark Knapman Peter Wallace (1) Stephen Ohl retired with effect from 1 July 2013. LONG-TERM INCENTIVE (“LTI”) STI EARNED ($) 1,463,962 534,375 512,595 341,090 304,463 269,955 236,445 296,204 STI EARNED (%) STI FORFEITED ($) STI FORFEITED (%) 91.0% 95.0% 86.4% 91.0% 88.3% 85.7% 90.7% 85.3% 144,788 28,125 80,655 33,910 40,537 45,045 24,245 51,047 9.0% 5.0% 13.6% 9.0% 11.7% 14.3% 9.3% 14.7% A cash-settled incentive based on the APA security price which links executive continuing to improve performance against the funds employed in the business reward to Securityholder value based on the achievement of key financial and over the longer term. comparator group measures. The TSR hurdle is linked to APA’s ranking on that measure relative to the S&P WHAT ARE THE KEY PERFORMANCE HURDLES OF THE LTI PLAN? ASX 100. LTI awards do not commence until APA achieves a relative position of The LTI component of ‘at risk’ remuneration is subject to two equally weighted at least the median of the S&P ASX 100 group of companies (P50). On performance hurdles. The first hurdle is TSR (being, generally, growth in the achieving P50, the LTI awards increase as APA’s performance on the TSR security price assuming reinvestment of distributions) performance against the measure increases relative to the S&P ASX 100. S&P ASX 100 comparator group, and the second hurdle is performance against target EBITDA/FE. The EBITDA/FE hurdle is set to reflect a financial productivity improvement on the previous year. LTI awards do not commence unless this improvement has These LTI measures of TSR and EBITDA/FE are appropriate longer term award been achieved. On achieving this productivity improvement, the LTI awards hurdles based on the experience of APA Securityholders and the goal of increase as the EBITDA/FE performance increases. 8 Other than for the Company Secretary whose STI is capped at 150% of 21% of TRO. 21 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDWhat is the purpose of the LTI? How are the LTI allocations delivered? The LTI plan is designed to put a proportion of executive remuneration at risk An LTI allocation vests in three equal instalments over the three financial years against meeting longer term financial targets linked to TSR and EBITDA/FE. following the allocation, with the initial one‑third vesting at the end of the first This directly aligns the interests of plan participants and securityholders and allows the Board to reward superior performance. 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 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. securities with a value equivalent to the LTI allocation. 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 financial results to the ASX. APA provides fully in its accounts for the obligations of the LTI in the year in which the LTI allocation is made. 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 TSR performance against the S&P ASX 100 comparator group and improvement in EBITDA/FE performance. The maximum LTI allocation is capped at 150% of the participant’s maximum LTI opportunity. For FY2014, the actual LTI performance achieved was 79.8% for TSR against S&P ASX 100 and 100% for EBITDA/FE growth. LTI allocations are shown in the table below for all key management personnel: KEY MANAGEMENT PERSONNEL (1) Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Mark Knapman Peter Wallace (1) Stephen Ohl retired with effect from 1 July 2013 What rights are attached to an LTI reference unit? LTI EARNED ($) LTI FORFEITED ($) 946,017 337,069 355,495 224,713 206,736 188,759 156,214 208,084 644,733 225,431 237,755 150,287 138,264 126,241 104,476 139,166 The LTI is a cash‑settled plan and participants are not allocated APA securities. LTI allocations do not entitle participants to vote at securityholders meetings or to be paid distributions. No options or other equity instruments are issued to APA employees or Directors under the LTI plan. Changes to LTI TSR methodology for FY2015 As APA has been included in the S&P ASX 100 index for the last three years, the Remuneration Committee considers it appropriate that in future, commencing in FY2015, the TSR be measured over a three year cycle to remove short term fluctuations and more closely reflect the longer term intent of the LTI plan. 22 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014n i s r a e y e h t d n a , i d a p n e e b r o d e t s e v t e y t o n e v a h t u b l e n n o s r e p t n e m e g a n a m y e k o t d e t a c o l l a n e e b e v a h t a h t s t i n u e c n e r e f e r f o r e b m u n e h t d n a s t i n u e c n e r e f e r f o r e b m u n e h t n i s t n e m e v o m e h t t u o s t e s l e b a t g n w o i l l o f e h T i g n d n a t s t u o s t i n u e c n e r e f e r I T L t n e r r u c d n a I T L n i s t n e m e v o M – – – – – – – – 1 4 7 3 4 , 1 4 7 3 4 , 4 9 2 5 1 , 4 9 2 5 1 , – – – – – – – – 0 3 1 , 6 1 0 3 1 , 6 1 6 9 1 , 0 1 6 9 1 , 0 1 7 1 0 2 6 1 0 2 5 1 0 2 – – – 6 9 3 9 5 , 1 4 7 3 4 , – – 2 7 6 3 6 , 6 9 3 9 5 , 1 4 7 3 4 , ) 3 ( 4 1 0 2 – – 3 7 3 9 6 , 2 7 6 3 6 , 6 9 3 9 5 , I D A P N E E B R O D E T S E V T E Y T O N E V A H T A H T D E T A C O L L A S T I N U E C N E R E F E R ) 2 ( T S E V L L I W Y E H T H C H W N I I S R A E Y E H T D N A 7 3 1 , 3 0 1 9 0 8 6 6 1 , 1 4 4 2 9 1 , 8 2 1 , 6 0 5 – – – 6 4 7 , 1 2 4 9 2 5 1 , 0 4 0 7 3 , – – – – – – 8 8 8 3 2 , 0 3 1 , 6 1 8 1 0 0 4 , 9 6 4 3 1 , 6 9 1 , 0 1 5 6 6 3 2 , – – 3 4 3 5 2 , 6 4 7 , 1 2 4 9 2 5 1 , 3 8 3 2 6 , – – 9 8 6 8 2 , 8 8 8 3 2 , 0 3 1 , 6 1 7 0 7 8 6 , – – 8 0 9 0 1 , 9 6 4 3 1 , 6 9 1 , 0 1 3 7 5 4 3 , – 4 5 6 8 2 , 3 4 3 5 2 , 6 4 7 , 1 2 – 3 4 7 5 7 , 0 6 4 0 9 1 , – 6 7 6 2 3 , 9 8 6 8 2 , 8 8 8 3 2 , – – – 5 8 0 , 1 1 8 0 9 0 1 , 9 6 4 3 1 , 3 5 2 5 8 , 8 0 1 , 0 1 2 2 6 4 5 3 , 6 9 8 3 0 1 , E C N E R E F E R T C E J B U S S T I N U N O I T A C O L L A O T ) 2 ( S T I N U E C N E R E F E R F O E C N A L A B D R A O B E H T Y B G N I S O L C ) 1 ( 4 1 0 2 T S U G U A N I T A E C N A L A B 4 1 0 2 E N U J 0 3 D E T I E F R O F I D A P D E T A C O L L A 3 2 2 , 1 3 1 2 8 8 5 4 , 0 9 3 8 4 , 8 8 5 0 3 , – 3 7 3 9 6 , 4 4 3 7 2 1 , 8 8 1 , 8 7 1 – 4 5 6 8 2 , 6 8 6 0 5 , 8 3 2 5 6 , – 6 7 6 2 3 , 8 7 3 7 5 , 4 6 6 , 1 7 – 5 8 0 , 1 1 6 1 8 , 1 2 7 0 4 0 4 , – – – – – – – – – – – – – – – – ) 7 2 2 6 6 ( , ) 3 7 3 9 6 ( , ) 2 7 6 3 6 ( , – – – – 8 8 1 , 8 7 1 ) 3 2 9 6 2 ( , ) 4 5 6 8 2 ( , ) 3 4 3 5 2 ( , – – – – 8 3 2 5 6 , ) 2 9 6 0 3 ( , ) 6 7 6 2 3 ( , ) 9 8 6 8 2 ( , – – – – 4 6 6 , 1 7 – ) 7 0 3 , 1 1 ( ) 5 8 0 , 1 1 ( ) 7 0 9 0 1 ( , – – – 7 0 4 0 4 , 7 2 2 6 6 , 6 4 7 8 3 1 , 6 1 0 , 1 9 1 I G N N E P O 3 1 0 2 Y L U J 1 T A E C N A L A B 3 2 9 6 2 , 8 0 3 7 5 , 9 2 0 6 7 , 2 9 6 0 3 , 2 5 3 5 6 , 7 6 0 6 8 , 7 0 3 , 1 1 0 7 1 , 2 2 3 2 7 2 3 , E T A D T N A R G T N E M E G A N A M Y E K L E N N O S R E P : t s e v l l i w y e h t h c h w i 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 k c a m r o C c M l e a h c M i n o s c i r d e r F r e t e P h c a b s r e G s s o R s l a e h W t r e b o R 23 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUED         7 1 0 2 6 1 0 2 5 1 0 2 ) 3 ( 4 1 0 2 ) 2 ( S T I N U E C N E R E F E R F O E C N A L A B D R A O B E H T Y B G N I S O L C ) 1 ( 4 1 0 2 T S U G U A N I T A E C N A L A B 4 1 0 2 E N U J 0 3 D E T I E F R O F I D A P D E T A C O L L A – – – – – 0 8 3 9 , 0 8 3 9 , 4 6 5 8 , 4 6 5 8 , – – – – – – – – – – 8 8 0 7 , 8 8 0 7 , – – – 1 4 4 9 , 1 4 4 9 , – – – 1 3 4 2 1 , 0 8 3 9 , 1 1 8 , 1 2 0 1 2 0 1 , 4 6 5 8 , 4 4 7 8 1 , – – – – 4 0 9 5 1 , – – 5 5 6 0 1 , 1 3 4 2 1 , 0 8 3 9 , 6 6 4 2 3 , 0 1 2 0 1 , 4 6 5 8 , 4 4 7 8 1 , – – – 6 5 6 9 1 , 4 0 9 5 1 , – – 4 9 7 0 1 , 5 5 6 0 1 , 1 3 4 2 1 , – 0 8 8 3 3 , 0 1 2 0 1 , 7 3 5 7 9 , – 2 2 6 2 2 , 6 5 6 9 1 , 4 0 9 5 1 , – 0 1 2 0 1 , 2 2 3 6 5 , 4 0 9 5 1 , 0 6 5 5 3 , 2 8 1 , 8 5 6 4 6 9 0 1 , – – – – – 7 4 2 0 1 , 8 8 0 7 , 5 3 3 7 1 , 9 0 0 2 1 , 1 4 4 9 , 0 5 4 , 1 2 – – 8 9 5 2 1 , 7 4 2 0 1 , 8 8 0 7 , – – 1 6 5 4 1 , 8 9 5 2 1 , 7 4 2 0 1 , 3 3 9 9 2 , 6 0 4 7 3 , 2 6 7 , 1 9 – 1 1 1 , 3 1 9 0 0 2 1 , 1 4 4 9 , 1 6 5 4 3 , – 8 3 6 3 , 1 1 1 , 3 1 9 0 0 2 1 , 8 5 7 8 2 , 0 1 2 4 9 , 0 4 1 , 8 2 2 9 6 5 2 , – 4 6 2 , 1 2 3 2 3 8 2 , – 4 9 7 0 1 , 0 1 3 , 1 2 3 9 2 7 3 , 0 3 6 0 3 , – 2 2 6 2 2 , 2 1 3 9 3 , 2 1 7 7 4 , – 1 6 5 4 1 , 6 9 1 , 5 2 1 4 7 0 3 , 8 3 6 3 , 2 2 2 6 2 , 7 2 0 6 3 , – – – – – – – – – – – – – – – – – – ) 3 6 0 , 1 1 ( ) 4 9 7 0 1 ( , ) 5 5 6 0 1 ( , – – – 3 9 2 7 3 , 0 3 6 0 3 , ) 6 4 3 2 2 ( , ) 1 2 6 2 2 ( , ) 5 5 6 9 1 ( , – – – – 2 1 7 7 4 , – ) 2 2 6 4 1 ( , ) 1 6 5 4 1 ( , ) 8 9 5 2 1 ( , – ) 8 3 6 3 ( , ) 0 1 1 , 3 1 ( – – – 1 4 7 0 3 , 7 2 0 6 3 , 3 6 0 , 1 1 8 8 5 , 1 2 5 6 9 , 1 3 I G N N E P O 3 1 0 2 Y L U J 1 T A E C N A L A B 6 4 3 2 2 , 3 4 2 5 4 , 7 6 9 8 5 , 2 2 6 4 1 , 2 2 1 , 9 2 4 9 7 7 3 , 6 7 2 7 , 2 3 3 9 3 , 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 E T A D T N A R G T N E M E G A N A M Y E K L E N N O S R E P n o s u g r e F n h o J ) 4 ( r e t s e L n v e K i ) 5 ( l h O n e h p e t S n a m p a n K k r a M e c a l l a W r e t e P . . 4 6 4 3 7 $ f o P A W V d e t a m i t s e n a n o d e s a b 4 1 0 2 t s u g u A n i n o i t a c o l l a d r a o B o t j t c e b u s s t i n u e c n e r e f e R ) 1 ( . 4 1 0 2 t s u g u A n i d r a o B e h t y b n o i t a c o l l a o t j t c e b u s s t i n u e c n e r e f e r s e d u c n l I ) 2 ( . 4 1 0 2 r e b m e t p e S n i h s a c n i i d a p e b o t P A W V s y a d g n d a r t 0 3 y b d e i i l p i t l u m s t i n u e c n e r e f e R ) 3 ( . 3 1 0 2 y u J l 1 m o r f t c e ff e h t i w d e r i t e r l h O n e h p e t S ) 5 ( . 2 1 0 2 t s u g u A 6 n o A P A d e n o i j r e t s e L n v e K ) 4 ( i I D A P N E E B R O D E T S E V T E Y T O N E V A H T A H T D E T A C O L L A S T I N U E C N E R E F E R ) 2 ( T S E V L L I W Y E H T H C H W N I I S R A E Y E H T D N A E C N E R E F E R T C E J B U S S T I N U N O I T A C O L L A O T i g n d n a t s t u o s t i n u e c n e r e f e r I T L t n e r r u c d n a I T L n i s t n e m e v o M d e u n i t n o C 24 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014         REMUNERATION DURING FY2014 ACTUAL REMUNERATION 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. The table below sets out actual cash payments made to the relevant key management personnel during FY2014. This table differs from the information provided under the section “Total remuneration earned” which reflects the total remuneration earned by key management personnel in a year some of which will only be paid in later years. 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. The table below does not show LTI allocations in FY2014 or previous years that are still subject to performance or employment conditions because those LTI allocations are still at‑risk of forfeiture. The actual STI payments represent the amounts earned by the key management personnel in the prior financial year (2012) but only paid in August 2013 (as they are dependent on the approval by the Board of the audited annual accounts) and individual performance assessed at that time. The following table outlines the actual remuneration received by key management personnel during FY2014: KEY MANAGEMENT PERSONNEL Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester (1) Stephen Ohl (2) Mark Knapman Peter Wallace Total TOTAL FIXED REMUNERATION $ 1,430,000 750,000 791,000 500,000 460,000 420,000 – 480,000 463,000 STI $ 1,132,313 477,375 505,080 239,663 267,143 180,216 – 215,482 237,263 LTI $ 1,192,802 484,371 551,035 199,327 194,610 – – 250,093 100,250 OTHER $ – 202,000 228,667 60,000 60,000 100,000 353,716 – – TOTAL PAID 2014 $ 3,755,115 1,946,746 2,075,782 998,990 981,753 700,216 353,716 945,575 800,513 TOTAL PAID 2013 $ 2,947,801 1,430,171 1,781,566 754,059 813,573 320,833 1,027,020 795,900 534,886 5,294,000 3,254,535 2,972,488 1,004,383 12,525,406 10,405,808 (1) Kevin Lester joined APA as Group Executive Infrastructure Development on 6 August 2012. (2) Stephen Ohl retired with effect from 1 July 2013. A termination payment of $353,716 (representing the termination benefit of $245,000 plus statutory entitlements) was made during FY2014. 25 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDTOTAL REMUNERATION EARNED The following table outlines the total remuneration earned by key management personnel during FY2014, calculated in accordance with accounting standards: SHORT-TERM EMPLOYMENT BENEFITS POST-EMPLOYMENT SALARY/FEES $ SHORT‑TERM INCENTIVE SCHEME $ NON‑MONETARY $ SUPERANNUATION $ LONG-TERM INCENTIVE PLANS SHARE‑BASED PAYMENTS $ (1) OTHER PAYMENTS $ (2) TOTAL $ KEY MANAGEMENT PERSONNEL M J McCormack 2014 2013 P J Fredricson 2014 2013 R M Gersbach 2014 2013 R A Wheals 2014 2013 J L Ferguson 2014 2013 K Lester(3) 2014 2013 S P Ohl(4) 2014 2014 M T Knapman 2014 2013 P J Wallace 2014 2013 1,405,000 1,463,962 1,167,500 1,132,313 725,000 653,530 761,303 707,608 475,000 390,000 435,000 358,130 395,000 299,905 – 465,530 455,000 411,000 438,000 345,149 534,375 477,375 512,595 505,080 341,090 239,663 304,463 267,143 269,955 180,216 – 312,375 236,445 215,482 296,204 237,263 – – – – 11,922 11,922 – – – – – – – – – – – – 25,000 25,000 25,000 16,470 17,775 16,470 25,000 25,000 25,000 24,870 25,000 20,928 – 24,470 25,000 25,000 25,000 24,999 1,301,316 1,165,290 501,596 462,536 558,598 522,376 251,563 193,639 238,352 185,791 103,441 45,835 – – 202,000 202,000 228,667 228,667 60,000 60,000 60,000 130,000 – 100,000 4,195,278 3,490,103 1,987,971 1,811,911 2,090,860 1,992,123 1,152,653 908,302 1,062,815 965,934 793,396 646,884 – – – 362,815 245,000 1,410,190 245,153 234,415 210,465 129,441 – – – – 961,598 885,897 969,669 736,852 TOTAL REMUNERATION 2014 2013 5,089,303 3,959,089 4,798,352 3,566,910 11,922 11,922 192,775 203,207 3,410,484 3,302,138 550,667 965,667 13,214,240 12,848,196 (1) Cash settled share‑based payments. (2) Other payments include Loyalty Payment instalments. Refer to “Executive contracts” section for more information. (3) Kevin Lester joined APA as Group Executive Infrastructure Development on 6 August 2012. (4) Stephen Ohl retired with effect from 1 July 2013. 26 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014 TRANSACTIONS WITH DIRECTORS AND KEY MANAGEMENT PERSONNEL LOANS TO DIRECTORS AND KEY MANAGEMENT PERSONNEL No loans have been made to Directors or key management personnel. DIRECTORS AND KEY MANAGEMENT PERSONNEL EQUITY HOLDINGS The following table sets out the relevant interests of Directors and key management personnel in APA securities: L F Bleasel AM S Crane J A Fletcher R A Higgins AO P M McKenzie R J Wright M J McCormack P J Fredricson R M Gersbach R A Wheals J L Ferguson M T Knapman P J Wallace OPENING BALANCE AT 1 JULY 2013 SECURITIES ACQUIRED SECURITIES DISPOSED CLOSING BALANCE AT 30 JUNE 2014 460,664 100,000 66,188 92,040 12,500 39,444 208,590 7,716 485 1,500 1,967 7,201 6,000 – – – – – – – – – – – – – – – – – – – – – – – – – – 460,664 100,000 66,188 92,040 12,500 39,444 208,590 7,716 485 1,500 1,967 7,201 6,000 In accordance with APA’s Securities Trading Policy, a Director or Designated Person (as defined in this policy) with price‑sensitive information relating to APA which is not generally available is precluded from trading in APA securities. That no APA securities were acquired or disposed of by Directors or key management personnel during FY2014 reflects the application of that restriction over a large part of the year due to APA’s corporate activity, and the fact that the Distribution Reinvestment Plan was suspended in June 2013. OTHER TRANSACTIONS WITH DIRECTORS AND KEY MANAGEMENT PERSONNEL OF APA AND THE RESPONSIBLE ENTITY Other than non‑executive Directors’ compensation, executive compensation and equity holdings disclosed in this report, there are no other transactions with the Directors and key management personnel of APA and the Responsible Entity. LINK BETWEEN REMUNERATION AND APA’S PERFORMANCE The Board’s key principle in establishing the remuneration structure of key management personnel is that remuneration should be linked to performance. The following table provides financial information with respect to APA’s performance over the last five years reflecting the link between performance and remuneration. YEAR ENDED 30 JUNE EBITDA before significant items ($m) Profit after income tax and non‑controlling interests before significant items ($m) Profit after income tax and non‑controlling interests after significant items ($m) Earnings per security – normalised (cents) Earnings per security – reported (cents) OCFPS before significant items (cents) OCFPS after significant items (cents) Distribution per security (cents) Closing security price at 30 June ($) 2014 747.3 199.6 343.7 23.9 41.1 52.6 51.6 36.3 6.89 2013 (1) 661.9 175.1 295.1 22.7 38.2 56.0 48.5 35.5 5.99 2012 535.5 140.3 130.7 21.9 20.4 52.5 52.5 35.0 4.99 2011 489.6 108.9 108.5 19.7 19.7 52.6 52.6 34.4 4.07 2010 460.0 100.4 100.4 19.4 19.4 51.9 51.9 32.8 3.60 (1) The balances for 2013 have been restated for the effect of applying accounting standard AASB 119 ‘Employee Benefits’. 27 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDEXECUTIVE CONTRACTS The terms of the contractual arrangements for each of the key management personnel are set out in the table below: NAME AND 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 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 TRO, any incentives earned but not paid and all leave entitlements. 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 with regard to the growth, integration and financial challenges facing APA, Mr Fredricson was placed on a loyalty and performance bonus effective from March 2012 for three years and became entitled to the payment of the first instalment in 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 with regard to the growth, integration and financial challenges facing APA, Mr Gersbach was placed on a loyalty and performance bonus effective from March 2012 for three years and became entitled to the first instalment in April 2013. Robert Wheals 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 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 was placed on a loyalty and performance bonus effective from March 2012 for two years and became entitled to the first instalment in April 2013. 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 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 was placed on a loyalty and performance bonus effective from March 2012 for two years and became entitled to the first instalment in April 2013. Group Executive Transmission Commenced 22 September 2008 John Ferguson Group Executive Networks Commenced 29 September 2008 28 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDAPA GROUP / ANNUAL REPORT 2014NAME AND TITLE AND COMMENCEMENT DATE TERM AND TERMINATION PROVISIONS/BENEFITS 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. Mark Knapman Company Secretary Commenced 16 July 2008 Mr Lester 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. Mr Knapman is required to give APA three months’ notice. Peter Wallace No defined term. 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. REMUNERATION ADVISERS During FY2014, the following remuneration information was obtained and considered by the Remuneration Committee: – Egan & Associates provided benchmarking information for non‑executive Directors’ remuneration; – Ernst & Young provided benchmarking information for the remuneration of the Chief Executive Officer and Managing Director and other key management personnel; and – CIMB Capital Markets (Australia) Limited provided information on the TSR measure. All these advisers were engaged directly on instruction from, and reported directly to, the Chairman of the Remuneration Committee and were independent and free from influence by key management personnel. 29 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDCORPORATE 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 – the roles and responsibilities of the Board and each of its Committees; those trusts and is responsible for APA’s corporate governance practices. – expectations of the time commitment to be made by Directors in serving on 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”) a listed entity is required to provide a statement in its Annual Report disclosing the extent to 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. which it has adopted the recommendations in the reporting period and, if it has Management: service contracts, induction and performance evaluations not adopted any of the recommendations, to explain why. The Managing Director and each of the executives who report to him have 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 service contracts setting out their responsibilities, conditions of service and termination entitlements. checklist of APA’s adoption of the ASX Corporate Governance Council’s Newly appointed senior executives complete an induction program on the recommendations. Explanations for departures from the recommendations are management of the business covering topics that include financial matters, 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 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. corporate governance material. Securityholders who do not have internet access APA has processes in place to review the performance of senior management. but wish to read that material should telephone 1800 992 312 (or +61 1800 992 312, Each senior executive, including the Managing Director, has personal objectives if calling from outside Australia) and ask for a copy of the relevant material to be as well as objectives related to the performance of business or functional units sent to them. In this statement, the term “Reporting Period” means the period of 12 months to 30 June 2014. This statement responds to the Second Edition of the Corporate Governance Principles and Recommendations. The ASX Corporate Governance Council issued the Third Edition of the publication in March 2014 that APA proposes to commence reporting against in 2015, when it reports on the 2015 financial year. PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT Board and its Committees The Board of Directors of the Responsible Entity (“Board”) is accountable to securityholders for the proper management of APA’s business and affairs. It operates in accordance with a Charter, which is published on APA’s website. 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. Company Secretary The Company Secretary is accountable to the Board, through the Chairman, on matters to do with the functioning of the Board, including advising the Board and its Committees on governance matters, monitoring that Board policies and procedures are followed, coordinating the timely despatch of Board papers, drafting minutes of meetings and similar matters. The decision to remove or The Board normally meets 11 times each year, with additional meetings being appoint the Company Secretary requires the Board’s approval. 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 the Reporting Period. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE Board membership The Board determines its size and composition, subject to limits imposed by To assist the Board in carrying out its responsibilities, the following standing the Responsible Entity’s constitution. The constitution provides for a minimum Committees of its members have been established: of three Directors and a maximum of 12. Each Committee has its own Charter that describes the roles and responsibilities The names of the current Directors and their experience, terms of office and delegated to the Committee by the Board, and those Charters are published on membership of Board Committees are set out in the Directors’ Report for the APA’s website. The Charters for the Board and its Committees are reviewed by Reporting Period. the Board annually, and were last reviewed in July 2014. The composition of the Board is determined in accordance with the following The Board delegates responsibility for implementing the strategic direction principles: and managing the day‑to‑day operations of APA to the Managing Director. The 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. – 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 Officer. 30 APA GROUP / ANNUAL REPORT 2014The Responsible Entity’s constitution requires one‑third of its Directors (excluding – experience in the development and implementation of strategy; and the Managing Director and any Director who is standing for re‑election after – experience in the oversight of health, safety and environmental risks and having been appointed as an additional Director or to fill a vacancy) to retire from challenges. 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. Selection and appointment of Directors The functions with respect to selection and appointment of new Directors, Board succession and related matters are handled by the Board, not a Nomination Committee. Ultimate responsibility for such matters rests with the The Responsible Entity’s constitution also provides that if the Board appoints a full Board and the Board considers the efficient handling of those matters is not Director to fill a vacancy or as an addition to the Board, the new Director will diminished by the absence of a Nomination Committee. hold office until the end of the next annual general meeting of the Responsible Entity and is eligible for re‑election. When looking to appoint a new Director, the Board predefines the skills and experience required of candidates for the role to ensure that the required mix Securityholders’ right to nominate a Director and to vote on nominees of skills and experience will be represented on the Board and, based on that The Deed Poll initially executed by the Responsible Entity in 2004 and work, seeks a list of potential candidates believed to satisfy those requirements. amended with APA securityholders’ approval in 2011 (a copy of which is available on APA’s website) affords APA securityholders certain rights in respect to nominees for the position of Director on the Board. At least 75 days before annual general meetings of the Responsible Entity, securityholders are notified by an announcement to ASX that they may nominate a person to fill a vacancy on the Board that arises on retirement of either a Director under the “rotation” process or a Director appointed by the Board since the last annual general meeting. If the Board is not satisfied with the quality or diversity of the candidates identified in that process, it may consider it appropriate to instruct a search firm to identify additional suitable candidates. 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 interviewed by the Board. The Board assesses potential candidates against the predefined requirements and also considers their qualifications, backgrounds and personal qualities, and appropriate background checks are undertaken in If securityholders wish to exercise that right, at least 60 days before the annual respect to a candidate before they are appointed as a Director. general meeting they must send the Responsible Entity a signed nomination form and the nominee’s signed consent to act as a Director. In the interest of gender diversity, the Board has determined that the short‑ listed candidates for an available Board position must include at least one In the notice of meeting for the annual meeting of securityholders (“Annual qualified female candidate and, where a search firm is engaged, the Board will Meeting”), the Responsible Entity advises securityholders of all candidates instruct them accordingly. who have been validly nominated for the position of Director, including the Responsible Entity’s nominations and nominations made by securityholders in accordance with the process described above, and securityholders are afforded the opportunity to vote on the nominations at the Annual Meeting. Annual review of performance of the Board, its Committees and Directors A review process to assess the performance of the Board, its Committees and individual Directors is undertaken each year. The last review was conducted in December 2013 and the review for the Reporting Period is expected to be Independence of Directors completed in December 2014. 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). Each Director completes a questionnaire, the responses are collated and the Board then meets to discuss and consider the results of that process and to determine any actions arising from the review. The Chairman also meets with The Directors’ Report for the Reporting Period identifies which Directors are each Director individually to discuss the review and the Director’s own considered to be independent at the date of the report. A majority of the performance and to seek feedback on the Chairman’s performance. current Directors are independent. Matters covered by the review include the role and performance of the Board In considering the independence of Robert Wright, the Board (other than Mr and its Committees, Directors’ understanding of APA’s long‑term objectives Wright) noted that he has served as a Director for 14 years, having been and key risks to the business and achievement of those objectives, succession appointed in 2000, and that the Independence of Directors Policy recognises planning and the effectiveness of the Chairman in leading the Board. that a Director’s length of service may be a relevant factor in determining their independence. However, the Board was satisfied that Mr Wright continues to demonstrate independent judgement and character in performing his role on the Board and as a member of the Committees on which he serves, and therefore considers him to be independent. Board skills and experience The Board considers that a diverse range of skills, experience and backgrounds is required on the Board to effectively govern the business. It determines and reviews from time to time the mix of skills and diversity that it looks to achieve in its membership which, in broad terms, includes the following: Directors’ access to information, management and professional advice Subject to normal privacy requirements, Directors have access to APA’s records and information, and to the Company Secretary and other senior management personnel. The Board receives regular detailed reports on financial, commercial and operational aspects of APA’s business and may request elaboration or explanation of those reports. At the two‑day annual Board strategy review, Directors are updated on industry developments, regulatory changes and other background information relevant to the Board’s review of strategy. Ad hoc briefings are also provided to the Board on relevant industry, legislative and – knowledge of the business sectors in which APA operates; regulatory changes. – senior executive and international business experience; – financial acumen and relevant operating experience; – knowledge of global capital markets; – experience in regulatory and government policy; APA’s external auditor updates the members of the Audit and Risk Management Committee and other members of the Board who attend the Committee’s meetings on developments in accounting standards and the key areas of focus for the regulator, the Australian Securities and Investments Commission, in financial reporting. 31 CORPORATE GOVERNANCE STATEMENT CONTINUEDWhile most Board meetings are held in Sydney, where APA’s head office is Raising awareness of the benefits of diversity and inclusion within APA located, some are held in other locations where APA has a presence, providing through an education program. An awareness session will be included in the Directors with the opportunity to receive presentations from and speak to local next annual Leadership Conference in October 2013 APA employees about the business, to inspect APA’s assets and facilities and, APA’s 2013 Leadership Conference included a session on diversity and inclusion where appropriate, to engage with customers and government representatives. and a presentation to the top 110 leadership group on the business imperatives The Board collectively, and each Director individually, may seek independent of diversity and inclusion. professional advice at APA’s expense. Prior approval of the Chairman is Subsequent to this conference, APA engaged the services of a consulting required, but this may not be unreasonably withheld. organisation who specialise in organisational diagnostics and diversity and Directors and senior management are encouraged to broaden their knowledge inclusion. APA then completed the following activities: of APA’s business and to keep abreast of developments in business more – a review of the APA policies with regard to diversity, inclusion and equal generally by attending relevant courses, seminars and conferences. Where employment opportunity; appropriate, APA will meet expenses involved in such activities. – a review of APA behaviours, practices and processes and how these may be PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING Code of Conduct and policies The Board and senior management are firmly committed to ensuring that they and all employees observe high standards of ethical behaviour and conduct. shaping the current profile of the organisation; – a review of current and emerging legislation and its impact; – analysis of the expectations and trends from external stakeholders (peak industry bodies, securityholders, lenders, etc.); – analysis of peer group and competitor emerging trends and good practice; APA’s Code of Conduct sets out the behaviour required of Directors and – analysis of internal demographic metrics as well as conducting employees’ employees and recognises the responsibilities of APA and its personnel to exit interviews with regard to staff turnover, reasons for leaving APA, securityholders, customers, suppliers, employees and the community. It also employment attractiveness of APA and disputes and grievances; and requires that breaches of the code are reported and provides a mechanism to – analysis of leadership and employee expectations through survey, focus enable breaches to be reported without fear of retribution. The code is groups and interviews. published on APA’s website. Based on the above work, APA has developed a Diversity and Inclusion Strategy A number of APA’s policies aim to foster a culture of compliance and ethical which includes a clear vision, the foundations needed to achieve the vision and and responsible decision‑making. APA’s Whistleblower Policy encourages the focus areas that are important to APA. reporting of matters of concern and suspected wrongdoing, such as dishonest or fraudulent conduct, breaches of legislation and other conduct that may cause financial loss to APA or be otherwise detrimental to its reputation or interests, and describes the protection to be afforded to whistleblowers who report such conduct against reprisals, discrimination, harassment or other Implementing a graduate program with a target of at least 50% female participants by March 2014 APA has not yet finalised the design of the graduate program and will be finalising this in the next reporting period. disadvantage resulting from their reports. Designing an employee value proposition, with an element on attracting APA’s Securities Trading Policy, published on its website, provides that subject to some exceptions Directors and designated management personnel must not buy or sell APA securities during either of the following “closed periods”: women to APA into non-traditional roles, by December 2013 The current APA employee value proposition has been completed. It focuses in particular on the benefits that APA offers women in non‑administrative areas of the business, including rewarding, interesting and challenging work, flexible – the period starting 1 January and ending on the second business day after working arrangements, career progression, benefits and entitlements, a family the release of APA’s half yearly results to the ASX, or friendly work place and breastfeeding accreditation. The profile of women – the period starting 1 July and ending on the second business day after the within APA has been raised through testimonials being posted on APA’s release of APA’s annual results to the ASX, website and included in APA’s corporate video, to showcase what APA has to unless exceptional circumstances apply, and they may only buy or sell APA offer prospective candidates in the external market. securities outside those closed periods if they obtain clearance to do so in Developing the APA brand with a focus on raising APA’s profile for attracting accordance with the process described in the policy. Directors and employees women through social media such as LinkedIn, e-recruitment tools, network are precluded from buying or selling securities at any time if they are aware of groups and sponsorships. These programs will be fully operational by any price‑sensitive information which has not been made public. June 2014 Diversity and Inclusion 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. Substantial investment in APA’s brand and reinvigorated recruitment practices have been completed and rolled out in 2014. Advertising, recruitment practices, internal appointments, external appointments, external pools of talent, internal high potential candidates and successors were all reviewed within the recruitment process with the view to identifying and hiring or promoting women who meet the merit requirements of available roles. APA also recognises that creating sustainable shareholder wealth depends on In addition, hiring managers have received training on the recruitment process, its ability to attract and retain an engaged, highly skilled and motivated including making sound, unbiased decisions in their recruitment decisions. workforce. Therefore, diversity makes good business sense. Following the review of recruitment practices, all management level recruitment APA’s Diversity Policy is available on its website. decisions must include at least one woman on the interviewing panel and all Diversity objectives In 2014 APA sought to focus its diversity and inclusion efforts on the following elements (the sections in bold italics below being the objectives and initiatives identified in APA’s 2013 corporate governance statement): management positions must seek to have at least one woman in the short list of candidates. 32 CORPORATE GOVERNANCE STATEMENT CONTINUEDAPA GROUP / ANNUAL REPORT 2014Completing a pay equity review The Committee is required by its Charter to meet at least four times each year. In 2013 the business conducted a pay equity review, following similar reviews in The number of times it met during the Reporting Period and the Committee 2011 and 2012. Across all pay grades for all employees the gap in remuneration members’ attendance at those meetings are set out in the Directors’ Report for between men compared to women in like‑for‑like roles has now been reduced the Reporting Period. from 5.7% in 2012 to less than 3.4% in 2013. This was achieved through accelerated pay increases for women whose remuneration was identified as being below that of men with comparable merit, experience and competencies in comparable roles. Another pay equity review will be completed in 2014. External auditor and their independence Apart from reviewing the integrity of APA’s financial reporting, the Committee receives reports from the external auditor, monitors their effectiveness and independence and makes recommendations to the Board on the appointment In 2015 APA will be reporting on the progress it has made on the three year or replacement (subject to Securityholders’ approval, if applicable) of the Diversity and Inclusion Strategy and the milestones set out in that document. external auditor. The strategy will centre on building the following foundations: – an inclusive work culture; – knowledge and collaboration; – people systems; and – APA values. Building on these foundations will help achieve the vision and deliver on the three focus areas of diversity of thought, gender diversity and age diversity that were identified through the data collection mechanisms outlined earlier in this section. The Diversity and Inclusion Strategy is available on the APA website. APA workforce gender profile (2014) The External Auditor Appointment and Independence Policy (published on APA’s website) 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. With Greg Couttas of Deloitte Touche Tohmatsu having been appointed the lead audit partner for the APA audit in December 2009, he will be replaced in that role by Andrew Griffiths, a partner of the same firm, with effect from commencement of the audit for the six months to 31 December 2014. In the Reporting Period, APA conducted a tender for external audit services, inviting responses from all four major audit firms. After the responses to the The following profile of APA’s workforce was reported to the Workplace Gender tender and presentations from the respondent firms were reviewed, and based Equality Agency (“WGEA”) in 2014. on a recommendation from the Audit and Risk Management Committee, the Percentage of non‑executive Directors who are women Percentage of workforce who are women Percentage of leadership roles* filled by women Percentage of technical and trades roles filled by women 17% 27% 16.5% 4.5% * Leadership roles are defined in accordance with the WGEA (ANZSCO) occupational categories and comprise all levels of management (i.e. Key Management Personnel, General Manager and Manager roles), excluding team leader and supervisory roles. PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING Audit and Risk Management Committee Board approved Deloitte Touche Tohmatsu continuing as external auditor. The external auditor’s independence could be impaired or compromised, or be interpreted as being impaired or compromised, through the provision of some non‑audit services or by the quantum of fees paid to the auditor for such services. Accordingly, the Audit and Risk Management Committee has 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 non‑audit services provided by the auditor in any financial year. The Directors’ Report for the Reporting Period contains a section on non‑audit services provided by the auditor that includes an explanation of the basis on which the Board remains satisfied as to The Board has established an Audit and Risk Management Committee, the the auditor’s independence. composition of which is determined in accordance with the following principles: – the Committee will have at least three members; – all members of the Committee will be independent, non‑executive Directors; and – the Committee Chairman cannot also be the Chairman of the Board. 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. The roles and responsibilities delegated to the Committee are set out in the Committee’s Charter which is published on APA’s website. The Managing Director, Chief Financial Officer, Company Secretary, Head of Risk and Insurance, other senior management personnel, as required, and the external and internal auditors attend Committee meetings at the discretion of the Committee. The external and internal auditors receive all Committee papers and regularly meet with the Committee, without management present, at Committee meetings. The minutes of each meeting of the Audit and Risk Management Committee are reviewed at the subsequent meeting of the Board and the Committee Chairman reports to the Board on the Committee’s activities and recommendations. As referred to under Principle 6 below, the external auditor attends the Annual Meeting and is available at the meeting to answer questions from securityholders about the conduct of the audit and the preparation and content of the independent Audit Report. 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 actual cost recovery in the Reporting Period was $3,178,000 (2013: $2,728,000). The Responsible Entity does not make a profit, nor seek performance fees. The constitutions of Australian Pipeline Trust and APT Investment Trust enable the Responsible Entity to charge fees up to 0.5% per annum of the value of gross assets; however, the right to charge such fees has been waived to the extent it exceeds the Responsible Entity’s costs. PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE APA’s Market Disclosure Policy, published on APA’s website, aims to ensure that information that a person could reasonably expect to have a material effect on the APA security price, whether the information is positive or negative, is announced to the market by release to ASX in accordance with the ASX Listing Rules and the Corporations Act 2001. The Company Secretary is the nominated continuous disclosure officer. 33 CORPORATE GOVERNANCE STATEMENT CONTINUEDAll ASX announcements are posted on APA’s website as soon as reasonably PRINCIPLE 7: RECOGNISE AND MANAGE RISK possible after notification to ASX. PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS Communications with Securityholders The identification and effective management of risk, including calculated risk‑ taking, are viewed as an essential part of APA’s approach to creating long‑term securityholder value. APA aims to ensure its Securityholders are informed of all significant Risk management framework and responsibilities developments affecting APA’s state of affairs and business. Information is The Board is responsible for adopting and reviewing APA’s approach to the communicated to Securityholders by a number of means, including the following: identification, evaluation and management of risks that are material to the – an Annual Report, comprising the Financial Report, Directors’ Report and fulfilment of APA’s objectives. Audit Report, sent to Securityholders who have elected to receive the report; The Board has delegated certain responsibilities with respect to risk – an Annual Review sent to Securityholders who elect to receive either the management to its Audit and Risk Management Committee described under statutory report or the Annual Review alone; Principle 4 above. The Committee’s primary function with respect to risk is to – a biannual newsletter sent to Securityholders who have not elected to maintain and oversee a sound system of internal risk management controls receive the Annual Report, and to all Securityholders on the announcement based on the Board’s adopted risk management approach. of the half year results; – the interim (half yearly) report and Directors’ commentary on that report; – announcements to ASX and media releases; Specific risk management responsibilities of the Audit and Risk Management Committee include: – “Open Briefings” prepared from time to time to provide an update to – reviewing and approving APA’s risk profile, Risk Management Policy and investors, and released to ASX; framework; – investor presentations, including presentations made in investor roadshows – reviewing at least annually APA’s implementation of the Risk Management in Australia and offshore, copies of which are released to ASX; Policy and framework; and – the Annual Meeting of Securityholders; – receiving and reviewing management’s report on the effectiveness of risk – webcasting of half year and annual results presentations, the Annual management and internal control systems and otherwise monitoring the Meeting and announcements of major events; and effectiveness of the risk management framework and the system of internal – the Investor Centre section of APA’s website on which the reports, ASX and control, and progress against agreed risk management plans. media releases, presentations and other documents referred to above are posted. The Managing Director is accountable for ensuring that a risk management system is established, implemented and maintained in accordance with APA’s APA’s website also contains information of interest to Securityholders and Risk Management Policy and framework. potential investors about APA’s assets and investments and the economic regulation to which some of its assets are subject. Senior management is accountable for risk management within the areas under their control, including devolution of the risk management process to Securityholders may elect to receive APA’s Securityholder communications operational managers, and is responsible for: (including the Annual Report, Annual Review, distribution statements and tax guides) electronically. Securityholders and others may also elect on APA’s website to receive ASX and media announcements and newsletters by email, and may also ask questions through an email link provided on the website. Annual Meeting of Securityholders – reviewing the measures of risk impact severity that underlies the analysis of material risks, to ensure the measures remain current to APA’s context; – identifying material risks that may impact on APA’s business plans and objectives and the development, implementation, performance and review of risk management plans. In doing so, senior management considers both APA encourages Securityholders to participate in its Annual Meetings. A Notice financial risk and non‑financial risk, including operational, environmental, of Meeting setting out the agenda for the Annual Meeting and explaining strategic, market‑related, compliance and reputation risk; resolutions on which securityholders may vote is sent to all securityholders and – confirming the effectiveness of controls in management of risks within the to ASX prior to the meeting. Securityholders who cannot attend an Annual defined appetite for retention of risk; Meeting in person may appoint a proxy and may read the Chairman and – aggregating operational risk data across APA, and monitoring external Managing Directors’ addresses that are sent to ASX and posted on APA’s factors, to facilitate monitoring of APA’s risk profile; and website, and listen to a webcast of the meeting available through the website. – contributing advice, leadership and facilitation in the development of At the Annual Meeting, the Chairman encourages questions and comments group‑wide risk controls. from securityholders and seeks to ensure the meeting is managed to give The Head of Risk and Insurance, who reports to the Chief Financial Officer and securityholders an opportunity to participate. Questions on operational provides a report to each meeting of the Audit and Risk Management Committee, matters may be answered by the Managing Director or another appropriate is responsible for: member of senior management. Securityholders are also invited to send written questions ahead of the meeting and, where there is a common theme to a number of questions, either the Chairman or the Managing Director will commonly seek to provide an answer in their address. – overseeing and facilitating the co‑ordination of the risk management activities of senior management; – reporting to the Committee on APA’s risk profile and the implementation and effectiveness of risk management plans; The external auditor attends Annual Meetings and is available to respond to – contributing leadership and facilitation of the implementation and questions from securityholders about the conduct of the audit and the assurance of group‑wide risk controls; and preparation and content of the independent Audit Report. – working with senior management to design and develop risk education and The 2014 Annual Meeting will be held in Sydney on 24 October 2014. A notice communication forums. of that meeting and a proxy form will be sent to Securityholders some weeks APA’s management has reported to the Audit and Risk Management Committee before the meeting, and details of the meeting are also available from APA’s during the Reporting Period on its assessment of the effectiveness of website. 34 management by APA of its material risks. CORPORATE GOVERNANCE STATEMENT CONTINUEDAPA GROUP / ANNUAL REPORT 2014Assurance from Chief Executive Officer and Chief Financial Officer External advice In the course of approving the Financial Report for the Reporting Period, the The Committee may seek external professional advice on any matter within its Board considered a written statement from the Chief Executive Officer and the terms of reference. As stated in APA’s Remuneration Report referred to below, Chief Financial Officer to the effect that, to the best of their knowledge and independent remuneration consultants were engaged by the Chairman of the belief, their declaration pursuant to section 295A of the Corporations Act 2001 Remuneration Committee to provide comparative market data with respect to (broadly, that the Financial Report gives a true and fair view in all material non‑executive Director and executive remuneration during the Reporting respects of APA’s financial position and complies in all material respects with Period. relevant accounting standards) is founded on a sound system of risk management and internal control and that system is operating effectively in all material respects in relation to financial reporting risks, based on the management framework adopted by APA. The Board requires such a statement for each reporting period. Internal audit APA has developed a framework for Internal Audit within the group. Remuneration Report The Corporations Act 2001 does not require registered investment schemes like Australian Pipeline Trust and APT Investment Trust to include a Remuneration Report as part of the annual Directors’ Report, but APA has chosen to do so for the Reporting Period and prior periods. The Remuneration Report distinguishes the structure of non‑executive Directors’ remuneration from that of the Managing Director and other senior executives, Internal Audit provides an independent, objective perspective to the Audit and and sets out details of the components of remuneration and total remuneration Risk Management Committee on the internal controls implemented to address paid to those individuals over the Reporting Period. APA’s key strategic, operational and financial risks and assists senior management in the effective discharge of their responsibilities to the Board in the area of risk management and internal control, by providing independent appraisals of the adequacy and effectiveness of risk management and internal control systems. Unvested benefits under APA’s long term incentive plan The Remuneration Report describes APA’s long term incentive 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 plan is to align the interests of the plan’s participants with the interests of Securityholders. Internal Audit, currently outsourced to PricewaterhouseCoopers, reports APA recognises that the use of arrangements such as hedging or derivative directly to the Audit and Risk Management Committee so as to bring the financial products that operate to limit for participants the economic risk of requisite degree of independence and objectivity to the role. Before each their unvested benefits are likely to reduce the intended alignment of those financial year, Internal Audit, in consultation with management, prepares an interests. Consequently, it is APA policy that participants in the long term internal audit plan for the next three years and submits the plan to the incentive plan must not use, nor allow to be used, any such arrangements in Committee for review and approval. At each of its meetings, the Committee relation to their unvested benefits. receives a report from Internal Audit on activities undertaken in accordance with the approved plan. “Clawback” of performance-based remuneration The Remuneration Report summarises APA’s Executive Remuneration PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY Clawback Policy pursuant to which the Board, in certain circumstances Remuneration Committee involving a misstatement in the Financial Report for any of the preceding three The Board has established a Remuneration Committee to consider and make financial years due to a material non‑compliance with a financial reporting recommendations to the Board on, among other things, remuneration policies requirement or certain misconduct of an executive, may require the executive applicable to Board members and senior management. to repay all or part of their short term or long term incentives, withhold The composition of the Remuneration Committee is determined in accordance with the following principles: – the Committee will have at least three members; – all members of the Committee will be non‑executive Directors and a majority of them will be independent Directors; and – the Committee Chairman will be an independent Director. payment of the executive’s unpaid incentive entitlements and/or forfeit the executive’s unvested entitlements. The Executive Remuneration Clawback Policy is available on APA’s website. Retirement benefits 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 The Directors’ Report for the Reporting Period identifies the current members those Directors. Under the plan, after three years’ service a Director was of the Committee and their qualifications and experience. The Chairman of the entitled to the equivalent of the emoluments received over the most recent 12 Board, although not a member of the Committee, usually attends Committee months. After 10 years’ service, the entitlement increased to the equivalent of emoluments received during the most recent three years. No additional entitlement accrued after 10 years. For periods between three and 10 years, the entitlement was calculated on a pro‑rata basis. Robert Wright is the only current Director entitled to benefit under the plan on retirement from the Board. meetings. The roles and responsibilities delegated to the Remuneration Committee are set out in the Committee’s Charter which is published on APA’s website. The Managing Director attends meetings of the Committee by invitation when required to report on and discuss senior management performance and remuneration matters. The Committee Chairman reports to the Board on the Committee’s activities and recommendations. The Committee is required by its Charter to meet at least twice each year. The number of times it met during the Reporting Period and the Committee members’ attendance at those meetings are set out in the Directors’ Report for the Reporting Period. 35 CORPORATE GOVERNANCE STATEMENT CONTINUED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 2.1 2.2 2.3 2.4 2.5 2.6 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 PRINCIPLE 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 3.2 3.3 3.4 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include 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 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior 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 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 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 PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS 6.1 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their 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 Yes Yes Yes Yes No (1) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes (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”. 36 CORPORATE GOVERNANCE STATEMENT CONTINUEDAPA GROUP / ANNUAL REPORT 2014PRINCIPLE 7: RECOGNISE AND MANAGE RISK COMPLY YES/NO Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies Yes 7.1 7.2 7.3 The board should require management to design and implement the risk management and internal control system to manage the 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 The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial 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 8.3 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 Companies should clearly distinguish the structure of non‑executive directors’ remuneration from that of executive directors and senior executives 8.4 Companies should provide the information indicated in the Guide to reporting on Principle 8 Yes Yes Yes Yes Yes Yes Yes 37 CORPORATE GOVERNANCE STATEMENT CONTINUEDAUSTRALI AN PIPE LIN E T RUST AND I TS CO NTRO LLE D E NTI TIE S CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2014 CONTINUING OPERATIONS Revenue Share of net profits of associates and joint ventures accounted for using the equity method Gain on previously held interest in HDF on obtaining control 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 benefit/(expense) Profit for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Actuarial gain on defined benefit plan Income tax relating to items that will not be reclassified subsequently Items that may be reclassified subsequently to profit or loss: (Loss)/gain on available‑for‑sale investments taken to equity Gain on available‑for‑sale investment reclassified to profit or loss Transfer of gain on cash flow hedges to profit or loss Loss on cash flow hedges taken to equity (Loss)/gain on associate hedges taken to equity Income tax relating to items that may be reclassified subsequently Other comprehensive income for the year (net of tax) Total comprehensive income for the year Profit attributable to: Equityholders of the parent Non‑controlling interest – APT Investment Trust equityholders APA stapled securityholders Non‑controlling interest – other Total comprehensive income attributable to: Equityholders of the parent Non‑controlling interest – APT Investment Trust equityholders APA stapled securityholders Non‑controlling interest – other EARNINGS PER SECURITY Basic and diluted (cents per security) NOTE 2014 $000 2013 (RESTATED) $000 6 6 7 7 7 7 7 9 1,331,703 64,289 1,395,992 – (65,570) (156,228) (403,477) (326,226) (168,615) (9,854) 266,022 77,684 343,706 6,796 (2,039) 4,757 (2,823) – 72,522 (154,309) (7,928) 27,504 (65,034) (60,277) 283,429 304,999 38,706 343,705 1 343,706 245,583 37,845 283,428 1 283,429 1,227,399 44,868 1,272,267 142,333 (96,903) (130,461) (352,743) (302,613) (174,496) (15,133) 342,251 (49,869) 292,382 17,901 (5,371) 12,530 25,519 (142,333) 91,438 (144,702) 14,316 46,382 (109,380) (96,850) 195,532 257,003 38,143 295,146 (2,764) 292,382 161,310 36,986 198,296 (2,764) 195,532 38 41.1 38.2 Diluted earnings per security is exactly the same as basic earnings per security. The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 38 APA GROUP / ANNUAL REPORT 2014 AUST RALI AN PI PE LINE T RUST AND ITS CO NT RO LLE D ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2014 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 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 Trade and other payables Borrowings Other financial liabilities Deferred tax liabilities Provisions Other Total non-current liabilities Total liabilities Net assets The above consolidated statement of financial position should be read in conjunction with the accompanying notes. NOTE 2014 $000 2013 (RESTATED) $000 39 11 12 13 14 15 16 18 20 21 22 23 24 25 26 27 28 24 29 30 9 27 28 7,009 156,439 16,575 17,349 5,996 80,955 164,569 16,469 12,726 5,662 203,368 280,381 147,835 110,768 593,325 5,574,481 1,150,500 170,804 21,429 7,769,142 7,972,510 185,988 – 90,574 81,003 15,975 373,540 34,318 168,540 589,131 5,280,411 1,150,500 177,015 18,632 7,418,547 7,698,928 190,062 80,910 126,385 81,943 12,921 492,221 3,599 3,749 4,708,283 4,233,242 216,936 110,783 47,442 15,438 177,256 213,932 47,930 16,669 5,102,481 4,692,778 5,476,021 2,496,489 5,184,999 2,513,929 39  AUSTRALIAN PI PE LIN E T RUST AND ITS CO NTRO LLE D E NTI TI E S CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONTINUED As at 30 June 2014 EQUITY Australian Pipeline Trust equity: Issued capital Reserves Retained earnings Equity attributable to securityholders of the parent Non‑controlling interests: APT Investment Trust: Issued capital Reserves Retained earnings Equity attributable to securityholders of APT Investment Trust Other non‑controlling interest Total non‑controlling interests Total equity The above consolidated statement of financial position should be read in conjunction with the accompanying notes. NOTE 2014 $000 2013 (RESTATED) $000 31 32 33 34 34 34 34 1,816,460 1,820,516 (116,243) 200,978 (52,070) 146,762 1,901,195 1,915,208 576,172 (394) 19,465 595,243 51 595,294 2,496,489 578,780 467 19,424 598,671 50 598,721 2,513,929 40 APA GROUP / ANNUAL REPORT 2014‑ N O N R E H T O 0 0 0 $ 0 0 0 $ ) D E T A T S E R ( T S E R E T N I L A T O T I G N L L O R T N O C 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 5 8 6 9 ( , – – , 7 6 9 5 1 6 , 1 9 4 4 4 , 2 8 3 2 9 2 ) 4 6 7 2 ( , ) 4 6 7 2 ( , 2 3 5 5 9 1 , ) 4 6 7 2 ( , ) 4 6 7 2 ( , 9 6 0 3 1 7 , 9 6 0 3 1 7 , ) 9 6 0 3 1 7 ( , ) 4 0 3 0 1 7 ( , 5 6 7 2 , – ) 5 9 5 4 9 1 ( , 6 6 1 , 3 8 , 5 6 6 4 8 8 2 3 ) 7 7 7 8 ( , ) 1 6 0 2 6 ( , , 9 2 9 3 1 5 2 , , 9 2 9 3 1 5 2 , 6 0 7 3 4 3 , ) 7 7 2 0 6 ( , 9 2 4 3 8 2 , , ) 5 0 2 4 9 2 ( ) 4 6 6 6 ( , , 9 8 4 6 9 4 2 , – – – – – – – 0 5 0 5 1 – 1 – – 1 5 – – – – – – – 5 4 5 4 1 – 1 – – 6 4 1 – – – – – – – – – – – – 1 1 – – – – – 1 4 – – – 9 6 0 3 1 7 , ) 9 6 0 3 1 7 ( , – – – – – – – 4 4 – – – – – 4 – – – – – ) 5 6 7 2 ( , – – – – – – – – – – – – – – 0 0 0 $ T S U R T T P A T N E M T S E V N I 0 0 0 $ I D E N A T E R I S G N N R A E ) 7 5 1 , 1 ( 3 4 1 , 8 3 0 5 8 6 8 3 , – 0 6 1 , 1 2 3 4 1 , 8 3 – 0 0 0 $ 4 2 6 , 1 ) 7 5 1 , 1 ( 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 6 8 9 6 3 , 3 4 1 , 8 3 ) 7 5 1 , 1 ( – – – – – – ) 9 7 8 9 3 ( , ) 9 7 8 9 3 ( , 3 6 6 9 1 , 5 3 0 2 1 2 , – ) 5 0 1 , 2 ( ) 9 7 8 4 1 ( , – – – – – – – – – – – – – – – – – – – – – 0 0 0 $ D E U S S I I L A T P A C 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ T N E R A P E H T ) D E T A T S E R ( E L B A T U B R T T A I F O R E N W O O T I D E N A T E R I S G N N R A E ) D E T A T S E R ( R E H T O S E V R E S E R I G N G D E H E V R E S E R 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 3 6 6 9 1 , 3 0 5 3 6 , 5 3 0 2 1 2 , 0 3 6 2 7 6 , – 2 3 ) 5 0 1 , 2 ( ) 2 7 6 6 ( , ) 9 7 8 4 1 ( , ) 2 8 1 , 7 4 ( – – – – – 6 6 0 4 6 3 , , 8 6 0 9 2 2 , 1 0 1 7 4 3 , ) 3 9 6 5 9 ( , 0 3 5 2 1 , 3 0 0 7 5 2 , 3 0 0 7 5 2 , 0 1 3 , 1 6 1 , 3 3 5 9 6 2 – – ) 5 6 7 2 ( , – – , ) 6 1 7 4 5 1 ( , ) 6 1 7 4 5 1 ( ) 5 6 7 2 ( , 5 6 7 2 , – – ) 2 1 2 5 3 ( , 6 9 6 2 8 , ) 3 6 2 7 2 ( , ) 0 6 9 0 8 ( , ) 3 6 2 7 2 ( , ) 0 6 9 0 8 ( , – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 0 0 0 $ 9 6 6 8 , 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 , 5 0 2 8 3 1 , 1 – – – – – – – 3 0 5 3 6 , r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O 2 1 0 2 y l u J 1 t a e c n a l a B r a e y e h t r o f t fi o r P i i g n n a t b o n o t s e r e t n i g n i l l o r t n o c ‑ n o N F D H f o l o r t n o c r a e y e h t g n i l l o r t n o c ‑ n o n f o n o i t i s i u q c A i s g n n r a e d e n a t e r o t i t s e r e t n i r e f s n a r 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 l n a p t n e m t s e v n e r i 0 3 6 2 7 6 , n o i t a n b m o c i s s e n i s u b n i d e u s s I ) 2 7 6 6 ( , s e i t i r u c e s f o t s o c e u s s I 2 3 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 ) 2 8 1 , 7 4 ( 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 , 1 7 6 8 9 5 4 2 4 9 1 , 7 6 4 0 8 7 8 7 5 , , 8 0 2 5 1 9 , 1 2 6 7 6 4 1 , ) 1 6 8 ( – , 1 7 6 8 9 5 6 0 7 8 3 , 4 2 4 9 1 , 6 0 7 8 3 , – 7 6 4 ) 1 6 8 ( ) 8 0 6 2 ( , – ) 5 6 6 8 3 ( , ) 5 6 6 8 3 ( , – – 5 4 8 7 3 , 6 0 7 8 3 , ) 1 6 8 ( ) 8 0 6 2 ( , ) 6 5 0 4 ( , – 0 8 7 8 7 5 , , 8 0 2 5 1 9 , 1 2 6 7 6 4 1 , – – – – ) 6 1 4 9 5 ( , 7 5 7 4 , , 9 9 9 4 0 3 , 9 9 9 4 0 3 , 3 8 5 5 4 2 , 6 5 7 9 0 3 ) 0 4 5 5 5 2 ( , ) 0 4 5 5 5 2 ( , 3 4 2 5 9 5 , 5 6 4 9 1 , ) 4 9 3 ( 2 7 1 , 6 7 5 5 9 1 , 1 0 9 , 1 , 8 7 9 0 0 2 ) 5 7 4 2 6 ( , 6 3 7 , 1 9 6 6 8 , , 6 1 5 0 2 8 , 1 3 1 0 2 e n u J 0 3 t a e c n a l a B ) 5 7 4 2 6 ( , 6 3 7 , 1 9 6 6 8 , , 6 1 5 0 2 8 , 1 3 1 0 2 y l u J 1 t a e c n a l a B – – ) 0 0 8 2 6 ( , ) 3 7 3 , 1 ( ) 0 0 8 2 6 ( , ) 3 7 3 , 1 ( – – – – – – – – – – – – – e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O r a e y s n o i t u b i r t s i d f o t n e m y a P r a e y e h t r o f t fi o r P ) 6 5 0 4 ( , 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 ) 5 7 2 5 2 1 ( , 3 6 3 9 6 6 8 , , 0 6 4 6 1 8 , 1 4 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 d e t a d i l o s n o c e v o b a e h T 41 T S E R E T N I G N I L L O R T N O C - N O N 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 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 D E T A D I L O S N O C 4 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 S E I T I T N E 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    AUSTRALIA N PIP ELIN E T RUST AND I TS CO NTRO LLE D E NTI TI E S CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 30 June 2014 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Payments by HDF to Hastings Funds Management for management and performance fees Payments by HDF for takeover defense costs Dividends received Proceeds from repayment of finance leases Interest received Interest and other costs of finance paid Income tax refund/(paid) Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for equity accounted investments Payments for controlled entities net of cash acquired Payments for intangible assets Loans advanced to related parties Proceeds from sale of businesses Net cash used in investing activities 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 Payments for early settlement of loans and derivatives Distributions paid to: Securityholders of APT Securityholders of non‑controlling – APTIT Securityholders of other non‑controlling interests Net cash provided by/(used in) financing activities Net decrease 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 consolidated statement of cash flows should be read in conjunction with the accompanying notes. 42 NOTE 2014 $000 2013 $000 1,461,695 (767,599) (8,201) – 61,971 4,693 5,965 1,347,848 (703,790) (31,590) (26,668) 54,615 4,724 19,335 (327,124) (289,952) 141 39(c) 431,541 (141) 374,381 (446,754) (397,451) 39(b) 42 43 797 – (24) (677) (126,127) 1,487 (571,298) 605 (65,451) (265,321) (1,107) – 411,364 (317,361) 1,585,833 2,822,243 (1,208,915) (2,872,000) – (10,178) (60) – 83,166 (25,867) (8,717) (34,919) (259,598) (201,898) (41,271) – 65,811 (73,946) 80,955 7,009 (54,758) (13,249) (305,999) (248,979) 329,934 80,955 39(a) APA GROUP / ANNUAL REPORT 2014 AUST RALI AN PI PE LINE T RUST AND ITS CO NT RO LLE D ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 30 June 2014 1. GENERAL INFORMATION APA Group comprises of two trusts, Australian Pipeline Trust (“APT”) and APT Investment Trust (“APTIT”), which are registered managed investment schemes regulated by the Corporations Act 2001. APT units are “stapled” to APTIT units on a one‑to‑one basis so that one APT unit and one APTIT unit form a single stapled security which trades on the Australian Security Exchange under the code “APA”. Australian Accounting Standards require one of the stapled entities of a stapled structure to be identified as the parent entity for the purposes of preparing a consolidated financial report. In accordance with this requirement, APT is deemed to be the parent entity. The results and equity attributable to APTIT, being the other stapled entity which is not directly or indirectly held by APT, are shown separately in the financial statements as non controlling interests. The financial report represents the consolidated financial statements of APT and APTIT, their respective subsidiaries and share of joint arrangements and associates (together “APA Group”). For the purposes of preparing the consolidated financial report, APA Group is a for‑profit entity. 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 APA Group 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”), EII 2 Pty Limited (“EII2”), GDI (EII) Pty Ltd (“GDI”), Diamantina Power Station (“DPS”); and – Asset management and operations services for the majority of APA Group’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. In the current period, APA Group has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current reporting periods. AASB 119 Employee benefits (revised) APA Group adopted the revised AASB 119 from 1 July 2013. The revised standard includes changes to the recognition of income and expenses associated with the superannuation defined benefit plans in which APA Group participates. Under the revised standard, return on plan assets has been calculated based on the rate used to discount the obligations rather than the expected rate of return on these assets. As the revised standard must be applied retrospectively, adjustments to the retirement benefit obligations have been recognised at the beginning of the earliest period presented (1 July 2012) and the statement of profit or loss and other comprehensive income and statement of financial position were restated for the year ended 30 June 2013. APA Group has obtained actuarial assessments and applied amendments retrospectively with the cumulative impacts shown in the following table: Impact on profit Profit before income tax Income tax Profit after tax Impact on statement of financial position Net defined benefit superannuation liabilities Deferred tax Net liabilities Retained earnings (opening balance) Reserves Total equity CUMULATIVE IMPACTS INCREASE/(DECREASE) 1 JUL 2012 $000 30 JUN 2013 $000 (2,750) 825 (1,925) 1,925 – 1,925 (5,173) 1,552 (3,621) (2,312) 694 (1,618) 1,925 3,314 5,239 43 2. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED) (a) Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) (continued) AASB 13 Fair value measurement AASB 13 explains how to measure fair value and aims to enhance fair value disclosures, and is effective for annual reporting periods beginning after 1 January 2013. In accordance with transitional provisions, AASB 13 has been applied prospectively from 1 July 2013. AASB 13 requires inclusion of a measure for credit risk in the calculations of assets and liabilities recorded at fair value. This change is applied prospectively and has not had a significant impact on the fair value of APA Group’s assets and liabilities for the year ended 30 June 2014, however has resulted in additional fair value disclosures as provided in Note 40. Control and joint arrangements AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, AASB 127 Separate Financial Statements (Dec 2012), AASB 128 Investments in Associates and Joint Ventures (Dec 2012) and AASB 2012‑10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments. AASB 10 was applied by APA Group from 1 July 2013. AASB 10 replaces the previous guidance on control and retains the core principle that a Consolidated Entity presents a parent and its subsidiaries as if they are a single economic entity. Whereas the control definition in the previous guidance focussed on ‘risks and rewards’, AASB 10 focuses on the combination of power, exposure to variable returns and ability to use the power to affect the returns. The transitional provisions permit prior period comparatives to not be restated where the accounting outcome under the previous guidance is the same as that under AASB 10 as at the date of initial application, 1 July 2013. For all other situations, comparatives are restated retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors as if AASB 10 had always been applied. AASB 11 Joint Arrangements was applied by APA Group from 1 July 2013 and provides a new definition of joint venture and joint operation which removes optionality around accounting for joint ventures. Under AASB 11 investments in joint ventures are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. Joint ventures are defined by a right to net profit and net assets of the joint arrangement and are required to be equity accounted. Joint operations are defined by a right to assets and obligation for liabilities of the joint arrangements. There has been no change in accounting for existing arrangements for the year ended 30 June 2014 as a result of applying these standards. However, should any arrangements take place which change existing interests or create new interests in controlled entities, the accounting for such transactions may be different to that applied to transactions in the past. AASB 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The application of AASB 12 has resulted in more disclosures and has been included in Note 17, Note 18 and Note 19. AASB 124 Related party disclosures AASB 2011‑4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements. The amendments remove the individual remuneration disclosures and disclosures about equity holdings, loans and other transactions with key management personnel. As a result, only aggregate remuneration disclosures are provided in Note 46(a) and Note 46(b). (b) Standards and Interpretations issued not yet adopted At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective, that are relevant to APA Group. STANDARD/INTERPRETATION – AASB 9 ‘Financial Instruments’, and the relevant amending standards EFFECTIVE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER EXPECTED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR ENDING 1 January 2017 30 June 2018 The following Standard was issued by the International Accounting Standards Board but not yet effective. The Australian equivalent Standard has not yet been issued. – IFRS 15 'Revenue from Contracts with Customers' 1 January 2017 30 June 2018 The potential impact of the initial application of the Standards above is yet to be determined. 44 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 20143. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation Joint operations: A joint arrangement in which the parties that share joint These general purpose financial statements for the year ended 30 June 2014 control have rights to the assets, and obligations for the liabilities, relating to have been prepared in accordance with the Corporations Act 2001, Australian the arrangement. In relation to its interest in a joint operation, APA Group Accounting Standards and other authoritative pronouncements of the recognises its share of assets and liabilities, revenue from the sale of its share Australian Accounting Standards Board and interpretations (AIFRS). of the output and its share of any revenue generated from the sale of the Compliance with Australian Accounting Standards ensures that the financial output by the joint operation and its share of expenses. These are incorporated statements and notes also comply with International Financial Reporting into APA Group’s financial statements under the appropriate headings. Standards (IFRS). (iii) Associates The financial report has been prepared on the basis of historical cost, except for An associate is an entity over which APA Group has significant influence and the revaluation of financial instruments. Historical cost is generally based on that is neither a subsidiary nor a joint arrangement. Investments in associates the fair values of the consideration given in exchange for goods and services. are accounted for using the equity accounting method. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) in accordance with ASIC Class Order 98/0100, unless otherwise stated. Under the equity accounting method the investment is recorded initially at cost to APA Group, including any goodwill on acquisition. In subsequent periods the carrying amount of the investment is adjusted to reflect APA Group’s share of The financial report was authorised for issue by the Directors on 20 August 2014. the retained post‑acquisition profit or loss and other comprehensive income, The principal accounting policies adopted in the preparation of this financial less any impairment. report are set out below. These policies have been consistently applied to all Losses of an associate or joint venture in excess of APA Group’s interests the periods presented, unless otherwise stated. (which includes any long‑term interests, that in substance, form part of the net (a) Working capital position The working capital position as at 30 June 2014 for APA Group is that current liabilities exceed current assets by $170.2 million ($211.8 million for 30 June investment) are recognised only to the extent that there is a legal or constructive obligation or APA Group has made payments on behalf of the associate or joint venture. 2013) primarily as a result of $90.6 million (AUD equivalent) of cash flow hedge (c) Business combinations liabilities. APA Group has access to sufficient available committed, un‑drawn bank facilities of $835.5 million ($891.7 million for 30 June 2013). Acquisitions of businesses are accounted for using the acquisition method. Under the acquisition method of accounting, the purchase consideration is allocated to the identifiable assets acquired and liabilities and contingent liabilities assumed (the identifiable net assets) on the basis of their fair value at The Directors continually monitor APA Group’s working capital position, the date of acquisition which is the date on which control is obtained. including forecast working capital requirements and have ensured that there are appropriate refinancing strategies and adequate committed funding facilities in place to accommodate debt repayments as and when they fall due. (b) Basis of consolidation Provisional fair values allocated at a reporting date are finalised within 12 months of the acquisition date. The excess of the consideration transferred, the amount of any non‑controlling interest in the acquiree and the acquisition‑date fair value of any previous equity interest in the acquiree over the fair value of The financial statements comprise the consolidation of the accounts of APT the identifiable net assets acquired is recorded as goodwill. Any shortfall is and APTIT (together “the Trusts”) and their respective subsidiaries (together immediately recognised in the statement of profit or loss. “APA Group”) together with APA Group’s share of joint arrangements, associates and joint ventures accounted for as described below. All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of subsidiaries, joint arrangements, associates and joint ventures to bring their accounting policies into line with those used by APA Group. (i) Subsidiaries Costs related to the acquisition of a subsidiary are expensed as incurred. On an acquisition‑by‑acquisition basis, APA Group recognises any non‑ controlling interest in the acquiree either at the non‑controlling interest’s proportionate share of the acquiree’s identifiable net assets or at fair value. Goodwill and amounts attributable to non‑controlling interests will differ depending on the basis used. Where APA Group has a previously held non‑controlling interest in the acquiree, Subsidiaries are entities controlled by APT. Control exists where APT has power this is remeasured to fair value at the date control is gained with any gain or over the entities, i.e. existing rights that give them the current ability to direct loss recognised in the statement of profit or loss. Amounts recognised in other the relevant activities of the entities (those that significantly affect the returns); comprehensive income prior to the acquisition are reclassified to profit and exposure, or rights, to variable returns from their involvement with the entities; loss. and the ability to use their power to affect those returns. (ii) Joint arrangements (d) Financial assets and liabilities Available-for-sale financial assets A joint arrangement is an arrangement whereby two or more parties have joint Certain shares held by APA Group are classified as being available‑for‑sale. control. Joint control is the contractually agreed sharing of control such that These assets are initially recognised at fair value plus any directly attributable decisions about the relevant activities of the arrangement (those that transaction costs. Subsequent to initial recognition, they are measured at fair significantly affect the returns) require the unanimous consent of the parties value and changes therein, other than impairment losses, which are recognised sharing control. APA Group has two types of joint arrangements: in other comprehensive income and accumulated in the available‑for‑sale Joint ventures: A joint arrangement in which the parties that share joint control have rights to the net assets of the arrangement. Joint Ventures are accounted investment revaluation reserve. When these assets are derecognised, the gain or loss in equity is reclassified to profit or loss. for using the equity accounting method; and Dividends on available‑for‑sale equity instruments are recognised in profit or loss when the APA Group’s right to receive the dividends is established. 45 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20143. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Financial assets and liabilities (continued) (f) Borrowing costs Loans and receivables Borrowing costs directly attributable to the acquisition, construction or Trade receivables, loans, and other receivables that have fixed or determinable production of qualifying assets, which are assets that necessarily take a payments that are not quoted in an active market are classified as loans and substantial period of time to get ready for their intended use or sale, are added receivables. Trade and other receivables are initially recognised at fair value to the cost of those assets, until such time as the assets are substantially ready plus any directly attributable transaction costs. Subsequent to initial for their intended use or sale. Investment income earned on the temporary recognition, they are stated at their amortised cost less impairment. investment of specific borrowings pending their expenditure on qualifying Trade and other payables assets is deducted from the borrowing costs eligible for capitalisation. Trade and other payables are recognised when APA Group becomes obliged to All other borrowing costs are recognised in profit or loss in the period in which make future payments resulting from the purchase of goods and services. they are incurred. Trade and other payables are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are stated at amortised cost. Impairment of financial assets (g) Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. Work in progress is stated at cost. Cost includes expenditure that is directly attributable to the acquisition or construction of the Financial assets, other than those at fair value through profit or loss, are item. 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 of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investments have been unfavourably impacted. 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 the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss. In the case of equity securities classified as available‑for‑sale, an evaluation is Depreciation is provided on property, plant and equipment 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: made as to whether a decline in fair value is “significant” or “prolonged” based – buildings on an analysis of indicators such as significant adverse changes in the – compressors 30 – 50 years; 10 – 50 years; technological, market, economic or legal environment in which the company – gas transportation systems 10 – 80 years; invested in operates. If such evidence exists for available‑for‑sale financial – meters 20 – 30 years; and assets, the cumulative loss, measured as the difference between acquisition – other plant and equipment 3 – 20 years. cost and the current fair value, less any impairment loss previously recognised in the statement of profit or loss is removed from equity and recognised in the statement of profit or loss. (h) Employee benefits 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 With the exception of available‑for‑sale equity instruments, if, in a subsequent probable that settlement will be required and they are capable of being period, the amount of the impairment loss decreases and the decrease can be measured reliably. Provisions made in respect of employee benefits expected related objectively to an event occurring after the impairment was recognised, to be settled within 12 months, are measured at their nominal values using the the previously recognised impairment loss is reversed through profit or loss to remuneration rates expected to apply at the time of settlement. Provisions the extent the carrying amount of the investment at the date the impairment is made in respect of employee benefits which are not expected to be wholly reversed, does not exceed what the amortised cost would have been had the settled within 12 months are measured as the present value of the estimated impairment not been recognised. In respect of available‑for‑sale equity future cash outflows to be made by APA Group in respect of services provided instruments, any subsequent increase in fair value after an impairment loss is by employees up to reporting date. recognised in other comprehensive income. Defined contribution plans Cash and cash equivalents Contributions to defined contribution plans are expensed when incurred. Cash comprises cash on hand and demand deposits. Cash equivalents are short‑term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to insignificant risk of changes in values. (e) Borrowings 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 and the return on plan assets Borrowings are recorded initially at fair value, net of transaction costs. (excluding interest) are recognised immediately in the statement of financial Subsequent to initial recognition, borrowings are measured at amortised cost position with a charge or credit recognised in other comprehensive income in with any difference between the initial recognised amount and the redemption the period in which they occur. Remeasurement, comprising of actuarial gains value being recognised in the statement of profit or loss and other and losses and the return on plan assets (excluding interest), is recognised in comprehensive income over the period of the borrowing using the effective other comprehensive income and immediately reflected in retained earnings interest method. and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. 46 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 20143. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Employee benefits (continued) Note 40 contains details of the fair values of the derivative instruments used The defined benefit obligation recognised in the consolidated statement of for hedging purposes. Movements in the hedging reserve in equity are also financial position represents the actual deficit or surplus in APA Group’s detailed in Note 32. defined benefit plans. Any asset resulting from this calculation is limited to the present value of economic benefits available in the form of refunds and reductions in future contributions to the plan. (i) Intangible assets and goodwill Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged Intangible assets acquired separately are carried at cost less accumulated risk. Hedge accounting is discontinued when APA Group revokes the hedging amortisation and accumulated impairment losses. Intangible assets acquired in relationship or the hedging instrument expires or is sold, terminated, or a business combination are identified and recognised separately from goodwill exercised, or no longer qualifies for hedge accounting. The adjustment to the and are initially recognised at their fair value at the acquisition date and carrying amount of the hedged item arising from the hedged risk is amortised subsequently at cost less accumulated amortisation and accumulated to profit or loss from that date. impairment losses. Cash flow hedges Amortisation is recognised on a straight‑line basis over their estimated useful The effective portion of changes in the fair value of derivatives that are lives. The estimated useful life and amortisation method are reviewed at the designated and qualify as cash flow hedges is recognised in other end of each annual reporting period, with the effects of any changes in estimate comprehensive income. The gain or loss relating to the ineffective portion is being accounted for on a prospective basis. recognised immediately in profit or loss as part of other expenses or other Goodwill is not amortised; it is tested annually for impairment or more income. frequently if events or changes in circumstances indicate a potential Amounts deferred in equity are recycled in profit or loss in the periods when impairment. The APA Group’s impairment policy is explained in Note 3(n). the hedged item is recognised in profit or loss in the same line of the statement (j) Derivative financial instruments APA Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and cross currency swaps. Further details of derivative financial instruments are disclosed in Note 40. 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 period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. APA Group designates certain derivatives as hedges of the fair value of recognised assets or liabilities or firm commitments (fair of comprehensive income as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non‑financial asset or a non‑financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Hedge accounting is discontinued when APA Group revokes the hedging relationship or the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. value hedges) or, hedges of highly probable forecast transactions or of foreign (k) Financial instruments issued by APA Group currency risk of firm commitments (cash flow hedges). Debt and equity instruments A derivative with a positive fair value is recognised as a financial asset, a derivative with a negative fair value is recognised as a financial liability. The fair value of hedging derivatives is classified as either current or non‑current based on the timing of the underlying cash flows of the instrument. Cash flows due within 12 months of the reporting date are classified as current and cash flows Debt and equity instruments are classified as either liabilities or equity in accordance with the substance of the contractual arrangement. An equity 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 APA Group are recorded at the proceeds received, net of direct issue costs. due after 12 months of the reporting date are classified as non‑current. Financial guarantee contract liabilities Hedge accounting APA Group 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. Hedges of foreign exchange and interest rate risk on firm commitments are accounted for as cash flow hedges. Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of the amount recognised as a provision and the amount initially recognised less cumulative amortisation in accordance 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 At the inception of the hedge relationship, APA Group documents the which the costs relate. Transaction costs are the costs that are incurred directly relationship between the hedging instrument and hedged item, along with its in connection with the issue of those equity instruments and which would not risk management objectives and its strategy for undertaking various hedge have been incurred had those instruments not been issued. transactions. Furthermore, at the inception of the hedge and on an ongoing basis, APA Group 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. Interest and distributions Interest and distributions are classified as expenses or as distributions of profit consistent with the consolidated statement of financial position classification of the related debt or equity instruments or component parts of compound instruments. 47 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20143. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Foreign currency transactions Deferred tax is provided using the balance sheet liability method, providing for Both the functional and presentation currency of APA Group and APT is temporary differences between the carrying amounts of assets and liabilities Australian dollars (A$). All foreign currency transactions during the financial for financial reporting purposes and the amounts used for taxation purposes. year are brought to account using the exchange rate in effect at the date of the The following temporary differences are not provided for: initial recognition of transaction. Foreign currency monetary items at reporting date are translated goodwill, initial recognition of assets or liabilities that affect neither accounting at the exchange rate existing at that date and resulting exchange differences nor taxable profit, and differences relating to investments in wholly‑owned are recognised in profit or loss in the period in which they arise. entities to the extent that they will probably not reverse in the foreseeable (m) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority. Receivables and payables are 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. recognised inclusive of GST, except for accrued revenue and accrued expense A deferred tax asset is recognised only to the extent that it is probable that at balance dates which exclude GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. GST receivable or GST payable is future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. only recognised once a tax invoice has been issued or received. Tax consolidation 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. (n) 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. Property, plant and equipment and intangible assets with finite lives are APT and its wholly‑owned Australian tax resident entities are part of a tax‑ consolidated group under Australian taxation law. The head entity within the tax‑consolidated group is APT. Tax expense/income, deferred tax liabilities and deferred tax assets arising 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. reviewed for impairment if there is an indication that the carrying amount may Any current tax liabilities (or assets) and deferred tax assets arising from 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. For the purposes of unused tax losses of the wholly‑owned entities are assumed by the head entity in the tax‑consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax‑consolidated group in conjunction with any tax funding arrangement amounts. assessing impairment, assets are grouped at the lowest levels for which there The head entity recognises deferred tax assets arising from unused tax losses are separately identifiable cash inflows which are largely independent of the of the tax‑consolidated group to the extent that it is probable that future cash inflows from other assets or groups of assets (cash‑generating units). taxable profits of the tax‑consolidated group will be available against which the Assets other than goodwill that suffered an impairment are reviewed for assets can be utilised. possible reversal of the impairment at each reporting period. (r) Leased assets (o) Inventories Leases are classified as finance leases when the terms of the lease transfer Inventories are stated at the lower of cost and net realisable value. Net substantially all the risks and rewards incidental to the ownership of the leased realisable value represents the estimated selling price for the inventories less all asset to the lessee. All other leases are classified as operating leases. estimated costs of completion and costs necessary to make the sale. Group as lessor (p) Security-based payments Amounts due from a lessee under finance leases are recorded as receivables. APA Group provides benefits to certain employees in the form of cash settled Finance lease receivables are initially recognised at amounts equal to the security‑based payments. For cash settled security‑based payments, a liability present value of the minimum lease payments receivable plus the present value equal to the portion of services received is recognised at the current fair value of any unguaranteed residual value expected to accrue at the end of the lease determined at each reporting date. (q) Income tax Income tax on the profit or loss for the financial year comprises current and term. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the leases. deferred tax. Income tax is recognised in the statement of profit or loss and Group as lessee other comprehensive income except to the extent that it relates to items Assets held under finance leases are initially recognised at their fair value or, if recognised directly in equity, in which case it is recognised in equity. Current lower, at amounts equal to the present value of the minimum lease payments, tax is the expected tax payable on the taxable income for the financial year, each determined at the inception of the lease. The corresponding liability to the using tax rates enacted or substantively enacted by the end of the reporting lessor is included in the consolidated statement of financial position as a period, and any adjustment to tax payable in respect of previous financial finance lease obligation. Lease payments are allocated between finance years. Current tax for current and prior periods is recognised as a liability (or charges and reduction of the lease obligation so as to achieve a constant rate asset) to the extent that it is unpaid (or refundable). 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. 48 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 20143. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.  CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES (r) Leased assets (continued) OF ESTIMATION UNCERTAINTY Operating lease payments are recognised as an expense on a straight‑line basis In the application of APA Group’s accounting policies, management is required over the lease term, except where another systematic basis is more to make judgements, estimates and assumptions about the carrying values of representative of the time patterns in which economic benefits from the leased assets and liabilities that are not readily apparent from other sources. The asset are consumed. (s) Provisions A provision is recognised when there is a legal, equitable or constructive estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from estimates. obligation as a result of a past event, it is probable that a future sacrifice of The estimates and underlying assumptions are reviewed on an ongoing basis. economic benefits will be required to settle the obligation and the amount of Revisions to accounting estimates are recognised in the period in which the the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the financial year, taking estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. into account the risks and uncertainties surrounding the obligation. Where a Impairment of assets provision is measured using the cash flows estimated to settle the present Determining whether property, plant and equipment, identifiable intangible obligation, its carrying amount is the present value of those cash flows. assets and goodwill are impaired requires an estimation of the value‑in‑use or When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the receivable can be measured reliably. (t) Revenue recognition fair value of the cash‑generating units. The calculations require APA Group to estimate the future cash flows expected to arise from cash‑generating units and suitable discount rates in order to calculate the present value of cash‑ generating units. Estimates and assumptions used are reviewed on an ongoing basis. Revenue is recognised to the extent that it is probable that the economic Determining whether available‑for‑sale investments are impaired requires an benefits will flow to APA Group and the revenue can be reliably measured. assessment as to whether declines in value are significant or prolonged. Amounts disclosed as revenue are net of duties and taxes paid. Revenue is Management has taken into account a number of qualitative and quantitative recognised for the major business activities as follows: factors in making this assessment. Any assessment of whether a decline in Sales revenue Sales revenue represents revenue earned for the transportation of gas, generation of electricity and other related services and is recognised when the services are provided. Pass-through revenue Pass‑through revenue is revenue on which no margin is earned and is offset by corresponding pass‑through costs. Interest revenue Interest revenue is recognised as it accrues using the effective interest method. Sale of non-current assets value represents an impairment would result in the transfer of the decrement from reserves to the statement of profit or loss and other comprehensive income. Useful lives of non-current assets APA Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. Any reassessment of useful lives in a particular year will affect the depreciation or amortisation expense. Fair value of financial instruments APA Group has financial instruments that are carried at fair value in the statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, APA The net gain or loss on sale of a non‑current asset is included as income at the Group determines fair value by using various valuation models. The objective of date control of an asset passes to the buyer. This is usually when an using a valuation technique is to establish the price that would be received to unconditional contract of sale is signed. The gain or loss on disposal is sell an asset or paid to transfer a liability between market participants. The calculated as the difference between the carrying amount of the asset at the chosen valuation models make maximum use of market inputs and rely as little time of disposal and the net proceeds on disposal (including incidental costs). as possible on entity specific inputs. The fair values of all positions include Dividend revenue Dividend revenue is recognised when the right to receive a dividend has been established. Finance lease income 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. assumptions made on the recoverability based on the counterparty’s and APA Group’s credit risk. Details of the inputs to the fair value of financial instruments are included in Note 40. 49 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20145. SEGMENT INFORMATION APA Group operates in one geographical segment, being Australia. (a) Description of reportable segments APA Group comprises the following reportable segments: – Energy Infrastructure, which includes all wholly or majority owned pipelines, gas storage assets and the Emu Downs Wind Farm; – Asset Management, which provides commercial, operating services and/or asset maintenance services to APA Group’s energy investments for appropriate fees; and – Energy Investments, which includes APA Group’s strategic stakes in a number of investment vehicles that house energy infrastructure assets, generally characterised by long term secure cashflows, with low capital expenditure requirements. (b) Reportable segments 2014 SEGMENT REVENUE (a) External sales revenue Equity accounted net profits Pass‑through revenue Finance lease and investment interest income Distribution – other entities Total segment revenue Other interest income Consolidated revenue SEGMENT RESULT ENERGY INFRASTRUCTURE $000 ASSET MANAGEMENT $000 ENERGY INVESTMENTS $000 CONSOLIDATED $000 820,478 – 8,925 3,591 – 99,171 – 394,552 – – – 64,289 – 3,311 533 919,649 64,289 403,477 6,902 533 832,994 493,723 68,133 1,394,850 1,142 1,395,992 Earnings before interest, tax, depreciation and amortisation ("EBITDA") 619,422 56,188 533 676,143 Share of net profits of associates and joint ventures 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 benefit Profit for the year – 3,591 623,013 (151,610) 471,403 – – 56,188 (4,618) 51,570 64,289 3,311 68,133 64,289 6,902 747,334 – (156,228) 68,133 591,106 SEGMENT ASSETS AND LIABILITIES Segment assets Carrying value of investments accounted for using the equity method 6,877,648 248,972 151,690 593,325 Unallocated assets (c) Total assets Segment liabilities Unallocated liabilities (d) Total liabilities 273,654 75,792 – (a) The revenue reported above represents revenue generated from external customers, any intersegment sales were immaterial. (b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income. (c) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards. (d) Unallocated liabilities consist of current and non‑current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts. 50 (325,084) 266,022 77,684 343,706 7,278,310 593,325 100,875 7,972,510 349,446 5,126,575 5,476,021 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 20145. SEGMENT INFORMATION (CONTINUED) (b) Reportable segments (continued) 2013 SEGMENT REVENUE (b) External sales revenue Equity accounted net profits Pass‑through revenue Finance lease and investment interest income Distribution – other entities Total segment revenue Other interest income Consolidated revenue SEGMENT RESULT ENERGY INFRASTRUCTURE (RESTATED) $000 (a) ASSET MANAGEMENT (RESTATED) $000 ENERGY INVESTMENTS $000 (f) CONSOLIDATED (RESTATED) $000 770,532 – 8,449 3,822 – 82,293 – 344,294 – – 782,803 426,587 – 44,868 – 3,069 3,243 51,180 852,825 44,868 352,743 6,891 3,243 1,260,570 11,697 1,272,267 Earnings before interest, tax, depreciation and amortisation ("EBITDA") 524,407 41,889 145,573 711,869 Share of net profits of associates and joint ventures 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 – 3,822 528,229 (125,671) 402,558 – – 41,889 (4,790) 37,099 SEGMENT ASSETS AND LIABILITIES Segment assets Carrying value of investments accounted for using the equity method 6,608,054 235,631 44,868 3,069 193,510 – 193,510 35,490 589,131 Unallocated assets (d) Total assets Segment liabilities Unallocated liabilities (e) Total liabilities 284,049 69,918 – 44,868 6,891 763,628 (130,461) 633,167 (290,916) 342,251 (49,869) 292,382 6,879,175 589,131 230,622 7,698,928 353,967 4,831,032 5,184,999 (a) Revenue of $32.9 million, expenses of $12.3 million, profit before income tax of $18.2 million, profit after income tax of $13.4 million are attributable to the Moomba Adelaide Pipeline System which was acquired in October 2012 divested in May 2013. Included within asset operation and management expenses are significant items of $18.6 million resulting from the write back of transaction costs relating to the prior year divestment of the APA Gas Networks business and $12.4 million of transaction costs on acquisition of Hastings Diversified Utilities Fund. (b) The revenue reported above represents revenue generated from external customers, any intersegment sales were immaterial. (c) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income. (d) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards. (e) Unallocated liabilities consist of current and non‑current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts. (f) Included in EBITDA for energy investments is a significant item of $142.3 million gain on the previously held interest in HDF on obtaining control. (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 $820.5 million (2013: $770.5 million) are revenues of approximately $384.4 million (2013: $373.8 million) which arose from sales to APA Group’s top three customers. 51 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20146. REVENUE An analysis of APA Group’s revenue for the year is as follows: Continuing operations OPERATING REVENUE Energy infrastructure revenue: – energy infrastructure revenue – pass‑through revenue Asset management revenue: – asset management revenue – pass‑through revenue FINANCE INCOME Interest Redeemable ordinary shares (EII) and redeemable preference shares (GDI) interest income Finance lease income OTHER INCOME Dividends Rental income Share of net profits of associates and joint ventures accounted for using the equity method 2014 $000 2013 $000 819,899 8,925 828,824 99,171 394,552 493,723 1,322,547 1,142 3,311 3,591 8,044 533 579 1,331,703 64,289 1,395,992 769,895 8,449 778,344 82,293 344,294 426,587 1,204,931 11,697 3,069 3,822 18,588 3,243 637 1,227,399 44,868 1,272,267 52 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 20147. 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 Gas pipeline costs Management, operating and maintenance costs FINANCE COSTS Interest on bank overdrafts and borrowings Amortisation of deferred borrowing costs Other finance costs Less: amounts included in the cost of qualifying assets Loss/(gain) on derivatives Unwinding of discount on non‑current liabilities The average interest rate on funds borrowed is 7.44% p.a. (2013: 7.77% p.a.) including amortisation of borrowing costs and other finance costs. EMPLOYEE BENEFIT EXPENSE Post‑employment benefits: Defined contribution plans Defined benefit plans Termination benefits Cash settled share‑based payments Other employee benefits OTHER EXPENSES Doubtful debts Impairment of intangibles Impairment of goodwill (a) Loss on disposal of property, plant and equipment Other 2014 $000 2013 $000 151,132 5,096 156,228 8,925 394,552 403,477 124,787 5,674 130,461 8,449 344,294 352,743 324,122 316,438 9,245 9,031 342,398 (18,069) 324,329 787 1,110 9,257 9,378 335,073 (25,020) 310,053 (8,179) 739 326,226 302,613 2014 $000 2013 (RESTATED) $000 9,648 4,468 14,116 1,004 22,452 131,043 168,615 985 1,792 – 115 6,962 9,854 9,176 5,128 14,304 4,941 26,568 128,683 174,496 805 2,075 1,867 480 9,906 15,133 (a) The impairment in the 2013 financial year relates to a reassessment of renewal opportunities beyond current contracted terms for minor contracts in the asset management business. 53 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20148. SIGNIFICANT ITEMS Individually significant income/(expenses) included in profit after related income tax expense are as follows: SIGNIFICANT INCOME/(EXPENSE) ITEMS Write back of transaction costs on sale of Allgas Distribution Network Gain on previously held interest in HDF on obtaining control Transaction costs on acquisition of HDF Integration costs on acquisition of HDF Significant items incurred by APA Group Management and performance fees charged to HDF by Hastings Funds Management Takeover response costs incurred by HDF Significant items incurred by HDF Total significant items impacting EBITDA Significant items impacting finance costs: Gain on settlement of HDF interest rate swaps Profit from significant items before income tax Income tax related to significant items above Write back of deferred tax on obtaining control of HDF Income tax benefit on tax cost base step up(a) Profit from significant items after income tax 2014 $000 2013 $000 – – – – – – – – – – – – – 144,060 144,060 18,588 142,333 (12,404) (4,481) 144,036 (35,438) (6,913) (42,351) 101,685 8,713 110,398 2,818 6,814 – 120,030 (a) APA Group made a once‑off adjustment to its tax expense for the year ended 30 June 2014 to reflect a change in the treatment, for tax depreciation purposes only, of various capital assets. 9. INCOME TAX Income tax recognised in profit or loss TAX (EXPENSE)/INCOME COMPRISES: Current tax expense in respect of the current year 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 benefit/(expense) ATTRIBUTABLE TO: Profit from continuing operations 2014 $000 (1,063) 1,061 (2) 77,686 77,684 2013 (RESTATED) $000 (7,313) 7,518 205 (50,074) (49,869) 77,684 (49,869) 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‑assessable trust distribution Non deductible expenses Non assessable income Unfranked dividends from associates Tax benefit on tax cost base step up Adjustment recognised in the current year in relation to the current tax of prior years 54 266,022 (79,807) 11,611 (3,054) 15,034 (11,221) (67,437) 144,060 1,061 77,684 342,251 (102,675) 11,443 (15,629) 58,939 (9,465) (57,387) – 7,518 (49,869) AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 20149. INCOME TAX (CONTINUED) 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. 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 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: 2014 GROSS DEFERRED TAX LIABILITIES Intangible assets Property, plant and equipment Deferred expenses Investments equity accounted Available for sale investments GROSS DEFERRED TAX ASSETS Provisions Cash flow hedges Defined benefit obligation Security issue costs Deferred revenue Other Tax losses 2014 $000 26,913 (2,039) 589 – 25,463 2013 (RESTATED) $000 11,685 (5,371) 34,697 32 41,043 (540,896) (540,896) (553,626) (553,626) 96,975 333,138 430,113 71,007 268,687 339,694 (110,783) (213,932) OPENING BALANCE $000 CHARGED TO INCOME $000 CHARGED TO EQUITY $000 ACQUISITIONS/ DISPOSALS $000 CLOSING BALANCE $000 (3,975) (497,925) (47,535) (3,445) (746) (553,626) 36,361 27,527 6,225 368 467 59 268,687 339,694 (213,932) 538 11,296 (2,148) 295 – 9,981 1,087 236 142 (182) 1,998 (27) 64,451 67,705 77,686 – – – 2,160 589 2,749 – 24,753 (2,039) – – – – 22,714 25,463 – – – – – – – – – – – – – – – (3,437) (486,629) (49,683) (990) (157) (540,896) 37,448 52,516 4,328 186 2,465 32 333,138 430,113 (110,783) 55 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20149. INCOME TAX (CONTINUED) Deferred tax balances (continued) Deferred tax (liabilities)/assets arise from the following: OPENING BALANCE $000 CHARGED TO INCOME $000 CHARGED TO EQUITY $000 ACQUISITIONS/ DISPOSALS $000 CLOSING BALANCE $000 2013 (RESTATED) GROSS DEFERRED TAX LIABILITIES Intangible assets Property, plant and equipment Deferred expenses Investments equity accounted Available for sale investments GROSS DEFERRED TAX ASSETS Provisions Cash flow hedges Defined benefit obligation Security issue costs Deferred revenue Other Tax losses Unrecognised deferred tax assets (4,598) (418,239) (59,132) (440) (35,443) (517,852) 30,084 12,410 11,564 531 (511) (6,567) 150,234 197,745 623 (46,493) (7,741) 290 – (53,321) 5,244 (12,926) 32 (195) 978 6,580 3,534 3,247 (320,107) (50,074) – – – (3,295) 34,697 31,402 – 14,980 (5,371) 32 – – – 9,641 41,043 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 – (33,193) 19,338 – – (3,975) (497,925) (47,535) (3,445) (746) (13,855) (553,626) 1,033 13,063 – – – 46 114,919 129,061 115,206 36,361 27,527 6,225 368 467 59 268,687 339,694 (213,932) 2014 $000 2013 $000 32,069 30,044 APT and its wholly‑owned Australian resident entities formed a tax‑consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax‑consolidated group is APT. The members of the tax‑consolidated group are identified at Note 41. Nature of tax funding arrangement and tax sharing agreement Entities within the tax‑consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, APT and each of the entities in the tax‑consolidated group have agreed to pay a tax equivalent payment to or from the head entity based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax‑ consolidated group. The tax sharing agreement entered into between members of the tax‑consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax‑consolidated group. The effect of the tax sharing agreement is that each member’s liability for the tax payable by the tax‑consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. 56 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201410. DISTRIBUTIONS RECOGNISED AMOUNTS Final distribution paid on 11 September 2013 (2012: 14 September 2012) Profit distribution ‑ APT (a) Profit distribution ‑ APTIT (a) (Note 34) Capital distribution ‑ APT (Note 31) Capital distribution ‑ APTIT (Note 34) Interim distribution paid on 12 March 2014 (2012: 13 March 2013) Profit distribution ‑ APT (a) Profit distribution ‑ APTIT (a) (Note 34) Capital distribution ‑ APT (Note 31) Capital distribution ‑ APTIT (Note 34) Total distributions recognised Profit distributions (a) Capital distributions UNRECOGNISED AMOUNTS Final distribution payable on 10 September 2014 (b) (2013: 11 September 2013) Profit distribution – APT (a) Profit distribution – APTIT (a) Capital distribution – APT Capital distribution – APTIT (a) Profit distributions were unfranked (2013: unfranked). (b) Record date 30 June 2014. 2014 CENTS PER SECURITY APT AND APTIT 2014 TOTAL $000 2013 CENTS PER SECURITY 2013 TOTAL $000 32,786 21,160 47,182 14,879 116,007 121,930 18,719 ‑ ‑ 5.09 3.28 7.32 2.31 18.00 14.74 2.26 ‑ ‑ 17.00 140,649 25.37 9.63 194,595 62,061 16.02 2.32 – 0.16 18.50 133,877 19,424 – 1,313 154,614 16.02 2.32 – 0.16 18.50 14.56 2.30 0.49 0.15 17.50 35.20 0.80 16.42 2.33 – – 133,877 19,424 – 1,313 154,614 121,663 19,241 4,056 1,295 146,255 294,205 6,664 137,239 19,464 – – 18.75 156,703 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) 2014 $000 5,107 2013 $000 3,609 57 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201411. TRADE AND OTHER RECEIVABLES Trade receivables Allowance for doubtful debts Receivables from associates and related parties Finance lease receivables (Note 35) 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 Movement in the allowance for doubtful debts Balance at beginning of year Charged to profit or loss Balance at end of year 2014 $000 96,644 (1,790) 94,854 56,936 4,575 63 11 2013 $000 104,483 (805) 103,678 55,931 4,744 146 70 156,439 164,569 3,129 662 1,817 5,608 805 985 1,790 5,806 1,167 3,037 10,010 – 805 805 In determining the recoverability of a trade receivable, APA Group 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. 136 – – 1,654 1,790 2,407 – 13,883 285 16,575 32 219 232 322 805 1,927 1,788 12,469 285 16,469 Ageing of impaired receivables Not past due 30 – 60 days 60 – 90 days 90 – 120 days 12. OTHER CURRENT FINANCIAL ASSETS Derivatives at fair value: Equity forward contracts Foreign exchange contracts – cash flow hedges Cross currency interest rate swaps – cash flow hedges Financial assets carried at amortised cost: Redeemable preference share interest 58 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201413. INVENTORIES Spare parts Gas stock 14. OTHER CURRENT ASSETS Prepayments 15. NON-CURRENT RECEIVABLES Finance lease receivables (Note 35) Loan receivable – related party (a) 2014 $000 14,261 3,088 17,349 2013 $000 11,860 866 12,726 5,996 5,662 29,747 118,088 147,835 34,318 – 34,318 (a) During the year, APA Group increased its net investment in Diamantina Power Station (DPS) through the provision of shareholder loans as part of its long‑term funding commitment to the project. Per AASB 128, APA’s share of movements in DPS’s equity have been offset against the balance of shareholder loans receivable. 16. OTHER NON-CURRENT FINANCIAL ASSETS Available‑for‑sale investments carried at fair value: Ethane Pipeline Income Fund Financial assets carried at amortised cost: Redeemable ordinary shares Redeemable preference shares Derivatives – at fair value: Equity forward contracts Cross currency interest rate swaps – cash flow hedges 4,571 7,394 18,218 10,400 1,597 75,982 110,768 17,264 10,400 1,894 131,588 168,540 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 attract periodic interest payments and have a redemption date 10 years from issue. 59 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201417. SUBSIDIARIES WITH NON-CONTROLLING INTERESTS OWNERSHIP INTEREST HELD BY THE GROUP % OWNERSHIP INTEREST HELD BY NCI % NAME OF SUBSIDIARY PRINCIPAL ACTIVITY APT Investment Trust Inter‑entity investment and financing 2014 – 2013 – 2014 100 2013 100 APT has one material non‑controlled subsidiary, APTIT. APT is deemed the parent entity of APA Group comprising of the stapled structure of APT and APTIT. Equity attributable to other trusts stapled to the parent is a form of non‑controlling interest and represents 100% of the equity of APTIT. Summarised financial information for APTIT is set out below, the amounts disclosed are before inter‑company eliminations. FINANCIAL POSITION Current assets Non‑current assets Total assets Current liabilities Total liabilities Net assets Equity attributable to non-controlling interests FINANCIAL PERFORMANCE Revenue Expenses Profit for the year Other comprehensive income Total comprehensive income allocated to non-controlling interests for the year CASH FLOWS Net cash provided by operating activities Net cash provided by / (used in) investing activities Distributions paid to non‑controlling interests Net cash used in financing activities 2014 $000 2013 $000 670 594,584 595,254 11 11 595,243 595,243 38,718 (12) 38,706 (861) 37,845 39,695 1,592 (41,273) (41,287) 641 598,054 598,695 24 24 598,671 598,671 38,155 (12) 38,143 (1,157) 36,986 40,821 (3,635) (54,758) (37,186) The accounting policies of APTIT are the same as those applied to APA Group. There are no material guarantees, contingent liabilities or restrictions imposed on APA Group from APTIT’s non‑controlling interests. 60 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201418. JOINT VENTURES AND ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD The table below lists APA Group’s interest in joint ventures and associates that are reported as part of the Energy Investments segment. APA Group provides asset management, operation and maintenance services and corporate services, in varying combinations to the majority of energy infrastructure assets housed within PRINCIPAL ACTIVITY COUNTRY OF INCORPORATION 2014 2013 OWNERSHIP INTEREST % these entities. NAME OF ENTITY Joint ventures: SEA Gas Gas transmission Diamantina Power Station Power generation (gas) Energy Infrastructure Investments Unlisted energy vehicle EII 2 Associates: GDI (EII) Envestra Limited (a) Power generation (wind) Gas distribution Gas distribution Investment in joint ventures and associates Australia Australia Australia Australia Australia Australia 50.00 50.00 19.90 20.20 20.00 33.05 2014 $000 593,325 50.00 50.00 19.90 20.20 20.00 33.05 2013 $000 589,131 (a) Envestra Limited is an ASX listed gas distribution and transmission company, owning approximately 22,000 kms of distribution networks and over 1,000 kms of transmission pipelines. APA Group owns 33.05% and also has a long term agreement to operate and maintain Envestra’s assets. The fair value of APA Group’s investment in Envestra as at 30 June 2014 is $807.5m ($590.8m for 30 June 2013) based on quoted market prices. Refer to Note 50 regarding events subsequent to year‑end, relating to APA Group’s investment in Envestra. Aggregated information in respect of the joint ventures is set out below: JOINT VENTURES Aggregate carrying amount of investment APA Group's aggregated share of: Profit from continuing operations Other comprehensive income Total comprehensive income 2014 $000 2013 $000 179,820 185,363 11,973 (8,783) 3,190 10,119 8,371 18,490 Summarised financial information for Envestra being APA Group’s only material associate is set out below. The summarised financial information below is prepared in accordance with AIFRS and represents amounts published in the associate’s financial statements for the year ended 30 June 2014. FINANCIAL POSITION Current assets Non‑current assets Total assets Current liabilities Non‑current liabilities Total liabilities Net assets 82,300 86,200 3,306,700 3,150,700 3,389,000 3,236,900 73,300 126,700 2,454,700 2,268,400 2,528,000 861,000 2,395,100 841,800 61 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201418. JOINT VENTURES AND ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) FINANCIAL PERFORMANCE Revenue Profit before income tax expense Net profit after tax Other comprehensive income Total comprehensive income 2014 $000 2013 $000 554,400 218,700 153,000 (18,800) 134,200 507,500 153,800 107,800 23,400 131,200 Dividend and summarised financial information relating to the interest in Envestra recognised in the consolidated financial statements is set out below. ENVESTRA Dividends received from the associate during the year Aggregate carrying amount of investment APA Group's aggregated share of: Profit from continuing operations Other comprehensive income Total comprehensive income ASSOCIATES – OTHER Aggregate carrying amount of investment APA Group's aggregated share of: Profit from continuing operations Other comprehensive income Total comprehensive income 38,000 382,926 50,113 825 50,938 31,551 369,989 32,799 6,308 39,107 30,579 33,780 2,204 29 2,233 1,950 (362) 1,588 Contingent liabilities and capital commitments APA Group’s share of the contingent liabilities, capital commitments and other expenditure commitments of joint operations is disclosed in Note 49 and Note 44 respectively. 19. JOINT OPERATIONS APA Group is a venturer in the following joint operations: NAME OF VENTURE PRINCIPAL ACTIVITY Goldfields Gas Transmission Gas pipeline operation – Western Australia Mid West Pipeline Gas pipeline operation – Western Australia (a) On 17 August 2004, APA acquired a direct interest in the Goldfields Gas Transmission joint operations as part of the SCP Gas Business acquisition. (b) Pursuant to the joint venture agreement, APA Group receives a 70.8% share of operating income and expenses. OUTPUT INTEREST 2014 % 88.2 (a) 50.0 (b) 2013 % 88.2 (a) 50.0 (b) 62 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201420. PROPERTY, PLANT AND EQUIPMENT GROSS CARRYING AMOUNT Balance at 1 July 2012 Additions Disposals Derecognised on disposal of subsidiary (Note 43) Acquisitions through business combinations (Note 42) Transfers Balance at 30 June 2013 Additions Disposals Transfers Balance at 30 June 2014 ACCUMULATED DEPRECIATION Balance at 1 July 2012 Disposals Derecognised on disposal of subsidiaries (Note 43) Depreciation expense Transfers Balance at 30 June 2013 Disposals Depreciation expense Balance at 30 June 2014 NET BOOK VALUE As at 30 June 2013 As at 30 June 2014 FREEHOLD LAND AND BUILDINGS – AT COST $000 LEASEHOLD IMPROVEMENTS – AT COST $000 PLANT AND EQUIPMENT – AT COST $000 117,595 8,537 (7,573) (3,648) 16,190 – 131,101 – (33) 8,366 139,434 2,222 2,717 – – – – 4,939 – – 76 3,579,033 4,562 (4,597) (372,380) 1,896,192 216,777 5,319,587 32,129 (6,126) WORK IN PROGRESS – AT COST $000 325,049 368,231 – (327) 20,972 (219,571) TOTAL $000 4,023,899 384,047 (12,170) (376,355) 1,933,354 (2,794) 494,354 5,949,981 413,985 – 446,114 (6,159) – 421,036 (429,478) 5,015 5,766,626 478,861 6,389,936 (17,392) (1,927) (532,382) 200 19 (2,376) 473 (19,076) 7 (2,785) (21,854) – – (233) – 3,470 3,108 (122,178) (352) (2,160) (648,334) – (128) (2,288) 5,240 (148,219) (791,313) – – – – – – – – – (551,701) 3,670 3,127 (124,787) 121 (669,570) 5,247 (151,132) (815,455) 112,025 117,580 2,779 2,727 4,671,253 4,975,313 494,354 478,861 5,280,411 5,574,481 63 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201421. GOODWILL GROSS CARRYING AMOUNT Balance at beginning of financial year Acquisitions (Note 42) Disposals (Note 43) Goodwill impairment Balance at end of financial year 2014 $000 2013 $000 1,150,500 – – – 411,883 765,476 (24,992) (1,867) 1,150,500 1,150,500 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 – Energy Infrastructure: • New South Wales pipelines; • Victorian Transmission System; • South West Queensland Pipeline; and • Other energy infrastructure. 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 New South Wales pipelines Victorian Transmission System South West Queensland Pipeline Other energy infrastructure (a) 31,456 31,456 146,008 105,061 707,843 160,132 146,008 105,061 663,268 204,707 1,150,500 1,150,500 (a) Primarily represents goodwill relating to the Roma to Brisbane Pipeline ($76.4m) and the Pilbara Pipeline System ($32.6m). During the period, APA completed the purchase price accounting exercise for For non‑regulated  assets,  APA has assumed no capacity expansion beyond the acquisition of HDF in accordance with the requirements of AASB 3 ‘Business installed and committed levels; utilisation of capacity  is  based on existing Combinations’. The total fair value of other assets and liabilities acquired contracts, government policy settings and expected market outcomes. remain unchanged from their provisionally determined carrying values reported at 30 June 2013. The recoverable amounts of cash‑generating units are determined based on value‑in‑use calculations. These calculations use cash flow projections based on a five year financial business plan and thereafter a further 15 year financial model. This is the basis of the Group’s forecasting and planning processes As contracts mature, given ongoing demand for capacity, it is assumed that capacity is resold. Asset management cash flow projections reflect long term agreements with assumptions of renewal on similar terms and conditions based on management expectations. which represents the underlying long term nature of associated customer Cash flow projections are estimated for a period of up to 20 years, with a contracts on these assets. For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected terminal value, recognising the long  term nature of the assets. The pre‑tax discount rates used are 8.25% p.a. (2013: 8.25% p.a.) for energy infrastructure assets and 8.25% p.a. (2013: 8.25% p.a.) for asset management. contract renewals with a  resulting average annual growth rate of 1.9% p.a. These assumptions have been determined with reference to historic These expected cash flows are factored into the regulated asset base and do information,  current performance and expected changes taking into account not exceed management’s expectations of the long‑term average growth rate external information. for the market in which the cash generating unit operates. 64 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201422. OTHER INTANGIBLE ASSETS CONTRACT AND OTHER INTANGIBLES Gross carrying amount Balance at beginning of financial year Acquisitions / additions Impairment 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 2014 $000 2013 $000 206,061 677 (1,792) 204,946 (29,046) (5,096) (34,142) 170,804 207,031 1,105 (2,075) 206,061 (23,372) (5,674) (29,046) 177,015 APA Group holds various third party operating and maintenance contracts. The combined gross carrying amount of $204.9 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 profit or loss and other comprehensive income. 23. OTHER NON-CURRENT ASSETS Line pack gas Gas held in storage Other assets 24. TRADE AND OTHER PAYABLES CURRENT Trade payables (a) Other payables (b) NON-CURRENT Other payables (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. 25. CURRENT BORROWINGS UNSECURED – AT AMORTISED COST Guaranteed Senior Notes (a) 16,152 5,085 192 21,429 27,037 158,951 185,988 3,599 3,599 10,922 5,085 2,625 18,632 28,427 161,635 190,062 3,749 3,749 – 80,910 (a) Represented USD denominated private placement notes of US$74 million measured at the exchange rate at reporting date which matured 9 September 2013. 65 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014 26. OTHER CURRENT FINANCIAL LIABILITIES Derivatives Derivatives that are designated and effective as hedging instruments carried at fair value: Forward foreign exchange contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges 27. PROVISIONS CURRENT Employee benefits (a) Other (Note 36) NON-CURRENT Employee benefits (a) Other (Note 36) (a) The aggregate employee benefit liability recognised and included in the financial statements is as follows: CURRENT Incentives Cash settled security‑based payments Leave balances Termination benefits NON-CURRENT Cash settled security‑based payments Retirement benefit obligation (Note 37) Leave balances 28. OTHER LIABILITIES CURRENT Unearned revenue – other NON-CURRENT Unearned revenue – other 66 2014 $000 1,246 17,712 71,616 90,574 2014 $000 73,899 7,104 81,003 38,833 8,609 47,442 25,217 9,263 37,310 2,109 73,899 15,818 14,426 8,589 38,833 2014 $000 15,975 15,975 15,438 15,438 2013 $000 – 22,500 103,885 126,385 2013 (RESTATED) $000 71,098 10,845 81,943 42,995 4,935 47,930 23,042 8,193 38,030 1,833 71,098 15,215 20,749 7,031 42,995 2013 $000 12,921 12,921 16,669 16,669 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 2014 29. NON-CURRENT BORROWINGS UNSECURED – AT AMORTISED COST Bank borrowings (a) Guaranteed Senior Notes (b) Subordinated Notes (c) Less: unamortised borrowing costs 2014 $000 2013 $000 1,014,500 3,214,082 515,000 (35,299) 525,000 3,227,340 515,000 (34,098) 4,708,283 4,233,242 (a) Relates to the non‑current portion of long‑term borrowings. Refer to Note 40 for details of interest rates and maturity profiles. (b) Represents USD denominated private placement notes of US$725 million, CAD MTN of C$300 million, GBP MTN of £350 million, JPY MTN of ¥10,000 million and USD denominated 144a notes of US$750 million measured at the exchange rate at reporting date, and A$314.9 million of AUD denominated private placement notes and AUD medium term notes (MTN) of A$300 million. Refer to Note 40 for details of interest rates and maturity profiles. (c) Represents AUD denominated subordinated notes. Refer to Note 40 for details of interest rates and maturity profiles. 30. OTHER NON-CURRENT FINANCIAL LIABILITIES Derivatives Derivatives that are designated and effective as hedging instruments carried at fair value: Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges 17,377 199,559 216,936 29,512 147,744 177,256 31. ISSUED CAPITAL Securities 835,750,807 securities, fully paid (2013: 835,750,807 securities, fully paid) (a) 1,816,460 1,820,516 Movements Balance at beginning of financial year 835,751 1,820,516 Issue of securities under Distribution Reinvestment Plan Issue of securities in business combination Capital return to securityholders (Note 10) Issue cost of securities Tax relating to security issue costs Balance at end of financial year (a) Fully paid securities carry one vote per security and carry the right to distributions. 2014 NO. OF SECURITIES 000 2014 $000 2013 NO. OF SECURITIES 000 – – – – – – – (4,056) – – 644,486 15,548 175,717 – – – 2013 $000 1,138,205 63,503 672,630 (47,182) (6,672) 32 835,751 1,816,460 835,751 1,820,516 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. 67 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014 32. 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 2014 $000 2013 $000 (125,275) (62,475) 8,669 363 8,669 1,736 (116,243) (52,070) (62,475) (35,212) (154,309) (144,702) 46,293 43,411 72,522 (21,757) (7,928) 2,379 (125,275) 91,438 (27,431) 14,316 (4,295) (62,475) 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 (loss)/gain recognised Gain transferred to profit or loss Deferred tax related to gains/losses recognised Balance at end of financial year 1,736 (1,962) – 589 363 82,696 26,676 (142,333) 34,697 1,736 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. OTHER RESERVES Balance at beginning of financial year Acquisition of non‑controlling interest Transfer to retained earnings Balance at end of financial year – – – – – (2,765) 2,765 – The other reserves balance arose on acquiring the remaining interest in the Hastings Diversified Utilities Fund following control being obtained on 9 October 2013. The balance of the reserve was transferred to retained earnings on completion of the acquisition. 68 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 2014 33. RETAINED EARNINGS Balance at beginning of financial year Net profit attributable to securityholders Distributions paid (Note 10) Transfer from reserves on acquisition of non‑controlling interest in HDF Actuarial gain on defined benefit plans recognised directly to retained earnings after tax 34. NON-CONTROLLING INTERESTS APT Investment Trust Other non‑controlling interest APT INVESTMENT TRUST Balance at beginning of financial year Issue of securities under distribution reinvestment plan Issue of securities under security purchase plan Distribution – capital return (Note 10) Issue cost of securities Tax relating to security issue costs Balance at end of financial year Reserves: Available for sale investment revaluation reserve: Balance at beginning of financial year Valuation loss 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 NON-CONTROLLING INTEREST Issued capital Reserves Retained earnings 2014 $000 146,762 304,999 (255,540) – 4,757 200,978 2014 $000 595,243 51 595,294 578,780 – – (2,608) – – 2013 (RESTATED) $000 34,710 257,003 (154,716) (2,765) 12,530 146,762 2013 $000 598,671 50 598,721 364,066 19,663 – (14,879) (2,105) – 576,172 578,780 467 (861) (394) 19,424 38,706 (38,665) 19,465 4 1 46 51 1,624 (1,157) 467 21,160 38,143 (39,879) 19,424 4 1 45 50 69 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014 35. LEASES Leasing arrangements – receivables Finance lease receivables relate to the lease of a metering station, natural gas vehicle facilities, X41 power station expansion and two pipeline laterals. 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) (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 2014 $000 2013 $000 7,668 20,724 26,181 54,573 54,573 (20,251) 34,322 4,575 29,747 34,322 9,927 21,776 22,808 54,511 8,336 24,249 30,324 62,909 62,909 (23,847) 39,062 4,744 34,318 39,062 9,120 23,200 25,066 57,386 70 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 2014 36. OTHER PROVISIONS Balance at 30 June 2013 Additional provisions recognised Unwinding of discount Reductions arising from payments/other sacrifices of future economic benefits Reductions resulting from re‑measurement or settlement without cost Balance at 30 June 2014 Current (Note 27) Non‑current (Note 27) Balance at 30 June 2012 Additional provisions recognised Unwinding of discount Reductions arising from payments/other sacrifices of future economic benefits Reductions resulting from re‑measurement or settlement without cost Balance at 30 June 2013 Current (Note 27) Non‑current (Note 27) ABANDONMENT $000 (a) (b) OTHER $000 4,935 1,258 596 – – 6,789 – 6,789 6,789 10,845 7,505 – (5,097) (4,329) 8,924 7,104 1,820 8,924 ABANDONMENT $000 (a) (b) OTHER $000 4,354 294 287 – – 4,935 – 4,935 4,935 12,395 2,905 – (2,455) (2,000) 10,845 10,845 – 10,845 TOTAL $000 15,780 8,763 596 (5,097) (4,329) 15,713 7,104 8,609 15,713 TOTAL $000 16,749 3,199 287 (2,455) (2,000) 15,780 10,845 4,935 15,780 (a) Costs of dismantling pipelines and restoring the sites on which the pipelines are located, and costs of dismantling leasehold improvements and restoring leased premises are to be included in the cost of the assets at inception and required to be accounted for in accordance with AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’. (b) Includes pipeline rectification works. 71 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201437. EMPLOYEE SUPERANNUATION PLANS All employees of APA Group are entitled to benefits on retirement, disability or The most recent actuarial valuations of plan assets and the present value of the death from an industry sponsored fund, or an alternative fund of their choice. defined benefit obligation were carried out at 30 June 2014 by Mercer APA Group has three plans with defined benefit sections (due to the acquisition (Australia) Pty Ltd and Russell Investments (2013: Mercer (Australia) Pty Ltd of businesses) and a number of other plans with defined contribution sections. and Russell Investments). The present value of the defined benefit obligation, The defined benefit sections provide lump sum benefits upon retirement based and the related current service cost and past service cost, were measured using on years of service. The defined contribution sections receive fixed contributions the projected unit credit method. from APA Group and APA Group’s legal and constructive obligations are limited to these amounts. The following sets out details in respect of the defined benefit plans only: AMOUNTS RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Current service cost Net interest expense Components of defined benefit costs recognised in profit or loss Remeasurement on the net defined benefit liability: 2014 $000 3,901 567 4,468 2013 (RESTATED) $000 4,246 882 5,128 Return on plan assets (excluding amounts included in net interest expense) (10,870) (14,306) Actuarial gains and losses arising from changes in demographic assumptions Actuarial gains and losses arising from changes in financial assumptions Actuarial gains and losses arising from experience adjustments Components of defined benefit costs recognised in other comprehensive income Total recognised in the statement of profit or loss and other 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 27) MOVEMENTS IN LIABILITY DURING THE YEAR Balance at beginning of year Expense recognised in profit or loss 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 27. 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 gains and losses arising from changes in demographic assumptions Actuarial gains and losses arising from changes in financial assumptions Actuarial gains and losses arising from experience adjustments Benefits paid Taxes and premiums paid Closing defined benefit obligation 72 (96) (878) 5,048 (6,796) (2,328) 130,195 (144,621) (14,426) (20,749) (4,468) 6,796 3,995 – (8,171) 4,576 (17,901) (12,773) 118,404 (139,153) (20,749) (38,545) (5,128) 17,901 5,023 (14,426) (20,749) 139,153 139,203 3,901 4,520 1,627 (96) (878) 5,048 (7,891) (763) 144,621 4,246 3,644 1,442 – (8,171) 4,576 (4,786) (1,001) 139,153 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201437. 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 Interest income Actual return on plan assets excluding interest income Contributions from employer Contributions from plan participants Benefits paid Taxes and premiums paid Closing fair value of plan assets 2014 $000 2013 (RESTATED) $000 118,404 100,658 3,953 10,870 3,995 1,627 (7,891) (763) 130,195 2,762 14,306 5,023 1,442 (4,786) (1,001) 118,404 The average principal actuarial assumptions used in determining post‑employment obligations for APA Group’s plans are shown below (expressed as weighted averages): Discount rate (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 2014 % 3.5 4.0 29.9 25.0 10.6 8.2 18.4 7.9 2013 % 3.3 4.0 29.1 29.9 11.8 8.2 15.7 5.2 Significant actuarial assumptions used in the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analysis below has been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. – If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $5,873,000 (increase by $6,675,000) – If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $3,651,000 (decrease by $3,326,000) The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position. APA Group expects $2.2 million in contributions to be paid to the defined benefit plans during the year ending 30 June 2015. 73 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014 38. EARNINGS PER SECURITY Basic and diluted earnings per security (cents) 2014 41.1 2013 (RESTATED) 38.2 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) 343,705 295,146 Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security (000) NO. OF SECURITIES 2014 835,751 2013 772,314 39. 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 2014 $000 5,954 1,055 7,009 2013 $000 79,931 1,024 80,955 APA Group had no restricted cash as at 30 June 2014. (a) Australian Pipeline Limited held nil cash on deposit as at 30 June 2014 ($5.0 million for 30 June 2013). To meet its financial requirements as the holder of an Australian Financial Services Licence, cash on deposit was replaced with a bank guarantee during the current reporting period. (b) Investments acquired and disposed of Equity accounted investments There has no been no change in the holding of APA Group’s equity accounted investments for the financial year ended 30 June 2014. In the prior financial year, $31.6 million was invested in Envestra through the Dividend Reinvestment Plan and an additional amount of $33.9 million was invested in Envestra through a share placement. 74 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201439. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED) (c) Reconciliation of profit for the year to the net cash provided by operating activities Profit for the year Gain on previously held interest in HDF on obtaining control Acquisition costs on business combinations Write back of transaction costs on sale of Allgas Distribution Network Loss on disposal of property, plant and equipment Impairment of goodwill Share of net profits of jointly controlled entities accounted for using the equity method Dividends/distributions received from equity accounted investments 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 (d) Financing facilities UNSECURED FACILITIES Bank borrowings (a) Amounts used Amounts unused Guaranteed Senior Notes (b) Amounts used Amounts unused Subordinated Notes (c) Amounts used Amounts unused 2014 $000 343,706 – – – 115 – 2013 (RESTATED) $000 292,382 (142,333) 12,408 (18,483) 480 1,867 (64,289) (44,868) 61,418 156,228 11,142 5,948 (4,623) 4,291 5,962 885 (11,558) (77,684) 431,541 48,452 130,461 1,481 4,248 706 (1,605) (5,407) 12,093 30,068 52,431 374,381 2014 $000 2013 $000 1,014,500 835,500 1,850,000 525,000 891,667 1,416,667 3,214,082 3,308,250 – – 3,214,082 3,308,250 515,000 515,000 – – 515,000 515,000 (a) Relates to the non‑current portion of long‑term borrowings. Refer to Note 40 for details of interest rates and maturity profiles. (b) Represents USD denominated private placement notes of US$725 million, CAD MTN of C$300 million, GBP MTN of £350 million, JPY MTN of ¥10,000 million and USD denominated 144a notes of US$750 million measured at the exchange rate at reporting date, and A$314.9 million of AUD denominated private placement notes and AUD medium term notes (MTN) of A$300 million. Refer to Note 40 for details of interest rates and maturity profiles. (c) Represents AUD denominated subordinated notes. Refer to Note 40 for details of interest rates and maturity profiles. 75 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201440. FINANCIAL INSTRUMENTS (a) Capital risk management APA Group seeks to minimise the effects of these risks through natural hedges APA Group manages its capital structure to ensure that entities in the group and by using derivative instruments to directly hedge the exposures. The use of will be able to continue as a going concern while maximising the return to financial derivatives is governed by APA Group’s Board approved Treasury Risk security holders through the optimisation of the debt to equity structure. Management Policy, which provides written principles on foreign exchange APA Group’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 APA Group consists of debt, which includes borrowings disclosed in Notes 25 and 29, cash and cash equivalents, and equity attributable to equity holders of the parent, comprising issued capital, reserves risk, interest rate risk, credit risk, the use of financial derivatives and non‑ derivative financial instruments, and the investment of excess liquidity. APA Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Corporate Treasury function reports monthly to APA Group’s Board of Directors, which monitors risks and policies implemented to mitigate risk exposures. and retained earnings as disclosed in Notes 31, 32 and 33 respectively. (c) Market risk management The APA Group’s operations are conducted primarily through its subsidiaries. APA Group’s market risk exposure is primarily to the financial risk of changes in interest rates and foreign currency exchange rates. The APA Group enters into Operating cash flows are used to maintain and expand APA Group’s assets, as a variety of derivative financial instruments to manage its exposure to interest well as to make distributions to security holders and to repay maturing debt. rate and foreign currency risk, including: APA Group’s policy is to borrow locally and from overseas, using a variety of – foreign exchange forward contracts to hedge the exchange rate risk arising capital markets and bank loan facilities, to meet anticipated funding requirements. on the importation of equipment from a range of international suppliers; Controlled entities are subject to externally imposed capital requirements. These relate to the Australian Financial Services Licence held by Australian Pipeline Limited, the Responsible Entity of the APA Group and were adhered to – currency swaps to manage the foreign currency risk associated with foreign currency denominated borrowings; and – interest rate swaps to mitigate the risk of rising interest rates. for the entirety of the 2014 and 2013 periods. There has been no change from the previous period to the nature of APA APA Group’s capital risk management strategy remains unchanged from the previous period. Gearing ratio APA Group’s Board of Directors reviews the capital structure on a regular basis. As part of the review, the Board considers the cost of capital and the state of the markets. APA Group targets gearing in a range of 65% to 68%. Gearing is Group’s exposure to market risks or the manner in which it manages and measures the risks. APA Group is also exposed to price risk arising from its investments in and forward purchase contracts over listed equities. The majority of this exposure arises from APA Group’s investment in Ethane Pipeline Income Fund which is publicly traded on the Australian Securities Exchange (ASX). determined as the proportion of net debt to net debt plus equity. Based on (d) Foreign currency risk management recommendations of the Board, APA Group balances its overall capital structure APA Group undertakes certain transactions denominated in foreign currencies through new equity issues, through the issue of new debt or the redemption of and hence exposures to exchange rate fluctuations arise. Exchange rate existing debt and through a disciplined distribution payment policy. exposures are managed within approved policy parameters utilising foreign (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 group. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. exchange contracts, including forward contracts and cross currency swap contracts. All foreign currency exposure was managed in accordance with the Treasury Risk Management Policy in both 2013 and 2014. 76 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201440. FINANCIAL INSTRUMENTS (CONTINUED) (d) Foreign currency risk management (continued) The carrying amount of the APA Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: US dollar borrowings Cross currency swaps Japanese yen borrowings Cross currency swaps Canadian dollar borrowings Cross currency swaps British pound borrowings Cross currency swaps Foreign exchange contracts LIABILITIES ASSETS 2014 $000 2013 $000 2014 $000 2013 $000 1,564,655 1,693,637 (1,564,655) (1,693,637) 104,681 (104,681) 298,378 (298,378) 635,268 (635,268) – (1,246) 110,203 (110,203) 311,947 (311,947) 581,866 (581,866) – – – – – – – – – – – – – – – – – – – – – 1,788 Forward foreign exchange contracts It is the policy of APA Group 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 2014 Buy US dollars Less than 3 months 3 to 6 months 6 to 12 months 2013 Buy US dollars Less than 3 months 3 to 6 months 6 to 12 months AVERAGE EXCHANGE RATE FOREIGN CURRENCY 2014 US$000 CONTRACT VALUE 2014 $000 FAIR VALUE 2014 $000 0.8704 0.8808 0.8981 0.9966 1.0155 0.9500 14,133 1,334 204 15,671 12,910 2,990 3,585 19,485 16,238 1,515 227 17,980 12,954 2,944 3,774 19,672 (1,152) (86) (8) (1,246) 1,222 358 208 1,788 APA Group has entered into contracts to purchase equipment in foreign Cross currency swap contracts currencies from overseas suppliers. APA Group has entered into forward Under cross currency swap contracts, APA Group agrees to exchange specified foreign exchange contracts to hedge the exchange rate risk arising from these principal and interest foreign currency amounts at agreed future dates at a anticipated future transactions, which are designated as cash flow hedges. specified exchange rate. Such contracts enable APA Group to mitigate the risk As at reporting date, the aggregate amount of unrealised loss under forward foreign exchange contracts deferred in the hedging reserve relating to these anticipated future transactions is $1.2 million (2013: unrealised gain of $1.8 million). It is anticipated that the capital purchases will take place within the of adverse movements in foreign exchange rates in relation to principal and interest payments arising under the 2003, 2007, 2009 and 2012 US dollar note issues, the 2012 Japanese yen, the 2012 Canadian dollar and the 2012 British pound medium term note issues. next financial year at which stage unrealised mark‑to‑market amounts in equity APA Group receives fixed amounts in the various foreign currencies and pays will be included in the carrying amount of the asset being purchased. both variable interest rates (based on Australian BBSW) and fixed interest rates based on agreed interest rate swap rates. 77 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201440. FINANCIAL INSTRUMENTS (CONTINUED) (d) Foreign currency risk management (continued) Cross currency swap contracts (continued) The following table details the swap contracts principal and interest payments over various durations as at the reporting date: EXCHANGE RATE AMOUNT 2014 $ 2013 $ 2014 $000 2013 $000 2003 USPP 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 Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more 2007 USPP 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 USPP 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 78 0.6573 0.6573 0.6573 – 0.6573 0.6573 0.6573 – 0.8068 0.8068 0.8068 0.8068 0.8068 0.8068 0.7576 0.7576 0.7576 0.7576 0.7576 0.7576 0.6573 0.6573 0.6573 0.6573 0.6573 0.6573 0.6573 0.6573 0.8068 0.8068 0.8068 0.8068 0.8068 0.8068 0.7576 0.7576 0.7576 0.7576 0.7576 0.7576 (16,480) (11,125) (14,425) – (42,030) (19,671) (16,480) (22,665) (2,885) (61,701) – (112,582) (185,608) (95,847) – (281,455) (29,737) (29,737) (66,726) (28,310) (154,510) (342,092) (153,694) (495,786) (15,934) (15,934) (29,894) (4,385) (66,147) (85,787) (98,997) (184,784) – (185,608) (95,847) (394,037) (29,737) (29,737) (77,969) (46,805) (184,248) (190,878) (304,908) (495,786) (15,934) (15,934) (37,057) (13,156) (82,081) (85,787) (98,997) (184,784) AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201440. FINANCIAL INSTRUMENTS (CONTINUED) (d) Foreign currency risk management (continued) Cross currency swap contracts (continued) 2012 JPY MTN ISSUE Buy Japanese yen – interest Less than 1 year 1 year to 2 years 2 years to 5 years Buy Japanese yen – principal 2 years to 5 years 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 2012 US144A 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 5 years and more 2012 GBP MTN ISSUE Buy British pounds – interest Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more Buy British pounds – principal 5 years and more EXCHANGE RATE AMOUNT 2014 $ 2013 $ 2014 $000 2013 $000 79.4502 79.4502 79.4502 79.4502 79.4502 79.4502 (1,543) (1,543) (3,086) (6,172) (1,543) (1,543) (4,629) (7,715) 79.4502 79.4502 (125,865) (125,865) 1.0363 1.0363 1.0363 1.0363 1.0363 1.0363 1.0363 1.0363 (12,289) (12,289) (36,867) (6,145) (67,590) (12,289) (12,289) (36,867) (18,434) (79,879) 1.0363 1.0363 (289,494) (289,494) 1.0198 1.0198 1.0198 1.0198 1.0198 1.0198 1.0198 1.0198 (28,498) (28,498) (85,495) (99,744) (242,235) (28,498) (28,498) (85,495) (128,242) (270,733) 1.0198 1.0198 (735,438) (735,438) 0.6530 0.6530 0.6530 0.6530 0.6530 0.6530 0.6530 0.6530 (22,779) (22,779) (68,338) (136,677) (250,573) (22,779) (22,779) (68,338) (159,456) (273,352) 0.6530 0.6530 (535,988) (535,988) 79 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201440. FINANCIAL INSTRUMENTS (CONTINUED) (d) Foreign currency risk management (continued) Foreign currency sensitivity analysis APA Group is exposed to movements in the USD, JPY, CAD and GBP through its fully hedged borrowings from global debt capital markets and its current obligations to future purchases of capital equipment. The entire foreign currency cash flows arising from the USPP, US144a and MTN issues have been swapped; as such, APA Group has no currency risk associated with those note issues. Therefore, the sensitivity analysis has only been performed on the forward foreign exchange contracts. The following table details APA Group’s sensitivity to a 10% decrease and increase in the Australian dollar against the relevant foreign currencies. The sensitivity rate used is 10% and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A$ depreciating by 10% Profit Other equity (a) A$ appreciating by 10% Profit Other equity (a) 2014 $000 – (1,846) – 1,510 2013 $000 – (2,365) – 1,935 (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. (e) Interest rate risk management APA Group is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. This risk is managed by APA Group by maintaining an appropriate mix between fixed and floating rate borrowings, through the use of interest rate swap 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. APA Group’s exposures to interest rate risk on financial liabilities are detailed in the liquidity risk management section of this note. Exposure to financial assets is limited to cash and cash equivalents amounting to $7.0 million as at 30 June 2014 (2013: $80.6 million). Interest rate swap contracts Under interest rate swap contracts, APA Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable APA Group to mitigate the risk of cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at reporting date. The average interest rate is based on the outstanding balances at the end of the 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 NOTIONAL PRINCIPAL AMOUNT FAIR VALUE 2014 % P.A. 2013 % P.A. 2014 $000 2013 $000 2014 $000 2013 $000 CASH FLOW HEDGES Pay fixed AUD interest – receive floating AUD or fixed/floating foreign currency Less than 1 year 1 year to 2 years 2 years to 5 years 5 years and more 5.90 7.10 7.75 7.24 7.03 5.90 7.62 7.24 100,000 310,608 649,591 1,813,611 2,873,810 187,582 100,000 713,137 2,060,672 3,061,391 (1,852) (66,627) (130,564) (16,621) (215,664) (34,411) (4,804) (128,246) 13,426 (154,035) APA Group had no fair value hedges in 2013 or 2014. The interest rate swaps settle on a quarterly or semi‑annual basis. The floating rate benchmark on the interest rate swaps is Australian BBSW. APA Group 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 APA Group’s cash flow exposure resulting from variable interest rates on borrowings. 80 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 2014 40. FINANCIAL INSTRUMENTS (CONTINUED) (e) Interest rate risk management (continued) Interest rate sensitivity analysis (g) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual The sensitivity analysis below has been determined based on the exposure to obligations resulting in financial loss to APA Group. APA Group has adopted interest rates for both derivative and non‑derivative instruments held. A 100 the policy of only dealing with creditworthy counterparties and obtaining basis point increase or decrease is used and represents management’s sufficient collateral or bank guarantees where appropriate as a means of assessment of the greatest possible change in interest rates. At reporting date, mitigating any risk of loss. For financial investments or market risk hedging, if interest rates had been 100 basis points higher or lower and all other variables APA Group’s policy is to deal with highly rated counterparties. As at the were held constant, APA Group’s: – net profit would decrease by $13,045,000 or increase by $13,045,000 (2013: decrease by $7,400,000 or increase by $7,400,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings, including its Australian Dollar subordinated notes; and reporting date, all counterparties of this type were A‑ (Standard & Poor’s)/A3 (Moody’s) or higher. APA Group’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the Board. These limits are regularly reviewed by the Board. – equity reserves would increase by $6,923,000 with a 100 basis point Trade receivables consist of mainly corporate customers which are diverse and decrease in interest rates or decrease by $6,386,000 with a 100 basis point geographically spread. Most significant customers have an investment grade increase in interest rates (2013 : increase by $13,360,000 or decrease by rating from either Standard & Poor’s or Moody’s. Ongoing credit monitoring of $10,971,000 respectively). This is due to the changes in the fair value of the financial position of customers is maintained. derivative interest instruments. The carrying amount of financial assets recorded in the financial statements, APA Group’s profit sensitivity to interest rates has increased during the current net of any allowances, represents APA Group’s maximum exposure to credit period due to the overall increase in the level of APA Group’s unhedged floating risk in relation to those assets. 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. (f) Price 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 shareholders’ funds or an excess of current liabilities over current assets. The APA Group is exposed to price risk arising from its investments in and forward fair value of the financial guarantee as at 30 June 2014 has been determined to purchase contracts over listed equities. The investments and forward purchase be immaterial and no liability has been recorded (2013: $nil). contracts are held to meet strategic or hedging objectives rather than for trading purposes. APA Group does not actively trade any of these holdings. Equity price sensitivity (h) Liquidity risk management APA Group has a policy dealing with liquidity risk which requires an appropriate liquidity risk management framework for the management of APA Group’s The sensitivity analysis below has been determined based on the exposure to short, medium and long‑term funding and liquidity management requirements. equity price risks at the reporting date. At the reporting date, if the prices of Liquidity risk is managed by maintaining adequate cash reserves and banking APA Group’s equity investments had been 5% p.a. higher or lower: facilities, by monitoring and forecasting cash flow and where possible arranging liabilities with longer maturities to more closely match the underlying assets of APA Group. – 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 (2013: $nil); and – equity reserves would decrease/increase by $96,000 (2013: $219,000), due to the changes in the fair value of available‑for‑sale shares. APA Group’s analysis of its exposure to equity prices has established that, overall, its sensitivity declined during the current period compared to the prior period. This outcome is largely a result of the decrease in the security price of Ethane Pipeline Income Trust. 81 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014 2014 $000 2013 $000 1,014,500 835,500 1,850,000 525,000 891,667 1,416,667 1,083,934 1,188,472 – – 1,083,934 1,188,472 300,000 300,000 – – 300,000 300,000 104,681 – 104,681 298,378 – 298,378 110,203 – 110,203 311,947 – 311,947 515,000 515,000 – – 515,000 515,000 795,587 820,031 – – 795,587 820,031 635,268 – 635,268 581,866 – 581,866 40. FINANCIAL INSTRUMENTS (CONTINUED) (h) Liquidity risk management (continued) Details of undrawn facilities available to APA Group are shown in the table below: FINANCING FACILITIES Unsecured bank facilities with various maturity dates through to 2019 – 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 Unsecured Australian Dollar subordinated notes with maturity in 2072 – amount used – amount unused Unsecured US144a medium term notes with maturity in 2022 – amount used – amount unused Unsecured British Pound medium term notes with maturity in 2024 – amount used – amount unused 82 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 2014 40. FINANCIAL INSTRUMENTS (CONTINUED) (h) Liquidity risk management (continued) Liquidity and interest risk table Detailed below are APA Group’s remaining contractual maturities for its non‑ All foreign currency note exposures (both principal and interest) have been fully derivative financial liabilities. The table has been drawn up based on the hedged back into Australian dollars at fixed interest rates for the entire duration 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 APA Group can be required to pay. The table includes both Australian dollar cash flows associated with the foreign currency notes, cross interest and principal cash flows. currency interest rate swaps and fixed interest rate swaps in aggregate. AVERAGE INTEREST RATE % P.A. LESS THAN 1 YEAR $000 1 – 5 YEARS $000 MORE THAN 5 YEARS $000 2014 FINANCIAL LIABILITIES Trade and other payables Unsecured bank borrowings (a) 2012 Subordinated Notes (b) Interest Rate Swaps (Net Settled) Guaranteed Senior Notes: Denominated in A$ 2007 Series A (c) 2007 Series C (c) 2007 Series E (d) 2007 Series G (e) 2007 Series H (e) 2010 AUD Medium Term Note (f) Denominated in US$ (rates shown are the coupon rate of the US dollar notes) 2003 Series C (g) 2003 Series D (h) 2007 Series B (c) 2007 Series D (d) 2007 Series F (e) 2009 Series A (i) 2009 Series B (j) 2012 US 144a (k) Denominated in stated foreign currency 2012 JPY Medium Term Note (l) 2012 CAD Medium Term Note (m) 2012 GBP Medium Term Note (n) – 4.04 3.05 6.11 7.33 7.38 7.40 7.45 7.45 7.75 5.77 6.02 5.89 5.99 6.14 8.35 8.86 3.88 1.23 4.25 4.25 185,988 88,608 36,802 6,841 367 7,318 5,045 6,002 4,617 23,250 14,175 6,911 13,986 11,111 11,354 9,752 11,761 49,392 8,535 19,690 39,351 – 1,052,698 160,229 4,237 5,733 113,793 88,349 24,008 18,468 93,000 192,773 120,169 218,851 195,657 45,416 100,375 47,075 196,358 151,565 78,010 158,159 – – 3,031,374 – – – – 98,588 75,837 334,875 – – – – 187,787 – 104,797 907,571 – 299,178 753,173 (a) Facilities mature on 8 July 2014 ($50 million limit), 23 July 2016 ($400 million limit), 12 October 2016 ($150 million limit), 23 July 2016 ($425 million limit), 19 December 2018 ($300 million limit), 23 December 2018 ($100 million limit), and 23 July 2019 ($425 million limit, undrawn at year end). 560,856 3,064,923 5,793,180 (b) Matures on 1 October 2072. (c) Matures on 15 May 2017. (d) Matures on 15 May 2019. (e) Matures on 15 May 2022. (f) Matures on 22 July 2020. (g) Matures on 9 September 2015. (h) Matures on 9 September 2018. (i) Matures on 1 July 2016. (j) Matures on 1 July 2019. (k) Matures on 11 October 2022. (l) Matures on 22 Jun 2018. (m) Matures on 24 July 2019. (n) Matures on 26 November 2024. 83 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201440. FINANCIAL INSTRUMENTS (CONTINUED) (h) Liquidity risk management (continued) Liquidity and interest risk table (continued) 2013 FINANCIAL LIABILITIES Trade and other payables Unsecured bank borrowings (a) 2012 Subordinated Notes (b) Interest Rate Swaps (Net Settled) Guaranteed Senior Notes: Denominated in A$ 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 US 144a (l) Denominated in stated foreign currency 2012 JPY Medium Term Note (k) 2012 CAD Medium Term Note (l) 2012 GBP Medium Term Note (o) AVERAGE INTEREST RATE % P.A. LESS THAN 1 YEAR $000 1 – 5 YEARS $000 MORE THAN 5 YEARS $000 – 4.53 3.05 6.15 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 3.88 1.23 4.25 4.25 190,062 22,747 27,712 10,300 367 7,318 5,045 6,002 4,617 23,250 116,813 14,175 6,911 13,986 11,111 11,354 9,752 11,761 49,123 8,535 19,529 39,351 – 534,564 167,966 9,641 6,100 121,111 20,178 24,008 18,468 93,000 – 206,948 27,721 232,837 44,442 45,416 110,127 47,075 196,627 160,100 78,171 158,159 – – 3,113,913 – – – 73,215 104,590 80,454 358,125 – – 99,359 – 162,325 199,142 – 116,558 956,694 – 318,708 792,524 (a) Facilities mature on 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). 609,821 2,302,659 6,375,607 (b) Matures on 1 October 2072. (c) Matures on 15 May 2017. (d) Matures on 15 May 2019. (e) Matures on 15 May 2022. (f) Matures on 22 July 2020. (g) Matures on 9 September 2013. (h) Matures on 9 September 2015. (i) Matures on 9 September 2018. (j) Matures on 1 July 2016. (k) Matures on 1 July 2019. (l) Matures on 11 October 2022. (m) Matures on 22 Jun 2018. (n) Matures on 24 July 2019. (o) Matures on 26 November 2024. 84 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201440. FINANCIAL INSTRUMENTS (CONTINUED) (i) Fair value of financial instruments – the fair values of forward foreign exchange contracts included in hedging Fair value measurements recognised in the statement of financial position assets and liabilities are calculated using discounted cash flow analysis The following table provides an analysis of financial instruments that are based on observable forward exchange rates at the end of the reporting measured subsequent to initial recognition at fair value, grouped into Levels 1 period and contract forward rates discounted at a rate that reflects the to 3 based on the degree to which the fair value is observable. credit risk of the various counterparties. The instruments are classified in – Level 1 fair value measurements are those derived from quoted prices the fair value hierarchy at level 2; (unadjusted) in active markets for identical assets or liabilities. – the fair values of interest rates swaps, cross currency swaps, equity forwards – 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). and other 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 observable yield curves at the end of the reporting period and contract rates discounted at a rate that – Level 3 fair value measurements are those derived from valuation techniques reflects the credit risk of the various counterparties. Where the valuation is that include inputs for the asset or liability that are not based on observable based on quoted prices the instruments are classified in the fair value market data (unobservable inputs). hierarchy at level 1, where a discounted cash flow valuation is used the There have been no transfers between the levels during 2014 (2013: none). instruments are classified as level 2; Transfers between levels of the fair value hierarchy occur at the end of the – the fair values of other financial assets and financial liabilities (excluding reporting period. Transfers between level 1 and level 2 are triggered when there derivative instruments) are determined in accordance with generally are quoted prices available in active markets. Transfers into level 3 are triggered accepted pricing models based on discounted cash flow analysis using when the observable inputs become no longer observable, or vice versa for prices from observable current markets discounted at a rate that reflects transfer out of level 3. the credit risk of the various counterparties. The instruments are classified Fair value of the Group’s financial assets and liabilities that are measured in the fair value hierarchy at level 2; at fair value on a recurring basis – the fair value of financial guarantee contracts is determined based upon the The fair values of financial assets and financial liabilities are measured at the probability of default by the specified counterparty extrapolated from end of each reporting period and determined as follows: market‑based credit information and the amount of loss, given the default. – the fair values of available‑for‑sale financial assets and financial liabilities The instruments are classified in the fair value hierarchy at level 2; and with standard terms and conditions and traded on active liquid markets are – the carrying value of financial assets and liabilities recorded at amortised determined with reference to quoted market prices, these instruments are cost in the financial statements approximate their fair value having regard classified in the fair value hierarchy at level 1; to the specific terms of the agreements underlying those assets and liabilities. 85 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201440. FINANCIAL INSTRUMENTS (CONTINUED) (i) Fair value of financial instruments (continued) Fair value hierarchy 2014 Financial assets measured at fair value Available‑for‑sale listed equity securities Ethane Pipeline Income Fund Equity forwards designated as fair value through profit and loss Cross Currency Interest Rate Swaps used for hedging 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 2013 Financial assets measured at fair value Available‑for‑sale listed equity securities Ethane Pipeline Income Fund Equity forwards designated as fair value through profit and loss Cross Currency Interest Rate Swaps used for hedging Forward foreign exchange contracts used for hedging Financial liabilities measured at fair value Interest rate swaps used for hedging Cross Currency Interest Rate Swaps used for hedging LEVEL 1 $000 LEVEL 2 $000 LEVEL 3 $000 TOTAL $000 4,571 – – 4,571 – – – – 7,394 – – – 7,394 – – – – 4,004 77,115 81,119 31,041 261,739 1,246 294,026 – 3,822 132,718 1,788 138,328 47,088 239,665 286,753 – – – – – – – – – – – – – – – – 4,571 4,004 77,115 85,690 31,041 261,739 1,246 294,026 7,394 3,822 132,718 1,788 145,722 47,088 239,665 286,753 Fair value measurements of financial instruments measured at amortised cost 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. FINANCIAL LIABILITIES Unsecured long term private placement notes Unsecured Australian Dollar medium term notes Unsecured Japanese Yen medium term note Unsecured Canadian Dollar medium term notes Unsecured Australian Dollar subordinated notes Unsecured US Dollar 144a medium term notes Unsecured British Pound medium term note CARRYING AMOUNT FAIR VALUE (a) 2014 $000 2013 $000 2014 $000 2013 $000 1,083,934 300,000 104,681 298,378 515,000 795,587 635,268 1,188,472 300,000 110,203 311,947 515,000 820,031 581,866 1,227,760 1,434,441 343,276 107,717 322,535 570,923 792,363 643,420 371,212 114,146 344,358 513,611 757,775 550,282 3,732,848 3,827,519 4,007,994 4,085,825 (a) The fair values have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets, discounted at a rate that reflects the credit risk of the various counterparties. The instruments are classified in the fair value hierarchy at level 2. The financial liabilities included in the table above are fixed rate borrowings. Other debts held by APA Group are floating rate debts and amortised cost approximates its fair value. 86 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201441. SUBSIDIARIES NAME OF ENTITY PARENT ENTITY Australian Pipeline Trust (a) SUBSIDIARIES APT Pipelines Limited (b),(c) Australian Pipeline Limited (b) 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 Limited (b),(c) APT Pipelines Investments (WA) Pty Limited (b),(c) East Australian Pipeline Pty Limited (b),(c) Gasinvest Australia Pty Ltd (b),(c) Goldfields Gas Transmission Pty Ltd (b) N.T. Gas Distribution Pty Limited (b),(c) N.T. Gas Easements Pty Limited (b),(c) N.T. 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 Ltd (b),(c) Western Australian Gas Transmission Company 1 Pty Ltd (b),(c) GasNet Australia Trust (b) APA GasNet Australia (Holdings) Pty Limited (b),(c) APA GasNet Australia (Operations) Pty Limited (b),(c) APA GasNet A Pty Limited (b),(c) GasNet A Trust APA GasNet Australia (NSW) Pty Limited (b),(c) APA GasNet B Pty Limited (b),(c) APA GasNet Australia Pty Limited (b),(c) COUNTRY OF REGISTRATION/ INCORPORATION OWNERSHIP INTEREST 2014 % 2013 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Cayman Islands 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 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 87 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201441. SUBSIDIARIES (CONTINUED) NAME OF ENTITY GasNet B Trust (b) GasNet Australia Investments Trust 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 Limited (b),(c) APT Facility Management Pty Limited (b),(c) APT AM Employment Pty Limited (b),(c) APT Sea Gas Holdings Pty Limited (b),(c) APT SPV2 Pty Ltd (b) APT SPV3 Pty Ltd (b) APT Pipelines (SA) Pty Limited (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 Limited (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 Limited (b),(c) 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) APA DPS Holdings Pty Limited (b),(c) APA Power PF Pty Limited (b),(c) APA Sub Trust No 1 (b) APA Sub Trust No 2 (b) APA Sub Trust No 3 (b) APA (Pilbara Pipeline) Pty Ltd (b),(c) APA (Sub No 3) International Holdings 1 Pty Ltd (b),(c),(f) APA (Sub No 3) International Holdings 2 Pty Ltd (b),(c),(f) APA (Sub No 3) International Nominees Pty Ltd (b),(c),(f) APA (SWQP) Pty Limited (b),(c) 88 COUNTRY OF REGISTRATION/ INCORPORATION OWNERSHIP INTEREST 2014 % 2013 % 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 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201441. SUBSIDIARIES (CONTINUED) NAME OF ENTITY APA (WA) One Pty Limited (b),(c) APA AIS 1 Pty Limited (b),(c) APA AIS 2 Pty Ltd (b),(c) APA AIS Pty Limited (b),(c) APA Biobond Pty Limited (b),(c) APA East One Pty Limited (b),(c),(f) APA East Pipelines Pty Limited (b),(c) APA EE Pty Limited (b),(c) APA EE Australia Pty Limited (b),(c) APA EE Corporate Shared Services Pty Limited (b),(c) APA EE Holdings Pty Limited (b),(c) Epic Energy East Pipelines Trust (b) APA (NT) Pty Limited (b),(c),(f) Epic Energy South Australia Pty Limited (d) MAPS FinCo Pty Limited (e) COUNTRY OF REGISTRATION/ INCORPORATION Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia OWNERSHIP INTEREST 2014 % 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 2013 % 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 (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) Entity was acquired and disposed of during the 2013 year. (e) Entity was deregistered during the year. (f) Entity party to a revocation deed in relation to the APT Pipelines Limited deed of cross guarantee lodged with ASIC on 1 August 2014. 42. ACQUISITION OF BUSINESSES On 9 October 2012, APA obtained control of the Hastings Diversified Utilities Fund (HDF) when the takeover offer was declared unconditional. APA held a controlling interest of 54.94% on the acquisition date resulting in a non‑controlling interest of 45.06%. Compulsory acquisition was completed on 24 December 2012 and accordingly APA acquired the remaining non‑controlling interest. Provisional values were assigned to the identifiable assets and liabilities acquired pending finalisation of the purchase price allocation (PPA) exercise. During the current year, APA completed the PPA exercise in accordance with the requirements of AASB 3 ‘Business Combinations’. The total fair value of other assets and liabilities acquired remain unchanged from their provisionally determined carrying values reported at 30 June 2013. The acquisition was paid for in cash and securities issued. Acquisition‑related costs of $21,037,000 were incurred during the prior year of which $12,404,000 of the costs were recognised as an expense and $8,633,000 of the costs were recognised in equity relating to the securities issued. Revenue for the 2013 financial year included $152,938,000 in respect of HDF. Included in profit before non‑controlling interests for the 2013 financial year was a loss of $10,458,000 attributable to HDF, as below: EBITDA from HDF's Epic Energy pipeline assets Management and performance fees charged by Hastings Funds Management Takeover response costs paid by HDF Integration costs on acquisition EBITDA for HDF Group HDF Depreciation HDF Net finance costs HDF Income tax expense Net loss after tax attributable to HDF Group $000 115,171 (35,438) (6,913) (4,481) 68,339 (19,366) (51,548) (7,883) (10,458) Due to the impact of a number of one‑off items in the prior year (including takeover defence costs, debt facility refinancing costs and swap break costs), implementation of an internalised management model following the change of responsible entity, and the divestment of the Moomba‑Adelaide Pipeline System, it is not practical to present meaningful pro‑forma results reflecting HDF as if it had been acquired on 1 July 2012. 89 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201442. ACQUISITION OF BUSINESSES (CONTINUED) NAMES OF BUSINESS ACQUIRED PRINCIPAL ACTIVITY DATE OF ACQUISITION During the financial year ended 30 June 2013 PROPORTION ACQUIRED % COST OF ACQUISITION $000 Hastings Diversified Utilities Fund (HDF) Gas Transmission 9 October 2012 – 24 December 2012 100 1,233,847 2013 FAIR VALUE ON ACQUISITION $000 104,500 23,963 79 1,930 104,408 1,727 15,278 1,933,354 765,476 8,090 (44,190) (1,325,000) (43,897) (19,044) (644) (1,201) 1,524,829 (290,982) 1,233,847 (104,500) (884,665) 12,380 257,062 8,259 265,321 HASTINGS DIVERSIFIED UTILITIES FUND Net assets acquired Current assets Cash and cash equivalents Trade and other receivables Other financial assets Inventories Deferred tax assets Other Non-current assets Receivables Property, plant and equipment Goodwill Other Current liabilities Trade and other payables Current borrowings Other financial liabilities Provisions Other Non-current liabilities Provisions Fair value of net assets acquired Previously held interest Cost of acquisition Cash balances acquired Securities issued as part consideration Transaction costs paid Net cash outflow on acquisition Prior year transaction costs paid Total cash outflow on acquisitions During the current financial year additional costs of $0.024 million pertaining to the acquisition of HDF were paid. 90 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201443. DISPOSAL OF BUSINESSES On 1 May 2013, pursuant to the undertaking provided to the Australian Consumer and Competition Commission as part of the acquisition of HDF, APA completed the sale of the Moomba Adelaide Pipeline System (MAPS). The net proceeds received from Queensland Investment Corporation totalled $391.7 million net of cash balances sold and after transaction costs. NET ASSETS DISPOSED Current assets Cash and cash equivalents Trade and other receivables Inventories Other Non-current assets Property, plant and equipment Goodwill Intangibles Other Total assets Current liabilities Trade and other payables Provisions Other Non-current liabilities Deferred tax liabilities Provisions Total liabilities Net assets Profit on sale before transaction costs Transactions costs Loss on disposal (after transaction costs) Less: Cash and cash equivalents disposed Payables – sale of business Net cash inflow on disposal Net cash inflow/(outflow) on transaction costs relating to prior year disposal Total proceeds on sale of businesses 2013 MOOMBA ADELAIDE PIPELINE SYSTEM 1 MAY 2013 $000 3,546 5,453 1,350 294 373,228 24,992 – 1,811 410,674 (3,229) (1,659) – (10,798) (311) (15,997) 394,677 5,807 (5,807) – (3,546) 595 391,726 19,638 411,364 During the current financial year proceeds of $1.487 million were received due to finalisation of the sale of businesses, net of associated transaction costs. 91 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201444. COMMITMENTS FOR EXPENDITURE CAPITAL EXPENDITURE COMMITMENTS Plant and equipment APA GROUP’S SHARE OF JOINTLY CONTROLLED OPERATION’S COMMITMENTS Plant and equipment 45. 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) 2014 $000 2013 $000 87,835 119,413 16,458 45,637 2014 2013 700,000 21,500 8,500 414,000 1,144,000 765,300 20,700 193,305 505,000 1,484,305 (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, a scheme of arrangement and a proposed takeover offer. 46. DIRECTOR AND KEY MANAGEMENT PERSONNEL COMPENSATION (a) Directors compensation The aggregate compensation made to Directors of APA Group is set out below: Short‑term employment benefits Post‑employment benefits Total Remuneration for Non-Executive Directors Short‑term employment benefits Post‑employment benefits Cash settled share‑based payments Total Remuneration for Executive Director (a) Total Remuneration for Directors (b) Key management personnel compensation (a) The aggregate compensation made to key management personnel of APA Group is set out below: Short‑term employment benefits Post‑employment benefits Cash settled share‑based payments Retention award Termination payments 1,181,281 119,735 1,131,449 99,280 1,301,016 1,230,729 2,868,962 25,000 1,301,316 4,195,278 2,299,813 25,000 1,165,290 3,490,103 5,496,294 4,720,832 9,060,314 192,775 3,410,484 550,667 – 8,377,184 203,207 3,302,138 720,667 245,000 13,214,240 12,848,196 (a) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for key management personnel. 92 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201447. RELATED PARTY TRANSACTIONS (a) Equity interest in related parties Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 41 and the details of the percentage held in joint operations are disclosed in Note 19. Details of interests in joint ventures and associates are disclosed in Note 18. (b) Responsible Entity – Australian Pipeline Limited The Responsible Entity is wholly owned by APT Pipelines Limited. (c) Transactions with key management personnel Transactions between the entities that comprise APA Group during the financial year consisted of: – dividends; – asset lease rentals; – loans advanced and payments received on long‑term inter‑entity loans; – management fees; – operational services provided between entities; – payments of distributions; – payments of capital distributions (returns of capital); and – equity issues. 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 41 for details of the entities that comprise APA Group. Australian Pipeline Limited Management fees of $3,177,861 (2013: $2,727,683) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APA. No amounts were paid directly by APA to the Directors of the Responsible Entity, except as disclosed at Note 46. Australian Pipeline Limited, in its capacity as trustee and Responsible Entity of the Trust, has guaranteed the payment of principal, interest and other amounts as provided in the senior debt facilities of APT Pipelines Limited, the principal borrowing entity of APA Group. 93 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201447. RELATED PARTY TRANSACTIONS (CONTINUED) (d) Transactions with other related parties Transactions with associates and joint ventures The following transactions occurred with APA Group’s associates and joint ventures on normal market terms and conditions: 2014 SEA Gas Energy Infrastructure Investments EII 2 APA Ethane Ltd Diamantina Power Station GDI (EII) Envestra Limited DIVIDENDS FROM RELATED PARTIES $000 SALES TO RELATED PARTIES $000 PURCHASES FROM RELATED PARTIES $000 AMOUNT OWED BY RELATED PARTIES $000 AMOUNT OWED TO RELATED PARTIES $000 11,298 4,283 2,405 – – 5,433 38,000 61,419 3,256 22,755 641 200 3,083 49,435 369,471 448,841 – 250 – – – 18 578 846 98 1,935 – – – 4,994 40,400 47,427 – – – – – – – – At year end, APA Group had a shareholder loan to Diamantina Power Station of $118.1 million. 2013 SEA Gas Energy Infrastructure Investments EII 2 APA Ethane Ltd Diamantina Power Station GDI (EII) Envestra Limited DIVIDENDS FROM RELATED PARTIES $000 SALES TO RELATED PARTIES $000 PURCHASES FROM RELATED PARTIES $000 AMOUNT OWED BY RELATED PARTIES $000 AMOUNT OWED TO RELATED PARTIES $000 6,673 4,296 2,047 – – 3,886 31,551 48,453 3,122 23,317 654 200 4,392 39,626 326,935 398,246 5 – – – – – 1,255 1,260 107 5,911 40 – 143 5,077 35,644 46,922 – – – – – – – – Interest income on a shareholder loan to Diamantina during the year was $3.6 million. At year end, APA Group had receivables with other related parties of $9.0 million. 94 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201448. PARENT ENTITY INFORMATION The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements. Refer to note 3 for a summary of significant accounting policies relating to the group. FINANCIAL POSITION Assets Current assets Non‑current assets Total assets Liabilities Current liabilities Non‑current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Reserves Available‑for‑sale investment revaluation reserve Total equity FINANCIAL PERFORMANCE Profit for the year Other comprehensive income Total comprehensive income Guarantees entered into by the parent entity in relation to the debts of its subsidiaries No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries. Contingent liabilities of the parent entity No contingent liabilities have been identified in relation to the parent entity. 49. CONTINGENCIES CONTINGENT LIABILITIES Bank guarantees CONTINGENT ASSETS 2014 $000 2013 $000 845,650 1,083,512 1,929,162 98,427 – 98,427 1,830,735 1,816,460 13,912 902,410 1,029,610 1,932,020 98,473 – 98,473 1,833,547 1,820,516 11,294 363 1,737 1,830,735 1,833,547 258,159 (1,373) 256,786 156,128 (607) 155,521 28,553 157,200 – – 50. EVENTS OCCURRING AFTER REPORTING DATE On 7 August 2014, APA Group announced that it will accept Cheung Kong Group consortium’s offer for Envestra Limited as detailed in the bidder’s statement dated 20 June 2014. The offer consideration is $1.32 per Envestra share amounting to $783.8 million in gross proceeds and will realise an estimated pre‑tax profit of $430 million which will be reported in the consolidated results of APA Group in the 2015 year. On the 25 July 2014, APA Group received $20.8 million being the final dividend of 3.5 cents per share paid by Envestra on that date. APA Group will use the consideration received to fund ongoing growth and investment projects over the coming 12 to 18 months. APA Group retains its Operations and Management Agreement on the Envestra assets, which runs to 2027. On 20 August 2014, the Directors declared a final distribution of 18.75 cents per security ($156.7 million) for APA Group (comprising a distribution of 16.42 cents per security from APT and a distribution of 2.33 cents per security from APTIT), made up of 18.75 cents per security unfranked profit distribution. The distribution will be paid on 10 September 2014. Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the accounts. 95 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014 AUSTRALIAN PI PE LIN E T RUST AND ITS CO NTRO LLE D E NTI TI E S DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2014 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 APA Group; (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, 20 August 2014 Robert Wright Director 96 APA GROUP / ANNUAL REPORT 2014 AUST RALI AN PI PE LINE T RUST AND ITS CO NT RO LLE D ENTITIES AUDITOR’S INDEPENDENCE DECLARATION For the financial year ended 30 June 2014 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 ww.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 20 August 2014 Dear Directors Auditor’s 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 2014, 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 97  AUSTRALIA N PIP ELIN E T RUST AND I TS CO NTRO LLE D E NTI TI E S INDEPENDENT AUDITOR’S REPORT For the financial year ended 30 June 2014 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 Australian Pipeline Trust We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the statement of financial position as at 30 June 2014, the statement of profit or loss and other 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 38 to 96. 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 3, 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 98 APA GROUP / ANNUAL REPORT 2014  AUST RALI AN PI PE LINE T RUST AND ITS CO NT RO LLE D ENTITIES INDEPENDENT AUDITOR’S REPORT CONTINUED For the financial year ended 30 June 2014 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 consolidated entity’s financial position as at 30 June 2014 and of its 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, 20 August 2014 99 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES ARSN 115 585 441 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 APT Investment Trust (“APTIT”) and its and directorships of other listed entities are set out on pages 13 to 15. controlled entities (together “Consolidated Entity”) for the financial year ended 30 June 2014. This report refers to the consolidated results of APTIT, one of the two stapled entities of APA Group, with the other stapled entity being Australian Pipeline Trust (together “APA”). DIRECTORS The names of the Directors of the Responsible Entity during the financial year and since the financial year end are: Leonard Bleasel AM Chairman Michael McCormack Chief Executive Officer and Managing Director The Company Secretary of the Responsible Entity during and since the financial year end is Mark Knapman. PRINCIPAL ACTIVITIES APTIT operates as an investment and financing entity within the APA stapled group. REVIEW AND RESULTS OF OPERATIONS APTIT reported net profit after tax of $38.7 million (2013: $38.1 million) for the year ended 30 June 2014 on total revenue of $38.7 million (2013: $38.2 million). Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright DISTRIBUTIONS Distributions paid to Securityholders during the financial year were: APTIT profit distribution APTIT capital distribution Total FINAL FY2013 DISTRIBUTION PAID 11 SEPTEMBER 2013 INTERIM FY2014 DISTRIBUTION PAID 12 MARCH 2014 CENTS PER SECURITY TOTAL DISTRIBUTION $000 CENTS PER SECURITY TOTAL DISTRIBUTION $000 2.32 0.16 2.48 19,424 1,313 20,737 2.30 0.15 2.45 19,241 1,295 20,536 On 20 August 2014, the Directors declared a final distribution for APTIT for the year of 2.33 cents per security which is payable on 10 September 2014 and will comprise the following components: APTIT profit distribution APTIT capital distribution Total FINAL FY2014 DISTRIBUTION PAYABLE 10 SEPTEMBER 2014 CENTS PER SECURITY TOTAL DISTRIBUTION $000 2.33 – 2.33 19,464 – 19,464 Distribution information is presented on an accounting classification basis. The APA Annual Tax Statement and Annual Tax Return Guide (to be released in September 2014) will provide the classification of distribution components for the purpose of preparation of Securityholder income tax returns. 100 APA GROUP / ANNUAL REPORT 2014 SIGNIFICANT CHANGES IN STATE OF AFFAIRS In March 2014, APA and Envestra Limited (“Envestra”) entered into a Scheme AUDITOR’S INDEPENDENCE DECLARATION A copy of the Auditor’s independence declaration as required under section Implementation Agreement, which was subsequently terminated by Envestra 307C of the Corporations Act 2001 is included on page 115. in May 2014 after it received an alternative proposal from a consortium of companies in the Cheung Kong Group (“CKI Consortium”) for a price of $1.32 per Envestra share, plus an entitlement to Envestra’s final dividend for the 2014 financial year. 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, The CKI Consortium formalised its bid for Envestra in its Bidders Statement unless otherwise indicated. issued on 20 June 2014. On 7 August 2014, APA accepted this offer for its entire interest in Envestra of 33.0%. APA will receive $783.8 million in consideration, in addition to the $20.8 million it received on 25 July 2014, being the final Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 298(2) of the Corporations Act 2001. dividend of 3.5 cents per share paid by Envestra on that date. APA retains its On behalf of the Directors Operations and Management Agreement on the Envestra assets, which runs to 2027. Leonard Bleasel AM Chairman Robert Wright Director SYDNEY, 20 August 2014 SUBSEQUENT EVENTS Except as disclosed elsewhere in this report, the Directors are unaware of any matter or circumstance that has occurred since the end of the financial year that has 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. OTHER INFORMATION Details of the Directors and Company Secretary of the Responsible Entity are set out in the Australian Pipeline Trust Directors’ report at pages 2 to 17. That report also contains information on the Directors’ directorships of other listed companies, their attendance at meetings and securityholdings, options, indemnification of officers, remuneration and the auditor’s provision of non‑ audit services and independence. 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 financial year are disclosed in Note 17 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 financial year, and the number of APA securities at the end of the financial year, are disclosed in Note 10 to the financial statements. The value of APA’s assets as at the end of the financial year is disclosed in the balance sheet in total assets, and the basis of valuation is included in Note 2 to the financial statements. 101 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED APT INVESTM ENT T RUST AN D ITS CO NTRO LLE D ENTI TI E S CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2014 CONTINUING OPERATIONS Revenue Expenses Profit before tax Income tax expense Profit for the year Other comprehensive income Items that may be reclassified to profit and loss: Loss on available‑for‑sale investments taken to equity Other comprehensive income for the year (net of tax) Total comprehensive income for the year Profit Attributable to: Equityholders of the parent Total comprehensive income attributable to: Equityholders of the parent EARNINGS PER SECURITY NOTE 4 4 2014 $000 38,718 (12) 38,706 – 38,706 (861) (861) 37,845 38,706 38,706 2013 $000 38,155 (12) 38,143 – 38,143 (1,157) (1,157) 36,986 38,143 38,143 37,845 36,986 Basic and diluted earnings per security (cents) 12 4.6 4.9 Diluted earnings per security is exactly the same as basic earnings per security. The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. APT INVESTM ENT T RUST AN D ITS CO NTRO LLE D ENTI TI E S CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2014 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 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 102 APA GROUP / ANNUAL REPORT 2014 NOTE 6 7 8 9 10 11 2014 $000 670 10,623 583,961 594,584 595,254 11 11 2013 $000 641 11,260 586,794 598,054 598,695 24 24 595,243 598,671 576,172 (394) 19,465 595,243 578,780 467 19,424 598,671 A PT IN VEST ME NT TRUST AND I TS CO N TR O LLED ENT I TIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the financial year ended 30 June 2014 Balance at 1 July 2012 Profit for the year Other comprehensive income for the year (net of tax) Total comprehensive income for the year Issue of capital (net of issue costs) Distributions to securityholders Balance at 30 June 2013 Balance at 1 July 2013 Profit for the year Other comprehensive income for the year (net of tax) Total comprehensive income for the year Distributions to securityholders Balance at 30 June 2014 NOTE 11 10 5 11 5 ISSUED CAPITAL $000 364,066 – – – 229,593 (14,879) 578,780 578,780 – – – (2,608) 576,172 RESERVES $000 1,624 – (1,157) (1,157) – – 467 467 – (861) (861) – (394) The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. A PT IN VESTM ENT TRUST AND ITS CO NTRO LLE D ENTI TIES CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 30 June 2014 CASH FLOWS FROM OPERATING ACTIVITIES Trust distribution – related party Capital distribution received – external Dividends received Interest received – related parties Finance lease receivable repayments Receipts from customers Payments to suppliers Net cash provided by operating activities 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 Payment of security issue costs Distributions to securityholders Net cash used in financing activities 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 consolidated statement of cash flows should be read in conjunction with the accompanying notes. RETAINED EARNINGS $000 21,160 38,143 – 38,143 – (39,879) 19,424 19,424 38,706 – 38,706 (38,665) 19,465 2014 $000 23,013 – 126 15,199 1,168 201 (12) TOTAL $000 386,850 38,143 (1,157) 36,986 229,593 (54,758) 598,671 598,671 38,706 (861) 37,845 (41,273) 595,243 2013 $000 25,190 271 150 13,888 1,167 167 (12) 39,695 40,821 1,592 1,592 (3,635) (3,635) – (14) (41,273) (41,287) – – – 19,663 (2,091) (54,758) (37,186) – – – 103 APT INVEST MEN T T RUST AN D ITS CO NTRO LLE D ENTI TI E S NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 30 June 2014 1. GENERAL INFORMATION Adoption of new and revised Accounting Standards APT Investment Trust (“APTIT” or “Trust”) is one of the two stapled trusts of (a)  Standards and Interpretations affecting amounts reported in the current APA Group (“APA Group”), the other stapled trust being Australian Pipeline period (and/or prior periods) Trust (“APT”). Each of APT and APTIT are registered managed investment The following new and revised Standards and Interpretations have been schemes regulated by the Corporations Act 2001. APTIT units are “stapled” to adopted in the current period and have affected the amounts reported in these APT units on a one‑to‑one basis so that one APTIT unit and one APT unit form financial statements. a single stapled security which trades on the Australian Securities Exchange under the code “APA”. In the current period, the Consolidated Entity has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to This financial report represents the consolidated financial statements of APTIT its operations and effective for the current reporting periods. and its controlled entities (together the “Consolidated Entity”). For the purposes of preparing the consolidated financial report, the Consolidated Entity is a for‑profit entity. AASB 13 Fair value measurement AASB 13 explains how to measure fair value and aims to enhance fair value disclosures, and is effective for annual reporting periods beginning after 1 APTIT’s registered office and its principal place of business are as follows: January 2013. In accordance with transitional provisions, AASB 13 has been Registered office and principal place of business applied prospectively from 1 July 2013. Level 19, HSBC Building 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000 APTIT operates as an investment entity within the Australian Pipeline Trust AASB 13 requires inclusion of a measure for credit risk in the calculations of assets and liabilities recorded at fair value. This change is applied prospectively and has not had a significant impact on the fair value of the Consolidated Entity’s assets and liabilities for the year ended 30 June 2014, but has resulted in additional fair value disclosures as provided in Note 15. stapled group. Control 2. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation These general purpose Financial Statements for the year ended 30 June 2014 have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the AASB 10 Consolidated Financial Statements, AASB 12 Disclosure of Interests in Other Entities, AASB 127 Separate Financial Statements (Dec 2012), AASB 128 Investments in Associates and Joint Ventures (Dec 2012) and AASB 2012‑10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments. Australian Accounting Standards Board and Interpretations (AIFRS). AASB 10 was applied by the Consolidated Entity from 1 July 2013. AASB 10 Compliance with Australian Accounting Standards ensures that the Financial replaces the previous guidance on control and retains the core principle that a Statements and notes also comply with International Financial Reporting Consolidated Entity presents a parent and its subsidiaries as if they are a single Standards (IFRS). The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non‑current assets and financial instruments. economic entity. Whereas the control definition in the previous guidance focussed on ‘risks and rewards’, AASB 10 focuses on the combination of power, exposure to variable returns and ability to use the power to affect the returns. Historical cost is generally based on the fair values of the consideration given The transitional provisions permit prior period comparatives to not be restated in exchange for goods and services. The financial report is presented in where the accounting outcome under the previous guidance is the same as that Australian dollars and all values are rounded to the nearest thousand dollars under AASB 10 as at the date of initial application, 1 July 2013. For all other ($000) in accordance with ASIC Class Order 98/0100, unless otherwise stated. situations, comparatives are restated retrospectively in accordance with AASB The financial report was authorised for issue by the Directors on 20 August 2014. 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 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 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. 108 Accounting Policies, Changes in Accounting Estimates and Errors as if AASB 10 had always been applied. AASB 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. AASB 124 Related party disclosures AASB 2011‑4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements. The amendments remove the individual remuneration disclosures and disclosures about equity holdings, loans and other transactions with key management personnel. As a result, only aggregate remuneration disclosures are provided in Note 17. 104 APA GROUP / ANNUAL REPORT 20142. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of preparation (continued) (b) Standards and Interpretations issued not yet adopted At the date of authorisation of the financial statements, the following Standards and Interpretations listed below , which are relevant to the Consolidated Entity, were on issue but not yet effective. STANDARD/INTERPRETATION – AASB 9 ‘Financial Instruments’ and the relevant amending standards EFFECTIVE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER 1 January 2017 EXPECTED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR ENDING 30 June 2018 The following Standard was issued by the International Accounting Standards Board but not yet effective. The Australian equivalent Standard has not yet been issued. – IFRS 15 ‘Revenue from Contracts with Customers’ 1 January 2017 30 June 2018 The potential impact of the initial application of the Standards above is yet to be determined. (a) Basis of consolidation Interest and distributions The financial statements comprise the consolidation of APTIT and its respective Interest and distributions are classified as expenses or as distributions of profit subsidiaries (together “Consolidated Entity”). consistent with the consolidated statement of financial position classification All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of of the related debt or equity instruments or component parts of compound instruments. subsidiaries, joint arrangements and associates to bring their accounting (f) Goods and services tax policies into line with those used by the Consolidated Entity. Revenues, expenses and assets are recognised net of the amount of goods and (i) Subsidiaries Subsidiaries are entities controlled by APTIT. Control exists where APTIT has power over the entities, i.e. existing rights that give them the current ability to direct the relevant activities of the entities (those that significantly affect the services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority. Receivables and payables are recognised inclusive of GST, except for accrued revenue and accrued expense at balance dates which exclude GST. returns); exposure, or rights, to variable returns from their involvement with the The net amount of GST recoverable from, or payable to, the taxation authority entities; and the ability to use their power to affect those returns. is included as part of receivables or payables. GST receivable or GST payable is (b) Cash and cash equivalents only recognised once a tax invoice has been issued or received. Cash comprises cash on hand and demand deposits. Cash equivalents are Cash flows are included in the statement of cash flows on a gross basis. The short‑term, highly liquid investments that are readily convertible to known GST component of cash flows arising from investing and financing activities amounts of cash, which are subject to insignificant risk of changes in values. which is recoverable from, or payable to, the taxation authority is classified (c) Trade and other payables within operating cash flows. Trade and other payables are recognised when the Consolidated Entity (g) Impairment of assets becomes obliged to make future payments resulting from the purchase of Assets are reviewed for impairment at least annually or whenever events or goods and services. Trade and other payables are stated at amortised cost. changes in circumstances indicate that the carrying amount may not be (d) 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. 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. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely In the event that settlement of all or part of the cash consideration given in the independent of the cash inflows from other assets or groups of assets (cash‑ acquisition of an asset is deferred, the fair value of the purchase consideration generating units). Assets other than goodwill that have previously suffered an is determined by discounting the amounts payable in the future to their present impairment are reviewed for possible reversal of the impairment at the end of values as at the date of acquisition. each reporting period. (e) Financial instruments issued by the Consolidated Entity (h) Income tax Debt and equity instruments Income tax expense is not brought to account in respect of APTIT as, pursuant Debt and equity instruments are classified as either liabilities or equity in to the Australian taxation laws APTIT is not liable for income tax provided that accordance with the substance of the contractual arrangement. An equity its realised taxable income (including any assessable realised capital gains) is instrument is any contract that evidences a residual interest in the assets of an fully distributed to its securityholders each year. 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. (i) Financial assets and liabilities Financial assets are classified into the following specified categories: financial Transaction costs arising on the issue of equity instruments assets ‘held‑to‑maturity investments’, ‘available‑for‑sale’ financial assets, and Transaction costs arising on the issue of equity instruments are recognised ‘loans and receivables’. 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. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 105 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20142. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Financial assets and liabilities (continued) (l) Segment information Effective interest method The Consolidated Entity has one reportable segment being energy The effective interest method is a method of calculating the amortised cost of infrastructure investment and operation. 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 any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Available-for-sale financial assets The Consolidated Entity is an investing entity within the Australian Pipeline Trust stapled group. As the Trust only operates in one segment, it has not disclosed segment information separately. 3.  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 Financial assets classified as being available‑for‑sale are stated at fair value. from estimates. Gains and losses arising from changes in fair value are recognised directly in the available‑for‑sale investment revaluation reserve. Receivables and loans 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 Trade receivables, loans, and other receivables that have fixed or determinable revision and future periods if the revision affects both current and future payments that are not quoted in an active market are classified as ‘loans and periods. receivables’. Trade and other receivables are stated at their amortised cost less impairment. Impairment of financial assets Impairment of assets Determining whether property, plant and equipment, identifiable intangible assets and goodwill are impaired requires an estimation of the value‑in‑use or Financial assets are assessed for indicators of impairment at each balance fair value of the cash‑generating units. The calculations require the Consolidated sheet date. Financial assets are impaired where there is objective evidence that Entity to estimate the future cash flows expected to arise from cash‑generating as a result of one or more events that occurred after initial recognition of the units and suitable discount rates in order to calculate the present value of cash‑ financial asset, the estimated future cash flows of the investment have been generating units. adversely impacted. (j) 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. Distribution revenue Distribution revenue is recognised when the right to receive a distribution has been established. Dividend revenue Dividend revenue is recognised when the right to receive a dividend has been established. Finance lease income 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 from reserves to the statement of comprehensive income. Useful lives of non-current assets The Consolidated Entity reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. Any reassessment of useful lives in a particular year will affect the depreciation or amortisation expense. Fair value of financial instruments The Consolidated Entity has financial instruments that are carried at fair value in the statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, Finance lease income is recognised when receivable. the Consolidated Entity determines fair value by using various valuation (k) 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. models.  The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants.   The chosen valuation models make maximum use of market inputs and rely as little as possible on entity specific inputs.  The fair values of all positions include assumptions made on the recoverability based on Consolidated Entity as lessor the counterparty’s and the Consolidated Entity’s credit risk. Details of the inputs to the fair value of financial instruments are included in Note 15. Amounts due from a lessee under a finance lease are recorded as receivables. Finance lease receivables are initially recognised at the amount 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 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. 106 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 20144. PROFIT FROM OPERATIONS Profit before income tax includes the following items of income and expense: REVENUE Distributions Trust distribution – related party Other entities FINANCE INCOME Interest – related parties 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 5. DISTRIBUTIONS RECOGNISED AMOUNTS Final distribution paid on 11 September 2013 (2013: 14 September 2012) Profit distribution (a) Capital distribution Interim distribution paid on 12 March 2014 (2013: 13 March 2013) Profit distribution (a) Capital distribution Total distributions recognised Profit distributions (a) Capital distributions UNRECOGNISED AMOUNTS Final distribution payable on 10 September 2014 (b) (2013: 11 September 2013) Profit distribution (a) Capital distribution (a) Profit distributions unfranked (2013: unfranked). (b) Record date 30 June 2014. 2014 CENTS PER SECURITY 2014 TOTAL $000 2013 CENTS PER SECURITY 2.32 0.16 2.48 2.30 0.15 2.45 4.62 0.31 2.33 – 2.33 19,424 1,313 20,737 19,241 1,295 20,536 38,665 2,608 19,464 – 19,464 3.28 2.31 5.59 2.26 – 2.26 5.54 2.31 2.32 0.16 2.48 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. 107 2014 $000 2013 $000 23,013 125 23,138 15,162 (342) 559 15,379 201 38,718 (12) (12) 25,190 130 25,320 13,541 (1,460) 587 12,668 167 38,155 (12) (12) 2013 TOTAL $000 21,160 14,879 36,039 18,719 – 18,719 39,879 14,879 19,424 1,313 20,737 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 20146. CURRENT RECEIVABLES Other debtors Finance lease receivable – related party (Note 14) 2014 $000 31 639 670 2013 $000 32 609 641 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) 8. NON-CURRENT OTHER FINANCIAL ASSETS Advance to related party Investments carried at cost: Investment in related party (a) Financial assets carried at fair value: Redeemable ordinary shares (b) Available‑for‑sale investments carried at fair value (c) 10,623 11,260 440,633 442,225 107,379 548,012 34,427 1,522 583,961 107,379 549,604 34,807 2,383 586,794 (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 perferred rights to the income and capital of GasNet A Trust, but hold no voting rights. The A Class unitholder may however suspend for a period or terminate all of the B Class unitholder rights to income and capiltal. As such, GAIT neither controls nor has a significant influence over GasNet A Trust. GasNet Australia Trust, a related party wholly owned by APT Group, owns 100% of the A Class units in GasNet A Trust and, accordingly, GasNet A Trust is included in the consolidation of the APT Group. The investment has not been measured at fair value as the units of GasNet A Trust are not available for trade on an active market and as such, the fair value of the units cannot be reliably determined. The Consolidated Entity does not intend to dispose of its interest in GasNet A Trust. (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. 9. TRADE AND OTHER PAYABLES Other payables 10. ISSUED CAPITAL 11 24 835,751,807 securities, fully paid (2013: 835,751,807 securities, fully paid) (a) 576,172 578,780 2014 NO. OF UNITS 000 2014 $000 2013 NO. OF UNITS 000 MOVEMENTS Balance at beginning of financial year 835,752 578,780 Issue of securities under Distribution Reinvestment Plan Issue of securities as consideration for related party acquisition (b) Issue cost of securities Capital distributions paid (Note 5) Balance at end of financial year – – – – 835,752 – – – (2,608) 576,172 644,486 15,548 175,718 – – 835,752 (a) Fully paid securities carry one vote per security and carry the right to distributions. (b) APTIT issued securities as part consideration for APT Pipelines Ltd’s acquisition of the Hastings Diversified Utilities Fund. 2013 $000 364,066 19,663 212,035 (2,105) (14,879) 578,780 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. 108 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201411. RESERVES Available-for-sale investment revaluation reserve Balance at beginning of financial year Valuation loss recognised Balance at end of financial year 2014 $000 467 (861) (394) 2013 $000 1,624 (1,157) 467 The available‑for‑sale investment revaluation reserve arises on the revaluation of available‑for‑sale financial assets. When a revalued financial asset is sold, the portion of the reserve which relates to that financial asset is effectively realised, and is recognised in profit or loss. When a revalued financial asset is impaired, the portion of the reserve which relates to that financial asset is recognised in profit or loss. 12. EARNINGS PER SECURITY Basic and diluted earnings per security (cents) 2014 4.6 2013 4.9 The earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows: Net profit attributable to securityholders for calculating basic and diluted earnings per security ($’000) 38,706 38,143 Weighted average number of ordinary securities on issue used in the calculation (’000) 13. REMUNERATION OF EXTERNAL AUDITOR Amounts received or due and receivable by Deloitte Touche Tohmatsu for: Auditing the financial report 14. 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) (a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual. NO. OF SECURITIES 835,751 772,314 2014 $ 2013 $ 12,322 11,958 2014 $000 2013 $000 1,167 4,669 9,338 15,174 15,174 (3,912) 11,262 639 10,623 11,262 1,167 4,669 10,506 16,342 16,342 (4,473) 11,869 609 11,260 11,869 109 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201415. FINANCIAL INSTRUMENTS (a) 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 (e) Fair value of financial instruments Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are and manages the financial risks relating to the operations of the Consolidated measured subsequent to initial recognition at fair value, grouped into Levels 1 Entity. These risks include market risk (including currency risk, interest rate risk to 3 based on the degree to which the fair value is observable. and price risk), credit risk and liquidity risk. 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 Entity’s Board approved Treasury Risk Management Policy, which provides written principles on 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. (b) Market risk management The Consolidated Entity’s activities exposure is primarily to the financial risk of changes in interest rates. There has been no change to the Consolidated Entity’s exposure to market risk or the manner in which it manages and measures the risk from the previous period. The Consolidated Entity is also exposed to price risk from its investments in listed equities. The shareholding rests with one entity, Ethane Pipeline Income Financing Trust, that is publicly traded in the major financial markets. 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 material investments were disposed of or impaired (2013: $nil); and – equity reserves would decrease/increase by $32,000 (2013: $71,000), due to the changes in the fair value of available‑for‑sale shares. There has been no change to the nature of the Consolidated Entity’s exposure to market risks or the manner to which it manages and measures the risks from the previous period. – 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). There have been no transfers between the levels during 2014 (2013: none). Transfers between levels of the fair value hierarchy occur at the end of the reporting period. Transfers between level 1 and level 2 are triggered when there are quoted prices available in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3. Fair value of the Consolidated Entity’s financial assets and liabilities that are measured at fair value on a recurring basis The fair values of financial assets and financial liabilities are measured at the end of each reporting period and determined as follows: Available-for-sale listed equity securities – the fair values of available‑for‑sale financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and – these instruments are classified in the fair value hierarchy at level 1. Unlisted Redeemable ordinary shares The financial statements include redeemable ordinary shares (“ROS”) held in an unlisted entity which are measured at fair value (Note 8). The fair market 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: (c) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual – the risk adjusted rate for the ROS is estimated as the required rate of return based on projected cash flows to equity at issuance assuming the ROS price obligations resulting in financial loss to the Consolidated Entity. The Consolidated at issuance ($0.99) and the ordinary price at issuance ($0.01) are at their Entity has adopted the policy of only dealing with creditworthy counterparties fair value; and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk – the risk free rate of return is 2.93% (2013: 3.19%) per annum and is based upon an interpolation of the three and five year Government bond rates at hedging, the Consolidated Entity’s policy is to deal with highly rated counterparties. the valuation date; The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents the Consolidated Entity’s maximum exposure to credit risk in relation to those assets. (d) 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 and revenue streams of the Consolidated Entity. – a credit margin of 7% is added to the risk free rate. The credit margin is reviewed and adjusted (where required) annually; – the ROS discretionary dividends are estimated based on an internal forecasted cash flow model; – the value of the option to convert is deemed to be zero (2013: zero). For conversion to occur, a number of conditions must be met. At the reporting date, it was deemed highly unlikely these conditions would occur based on an internal forecasting model; and – These instruments are classified in the fair value hierarchy at level 3. The fair value is impacted by the following unobservable inputs: – An increase in the discount rate will result in a decrease in the fair value; – An increase in discretionary dividends will result in a increase in the fair value; and – Meeting conditions to trigger the conversion of the option would result in an increase in the fair value. 110 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201415. FINANCIAL INSTRUMENTS (CONTINUED) (e) Fair value of financial instruments (continued) Fair value hierarchy 2014 Financial assets measured at fair value Available‑for‑sale listed equity securities Ethane Pipeline Income Fund Unlisted Redeemable Ordinary Shares Energy Infrastructure Investments 2013 Financial assets measured at fair value Available‑for‑sale listed equity securities Ethane Pipeline Income Fund Unlisted Redeemable Ordinary Shares Energy Infrastructure Investments LEVEL 1 $000 LEVEL 2 $000 LEVEL 3 $000 TOTAL $000 1,523 – 1,523 2,383 – 2,383 – – – – – – – 1,523 34,427 34,427 34,427 35,950 – 2,383 34,807 34,807 34,807 37,190 FAIR VALUE THROUGH PROFIT OR LOSS 2014 $000 34,807 4,245 (342) (4,283) 34,427 2013 $000 36,614 3,949 (1,460) (4,296) 34,807 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: (Loss)/gain on financial asset held at fair value through profit and loss Distributions Closing balance (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 100 basis points 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 constant, the Consolidated Entity’s net profit would increase by $1,145,000 or decrease by $1,090,000 (2013: increase by $485,000 or decrease by $412,000 respectively). This is mainly attributable to the Consolidated Entity’s exposure to interest rates on its variable rate inter‑ entity balances and the fair value movement on the ROS. The sensitivity has increased due to higher inter‑entity balances resulting in interest income sensitivity which is greater than the ROS sensitivity. 16. SUBSIDIARIES NAME OF ENTITY Parent entity APT Investment Trust Controlled entity COUNTRY OF REGISTRATION 2014 % 2013 % OWNERSHIP INTEREST GasNet Australia Investments Trust Australia 100 100 111 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 201417. DIRECTOR AND KEY MANAGEMENT PERSONNEL COMPENSATION (a) 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 Total Remuneration for Non-Executive Directors Short‑term employment benefits Post‑employment benefits Cash settled share‑based payments Total Remuneration for Executive Director (a) Total Remuneration for Directors (b) Key management personnel compensation (a) 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 Retention award Termination payments 2014 $ 1,181,281 119,735 1,301,016 2,868,962 25,000 1,301,316 4,195,278 2013 $ 1,131,449 99,280 1,230,729 2,299,813 25,000 1,165,290 3,490,103 5,496,294 4,720,832 9,060,314 192,775 3,410,484 550,667 – 8,377,184 203,207 3,302,138 720,667 245,000 13,214,240 12,848,196 (a) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for key management personnel. 18. RELATED PARTY TRANSACTIONS (a) Equity interest in related parties (d) Transactions with other related parties Details of the percentage of ordinary securities held in subsidiaries are APTIT and its controlled entity have a number of loan receivable balances with disclosed in Note 16. (b) Responsible Entity – Australian Pipeline Limited The Responsible Entity is wholly owned by APT Pipelines Limited (2013: 100% owned by APT Pipelines Limited). (c) Transactions with related parties within the Consolidated Entity During the financial year, the following transactions occurred between the Trust and its other related parties: – loans advanced and payments received on long‑term inter‑entity loans; and – payments of distributions. 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 APTIT and its other related parties are outstanding at reporting date: – current receivables totalling $670,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2013: $609,000); – non‑current receivables totalling $10,623,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2013: All transactions between the entities that comprise the Consolidated Entity $11,260,000); and have been eliminated on consolidation. – non‑current receivables totalling $440,633,000 (2013: $442,225,000) are Refer to Note 16 for details of the entities that comprise the Consolidated Entity. owing from a subsidiary of APT. Australian Pipeline Limited Management fees of $753,000 (2013: $671,000) 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 $753,000 (2013: $671,000) were reimbursed by APT. 112 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APA GROUP / ANNUAL REPORT 201419. PARENT ENTITY INFORMATION The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements. Refer to Note 2 for a summary of significant accounting policies relating to the Consolidated Entity. FINANCIAL POSITION Assets Current assets Non‑current assets Total assets Liabilities Current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Reserves Available‑for‑sale investment revaluation reserve Total equity FINANCIAL PERFORMANCE Profit for the year Other comprehensive income Total comprehensive income 2014 $000 2013 $000 670 594,584 595,254 11 11 641 598,054 598,695 24 24 595,243 598,671 576,172 19,465 (394) 595,243 38,706 (861) 37,845 578,780 19,424 467 598,671 38,143 (1,157) 36,986 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries. Contingent liabilities of the parent entity No contingent liabilities have been identified in relation to the parent entity. 20. CONTINGENCIES At 30 June 2014, there are no material contingent liabilities or contingent assets (2013: $nil). 21. EVENTS OCCURRING AFTER REPORTING DATE On 7 August 2014, APA Group announced that it will accept the Cheung Kong Group consortium’s offer for Envestra Limited as detailed in the bidder’s statement dated 20 June 2014. The offer consideration is $1.32 per Envestra share amounting to $783.8 million in gross proceeds and will realise an estimated pre‑tax profit of $430 million which will be reported in the consolidated results of APA Group in the 2015 year. On the 25 July 2014, APA Group received $20.8 million being the final dividend of 3.5 cents per share paid by Envestra on that date. APA Group will use the consideration received to fund ongoing growth and investment projects over the coming 12 to 18 months. APA Group retains its Operations and Management Agreement on the Envestra assets, which runs to 2027. On 20 August 2014, the Directors declared a final distribution for the 2014 financial year of 2.33 cents per security ($19.5 million). The distribution represents a 2.33 cents per security unfranked profit distribution and nil cents per security capital distribution. The distribution will be paid on 10 September 2014. Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the accounts. 113 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the financial year ended 30 June 2014APT INVEST MEN T T RUST AN D ITS CO NTRO LLE D ENTI TI E S DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2014 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 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, 20 August 2014 Robert Wright Director 114 APA GROUP / ANNUAL REPORT 2014A PT IN VEST ME NT TRUST AND I TS CO N TR O LLED ENT I TIES AUDITOR’S INDEPENDENCE DECLARATION 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 For the financial year ended 30 June 2014 The Directors Australian Pipeline Limited as responsible entity for APT Investment Trust HSBC Building Level 19, 580 George Street Sydney NSW 2000 20 August 2014 Dear Directors Auditor’s 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 2014, 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 115 APT INVEST MEN T T RUST AN D ITS CO NTRO LLE D ENTI TI E S INDEPENDENT AUDITOR’S REPORT For the financial year ended 30 June 2014 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 2014, the statement of profit or loss and other 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 102 to 114. 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 116 APA GROUP / ANNUAL REPORT 2014 A PT IN VESTM ENT TRUST AN D ITS CO NTRO LLE D ENTI T IES INDEPENDENT AUDITOR’S REPORT CONTINUED For the financial year ended 30 June 2014 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 consolidated entity’s financial position as at 30 June 2014 and of its 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, 20 August 2014 117 ADDITIONAL INFORMATION Additional information required by the Listing Rules of the Autralian Securities Exchange Limited and not provided elsewhere in this report (the information is applicable as at 29 August 2014). TWENTY LARGEST HOLDERS National Nominees Limited HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Custodial Services Limited Australian Foundation Investment Company Limited BNP Paribas Noms Pty Ltd Argo Investments Limited AMP Life Limited Bond Street Custodians Limited BKI Investment Company Limited UBS Wealth Management Australia Nominees Pty Ltd Questor Financial Services Limited Djerriwarrh Investments Limited Milton Corporation Limited Navigator Australia Limited Invia Custodian Pty Limited Nulis Nominees (Australia) Limited QIC Limited BT Portfolio Services Limited Total for top 20 DISTRIBUTION OF HOLDERS RANGES 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total NO. OF SECURITIES 136,325,223 134,72 1,166 80,950,830 46,082,166 17,604,599 11,643,32 1 7,959,470 7,358,455 7,073,7 1 9 3,1 86,1 89 2,854,452 2,258,03 1 1,800,928 1,765,000 1,7 19,254 1,704,109 1,286,982 1,230,624 1,208,61 6 1,1 99,238 % 16. 3 1 16. 1 2 9.69 5.5 1 2. 1 1 1 .39 0.95 0.88 0.85 0.38 0.34 0.27 0.22 0.2 1 0.2 1 0.20 0. 15 0. 15 0. 14 0. 14 469,932,372 56.23 NO. OF HOLDERS % NO. OF SECURITIES 1 6 1 8,076 1 1,649 31 ,928 28,290 80,104 0.20 10.08 14.54 39.86 35.32 496,254,385 159,1 63,99 1 84, 1 78,700 85,036,280 1 1, 1 1 7,4 5 1 % 59.38 19.04 10.07 10.1 8 1.33 100.00 835,750,807 100.00 2,310 holders hold less than a marketable parcel of securities (market value less than $500 or 65 securities based on a market price on 29 August 2014 of $7.75). SUBSTANTIAL HOLDERS By notice dated 11 August 2014, National Nominees as Custodian for Unisuper Limited advised that it had an interest in 67,731,922 ordinary 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. 118 APA GROUP / ANNUAL REPORT 2014ADDITIONAL INFORMATION CONTINUED CALENDAR OF EVENTS SECURITYHOLDER DETAILS Final distribution FY2014 record date 30 June 2014 Final distribution FY2014 payment date 10 September 2014 Annual meeting Interim result announcement 24 October 2014 25 February 2015* It is important that Securityholders notify the APA Group registry immediately if there is a change to their address or banking arrangements. Securityholders with enquiries should also contact the APA Group registry. DISTRIBUTION PAYMENTS Interim distribution FY2015 record date 31 December 2014* Distributions will be paid semi‑annually in March and September. Interim distribution FY2015 payment date 18 March 2015* Securityholders will receive annual tax statements with the final distribution in *Subject to change ANNUAL MEETING DETAILS Date: Friday, 24 October 2014 Venue: City Recital Hall 2 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 a stapled security which is listed on the ASX (ASX Code: APA). Australian Pipeline Limited is the Responsible Entity of those trusts. September. Payment to Securityholders residing in Australia and New Zealand will be made only by direct credit into an Australian or New Zealand bank account. Securityholders with enquiries should contact the APA Group registry. ONLINE INTERACTIVE REPORTS APA Group’s 2014 Annual Report, Annual Review and Sustainability Report are available in an easy to view interactive format at apa.com.au. ONLINE INFORMATION Further information on APA is available at apa.com.au, including: – Results, market releases and news – Asset and business information – Corporate responsibility and sustainability reporting – Securityholder information such as the current APA security price, APA GROUP RESPONSIBLE ENTITY AND REGISTERED OFFICE distribution and tax information. ELECTRONIC COMMUNICATION Securityholders can elect to receive communication from APA electronically by registering their email address with the APA Group registry. Electing to receive annual reports electronically will reduce the adverse impact we have on the environment. Australian Pipeline Limited ACN 091 344 704 Level 19, 580 George Street Sydney NSW 2000 PO Box R41 Royal Exchange NSW 1225 Telephone: +61 2 9693 0000 Facsimile: +61 2 9693 0093 Website: apa.com.au APA GROUP REGISTRY Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney South NSW 1235 Telephone: +61 1800 992 312 Facsimile: +61 2 9287 0303 Email: apagroup@linkmarketservices.com.au Website: linkmarketservices.com.au DISCLAIMER APA Group comprises two registered investment schemes, Australian Pipeline Trust (ARSN 091 678 778) and APT Investment Trust (ARSN 115 585 441), the securities of which are stapled together. Australian Pipeline Limited (ACN 091 344 704) is the responsible entity of Australian Pipeline Trust and APT Investment Trust. 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. 119 This page intentionally left blank 120 APA GROUP / ANNUAL REPORT 2014| A P A G r o u p A n n u a l R e p o r t 2 0 1 4 I N N O V A T I N G T O D A Y T R A N S F O R M I N G T O M O R R O W | 

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