annual report. 2019
Cover image: Raj Kallath, APA’s Project Manager for the Reedy Creek Wallumbilla Pipeline project.
Above: APA’s Orbost Gas Processing Plant in Victoria will connect the Sole Gas Field, a new gas supply source into the east coast market in FY2020.
APA GROUP — ANNUAL REPORT 2019
contents.
FY2019 in Review
02 Chairman’s Report
04 Managing Director’s Report
06 APA Group Board
07 APA Group Senior Management
08 2019 Highlights
Australian Pipeline Trust
ARSN 091 678 778
10 Directors’ Report
45 Remuneration Report
59 Consolidated Financial Statements
APT Investment Trust
ARSN 115 585 441
117 Directors’ Report
121 Consolidated Financial Statements
143 Additional Information
144 Five Year Summary
145 Investor Information
Growing energy infrastructure responsibly and
sustainably to meet the needs of our customers
and stakeholders is what we do at APA. That’s why
almost two decades on, we are one of Australia’s
leading energy infrastructure companies.
We play a major role in Australia’s energy market
by connecting gas supply sources to markets,
and connecting energy we generate from both
gas-fired power and renewables technology
to our customers. It’s therefore important
that we act responsibly by doing what we
say we will do, and by doing the right thing
by all of our stakeholders, always.
We take a long term view so that our
infrastructure will serve future generations,
providing responsible energy that affords
Australians the quality of life we enjoy and expect.
APA GROUP — ANNUAL REPORT 2019 — 01
chairman’s report.
Michael Fraser
Chairman
FY2019 saw the continued
delivery of APA’s largest ever
organic growth program –
more than $1.4 billion
of energy infrastructure
added to APA’s footprint
over the last three years.
Of most significance is the
value of the services and
flexibility this infrastructure
will deliver to our customers
for years to come.
$21 billion
Assets owned and/or operated by APA
APA has pursued a consistent strategy for almost
two-decades and that strategy has demonstrated its value
to APA’s customers, Securityholders and business generally.
APA has grown significantly over this time – $21 billion of
assets owned and/or operated by APA; more than 1,800
employees operating and maintaining those assets; and
over $1 billion in operating cash flow generated annually.
For Securityholders, distributions have been reliable and
have increased as the business has grown. Every dollar
invested in APA when it listed in June 2000, has grown
more than 22 times over those 19 years (1).
Leadership
A major contributor to that success has been APA’s long
standing CEO and Managing Director, Mick McCormack,
who retired in July after 14 years of leading the business.
Mick’s foresight and his ‘get-the-job’ done attitude has
been instrumental in cementing APA as a leading Australian
energy infrastructure owner and operator. On behalf of
all APA Securityholders and employees, I would like to
acknowledge and thank Mick, and his family, for those 14
years of dedication to leading APA.
In May 2019, after an extensive search and selection
process, the Board announced Rob Wheals as CEO and
Managing Director, effective 6 July 2019. Rob has been
with APA since 2008. He started as General Manager
Commercial, managing the commercial function in APA’s
transmission business and joined the Executive team in
2012 as Group Executive Transmission. Rob has a deep
understanding of the Australian energy market and the
challenges and opportunities facing APA and the industry
as we transition to a lower carbon future. He is particularly
passionate about delivering for our customers, and has
been instrumental in implementing APA’s Customer
Promise over the last few months. Personally, it has been a
great pleasure for me to have been involved in the launch of
APA’s Customer Promise to our customers.
During the financial year, APA’s Board underwent a number
of changes. Russell Higgins AO and Patricia McKenzie
retired from the Board and I thank them both for their
significant contributions to APA, each over a number of
years. We were fortunate to welcome James Fazzino to the
Board in February 2019. His extensive corporate experience
as a former Chief Executive Officer of one of Australia’s
larger manufacturing companies exposed to the gas sector
will complement the Board’s existing skills and capabilities.
1) Total Securityholder Return since listing to 30 June 2019 is calculated on the assumption that all distributions are reinvested at the ex-distribution date.
02 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information Financial results
APA’s financial performance for FY2019 was a very solid
one, particularly in light of the fact that the organisation
was subject to a takeover proposal from a CKI consortium
for six months of the year. The results and continued growth
of APA in light of those circumstances are a credit to APA’s
people and their ability to stay focused on driving the
business forward.
Outlook
APA’s guidance for FY2020 is for EBITDA of between
$1,660 million and $1,690 million and net interest costs of
between $505 million and $515 million. Total distributions
per security for the financial year are expected to be in
the order of 50.0 cents per security, prior to the benefits
of any franking credits that may arise as a result of
the ongoing payment of company tax by APA.
Along with your Board, I am very pleased that this
expected 6.4% increase in distributions results from the
anticipated growth in operating cash flow as our organic
growth program continues to deliver new projects.
On behalf of the Board, I would like to thank the APA
leadership team and APA’s employees for their dedication
and hard work during what has been another very active
year for the company. I would also like to thank you,
our Securityholders, for your continued support. We
strongly believe that APA is well positioned to continue to
deliver long-term growth and securityholder value, well
into the future.
Michael Fraser
Chairman
Total revenue (excluding pass-through revenue) increased
4.6% on FY2018 to $2,031.0 million. Earnings before
interest, tax, depreciation and amortisation increased 3.6%
to $1,573.8 million. Net profit after tax increased 8.8% to
$288.0 million. Operating cash flow (OCF) was slightly
below FY2018 levels at $1,012.1 million, primarily due to an
increase in income tax paid by APA. The Board has declared
a final distribution of 25.5 cents per security, taking total
distributions for FY2019 to 47.0 cents per security. As a
result of the increased income tax APA paid during the
financial year, a further 3.66 cents per security of franking
credits will attach to the final distribution for the year.
Sustainability
Following steps taken in FY2018, we have continued with
our environment, social and governance (ESG) initiatives
program with an emphasis on aligning our climate risk
management with the recommendations of the Taskforce
on Climate-related Financial Disclosures (TCFD). APA
accepts the Intergovernmental Panel on Climate Change’s
(IPCC) assessment of climate change science that the
climate is changing due to human influence. We believe
that climate change is a significant issue facing the energy
industry and the Australian community in general. We
also believe that natural gas and our diversified energy
asset portfolio will overtime play an important role in the
shift to a lower carbon, sustainable energy future.
During FY2019, we undertook a scenario analysis using
three divergent climate-driven scenarios to stress-test the
resilience of APA over the 10 years to 2030. This analysis
is detailed in APA’s Sustainability Report, but in summary,
the Board expects that APA’s portfolio of assets will be
economically and physically resilient to climate-related
impacts under the scenarios tested over at least the next
10 years. We believe that it is our responsibility to provide
consistent information to stakeholders, including our
investors, on climate-related risks and opportunities and
we will continue to actively monitor, assess and report
on our findings.
$1,574 million
EBITDA increased 3.6% on FY2018
47.0 cents
Distribution per security
increased 4.4% on FY2018
APA GROUP — ANNUAL REPORT 2019 — 03
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information managing director’s report.
Rob Wheals
Chief Executive Officer
and Managing Director
Safety first, always
I have been with APA for over 10 years. For me as an
employee during that time and now taking over as CEO,
safety and the wellbeing of our people and the communities
around our assets, remains APA’s number one priority.
Pleasingly, our increased efforts and focus in FY2019 have
led to a significant reduction in injuries to our people. The
Total Reportable Injury Frequency Rate (TRIFR) has reduced
by around a third on FY2018 results to 5.98 per million
hours worked. We still have more work to do however,
particularly with regard to our contractor workforce, to
ensure that they are carrying out work on behalf of APA
to the same high safety standard that we set and achieve
with our employees.
Strategy remains on track
Since commencing in my new role, one of the most common
questions that I am asked is whether I will be ‘changing
APA’s strategy?’ And the simple answer to that question is
‘no’. APA’s long-standing strategy of growing the business
through leveraging our existing asset portfolio and skills
has served the business well. Each year the Board and
Executive team review and ratify the APA strategy. Having
been a part of the strategy review earlier this year, I am
in full support of APA’s strategy as it stands, including our
exploration of gas transmission and distribution growth
opportunities in North America.
At APA, we have demonstrated our ability to successfully
acquire, integrate and grow energy infrastructure
businesses. We do not see geographical location as an
impediment, or added risk to those proven capabilities.
Testament to APA’s commitment to this part of our
strategy is the recent decision to relocate Ross Gersbach,
our current Chief Executive of Strategy and Development,
to APA’s Houston office. As we have said in the past, we
are interested in this market due to the opportunities that
it presents to invest in energy infrastructure at appropriate
rates of return with a longer-term opportunity to grow and
add further value to APA.
33% reduction
in the TRIFR safety metrics
down to 5.98 per million hours worked
It is a great honour and privilege
for me to deliver my first report
to Securityholders as APA’s CEO
and Managing Director. The solid
results delivered in FY2019 are
due to the combined efforts of
a team of 1,800 APA employees
led by our retiring Managing
Director, Mick McCormack, working
together to deliver services to our
customers; good stewardship and
engagement with communities and
the environment; and collaboration
with the broader energy industry.
When our stakeholders are satisfied,
our business does well and we
are able to return that success
to you, our investors by way of
growing distributions and building
a stronger and larger APA.
04 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information Delivering the strategy
I have recently initiated a review of APA’s purpose, vision,
strategic imperatives and operating model to ensure we
have the right structure and appropriate resources for
the efficient and effective execution of our strategy. I fully
expect the outcome to deliver improved clarification of our
goals, reporting lines, and decision-making to enhance our
speed and agility as we deliver that strategy.
APA has grown over almost two decades because our
customers continue to request energy infrastructure,
increased services, and flexible and bespoke solutions
to support their energy needs. If it is in the energy
infrastructure space and we can add value for the benefit
of our customers, we are committed to investigating and
delivering the best in class solutions available.
Having spent the last decade with APA at the coalface of
working with our transmission customers, I am proud to
have been instrumental in the development and launch
of APA’s Customer Promise in recent months. I am very
respectful and mindful of the fact that it is our customers’
businesses that drive APA’s performance. If our customers’
businesses are growing and we are helping them with that
growth through flexibility of the services we provide, it
follows that our business will grow too. Summarising those
sentiments is APA’s Customer Promise, which is a whole
of company promise to deliver service to our customers’
that they value.
Complementing this customer initiative is APA’s active
involvement in the development of the energy industry’s
Energy Charter over the last couple of years. The goal
of the Energy Charter is to improve customer outcomes
through the energy industry working together by putting
the customer at the centre of each of our businesses and
the energy system as a whole. The Energy Charter was
launched in January 2019 and currently has 18 signatories
across the electricity and gas supply chains. Signatories
to the Energy Charter are required to disclose annually
their performance against the Charter’s principles.
An independent Accountability Panel will evaluate the
collective disclosures and publish a report of its findings
and recommendations for continuous improvement by
each business.
Growth remains strong
As you read the Operational Review of the Directors’
Report, you will find a long list of organic growth projects
undertaken over the last three financial years. It has been
APA’s largest period of capital investment – $1.4 billion-plus
invested in new energy infrastructure that our customers
have asked for and underwritten with long-term contracts.
Over that period, we have built around 272 kilometres
of new pipelines and more than 300 MW of new power
generation, including 275 MW from new renewable assets.
We will shortly be connecting a new source of gas supply
into the east coast gas market via APA’s Orbost Gas
Processing Facility in Victoria, which will be commissioned in
the last quarter of calendar year 2019.
Gas prices on the east coast of Australia are currently high
due to high demand for gas resources and a tightening
of traditional supply sources. As a result, Australian’s are
now paying some of the highest prices globally for gas,
and this is putting stress on domestic manufacturers
and consumers. APA has long believed that increasing
gas supply is the only real solution to Australia’s high gas
price dilemma and we are working with our customers
by providing them with flexible services to help bring new
supply sources to market.
We continue to see growth opportunities ahead for APA.
Currently we have several Memorandums of Understanding
with customers for new pipeline developments on the
east coast, subject to their gas supply development
projects reaching final investment decisions. In the
Northern Territory, the lifting of the government’s fracking
moratorium provides opportunity for new gas supply
developments and connecting that supply to markets in
the north and east of Australia. In Victoria, APA’s proposed
Dandenong Power Station project is being considered
under the government’s Underwriting New Generation
Investments (UNGI) scheme. In Western Australia, the
mining boom across a number of key mineral commodities
continues, and affordable price and reliable supply is making
gas the fuel of choice in that region.
Looking ahead
APA is not a business that has rested on its laurels or prior
achievements, and we know there is more we can do to help
further develop Australia’s energy industry and improve
ways of going about our business.
Acting responsibly, with integrity, and doing what we say
we will do are high priorities of mine. We are currently in
the midst of a company-wide environmental, social and
governance review and improvement program to raise
the bar on our practices, capabilities and disclosures in
these three key areas. Our Sustainability Report for this
reporting year is consequently more comprehensive. We
recognise that as investors in our business, you should
have transparency in relation to risks and the ongoing
sustainability of company operations. Our assets have been
built for long-term use. We want our investors to be with us
for the long term too, and we want you to continue to see
value and security in your investment.
I am excited for the opportunities I can see for APA in
the coming years and I feel that we are well-positioned
to capitalise on those opportunities and manage any
challenges that may also arise in the course of our business.
I look forward to meeting many of our investors over the
coming months and at our Annual Meeting to be held in
Sydney, Thursday 24 October 2019.
Rob Wheals
Chief Executive Officer and Managing Director
$1.4 billion +
invested in new energy infrastructure
across FY2017-FY2019
APA GROUP — ANNUAL REPORT 2019 — 05
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information apa group board.
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Michael Fraser
BCom FCPA MAICD
Independent Chairman
Appointed 1 September 2015
Appointed Chairman 27 October 2017
Robert (Rob) Wheals
BCom CA GAICD
Chief Executive Officer and
Managing Director
Appointed 6 July 2019
Michael has more than 35 years’
experience in the Australian energy
industry. He has held various
executive positions at AGL Energy
culminating in his role as Managing
Director and Chief Executive
Officer for the period of seven
years until February 2015.
Rob joined APA Group in
September 2008 as General
Manager Commercial and joined
APA’s Executive team in 2012 as
Group Executive Transmission.
Rob was appointed APA’s Chief
Executive Officer and Managing
Director, effective 6 July 2019.
Michael is a Director of Aurizon
Holdings Limited. He is also a
former Chairman of the Clean
Energy Council, Elgas Limited,
ActewAGL and the NEMMCo
Participants Advisory Committee,
as well as a former Director of
Queensland Gas Company Limited,
the Australian Gas Association
and the Energy Retailers
Association of Australia.
Michael is a member of the
Audit and Risk Management
Committee and the Chairman
of the Nomination Committee.
5
Debra (Debbie) Goodin
BEc FCA MAICD
Independent Director
Appointed 1 September 2015
Debbie has experience as a
Non-Executive Director, including
as a member and Chair of Board
Audit and Risk and Remuneration
Committees. She is currently a
Director of ASX-listed companies
Senex Energy Limited, oOh!media
Limited and Atlas Arteria Limited,
and Chairs the Audit and Risk
Committees for each of these
companies. She was formerly
a Director of Ten Network
Holdings Limited.
Debbie also has executive
experience in operations, finance
and corporate development,
including with engineering and
professional services firms, and is
a Fellow of Chartered Accountants
Australia and New Zealand.
Debbie is the Chair of the
Audit and Risk Management
Committee, a member of the
Health Safety and Environment
Committee and a member of the
Nomination Committee.
Rob has over 25 years’ experience
in Australia and internationally
in energy infrastructure and
telecommunications across roles
in operations, finance, commercial,
strategy, infrastructure
investments, regulatory and
mergers and acquisitions.
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Shirley In’t Veld
BCom LLB (Hons)
Independent Director
Appointed 19 March 2018
Shirley has expertise and
experience in the energy, mining
and renewables sectors.
Shirley is currently a Non-Executive
Director with Northern Star
Resources Limited and NBN Co
Limited and Deputy Chair of
CSIRO. She is formerly a Non-
Executive Director of Perth Airport,
DUET Group, Asciano Limited,
Alcoa of Australia Limited and a
Council Member of the Chamber
of Commerce and Industry of
Western Australia. She was also
the Managing Director of Verve
Energy (2007 – 2012) and, before
that, she worked for 10 years in
senior roles at Alcoa of Australia,
WMC Resources Ltd, Bond
Corporation and BankWest.
In 2014, she was Chairman of the
Queensland Government Expert
Electricity Panel and a member
of the Renewable Energy Target
Review Panel for the Department
of Prime Minister and Cabinet
and, was until recently, a Council
member of the Australian Institute
of Company Directors (WA) and
an Advisory Board member of
the SMART Infrastructure Facility
(University of Wollongong).
Shirley is the Chair of
the Health, Safety and
Environment Committee
and a member of the People
and Remuneration Committee.
06 — APA GROUP — ANNUAL REPORT 2019
Steven (Steve) Crane
BCom FAICD SF Fin
Independent Director
Appointed 1 January 2011
James Fazzino
BEc (Hons) FCPA
Non-Independent Director
Appointed 21 February 2019
James has experience both locally
and internationally in the industrial
chemicals, fertilisers, explosives and
manufacturing sectors.
James is currently the Chairman
of Manufacturing Australia,
Chairman of Osteon Medical,
Co-convenor of the Male
Champions of Change 2015
Group, Vice Chancellors Fellow
at La Trobe University, Adjunct
Professor at La Trobe Business
School, and a member of the
Expert Advisory Panel of the
Australian Energy Market Operator.
He was formerly the Managing
Director and Chief Executive
Officer of Incitec Pivot Limited and
before that, its Finance Director
and Chief Financial Officer.
James is a member of the
Audit and Risk Management
Committee and a member
of the Health, Safety and
Environment Committee.
Steve has over 40 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 experience as a
Non-Executive Director of
listed entities. He is currently
Chairman of nib holdings
limited, Taronga Conservation
Society Australia, Global Valve
Technology Limited and a
Director of SCA Property Group.
He was formerly Chairman of
Adelaide Managed Funds Limited
and Investa Property Group
Limited, a Director of Bank of
Queensland Limited, Transfield
Services 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 Ltd.
Steve is a member of the
Audit and Risk Management
Committee, a member of
the Nomination Committee
and a member of the People
and Remuneration Committee.
7
Peter Wasow
BCom, GradDip (Management),
Fellow (CPA Australia)
Independent Director
Appointed 19 March 2018
Peter has experience in the resources
sector as both a senior executive
and director. He retired as Managing
Director and Chief Executive Officer
of Alumina Limited in mid-2017.
Previously, he had held the position
of Executive Vice President and Chief
Financial Officer at Santos Limited
and, in a 20-year plus career at BHP,
he held senior positions including
Vice President, Finance, and other
senior roles in Petroleum, Services,
Corporate, Steel and Minerals.
Peter is a Non-Executive Director
with Oz Minerals Limited and the
privately held GHD Group. He is
formerly a Non-Executive Director
of Alcoa of Australia Limited, AWA
Brazil Limitada, AWAC LLC and
Alumina Limited.
Peter is the Chair of the People
and Remuneration Committee and
a member of the Audit and Risk
Management Committee.
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information apa group senior management.
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Kevin Lester
BEng(Civil) MIEAust GAICD
Group Executive
Infrastructure Development
Kevin is responsible for the
project development, engineering,
procurement and delivery of APA
Group's infrastructure expansion
projects. This division also has
responsibility for providing asset
engineering services, the technical
regulation of all pipeline related
assets, procurement, engineering
services and the provision of land,
approvals and asset protection
services across APA.
Kevin joined APA Group in
August 2012 continuing a career
in the management of major
infrastructure projects, including
energy infrastructure.
Kevin is a Director and a Past
President of the Australian
Pipelines and Gas Association.
Peter Fredricson
BCom CA GAICD
Chief Financial Officer
Peter is responsible for all
financial aspects of APA Group,
including accounting and
financial reporting, financial
compliance and governance,
taxation, treasury, balance sheet
management, capital strategy,
insurance, Investor Relations
and Information Technology.
Peter joined APA Group in June
2009. He has considerable
expertise in the listed energy
infrastructure sector and
over 30 years' experience in
senior financial roles in energy
infrastructure, financial services
and investment banking
organisations across Australia,
New Zealand and Asia.
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Sam Pearce
BSc LLB MBA
Group Executive Networks
and Power
Sam is responsible for the
operation and management of
APA Group’s fully and minority
owned gas distribution and
power generation and electricity
transmission assets, as well as for
Australian Gas Networks’ assets.
Sam joined APA Group in July
2008 and was formerly General
Manager Corporate Development
and Investments. Sam has
over 20 years' experience in the
energy sector, covering mergers
and acquisitions, investment
management, commercial
and business development,
greenfields project development,
strategy and operations.
Nevenka Codevelle
BCom LLM GAICD
Group Executive Governance,
Risk and Legal
Nevenka is responsible for APA
Group's Governance, Risk and
Legal division. The division
comprises the company secretarial,
legal, and group risk and
compliance functions.
Nevenka joined APA Group in
February 2008 and has held the
role of General Counsel since June
2012. In October 2015, she also
assumed the role of Company
Secretary and joined the Executive
team. Nevenka is a lawyer with
over 20 years' experience in
energy and other infrastructure
industries, with particular focus
on project development, mergers
and acquisitions, competition
and industry regulation.
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Elise Manns
BBus CAHRI
Group Executive People,
Safety and Culture
Elise is responsible for managing
APA Group's People, Safety and
Culture division, which covers
APA’s people strategy and culture,
its safety and environmental
performance and governance
and all activities relating to
APA’s people, their development,
health, wellbeing, and
employment arrangements.
Elise joined APA Group in May
2012 as General Manager Human
Resources and in October 2015
joined the Executive team
becoming Group Executive
Human Resources. Elise has a
strong background in employment
relations and workplace change,
organisational restructuring and
business improvement. Elise has
over 25 years’ human resources
experience in Australia's heavy
manufacturing, engineering, steel
and utilities sectors.
Ross Gersbach
BBus MAICD
Chief Executive Strategy
and Development
Ross is responsible for APA Group’s
strategy, energy investments,
regulatory and government affairs,
environmental development, and
mergers and acquisitions.
He has responsibility for further
enhancing APA Group's portfolio
of assets that complement the
value of its infrastructure, including
APA Group's investments in
midstream gas infrastructure, and
the operation and development of
these assets. As at the end of Q1
FY2020, Ross is relocating to North
America to lead APA’s efforts in
securing investments in the US.
Ross was previously a Director
of APA Group from 2004 to
2008 joining the management
team in April 2008 where he was
responsible for all commercial
aspects of APA Group. He has
over 25 years’ experience in
senior positions across a range
of energy related sectors, covering
areas such as infrastructure
investments, mergers and
acquisitions and strategic
developments. Additionally,
Ross has extensive commercial
experience and has managed a
portfolio of infrastructure assets
in the natural gas and electricity
distribution network sector.
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Darren Rogers
BEng MEng MBA GAICD
Acting Group
Executive Transmission
Following Rob Wheals
appointment to CEO and
Managing Director, Darren has
been appointed as Acting Group
Executive Transmission. Darren is
responsible for managing APA's
customers and revenue contracts,
as well as growing APA's gas
transmission revenues. Darren
manages all operational aspects
of APA’s 15,000 kilometres of
gas transmission pipelines and
gas storage facilities.
Darren joined APA Group in
2017 and was previously General
Manager Asset Management
for Transmission. Prior to joining
APA, Darren has performed senior
executive roles in commercial, asset
management and operations,
leading large and complex divisions
across a number of companies.
APA GROUP — ANNUAL REPORT 2019 — 07
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information 2019 highlights.
$1,574
million
EBITDA
increased 3.6% on FY2018
climate
action
APA has aligned our climate risk
with the recommendations of the
Task Force on Climate-Related
Financial Disclosures and
undertaken a climate-driven
scenario analysis
47.0
cents
Distribution per security
increased 4.4%
on FY2018
-33%
Total Reportable Injury
Frequency Rate
decreased in FY2019
$12.7
billion
Market capitalisation
as at 30 June 2019
$1,478
million
Invested in growth
capital expenditure
FY2017-FY2019
$426 million in FY2019
Added to APA’s portfolio
~272 km
transmission pipelines
45 mw
gas-fired power station
~278 mw
renewable generation
08 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information normalised (2) business performance.
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7
9
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,
1
.
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F
EBITDA
($m)
Operating
cash flow (3)
($m)
Revenue
excluding
pass‑through (4)
($m)
Operating cash
flow per security (5)
(cents)
Distributions
per security
(cents)
Total
assets
($b)
financial results.
$ million
Revenue
Revenue excluding pass-through (4)
EBITDA
Profit after tax
Operating cash flow (3)
Financial position
Total assets
Total drawn debt (6)
Total equity
Financial ratios
Operating cash flow per security (5) (cents)
Earnings per security (cents)
Distribution per security (cents)
Distribution payout ratio (%)
FFO to Debt (%)
FFO to Interest (times)
30 June 2019
30 June 2018
Changes
2,452.2
2,031.0
1,573.8
288.0
1,012.1
15,433.9
9,352.1
3,599.4
85.8
24.4
47.0
54.8
10.8
3.0
2,386.7
1,941.4
1,518.5
264.8
1,031.6
15,227.2
8,810.4
4,126.8
90.7
23.3
45.0
50.1
10.7
3.0
2.7%
4.6%
3.6%
8.8%
(1.9%)
1.4%
6.1%
(12.8%)
(5.4%)
4.7%
4.4%
9.4%
0.9%
—
2) Normalised financial results exclude significant items.
3) Operating cash flow = net cash from operations after interest and tax payments.
4) Pass-through revenue is revenue on which no margin is earned, and is offset by corresponding pass-through costs.
5) On 23 March 2018, APA Group issued 65,586,479 new ordinary securities, resulting in total securities on issue of 1,179,893,848. The weighted average numbers of
securities from FY2015 to FY2018 have been adjusted to account for that rights issue.
Between 23 December 2014 and 28 January 2015, APA issued a total of 278,556,562 new ordinary securities, resulting in total securities on issue of 1,114,307,369.
The weighted average number of securities for FY2015 has been adjusted to account for that rights issue.
6) APA’s liability to repay debt at relevant due dates of the drawn facilities. This amount represents current and non-current borrowings as per balance sheet and
is adjusted for deferred borrowing costs, the effect of unwinding of discount, unrealised foreign exchange differences reported in equity and deducting other
financial liabilities that are reported as part of borrowings in the balance sheet.
APA GROUP — ANNUAL REPORT 2019 — 09
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
Australian Pipeline Trust and its Controlled Entities (ARSN 091 678 778)
Directors’ Report for the year ended 30 June 2019
The Directors of Australian Pipeline Limited (Responsible Entity) submit their financial report of Australian Pipeline Trust
(APT) and its controlled entities (together APA or Consolidated Entity) for the year ended 30 June 2019. This report refers to
the consolidated results of APT and APT Investment Trust (APTIT).
1. Directors
The names of the Directors of the Responsible Entity during the year and since the year end are:
Current Directors:
Michael Fraser
Robert (Rob) Wheals
Steven (Steve) Crane
James Fazzino
Debra (Debbie) Goodin
Shirley In’t Veld
Peter Wasow
Former Directors:
Russell Higgins AO
Patricia McKenzie
First appointed
1 September 2015
Chairman: 27 October 2017
Chief Executive Officer and Managing Director: 6 July 2019
1 January 2011
21 February 2019
1 September 2015
19 March 2018
19 March 2018
7 December 2004 (Retired as a Director 20 February 2019)
1 January 2011 (Retired as a Director 8 March 2019)
Michael (Mick) McCormack
Chief Executive Officer: 1 July 2005 and
Managing Director: 1 July 2006 (Retired as CEO and Managing Director 5 July 2019)
The Company Secretary of the Responsible Entity during the year and since the year end is Nevenka Codevelle.
2. State of Affairs
Rob Wheals commenced as APA’s new Chief Executive Officer and Managing Director with effect from 6 July 2019, following
Mick McCormack’s retirement on 5 July 2019.
3. Subsequent Events
The following events have occurred subsequent to the period end:
— On 1 July 2019, APA repaid $99.0 million (USD 75.0 million) of US Private Placement Notes at maturity.
— On 24 July 2019, APA repaid $289.5 million (CAD 300.0 million) of Medium Term Notes at maturity.
— On 21 August 2019, the Directors declared a final distribution of 25.5 cents per security ($300.9 million) for APA Group, an
increase of 6.3%, or 1.5 cents per security over the previous corresponding period (2H FY2018: 24.0 cents). This is comprised
of a distribution of 18.97 cents per security from APT and a distribution of 6.53 cents per security from APTIT. The APT
distribution represents a 8.53 cents per security fully franked profit distribution and 10.44 cents per security capital
distribution. The APTIT distribution represents a 2.55 cents per security profit distribution and a 3.98 cents per security
capital distribution. Franking credits of 3.66 cents per security will be allocated to the APT franked profit distribution. The
distribution is expected to be paid on 11 September 2019.
Other than what is noted above and as disclosed elsewhere in this report, there has not arisen in the interval between the
end of the full year to 30 June 2019 and the date of this report any matter or circumstance that has significantly affected,
or may significantly affect, the Group’s operations, the results of those operations, or the Group’s state of affairs, in future
financial years.
4. About APA
4.1 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, comprising gas transmission, gas storage and processing, and gas-fired and renewable energy
power generation businesses located across Australia;
— asset management services for the majority of APA’s energy investments and for third parties; and
— energy investments in unlisted entities.
There were no significant changes in the principal activities of APA during the reporting period.
10 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
4.2 APA overview
APA is a leading Australian energy infrastructure business developing, owning and operating energy infrastructure. It owns
and/or operates in excess of $21 billion of energy infrastructure assets across Australia, and operates these with a skilled
workforce in excess of 1,800 people.
APA has a diverse portfolio of over 15,000 kilometres (7) 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, electricity transmission
and renewable and gas fired power generation assets.
APA has ownership interests in, and/or operates, GDI (EII) Pty Ltd (GDI) and Australian Gas Networks Limited gas distribution
networks, which together own approximately 29,000 kilometres of gas mains and pipelines, and around 1.4 million gas
consumer connections.
APA also has interests in other energy infrastructure assets and businesses, including SEA Gas Pipeline, Mortlake Gas Pipeline,
Energy Infrastructure Investments (EII) and North Brown Hill Wind Farm (EII2).
APA is listed on the Australian Securities Exchange (ASX) and is included in the S&P ASX 50 Index. Since listing in June 2000,
APA’s market capitalisation has increased more than 25-fold to $12.43 billion (8), and it has achieved securityholder returns of
17.2% (9) per annum on an annual compounding basis since listing on 13 June 2000 through to 19 August 2019.
4.3 APA objectives and strategies
APA is committed to delivering solutions for customers that are safe, reliable and cost-effective, so that all of our stakeholders
are better off as we work together to create a better energy future.
During the reporting period, building on development work commenced in FY2018, APA committed to customer-focused
initiatives aimed at ensuring customers, service and value are at the centre of our business. Within APA, the APA Customer
Promise was developed and launched throughout the business supported by a multi-year program (Red Dot Program) aimed
at aligning our culture, service delivery and processes with the Customer Promise. APA’s Customer Promise is to deliver
services our customer’s value demonstrated in three core ways: firstly, listening to understand; secondly, enabling our people
to respond; and finally, doing what we say we will do.
The second initiative was APA taking a leading role in the establishment of the Energy Charter. The Energy Charter is a
whole of energy industry initiative in which signatories commit to giving effect to a number of principles to improve customer
outcomes and are held accountable for progress against those commitments. The Energy Charter currently has 18 signatories
across the energy supply chain including APA. APA, together with other signatories will be required to report their progress
against the Energy Charter principles by 30 September 2019. An Accountability Panel will assess the disclosures and make
findings and recommendations for improvement in its report by 30 November 2019.
APA’s strategy
— Deliver services our customers value consistent with APA’s Customer Promise
— Continue to strengthen asset and stakeholder management, development and operational capabilities
— Continue our growth focus to enhance APA’s portfolio of:
– gas transmission pipelines;
– gas-fired and renewable power generation assets; and
– midstream energy infrastructure assets, including gas storage and gas processing facilities.
— Explore growth opportunities in our core business of gas transmission and distribution in North America
— Maintain APA’s financial strength
Wallumbilla Compressor Station in Queensland
7) Owned and/or operated by APA.
8) Market capitalisation as at 19 August 2019.
9) Total securityholder return is the capital appreciation of APA’s security price, adjusted for capital management actions (such as security splits and consolidations)
and assuming reinvestment of distributions at the ex-distribution rate per security. Figures quoted are sourced from Refinitiv Eikon.
APA GROUP — ANNUAL REPORT 2019 — 11
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
4.3 APA objectives and strategies (continued)
APA’s strategy is reviewed and ratified annually by APA’s Board and Executive. This includes APA’s new CEO and Managing
Director Rob Wheals who was Group Executive Transmission at the time of the FY2019 review. Since commencing in his new
role in July, Rob has initiated an internal review of APA’s purpose, vision, strategic imperatives and operating model with senior
leaders throughout the business to ensure we deliver on the company strategy effectively and efficiently. This review is in
progress at the time of this report being finalised.
This Review is about how we implement the strategy based on growth that we remain committed to under Rob’s leadership.
The strategy to grow remains relevant because our customers continue to demand expansion of our energy infrastructure
for their energy processing and transportation needs, and because we continue to identify value accretive investment in the
energy infrastructure space. So long as we can continue to add value to each dollar we invest on behalf of Securityholders,
we will continue to grow APA.
As previously indicated, APA continues to see significant growth opportunities because of those customer needs. Potential
projects are spread across Australia and include a mix of all APA’s infrastructure capabilities.
For example, with buoyant key commodity prices in Western Australia, the resources sector remains strong and offers APA
several growth opportunities across gas pipelines and power generation. In Western Australia, gas offers our customers a
very cost effective and reliable energy solution from gas and gas-fired generation over the use of more carbon intensive fuels
such as diesel.
In the Northern Territory, the government’s lifting of the gas moratorium on fracking exploration in early 2018 has encouraged
producers to resume exploration activities and commence discussions regarding connecting gas to markets.
In eastern Australia, traditional southern gas basin and northern coal seam gas reserves are depleting faster than new
reserves are being brought on-line, leading to a production decline from existing fields. Tight supply and high gas prices are
natural economic drivers for developing new gas supply sources. APA is currently completing the Orbost Gas Processing Plant
in Victoria that will unlock a new gas source by connecting the Sole Gas Field into the east coast market.
APA has development and gas transportation agreements in place, subject to final investment decisions, by both AGL Energy
Limited and Santos Limited, that could potentially see APA develop two new pipelines to bring gas from two new potential
gas supply sources into eastern Australia. These two projects alone if they proceed are expected to require capital investment
by APA in the order of $700 million. APA also has a Memorandum of Understanding agreement in place with Comet Ridge
Limited and Vintage Energy Limited, for pipeline route development works for a new 240 kilometre pipeline which could
unlock new gas supply from the Galilee Basin by connecting it to markets in Queensland. APA has recently been granted a
Survey Licence to commence field surveys and stakeholder engagement whilst the gas producers continue to investigate the
economics to support the project.
APA’s proposed Dandenong Power Station project in Victoria was shortlisted during FY2019 as part of the Federal
Government’s Underwriting New Generation Investments (UNGI) scheme. Stage 1 of the project comprises of approximately
220 MW of fast start, efficient gas fuelled power generation with the potential for a further 110 MW capacity if stage 2 is
developed. APA’s existing Dandenong site is located close to both gas demand and supply centres and can leverage APA’s
existing energy infrastructure.
The UNGI process is still in its early investigative phase, during which time APA continues to work on identifying potential
customers to underwrite the project.
APA’s operations are currently based wholly within Australia however, we do receive revenue in US dollars from the Wallumbilla
Gladstone Pipeline. As previously advised to Securityholders, APA is actively working on the assessment of opportunities to
invest in gas transmission and/or gas network businesses in North America. APA is attracted by the depth and vitality of the
gas market in the United States of America in particular, and the positive regulatory settings that exist in that market. APA
has seconded Chief Executive of Strategy and Development Ross Gersbach, to an Executive role based in APA’s Houston
office, to progress the commitment APA has made to North America, effective end of Q1 FY2020.
As Australian and global communities move to de-carbonise their economies, APA is ensuring that it understands and
anticipates the long-term implications for Australia’s energy industry and our business. APA considers that natural gas plays
an essential role in providing secure and reliable electricity by supporting the integration of renewable energy with flexible,
peaking power, which will be increasingly required as coal-fired generation is retired and removed from Australia’s energy
mix over the next 30 years. Importantly, APA advocates that any transition to a lower carbon future should look to avoid
unaffordable increases in energy costs and declining energy reliability.
During the reporting period, APA used the Taskforce on Climate-Related Financial Disclosures (TCFD) recommendations
and undertook a climate-risk scenario analysis to assess the risks and opportunities to the business over the next decade to
2030. As we mature in the use of TCFD, we anticipate that the time horizon used for future scenario analysis will be extended
beyond ten years to be more consistent with the long-lived nature of our assets.
Further information on the scenario analysis is in APA’s 2019 Sustainability Report available on APA’s website. This work is part
of APA’s enterprise wide environmental, social, governance (ESG) review and improvement program that was commenced
in FY2018.
12 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
4.4 APA’s roadmap
Underpinning APA’s strategy is the APA Way, which is the blueprint for how APA does business. It guides how we conduct
our business and helps shape our culture. It sets standards on how we behave through our APA ‘STARS’ values, and how we
make decisions, guided by APA’s Decision Compass. The APA Way is embedded in APA’s Code of Conduct (Our Code) that was
refreshed and rolled-out during the first half of FY2019.
Our ‘STARS’ values set the benchmark for how we operate to ensure business integrity:
— Safe, We will maintain a safe environment and a professional workplace where staff work collaboratively, are valued and
treated with respect.
— Trustworthy, We act with honesty and integrity and accept individual and collective responsibility for the delivery of all
business outcomes. We do what we say we are going to do.
— Adaptable, We continually respond and adapt to our changing environment by innovating, modifying our behaviour and
continually improving our processes and systems to take advantage of opportunities to enhance, improve and grow
our business.
— Results, We consistently meet our commitments and deliver excellent results to the benefit of our employees, customers,
investors and the community through tenacity and perseverance.
— Service, We are committed to high quality service delivery achieved through listening, understanding, anticipating and
responding to our customer needs.
Good decision-making is at the core of successful strategy execution and APA’s Decision Compass sets out clear principles
for all our employees, empowering them to make good decisions with confidence. Employees and all decision makers right
through to the Board, are encouraged to take a moment and ask “is this decision consistent with each of the key decision
compass points” as below:
— Do things safely
— Take a long term focus
— Manage APA money as if it’s our own
— Do what we say we do
— Know our reputation matters
The APA Way puts all employees on the same page, ensuring that the way we work and the many decisions we make are
based on consistent values and principles, and are aligned to what we need to execute on our strategy.
Pipe laydown for the Murrin Murrin Lateral looping project in Western Australia
APA GROUP — ANNUAL REPORT 2019 — 13
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
4.5 APA assets and operations
APA’s assets and operations are reported in three principal business segments:
— Energy Infrastructure includes all of APA’s wholly or majority owned gas pipelines, gas storage, gas compression and
processing assets and gas-fired and renewable energy power generation assets;
— Asset Management provides commercial, operating services and/or asset maintenance services to APA’s energy investments
and third parties for appropriate fees; and
— Energy Investments 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.
The map below details APA’s assets and investments portfolio:
33
17
35
33
8
2
18
33
19
20
21
22
23
24
25
26
27
29
28
35
5
33
1
33
33
35
30
6
3
7
12
4
9
10
11
35
34
33
31
16
13
32
35
15
14
14 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
4.5 APA assets and operations (continued)
Energy Infrastructure assets (numbers correspond with those on the map on page 14)
Length (1)
East Coast and Central Region 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 Reedy Creek Wallumbilla Pipeline
7 Darling Downs Solar Farm
8 Diamantina and Leichhardt Power Stations
9 Moomba Sydney Pipeline
10 Moomba to Sydney Ethane Pipeline
11 Central West Pipeline
12 Central Ranges Pipeline and
Tamworth Gas Network (gas distribution)
13 Victorian Transmission System
14 Dandenong LNG Storage Facility
15 Orbost Gas Processing Plant (2) (and connection pipeline)
16 SESA Pipeline
17 Amadeus Gas Pipeline (including Laterals)
583 km
944 km
112 km
936 km
556 km
49 km
110 MW
242 MW / 60 MW
2,029 km
1,375 km
255 km
295 km
~250 km of gas mains, ~3,750 gas consumer connections
1,847 km
12,000 tonnes
12 km / ~70 TJ/d
45 km
1,661 km
West Australian assets
18 Pilbara Pipeline System
19 Goldfields Gas Pipeline (88.2%)
20 Agnew Lateral
21 Yamarna Gas Pipeline
22 Gruyere Power Station
23 Mt Morgans Gas Pipeline
24 Eastern Goldfields Pipeline
25 Kalgoorlie Kambalda Pipeline
26 Mid West Pipeline (50%)
27 Mondarra Gas Storage and Processing Facility
28 Parmelia Gas Pipeline
29 Emu Downs Wind Farm
29 Emu Downs Solar Farm
29 Badgingarra Wind Farm
29 Badgingarra Solar Farm
249 km
1,546 km
25 km
198 km
45 MW
5 km
293 km
44 km
362 km
18 PJ
448 km
80 MW
20 MW
130 MW
17.5 MW
Energy Investment
30 GDI (EII)
Ownership
interest Detail
20% Gas distribution: Allgas Gas Network ~3,700 km of gas mains,
~112,200 gas consumer connections in QLD and NSW
31 South East Australia Gas Pty Ltd
32 SEA Gas (Mortlake) Partnership
33 Energy Infrastructure Investments
50% Gas pipeline: 687 km SEA Gas Pipeline
50% Gas pipeline: 83 km Mortlake Gas Pipeline
19.9% Gas pipelines: Telfer/Nifty Gas Pipelines and lateral (488 km);
34 EII2
35 Australian Gas Networks
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 (33 TJ/d)
20.2% Wind generation: North Brown Hill Wind Farm (132MW), SA
Nil Gas distribution: ~25,100 km of gas mains and pipelines, ~1.3 million
gas consumer connections, 1,124 km of transmission gas pipelines in
SA, Vic, NSW, Qld & NT
1) Pipeline capacities are available online (www.apa.com.au).
2) Asset under construction.
APA GROUP — ANNUAL REPORT 2019 — 15
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
5. Financial Overview
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 APA Group, and
therefore these are described in this report as ‘normalised’ measures.
In FY2019, APA has continued to deliver consistent and sound results for investors, delivering on prudent and sustainable
growth initiatives, and increasing distribution returns to Securityholders. The 2019 financial year has been a significant year
for APA with a number of key events and milestones in the business’s 19 year history taking place, including:
— Commissioning of a number of new infrastructure assets across pipelines, gas fired power generation and renewables;
— Investment of $462.8 million in growth projects that will contribute to future operating cash flow;
— Development and launch of two customer-centric initiatives – The Energy Charter developed by Australian energy
businesses right across the energy supply chain, and APA’s company-wide Customer Promise and Red Dot program;
— Replacement of over $700 million of higher cost maturing debt with lower cost long term debt, reducing APA’s annual
interest expense going forward;
— Receipt of a Scheme of Arrangement acquisition proposal from the CKI Consortium (CKI proposal) was received during 1H
FY2019 at a transaction value premium of approximately 30% to APA’s volume weighted average security price prior to the
offer and an FY2018 EV/EBITDA multiple of 15 times. The proposal did not proceed due to a decision by Australia’s Federal
Treasurer in November 2018 (not to allow the proposed acquisition); and
— Retirement of APA’s long-standing CEO and Managing Director, Mick McCormack, and internal succession appointment of
Rob Wheals to the position.
APA reported EBITDA of $1,573.8 million inclusive of $11.1 million of once-off costs associated with the CKI proposal ($5.8
million) and the retirement of Mick McCormack ($5.3 million). This result represents an increase of 3.6% or $55.3 million on
the previous corresponding period EBITDA of $1,518.5 million. APA gave guidance at the 1H FY2019 results that EBITDA for
the full year period was expected to be within the upper end of the guidance range of $1,550 million to $1,575 million. Given
the stable nature of APA’s cash flows and long term, take or pay contracts, APA has consistently provided a reliable narrow
EBITDA guidance range over a number of years.
Total revenue (excluding pass-through revenue) increased by $89.6 million to $2,031.0 million, an increase of 4.6% on the
previous corresponding period (FY2018: $1,941.4 million).
Increased revenues and EBITDA were primarily attributable to:
— Full year contribution from some of the organic growth projects commissioned in FY2018, including the Reedy Creek
Wallumbilla Pipeline (QLD), Mt Morgans Gas Pipeline (WA) and the Emu Downs Solar Farm (WA);
— Part year contributions from recently commissioned growth assets including the Darling Downs Solar Farm (QLD),
Badgingarra Wind Farm (WA), Yamarna Gas Pipeline (WA), Gruyere Power Station (WA), and Agnew Lateral (WA);
— Uplift on the Goldfields Gas Pipeline as a result of the new organic expansions on the Eastern Goldfields Pipeline network
as listed above;
— Full year contribution from the new contract on the Diamantina Power Station with Capricorn Copper mine; and
— Favourable USD/AUD exchange rates and annual US CPI escalation in relation to the Wallumbilla Gas Pipeline.
FY2019 further progressed APA’s largest growth capital expenditure program in the company’s history to-date. $1.4 billion plus
has been invested in growth projects over the last three financial years. The new growth projects contributed approximately
$65 million in incremental new revenues during FY2019. This was slightly down on the $70 million figure previously indicated,
due in the main to minor delays in the commercial operations of Badgingarra Wind and Solar Farms. Construction of the
connection into the transmission grid for these two assets also impacted energy despatched from Emu Downs Wind and
Solar Farms during the cut-in period. With all projects fully commissioned and operating in FY2020, incremental revenue
from FY2020 is expected to be in the order of $190 million per annum (from the FY2017 base), increasing in FY2021 to
approximately $215 million per annum when the Orbost Gas Processing Plant will contribute its first full year of earnings.
An increase in income tax paid by APA in FY2019 impacted operating cash flow, which decreased 1.9% or $19.5 million to
$1,012.1 million compared to the previous year (FY2018: $1,031.6 million). Operating cash flow per security decreased 5.4%, or
4.9 cents, to 85.8 cents per security (FY2018: 90.7 (10) cents per security), due to an increase in income tax paid and the higher
number of securities on issue, on average, over FY2019. From FY2020, operating cash flow is expected to increase as a result
of the incremental revenues flowing from the $1.4 billion plus of organic growth projects.
10) Operating cash flow per security has been adjusted for 1H FY2018 for the Entitlement Offer completed on the 23 March 2018.
16 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
5. Financial Overview (continued)
On 21 August 2019, the Directors announced a final distribution of 25.5 cents per security, which will take APA’s distributions in
respect of the financial year to a total of 47.0 cents per security. This is 0.5 cents per security above guidance and represents
an increase of 4.4%, or 2.0 cents, over FY2018 distributions of 45.0 cents. Franking credits of 3.66 cents per security will be
allocated to the final distribution reflecting the increased tax paid by APA and resulting in the FY2019 franking credits totalling
6.86 cents per security. APA maintains a sustainable distribution policy to ensure its ability to fully fund its distributions out
of operating cash flows on a going-forward sustainable basis, whilst also retaining appropriate levels of cash in the business
to support ongoing growth.
APA’s distribution policy is to generally grow distributions in line with operating cash flow growth, having regard for the future
capital needs of the business and economic conditions, and ensuring distributions are fully covered by operating cash flow.
APA has paid an interim and full year distribution every year for the 19 years the company has been listed, and distributions
have consistently grown each year.
The following table provides a summary of key financial data for FY2019.
Total revenue
Pass-through revenue (1)
Total revenue excluding pass-through
EBITDA
Depreciation and amortisation expenses
EBIT
Finance costs and interest income
Profit before income tax
Income tax (expense) / benefit
Profit after income tax
Operating cash flow (2)
Operating cash flow per security (cents)
Earnings per security (cents)
Distribution per security (cents)
Distribution payout ratio (3)
Weighted average number of securities (000)
30 June 2019
$000
30 June 2018
$000
2,452,171
421,198
2,386,722
445,307
2,030,973
1,941,415
1,573,756
(611,358)
962,398
(497,419)
464,979
(176,966)
288,013
1,518,474
(578,916)
939,558
(509,664)
429,894
(165,055)
264,839
Changes
$000
%
65,449
2.7%
(24,109)
(5.4%)
89,558
55,282
4.6%
3.6%
(32,442)
(5.6%)
22,840
12,245
35,085
2.4%
2.4%
8.2%
(11,911)
(7.2%)
23,174
8.8%
1,012,127
1,031,627
(19,500)
85.8
24.4
47.0
54.8%
1,179,894
90.7
23.3
45.0
50.1%
1,136,875 (4)
(4.9)
1.1
2.0
4.7%
43,019
(1.9%)
(5.4%)
4.7%
4.4%
9.4%
3.8%
Numbers in the table may not add up due to rounding.
1) Pass-through revenue is revenue on which no margin is earned.
2) Operating cash flow = net cash from operations after interest and tax payments.
3) Distribution payout ratio = total distribution applicable to the financial year as a percentage of operating cash flow.
4) On the 23 March 2018, APA Group issued 65,586,479 new ordinary securities on completion of fully underwritten pro-rata accelerated institutional tradeable
renounceable entitlement offer (Entitlement Offer), resulting in total securities on issue as at 30 June 2018 of 1,179,893,848. The Entitlement Offer was offered at
$7.70 per security, a discount to APA Group's closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26
February 2018. The number of securities used for FY2018 calculation of earnings per security and operating cash flow per security has been adjusted.
APA GROUP — ANNUAL REPORT 2019 — 17
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6. Business Segment Performances and Operational Review
APA reports across three business segments:
— Energy Infrastructure: APA’s wholly or majority owned energy infrastructure assets across all categories – transmission
and compression, processing, generation (gas and renewables) and storage;
— Asset Management: The provision of asset management and operating services for third parties and the majority of APA’s
investments; and
— Energy Investments: APA’s interests in energy infrastructure investments.
Statutory reported revenue and EBITDA performance by business segments is set out below.
30 June 2019
$000
30 June 2018
$000
Changes
$000
%
Revenue (1)
Energy Infrastructure
East Coast: Queensland
East Coast: New South Wales
East Coast: Victoria
East Coast: South Australia
Northern Territory
Western Australia
1,207,108
1,152,975
173,594
144,380
3,004
30,301
340,685
166,243
153,166
2,925
32,861
293,115
Energy Infrastructure total
1,899,072
1,801,285
54,132
7,351
4.7%
4.4%
(8,786)
(5.7%)
79
(2,560)
47,570
2.7%
(7.8%)
16.2%
97,786
5.4%
(14,135)
(13.0%)
5,364
3,793
23.3%
141.7%
92,808
4.8%
(24,109)
(5.4%)
(3,250)
(55.5%)
94,398
28,432
6,470
2,028,372
421,198
2,601
108,533
23,068
2,678
1,935,564
445,307
5,851
2,452,171
2,386,722
65,449
2.7%
1,010,063
149,362
113,992
2,051
19,171
277,805
962,231
147,095
124,631
2,577
22,923
237,639
1,572,444
1,497,096
52,954
28,432
66,204
23,068
(80,074) (3)
(67,894)
47,831
2,267
5.0%
1.5%
(10,639)
(8.5%)
(526)
(20.4%)
(3,752)
(16.4%)
40,166
75,347
16.9%
5.0%
(13,249)
(20.0%)
5,364
12,180
23.3%
(17.9%)
1,573,756
1,518,474
55,282
3.6%
Asset Management
Energy Investments
Other segment revenue
Total segment revenue
Pass-through revenue
Unallocated revenue (2)
Total revenue
EBITDA
Energy Infrastructure
East Coast: Queensland
East Coast: New South Wales
East Coast: Victoria
East Coast: South Australia
Northern Territory
Western Australia
Energy Infrastructure total
Asset Management
Energy Investments
Corporate costs
Total EBITDA
Numbers in the table may not add up due to rounding.
1) Refer to revenue note 4 for additional disclosure on revenue streams from contracts with customers disaggregated by geographical location and major sources.
2) Interest income is not included in calculation of EBITDA, but nets off against interest expense in calculating net interest cost.
3) Includes $11.1 million of costs associated with the CKI proposal and the former Managing Director’s retirement.
18 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6.1 Energy Infrastructure
The Energy Infrastructure segment consists of all APA’s energy infrastructure footprint across mainland Australia including
gas transmission, gas compression, gas processing and storage assets, renewable energy power generation, and gas-fired
power generation. 91.0% of revenues in this segment are derived from either long-term take-or-pay contracts, or regulated
assets. Contracts generally have the majority of the revenue fixed over the term of the relevant contract. The predictable and
long-term nature of APA’s revenue underpins APA’s reliable low risk business model value proposition.
Energy Infrastructure is the largest business segment contributor to group revenue, contributing 93.5% (excluding pass-
through) and 95.1% of group EBITDA (before corporate costs) during the financial year. Revenue (excluding pass-through
revenue) was $1,899.1 million, an increase of 5.4% on the previous year (FY2018: $1,801.3 million). EBITDA (before corporate
costs) increased by 5.0% on the previous year to $1,572.4 million (FY2018: $1,497.1 million).
With the current-day flexible nature of the way we structure our contracts, both in terms of interconnected multi-assets and
multi services, revenue and EBITDA outcomes fluctuate on the individual assets that make up APA’s East Coast and West
Coast grids. Customers value this flexibility as it provides them with more options to better manage their energy needs in
Australia’s very dynamic gas market. That is, they can source gas from in excess of 40 receipt points over the East Coast Grid.
In FY2019, increased revenue and EBITDA in Queensland and New South Wales offset reductions in the other eastern Australian
states, reflecting the changing nature of gas supply and demand centres. Victoria experienced lower peak injections due to
a milder winter in 2018 impacting FY2019 outcomes, and there was reduced export through Culcairn in New South Wales as
northern parts of the grid provided more domestic gas to eastern Australia. Queensland benefitted from the first full year
contribution from the Reedy Creek Wallumbilla Pipeline commissioned in FY2018. The Wallumbilla Gladstone Pipeline is APA’s
largest single contributing asset to earnings, and favourable USD/AUD exchange rate returns on the USD revenues earnt and
the annual US CPI increase continue to have a positive impact on Queensland results.
New earnings were realised from several completed and commissioned assets during FY2019 including:
Gas transmission
— Yamarna Gas Pipeline (WA)
— Agnew Gas Lateral (WA)
Gas-fired and Renewable power generation assets
— Gruyere Power Station (WA)
— Badgingarra Wind Farm (WA)
— Darling Downs Solar Farm (QLD)
The Reedy Creek Wallumbilla Pipeline, Mt Morgans Gas Pipeline and the Emu Downs Solar Farm all contributed a full year of
earnings following commissioning during FY2018.
With APA’s Northern Territory assets now connected into the eastern Australia market, this opens up further opportunities
for the development of new gas sources in northern Australia, with APA’s assets well placed to facilitate getting that gas to
multiple markets. During the reporting period, earnings on the Amadeus Gas Pipeline decreased due to an increase in third
party revenue share with the foundation customer.
In Western Australia, the growth and expansion of the Goldfields Gas Pipeline network over the last four years has seen
around 500 kilometres of greenfield pipeline added to APA’s West Coast Grid, along with additional compression and a power
station. This has had a positive flow-on benefit to earnings on the connected Goldfields Gas Pipeline, as gas is transported
through up to four APA pipelines to reach customers and their mining operations. In this remote and mineral rich region,
gas is delivering both a reliable and cost-effective energy solution for multiple customers along the 2,000 kilometres plus
of interconnected pipeline. The sum of the parts of all of these small to medium expansion projects in Western Australia
over the last few years resulted in more than a 16% increase in both revenue and EBITDA for FY2019 over the previous
corresponding year. This demonstrates the collective impact and benefit of interconnected assets and the ability to offer
multi-asset services.
APA continues discussions with potential and existing customers across Western Australia regarding opportunities for gas
transportation, compression, storage and power generation. APA has signed a GTA on the Goldfields Gas Pipeline with new
customer Kalium Lakes Limited to deliver gas to its Beyondie Sulphate of Potash Project. The project is subject to Kalium
Lakes final investment decision (FID) anticipated during CY2019 and it is targeting initial production in late 2020. APA has
commenced early works on the design of a metering station.
With the commissioning of the Gruyere Power Station in Western Australia during the reporting period, APA’s gas-fired
power generation capability, including investments, is now over 400 MW. The Diamantina Power Station continued to benefit
from increasing energy demand in the Mount Isa region including supplying its newest customer, Capricorn Copper mine with
its first full year of energy.
APA GROUP — ANNUAL REPORT 2019 — 19
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6.1 Energy Infrastructure (continued)
A multi-asset and service solution in the West ~ meeting customer needs
In June 2017, APA announced it would invest around $180 million to construct a 198 kilometre gas pipeline and a 45 MW
power station to supply power to the Gruyere Gold Project in Western Australia. APA’s investment is underpinned by
a 15 year gas transportation agreement to support the 15 year Electricity Supply Agreement with the Gruyere Gold Project.
The Gruyere Project is a 50:50 joint venture between
the ASX listed Gold Road Resources Ltd (ASX:
GOR) and the global miner Gold Fields Limited.
Gruyere is expected to produce between 75,000
and 100,000 ounces of gold in calendar year 2019.
Once steady state production is achieved, the average
annual production is forecast at 300,000 ounces.
The Yamarna Gas Pipeline and Gruyere Power Station
together have been supplying power throughout 2H
FY2019, with the mine achieving first gold pour in the
June 2019 quarter.
Gruyere Management commented “For the Gruyere
project, APA’s bundled energy solution with a single
interface has been effective
in simplifying the
Project’s operations.”
Gruyere Power Station connected to the Yamarna Gas Pipeline in Western Australia
Energy Infrastructure Revenue by State
Energy Infrastructure EBITDA by State
A$ m
1,600
1,200
800
400
0
90%
A$ m
80%
1,200
70%
800
60%
400
50%
0
FY16
FY17
FY18
FY19
FY16
WA
NT
SA
VIC
NSW
QLD
EBITDA margin
WA
NT
SA
FY17
VIC
FY18
FY19
NSW
QLD
Energy Infrastructure EBITDA by Asset
FY19
FY18
FY17
FY16
0
150
300
450
600
750
900
1,050
1,200
1,350
1,500
A$ m
Wallumbilla Gladstone Pipeline
Diamantina Power Station
Victorian Transmission System
Eastern Goldfields Pipeline
Other WA assets
South West Queensland Pipeline
Darling Downs Solar Farm
SESA Pipeline and other SA assets
Emu Downs Wind and Solar Farms
Gruyere Power Station
Roma Brisbane Pipeline
Other Qld assets
Amadeus Gas Pipeline
Pilbara Pipeline System
Badgingarra Wind Farm
Carpentaria Gas Pipeline
Moomba Sydney Pipeline and other NSW pipelines
Goldfields Gas Pipeline
Mondarra Gas Storage and Processing Facility
20 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6.1 Energy Infrastructure (continued)
Renewable generation ~ responding to customer needs
APA’s entry into renewables began in late 2009 with an investment in the North Brown Hill 132 MW Wind Farm in South
Australia through the EII2 consortium (APA: 20.2% share). In 2011, APA acquired the 80 MW Emu Downs Wind Farm in
Western Australia along with the development rights for an adjacent 130 MW site. This acquisition was underpinned by a
20 year revenue contract with Synergy, the Western Australia government owned energy retailer.
During APA’s largest organic growth expansion period from FY2017 to FY2019, APA added the following renewable
assets to its power generation portfolio: 20 MW Emu Downs Solar Farm; 130 MW Badgingarra Wind Farm; 17.5 MW
Badgingarra Solar Farm (commissioned in August 2019); and the 110 MW Darling Downs Solar Farm. This gives APA a
renewables generation portfolio (wholly owned and investments) of almost 490 MW.
A number of factors originally steered APA in the direction of extending its energy infrastructure into renewables including
government policy, the quality of the wind resource available at the assets acquired, the quality of the offtake customers,
and project returns that met APA’s investment return hurdles. Those assets have proven to be solid investments and
10 years on, APA has the expertise in building and operating a material renewables portfolio. APA has also co-located
solar generation on wind farm sites, taking advantage of shared transmission connection infrastructure and the
complementary characteristics of the resources.
In recent years, the driver for more renewables
has been customer demand, with customers
wanting more wind and solar generation within
their portfolios and the accompanying Large Scale
Renewable Certificates. Our renewable energy
customers now include AGL Energy, Synergy, Origin
Energy and Alinta Energy who are all existing gas
transmission customers of APA.
Going forward, APA will continue to invest in
energy infrastructure assets that our customers
want us to invest in and are prepared to underwrite
with
long-term contracts that satisfy our
investment criteria. In FY2019, earnings generated
from wholly owned renewables amounted to
around 3% of total revenue and EBITDA. Current
development projects in the renewables space
include APA’s Beelbee Solar Farm site located
adjacent to the recently completed Darling Downs
Solar Farm in Queensland. This site has the
potential for an additional approximately 150 MW
of solar generation. Studies to-date indicate that
Beelbee’s electricity network location benefits
from a stable and attractive Marginal Loss Factor
should the site be developed.
Darling Downs Solar Farm in Queensland
Working with customers – solutions, service and flexibility
During the reporting period, APA announced a variation to an existing multi-asset GTA on the East Coast Grid to replace
an expiring GTA. The arrangements make particular use of the Roma Brisbane Pipeline to help meet the electricity needs of
consumers in Queensland, especially during the summer season. Total revenue in the order of $40 million is expected from the
GTA over the next three years, with revenue already contributing to FY2019 earnings.
APA is continually working with customers to add value to the services we provide in order to optimise their energy needs.
Also commencing in January 2019 was a two year contract extension for southerly services on APA’s East Coast Grid which
contributed to FY2019 earnings.
Many of the solutions developed with our customers are bespoke to their specific requirements. The interconnected nature of
APA’s gas transportation grids facilitates access to multi-assets and services that give customers the flexibility they want to
optimise their energy portfolios.
Incitec Pivot Limited (IPL) is a foundation customer of APA. Its Gibson Island fertiliser plant near Brisbane had been facing
the threat of closure due to difficulties in sourcing an affordable energy supply over the last few years. Despite gas sources
near IPL’s southeast Queensland location, the local gas price was untenable. Working with IPL, and collaborating with a
gas producer and another gas pipeline operator, an innovative solution was developed to secure affordable gas from 3,300
kilometres away for calendar year 2019.
In June 2019, the Queensland government announced APLNG-Armour Joint Venture as the preferred tenderer for a highly-
prospective gas tenement in the Surat Basin, adjacent to mature APLNG-operated tenements. Under the tender conditions,
gas can only be sold to Australian manufacturing businesses, with gas supplied under agreements associated with the APLNG
Armour Joint Venture tender from 1 April 2020. This agreement led to APA further announcing in June 2019 a variation to the
GTA with IPL which extends a service under the GTA through to 1 January 2023.
APA GROUP — ANNUAL REPORT 2019 — 21
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6.1 Energy Infrastructure (continued)
Increasingly, gas producers are tendering on gas tenement releases in Queensland, many of which are conditioned for
domestic-only supply. The interconnected nature of the East Coast Grid, expanded in recent years by the Reedy Creek
Wallumbilla Pipeline, strongly positions APA as part of the solution in transporting these new domestic gas supplies from
Queensland, into the eastern Australian domestic market.
During the reporting period, APA signed a Memorandum of Understanding with Comet Ridge Limited and Vintage Energy
Limited to commence an in-field work program to select a pipeline route to connect the Queensland Galilee Basin to gas
markets. The proposed 240 kilometre Galilee Moranbah Pipeline and associated infrastructure would be built, owned
and operated by APA. Importantly, it will connect the new gas supply source in the Galilee Basin to Moranbah in Central
Queensland, which is the gas processing and distribution hub for northern Bowen Basin gas resources. In July 2019, APA was
granted a Survey Licence by the Queensland Government that enables APA to further progress pipeline route investigations
for the Galilee Moranbah Pipeline and commence engagement with a range of project stakeholders.
Above and beyond for customers ~ using our interconnected grid to its full potential
The gas market in Australia is now extremely dynamic and no two days are the same as demand requirements change
and supply, particularly on the east coast, can be sourced from multiple options from north to south and west. Plant
outages, either planned maintenance or unplanned events, and climate related disasters, such as floods and cyclones,
can also impact day-to-day scheduling.
Fast response is required to manage any of these events in order to 1) maintain our customers’ operations and minimise
the impact on them as well as their customers; 2) maintain the integrity of the system for all users; and 3) minimise any
wastage of gas. APA’s Integrated Operations Centre (IOC) in Brisbane is able to provide fast response solutions as it houses
the combined skills of commercial, operational and maintenance personnel with oversight and control of all APA assets.
During FY2019, APA assisted customers in managing a delayed start-up phase post a major shutdown and an unplanned
shutdown by providing parking services and re-distributing line-pack throughout its East Coast Grid. In February 2019,
the widespread flooding across North Queensland impacted manufacturing plants along the Carpentaria Gas Pipeline
for several months. IPL’s Phosphate Hill operations were suspended due to flooding damaging the rail infrastructure and
they sought APA’s assistance to divert their gas to other users and buyers across APA’s East Coast Grid. APA was able to
utilise both the newly commissioned (in December 2018) bi-directional function of the Carpentaria Gas Pipeline and the
South West Queensland Pipeline, to transport that gas into the east coast gas market.
It’s this quick and flexible response of providing workable solutions for our customers, that has become a valued service
of both APA’s IOC and our 7,600 kilometres of interconnected East Coast Grid assets.
Over the last three years, a number of new regulatory initiatives were introduced to improve information symmetry and
transparency between customers and pipeline operators for non-scheme pipelines as defined under Part 23 of the National
Gas Rules (NGR). This has included publishing APA’s pricing methodologies and the introduction of a commercial arbitration
process if negotiating parties cannot reach commercial agreement.
In FY2019, further initiatives were implemented including the publishing of financial statements and associated information
(October 2018) and a pipeline capacity trading reform package under Parts 24 and 25 of the NGR (March 2019).
The pipeline capacity trading reforms included a trading platform operated by the Australian Energy Market Operator
(AEMO) to facilitate the secondary trading of firm pipeline capacity between shippers, and a daily auction platform for any
un-nominated contracted shipper capacity on all major pipelines, also run by AEMO.
APA invested significantly in setting up for these services, with incremental capital and ongoing operating costs in relation
to Parts 24 and 25 recoverable under the NGR. The design, development and implementation process took over a year and
included customer training on how to use the new services. Since commencement on 1 March 2019 until the end of July 2019
reporting year, no capacity has been traded by shippers. However, the auction platform has accommodated the equivalent of
3.75 PJ of gas transported, providing additional liquidity into the east coast domestic market.
APA is supportive of mechanisms that help improve liquidity and transparency into Australia’s gas market whilst maintaining
appropriate investment incentives. With the full range of Gas Market Reform Group initiatives now in place, APA’s view is that
time needs to be allowed for the market to have the opportunity to fully utilise the additional information disclosures and new
facilities before any further reforms are considered.
APA continues to work closely with our customers to meet their individual needs and the range of new contracts and contract
variations as detailed above with both large entities and smaller customers, demonstrates APA’s willingness to facilitate
fair commercial outcomes for all parties. APA’s assets are built for long-term use with Australia’s oldest gas pipeline, the
Roma Brisbane Pipeline, celebrating 50 years of operations in 2019. As a result, our customer relationships have been formed
over many years and we are proud that we have continued to commercially negotiate with our customers and that the
independent arbitration facility has not been required to resolve negotiation impasse.
22 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6.1 Energy Infrastructure (continued)
APA’s value proposition
APA offers investors a solid value proposition that brings together the combination of high quality energy infrastructure,
continued organic growth and a low risk business model.
In FY2019, 91% of Energy Infrastructure revenue (excluding pass-through) was from contracted and regulated revenues.
Specifically, 79.8% of Energy Infrastructure revenue (excluding pass-through) was from take-or-pay capacity reservation
charges from long term offtake agreements, 2.9% from other contracted fixed revenues and 8.1% from throughput charges
and other variable components. Given the dynamic east coast gas market, there were some additional revenues from the
provision of flexible short term and other services, accounting for less than 1%.
The regulated portion of APA’s revenue which is predominantly derived from the Victorian Transmission System makes up
8.3% of total FY2019 Energy Infrastructure revenue. Supporting APA’s cash flow stability is the company’s contract profile,
which has a revenue weighted average contract tenor of in excess of 12 years. The very nature of APA’s revenue streams
provides for predictability and cash flow stability contributing to APA’s low risk business model.
FY2019 Energy Infrastructure by Revenue Type
APA Pipelines by Regulation Type (a)
Full regulation pipelines
Light regulation pipelines
Non-scheme pipelines
a) Owned and/or operated by APA
Capacity charge revenue: 79.8%
Regulated revenue: 8.3%
Contracted fixed revenue: 2.9%
Throughput charge &
other variable revenue: 8.1%
Flexible short term services: 0.8%
Other: 0.1%
91.0%
take or pay/regulated
APA manages its counterparty risk in a variety of ways. One aspect is to consider customers’ credit ratings. During FY2019,
92.9% of Energy Infrastructure revenue was received from investment grade counterparties. Diversification of customer base
is another strength of APA’s business, with our customers split across the energy, utility, resources and industrial sectors, as
shown in the chart below.
FY2019 Energy Infrastructure Revenues
by Counterparty Credit Rating
FY2019 Energy Infrastructure Revenues
by Customer Industry Segment
A- rated or better: 45.0%
BBB and BBB+: 38.2%
Other Investment Grade (1): 9.7%
Not rated: 6.8%
Sub-investment grade: 0.3%
92.9%
Investment grade
Energy: 48.3%
Utilities: 23.6%
Resources: 21.3%
Industrials & Others: 6.8%
1) An investment grade credit rating from either S&P (BBB- or better) or Moody’s (Baa3 or better), or a joint venture with an investment grade average rating
across owners. Ratings shown as equivalent to S&P’s rating scale.
APA GROUP — ANNUAL REPORT 2019 — 23
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6.2 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) (11), Energy Infrastructure Investments and GDI (EII).
Asset management services are provided to these customers under long-term contracts. Included in this reporting segment
are Customer Contributions from Transmission third party projects.
APA has the expertise and diversified skillset to provide whole-of-life asset management and operational services for high
voltage power, power generation, gas rotating plant and equipment, stationary engines, gas transmission pipelines and gas
distribution networks. These services also include asset inspection, vegetation management, aerial patrols, metering services
and specialist utility asset services.
Revenue (excluding pass-through revenue) from asset management services decreased by $14.1 million or 13.0% to $94.4
million (FY2018: $108.5 million) and EBITDA (excluding corporate costs) decreased by $13.2 million or 20.0% to $53.0 million
(FY2018: $66.2 million). This was due to reduced Customer Contribution activity in FY2019 compared to the previous year, and
an outperformance in the incentive fee achieved in FY2018 for Network services that was not repeated in FY2019.
Customer contributions are payments received from a third party for APA to undertake work on the assets it manages to
accommodate that third party’s project. Customer contributions for FY2019 were $11.7 million compared to $18.0 million
in FY2018. This was due to the completion of a number of significant projects during FY2018, including connection of the
Northern Gas Pipeline into both APA’s Amadeus Gas Pipeline and the Carpentaria Gas Pipeline, and less project activity
in Victoria compared to the previous reporting period. The long term average per annum of Customer Contributions over
the last five years remains at approximately $12 million per annum. APA continues to expect annual swings in customer
contributions, as these are driven by customer requirements.
Asset Management Revenue
Asset Management EBITDA
A$ m
100
80
60
40
20
0
A$ m
60
50
40
30
20
10
0
FY16
FY17
FY18
FY19
FY16
FY17
FY18
FY19
One-off Customer Contributions
Underlying Asset Management Revenue
One-off Customer Contributions
Underlying Asset Management EBITDA
Note: From FY17 onwards, DPS and the Ethane Pipeline became fully owned assets and are managed within APA’s Energy Infrastructure segment and therefore
no asset management fees earnt.
Customer Contributions
APA Operated Gas Networks Statistics
Average ~$12m p.a.
20
15
10
5
0
1.45
(million)
(km)
30,000
1.40
1.35
1.30
1.25
29,000
28,000
27,000
FY15
FY16
FY17
FY18
FY19
FY16
FY17
FY18
FY19
Gas consumer connections (LHS)
Networks managed (RHS)
The Asset Management segment continues to see strong demand for gas connections in new housing developments in
Victoria, with an observed slowing in South Australia and Queensland of gas connections growth compared to previous years.
11) APA sold its 33.05% stake in Envestra (subsequently renamed Australian Gas Networks or AGN) in August 2014, however, the operating and maintenance
agreements remain on foot until 2027.
24 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
6.3 Energy Investments
APA has interests in a number of complementary energy investments across Australia.
Asset and ownership interests
Asset details an APA services
Partners
Mortlake Gas Pipeline
SEA Gas Pipeline
50%
SEA Gas
(Mortlake)
Partnership
83 km gas pipeline
connecting the Otway
Gas Plant to the Mortlake
Power Station
MAINTENANCE
50%
South East
Australia
Gas Pty Ltd
687 km gas pipeline from
Iona and Port Campbell
in Victoria to Adelaide
MAINTENANCE
Rest
Rest
North Brown Hill
Wind Farm
20.2%
EII2
132 MW wind farm in
South Australia
Infrastructure Capital Group
Osaka Gas
Allgas Gas
Distribution Network
20%
GDI (EII)
19.9%
Energy
Infrastructure
Investments
Daandine and X41
Power Stations
Kogan North and Tipton
West Processing Plants
Directlink and Murraylink
Electricity Interconnectors
Nifty and Telfer Gas Pipelines
Wickham Point and
Bonaparte Gas Pipelines
APA’s ability to manage these investments and provide
operational and/or corporate support services gives it
flexibility in the way it grows the business and harnesses
expertise in-house, thereby delivering services from a lower
cost base due to portfolio synergies.
EBITDA from Energy Investments increased by 23.3% for
the reporting period to $28.4 million (FY2018: $23.1 million).
6.4 Corporate Costs
Corporate costs for FY2019 were $80.1 million. This
includes $11.1 million of one-off costs associated with the
CKI proposal during the first half of the reporting period
and the former Managing Director’s retirement.
Corporate costs (net of one-off costs) for FY2019 were
$69.0 million compared to $67.9 million for the previous
corresponding period. This is a 1.6% increase compared to
the 4.4% increase in EBITDA (excluding the impact of the
one-off cost) during the reporting period.
APA continues to remain vigilant in keeping corporate
costs contained. Nonetheless, corporate costs (net of
one-off costs) increased 3.4% across FY2017 to FY2019,
compared to EBITDA (net of one-off costs) increasing
7.8% for the same period. The majority of the increase has
been as a result of the additional costs associated with
compliance reviews and other newly introduced regulatory
requirements.
CORPORATE SERVICES
~3,700 km Allgas gas
distribution network
in Queensland with
~112,500 connections
Marubeni Corporation
State Super
CORPORATE SERVICES
OPERATIONAL MANAGEMENT
Gas-fired power generation
71 MW
MM Midstream Investments
Osaka Gas
Gas processing facilities
45 TJ/day
Electricity transmission cables
244 km
Gas pipelines totaling 786 km
CORPORATE SERVICES
OPERATIONAL MANAGEMENT
Energy Investments Revenue & EBITDA
A$ m
20
10
0
FY16
FY17
FY18
FY19
Corporate Costs
A$ m
1,500
1,200
900
600
300
0
%
8
6
4
2
0
(1)
(2)
FY14
FY15
FY16
FY17
FY18
FY19
Corporate costs (LHS)
Corporate costs/EBITDA (3) (RHS)
EBITDA (LHS)
1) Includes $11.1 million of costs associated with the CKI proposal
and the former Managing Director’s retirement.
2) Corporate costs excluding one-off items.
3) EBITDA excluding corporate cost.
APA GROUP — ANNUAL REPORT 2019 — 25
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
7. Capital and Investment Expenditure
Total capital expenditure (including growth projects and stay-in-business capital expenditure but excluding acquisitions and
other investing cash flows) for FY2019 was $581.3 million (FY2018: $855.5 million). There were no acquisitions undertaken in
FY2019 and therefore no investment expenditure. During FY2019, the focus has been on APA’s single largest capex expenditure
program in the company’s history, with APA investing more than $1.4 billion across the three year period of FY2017 to FY2019.
Capital and investment expenditure for FY2019 is detailed in the table below.
Capital and investment
expenditure (1)
Growth expenditure
Regulated
Non-regulated
Queensland
New South Wales
Description of major projects
30 Jun 2019
($ million)
30 Jun 2018
($ million)
Victorian–Northern Interconnect expansion,
Warragul looping and Western Outer Ring Main (WORM)
30.6
33.0
Darling Downs Solar Farm, Reedy Creek Wallumbilla Pipeline
17.8
199.2
Victorian–Northern Interconnect expansion, Western Slopes
Pipeline early works, Moomba Sydney Pipeline Southern
Haul and Maximum Operating Pressure Expansion
Victoria
Orbost Gas Processing Plant, early works on Crib Point
to Pakenham Pipeline
Western Australia
and Northern Territory
Yamarna Gas Pipeline and Gruyere Power Station,
Emu Downs Solar Farm, Badgingarra Wind and Solar Farms,
Agnew Lateral and the Murrin Compressor Station
Customer contribution
projects and others
Includes Capacity Trading and Auction Grid
enhancements and other recoverable expenditure
Sub-total non-regulated capex
Total growth capex
Stay-in business capex (2)
Other technology expenditure
Total capital expenditure
Investment and acquisitions
Total capital and investment expenditure
Numbers in the table may not add up due to rounding.
15.6
175.2
10.7
116.7
192.7
369.1
30.9
432.2
462.8
93.5
24.9
581.3
—
581.3
14.2
709.9
742.9
85.9
26.7
855.5
20.0 (3)
875.5
1) The capital expenditure shown in this table represents net cash used in investing activities as disclosed in the cash flow statement, and excludes accruals brought
forward from the prior period and carried forward to next period.
2) Represents stay-in-business capital expenditure not recoverable from customers and/or regulatory frameworks.
3) Represents the purchase price for the Orbost Gas Processing Plant.
Growth project expenditure in FY2019 of $462.8 million (FY2018: $742.9 million) was largely related to the following projects
during the year:
— Construction and completion of the Yamarna Gas Pipeline and Gruyere Power Station, and Agnew Lateral, all located in
WA and interconnected with the Goldfields Gas Pipeline and/or the Eastern Goldfields Pipeline;
— Construction of the Murrin Compressor Station and commencement of engineering and procurement for the Murrin
Murrin lateral looping project;
— Construction of the Darling Downs Solar Farm (QLD) and Badgingarra Wind and Solar Farms (WA);
— Construction/upgrade of the Orbost Gas Processing Plant in Victoria, which is now scheduled to deliver first sales gas in
Q4 CY2019; and
— Ongoing pre-investigative and preliminary license approval undertakings for the proposed (subject to customer FID)
Western Slopes Pipeline and Crib Point Pakenham Pipeline projects.
Growth capital expenditure is fully underwritten through long-term contractual arrangements or has regulatory approval
through a relevant access arrangement.
Stay in business (SIB) capex increased to $93.5 million in FY2019 from $85.9 million in FY2018, an increase of 8.8%. The
increase correlates to the size and scope of APA’s diverse energy infrastructure portfolio and remains in line with the long term
asset management planning cycle across our assets.
26 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
7. Capital and Investment Expenditure (continued)
Capital expenditure also includes ongoing business and technology spend – reflecting the continuing growth of the business
and regulatory changes over the last two years. APA’s Information and Technology (I&T) function works collaboratively with
all APA divisions to deliver modern I&T solutions and services, which are secure, compliant and contribute to the organisation's
strategic objectives and goals as the business continues to grow. In FY2019, $24.9 million (FY2018: $26.7 million) was invested
in I&T related solutions, services and infrastructure.
Grid Analytics ~ turning data into an asset
In 2016, APA established a Data Analytics program with the objective of enabling more efficient, informed and timely
decision making. APA treats data as an asset and we have set about building a sustainable, unified analytics platform
with consistent tools and processes being applied across the entire business.
Our trusted data set, which is
comprised of data from multiple
enterprise systems, has grown since
the program commenced and now
encompasses approximately over
4TB of data across 22 billion rows.
So how do we turn this
data into an asset?
Example: Within APA’s Integrated
Operations Centre (IOC) a visual
representation of the Grid is being
used to proactively monitor flow
and capacity, whilst another data
model is used to track customer
requests and anticipate demand.
This enables APA to deliver critical
customer outcomes and improved
customer service.
Growth projects
APA’s significant FY2017 to FY2019 growth capex program has resulted in:
— Approximately 272 kilometres of new-build pipelines added to APA’s footprint;
— More than 300 MW of new power generation including over 275 MW from renewable assets; and
— The connection of a new source of gas supply into the east coast gas market via APA’s newest gas processing facility and
connecting pipeline in Victoria.
An update on the major projects undertaken in FY2019 is as follows:
Yamarna Gas Pipeline and Gruyere Power Station (WA): Underwriting these two projects are a 15-year gas transportation
agreement and a 15-year electricity supply agreement for the Gruyere Gold Project, a 50:50 joint venture between ASX listed
Gold Road Resources Ltd and the global miner Gold Fields Limited. The 198 kilometre pipeline was completed in FY2018 and
commissioned in FY2019. Practical completion of the 45 MW power station occurred in late 2018. APA has been supplying
power to the mine since January 2019, helping the mine meet the significant milestone of “first gold pour” in the June 2019
quarter. Full loads are expected in FY2020 as the mine commissioning progresses towards full operation.
Darling Downs Solar Farm (QLD): This 110 MW solar farm is underwritten by a 12 year contract with Origin Energy. APA
assumed the principal contractor role in December 2018 following the collapse of the EPC contractor RCR Tomlinson in
November 2018. Through our strong project management capabilities and contract management expertise, APA was able
to complete construction of the solar farm within budget and commence operations without loss of budgeted revenue.
Commercial operations commenced in January 2019.
Badgingarra Wind and Solar Farms: Both projects are underpinned by a 17 year agreement with Alinta Energy. The 130 MW
wind farm was commissioned and commenced commercial operations in January 2019. Construction of the 17.5 MW solar
farm has been completed and is expected to commence commercial operation in August 2019.
Orbost Gas Processing Plant: APA acquired the moth-balled processing plant in FY2018. Extensive refurbishment work has
been carried out on the plant during FY2019 to enable the processing of up 70 TJ/day of gas from Cooper Energy’s Sole gas
field. Commissioning is expected to commence in early September to ensure delivery of first sales gas during Q4 CY2019.
APA GROUP — ANNUAL REPORT 2019 — 27
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
7. Capital and Investment Expenditure (continued)
Helping customers gear up for peak demand ~ smart initiatives like the Moomba Sydney Pipeline Southern Haul project
Reliability of energy supply when it is needed is what we all expect – energy on demand. Our expectations as consumers
increase during peak demand periods when temperatures are high in summer, or when we need heating in winter. We
expect that we can flick a switch and our expectations will be instantly met every time. The strain on the National
Electricity Market (NEM) across eastern Australia has been increasing over the past few years with the retirement of
aging coal-fired generators. As a result, the NEM is being put under increased pressure at peak capacity times. Some
renewable energy has been added into the network system, but it does not necessarily generate energy when it is needed,
and when it does, the technology is not yet available to store significant amounts of energy for when it might be needed.
Gas is able to provide the reliable, fast start cleaner energy that is needed. To help alleviate this situation quickly, APA
took the initiative and committed to the Southern Haul Reliability and Expansion project on the Moomba Sydney Pipeline.
This has involved pre-investing in capital works to increase operating pressures in some sections, renewing and improving
critical control systems and spending capital on compressor reliability. The outcome of this will be APA being able to
provide up to 27 TJ/day of additional capacity from winter 2019 onwards, to meet our customer’s requirements so they
can meet consumer demand expectations.
APA is working with producers throughout eastern Australia to bring more gas to market. During FY2019, APA signed a
Memorandum of Understanding with Comet Ridge Limited and Vintage Energy Limited to commence an in-field work
program to select a pipeline route to connect the Queensland Galilee Basin to eastern gas markets. This will be a significant
pipeline project for APA with important beneficial outcomes for the tight eastern Australian gas market.
In March 2019, the Federal Government announced APA’s proposed Dandenong Power Station project as a shortlisted project
under its Underwriting New Generation Investments (UNGI) scheme. The UNGI program aims to provide financial support to
facilitate the development of new firm generation capacity in the NEM. APA’s proposed power station would offer customers
very fast start, efficient electricity generation and would be designed to support and complement penetration of the NEM
by renewables. Located adjacent to APA’s existing Dandenong gas storage facilities, the proposed site of the power station is
ideally located close to both gas demand and supply and would leverage APA’s existing infrastructure. It has been designed as
a two-stage project with stage 1 comprising 12 fast start gas fuelled reciprocating engines with a capacity of approximately
220 MW. Stage 2 would deliver an additional six units generating approximately 110 MW of gas-fired power. The UNGI process
is still in the very early stages of project assessment at this time, and APA continues to work on identifying a customer to
underwrite the project.
Preliminary work continued during the reporting period on the proposed pipeline projects with AGL Energy Limited and Santos
Limited, both of whom continue to work through the feasibility of their own significant projects.
APA entered into a Development Agreement with AGL Energy Limited in June 2018 for the development and construction
of the approximate 60 kilometre Crib Point Pakenham Pipeline, subject to AGL achieving FID on their proposed Crib Point
Gas Import Jetty Project in Victoria. AGL have indicated they expect the outcome of the Environmental Effects Statement
to occur no earlier than late FY2020, following which AGL expects to move to FID. If AGL approve their proposed import jetty
project, AGL expects first gas to be delivered to Crib Point in the second half of FY2022.
Similarly, APA has an agreement in place, subject to FID by Santos Limited of its Narrabri Gas Project, to potentially
develop and build a new approximately 460 kilometre pipeline to be called the Western Slopes Pipeline, connecting the
Narrabri gas resource to the east coast gas market. Over the last year, APA has continued to work on various approvals
and landowner engagements for both projects. Additional details of APA’s project engagement is included in APA’s FY2019
Sustainability Report.
If both projects achieve FID approval, they will provide much needed new sources of gas supply into Australia’s east coast
market. More gas supply is expected to put downward pressure on the high gas prices that domestic manufacturers and
consumers are currently faced with.
APA’s growth capex history
A$ m
600
400
200
0
5 year average ~$421m p.a.
10 year average ~$338m p.a.
FY15
FY16
FY17
FY18
FY19
28 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
7. Capital and Investment Expenditure (continued)
APA has a strong history of investing in energy
infrastructure and since listing, has invested well
over $14 billion into Australia’s energy infrastructure
network. Over the last 10 years on average, APA has
invested over $300 million per annum of growth capex,
and in the last five years that average has increased to
around $421 million per annum.
APA continues to work closely with customers on
a range of capex project opportunities and continues to
expect growth capital expenditure to be in the order of
$300 to $400 million per annum over the next two to
three years.
Capital and investment expenditure
A$ m
800
600
400
200
0
FY16
FY17
FY18
FY19
8. Financing Activities
8.1 Capital Management
As at 30 June 2019, APA had 1,179,893,848 securities on issue. This is unchanged from 30 June 2018.
Acquisitions & other investment cash flows
Growth capex
SIB & other IT capex
APA funds its growth with appropriate levels of equity, cash retained in the business and debt, in order to maintain strong
BBB and Baa2 credit ratings.
As at 30 June 2019, APA had $1.9 billion in cash and committed undrawn facilities available to assist in the ongoing funding of
the business and planned growth activities looking ahead.
At 30 June 2019 APA had $9,352.1 million ($8,810.4 million as at 30 June 2018) of committed drawn debt facilities, with an
additional $1,550 million of undrawn committed bank facilities available to the business.
APA has issued debt into a diverse range of global bond and banking markets, such as US Private Placement Notes, Medium
Term Notes in several currencies (Australian and Canadian dollars, Euros, Sterling and Japanese Yen), United States 144A
Notes and Australian dollar Syndicated and Bilateral bank facilities. The debt portfolio has a broad spread of maturities
extending out to FY2035, with an average maturity of drawn debt of 6.8 years as at 30 June 2019.
APA debt maturity profile and diversity of funding sources (1)
$1,600m
$1,200m
$800m
$400m
0
FY20
FY21
FY22
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
FY32
FY33
FY34
FY35
Headroom (undrawn committed facilities)
Bank borrowings
Sterling MTN
Euro MTN
US 144A Notes
Japanese MTN
Australian MTN
US Private Placement Notes
USD denominated obligations (2)
1) APA debt maturity profile as at 31 July 2019.
2) USD denominated obligations translated to AUD at the prevailing rate at inception (USD144A – AUD/USD=0.7879, EMTN & Sterling AUD/USD=0.7772).
APA maintains a prudent treasury policy that requires high levels of interest rate hedging to minimise the potential impacts
from adverse market movements. As at 30 June 2019, 100.0% (30 June 2018: 97.7%) of interest obligations on gross
borrowings were either hedged into or issued at fixed interest rates for varying periods extending out to 2035.
APA GROUP — ANNUAL REPORT 2019 — 29
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
8.1 Capital Management (continued)
Financing activities for APA during the financial year included:
Timing
Financing activity
September 2018
Repayment of $95.8 million (US$63.0 million) of US Private Placement Notes at maturity
March 2019
May 2019
June 2019
Issuance of £400 million (A$742.4 million) of 12.3 year fixed rate Notes from its Euro
Medium Term Note Programme
Extension of a $50 million Bilateral Bank Facility for 3 years to May 2022 and repayment
of $219.4 million (US$122.0 million and A$68.2 million) of US Private Placement Notes at maturity
Issuance of ¥10 billion (A$132.9 million) 15 year fixed rate Notes from its Euro Medium
Term Note Programme
Since FY2019 end, APA has also repaid:
— $99.0 million (USD 75.0 million) of US Private Placement Notes at maturity (1 July 2019); and
— $289.5 million (CAD 300.0 million) of Medium Term Notes at maturity (24 July 2019).
Through these financing activities, APA has been able to extend the average tenor of its debt facilities and lower the average
cost of our debt portfolio, delivering annualised interest savings in the order of $23 million per year. The diverse debt portfolio
demonstrates the support APA has from global debt capital markets, with the latest S&P Global Ratings update for APA
(November 2018) stating, “We view APA as having good relationships with its banks, a high standing in the credit market, and
prudent risk management.”
APA acquired the Wallumbilla Gladstone Pipeline in June 2015. Revenues are denominated in USD and were initially received
in June 2015 from the 20 year foundation contracts. Operating costs are passed through to the shippers. Today, around US$3
billion (i.e. US 144A Notes maturing in 2025 and 2035, Euro MTN maturing in 2027 and Sterling MTN maturing in 2030), of the
original US$3.7 billion of debt that was borrowed to assist with funding of that acquisition, is retained in, or swapped into,
US dollar denominated debt obligations at an all-in annual rate of 4.61%. This USD debt is being managed as a “designated
hedge” for those virtually certain revenues.
During the reporting period, APA undertook a restructuring of the hedging in respect of the 2022 €700 million issued in March
2015. This issue was originally part of the designated hedge relationship noted above and was originally swapped into US
dollars. In September 2018, APA unwound the cross currency interest rate swaps (CCIRS) in respect of that issue and put in
place new CCIRS, converting the debt to an Australian dollar liability (A$1,132 million) enabling the revenues from March 2019
to March 2022 to be hedged back into Australian dollars. Due to that hedge restructure, APA received some $151 million in
cash from the CCIRS unwind.
APA has hedged the US dollar denominated Wallumbilla Gladstone Pipeline revenues receivable from March 2019 to March
2022 at the rates in the table below.
Period
FY2019
FY2020
FY2021
FY2022 (to March 2022)
Average forward USD/AUD exchange rate
0.7020
0.7192
0.7199
0.7099
A large portion of the net revenue from April 2022 remains in the designated hedge relationship with the remaining US$3 billion
in debt and as such, when that revenue is receivable and hedged, it will be recognised in the profit or loss largely at future
hedge rates.
8.2 Interest costs
Net interest costs decreased in FY2019 by $12.2 million to $497.4 million (FY2018: $509.7 million). The 2.4% decrease in FY2019
relative to FY2018 is primarily due to the refinancing of higher cost debt. This included the Japanese Yen Medium Term Notes
that matured in June 2018; the US Private Placement Notes that matured in September 2018 and May 2019; the APA Group
Subordinated Notes that were redeemed 31 March 2018; as well as an increase in capitalised interest associated with APA’s
growth projects.
The average interest rate (including credit margins) applying to drawn debt was 5.53% for FY2019 (FY2018: 5.65%), reflective
of the partial year impact of the higher interest costs of some of the abovementioned facilities.
30 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
8.3 Credit ratings
APT Pipelines Limited, the borrowing entity of APA, maintained the following two investment grade credit ratings during the
2019 financial year:
— BBB long-term corporate credit rating assigned by Standard & Poor’s (S&P) in June 2009, and last confirmed on 21
November 2018; and
— Baa2 long-term corporate credit rating (outlook Stable) assigned by Moody’s Investors Service (Moody’s) in April 2010, and
last confirmed on 26 February 2019.
APA calculates the Funds From Operations (FFO) to Interest to be 3.0 times (FY2018: 3.0 times) and FFO to Net Debt to
be 10.8% for FY2019 (FY2018: 10.7%). FFO to Net Debt is the key quantitative measure used by S&P and Moody’s to assess
APA’s credit worthiness and credit rating.
APA’s credit metrics continue to strengthen as increasing operating cash flow allows the funding of both increased
securityholder distributions and increased growth capex which delivers increased EBITDA and, in turn, increased operating
cash flow. With FFO to Net Debt of 10.8% and FFO to Interest of 3.0 times being at the stronger end of BBB/Baa2 rating
metric guidelines, APA continues to have confidence that the balance sheet can continue to support both organic growth and
long term growth in securityholder distributions. APA’s FFO to Net Debt has been between 10% and 11% for the past three
years and we expect this to continue for FY2020.
8.4 Income tax
Income tax expense for the financial year of $177.0 million results in an effective income tax rate of 38.1%, compared to
38.4% for the previous corresponding period. The high effective rate is due to the significant amortisation charges relating
to contract intangibles acquired with the Wallumbilla Gladstone Pipeline, which are not deductible for income tax purposes.
After utilisation of available tax losses and Research and Development tax offsets, income tax of $71.8 million will be payable
in respect of the year ended 30 June 2019 (FY2018: $52.0 million). The cash tax payable results in an effective tax paid rate
of 15.4% in FY2019 compared to 12.1% in FY2018. With PAYG instalments of $39.8 million having already been paid, a tax
provision of $32.0 million has been recognised. APA has provided a Tax Transparency Report, which includes a reconciliation of
profit to income tax payable on APA’s website at https://www.apa.com.au/investors/my-securities/tax-information/.
To assist APA Securityholders who wish to submit their annual tax return prior to receiving their annual APA Tax Statement in
mid September, APA has developed an online tax estimator tool.
The Estimator tool will generate Pro Forma Tax Return Inputs based on information entered by Securityholders and therefore
should be considered “indicative only” compared to the confirmed accurate information contained in APA’s Annual Tax
Statement. The Tax Estimator will be available under the Investor section on APA’s website following confirmation by the
Board via an ASX release of the final FY2019 distribution (https://www.apa.com.au/investors/my-securities/apa-annual-tax-
statement-estimator/).
8.5 Distributions
Distributions paid to securityholders during the financial year were:
APT franked profit distribution
APT unfranked profit distribution
APT capital distribution
APTIT profit distribution
APTIT capital distribution
Total
Franking credits allocated
Final FY2018
distribution paid
12 September 2018
Interim FY2019
distribution paid
13 March 2019
Cents per
security
Total
distribution
$000
Cents per
security
Total
distribution
$000
8.93
0.00
9.03
2.90
3.14
24.00
3.83
105,412
—
106,513
34,228
37,022
283,175
7.47
2.03
6.58
2.97
2.45
21.50
3.20
88,099
24,024
77,668
35,014
28,872
253,677
APA GROUP — ANNUAL REPORT 2019 — 31
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
8.5 Distributions (continued)
On 21 August 2019, the Directors declared a final distribution for APA for the financial year of 25.5 cents per security which
is payable on 11 September 2019. Franking credits of 3.66 cents per security will be allocated to the APT franked profit
distribution. The FY2019 final distribution comprises the following components:
APT franked profit distribution
APT capital distribution
APTIT profit distribution
APTIT capital distribution
Total
Franking credits allocated
Final FY2019
distribution payable
11 September 2019
Cents per
security
Total
distribution
$000
8.53
10.44
2.55
3.98
25.50
3.66
100,663
123,153
30,056
47,002
300,874
As a result, the total distribution applicable to the year ended 30 June 2019 is 47.0 cents per security, a 4.4% increase over the
total distribution of 45.0 cents per security applicable to the year ended 30 June 2018. Franking credits allocated for the year
ended 30 June 2019 distribution totalled 6.86 cents per security.
The Distribution Reinvestment Plan remains suspended.
8.6 Total securityholder return
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 ex-distribution date, was 15.0% (12).
APA’s total securityholder return since listing in June 2000 on the ASX, is 2,083 (13), a compound annual growth rate of 17.2%.
APA total securityholder returns since listing (June 2000) to 19 August 2019
2,400
1,800
1,200
600
0
Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17
Jun 18
Jun 19
APA total securityholder return
Utilities accumulation index
S&P/ASX 200 accumulation index
8.7 Guidance for 2020 financial year
Based on current operating plans and available information, APA expects EBITDA for the full year to 30 June 2020 to be in a
range of $1,660 million to $1,690 million.
Net interest cost is expected to be in a range of $505 million to $515 million.
Distributions per security for the 2020 financial year are expected to be in the order of 50.0 cents per security, with franking
credits which may be allocated to those distributions enhancing that cash payout.
As per current APA distribution policies, all distributions will be fully covered by operating cash flows.
EBITDA ($ millions)
Net interest cost ($ millions)
FY2020 guidance
FY2019 actual
$1,660 to $1,690
$505 to $515
$1,573.8
$497.4
Total distribution (cents per security)
In the order of 50.0 cents
47.0 cents
12) Figures quoted are sourced from Refinitiv Eikon and measured as at 30 June 2019.
13) Indexed from 13 June 2000, the date of APA’s listing on the ASX.
32 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
9. Regulatory Matters, Energy Policy and Energy Industry Developments
Australia’s economic regulatory regime for gas pipelines is set out in the National Gas Law (NGL) and the National Gas Rules
(NGR). Some of APA’s pipelines have been covered by the National Gas Access Regime since it was introduced in the 1990’s.
This regime includes mechanisms for regulatory pricing approval for “fully regulated” pipelines, and lighter obligations for
“light regulation” pipelines.
Gas Policy developments
Additional information disclosure and commercial arbitration rules came into effect in August 2017 (December 2017 in
Western Australia) and applies to APA’s unregulated pipelines, which are known by the term “non-scheme” pipelines. APA
has worked with the Gas Market Reform Group, Australian Energy Market Operator and the industry on the design and
implementation of the additional rules over the past four years.
During FY2019, the implementation of the remaining market policy revisions under the direction of the COAG Energy Council
was completed.
Part 23 compliance – roll out
In October 2018, APA published its first set of financial statements and associated information as specified under Part 23
of the National Gas Rules. Together with the January 2018 publication of APA’s pricing principles and methodology, and
standing terms, prospective pipeline users now have available a broad range of information to enable enhanced assessment
of pipeline service offers. APA has continued to work with our customers to negotiate commercial terms that are acceptable
and beneficial for all parties. There have been no formal access requests that could lead to arbitration since that formal
process was introduced in August 2017. APA’s experience is that our gas transportation customers continue to work with us
to develop commercial arrangements that are mutually beneficial and satisfactory to all parties.
The ACCC is expected to shortly release its interim report on its review of Part 23 information lodged by industry participants
in October 2018.
Part 24 and 25 capacity trading and auction
APA undertook extensive business system developments to ensure the successful implementation on 1 March 2019 of both
a Capacity Trading Platform for the secondary trade of pipeline capacity, and a daily auction facility of firm contracted but
un-nominated pipeline capacity. Both facilities are being run by the Australian Energy Market Operator (AEMO).
COAG Energy Council Regulation Impact Statement (RIS)
In late December 2018, the COAG Energy Council Senior Committee of Officials released the terms of reference for a RIS
on the recent raft of gas pipeline regulation reform actions. APA has been engaging in this process and an initial draft public
report for consultation is expected to be released in October 2019.
Security of Critical Infrastructure
The Federal Government introduced the Security of Critical Infrastructure Act 2018 in April 2018 with the objective of
providing a framework for managing risks to national security relating to critical infrastructure by improving transparency of
ownership and operational control of critical Australian infrastructure. All required information on APA’s assets and investment
assets which met the threshold criteria under the legislation was submitted to the Critical Infrastructure Register during the
reporting period. This included information on pipelines, gas storage facilities, power stations and electricity interconnectors.
APA continues to work with the Critical Infrastructure Centre to ensure completeness and accuracy of existing and new
assets in the register.
Regulatory resets
The diagram below outlines the scheduled regulatory reset dates for pipelines owned and operated by APA. During FY2019,
approximately 8.3% of APA’s Energy Infrastructure revenues were revenues that are subject to regulated outcomes.
Calendar year
2019
2020
2021
2022
2023
2024
Goldfields Gas Pipeline
Amadeus Gas Pipeline
Roma Brisbane Pipeline
Victorian Transmission System
Current regulatory period
Next regulatory period
APA GROUP — ANNUAL REPORT 2019 — 33
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
9. Regulatory Matters, Energy Policy and Energy Industry Developments (continued)
Key regulatory matters addressed during the year included:
Goldfields Gas Pipeline access arrangement
The Western Australian Economic Regulation Authority has released a draft decision on proposed revisions to the Access
Arrangement for the Goldfields Gas Pipeline, which had been submitted to the regulator for approval in December 2018. The
draft decision is in accordance with current legislation, and applies only to the covered (regulated) capacity in the pipeline. A
recommendation, by the AEMC, that the uncovered capacity of otherwise covered pipelines be covered, and regulated, has
not yet been resolved. A final decision on the Access Arrangement revision proposal is expected from the Economic Regulation
Authority late in 2019.
Regulator WACC decision
In December 2018, the Australian Energy Regulator and the Economic Regulation Authority of Western Australia published
their respective rate of return instruments that are binding on regulated businesses and the regulator until December 2022.
Although there are some differences in the detail contained within each instrument, the resulting rates of return are very
similar. APA understands the need to ensure that energy prices are as affordable as possible and that allowed returns have
a direct linkage to energy prices. However, regulators over the last few years have reduced allowed returns to a level where
continued investment in essential energy infrastructure is threatened. APA does not see this as being in the long term interest
of consumers, particularly where pipeline construction and expansion needs to be encouraged to ensure supply from new gas
fields is developed.
Energy industry developments
The Energy Charter – industry initiative
APA plays a key role in delivering energy throughout Australia. We want that energy to be affordable, reliable and sustainable
for all Australians and note the challenges in achieving this, particularly as the energy industry transitions towards a lower
carbon future. We are one part of the energy industry supply chain and understand that to deliver on these objectives, each
business across the whole of the energy supply chain needs to play its part.
In that context, APA was a driving force behind the Energy Charter initiative. The Energy Charter brings together businesses
across the gas and electricity supply chains under a common set of principles and more detailed principles in action to improve
customer outcomes. Currently, there are 18 signatories to the Energy Charter.
APA is committed to the 5 principles of the Energy Charter:
1) We will put customers at the centre of our business and the energy system
2) We will improve energy affordability for customers
3) We will provide energy safely, sustainably and reliably
4) We will improve the customer experience
5) We will support customers facing vulnerable circumstances
Signatories are required to disclose their performance against each principle and principle in action on an annual basis. The
first disclosure reports are due to be provided to an independent Accountability Panel by 30 September 2019. Signatories’
disclosure reports will be publicly available. The Panel will evaluate the disclosures and publish a report setting out findings
and recommendations for continuous improvement by each business and the industry as a whole by 30 November 2019. APA’s
Energy Charter disclosure report and the Accountability Panel report will be available on the Energy Charter Accountability
Panel website, as well as being accessible via APA’s website.
initiative, APA has
APA’s Customer Promise
Initially developed independently to the Energy
reviewed the
Charter
‘customer experience’ from the perspective
of our infrastructure customers. This included
independent customer surveys seeking feedback
on what is important to each customer and
their current perception of what APA does well
and what needs improvement. APA’s Customer
Promise is a commitment by all of our employees,
whether directly customer facing or not, about
listening to our customers, ensuring we have the
right structure and tools that our people can
respond and doing what we say we’ll do.
34 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
9. Regulatory Matters, Energy Policy and Energy Industry Developments (continued)
The Principles of APA’s Customer Promise are consistent with the Principles of the Energy Charter and therefore both
initiatives come together to improve APA’s customer centric culture. The Customer Promise was launched internally during
the first half of FY2019 through a series of workshops and presentations across APA’s operations Australia-wide. The external
rollout of APA’s commitment to customers took place throughout July and August 2019 on the east coast, with the launch for
Western Australian customers in October 2019.
10. Sustainability
APA believes that climate change is one of the most significant issues facing the energy industry and the Australian community
in general. We also believe that natural gas and our diversified energy asset portfolio will play an important role in the shift
to a lower carbon future. APA also recognises and is working to address the challenges in the energy industry to restore trust,
ensure reliability of energy supply whilst also driving improved affordability and reduced emissions.
For APA sustainability means:
— We are active in helping to displace more carbon-intensive options – like coal or oil – both in Australia and overseas;
— We are proactive in continuing to grow and build our portfolio of renewable energy assets such as wind and solar;
— We will investigate, develop and invest in solutions to support renewable energy with firming capacity;
— We will explore, collaborate and actively support the design, testing and commercialisation of cleaner energy sources (such
as hydrogen and renewable methane) where it makes sense to do so;
— We put our customers at the centre of what we do;
— We operate our assets safely and efficiently whilst also understanding, measuring and ultimately looking to reduce our
impact on the environment; and
— We engage with all our stakeholders – customers and consumers, employees, contractors, investors, landowners,
communities, regulators and policy makers – regularly and honestly.
APA initiated an enterprise wide environmental, social and governance (ESG) review and improvement program in FY2018
and progressed in FY2019 to assess our current capabilities in respect of ESG criteria, and to identify improvements to both
our capabilities and disclosures.
Key elements of the program include:
— Assessing climate risk utilising the Task Force on Climate-related Financial Disclosures (TCFD) including analysis of three
divergent climate related scenarios to identify climate related risks and opportunities for APA over the next ten years;
— A review of APA’s environmental management practise to ensure APA is meeting or exceeding environmental regulatory
compliance; and
— Reviewing and implementing improvements in the processes and systems to gather and verify data for greenhouse
gas reporting.
This is a multi-year improvement program. In terms of reporting on FY2019 progress and outcomes, a comprehensive
Sustainability Report has been prepared as a complement to this Directors’ Report. It is available on APA’s website
(www.apa.com.au) under both the About APA/Sustainability section and Investors/Reports and Presentations sections.
Sustainability is a whole of company responsibility, championed by APA’s Board who are supported by the Audit and Risk
Management Committee and the Executive Risk Management Committee. The FY2019 Sustainability Report details APA’s
approach to climate change governance; identification of material financial and non-financial risks against TCFD; our
performance and initiatives in relation to our customers, our people and safety, the environment and communities and
suppliers. Included in the Directors’ Report below is a summary of APA’s Health and Safety Reporting and Environmental and
Compliance Reporting.
From the scenario analysis and risk assessment undertaken, APA is confident that our business is physically and financially
resilient to climate related transitional and physical risks for at least the next ten years. The business will continue to monitor
and assess emerging risks and opportunities in relation to climate change. As we mature in the use of TCFD, we anticipate
that the time horizon used for future scenario analysis will be extended beyond ten years to be more consistent with the
long-lived nature of our assets.
Natural gas and gas peaking plants serve a critical role now and into the future in supporting the integration of renewable
energy into Australia’s National Electricity Market and continuing to displace more carbon intensive fossil fuels such as black
and brown coal and oil. APA believes Australia should leverage its current and future investments in gas and gas related
infrastructure to deliver long term, reliable, secure and cost-effective carbon reductions.
APA is committed to providing stakeholders with improved metrics to fairly assess the management of climate related
impacts and more detailed work on appropriate metrics and targets will commence in FY2020.
APA GROUP — ANNUAL REPORT 2019 — 35
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
10.1 Health and safety reporting
APA aspires to a zero harm workplace for its employees and
contractors. In FY2019, the Total Reportable Injury Frequency
Rate (TRIFR) was 5.98, down from 8.94 in FY2018. The TRIFR
metric includes employees and contractors. The reduction
in injuries can be attributed to the increased focus placed
on Health and Safety during the year. Activities such as
APA’s active monitoring program requires our leaders to
engage with employees on Health and Safety topics and
the continued use of ‘lessons learned’ communications
arising from incident investigations to help further prevent
injuries and incidents. Importantly, there were no fatalities of
employees or contractors in FY2019 (FY2018: nil).
APA’s current Health, Safety and Environment (HSE)
Strategic Plan has been designed to further develop APA’s
HSE framework, systems, culture and initiatives to prevent
harm to our people, contractors and the broader community,
and to deliver a sustainable future.
The HSE Plan consists of seven strategic themes:
Strategic Theme
Planned Outcomes
Total Reportable Injury Frequency Rate (TRIFR)
15
10.41
10
5
0
7.5
8.94
5.98
FY16
FY17
FY18
FY19
Note: TRIFR is measured as the number of lost time and medically
treated injuries sustained per million hours worked. Data includes both
employees and contractors.
Fitness for Work
Healthy employees promoting APA as a great place to work resulting in improved efficiencies
Environment Management
Improved environmental compliance & awareness achieved across APA
Contractor Mangement
Improved contractor performance & reduction in contractor incidents
HSE Leadership & Behaviours
Leaders are uncompromising & engage employees and contractors in HSE conversations and support behaviours
Safety Days
Safety Days contribute to educating our workforce on HSE risks & become a hub for sharing HSE information
Fatal Risk Protocols
Fatal Risk Protocols are well understood & all risk controls implemented
Safeguard Improvements
Safeguard HSE Management System is well understood & consistently applied across all of APA
Culture
Compliance
Each strategic theme includes detailed implementation plans. An example of this in action was the revision of APA’s Alcohol
and Drug Policy under the Fitness for Work theme as well as developing and implementing a new Alcohol and Other Drugs
protocol which now includes random alcohol testing at APA sites. Increasing the profile of these important health and safety
issues through education at work can also help positive impacts flow on to our people in their lives outside of APA.
The use of contractors in APA is an essential part of our extensive and diversified business. While we have seen some
improvement of the Health and Safety metrics in FY2019 for Contractors, we will continue to keep a focus on improving
performance in this area. During the year we have conducted Contractor Safety performance reviews directly with some of
our contractors to discuss and work to improve safety performance. This forum also provides an opportunity for contractors
to provide direct feedback to APA on its systems and processes.
During the reporting period, APA also commenced initial Health and Safety culture assessments within the Transmission and
Networks businesses to understand the level of safety culture maturity of work teams. These culture assessments resulted in
the development of plans with each team, identifying the actions they will take to further progress their safety performance.
Some of the common themes to arise from the assessments included action plans to improve both the timely reporting of
incidents and ensuring timely closure of corrective actions arising from incident investigations and audits. The safety culture
maturity assessment program will continue throughout FY2020 as APA recognises this is an area of importance to further
improve our overall safety culture and performance.
As part of APA’s continuous focus on safety, we have refreshed our Fatal Risk Protocol Awareness program addressing our
nine Fatal Risk Protocols (FRP) including driving, confined spaces and working at heights. One of the initiatives developed
and implemented during the reporting year included using ‘storytelling’ methods and videoing some of our leaders reliving
either actual or near fatal risk events that may have resulted during their career, and the personal impact on them. The FRP
program also includes a follow-up brief training and assessment program to ensure that employees understand the key risk
preventive measures documented in our FRP’s. This program has been a big success at APA with our employees providing a
lot of positive feedback as it generates extensive discussions throughout the company.
Each year APA employees drive over 16 million kilometres travelling into remote and isolated parts of Australia. Since the
introduction of the In-Vehicle Monitoring System to all of our Transmission vehicle fleet in FY2017, we are now using this data
to help us to further improve driver safety performance. An example is the development of a driver safety scorecard that
provides drivers with their individual driver safety performance score, which also recognises good driver safety performance.
This performance scorecard provides drivers with the opportunity to self-correct any potential unsafe driving practices such
as speeding and allows leaders to have meaningful discussions with employees. The introduction of the driver safety scorecard
has seen a marked improvement of driver safety performance.
36 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
10.1 Health and safety reporting (continued)
Process Safety ~ empowering employees to operate safely
APA has grown significantly since listing in June 2000 with 6 employees and around
7,000 kilometres of pipeline interests and/or ownership. Today, APA is hugely
different in terms of size and diversity of the energy infrastructure within its portfolio.
With more than 1,800 employees across mainland Australia, the business now owns
and/or operates assets in excess of $21 billion of assets across mainland Australia.
What hasn’t changed however, is APA’s commitment to Zero Harm for all employees
and contractors. Therefore, there was a need to develop a comprehensive framework
to manage process safety.
Process safety is where the necessary processes, systems and behaviours are in place
to empower APA employees and contractors to operate assets safely, such that there
is no major accident event as a result of an energy or harmful substance release.
During the reporting period, APA began a roll out of process safety principles and
systems across the business. These included:
— Updating of APA’s HSE management system and fatal risk protocols
— Development and improvement of a range of key processes and systems
— Training in process safety fundamentals
A pilot roll out of the APA process safety fundamentals workshop was completed at
key locations in FY2019 to determine if the right approach was being undertaken to
ensure maximum benefit and learnings.
Following positive feedback from the pilot workshops, training programs have
commenced for all who work with or support APA’s Transmission and Midstream assets.
This segment of the program is due for completion at the end of 1st quarter 2020.
Plans are in place to roll out the programs across the Networks and Power businesses
in FY2021. Ongoing improvements are on foot to ensure the systematic management
of process safety risks is also underway.
For further information on APA’s health and safety initiatives, please refer to APA’s FY2019 Sustainability Report.
10.2 Environmental compliance and reporting
APA operates its assets under a number of approved environmental regulatory instruments within relevant federal, state
and territory jurisdictions. Collaboration between APA’s Technical & Regulatory and Environment & Heritage Team functions
ensures that environmental obligations are planned for concurrently with other regulatory requirements so that pipeline,
distribution, power and gas processing assets owned and/or operated by APA are designed, constructed, tested, operated
and maintained in accordance with requirements of the relevant regulatory departments.
APA received one regulatory notice relating to environmental compliance during the reporting period as a result of the late
submission of the annual National Pollutant Inventory (NPI) report for Daandine Power Station. APA complies with all periodic
and ad hoc federal, state and territory environmental reporting obligations.
APA’s main sources of emissions are from the combustion of natural gas in compressor stations, from fugitive emissions
associated with natural gas pipelines, and from gas fired power stations. NGER compliance applies to assets under APA’s
operational control, which includes gas transmission/distribution pipelines, power generation facilities (including wind farms),
gas storage, gas processing, cogeneration, electricity transmission interconnectors and corporate offices.
APA’s summary of Scope 1 and 2 emissions and energy consumption for FY2018 as reported under NGER compliance, are set
out in the table below.
During the reporting period, APA worked with the Clean Energy Regulator (CER) to conduct a quality review of APA’s current
and historic emissions reporting figures. As a result of that review, FY2018 and FY2017 Scope 1 and 2 emissions and energy
consumption figures have changed from those reported in our previous disclosures. The changes are due to identified unit and
accounting errors, now rectified in APA’s emissions reporting processes and agreed with the Clean Energy Regulator.
Scope 1 (1) CO2 emissions (tonnes)
Scope 2 (2) CO2 emissions (tonnes)
Energy consumption (3) (GJ)
FY2018
FY2017
Change
1,205,766
1,241,632
178,445
367,387
25,777,203
26,793,268
(2.9)%
(51.4)%
(3.8)%
1) Scope 1: emissions associated directly with APA facilities, such as company vehicles, ‘fuel combustion’ and fugitive emissions from gas pipelines.
2) Scope 2: are indirect emissions such as consumption of purchased electricity/fuel not generated by the facility but used under its operations or electricity line loss.
3) Energy Consumption is referring to the total calculation of all energy consumed and produced by APA across all facilities.
APA GROUP — ANNUAL REPORT 2019 — 37
Process Safety Fundamental Expectations1. Always report process safety risk and participate in the solution.2. Always report and investigate process safety incidents.3. Always follow safety critical procedures and permit to work.4. Always operate with safety critical devices armed unless authorised to deviate.5. Always operate within safe operating limits.6. Always respond to alarms and prioritise during abnormal operation.7. Always act and report harmful substance releases.8. Always obtain authorisation before modifying assets.FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
10.2 Environmental compliance and reporting (continued)
The significant reduction in Scope 2 emissions from FY2017 to FY2018 is almost entirely attributable to line loss from
the Directlink Interconnector. Whilst the CER has confirmed their satisfaction with the Scope 2 data, APA is undertaking
additional work to understand the reasons for the variance, including investigating operational trends as well as the integrity
of line loss raw data.
Reports are completed each year at the end of October for the prior financial year to allow organisations time to collect,
collate and calculate their energy and emissions data. FY2019 data will be submitted in October 2019. For further information
on APA’s environmental management strategy and initiatives, please refer to APA’s FY2019 Sustainability Report.
11. Risk Overview
APA identifies risks to its business and puts in place mitigation strategies to remove or minimise the negative effect and
maximise opportunities in respect of those 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 Divisions and
both internal and where appropriate, external, experts.
The Risk Management System brings together the principles and processes to ensure risk is effectively identified, managed
and monitored. It comprises three elements covering Risk Management Policy and Risk Appetite; Risk Management Enablers
providing for governance, a strong risk culture, technology support and ongoing training; and the Risk Management Framework
which sets our key risk management processes.
The Risk Management System is aligned to the international risk standard ISO 31000. All other functional risk frameworks
align to the Risk Management System to provide consistency and a common language for risk which is integral to key
business decisions.
Risk assessments consider a combination of the likelihood and consequence of identified risks. Listed below are a number of
key risks that could materially affect APA. 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.
Further information on this process is provided in APA’s Corporate Governance Statement (refer to Principle 7), the
Sustainability Report and APA’s website at https://www.apa.com.au/about-apa/our-organisation/corporate-governance/.
APA Group Board
APA Group Audit &
Risk Management Committee
– Approve risk strategy, risk policy and
risk framework
– Approve risk appetite
– Approve key risk and compliance policies
– Review and monitor current and
emerging material risks and actions
Executive Risk
Management Committee
APA Divisions
– Implement Risk Frameworks
– Own risks, controls and actions
– Own compliance plans and controls
– Support provided from
functional risk specialists
– Review and report risk exposures
– Apply risk appetite in key decisions
Independent Review
– Internal Audit
– External Audit
– Third party audits and reviews
Divisional Review
– Functional risk review
– Divisional audits and testing
APA Risk Management
– Review current and emerging material risks
– Review key risks and compliance policies
– Review insurance arrangements
– Review risk strategy and framework
– Approve crisis management plan
– Promote a risk aware culture
Group Risk & Compliance/
Group Insurance
– Enterprise Risk Management/
Compliance Frameworks, systems
and guidance
– Business Continuity and Crisis
Management framework
– Asset, project and corporate
insurance program
Functional Risk Frameworks
Aligned to Enterprise Risk
Management Framework including
– IT Security Risk
– People, Safety & Environment Risk
– Process Risk
– Treasury Risk
– Project Risk
38 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
11.1 Key risks
Type of Risk
Description
Key Management Actions to Mitigate Risks
Strategic risks – risks arising from the industry and geographical environments within which APA operates, including its
markets, customers, brand and reputation, and regulatory policy.
Economic
regulation
Bypass and
competition risk
APA has a number of significant assets and
investments in its portfolio subject to economic
regulation, which includes the regulation of
prices that APA is permitted to charge for
certain services. Government policy in relation
to the Australian domestic gas market also
continues to develop. Changes in policy as to
which assets are regulated and the settings
applicable to regulated assets can impact
APA’s business.
APA’s future earnings may be reduced if
customers purchase gas transportation services
from new pipelines that by-pass or compete
with APA’s pipelines, rather than from APA’s
existing pipelines.
Gas demand risk
Reduced end user demand for gas driven by
its price (in Australia versus other countries),
relative to competing energy sources and new
technologies or gas swap contracts, may reduce
demand levels for services on APA's assets and
may adversely affect APA’s contracted revenue
and the carrying value of APA’s assets.
Gas supply risk
Gas seen as
unacceptable
as a fossil fuel
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 contracted revenue and the
carrying value of APA’s assets.
Shift in consumer sentiment due to community
and environmental focus on gas being
unacceptable as a fossil fuel rather than viewed
as a fuel to support a cleaner energy future.
This may adversely affect APA’s contracted
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, could reduce future
anticipated revenue, unless and until APA
is able to secure an alternative customer.
— Strong regulatory and policy functions,
active in regulatory management and policy
development.
— Assessment of key policy change proposals
for potential impacts on APA’s business.
— Structured and flexible services that leverage
APA’s capability and infrastructure.
— Customer relationship engagement and
pro-active management of business
development opportunities.
— Ensure costs and pricing associated with the
provision of services remain competitive and
provide value to the market.
— Asset management plans aligned with
capacity contracting strategy.
— Monitoring commodity markets, export
outlook and gas market developments for
throughput impacts.
— Flexible services supporting the needs of
customers, including gas fired generators.
— Long term gas storage / transportation
agreements.
— Development of new and innovative services
that provide flexibility.
— Recontracting strategy and market monitoring.
— Knowledge and monitoring of gas reserves to
identify potential opportunities.
— Leverage knowledge and understanding of
advances in the transportation of alternate
fuels utilising existing gas infrastructure.
— Develop strategies to broaden exposure to
markets which favour gas.
— Extend and refine strategies on alternate fuel
/ infrastructure consistent with APA’s outlook
on future energy mix.
— Portfolio of investment grade credit rated
customers.
— Strong counterparty credit due diligence with
customer credit exposures closely monitored.
— Contractual credit support arrangements
in place.
APA GROUP — ANNUAL REPORT 2019 — 39
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
11.1 Key risks (continued)
Type of Risk
Description
Contract
renewal risk
Reputation risk
Climate Risk
Due to a range of factors, APA may not be
successful in recontracting available pipeline
capacity or power generation capacity when
it comes due for contract renewal, or may only
be able to recontract at reduced prices or for
shorter periods.
APA relies on a level of public acceptance for
the development and operation of its assets.
Community sentiment in relation to the energy
industry as a whole, as well as APA's business
may impact APA’s commercial opportunities,
its ability to develop new projects and
operate its assets.
APA and its customers may be adversely
affected by the transition impacts of climate
change including increases in temperature,
sea levels, and the frequency of adverse
climatic events including fires, storms,
floods and droughts.
Key Management Actions to Mitigate Risks
— Recontracting strategy in place with close
monitoring of contract renewal portfolio.
— Monitoring of emerging gas supply alternatives
and power generation market developments to
identify new opportunities.
— Engagement with key stakeholders
(landowners, producers, customers,
government etc).
— Industry engagement and contribution
to Energy Charter initiative.
— Commitment to implementation of
Task Force on Climate Related Financial
Disclosures (TCFD).
— Identified climate transition risks together
with impacts on energy infrastructure asset
revenues based on temperature scenarios
and a time horizon of 10 years.
Financial risks – risks arising from the management of APA’s financial resources, accounting, tax and financial disclosure.
Interest rates and
refinancing risks
APA is exposed to movements in interest rates
where floating interest rate funds are not
effectively hedged. It also remains exposed
to refinancing risk if it is unable to replace an
existing loan with a new one at a critical time.
— Risk limits set by the Board and
managed in line with APA’s Treasury Risk
Management Policy.
— Debt structured to spread maturities over a
number of years.
— Maximum and minimum interest rate hedging
levels defined and managed using derivatives
and debt issued at fixed interest rates through
to maturity.
— Access to broad range of global banking and
debt capital markets maintained.
— Risk limits set by the Board and
managed in line with APA’s Treasury Risk
Management Policy.
— Hedging instruments used to cap non-AUD
denominated revenue and expenses.
— Foreign currency borrowings fully hedged.
— Board approved corporate and asset models
used for investment decisions and planning.
— Models underpinning investment decisions
independently reviewed.
— Oversight by APA’s Due Diligence Committees
for material investment transactions.
— Board approves all treasury transactions with
counterparties falling below defined credit
rating thresholds.
— Counterparties are risk assessed with credit
ratings monitored and credit support obtained
to limit risk exposure.
Foreign
exchange risks
Investment risk
Credit rating risks
APA is subject to currency fluctuations in
relation to the purchase, supply and installation
of goods and services revenue, and borrowings,
in a currency other than Australian dollars.
There can be no assurance that APA will be
able to effectively hedge its foreign currency
exposure, particularly in periods of significant
currency volatility, and/or that APA's hedges
will prove effective.
Assumptions and forecasts used in making
decisions to acquire assets and make
investments, may ultimately not be realised.
This may result in lower than expected returns,
unanticipated costs, new skillsets or capabilities
needing to be acquired, new types of regulatory
approvals being needed where APA has
limited experience.
Any downgrade in APA's credit rating could
harm its ability to obtain financing, could
increase its financing costs or cause the
instruments governing APA's future debt
to contain more restrictive covenants.
40 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
11.1 Key risks (continued)
Type of Risk
Description
Key Management Actions to Mitigate Risks
Operational Risks – risks arising from inadequate or failed internal processes, people or systems or from external events
including construction and corporate projects, technology, environment, and health and safety.
Operations risk
Information
technology
and cyber risk
APA is exposed to a number of risks affecting
operations including those resulting in
equipment failures or breakdowns, pipeline
ruptures, employee or equipment shortages,
workplace safety issues, environmental
damage, contractor defaults, damage by third
parties, integration incidents from acquired
or newly constructed assets and damage
from natural hazards, sabotage or terrorist
attacks including the physical risks associated
with climate change.
APA's operations rely on a number of
information technology systems, applications
and business processes utilised in the delivery
of business functions, including APA’s customer
management system, grid network and
integrated operations centre.
People risk
Construction and
development risk
APA is dependent on its ability to attract,
engage, develop and retain the right employees
within a market where there is varying supply
of skilled workers. APA’s operations are
geographically dispersed which can make
attraction and retention of skilled employees
in regional and remote locations a challenge.
APA's business strategy includes the
development of new pipeline capacity,
renewable and gas-fired power generation
plants, gas storage facilities and gas processing
assets. This involves a number of typical
construction risks, including potential failure
to obtain necessary approvals, employee or
equipment shortages, third party contractor
failure, higher than budgeted construction
costs impacting liquidated damages, and
project delays.
— Operations are subject to operational safety
and environment management programs.
— Maintenance of engineering standards,
including integrity monitoring and maintenance
programs as part of risk based asset life cycle
management.
— Asset monitoring through control rooms to
manage flows and asset maintenance issues.
— Comprehensive insurance arrangements
provided as part of asset protection program.
— APA’s information and technology assets
are managed in accordance with recognised
industry standards across hardware, software,
applications and communication systems.
— Cyber security standards are applied
consistently across APA information and
technology systems, including those managed
by third party vendors, with standards
continually assessed against new threats
and vulnerabilities.
— I&T information and technology systems
including SCADA control systems, are subject
to regular reviews and independent testing.
— Leadership capability programs in place.
— Recruitment practices in place and subject
to improvement.
— Talent management programs to identify and
develop technical and leadership personnel.
— Comprehensive training programs in place
to maintain and develop competencies.
— Access and approvals management for new
construction projects.
— Dedicated construction project management
capability and governance to manage
efficient, safe and quality delivery of
construction projects.
Compliance risks – legal or regulatory risks arising in respect of laws, regulations, licences and recognised practising codes
including health, safety and environment, asset construction and operation, and other corporate compliance requirements.
Compliance and
operating licences
APA is subject to a range of operational
regulatory requirements including climate
change regulations, environmental laws
and regulations, occupational health and
safety requirements and technical and
safety standards. Changes in any such laws,
regulations or policies may increase compliance
requirements and costs.
— Comprehensive Enterprise Compliance
Management System with regulations
identified, controls monitored and assurance.
— Comprehensive safety management system
including safety compliance monitoring.
— Dedicated specialist teams providing asset
level assurance for technical, safety and
environment compliance.
APA GROUP — ANNUAL REPORT 2019 — 41
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
12. Directors
12.1 Information on Directors and Company Secretary
See pages 06 to 07 for information relating to the qualifications and experience of Directors and the Company Secretary.
12.2 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
Michael Fraser
Robert Wheals
Steven Crane
James Fazzino
Debra Goodin
Shirley In't Veld
Peter Wasow
Company
Period of directorship
Aurizon Holdings Limited
Since February 2016
—
—
nib holdings limited
SCA Property Group
Since September 2010, Chair since October 2011
Since December 2018
Incitec Pivot Limited
July 2005 to November 2017
Senex Energy Limited
oOh!media Limited
Atlas Arteria Limited
Ten Network Holdings Limited
Since May 2014
Since November 2014
Since September 2017
August 2016 to November 2017
Northern Star Resources Limited Since September 2016
Asciano Limited
DUET Group
November 2010 to August 2016
August 2013 to May 2017
Oz Minerals Limited
Alcoa Australia Limited
Alumina Limited
Since November 2017
January 2014 to July 2017
September 2011 to May 2017
12.3 Directors’ meetings
During the financial year, 17 Board meetings, four Audit and Risk Management Committee meetings, four People and
Remuneration Committee meetings, four Health Safety and Environment Committee meetings and three Nomination
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:
Board
People &
Remuneration
Committee
Audit & Risk
Management
Committee
Health Safety
& Environment
Committee
Nomination
Committee
Directors
Michael Fraser
Michael McCormack (1)
Steven Crane
James Fazzino
Debra Goodin
Shirley Int’d Veld
Peter Wasow
Russell Higgins (2)
Patricia McKenzie (3)
A
17
14
17
6
17
17
17
11
11
B
17
14
17
6
17
17
17
11
10
A
—
4
—
—
4
4
—
2
B
—
3
—
—
4
4
—
2
A
4
—
4
1
4
—
4
3
—
B
4
—
4
1
4
—
4
3
—
A
—
—
—
2
4
4
—
2
2
B
—
—
—
2
4
4
—
2
1
A
3
—
1
—
3
—
—
2
—
B
3
—
1
—
3
—
—
2
—
A) Number of meetings held during the time the Director held office or was a member of the committee during the financial year.
B) Number of meetings attended.
1) Michael McCormack retired as a Director on 5 July 2019.
2) Russell Higgins AO retired as a Director on 20 February 2019.
3) Patricia McKenzie retired as a Director on 8 March 2019.
42 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
12.4 Directors’ securityholdings
The aggregate number of APA securities held directly, indirectly or beneficially by Directors or their related entities at 30 June
2019 is 683,693 (2018: 800,118 (1)).
The following table sets out Directors’ relevant interests in APA securities as at 30 June 2019:
Directors
Michael Fraser
Michael McCormack
Steven Crane
Debra Goodin
James Fazzino (2)
Shirley Int’d Veld
Peter Wasow
Russell Higgins AO (3)
Patricia McKenzie (4)
Fully paid
securities as at
1 July 2018
Securities
acquired
Fully paid
Securities securities as at
30 June 2019
disposed
102,942
350,000
130,000
23,000
—
25,000
15,000
129,939
24,237
800,118
—
—
—
—
31,751
—
6,000
—
—
37,751
—
—
—
—
—
—
—
—
—
—
102,942
350,000
130,000
23,000
31,751
25,000
21,000
—
—
683,693
1) At 1 July 2018 the aggregate number of APA securities held directly or beneficially by Directors or their related entities included 129,939 securities held by Russell
Higgins AO who retired on 20 February 2019 and 24,237 securities held by Patricia McKenzie who retired on 8 March 2019. The aggregate number of APA
Securities held directly or beneficially by the current Directors or their related entities as at 30 June 2019 is 683,693.
2) James Fazzino was appointed as a Director effective 21 February 2019. He held nil securities on appointment.
3) Russell Higgins AO retired as a Director on 20 February 2019. He held 129,939 securities on retirement.
4) Patricia McKenzie retired as a Director on 8 March 2019. She held 24,237 securities on retirement.
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.
13. Options Granted
In this report, the term “APA securities” refers to 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.
14. Indemnification of Officers
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 specific nature of the liability
and the amount of the premium.
Australian Pipeline Limited, in its own capacity and as responsible entity of Australian Pipeline Trust and APT Investment
Trust, indemnifies each Director and Company Secretary, and certain other executives, former executives and officers 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. 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.
APA GROUP — ANNUAL REPORT 2019 — 43
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
directors’ report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
15. Remuneration Report
The Remuneration Report is attached to and forms part of this report.
16. Auditor
16.1 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 110.
16.2 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 27 to the financial statements.
The Board has considered those non-audit services provided by the Auditor and, in accordance with advice provided by 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
17.
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 28 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 on issue at the end of the
financial year, are disclosed in Note 21 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.
18. Rounding of Amounts
APA is an entity of the kind referred to in ASIC Corporations Instrument 2016/191 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.
19. Corporate Governance Statement
Corporate Governance Statement for the financial year is available at APA’s website on https://www.apa.com.au/about-
apa/our-organisation/corporate-governance/.
20. Authorisation
The Directors’ Report is 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
Michael Fraser
Chairman
Sydney, 21 August 2019
Debra Goodin
Director
44 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information remuneration report.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Letter from the Chairman of the People and Remuneration Committee
Dear Securityholders,
I am pleased to present APA Group’s Financial Year 2019 (FY2019) Remuneration Report (Report).
While the Report covers the FY2019 reporting period, I also wanted to highlight some of the changes to the APA leadership
that have taken place early in the new financial year and provide an overview to the changes arising from a review of APA’s
executive remuneration strategy.
APA operates in a rapidly changing business environment and the Board considers the attraction and retention of world class
executives as key to the company’s success. Mick McCormack led APA since 2005, playing a pivotal role in its success and
laying the foundation for APA’s performance over the longer term.
With the announcement of Mick’s retirement, the Board conducted a global external and internal search for his replacement,
reflecting the Board’s commitment to appointing an executive of the highest calibre. In early July 2019, Rob Wheals took up
the position of APA’s Chief Executive Officer and Managing Director.
Throughout the year, the Board embarked on a thorough review of its executive reward framework. The result of this review
is a number of changes to APA’s remuneration strategy for FY2020 and beyond.
The details of these changes are provided within the Report and include:
— The introduction of a greater relative weighting to the long term incentive;
— A short term incentive deferral plan; and
— An equity based performance rights plan.
These initiatives reflect the feedback from our stakeholders concerning the need to ensure that remuneration outcomes are
appropriately aligned with our performance over the longer term. They are underpinned by a commitment to creating long
term sustainable value for our Securityholders and supporting our customers and the communities in which we operate.
Peter Wasow
Chairman – People and Remuneration Committee
21 August 2019
Individuals covered by this Remuneration Report
1.
The Remuneration Report for APA for FY2019 has been prepared in accordance with Section 300A of the Corporations Act 2001.
The information provided in this Report has been audited as required by Section 308(3C) of the Corporations Action 2001,
unless indicated otherwise, and forms part of the Directors’ Report. This Report includes the following Key Management
Personnel (KMP):
— Non-executive Directors (NEDs) – current and former; and
— Executive Key Management Personnel (KMP).
Name
NEDs
Michael Fraser
Steven (Steve) Crane
James Fazzino
Debra (Debbie) Goodin
Shirley In’t Veld
Peter Wasow
Russell Higgins AO
Patricia McKenzie
Executive KMP
Role
Chairman
Director
Director
Director
Director
Director
Director (former)
Director (former)
Michael (Mick) McCormack
Chief Executive Officer/Managing Director (CEO/MD)
Peter Fredricson
Ross Gersbach
Chief Financial Officer (CFO)
Chief Executive Strategy and Development
Robert (Rob) Wheals
Group Executive Transmission
Term as NED/KMP in 2019
Full year
Full year
Part year (1)
Full year
Full year
Full year
Part year (2)
Part year (3)
Full year
Full year
Full year
Full year
1) Appointed 21 February 2019.
2) Retired 20 February 2019.
3) Retired 8 March 2019.
APA GROUP — ANNUAL REPORT 2019 — 45
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
2. Executive Summary
2.1 FY2019 Remuneration highlights
The table below provides a snapshot of the outcomes under the relevant remuneration frameworks.
APA’s financial performance FY2015 to FY2019
Normalised financial results (4)
FY2015 FY2016
FY2017 FY2018 FY2019
Earnings Before Interest Tax Depreciation and Amortisation(EBITDA)($m) 822.3
1,330.5
1,470.1
1,518.5
1,573.8
Profit after tax ($m)
Operating cash flow per security (cents) (5)
Distribution per security (cents) (6)
Closing security price at 30 June ($)
203.9
179.5
236.8
264.8
288.0
56.3
38.0
8.24
77.1
41.5
9.24
87.1
43.5
9.17
90.7
45.0
9.85
85.8
47.0
10.80
Fixed pay
Some fixed pay adjustments
were made to reflect the
increased size, scope and
complexity of executive
roles. These roles were
benchmarked against
external positions of a
comparable nature and size.
f
e
g
Aver a
i xed pay in
c
r
e
a
s
e
3.6%
f
or Executi v e K M P
Total remuneration outcomes
The focus of APA’s variable
remuneration is to reflect
management’s contribution
to APA’s business outcomes
during the performance
period. The average total
remuneration was down
3.8% on FY2018.
t
i
o
n
a
r
e
e t o t al remun
Avera g
-3.8%
e K M
se for Exe c u t i v
a
e
r
c
i
n
P
Short term incentive
STI performance continues to be assessed against a
balanced scorecard.
STI awards are subject to the performance gateway
of Operating Cash Flow per Security (OCFPS).
For FY2019, OCFPS performance was assessed at
111.2% out of a maximum of 150%. This provides the
total opportunity to which the individual executive
performance outcomes are applied.
Long term incentive
Reflecting the link between organisational performance
and executive reward, APA achieved a relative
percentile rating of 59.5%, which equated to a grant
of 77.3% of eligible reference units under the Relative
TSR performance hurdle. The internal hurdle, EBITDA/
Funds Employed (FE), achieved an outcome of 119.5%.
This means that 98.4% of the total LTI opportunity will
be awarded in respect of the FY2019 financial year.
FY2018
79.0%
FY2019
73.1%
STI outcome as % maximum
120
90
60
30
0
(30)
0
20
40
60
80
100
JUN 14
JUN 15
JUN 16
JUN 17
JUN 18
JUN 19
APA
ASX/S&P 200 Utilities
ASX/S&P 100
APA Market Cap Ranking in ASX100
Minimum security holding requirements
The Directors, CEO/MD and CFO met the minimum security holding requirement, while the remaining Executive KMP
continued to progress towards the expected level for this requirement.
Non-executive Director fees
Non-executive Director (NED) fees had remained unchanged since FY2017. In FY2019, a review of the NED fees against the
market was undertaken. This analysis considered NED fees for organisations of a comparable market capitalisation and
commercial ‘footprint’, and an assessment of the level of fee required to attract and retain talented individuals. Following
this review, the Board determined to apply a moderate increase of 2% to NED fees, excluding the Chairman and retiring
members, effective 1 January 2019.
No changes have been made to Committee fees.
4) Normalised financial results are the statutory financial results excluding significant items. The Board considers these measures to best reflect the core earnings of APA.
5) The number of securities used for the calculation of operating cash flow per security from FY2015 to FY2018 has been adjusted by an adjustment factor of 1.0038
to reflect the discounted rights offer issued in March 2018. The average number of securities for FY2015 has been further adjusted by an adjustment factor of
1.0360 to reflect the discounted rights offer issued between 23 December 2014 and 25 January 2015.
6) Represents the total distribution applicable to the financial year.
46 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
2.2 FY2019 Remuneration
The table below summarises the actual remuneration that the current executive KMP became entitled to in respect of services
provided in FY2019. These amounts were either paid during the year or will be paid subsequently to the end of the financial
year.
Name
M McCormack
P Fredricson
R Gersbach
R Wheals
Fixed pay (7)
$
STI (8)
$
LTI vested (9)
$
2,005,000
1,649,920
926,000
945,000
850,000
510,970
497,220
480,670
1,527,167
474,360
484,120
394,190
Total
$
5,182,087
1,911,330
1,926,340
1,724,860
This table supplements, and is different to, the Statutory Remuneration table in section 8.1, which presents the accounting
expense for both vested and unvested awards in accordance with the Australian Accounting Standards.
2.3 Looking ahead to Financial Year 2020 (FY2020)
The Board undertook an extensive review of its executive reward framework over the last 12 months. The objective being to
ensure that the executive team is rewarded for focusing on what they can influence and how they can effectively execute
APA’s business strategy. Performance outcomes should also reflect the expectations of Securityholders.
This goal is achieved through a significant element of remuneration being at risk, largely delivered through equity, by setting
challenging STI measures and by ensuring that LTI performance measures encourage the delivery of long term value creation
to APA’s Securityholders. The specific content of these changes is detailed below.
It should be noted that these changes are effective 1 July 2019 and do not impact the delivery of remuneration outcomes for
the FY2019 performance period. As part of the transition to the new executive remuneration framework, APA will operate
two LTI plans for FY2020.
Pay Mix
The appointment of a new CEO/MD provided an opportunity to consider how the balance between fixed
and variable pay was aligned to APA’s longer term business model. As part of the broader review, the pay
mix for the incoming CEO/MD was weighted more towards longer term performance and value creation
for Securityholders.
Fixed pay
We will continue to set fixed pay levels with reference to comparable external benchmarks.
Short term
incentive (STI)
From FY2020 we are moving from a 100% cash based STI plan to a proportion of the STI award now
being delivered in deferred securities. Under the terms of the new STI plan, executives will be required to
defer a third of their STI into APA securities for at least two years until such time as the executive achieves
the minimum securityholding requirement. Once that requirement is met the executive can receive their
STI as 100% cash.
The purpose of introducing a deferred element to the STI is to enhance the alignment between the
interests of Securityholders and the executives by building the security holdings of executives.
Consistent with prior financial years, balanced scorecards will be established for each Executive KMP,
covering key performance indicators across financial and risk management, strategic, people and culture,
safety and environment with measures for target and stretch outcomes in FY2020.
Long term
incentive (LTI)
FY2020 will see the implementation of a new LTI plan. Under this new plan we are moving from a cash-
settled LTI plan to an equity-settled performance rights plan. The Board continues to believe that the
LTI plan provides the most effective link between executive retention and alignment with the creation of
longer term Securityholder value. Accordingly, effective 1 July 2019, the Executive KMP will be eligible to
participate in an equity-settled performance rights plan.
The purpose of moving from a cash-settled LTI plan to an equity-settled one is to drive the longer term
outlook for executives by aligning executive and Securityholder interests, whilst continuing to attract,
motivate and retain leadership talent.
Performance will be assessed over a three-year performance period, and vesting of performance rights
will occur over the following three years, i.e. one third at the end of year three, one third at the end of year
four and the outstanding third at the end of year five.
7) Fixed pay is inclusive of cash salary and any salary sacrifice items (including any relevant fringe benefits tax) such as car parking, motor vehicles and superannuation.
8) STI refers to performance achieved in FY2019 and is paid in September 2019.
9) LTI vested refers to the cash amount to be paid in September 2019, based on the VWAP of $11.0155 and number of reference units that vested in August 2019 as
outlined in section 8.3.
APA GROUP — ANNUAL REPORT 2019 — 47
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
3. Executive Remuneration Framework
The Board recognises remuneration plays an important role in both supporting and implementing the achievement of APA’s
operational strategy over both the short and longer terms. The key principles of the remuneration policy are to:
— Ensure the remuneration model is aligned with APA’s business strategy and its execution;
— Provide competitive rewards to attract, motivate and retain highly skilled executives;
— Ensure an appropriate component of remuneration is linked to the creation of value for our investors; and
— Promote the right behaviour and culture for the organisation to grow and perform.
3.1 Remuneration overview for FY2019
The following timeline illustrates the time frame for the assessment and delivery of fixed remuneration and variable reward
under the current plans.
Jul 16
Jul 17
Jul 18
Jul 19
Jul 20
Jul 21
Jul 22
Jul 23
Fixed Pay
Fixed pay for following year assessed August 2019
STI
performance
STI
Award based on performance 1 July 2018 to 30 June 2019
Paid September 2019
LTI – allocation performance period
1/3 vesting (after 2 years)
1/3 vesting (after 1 year)
1/3 vesting (after 3 years)
3.2 Remuneration structure for FY2019
The graphs below provide an overview of the pay mix for Executive KMP. Each remuneration element is expressed as a
percentage of the target total reward opportunity.
30%
25%
CEO/MD
40%
Other
Executive
KMP
50%
30%
25%
Fixed pay
STI
LTI
Fixed pay
STI
LTI
48 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
3.2 Remuneration structure for FY2019 (continued)
Fixed pay
Fixed pay includes base salary and any salary sacrifice items (including any relevant fringe benefits tax) such as car parking,
motor vehicles and superannuation. The level of fixed pay is based on a number of factors, including the skills and experience
of the individual, external market positioning and the size and complexity of the role.
APA benchmarks each Executive KMP role against external positions in companies with comparable market capitalisation,
similar industries and key comparators to gain a comprehensive view of all elements of executive remuneration.
Variable reward
Variable reward consists of incentive schemes which focus on APA and individual performance on an annual (STI) and longer
term (LTI) basis.
The ‘gate opener’ for the payment of the STI is determined by the Group’s Operating Cash Flow per Security (OCFPS) for
the year. This is then subject to individual performance of executives against key measures. Actual performance against
STI objectives is assessed at the end of the financial year. This assessment is reviewed by the People and Remuneration
Committee (the Committee). The Committee (in conjunction with the Board) reviews the assessment of each executive’s
outcome in light of the overall business performance, and provides final approval of the STI outcomes upon completion of
the review.
The LTI complements the STI by focussing executives on the long term performance of APA. Under the current LTI plan,
performance is assessed over the three years preceding the LTI allocation, based on relative shareholder returns (relative TSR
measure) and cash flow leverage achieved based on operating assets (EBITDA/FE measure). The Committee reviews the
performance over the preceding three-year period, with the Board providing final approval of the LTI allocation.
4. FY2019 Executive Incentive Plans and Outcomes
4.1 Short term incentive plan
The diagram below outlines the STI plan design for FY2019.
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Financial & Risk Management
Strategic
Safety & environment
People & culture
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STI opportunity
Role
Target
Stretch
CEO / MD
30.0%
45.0%
Other
Executive
KMP
25.0%
37.5%
Individual
STI outcome
(delivered
in cash in
September)
STI opportunity is only realisable if the OCFPS gate opener performance set by the Board is met.
If the gate opener is met, the STI opportunity available may be modified based on OCFPS performance achieved.
The adjustment is based on a sliding scale and the STI is either positively or negatively modified depending on the financial result.
APA GROUP — ANNUAL REPORT 2019 — 49
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
FY2019 STI outcomes – CEO/MD
The Board reviewed the CEO/MD’s performance in light of APA’s performance in FY2019, taking into account his performance
against the key performance indicators (KPIs) in his STI scorecard, and determined that the STI outcome is 91.9% of his
Target. This year’s STI scorecard outcome for the CEO/MD is higher than FY2018.
FY2019 STI Scorecard outcomes – CEO/MD
Scorecard Areas
KPI
M McCormack
Commentary
Financial
Deliver Operating Cash Flow per
Security (OCFPS) targets
Weighting
50%
Operating Cash Flow per Security
(OCFPS) fully achieved
Delivery of capital projects
Outcome
95.8%
Delivery of capital projects largely
achieved
Strategic
Regulatory Compliance
Management
Weighting
30%
Outcome
80%
Regulatory Compliance
Management largely achieved
Safety & Environment
Total Recordable Injury Frequency Rate
(TRIFR)
Environmental Management Plan (EMP)
People & Culture
Key people retention
Diversity & Inclusion
Weighting
10%
Outcome
Weighting
10%
Outcome
Total Recordable Injury Frequency Rate
(TRIFR) target exceeded
100%
Delivery of Environmental Management
Plan (EMP) fully achieved for FY2019
Retention target achieved
100%
Diversity & Inclusion plans and targets
achieved
Scorecard measures for the other Executive KMP reflect the priorities of the relevant area of the business as well as APA as a
whole. FY2019 STI scorecard outcomes for the Executive KMP ranged between 87.9% and 95.0% of Target (i.e. 100%).
However, these are individual performance outcomes which are then adjusted by APA’s performance against the OCFPS
performance modifier, which acts as a form of ‘gate-opener’ and a determinant of the overall STI opportunity.
50 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
FY2019 performance outcomes – Executive KMP
Detailed below are the individual scorecard outcomes for the Executive KMP. While there are a number of shared KPIs,
different weightings and KPIs have also been set for each Executive KMP, reflecting the nature of their role and contribution
to APA’s business outcomes.
FY2019 STI Scorecard outcomes
Scorecard Areas
P Fredricson
R Gersbach
R Wheals
Financial & Risk Management
Deliver Operating Cash Flow Per
Security (OCFPS) targets
Maintain BBB/Baa2 ratings
Divisional Risk Management
Deliver OCFPS targets
Delivery of capital projects
Weighting
50%
Weighting
45%
Deliver OCFPS targets
Delivery of capital projects
Achieve budget Transmission
revenue targets
Divisional Risk Management
Weighting
45%
Outcome
100%
Outcome
93.1%
Outcome
97.8%
Strategic
Capital Management
Capacity Trading & Auction
(CT&A) delivery
Regulatory Compliance
Management
Regulatory Compliance
Management, Customer, Safety,
Operations & Resource
Management, Capacity Trading &
Auction (CT&A) delivery
Weighting
35%
Outcome
85.7%
Weighting
30%
Outcome
80%
Weighting
25%
Outcome
88%
Safety & Environment
Total Recordable Injury Frequency
Rate (TRIFR)
Total Recordable Injury Frequency
Rate (TRIFR)
Total Recordable Injury Frequency
Rate (TRIFR)
Transmission Operations Safety plan
Environmental Management Plan
(EMP) delivery
Weighting
5%
Outcome
Weighting
5%
Outcome
100%
Weighting
15%
Outcome
100%
93.3%
People & Culture
Leadership & Succession
Next generation IT strategic plan
Orbost operational readiness
Key people retention
Diversity & Inclusion
Customer Centricity program
Weighting
10%
Outcome
75%
Weighting
20%
Outcome
Weighting
15%
Outcome
85%
100%
FY2019 STI outcomes – Executive KMP
The table below provides an overview of the STI outcomes for FY2019, representing the combination of both individual
performance outcomes (against agreed objectives) and the application of the STI Plan modifier (i.e. the OCFPS performance
level of 111.2% out of a maximum of 150%).
In recognition of the strong leadership and performance of the Executive during the defence of the CKI bid, which was not
adequately recognised in individual scorecards, the Board has granted an additional 5% of maximum opportunity to the final
STI outcomes of each Executive KMP.
Executive KMP
M McCormack
P Fredricson
R Gersbach
R Wheals
STI earned
STI forfeited
% of maximum
opportunity (10)
$ earned
% of maximum
opportunity
$ foregone
73.1%
73.6%
70.2%
75.4%
1,649,920
510,970
497,220
480,670
26.9%
26.4%
29.8%
24.6%
605,705
183,530
211,530
156,830
10) The STI earned as % of maximum opportunity includes the additional 5% Board discretion.
APA GROUP — ANNUAL REPORT 2019 — 51
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
4.2 Long term incentive plan
Executive KMP have a target LTI opportunity of 100% of their allocated percentage of total reward, increasing to a maximum
of 150%, where outstanding performance is achieved against the performance hurdles. The diagram below outlines the LTI
plan design for FY2019.
Jul 16
Jul 17
Jul 18
Jul 19
Jul 20
Jul 21
Jul 22
Relative TSR (50%)
Measured relative to a peer group comprising of S&P/ASX 100
constituents and over the three financial years preceding the
allocation of reference units.
1/3 vesting
after one year
EBITDA/FE (50%)
Measured over the three financial years preceding the allocation
of reference units.
1/3 vesting after three years
1/3 vesting after two years
Allocation of reference units based on relative TSR and EBITDA/FE performance
using a 30-day VWAP. Reference units are settled in cash, and do not entitle
the executive to voting rights or distributions. There is no retesting of the allocation.
Determining the number of reference units
Relative TSR
A sliding scale is set each year to deliver between 0% and 150% of eligible reference units, where the
performance gateway is the achievement of the 50th percentile over a three-year period.
EBITDA/FE
A sliding scale also ranges between 0% and 150%, which becomes progressively more challenging with
the maximum amount of 150% available only when EBITDA/FE performance is significantly above the
agreed financial metrics.
Allocation schedules
Measure
Performance outcome
Allocation outcome
Less than 50 percentile
0% of eligible reference units
Relative TSR
EBITDA/FE
Between 50 percentile and 82.5 percentile Sliding scale between 0% and 150% of eligible reference units
Less than 10.844%
0% of eligible reference units
Greater than 10.844%
Sliding scale between 80% and 150% of eligible reference units
FY2019 LTI outcomes
Eligible executives received cash-settled reference units with an allocation date of August 2019 (vesting in August and paid in
September over the three following years of 2020, 2021 and 2022 in equal parts). The table below provides a summary of LTI
awards based on performance against the hurdles for the current and previous three years.
Year allocation
FY2016
FY2017
FY2018
FY2019
Performance assessment
LTI awarded % of
Relative TSR (50%) EBITDA/FE (50%) maximum allocation
85.3
73.4
0.0
51.5
62.9
83.2
63.6
79.7
74.1
78.3
31.8
65.6
Below is a summary of LTI allocations relating to FY2019 based on performance against the hurdles over the three-year
performance period. These units were allocated in August 2019.
Executive KMP
M McCormack
P Fredricson
R Gersbach
R Wheals
Number of reference
units allocated
Potential value of allocation
yet to vest ($) (11)
134,325
41,358
42,207
37,962
1,479,657
455,579
464,931
418,170
11) The potential value of the allocation has been estimated based on the cash award valuations at the allocation date.
52 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
5. Other Remuneration Elements
5.1 Contractual arrangements
Remuneration arrangements for Executive KMP are formalised in individual employment agreements. Termination arrangements,
in addition to normal statutory entitlements, are summarised in the table below.
Contract type
Notice period
CEO/MD –
outgoing (12)
Permanent
12 months’ notice without
cause by either APA
or CEO/MD
APA may provide
payment in lieu of notice
Additional payments on
termination without cause
Payments on
termination with cause
Restraint payment
By APA: Nil
By CEO/MD for
Good Reasons –
Restraint payment
Executive KMP,
other than CEO/MD
Permanent
Six months’ notice without
cause by either APA or KMP
By APA: termination
payment of 13 weeks’ pay (13)
Nil
APA may provide
payment in lieu of notice
By KMP: Nil
Mr McCormack retired on 5 July 2019 and in line with his Employment Agreement, the calculation of the payment in lieu of
service is equal to 105% of the CEO/MD’s fixed pay for the period not worked plus 105% of his STI and LTI opportunities
(pro-rated for the period not worked). The LTI component is paid out over three years after termination. Mr McCormack
would also be entitled to a “restraint” payment for agreeing not to work for a competitor for a further period of 12 months
for which $5.3 million has been accrued as at 30 June 2019. This payment is equal to 105% of the CEO/MD’s fixed pay plus
105% of his STI opportunity for 12 months. The LTI component (also at 105%) is paid out over three years after termination.
The remuneration arrangements for the incoming CEO/MD, Rob Wheals, for FY2020 were disclosed in the announcement of
his appointment on 13 May 2019.
5.2 Additional provisions
The table below summarises additional provisions as they relate to the remuneration of Executive KMP for FY2019.
Provision
STI
LTI
Malus / Clawback
The Board in its discretion may determine that some, or all, of an Executive KMP's STI and/or
LTI awards be forfeited or be subject to a clawback in the event of misconduct or of a material
misstatement in the year-end financial statements in the preceding three years.
Cessation of employment If a participant resigns or is dismissed
Change of control
(with or without notice), any unpaid STI
awards are forfeited. If an employee leaves
for any other reason, an STI award may be
paid out based on the proportion of the period
that has passed and performance at the time
of cessation (subject to Board discretion).
Subject to Board discretion, 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 to the extent to which performance
conditions have been met.
If a participant resigns or is dismissed (with or
without notice), all unvested reference units are
forfeited. If an employee leaves for any other
reason, the Board determines the number of
reference units which will lapse or are retained,
subject to vesting on the original schedule.
Subject to Board discretion, if a change
of control occurs, all previously allocated
reference units will vest to the extent to which
performance conditions have been met, i.e.
tenure. A further number of reference 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.
5.3 Minimum security ownership requirement
The minimum security ownership requirement helps to ensure the alignment of the interests of Directors, Executive KMP
and investors.
Executive KMP (14) are expected to grow their holding to the minimum security ownership requirement within five years from
the date of the implementation of the Minimum Security Holding Policy in 2016. These security holdings have to be acquired
from post-tax income as APA does not currently have an equity-settled LTI (this will change in the new LTI plan in FY2020).
As at 30 June 2019:
— The minimum security ownership requirement for the CEO/MD equals his annual gross fixed pay; and
— The minimum security ownership requirement for Executive KMP is 50% of their annual gross fixed pay.
12) The notice period of 12 months refers to outgoing CEO/MD, Mick McCormack.
13) Both the payment in lieu and the 13 weeks’ termination payments are calculated using the KMP’s fixed pay. The 13 weeks’ termination payment is inclusive of
any statutory redundancy pay.
14) Subsequently appointed Executive KMP have three years from their date of appointment to meet the minimum security ownership requirement.
APA GROUP — ANNUAL REPORT 2019 — 53
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
5.4 Sign-on / loans / termination payments provided to Executive KMP
APA did not pay any sign-on payments to Executive KMP during FY2019.
No loans have been made to any Executive KMP and/or related parties.
No termination payments have been made to Executive KMP during FY2019.
Mr McCormack’s retirement, announced on 13 December 2018, was effective on 5 July 2019. Mr McCormack received a
termination payment (before withholding taxes and superannuation obligation) of $6,592,545 at the time his employment
ceased. This included his fixed pay entitlements, accrued statutory leave entitlements, and payments in lieu of notice and
restraint including the STI components. As Mr McCormack’s last date of employment falls in FY2020, the details of his
termination payment, in addition to outstanding LTI contractual entitlements, will be reported in the FY2020 Report.
6. Non-executive Directors
6.1 Determination of Non-executive Director fees
The Board seeks to attract and retain high calibre Non-executive Directors (NEDs) who are equipped with diverse skills to
oversee all functions of APA in an increasingly complex environment. NED fees comprise:
— A Board fee;
— An additional fee for serving on a committee of the Board;
— An additional fee for serving as Chairman of a committee; and
— Statutory superannuation contributions.
NEDs do not receive incentive payments or participate in incentive plans of any type. One-off ‘per diems’ may be paid in
exceptional circumstances. No payments were made under this arrangement in this or the prior reporting period. Fees are
inclusive of superannuation contributions which are provided in accordance with the statutory requirements under the
Superannuation Guarantee Act.
The Board Chairman does not receive additional fees for attending committee meetings.
6.2 Aggregate fee pool
The aggregate fee pool for NEDs at 30 June 2019 is $2,500,000 (inclusive of the applicable superannuation guarantee levy).
This has not changed since 2017.
6.3 Director fees
While NED fees had remained unchanged since 2017, effective 1 January 2019, a moderate increase of 2% was applied to
NED member fees. The fee increase does not apply to the Chairman and retiring members and no changes have been made
to Committee fees.
Fees (inclusive of superannuation)
Board
Audit and Risk Management Committee
Health, Safety and Environment Committee
People and Remuneration Committee
Nominations Committee
Effective 1 January 2019
Chairman
$000
Member
$000
511.4
47.9
39.9
39.9
177.6
23.9
19.9
19.9
None paid
None paid
6.4 Minimum security ownership requirement
NEDs are expected to hold securities to a value which is not less than the annual base Board fee (before tax and excluding
fees applicable to membership of Committees). This level of security holding is to be held throughout their tenure as NEDs
and is a requirement of their employment agreement. As at 30 June 2019, all NEDs met this requirement.
54 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
7. Remuneration Governance
7.1 Role of People and Remuneration Committee
The Committee has been established by the Board to oversee Executive KMP and NED remuneration. The purpose of the
Committee is to oversee the development of APA’s people and remuneration strategies and frameworks to support the
achievement of APA’s business objectives. Specifically, the Committee will ensure there is a robust remuneration and reward
system that aligns employee, investor and customer interests, promotes a positive culture and facilitates effective attraction,
retention and development of a diverse and talented workforce. The Committee's activities are governed by its Charter (a
copy of which is available on APA's website: https://www.apa.com.au/about-apa/our-organisation/corporate-governance/).
In addition to making recommendations regarding APA’s remuneration strategy and policy, people and diversity and inclusion
matters, the Committee is specifically responsible for:
— Recommending to the Board any adjustment of Directors’ fees, including Committee fees, for APA;
— Annually reviewing and assessing APA’s performance and remuneration strategy and frameworks, including making
recommendations to the Board regarding whether APA’s remuneration policies are aligned with its core values, purpose,
strategic direction and risk appetite;
— Recommending remuneration for the CEO/MD and all executives reporting to the CEO/MD, including considering whether there
is a robust performance assessment process in place and, in consultation with the Audit and Risk Management Committee,
whether proposed remuneration outcomes are appropriate in light of relevant risk outcomes and corporate culture;
— Recommending the short and long term performance objectives for the CEO/MD and all executives reporting to the CEO/
MD, and assessment of performance against those objectives;
— Developing and recommending the appointment, retention and termination policy and procedures for the CEO/MD;
— Recommending the ‘at-risk’ elements of remuneration and performance targets for APA’s financial performance as they
relate to incentives, including all awards made under APA’s long term incentive plan;
— Reviewing and recommending changes to the contract terms of the CEO/MD or to any aspect of their remuneration not
specifically addressed elsewhere in the Charter;
— Approving, and providing to the Board for its noting prior to implementation, any changes to the contract terms of any
member of the Executive Committee, or to any aspect of their remuneration not specifically addressed elsewhere in
the Charter;
— Reviewing and approving people strategies and frameworks to ensure that they support APA’s business objectives over
the short and longer terms, enabling APA to attract, develop, retain and motivate employees who deliver outstanding
operational performance;
— Reviewing and recommending APA’s diversity policy, and assessing the effectiveness of practices and initiatives with
respect to gender and other diversity in the workforce;
— Recommending to the Board measurable objectives for achieving greater diversity across APA and, on an annual basis,
reviewing and reporting to the Board on APA’s progress against them;
— Reviewing and making recommendations to the Board in relation to whether there is any gender or other inappropriate
bias in remuneration outcomes for directors, executives or other employees;
— Reviewing executive and people leader development and senior succession planning (excluding CEO/MD succession which
is the responsibility of the Nomination Committee); and
— Overseeing the development of people and culture programs including corporate values and the Code of Conduct, which
support a high performance environment and provide alignment with business strategy and requirements.
7.2 Composition of the Committee
The members of the Committee, all of whom are independent NEDs, are:
— Peter Wasow (Chairman);
— Steve Crane;
— Shirley In’t Veld; and
— Patricia McKenzie (15)
The CEO/MD and nominated senior executives attend meetings of the Committee by invitation. The Committee met four
times during the year.
7.3 Use of external advisors
The Committee seeks external professional advice from time to time on matters within its terms of reference. Remuneration
advisors are engaged by the Committee and report directly to the Committee. During FY2019, the following remuneration
information was obtained and considered by the Committee:
— Ernst & Young provided remuneration benchmarking information and assisted with remuneration governance;
— KPMG provided remuneration benchmarking information and reviewed the executive remuneration framework; and
— Orient Capital (part of the Link Group) provided relative TSR benchmarking analysis.
No recommendations were made by these external advisors regarding remuneration arrangements. APA employs internal
remuneration professionals, providing analysis to the Committee and Board. This advice is used as a guide, and does not serve
as a substitute for the thorough consideration of the issues by each Director.
15) Retired 8 March 2019.
APA GROUP — ANNUAL REPORT 2019 — 55
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
8. Statutory Tables
The following tables outline the amounts recognised as an expense in the respective years, determined in accordance with the
relevant accounting standards.
8.1 Executive KMP Statutory Remuneration (16)
M McCormack (20)
2019
2018
P Fredricson
2019
2018
R Gersbach
2019
2018
R Wheals
2019
2018
Total Remuneration
2019
2018
Short-Term
Employment Benefits $
Post-
Employment $
LTI Plans $
Salary (17)
Awarded
STI (18)
Super- Security-Based
Payments (19)
annuation
Total
$
1,980,000
1,930,000
1,649,920
1,708,690
25,000
25,000
1,515,047
1,479,646
5,169,967
5,143,336
901,000
878,000
918,334
904,931
510,970
532,960
497,220
535,330
825,000
755,000
480,670
503,680
25,000
25,000
26,666
20,049
25,000
25,000
469,591
472,995
1,906,561
1,908,955
479,246
488,139
1,921,466
1,948,449
400,124
381,368
1,730,794
1,665,048
4,624,334
3,138,780
101,666
2,864,008
10,728,788
4,467,931
3,280,660
95,049
2,822,148
10,665,788
16) This table outlines the total remuneration earned by Executive KMP during FY2018 and FY2019, calculated in accordance with the relevant accounting standard,
AASB 2: Share-based Payments (AASB 2).
17) Salary includes both fixed pay and any salary sacrificed items, such as motor vehicles or car parking (including any applicable fringe benefits tax). It is exclusive
of any superannuation contributions.
18) Awarded STI relates to that element of remuneration which is earned by the Executive KMP in respect of performance during each financial year (or for the
relevant period that they were KMP as set out in the Report).
19) With regards to the LTI, AASB 2 requires three equal instalments to be amortised over a four year period, that is the year of service to which the LTI allocation
is awarded plus the following three year period in which the reference units vest. Cash settled reference units which were allocated during FY2019, based on an
estimated VWAP of $11.0155.
20) Mr McCormack’s retirement, announced on 13 December 2018, was effective on 5 July 2019. Mr McCormack’s termination payments (before withholding taxes
and superannuation obligation) are disclosed in sections 5.1 and 5.4 of this Report.
56 — APA GROUP — ANNUAL REPORT 2019
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remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
8.2 NED Statutory Remuneration Disclosure
Financial Year
M Fraser
FY2019
FY2018
S Crane
FY2019
FY2018
D Goodin
FY2019
FY2018
S In’t Veld (21)
FY2019
FY2018
P Wasow (22)
FY2019
FY2018
J Fazzino (23)
FY2019
R Higgins AO (24)
FY2019
FY2018
P McKenzie (25)
FY2019
FY2018
L Bleasel AM (26)
FY2018
J Fletcher (27)
FY2018
Total
FY2019
FY2018
21) Appointed 19 March 2018.
22) Appointed 19 March 2018.
23) Appointed 21 February 2019.
24) Retired 20 February 2019.
25) Retired 8 March 2019.
26) Retired 27 October 2017.
27) Retired 21 February 2018.
Short-term
employment
benefits
Post-
employment
benefits
Fees Superannuation
$
$
Total
$
467,000
377,667
200,600
208,125
222,500
211,775
203,507
56,252
218,850
62,527
44,400
35,900
19,050
19,775
21,150
20,125
19,362
5,355
20,750
5,930
511,400
413,567
219,650
227,900
243,650
231,900
222,869
61,607
239,600
68,457
72,455
6,880
79,335
144,800
217,200
134,919
195,400
13,733
20,600
12,843
18,600
158,533
237,800
147,762
214,000
152,129
14,464
166,593
144,800
13,733
158,533
1,664,631
158,168
1,822,799
1,625,875
154,482
1,780,357
APA GROUP — ANNUAL REPORT 2019 — 57
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remuneration report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
8.3 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.
Allocation
date
Opening
balance at
1 Jul 2018
Units
allocated
in 2019
Cash
settled
reference
units paid
Closing
balance
at 30
Jun 2019
Units subject
to allocation
by the Board
in Aug 2019
Reference units allocated that have
not yet vested or been paid and
the months in which they will vest
Aug 19
Aug 20
Aug 21
Aug 22
M McCormack 2015
P Fredricson
R Gersbach
R Wheals
2016
2017
2018
2019
Total
2015
2016
2017
2018
2019
Total
2015
2016
2017
2018
2019
Total
2015
2016
2017
2018
2019
Total
62,871
103,872
188,742
(62,871)
(51,936)
51,936
(62,914)
125,828
71,364
71,364
21,354
32,758
58,077
22,531
33,426
59,271
16,152
26,598
48,477
21,975
22,437
18,981
(21,354)
(16,379)
(19,359)
(22,531)
(16,713)
(19,757)
(16,152)
(13,299)
(16,159)
16,379
38,718
21,975
16,713
39,514
22,437
13,299
32,318
18,981
51,936
62,914
23,788
62,914
23,788
44,775
134,325
23,788
44,775
44,775
138,638
131,477
68,563
44,775
16,379
19,359
7,325
19,359
7,325
7,325
41,358
13,786
13,786
13,786
43,063
40,470
21,111
13,786
16,713
19,757
7,479
19,757
7,479
7,479
42,207
14,069
14,069
14,069
43,949
41,305
21,548
14,069
13,299
16,159
6,327
16,159
6,327
6,327
37,962
12,654
12,654
12,654
35,785
35,140
18,981
12,654
8.4 Security holdings
The following table sets out the relevant interests of current NEDs and Executive KMP in APA securities:
Year ended 30 June 2019
Non-executive Directors
M Fraser
S Crane
J Fazzino (28)
D Goodin
S In’t Veld
P Wasow
Executive KMP
M McCormack
P Fredricson
R Gersbach
R Wheals
Opening Balance
at 1 July 2018
Securities
Acquired
Securities
Disposed
Closing Balance
at 30 June 2019
102,942
130,000
—
23,000
25,000
15,000
350,000
48,500
21,691
33,883
—
—
31,751
—
—
6,000
—
—
—
5,000
—
—
—
—
—
—
—
—
—
—
102,942
130,000
31,751
23,000
25,000
21,000
350,000
48,500
21,691
38,883
Executive 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.
28) Appointed 21 February 2019.
58 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
consolidated statement of profit or loss and other comprehensive income.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Note
2019
$000
2018
$000
4
4
5
5
5
5
6
Revenue
Share of net profits of associates and joint ventures using the equity method
Asset operation and management expenses
Depreciation and amortisation expense
Other operating costs – pass-through
Finance costs
Employee benefit expense
Other expenses
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income, net of income tax
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/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:
Transfer of gain on cash flow hedges to profit or loss
Loss on cash flow hedges taken to equity
(Loss)/gain on associate hedges taken to equity
Income tax relating to items that may be reclassified subsequently
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Profit attributable to:
Unitholders of the parent
Non-controlling interest – APT Investment Trust unitholders
APA stapled securityholders
Total comprehensive income attributable to:
Unitholders of the parent
Non-controlling interest – APT Investment Trust unitholders
APA stapled securityholders
Earnings per security
Basic and diluted (cents per security)
7
2,428,949
2,364,798
23,222
21,924
2,452,171
2,386,722
(213,522)
(611,358)
(421,198)
(500,020)
(235,034)
(6,060)
464,979
(176,966)
288,013
(11,418)
3,425
(7,993)
74,347
(448,940)
(8,540)
114,951
(268,182)
(276,175)
11,838
222,943
65,070
288,013
(53,232)
65,070
11,838
2019
24.4
(214,339)
(578,916)
(445,307)
(515,515)
(197,545)
(5,206)
429,894
(165,055)
264,839
1,588
(476)
1,112
93,901
(278,831)
8,632
52,906
(123,392)
(122,280)
142,559
196,790
68,049
264,839
74,510
68,049
142,559
2018
23.3
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
APA GROUP — ANNUAL REPORT 2019 — 59
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
consolidated statement of financial position.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
AS AT 30 JUNE 2019
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Other
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
Non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Other financial liabilities
Provisions
Unearned revenue
Current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Other financial liabilities
Deferred tax liabilities
Provisions
Unearned revenue
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
Retained earnings
Note
18
9
20
9
20
23
11
12
12
15
10
18
20
14
10
18
20
6
14
2019
$000
2018
$000
354,947
249,962
68,039
30,963
13,592
717,503
130,131
502,161
263,829
9,796,072
1,183,604
2,809,761
30,866
100,643
251,720
55,525
28,534
12,487
448,909
14,030
591,487
271,597
9,691,666
1,183,604
2,992,431
33,502
14,716,424
14,778,317
15,433,927
15,227,226
302,082
444,502
152,782
94,841
12,320
381,676
329,219
139,401
83,629
20,922
1,006,527
954,847
3,230
9,865,813
264,703
544,013
89,663
60,581
5,089
9,321,377
128,510
558,442
71,951
60,183
10,828,003
10,145,552
11,834,530
11,100,399
3,599,397
4,126,827
21
3,103,806
3,288,123
(599,347)
100,663
(331,165)
105,412
2,605,122
3,062,370
964,219
30,056
994,275
—
994,275
3,599,397
1,030,176
34,228
1,064,404
53
1,064,457
4,126,827
Equity attributable to unitholders of APT Investment Trust
22
Other non-controlling interest
Total non-controlling interests
Total equity
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
60 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
consolidated statement of changes in equity.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
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APA GROUP — ANNUAL REPORT 2019 — 61
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
consolidated statement of cash flows.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends received from associates and joint ventures
Proceeds from repayment of finance leases
Interest received
Interest and other costs of finance paid
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for intangible assets
Loans advanced to related parties
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Proceeds from issue of securities
Payments of security issue costs
Payment of debt issue costs
Proceeds from early settlement of derivatives
Distributions paid to:
Unitholders of APT
Unitholders of non-controlling interests - APTIT
Securityholders of other non-controlling interests
Note
2019
$000
2018
$000
2,666,095
(1,142,419)
22,450
1,469
8,825
(470,509)
(73,784)
2,635,344
(1,111,969)
18,841
1,774
9,967
(473,243)
(49,087)
1,012,127
1,031,627
(581,384)
(875,030)
652
(318)
(122,002)
663
(1,161)
(282)
(703,052)
(875,810)
1,669,706
(1,175,854)
—
(864)
(11,955)
1,157
(401,716)
(135,136)
(53)
309,718
(761,733)
505,016
(10,554)
(1,581)
—
(354,679)
(135,616)
—
Net cash used in financing activities
(54,715)
(449,429)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Unrealised exchange losses on cash held
254,360
100,643
(56)
Cash and cash equivalents at end of financial year
18
354,947
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
(293,612)
394,501
(246)
100,643
62 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
consolidated statement of cash flows. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Reconciliation of profit for the year to the net cash provided by operating activities
Profit for the year
Profit on disposal of property, plant and equipment
Share of net profits of joint ventures and associates using the equity method
Dividends/distributions received from equity accounted investments
Depreciation and amortisation expense
Finance costs
Unrealised foreign exchange loss
Amortisation of hedging loss
Changes in assets and liabilities:
Trade and other receivables
Inventories
Other assets
Trade and other payables
Provisions
Other liabilities
Income tax balances
2019
$000
288,013
(583)
(23,222)
22,452
611,358
16,858
7,241
6,846
6,923
(2,429)
2,228
(17,294)
11,199
(20,647)
103,184
2018
$000
264,839
(466)
(21,924)
18,841
578,916
15,569
1,966
6,904
18,894
(3,177)
(1,695)
20,115
(11,303)
28,167
115,981
Net cash provided by operating activities
1,012,127
1,031,627
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.
APA GROUP — ANNUAL REPORT 2019 — 63
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Basis of Preparation
1. About this report
In the following financial statements, note disclosures are 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.
Basis of Preparation
1. About this report
2. General information
Financial Performance
3. Segment information
4. Revenue
5. Expenses
6.
Income tax
7. Earnings per security
8. Distributions
Operating Assets and Liabilities
9. Receivables
10. Payables
11. Property, plant and equipment
12. Goodwill and intangibles
13. Impairment of non-financial assets
14. Provisions
15. Other non-current assets
16. Employee superannuation plans
17. Leases
Capital Management
18. Net debt
19. Financial risk management
20. Other financial instruments
21. Issued capital
Group Structure
22. Non-controlling interests
23. Joint arrangements and associates
24. Subsidiaries
Other
25. Commitments and contingencies
26. Director and Executive Key Management
Personnel remuneration
27. Remuneration of external auditor
28. Related party transactions
29. Parent entity information
82
83
94
97
98
99
100
103
103
103
104
105
30. Adoption of new and revised Accounting Standards 105
31. Events occurring after reporting date
108
64
65
66
68
70
71
73
73
74
75
75
76
77
78
78
79
80
64 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Basis of Preparation
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 Securities
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 their 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 25
580 George Street
SYDNEY NSW 2000
Tel: (02) 9693 0000
The consolidated general purpose financial report for the year ended 30 June 2019 was authorised for issue in accordance
with a resolution of the directors on 21 August 2019.
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
(AASB) 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 Corporations Instrument 2016/191, unless otherwise stated.
Working capital position
The working capital position as at 30 June 2019 for APA Group is that current liabilities exceed current assets by $289.0 million
(2018: $505.9 million) primarily as a result of current borrowings of $444.5 million and $152.8 million (AUD equivalent) of cash
flow hedge liabilities.
APA Group has access to sufficient available committed, un-drawn bank facilities of $1,550.0 million as at 30 June 2019
(2018: $868.8 million) to meet the repayment of current borrowings on due date.
The Directors continually monitor APA Group's working capital position, including forecast working capital requirements
and have ensured that there are appropriate refinancing strategies and adequate committed funding facilities in place to
accommodate debt repayments as and when they fall due.
Foreign currency transactions
Both the functional and presentation currency of APA Group and APT is Australian dollars (A$). 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.
Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group’s accounting policies, a number of judgements and estimates have been made.
Judgements and estimates which are material to the financial statements are found in the following disclosures:
— Property, plant and equipment (note 11)
— Impairment of non-financial assets (note 13)
— Fair value of financial instruments (note 19(c))
Judgements and estimates require assumptions to be made about highly uncertain external factors such as: discount rates;
probability factors; the effects of inflation; commercial contract lives and renewals; market supply-and-demand conditions;
changing technology; timing of occurrence; input costs; political and social trends; and climate change. As such the actual
outcomes may differ as a result of these judgements and assumptions.
APA GROUP — ANNUAL REPORT 2019 — 65
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
3. 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, includes all of APA Group’s wholly or majority owned gas pipelines, gas storage assets, gas
compression and processing assets and gas-fired and renewable energy power generation assets;
— Asset Management, provides commercial, operating services and/or asset maintenance services to its energy investments
and third parties for appropriate fees; and
— Energy Investments, includes APA Group’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.
Reportable segments
2019
Segment revenue (a)
Energy
Asset
Infrastructure Management
$000
$000
Energy
Investments
$000
Other
$000
Consolidated
$000
Revenue from contracts with customers
1,899,071
94,398
—
Equity accounted net profits
Pass-through revenue
Other income
Finance lease and investment interest income
—
27,881
4,775
1,305
393,317
391
—
—
23,222
1,933,032
488,106
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 interest cost (b)
Profit before tax
Income tax expense
Profit for the year
—
—
—
—
—
—
—
—
—
1,993,469
23,222
421,198
5,166
6,515
2,449,570
2,601
2,452,171
1,624,093
23,222
6,515
—
—
5,210
28,432
23,222
5,210
—
(80,074)
(80,074)
28,432
(80,074)
1,573,756
—
—
28,432
(80,074)
(611,358)
962,398
(497,419)
464,979
(176,966)
288,013
1,571,139
52,954
—
—
1,305
—
1,572,444
(600,248)
972,196
—
—
—
52,954
(11,110)
41,844
a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.
b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting
purposes, but including other interest income.
66 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
3. Segment information (continued)
Reportable segments (continued)
2019
Segment assets and liabilities
Segment assets
Energy
Asset
Infrastructure Management
$000
$000
Energy
Investments Consolidated
$000
$000
13,938,973
183,669
132,993
14,255,635
Carrying value of investments using the equity method
—
—
263,829
Unallocated assets (a)
Total assets
Segment liabilities
Unallocated liabilities (b)
Total liabilities
263,829
914,463
15,433,927
376,598
60,707
—
437,305
11,397,225
11,834,530
a) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts ("FECs") 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.
2018
Segment revenue (a)
Energy
Asset
Infrastructure Management
$000
$000
Energy
Investments
$000
Other
$000
Consolidated
$000
Revenue from contracts with customers
1,801,285
108,533
Equity accounted net profits
Pass-through revenue
Other income
Finance lease and investment interest income
—
—
44,265
401,042
1,220
1,454
4
—
—
21,924
—
—
1,144
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
1,848,224
509,579
23,068
1,495,642
66,204
—
—
1,454
—
—
—
—
21,924
1,144
—
(67,894)
(67,894)
1,497,096
(567,925)
66,204
(10,991)
23,068
(67,894)
—
—
Earnings before interest and tax ("EBIT")
929,171
55,213
23,068
(67,894)
Net interest cost (b)
Profit before tax
Income tax expense
Profit for the year
a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.
b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting
purposes, but including other interest income.
APA GROUP — ANNUAL REPORT 2019 — 67
—
—
—
—
—
—
—
—
—
1,909,818
21,924
445,307
1,224
2,598
2,380,871
5,851
2,386,722
1,561,846
21,924
2,598
1,518,474
(578,916)
939,558
(509,664)
429,894
(165,055)
264,839
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
3. Segment information (continued)
Reportable segments (continued)
2018
Segment assets and liabilities
Segment assets
Energy
Asset
Infrastructure Management
$000
$000
Energy
Investments Consolidated
$000
$000
13,995,163
212,521
10,967
14,218,651
Carrying value of investments using the equity method
—
—
271,597
Unallocated assets (a)
Total assets
Segment liabilities
Unallocated liabilities (b)
Total liabilities
271,597
736,978
15,227,226
440,276
64,829
—
505,105
10,595,294
11,100,399
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.
4. Revenue
Disaggregation of revenue
Revenue is disaggregated below by state, business unit and geography.
2019
Energy Infrastructure
Queensland
New South Wales
Victoria
South Australia
Western Australia
Northern Territory
Energy Infrastructure
Transmission
$000
Power
Generation
$000
Total
$000
960,933
173,594
144,380
3,004
288,997
30,301
246,174
1,207,107
—
—
—
51,688
—
173,594
144,380
3,004
340,685
30,301
Energy Infrastructure revenue from contracts with customers
1,601,209
297,862
1,899,071
Asset Management revenue from contracts with customers
Pass-through revenue
Other income
Operating revenue
Interest income
Interest income from related parties
Finance lease income
Finance income
Total Revenue
Share of net profits of joint ventures and associates using the equity method
94,398
421,198
5,166
2,419,833
2,601
5,210
1,305
9,116
2,428,949
23,222
2,452,171
68 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
4. Revenue (continued)
Disaggregation of revenue (continued)
2018 (a)
Energy Infrastructure
Queensland
New South Wales
Victoria
South Australia
Western Australia
Northern Territory
Energy Infrastructure
Transmission
$000
Power
Generation
$000
Total
$000
923,800
166,243
153,166
2,925
263,585
32,861
229,175
1,152,975
—
—
—
29,530
—
166,243
153,166
2,925
293,115
32,861
Energy Infrastructure revenue from contracts with customers
1,542,580
258,705
1,801,285
Asset Management revenue from contracts with customers
Pass-through revenue
Other income
Operating revenue
Interest income
Interest income from related parties
Finance lease income
Finance income
Total Revenue
Share of net profits of joint ventures and associates using the equity method
108,533
445,307
1,224
2,356,349
5,851
1,144
1,454
8,449
2,364,798
21,924
2,386,722
a) 2018 disclosure aligned with 2019 disclosure format, reflective of AASB 15 Revenue from Contracts with Customers requirements.
Revenue is recognised at an amount that reflects the consideration to which the Group expects to be entitled in exchange
for the provision of services or for the transferring of goods to a customer (the performance obligations) under a contract.
APA Group recognises revenue when control of a product or service is transferred to the customer. Amounts disclosed as
revenue are net of duties, goods and services tax (“GST”) and other taxes paid, except where the amount of GST incurred is
not recoverable from the taxation authority. Given the nature of APA Group’s services there is no significant right of return
or warranty provided.
Revenue from contracts with customers is derived from the major business activities as follows:
— Energy Infrastructure revenue from contracts with customers, is derived from the transportation, processing and storage
of gas and other related services (transmission revenue), and the generation of electricity and other related services
(power generation revenue). Revenue from contracts with customers may either be identified as separate performance
obligations or a series of distinct performance obligations that are substantially the same, have the same pattern of
transfer and are therefore treated as a single performance obligation that is satisfied over time. This includes both firm and
interruptible services. The consideration is volume based and is recognised as revenue in a manner that depicts the transfer
based on volume of output to the customer. This method most accurately depicts the progress towards satisfaction of
the performance obligation of the services provided, as the customer simultaneously receives and consumes the benefits
of APA Group’s service and obtains value as each volume of output is transported by APA Group. The amount billed
corresponds directly to the value of the performance to date;
— Asset Management revenue from contracts with customers, is derived from the provision of commercial services, operating
services, asset management services and/or asset maintenance services to APA Group's energy investments and other
third parties. APA Group applies the practical expedient to recognise revenue at the amount to which APA Group has a
right to invoice; and
— Pass-through revenue, is revenue from contracts with customers for which no margin is earned, and is recognised when the
services are provided. APA Group applies the practical expedient to recognise revenue at the amount to which APA Group
has a right to invoice. APA Group is determined to be the principal in these relationships.
Other types of revenue is recognised as follows:
— Interest income, which is recognised as it accrues and is determined using the effective interest method;
— Dividend income, 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.
APA GROUP — ANNUAL REPORT 2019 — 69
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
4. Revenue (continued)
Contract liabilities – unearned revenue
Where amounts have been received in advance of fulfilling the contract obligation these amounts are deferred in the
balance sheet as unearned revenue until the performance obligation is fulfilled. Where the period between the payment by
the customer and the fulfilment of the obligation is expected to exceed one year any amounts associated with the finance
component of this deferred revenue is recognised as interest expense.
Contract assets – accrued revenue
Contract assets primarily relate to APA Group’s right to consideration for work completed but not billed at the reporting date.
These amounts are known as accrued revenue and are disclosed in Note 9.
Accrued revenue is transferred to trade receivables when the rights become unconditional. This usually occurs when APA
Group issues an invoice to the customer.
Accounting for costs to obtain contracts
APA Group generally expenses costs to obtain contracts as they are incurred, as they tend to be incurred whether the contract
is obtained or not (e.g. staff salaries, professional fees etc.).
Future Revenues from Remaining Performance Obligations
As at 30 June 2019, future contracted Energy Infrastructure revenues extending through to 2050 are approximately $22.2
billion, of which $1.8 billion is expected to be recognised in 2020. These amounts relate to Energy Infrastructure revenue from
long term contracts with highly credit worthy counterparties.
Future contracted Energy Infrastructure revenues outlined above are in nominal 2019 dollars escalated by CPI. Variable
revenues, potential future revenues from new contracts, contract renewals or extensions, and revenues from potential new
assets or expansions where a contract does not currently exist with a customer are not included. As such, the future contracts
revenues described above represent only part of APA Group's forecast revenues for FY2020 and beyond.
Information about major customers
Included in revenues arising from energy infrastructure of $1,899.1 million (2018: $1,801.3 million) are revenues of approximately
$708.6 million (2018: $689.4 million) which arose from sales to APA Group's top three customers.
5. Expenses
Depreciation of non-current assets
Amortisation of non-current assets
Depreciation and amortisation expense
Energy infrastructure costs – pass-through
Asset management costs – pass-through
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
Loss on derivatives
Unwinding of discount on non-current liabilities
Finance costs
Defined contribution plans
Defined benefit plans (Note 16)
Post-employment benefits
Termination benefits
Cash settled security-based payments (b)
Other employee benefits
Employee benefit expense (c)
2019
$000
428,370
182,988
611,358
27,881
393,317
421,198
509,864
7,631
7,749
525,244
(31,468)
493,776
47
6,197
500,020
14,264
1,944
16,208
3,823
25,555
189,448
235,034
2018
$000
395,904
183,012
578,916
44,265
401,042
445,307
517,503
8,968
6,990
533,461
(23,697)
509,764
743
5,008
515,515
12,417
2,280
14,697
(4,221)
20,915
166,154
197,545
a) The average interest rate applying to drawn debt is 5.53% p.a. (2018: 5.65% p.a.) excluding 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.
c) Employee benefit expense of $64.5 million (2018: $67.2 million) is recharged as pass-through revenue and presented as part of other operating costs –
pass-through.
70 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
Income tax
6.
The major components of tax expense are:
Income statement
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
Tax reconciliation
Profit before tax
Income tax expense calculated at 30%
Non-assessable trust distribution
Non deductible expenses
Non assessable income
Franking credits received
Previously unbooked losses now recognised
Adjustments recognised in the current year in relation to the current tax of prior years
R&D tax incentive
2019
$000
2018
$000
(72,138)
104
(104,932)
(54,536)
612
(111,131)
(176,966)
(165,055)
464,979
429,894
(139,494)
(128,968)
19,521
(58,403)
84
20,415
(58,319)
19
(178,292)
(166,853)
105
853
104
264
—
690
612
496
(176,966)
(165,055)
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.
Income tax expense for the year is $177.0 million (2018: $165.1 million). An income tax provision of $32.0 million (2018: $33.8
million) has been recognised after installments made during the year and utilisation of all available group tax losses and
partial utilisation of available transferred tax losses (refer to Note 10).
Deferred tax balances
Deferred tax (liabilities)/assets arise from the following:
2019
Gross deferred tax liabilities
Property, plant and equipment
Deferred expenses
Other
Gross deferred tax assets
Provisions
Cash flow hedges
Security issue costs
Deferred revenue
Investments equity accounted
Defined benefit obligation
Tax losses
Opening
balance
$000
Charged to
income
$000
Charged to
equity
$000
Closing
balance
$000
(903,769)
(54,803)
(233)
(85,886)
(713)
(66)
(958,805)
(86,665)
43,391
141,235
3,831
13,748
1,705
(497)
196,950
400,363
5,249
858
(2,327)
(144)
(98)
11
(21,816)
(18,267)
—
—
—
—
—
112,124
58
927
2,827
3,425
—
119,361
119,361
(989,655)
(55,516)
(299)
(1,045,470)
48,640
254,217
1,562
14,531
4,434
2,939
175,134
501,457
(544,013)
APA GROUP — ANNUAL REPORT 2019 — 71
Net deferred tax liability
(558,442)
(104,932)
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
Income tax (continued)
6.
Deferred tax balances (continued)
2018
Gross deferred tax liabilities
Property, plant and equipment
Deferred expenses
Defined benefit obligation
Other
Gross deferred tax assets
Provisions
Cash flow hedges
Security issue costs
Deferred revenue
Investments equity accounted
Tax losses
Net deferred tax liability
Opening
balance
$000
Charged to
income
$000
Charged to
equity
$000
(810,121)
(56,480)
(68)
(1,054)
(93,648)
1,677
47
821
(867,723)
(91,103)
45,891
87,819
3,624
4,406
2,441
221,277
365,458
(502,265)
(2,500)
(118)
(2,317)
9,342
(108)
(24,327)
(20,028)
(111,131)
—
—
(476)
—
(476)
—
53,534
2,524
—
(628)
—
55,430
54,954
Closing
balance
$000
(903,769)
(54,803)
(497)
(233)
(959,302)
43,391
141,235
3,831
13,748
1,705
196,950
400,860
(558,442)
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:
— initial recognition of goodwill;
— initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and
— differences relating to investments in wholly-owned entities to the extent that they will probably not reverse in the
foreseeable future.
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 24.
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, 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.
72 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
7. Earnings per security
Basic and diluted earnings per unit attributable to the parent
Basic and diluted earnings per unit attributable to the non-controlling interest
Basic and diluted earnings per stapled security
2019
cents
18.9
5.5
24.4
2018
cents
17.3
6.0
23.3
The earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per
security are as follows:
Net profit attributable to unitholders of the parent
Net profit attributable to unitholders of the non-controlling interest
Net profit attributable to stapled securityholders for calculating basic and diluted
earnings per security
2019
$000
222,943
65,070
2018
$000
196,790
68,049
288,013
264,839
2019
No. of
securities
000
2018
No. of
securities
000
Adjusted weighted average number of ordinary securities used in the
calculation of basic and diluted earnings per security
1,179,894
1,136,875
8. Distributions
Recognised amounts
Final FY2018 distribution paid on 12 September 2018
(2018: Final FY2017 distribution paid on 13 September 2017)
Profit distribution – APT (a)
Capital distribution – APT
Profit distribution – APTIT (a)
Capital distribution – APTIT
Interim FY2019 distribution paid on 13 March 2019
(2018: Interim FY2018 distribution paid on 14 March 2018)
Profit distribution – APT (b)
Capital distribution – APT
Profit distribution – APTIT (a)
Capital distribution – APTIT
Total distributions recognised
Profit distributions
Capital distributions
2019
cents per
security
2019
Total
$000
2018
cents per
security
2018
Total
$000
8.93
9.03
2.90
3.14
24.00
9.50
6.58
2.97
2.45
105,412
106,513
34,228
37,022
283,175
112,123
77,668
35,014
28,872
5.46
10.78
3.07
3.69
23.00
8.30
7.29
3.03
2.38
60,803
120,183
34,198
41,107
256,291
92,491
81,202
33,821
26,490
21.50
253,677
21.00
234,004
24.30
21.20
45.50
286,777
250,075
536,852
19.86
24.14
44.00
221,313
268,982
490,295
a) Profit distributions were unfranked (2018: unfranked).
b) Interim profit distributions were 7.47 cents per security franked and 2.03 cents per security unfranked (2018: 5.83 cents per security franked and 2.47 cents per
security unfranked).
APA GROUP — ANNUAL REPORT 2019 — 73
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
8. Distributions (continued)
Unrecognised amounts
Final FY2019 distribution payable on 11 September 2019 (a)
(2018: Final FY2018 distribution paid on 12 September 2018)
Profit distribution – APT (b)
Capital distribution – APT
Profit distribution – APTIT (c)
Capital distribution – APTIT
a) Record date 28 June 2019.
b) Final profit distributions are to be fully franked (2018: fully franked).
c) Profit distributions were unfranked (2018: unfranked).
2019
cents per
security
2019
Total
$000
2018
cents per
security
2018
Total
$000
8.53
10.44
2.55
3.98
25.50
100,663
123,153
30,056
47,002
300,874
8.93
9.03
2.90
3.14
24.00
105,412
106,513
34,228
37,022
283,175
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.
Franking account balance
Income tax payable
Adjusted Franking account balance
2019
$000
(5,943)
32,005
26,062
2018
$000
3,228
33,734
36,962
The adjusted franking account balance will be reduced by $43.1 million (FY2018: $45.2 million) following the payment of the
final distribution payable on 11 September 2019 (FY2018: 12 September 2018).
On 31 July 2019, APA Group made a franking deficit tax payment of $5.9 million. This represents a prepayment of the final
income tax payment due for FY2019.
Operating Assets and Liabilities
9. Receivables
Trade receivables
Accrued Revenue
Loss allowance
Trade receivables
Receivables from associates and related parties
Finance lease receivables (Note 17)
Interest receivable
Other debtors
Current
Finance lease receivables (Note 17)
Loan receivable - related party
Non-current
2019
$000
26,080
198,816
(10)
224,886
23,373
1,246
378
79
2018
$000
27,991
198,324
(1,494)
224,821
25,252
1,480
88
79
249,962
251,720
12,794
117,337
130,131
14,030
—
14,030
At 30 June 2019, APA Group had a secured amortising loan receivable from SEA Gas of $122.3 million. This facility has been
extended at arm's length terms maturing September 2021.
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 amortised cost less impairment.
74 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
10. Payables
Trade payables (a)
Income tax payable
Other payables
Current
Other payables
Non-current
2019
$000
39,934
32,005
230,143
302,082
3,230
3,230
2018
$000
41,392
33,754
306,530
381,676
5,089
5,089
a) Trade payables are non-interest bearing and are normally settled on 15 - 30 day terms.
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.
11. Property, plant and equipment
Balance at 30 June 2018
248,717
10,660
10,651,086
Gross carrying amount
Balance at 1 July 2017
Additions
Disposals
Transfers
Additions
Disposals
Transfers
Balance at 30 June 2019
Accumulated depreciation
Balance at 1 July 2017
Disposals
Depreciation expense (Note 5)
—
(1)
12,988
261,704
(39,161)
—
(7,184)
Disposals
Depreciation expense (Note 5)
Balance at 30 June 2019
Net book value
As at 30 June 2018
As at 30 June 2019
—
(7,544)
(53,889)
202,372
207,815
Freehold land
and buildings
– at cost
$000
Leasehold
improvements
– at cost
$000
Plant and
equipment
– at cost
$000
242,733
10,167
10,351,003
Work in
progress
– at cost
$000
229,407
905,622
—
856,378
503,500
—
Total
$000
10,833,310
937,602
(4,071)
—
11,766,841
532,845
(951)
—
702
—
5,282
—
—
493
272,876
(278,651)
31,278
(4,071)
29,345
(950)
—
—
127
812,782
(825,897)
10,787
11,492,263
533,981
12,298,735
(3,029)
(1,640,955)
—
(923)
3,874
(387,797)
—
(967)
882
(419,859)
(4,919)
(2,443,855)
—
—
—
—
—
—
—
(1,683,145)
3,874
(395,904)
(2,075,175)
882
(428,370)
(2,502,663)
6,708
5,868
8,626,208
9,048,408
856,378
533,981
9,691,666
9,796,072
Balance at 30 June 2018
(46,345)
(3,952)
(2,024,878)
Property, plant and equipment is 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.
APA GROUP — ANNUAL REPORT 2019 — 75
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
11. Property, plant and equipment (continued)
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.
Physical, economic and environmental factors are taken into consideration in assessing the useful lives of the assets, including
but not limited to asset condition and obsolescence, technology changes, commercial contract lives and renewals, global and
regional gas supply-and-demand, and climate change based on TCFD scenario testing to 2030. 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
— gas transportation systems
— meters
30 – 50 years;
10 – 50 years;
10 – 80 years;
20 – 30 years;
— power generation facilities
3 – 25 years; and
— other plant and equipment
3 – 20 years.
12. Goodwill and intangibles
Goodwill
Balance at beginning of financial year
Balance at end of financial year
2019
$000
2018
$000
1,183,604
1,183,604
1,183,604
1,183,604
Allocation of goodwill to cash-generating units
Goodwill has been allocated for impairment testing purposes to individual cash-generating units.
The East Coast Grid is an interconnected pipeline network that includes, inter alia, the Wallumbilla Gladstone, Moomba
Sydney, Roma Brisbane, Carpentaria Gas and South West Queensland pipelines and the Victorian Transmission System.
Since the acquisition of the South West Queensland Pipeline to complete the formation of APA’s East Coast Grid in December
2012, APA has installed facilities to enable bi-directional transportation of gas to meet the demand of our major customers
who now typically operate portfolios of gas supply and demand. Through the provision of multi-asset services, bi-directional
transportation, capacity trading and gas storage and parking facilities, APA’s East Coast Grid delivers options for customers
to choose from, and move gas between, more than 40 receipt points and over 100 delivery points on the east coast of
Australia. The East Coast Grid is categorised as an individual cash-generating unit.
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
East Cost Grid
Diamantina Power Station
Other energy infrastructure (a)
21,456
21,456
1,060,681
1,060,681
43,104
58,363
43,104
58,363
1,183,604
1,183,604
a) Primarily represents goodwill relating to the Pilbara Pipeline System ($32.6m) and the Goldfields Gas Pipeline ($18.5m).
Goodwill acquired in a business combination is initially measured at cost and subsequently at cost less accumulated impairment.
76 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
12. Goodwill and intangibles (continued)
Allocation of goodwill to cash-generating units (continued)
Contract and other intangibles
Gross carrying amount
Balance at beginning of financial year
Acquisitions / additions
Balance at end of financial year
Accumulated amortisation and impairment
Balance at beginning of financial year
Amortisation expense (Note 5)
Balance at end of financial year
2019
$000
2018
$000
3,590,960
3,589,799
318
1,161
3,591,278
3,590,960
(598,529)
(182,988)
(415,517)
(183,012)
(781,517)
(598,529)
2,809,761
2,992,431
APA Group holds various third party operating and maintenance contracts. The combined gross carrying amount of $3,591.3
million amortises over terms ranging from one to 20 years. Useful life is determined based on the underlying contractual
terms. Amortisation expense is not a cash item, and 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 the estimated useful life of each asset. 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.
13. 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 have previously reported 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 inclusive
of appropriate terminal values. 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.
In accordance with the requirements of AASB 136 Impairment of Assets, APA Group reviewed its CGUs for indicators of
impairment at the end of the reporting period. No such indicators were identified and no impairment recognised.
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 1.0% p.a. (2018: 1.0% 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 at similar
pricing levels.
Asset Management cash flow projections reflect long term agreements with assumptions of renewal on similar terms and
conditions based on management's expectations.
APA GROUP — ANNUAL REPORT 2019 — 77
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
13. Impairment of non-financial assets (continued)
Critical accounting judgements and key sources of estimation uncertainty – impairment of assets (continued)
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 7.75% p.a. (2018: 8.25% p.a.) for Energy Infrastructure assets other than
Wallumbilla Gladstone Pipeline segment (WGP) and 7.75% p.a. (2018: 8.25% p.a.) for Asset Management. In relation to WGP
segment of the Energy Infrastructure assets, the debt financing that was specifically raised to fund the acquisition is utilised
to determine the pre-tax discount rate of 6.50% p.a. applicable to this asset (2018: 6.50% p.a.).
These assumptions have been determined with reference to historic information, current performance and expected changes
taking into account external information such as discount rates, the effects of inflation, climate change based on TCFD
scenario testing to 2030, the outlook for global and regional market gas supply-and-demand conditions, contract renewals,
and input costs. Such estimates may change as new information becomes available.
14. 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 16)
Leave balances
Non-current
2019
$000
86,625
8,216
94,841
33,672
55,991
89,663
33,126
7,042
46,137
320
86,625
9,695
13,852
10,125
33,672
2018
$000
78,433
5,196
83,629
30,180
41,771
71,951
28,153
8,299
41,981
—
78,433
14,791
5,032
10,357
30,180
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 yield in respect of services provided by employees up to reporting date.
15. Other non-current assets
Line pack gas
Gas held in storage
Defined benefit asset (Note 16)
Other assets
78 — APA GROUP — ANNUAL REPORT 2019
2019
$000
20,607
6,010
4,057
192
30,866
2018
$000
20,607
6,010
6,693
192
33,502
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
16. 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 obligations were determined
at 30 June 2019. The present value of the defined benefit obligations, 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 (income)/expense
Components of defined benefit costs recognised in profit or loss (Note 5)
Amounts recognised in the statement of financial position
Fair value of plan assets
Present value of benefit obligation
Defined benefit asset – non-current (Note 15)
Defined benefit liability – non-current (Note 14)
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from plan participants
Actuarial loss
Benefits paid
Administrative expenses, taxes and premiums 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
Administrative expenses, taxes and premiums paid
Closing fair value of plan assets
2019
$000
1,955
(11)
1,944
136,487
(146,282)
4,057
(13,852)
2018
$000
2,234
46
2,280
135,620
(133,959)
6,693
(5,032)
133,959
134,804
1,955
5,312
744
15,837
(11,044)
(481)
146,282
2,234
5,369
786
5,138
(13,873)
(499)
133,959
135,620
135,029
5,323
4,420
1,905
744
(11,044)
(481)
5,323
6,726
2,128
786
(13,873)
(499)
136,487
135,620
Defined contribution plans
Contributions to defined contribution plans are expensed when incurred.
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.
APA GROUP — ANNUAL REPORT 2019 — 79
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
16. Employee superannuation plans (continued)
Defined benefit plans (continued)
Key actuarial assumptions used in the determination of the defined benefit obligation is a discount rate of 3.1% gross of
tax (2018: 4.1%), based on the corporate bond yield curve published by Milliman, an expected salary increase rate of 3.0%
(2018: 3.0%), and pension indexation rate of 2.0% (2018 2.0%). 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 $7,080,000 (increase
by $7,891,000).
— If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $1,957,000
(decrease by $1,822,000).
— If the expected pension indexation rate increases (decreases) by 0.5%, the defined benefit obligation would increase by
$5,635,000 (decrease by $5,121,000).
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 to 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 to pay $1.9 million in contributions to the defined benefit plans during the year ending 30 June 2020.
17. 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)
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 9)
Non-current receivables (Note 9)
2019
$000
2,411
8,063
11,121
21,595
21,595
(7,555)
14,040
1,246
12,794
14,040
2018
$000
2,775
8,763
12,832
24,370
24,370
(8,860)
15,510
1,480
14,030
15,510
a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.
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.
80 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
17. Leases (continued)
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
2019
$000
14,638
34,688
16,477
65,803
2018
$000
13,641
36,487
22,437
72,565
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.
Capital Management
APA Group's objectives when managing capital are to safeguard its ability to continue as a going concern whilst 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 BBB/Baa2 investment grade credit ratings through
maintaining sufficient flexibility to fund organic growth and investment from internally generated and retained cash flows,
debt funding and, where appropriate, additional equity.
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 APA Group, and were adhered to for the entirety of the
2019 and 2018 periods.
APA Group's capital management strategy remains unchanged from the previous year.
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's Funds From Operations to Net Debt exceed the levels S&P and
Moody's consider appropriate for APA's BBB/Baa2 credit rating. Funds From Operations to Net Debt is a leverage metric
that measures cash flows generated by the business that are available to service debt (note: each rating agency calculates
credit metrics slightly differently using their own proprietary methods). Creditworthiness improves as the percentage of
Funds From Operations to Net Debt increases (and vice versa). APA Group balances its overall capital structure through
equity issuance, new debt or the redemption of existing debt and through a disciplined distribution payment policy.
APA GROUP — ANNUAL REPORT 2019 — 81
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
18. Net debt
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 are reconciled to the related items in the statement of financial position detailed in the table below.
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.
Cash at bank and on hand
Short-term deposits
Cash and cash equivalents
Guaranteed senior notes (a)
Other financial liabilities
Current borrowings
Guaranteed senior notes (a)
Bank borrowings (b)
Other financial liabilities
Less: unamortised borrowing costs
Non-current borrowings
Total borrowings
Net debt
2019
$000
354,703
244
354,947
(433,550)
(10,952)
(444,502)
2018
$000
99,277
1,366
100,643
(318,373)
(10,846)
(329,219)
(9,841,174)
(9,089,991)
—
(200,000)
(65,379)
40,740
(73,458)
42,072
(9,865,813)
(9,321,377)
(10,310,315)
(9,650,596)
(9,955,368)
(9,549,953)
a) Represents USD denominated private placement notes of US$199 million, CAD medium term notes (MTN) of C$300 million, JPY MTN of ¥ 10,000 million, GBP
MTN of £1,350 million, EUR MTN of €1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date,
and A$143 million of AUD denominated private placement notes and AUD MTN of A$500 million (2018: Includes USD denominated private placement notes of
US$185 million and A$68 million of AUD denominated private placement notes). Refer to Note 19 for details of interest rates and maturity profiles.
b) Refer to Note 19 for details of interest rates and maturity profiles.
Reconciliation of net debt
Net debt as at 1 July 2017
Cash movements
Foreign exchange movements due to fair value changes
Transfer from due after 1 year to due within 1 year
Amortisation of deferred borrowing costs
Cash
and cash
equivalents
$000
Borrowings
due within
1 year
$000
Borrowings
due after
1 year
$000
Net debt
$000
394,501
(293,612)
(246)
—
—
(126,858)
(9,573,907)
(9,306,264)
137,015
(13,298)
(326,078)
—
315,000
(384,758)
326,078
(3,790)
158,403
(398,302)
—
(3,790)
Net debt as at 30 June 2018
100,643
(329,219)
(9,321,377)
(9,549,953)
Net debt as at 1 July 2018
Cash movements
Foreign exchange movements due to fair value changes
Transfer from due after 1 year to due within 1 year
Amortisation of deferred borrowing costs
100,643
254,360
(56)
—
—
(329,219)
(9,321,377)
(9,549,953)
325,854
(41,699)
(399,438)
—
(819,706)
(122,836)
399,438
(1,332)
(239,492)
(164,591)
—
(1,332)
Net debt as at 30 June 2019
354,947
(444,502)
(9,865,813)
(9,955,368)
82 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
18. Net debt (continued)
Financing facilities available
Total facilities
Guaranteed senior notes (a)
Bank borrowings (b)
Facilities used at balance date
Guaranteed senior notes (a)
Bank borrowings (b)
Facilities unused at balance date
Guaranteed senior notes (a)
Bank borrowings (b)
2019
$000
2018
$000
10,274,724
1,550,000
9,408,364
1,068,750
11,824,724
10,477,114
10,274,724
—
9,408,364
200,000
10,274,724
9,608,364
—
1,550,000
1,550,000
—
868,750
868,750
a) Represents USD denominated private placement notes of US$199 million, CAD medium term notes (MTN) of C$300 million, JPY MTN of ¥ 10,000 million, GBP
MTN of £1,350 million, EUR MTN of €1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date,
and A$143 million of AUD denominated private placement notes and AUD MTN of A$500 million (2018: Includes USD denominated private placement notes of
US$185 million and A$68 million of AUD denominated private placement notes). Refer to Note 19 for details of interest rates and maturity profiles.
b) Refer to Note 19 for details of interest rates and maturity profiles.
19. Financial risk management
APA Group's corporate Treasury department 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 (”ARMC”) 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, operational risk and climate change. APA Group's ARMC ensures there is an appropriate
Risk Management Policy for the management of treasury risk and compliance with the policy through the review of monthly
reporting to the Board 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 transacted to hedge underlying or existing exposures and have
adhered to the ARMC 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:
— FECs 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 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 interest rate risk.
APA Group is also exposed to price risk arising from its forward purchase contracts over listed equities and electricity price risk
arising from an electricity contract for difference.
There has been no change to the nature of the market risks to which APA Group is exposed or the manner in which these risks
are managed and measured.
APA GROUP — ANNUAL REPORT 2019 — 83
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. 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). 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.
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 FECs. 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.
The carrying amount of APA Group's foreign currency denominated monetary assets, monetary liabilities and derivative
notional amounts at the reporting date is as follows:
2019
US Dollar (USD) (a)
Japanese Yen (JPY)
Canadian Dollar (CAD)
British Pound (GBP)
Euro (EUR)
Swedish Krona (SEK)
2018
US Dollar (USD) (a)
Canadian Dollar (CAD)
British Pound (GBP)
Euro (EUR)
Swedish Krona (SEK)
Danish Krona (DKK)
Cash & cash
Total
equivalents Receivables borrowings
$000
$000
$000
Cross
currency
swaps
$000
Foreign Net foreign
currency
position
$000
exchange
contract
$000
12,458
—
—
—
—
—
12,458
3,143
—
—
—
—
—
3,143
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,558,603)
327,588
(935,003)
(5,153,560)
(132,196)
132,196
(326,675)
326,675
(2,442,600)
2,442,600
(2,187,895)
2,187,895
—
—
—
—
267
3,031
41,429
—
—
267
3,031
41,429
(9,647,969)
5,416,954
(890,276)
(5,108,833)
(4,576,684)
(433,791)
(109,807)
(5,117,139)
(308,496)
308,496
(1,694,493)
1,694,493
(2,129,801)
2,129,801
—
—
—
—
—
—
18,911
43,344
4,102
—
—
18,911
43,344
4,102
(8,709,474)
3,698,999
(43,450)
(5,050,782)
a) Foreign currency denominated borrowings to manage the currency risk associated with foreign currency denominated revenue and receivables.
It is the policy of APA Group to hedge 100% of all foreign exchange exposures in excess of US$1 million equivalent that are
certain. Forecast foreign currency denominated revenues and interest payments will be hedged by FECs on a rolling basis
with the objective being to lock in the AUD gross cash flows and manage liquidity.
For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount, life and
underlying) of the foreign exchange forward contracts and their corresponding hedged items are the same, APA Group
performs a qualitative assessment of effectiveness and it is expected that the value of the forward contracts and the value of
the corresponding hedged items will systematically change in opposite directions in response to movements in the underlying
exchange rates.
The main source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and APA Group's own
credit risk on the fair value of the forward contracts, which is not reflected in the fair value of the hedged item attributable
to changes in foreign exchange rates. The effect of credit risk does not dominate the value changes that result from that
economic relationship.
84 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
a) Market risk (continued)
The following table details the forward foreign exchange currency contracts outstanding at reporting date:
Cash flow hedges
Contract Value
2019
Foreign
currency
Forecast revenue and associated receivable
Average
exchange
rate
$
< 1 year
$000
1 - 2 years
$000
2 - 5 years
$000
Fair value
$000
Pay USD / receive AUD
Forecast capital purchases
Pay AUD / receive USD
Pay AUD / receive EUR
Pay AUD / receive SEK
Pay AUD / receive GBP
USD
0.7169
319,697
364,587
253,313
(11,874)
USD
EUR
SEK
GBP
0.7124
0.6018
5.7712
0.5431
(2,594)
(942)
(7,217)
(267)
—
(1,522)
(30,528)
—
—
(567)
(3,684)
—
35
(1)
(3,818)
(5)
308,677
332,537
249,062
(15,663)
2018
Forecast revenue and associated receivable
Pay USD / receive AUD
Forecast capital purchases
Pay AUD / receive USD
Pay AUD / receive EUR
Pay AUD / receive SEK
Pay AUD / receive DKK
USD
0.6528
137,462
—
USD
EUR
SEK
DKK
0.7596
0.6821
5.7572
5.1321
(27,515)
(17,039)
(2,087)
(4,102)
(140)
(77)
(7,045)
—
—
—
(1,795)
(34,212)
—
15,957
734
1,706
(3,142)
387
86,719
(7,262)
(36,007)
15,642
As at reporting date, APA Group has entered into FECs to hedge net US exchange rate risk arising from anticipated future
transactions with an aggregate notional principal amount of $937.6 million (2018: $137.5 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 three years from reporting date.
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 fixed interest rates for the full term of the underlying borrowings. In certain circumstances
borrowings are retained 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
2019
Foreign
currency
Exchange
rate
$
Less than
1 year
$000
1 - 2 years
$000
2 - 5 years
$000
More than
5 years
$000
Pay AUD / receive foreign currency
2007 USPP Notes
2009 USPP Notes
2012 CAD Medium Term Notes
2012 US144A
2012 GBP Medium Term Notes
2015 EUR Medium Term Notes
2017 US144A
2019 GBP Medium Term Notes
2019 JPY Medium Term Notes
AUD/JPY
75.2220
Pay USD / receive foreign currency
2015 EUR Medium Term Notes
2015 GBP Medium Term Notes
USD/EUR
USD/GBP
0.9514
0.6773
AUD/USD
0.8068
—
AUD/USD
AUD/CAD
AUD/USD
AUD/GBP
AUD/EUR
AUD/USD
AUD/GBP
0.7576
1.0363
1.0198
0.6530
0.6183
0.7668
0.5388
(98,997)
(289,494)
—
—
—
—
—
—
—
—
(388,491)
—
—
—
—
—
—
—
—
—
—
—
—
(153,694)
—
—
(735,438)
—
—
—
—
—
(535,988)
(1,132,141)
—
—
—
—
—
—
(1,108,503)
(742,390)
(132,940)
(973,587)
(1,262,415)
(2,021,273)
(4,755,823)
APA GROUP — ANNUAL REPORT 2019 — 85
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
a) Market risk (continued)
Cash flow hedges (continued)
2018
Pay AUD / receive foreign currency
Foreign
currency
Exchange
rate
$
Less than
1 year
$000
1 - 2 years
$000
2 - 5 years
$000
More than
5 years
$000
2003 USPP Notes
2007 USPP Notes
2009 USPP Notes
2012 CAD Medium Term Notes
2012 US144A
2012 GBP Medium Term Notes
2017 US144A
Pay USD / receive foreign currency
2015 EUR Medium Term Notes
2015 GBP Medium Term Notes
AUD/USD
AUD/USD
AUD/USD
AUD/CAD
AUD/USD
AUD/GBP
AUD/USD
0.6573
0.8068
0.7576
1.0363
1.0198
0.6530
0.7668
USD/EUR
USD/GBP
0.9514
0.6773
(95,847)
(151,215)
—
—
—
(153,694)
—
—
—
—
—
—
—
—
—
—
—
—
(98,997)
(289,494)
—
—
—
—
—
—
—
(735,438)
—
—
(535,988)
(1,108,503)
(994,901)
(924,013)
—
(1,198,134)
(247,062)
(388,491)
(1,884,033)
(3,766,638)
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 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 an historical basis and on
market expectations for possible future movements.
— There would be no impact on net profit as all foreign currency exposures are fully hedged (2018: nil); and
— Equity reserves would decrease by $1,296.4 million with a 20 percent depreciation of the A$ or increase by $864.7 million with
a 20 percent increase in foreign exchange rates (2018: decrease by $1,272.0 million or increase by $849.4 million respectively).
Interest rate risk
APA Group's interest rate risk is derived predominately from borrowings subject to 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 $354.9 million as at 30 June 2019
(2018: $100.6 million).
Cross currency swap and interest rate swap contracts
Cross currency swap and interest rate swap contracts have the economic effect of converting borrowings from floating to
fixed rates and/or fixed rate foreign currency to fixed or floating AUD 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 drawn debt balances at the end of the financial year.
There is an economic relationship between the hedged item and the hedging instrument. Based on APA Group's qualitative
assessment of effectiveness, it is expected that the value of the interest rate swap contracts and the value of the corresponding
hedged items will systematically change in opposite directions in response to movements in the underlying interest rates. The
main source of hedge ineffectiveness in these hedge relationships is the effect of the counterparty and APA Group's own
credit risk on the fair value of the interest rate swap contracts, which is not reflected in the fair value of the hedged item
attributable to the change in interest rates and difference in timing of the future cash flows. The effect of credit risk does not
dominate the value changes that result from that economic relationship.
86 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
a) Market risk (continued)
Cross currency swap and interest rate swap contracts (continued)
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
2019
% p.a.
2018
% p.a.
2019
$000
2018
$000
2019
$000
2018
$000
Cash flow hedges – Pay fixed AUD interest – receive floating AUD or fixed foreign currency
Less than 1 year
1 year to 2 years
2 years to 5 years (a)
5 years and more (a)
5.42
—
4.37
4.08
7.30
8.05
5.14
5.11
388,491
—
247,062
388,491
44,604
—
2,021,273
1,884,033
260,645
4,755,823
3,766,638
(133,801)
1,036
11,950
338,786
24,031
7,165,587
6,286,224
171,448
375,803
a) This amount includes a notional amount of USD 1.6 billion (2018: USD 2.3 billion) which is subject to USD interest rate risk.
The cross currency swap and interest rate swap contracts 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 cross currency swap and 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 on borrowings.
The following tables detail before tax information of APA Group (excluding share of hedge reserves of associates) regarding
derivative financial instruments outstanding at the end of the reporting period, their related hedged items and the
effectiveness of the hedging relationships.
Fair value of hedge
instrument
Fair value of
hedge item
Reserve
balance
2019
$000
2018
$000
2019
$000
2018
$000
2019
$000
2018
$000
Foreign exchange risk
Hedging foreign currency borrowings
171,448
375,802
(169,821)
(383,757)
533,795
309,599
(cross currency swap)
Hedging revenue and associated
(218,137)
(116,552)
218,137
116,552
218,137
116,552
receivables (foreign currency borrowings)
Hedging revenue and associated
(11,873)
15,957
11,889
(15,966)
11,873
(15,696)
receivables (FECs)
Hedging capital purchases (FECs)
(3,790)
(314)
3,800
337
3,756
308
(62,352)
274,893
64,005
(282,834)
767,561
410,763
Hedge
ineffectiveness
gain / (loss)
2019
$000
2018
$000
Foreign exchange risk
Hedging foreign currency borrowings (cross currency swap)
1,033
Hedging revenue and associated receivables (FECs)
Hedging capital purchases (FECs)
—
(34)
999
3,970
261
(6)
4,225
Balance relating
to discontinued
cash flow hedges
2019
$000
28,217
—
—
28,217
2018
$000
—
—
—
—
APA GROUP — ANNUAL REPORT 2019 — 87
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
a) Market risk (continued)
Cross currency swap and interest rate swap contracts (continued)
Interest rate risk
Hedging US$ denominated borrowings
(interest rate swap)
Electricity price risk
Hedging electricity contract
(contract for difference)
Hedge
ineffectiveness
gain / (loss)
Balance relating
to discontinued
cash flow hedges
2019
$000
2018
$000
2019
$000
2018
$000
—
—
—
—
52,912
52,912
57,150
57,150
Fair value of hedge
instrument
Fair value of
hedge item
Reserve
balance
2019
$000
2018
$000
2019
$000
2018
$000
2019
$000
2018
$000
—
—
(6,536)
(6,536)
—
—
6,536
6,536
—
—
6,536
6,536
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 over the short term. 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 $nil or increase by $nil (2018: decrease by $2,000,000 or increase by $2,000,000); and
— equity reserves would increase by $54,170,000 with a 100 basis point decrease in interest rates or decrease by $35,640,000
with a 100 basis point increase in interest rates (2018: increase by $40,738,000 or decrease by $31,154,000 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 year as APA Group has no unhedged floating
rate borrowings outstanding at the end of the financial year. 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 cross currency swaps.
Price risk – equity price
APA Group is exposed to price risk arising from its forward purchase contracts over listed equities. The forward purchase contracts
are held to meet hedging objectives rather than for trading purposes. APA Group does not actively trade these holdings.
Price risk – electricity price
APA Group is exposed to electricity price risk arising from a contract for difference in an electricity sales agreement with a
customer. The contract guarantees the Group a fixed price for electricity offtake. The sensitivity of the contract for difference
to changes in the electricity price is provided in the fair value of financial instrument section.
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.
Credit risk management
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 the 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 ARMC. These limits are regularly reviewed by the Board.
88 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
b) Credit risk (continued)
Overview of APA Group's exposure to credit risk
The carrying amount of financial assets recorded in the financial statements, net of any collateral held or bank guarantees held
by the Group (which will cause a financial loss to APA Group due to failure to discharge an obligation by the counterparties),
represents APA Group's maximum exposure to credit risk in relation to those assets.
In order to minimise credit risk, APA Group categorised exposures according to their degree of risk of default. APA Group's
exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions
concluded is spread amongst approved counterparties.
APA Group's current credit risk grading framework comprises the following categories:
— Performing – the counterparty has a low risk of default and does not have any past-due amounts;
— Doubtful – amount is >30 days past due or there has been a significant increase in credit risk since initial recognition; and
— Write-off – there is evidence indicating that the debtor is in severe financial difficulty and APA Group has no realistic
prospect of recovery.
The table below details the credit quality of APA Group's financial assets.
2019
External credit rating
Internal credit rating
ECL method (a)
Cash and cash equivalents
and cash on deposit
A- (Standard & Poor's)/
A3 (Moody's) or higher
Performing
12-month ECL
Trade receivables
Finance lease receivables
Contract assets
Loans advanced to related parties
Redeemable preference shares (GDI)
N/A
N/A
N/A
N/A
N/A
— (b) Lifetime ECL (simplified approach)
— (b) Lifetime ECL (simplified approach)
— (b) Lifetime ECL (simplified approach)
Performing
Performing
12-month ECL
12-month ECL
a) Lifetime ECL represents the expected credit losses (ECL) that will result from all possible default events over the expected life of a financial instrument. In
contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12
months after the reporting date.
b) For trade receivables, finance lease receivables and contract assets, APA Group has applied the simplified approach in AASB 9 to measure the loss allowance at
lifetime ECL. APA Group determines the expected credit losses on these items by using a provision matrix, estimated based on historical credit loss experience
based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Accordingly, the
credit risk profile of these assets is presented based on their past due status in terms of the provision matrix. Note 9 includes further details on the loss allowance
for these assets respectively if any.
There is no material ECL for any of the financial assets listed in the table above.
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 2019 has been
determined to be immaterial and no liability has been recorded (2018: $nil).
c) Liquidity risk
APA Group has a policy of dealing with liquidity risk which requires an appropriate liquidity risk management framework for
the management of APA Group's short, medium and long-term funding and liquidity management requirements. Liquidity
risk is managed by maintaining adequate cash reserves and banking facilities, by monitoring and forecasting cash flow and
where possible, by arranging liabilities with longer maturities to more closely match the underlying assets of APA Group.
Detailed in the table following are APA Group's remaining contractual maturities for its non-derivative financial liabilities. The
table is presented based on the undiscounted cash flows of financial liabilities taking account of the earliest date on which
APA Group can be required to pay. The table includes both interest and principal cash flows.
APA GROUP — ANNUAL REPORT 2019 — 89
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
c) Liquidity risk (continued)
The table below shows the undiscounted Australian dollar cash flows associated with the AUD and foreign currency
denominated notes, cross currency interest rate swaps and fixed interest rate swaps in aggregate.
2019
Unsecured financial liabilities
Trade and other payables
Unsecured bank borrowings (a)
Denominated in A$
Other financial liabilities
Denominated in US$
Other financial liabilities (b)
Guaranteed Senior Notes (c)
Denominated in A$
2007 Series G
2007 Series H
2010 AUD Medium Term Notes
2016 AUD Medium Term Notes
Denominated in US$
2007 Series F
2009 Series B
2012 US 144A
2015 US 144A (b)
2015 US 144A (b)
2017 US 144A
Denominated in stated foreign currency
2012 CAD Medium Term Notes
2012 GBP Medium Term Notes
2015 GBP Medium Term Notes (b)
2015 EUR Medium Term Notes
2015 EUR Medium Term Notes (b)
2019 GBP Medium Term Notes
2019 JPY Medium Term Notes
Average
interest rate
% p.a.
Maturity
Less than
1 year
$000
1 - 5 years
$000
More than
5 years
$000
—
—
—
—
7.45
7.45
7.75
3.75
6.14
8.86
3.88
4.20
5.00
4.25
4.25
4.25
3.50
1.38
2.00
3.13
1.03
15 May 22
15 May 22
22 Jul 20
20 Oct 23
15 May 22
1 Jul 19
11 Oct 22
23 Mar 25
23 Mar 35
15 Jul 27
24 Jul 19
26 Nov 24
22 Mar 30
22 Mar 22
22 Mar 27
18 Jul 31
13 Jun 34
302,082
—
—
—
—
—
4,285
12,207
5,961
8,327
29,023
24,757
6,002
4,617
23,250
7,500
92,586
71,220
311,625
226,250
11,354
176,433
—
857,911
—
—
—
—
—
—
—
104,797
49,661
65,835
21,375
58,715
299,179
39,351
56,713
35,077
42,794
28,519
5,668
263,342
1,633,528
85,501
662,867
234,894
1,313,477
—
—
158,159
555,663
226,539
1,602,172
67,183
171,174
—
1,101,968
134,564
995,090
22,471
189,188
a) Bank facilities mature or expire on 19 December 2019 ($100 million limit), 18 May 2020 ($150 million limit), 19 December 2020 ($100 million limit), 16 May 2022
($50 million limit), 18 July 2022 ($150 million limit), 30 June 2023 ($500 million limit) and 31 December 2023 ($500 million limit).
b) Facilities are denominated in or fully swapped by way of cross currency swap into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot
rate as at 30 June 2019. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
c) Rates shown are the coupon rate in the currency of issuance.
1,175,101
3,141,082
8,084,671
90 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
c) Liquidity risk (continued)
2018
Unsecured financial liabilities
Trade and other payables
Unsecured bank borrowings (a)
Denominated in A$
Other financial liabilities
Denominated in US$
Other financial liabilities (b)
Guaranteed Senior Notes (c)
Denominated in A$
2007 Series E
2007 Series G
2007 Series H
2010 AUD Medium Term Notes
2016 AUD Medium Term Notes
Denominated in US$
2003 Series D
2007 Series D
2007 Series F
2009 Series B
2012 US 144A
2015 US 144A (b)
2015 US 144A (b)
2017 US 144A
Denominated in stated foreign currency
2012 CAD Medium Term Notes
2012 GBP Medium Term Notes
2015 GBP Medium Term Notes (b)
2015 EUR Medium Term Notes (b)
2015 EUR Medium Term Notes (b)
Average
interest rate
% p.a.
Maturity
Less than
1 year
$000
1 - 5 years
$000
More than
5 years
$000
—
3.07
381,676
—
6,114
204,419
—
—
—
—
7.40
7.45
7.45
7.75
3.75
6.02
5.99
6.14
8.86
3.88
4.20
5.00
4.25
4.25
4.25
3.50
1.38
2.00
4,798
13,883
8,570
7,903
29,578
29,367
73,214
6,002
4,617
23,250
7,500
99,360
162,324
11,354
11,761
49,123
62,483
20,287
58,523
19,529
39,351
53,726
36,341
40,615
—
98,588
75,837
334,875
30,000
—
—
187,787
104,797
907,572
—
—
—
—
203,750
—
—
—
—
—
249,932
1,612,832
81,147
649,400
235,087
1,371,999
299,179
157,727
—
595,446
215,008
1,574,423
1,103,923
—
162,458
1,086,471
1,179,851
4,491,797
7,132,258
15 May 19
15 May 22
15 May 22
22 Jul 20
20 Oct 23
9 Sep 18
15 May 19
15 May 22
1 Jul 19
11 Oct 22
23 Mar 25
23 Mar 35
15 Jul 27
24 Jul 19
26 Nov 24
22 Mar 30
22 Mar 22
22 Mar 27
a) Bank facilities mature or expire on 2 July 2018 ($518.75 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($150
million limit), 19 December 2020 ($100 million limit) and 18 July 2022 ($150 million limit). A new $1,000 million syndicated bank facility came into effect on 2 July
2018. The two tranches of this facility mature on 30 June 2023 and 31 December 2023 respectively.
b) Facilities are denominated in or fully swapped by way of cross currency swap into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot
rate as at 30 June 2018. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
c) Rates shown are the coupon rate in the currency of issuance.
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 as to recoverability based on the counterparty’s and APA Group’s credit risk.
APA GROUP — ANNUAL REPORT 2019 — 91
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
c) Liquidity risk (continued)
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).
Transfers between levels of the fair value hierarchy occur at the end of the reporting period. There have been no transfers
between the levels during 2019 (2018: none). Transfers between level 1 and level 2 are triggered when there are changes to
the availability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no
longer observable, or vice versa for transfer out of level 3.
Fair value of the 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 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. These instruments are
classified in the fair value hierarchy at level 2;
— the fair values of interest rate 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.
These instruments are classified in the fair value hierarchy at level 2;
— 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. These 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. These
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.
Contract for difference
The financial statements include a contract for difference arising from an electricity sales agreement with a customer that
guarantees the Group a fixed price for electricity offtake for the agreed term which is measured at fair value. The fair value
of the contract for difference is derived from internal discounted cash flow valuation methodology, which includes some
assumptions that are not able to be supported by observable market prices or rates.
In determining the fair value, the following assumptions were used:
— estimated long term forecast electricity pool prices are applied as market prices are not readily observable for the
corresponding term;
— forecast electricity volumes are estimated based on an internal forecast output model;
— the discount rates are based on observable market rates for risk-free instruments of the appropriate term;
— credit adjustments are applied to the discount rates to reflect the risk of default by either the Group or a specific
counterparty. Where a counterparty specific credit curve is not observable, an estimated curve is applied which takes into
consideration the credit rating of the counterparty and its industry; and
— these instruments are classified in the fair value hierarchy at level 3.
Changes in any of the aforementioned assumptions may be accompanied by changes in other assumptions which may have
an offsetting impact.
92 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. Financial risk management (continued)
Fair value hierarchy
2019
Financial assets measured at fair value
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
Contract for difference
Financial liabilities measured at fair value
Cross currency interest rate swaps used for hedging
Forward foreign exchange contracts used for hedging
Contract for difference
2018
Financial assets measured at fair value
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
Contract for difference
Reconciliation of Level 3 fair value measurements
Opening balance
Revaluation
Settlement
Closing balance
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,245
527,857
10,209
—
540,311
356,409
25,872
—
382,281
2,045
592,244
29,130
623,419
800
215,641
13,486
—
229,927
—
—
—
2,144
2,144
—
—
402
402
—
—
—
—
—
—
—
6,536
6,536
2019
$000
6,536
(3,708)
(4,570)
(1,742)
2,245
527,857
10,209
2,144
542,455
356,409
25,872
402
382,683
2,045
592,244
29,130
623,419
800
215,641
13,486
6,536
236,463
2018
$000
—
6,536
—
6,536
APA GROUP — ANNUAL REPORT 2019 — 93
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
19. 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 Notes
Unsecured Canadian Dollar Medium Term Notes
Unsecured US Dollar 144A Medium Term Notes
Unsecured British Pound Medium Term Notes
Unsecured Euro Medium Term Notes
Carrying amount
Fair value (level 2) (a)
2019
$000
2018
$000
2019
$000
2018
$000
426,115
500,000
132,196
326,675
4,275,027
2,442,600
2,187,895
730,049
500,000
—
308,496
4,057,344
1,694,492
2,129,801
460,583
530,459
134,944
327,014
4,489,354
2,602,390
2,255,715
10,290,508
9,420,182
10,800,459
768,992
528,646
—
312,539
3,992,019
1,768,993
2,108,339
9,479,528
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. These instruments are classified in the fair value hierarchy at level 2.
20. Other financial instruments
Assets
Liabilities
Derivatives at fair value:
Contract for difference
Equity forward contracts
Derivatives at fair value designated as hedging instruments:
Cross currency interest rate swaps – cash flow hedges
Foreign exchange contracts – cash flow hedges
Interest rate swaps – cash flow hedges
Financial item carried at amortised cost:
Redeemable preference share interest
Current
Derivatives – at fair value:
Contract for difference
Equity forward contracts
Indexed revenue contracts
2019
$000
—
1,513
61,664
4,577
—
285
68,039
2,144
732
—
2018
$000
—
1,236
24,903
29,101
—
285
55,525
—
809
—
Derivatives at fair value designated as hedging instruments:
Cross currency interest rate swaps - cash flow hedges
483,253
580,249
Foreign exchange contracts - cash flow hedges
5,632
29
2019
$000
402
—
141,860
10,520
—
—
2018
$000
6,094
—
120,551
10,656
2,100
—
152,782
139,401
—
—
3,459
245,892
15,352
442
—
3,767
121,471
2,830
Financial items carried at amortised cost:
Redeemable preference shares
Non-current
10,400
502,161
10,400
591,487
—
—
264,703
128,510
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.
94 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
20. Other financial instruments (continued)
Recognition and measurement
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost:
— The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual
cash flows; and
— The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive
income (FVTOCI):
— The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows
and selling the financial assets; and
— The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
By default, all other financial assets are subsequently measured at fair value through profit or loss (FVTPL).
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses
recognised in profit or loss to the extent they are not part of a designated hedging relationship.
Derivatives that APA Group does not elect to apply hedge accounting to or do not meet the hedge accounting criteria, are
classified as 'financial assets/liabilities' for accounting purposes and accounted for at FVTPL. Further information about the
classification and measurement of financial instruments is provided in Note 30 under AASB 9 'Financial Instruments'.
Fair value measurement
For information about the methods and assumptions used in determining the fair value of financial instruments refer to Note 19.
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 relationship between the
hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various
hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, APA Group expects the hedging
instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk,
which is when the hedging relationships meet all of the following hedge effectiveness requirements:
— there is an economic relationship between the hedged item and the hedging instrument;
— the effect of credit risk does not dominate the value changes that result from that economic relationship; and
— the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that APA
Group actually hedges and the quantity of the hedging instrument that APA Group actually uses to hedge that quantity
of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk
management objective for that designated hedging relationship remains the same, APA Group adjusts the hedge ratio of the
hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
Derivatives are initially recognised at fair value at the date a derivatives contract is entered into and subsequently remeasured
to 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.
APA GROUP — ANNUAL REPORT 2019 — 95
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
20. Other financial instruments (continued)
Recognition and measurement (continued)
Cash flow hedges
The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated
and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the cash flow hedge
reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating
to the ineffective portion is recognised immediately in profit or loss, and is included in the 'finance costs' line item.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss
in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when
the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and
losses previously recognised in other comprehensive income and accumulated in equity are removed from equity and included
in the initial measurement of the cost of the non-financial asset or non-financial liability. This transfer does not affect other
comprehensive income. Furthermore, if APA Group expects that some or all of the loss accumulated in the cash flow hedging
reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.
APA Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying
criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or
exercised. The discontinuation is accounted for prospectively. Any gain or loss recognised in other comprehensive income and
accumulated in cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast
transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in cash flow
hedge reserve is reclassified immediately to profit or loss.
Accounting for the forward element of forward contracts and foreign currency basis spreads of financial instruments
APA Group designates the full change in the fair value of a forward contract (i.e. including the forward elements) as the
hedging instrument for all of its hedging relationships involving forward contracts.
APA Group separates the foreign currency basis spread from a financial instrument and excludes it from the designation of
that financial instrument as the hedging instrument. Changes in the value of the undesignated aligned foreign currency basis
spread associated with cross currency interest rate swaps are deferred in other comprehensive income.
Cash flow hedge and cost of hedging reserve
The cash flow hedge reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective
in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when
the hedged transaction impacts the profit or loss, or is included directly in the initial cost or other carrying amount of the
hedged non-financial items.
The cost of hedging reserve represents the effect of the changes in fair value of the forward currency basis spread of a
financial instrument when the foreign currency basis spread of a financial instrument is excluded from the designation of that
financial instrument as the hedging instrument (consistent with APA Group's accounting policy to recognise non-designated
component of foreign currency derivative in equity). The changes in fair value of the foreign currency basis spread of a financial
instrument, in relation to a time-period related hedged item accumulated in the cash flow hedging reserve, are amortised to
profit or loss on a rational basis over the term of the hedging relationship.
Balance at beginning of financial year
Gain/(loss) recognised taken to equity:
2019
$000
2018
$000
(339,834)
(216,442)
Gain/(loss) arising on changes in fair value of hedging instruments
(464,643)
(202,054)
Changes in fair value of foreign currency basis spread during the year
Share of hedge reserve of associate
Income tax related to changes in fair value
Transferred to profit or loss:
(Gain)/ loss reclassified to profit or loss - hedged item has affected profit or loss
(Gain)/ loss arising on changes in fair value of foreign currency basis spread
Income tax related to amounts reclassified to profit or loss
15,719
(8,540)
137,239
52,945
21,402
(22,304)
(76,753)
8,632
81,053
66,495
27,405
(28,170)
Balance at end of financial year
(608,016)
(339,834)
The foreign currency basis spread balance at the beginning of the financial year is ($93.3 million) and at the end of the
financial year is ($51.2 million) in 2019 (2018: ($43.9 million) and ($93.3 million) respectively).
96 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
20. Other financial instruments (continued)
Recognition and measurement (continued)
Hedge ineffectiveness
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness
assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.
In hedges of foreign currency capital equipment purchases, ineffectiveness may arise if the timing of the forecast transaction
changes from what was originally estimated, or if there are changes in the credit risk of APA Group or the derivative
counterparty.
Hedge ineffectiveness for cross currency interest rate swaps is assessed using the same principles as for hedges of foreign
currency capital equipment purchases. It may occur due to the credit value/debit value adjustment on the swap contracts
which is not matched by the debts.
Impairment of financial assets
In relation to the impairment of financial assets, it is no longer necessary for a credit event to have occurred before credit
losses are recognised. APA Group applies an ECL model to account for ECL and changes in those ECL at each reporting date
to reflect changes in credit risk since initial recognition of a financial asset.
APA Group recognises a loss allowance for ECL on investments in debt instruments that are measured at amortised cost, for
example, loans advanced to related parties and trade receivables. No impairment loss is recognised for investments in equity
instruments. For trade receivables, finance lease receivables and contract assets, APA Group applies the simplified approach
to assessing ECL. Under the simplified approach, ECL on these financial assets is estimated using a provision matrix. This
matrix is based on APA Group’s historical credit losses and reasonable and supportable information that is available without
undue cost.
The amount of ECL under either approach is updated at each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
APA Group recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment
to their carrying amount through a loss allowance account. Aside from the additional disclosure requirements in Note 19, the
history of collection rates and forward-looking information that is available without undue cost or effort shows that APA
Group does not have an expected loss on collection of debtors or loans.
Significant increase in credit risk
An actual or expected significant deterioration in the financial instrument's external (if available) or internal credit rating.
Definition of default
When there is a breach of financial covenants by the debtor.
Write-off policy
APA Group writes off a financial asset when all reasonable attempts at recovery have been taken and failed e.g. debts that
are considered irrecoverable, or where the cost of recovery is uneconomic, must be written off as a bad debt.
21. Issued capital
Units
2019
$000
2018
$000
1,179,893,848 securities, fully paid (2018: 1,179,893,848 securities, fully paid) (a)
3,103,806
3,288,123
2019
No. of
units
000
2019
$000
Movements
Balance at beginning of financial year
1,179,894
3,288,123
Securities issued under entitlement offer
Capital distributions paid (Note 8)
Issue costs of securities
Tax relating to security issue costs
—
—
—
—
—
(184,181)
(194)
58
2018
No. of
units
000
1,114,307
65,587
—
—
—
2018
$000
3,114,617
380,782
(201,385)
(8,415)
2,524
Balance at end of financial year
1,179,894
3,103,806
1,179,894
3,288,123
a) Fully paid securities carry one vote per security and carry the right to distributions.
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to issued capital
from 1 July 1998. Therefore, the Trust does not have a limited amount of authorised capital and issued securities do not have
a par value.
APA GROUP — ANNUAL REPORT 2019 — 97
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Group Structure
22. 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
Total comprehensive income allocated to non-controlling interests for the year
Cash flows
Net cash provided by operating activities
Net cash provided by/(used in) investing activities
Distributions paid to non-controlling interests
Net cash used in financing activities
2019
$000
2018
$000
813
774
993,487
1,063,708
994,300
1,064,482
25
25
78
78
994,275
994,275
1,064,404
1,064,404
65,082
(12)
65,070
65,070
65,790
69,409
(135,136)
(135,199)
68,061
(12)
68,049
68,049
68,852
(54,725)
(135,616)
(14,127)
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
Issue costs of units
Distribution – capital return (Note 8)
Reserves:
Retained earnings:
Balance at beginning of financial year
Net profit attributable to APTIT unitholders
Distributions paid (Note 8)
98 — APA GROUP — ANNUAL REPORT 2019
994,275
1,064,404
—
53
994,275
1,064,457
1,030,176
—
(63)
(65,894)
976,284
124,234
(2,745)
(67,597)
964,219
1,030,176
—
—
34,228
65,070
(69,242)
30,056
34,198
68,049
(68,019)
34,228
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Group Structure
22. Non-controlling interests (continued)
Other non-controlling interest
Issued capital:
Balance at beginning of financial year
Distribution – capital return
Reserves:
Balance at beginning of financial year
Transfer to retained earnings
Retained earnings:
Balance at beginning of financial year
Net profit attributable to other non-controlling interest
Transfer from reserves
Distribution paid
2019
$000
2018
$000
4
(4)
—
1
(1)
—
48
—
1
(49)
—
4
—
4
1
—
1
48
—
—
—
48
23. 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.
Principal activity
Country of incorporation
2019
2018
Ownership interest %
Energy Infrastructure Investments
Energy infrastructure
Gas transmission
Gas transmission
Australia
Australia
Australia
Power generation (wind)
Australia
50.00
50.00
19.90
20.20
50.00
50.00
19.90
20.20
Name of entity
Joint ventures:
SEA Gas
SEA Gas (Mortlake)
EII 2
Associates:
GDI (EII)
Gas distribution
Australia
20.00
20.00
2019
$000
2018
$000
Investment in joint ventures and associates using the equity method
263,829
271,597
Joint Ventures
Aggregate carrying amount of investment
APA Group's aggregated share of:
Profit from continuing operations
Other comprehensive income
Total comprehensive income
Associates
239,243
242,768
18,630
(4,405)
14,225
17,105
9,039
26,144
Aggregate carrying amount of investment
24,586
28,829
APA Group's aggregated share of:
Profit from continuing operations
Other comprehensive income
Total comprehensive income
4,592
(4,135)
457
4,819
(407)
4,412
APA GROUP — ANNUAL REPORT 2019 — 99
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Group Structure
23. Joint arrangements and associates (continued)
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.
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 25.
APA Group is a venturer in the following joint operations:
Name of venture
Principal activity
Goldfields Gas Transmission (a)
Gas pipeline operation - Western Australia
Mid West Pipeline (b)
Gas pipeline operation - Western Australia
Output interest
2019
%
88.2
50.0
2018
%
88.2
50.0
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.
24. Subsidiaries
Subsidiaries are entities controlled by APT. Control exists where APT has power over the entities, i.e. existing rights that give
it 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.
Name of entity
Parent entity
Australian Pipeline Trust (a)
Subsidiaries
Agex Pty. Ltd. (b),(c)
Amadeus Gas Trust (e)
APA (BWF Holdco) Pty Ltd (b),(c)
APA (EDWF Holdco) Pty Ltd (b),(c)
APA (EPX) Pty Limited (b),(c)
APA (NBH) Pty Limited (b),(c)
APA (Pilbara Pipeline) Pty Ltd (b),(c)
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 AM (Allgas) Pty Limited (b),(c)
100 — APA GROUP — ANNUAL REPORT 2019
Country of
registration/
incorporation
Ownership interest
2019
%
2018
%
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
96
100
100
100
100
100
100
100
100
100
100
100
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Group Structure
24. Subsidiaries (continued)
Name of entity
APA BIDCO Pty Limited (b),(c)
APA Biobond Pty Limited (b),(c)
APA Country Pipelines Pty Limited (b),(c)
APA DPS Holdings Pty Limited (b),(c)
APA DPS2 Pty Limited (b),(c)
APA East Pipelines 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)
APA EE Pty Limited (b),(c)
APA Ethane Pty Limited (b),(c)
APA Facilities Management Pty Limited (b),(c)
APA Midstream Holdings Pty Limited (b),(c)
APA Operations (EII) Pty Limited (b),(c)
APA Operations Pty Limited (b),(c)
APA Orbost Gas Plant Pty Ltd (b),(c)
APA Pipelines Investments (BWP) Pty Limited (b),(c)
APA Power Holdings Pty Limited (b),(c)
APA Power PF Pty Limited (b),(c)
APA Reedy Creek Wallumbilla Pty Limited (b),(c)
APA SEA Gas (Mortlake) Holdings Pty Ltd (b),(c)
APA SEA Gas (Mortlake) Pty Ltd (b)
APA Services (Int) Inc.
APA Sub Trust No 1 (b),(d)
APA Sub Trust No 2 (b),(d)
APA Sub Trust No 3 (b),(d)
APA Transmission Pty Limited (b),(c)
APA VTS A Pty Limited (b),(c)
APA VTS Australia (Holdings) Pty Limited (b),(c)
APA VTS Australia (NSW) Pty Limited (b),(c)
APA VTS Australia (Operations) Pty Limited (b),(c)
APA VTS Australia Pty Limited (b),(c)
APA VTS B Pty Limited (b),(c)
APA Western Slopes Pipeline Pty Limited (b),(c)
APA WGP Pty Ltd (b),(c)
APT (MIT) Services Pty Limited (b),(c)
APT AM (Stratus) Pty Limited (b),(c)
APT AM Employment Pty Limited (b),(c)
APT AM Holdings Pty Limited (b),(c)
APT Facility Management Pty Limited (b),(c)
APT Goldfields Pty Ltd (b),(c)
APT Management Services Pty Limited (b),(c)
APT O&M Holdings Pty Ltd (b),(c)
APT O&M Services (QLD) Pty Ltd (b),(c)
APT O&M Services Pty Ltd (b),(c)
APT Parmelia Holdings Pty Ltd (b),(c)
APT Parmelia Pty Ltd (b),(c)
APT Parmelia Trust (b),(d)
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)
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
United States
—
—
—
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
—
Australia
Australia
Australia
Australia
Ownership interest
2019
%
2018
%
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
100
100
APA GROUP — ANNUAL REPORT 2019 — 101
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Group Structure
24. Subsidiaries (continued)
Name of entity
APT Pipelines (QLD) Pty Limited (b),(c)
APT Pipelines (SA) 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)
APT Pipelines Limited (b),(c)
APT SEA Gas Holdings Pty Limited (b),(c)
APT SPV2 Pty Ltd (b)
APT SPV3 Pty Ltd (b)
Australian Pipeline Limited (b)
Central Ranges Pipeline Pty Ltd (b),(c)
Darling Downs Solar Farm Pty Ltd (b),(c)
Diamantina Holding Company Pty Limited (b),(c)
Diamantina Power Station Pty Limited (b),(c)
East Australian Pipeline Pty Limited (b),(c)
EDWF Holdings 1 Pty Ltd (b),(c)
EDWF Holdings 2 Pty Ltd (b),(c)
EDWF Manager Pty Ltd (b),(c)
Epic Energy East Pipelines Trust (b),(d)
EPX Holdco Pty Limited (b),(c)
EPX Member Pty Limited (b),(c)
EPX Trust (b),(d)
Ethane Pipeline Income Financing Trust (b),(d)
Ethane Pipeline Income Trust (b),(d)
Gasinvest Australia Pty Ltd (b),(c)
GasNet A Trust (d)
GasNet Australia Investments Trust (d)
GasNet Australia Trust (b),(d)
Goldfields Gas Transmission Pty Ltd (b)
Gorodok Pty. Ltd. (b),(c)
Griffin Windfarm 2 Pty Ltd (b)
Moomba to Sydney Ethane Pipeline Trust (b),(d)
N.T. Gas Distribution Pty Limited (b),(c)
N.T. Gas Easements Pty. Limited (b),(c)
N.T. Gas Pty Limited
Roverton Pty. Ltd. (b),(c)
SCP Investments (No. 1) Pty Limited (b),(c)
SCP Investments (No. 2) Pty Limited (b),(c)
SCP Investments (No. 3) Pty Limited (b),(c)
Sopic Pty. Ltd. (b),(c)
Southern Cross Pipelines (NPL) Australia Pty Limited (b),(c)
Southern Cross Pipelines Australia Pty Limited (b),(c)
Trans Australia Pipeline Pty Ltd (b),(c)
Votraint No. 1606 Pty Limited (b)
Votraint No. 1613 Pty Limited (b)
Western Australian Gas Transmission Company 1 Pty Ltd (b),(c)
Wind Portfolio Pty Ltd (b),(c)
Country of
registration/
incorporation
Ownership interest
2019
%
2018
%
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
96
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
96
100
100
100
100
100
100
100
100
100
100
100
100
a) Australian Pipeline Trust is the head entity within the APA tax-consolidated group.
b) These entities are members of the APA tax-consolidated group.
c) These wholly-owned subsidiaries have entered into a deed of cross guarantee with APT Pipelines Limited pursuant to ASIC Corporations Instrument 2016/785
and are relieved from the requirement to prepare and lodge an audited financial report.
d) These trusts are unincorporated and not required to be registered.
e) Amadeus Gas Trust terminated on 28 June 2019.
102 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
25. 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 2019 and 30 June 2018.
26. Director and Executive Key Management Personnel remuneration
Remuneration of Directors
The aggregate remuneration of 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
2019
$000
2018
$000
172,774
8,596
181,370
287,506
2,293
289,799
52,233
52,586
2019
$
1,664,631
158,168
2018
$
1,625,875
154,482
1,822,799
1,780,357
3,629,920
25,000
1,515,047
5,169,967
6,992,766
3,638,690
25,000
1,479,646
5,143,336
6,923,693
Remuneration of Executive Key Management Personnel (a)
The aggregate remuneration of Executive Key Management Personnel of APA Group is set out below:
Short-term employment benefits
Post-employment benefits
Cash settled security-based payments
Total remuneration: Executive Key Management Personnel
7,763,114
101,666
2,864,008
7,748,591
95,049
2,822,148
10,728,788
10,665,788
a) The remuneration for the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors
and Executive Key Management Personnel.
27. Remuneration of external auditor
Amounts received or due and receivable by Deloitte Touche Tohmatsu for:
Auditing the financial report
Compliance plan audit
Other assurance services (a)
Other non-audit, non-assurance services (b)
2019
$
2018
$
694,900
19,700
506,700
—
734,800
19,300
544,915
9,091
1,221,300
1,308,106
a) Services provided were in accordance with the external auditor independence policy. Other assurance services mainly comprise assurance services in relation to
the AER financial reporting guideline for Non-Scheme pipelines, security related transactions (debt raisings and FY2018 included equity raising) and procedures
in relation to ASIC Regulatory Guide 231 requirements.
b) Services provided were in accordance with the external auditor independence policy. Other non-audit, non-assurance services comprise the facilitation of an
industry charter workshop.
APA GROUP — ANNUAL REPORT 2019 — 103
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
28. Related party transactions
a) Equity interest in related parties
Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 24 and the details of the percentage
held in joint operations, joint ventures and associates are disclosed in Note 23.
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 24 for details of the entities that comprise APA Group.
Australian Pipeline Limited
Management fees of $4,696,351 (2018: $4,717,014) 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 26.
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 associates and joint ventures
The following transactions occurred with APA Group's associates and joint ventures on normal market terms and conditions:
2019
SEA Gas
Energy Infrastructure Investments
EII 2
GDI (EII)
2018
SEA Gas
Energy Infrastructure Investments
EII 2
GDI (EII)
Dividends
from
related
parties
$000
9,551
4,466
3,732
4,701
Sales to
related
parties
$000
7,809
39,198
1,020
53,654
22,450
101,680
5,975
3,841
3,253
5,772
18,841
3,853
46,671
764
62,053
113,341
Purchases
from
related
parties
$000
—
—
—
—
—
—
—
—
—
—
Amount
owed by
related
parties
$000
122,626
7,627
335
10,123
140,710
311
15,486
47
7,417
23,261
Amount
owed to
related
parties
$000
—
—
—
—
—
—
—
—
—
—
At year end, APA Group had a loan receivable from SEA Gas of $122.3 million (2018: $0.3 million).
104 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
29. 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
Total equity
Financial performance
Profit for the year
Total comprehensive income
2019
$000
2018
$000
2,533,019
707,803
3,240,822
130,337
130,337
2,695,971
731,861
3,427,832
132,313
132,313
3,110,485
3,295,519
3,103,806
3,288,123
6,679
7,396
3,110,485
3,295,519
216,818
216,818
147,408
147,408
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
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.
Due to the contingent nature of these financial guarantees no liability has been recorded (2018: $nil).
Contingent liabilities of the parent entity
No contingent liabilities have been identified in relation to the parent entity.
30. Adoption of new and revised Accounting Standards
Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)
Adoption of AASB 9 ‘Financial Instruments’
In the current year, APA Group has applied AASB 9 'Financial Instruments' (as revised) and the related consequential
amendments to other Accounting Standards for the first time. AASB 9 'Financial Instruments' (AASB 9) introduces new
requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) general hedge accounting
and 3) impairment for financial assets. Details of these new requirements as well as their impact on APA Group’s consolidated
financial statements are described below. APA Group has applied AASB 9 in accordance with the transition provisions set
out in AASB 9.
Classification and measurement of financial assets
The date of initial application (i.e. the date on which APA Group has assessed its existing financial assets and financial liabilities
in terms of the requirements of AASB 9) is 1 July 2018. Accordingly, APA Group has applied the requirements of AASB 9 to
instruments that have not been derecognised as at 1 July 2018.
All recognised financial assets that are within the scope of AASB 9 are required to be measured subsequently at amortised
cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets. Specifically:
— Debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that
have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are
subsequently measured at amortised cost;
— Debt investments that are held within a business model whose objective is both to collect the contractual cash flows and
to sell the debt instruments, and that have contractual cash flows that are solely payments of principal and interest on
the principal amount outstanding, are subsequently measured at FVTOCI;
— All other debt investments and equity investments are subsequently measured at FVTPL.
APA GROUP — ANNUAL REPORT 2019 — 105
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notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
30. Adoption of new and revised Accounting Standards (continued)
Adoption of AASB 9 ‘Financial Instruments’ (continued)
In the current year, APA Group has not designated any debt investments that meet the amortised cost or FVTOCI criteria as
measured at FVTPL.
Debt instruments that are subsequently measured at amortised cost or at FVTOCI are subject to impairment.
APA Group reviewed and assessed its existing financial assets as at 1 July 2018 based on the facts and circumstances that
existed at that date and concluded that the initial application of AASB 9 has had the following impact on APA Group’s
financial assets as regards their classification and measurement:
— Financial assets classified as held-to-maturity and loans and receivables under AASB 139 that were measured at
amortised cost continue to be measured at amortised cost under AASB 9 as they are held within a business model to
collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal
amount outstanding;
— Financial assets that were measured at FVTPL under AASB 139 continue to be measured as such under AASB 9.
None of the classifications of financial assets have had any impact on APA Group’s financial position, profit or loss, other
comprehensive income or total comprehensive income for either period.
Classification and measurement of financial liabilities
One change introduced by AASB 9 in the classification and measurement of financial liabilities relates to the accounting for
changes in the fair value of a financial liability designated as FVTPL attributable to changes in the credit risk of the issuer.
Specifically, AASB 9 requires that the changes in the fair value of the financial liability that is attributable to changes in the
credit risk of that liability be presented in other comprehensive income, unless the recognition of the effects of changes in
the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss.
Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss, but are
transferred to retained earnings when the financial liability is derecognised. Previously, under AASB 139, the entire amount of
the change in the fair value of the financial liability designated as FVTPL was presented in profit or loss.
This change in accounting policy has had no impact on the classification and measurement of APA Group’s financial liabilities.
General hedge accounting
The new general hedge accounting requirements retain the three types of hedge accounting: cash flow hedges, fair value
hedges and net investment hedges. However, greater flexibility has been introduced to the types of transactions eligible for
hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of
risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been
replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer
required. Enhanced disclosure requirements about APA Group’s risk management activities have also been introduced.
In accordance with AASB 9’s transition provisions for hedge accounting, APA Group has applied the AASB 9 hedge accounting
requirements prospectively from the date of initial application on 1 July 2018. APA Group’s qualifying hedging relationships
in place as at 1 July 2018 also qualified for hedge accounting in accordance with AASB 9 and were therefore regarded as
continuing hedging relationships. No rebalancing of any of the hedging relationships was necessary on 1 July 2018. As the
critical terms of the hedging instruments match those of their corresponding hedged items, all hedging relationships continue
to be effective under AASB 9’s effectiveness assessment requirements. APA Group has also not designated any hedging
relationships under AASB 9 that would not have met the qualifying hedge accounting criteria under AASB 139.
AASB 9 requires hedging gains and losses to be recognised as an adjustment to the initial carrying amount of non-financial
hedged items (basis adjustment). In addition, transfers from the hedging reserve to the initial carrying amount of the hedged
item are not reclassification adjustments under AASB 1 Presentation of Financial Statements and hence they do not affect
other comprehensive income. Hedging gains and losses subject to basis adjustments are categorised as amounts that will
not be subsequently reclassified to profit or loss in other comprehensive income. This is consistent with APA Group's practice
prior to the adoption of AASB 9.
Consistent with prior periods, APA Group has continued to designate the change in fair value of the entire forward contract,
i.e. including the forward element, as the hedging instrument in APA Group’s cash flow hedge relationships.
Since the AASB 9 hedge accounting requirements apply prospectively from the date of initial application (i.e. 1 July 2018), the
comparative figures have not been restated.
The application of the AASB 9 hedge accounting requirements has had no impact on the results and financial position of APA
Group for the current and/or prior periods.
106 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
30. Adoption of new and revised Accounting Standards (continued)
Adoption of AASB 9 ‘Financial Instruments’ (continued)
The table below illustrates the classification and measurement of financial assets and financial liabilities under AASB 9 and
AASB 139 at the date of initial application, 1 July 2018.
Category
Original category under AASB 139
New measurement category
under AASB 9
Cash and cash equivalents and cash on deposit Loans and receivables
Financial assets at amortised cost
Trade and other receivables
Loans and receivables
Financial assets at amortised cost
Equity forward contracts
Financial assets/liabilities at FVTPL
Financial assets/liabilities at FVTPL
Foreign currency contracts, interest rate
swaps and cross currency interest rate swaps
Derivatives designated as hedging
instruments at fair value
Derivatives designated as hedging
instruments at fair value
Loans advanced to related parties
Held-to-maturity investments investments Financial assets at amortised cost
Redeemable preference shares (GDI)
Held-to-maturity investments investments Financial assets at amortised cost
Trade and other payables
Financial liabilities at amortised cost
Financial liabilities at amortised cost
Borrowings
Financial liabilities at amortised cost
Financial liabilities at amortised cost
Impairment of financial assets
In relation to the impairment of financial assets, it is no longer necessary for a credit event to have occurred before credit
losses are recognised. AASB 9 requires an expected credit loss model as opposed to an incurred credit loss model under AASB
139. The expected credit loss model requires APA Group to account for expected credit losses and changes in those expected
credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.
Specifically, AASB 9 requires APA Group to recognise a loss allowance for ECL on loans and receivables. Aside from loans and
receivables, APA Group does not currently hold any debt instruments or guarantee contracts as covered by the scope of the
impairment section.
In particular, AASB 9 requires APA Group to measure the loss allowance for a financial instrument at an amount equal to the
lifetime ECL if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial
instrument is a purchased or originated credit-impaired financial asset. In the event the credit risk on a financial instrument
has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial asset),
APA Group is required to measure the loss allowance for that financial instrument at an amount equal to 12 months ECL.
AASB 9 also requires a simplified approach for measuring the loss allowance at an amount equal to lifetime ECL for trade
receivables, contract assets and lease receivables in certain circumstances. APA Group applies the simplified approach to
assessing ECL for trade receivables, finance lease receivables and contract assets.
As at 1 July 2018, APA Group reviewed and assessed its existing financial assets and amounts due from customers for
impairment. APA Group used reasonable and supportable information that is available without undue cost or effort in
accordance with the requirements of AASB 9 to determine the credit risk of the respective items at the date they were
initially recognised. It compared that to the credit risk as at 1 July 2017 and 1 July 2018. Based upon this assessment, aside
from the additional disclosure requirements, this change has not had a material impact to APA Group’s accounts. The history
of collection rates and forward-looking information that is available without undue cost or effort shows that APA Group does
not have an expected loss on collection of debtors or loans.
Details of the applicable accounting policies are set out in Note 20.
Adoption of AASB 15 ‘Revenue from Contracts with Customers’
APA Group has adopted AASB 15 'Revenue from Contracts with Customers' (AASB 15) from 1 July 2018. AASB 15 replaced
AASB 118 'Revenue' and AASB 111 'Construction Contracts' and related interpretations.
AASB 15 applies to all revenues arising from contracts with customers unless the contracts are within the scope of other
standards. The standard establishes a comprehensive framework for determining whether revenue is recognised and if so,
the timing and amount of revenue recognition based on the core principle being that an entity should recognise revenue at
an amount that reflects the consideration it expects to be entitled to in exchange for fulfilling its performance obligations to
a customer.
The Group’s accounting policies for its revenue streams are disclosed in detail in Note 4. Apart from providing more extensive
disclosures of the Group’s revenue transactions, the application of AASB 15 has no significant impact on the financial position
and financial performance of APA Group.
APA Group adopted AASB 15 on a modified retrospective basis, therefore the new standard has been applied only to contracts
that remain in force at 1 July 2018. As permitted by the standard comparative results are not restated. The cumulative effect
on initial application was a charge of $2.2 million to opening retained earnings, an increase in unearned revenue of $3.1 million
and an increase in deferred tax assets of $0.9 million at 1 July 2018. This adjustment is a result of AASB 15’s requirement to
separately recognise interest expense from revenue from contracts with customers where the period between the payment
by the customer and the fulfilment of the obligation gives rise to a significant financing component.
APA GROUP — ANNUAL REPORT 2019 — 107
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
30. Adoption of new and revised Accounting Standards (continued)
Adoption of AASB 15 ‘Revenue from Contracts with Customers’ (continued)
APA Group may receive cash from customers as a contribution to constructing or connecting the customer to the network as part
of ongoing access to gas transportation services. A significant financing component has been identified in some such contracts,
as a result of the length of time between when the customer pays for the service and when APA Group fulfils the performance
obligation. The effects of financing have been presented as interest expense separately from revenue from contracts with
customers, with the accumulative adjustment at 1 July 2018 recognised in retained earnings as outlined previously.
Discussions on the updated accounting policies can be found in Note 4.
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
AASB 16 'Leases'
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 January 2019
30 June 2020
AASB 16 'Leases'
APA Group has chosen not to early adopt AASB 16 'Leases' in preparing these consolidated financial statements.
AASB 16 'Leases' (AASB 16) is effective for annual periods beginning on or after 1 January 2019. AASB 16 replaces AASB 117 'Leases'
and related interpretations. Early adoption is permitted for entities that apply AASB 15 at or before the date of initial application of
AASB 16. APA Group will apply AASB 16 in the financial year beginning 1 July 2019 (financial year ended 30 June 2020).
Under AASB 16, APA Group’s accounting for leases as a lessee will result in the recognition of a right-of-use (ROU) asset as
a new category within property, plant and equipment and an associated lease liability in the Consolidated Statement of
Financial Position. The lease liability represents the present value of future lease payments, with the exception of short-term
and low value leases. An interest expense will be recognised on the lease liabilities and a depreciation charge will be recognised
for the ROU assets. There will also be additional disclosure requirements under the new standard. APA Group’s accounting for
leases as a lessor remains unchanged under AASB 16.
Previously under AASB 117 'Leases', operating leases were off-balance sheet, APA Group recognised operating lease expense
on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a
timing difference between actual lease payments and the expense recognised.
APA Group has materially completed the assessment of the impact of the adoption of AASB 16 on the consolidated financial
statements as at 1 July 2019. This assessment covered a variety of scenarios based on the various transition options and
practical expedients applied. APA Group plans to adopt the modified retrospective approach on transition with no restatement
of the comparative information. Under this approach, the lease liability is measured at present value of future lease payments
on the initial date of application, being 1 July 2019. For leases other than motor vehicles, the lease asset is measured as if
AASB 16 has been applied from the commencement of the lease with any difference between the lease asset and the liability
recognised as an adjustment to opening retained earnings. For motor vehicle leases the lease asset equals the lease liability
with nil impact on opening retained earnings.
AASB 16 provides for a number of practical expedients for transition. In accordance with these expedients APA Group has
elected to: exempt leases with a remaining term of less than 12 months from 1 July 2019; apply discount rates to a portfolio
of assets with similar characteristics; use hindsight to determine the lease term; and continue to apply the existing definition
of a lease under current accounting standards ('grandfather').
On transition, APA Group expects to recognise ROU assets of approximately $63 million and approximately $76 million lease
related liability. The net effect of the recognised lease liabilities and ROU asset, adjusted for deferred tax and for deferred
lease liabilities existent on transition will be reflected in opening retained earnings.
APA Group does not expect the adoption of AASB 16 to materially affect its financial results or to impact its ability to comply
with any of its loan covenants.
The actual impacts of adopting the standard may change as the new accounting policies are subject to change until APA
Group presents its first financial statements that include the date of initial application.
31. Events occurring after reporting date
On 21 August 2019, the Directors declared a final distribution of 25.50 cents per security ($300.9 million) for APA Group.
This is comprised of a distribution of 18.97 cents per unit from APT and a distribution of 6.53 cents per unit from APTIT. The
APT distribution represents a 8.53 cents per unit fully franked profit distribution and 10.44 cents per unit capital distribution.
The APTIT distribution represents a 2.55 cent per unit profit distribution and a 3.98 cents per unit capital distribution.
Franking credits of 3.66 cents per security will be allocated to the franked profit distribution. The distribution will be paid on
11 September 2019.
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 financial statements.
108 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
declaration by the directors of australian pipeline limited.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
The Directors declare that:
a) in the Directors’ opinion, there are reasonable grounds to believe that Australian Pipeline Trust will be able to pay its debts
as and when they become due and payable;
b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations
Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and
performance of APA Group;
c) in the Directors' opinion, the financial statements and notes thereto are in accordance with International Financial
Reporting Standards issued by the International Accounting Standards Board; and
d) the Directors have been given the declarations by the Chief Executive Officer 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
Michael Fraser
Chairman
Sydney, 21 August 2019
Debra Goodin
Director
APA GROUP — ANNUAL REPORT 2019 — 109
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AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
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
21 August 2019
The Directors
Australian Pipeline Limited as responsible entity for
Australian Pipeline Trust
Level 25, 580 George Street
Sydney NSW 2000
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 2019, 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.
DELOITTE TOUCHE TOHMATSU
A V Griffiths
Partner
Chartered Accountants
Sydney, 21 August 2019
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
145
110 — APA GROUP — ANNUAL REPORT 2019
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independent auditor’s report.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF 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 Audit of the Financial Report
Opinion
We have audited the financial report of Australian Pipeline Trust (the “Trust”) and its controlled entities (the
“Group”), which comprises the consolidated statement of financial position as at 30 June 2019, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the
financial statements, including a summary of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial
performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
of our report. We are independent of the Group in accordance with the auditor independence requirements
of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our
audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given
to the directors of Australian Pipeline Limited (the “Responsible Entity”), would be in the same terms if given
to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Asia Pacific Limited and the Deloitte Network
146
APA GROUP — ANNUAL REPORT 2019 — 111
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independent auditor’s report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report for the current period. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Key Audit Matter
How the scope of our audit responded to the Key Audit
Matter
Derivative transactions and balances including
the application of hedge accounting
Our procedures performed in conjunction with our
Treasury specialists included, but were not limited to:
Understanding management’s controls over the
recording of derivative transactions and the
application of hedge accounting,
On a sample basis, testing the accuracy and
completeness of derivative transactions and
balances by agreeing to third-party confirmations,
Evaluating the appropriateness of the valuation
methodologies applied and testing on sample
basis the valuation of the derivative financial
instruments,
Testing on a sample basis the application of hedge
accounting (including hedge effectiveness and
measurement of ineffectiveness), and evaluating
on a sample basis, in particular for WGP, that the
derivative financial instruments qualified for
hedge accounting in accordance with the AASB 9
Financial Instruments.
We also assessed the appropriateness of the
disclosures in Notes 18 and 19 to the financial
statements.
As at 30 June 2019, the Group has variable and
fixed rate borrowings totalling $10.3 billion
extending through to 2035. These borrowings
are denominated in Australian, US and
Canadian dollars as well as British Pounds and
Euros as disclosed in Note 18.
As a result, the Group is exposed to interest
rate and foreign exchange rate movements
and enters into the following types of
derivative financial instruments to manage
those exposures:
Interest rate swaps to mitigate the risk
of increasing interest rates, and
Cross currency interest rate swaps to
manage the currency risk associated
with foreign currency denominated
borrowings.
In addition, as disclosed in Note 19, revenue for
the Wallumbilla Gladstone Pipeline (WGP) is
denominated in US dollars. In order to manage
the currency risk the Group designates US
dollar borrowings (which acts as a natural
hedge of the forecast US dollar denominated
revenue) against a portion of the US dollar
revenue stream. The Group also uses forward
exchange contracts to hedge that portion of
the exchange rate risk not covered by the US
dollar borrowings. The Group applies hedge
accounting in respect of these complex
arrangements.
147
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independent auditor’s report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST
Key Audit Matter
How the scope of our audit responded to the Key Audit
Matter
Goodwill Impairment
Our procedures included, but were not limited to:
As at 30 June 2019 the Group’s balance sheet
includes goodwill of $1.2 billion allocated
across several cash generating units (CGUs) as
disclosed in Note 12.
The assessment of the recoverable amount of
the Group’s goodwill balance requires the
exercise of significant judgement in respect of
factors such as future contract renewals,
contracting of spare capacity, forecast
operating and maintenance costs, discount
rates, as well as economic assumptions such as
inflation.
Understanding the appropriateness of
management’s controls over the evaluation of the
carrying value of the Group’s goodwill to
determine any asset impairments,
Challenging in conjunction with our corporate
finance specialists the Group’s assumptions and
estimates used to determine the recoverable
amount of a sample of CGUs, including those
relating to:
o
forecast revenue by reference to:
expected future contract
renewals
expected contracting of spare
capacity
o operating and maintenance expenses
with reference to actual costs incurred in
the current period and approved budgets
for forecast periods
o discount rates with reference to:
external data
Deloitte developed discount
rates.
Assessing historical accuracy of management’s
budgeting and forecasting of the Group,
Testing on a sample basis, the mathematical
accuracy of the cash flow models and agreeing
relevant data to approved budgets and latest
forecasts,
Evaluating management’s sensitivity analysis in
relation to key assumptions, with particular focus
on the discount rate and assumptions relating to
contract renewals and contracting of spare
capacity.
We also assessed the appropriateness of the
disclosures in Note 12 to the financial statements.
148
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independent auditor’s report. continued.
AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST
Other Information
The directors of the Responsible Entity (“the Directors”) are responsible for the other information. The other
information comprises the information included in the Group’s annual report for the year ended 30 June 2019,
but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors 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 preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations,
or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement
and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
149
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AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Group to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are responsible
for the direction, supervision and performance of the Group audit. We remain solely responsible for
our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian
Pipeline Trust included in pages 45 to 58 of the Directors’ Report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of Australian Pipeline Limited for the year ended 30 June 2019, has
been prepared in accordance with section 300A of the Corporations Act 2001.
150
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AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST
Responsibilities
The directors have voluntarily presented the Remuneration Report of the Responsible Entity of Australian
Pipeline Trust which has been prepared in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
A V Griffiths
Partner
Chartered Accountants
Sydney, 21 August 2019
151
116 — APA GROUP — ANNUAL REPORT 2019
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APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
APT Investment Trust and its Controlled Entities (ARSN 115 585 441)
Directors’ Report for the year ended 30 June 2019
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
2019. 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”).
1. Directors
The names of the Directors of the Responsible Entity during the year and since the year end are:
Current Directors:
Michael Fraser
Robert (Rob) Wheals
Steven (Steve) Crane
James Fazzino
Debra (Debbie) Goodin
Shirley In’t Veld
Peter Wasow
Former Directors:
Russell Higgins AO
Patricia McKenzie
First appointed
1 September 2015
Chairman: 27 October 2017
Chief Executive Officer and Managing Director: 6 July 2019
1 January 2011
21 February 2019
1 September 2015
19 March 2018
19 March 2018
7 December 2004 (Retired as a Director 20 February 2019)
1 January 2011 (Retired as a Director 8 March 2019)
Michael (Mick) McCormack
Chief Executive Officer: 1 July 2005 and
Managing Director: 1 July 2006 (Retired as CEO and Managing Director 5 July 2019)
The Company Secretary of the Responsible Entity during the year and since the year end is Nevenka Codevelle.
2. Principal Activities
The Consolidated Entity operates as an investment and financing entity within the APA Group.
3. State of Affairs
Rob Wheals commenced as APA’s new Chief Executive Officer and Managing Director with effect from 6 July 2019 following
Mick McCormack’s retirement on 5 July 2019.
4. Subsequent Events
On 21 August 2019, the Directors declared a final distribution of 6.53 cents per unit ($77.1 million). The distribution represents
a 2.55 cents per unit profit distribution and 3.98 cents per unit capital distribution. The distribution is expected to be paid on
11 September 2019.
Other than what is noted above and as disclosed elsewhere in this report, there has not arisen in the interval between the end
of the full year ended 30 June 2019 and the date of this report any matter or circumstance that has significantly affected,
or may significantly affect, the Group’s operations, the results of those operations, or the Group’s state of affairs, in future
financial years.
5. Review and Results of Operations
The Consolidated Entity reported net profit after tax of $65.1 million (FY2018: $68.0 million) for the year ended 30 June 2019
and total revenue of $65.1 million (FY2018: $68.1 million).
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directors’ report. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
6. Distributions
Distributions paid to Securityholders during the financial year were:
APTIT profit distribution
APTIT capital distribution
Total
Final FY2018
distribution paid
12 September 2018
Interim FY2019
distribution paid
3 March 2019
Cents per
security
Total
distribution
$000
Cents per
security
Total
distribution
$000
2.90
3.14
6.04
34,228
37,022
71,250
2.97
2.45
5.42
35,014
28,872
63,886
On 21 August 2019, the Directors declared a final distribution for APTIT for the financial year of 6.53 cents per security which
is payable on 11 September 2019 and will comprise the following components:
APTIT profit distribution
APTIT capital distribution
Total
Final FY2019
distribution payable
11 September 2019
Cents per
security
Total
distribution
$000
2.55
3.98
6.53
30,056
47,002
77,058
Distribution information is presented on an accounting classification basis. The APA Group Annual Tax Statement (to be
released in September 2019) and Annual Tax Return Guide will provide the classification of distribution components for the
purposes of preparation of Securityholder income tax returns.
To assist APA Securityholders who wish to submit their annual tax return prior to receiving their annual APA Tax Statement
in mid September, APA has developed an online tax estimator tool. The Estimator tool will generate Pro Forma Tax Return
Inputs based on information entered by Securityholders and therefore should be considered “indicative only” compared to
the confirmed accurate information contained in APA’s Annual Tax Statement. The Tax Estimator will be available under the
Investor section on APA’s website following confirmation by the Board via an ASX release of the final FY2019 distribution
(https://www.apa.com.au/investors/my-securities/apa-annual-tax-statement-estimator/).
7. Directors
7.1
See pages 06 to 07 for information relating to qualifications and experience of the Directors and the Company Secretary.
Information on Directors and Company Secretary
7.2 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
Period of directorship
Company
Michael Fraser
Robert Wheals
Steven Crane
James Fazzino
Debra Goodin
Shirley In't Veld
Peter Wasow
Aurizon Holdings Limited
Since February 2016
—
nib holdings limited
SCA Property Group
—
Since September 2010, Chair since October 2011
Since December 2018
Incitec Pivot Limited
July 2005 to November 2017
Senex Energy Limited
oOh!media Limited
Atlas Arteria Limited
Ten Network Holdings Limited
Since May 2014
Since November 2014
Since September 2017
August 2016 to November 2017
Northern Star Resources Limited
Asciano Limited
DUET Group
Since September 2016
November 2010 to August 2016
August 2013 to May 2017
Oz Minerals Limited
Alcoa Australia Limited
Alumina Limited
Since November 2017
January 2014 to July 2017
September 2011 to May 2017
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directors’ report. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
7.3 Directors’ meetings
During the financial year, 17 Board meetings, four Audit and Risk Management Committee meetings, four People and
Remuneration Committee meetings, four Health Safety and Environment Committee meetings and three Nomination
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:
Board
People &
Remuneration
Committee
Audit & Risk
Management
Committee
Health Safety
& Environment
Committee
Nomination
Committee
Directors
Michael Fraser
Michael McCormack (1)
Steven Crane
James Fazzino
Debra Goodin
Shirley Int’d Veld
Peter Wasow
Russell Higgins (2)
Patricia McKenzie (3)
A
17
14
17
6
17
17
17
11
11
B
17
14
17
6
17
17
17
11
10
A
—
4
—
—
4
4
—
2
B
—
3
—
—
4
4
—
2
A
4
—
4
1
4
—
4
3
—
B
4
—
4
1
4
—
4
3
—
A
—
—
—
2
4
4
—
2
2
B
—
—
—
2
4
4
—
2
1
A
3
—
1
—
3
—
—
2
—
B
3
—
1
—
3
—
—
2
—
A) Number of meetings held during the time the Director held office or was a member of the committee during the financial year.
B) Number of meetings attended.
1) Michael McCormack retired as a Director on 5 July 2019.
2) Russell Higgins AO retired as a Director on 20 February 2019.
3) Patricia McKenzie retired as a Director on 8 March 2019.
7.4 Directors’ securityholdings
The aggregate number of APA securities held directly, indirectly or beneficially by Directors or their Director related entities at
30 June 2019 is 683,693 (2018: 800,118 (1)).
The following table sets out Directors’ relevant interests in APA securities as at 30 June 2019:
Directors
Michael Fraser
Michael McCormack
Steven Crane
Debra Goodin
James Fazzino (2)
Shirley Int’d Veld
Peter Wasow
Russell Higgins AO (3)
Patricia McKenzie (4)
Fully paid
securities as at
1 July 2018
Securities
acquired
Fully paid
Securities securities as at
30 June 2019
disposed
102,942
350,000
130,000
23,000
—
25,000
15,000
129,939
24,237
800,118
—
—
—
—
31,751
—
6,000
—
—
37,751
—
—
—
—
—
—
—
—
—
—
102,942
350,000
130,000
23,000
31,751
25,000
21,000
—
—
683,693
1) At 1 July 2018, the aggregate number of APA securities held directly or beneficially by Directors or their related entities included 129,939 securities held by Russell
Higgins AO who retired on 20 February 2019 and 24,237 securities held by Patricia McKenzie who retired on 8 March 2019. The aggregate number of APA
Securities held directly or beneficially by the current Directors or their related entities as at 30 June 2019 is 683,693.
2) James Fazzino was appointed as a Director effective 21 February 2019. He held nil securities on appointment.
3) Russell Higgins AO retired as a Director on 20 February 2019. He held 129,939 securities on retirement.
4) Patricia McKenzie retired as a Director on 8 March 2019. She held 24,237 securities on retirement.
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.
8. Options Granted
In this report, the term “APA securities” refers to 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.
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directors’ report. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
Indemnification of Officers
9.
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 specific disclosure of the nature of the liability
and the amount of the premium.
Australian Pipeline Limited, in its own capacity and as Responsible Entity of Australian Pipeline Trust and APT Investment
Trust, indemnifies each Director and Company Secretary, and certain other executives, former executives and officers 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. 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.
10. 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 18 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 financial year, and the number of APTIT units on issue at the end of the financial
year, are disclosed in Note 13 to the financial statements.
The value of the Consolidated Entity’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.
11. 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 139.
12. Rounding of Amounts
The Consolidated Entity is an entity of the kind referred to in ASIC Corporations Instrument 2016/191 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.
13. Authorisation
The Directors’ Report is 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
Michael Fraser
Chairman
Sydney, 21 August 2019
Debra Goodin
Director
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APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Revenue
Expenses
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income
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
4
4
5
2019
$000
65,082
(12)
65,070
—
65,070
2018
$000
68,061
(12)
68,049
—
68,049
65,070
68,049
65,070
65,070
68,049
68,049
65,070
68,049
6
2019
5.5
2018
6.0
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
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consolidated statement of financial position.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
AS AT 30 JUNE 2019
Current assets
Receivables
Non-current assets
Receivables
Other financial assets
Non-current assets
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Issued capital
Retained earnings
Total equity
Note
2019
$000
2018
$000
8
8
11
9
13
813
774
6,925
986,562
993,487
7,737
1,055,971
1,063,708
994,300
1,064,482
25
25
78
78
994,275
1,064,404
964,219
30,056
1,030,176
34,228
994,275
1,064,404
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
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consolidated statement of changes in equity.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Balance at 1 July 2017
Profit for the year
Total comprehensive income for the year
Issue of units under entitlement offer
Issue cost of units
Distributions to unitholders
Balance at 30 June 2018
Balance at 1 July 2018
Profit for the year
Total comprehensive income for the year
Issue cost of units
Distributions to unitholders
Balance at 30 June 2019
Note
13
13
7
13
7
Issued
capital
$000
976,284
—
—
124,234
(2,745)
(67,597)
Retained
earnings
$000
34,198
68,049
68,049
—
—
(68,019)
Total
$000
1,010,482
68,049
68,049
124,234
(2,745)
(135,616)
1,030,176
34,228
1,064,404
1,030,176
—
—
(63)
(65,894)
964,219
34,228
65,070
65,070
—
(69,242)
30,056
1,064,404
65,070
65,070
(63)
(135,136)
994,275
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
APA GROUP — ANNUAL REPORT 2019 — 123
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consolidated statement of cash flows.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Cash flows from operating activities
Trust distribution – related party
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
Receipts from/(advances to) related parties
Net cash provided by/(used in) 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
2019
$000
26,833
37,523
1,167
333
(66)
2018
$000
27,979
39,349
1,167
369
(12)
65,790
68,852
69,409
69,409
—
(63)
(135,136)
(135,199)
—
—
—
(54,725)
(54,725)
124,234
(2,745)
(135,616)
(14,127)
—
—
—
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.
124 — APA GROUP — ANNUAL REPORT 2019
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notes to the consolidated financial statements.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Basis of Preparation
1. About this report
In the following financial statements, note disclosures are 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.
Basis of Preparation
1. About this report
2. General information
Financial Performance
3. Segment information
4. Profit from operations
5.
Income tax
6. Earnings per unit
7. Distributions
Operating Assets and Liabilities
8. Receivables
9. Payables
10. Leases
Capital Management
11. Other financial instruments
12. Financial risk management
13. Issued capital
Group Structure
14. Subsidiaries
Other
15. Commitments and contingencies
16. Director and Executive Key Management
Personnel remuneration
17. Remuneration of external auditor
18. Related party transactions
19. Parent entity information
125
126
126
127
127
127
128
128
129
129
130
131
132
132
133
133
133
134
135
20. Adoption of new and revised Accounting Standards 135
21. Events occurring after reporting date
137
APA GROUP — ANNUAL REPORT 2019 — 125
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notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Basis of Preparation
2. General information
APT Investment Trust ("APTIT" or "Trust") is one of the two stapled trusts of 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 principal place of business is as follows:
Level 25
580 George Street
SYDNEY NSW 2000
Tel: (02) 9693 0000
APTIT operates as an investment entity within APA Group.
The financial report for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the directors
on 21 August 2019.
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
(AASB), and also complies 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 Corporations Instrument 2016/191, unless otherwise stated.
Financial Performance
3. Segment information
The Consolidated Entity has one reportable segment being energy infrastructure investment.
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.
126 — APA GROUP — ANNUAL REPORT 2019
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APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
4. Profit from operations
Profit before income tax includes the following items of income and expense:
Revenue
Distributions
Trust distribution – related party
Finance income
Interest – related parties
Finance lease income – related party
Other revenue
Other
Total revenue
Expenses
Audit fees
Total expenses
2019
$000
2018
$000
26,833
26,833
37,523
393
37,916
333
65,082
27,979
27,979
39,350
430
39,780
302
68,061
(12)
(12)
(12)
(12)
Revenue is recognised at an amount that reflects the consideration to which the Consolidated Entity expects to be entitled.
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;
— Finance lease income, which is recognised when receivable.
Income tax
5.
Income tax expense is not brought to account in respect of APTIT as, pursuant to 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.
6. Earnings per unit
Basic and diluted earnings per unit
2019
cents
5.5
2018
cents
6.0
The earnings and weighted average number of units used in the calculation of basic and diluted earnings per unit are as follows:
Net profit attributable to unitholders for calculating basic and diluted
earnings per unit
2019
$000
2018
$000
65,070
68,049
2019
No. of
units
000
2018
No. of
units
000
Adjusted weighted average number of ordinary units used in the
calculation of basic and diluted earnings per unit
1,179,894
1,136,875
APA GROUP — ANNUAL REPORT 2019 — 127
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notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Financial Performance
7. Distributions
Recognised amounts
Final FY2018 distribution paid on 12 September 2018
(2018: Final FY2017 distribution paid on 13 September 2017)
Profit distribution (a)
Capital distribution
Interim FY2019 distribution paid on 13 March 2019
(2018: Interim FY2018 distribution paid on 14 March 2018)
Profit distribution (a)
Capital distribution
Total distributions recognised
Profit distributions (a)
Capital distributions (Note 13)
Unrecognised amounts
Final FY2019 distribution payable on 11 September 2019 (b)
(2018: Final FY2018 distribution paid on 12 September 2018)
Profit distribution (a)
Capital distribution
a) Profit distributions unfranked (2018: unfranked).
b) Record date 28 June 2019.
2019
cents per
unit
2019
Total
$000
2018
cents per
unit
2018
Total
$000
2.90
3.14
6.04
2.97
2.45
5.42
5.87
5.59
11.46
2.55
3.98
6.53
34,228
37,022
71,250
35,014
28,872
63,886
69,242
65,894
135,136
30,056
47,002
77,058
3.07
3.69
6.76
3.03
2.38
5.41
6.10
6.07
12.17
2.90
3.14
6.04
34,198
41,107
75,305
33,821
26,490
60,311
68,019
67,597
135,616
34,228
37,022
71,250
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
8. Receivables
Finance lease receivable – related party (Note 10)
Current
Finance lease receivable – related party (Note 10)
Non-current
2019
$000
813
813
6,925
6,925
2018
$000
774
774
7,737
7,737
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.
128 — APA GROUP — ANNUAL REPORT 2019
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notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Operating Assets and Liabilities
9. Payables
Other payables
2019
$000
25
2018
$000
78
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.
10. 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 8)
Non-current receivables (Note 8)
2019
$000
1,167
4,669
3,502
9,338
9,338
(1,600)
7,738
813
6,925
7,738
2018
$000
1,167
4,669
4,669
10,505
10,505
(1,994)
8,511
774
7,737
8,511
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 of the risks and rewards incidental
to 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.
APA GROUP — ANNUAL REPORT 2019 — 129
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notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
11. Other financial instruments
Non-current
Advance to related party
Investments carried at cost:
Investment in related party (a)
2019
$000
2018
$000
879,183
948,592
107,379
986,562
107,379
1,055,971
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.
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost:
— The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual
cash flows; and
— The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive
income (FVTOCI):
— The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows
and selling the financial assets; and
— The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
By default, all other financial assets are subsequently measured at fair value through profit or loss (FVTPL).
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses
recognised in profit or loss to the extent they are not part of a designated hedging relationship.
Derivatives that the Consolidated Entity does not elect to apply hedge accounting to or that do not meet the hedge
accounting criteria, are classified as 'financial assets/liabilities' for accounting purposes and accounted for at FVTPL.
Further information about the classification and measurement of financial instruments is provided in Note 20 under AASB 9
'Financial Instruments'.
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.
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
The impairment of financial assets is no longer necessary for a credit event to have occurred before credit losses are
recognised. The Consolidated Entity applies an expected credit loss (ECL) model to account for ECL and changes in the ECL
at each reporting date to reflect changes in credit risk since initial recognition of the financial asset.
The Consolidated Entity recognises a loss allowance for ECL on investments in debt instruments that are measured at
amortised cost, for example, loans advanced to related parties and receivables. For finance lease receivables, the Consolidated
Entity applies the simplified approach to assessing ECL. Under the simplified approach, ECL on these financial assets is
estimated using a provision matrix. This matrix is based on the Consolidated Entity’s historical credit losses and reasonable
and supportable information that is available without undue cost.
The amount of ECL under either approach is updated at each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
The Consolidated Entity recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding
adjustment to their carrying amount through a loss allowance account. Aside from the additional disclosure requirements,
the history of collection rates and forward-looking information that is available without undue cost or effort shows that the
Consolidated Entity does not have an expected loss on collection of debtors or loans.
130 — APA GROUP — ANNUAL REPORT 2019
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notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
12. Financial risk management
APA Group's corporate Treasury department 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 ("ARMC") 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 and climate change. The Consolidated Entity's ARMC
ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy
through monthly reporting to the Board 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 transacted to hedge underlying or existing
exposures and have adhered to the Audit and Risk Management Committee approved Treasury Risk Management Policy.
a) Market risk
The Consolidated Entity's activities exposure is primarily to the financial risk of changes in interest rates. There has been no
change to the Consolidated Entity's exposure to market risk or the manner in which it manages and measures the risk from
the previous year.
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 within a given period of time. 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 $5,974,000 or decrease by $5,917,000 (2018:
increase by $6,023,000 or decrease by $5,968,000 respectively). This is mainly attributable to the Consolidated Entity's exposure
to interest rates on its variable rate inter-entity balances. The sensitivity has decreased due to lower inter-entity balances.
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.
Credit risk management
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 the 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, no other transactions 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 ARMC. These limits are regularly reviewed by the Board.
Overview of the Consolidated Entity's exposure to credit risk
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 other payables of $25,000 (2018: $78,000), all of which are
due in less than 1 year (2018: less than 1 year).
APA GROUP — ANNUAL REPORT 2019 — 131
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APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Capital Management
13. Issued capital
Units
2019
$000
2018
$000
1,179,893,848 units, fully paid (2018: 1,179,893,848 units, fully paid) (a)
964,219
1,030,176
Movements
Balance at beginning of financial year
Issue of units under entitlement offer
Issue cost of units
Capital distributions paid (Note 7)
Balance at end of financial year
1,179,894
a) Fully paid units carry one vote per unit and carry the right to distributions.
2019
No. of units
000
2019
$000
2018
No. of units
000
1,179,894
1,030,176
—
—
—
—
(63)
(65,894)
964,219
1,114,307
65,587
—
—
1,179,894
1,030,176
2018
$000
976,284
124,234
(2,745)
(67,597)
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
14. Subsidiaries
Subsidiaries are entities controlled by APTIT. Control exists where APTIT has power over an entity, i.e. existing rights that give
APTIT the current ability to direct the relevant activities of the entity (those that significantly affect the returns); exposure, or
rights, to variable returns from its involvement with the entity; and the ability to use its power to affect those returns.
Name of entity
Parent entity
APT Investment Trust
Subsidiary
Country of registration
Output interest
2019
%
2018
%
GasNet Australia Investments Trust
Australia
100
100
132 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
15. Commitments and contingencies
The Consolidated Entity had no material contingent assets, liabilities and commitments as at 30 June 2019 and 30 June 2018.
16. Director and Executive Key Management Personnel remuneration
Remuneration of Directors
The aggregate remuneration of 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
2019
$
1,664,631
158,168
2018
$
1,625,875
154,482
1,822,799
1,780,357
3,629,920
25,000
1,515,047
5,169,967
6,992,766
3,638,690
25,000
1,479,646
5,143,336
6,923,693
Remuneration of Executive Key Management Personnel (a)
The aggregate remuneration of Executive Key Management Personnel of the Consolidated Entity is set out below:
Short-term employment benefits
Post-employment benefits
Cash settled security-based payments
Total remuneration: Executive Key Management Personnel
7,763,114
101,666
2,864,008
7,748,591
95,049
2,822,148
10,728,788
10,665,788
a) The remuneration of the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors
and Executive Key Management Personnel.
17. Remuneration of external auditor
Amounts received or due and receivable by Deloitte Touche Tohmatsu for:
Auditing the financial report
Compliance plan audit
Other assurance services (a)
2019
$
6,100
5,800
—
11,900
2018
$
6,000
5,700
15,990
27,690
a) Services provided were in accordance with the external auditor independence policy. Other assurance services comprise assurance services in relation to security
related transactions (equity raising).
APA GROUP — ANNUAL REPORT 2019 — 133
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notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
18. Related party transactions
a) Equity interest in related parties
Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 14.
b) Responsible Entity – Australian Pipeline Limited
The Responsible Entity is wholly owned by APT Pipelines Limited (2018: 100% owned by APT Pipelines Limited).
c) Transactions with related parties within the Consolidated Entity
During the financial year, the following transactions occurred between the Trust and its other related parties:
— loans advanced and payments received on long-term inter-entity loans; and
— payments of distributions.
All transactions between the entities that comprise the Consolidated Entity have been eliminated on consolidation.
Refer to Note 14 for details of the entities that comprise the Consolidated Entity.
d) Transactions with other related parties
APTIT and its controlled entities have a loan receivable balance with another entity in APA. This loan is repayable on agreement
between 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 $813,000 are owing from a subsidiary of APT for amounts due under a finance lease
arrangement (2018: $774,000);
— non-current receivables totalling $6,925,000 are owing from a subsidiary of APT for amounts due under a finance lease
arrangement (2018: $7,737,000); and
— non-current receivables totalling $879,183,000 (2018: $948,592,000) are owing from a subsidiary of APT for amounts due
under inter-entity loans.
Australian Pipeline Limited
Management fees of $1,142,000 (2018: $1,152,000) 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 $1,142,000 (2018: $1,152,000) were reimbursed by APT.
134 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
19. Parent entity information
The accounting policies of the parent entity, which have been applied in determining the financial information below, are the
same as those applied in the consolidated financial statements.
Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Total liabilities
Net assets
Equity
Issued capital
Retained earnings
Reserves
Total equity
Financial performance
Profit for the year
Other comprehensive income
Total comprehensive income
2019
$000
2018
$000
813
774
993,487
1,063,708
994,300
1,064,482
25
25
78
78
994,275
1,064,404
964,219
30,056
—
1,030,176
34,228
—
994,275
1,064,404
65,070
—
65,070
68,049
—
68,049
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries.
Contingent liabilities of the parent entity
No contingent liabilities have been identified in relation to the parent entity.
20. Adoption of new and revised Accounting Standards
Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)
Adoption of AASB 9 ‘Financial Instruments’
In the current year, the Consolidated Entity has applied AASB 9 Financial Instruments (as revised) and the related consequential
amendments to other Accounting Standards for the first time. AASB 9 introduces new requirements for 1) the classification
and measurement of financial assets and financial liabilities and 2) impairment for financial assets. Details of these new
requirements as well as their impact on the Consolidated Entity’s consolidated financial statements are described below. The
Consolidated Entity has applied AASB 9 in accordance with the transition provisions set out in AASB 9.
Classification and measurement of financial assets
The date of initial application (i.e. the date on which the Consolidated Entity has assessed its existing financial assets and
financial liabilities in terms of the requirements of AASB 9) is 1 July 2018. Accordingly, the Consolidated Entity has applied the
requirements of AASB 9 to instruments that have not been derecognised as at 1 July 2018.
All recognised financial assets that are within the scope of AASB 9 are required to be measured subsequently at amortised
cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets. Specifically:
— Debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that
have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are
subsequently measured at amortised cost;
— Debt investments that are held within a business model whose objective is both to collect the contractual cash flows and
to sell the debt instruments, and that have contractual cash flows that are solely payments of principal and interest on the
principal amount outstanding, are subsequently measured at FVTOCI;
— All other debt investments and equity investments are subsequently measured at FVTPL.
In the current year, the Consolidated Entity has not designated any debt investments that meet the amortised cost or FVTOCI
criteria as measured at FVTPL.
APA GROUP — ANNUAL REPORT 2019 — 135
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notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
20. Adoption of new and revised Accounting Standards (continued)
Adoption of AASB 9 ‘Financial Instruments’ (continued)
Debt instruments that are subsequently measured at amortised cost or at FVTOCI are subject to impairment.
The Consolidated Entity reviewed and assessed its existing financial assets as at 1 July 2018 based on the facts and
circumstances that existed at that date and concluded that the initial application of AASB 9 has had the following impact on
the Consolidated Entity’s financial assets as regards their classification and measurement:
— Financial assets classified as held-to-maturity and loans and receivables under AASB 139 that were measured at
amortised cost continue to be measured at amortised cost under AASB 9 as they are held within a business model to
collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal
amount outstanding;
— Financial assets that were measured at FVTPL under AASB 139 continue to be measured as such under AASB 9.
None of the classifications of financial assets have had any impact on the Consolidated Entity’s financial position, profit or
loss, other comprehensive income or total comprehensive income for either period.
Classification and measurement of financial liabilities
One change introduced by AASB 9 in the classification and measurement of financial liabilities relates to the accounting for
changes in the fair value of a financial liability designated at FVTPL attributable to changes in the credit risk of the issuer.
Specifically, AASB 9 requires that the changes in the fair value of the financial liability that is attributable to changes in the
credit risk of that liability be presented in other comprehensive income, unless the recognition of the effects of changes in
the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss.
Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss, but are
transferred to retained earnings when the financial liability is derecognised. Previously, under AASB 139, the entire amount of
the change in the fair value of the financial liability designated at FVTPL was presented in profit or loss.
This change in accounting policy has had no impact on the classification and measurement of the Consolidated Entity’s
financial liabilities.
The table below illustrates the classification and measurement of financial assets and financial liabilities under AASB 9 and
AASB 139 at the date of initial application, 1 July 2018.
Category
Receivables
Original category under AASB 139
New measurement category under AASB 9
Loans and receivables
Financial assets at amortised cost
Loans advanced to related parties
Held-to-maturity investments
Financial assets at amortised cost
Trade and other payables
Financial liabilities at amortised cost
Financial liabilities at amortised cost
Impairment of financial assets
In relation to the impairment of financial assets, it is no longer necessary for a credit event to have occurred before credit losses
are recognised. AASB 9 requires an expected credit loss model as opposed to an incurred credit loss model under AASB 139. The
expected credit loss model requires the Consolidated Entity to account for expected credit losses and changes in those expected
credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.
Specifically, AASB 9 requires the Consolidated Entity to recognise a loss allowance for ECL on loans and receivables. Aside
from loans and receivables, the Consolidated Entity does not currently hold any debt instruments or guarantee contracts as
covered by the scope of the impairment section.
In particular, AASB 9 requires the Consolidated Entity to measure the loss allowance for a financial instrument at an amount
equal to the lifetime ECL if the credit risk on that financial instrument has increased significantly since initial recognition, or if
the financial instrument is a purchased or originated credit-impaired financial asset. In the event the credit risk on a financial
instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired
financial asset), the Consolidated Entity is required to measure the loss allowance for that financial instrument at an amount
equal to 12 months ECL. AASB 9 also requires a simplified approach for measuring the loss allowance at an amount equal
to lifetime ECL for trade receivables, contract assets and lease receivables in certain circumstances. The Consolidated Entity
applies the simplified approach to assessing ECL for lease receivables.
As at 1 July 2018, the Consolidated Entity reviewed and assessed its existing financial assets, loans advanced to related
parties and amounts due from customers for impairment using reasonable and supportable information that is available
without undue cost or effort in accordance with the requirements of AASB 9 to determine the credit risk of the respective
items at the date they were initially recognised, and compared that to the credit risk as at 1 July 2017 and 1 July 2018. Based
upon this assessment, aside from the additional disclosure requirements, this change has not had a material impact to the
Consolidated Entity’s accounts. The history of collection rates and quality of counterparties shows that the Consolidated
Entity does not have an expected loss on collection of debtors or loans.
Details of the applicable accounting policies are set out in Note 11.
136 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information notes to the consolidated financial statements. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
Other
20. Adoption of new and revised Accounting Standards (continued)
Adoption of AASB 15 ‘Revenue from Contracts with Customers’
The consolidated entity has adopted AASB 15 Revenue from Contracts with Customers (“AASB 15”) from 1 July 2018. AASB
15 replaced AASB 118 Revenue and AASB 111 Construction Contracts and related interpretations.
AASB 15 applies to all revenues arising from contracts with customers unless the contracts are within the scope of other
standards. The standard establishes a comprehensive framework for determining whether revenue is recognised and if so,
the timing and amount of revenue recognition based on the core principle being that an entity should recognise revenue at
an amount that reflects the consideration it expects to be entitled to in exchange for fulfilling its performance obligations to
a customer.
As the revenue of the Consolidated Entity is limited to interest earned on inter-entity loans, distribution revenue and finance
lease income, AASB 15 does not have any impact on the Consolidated Entity.
The Consolidated Entity’s accounting policies for its revenue streams are disclosed in Note 4.
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
AASB 16 'Leases'
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 January 2019
30 June 2020
AASB 16 'Leases'
The Consolidated Entity has chosen not to early adopt AASB 16 'Leases' in preparing these consolidated financial statements.
AASB 16 'Leases' (AASB 16) is effective for annual reporting periods beginning on or after 1 January 2019. AASB 16 replaces
AASB 117 'Leases' and related interpretations. Early adoption is permitted for entities that apply AASB 15 at or before the
date of initial application of AASB 16. The consolidated entity will apply AASB 16 in the financial year beginning 1 July 2019
(financial year ended 30 June 2020).
The Consolidated Entity has completed an assessment of the potential impact of the adoption of AASB 16. As the Consolidated
Entity is a lessor only, the new standard will not have a material impact on the consolidated financial statements.
21. Events occurring after reporting date
On 21 August 2019, the Directors declared a final distribution for the 2019 financial year of 6.53 cents per unit ($77.1 million).
The distribution represents a 2.55 cents per unit unfranked profit distribution and 3.98 cents per unit capital distribution. The
distribution will be paid on 11 September 2019.
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 financial statements.
APA GROUP — ANNUAL REPORT 2019 — 137
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
declaration by the directors of australian pipeline limited.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2019
The Directors declare that:
a) in the Directors’ opinion, there are reasonable grounds to believe that APT Investment Trust will be able to pay its debts as
and when they become due and payable;
b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations
Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and
performance of the Consolidated Entity;
c) in the Directors' opinion, the financial statements and notes thereto are in accordance with International Financial
Reporting Standards issued by the International Accounting Standards Board; and
d) the Directors have been given the declarations by the Chief Executive Officer 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
Michael Fraser
Chairman
Sydney, 21 August 2019
Debra Goodin
Director
138 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information auditor’s independence declaration.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
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
21 August 2019
The Directors
Australian Pipeline Limited as responsible entity for
APT Investment Trust
Level 25, 580 George Street
Sydney NSW 2000
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 2019, 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
Sydney, 21 August 2019
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
177
APA GROUP — ANNUAL REPORT 2019 — 139
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APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF 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
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of APT Investment Trust (the “consolidated entity”), which comprises the
consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss
and other comprehensive income, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the year then ended, and notes to the financial statements, including a summary
of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the consolidated entity is in accordance with the
Corporations Act 2001, including:
(i)
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
of our report. We are independent of the consolidated entity in accordance with the auditor independence
requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in
accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given
to the directors of the Company, would be in the same terms if given to the directors as at the time of this
auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Asia Pacific Limited and the Deloitte Network
178
140 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information independent auditor’s report. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF APT INVESTMENT TRUST
Other Information
The directors of APT Investment Trust (“the Directors”) are responsible for the other information. The other
information comprises the information included in the consolidated entity’s annual report for the year ended
30 June 2019, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors 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 preparing the financial report, the directors are responsible for assessing the ability of the consolidated
entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the consolidated entity
or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement
and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit 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 consolidated entity’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
179
APA GROUP — ANNUAL REPORT 2019 — 141
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
independent auditor’s report. continued.
APT INVESTMENT TRUST AND ITS CONTROLLED ENTITIES
TO THE UNITHOLDERS OF APT INVESTMENT TRUST
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the consolidated
entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information or business activities
within the consolidated entity to express an opinion on the financial report. We are responsible for
the direction, supervision and performance of the consolidated entity audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
DELOITTE TOUCHE TOHMATSU
A V Griffiths
Partner
Chartered Accountants
Sydney, 21 August 2019
180
142 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
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 16 August 2019).
No. of securities
278,881,130
206,889,750
150,042,188
93,014,761
30,586,418
21,562,451
10,882,525
6,966,101
6,063,005
5,631,958
4,894,714
4,040,000
3,381,771
3,360,429
3,026,564
2,500,000
2,077,766
1,920,000
1,608,410
1,477,357
%
23.64
17.53
12.72
7.88
2.59
1.83
0.92
0.59
0.51
0.48
0.41
0.34
0.29
0.28
0.26
0.21
0.18
0.16
0.14
0.13
Twenty largest holders
HSBC Custody Nominees (Australia) Limited
BNP Paribas Nominees Pty ltd
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Custodial Services Limited
Argo Investments Limited
BNP Paribas Noms Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
BKI Investment Company Limited
Australian Foundation Investment Company Limited
HSBC Custody Nominees (Australia) Limited-GSCO ECA
AMP Life Limited
HSBC Custody Nominees (Australia) Limited
Australian Foundation Investment Company Limited
Milton Corporation Limited
BNP Paribas Nominees Pty ltd
Buttonwood Nominees Pty Ltd
Navigator Australia Ltd
Total for Top 20
Distribution of holders
Ranges
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
838,807,298
71.09
No. of holders
%
No. of securities
137
7,657
9,813
28,818
27,888
0.18
10.30
13.20
38.78
37.53
871,610,743
152,950,506
69,823,458
74,427,629
11,100,957
%
73.87
12.96
5.92
6.31
0.94
74,313
100.00
1,179,893,848
100.00
1,759 holders hold less than a marketable parcel of securities (market value less than $500 or 48 securities based on a market
price on 16 August 2019 of $10.49).
Substantial holders
By notice dated 14 June 2019, BlackRock Group advised that it had an interest in 70,905,193 stapled securities, as at 12 June 2019.
By notice dated 13 March 2018, BNP Paribas Nominees Pty Limited as custodian for UniSuper Limited advised that it had an
interest in 189,951,079 stapled securities, as at 09 March 2018.
By notice dated 4 January 2017, The Vanguard Group Inc. advised that it had an interest in 56,186,718 stapled securities, as at
30 December 2017.
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.
APA GROUP — ANNUAL REPORT 2019 — 143
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five year summary.
Financial Performance (Statutory)
2019
2018
2017
2016
2015
Revenue
Revenue excluding pass-through (1)
EBITDA
Depreciation and amortisation expense
EBIT
Interest expense
Tax (expense) / benefit
Profit after tax including significant items
Significant items – after income tax
Profit after tax excluding significant items
Financial Position
Total assets
Total drawn debt (2)
Total equity
Operating Cash Flow
Operating cash flow (3)
Key Financial Ratios
Earnings per security (4)
Operating cash flow per security (4)
Distribution per security
Funds From Operations to Net Debt
Funds From Operations to Interest
Weighted average number of securities (4)
EBITDA by Segment (Excluding Significant Items)
EBITDA (Continuing businesses)
Energy Infrastructure
East Coast:
Queensland
New South Wales
Victoria
South Australia
Northern Territory
Western Australia
Asset Management
Energy Investments
Corporate costs
Divested businesses (7)
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
2,452.2
2,031.0
1,573.8
(611.4)
962.4
(497.4)
(177.0)
288.0
—
2,386.7
1,941.4
1,518.5
2,326.4
1,888.3
1,470.1
2,094.3
1,656.0
1,330.5
(578.9)
(570.0)
(520.9)
939.6
(509.7)
(165.1)
264.8
—
900.1
(513.8)
(149.5)
236.8
—
809.7
(507.7)
(122.5)
179.5
—
179.5
1,553.6
1,119.2
1,269.5
(208.2)
1,061.3
(324.2)
(177.2)
559.9
356.0
203.9
288.0
264.8
236.8
15,433.9
15,227.2
15,045.9
14,842.7
14,652.9
9,352.1
3,599.4
8,810.4
4,126.8
9,249.7
3,978.2
9,037.3
4,029.1
8,642.8
4,382.7
$m
1,012.1
1,031.6
973.9
862.4
562.2
cents
cents
cents
%
times
24.4
85.8
47.0
10.8
3.0
23.3
90.7
45.0
10.7
3.0
21.2
87.1
43.5
10.8
3.0
16.0
77.1
41.5
9.5
2.7
m
1,179.9
1,136.9
1,118.5
1,118.5
56.1 (5)
56.3
38.0
6.5 (6)
2.8
999.4 (5)
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
1,010.1
149.4
114.0
2.1
19.2
277.8
53.0
28.4
962.2
147.1
124.6
2.6
22.9
237.6
66.2
23.1
925.4
149.5
123.0
2.3
18.8
234.7
58.7
24.4
855.8
121.7
120.6
2.5
17.5
217.6
53.9
27.8
(80.1)
(67.9)
(66.7)
(86.7)
—
—
—
—
340.1
120.8
130.2
1.9
18.0
212.6
49.5
21.8
(73.6)
1.0
1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred and
passed on to Australian Gas Networks Limited (AGN) and GDI in respect of the operation of the AGN and GDI assets respectively.
2) APA’s liability to repay debt at relevant due dates of the drawn facilities. This amount represents current and non-current borrowings as per balance sheet and
is adjusted for deferred borrowing costs, the effect of unwinding of discount, unrealised foreign exchange differences reported in equity and deducting other
financial liabilities that are reported as part of borrowings in the balance sheet.
3) Operating cash flow = net cash from operations after interest and tax payments.
4) On the 23 March 2018, APA Group issued 65,586,479 new ordinary securities on completion of the fully underwritten pro-rata accelerated institutional tradeable
renounceable entitlement offer, resulting in total securities on issue as at 30 June 2018 of 1,179,893,848. The entitlement offer was offered at $7.70 per security, a
discount to APA Group's closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26 February 2018. The
numbers of securities used for calculation of earnings per security and operating cash flow per security from FY2015 to FY2018 have been adjusted. An adjustment
factor of 1.0038 has been calculated, being the closing market price per security on 23 February 2018, divided by the theoretical ex-rights price (TERP) of $8.23 per
security.
5) Between 23 December 2014 and 28 January 2015, APA Group issued a total of 278,556,562 new ordinary securities on completion of the fully underwritten
accelerated renounceable entitlement offer, resulting in total securities on issue as at 30 June 2015 of 1,114,307,369. The entitlement offer 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 weighted average number of securities for FY2015 used for calculation of earnings per security and operating cash flow per security
have been adjusted. 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 (TERP) of $7.40 per security.
6) June 2015 FFO to Net Debt was affected by the $3.7 billion worth of USD denominated debt raised to Wallumbilla Gladstone Pipeline.
7) Australian Gas Networks Limited sold in August 2014.
144 — APA GROUP — ANNUAL REPORT 2019
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information
investor information.
Calendar of events
Final distribution FY2019 record date
Final distribution FY2019 payment date
Annual meeting
Interim results announcement
Interim distribution FY2020 record date
Interim distribution FY2020 payment date
1) Subject to change.
Annual Meeting Details
Date: Thursday, 24 October 2019
Venue:
InterContinental Sydney Hotel,
James Cook Ballroom,
117 Macquarie Street,
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 25, 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
28 June 2019
11 September 2019
24 October 2019
18 February 2020 (1)
31 December 2019 (1)
11 March 2020 (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. Securityholders with
enquires should contact the APA Group registry.
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
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.
APA’s Annual Report content is printed on Revive Laser
100% recycled paper and the cover pages are printed on
ecoStar 100% recycled paper. Revive Laser is Australian
made, manufactured from Forest Stewardship Council
(FSC) Recycled certified fibre and certified carbon
neutral by the Department of Environment, under the
National Carbon Offset Standard (NCOS). Revive Laser is
manufactured by an ISO 14001 certified mill and no chlorine
bleaching occurs in the recycling process. ecoStar is an
environmentally responsible paper made carbon neutral.
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 seek professional advice if necessary.
This publication contains forward looking information, including about APA Group, its financial results and other matters which are subject to risk factors. APA
Group believes that there are reasonable grounds for these statements and 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 on as an indication or guarantee of future performance.
All references to dollars, cents or ‘$’ in this presentation are to Australian currency, unless otherwise stated.
EBIT, EBITDA and other “normalised” measures are non-IFRS measures that are presented to provide an understanding of the performance of APA Group. Such
non-IFRS information is unaudited, however the numbers have been extracted from the audited financial statements.
APA GROUP — ANNUAL REPORT 2019 — 145
FY2019 in Review I Chairman’s Report I Managing Director’s Report I APA Board & Senior Management I Highlights I Australian Pipeline Trust I Directors’ Report I Remuneration Report Consolidated Financial Statements I APT Investment Trust I Directors’ Report I Consolidated Financial Statements I Additional Information I Five Year Summary I Investor Information energy. connected.