APA
Annual Report 2015

Plain-text annual report

APA GROUP ANNUAL REPORT 2015 CONNECTING MARKETS CREATING OPPORTUNITIES AUSTRALIAN PIPELINE TRUST 01 Directors’ Report 23 Remuneration Report 36 Consolidated Statement of Profit or Loss and Other Comprehensive Income 37 Consolidated Statement of Financial Position 38 Consolidated Statement of Changes in Equity 39 Consolidated Statement of Cash Flows 41 Notes to the Consolidated Financial Statements 76 Declaration by the Directors of Australian Pipeline Limited 77 Auditor’s Independence Declaration 78 Independent Auditor’s Report APT INVESTMENT TRUST 80 Directors’ Report 82 Consolidated Statement of Profit or Loss and Other Comprehensive Income 83 Consolidated Statement of Financial Position 84 Consolidated Statement of Changes in Equity 85 Consolidated Statement of Cash Flows 86 Notes to the Consolidated Financial Statements 95 Declaration by the Directors of Australian Pipeline Limited 96 Auditor’s Independence Declaration 97 Independent Auditor’s Report 99 Additional Information AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES ARSN 091 678 778 DIRECTORS’ REPORT The Directors of Australian Pipeline Limited (“Responsible Entity”) submit their report and the annual financial report of Australian Pipeline Trust (“APT”) and its controlled entities (together “APA” or “Consolidated Entity”) for the financial year ended 30 June 2015. This report refers to the consolidated results of APT and APT Investment Trust (“APTIT”). DIRECTORS The names of the Directors of the Responsible Entity during the 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 19 to 21. The Company Secretary of the Responsible Entity during and since the financial 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: — energy infrastructure, primarily gas transmission businesses located across Australia; — 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. STATE OF AFFAIRS No significant change in the state of affairs of APA occurred during the year. 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. FINANCIAL AND OPERATIONAL REVIEW 1. About APA 1.1 APA Overview APA is Australia’s largest natural gas infrastructure business. It owns and/or operates or has an interest in approximately $19 billion of energy infrastructure across Australia, and operates these with a skilled workforce in excess of 1,600 people. APA has a diverse portfolio of approximately 14,700 kilometres of gas transmission pipelines that spans every state and territory on mainland Australia and delivers about half the nation’s natural gas. It also owns or has interests in other related energy infrastructure assets such as gas storage facilities, gas processing facilities, gas compression facilities and power generation assets. On 3 June 2015, APA completed the acquisition of the pipeline that connects the Queensland Curtis LNG Project to its export port at Gladstone, from BG Group. APA has renamed the pipeline the Wallumbilla Gladstone Pipeline – see page 8. APA has ownership interests in, and/or operates, the GDI (EII) Pty Ltd (“GDI”) and Australian Gas Networks Limited (previously Envestra Limited) gas distribution networks, which together have approximately 27,700 kilometres of gas mains and pipelines, and approximately 1.3 million gas consumer connections. APA also has interests in, and operates, other energy infrastructure assets and businesses, including SEA Gas Pipeline, Energy Infrastructure Investments (“EII”), EII2, Diamantina Power Station 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 listed on the Australian Securities Exchange (“ASX”) and is included in the S&P ASX 50 Index. Since listing in June 2000, its market capitalisation has increased more than 18-fold to $9.2 billion (as at 30 June 2015), and it has achieved total securityholder return of 1,304% or annual compound growth rate of 19.2% 1 at the end of the financial year. 1) Total securityholder return is the capital appreciation of the APA’s security price, adjusted for capital management actions (such as security splits and consolidations) and assuming reinvestment of distributions at the declared distribution rate per security. Figures quoted are sourced from IRESS and measured as at 30 June 2015. 1 APA Group | Annual Report 20151.2 APA objectives and strategies APA’s objectives to provide secure and predictable return to its investors is supported by its strategies of: — continuing to grow our ownership interests in transmission pipelines through further expanding the East and West Coast Grids; — growing other energy infrastructure midstream assets; — leveraging APA’s asset management, development and operational capabilities; — providing a safe, stimulating and rewarding workplace; — delivering responsive and valuable solutions to customers; — continuing to deliver an environmentally responsible, safe and essential service; — contributing to the communities APA serves; and — maintaining APA’s financial strength, flexibility and capability. This strategy has remained relatively unchanged since listing. 1.3 APA assets and operations 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, gas compression assets and the Emu Downs wind farm; — Asset Management, which provides commercial, operating services and/or asset maintenance services to 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. APA GROUP ASSETS AND OPERATIONS 13 23 14 WESTERN AUSTRALIA 17 19 20 18 15 16 APA Group Assets Wind Farm APA Group Investments Gas Storage Facility Assets Managed (Not Owned By APA) Gas Processing Plant Gas Power Station 23 12 NORTHERN TERRITORY 26 23 27 2 QUEENSLAND SOUTH AUSTRALIA 6 24 9 25 27 23 22 11 5 27 4 3 1 23 8 NEW SOUTH WALES 7 23 27 21 23 27 10 VICTORIA TASMANIA 2 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDEnergy Infrastructure assets (numbers correspond with those on the map on page 2) Length/Capacity Regulatory status East Coast and Northern Territory assets 1) Roma Brisbane Pipeline (including Peat Lateral) 2) Carpentaria Gas Pipeline 3) Berwyndale Wallumbilla Pipeline 4) South West Queensland Pipeline 5) Wallumbilla Gladstone Pipeline (including Laterals) 6) Moomba Sydney Pipeline 7) Central West Pipeline 8) Central Ranges Pipeline 9) Victorian Transmission System 10) Dandenong LNG Storage Facility 11) SESA Pipeline 12) Amadeus Gas Pipeline West Australian assets 13) Pilbara Pipeline System 14) Goldfields Gas Pipeline (88.2%) 15) Eastern Goldfields Pipeline (under construction) 16) Kalgoorlie Kambalda Pipeline 17) Mid West Pipeline (50%) 18) Parmelia Gas Pipeline 19) Mondarra Gas Storage Facility 20) Emu Downs Wind Farm 583 km/233 TJ/d 944 km/119 TJ/d 112 km 936 km/384 TJ/d 556 km/1,510 TJ/d 2,029 km/439 TJ/d 255 km 295 km 1,847 km 12,000 tonnes 45 km 1,657 km 9,259 km 249 km/166 TJ/d 1,546 km/202 TJ/d 293 km 44 km 362 km/11 TJ/d 448 km/50 TJ/d 15 PJ 80 MW 2,942 km Energy Investments and Asset Management (numbers correspond with those on the map on page 2) Energy Investment 21) GDI Ownership Interest Detail 20.0% Gas distribution: 3,214 km of gas mains, 96,045 gas consumer connections in Qld Full regulation Light regulation Not regulated Not regulated Not regulated Light regulation (partial) Light regulation Full regulation Full regulation Not regulated Not regulated Full regulation Not regulated Full regulation Not regulated Light regulation Not regulated Not regulated Not regulated Not regulated Asset Management Operational, management and corporate support services 22) SEA Gas Pipeline 50.0% Gas pipeline: 687 km pipeline from Iona and Port Campbell, Victoria to Adelaide, SA Maintenance services only 23) Energy 19.9% Infrastructure Investments Gas pipelines: Telfer Gas Pipeline and lateral (488 km); Bonaparte Gas Pipeline (286 km); Wickham Point Pipeline (12 km) Electricity transmission cables: Murraylink (180 km) and Directlink (64 km) Gas-fired power stations: Daandine Power Station (30MW) and X41 Power Station (41 MW) Gas processing facilities: Kogan North (12 TJ/d); Tipton West (29 TJ/d) Operational, management and corporate support services 24) Ethane Pipeline Income Fund 6.1% Ethane Pipeline: 1,375 km from Moomba to Port Botany, Sydney 25) EII2 20.2% Wind generation: North Brown Hill Wind Farm (132MW), SA 26) Diamantina Power 50.0% Station joint venture Gas-fired power stations: Diamantina Power Station (242 MW) and Leichhardt Power Station (60 MW) Operational, management and corporate support services Corporate support services Corporate support services 27) Australian Gas Networks Nil 1 Gas distribution: 23,408 km of gas mains and pipelines, 1.21 million gas consumer connections, 1,124 km of pipelines in SA, Vic, NSW, Qld & NT Operational services 1) In August 2014, APA sold its 33.05% ownership interest in Australian Gas Networks Limited (“AGN”, formerly Envestra Limited). Operating and maintenance agreements with AGN remain in place until 2027. 3 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED 2. Financial highlights Profit after tax and non-controlling interests, 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. APA reported profit after tax and non-controlling interests and including significant items of $559.9 million, an increase of 62.9% compared with $343.7 million reported in the last financial year. APA’s FY2015 profit includes after tax significant items of $356.0 million relating to after tax profit on the sale of APA’s shareholding in Australian Gas Networks Limited (formerly Envestra Limited) and the recovery during the period of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management. This year’s profit is compared with profit in FY2014 which included a one-off adjustment to the 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 (totalling $144.1 million). Normalised profit after tax and non-controlling interests (that is, excluding significant items) increased by 2.1% to $203.9 million (2014: $199.6 million). Revenue (excluding pass-through revenue) increased by $126.7 million to $1,119.2 million, an increase of 12.8% on the last financial year (2014: $992.5 million). Statutory EBITDA of $1,269.5 million was $522.2 million above last financial year (2014: $747.3 million) and normalised EBITDA of $822.3 million was $74.9 million or 10.0% above last financial year (2014: $747.3 million). Normalised EBITDA at $822.3 million is in line with APA’s guidance for FY2015 of $810 million to $825 million. Stronger earnings across most of APA’s assets contributed to the increase in normalised profit and EBITDA and included the following: — additional earnings from the expanded South West Queensland Pipeline and the Goldfields Gas Pipeline; — organic growth across most of our assets including the Pilbara Pipeline System, Mondarra Gas Storage Facility, Roma Brisbane Pipeline and Amadeus Gas Pipeline; and — four weeks of EBITDA contribution from the newly acquired Wallumbilla Gladstone Pipeline. These increases were partially offset by a reduction in earnings from Asset Management, given abnormally high, one-off customer contributions in FY2014 of $23.4 million (2015: $3.6 million). Operating cash flow increased by 30.3% to $562.2 million (2014: $431.5 million), and operating cash flow per security increased by 13.5%, or 6.7 cents, to 56.5 cents per security (2014: 49.8 cents per security). Operating cash flow was impacted by the one-off receipt of $17.2 million during the financial year relating to APA’s successful appeal to the NSW Supreme Court in a matter regarding fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited. This partially reverses payments of $8.3 million made in FY2014 and $68.8 million in FY2013. Excluding these significant items, normalised operating cash flow was up by 23.9% to $545.0 million (2014: $439.7 million) and corresponding operating cash flow per security was up by 7.9%, or 4.0 cents, to 54.8 cents per security (2014: 50.8 cents). This increase is despite a 14.9% increase in the average number of securities on issue this financial year to 995,244,990 securities (2014: 865,977,265 securities). APA’s distributions for the financial year totalled 38.0 cents per security, an increase of 4.8%, or 1.75 cents, over the last financial year (2014: 36.25 cents), and was in line with guidance of at least 36 cents per security. The distribution payout ratio of 68.8% based on normalised operating cash flow was slightly lower than the 68.9% ratio last financial year. APA continues to fully fund its distributions out of operating cash flows whilst also retaining appropriate levels of cash in the business to support ongoing growth. The table on the following page provides a summary of key financial data for the financial year and includes key reconciling items between statutory profit after tax attributable to APA securityholders and the normalised financial measures. 4 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDs t n u o c c a d e s i l a m r o N s t n u o c c a y r o t u t a t S n i s e g n a h C n i s e g n a h C 4 1 0 2 e n u J 0 3 ) 0 0 0 $ ( 5 1 0 2 e n u J 0 3 ) 0 0 0 $ ( D E U N I T N O C T R O P E R ’ S R O T C E R D I I I S E T T N E D E L L O R T N O C S T I I D N A T S U R T E N L E P P N A L A R T S U A I I % % 3 . 1 1 % 7 7 . % 8 2 1 . % 0 0 . 1 ) % 3 3 3 ( . % 9 3 . % 3 0 . % 0 9 . ) % 5 9 2 ( . % 0 0 . % 1 . 2 % 9 7 . % 9 3 2 . ) % 3 . 1 1 ( % 8 4 . ) % 2 0 ( . % 9 4 1 . t n a c fi n g S i i t n a c fi n g S i i 0 0 0 $ % 0 0 0 $ d e s i l a m r o N 2 s m e t i y r o t u t a t S d e s i l a m r o N 2 s m e t i y r o t u t a t S e n u J 0 3 d e d n e r a e Y 3 2 6 7 5 1 , 5 0 9 0 3 , , 8 1 7 6 2 1 6 1 9 4 7 , ) 2 7 9 , 1 5 ( 2 2 9 4 4 9 2 2 , – – 6 6 8 3 2 , 6 6 2 4 , 7 4 2 5 0 , 1 0 4 . ) 6 2 ( . 5 7 . 1 ) % 1 . 0 ( 8 6 2 9 2 1 , % 3 . 1 1 % 7 7 . % 8 2 1 . % 9 9 6 . ) % 3 3 3 ( . % 5 9 7 . % 3 0 . % 1 . 7 7 1 % 1 . 8 2 3 % 0 0 . % 9 2 6 . % 3 0 3 . % 5 3 1 . % 8 . 1 4 % 8 4 . ) % 1 . 5 ( % 9 4 1 . 3 2 6 7 5 1 , 5 0 9 0 3 , , 8 1 7 6 2 1 ) 2 7 9 , 1 5 ( 6 5 1 , 2 2 5 2 2 9 4 8 1 , 0 7 4 – – 6 0 1 , 1 7 4 4 2 2 6 1 2 , 9 4 6 0 3 1 , . 7 6 . 6 6 1 5 7 . 1 ) % 6 3 ( . 8 6 2 9 2 1 , , 2 9 9 5 9 3 , 1 , 7 7 4 3 0 4 , 5 1 5 2 9 9 4 3 3 7 4 7 , ) 8 2 2 6 5 1 ( , 6 0 1 , 1 9 5 ) 4 8 0 5 2 3 ( , ) 1 ( ) 6 7 3 6 6 ( , , 2 2 0 6 6 2 5 4 6 9 9 1 , , 2 4 7 9 3 4 . 8 0 5 1 . 3 2 . 5 2 6 3 % 9 8 6 . , 7 7 9 5 6 8 – – – – – – – – – 0 6 0 4 4 1 , , 2 9 9 5 9 3 , 1 , 7 7 4 3 0 4 , 5 1 6 3 5 5 , 1 , 2 8 3 4 3 4 , 5 1 5 2 9 9 , 3 3 2 9 1 1 , 1 – – – 4 3 3 7 4 7 , ) 8 2 2 6 5 1 ( , ) 0 0 2 8 0 2 ( , – 0 5 2 2 2 8 , 0 4 2 7 4 4 , , 5 1 6 3 5 5 , 1 , 2 8 3 4 3 4 , 3 3 2 9 1 1 , 1 ) 0 0 2 8 0 2 ( , , 0 9 4 9 6 2 , 1 h g u o r h t - s s a p g n d u l c x e e u n e v e r i l a t o T e s n e p x e n o i t a s i t r o m a d n a n o i t a c e r p e D i A D T I B E 1 e u n e v e r h g u o r h t - s s a P e u n e v e r l a t o T 6 0 1 , 1 9 5 0 5 0 4 1 6 , 0 4 2 7 4 4 , 0 9 2 , 1 6 0 , 1 T I B E ) 4 8 0 5 2 3 ( , ) 2 6 1 , 4 2 3 ( – ) 2 6 1 , 4 2 3 ( e m o c n i t s e r e t n i d n a s t s o c e c n a n F i d n a x a t e m o c n i e r o f e b t fi o r P ) 1 ( 4 8 6 7 7 , , 2 2 0 6 6 2 ) 1 ( ) 6 7 9 5 8 ( , , 8 8 8 9 8 2 – 0 4 2 7 4 4 , ) 2 2 2 , 1 9 ( ) 1 ( 8 2 1 , 7 3 7 ) 8 9 1 , 7 7 1 ( t fi e n e b / ) e s n e p x e ( x a t e m o c n I s t s e r e t n i g n i l l o r t n o c - n o n s t s e r e t n i g n i l l o r t n o c - n o N d n a x a t e m o c n i r e t f a t fi o r P 0 6 0 4 4 1 , , 5 0 7 3 4 3 , 1 1 9 3 0 2 , 8 1 0 6 5 3 9 2 9 9 5 5 , s t s e r e t n i g n i l l o r t n o c - n o n ) 1 0 2 8 ( , 1 4 5 , 1 3 4 , 9 8 9 4 4 5 1 0 2 7 1 , 0 9 1 , 2 6 5 3 w o fl h s a c g n i t a r e p O . 8 9 4 . 7 9 3 . 5 2 6 3 % 2 0 7 . , 7 7 9 5 6 8 . 8 4 5 . 5 0 2 . 0 8 3 % 8 8 6 . , 5 4 2 5 9 9 . 5 6 5 . 3 6 5 . 0 8 3 % 6 6 6 . 4 ) s t n e c ( y t i r u c e s r e p w o fl h s a c g n i t a r e p O ) s t n e c ( y t i r u c e s r e p n o i t u b i r t s i D 4 ) s t n e c ( y t i r u c e s r e p s g n n r a E i 5 o i t a r t u o y a p n o i t u b i r t s i D , 5 4 2 5 9 9 ) 0 0 0 ( s e i t i r u c e s f o r e b m u n e g a r e v a d e t h g e W i , ” N G A “ ( d e t i i m L s k r o w t e N s a G n a i l a r t s u A o t n o d e s s a p d n a , n i d e r r u c n i s t s o c f o t c e p s e r n i s n o i t a r e p o t n e m e g a n a m t e s s a e h t n i s e s i r a e u n e v e r h g u o r h t - s s a P . d e n r a e s i i i n g r a m o n h c h w n o e u n e v e r s i e u n e v e r h g u o r h t - s s a P ) 1 . i g n d n u o r o t e u d p u d d a t o n y a m e b a t l e h t n i s r e b m u N : s e t o N . l y e v i t c e p s e r s t e s s a I D G d n a N G A e h t f o n o i t a r e p o e h t , f o t c e p s e r n i I D G d n a ) d e t i i m L a r t s e v n E y l r e m r o f . d e t i i m L t n e m e g a n a M s d n u F s g n i t s a H o t d n u F s e i t i l i t U d e fi i s r e v D s g n i t s a H y b d a p s e e f i i f o y r e v o c e r l u f s s e c c u s s a l l e w s a N G A n i t n e m t s e v n i ’ s A P A l f o e a s e h t m o r f d e s i l a e r s d e e c o r p t e n o t l s e t a e r 5 1 0 2 : s m e t i i t n a c fi n g S ) 2 i r o f s e i t i r u c e s f o r e b m u n e g a r e v a d e t h g e w e h T i . 4 1 0 2 r e b m e c e D 5 1 f o r e f f o t n e m e l t i t n e e h t f o e t a d d r o c e r e h t e r o f e b y a d g n d a r t i t s a l e h t , 4 1 0 2 r e b m e c e D 9 n o y t i r u c e s . r e p 7 6 7 $ f o e c i r p t e k r a m g n i s o c s A P A o t l ’ t n u o c s i d a , . y t i r u c e s r e p 0 6 6 $ t a d e r e f f o s a w e u s s i e h T . , 9 6 3 7 0 3 4 1 1 , 1 , f o 5 1 0 2 e n u J 0 3 t a s a e u s s i n o s e i t i r u c e s l a t o t n i g n i t l u s e r , i s e i t i r u c e s y r a n d r o w e n 2 6 5 6 5 5 8 7 2 f o , , l a t o t a d e u s s i A P A , 5 1 0 2 y r a u n a J 8 2 d n a 4 1 0 2 r e b m e c e D 3 2 n e e w t e B ) 4 . s t e s s a l a t i p a c s u o i r a v f o , l y n o s e s o p r u p n o i t a c e r p e d x a t i r o f , t n e m t a e r t e h t n i e g n a h c a t c e fl e r o t r a e y l i a c n a n fi e h t r o f e s n e p x e x a t ’ s A P A o t t n e m t s u d a j f f o - e n o a o t l s e t a e r 4 1 0 2 . s t n e m y a p x a t d n a t s e r e t n i r e t f a s n o i t a r e p o m o r f h s a c t e n = w o fl h s a c g n i t a r e p O ) 3 . e u s s i s t h g i r d e t n u o c s i d e h t r o f , e r a h S r e p s g n n r a E i : 3 3 1 B S A A l i f o s e p c n i r p g n i t n u o c c a e h t h t i w e c n a d r o c c a n i j d e t s u d a n e e b s a h d o i r e p r o i r p d n a t n e r r u c e h t . w o fl h s a c g n i t a r e p o d e s i l a m r o n f o e g a t n e c r e p a s a s t n e m y a p n o i t u b i r t s i d l a t o t = o i t a r t u o y a p n o i t u b i r t s i D ) 5 5 APA Group | Annual Report 2015 3. Business segment performances and operational review Statutory reported revenue and EBITDA performance of APA’s business segments is set out in the table below. 2015 $000 2014 $000 $000 % Changes Year ended 30 June Revenue (continuing businesses) Energy Infrastructure East Coast Grid: Queensland 1 East Coast Grid: New South Wales East Coast Grid: Victoria East Coast Grid: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Total segment revenue Pass-through revenue Unallocated revenue (interest income) 2 Divested business 3 388,916 137,998 163,592 2,725 27,877 265,972 987,080 85,056 21,784 1,093,920 434,382 24,322 991 271,746 133,555 153,668 2,686 24,848 237,566 824,069 99,171 18,020 941,260 403,477 1,142 50,113 Total revenue 1,553,615 1,395,992 EBITDA (continuing businesses) Energy Infrastructure East Coast Grid: Queensland 1 East Coast Grid: New South Wales East Coast Grid: Victoria East Coast Grid: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Corporate costs Total segment EBITDA Divested business 3 Total EBITDA before significant items Significant items 4 Total EBITDA 340,131 120,808 130,170 1,940 17,954 212,604 823,607 49,448 21,783 (73,579) 821,259 991 822,250 447,240 1,269,490 234,459 115,569 127,616 2,380 15,214 188,947 684,185 67,552 18,020 (72,536) 697,221 50,113 747,334 – 747,334 117,170 4,443 9,924 39 3,029 28,406 163,011 (14,115) 3,764 152,660 30,905 23,180 (49,122) 157,623 105,672 5,239 2,554 (440) 2,740 23,657 139,422 (18,104) 3,763 (1,043) 124,038 (49,122) 74,916 447,240 522,156 43.1% 3.3% 6.5% 1.5% 12.2% 12.0% 19.8% (14.2%) 20.9% 16.2% 7.7% 2,029.8% (98.0%) 11.3% 45.1% 4.5% 2.0% (18.5%) 18.0% 12.5% 20.4% (26.8%) 20.9% (1.4%) 17.8% (98.0%) 10.0% n/a 69.9% Notes: Numbers in the table may not add up due to rounding. From this reporting period, APA will report its segment EBITDA exclusive of corporate costs. FY2014 segment EBITDA has been restated to align with FY2015 reporting. 1) Includes the Wallumbilla Gladstone Pipeline revenue and EBITDA contributions from 4 June 2015. 2) Interest income is not included in calculation of EBITDA, but nets off against interest expense in calculating net interest cost. 3) Investment in Australian Gas Networks Limited (“AGN”, formerly Envestra Limited) sold in August 2014. 4) Significant items: 2015 relate to net proceeds realised from the sale of APA’s investment in AGN as well as successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited. 2014 relates to a one-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. APA’s operations and financial performance during the financial year principally reflect ongoing growth in operational performance of APA’s asset, additional revenue from expansion projects that have been commissioned during the year and four weeks of earnings from the newly acquired Wallumbilla Gladstone Pipeline, partially offset by a decrease in EBITDA from Asset Management due to lower customer contributions. EBITDA in APA’s continuing businesses, which excludes Australian Gas Networks Limited (formerly Envestra Limited) that was divested in August 2014, increased by $124.0 million, or 17.8%, to $821.3 million, in line with APA’s guidance for FY2015 of $810 million to $825 million. APA derives its revenue through a mix of regulated revenue, long-term negotiated revenue contracts, asset management fees and investment earnings. Earnings are underpinned by strong cash flows generated from high quality, geographically diversified assets and a portfolio of highly creditworthy customers. 6 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED A national regulatory regime provides mechanisms for regulatory pricing amongst other things, and 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 (“reference”) services as part of an access arrangement process, such that the 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 agreement. APA assets subject to full regulation or light regulation are detailed on the map below and in the table on page 3. Contracted revenues are sourced from unregulated assets and assets under light regulation as well as assets under full regulation. Contracts generally entitle customers to capacity reservation, with the majority of the revenue fixed over the term of the relevant contract. APA’s current weighted average contract term is approximately 10 years, and where new infrastructure is required, terms tend to be longer than this current average in order to underwrite the investment by APA in any necessary expansion. During FY2015, approximately 21% of revenue (excluding pass-through) was subject to prices determined under full regulation, 49% of revenue (excluding pass-through) was from capacity reservation charges, 12% from storage and other contracted revenues and 15% from throughput charges. Given the dynamic east coast gas market, there were additional revenues from provision of flexible short term services, accounting for 2.2% of FY2015 revenue ($21.4 million) for Energy Infrastructure. APA continues to focus on the operation, development and enhancement of our gas transmission and distribution assets, and energy investments across mainland Australia. FY2015 REVENUES BY CONTRACT TYPE APA 1 PIPELINES BY REGULATION TYPE Regulated revenue: 21% Capacity charge revenue: 49% Storage & other contracted revenue: 12% Throughput charge & other variable revenue: 15% Flexible short term services: 2.2% Other: 0.8% Full regulation pipelines Light regulation pipelines Not regulated pipelines 1) Owned and/or operated by APA 3.1 Energy Infrastructure The Energy Infrastructure segment includes gas transmission, gas compression 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. Currently, in-place contracts have a weighted average term of approximately 10 years. The Energy Infrastructure segment contributed 90.2% of revenue (for continuing businesses, excluding pass-through) and 92% of EBITDA (for continuing businesses, before corporate costs) during FY2015. Revenue (excluding pass-through revenue) was $987.1 million, an increase of 19.8% on the last financial year (2014: $824.1 million). EBITDA (for continuing businesses, before corporate costs) increased by 20.4% on the last financial year to $823.6 million (2014: $684.2 million). Commissioning of various expansion projects and new haulage contracts across multiple assets, including South West Queensland Pipeline and Goldfields Gas Pipeline, as well as organic growth from the majority of APA’s assets, as detailed in sub sections below, contributed to this result. ENERGY INFRASTRUCTURE REVENUE BY STATE ENERGY INFRASTRUCTURE EBITDA BY STATE A$1,200m 1,000 800 600 400 200 0 FY11 QLD NSW FY12 VIC FY13 SA NT FY14 WA 82% A$1,000m 80% 800 600 400 200 78% 0 FY15 EBITDA margin (RHS) FY11 QLD NSW FY12 VIC FY13 FY14 FY15 SA NT WA 7 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED ENERGY INFRASTRUCTURE EBITDA BY PIPELINE FY15 FY14 FY13 FY12 FY11 A$m 0 100 200 300 400 500 600 700 800 Wallumbilla Gladstone Pipeline Other Qld assets Amadeus Gas Pipeline Mondarra gas storage South West Queensland Pipeline Moomba Sydney Pipeline Goldfields Gas Pipeline Other WA Roma Brisbane Pipeline Victorian Transmission System Emu Downs wind farm Carpentaria Gas Pipeline SESA Pipeline Pilbara Pipeline System Note: The charts above and on page 7 exclude discontinued operations previously accounted for within Energy Infrastructure, including earnings from Allgas Networks and Moomba Adelaide Pipeline. 92% of FY2015 revenue was received from investment grade or better counterparties. FY2015 revenues, on an industry segment basis, were broken down as follows: 43% from utility sector customers; 34% from customers in the energy sector; 20% from resources sector customers; and 2% from industrial customers. FY2015 REVENUES BY COUNTERPARTY CREDIT RATING FY2015 REVENUES BY CUSTOMER INDUSTRY SEGMENT A-rated or better: 27% BBB to BBB+ rated: 39% Investment Grade: 26% Not rated: 6% Sub-investment grade: 2% Utility: 43% Energy: 34% Resources: 20% Industrial: 2% Other: 1% Geographically, Energy Infrastructure assets are managed as the East Coast Grid (Queensland, New South Wales, Victoria and South Australia), the Northern Territory and Western Australia. East Coast Grid With the addition of the Wallumbilla Gladstone Pipeline, APA now has a 7,500+ kilometres of integrated pipeline grid on the east coast of Australia, with the ability to transport gas seamlessly from multiple gas production facilities to gas users across four states and the ACT, as well as to the export LNG market which is developing in Gladstone. Customers using the East Coast Grid have flexibility in relation to receipt and delivery points, with the potential to move between around 30 receipt points and around 100 delivery points (including Gladstone). APA has developed the commercial and operational framework to deliver a wide range of flexible services, such as multi-asset services, bi-directional transportation, capacity trading and gas storage and parking facilities. To this end, APA opened its Integrated Operations Centre (“IOC”) in Brisbane in April 2015. The IOC is designed to holistically manage our portfolio of interconnected assets to better enable us to respond to changes in operational and market conditions. By integrating commercial, technical and operational resources in the one location in a real-time environment, APA provides a single operational point of contact for our customers and enhances operational efficiency. During the course of FY2016, APA will complete the transitioning of its assets to the IOC. Flexibility offered by APA’s East Coast Grid allows customers to manage their gas portfolios in a more dynamic manner, in response to a gas industry that is undergoing significant transformation. This is a result of the near trebling in the size of the east coast gas market, driven primarily by the LNG export market at Gladstone. In addition to additional contribution from expanded assets from projects described below, APA experienced ongoing organic growth across the East Coast Grid, including from the Roma Brisbane Pipeline, the Moomba Sydney Pipeline and the Carpentaria Gas Pipeline. During the financial year, the following major capital projects were completed: — in December 2014, APA completed the installation of a new compressor at Winchelsea on the South West Pipeline (within the Victorian Transmission System) between Port Campbell and Brooklyn in Victoria. The new compressor increased the capacity of the South West Pipeline by 76 TJ/day; 8 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED  — in May 2015, APA completed a further expansion of the Victoria – New South Wales Interconnect (“VNI”) to increase the firm peak winter gas flows from Victoria into New South Wales by 145%, at a total cost of approximately $160 million. New gas transportation agreements with Origin Energy, EnergyAustralia and Lumo Energy commenced during the year given completion of the expansion projects that involved augmenting additional compression capacity at Culcairn, as well as additional looping. A fourth agreement with an existing customer was announced in July 2015. This will support further expansion of the VNI by 30 TJ/day to 146 TJ/day in total, trebling capacity over a period of nearly three years in response to changes in the east coast gas market; and — in January 2015, the South West Queensland Pipeline expansion projects were completed and commissioned. These projects involved $325 million of expansions that were underpinned by various long term contracts with highly creditworthy counterparties. The South West Queensland Pipeline has undergone a major capacity expansion through augmentation of compression facilities at Wallumbilla and Moomba and pipeline bi-directional capability. APA completed the acquisition of the Wallumbilla Gladstone Pipeline on 3 June 2015 and the pipeline contributed $35 million of EBITDA during the financial year. Whilst the Queensland Curtis LNG Project itself is expected to be ramping up its production for its second train during FY2016, APA’s contracts on the pipeline are full take-or-pay contracts for 20 years (with two 10-year options to extend), regardless of volume transported for the foundation shippers, with tariffs escalating annually at US CPI 1. The expected EBITDA contribution of these contracts in the first full financial year to 30 June 2016 is US$355 million. US dollar denominated debt was raised to assist in the financing of the acquisition. The net USD cashflows after servicing the USD denominated debt facilities will ultimately be converted to AUD, in line with APA’s Treasury Risk Management Policy. More details on APA’s guidance for FY2016 can be found on page 16 and its policy for managing foreign exchange can be found in Note 21 to the financial statements. Against the backdrop of a very dynamic gas market in the south east of Australia, APA continues to adapt and progressively develop its gas infrastructure and services in response to the changing needs of its customers. Northern Territory APA’s assets in the Northern Territory continued to perform at or above expectations during the year including commencement of a new long term agreement to deliver natural gas to the Australian Agricultural Company meat processing facility near Darwin via the Amadeus Gas Pipeline. In early 2014, APA commenced a feasibility study to link its pipeline infrastructure in the Northern Territory with its East Coast Grid. The proposed pipeline link (the “NT Link”) will create the opportunity for gas sourced from onshore and offshore fields in the Northern Territory to supply markets in the east, and provide additional gas security for the Northern Territory. The NT Link, if built, will connect APA’s Amadeus Gas Pipeline in the Northern Territory with the APA owned East Coast Grid. APA expects this will provide additional flexibility to suppliers and users of gas in the Northern Territory and the eastern states of Australia, by interconnecting more resources with more markets. During FY2015, the Northern Territory Government announced its own process (North East Gas Interconnector or “NEGI”) around connecting to the east coast and shortlisted four bidders, including APA. APA continues to work on its final submission as part of the government’s process which is due in September 2015 and further work also continues in respect of APA’s feasibility process outside of the Northern Territory Government process. Western Australia – West Coast Grid In Western Australia, APA’s assets serve a variety of customers in the resources, industrial and utility (mainly in the Perth area) sectors. The Goldfields Gas Pipeline (“GGP”) and Pilbara Pipeline System both experienced strong organic growth from resource sector customers in FY2015. In the energy precinct that is developing around the Perth area, the Mondarra Gas Storage Facility saw solid organic growth. The GGP expansion project was completed during the year. FY2015 results were positively affected by the near full year contribution from this expansion. APA managed the $150 million expansion project on behalf of the Goldfields Gas Transmission Joint Venture (“GGTJV”) through which APA owns 88.2% of the GGP. Contracts with Rio Tinto and Mount Newman Joint Venture (85% owned by BHP), that supported the expansion, were entered into during FY2012. During the financial year, APA commenced construction of the new 293 kilometre Eastern Goldfields Pipeline (“EGP”). This project is underwritten by two gas transportation agreements executed between AngloGold Ashanti (“Anglogold”) and APA in July 2014 for the transportation of natural gas to AngloGold’s Sunrise Dam Operations and the Tropicana Operations jointly owned by AngloGold and Independence Group NL, located in the eastern Goldfields region. The EGP will connect APA’s existing infrastructure, the Goldfields Gas Pipeline and the Murrin Murrin Lateral to the respective mine site locations, with commissioning expected around the middle of FY2016. Under the agreements, APA will transport gas across a total distance of 1,500 kilometres to the mines through APA’s three interconnected pipelines. 3.2 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 Australian Gas Networks Limited (“AGN”, formerly Envestra Limited), Ethane Pipeline Income Fund, Energy Infrastructure Investments and GDI. Asset management services are provided to these customers under long term contracts. Revenue (excluding pass-through revenue) from asset management services decreased by $14.1 million or 14.2% to $85.1 million (2014: $99.2 million) and EBITDA (for continuing businesses) also decreased by $18.1 million or 26.8% to $49.4 million (2014: $67.6 million). 1) Consumer Price Index. 9 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDASSET MANAGEMENT REVENUE ASSET MANAGEMENT EBITDA A$100m A$80m 75 50 25 0 60 40 20 0 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 One-off Customer Contributions Underlying Asset Management EBITDA One-off Customer Contributions Underlying Asset Management EBITDA This decrease in revenue and EBITDA is due to a reduction in customer contributions for relocating APA infrastructure, to $3.6 million compared with $23.4 million in the last financial year. This was partially offset by an increase in asset management fees. As can be seen in the graph below, there continue to be annual swings in customer contributions, as these are driven by our customers’ work programmes and requirements. Over a number of years, the long term annual average revenue received for this work has been approximately $10 million per annum. CUSTOMER CONTRIBUTIONS ENERGY INVESTMENT REVENUE & EBITDA A$30m A$80m 20 0 Average ~$9.9m 60 40 20 0 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 Divested & transferred investments Continuing investments As mentioned previously, APA sold its 33.05% stake in AGN during the financial year, however, the operating and maintenance agreements remain on foot until maturity in 2027. 3.3 Energy Investments APA has interests in a number of complementary energy investments across Australia, including SEA Gas Pipeline, Energy Infrastructure Investments (“EII”), Ethane Pipeline Income Fund, EII2, GDI and Diamantina and Leichhardt Power Stations (collectively “DPS”). APA holds a number of roles in respect of most of these investments, in addition to its ownership interest. All investments are equity accounted, with the exception of APA’s 6% interest in Ethane Pipeline Income Fund. APA divested its 33.05% interest in Australian Gas Networks Limited (“AGN”, formerly Envestra Limited) on 7 August 2014. As a result there was no material contribution from AGN to the FY2015 results. Both power stations at DPS were commissioned during the financial year. Contribution from DPS is approximately for the 6 months that the power stations have been in operation. EBITDA from continuing investments increased by 20.9% to $21.8 million (2014: $18.0 million), driven by increased contribution from GDI, EII2 and SEA Gas Pipeline, in particular. 3.4 Corporate Costs From this financial year, APA will separate out corporate costs from operating business segment EBITDA reporting. By doing this, it is expected that securityholders will be able to better understand the underlying performance of the operating businesses and the costs for APA to operate and manage these businesses. During the financial year, corporate costs increased, slightly, by 1.4% over the previous year to $73.6 million (2014: $72.5 million). Corporate costs have trended down as a proportion of revenue and total EBITDA over the last few years. Moreover, as can be seen in the graphs below, as the business has grown significantly both in terms of investor returns and balance sheet, APA’s corporate costs have remained relatively steady, demonstrating the efficient scalability of APA. 10 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED CORPORATE COSTS TO CONTINUING BUSINESSES EBITDA CORPORATE COSTS VS BUSINESS GROWTH A$1,000m 14% A$1,200m A$18b 800 600 400 200 0 12 10 8 6 4 2 0 1,000 800 600 400 200 0 15 12 9 6 3 0 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 Continuing businesses EBITDA (LHS) Corporate costs / Continuing businesses Operating EBITDA (RHS) Revenue (LHS) Corporate costs (LHS) EBITDA (LHS) Total Assets (RHS) Enterprise value (RHS) In fact, whilst revenue, EBITDA, total assets and total enterprise value have grown at a compound annual growth rate (“CAGR”) of between 14% and 39% over the last five years, corporate costs have grown at a significantly lower 5.8% CAGR. Year ended 30 June Revenue 1 EBITDA 2 Total assets Market capitalisation Enterprise value 3 Corporate costs Corporate costs/EBITDA 2 (%) Notes: 1) Continuing businesses revenue, excluding pass-through revenue. 2) Continuing businesses EBITDA. 3) Market capitalisation plus net debt as at end of financial year. 2015 $ million 2011 $ million Changes % 1,094 821 14,653 9,182 17,413 74 8.2% 628 425 5,428 2,470 5,615 59 12.1% 14.9% 17.9% 28.2% 38.9% 32.7% 5.8% 3.5 Restatement of historical segment EBITDA From this reporting period, APA will report its segment EBITDA exclusive of corporate costs to provide a clearer picture of the performance of the underlying assets within the business. For prior year comparison purposes, the following table restates segment EBITDA for the last 5 years. 2015 $000 2014 $000 2013 1 $000 2012 $000 2011 $000 Year ended 30 June EBITDA (continuing businesses) Energy Infrastructure Queensland New South Wales Victoria South Australia Western Australia Northern Territory Energy Infrastructure total Asset Management Energy Investments Corporate costs Total segment EBITDA Divested business 2 Total EBITDA before significant items Significant items 3 340,131 120,808 130,170 1,940 212,604 17,954 823,607 49,448 21,783 (73,579) 821,259 991 822,250 447,240 234,459 115,569 127,616 2,380 188,947 15,214 684,185 67,552 18,020 (72,536) 697,221 50,113 747,334 – 747,334 180,652 120,243 136,869 2,419 149,404 13,502 603,089 51,553 15,635 (64,488) 605,789 56,154 661,943 101,685 763,628 91,016 122,789 138,292 2,110 133,886 10,633 498,726 35,563 9,580 (63,594) 480,275 55,213 535,488 (9,663) 525,825 81,966 111,764 128,815 2,136 108,093 5,577 438,351 42,517 3,165 (58,754) 425,279 64,309 489,588 2,521 492,109 Total EBITDA 1,269,490 Notes: Numbers in the table may not add up due to rounding. 1) APA adopted revised AASB 119 during FY2014. As the revised standard must be applied retrospectively, comparative numbers have been restated. 2) Australian Gas Networks Limited (formerly Envestra Limited) sold in FY2014, Moomba Adelaide Pipeline System sold in FY2013, APA Gas Network Queensland (Allgas) sold into GDI (EII) Pty Ltd in FY2012. 3) Significant items: FY2015 relates to net proceeds realised from the sale of APA’s investment in Australian Gas Networks Limited (formerly Envestra Limited) as well as the successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited. FY2013 relates primarily to one-off items associated with the HDF acquisition. FY2012 relates to the profit less transaction costs on the sale of Allgas. FY2011 relates to a number of one-off non-operating items. 11 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED 104.4 206.6 12.4 64.2 26.3 207.0 343.1 50.6 2.7 13.2 73.4 23.8 317.0 382.5 45.1 19.1 396.3 446.7 5,866.8 21.2 5,888.0 – 126.1 126.1 6,284.3 572.8 4. Capital and investment expenditure Capital expenditure (including stay-in-business capital expenditure) for the financial year totalled $396.3 million compared with $446.7 million last financial year. Growth project expenditure of $343.1 million (2014: $382.5 million) was in respect of pipeline capacity expansion in the Victoria – New South Wales Interconnect, additional compression facilities at Moomba and Wallumbilla and construction of the Eastern Goldfields Pipeline in Western Australia. These capital expenditures were generally either fully underwritten through long-term contractual arrangements or have regulatory approval through a relevant access arrangement. The majority of investment expenditure for the financial year of $5,888.0 million (2014: $126.1 million) related to the Wallumbilla Gladstone Pipeline acquisition completed in June 2015, with a small portion attributable to completion of the Diamantina Power Station. Capital and investment expenditure for the financial year is detailed in the table below. Description of major projects 2015 $ million 2014 $ million Victoria-NSW Interconnect looping & compression, Winchelsea compression 136.1 65.5 Wallumbilla and Moomba compression Moomba Sydney Pipeline southern expansion Eastern Goldfields Pipeline development, Goldfields Gas Pipeline expansions Victorian metering and LNG, maintenance system, enterprise asset management systems and processes Capital and investment expenditure 1 Growth expenditure Regulated Major projects Queensland New South Wales Western Australia Other Total growth capex Stay-in-business capex Customer contributions Pipe relocations for councils, Pilbara Pipeline relocation Total capital expenditure Acquisitions Wallumbilla Gas Pipeline Energy Investments Diamantina Power Station joint venture Total investment expenditure Total capital and investment expenditure Notes: Numbers in the table may not add up due to rounding. 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. 12 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAs can be seen in the map below, APA continues to work on projects around the country and maintains guidance for $300 million to $400 million of annual organic growth capital expenditure level over the next couple of years. ACTUAL AND COMMITTED GROWTH CAPITAL EXPENDITURE A$400m 300 200 100 0 FY12A1 FY13A FY14 FY15 FY16 FY17 Committed Actual Capex guidance range 1) FY12 guidance was for $200m+ MAJOR CAPITAL EXPENDITURE PROJECTS COMPLETED PROJECTS Goldfields Gas Pipeline expansions completed Diamantina Power Station completed Wallumbilla and Moomba compressions installed Bi-directional capability on Berwyndale Wallumbilla and South West Queensland Pipelines Wallumbilla Gladstone Pipeline acquisition Integrated Operations Centre opened 1 2 3 4 5 6 7 8 ONGOING PROJECTS 9 Eastern Goldfields Pipeline construction commenced 10 NT Link feasibility study continues 11 Bi-directional capability on Roma Brisbane and Moomba Sydney Pipelines due 1Q FY16 12 Expansion work for further 30TJ/d capacity increase commenced 5. Financing Activities Winchelsea compression installed Victoria-New South Wales Interconnect expansion to 118Tj/d completed (Victorian Transmission System and Moomba Sydney Pipeline southern lateral) PERTH 9 DARWIN 10 10 MOUNT ISA 2 1 GLADSTONE 10 MOOMBA 4 3 4 5 11 3 WALLUMBILLA BRISBANE 6 11 SYDNEY ADELAIDE 7 8 12 MELBOURNE 5.1 Capital management APA issued a total of 278,556,562 new securities between 23 December 2014 and 28 January 2015 (inclusive), raising $1.84 billion to provide funding in support of the acquisition of the Wallumbilla Gas Pipeline (formerly QCLNG Pipeline) and APA’s ongoing capital needs. The new securities were issued at $6.60 per security as a result of a one-for-three accelerated renounceable entitlement offer to existing securityholders. As at 30 June 2015, 1,114,307,369 securities were on issue (2014: 835,750,807). During the financial year APA completed the following financings: — in December 2014, APA established a US$4.1 billion two-year syndicated bridge facility to provide certainty of funding for the Wallumbilla Gladstone Pipeline acquisition. US$4.1 billion of the facility was cancelled in March 2015, following APA’s successful issuance of bonds in the international debt capital markets (detailed below). The balance of US$100 million is a syndicated revolving credit facility that remains available to APA to provide flexibility in respect of working capital needs; — in March 2015, APA issued EUR1,350 million and GBP600 million of fixed rate Medium Term Notes (MTNs) from its Euro Medium Term Note program following a successful marketing process aimed at raising longer term borrowings to fund the acquisition of the Wallumbilla Gladstone Pipeline and for APA’s ongoing corporate needs. The MTNs were issued in three tranches: EUR700 million of seven-year notes at a fixed coupon of 1.375%; EUR650 million of 12-year notes at a fixed coupon of 2.0%; and GBP600 million of 15-year notes issued at a fixed coupon of 3.5%. Proceeds from the MTNs were swapped into approximately US$2.3 billion and APA will retain the funds in US dollars at an all-in weighted average fixed rate of approximately 4.2% per annum; and — in March 2015, APA issued US$1.4 billion of senior guaranteed notes in the United States 144A debt capital market. The notes were issued in two tranches: US$1,100 million of 10-year notes at a fixed coupon of 4.2%; and US$300 million of 20-year notes at a fixed coupon of 5.0%. At 30 June 2015, APA’s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 8.5 years 1. APA’s gearing 2 of 63.4% at 30 June 2015 was down slightly from 64.2% at 30 June 2014. APA remains well positioned, at this level, to fund its planned organic growth activities from available cash and committed resources. 1) USD denominated debt has been nominally exchanged at AUD/USD exchange rate at respective inception date of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes. 2) Gearing ratio determined in accordance with covenants in certain senior debt facilities as net debt to net debt plus book equity. 13 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED APA DEBT MATURITY PROFILE AND DIVERSITY OF FUNDING SOURCES A$2,000m 1,500 1,000 500 0 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 Bank borrowings US Private Placement Notes Public bonds swapped into AUD (AUD, CAD, JPY, Sterling, US144A) Public bonds swapped into USD (Euro, Sterling, US144A) First call date – 60yr Subordinated Notes At 30 June 2015, APA had around $1,587 million in cash and committed undrawn facilities available to meet the continued capital growth needs of the business. Subsequent to the end of FY2015, APA established a new $830 million syndicated bank facility, replacing the existing $1.1 billion syndicated facility. This has reduced APA’s cash and available, committed, undrawn facilities to around $1.3 billion. The new facility comprises three tranches: — $311.25 million maturing in September 2017; — $311.25 million maturing in September 2018; and — $207.50 million maturing in September 2020. APA has a prudent treasury policy which requires conservative levels of hedging of interest rate exposures to minimise the potential impacts from adverse movements in interest rates. Other than noted below, all interest rate and foreign currency exposures on debt raised in foreign currencies have been hedged. The majority of the revenues to be received over the next 20 years from the foundation contracts on the Wallumbilla Gladstone Pipeline will be received in USD. The US$3.7 billion of debt raised in March 2015 is considered to be a “designated hedge” for these revenues and therefore have been kept in USD. Net USD cashflow after servicing the USD interest costs that are not part of that “designated relationship” will be hedged on a rolling basis for an appropriate period of time, in line with APA’s treasury policy. APA also enters into interest rate hedges for a proportion of the interest rate exposure on its floating rate borrowings. As at 30 June 2015, 94.0% (2014: 72.8%) of interest obligations on gross borrowings were either hedged into or issued at fixed interest rates for varying periods extending out in excess of 19 years. 5.2 Borrowings and finance costs As at 30 June 2015, APA had borrowings of $8,643 million 1 ($4,789 million at 30 June 2014) from a mix of syndicated bank debt facilities, bilateral debt facilities, US Private Placement Notes, 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 decreased by $0.9 million, or 0.3%, to $324.2 million (2014: $325.1 million). The decrease is primarily due to proceeds from the sale of shares in AGN applied to reduce debt and to interest income from term deposits received during the pre-settlement period of the acquisition of the Wallumbilla Gladstone Pipeline. The average interest rate (including credit margins) applying to drawn debt was 6.76% 1 for the financial year (2014: 7.12%). APA’s interest cover ratio 2 for the financial year, at 2.59 times (2014: 2.31 times), remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times. 5.3 Credit ratings APT Pipelines Limited, the borrowing entity of APA, maintained the following two investment grade credit ratings during the financial year: — BBB long-term corporate credit rating (outlook Stable) assigned by Standard & Poor’s (S&P) in June 2009, and last confirmed on 10 December 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 10 December 2014. 1) USD denominated debt has been nominally exchanged at AUD/USD exchange rate at respective inception date of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes. 2) For the calculation of interest cover, significant items are excluded from the EBITDA used. 14 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED5.4 Income tax Income tax expense (including significant items) for the financial year of $177.2 million results in an effective income tax rate of 24.0%. The FY2014 profit after tax included a significant item of $144.1 million relating to a one-off adjustment to tax expense to reflect a change in the treatment, for tax depreciation purposes only, of various capital assets acquired in FY2007. This resulted in an income tax benefit for FY2014 of $77.7 million. Excluding significant items, the effective income tax rate for the financial year is 28.2% which is higher than the 25.0% in the previous year due to APA ceasing to equity account the Envestra investment and to the increase in non-deductible amortisation on contract intangibles during the year. After utilisation of all available group tax losses and partial utilisation of available transferred tax losses, an income tax provision of $7.2m has been recognised as at 30 June 2015. 5.5 Distributions Distributions paid to securityholders during the financial year were: APT profit distribution APT capital distribution APTIT profit distribution APTIT capital distribution Final FY2014 distribution paid 10 September 2014 Interim FY2015 distribution paid 18 March 2015 Cents per security $000 Cents per security Total distribution Total distribution $000 16.42 – 2.33 – 18.75 137,239 – 19,465 – 156,704 15.12 – 2.38 – 17.50 126,396 – 19,860 – 146,256 On 26 August 2015, the Directors declared a final distribution for APA for the financial year of 20.50 cents per security which is payable on 16 September 2015 and will comprise the following components: APT profit distribution APT capital distribution APTIT profit distribution APTIT capital distribution Final FY2015 distribution payable 16 September 2015 Cents per security $000 Total distribution 18.12 – 2.38 – 20.50 201,945 – 26,488 – 228,433 Total distribution for the financial year ended 30 June 2015 is 38.0 cents per security, an increase of 1.75 cents, or 4.8%, on the 36.25 cents per security paid in respect of the year ended 30 June 2014. 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 2015) will provide the classification of distribution components for the purposes of preparation of securityholder income tax returns. 5.6 Total securityholder return During the financial year, APA’s market capitalisation increased by 59.5% to $9.2 billion at 30 June 2015. APA’s total securityholder return for the financial year, which accounts for distributions paid plus the capital appreciation of APA’s security price and assumes the reinvestment of distributions at the declared time, was 30.0%, placing APA in the top 21st percentile of one year total shareholder returns for the financial year 1. APA’s total securityholder return since listing on the ASX is 1,304%, a compound annual growth rate of 19.2%. The table below provides securityholders with an understanding of the growth in value of APA securities, excluding value raised through capital raising activities, during FY2015 as well as since listing. Number of securities (million) 835.8 278.6 1,114.3 FY2015 Price per security ($/security) $6.89 $6.60 $8.24 Beginning of period Capital raised 2 End of period Growth in value over period Market capitalisation ($ million) Number of securities (million) Price per security ($/security) Market capitalisation ($ million) Since Listing $5,758.3 $1,838.5 $9,181.9 $1,585.1 244.0 870.3 1,114.3 $2.00 $2.50-$6.60 $8.24 $488.0 $4,254.5 $9,181.9 $4,439.4 1) Figures quoted are sourced from IRESS and measured as at 30 June 2015. 2) Since listing, APA has undertaken a variety of capital raising activities including rights issues, placements and dividend reinvestment plans. For FY2015, this relates to the 1-for-3 rights issue conducted. 15 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED APA TOTAL SECURITYHOLDER RETURN SINCE LISTING TO 30 JUNE 2015 1,600 1,200 800 400 0 JUN 00 JUN 01 JUN 03 APA total securityholder return JUN 02 JUN 04 JUN 04 JUN 06 JUN 07 JUN 08 JUN 09 JUN 10 JUN 11 JUN 12 JUN 13 JUN 14 JUN 15 Utilities Accumulation Index S&P/ASX 200 Accumulation Index 5.7 Guidance for the 2016 financial year Based on current operating plans, APA expects statutory EBITDA for the full year to 30 June 2016 to be in a range of $1,275 million to $1,310 million. On a normalised, continuing businesses basis, EBITDA is expected to increase by approximately 55% to 60% on the 2015 financial year continuing business EBITDA. This includes a contribution of around US$355 million from the newly acquired Wallumbilla Gladstone Pipeline and growth across the remainder of the APA portfolio of between 3% and 7%. APA has entered into forward exchange contracts for FY2016, for the net USD cashflow from the gas transportation agreements for the Wallumbilla Gladstone Pipeline (“WGP”), after servicing USD denominated debt. In forecasting AUD equivalent EBITDA contribution from WGP, we have used the forward exchange rates for these hedged revenues. Any differences in the hedged rate and the actual rate will be accounted for in the hedge reserve account within the equity portion of APA’s balance sheet. Net interest cost is expected to be in a range of $500 million to $510 million. Growth capital expenditure is expected to remain in the range of $300 million to $400 million for FY2016. Distributions per security for the 2016 financial year are expected to be at least equal to those paid in respect of the 2015 financial year, that is, at least 38.0 cents per security. Changes Year ended 30 June 2016 guidance $000 2015 actual $000 $000 % Normalised EBITDA from continuing businesses Net interest cost Statutory EBITDA Distribution per security 1,275 to 1,310 500 to 510 300 to 400 At least 38.0 821.3 324.2 343.1 38.0 454 to 489 176 to 186 – – 55% to 60% 54% to 57% – – 6. Regulatory matters Key regulatory matters addressed during the financial year included: Goldfields Pipeline access arrangement In August 2014, a revised access arrangement proposal was submitted to the Economic Regulation Authority of Western Australia. APA has responded to a series of queries by the regulator on that proposal. The regulator will issue a draft decision to which APA will then provide a further response before the regulator makes a final decision, which is estimated to occur by December 2015. The current tariffs are applicable until the regulator’s final decision becomes operative. GDI becomes subject to light-handed regulation APA holds a 20% interest in GDI. During the year APA, on behalf of GDI, successfully had the regulatory status of the GDI network changed from full economic regulation to light-handed regulation, lowering the cost of regulation incurred by the network. Gas Policy developments The ongoing unprecedented changes in the Eastern Australian gas market have resulted in numerous governmental reviews and inquiries into policy settings. APA has been an active participant in these reviews, highlighting the significant contribution that our portfolio of pipeline assets coupled with our responsive customer services has made to the development of the gas market. 7. Health, safety and environment Health and safety reporting The Lost Time Injury Frequency Rate (“LTIFR”) 1 for APA was 0.64 (for employees and contractors) for the financial year, down from 0.80 in the last financial year. There were two employee and two contractor lost time injuries during the financial year. The Total Recordable Injury Frequency Rate 2 for APA was 8.11 (for employees and contractors combined) in FY2015, a reduction of 8.89 from 17.00 in the last financial year. APA aims to be a zero harm workplace for its employees, contractors and the broader communities in which it operates. During FY2014, APA launched a three year Strategic Improvement Plan and introduced a tailored list of risk based initiatives as part of the plan. 1) Lost Time Injury Frequency Rate is calculated as the number of lost time injuries (injuries which result in the loss of at least one full shift), multiplied by one million, divided by the total hours worked. 2) Total Recordable Injury Frequency Rate is calculated using the same formula as LTIFR with the added inclusion of all medically treated injuries. 16 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED The Strategic Improvement Plan and each initiative follow the Risk–Control–Assure framework. One risk which was identified during the year as requiring additional controls was driving. A safe driving initiative, called Safedrive+ has been added to the strategic plan. This initiative will provide the requisite level of control and training for all APA drivers, passengers and contractors, as well as a minimum standard vehicle specification. Other key initiatives implemented during the financial year include: — Relaunch to the Leading Zero Harm behavioural program, calibration of the hazard profile process, the completion of the hazard identification process and risk based and system audits. — The implementation of Safeguard+ APA’s online health, safety and environment (“HSE”) repository went live in December 2014. The platform has already provided the business with much improved disciplines for reporting, communicating, investigating and actioning HSE failures whilst also providing an easy to use reporting suite which provides vastly improved HSE data and analysis. — A tailored contractor management system The new system provides tools and processes for the business to appropriately assess and monitor contractor performance. It requires compliance with APA procurement and HSE standards ensuring alignment with regards to approach to HSE. APA encourages healthy living and continued its sponsorship for employees who participate in the Global Corporate Challenge. In addition, APA completed a company health and wellbeing risk profile of employees. The program surveyed and tested a sample of 284 employees across the business. The results will be used to develop health and wellbeing programs. Environmental regulations All pipeline, distribution and gas processing assets owned and/or operated by APA are designed, constructed, tested, operated and maintained in accordance with pipeline and distribution licences issued by the relevant State and Territory technical regulators. All licences require compliance with relevant Federal, State and Territory environmental legislation and Australian standards. The pipeline licences also require compliance with the Australian Standard AS 2885 “Pipelines – Gas and Liquid Petroleum”, which has specific requirements for the management of environmental matters associated with all aspects of the high pressure pipeline industry. Construction Environmental Management Plans satisfying Section 6 of the Australian Pipeline Gas Association Code of Environmental Practice are prepared as needed. Major project construction activities are audited or inspected in accordance with Environmental Management Plan requirements. In accordance with Part 3 of AS 2885, Environmental Management Plans satisfying Section 7 of the Code are in place for all operating pipelines and are managed in accordance with APA’s contracts and the terms and conditions of the licences that APA has been issued. The Safety and Operating Plan for the distribution networks that APA operates has been audited during the financial year, in accordance with New South Wales technical regulatory requirements. Senior management reviews audit reports and any material breaches are communicated to the Board. The Board reviews external audit reports and, on a monthly basis, the internal reports prepared relating to environmental issues. No significant breaches have been reported during the financial year and APA has managed its assets in accordance with the relevant Environmental Management Plans. Environmental reporting In October 2014, APA complied with Australia’s National Greenhouse and Energy Reporting (“NGER”) obligations for the FY2014. Energy reporting for FY2015 will be submitted in October 2015. APA’s main sources of emissions are from the combustion of natural gas in compressor stations and from fugitive emissions associated with natural gas pipelines. NGER compliance reporting applied to assets under APA’s operational control, which include the Roma Brisbane Pipeline, the Moomba Sydney Pipeline, the South West Queensland Pipeline, the Northern Territory Natural Gas Distribution Network, the Goldfields Gas Pipeline (88.2% ownership), the Diamantina Power Station (50% equity ownership) and the GDI gas distribution network (20% equity ownership). APA’s summary of Scope 1 emissions and energy consumption for the 2014 financial year are set out in the following table: Financial year 2014 2013 Change Scope 1 CO2 emissions (tonnes) Energy consumption (GJ) 8. Risk overview 311,421 6,425,042 322,827 2,791,839 (11,406) (3,633,203) (3.5) % (130.1) % APA identifies risks to the business and puts in place mitigation actions to remove or minimise the negative impact and maximise the opportunities in respect of these risks. Material risks are reviewed on an ongoing basis by APA’s 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) and the Sustainability Report (part of the Annual Review). Risk assessment considers a combination of the probability and consequence of risks occurring. Listed below are a number of key risks identified that could materially affect APA negatively. However, the risks listed may not include all risks associated with APA’s ongoing operations, the materiality of risks may change and previously unidentified risks may emerge. Key risks Economic regulation 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 Australian Energy Regulator or Economic Regulation Authority (for Western Australia) under an access arrangement process for a full regulation asset may adversely affect APA’s revenue in respect of that asset. 17 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDA number of APA’s assets are subject to light regulation which, while not a price regulation regime, does enable the regulator to arbitrate any disputes with customers on price and other terms of access. In addition, under the National Gas Law, any person may make an application that an unregulated pipeline become “covered” and subject to economic regulation, which may adversely affect APA’s economic position. Bypass and competitive risk Bypass and competitive risk occurs when a new transmission pipeline offers gas transportation services to the same end market serviced by existing pipelines. If a bypass risk eventuates, APA’s future earnings could be reduced if customers purchase gas transportation services from new pipelines rather than from APA’s existing pipelines. Gas demand risk Reduced demand for gas and increased use of gas swap contracts by customers may reduce the future demand for pipeline capacity and transportation services and adversely impact APA’s future revenue, profits and financial position. Gas supply risk A long-term shortage of competitively priced gas, either as a result of gas reserve depletion, allocation of gas to other markets, or the unwillingness or inability of gas production companies to produce gas, may adversely affect APA’s revenue and the carrying value of APA’s assets. 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 arises when contracts are entered into for derivatives with financial institutions. 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 2035. 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 facilities may adversely affect APA’s operations and/or financial position and performance. Foreign exchange risks APA is exposed to movements in foreign exchange rates and there is a risk that adverse USD:AUD exchange rate movements may affect APA’s earnings (through reduced AUD revenues received from USD denominated revenues) and debt levels (through translation of USD denominated debt). 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. There is also a risk that APA may be unable to secure further appropriate infrastructure investments on suitable terms, thereby limiting its growth. 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 demand risk, gas supply risk, counterparty risk, shorter term contracts and bypass and competitive risk, APA may not be successful in recontracting the available pipeline capacity when it comes due for contract renewal, and consequently may adversely impact APA’s future revenue, profits and financial position. Operational risk APA is exposed to a number of operational risks such as equipment failures or breakdowns, rupture of pipelines, information technology systems failures or breakdowns, employee or equipment shortages, contractor default, unplanned interruptions, damage by third parties, integration of acquired assets and unforeseen accidents. Operational 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. Operating licences and authorisations All pipeline, distribution, gas processing, storage and electricity generation assets owned and/or operated by APA require compliance with relevant laws, regulations and policies. Any changes may have an adverse impact on APA’s pricing, costs or compliance regimes, which could materially affect APA’s operations, earnings and/or financial position and performance. Certain licences, permits or regulatory consents may not be renewed, granted, continued or such renewal, grant or continuation may be on more onerous terms or subject to loss or forfeiture, which may adversely affect APA’s operations and/or financial position and performance. Construction and development risk APA develops new assets and undertakes expansion of its existing assets. This 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. Credit rating risks There is no assurance that any rating will remain in effect for a given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if in its judgement, circumstances warrant. APA is under no obligation to update information regarding such ratings should they change over time. 18 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDDIRECTORS 1. 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 Independent Chairman Appointed 28 August 2007 Appointed Chairman 30 October 2007 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 to 2001. Len’s past appointments have included lead non-executive Director of QBE Insurance Group Limited and Chairman of Foodland Associated Limited, ABN AMRO Australia Holdings Pty Limited, Solaris Power, Natural Gas Corporation Holdings Ltd (New Zealand), Elgas Ltd, East Australian Pipeline Ltd and the Advisory Council for CIMB Securities International (Australia) Pty Ltd. He was also a director of St George Bank Limited and Gas Valpo (Chile). Len is currently Chairman of the Taronga Conservation Society Australia. He was awarded an AM in the General Division of the Order of Australia for services to the Australian gas and energy industries and the community. Michael McCormack BSurv GradDipEng MBA FAICD Chief Executive Officer and Managing Director Appointed Managing Director 1 July 2006 Michael (Mick) McCormack has been Chief Executive Officer of APA since 1 July 2005 and Managing Director since 1 July 2006. He has over 30 years’ experience in the gas infrastructure sector in Australia and his career has encompassed all aspects of the sector including commercial development, design, construction, operation and management of most of Australia’s natural gas pipelines and gas distribution systems. Mick is a former Director of Envestra Limited (now Australian Gas Networks), the Australian Pipeline Industry Association and the Australian Brandenburg Orchestra. Steven Crane BComm FAICD SF Fin Independent Director Appointed 1 January 2011 John Fletcher BSc MBA FAICD Independent Director Appointed 27 February 2008 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 businesses. He is currently Chairman of nib holdings limited and Deputy Chairman of the Taronga Conservation Society Australia. He was formerly Chairman of Adelaide Managed Funds Limited and Investa Property Group Limited, a Director of Transfield Services Limited, Bank of Queensland Limited, 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 for CIMB Securities International (Australia) Pty Limited. Steve is a member of the Audit and Risk Management Committee and the Remuneration Committee. 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. He brings broad financial and commercial experience to the Board having previously been a Director of Integral Energy, Natural Gas Corporation Holdings Ltd (New Zealand), Foodland Associated Limited, Sydney Water Corporation and Alinta Energy Group. John was an AGL-appointed Director of Australian Pipeline Limited from 2000 to 2005. He 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 and Argo Investments Limited. He is a former Chairman of the Global Carbon Capture and Storage Institute, the CSIRO Energy Transformed Flagship Advisory Committee and Snowy Hydro, as well as a former Director of Leighton Holdings Limited, Ricegrowers Limited (trading as SunRice), St James Ethics Foundation, Australian Biodiesel Group Limited, EFIC and the CSIRO. He was also previously 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. 19 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDPatricia McKenzie LLB FAICD Independent Director Appointed 1 January 2011 Robert Wright BCom FCPA Independent Director Appointed 11 February 2000 Mark Knapman BCom LLB FGIA FCIS Company Secretary Appointed 16 July 2008 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 Australia and a Director of Transgrid. Patricia was formerly a Director of Macquarie Generation, Australian Energy Market Operator Limited (AEMO), the national energy market operator for electricity and gas, and 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 has over 35 years’ financial management experience. During his executive career he was the Chief Financial Officer of several listed companies. He has also been both an Executive Director and Non Executive Director of a number of listed companies. He is currently the Chairman of Super Retail Group Limited and APA Ethane Limited, the responsible entity of Ethane Pipeline Income Fund, and was previously Chairman of SAI Global 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. 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 and the Institute of Company Secretaries and Administrators, and is admitted to practice as a solicitor. 2. 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 July 2007 to September 2014 Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright nib holdings limited Transfield Services Limited Bank of Queensland Limited Since September 2010 February 2008 to February 2015 December 2008 to January 2015 – – Telstra Corporation Limited Argo Investments Limited Leighton Holdings Limited Ricegrowers Limited Since September 2009 Since September 2011 June 2013 to May 2014 December 2005 to August 2012 – – Super Retail Group Limited APA Ethane Limited 1 SAI Global Limited Since May 2004 Since July 2008 October 2003 to October 2013 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. 20 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED 3. Directors’ meetings During the financial year, 14 Board meetings, three Remuneration Committee meetings, four Audit and Risk Management Committee meetings and four Health Safety and Environment Committee meetings were held. The following table sets out the number of meetings attended by each Director while they were a Director or a committee member: Directors Leonard Bleasel AM 1 Michael McCormack Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright Board Remuneration Committee Audit and Risk Health Safety and Environment Committee Management Committee A 14 14 14 14 14 14 14 B 14 14 14 14 14 14 14 A – – 3 3 – 3 – B – – 3 3 – 3 – A – – 4 4 4 – 4 B – – 4 4 4 – 4 A – – – – 4 4 4 B – – – – 4 4 4 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. 4. Directors’ Securityholdings The aggregate number of APA securities held directly, indirectly or beneficially by Directors or their Director related entities at 30 June 2015 is 1,305,883 (2014: 979,426). The following table sets out Directors’ relevant interests in APA securities as at 30 June 2015: Directors Leonard Bleasel AM Michael McCormack Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright Fully paid securities as at 1 July 2014 Securities acquired Securities disposed Fully paid securities as at 30 June 2015 460,664 208,590 100,000 66,188 92,040 12,500 39,444 979,426 153,552 69,530 30,000 22,062 30,679 7,486 13,148 326,457 – – – – – – – – 614,216 278,120 130,000 88,250 122,719 19,986 52,592 1,305,883 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. 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 Trust and traded on the Australian Securities Exchange (“ASX”) under the code “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 of the financial year as a result of the exercise of an option over unissued APA securities. INDEMNIFICATION OF OFFICERS AND EXTERNAL AUDITOR During the financial year, the Responsible Entity paid a premium in respect of a contract insuring the Directors and officers of the Responsible Entity and any 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. Australian Pipeline Limited, in its capacity as Responsible Entity of Australian 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. 1) The Chairman attended all committee meetings ex officio. 21 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUED REMUNERATION REPORT The remuneration report is attached to and forms part of this report. AUDITOR 1. 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 77. 2. Non-audit services Non-audit services have been provided during the financial year by the Auditor. A description of those services and the amounts paid or payable to the Auditor for the services are set out in Note 29 to the financial statements. The Board has considered those non-audit services provided by the Auditor and, in accordance with written advice from the Audit and Risk Management Committee (“Committee”), is satisfied that the provision of those services by 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 of the Auditor; — 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 Auditor’s independence and the Auditor’s independence declaration referred to above. 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 30 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 23 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 disclosed in the notes to the financial statements. 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. CORPORATE GOVERNANCE STATEMENT Corporate Governance Statement for the financial year is available at APA’s website on http://www.apa.com.au/about-apa/corporate- governance.aspx. Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 298(2) of the Corporations Act 2001. On behalf of the Directors Leonard Bleasel AM Chairman Sydney, 26 August 2015 Robert Wright Director 22 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDAUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES REMUNERATION REPORT for the year ended 30 June 2015 LETTER FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE Dear Securityholders, On behalf of the Board and the Remuneration Committee, I am pleased to present APA’s Remuneration Report for the financial year ended 30 June 2015. FY2015 was a year of strong performance for securityholders, with APA continuing to deliver superior market returns and further strengthen the balance sheet. FY2015 saw a successful major acquisition, expansion in assets through major capital works, business and technology improvements, improved safety performance, average contract duration extensions and excellent financial returns. Changes to executive remuneration framework As flagged in last year’s report, for this year the measurement period for total securityholder return (“TSR”) in the long term incentive (“LTI”) plan was extended to three years, to more closely reflect the long-term nature of APA’s business cycle. In addition, Total Fixed Remuneration (“TFR”) for the CEO/MD and Senior Executives has increased this year as a function of APA’s continued significant growth in size relative to other Australian Stock Exchange (ASX) listed companies. As part of our conservative management of TFR and to maintain a market competitive remuneration package, APA’ positioning policy is for the TFR quantum to be at least the median against comparable ASX listed companies. In order to ensure our executive remuneration structure is aligned with APA’s strategic outlook and remains market competitive, the Board has undertaken an independent remuneration framework review. Overall, we concluded the framework is aligned with our business strategy and model but that the following improvements would be implemented. The Board approved the introduction of a minimum securityholding policy for the Chief Executive Officer and Managing Director (“CEO/MD”), Senior Executives and all the other participants of the LTI plan. In addition the Board has approved the extension of the performance measurement period of normalised Earnings Before Interest, Tax, Depreciation and Amortisation divided by Funds Employed (“EBITDA/FE”) for the LTI plan to three years (to be effective from FY2016), to strengthen the alignment of management and securityholder interests. For more information on our executive remuneration framework and how it supports securityholder value, please see section 3 of this report. This year’s remuneration report The Board is committed to transparency and strong governance. We recognise and welcome securityholders’ interest in APA, including understanding our remuneration strategy and outcomes. This year, we have substantially updated and expanded our remuneration report to provide information we believe securityholders need to make informed decisions. While, as a registered managed investment scheme listed on the ASX, APA is not covered by the remuneration reporting requirements of the Corporations Act 2001, we have followed a similar format, as we recognise this will be familiar and understandable to many of our securityholders. We also present remuneration information on an accrual basis rather than a paid basis, to better allow securityholders to reconcile amounts awarded for the period with APA’s performance in the period. We welcome your feedback on the report and its contents, and look forward to your attendance at our FY2015 Annual General Meeting. John Fletcher Chairman of the Remuneration Committee 23 APA Group | Annual Report 2015Topic Page number 1. What this report covers 2. Remuneration outcomes and APA performance 3. Executive remuneration arrangements 4. Executive contracts 5. Remuneration governance 6. Non-executive director arrangements 7. Additional key management personnel disclosures 1. What this report covers 24 24 28 31 31 31 32 This report details the remuneration arrangements for non-executive Directors including the Key Management Personnel (“KMP”) listed below. These are the people with authority and responsibility for planning, directing and controlling the major activities of APA, directly or indirectly, including both non-executive Directors and executives (executive Director and senior executives). Name Role Duration of appointment I) Non-executive directors Leonard Bleasel AM Chairman of APA Group Steven Crane John Fletcher Russell Higgins AO Full year Member of Audit and Risk Management Committee and Remuneration Committee Full year Chairman of Remuneration Committee and member of Audit and Risk Management Committee Full year Full year Chairman of Health Safety and Environment Committee and member of Audit and Risk Management Committee Patricia McKenzie Member of Health Safety and Environment Committee and Remuneration Committee Robert Wright Chairman of Audit and Risk Management Committee and member of Health Safety and Environment Committee II) Executive director Michael McCormack Chief Executive Officer and Managing Director (“CEO/MD”) III) Senior executives Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Mark Knapman Peter Wallace Chief Financial Officer (“CFO”) Chief Executive Strategy and Development Group Executive Transmission Group Executive Networks Group Executive Infrastructure Development Company Secretary Group Executive Human Resources Full year Full year Full year Full year Full year Full year Full year Full year Full year Full year The named persons held their current positions for the whole of the financial year. There have been no changes to KMP between the end of the financial year and the date this report was authorised for issue. 2. Remuneration outcomes and APA performance One of the key factors in determining the remuneration position of APA executives is market relativity, and within Australia, ranking on the ASX200 on market capitalisation is the most commonly used benchmark. APA Group has delivered strong shareholding returns, sound financial performance and significant organisational growth year on year. This, together with the Board’s desire to attract and retain a first class management team, has driven commensurate growth in remuneration levels in APA. APA MARKET CAPITALISATION RANK AGAINST ASX200 46th 48th 34th 75th 60th FY11 FY12 FY13 FY14 FY15 10 20 30 40 50 60 70 80 90 90th 100 FY10 24 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 20152.1 Executive remuneration awarded FY2015 As part of our commitment to greater transparency and to better reflect the pay for performance relationship, the table below sets out remuneration earned by APA Executives in FY2015 and FY2014 on an accrual basis for the period rather than remuneration received during the period. For instance, Short Term Incentive (“STI”) values in the table below reflect STI earned in FY2015 but are due to be paid in the next financial year. This differs from APA’s approach in the FY2014 remuneration report where STI reflected cash paid in FY2014 (i.e. September 2014), but earned in FY2013. Executive Director and Senior Executives Total Fixed Remuneration (“TFR”) $ Awarded STI 1 $ Allocated LTI 2 $ Other 3 $ Total $ Total $ Awarded in FY2015 Awarded in FY2014 780,000 1,535,000 Michael McCormack CEO/MD Peter Fredricson CFO Ross Gersbach Chief Executive Strategy and Development Robert Wheals Group Executive Transmission John Ferguson Group Executive Networks Kevin Lester Group Executive Infrastructure Development 479,000 Mark Knapman Company Secretary Peter Wallace Group Executive Human Resources 509,000 590,000 524,000 532,000 823,000 1,609,447 1,647,727 – 4,792,174 3,857,979 561,600 559,650 202,000 2,103,250 1,823,444 589,844 590,503 228,666 2,232,013 1,875,835 408,162 423,325 361,560 375,970 311,757 343,683 260,406 264,461 361,893 381,710 – – – – – 1,421,487 1,125,803 1,261,530 1,031,199 1,134,440 878,714 1,033,867 872,659 1,275,603 967,288 5,772,000 4,464,669 4,587,029 430,666 15,254,364 12,432,921 1) Awarded STI represents the amounts earned by the executives during the reporting period and are due to be paid in September 2015 as they are dependent on approval by the Board and having the signed audited annual accounts. 2) Allocated LTI represents the value of reference units that were earned by the executives during the reporting period. Reference units will be allocated in August 2015 as they are dependent on the approval by the Board and the release of APA Group’s annual results to the ASX. 3) Other represents the last payment of a loyalty and performance bonus made to Peter Fredricson and Ross Gersbach. The bonus was paid out in three annual cash instalments (commencing in April 2012) with the last payment made in April 2015 (see section 4 for further detail). 2.2 APA performance and incentive plan outcomes FY2015 Strong performance against all major metrics has been achieved again in FY2015. The Group’s superior performance led to strong at-risk remuneration outcomes. More detail on the link between APA performance and executive remuneration outcomes is provided below. Five year snapshot of APA performance The following table provides a summary of APA’s financial performance over the last five financial years. Included below are financial metrics related to incentive plan performance measures and additional disclosures reflecting APA’s earnings and how this impacts securityholder returns. Year ended 30 June FY2015 FY2014 FY2013 1 FY2012 FY2011 EBITDA before significant items ($m) Profit after income tax and non-controlling interests after significant items ($m) OCFPS before significant items (cents) 2 Earnings per security – reported (cents) 2 Distribution per security (cents) Closing security price at 30 June ($) 822.3 747.3 661.9 535.5 489.6 559.9 54.8 56.3 38.0 8.24 343.7 50.8 39.7 36.3 6.89 295.1 56.0 38.2 35.5 5.99 130.7 52.5 20.4 35.0 4.99 108.5 52.6 19.7 34.4 4.07 1) The balances for FY2013 have been restated for the effect of applying accounting standard AASB 119: Employee Benefits. 2) APA issued new ordinary securities between 23 December 2014 and 28 January 2015. The issue was offered at $6.60 per security, a discount to APA’s closing market price of $7.67 per security on 9 December 2014, the last trading day before the record date of the entitlement offer of 15 December 2014. The number of securities for the current and prior period (FY2014) has been adjusted in accordance with the accounting principles of AASB 133: Earnings per share following the discounted rights issue. 25 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 The chart below illustrates the movement in APA’s return index over the last five financial years against the S&P/ASX 100 and S&P/ ASX 200 Utilities return indices. A return index reflects the theoretical growth in value of a security holding over a specified period, assuming dividends are re-invested to purchase additional units at the closing price applicable on the ex-distribution date. PERCENTAGE CHANGE IN RETURN INDEX FROM BASE 300% 250% 200% 150% 100% 50% 0% (50%) FY10 FY11 FY12 FY13 FY14 FY15 APA Group S&P/ASX200 Utilities S&P/ASX100 Link between APA performance and awarded STI STI is an annual cash-settled incentive subject to 12 month financial and non-financial performance. STI funding is dependent on normalised OCFPS, a measure of the average cash amount generated by the business for each stapled security issued (typically excluding such things as significant items). This measure is directly linked to APA’s strategic goal of increasing cash flows over the medium term. Executives are awarded an STI only if OCFPS is above the threshold level of performance set by the Board. OCFPS therefore acts as a gateway for awards under the STI plan. OCFPS is also the mechanism through which the aggregate amount available for STI payments is limited, ensuring strong alignment between individual performance and APA’s ability to pay. STI awarded is subject to Executives satisfying their performance against a balanced scorecard of pre-determined APA business unit and personal objectives. Executive STI Awarded FY2015 FY2014 FY2013 FY2012 FY2011 Executive Award – Maximum Executive Award – Average Executive Award – Minimum OCFPS Performance as % of OCFPS target 96.0% 92.6% 86.8% 118.9% 95.0% 89.2% 85.3% 113.1% 95.0% 87.2% 77.0% 117.2% 96.5% 90.8% 77.5% 105.6% 95.0% 92.5% 89.5% 107.6% The chart below illustrates how executive STI outcomes align with performance against the key business metric of OCFPS. STI PERFORMANCE AND EXECUTIVE AWARDS 140% 110% 80% 50% FY11 FY12 FY13 FY14 FY15 Executive Award – Maximum Executive Award – Average Executive Award – Minimum Executive performance Vs. KPI performance measures OCFPS Performance as % of OCFPS target 26 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015STI outcomes during FY2015 For FY2015, the STI outcomes for executives, as a % of maximum opportunity, are set out in the table below: Executives Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Mark Knapman Peter Wallace STI earned STI forfeited % 93.2% 96.0% 95.6% 92.2% 92.0% 86.8% 94.2% 90.7% $ 1,609,447 561,600 589,844 408,162 361,560 311,757 260,406 361,893 % 6.8% 4.0% 4.4% 7.8% 8.0% 13.2% 5.8% 9.3% $ 117,428 23,400 27,406 34,338 31,440 47,493 16,033 37,107 Link between APA performance and awarded LTI LTI is a cash-settled incentive subject to two APA measures – Relative TSR (three year rolling average performance against S&P/ ASX 100 companies) and EBITDA/FE. Both measures are weighted equally and are linked to building securityholder wealth. Relative TSR provides the most direct measure of securityholder return and reflects an investor’s choice to invest in APA or direct competitors. Security price growth is underpinned by earnings growth and EBITDA/FE is based on the integrity of earnings performance against funds employed which provides a measure of how efficiently the assets are being deployed. The chart below presents APA’s TSR performance relative to S&P/ASX 100 companies (for FY2013 and FY2014 based on TSR end of year rank and for FY2015 based on 3 year rolling average) and EBITDA/FE as a function of improvements to historical actual. LTI awards as a percentage of maximum opportunity: FY2013 FY2014 FY2015 LTI PERFORMANCE AND EXECUTIVE AWARDS EBITDA/FE TSR LTI Allocated 100.0% 66.7% 90.8% 55.4% 53.2% 100.0% 77.7% 59.9% 95.4% 120% 100% 80% 60% 40% 20% 0% FY13 EBITDA/FE TSR as a % of total tranche LTI Allocated FY14 FY15 LTI outcomes during FY2015 For FY2015, the LTI outcomes for executives are set out in the table below: Executives Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Mark Knapman Peter Wallace LTI allocated LTI forfeited $ $ 1,647,727 559,650 590,503 423,325 375,970 343,683 264,461 381,710 79,148 25,350 26,747 19,175 17,030 15,567 11,978 17,290 27 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 3. Executive remuneration arrangements 3.1 Alignment of remuneration strategy with business strategy VISION Maintain our ranking as Australia’s number one energy infrastructure business KEY MEASURES OF SUCCESS Enhance our portfolio of gas infrastructure Capture revenue and operational synergies Facilitate the development of gas related projects Pursue opportunities which leverage our knowledge and skills base Strengthen our financial capability Attract and retain key talent Market competitive remuneration (Position TFR/ TPO at market median) REMUNERATION OBJECTIVES Align with APA business model & organisational imperatives Motivate and reward executives for superior performance Align with securityholder interests Comply with legal requirements and appropriate governance standards TOTAL PACKAGE OPPORTUNITY (“TPO”) TFR STI LTI — Reflect market value, individual’s skills and experience. — Consists of base salary, non-monetary benefits and superannuation. — Reference market median against a comparable set of companies. — Reward performance against specific business objectives (linked to key measures of success). — Cash-based incentive, subject to annual financial and non-financial performance. — Only payable if target OCFPS is achieved. — Clawback applies for three years. — Reward executives for creating securityholder value. — Allocations of reference units (settled in cash). — TSR against S&P / ASX 100 companies and EBITDA / FE performance measures. — Tranche vesting over four year performance period. — Clawback applies for three years. — Clawback applies to unvested LTI awards. REMUNERATION GOVERNANCE EXECUTIVE REMUNERATION CLAWBACK POLICY — Designed to further align the interests of the Executives with the long-term interests of the securityholders and to ensure excessive risk-taking is not rewarded. — The Board at its discretion may require Executives to repay some or all of any STI or LTI awarded, forfeit unvested LTI and/or forgo future STI or LTI awards if APA’s financial results have been misstated during the preceding three financial years and the misstatement may have impacted incentive plan outcomes. MINIMUM SECURITYHOLDING POLICY — Aligning Executives to securityholders through an equity-based incentive program is not practicable for APA due to our stapled trust structure and the Constitution. APA recognises the benefit of its Executives holding securities in APA. As a result, to further align Executive interests with those of securityholders, in FY16, the Board has introduced a minimum securityholding requirement. — The policy requires the CEO/MD to have a direct securityholding in APA equal to at least 100% of TFR. Senior executives are required to have a direct securityholding in APA equal to at least 50% of TFR. — Current Executives will have five years to meet the requirement and new Executives (appointed to office after 1 July 2015) will have three years following appointment to meet the requirement. 28 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 20153.2 Changes to the executive remuneration framework during FY2015 As noted in last year’s report, the measurement period for TSR in the long term incentive plan was extended to three years in FY2015, to more closely reflect the long-term performance of APA. The Board has also approved the introduction of a minimum securityholding policy and the extension of the EBITDA/FE performance measurement period to three years (to be effective from FY2016), to strengthen the alignment of management and securityholder interests. 3.3 Approach to setting remuneration Each executive’s TPO is dependent on their role in the organisation and their capacity to influence outcomes. APA’s executive remuneration is structured as a mix of fixed remuneration and ‘at risk’ components (STI and LTI). The equal emphasis on short and long-term performance (i.e., through STI and LTI awards) ensures executives are approximately rewarded for delivering sustained APA performance. The proportion of fixed versus ‘at risk’ remuneration varies between roles within APA, reflecting the different capacity of executives to influence APA’s operational performance and returns to securityholders. CEO/MD Senior Executives Company Secretary 40% 50% 58% 30% 25% 21% 30% 25% 21% TFR as a % of TPO Target STI as a % of TPO Target LTI as a % of TPO 3.4 Remuneration Components TFR TFR is reviewed annually and is determined by reference to independent external remuneration benchmarking information, taking into account an individual’s responsibilities, performance, qualifications and experience. APA’s policy is to position TFR at least the median against comparable ASX listed companies. STI The table below sets out the key elements of the executive STI plan. STI plan element Description STI opportunity STI opportunity is expressed as a percentage of TPO and varies by role. Target STI opportunities are set out in the table below. Maximum STI is 150% of target STI opportunity. Participant CEO/MD Senior Executives Company Secretary Target STI as a % of TPO 30% 25% 21% Performance gateway OCFPS acts as a gateway for awards under the STI plan. STI opportunity is only realisable if the OCFPS threshold level of performance set by the Board is met (i.e., the “gate opens”). Plan funding Provided the OCFPS threshold is met, the STI opportunity available may be modified based on the level of OCFPS performance achieved. Performance measures Once the “gate opens” and is funded, STI awards are subject to performance against individual KPIs based on a balanced scorecard of APA-wide, business unit and personal objectives covering: — Financial measures: cost control, revenue and cash generation and capital expenditure management. — Non-financial measures: health, safety and environment targets, project delivery and reinforcement of our ethical and values-based culture. Timing and delivery All STI awards are paid in cash, usually in September of the new financial year, following the completion of the audit of annual accounts. Clawback The Board in its discretion may determine that some, or all, of an executive’s STI award is forfeited in the event of misconduct or of a material misstatement in the year end accounts in the preceding three years. Cessation of employment If a participant resigns or is dismissed (with or without notice), all unvested STI awards are forfeited. If an employee leaves for any other reason, an STI award will be paid out based on the proportion of the period that has passed and performance at the time of cessation (subject to Board discretion). Change of control If a change of control occurs, an STI award will be paid out based on the proportion of the period that has passed at the time of change of control (subject to Board discretion). 29 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 LTI The table below sets out the key elements of the executive LTI plan. LTI plan element Description Award vehicle As a stapled security and under our Constitution, the use of actual securities in the LTI plan would not be practicable. Instead, APA operates a reference unit incentive plan to create alignment with securityholders. Reference units exactly mirror the performance of APA securities and are settled in cash. To further align executives and securityholders, APA has introduced a mandatory securityholding policy, effective from FY2016, requiring executives to hold a substantial number of securities in APA (see page 28 for further detail). Reference Units are valued at allocation based on 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. The window follows the announcement of APA’s annual financial results to the ASX. LTI opportunity LTI opportunities for each participant are set as a percentage of TPO, vary by role and are shown on page 29. Maximum LTI is 150% of target opportunity. Participant CEO/MD Senior Executives Company Secretary Target LTI as a % of TPO 30% 25% 21% LTI allocation The actual individual LTI allocation is determined at the completion of the financial year based on TSR performance against the S&P/ASX100 comparator group and EBITDA/FE performance. Performance measures and targets Awards are subject to two equally weighted measures: Relative TSR and EBITDA/FE. Relative TSR — TSR measures the percentage change in security price, plus the value of dividends or distributions received during the period, assuming all dividends and distributions are re-invested into new securities. — APA Group’s TSR is measured relative to a peer group comprising of S&P/ASX 100 constituents and is measured over three financial years. — Relative TSR has been selected as an LTI performance measure as it provides the most direct measure of securityholder return and reflects an investor’s choice to invest in APA or direct competitors. Executives only derive value from the TSR component of the LTI plan if APA’s performance is at least at the median of S&P/ASX 100 companies over a three year period. EBITDA/FE — EBITDA/FE reflects Earnings Before Interest, Tax, Depreciation and Amortisation divided by adjusted Funds Employed. EBITDA/FE hurdle is set as a percentage growth compared to budget and has been set to reflect improvement on the prior financial year. The Board determines the EBITDA/FE target each year through the rigorous budget setting process to improve the capital efficiency of the organisation. — EBITDA/FE has been selected as an LTI performance measure as it helps determine the operating cash flow leverage being achieved based on the operating assets available to the business. It is a longer term performance measure based on the integrity of earnings performance against funds employed. Retesting There is no retesting of the allocation. Timing and delivery An LTI allocation vests in three equal instalments over the three financial years following the allocation, with the initial one-third vesting at the end of the first financial year following the first award, one-third at the end of the second financial year and one-third at the end of the third financial year. Upon vesting, the LTI is delivered in cash. The cash payment is equal to the number of 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. From FY2016, APA will require executives to hold a number of APA securities. Executives may apply vested LTI amounts to the purchase of securities to fulfil the securityholding requirement. Restrictions LTI allocations do not entitle participants to vote at securityholders meetings nor to be paid distributions. No options or other equity instruments are issued to APA employees or non-executive directors under the LTI plan. Cessation of employment If a participant resigns or is dismissed (with or without notice), all unvested units are forfeited. If an employee leaves for any other reason, the Board determines the number of units which will lapse or are retained, subject to vesting on the original schedule. Change of control If a change of control occurs, all previously allocated units will vest. A further number of units will be allocated based on the proportion of the period that has passed in the current financial year at the time of change of control and will also vest on change of control (subject to Board discretion). 30 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 20154. Executive contracts 4.1 Contractual arrangements Remuneration arrangements for Executives are formalised in individual employment agreements. The terms of the contractual arrangements for Executives are set out in the table below: Executive CEO/MD Senior Executives Company Secretary Contract type Notice period Termination entitlement (without cause) Permanent Permanent Permanent 12 months 6 months 3 months 52 weeks TFR 13 weeks TFR 26 weeks TFR 4.2 Retention arrangements/loyalty and performance bonus In return for increased notice, non-compete and non-solicitation provisions and in regard of their role in the growth integration and financial challenges facing APA, Peter Fredricson, Ross Gersbach, Robert Wheals and John Ferguson were offered a loyalty and performance bonus effective from March 2012 (lasting three years for Peter Fredricson and Ross Gersbach, and two years for Robert Wheals and John Ferguson), with the first instalment paid in April 2013 and the final instalment was paid in April 2015. The Board does not intend to introduce a replacement to this bonus scheme. 4.3 Sign-on/termination payments provided to executives APA did not pay any sign-on or termination payments during FY2015. 5. Remuneration governance 5.1 Role of remuneration committee The Remuneration Committee has been established by the Board to oversee Executive and Non-executive Director remuneration. The role of the Remuneration Committee is to ensure the provision of a robust remuneration and reward system that aligns employee and investor interests and facilitates effective attraction, retention and development of employees. The Remuneration Committee’s activities are governed by its Charter (a copy of the Charter is available on APA’s website). In addition to making recommendations regarding APA’s broad remuneration strategy and policy (including diversity matters), the Remuneration Committee is responsible for: — Recommending the CEO/MD’s performance objectives, remuneration and appointment, retention and termination policy to the Board; — Reviewing and approving Executives’ remuneration (based on recommendations from the CEO/MD); and — Reviewing and recommending the Remuneration Report to the Board. 5.2 Composition of remuneration committee The members of the Remuneration Committee, all of whom are independent Non-executive Directors, are: — John Fletcher (Chairman); — Steven Crane; and — Patricia McKenzie. The Chairman of the Board attends all meetings of the Remuneration Committee and the CEO/MD attends by invitation, where management input is required. The Remuneration Committee met three times during the year. 5.3 Use of external advisors The Remuneration Committee seeks external professional advice from time to time on any matter within its terms of reference. Remuneration advisors are engaged by the Remuneration Committee and report directly to the Committee. During FY2015, the following remuneration information was obtained and considered by the Remuneration Committee: — Ernst & Young provided remuneration benchmarking information, undertook a review of APA’s executive remuneration framework and assisted with remuneration governance; — Egan & Associates provided fee and remuneration benchmarking information for non-executive director fees and certain members of the executive team, respectively; and — Orient Capital (Link Group) provided TSR benchmarking analysis. No remuneration recommendations were provided by any external advisors during FY2015. 6. Non-executive director arrangements 6.1 Determination of non-executive director fees The Board seeks to attract and retain high calibre non-executive directors who are equipped with diverse skills to oversee all functions of APA in an increasingly complex environment. The Board determines Board fees and Committee fees annually. It acts on advice from the Remuneration Committee which obtains external benchmark information from independent remuneration specialists. Such information includes market comparisons paid by comparable S&P/ASX 100 organisations. Non-executive Director fees comprise: — a Board fee; — an additional fee for serving on a committee of the Board; and — statutory superannuation contributions. Non-executive Directors do not receive incentive payments nor participate in incentive plans of any type. 31 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 One off ‘per diems’ may be paid in exceptional circumstances. No payments have been made under this arrangement in this reporting period or the prior reporting period. The Board members will also now be subject to a minimum securityholding requirement of 100% of annual base fees in line with the changes introduced for the CEO/MD and executives. Superannuation is provided in accordance with the statutory requirements under with the Superannuation Guarantee Act. Following changes in superannuation regulations in 2003, the Board terminated the Non-executive Directors’ retirement benefit plan. Benefits to participating Non-executive Directors accruing up to the termination date were quantified and preserved for payment on retirement of those Non-executive Directors. Robert Wright is the only current Non-executive Director entitled to a preserved benefit under the plan on his retirement from the Board. Following external benchmarking and a review of APA’s performance relative to other companies, Board fees and committee fees were increased effective 1 January 2015 (see table below). Board and Committee fees per annum (excluding statutory superannuation) are outlined below. The Board Chairman does not receive additional fees for committee membership. Fees Board Audit and Risk Management Committee Health Safety and Environment Committee Remuneration Committee 7. Additional key management personnel disclosures Effective 1 January 2015 Effective 1 January 2014 Chairman $000 Member $000 Chairman $000 Member $000 400 38 32 32 140 19 16 16 370 38 32 32 129 19 16 16 7.1 Fees paid to non-executive directors The following table sets out fees paid to non-executive directors in FY2014 and FY2015 in accordance with statutory rules and applicable accounting standards. Short-term employment benefits Post-employment benefits Salary/fees $ Superannuation $ Total $ 385,000 353,252 169,500 158,970 173,500 160,598 185,500 174,723 166,500 156,000 188,500 177,738 1,268,500 1,181,281 36,100 28,698 15,912 14,530 29,397 30,078 17,397 15,953 15,620 14,250 17,679 16,226 132,105 119,735 421,100 381,950 185,412 173,500 202,897 190,676 202,897 190,676 182,120 170,250 206,179 193,964 1,400,605 1,301,016 Year ended 30 June Leonard Bleasel AM FY2015 FY2014 Steven Crane FY2015 FY2014 John Fletcher FY2015 FY2014 Russell Higgins AO FY2015 FY2014 Patricia McKenzie FY2015 FY2014 Robert Wright FY2015 FY2014 Total FY2015 FY2014 32 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 7.2 Total remuneration earned and received by executives The following table outlines the total remuneration earned and received by executives during FY2014 and FY2015, calculated in accordance with applicable accounting standards. Short-Term Employment Benefits Post- Employment LTI Plans Salary/Fees $ STI Non-Monetary Superannuation $ $ $ Security-Based Payments 1 $ Year ended 30 June Michael McCormack FY2015 FY2014 Peter Fredricson FY2015 FY2014 Ross Gersbach FY2015 FY2014 Robert Wheals FY2015 FY2014 John Ferguson FY2015 FY2014 Kevin Lester FY2015 FY2014 Mark Knapman FY2015 FY2014 Peter Wallace FY2015 FY2014 Total Remuneration FY2015 FY2014 Other Payments 2 $ – – Total $ 4,708,659 4,195,278 1,500,000 1,405,000 1,609,447 1,463,962 745,000 725,000 561,600 534,375 – – – – 35,000 25,000 1,564,212 1,301,316 35,000 25,000 570,885 501,596 202,000 202,000 2,114,485 1,987,971 792,295 761,303 589,844 512,595 11,922 11,922 18,783 17,775 622,328 558,598 228,666 228,667 2,263,838 2,090,860 560,000 475,000 408,162 341,090 489,000 435,000 361,560 304,463 444,000 395,000 311,757 269,955 474,005 455,000 260,406 236,445 497,000 438,000 361,893 296,204 – – – – – – – – – – 30,000 25,000 344,570 251,563 – 60,000 1,342,732 1,152,653 35,000 25,000 318,204 238,352 – 60,000 1,203,764 1,062,815 35,000 25,000 215,410 103,441 34,995 25,000 272,908 245,153 35,000 25,000 334,123 210,465 – – – – – – 1,006,167 793,396 1,042,314 961,598 1,228,016 969,669 5,501,300 5,089,303 4,464,669 3,959,089 11,922 11,922 258,778 192,775 4,242,640 3,410,484 430,666 550,667 14,909,975 13,214,240 1) Cash settled security-based payments. Reference units subject to Board allocation in August 2015 based on an estimated VWAP of $8.7864. 2) Other payments include Loyalty Payment instalments. Refer to “Executive contracts” section for more information. 33 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 7.3 Outstanding LTI awards The following table sets out the movements in the number of LTI reference units and the number of LTI reference units that have been allocated to executives but have not yet vested or been paid, and the years in which they will vest: Executives Michael McCormack Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Mark Knapman Peter Wallace Grant date (financial year) Opening balance at 1 July 2014 1 Allocated Units subject to Closing allocation by the Board in Paid 30 June 2015 August 2015 2 balance at 69,373 129,749 182,674 (69,373) (63,672) (59,396) – 66,077 123,278 135,141 135,141 28,654 51,643 66,880 32,676 58,461 73,468 11,085 22,227 41,423 10,794 21,712 38,231 (28,654) (25,343) (21,746) – 26,300 45,134 47,250 47,250 – (32,676) (28,689) 29,772 (23,888) 49,580 49,833 49,833 (11,085) (10,907) (13,469) – 11,320 27,954 31,500 31,500 (10,794) (10,655) (12,431) – 11,057 25,800 28,980 28,980 187,530 63,693 67,206 48,177 42,789 Reference units allocated that have not yet vested or been paid and the financial years in which they will vest 3 FY2016 3 FY2017 FY2018 FY2019 – 66,077 61,639 45,047 – – – 61,639 45,047 62,510 – – – 45,047 62,510 – – – – 62,510 172,763 169,196 107,557 62,510 – 26,300 22,567 15,750 – – – 22,567 15,750 21,231 – – – 15,750 21,231 – – – – 21,231 64,617 59,548 36,981 21,231 – 29,772 24,790 16,611 – – – 24,790 16,611 22,402 – – – 16,611 22,402 – – – – 22,402 71,173 63,803 39,013 22,402 – 11,320 13,977 10,500 – – – 13,977 10,500 16,059 – – – 10,500 16,059 – – – – 16,059 35,797 40,536 25,559 16,059 – 11,057 12,900 9,660 – – – 12,900 9,660 14,263 – – – 9,660 14,263 – – – – 14,263 33,617 36,823 23,923 14,263 31,400 (10,210) 26,460 21,190 26,460 10,595 8,820 – 10,595 8,820 13,038 – 8,820 13,038 – – 13,038 39,114 14,561 25,671 31,515 3,638 26,716 36,933 (14,561) (12,598) (10,247) – 13,073 21,268 21,897 21,897 (3,638) (13,110) (12,009) – 13,606 24,924 29,166 29,166 19,415 32,453 21,858 13,038 – 13,073 10,634 7,299 – – – 10,634 7,299 10,032 – – 7,299 10,032 – – – – 10,032 31,006 27,965 17,331 10,032 – 13,606 12,462 9,722 – – – 12,462 9,722 14,481 – – – 9,722 14,481 – – – – 14,481 35,790 36,665 24,203 14,481 30,096 43,443 FY2011 FY2012 FY2013 FY2014 FY2015 Total FY2011 FY2012 FY2013 FY2014 FY2015 Total FY2011 FY2012 FY2013 FY2014 FY2015 Total FY2011 FY2012 FY2013 FY2014 FY2015 Total FY2011 FY2012 FY2013 FY2014 FY2015 Total FY2013 FY2014 FY2015 Total FY2011 FY2012 FY2013 FY2014 FY2015 Total FY2011 FY2012 FY2013 FY2014 FY2015 Total 1) The units have been adjusted following the accelerated renounceable entitlement offer. 2) Reference units subject to Board allocation in August 2015 based on an estimated VWAP of $8.7864. 3) Reference units multiplied by 30 trading days VWAP to be paid in cash in September 2015. 34 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 7.4 Loans to KMP and related parties No loans have been made to KMP and related parties. 7.5 Securityholdings The following table sets out the relevant interests of KMP in APA securities: Year ended 30 June Non-executive directors Leonard Bleasel AM Steven Crane John Fletcher Russell Higgins AO Patricia McKenzie Robert Wright Executive director Michael McCormack Senior Executives Peter Fredricson Ross Gersbach Robert Wheals John Ferguson Kevin Lester Mark Knapman Peter Wallace Opening Balance at 1 July 2014 Securities Acquired Securities Disposed Closing Balance at 30 June 2015 460,664 100,000 66,188 92,040 12,500 39,444 153,552 30,000 22,062 30,679 7,486 13,148 208,590 69,530 7,716 485 1,500 1,967 3,277 7,201 6,000 14,072 – 500 655 4,092 2,400 2,000 – – – – – – – – – – – – – – 614,216 130,000 88,250 122,719 19,986 52,592 278,120 21,788 485 2,000 2,622 7,369 9,601 8,000 KMP are subject to 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. 7.6 Other transactions with KMP of APA and the Responsible Entity and related parties Leonard Bleasel AM holds 10,000 subordinated notes that were issued by APT Pipelines Limited, a subsidiary of APT. Other than non-executive director fees, executive compensation and equity and debt holdings disclosed in this report, there are no other transactions with the KMP of APA and the Responsible Entity. 35 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESREMUNERATION REPORT CONTINUEDfor the year ended 30 June 2015 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2015 Note 2015 $000 2014 $000 5 5 3 6 6 6 6 7 Continuing operations Revenue Share of net profits of associates and joint ventures using the equity method Net profit on sale of equity accounted investment Asset operation and management expenses Depreciation and amortisation expense Other operating costs – pass-through Finance costs Employee benefit expense Other expenses Profit before tax Income tax (expense)/benefit 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: Gain/(loss) on available-for-sale investments taken to equity Transfer of loss on cash flow hedges to profit or loss Loss on cash flow hedges taken to equity Loss on associate hedges taken to equity Recycling of reserves on disposal of associate 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: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Non-controlling interest – other Total comprehensive income attributable to: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Non-controlling interest – other Earnings per security Basic and diluted (cents per security) 8 1,539,694 13,921 1,553,615 430,039 (55,053) (208,200) (434,382) (348,484) (176,174) (24,233) 737,128 (177,198) 559,930 18,354 (5,506) 12,848 2,591 68,960 (316,555) (9,660) (19,416) 82,520 (191,560) (178,712) 381,218 513,581 46,348 559,929 1 559,930 333,880 47,337 381,217 1 381,218 2015 56.3 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 2014 (Restated) 39.7 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 36 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2015 Current assets Cash and cash equivalents Trade and other receivables Other financial assets Inventories Other Total current assets Non-current assets Trade and other 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 Unearned revenue Total current liabilities Non-current liabilities Trade and other payables Borrowings Other financial liabilities Deferred tax liabilities Provisions Unearned revenue Total non-current liabilities Total liabilities Net assets Equity Australian Pipeline Trust equity: Issued capital Reserves Retained earnings Equity attributable to unitholders of the parent Non-controlling interests: APT Investment Trust: Issued capital Reserves Retained earnings Note 19 10 22 10 22 25 12 13 13 16 11 20 22 15 11 20 22 7 15 23 2015 $000 2014 $000 411,921 254,940 24,789 21,290 8,314 721,254 92,470 496,537 257,425 8,355,193 1,140,500 3,556,246 33,261 13,931,632 14,652,886 405,685 164,353 145,815 85,452 7,477 808,782 3,261 9,141,497 44,793 194,692 60,410 16,801 9,461,454 10,270,236 7,009 156,439 16,575 17,349 5,996 203,368 147,835 110,768 593,325 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 3,599 4,708,283 216,936 110,783 47,442 15,438 5,102,481 5,476,021 4,382,650 2,496,489 3,195,449 (308,792) 463,772 3,350,429 1,816,460 (116,243) 200,978 1,901,195 1,005,086 595 26,488 576,172 (394) 19,465 Equity attributable to unitholders of APT Investment Trust 24 1,032,169 595,243 Other non-controlling interest Total non-controlling interests Total equity 52 51 1,032,221 595,294 4,382,650 2,496,489 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 37 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES 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 l - e b a l i a v A t s u r T e n i l i e p P n a i l a r t s u A l - e b a l i a v A - n o n r e h t O T P A l e a s - r o f t n e m t s e v n I r e n w o o t l e b a t u b i r t t A l e a s - r o f t n e m t s e v n I t e s s A l a t o T 0 0 0 $ 0 0 0 $ 0 0 0 $ s t s e r e t n i i s g n n r a e r e h t O 0 0 0 $ g n i l l o r t n o c d e n a t e R i d e u s s I l a t i p a C 0 0 0 $ t n e m t s e v n I i d e n a t e R l n o i t a u a v e R d e u s s I t s u r T 0 0 0 $ 0 0 0 $ 0 0 0 $ i s g n n r a e e v r e s e R 0 0 0 $ l a t i p a C e h t f o 0 0 0 $ t n e r a p 0 0 0 $ i d e n a t e R i s g n n r a e 0 0 0 $ i g n g d e H e v r e s e R l n o i t a u a v e R n o i t a u a v e R d e u s s I l 0 0 0 $ e v r e s e R 0 0 0 $ e v r e s e R 0 0 0 $ l a t i p a C 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 5 1 0 2 e n u J 0 3 d e d n e r a e y l i a c n a n fi e h t r o F I I S E T T N E D E L L O R T N O C S T I I D N A T S U R T E N L E P P N A L A R T S U A I I 38 , 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 , ) 5 7 4 2 6 ( , 6 3 7 , 1 9 6 6 8 , , 6 1 5 0 2 8 , 1 3 1 0 2 l y u J 1 t a e c n a a B l , 9 2 9 3 1 5 2 , 6 0 7 3 4 3 , ) 2 4 7 5 8 ( , 5 6 4 5 2 , 9 2 4 3 8 2 , ) 5 0 2 4 9 2 ( , ) 4 6 6 6 ( , , 9 8 4 6 9 4 2 , 0 3 9 9 5 5 , , ) 6 2 7 5 5 2 ( 4 1 0 7 7 , 8 1 2 , 1 8 3 ) 0 6 9 2 0 3 ( , ) 7 2 6 9 3 ( , , 3 7 4 8 3 8 , 1 7 5 0 9 , , 9 8 4 6 9 4 2 , , 0 5 6 2 8 3 4 , 0 5 5 4 1 – – 1 – – 1 5 1 5 1 – – 1 – – – – 1 – – 1 – – 6 4 6 4 1 – – 1 – – – – 2 5 7 4 1 – – – – – – 1 1 – – – – – – – – 1 4 – – – – – – 4 4 – – – – – – – – 4 6 0 7 8 3 , 6 0 7 8 3 , – ) 1 6 8 ( – – – ) 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 4 3 6 4 , 8 4 3 6 4 , – – 9 8 9 – – – 9 8 9 7 3 3 7 4 , 8 4 3 6 4 , 9 8 9 – ) 7 3 4 9 ( , , 1 5 3 8 3 4 – – – ) 5 2 3 9 3 ( , ) 5 2 3 9 3 ( , – – – – – – – – – – – – – – – – – – – – ) 8 0 6 2 ( , ) 6 5 0 4 ( , – – ) 0 4 5 5 5 2 ( , ) 0 4 5 5 5 2 ( , – , 9 9 9 4 0 3 , 9 9 9 4 0 3 – – ) 1 8 8 4 8 ( , 6 9 7 6 , ) 5 1 7 9 8 ( , ) 2 6 9 , 1 ( 5 6 4 5 2 , ) 9 3 0 2 ( , 5 1 9 6 2 , 9 8 5 3 8 5 5 4 2 , , 6 5 7 9 0 3 ) 0 0 8 2 6 ( , ) 3 7 3 , 1 ( – – – – – – – – – – – ) 6 5 0 4 ( , e v i s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P e m o c n i o t g n i t a e r l x a t e m o c n I r e h t o f o s t n e n o p m o c e m o c n i e v i s n e h e r p m o c e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i s n o i t u b i r t s i d f o t n e m y a P 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 ) 7 3 4 9 ( , ) 0 9 1 , 0 3 ( , 1 5 3 8 3 4 2 2 1 , 0 0 4 , 1 – 7 5 0 9 , – – – – – – ) 5 3 6 3 6 2 ( , ) 5 3 6 3 6 2 ( , – 1 8 5 3 1 5 , 1 8 5 3 1 5 , – – , ) 5 1 7 6 5 2 ( 4 5 3 8 1 , , ) 1 7 6 6 7 2 ( 2 0 6 , 1 4 1 0 7 7 , ) 6 0 5 5 ( , 1 0 0 3 8 , ) 1 8 4 ( 0 8 8 3 3 3 , 9 2 4 6 2 5 , ) 0 7 6 3 9 1 ( , 1 2 1 , 1 – – – – – – – – – – – – – e v i s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P e m o c n i o t g n i t a e r l x a t e m o c n I r e h t o f o s t n e n o p m o c e m o c n i e v i s n e h e r p m o c e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i s n o i t u b i r t s i d f o t n e m y a P r e d n u d e u s s i s e i t i r u c e S 2 2 1 , 0 0 4 , 1 r e f f o t n e m e l t i t n e ) 0 9 1 , 0 3 ( s e i t i r u c e s f o t s o c e u s s I 7 5 0 9 , 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 , 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 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 a B l 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 2 5 2 1 ( , 3 6 3 9 6 6 8 , , 0 6 4 6 1 8 , 1 4 1 0 2 l y u J 1 t a e c n a a B l 9 6 1 , 2 3 0 , 1 8 8 4 6 2 , 5 9 5 , 6 8 0 5 0 0 , 1 , 9 2 4 0 5 3 3 , , 2 7 7 3 6 4 ) 5 4 9 8 1 3 ( , 4 8 4 , 1 9 6 6 8 , , 9 4 4 5 9 1 , 3 5 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 d a e r l 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 APA Group | Annual Report 2015 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 l a t o T 0 0 0 $ - n o n r e h t O 0 0 0 $ 0 0 0 $ g n i l l o r t n o c d e n i a t e R s t s e r e t n i s g n i n r a e T P A t s u r T 0 0 0 $ r e h t O 0 0 0 $ d e u s s I l a t i p a C 0 0 0 $ t n e m t s e v n I d e n i a t e R n o i t a u l a v e R d e u s s I 0 0 0 $ 0 0 0 $ s g n i n r a e e v r e s e R 0 0 0 $ l a t i p a C e l a s - r o f - e l b a l i a v A t n e m t s e v n I e h t f o 0 0 0 $ t n e r a p r e n w o o t e l b a t u b i r t t A 0 0 0 $ d e n i a t e R s g n i n r a e 0 0 0 $ g n i g d e H e v r e s e R n o i t a u l a v e R n o i t a u l a v e R d e u s s I 0 0 0 $ e v r e s e R 0 0 0 $ e v r e s e R 0 0 0 $ l a t i p a C e l a s - r o f - e l b a l i a v A t n e m t s e v n I t e s s A 9 2 9 , 3 1 5 , 2 0 5 5 4 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 ) 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 6 0 7 , 3 4 3 ) 2 4 7 , 5 8 ( 5 6 4 , 5 2 9 2 4 , 3 8 2 ) 5 0 2 , 4 9 2 ( ) 4 6 6 , 6 ( ) 6 2 7 , 5 5 2 ( 4 1 0 , 7 7 8 1 2 , 1 8 3 ) 0 6 9 , 2 0 3 ( ) 7 2 6 , 9 3 ( 3 7 4 , 8 3 8 , 1 7 5 0 , 9 1 – – 1 – – 1 – – 1 – – – – 1 – – 1 – – 1 – – 1 – – – – 1 – – – – – – 1 1 – – – – – – – – 1 4 – – – – – – 4 4 – – – – – – – – 4 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 6 0 7 , 8 3 6 0 7 , 8 3 – 9 9 9 , 4 0 3 9 9 9 , 4 0 3 – – ) 1 6 8 ( ) 1 6 8 ( ) 1 8 8 , 4 8 ( 6 9 7 , 6 ) 5 1 7 , 9 8 ( ) 2 6 9 , 1 ( ) 5 6 6 , 8 3 ( ) 5 6 6 , 8 3 ( ) 0 4 5 , 5 5 2 ( ) 0 4 5 , 5 5 2 ( – 5 4 8 , 7 3 6 0 7 , 8 3 ) 1 6 8 ( 3 8 5 , 5 4 2 6 5 7 , 9 0 3 ) 0 0 8 , 2 6 ( ) 3 7 3 , 1 ( 5 6 4 , 5 2 ) 9 3 0 , 2 ( 5 1 9 , 6 2 9 8 5 9 8 9 9 8 9 ) 5 1 7 , 6 5 2 ( 4 5 3 , 8 1 ) 1 7 6 , 6 7 2 ( 2 0 6 , 1 ) 5 2 3 , 9 3 ( ) 5 2 3 , 9 3 ( ) 5 3 6 , 3 6 2 ( ) 5 3 6 , 3 6 2 ( – 7 3 3 , 7 4 8 4 3 , 6 4 9 8 9 0 8 8 , 3 3 3 9 2 4 , 6 2 5 ) 0 7 6 , 3 9 1 ( 1 2 1 , 1 4 1 0 , 7 7 ) 6 0 5 , 5 ( 1 0 0 , 3 8 ) 1 8 4 ( – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – e v i s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P e m o c n i o t g n i t a l e r x a t e m o c n I r e h t o f o s t n e n o p m o c e m o c n i e v i s n e h e r p m o c e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i s n o i t u b i r t s i d f o t n e m y a P s r e d l 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 e v i s n e h e r p m o c r e h t O r a e y e h t r o f t fi o r P e m o c n i o t g n i t a l e r x a t e m o c n I r e h t o f o s t n e n o p m o c e m o c n i e v i s n e h e r p m o c e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i s n o i t u b i r t s i d f o t n e m y a P r e d n u d e u s s i s e i t i r u c e S 0 5 6 , 2 8 3 , 4 2 5 7 4 9 6 1 , 2 3 0 , 1 8 8 4 , 6 2 5 9 5 6 8 0 , 5 0 0 , 1 9 2 4 , 0 5 3 , 3 2 7 7 , 3 6 4 ) 5 4 9 , 8 1 3 ( 4 8 4 , 1 9 6 6 , 8 9 4 4 , 5 9 1 , 3 5 1 0 2 e n u J 0 3 t a e c n a l a B . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u j n o c n i d a e r e b d l 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 ) 7 3 4 , 9 ( 1 5 3 , 8 3 4 ) 7 3 4 , 9 ( ) 0 9 1 , 0 3 ( 1 5 3 , 8 3 4 2 2 1 , 0 0 4 , 1 7 5 0 , 9 – – – – – – 2 2 1 , 0 0 4 , 1 r e f f o t n e m e l t i t n e ) 0 9 1 , 0 3 ( s e i t i r u c e s f o t s o c e u s s I 7 5 0 , 9 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 l e r x a T 9 8 4 , 6 9 4 , 2 1 5 0 3 9 , 9 5 5 9 8 4 , 6 9 4 , 2 1 5 6 4 6 4 ) 8 0 6 , 2 ( – ) 8 0 6 , 2 ( ) 6 5 0 , 4 ( – – ) 6 5 0 , 4 ( 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 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 8 4 3 , 6 4 8 4 3 , 6 4 – 1 8 5 , 3 1 5 1 8 5 , 3 1 5 – 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 2 , 5 2 1 ( 3 6 3 9 6 6 , 8 0 6 4 , 6 1 8 , 1 4 1 0 2 y l u J 1 t a e c n a l a B AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 30 June 2015 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Receipts of/(payments for) Hastings Funds Management fees Dividends received Proceeds from repayment of finance leases Interest received Interest and other costs of finance paid Income tax refund 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 other assets Payments for intangible assets Loans advanced to related parties Proceeds from sale of business Proceeds from sale of finance lease asset Proceeds from sale of equity accounted investment 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 Proceeds from early settlement of derivatives Distributions paid to: Unitholders of APT Unitholders of non-controlling interests – APTIT Net cash provided by financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of financial year Unrealised exchange losses on cash held 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. Note 2015 $000 2014 $000 3 1,584,738 (827,797) 17,201 46,526 4,621 30,296 (293,395) – 562,190 (2,814,559) 876 (17,383) – (18,612) (3,429,281) (3,490) – 8,683 783,758 (5,490,008) 5,279,188 (1,429,500) 1,838,473 (32,398) (39,567) 19,515 (263,636) (39,324) 5,332,751 404,933 7,009 (21) 411,921 1,461,695 (767,599) (8,201) 61,971 4,693 5,965 (327,124) 141 431,541 (446,754) 797 – (24) – (677) (126,127) 1,487 – – (571,298) 1,585,833 (1,208,915) – (10,178) (60) – (259,598) (41,271) 65,811 (73,946) 80,955 – 7,009 39 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOWS CONTINUED For the financial year ended 30 June 2015 Reconciliation of profit for the year to the net cash provided by operating activities Profit for the year Loss on disposal of property, plant and equipment Profit on sale of finance lease asset Share of net profits of joint ventures and associates using the equity method Dividends/distributions received from equity accounted investments Net profit on sale of equity accounted investment Depreciation and amortisation expense Finance costs Unrealised foreign exchange loss Realised hedging gains 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 Note 3 2015 $000 559,930 3,337 (1,764) (13,921) 45,989 (430,039) 208,200 21,221 35 (19,258) (49,880) (3,936) (24,725) 65,083 14,725 9,995 177,198 562,190 2014 $000 343,706 115 – (64,289) 61,418 – 156,228 11,142 – – 5,948 (4,623) 4,291 5,962 885 (11,558) (77,684) 431,541 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. 40 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 30 June 2015 BASIS OF PREPARATION 1. About this report The content and format of the financial statements has been streamlined to present the financial information in a more meaningful manner to securityholders. Note disclosures have been grouped into six sections being Basis of Preparation, Financial Performance, Operating Assets and Liabilities, Capital Management, Group Structure and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used. The purpose of the revised format is to provide readers with a clearer understanding of what are the key drivers of financial performance for APA Group. Basis of Preparation 1. About this report 2. General information 5. Revenue 4. Segment information 10. Receivables 11. Payables Financial Performance Operating Assets and Liabilities 3. Significant items and events 6. Expenses 12. Property, plant and equipment 7. Income tax 13. Goodwill and intangibles 8. Earnings per security 14. Impairment of non-financial assets 9. Distributions 15. Provisions 16. Other non-current assets 17. Employee superannuation plans 18. Leases Capital Management Group Structure Other 19. Cash and cash equivalents 24. Non-controlling interests 27. Commitments and contingencies 20. Borrowings 25. Joint arrangements and associates 28. Director and senior executive 21. Financial risk management 26. Subsidiaries 22. Other financial instruments 23. Issued capital remuneration 29. Remuneration of external auditor 30. Related party transactions 31. Parent entity information 32. Adoption of new and revised Accounting Standards 33. Events occurring after reporting date 2. 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 (together the “Trusts”), their respective subsidiaries and the 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. Total comprehensive income attributable to non-controlling interests is reported as disclosed in the separate financial statements of APTIT. Comprehensive income arising from transactions between the parent (APT) group entities and the non-controlling interest (APTIT) have not been eliminated in the reporting of total comprehensive income attributable to non-controlling interests. 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. APT’s registered office and principal place of business is as follows: Level 19 HSBC Building 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000 41 APA Group | Annual Report 2015BASIS OF PREPARATION 2. General information (continued) The consolidated general purpose financial report for the year ended 30 June 2015 was authorised for issue in accordance with a resolution of the directors on 26 August 2015. This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AIFRS) and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financial report has been prepared on the basis of historical cost, except for the revaluation of financial instruments. 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. Working capital position The working capital position as at 30 June 2015 for APA Group is that current liabilities exceed current assets by $87.5 million ($170.2 million for 30 June 2014) primarily as a result of $145.8 million (AUD equivalent) of cash flow hedge liabilities, current borrowings of $164.4 million and accrued transaction costs of $137.2 million. APA Group has access to sufficient available committed, un-drawn bank facilities of $1,175.0 million as at 30 June 2015 ($835.5 million for 30 June 2014). The Directors continually monitor APA Group’s working capital position, including forecast working capital requirements and have ensured that there are appropriate refinancing strategies and adequate committed funding facilities in place to accommodate debt repayments as and when they fall due. Foreign currency transactions Both the functional and presentation currency of APA Group and APT is Australian dollars (A$). All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date and resulting exchange differences are recognised in profit or loss in the period in which they arise, unless they qualify for hedge accounting. 3. Significant items and events Individually significant items included in profit after income tax expense are as follows: Significant items impacting EBITDA Net profit on sale of equity accounted investment a Recovery of fees paid to HDF by Hastings Funds Management Limited b Total significant items impacting EBITDA Income tax related to significant items above Income tax benefit on tax cost base step up c Profit from significant items after income tax 2015 $000 2014 $000 430,039 17,201 447,240 (91,222) – 356,018 – – – – 144,060 144,060 a) During August 2014, APA Group sold its investment in Envestra Limited to Cheung Kong Group consortium for $1.32 per share amounting to $783.8 million in gross proceeds which realised a net pre-tax profit of $430.0 million. b) In November 2014, APA Group successfully appealed the NSW Supreme Court decision in a matter regarding performance fees previously paid by Hastings Diversified Utility Fund (HDF) to Hastings Funds Management Limited (HFML). c) 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. Acquisition of the Wallumbilla Gladstone Pipeline APA Group completed the acquisition of the Wallumbilla Gladstone Pipeline (formerly QCLNG Pipeline) on 3 June 2015 from a member of the BG Group for US$4,596.6 million (A$5,834.6 million) net of a refund of A$15.2 million received on 20 July 2015, relating to the adjusted acquisition price. The acquisition was funded through the issuance of US$3,705 million of fixed rate debt (achieved through USD placements and a combination of GBP and Euro Medium Term Note placements, swapped to USD through cross currency interest rate swaps). The remainder was funded by an accelerated renounceable entitlement offer completed in January 2015 when APA Group issued 278,556,562 new stapled securities at a total value of $1,807.9 million, net of transaction costs. The acquisition resulted in an increase in property, plant and equipment of $2,562.0 million, contract intangibles of $3,413.8 million, line pack gas of $4.0 million and other net assets of $18.6 million. 42 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE 4. Segment information APA Group operates in one geographical segment, being Australia and the revenue from major products and services is shown by the 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 and Australian Gas Networks Limited (formerly Envestra Limited) for appropriate fees; and — Energy Investments, which includes APA Group’s strategic stakes in a number of investment entities that house energy infrastructure assets, generally characterised by long term secure cashflows, with low capital expenditure requirements. APA Group has reported the segment Earnings before interest, tax, depreciation and amortisation (“EBITDA”) exclusive of corporate costs for the current year. The reporting provides a clearer picture of the performance of the underlying assets within the business. The comparative year has been restated to this effect. Reportable segments 2015 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 Earnings before interest, tax, depreciation and amortisation (“EBITDA”) Share of net profits of joint ventures and associates using the equity method Finance lease and investment interest income Corporate costs 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 Energy Asset Energy Infrastructure Management a Investments a $000 $000 $000 Other Consolidated $000 $000 984,184 – 13,514 2,896 – 85,056 – 420,868 – – – 13,921 – 8,308 546 1,000,594 505,924 22,775 – – – – – – 1,069,240 13,921 434,382 11,204 546 1,529,293 24,322 1,553,615 838,462 39,448 440,584 – 1,318,494 – 2,896 – – – – 13,921 8,308 – 841,358 (195,635) 39,448 (12,565) 462,813 – 645,723 26,883 462,813 – – (74,129) (74,129) – (74,129) 13,921 11,204 (74,129) 1,269,490 (208,200) 1,061,290 (324,162) 737,128 (177,198) 559,930 a) During August 2014, APA Group sold its investment in Envestra Limited to Cheung Kong Group consortium for $1.32 per share. This has resulted in a $440.0 million gain in Energy Investments being the gross proceeds less the carrying value of the equity accounted investment affected by a reassessment of the carrying value of the asset management business to reflect future growth opportunities, resulting in a reduction of goodwill ($10.0 million). 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. 2015 Segment assets and liabilities Segment assets Carrying value of investments using the equity method Unallocated assets a Total assets Segment liabilities Unallocated liabilities b Total liabilities Energy Asset Infrastructure Management $000 $000 Energy Investments Consolidated $000 $000 13,146,538 – 239,798 – 110,874 257,425 507,565 71,521 – 13,497,210 257,425 898,251 14,652,886 579,086 9,691,150 10,270,236 a) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards. b) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts. 43 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE 4. Segment information (continued) Reportable segments (continued) 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 Energy Asset Infrastructure Management $000 $000 Energy Investments $000 Other Consolidated $000 $000 820,478 – 8,925 3,591 – 99,171 – 394,552 – – 832,994 493,723 – 64,289 – 3,311 533 68,133 – – – – – – 919,649 64,289 403,477 6,902 533 1,394,850 1,142 1,395,992 a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial. 2014 Segment result Earnings before interest, tax, depreciation and amortisation (“EBITDA”) Share of net profits of joint ventures and associates using the equity method Finance lease and investment interest income Corporate costs Total EBITDA Depreciation and amortisation Earnings before interest and tax (“EBIT”) Net finance costs a Profit before tax Income tax benefit Profit for the year 2014 Energy Asset Infrastructure Management $000 (Restated) $000 (Restated) Energy Investments $000 (Restated) Other Consolidated $000 $000 (Restated) (Restated) 678,364 67,552 533 – 746,449 – 3,591 – – – – 681,955 (151,610) 67,552 (4,618) 530,345 62,934 64,289 3,311 – 68,133 – 68,133 – – (70,306) (70,306) – (70,306) 64,289 6,902 (70,306) 747,334 (156,228) 591,106 (325,084) 266,022 77,684 343,706 Energy Asset Infrastructure Management $000 $000 Energy Investments Consolidated $000 $000 Segment assets and liabilities Segment assets Carrying value of investments using the equity method Unallocated assets b Total assets Segment liabilities Unallocated liabilities c Total liabilities 6,877,648 – 248,972 – 151,690 593,325 273,654 75,792 – 7,278,310 593,325 100,875 7,972,510 349,446 5,126,575 5,476,021 a) 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. b) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards. c) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts. Information about major customers Included in revenues arising from energy infrastructure of $984.2 million (2014: $820.5 million) are revenues of approximately $437.4 million (2014: $384.4 million) which arose from sales to APA Group’s top three customers. 44 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE 5. Revenue An analysis of APA Group’s revenue for the year is as follows: Continuing operations Energy infrastructure revenue Pass-through revenue Energy infrastructure revenue Asset management revenue Pass-through revenue Asset management revenue Operating revenue Interest Interest income on redeemable ordinary shares (EII), redeemable preference shares (GDI) and loans to related parties (DPS) Finance lease income Finance income Dividends Rental income Total revenue Share of net profits of joint ventures and associates using the equity method 2015 $000 983,587 13,514 997,101 85,056 420,868 505,924 2014 $000 819,899 8,925 828,824 99,171 394,552 493,723 1,503,025 1,322,547 24,322 8,308 2,896 35,526 546 597 1,142 3,311 3,591 8,044 533 579 1,539,694 13,921 1,331,703 64,289 1,553,615 1,395,992 Revenue is recognised to the extent that it is probable that the economic benefits will flow to APA Group and 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: Operating revenue, which is earned for the transportation of gas, generation of electricity and other related services and is recognised when the services are provided net of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority; Pass-through revenue, for which no margin is earned, is recognised when the services are provided and offset by corresponding pass-through costs; Interest revenue, which is recognised as it accrues and is determined using the effective interest method; Dividend revenue, which is recognised when the right to receive the payment has been established; and Finance lease income, which 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. 45 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE 6. Expenses Depreciation of non-current assets Amortisation of non-current assets Depreciation and amortisation expense Gas pipeline costs Management, operating and maintenance costs Other operating costs – pass-through Interest on bank overdrafts and borrowings a Amortisation of deferred borrowing costs Other finance costs Less: amounts included in the cost of qualifying assets (Gain)/loss on derivatives Unwinding of discount on non-current liabilities Finance costs Defined contribution plans Defined benefit plans (Note 17) Post-employment benefits Termination benefits Cash settled security-based payments b Other employee benefits Employee benefit expense 2015 $000 182,084 26,116 208,200 13,514 420,868 434,382 357,255 14,978 14,641 386,874 (20,002) 366,872 (19,643) 1,255 348,484 10,116 4,146 14,262 2,172 23,629 136,111 176,174 2014 $000 151,132 5,096 156,228 8,925 394,552 403,477 324,122 9,245 9,031 342,398 (18,069) 324,329 787 1,110 326,226 9,648 4,468 14,116 1,004 22,452 131,043 168,615 a) The average interest rate on funds borrowed is 7.12% p.a. (2014: 7.44% p.a.) including amortisation of borrowing costs and other finance costs. b) APA Group provides benefits to certain employees in the form of cash settled security-based payments. For cash settled security-based payments, a liability equal to the portion of services received is recognised at the current fair value determined at each reporting date. Income tax 7. The major components of tax expense are: Income statement (continuing operations) 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 (expense)/benefit Tax reconciliation (continuing operations) Profit before tax Income tax expense calculated at 30% Non-assessable trust distribution Non deductible expenses Non assessable income Excess of equity accounted book value over tax base of Envestra shares Unfranked dividends from associates Tax benefit on tax cost base step up Previously unbooked losses now recognised Adjustment recognised in the current year in relation to the current tax of prior years (8,734) 1,516 (169,980) (177,198) 737,128 (221,138) 13,904 (13,567) 4,278 12,149 (4,530) (208,904) – 30,190 1,516 (177,198) (1,063) 1,061 77,686 77,684 266,022 (79,807) 11,611 (3,054) 15,034 – (11,221) (67,437) 144,060 – 1,061 77,684 Income tax expense comprises of current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in equity. Current tax represents the expected taxable income at the applicable tax rate for the financial year, and any adjustment to tax payable in respect of previous financial years. 46 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE Income tax (continued) 7. Income tax expense for the 2015 year is $177.2 million. An income tax provision of $7.2 million has been recognised after utilisation of all available group tax losses and partial utilisation of available transferred tax losses (refer to Note 11). Deferred tax balances Deferred tax (liabilities)/assets arise from the following: Opening balance $000 Charged to income $000 Charged to equity $000 Closing balance $000 2015 Gross deferred tax liabilities Intangible assets Property, plant and equipment Deferred expenses Defined benefit obligation Available for sale investments Gross deferred tax assets Provisions Cash flow hedges Security issue costs Deferred revenue Investments equity accounted Other Tax losses Net deferred tax liability 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 Net deferred tax liability Unrecognised deferred tax assets (3,437) (486,629) (49,683) 4,328 (157) 769 (99,478) (1,986) 171 – (535,578) (100,524) 37,448 52,516 186 2,465 (990) 32 333,138 7,603 193 (1,982) 4,264 2,945 1,389 (83,868) 424,795 (69,456) (110,783) (169,980) (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 – – – (5,506) (482) (5,988) – 74,765 9,057 – 8,237 – – 92,059 86,071 – – – 2,160 589 2,749 – 24,753 (2,039) – – – – 22,714 (2,668) (586,107) (51,669) (1,007) (639) (642,090) 45,051 127,474 7,261 6,729 10,192 1,421 249,270 447,398 (194,692) (3,437) (486,629) (49,683) (990) (157) (540,896) 37,448 52,516 4,328 186 2,465 32 333,138 430,113 25,463 (110,783) 2015 $000 2014 $000 2,012 32,069 The following deferred tax assets have not been brought to account as assets: Tax losses – capital Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: i) ii) initial recognition of goodwill; initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and iii) differences relating to investments in wholly-owned entities to the extent that they will probably not reverse in the foreseeable future. 47 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE Income tax (continued) 7. Unrecognised deferred tax assets (continued) Deferred tax is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using the appropriate tax rates at the end of the reporting period. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Tax consolidation 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 26. 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. Any current tax liabilities (or assets) and deferred tax assets arising from 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. The head entity recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the assets can be utilised. 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. 8. Earnings per security Basic and diluted earnings per security (cents) 2015 56.3 2014 (Restated) 39.7 The earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows: 2015 $000 2014 $000 Net profit attributable to securityholders for calculating basic and diluted earnings per security 559,929 343,705 2015 No. of securities 000 2014 (Restated) No. of securities 000 Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security 995,245 865,977 On the 23 December 2014, APA Group issued 145,164,302 new ordinary securities on completion of the institutional component and early acceptance period of the retail component for the fully underwritten rights issue. The remaining allocation of the retail component being 133,392,260 was completed on 28 January 2015. The issue was offered at $6.60 per security, a discount to APA Group’s closing market price of $7.67 per security on 9 December 2014, the last trading day before the record date of the entitlement offer of 15 December 2014. The number of securities used for the current and prior period calculation of earnings per security have been adjusted for the discounted rights issue. An adjustment factor of 1.036 has been calculated, being the closing market price per security on 9 December 2014, divided by the theoretical ex-rights value (TERV) of $7.40 per security. 48 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE 9. Distributions Recognised amounts Final distribution paid on 10 September 2014 (2014: 11 September 2013) Profit distribution – APT a Profit distribution – APTIT a (Note 24) Capital distribution – APT (Note 23) Capital distribution – APTIT (Note 24) Interim distribution paid on 18 March 2015 b (2014: 12 March 2014) Profit distribution – APT a Profit distribution – APTIT a (Note 24) Capital distribution – APT (Note 23) Capital distribution – APTIT (Note 24) Total distributions recognised Profit distributions a Capital distributions Unrecognised amounts Final distribution payable on 16 September 2015 c (2014: 10 September 2014) Profit distribution – APT a Profit distribution – APTIT a 2015 cents per security 2015 Total $000 2014 cents per security 2014 Total $000 16.42 2.33 – – 18.75 15.12 2.38 – – 17.50 36.25 – 137,239 19,465 – – 156,704 126,396 19,860 – – 146,256 302,960 – 18.12 2.38 20.50 201,945 26,488 228,433 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 18.75 133,877 19,424 – 1,313 154,614 121,663 19,241 4,057 1,295 146,256 294,205 6,665 137,239 19,464 156,703 a) Profit distributions were unfranked (2014: unfranked). b) New securities issued under the entitlement offer were not eligible for the FY2015 interim distribution. c) Record date 30 June 2015. 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) 2015 $000 6,811 2014 $000 5,107 49 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OPERATING ASSETS 10. Receivables Trade receivables Allowance for doubtful debts Trade receivables Receivables from associates and related parties Finance lease receivables (Note 18) Interest receivable Other debtors Current Finance lease receivables (Note 18) Loan receivable – related party Non-current 2015 $000 223,806 (4,411) 219,395 15,630 4,005 688 15,222 2014 $000 96,644 (1,790) 94,854 56,936 4,575 63 11 254,940 156,439 18,968 73,502 92,470 29,747 118,088 147,835 Trade receivables are non-interest bearing and are generally on 30 day terms. There are no material trade receivables past due and not provided for. Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Trade and other receivables are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are stated at their amortised cost less impairment. 11. Payables Trade payables a Income tax payable Other payables b Payables to associates Current Other payables Non-current 29,615 7,216 368,715 139 27,037 – 158,951 – 405,685 185,988 3,261 3,261 3,599 3,599 a) Trade payables are non-interest bearing and are normally settled on 15 – 30 day terms. b) Other payables include $137.2m of transaction costs on the acquisition of the Wallumbilla Gladstone Pipeline (formerly QCLNG Pipeline), other expenditure accruals and external interest payable accruals. Trade and other payables are recognised when APA Group becomes obliged to make future payments resulting from the purchase of goods and services. 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. Payables are recognised inclusive of GST, except for accrued revenue and accrued expense 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 only recognised once a tax invoice has been issued or received. 50 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OPERATING ASSETS 12. Property, plant and equipment Gross carrying amount Balance at 1 July 2013 Additions Disposals Transfers Balance at 30 June 2014 Additions Disposals Transfers Balance at 30 June 2015 Accumulated depreciation Balance at 1 July 2013 Disposals Depreciation expense Balance at 30 June 2014 Disposals Depreciation expense Balance at 30 June 2015 Net book value As at 30 June 2014 As at 30 June 2015 Freehold land and buildings – at cost $000 Leasehold improvements – at cost $000 Plant and equipment – at cost $000 Work in progress – at cost $000 Total $000 131,101 – (33) 8,366 139,434 78,679 (165) 11,103 4,939 – – 76 5,015 – (571) – 5,319,587 32,129 (6,126) 421,036 5,766,626 2,501,924 (17,367) 686,038 494,354 413,985 – (429,478) 478,861 386,406 (52) (697,141) 5,949,981 446,114 (6,159) – 6,389,936 2,967,009 (18,155) – 229,051 4,444 8,937,221 168,074 9,338,790 (19,076) 7 (2,785) (21,854) 75 (3,257) (2,160) – (128) (2,288) 571 (486) (648,334) 5,240 (148,219) (791,313) 13,296 (178,341) (25,036) (2,203) (956,358) – – – – – – – (669,570) 5,247 (151,132) (815,455) 13,942 (182,084) (983,597) 117,580 2,727 4,975,313 478,861 5,574,481 204,015 2,241 7,980,863 168,074 8,355,193 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 item. 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. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (i.e. assets that take a substantial period of time to get ready for their intended use or sale), are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Critical accounting judgements and key sources of estimation uncertainty – 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 expense. The following estimated useful lives are used in the calculation of depreciation: — buildings — compressors 30-50 years; 10-50 years; — gas transportation systems 10-80 years; — meters 20-30 years; and — other plant and equipment 3-20 years. 51 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OPERATING ASSETS 13. Goodwill and intangibles Goodwill Balance at beginning of financial year Goodwill impairment Balance at end of financial year 2015 $000 2014 $000 1,150,500 (10,000) 1,140,500 1,150,500 – 1,150,500 Allocation of goodwill to cash-generating units Goodwill has been allocated for impairment testing purposes to individual cash-generating units. 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 21,456 31,456 146,008 105,061 707,843 160,132 146,008 105,061 707,843 160,132 1,140,500 1,150,500 a) Primarily represents goodwill relating to the Roma to Brisbane Pipeline ($76.4m) and the Pilbara Pipeline System ($32.6m). Goodwill acquired in a business combination is initially measured at cost and subsequently at cost less accumulated impairment. Contract and other intangibles Gross carrying amount Balance at beginning of financial year Acquisitions/additions Disposals Balance at end of financial year Accumulated amortisation and impairment Balance at beginning of financial year Amortisation expense Impairment Disposals Balance at end of financial year Net book value 206,738 3,414,122 (397) 3,620,463 (35,934) (26,116) (2,564) 397 (64,217) 3,556,246 206,061 677 – 206,738 (29,046) (5,096) (1,792) – (35,934) 170,804 APA Group holds various third party operating and maintenance contracts. The combined gross carrying amount of $3,620.5 million amortises over terms ranging from one to 20 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. Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired in a business combination are identified and recognised separately from goodwill and are initially recognised at their fair value at the acquisition date and subsequently at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effects of any changes in estimate being accounted for on a prospective basis. During the period, APA Group reassessed the amortisation period for intangible contracts. This resulted in a change in estimate for the amortisation period, with additional amortisation of approximately $7.8 million per annum recognised effective from 1 July 2014. 52 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OPERATING ASSETS 14. Impairment of non-financial assets APA Group tests property, plant and equipment, intangibles and goodwill for impairment at least annually or whenever there is an indication that the asset may be impaired. Assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting period. If the asset does not generate independent cash inflows and its value in use cannot be estimated to be close to its fair value, the asset is tested for impairment as part of the Cash Generating Unit (CGU) to which it belongs. Assets are impaired if their carrying value exceeds their recoverable amount. The recoverable amount of an asset or CGU is determined as the higher of its fair value less costs of disposal or value in use. Determining whether identifiable intangible assets and goodwill are impaired requires an estimation of the value-in-use or 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. These estimates and assumptions are reviewed on an ongoing basis. 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 APA Group’s forecasting and planning processes which represents the underlying long term nature of associated customer contracts on these assets. Critical accounting judgements and key sources of estimation uncertainty – impairment of assets For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected contract renewals with a resulting average annual growth rate of 1.6% p.a. These expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the cash generating unit operates. For non-regulated assets, APA has assumed no capacity expansion beyond installed and committed levels; utilisation of capacity is based on existing contracts, government policy settings and expected market outcomes. As contracts mature, given ongoing demand for capacity, it is assumed that the majority of the capacity is resold on similar pricing. Asset Management cash flow projections reflect long term agreements with assumptions of renewal on similar terms and conditions based on management expectations. Cash flow projections are estimated for a period of up to 20 years, with a terminal value, recognising the long term nature of the assets. The pre-tax discount rates used are 8.25% p.a. (2014: 8.25% p.a.) for Energy Infrastructure assets and 8.25% p.a. (2014: 8.25% p.a.) for Asset Management. These assumptions have been determined with reference to historic information, current performance and expected changes taking into account external information. During August 2014, APA Group sold its investment in Envestra Limited to Cheung Kong Group consortium which resulted in a reassessment of the carrying value of the asset management business to reflect future growth opportunities, resulting in a reduction of goodwill ($10.0 million). 15. Provisions Employee benefits Other Current Employee benefits Other Non-current Employee benefits Incentives Cash settled security-based payments Leave balances Termination benefits Current Cash settled security-based payments Defined benefit liability (Note 17) Leave balances Non-current 2015 $000 76,953 8,499 85,452 30,484 29,926 60,410 25,556 10,009 39,608 1,780 76,953 17,215 4,425 8,844 30,484 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 53 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OPERATING ASSETS 15. Provisions (continued) A provision is recognised when there is a legal or constructive obligation as a result of a past event, it is probable that future economic benefits will be required to settle the obligation and the amount of 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 into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. 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. Provision is made for benefits accruing to employees in respect of wages and salaries, incentives, annual leave and long service leave when it is probable that settlement will be required. Provisions made in respect of employee benefits expected to be settled within 12 months, are recognised for employee services up to reporting date at the amounts expected to be paid when the liability is settled. Provisions made in respect of employee benefits which are not expected to be wholly settled within 12 months are measured as the present value of the estimated future cash outflows using a discount rate based on the corporate bond yields in respect of services provided by employees up to reporting date. 16. Other non-current assets Line pack gas Gas held in storage Defined benefit asset (Note 17) Other assets 2015 $000 20,200 5,085 7,784 192 33,261 2014 $000 16,152 5,085 – 192 21,429 17. Employee superannuation plans All employees of APA Group are entitled to benefits on retirement, disability or death from an industry sponsored fund, or an alternative fund of their choice. APA Group has three plans with defined benefit sections (due to the acquisition of businesses) and a number of other plans with defined contribution sections. The defined benefit sections provide lump sum benefits upon retirement based on years of service. The defined contribution sections receive fixed contributions from APA Group and APA Group’s legal and constructive obligations are limited to these amounts. The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were determined at 30 June 2015. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method. 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 (Note 6) 3,730 416 4,146 3,901 567 4,468 54 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OPERATING ASSETS 17. Employee superannuation plans (continued) The following sets out details in respect of the defined benefit plans only: Amounts recognised in the statement of financial position Fair value of plan assets Present value of benefit obligation Defined benefit asset – non-current (Note 16) Defined benefit liability – non-current (Note 15) 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 Closing defined benefit obligation 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 Defined contribution plans Contributions to defined contribution plans are expensed when incurred. 2015 $000 2014 $000 140,500 (137,141) 7,784 (4,425) 144,621 3,730 4,909 1,388 – (9,747) (1,181) (6,579) 137,141 130,195 4,493 7,426 3,577 1,388 (6,579) – 140,500 130,195 (144,621) – (14,426) 139,153 3,901 4,520 1,627 (96) (878) 5,048 (8,654) 144,621 118,404 3,953 10,870 3,995 1,627 (7,891) (763) 130,195 Defined benefit plans Actuarial gains and losses and the return on plan assets (excluding interest) are recognised immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement, comprising of actuarial gains and losses and the return on plan assets (excluding interest), is recognised in other comprehensive income and immediately reflected in retained earnings 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. The defined benefit obligation recognised in the consolidated statement of financial position represents the actual deficit or surplus in APA Group’s 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. For the year ended 30 June 2014 the discount rate was based on Government bond yields as it was widely assumed that Australia did not have a deep market in high-quality corporate bonds. More recently, the Group of 100 and the Actuaries Institute commissioned a research project that concluded that the Australian high quality corporate bond market is sufficiently large and liquid for the purpose of deriving a discount rate for reporting under AASB119 – Employee Benefits. During the current year, APA Group has adopted the discount rate based on the corporate bond yield curve published by Milliman. Key actuarial assumptions used in the determination of the defined obligation is a discount rate of 4.3% and an expected salary increase rate of 4.0%. 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 $5,229,000 (increase by $5,853,000); and — If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $3,030,000 (decrease by $2,777,000). 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 $2.4 million in contributions to be paid to the defined benefit plans during the year ending 30 June 2016. 55 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OPERATING ASSETS 18. Leases 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. Finance lease receivables relate to the lease of a metering station, natural gas vehicle refuelling facilities 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 b 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 10) Non-current receivables (Note 10) 2015 $000 2014 $000 5,317 12,347 19,183 36,847 36,847 (13,874) 22,973 4,005 18,968 22,973 7,668 20,724 26,181 54,573 54,573 (20,251) 34,322 4,575 29,747 34,322 a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual. b) X41 power station expansion was disposed of during the 2015 financial year. APA Group as a lessor Amounts due from a lessee under finance leases are recorded as receivables. Finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the leases. APA Group as a lessee Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are allocated between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance lease assets are amortised on a straight-line basis over the estimated useful life of the asset. Non-cancellable operating leases Operating lease obligations are primarily related to commercial office leases and motor vehicles. Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years 11,270 29,418 21,115 61,803 9,927 21,776 22,808 54,511 Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time patterns in which economic benefits from the leased asset are consumed. Operating lease incentives are recognised as a liability when received and released to the statement of profit or loss on a straight line basis over the lease term. 56 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT APA Group’s objectives when managing capital are to safeguard its ability to continue as a going concern while maximising the return to securityholders through the optimisation of the debt to equity structure. 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 APA Group consists of cash and cash equivalents, borrowings and equity attributable to securityholders of APA. APA Group’s policy is to maintain balanced and diverse funding sources through borrowing locally and from overseas, using a variety of capital markets and bank loan facilities, to meet anticipated funding requirements. Operating cash flows are used to maintain and expand APA Group’s assets, make distributions to securityholders and to repay maturing debt. 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 for the entirety of the 2015 and 2014 periods. APA Group’s capital risk management strategy remains unchanged from the previous period. 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 determined as the proportion of net debt to net debt plus equity. Based on recommendations of the Board, APA Group balances its overall capital structure through equity issuances, new debt or the redemption of existing debt and through a disciplined distribution payment policy. 19. Cash and cash equivalents Cash and cash equivalents comprise of cash on hand, at call bank deposits and investments in money market instruments that are readily convertible to known amounts for cash. 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 Short-term deposits 2015 $000 190,834 221,087 411,921 2014 $000 5,954 1,055 7,009 APA Group had no restricted cash as at 30 June 2015 and 30 June 2014. 20. Borrowings Borrowings are recorded initially at fair value less attributable transaction costs and subsequently stated at amortised cost. Any difference between the initial recognised cost and the redemption value is recognised in the statement of profit or loss and other comprehensive income over the period of the borrowing using the effective interest method. Unsecured – at amortised cost Guaranteed senior notes a Other financial liabilities b Current Guaranteed senior notes a Other financial liabilities b Bank borrowings c Subordinated notes d Less: unamortised borrowing costs Non-current 158,134 6,219 164,353 8,481,768 70,630 125,000 515,000 (50,901) – – – 3,214,082 – 1,014,500 515,000 (35,299) 9,141,497 4,708,283 9,305,850 4,708,283 a) Represents USD denominated private placement notes of US$725 million, CAD medium term notes (MTN) of C$300 million, JPY MTN of ¥10,000 million, GBP MTN of £950 million, EUR MTN of ¤1,350 million and USD denominated 144A notes of US$2,150 million measured at the exchange rate at reporting date, and A$315 million of AUD denominated private placement notes and AUD MTN of A$300 million. Refer to Note 21 for details of interest rates and maturity profiles. b) Represents fixed rate US$59.3 million notional liability measured at the spot exchange rate at reporting date. c) Relates to the non-current portion of long-term borrowings. Refer to Note 21 for details of interest rates and maturity profiles. d) Represents AUD denominated subordinated notes. Refer to Note 21 for details of interest rates and maturity profiles. 57 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 20. Borrowings (continued) Financing facilities available Total facilities Guaranteed senior notes a Bank borrowings c Subordinated notes d Facilities used at balance date Guaranteed senior notes a Bank borrowings c Subordinated notes d Facilities unused at balance date Guaranteed senior notes a Bank borrowings c Subordinated notes d 2015 $000 2014 $000 8,639,902 1,300,000 515,000 10,454,902 8,639,902 125,000 515,000 3,214,082 1,850,000 515,000 5,579,082 3,214,082 1,014,500 515,000 9,279,902 4,743,582 – 1,175,000 – 1,175,000 – 835,500 – 835,500 a) Represents USD denominated private placement notes of US$725 million, CAD medium term notes (MTN) of C$300 million, JPY MTN of ¥10,000 million, GBP MTN of £950 million, EUR MTN of ¤1,350 million and USD denominated 144A notes of US$2,150 million measured at the exchange rate at reporting date, and A$315 million of AUD denominated private placement notes and AUD MTN of A$300 million. Refer to Note 21 for details of interest rates and maturity profiles. c) Relates to the non-current portion of long-term borrowings. Refer to Note 21 for details of interest rates and maturity profiles. d) Represents AUD denominated subordinated notes. Refer to Note 21 for details of interest rates and maturity profiles. 21. Financial risk management The Treasury department within Finance is responsible for the overall management of APA Group’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. APA Group’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department. APA Group’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below: a) Market risk including currency risk, interest rate risk and price risk; b) Credit risk; and c) Liquidity risk. Treasury as a centralised function provides APA Group with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost and manages risks through the use of natural hedges and derivative instruments. APA Group does not engage in speculative trading. All derivatives have been traded to hedge underlying or existing exposures and have adhered to the Board approved Treasury Risk Management Policy. a) Market risk APA Group’s market risk exposure is primarily due to changes in market prices such as interest and foreign exchange rates. APA Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: — forward exchange contracts to hedge the exchange rate risk arising from foreign currency cash flows, mainly US dollars, derived from revenues, interest payments and capital equipment purchases; — cross currency interest rate swaps to manage the currency risk associated with foreign currency denominated borrowings; — foreign currency denominated borrowings to manage the currency risk associated with foreign currency denominated revenue and receivables; and — interest rate swaps to mitigate the risk of rising interest rates. A change in the nature of APA Group’s exposure to foreign currency has originated this year with the acquisition of the Wallumbilla Gladstone Pipeline (formerly QCLNG Pipeline) in June 2015 in the form of US dollar denominated revenues and borrowings either directly or through the use of derivatives. APA Group is also exposed to price risk arising from its investment in and forward purchase contracts over listed equities. 58 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 21. Financial risk management (continued) a) Market risk (continued) Foreign currency risk APA Group’s foreign exchange risk arises from future commercial transactions (including revenue, interest payments and principal debt repayments on long-term borrowings and the purchases of capital equipment), and the recognition of assets and liabilities (including foreign receivables and borrowings). Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts, cross currency swap contracts and foreign currency denominated borrowings. All foreign currency exposure was managed in accordance with the Treasury Risk Management Policy in both 2015 and 2014. The carrying amount of the APA Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: 2015 US dollar a Japanese yen Canadian dollar British pound Euro 2014 US dollar Japanese yen Canadian dollar British pound Cash & cash equivalents $000 Total borrowings $000 Cross currency swaps $000 Foreign exchange contract $000 38,639 – – – – (3,726,507) (106,005) (311,394) (1,937,372) (1,950,107) (1,261,850) 106,005 311,394 1,937,372 1,950,107 Net foreign currency position $000 (4,945,779) – – – – Other $000 2,216 – – – – 38,639 (8,031,385) 3,043,028 2,216 (4,945,779) – – – – – (1,564,655) (104,681) (298,378) (635,268) 1,564,655 104,681 298,378 635,268 (2,602,982) 2,602,982 1,246 – – – 1,246 1,246 – – – 1,246 1,723 – – – – 1,723 – – – – – a) Net US$ foreign currency position of $4,945.8 million is hedging part of the committed US$ revenue arising from the acquisition of the Wallumbilla Gladstone Pipeline. Forward foreign exchange contracts To manage foreign exchange risk arising from future commercial transactions such as forecast capital purchases, revenue and interest payments, APA Group uses forward foreign exchange contracts. Gains and losses recognised in the cash flow hedge reserve (statement of comprehensive income) on these derivatives will be released to profit or loss when the underlying anticipated transaction affects the statement of profit or loss or will be included in the carrying value of the asset or liability acquired. It is the policy of APA Group to hedge 100% of all foreign exchange capital purchases in excess of US$1 million that are certain. Forecast foreign currency denominated revenues and interest payments will be hedged by forward exchange contracts on a rolling basis for a minimum of one year with the objective being to lock in the AUD gross cash flows and manage liquidity. The following table details the forward foreign exchange currency contracts outstanding at reporting date: Contract value Cash flow hedges 2015 Average exchange rate Foreign currency US$000 Less than 1 year $000 1-2 years $000 2-5 years $000 Fair value $000 Pay USD/receive AUD Forecast revenue and associated receivable 0.7574 (193,837) 255,913 Pay AUD/receive USD Forecast capital purchases 2014 Pay AUD/receive USD Forecast capital purchases 0.9011 1,969 (2,185) (191,868) 253,728 0.8716 15,671 15,671 (17,980) (17,980) – – – – – – – – – – 1,845 371 2,216 (1,246) (1,246) As at reporting date, APA Group has entered into forward contracts to hedge net US exchange rate risk arising from anticipated future transactions with an aggregate notional principal amount of $253.7 million (2014: $18.0 million) which are designated in cash flow hedge relationships. The hedged anticipated transactions denominated in US dollars are expected to occur at various dates between one month to one year from reporting date. 59 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 21. Financial risk management (continued) a) Market risk (continued) Cross currency swap contracts APA Group enters into cross currency swap contracts to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from foreign currency borrowings. APA Group receives fixed amounts in the various foreign currencies and pays both variable interest rates (based on Australian BBSW) and fixed interest rates based on agreed swap rates for the full term of the underlying borrowings. In certain circumstances borrowings are left in the foreign currency, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency. The following table details the cross currency swap contract principal payments due as at the reporting date: Cash flow hedges 2015 Pay AUD/receive foreign currency 2003 USPP Notes 2007 USPP Notes 2009 USPP Notes 2012 JPY medium term notes 2012 CAD medium term notes 2012 US144A 2012 GBP medium term notes Pay USD/receive foreign currency 2015 EUR medium term notes 2015 GBP medium term notes 2014 Pay AUD/receive foreign currency 2003 USPP Notes 2007 USPP Notes 2009 USPP Notes 2012 JPY medium term notes 2012 CAD medium term notes 2012 US144A 2012 GBP medium term notes Foreign currency Exchange rate $ Less than 1 year $000 1-2 years $000 2-5 years $000 AUD/USD AUD/USD AUD/USD AUD/JPY AUD/CAD AUD/USD AUD/GBP 0.6573 0.8068 0.7576 79.4502 1.0363 1.0198 0.6530 (185,608) – – – – – – – (190,877) (85,787) – – – – (95,847) (151,215) (98,997) (125,865) (289,494) – – More than 5 years $000 – (153,694) – – – (735,438) (535,988) USD/EUR USD/GBP 0.9515 0.6773 – – – – – – (1,839,073) (1,148,283) (185,608) (276,664) (761,418) (4,412,476) USD USD USD JPY CAD USD GBP 0.6573 0.8068 0.7576 79.4502 1.0363 1.0198 0.6530 – – – – – – – – (185,608) – – – – – – (95,847) (342,092) (85,787) (125,865) – – – – (153,694) (98,997) – (289,494) (735,438) (535,988) (185,608) (649,591) (1,813,611) Foreign currency denominated borrowings APA Group maintains a level of borrowings in foreign currency, or swapped from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency. This mitigates the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from these foreign currency borrowings as well as future revenues. Foreign currency sensitivity analysis The analysis below shows the effect on profit and total equity of retranslating cash, receivables, payables and interest-bearing liabilities denominated in USD, JPY, CAD, GBP and EUR into AUD, had the rates been 20 percent higher or lower than the relevant year end rate, with all other variables held constant, and taking into account all underlying exposures and related hedges. A sensitivity of 20 percent has been selected and represents management’s assessment of the possible change in rates taking into account the current level of exchange rates and the volatility observed both on a historical basis and on market expectations for future movements. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 20 percent change in foreign currency rates. — There would be no impact on net profit as all foreign currency exposures are fully hedged (2014: nil); and — Equity reserves would decrease by $1,268.4 million with a 20 percent depreciation of the A$ or increase by $845.1 million with a 20 percent increase in foreign exchange rates (2014: increase by $1.8 million or decrease by $1.5 million respectively). The increase in sensitivity is due to the increase in the notional value of changes in the value of forward exchange contracts that are in a hedging relationship with highly probable forecast transactions. Interest rate risk APA Group’s interest rate risk is derived predominately from borrowings subject to 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. 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 $411.9 million as at 30 June 2015 (2014: $7.0 million). 60 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 21. Financial risk management (continued) a) Market risk (continued) Interest rate swap contracts Interest rate swap contracts have the economic effect of converting borrowings from floating to fixed rates on agreed notional principal amounts enabling APA Group to mitigate the risk of cash flow exposures on 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 2015 % p.a. 2014 % p.a. 2015 $000 2014 $000 2015 $000 2014 $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 7.10 8.58 7.60 4.61 5.90 7.10 7.75 7.24 310,608 276,664 761,417 4,412,476 100,000 310,608 649,591 1,813,611 (32,637) 7,520 (31,028) 352,208 (1,852) (66,627) (130,564) (16,621) 5,761,165 2,873,810 296,063 (215,664) 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. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments held. A 100 basis point increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, APA Group’s: — net profit would decrease by $5,150,000 or increase by $5,150,000 (2014: decrease by $13,045,000 or increase by $13,045,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings, including its Australian Dollar subordinated notes; and — equity reserves would increase by $14,483,000 with a 100 basis point decrease in interest rates or increase by $38,594,000 with a 100 basis point increase in interest rates (2014 : increase by $6,923,000 or decrease by $6,386,000 respectively). This is due to the changes in the fair value of derivative interest instruments. APA Group’s profit sensitivity to interest rates has decreased during the current period due to the overall decrease in the level of APA Group’s unhedged floating rate borrowings. The valuation of the increase/decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. The increase in sensitivity in equity is due to the increase in the notional value of interest rate and cross currency swaps. Price risk APA Group is exposed to price risk arising from its investment in and forward purchase contracts over listed equities. The investment and forward purchase contracts are held to meet strategic or hedging objectives rather than for trading purposes. APA Group does not actively trade any of these holdings. Price risk sensitivity The sensitivity analysis below has been determined based on the exposure to price risks at the reporting date. At the reporting date, if the prices of APA Group’s investments in Ethane Pipeline Income Fund and forward purchase contracts over listed equities had been 5 percent p.a. higher or lower: — net profit would have been unaffected as the investment is 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 (2014: $nil); and — equity reserves would decrease/increase by $4,000 (2014: $96,000), due to the changes in the fair value of available-for-sale investments. APA Group’s analysis of its exposure to price risk has declined during the current period compared to the prior period. This outcome is largely a result of the decrease in the price volatility, relative to the market, of the investment in the stapled security of Ethane Pipeline Income Fund. b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to APA Group. APA Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, APA Group’s policy is to only transact with counterparties that have a credit rating of A – (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above APA Group’s minimum threshold. 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. 61 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 21. Financial risk management (continued) b) Credit risk (continued) Trade receivables consist of mainly corporate customers which are diverse and geographically spread. Most significant customers have an investment grade rating from either Standard & Poor’s or Moody’s. Ongoing credit monitoring of the financial position of customers is maintained. The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents APA Group’s maximum exposure to credit risk in relation to those assets. 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 fair value of the financial guarantee as at 30 June 2015 has been determined to be immaterial and no liability has been recorded (2014: $nil). c) Liquidity risk APA Group has a policy dealing with liquidity risk which requires an appropriate liquidity risk management framework for the management of APA Group’s short, medium and long-term funding and liquidity management requirements. Liquidity risk is managed by maintaining adequate cash reserves and banking facilities, by monitoring and forecasting cash flow and where possible arranging liabilities with longer maturities to more closely match the underlying assets of APA Group. Detailed in the table following are APA Group’s remaining contractual maturities for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities taking account of the earliest date on which APA Group can be required to pay. The table includes both interest and principal cash flows. The table below shows the undiscounted Australian dollar cash flows associated with the foreign currency notes, cross currency interest rate swaps and fixed interest rate swaps in aggregate. 2015 Unsecured financial liabilities Trade and other payables Unsecured bank borrowings a 2012 Subordinated Notes Interest rate swaps (net settled) Denominated in A$ Other financial liabilities b Guaranteed Senior Notes c Denominated in A$ 2007 Series A 2007 Series C 2007 Series E 2007 Series G 2007 Series H 2010 AUD Medium Term Note Denominated in US$ 2003 Series C 2003 Series D 2007 Series B 2007 Series D 2007 Series F 2009 Series A 2009 Series B 2012 US 144A 2015 US 144A b 2015 US 144A b Denominated in stated foreign currency 2012 JPY Medium Term Note 2012 CAD Medium Term Note 2012 GBP Medium Term Note 2015 GBP Medium Term Note b 2015 EUR Medium Term Note b 2015 EUR Medium Term Note b Average interest rate % p.a. Less than 1 year $000 1-5 years $000 More than 5 years $000 Maturity 1-Oct-72 – 3.09 7.20 6.28 405,685 2,935 34,203 3,844 – 125,975 148,917 1,302 – – 2,795,775 – 15-May-17 15-May-17 15-May-19 15-May-22 15-May-22 22-Jul-20 9-Sep-15 9-Sep-18 15-May-17 15-May-19 15-May-22 1-Jul-16 1-Jul-19 11-Oct-22 23-Mar-25 23-Mar-35 22-Jun-18 24-Jul-19 26-Nov-24 22-Mar-30 22-Mar-22 22-Mar-27 7,574 30,296 48,918 367 7,318 5,045 6,002 4,617 23,250 192,773 6,949 13,986 11,111 11,354 9,805 11,825 48,989 59,883 19,443 4,291 19,422 39,567 51,894 35,023 39,142 5,367 106,475 83,304 24,008 18,468 93,000 – 113,220 204,864 184,546 45,416 90,569 140,047 197,031 239,533 77,771 147,274 357,766 157,943 206,081 139,314 155,699 – – – 92,586 71,220 311,625 – – – – 176,433 – – 857,910 1,725,377 680,709 – – 713,823 1,663,426 1,023,163 1,158,040 1,076,297 3,094,186 11,319,005 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 4.20 5.00 1.23 4.25 4.25 3.50 1.38 2.00 a) Facilities mature on 19 September 2016 ($400 million limit), 19 September 2017 ($425 million limit), 19 December 2018 ($200 million limit), and 19 September 2019 ($275 million limit). b) Facilities are denominated or fully swapped via way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2015. These amounts are fully hedged by forward exchange contracts or future US$ revenues. c) Rates shown are the coupon rate. 62 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 21. Financial risk management (continued) c) Liquidity risk (continued) 2014 Unsecured financial liabilities Trade and other payables 2011 Bilateral facilities 2011 Bilateral facilities 2011 Syndicated facility C 2014 Syndicated facility A 2014 Syndicated facility B 2012 Subordinated Notes Interest rate swaps (net settled) Guaranteed Senior Notes a Denominated in A$ 2007 Series A 2007 Series C 2007 Series E 2007 Series G 2007 Series H 2010 AUD Medium Term Note Denominated in US$ 2003 Series C 2003 Series D 2007 Series B 2007 Series D 2007 Series F 2009 Series A 2009 Series B 2012 US 144A Denominated in stated foreign currency 2012 JPY Medium Term Note 2012 CAD Medium Term Note 2012 GBP Medium Term Note a) Rates shown are the coupon rate. Average interest rate % p.a. Less than 1 year $000 1-5 years $000 More than 5 years $000 Maturity 12-Oct-16 19-Dec-18 8-Jul-14 23-Jun-16 23-Jun-17 1-Oct-72 15-May-17 15-May-17 15-May-19 15-May-22 15-May-22 22-Jul-20 9-Sep-15 9-Sep-18 15-May-17 15-May-19 15-May-22 1-Jul-16 1-Jul-19 11-Oct-22 22-Jun-18 24-Jul-19 26-Nov-24 – 4.26 4.66 4.49 3.76 3.81 7.55 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 11,770 5,069 50,560 12,784 8,425 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 – 328,162 117,410 – 363,441 243,686 160,229 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 – 299,178 753,173 560,856 3,064,924 5,793,180 Critical accounting judgements and key sources of estimation uncertainty – 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 Group determines fair value by using various valuation 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 the counterparty’s and APA Group’s credit risk. Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. — 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 2015 (2014: 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. 63 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 21. Financial risk management (continued) Fair value of the Group’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: — 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, these instruments are classified in the fair value hierarchy at level 1; — the fair values of forward foreign exchange contracts included in hedging assets and liabilities are calculated using discounted cash flow analysis based on observable forward exchange rates at the end of the reporting period and contract forward rates 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 fair values of interest rates swaps, cross currency swaps, equity forwards and other derivative instruments included in hedging assets and liabilities are calculated using discounted cash flow analysis using observable yield curves at the end of the reporting period and contract rates discounted at a rate that reflects the credit risk of the various counterparties; — the fair values of other financial assets and financial liabilities (excluding derivative instruments) are 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 fair value of financial guarantee contracts is determined based upon the probability of default by the specified counterparty extrapolated from market-based credit information and the amount of loss, given the default. The instruments are classified in the fair value hierarchy at level 2; and — the carrying value of financial assets and liabilities recorded at amortised cost in the financial statements approximate their fair value having regard to the specific terms of the agreements underlying those assets and liabilities. Fair value hierarchy 2015 Level 1 $000 Level 2 $000 Level 3 $000 Total $000 Financial assets measured at fair value Available-for-sale listed equity securities Ethane Pipeline Income Fund Equity forwards designated as fair value through profit or 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 Forward foreign exchange contracts used for hedging 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 or loss 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 Forward foreign exchange contracts used for hedging 7,162 – – – 7,162 – – – – 4,571 – – 4,571 – – – – – 5,199 461,484 4,016 470,699 17,885 147,537 1,800 167,222 – 4,004 77,115 81,119 31,041 261,739 1,246 294,026 – – – – – – – – – – – – – – – – – 7,162 5,199 461,484 4,016 477,861 17,885 147,537 1,800 167,222 4,571 4,004 77,115 85,690 31,041 261,739 1,246 294,026 64 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 21. Financial risk management (continued) Fair value measurements of financial instruments measured at amortised cost The financial liabilities included in the following table are fixed rate borrowings. Other debts held by APA Group are floating rate borrowings and amortised cost as recorded 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 Unsecured Euro medium term notes Carrying amount Fair value (level 2) a 2015 $000 2014 $000 2015 $000 2014 $000 1,254,594 300,000 106,005 311,394 515,000 2,786,779 1,937,372 1,950,107 1,083,934 300,000 104,681 298,378 515,000 795,587 635,268 – 1,388,789 351,024 108,594 323,954 646,661 3,000,016 1,864,624 1,872,050 1,227,760 343,276 107,717 322,535 570,923 792,363 643,420 – 9,161,251 3,732,848 9,555,712 4,007,994 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. 22. Other financial instruments Derivatives at fair value: Equity forward contracts Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Financial item carried at amortised cost: Redeemable preference share interest Current Available-for-sale investments carried at fair value: Ethane Pipeline Income Fund Financial items carried at amortised cost: Redeemable ordinary shares Redeemable preference shares Derivatives – at fair value: Equity forward contracts Assets 2015 $000 2014 $000 Liabilities 2015 $000 2014 $000 3,527 2,407 – – 4,016 – 16,961 285 24,789 – – 13,883 285 16,575 1,800 13,003 131,012 1,246 17,712 71,616 – – 145,815 90,574 7,162 4,571 17,152 10,400 18,218 10,400 1,672 1,597 – – – – – – – – Derivatives at fair value designated as hedging instruments: Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Non-current – 460,151 496,537 – 75,982 110,768 8,728 36,065 44,793 17,377 199,559 216,936 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. 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 entity, 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. 65 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 22. Other financial instruments (continued) Recognition and measurement 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. There are no fair value hedges in the current or prior year, hedges of foreign exchange and interest rate risk are accounted for as cash flow hedges. At the inception of the hedge relationship, APA Group formally designates and documents the hedge relationship, including the risk management strategy for undertaking the hedge. This includes identification of the hedging instrument, hedged item or transaction, the nature of there risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and their effectiveness is regularly assessed to ensure they continue to be so. Note 21 contains details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are detailed in the Consolidated Statement of Changes in Equity. 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. 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 discounted cash flows of the instrument. Cash flows due within 12 months of the reporting date are classified as current and cash flows due after 12 months of the reporting date are classified as non-current. Cash flow hedges For cash flow hedges, the portion of the gain or loss on the hedging instrument that is effective is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts recognised in equity are transferred to the profit or loss when the hedged transaction affects profit or loss, such as when the hedged income or expenses are recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the profit or loss. If the hedging instrument expires or is sold, terminated or exercised, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. Available-for-sale financial assets Certain shares held by APA Group are classified as being available-for-sale. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, which are recognised in other comprehensive income and accumulated in the available-for-sale investment revaluation reserve. When these assets are derecognised, the gain or loss in equity is reclassified to profit or loss. 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. 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 profit or loss and other comprehensive income. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that as a result 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. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed, does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income. 66 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015CAPITAL MANAGEMENT 23. Issued capital Securities 2015 $000 2014 $000 1,114,307,369 securities, fully paid (2014: 835,750,807 securities, fully paid) a 3,195,449 1,816,460 Movements Balance at beginning of financial year Capital return to securityholders (Note 10) Issue of securities under entitlement offer Less transaction costs relating to the issue of securities Deferred tax on the transaction costs relating to the issue of securities 2015 No. of securities 000 835,751 – 278,556 – 2015 $000 1,816,460 – 1,400,122 (30,190) 2014 No. of securities 000 835,751 – – – 2014 $000 1,820,516 (4,056) – – – 9,057 – – Balance at end of financial year 1,114,307 3,195,449 835,751 1,816,460 a) Fully paid securities carry one vote per security and carry the right to distributions. New securities issued under the entitlement offer were not eligible for the FY2015 interim distribution, but otherwise rank equally with existing securities from allotment. 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 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 GROUP STRUCTURE 24. Non-controlling interests 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 (used in)/provided by investing activities Distributions paid to non-controlling interests Net cash used in financing activities 2015 $000 2014 $000 701 1,031,517 1,032,218 49 49 1,032,169 1,032,169 46,359 (11) 46,348 989 47,337 46,672 (436,276) (39,324) 389,604 670 594,584 595,254 11 11 595,243 595,243 38,718 (12) 38,706 (861) 37,845 39,695 1,592 (41,273) (41,287) 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. APT Investment Trust Other non-controlling interest APT Investment Trust Issued capital: Balance at beginning of financial year Issue of securities under entitlement offer Distribution – capital return (Note 9) Less transaction costs relating to the issue of units 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 unitholders Distributions paid (Note 9) 68 1,032,169 52 1,032,221 595,243 51 595,294 576,172 438,351 – (9,437) 1,005,086 (394) 989 595 19,465 46,348 (39,325) 26,488 578,780 – (2,608) – 576,172 467 (861) (394) 19,424 38,706 (38,665) 19,465 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 GROUP STRUCTURE 24. Non-controlling interests (continued) APT Investment Trust (continued) Other non-controlling interest Issued capital Reserves Retained earnings 2015 $000 2014 $000 4 1 47 52 4 1 46 51 25. Joint arrangements and associates 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 these entities. Name of entity Principal activity Country of incorporation 2015 2014 Ownership interest % Joint ventures: SEA Gas Gas transmission Power generation (gas) Diamantina Power Station Energy Infrastructure Investments Unlisted energy vehicle EII 2 Power generation (wind) Associates: GDI (EII) Envestra Limited a Gas distribution Gas distribution Australia Australia Australia Australia Australia Australia 50.00 50.00 19.90 20.20 20.00 – 50.00 50.00 19.90 20.20 20.00 33.05 a) During August 2014, APA Group sold its investment in Envestra Limited to Cheung Kong Group consortium for $1.32 per share amounting to $783.8 million in gross proceeds which realised a net pre-tax profit of $430.0 million. Investment in joint ventures and associates using the equity method 257,425 593,325 Joint Ventures Aggregate carrying amount of investment APA Group’s aggregated share of: Profit from continuing operations Other comprehensive income Total comprehensive income Associates Aggregate carrying amount of investment APA Group’s aggregated share of: Profit from continuing operations Other comprehensive income Total comprehensive income 228,556 179,820 10,288 (9,786) 502 11,973 (8,783) 3,190 28,869 413,505 3,633 (19,290) (15,657) 52,317 854 53,171 Investment in associates An associate is an entity over which APA Group has significant influence and that is neither a subsidiary nor a joint arrangement. Investments in associates are accounted for using the equity accounting method. 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 retained post-acquisition profit or loss and other comprehensive income, less any impairment. Losses of an associate or joint venture in excess of APA Group’s interests (which includes any long-term interests, that in substance, form part of the net 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. 69 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 GROUP STRUCTURE 25. Joint arrangements and associates (continued) 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 27. 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 Output interest 2015 % 88.2 a 50.0 b 2014 % 88.2 a 50.0 b 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. Interest in joint arrangements A joint arrangement is an arrangement whereby two or more parties have joint control. Joint control is the contractually agreed sharing of control such that decisions about the relevant activities of the arrangement (those that significantly affect the returns) require the unanimous consent of the parties sharing control. APA Group has two types of joint arrangements: 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 for using the equity accounting method; and Joint operations: A joint arrangement in which the parties that share joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement. In relation to its interest in a joint operation, APA Group recognises its share of assets and liabilities, revenue from the sale of its share of the output and its share of any revenue generated from the sale of the output by the joint operation and its share of expenses. These are incorporated into APA Group’s financial statements under the appropriate headings. 26. Subsidiaries Subsidiaries are entities controlled by APT. Control exists where APT 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 returns); exposure, or rights, to variable returns from their involvement with the entities; and the ability to use their power to affect those returns. 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 e 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 70 Country of registration/ incorporation 2015 % 2014 % Ownership interest 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 100 100 100 96 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 100 100 100 96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 GROUP STRUCTURE 26. Subsidiaries (continued) Name of entity 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 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 e APT Water Management Holdings Pty Ltd e 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 e Central Ranges Pipeline Pty Ltd b, c APA Country Pipelines Pty Limited b, c North Western Natural Gas Company Pty Limited e 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 Country of registration/ incorporation 2015 % 2014 % Ownership interest 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 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 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 71 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 GROUP STRUCTURE 26. Subsidiaries (continued) Name of entity 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 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 APA Bid Co Pty Limited b, c, d APA Hold Co Pty Limited b, c, d APA WGP Pty Limited b, c, d Country of registration/ incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ownership interest 2015 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2014 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – 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 during the 2015 year. e) Entity was deregistered during the 2015 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 which has taken affect in the 2015 year and is therefore no longer a party to the deed. 72 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OTHER ITEMS 27. Commitments and contingencies Capital expenditure commitments APA Group – plant and equipment APA Group’s share of jointly controlled operations – plant and equipment Contingent liabilities Bank guarantees APA Group had no contingent assets as at 30 June 2015 and 30 June 2014. 28. Director and senior executive remuneration Directors remuneration The aggregate remuneration made to Directors of APA Group is set out below: Short-term employment benefits Post-employment benefits Total Remuneration: Non-Executive Directors Short-term employment benefits Post-employment benefits Cash settled security-based payments Total Remuneration: Executive Director a Total Remuneration: Directors 2015 $000 2014 $000 94,169 5,987 100,156 87,835 16,458 104,293 49,049 28,553 2015 $ 2014 $ 1,268,500 132,105 1,400,605 3,109,447 35,000 1,564,212 4,708,659 1,181,281 119,735 1,301,016 2,868,962 25,000 1,301,316 4,195,278 6,109,264 5,496,294 a) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for senior executives. Senior executive remuneration a The aggregate remuneration made to senior executives of APA Group is set out below: Short-term employment benefits Post-employment benefits Cash settled security-based payments Retention award 9,977,891 258,778 4,242,640 430,666 9,060,314 192,775 3,410,484 550,667 14,909,975 13,214,240 a) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for senior executives. 29. 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 659,500 18,000 – 436,500 700,000 21,500 8,500 414,000 1,114,000 1,144,000 a) Services provided were in accordance with the external auditor independence policy. Other assurance services comprise preparation of investigating accountants reports and assurance services in relation to debt raisings, a scheme of arrangement and the entitlement offer. 73 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OTHER ITEMS 30. Related party transactions a) Equity interest in related parties Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 26 and the details of the percentage held in joint operations, joint ventures and associates are disclosed in Note 25. b) Responsible Entity – Australian Pipeline Limited The Responsible Entity is wholly owned by APT Pipelines Limited. c) Transactions with related parties within APA Group 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; 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 26 for details of the entities that comprise APA Group. Australian Pipeline Limited Management fees of $3,451,167 (2014: $3,177,861) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APA Group. No amounts were paid directly by APA Group to the Directors of the Responsible Entity, except as disclosed at Note 28. 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. 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: 2015 SEA Gas Energy Infrastructure Investments EII 2 APA Ethane Ltd Diamantina Power Station GDI (EII) 2014 SEA Gas Energy Infrastructure Investments EII 2 APA Ethane Ltd Diamantina Power Station GDI (EII) Envestra Limited a Dividends from related parties $000 14,164 3,460 3,105 – – 4,479 Sales to related parties $000 3,733 27,021 661 200 1,608 51,190 25,208 84,413 11,298 4,283 2,405 – – 5,433 38,000 3,256 22,755 641 200 3,083 49,435 369,471 61,419 448,841 Purchases from related parties $000 – 139 – – – – 139 – 250 – – – 18 578 846 Amount owed by related parties $000 181 3,074 – – – 5,749 9,004 98 1,935 – – – 4,994 40,400 47,427 Amount owed to related parties $000 – 139 – – – – 139 – – – – – – – – At year end, APA Group had a shareholder loan receivable from Diamantina Power Station of $75.7 million (2014 $118.1 million). a) During August 2014, APA Group sold its investment in Envestra Limited to Cheung Kong Group consortium for $1.32 per share amounting to $783.8 million in gross proceeds which realised a net pre-tax profit of $430.0 million. 74 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OTHER ITEMS 31. 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. 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 2015 $000 2014 $000 2,869,731 632,553 3,502,284 105,763 105,763 845,650 1,083,512 1,929,162 98,427 98,427 3,396,521 1,830,735 3,195,449 199,587 1,816,460 13,912 1,485 363 3,396,521 1,830,735 449,311 1,122 450,433 258,159 (1,373) 256,786 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. 32. Adoption of new and revised Accounting Standards Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) There has not been any new or revised Standards and Interpretations issued by the AASB that are relevant to the consolidated entity’s operations that would be effective for the current reporting period. 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. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending — AASB 9 ‘Financial Instruments’, and the relevant amending standards 1 January 2018 30 June 2019 — AASB 15 ‘Revenue from Contracts with Customers’ and AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB15’ 1 January 2017 a 30 June 2018 a a) The International Accounting Standards Boards has deferred the implementation to periods commencing on or after 1 January 2018. This deferral is expected to be adopted by the AASB in due course. The potential impact of the initial application of the Standards above is yet to be determined. 33. Events occurring after reporting date On 7 July 2015, APA Group entered into a series of forward exchange contracts for financial years 2017 and 2018 to hedge the forecast net USD cashflows of US$388.1 million (A$528.5 million) associated with the Wallumbilla Gladstone Pipeline. This increased the net value of foreign exchange contracts held on that date to US$581.9 million (A$784.4 million). On 26 August 2015, the Directors declared a final distribution of 20.50 cents per security ($228.4 million) for APA Group (comprising a distribution of 18.12 cents per security from APT and a distribution of 2.38 cents per security from APTIT), consisting of 20.50 cents per security unfranked profit distribution. The distribution will be paid on 16 September 2015. 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. 75 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2015 The Directors declare that: a) b) 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; 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 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, 26 August 2015 Robert Wright Director 76 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES AUDITOR’S INDEPENDENCE DECLARATION to Australian Pipeline Limited as Responsible Entity for Australian Pipeline Trust 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 26 August 2015 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 2015, 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 A V Griffiths Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 109 77 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT to Australian Pipeline Limited as Responsible Entity for Australian Pipeline Trust 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 Report on the Financial Report We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the statement of financial position as at 30 June 2015, 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 36 to 76. 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. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 110 78 APA Group | Annual Report 2015AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT CONTINUED to Australian Pipeline Limited as Responsible Entity for Australian Pipeline Trust Deloitte Touche Tohmatsu ABN 74 490 121 060 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia 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. Independent Auditor’s Report to the Unitholders of Australian Pipeline Trust Opinion DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au In our opinion: Report on the Financial Report (a) the financial report of Australian Pipeline Trust is in accordance with the Corporations Act 2001 , including: and of its performance for the year ended on that date; and We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the the statement of profit or loss and other statement of financial position as at 30 June 2015, (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 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 (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 36 to 76. (b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2. Directors’ Responsibility for the Financial Report Report on the Remuneration 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 We have audited the Remuneration Report included in pages 23 to 35 of the directors’ report of Corporations Act 2001 and for such internal control as the directors determine is necessary to enable Australian Pipeline Limited as responsible entity for Australian Pipeline Trust for the year ended 30 the preparation of the financial report that gives a true and fair view and is free from material in June 2015. The directors have voluntarily prepared and presented the Remuneration Report misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with accordance with the requirements of section 300A of the Corporations Act 2001 . Our responsibility is Accounting Standard AASB 101 Presentation of Financial Statements , that the financial statements to express an opinion on the Remuneration Report, based on our audit conducted in accordance with comply with International Financial Reporting Standards. Australian Auditing Standards. Auditor’s Responsibility Opinion Our responsibility is to express an opinion on the financial report based on our audit. We conducted In our opinion the Remuneration Report of Australian Pipeline Limited for the year ended 30 June our audit in accordance with Australian Auditing Standards. Those standards require that we comply 2015, has been prepared in accordance with the requirements of section 300A of the Corporations Act with relevant ethical requirements relating to audit engagements and plan and perform the audit to 2001. 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 DELOITTE TOUCHE TOHMATSU 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 A V Griffiths accounting policies used and the reasonableness of accounting estimates made by the directors, as well Partner as evaluating the overall presentation of the financial report. Chartered Accountants Sydney, 26 August 2015 Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 111 110 79 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES ARSN 115 585 441 DIRECTORS’ REPORT The Directors of Australian Pipeline Limited (“Responsible Entity”) submit their report and the annual financial report of APT Investment Trust (“APTIT”) and its controlled entities (together “Consolidated Entity”) for the financial year ended 30 June 2015. 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 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 19 to 21. 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. STATE OF AFFAIRS No significant change in the state of affairs of APTIT occurred during the year. 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 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. REVIEW AND RESULTS OF OPERATIONS APTIT reported net profit after tax of $46.3 million (2014: $38.7 million) for the year ended 30 June 2015 and total revenue of $46.4 million (2014: $38.7 million). DISTRIBUTIONS Distributions paid to unitholders during the financial year were: APTIT profit distribution APTIT capital distribution Final FY 2014 distribution paid 10 September 2014 Interim FY 2015 distribution paid 18 March 2015 Cents per unit Total distribution $000 Cents per unit $000 Total distribution 2.33 – 2.33 19,465 – 19,465 2.38 – 2.38 19,860 – 19,860 On 26 August 2015, the Directors declared a final distribution for APTIT for the financial year of 2.38 cents per unity which is payable on 16 September 2015 and will comprise the following components: APTIT profit distribution APTIT capital distribution Final FY 2015 distribution payable 16 September 2015 Cents per unit Total distribution $000 2.38 – 2.38 26,488 – 26,488 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 2015) will provide the classification of distribution components for the purposes of preparation of securityholder income tax returns. 80 APA Group | Annual Report 2015 OTHER INFORMATION Details of the Director and Company Secretary of the Responsible Entity are set out in the Australian Pipeline Trust Directors’ report at pages 1 to 22. That report also contains information on the Directors’ directorships of other listed entities, 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 year are disclosed in Note 16 to the financial statements. Except as disclosed in this report, neither the Responsible Entity nor any of its associates holds any APTIT units. The number of APTIT units issued during the year, and the number of APTIT units at the end of the year, are disclosed in Note 11 to the financial statements. The value of APA’s assets as at the end of the year is disclosed in the balance sheet in total assets, and the basis of valuation is included in the notes to the financial statements. AUDITOR’S INDEPENDENCE DECLARATION A copy of the Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 96. ROUNDING OF AMOUNTS APA is an entity of the kind referred to in ASIC Class Order 98/0100 dated 10 July 1998 and, in accordance with that Class Order, amounts in the Directors’ report and the financial report are rounded to the nearest thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 298(2) of the Corporations Act 2001. On behalf of the Directors Leonard Bleasel AM Chairman Sydney, 26 August 2015 Robert Wright Director 81 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESDIRECTORS’ REPORT CONTINUEDFor the year ended 30 June 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2015 Continuing operations Revenue Expenses Profit before tax Income tax expense Profit for the year Other comprehensive income Items that may be reclassified to profit or loss: Gain/(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: Unitholders of the parent Total comprehensive income attributable to: Unitholders of the parent Earnings per unit Basic and diluted (cents per unit) Note 2015 $000 2014 $000 3 3 4 5 46,359 (11) 46,348 – 46,348 38,718 (12) 38,706 – 38,706 989 989 (861) (861) 47,337 37,845 46,348 46,348 38,706 38,706 47,337 37,845 2015 4.7 2014 (Restated) 4.5 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 82 APA Group | Annual Report 2015 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2015 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 Note 2015 $000 2014 $000 7 7 9 8 11 701 670 9,951 1,021,566 1,031,517 1,032,218 49 49 10,623 583,961 594,584 595,254 11 11 1,032,169 595,243 1,005,086 595 26,488 576,172 (394) 19,465 1,032,169 595,243 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 83 APA Group | Annual Report 2015 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the financial year ended 30 June 2015 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 unitholders Balance at 30 June 2014 Balance at 1 July 2014 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 unitholders Balance at 30 June 2015 Note 6 11 6 Issued capital $000 578,780 – – – (2,608) Reserves $000 467 – (861) (861) – Retained earnings $000 19,424 38,706 – 38,706 (38,665) Total $000 598,671 38,706 (861) 37,845 (41,273) 576,172 (394) 19,465 595,243 576,172 – – – 428,914 – 1,005,086 (394) – 989 989 – – 595 19,465 46,348 – 46,348 – (39,325) 595,243 46,348 989 47,337 428,914 (39,325) 26,488 1,032,169 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 84 APA Group | Annual Report 2015 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 30 June 2015 Cash flows from operating activities Trust distribution – related party Dividends received Interest received – related parties Proceeds from repayment of finance leases Receipts from customers Payments to suppliers Net cash provided by operating activities Cash flows from investing activities (Advances to)/repayment received from related parties Net cash (used in)/provided by investing activities Cash flows from financing activities Proceeds from issue of units Payment of unit issue costs Distributions to unitholders 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 2015 $000 2014 $000 23,184 125 21,889 1,167 318 (11) 46,672 (436,276) (436,276) 438,351 (9,422) (39,325) 389,604 – – – 23,013 126 15,199 1,168 201 (12) 39,695 1,592 1,592 – (14) (41,273) (41,287) – – – The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 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. 85 APA Group | Annual Report 2015 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 30 June 2015 BASIS OF PREPARATION 1. About this report The content and format of the financial statements have been streamlined to present the financial information in a more meaningful manner to unitholders. Note disclosures have been grouped into six sections being Basis of Preparation, Financial Performance, Operating Assets and Liabilities, Capital Management, Group Structure and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used. The purpose of revised format is to provide readers with a clearer understanding of what are the key drivers of financial performance for the Consolidated Entity. Basis of Preparation 1. About this report Financial Performance Operating Assets and Liabilities 3. Profit from operations 7. Receivables 8. Payables 2. General information 4. Income tax 5. Earnings per unit 6. Distributions Capital Management Group Structure Other 9. Other financial instruments 12. Subsidiaries 13. Commitments and contingencies 10. Financial risk management 11. Issued capital 14. Director and senior executive remuneration 15. Remuneration of external auditor 16. Related party transactions 17. Parent entity information 18. Leases 19. Adoption of new and revised Accounting Standards 20. Events occurring after reporting date 2. General information APT Investment Trust (“APTIT” or “Trust”) is one of the two stapled trusts of APA Group (“APA Group”), the other stapled trust being Australian Pipeline Trust (“APT”). Each of APT and APTIT are registered managed investment schemes regulated by the Corporations Act 2001. APTIT units are “stapled” to APT units on a one-to-one basis so that one APTIT unit and one APT unit form a single stapled security which trades on the Australian Securities Exchange under the code “APA”. This financial report represents the consolidated financial statements of APTIT 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. 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 and associates to bring their accounting policies into line with those used by the Consolidated Entity. APTIT’s registered office and its principal place of business are as follows: Registered office and principal place of business Level 19 HSBC Building 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000 APTIT operates as an investment entity within the Australian Pipeline Trust stapled group. The financial report for the year ended 30 June 2015 was authorised for issue in accordance with a resolution of the directors on 26 August 2015. This general purpose financial report for the year ended 30 June 2015 has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board and Interpretations (AIFRS). Compliance with Australian Accounting Standards ensures that the Financial Statements and notes also comply with International Financial Reporting Standards (IFRS). The financial report has been prepared on the basis of historical cost, except for the revaluation of financial instruments. 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. i) Subsidiaries Subsidiaries are entities controlled by APTIT. Control exists where APTIT has power over the entities, i.e. existing rights that give APTIT the current ability to direct the relevant activities of the entities (those that significantly affect the returns); exposure, or rights, to variable returns from its involvement with the entities; and the ability to use its power to affect those returns. ii) Segment information The Consolidated Entity has one reportable segment being energy infrastructure investment and operation. 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. 86 APA Group | Annual Report 2015FINANCIAL PERFORMANCE 3. 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 Gain/(loss) on financial asset held at fair value through profit or loss Finance lease income – related party Other revenue Other Total revenue Expenses Audit fees Total expenses 2015 $000 2014 $000 23,184 125 23,309 22,157 70 529 22,756 294 46,359 (11) (11) 23,013 125 23,138 15,162 (342) 559 15,379 201 38,718 (12) (12) Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Consolidated Entity and 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, which is recognised as it accrues and is determined using the effective interest method; Distribution revenue, which is recognised when the right to receive a distribution has been established; Dividend revenue, which is recognised when the right to receive a dividend has been established; and Finance lease income, which is recognised when receivable. Income tax 4. Income tax expense is not brought to account in respect of APTIT as, pursuant to the Australian taxation laws APTIT, is not liable for income tax provided that its realised taxable income (including any assessable realised capital gains) is fully distributed to its unitholders each year. 5. Earnings per unit Basic and diluted (cents per unit) 2015 4.7 2014 (Restated) 4.5 The earnings and weighted average number of units used in the calculation of basic and diluted earnings per unit are as follows: 2015 $000 2014 $000 Net profit attributable to unitholders for calculating basic and diluted earnings per unit 46,348 38,706 Adjusted weighted average number of ordinary units used in the calculation of basic and diluted earnings per unit 2015 No. of units 000 2014 (Restated) No. of units 000 995,245 865,977 On the 23 December 2014, APA Group issued 145,164,302 new ordinary securities on completion of the institutional component and early acceptance period of the retail component for the fully underwritten rights issue. The remaining allocation of the retail component being 133,392,260 was completed on 28 January 2015. The issue was offered at $6.60 per security, a discount to APA Group’s closing market price of $7.67 per security on the 9 December 2014, the last trading day before the record date of the entitlement offer of 15 December 2014. The number of securities used for the current and prior period calculation of earnings per security has been adjusted for the discounted rights issue. An adjustment factor of 1.036 has been calculated, being the closing market price per security on 9 December 2014, divided by the theoretical ex-rights value (TERV) of $7.40 per security. 87 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 FINANCIAL PERFORMANCE 6. Distributions Recognised amounts Final distribution paid on 10 September 2014 (2014: 11 September 2013) Profit distribution a Capital distribution Interim distribution paid on 18 March 2015 b (2014: 12 March 2014) Profit distribution a Capital distribution Total distributions recognised Profit distributions a Capital distributions Unrecognised amounts Final distribution payable on 16 September 2015 c (2014: 10 September 2014) Profit distribution a Capital distribution 2015 cents per unit 2015 Total $000 2014 cents per unit 2014 Total $000 2.33 – 2.33 2.38 – 2.38 4.71 – 2.38 – 2.38 19,465 – 19,465 19,860 – 19,860 39,325 – 26,488 – 26,488 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 a) Profit distributions unfranked (2014: unfranked). b) New securities issued under the entitlement offer were not eligible for the FY2015 interim distribution. c) Record date 30 June 2015. 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. OPERATING ASSETS AND LIABILITIES 7. Receivables Other debtors Finance lease receivable – related party (Note 16) Current Finance lease receivable – related party (Note 16) Non-current 2015 $000 31 670 701 9,951 9,951 2014 $000 31 639 670 10,623 10,623 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. 8. Payables Other payables 49 11 Trade and other payables are recognised when the Consolidated Entity becomes obliged to make future payments resulting from the purchase of goods and services. Trade and other payables are stated at amortised cost. 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 only recognised once a tax invoice has been issued or received. 88 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 9. Other financial instruments Non-current 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 2015 $000 2014 $000 876,911 440,633 107,379 984,290 34,765 2,511 1,021,566 107,379 548,012 34,427 1,522 583,961 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 preferred 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 capital. As such, GAIT neither controls nor has a significant influence over GasNet A Trust. GasNet Australia Trust, a related party wholly owned by APA Group, owns 100% of the A Class units in GasNet A Trust and, accordingly, GasNet A Trust is included in the consolidation of the APA 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 Australian Pipeline Limited (APL), as Responsible Entity for APTIT, acquired the redeemable ordinary shares. This investment is classified as fair value through profit or loss. c) Available-for-sale investments reflect a 6% unitholding in Ethane Pipeline Income Financing Trust. Financial assets are classified into the following specified categories: ‘available-for-sale’ financial assets, ‘loans and receivables’ and ‘fair value through profit or loss’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or where appropriate, a shorter period. Fair value through profit or loss Financial assets at fair value through profit or loss are stated at fair value, with 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 Financial assets classified as being available-for-sale are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in the available-for-sale investment revaluation reserve. 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. Receivables and loans Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Trade and other receivables are stated at their amortised cost less impairment. Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after initial recognition of the financial asset, the estimated future cash flows of the investment have been adversely impacted. 10. Financial risk management The Treasury department within Finance is responsible for the overall management of the Consolidated Entity’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. The Consolidated Entity’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department. The Consolidated Entity’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below: a) Market risk including currency risk, interest rate risk and price risk; b) Credit risk; and c) Liquidity risk. Treasury as a centralised function provides the Consolidated Entity with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost, and minimises risks through the use of natural hedges and derivative instruments. The Consolidated Entity does not engage in speculative trading. All derivatives have been traded to hedge underlying or existing exposures and have adhered to the Board approved Treasury Risk Management Policy. 89 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 10. Financial risk management (continued) a) Market risk The Consolidated Entity’s activities exposure is primarily to the financial risk of changes in interest rates and price risk from its investment in Ethane Pipeline Income Financing Trust. 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. 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 $3,335,000 or decrease by $1,090,000 (2014: increase by $1,145,000 or decrease by $1,090,000 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. Price sensitivity The sensitivity analysis below has been determined based on the exposure to price risks at the reporting date. At the reporting date, if the prices of the Consolidated Entity’s investment in Ethane Pipeline Income Financing Trust had been 5 percent p.a. higher or lower: — net profit would have been unaffected as the investment is classified as available-for-sale and no investments were disposed of or impaired (2014: $nil); and — equity reserves would decrease/increase by $1,000 (2014: $32,000), due to the changes in the fair value of the available-for-sale investment. The Consolidated Entity’s analysis of its exposure to price risk from its investment has declined during the current period compared to the prior period. This outcome is largely a result of the decrease in the price volatility, relative to the market, of the investment in the stapled security of Ethane Pipeline Income Financing Trust. b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Entity. The Consolidated Entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, the Consolidated Entity’s policy is to only transact with counterparties that have a credit rating of A – (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the Board. Where a counterparty’s rating falls below this threshold following a transaction(s), no other transaction(s) can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above the Consolidated Entity’s minimum threshold. The Consolidated Entity’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. 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. c) Liquidity risk The Consolidated Entity’s exposure to liquidity risk is limited to trade payables of $49,000 (2014: $11,000), all of which are due in less than 1 year (2014: less than 1 year). d) 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, the Consolidated Entity determines fair value by using various valuation 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 as to the recoverability based on the counterparty’s and the Consolidated Entity’s credit risk. Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. — 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 2015 (2014: 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. 90 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015CAPITAL MANAGEMENT 10. Financial risk management (continued) d) Fair value of financial instruments (continued) Fair value of the Group’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 9). 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: — 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 at issuance ($0.99) and the ordinary price at issuance ($0.01) are at their fair value; — the risk free rate of return is 2.13% (2014: 2.93%) per annum and is based upon an interpolation of the three and five year Government bond rates at the valuation date; — 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 (2014: 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. Level 1 $000 Level 2 $000 Level 3 $000 Total $000 Fair value hierarchy 2015 Financial assets measured at fair value (Note 9) Available-for-sale listed equity securities Ethane Pipeline Income Fund Unlisted redeemable ordinary shares Energy Infrastructure Investments 2014 Financial assets measured at fair value (Note 9) Available-for-sale listed equity securities Ethane Pipeline Income Fund Unlisted redeemable ordinary shares Energy Infrastructure Investments 2,511 – 2,511 1,522 – 1,522 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 or loss Distributions Closing balance – – – – – – – 2,511 34,765 34,765 34,765 37,276 – 1,522 34,427 34,427 34,427 35,949 Fair value through Profit or Loss 2015 $000 2014 $000 34,427 34,807 3,522 70 (3,254) 34,765 4,245 (342) (4,283) 34,427 91 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 CAPITAL MANAGEMENT 11. Issued capital 2015 $000 2014 $000 1,114,307,369 units, fully paid (2014: 835,750,807 units, fully paid) a 1,005,086 576,172 2015 No. of units 000 2015 $000 2014 No. of units 000 Movements Balance at beginning of financial year Issue of units under entitlement offer Capital distributions paid (Note 6) Issue cost of units 835,751 278,556 – – 576,172 438,351 – (9,437) Balance at end of financial year 1,114,307 1,005,086 835,751 – – – 835,751 2014 $000 578,780 – (2,608) – 576,172 a) Fully paid units carry one vote per unit and carry the right to distributions. New units issued under the entitlement offer were not eligible for the FY2015 interim distribution, but otherwise rank equally with existing units from allotment. 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. GROUP STRUCTURE 12. Subsidiaries Name of entity Parent entity APT Investment Trust Controlled entity Ownership interest Country of registration 2015 % 2014 % GasNet Australia Investments Trust Australia 100 100 OTHER 13. Commitments and contingencies The Consolidated Entity had no material contingent assets, liabilities and commitments as at 30 June 2015 and 30 June 2014. 14. Director and senior executive remuneration Directors remuneration The aggregate remuneration made to Directors of the Consolidated Entity is set out below: Short-term employment benefits Post-employment benefits Total Remuneration: Non-Executive Directors Short-term employment benefits Post-employment benefits Cash settled security-based payments Total Remuneration: Executive Director a Total Remuneration: Directors 2015 $ 2014 $ 1,268,500 132,105 1,400,605 3,109,447 35,000 1,564,212 4,708,659 1,181,281 119,735 1,301,016 2,868,962 25,000 1,301,316 4,195,278 6,109,264 5,496,294 Senior executive remuneration a The aggregate remuneration made to senior executives of the Consolidated Entity is set out below: Short-term employment benefits Post-employment benefits Cash settled security-based payments Retention award 9,977,891 258,778 4,242,640 430,666 9,060,314 192,775 3,410,484 550,667 14,909,975 13,214,240 a) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for senior executives. 92 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OTHER 15. Remuneration of external auditor Amounts received or due and receivable by Deloitte Touche Tohmatsu for: Auditing the financial report 16. Related party transactions Equity interest in related parties Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 12. 2015 $ 2014 $ 11,211 12,322 Responsible Entity – Australian Pipeline Limited The Responsible Entity is wholly owned by APT Pipelines Limited (2014: 100% owned by APT Pipelines Limited). 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. All transactions between the entities that comprise the Consolidated Entity have been eliminated on consolidation. Refer to Note 12 for details of the entities that comprise the Consolidated Entity. Transactions with other related parties APTIT and its controlled entities have a number of loan receivable balances with another entity 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 $701,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2014: $670,000); — non-current receivables totalling $9,951,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2014: $10,623,000); and — non-current receivables totalling $876,911,000 (2014: $440,633,000) are owing from a subsidiary of APT for amounts due under inter-entity loans. Australian Pipeline Limited Management fees of $820,000 (2014: $753,000) 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 $820,000 (2014: $753,000) were reimbursed by APT. 17. 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. 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 2015 $000 2014 $000 701 1,031,517 1,032,218 670 594,584 595,254 49 49 11 11 1,032,169 595,243 1,005,086 26,488 576,172 19,465 595 (394) 1,032,169 595,243 46,348 989 47,337 38,706 (861) 37,845 93 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 OTHER 17. Parent entity information (continued) 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. 18. 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 7) Non-current receivables (Note 7) 2015 $000 2014 $000 1,167 4,669 8,171 14,007 14,007 (3,386) 10,621 670 9,951 10,621 1,167 4,669 9,338 15,174 15,174 (3,912) 11,262 639 10,623 11,262 a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual. 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. Consolidated Entity as lessor 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. 19. Adoption of new and revised Accounting Standards a) Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) There has not been any new or revised Standards and Interpretations issued by the AASB that are relevant to the consolidated entity’s operations that would be effective for the current reporting period. 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. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending — AASB 9 ‘Financial Instruments’, and the relevant amending standards 1 January 2018 30 June 2019 — AASB 15 ‘Revenue from Contracts with Customers’ and AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’ 1 January 2017 a 30 June 2018 a a) The International Accounting Standards Boards has deferred the implementation to periods commencing on or after 1 January 2018. This deferral is expected to be adopted by the AASB in due course. The potential impact of the initial application of the Standards above is yet to be determined. 20. Events occurring after reporting date On 26 August 2015, the Directors declared a final distribution for the 2015 financial year of 2.38 cents per unit ($26.5 million). The distribution represents a 2.38 cents per security unfranked profit distribution and nil cents per security capital distribution. The distribution will be paid on 16 September 2015. 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. 94 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the financial year ended 30 June 2015 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2015 The Directors declare that: a) b) 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; 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, 26 August 2015 Robert Wright Director 95 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIESAPT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES AUDITOR’S INDEPENDENCE DECLARATION To Australian Pipeline Limited as responsible entity for APT Investment Trust Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au The Directors Australian Pipeline Limited as responsible entity for APT Investment Trust HSBC Building Level 19, 580 George Street Sydney NSW 2000 26 August 2015 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 2015, 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 A V Griffiths Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 28 96 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT To Australian Pipeline Limited as responsible entity for APT Investment Trust 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 2015, 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 82 to 95. 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 29 97 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT To Australian Pipeline Limited as responsible entity for APT Investment Trust Deloitte Touche Tohmatsu ABN 74 490 121 060 Auditor’s Independence Declaration Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place In conducting our audit, we have complied with the independence requirements of the Corporations Sydney NSW 1220 Australia 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. DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au Opinion In our opinion: Independent Auditor’s Report (a) the financial report of APT Investment Trust is in accordance with the Corporations Act 2001 , to the Unitholders of Australian Pipeline Trust including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 Report on the Financial Report and of its performance for the year ended on that date; and We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and the statement of profit or loss and other statement of financial position as at 30 June 2015, comprehensive income, the statement of cash flows and the statement of changes in equity for the year (b) the financial statements also comply with International Financial Reporting Standards as disclosed 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 36 to 76. in Note 2. Directors’ Responsibility for the Financial Report DELOITTE TOUCHE TOHMATSU 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 A V Griffiths comply with International Financial Reporting Standards. Partner Chartered Accountants Auditor’s Responsibility Sydney, 26 August 2015 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. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 30 110 98 APA Group | Annual Report 2015APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES ADDITIONAL INFORMATION Additional information required by the Listing Rules of the Australian Securities Exchange Limited and not provided elsewhere in this report (the information is applicable as at 31 August 2015). No. of securities 228,985,072 218,902,199 98,269,153 69,494,944 21,038,636 17,547,046 10,340,000 10,277,940 6,133,185 3,414,452 3,405,162 3,385,804 3,067,683 2,023,727 2,000,000 1,827,788 1,718,530 1,670,256 1,533,105 1,488,670 % 20.55 19.64 8.82 6.24 1.89 1.57 0.93 0.92 0.55 0.31 0.31 0.30 0.28 0.18 0.18 0.16 0.15 0.15 0.14 0.13 706,523,352 63.40 Twenty largest holders National Nominees Limited HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Custodial Services Limited BNP Paribas Noms Pty Ltd Australian Foundation Investment Company Limited Argo Investments Limited AMP Life Limited BKI Investment Company Limited RBC Dexia Investor Services Australia Nominees Pty Limited Bond Street Custodians Limited UBS Wealth Management Australia Nominees Pty Ltd Milton Corporation Limited SBN Nominees Pty Limited Questor Financial Services Limited Invia Custodian Pty Limited Navigator Australia Limited Investment Custodial Services Sandhurst Trustees 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 1000 Total No. of holders % No. of securities 189 9,831 11,890 30,530 27,058 79,498 0.24 12.37 14.96 38.40 34.03 740,400,772 198,046,632 84,915,467 80,204,181 10,740,317 100.00 1,114,307,369 100.00 % 66.45 17.77 7.62 7.20 0.96 2,104 holders hold less than a marketable parcel of securities (market value less than $500 or 58 securities based on a market price on 31 August 2015 of $8.77). Substantial holders By notice dated 23 January 2015, National Nominees as Custodian for UniSuper Ltd advised that it had an interest in 106,284,132 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. 99 APA Group | Annual Report 2015 APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES INVESTOR INFORMATION CALENDAR OF EVENTS Final distribution FY2015 record date Final distribution FY2015 payment date Annual meeting Interim result announcement Interim distribution FY2016 record date Interim distribution FY2016 payment date 1. Subject to change. ANNUAL MEETING DETAILS Date: Thursday, 22 October 2015 Venue: City Recital Hall, Angel Place, Sydney NSW Time: 10.30am Registration commences at 10.00am ASX LISTING An APA Group security comprises a unit in Australian Pipeline Trust and a unit in APT Investment Trust. These units are stapled together to form a stapled security which is listed on the ASX (ASX Code: APA). Australian Pipeline Limited is the Responsible Entity of those trusts. APA GROUP RESPONSIBLE ENTITY AND REGISTERED OFFICE 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 30 June 2015 16 September 2015 22 October 2015 24 February 2016 1 31 December 2015 1 16 March 2016 1 SECURITYHOLDER DETAILS 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 Distributions will be paid semi-annually in March and September. Securityholders will receive annual tax statements with the final distribution in 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. Secrurityholders with enquires should contact the APA Group registry. ONLINE INTERACTIVE REPORTS APA Group’s 2015 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, 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. 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 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, including forecasts and projections, 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 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. 100 APA Group | Annual Report 2015. . u a m o c y e v a D n g i s e D y b d e n g i s e D APA.COM.AU 

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