Atlas Arteria
(formerly Macquarie Atlas Roads)
Annual Report 2018
Advice warning
The information in this annual report is given in good faith and
derived from sources believed to be accurate at this date but no
warranty of accuracy or reliability is given and no responsibility
arising in any other way, including by reason of negligence for
errors or omission herein, is accepted by ALX or its officers.
This annual report is not an offer or invitation for subscription or
purchase of, or a recommendation of, securities. It does not take
into account the investment objectives, financial situation and
particular needs of the investor. Before making an investment
in ALX, the investor or prospective investor should consider
whether such an investment is appropriate to their particular
investment needs, objectives and financial circumstances and
consult an investment adviser if appropriate.
Manager fees
MFA as manager of ATLAX and adviser to ATLIX is entitled to fees
for so acting. MGL and its related corporations (including MFA),
together with their officers and directors, may hold stapled
securities in ALX from time to time.
ALX’s ongoing commitment to your privacy
We understand the importance you place on your privacy and
are committed to protecting and maintaining the confidentiality
of the personal information you provide to us. ALX’s privacy
policy is available on the ALX website at www.atlasarteria.com
or you can contact our investor relations team on 1800 621 694.
Special notice
Atlas Arteria (ALX) comprises Atlas Arteria Limited
(ACN 141 075 201) (ATLAX) and Atlas Arteria International
Limited (Registration No. 43828) (ATLIX). Macquarie Fund
Advisers Pty Limited (ACN 127 735 960) (AFSL 318 123)
(MFA) is the manager/adviser of ATLAX and ATLIX. MFA is
a wholly owned subsidiary of Macquarie Group Limited
(ACN 122 169 279) (MGL).
Stapling
In accordance with its requirements in respect of stapled
securities, ASX reserves the right to remove either or both of
ATLAX and ATLIX from the official list of ASX if, while the stapling
arrangements apply, the securities in one of the entities ceases
to be stapled to the securities in the other entity.
Takeover provisions
Unlike ATLAX, ATLIX is not subject to takeover provisions of
Chapters 6, 6A, 6B and 6C of the Corporations Act. However, as
the takeover provisions of the Corporations Act apply to ATLAX
and its shareholders, by virtue of the stapling arrangements,
the takeover provisions will apply to the holders of ALX
stapled securities. This is notwithstanding that ATLIX and its
shareholders are not subject to the takeover provisions of the
Corporations Act.
Disclaimer
None of the entities noted in this document is an authorised
deposit taking institution for the purposes of the Banking
Act 1959 (Commonwealth of Australia). The obligations of
these entities do not represent deposits or other liabilities of
Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does
not guarantee or otherwise provide assurance in respect of the
obligations of these entities. Investments in ALX are subject to
investment risk, including possible delays in repayment and loss
of income and capital invested.
| 2018 Atlas Arteria Annual Report Contents
01 2018 at a glance
02 Chairpersons and CEO Message
03 A Review of ALX and its
Portfolio in 2018
04 Our Boards’ Directors
05 Governance
06 Sustainability
07 Financial Report
Directors’ Reports
Remuneration Report
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Securityholder Information
Corporate Directory
2
4
6
16
20
22
29
31
39
59
105
107
112
113
1
2018 Atlas Arteria Annual Report |
01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
01
2018 at a glance
ALX is a global infrastructure
developer, operator and investor.
Committed to seeking to grow
distributions and enhancing
the value of our portfolio
for securityholders.
Providing investors with
exposure to a global portfolio
of toll roads to generate stable
cash flows and offer resilient
long-term performance through
economic cycles.
1. ALX has varying percentage ownership interest in each
asset within its portfolio.
2
| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
04 OUR BOARDS’ DIRECTORS
05 GOVERNANCE
06 SUSTAINABILITY
24.9bn
kilometres travelled on ALX
roads in 2018, up 2%
4
portfolio toll road investments1
6 years of continued distribution growth to securityholders
23,000+
24.0c
2018 distribution per security,
up 20%
securityholders
3
2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
02
Chairpersons and
CEO Message
Continued growth in 2018
Atlas Arteria (ALX) experienced another year of positive
performance in 2018, with our portfolio continuing to deliver
growth in business value and distributions for securityholders:
• Statutory net profit of A$59.9 million1, driven by the
consolidation of Dulles Greenway’s results for the full year and
ALX’s share of net profits from its investment in APRR, partially
offset by performance fees2 paid in accordance with and due to
the renegotiation of the management agreements
• Weighted average portfolio traffic grew 1.5% compared to the
prior corresponding period (pcp)
• Proportionate revenue and EBITDA3 increased 4.1% and
4.8% respectively across the portfolio, reflective of traffic
performance, toll increases and ongoing cost management
across the portfolio
• We delivered 20.0% growth in distributions to securityholders
compared to 2017
• Continued portfolio simplification through the acquisition
of an additional 30% interest in our German toll road, the
Warnow Tunnel, consolidating our ownership to 100%
• We successfully refinanced and upsized the debt facility at MIBL
Finance S.à r.l. (MIBL), with proceeds used to repay the higher
interest cost debt facility at the Dulles Greenway4.
The past year also saw significant corporate change. In May 2018,
following securityholders’ approval of management internalisation,
we changed our company name to Atlas Arteria and commenced
transition to internalised management.
Progress towards internalisation is advanced, with significant
momentum to achieve a smooth and successful transition of the
management of ALX from Macquarie to the new independent
team by the transition date of 15 May 2019. The two management
teams continue to work closely together on all aspects of the
internalisation process.
Distribution growth and outlook
In 2018, ALX paid a total distribution of 24.0 cents per security
(cps), representing 20.0% growth on pcp and comprising both
dividend and return of capital components. This represents the fifth
consecutive year that we have grown distributions since paying our
first distribution in 2013.
We were also pleased to confirm our distribution guidance of
30.0 cps for 20195, representing a 25% increase on 2018. Our first
half 2019 distribution of 15.0 cps is expected to be declared to
securityholders in April 2019.
Operational performance
APRR
APRR delivered another year of positive traffic, revenue and EBITDA
growth. Traffic increased 2.2% on pcp, despite the disruption caused
by the French “Yellow Vests” protests. Revenue and EBITDA grew by
4.7% and 5.6% respectively compared to 2017, reflecting increased
traffic volumes, 2018 toll increases and continued cost control.
In November 2018, APRR and AREA finalised an agreement with
the French State for a €187 million capital investment plan6.
The additional investments will be compensated via supplemental
toll increases at APRR and AREA over 2019-2021.
During 2018, APRR Group continued to deliver interest cost savings
with total group interest expense reduced by ~€123 million or
35% on pcp. At the APRR level, maturing facilities continued to
be replaced with lower cost debt at extended maturities, with a
€500 million 11-year bond issued during the year at an all-in cost of
~1.6%7. At Eiffarie, a €3.2 billion legacy swap with an average cost
of 4.6% expired on 30 June 2018, providing pre-tax cost savings of
~€150 million per annum for the APRR Group8.
APRR cash flows continued to underpin all of ALX’s distributions in
2018 and is anticipated to underpin our 2019 distributions.
ADELAC and Warnow both recorded positive traffic, revenue and
EBITDA growth in 2018.
Dulles Greenway
Dulles Greenway traffic declined 4.5% on pcp, impacted by
improvements to the surrounding network. Prior traffic guidance
was met despite the additional impact of adverse weather
conditions and partial federal government shutdowns in January
and December of 2018 that continued through January 2019.
Revenue and EBITDA declined by 1.4% and 1.5% respectively on
pcp, driven by traffic performance, offset by toll growth and cost
management during the year.
1. Note the statutory result is not indicative of ALX’s cash flows or future distributions.
2. In accordance with and due to the renegotiation of the management agreements, aggregate performance fee instalments of A$115.3 million for 2016, 2017 and 2018 were settled
(A$25.0 million in cash and A$90.3 million through a reinvestment in ALX securities). A$70.6 million of the performance fees were recognised in 2018 (A$44.7 million recognised in prior years).
3. Current and prior year proportionate Revenue and EBITDA information involves the aggregation of the financial results of ALX’s relevant assets in the relevant proportions that ALX holds
beneficial interests.
4. Calculated based on base interest rates at the time of announcement on 1 June 2018.
5. Distribution guidance is subject to business performance, FX movements, French tax rates and other future events. No assumptions are made about any changes to or negotiations
regarding the current APRR/Eiffarie capital structure or the MAF advisory agreement, nor about future possible exit from lock up or cash sweep arrangements, or amount, if any, of cash
that may be released from other assets.
6. Approximately 10% to be financed by local authorities.
7. The bond was issued in November 2018 under APRR’s Euro Medium Term Note programme at 99.027% of par with a coupon of 1.50% and a maturity of January 2030.
8. Calculated based on base interest rates at the time of swap expiry.
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| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
04 OUR BOARDS’ DIRECTORS
05 GOVERNANCE
06 SUSTAINABILITY
During the year, Greenway commenced dialogue with stakeholders
to establish a future toll path beyond 2020, but an agreement has
not been reached. Greenway’s current toll path is set by legislation
through to 1 January 2020. Thereafter, toll increases are set by
application to the State Corporations Commission (SCC), as they
were from the road’s inception until 1 January 2013. The Greenway
anticipates lodging its 2020 toll application with the SCC during 2019.
ALX continues to monitor and actively address some peak
congestion issues on the Dulles Greenway. During the year, lanes
at the toll plaza were reconfigured during morning peak to provide
congestion relief for users. In December, Greenway commenced
phase 1 of the Dulles Toll Road (DTR) connector decongestion
project at the eastern end of the road.
As at 31 December 2018, Dulles Greenway passed the Additional
Coverage Ratio test (a 3-year distribution lock-up test) but, as
expected, did not pass the Minimum Coverage Ratio test (a 1-year
distribution lock-up test).
Portfolio update
In September 2018, ALX further consolidated its portfolio
through the acquisition of the remaining 30% equity interest and
shareholder loan in the Warnow Tunnel. ALX has held a 70% equity
interest in the Warnow Tunnel since our inception. The acquisition
represents a continuation of ALX’s ongoing strategy of portfolio
simplification, and 100% ownership also creates optionality for
ALX to optimise the value of the business in the future.
As part of our disciplined approach to capital management, during
2018 we successfully refinanced and upsized the debt facility at MIBL
Finance S.à r.l. (MIBL), the entity through which ALX holds its indirect
interest in APRR, from €150 million to €350 million. Proceeds from
the upsizing were predominantly used to repay the US$175 million
Dulles Greenway acquisition finance facility. Overall the refinancing
and repayment should result in net interest savings for ALX.
Corporate Governance and Sustainability
At ALX, our approach to environmental, social and governance
risk management is an important aspect of our daily operations.
The Boards, management and portfolio company employees are
committed to the identification, assessment and responsible
management of ESG risks. We view this as a key part of our
long-term success and integral to our responsibility to road
users as well as our securityholders, employees, the community
and the environment.
At ALX we also believe that operating our roads in a sustainable
and responsible manner, including by reducing our impact on the
environment, is an integral part of ensuring our long term success.
During 2018, we continued to work with each of our portfolio
companies to report the risks we face and measures we have taken
to address these risks. We encourage you to read our Sustainability
Report and Corporate Governance Statement on our website
which provide further details on our approach to Sustainability
and Corporate Governance.
Board and management updates
Board changes
ALX continues to review the structure of the Boards of Atlas Arteria
Limited (ATLAX) and Atlas Arteria International Limited (ATLIX) to
renew and enhance the complementary skills and composition of
the ALX Boards.
In October 2018, we were delighted to welcome David
Bartholomew onto the Board of ATLAX. David brings extensive
infrastructure experience, having most recently been CEO of DUET
Group for six years as well as his prior experience as director
of Infrastructure at Hastings Funds Management. We were
also pleased to appoint Jean-Georges Malcor to the Board of
ATLAX in November 2018. Jean-Georges has led multinational
companies in both France and Australia. He brings to the Board
extensive business expertise, especially in the electronic systems,
construction and engineering sectors.
2018 also saw the retirement of ATLAX non-executive directors,
John Roberts and Richard England. John and Richard were
directors of ALX for more than eight years and made a significant
contribution to the development and growth of the ALX group.
CFO change
During the year, Bodie ter Kuile succeeded Mark Goodrick as Chief
Financial Officer (CFO) of ALX. Mark joined ALX in 2012 and became
CFO in 2015, overseeing the finance function of ALX during a period
of significant growth and transformation.
On behalf of the Boards of ALX, we thank John, Richard and Mark
for their respective contributions to ALX and wish them all the best.
Internalisation update
Following securityholder approval in May 2018 to transition to an
internalised management team, we have recruited a strong core
team of highly experienced executives, led by Graeme Bevans, to
assume management upon internalisation.
Graeme Bevans was appointed Chief Executive Officer (CEO)
Elect in April 2018 and will succeed James Hooke as CEO once
ALX is internalised. Graeme brings a deep understanding of the
global infrastructure industry and has a strong track record in
managing global infrastructure investments. He also has extensive
experience in stakeholder management within complex joint
venture arrangements in Australia and overseas, particularly
in Europe and North America.
We are also pleased to have appointed Nadine Lennie as
successor to Bodie ter Kuile as CFO. Nadine is an experienced CFO,
having implemented and managed complex financial structures
across Australia, Europe and North America. She brings a strong
track record in disciplined development and investment in
infrastructure globally.
The internalised management team is already actively engaged
in our key objective of maximising long term securityholder
value through:
• Successfully completing transition and streamlining structures
where possible;
• Continued disciplined capital management and driving
operational improvements; and
• Accretive opportunities primarily focused within the portfolio.
We thank you for your ongoing support of ALX and welcome your
feedback and questions. These can be provided to our Investor
Relations team at 1800 621 694 or at Level 5, 141 Flinders Lane,
Melbourne, VIC 3000.
Nora Scheinkestel
Chairman,
Atlas Arteria Limited
Jeffery Conyers
Chairman, Atlas Arteria
International Limited
James Hooke
Chief Executive Officer,
Atlas Arteria
Graeme Bevans
Chief Executive Officer Elect,
Atlas Arteria
5
2018 Atlas Arteria Annual Report |
01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
03
A Review of ALX and
its Portfolio in 2018
Our business
ALX is a global infrastructure developer, operator and investor.
ALX offers securityholders exposure to an international portfolio
of toll roads including:
• Exposure to the European economy through ALX’s interest in
APRR and ADELAC in eastern France, and the Warnow Tunnel
in Germany
• Exposure to the US economy through ALX’s interest in the
Dulles Greenway in northern Virginia.
ALX offers securityholders a total return including distributions
and capital appreciation:
• Annual growth in distributions is currently wholly
underpinned by distributions received from ALX’s investment
in APRR
• A proportion of asset level cash flow remains in the portfolio
businesses, with progressive debt reduction and capital
expenditure for future growth.
Distributions (cents per security)
24.0
20.0
18.0
16.0
13.2
5.7
2013
2014
2015
2016
2017
2018
Internalisation
Since inception in January 2010, ALX has been managed by
Macquarie Group under an externally managed model.
In May 2018, securityholders voted in favour of a proposal to
internalise management and change our name from Macquarie
Atlas Roads to Atlas Arteria.
Progress towards internalisation is advanced, with significant
momentum to achieve a smooth and successful transition of the
management from Macquarie to the new internalised
team by the transition date of 15 May 2019. The two
management teams continue to work closely together on all
aspects of the process towards internalisation.
Our strategy
ALX’s strategy is to seek to deliver growing distributions and
enhance the value of our portfolio for securityholders. We seek
to invest in global infrastructure businesses that generate stable
cash flows and offer resilient long-term performance through
economic cycles.
Key actions to deliver on our strategy include:
• Active management – leveraging core competencies to drive
corporate and operational efficiencies
• Efficient and disciplined capital and portfolio management
• Delivering and growing distributions from
portfolio businesses
• Investing in accretive, complementary growth opportunities.
Our portfolio businesses
APRR: 25.00% interest
APRR represents most of ALX’s portfolio by value (in 2018,
APRR’s contributed 85% of ALX’s proportionate EBITDA).
The fourth largest motorway network in Europe, and the second
largest in France covering 2,318 kilometres1 of motorway,
APRR provides critical connectivity between major French
cities, including Paris and Lyon, and access to France’s major
trading counterparts.
ADELAC: 25.03% interest2
ADELAC, or the A41, provides a strategic link between Annecy
in France and Geneva in Switzerland, offering fast transit for
commuters and facilitating leisure traffic between Geneva and
the French Alps. The road connects to the APRR network, with
APRR as the operator of the concession.
Dulles Greenway: 100% estimated economic interest3
The Dulles Greenway is a 22 kilometre toll road in north
Virginia which forms part of a commuter route into the greater
Washington D.C. region.
Warnow Tunnel: 100% interest4
The Warnow Tunnel is a 2.1 kilometre toll road and tunnel under
the Warnow River in the northern German city of Rostock.
1. APRR network length of 2,318 kilometres includes ADELAC’s 20 kilometres.
2. ALX holds a 25.03% indirect interest in ADELAC, 12.48% through APRR and the remaining 12.55% through MAF2.
3. ALX’s estimated economic interest is held through ~86.6% subordinated loans and ~13.4% equity.
4. ALX acquired an additional 30% interest in the Warnow Tunnel in September 2018.
6
| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
04 OUR BOARDS’ DIRECTORS
05 GOVERNANCE
06 SUSTAINABILITY
Risk management
Risk is an inherent part of ALX’s business and management
of risk is therefore critical to ALX’s continuing profitability
and financial strength. Key risks are regularly reviewed by the
Boards, the Audit and Risk Committees and the Manager.
ALX’s risk management framework creates a consistent
approach to identifying, analysing, monitoring and mitigating
risks. This framework will continue to be utilised by ALX
post-internalisation, and includes various policies, charters
and procedures, which can be found on ALX’s website
www.atlasarteria.com.
Each of the ALX portfolio companies is responsible for
adopting and maintaining its own risk management framework
and supporting infrastructure to manage its own risk. It is
ALX’s policy to confirm that each portfolio company has an
appropriate risk management framework in place to assist the
business in effectively managing its risks.
Financial performance
Statutory
ALX equity accounts its investment in APRR and ADELAC, and
now consolidates both the Dulles Greenway and Warnow Tunnel,
following the acquisition of the remaining 30% equity interest of
Warnow Tunnel in September 2018.
Accordingly, the results and balance sheet of the Dulles
Greenway and Warnow Tunnel are consolidated into ALX’s
results in full, with a purchase price allocation occurring at the
time of initial consolidation. The portfolio equity accounted
results are disclosed as ‘share of net profits/(losses) from
investments accounted for using the equity method’ in ALX’s
income statement. Combined with corporate level expenses,
these make up ALX’s statutory result.
ALX’s statutory net profit was A$59.9 million5 driven by the
consolidation of Dulles Greenway’s results for the full year and
ALX’s share of net profits from its investment in APRR, partially
offset by performance fees paid in accordance and due to the
renegotiation of the management agreements.
Further information on the statutory results is provided in the
Financial Report on pages 29 to 106.
Proportionate results from toll road businesses
The proportionate results aggregate the financial results
of ALX’s businesses in the respective proportions of ALX’s
economic interests from ongoing operations in each business.
The proportionate results are prepared on a different basis to
the ALX Financial Report, which is prepared in accordance with
Australian Accounting Standards.
In aggregate, ALX’s portfolio reported positive performance in
traffic, revenue and EBITDA in 2018. The following chart shows
the operating performance of ALX’s portfolio as a whole for 2018
compared to 2017.
Further information, including the basis of preparation of
proportionate results and a reconciliation of these results
to the statutory results, is provided in the Management
Information Report which is available on ALX’s website
www.atlasarteria.com.
Cash flow and cash position
A summarised corporate level cash flow statement for the year
to 31 December 2018 is set out below.
ALX declared an increased level of distributions to
securityholders, with 1H18 and 2H18 distributions of 12.0 cents
per security (cps) each, compared to 10.0 cps for each of 1H17
and 2H17. The 1H18 distribution comprised a foreign dividend,
while the 2H18 distribution comprised of a return of capital and
an Australian unfranked dividend.
ALX maintains a disciplined capital management strategy.
After payment of each distribution, ALX retains prudent
cash balance to fund working capital requirement and
other purposes.
Proportionate performance 2018 vs 20176
ALX cash flow statement
Available cash
Opening balance 1 January
Total cash flow received from assets
Other operating cash flows
Net proceeds from borrowings and the issue of securities7
Payment for purchase of additional asset interests8
Interest paid
Other investing and financing cash flows
Distributions paid
Closing balance 31 December
Year ended
31 Dec 18
A$m
39.8
Year ended
31 Dec 17
A$m
223.4
249.6
(81.5)
69.5
(4.0)
(16.1)
(5.3)
(162.4)
89.6
153.0
(35.7)
1,097.3
(1,275.2)
(7.5)
–
(115.5)
39.8
Up 4.1%
Up 4.8%
Up 1.5%
Traffic
Revenue
EBITDA
5. Note the statutory result is not indicative of ALX’s cash flows or future distributions.
6. Based on ALX’s average beneficial interest in its businesses over the year on a like-for-like portfolio basis. Portfolio revenue and EBITDA (Earnings Before Interest, Tax, Depreciation
and Amortisation) growth represent proportionate results as disclosed in ALX’s Management Information Report to 31 December 2018. Weighted average traffic based on portfolio
revenue allocation.
7. Includes the refinancing and upsizing of MIBL facility from €150.0 million to €350.0 million and repayment of the Dulles Greenway acquisition facility from upsizing proceeds.
8. 2018 relates to the €2.3m paid for the remaining 30% interest in Warnow Tunnel (an estimated €1.3m relating to transaction taxes is estimated to become payable in 2019). 2017 relates
US$445.0 million paid for acquisition of 50% economic interest of Greenway and €439.9 million paid for additional 4.86% interest in APRR.
7
2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
APRR and ADELAC
France
APRR is a 2,318 kilometre1 motorway network located in the
east of France. It is the second largest motorway network in
France and the fourth largest in Europe.
APRR comprises three concessions: the
APRR Concession, the AREA Concession and
a minority interest in the ADELAC Concession2.
It acts as a vital transportation corridor for
major Western European and intra-France
trade and tourism, and provides essential
connectivity between Paris and Lyon, France’s
two largest metropolitan areas.
ALX interest:
25.0%3
Concession length:
Nov 2035
APRR:
AREA:
Sep 2036
ADELAC: Dec 2060
APRR
Traffic:
up 2.2% on pcp
ADELAC
Traffic:
up 1.2% on pcp
Revenue:
up 4.7% on pcp
Revenue:
up 3.1% on pcp
EBITDA:
up 5.6% on pcp
EBITDA:
up 3.5% on pcp
OVER 50+ YEARS OF
ESTABLISHED OPERATING
PERFORMANCE
1. Note the APRR network length of 2,318 kilometres includes ADELAC’s 20 kilometres. APRR holds a 49.9% interest in ADELAC.
2. APRR holds a 49.9% interest in ADELAC with APRR Group shareholders owning the residual 50.01%.
3. ALX holds a 25.03% indirect interest in ADELAC, 12.48% through APRR and the remaining 12.55% through MAF2.
8
| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
04 OUR BOARDS’ DIRECTORS
05 GOVERNANCE
06 SUSTAINABILITY
Traffic performance
APRR
Operating performance
APRR
Total traffic on the APRR Group network increased 2.2%
during the year. Light vehicles traffic increased 1.7%,
while heavy vehicle traffic saw a 4.7% growth on 2017.
Traffic temporarily benefitted from industrial actions
in competing travel alternatives (rail and air sectors)
during the first half of the year, but was subsequently
negatively impacted by disruptions caused by the
Gilet Jaunes (‘Yellow Vests’) protests during the fourth
quarter of 2018.
The opening of a newly added 5.5 kilometre section also
had a positive impact on traffic.
EBITDA (€bn) vs traffic (bn VKT)
�bn
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2008
2009
2010
bn VKT*
25
24
23
22
21
20
19
18
17
16
15
2018
2015
2014
Traffic (RHS)
2016
2017
2011
2012
EBITDA (LHS)
2013
Toll revenues increased 4.7% to €2,463 million in 2018,
driven by traffic growth, toll increases and a more
favourable traffic mix as a result of stronger heavy
vehicle growth.
APRR EBITDA increased 5.6% to €1,874 million, with
an improved EBITDA margin of 73.8% (2017: 73.2%),
underpinned by revenue growth and continued
cost management.
Automated transactions represented 99.4% of total
transactions, with the number of APRR electronic toll
collection devices increasing 8% to over 2.7 million
in 2018.
ADELAC
Revenue and EBITDA at ADELAC increased 3.1% and 3.5%
respectively on pcp underpinned by traffic growth and
toll increases.
ADELAC
Traffic at ADELAC increased 1.2% on pcp, benefitting from
continued growth in commuter traffic, partially offset by
disruption caused by ‘Yellow Vests’ protests during the
fourth quarter of 2018.
* APRR VKT excludes ADELAC
9
APRRAREAADELACAPRRSwitzerlandGermanyItalyFranceLyonTroyesCosne-Cours-sur-LoireMelunToulMulhouseBourgesVichyParisMilanZurichStuttgartValenceClermont-FerrandDijonGenevaGrenobleChambéry 2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
Financing costs and future interest saving opportunities
APRR has a sustainable debt maturity profile and strong
liquidity position. APRR debt has an investment grade
credit rating of A- (Stable Outlook) by both S&P and Fitch.
Both rating agencies re-affirmed the rating during 20184.
APRR Group net interest expense decreased by €123 million
or 35% compared to FY17:
X At APRR, maturing debt continued to be replaced at
lower cost during 2018
X €500 million bond issued in November 2018 at an
all-in cost of ~1.6% and maturity of ~11 years5
X €150 million of floating European Investment Bank loans
with an average margin of 0.9% were replaced with
commercial paper
X At Eiffarie, a €3.2 billion legacy swap with an average cost
of 4.6% expired on 30 June 2018, providing pre-tax cost
savings of ~€150 million per annum6.
Formalisation of new investment plan with the
French State
In November 2018, APRR finalised a capital investment
plan with the French State. Total size of the investment is
€187 million, with ~10% to be financed by local authorities7.
The plan consists of 12 projects and will provide
upgrades and improvements to the motorway network.
These include new or improved motorway exchanges,
environmental protection developments and customer
service improvements.
APRR network to be compensated via supplemental toll
increases of 0.198% per annum at APRR and 0.389% per
annum at AREA over 2019-2021.
4. Moody’s has historically covered APRR on an unsolicited basis. In December 2018, Moody’s upgraded APRR’s rating from Baa1 to A3. In January 2019, Moody’s announced it has decided
to withdraw APRR’s ratings for its own business reasons and will no longer continue research coverage of APRR.
5. The bond was issued in November 2018 under APRR’s Euro Medium Term Note programme at 99.027% of par with a coupon of 1.50% and a maturity of January 2030.
6. Calculated based on base interest rates at the time of swap expiry.
7. The 2018 State Capital Investment Plan was originally estimated to be €222 million (with ~10% to be financed by local authorities), but was subsequently scaled back as a result of
regulatory review.
10
APRR and ADELAC France continued| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
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05 GOVERNANCE
06 SUSTAINABILITY
2,318 KILOMETRE
MOTORWAY NETWORK
APRR provides essential
connectivity for major Western
European and intra-France trade
and tourism.
11
2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
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Dulles Greenway
Virginia, USA
The Dulles Greenway is a 22 kilometre toll road located
in Loudoun County, one of the faster growing and more
affluent counties in the United States.
The Dulles Greenway is part of a key road
corridor connecting suburban communities in
northern Virginia with the greater Washington
area in the United States.
ALX interest:
100%1
Concession expiry:
2056
Traffic:
down 4.5% on pcp
Revenue:
down 1.4% on pcp
EBITDA:
down 1.5% on pcp
Traffic and financial performance
Traffic decreased 4.5% in 2018, impacted by improvements
to the surrounding network, adverse weather conditions
and partial federal government shutdowns in January and
December of 20182:
X Improvements to the surrounding network continued
to have a negative impact on traffic during the year,
although the impacts moderated during 2018, as prior
period traffic has incorporated much of the impact
X Overall weather also had an adverse impact on traffic
during 2018, with various one-off disruptive weather
events in addition to the area experiencing the wettest
year on record (the Dulles corridor recorded 66.7 inches
of rainfall vs historical average of 41.5 inches3)
X Federal government shutdowns at the beginning and at
the end of 2018 also negatively impacted traffic.
Revenue and EBITDA declined by 1.4% and 1.5% respectively
on pcp, mainly driven by traffic performance, offset by toll
growth and cost management during the year.
As at 31 December 2018, Dulles Greenway passed the
Additional Coverage Ratio test (a 3-year distribution lock-up
test) but, as expected, did not pass the Minimum Coverage
Ratio test (a 1-year distribution lock-up test).
1. Estimated economic interest.
2. The December 2018 government shutdown, which commenced on 22 December 2018, continued through to 25 January 2019.
3. 2018 Dulles VA Precipitation, National Weather Service.
12
| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
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06 SUSTAINABILITY
Asset initiatives
Macroeconomic environment and corridor dynamics
Capital improvements to alleviate morning east-bound
traffic congestion progressed in 2018:
X Lanes at the toll plaza were reconfigured during
morning peak to provide congestion relief for users
X In December, Greenway commenced phase 1 of the
decongestion work at the eastern end of the road
connecting to the Dulles Toll Road
X At the western end of the road, Greenway and local
authorities have also identified a potential short-term
option to relieve congestion. Discussion and analysis
on this continues.
During the year, Greenway commenced dialogue with
stakeholders to establish a future legislated toll path
beyond 2020, but an agreement has not been reached:
X Greenway’s current toll path is set by legislation
through to 1 January 2020, whereby tolls are
permitted to increase by the maximum of CPI+1%,
real GDP or 2.8%
X From 2020 onwards, toll increases are set by
application to the State Corporation Commission
(SCC), as they were since the road’s inception until
1 January 2013
X The Greenway anticipates lodging its 2020 toll
application with the SCC during 2019.
Loudoun County is one of the fastest growing and
most affluent counties in the US, with the highest
Median Household Income in the US at ~$136,0004
and the highest Virginian county investment levels
and employment in 20175
Economic growth in the region is supported by a
well-educated working class population, recording the
highest employment growth rate6 and second-highest
population growth rate7 in Virginia.
EBITDA (US$m) vs traffic (ADT)
US$m
120
100
80
60
40
20
0
Revenue (LHS)
EBITDA (LHS)
Traffic (RHS)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
ADT
55,000
50,000
45,000
40,000
35,000
30,000
25,000
4. Source: the U.S. Census Bureau estimates: 2016 Small Area Income and Poverty Estimates, November 30, 2017.
5. Source: US Bureau of Labor Statistics – released December 2018.
6. Source: US Bureau of Labor Statistics. Loudoun County recorded highest pcp employment growth from 1 January to 30 June 2017. Released 5 December 2017, current as at
31 December 2018.
7. Source: the U.S. Census Bureau.
13
DullesGreenwayLoudounCountyLeesburgRockvilleArlingtonFalls ChurchBethesdaTysonsCornerSilver SpringWashington DCFairfaxDullesInternationalAirportReaganNationalAirportMarylandVirginia 2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
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Warnow Tunnel
Rostock, Germany
The Warnow Tunnel is a 2.1 kilometre toll road,
including a 0.8 kilometre tunnel located under the
Warnow River in the city of Rostock, Germany.
Rostock is located in North Eastern Germany
and the Port of Rostock is the fourth largest
port in Germany.
During 2018, ALX increased its ownership
interest in the Warnow Tunnel to 100%.
ALX interest:
100%1
Concession expiry:
2053
Traffic:
up 10.5% on pcp
Revenue:
up 13.4% on pcp
EBITDA2:
up 16.2% on pcp
Traffic and financial performance
Traffic increased 10.5% in 2018, benefitting from temporary
construction activities on competing routes in and
around Rostock.
Revenue grew 13.4% and EBITDA increased 16.2% in 2018,
underpinned by strong traffic growth and higher tolls
during 2018.
Macroeconomic environment
Germany has seen a continued economic recovery since
2013, with 2.0% average annual GDP growth between
2014 and 20183.
Rostock is an important port city in Germany, and has
benefitted from an overall growth in exports, population,
tourism and a stronger economy since the Warnow Tunnel
opened in 2003.
The unemployment rate in Rostock has continued to improve
over the last decade.
1. In September 2018, ALX completed the acquisition of the remaining 30% equity interest and shareholder loan in Warnow Tunnel for €3.7 million (prior to adjusting for applicable
transaction taxes). The acquisition increases ALX’s total interest to 100% and was fully funded by ALX’s existing corporate cash.
2. Current and historical expenses have been updated to exclude provisions and any maintenance capex.
3. Statistisches Bundesamt, January 2019.
14
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Route dynamics
Consolidating ownership to 100%
In September 2018, ALX acquired a remaining
30% interest in the Warnow Tunnel, increasing ALX’s
ownership to 100%.
The acquisition represents a continuation of ALX’s
ongoing strategy of portfolio simplification, and enhances
the ability for ALX to optimise the business.
The Warnow Tunnel allows road users to cross under
the Warnow River, which divides the city of Rostock.
Alternative options to cross the Warnow River include
ferries, which take more than 15 minutes to complete
the crossing, or a 19 kilometre journey via untolled roads
through the Rostock central shopping precinct, which
can be subject to delays during peak periods.
Since 2017, untolled roads through Rostock have been
undergoing temporary maintenance and construction
activities, which have further lengthened the travel
time on alternative routes and benefitted traffic on
the Warnow Tunnel. These positive impacts on traffic
are temporary and are not expected to continue in the
medium term.
EBITDA (€m) vs traffic (ADT)
EBITDA (€m)
12
10
8
6
4
2
0
2014
2015
2016
EBITDA (LHS)
2017
Traffic (RHS)
2018
Traffic (ADT)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
15
Elmenhorst/LichtenhagenMarkgrafenheideHohe DüneWarnemündeEvershagenWarnow Tunnel 2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
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04
Our Boards’ Directors
ALX comprises Atlas Arteria Limited (ATLAX)
and Atlas Arteria International Limited (ATLIX).
The ATLAX and ATLIX Boards are made up
of four and five directors respectively, with a
diverse range of backgrounds and experience.
The directors take an active role in the
management of ALX, meeting on a regular basis
to review ALX’s affairs and to carry out their
statutory and fiduciary duties.
Where required, the Boards convene at short
notice to consider matters as they arise.
16
NORA SCHEINKESTEL
LLB (Hons) (Melb), PhD, FAICD,
Centenary Medal
ATLAX Non-Executive,
Independent Chairman
ATLIX Non-Executive,
Independent Director
Chairman of ATLAX from 17 April 2015 and
Director from 28 August 2014
Director of ATLIX since 17 April 2015
Age: 59
Nora Scheinkestel is an experienced company
director having served as chairman and director
on public and private sector boards spanning a
wide range of industry sectors. As well as being
Chairman of the ATLAX Board, she also chairs the
ATLAX Nomination and Governance Committee
and is a director of the ATLIX Board. She is also
currently a director and committee chairman
of Telstra Corporation Limited, AusNet Services
Limited and OceanaGold Corporation and a
trustee of the Victorian Arts Centre Trust.
Dr Scheinkestel has a long track record in the
infrastructure sector. Her background is as
a senior banking executive in international
and project financing, responsible for the
development and financing of major mining and
infrastructure projects in Australasia and South
East Asia. She is a published author of Rethinking
Project Finance – Allocating and Mitigating Risk
in Australasian Projects. She has been chairman
and director of companies in highly regulated
sectors such as utilities and telecommunications
and in industries facing significant disruption
from technology and market changes.
Dr Scheinkestel is an Associate Professor in
the Melbourne Business School at Melbourne
University, a former member of the Takeovers
Panel and was awarded a Centenary
Medal for services to Australian society in
business leadership.
| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
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DEBRA GOODIN
BEc (AU) FCA
ATLAX Non-Executive,
Independent Director
Director from 1 September 2017
Age: 52
DAVID BARTHOLOMEW
BEc (Hons), MBA
JEAN-GEORGES MALCOR
Ecole Centrale de Paris (Eng), MSc (Stanford)
ATLAX Non-Executive,
Independent Director
Director from 1 October 2018
Age: 58
ATLAX Non-Executive,
Independent Director
Director from 1 November 2018
Age: 62
Debra Goodin, who is also Chairman of the Audit
and Risk Committee of ATLAX, is an experienced
independent director currently serving on the
boards of ASX-listed companies APA Group,
Senex Energy Limited and Ooh!media Limited.
She is currently also the chairperson of the
Audit and Risk Committees for these boards.
Debra has more than 20 years’ senior
management experience with professional
services firms, government authorities and
ASX-listed companies across finance, operations,
corporate strategy, mergers and acquisitions.
She is a fellow of Chartered Accountants
Australia and New Zealand.
Jean-Georges Malcor completed eight years
as Chief Executive Officer at CGG (EPA: CGG),
a Euronext-listed French geoscience company
providing services primarily to customers in the
global oil and gas industry. Prior to CGG, he spent
25 years at Thales Group (EPA: HO) in France
and Australia.
He has a long track record in large international
projects and developments all around the
world in sectors facing major technology and
market disruptions. He has developed a high
level of expertise in areas such as organisation,
corporate governance, risks mitigation, strategy,
technology, financing and restructuring.
Jean-Georges currently serves as a non-executive
director on the board and audit and risk
committee of STMicroelectronics (NYSE: STM),
and as a non-executive director on the boards of
ORTEC, a construction and engineering company
and Fives, a global industrial engineering group.
Jean-Georges is also a Chevalier (Knight) of the
French Légion d’Honneur Order and National
Order of Merit.
David Bartholomew, who is also Chairman
of the People and Remuneration Committee
of ATLAX, is an experienced director in the
infrastructure and utilities sector. In addition
to being a non-executive director of ATLAX, he
currently serves on the boards of Endeavour
Energy (the New South Wales electricity
distributor), Power & Water Corporation (the
multi-utility owned by the Northern Territory
Government) and the Saudi Arabia Industrial
Investment Company, Dussur. He is also a
director of The Helmsman Project, a not-for-
profit organisation that provides coaching and
development programmes for year 9 students,
predominantly in western Sydney.
In previous executive roles, David was appointed
to the boards of investee companies in Australia
and the USA with interests in electricity and
gas distribution and transmission, electricity
generation, and forestry. David also has toll road
sector experience, having served on the boards
of Interlink Roads (Sydney’s M5 Motorway)
and Statewide Roads (Sydney’s M4 Motorway)
representing investors managed by Hastings
Funds Management.
David was Chief Executive Officer of DUET Group,
a former ASX 100 listed utilities and energy
company and was responsible for management
of DUET’s successful transition from external
management by AMP Capital and Macquarie
Capital to a fully internalised management and
governance structure. He oversaw the growth
of DUET Group from a market capitalisation of
around A$1.2 billion to over A$7.48 billion.
David previously served on the board of
Vector Limited (NZX: VCT) and his previous
executive experience includes Hastings Funds
Management, Lend Lease, The Boston Consulting
Group and BHP Minerals.
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JEFFREY CONYERS
BA (Toronto)
DEREK STAPLEY
BA (Glas Cal) CA
JAMES KEYES
MA (Oxon)
ATLIX Non-Executive,
Independent Chairman
Bermuda-based – director since establishment
on 16 December 2009
Age: 65
Jeffrey Conyers is the Chairman of the ATLIX
Board and ATLIX Nomination and Governance
Committee, and is a director of numerous
companies in Bermuda. He is the former
Chief Executive Officer of First Bermuda
Securities Limited which provided advisory
and execution services on worldwide offshore
mutual funds to individuals and local companies
based in Bermuda.
Jeffrey began his professional career as a
stockbroker in Toronto and returned to Bermuda
in 1985 to join the Bank of Bermuda, where
his focus was investments and trusts. He is a
founding executive council member and deputy
chairman of the Bermuda Stock Exchange.
Jeffrey has previously served on the boards of
MAp Airports International Limited and Intoll
International Limited, parts of the previously
Macquarie-managed and ASX-listed vehicles
MAp Group and Intoll Group respectively.
ATLIX Non-Executive,
Independent Director
Bermuda-based – director from 1 June 2010
Age: 58
ATLIX Non-Executive,
Independent Director
Bermuda-based – director from 21 February 2013
Age: 55
Derek Stapley, Chairman of the Audit and Risk
Committee of ATLIX, is a Chartered Accountant
with over 30 years’ experience and is a former
partner with Ernst & Young. Derek has extensive
experience as an independent director of several
public and private investment funds, insurance
companies and private client structures, and
he works directly with a diverse range of global
retail and institutional investors.
Derek’s position on other boards, and in
particular as Chair of several Audit and Risk
Committees, provides ATLIX with a deep and
current understanding of public company
reporting and evolving trends in corporate
governance and risk management.
James Keyes, who is also the Chairman of
the Remuneration Committee of ATLIX, is a
Bermudan solicitor and barrister. He is currently
on the board of a number of private and listed
companies. He began his career with Freshfields
in London and New York then moved to the
Funds and Investment Services team at Appleby,
one of the largest offshore law firms in Bermuda.
James retired as a partner from Appleby in
2008, and held a part-time position as Managing
Director of Renaissance Capital, an investment
bank, until December 2012. James was a director
of the Bermudan entity within Transurban
Group for six years, as well as a director of a
company in the Moto group which operated road
service stations in the UK, from which he gained
experience in the toll road sector.
18
Our Boards’ Directors continued| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
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06 SUSTAINABILITY
CHRISTOPHER LESLIE
BCom (Hons) (Melb) CA
ATLIX Non-Executive Director
United States-based – director from
1 September 2017
Age: 54
Christopher Leslie is a senior managing director
of Macquarie Infrastructure and Real Assets
(MIRA) based in New York, with 25 years’
experience in the acquisition, development
and management of infrastructure assets
across Australia, Asia and North America.
Christopher has extensive experience in the
infrastructure sector, having been integral to the
expansion of MIRA’s infrastructure business in
the US since 1999. He has also served as Chief
Executive Officer of MIRA’s North American
series of unlisted infrastructure funds from 2006
to 2016, which collectively raised and invested
more than US$8 billion into infrastructure assets.
He is currently a board member of several
companies including Puget Energy, Cleco
Corporation and InSite Wireless. Christopher
is also a member of Chartered Accountants
Australia and New Zealand.
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05
Governance
Legal framework and management
arrangements
ALX is a dual stapled vehicle externally managed
by Macquarie. It was established in early
February 2010 as a result of a securityholder
approved restructure of Macquarie Infrastructure
Group (MIG).
ALX comprises Atlas Arteria Limited
(ACN 141 075 201) (ATLAX), an Australian public
company, and Atlas Arteria International Limited
(Registration No. 43828) (ATLIX), an exempted
mutual fund company incorporated in Bermuda.
ALX is listed as a stapled structure on the Australian
Securities Exchange (ASX). The securities of ATLAX
and ATLIX are stapled and must trade and otherwise
be dealt with together.
ATLAX and ATLIX have entered into a cooperation
deed which provides for sharing of information,
adoption of consistent accounting policies and
coordination of reporting to securityholders
(ALX Cooperation Deed).
Management Arrangements
On 15 May 2018, ALX securityholders approved an
internalisation proposal at the ALX Annual General
Meeting whereby ALX will cease to be externally
managed by the ALX Manager no later than
15 May 2019 (Internalisation).
The external management arrangements are
in accordance with management and advisory
agreements (ALX Management Agreements)
with Macquarie Fund Advisers Pty Limited
(ABN 84 127 735 960) (AFS Licence Number
318123) (the ALX Manager) which were entered
into by ATLAX and ATLIX respectively at the time of ALX’s
establishment and were updated effective 15 May 2018.
As at the date of this statement, ALX remains Macquarie
managed. ALX’s corporate governance arrangements conform
to the Corporate Governance Principles and Recommendations
(3rd edition) issued by the ASX Corporate Governance Council
(ASX Principles), taking into account ALX being an externally
managed vehicle. Any relevant implications or exceptions are
noted in the reporting against these principles below.
The ALX Management Agreements are non-discretionary
and substantially similar in their terms. They require
the ALX Manager to make investment and divestment
recommendations, provide active management of the
ALX assets and to assist with the general administration
of the companies.
20
Atlas Arteria Structure
Atlas Arteria
(ALX)1,2
ATLAX
ATLIX
Stapled
Macquarie
100%
Resources
(staff,
premises,
IT, etc.)
ALX
Manager
ALX Management and
Advisory Agreements
Investments
Investments
1. From May 2018 ALX commenced hiring its own staff.
2. ALX’s Management Arrangements will terminate no later than 15 May 2019, as approved by ALX securityholders on 15 May 2018.
Entity
ATLAX
ATLIX
Type of entity
Assets (various
% holdings)
Australian public
company
Dulles Greenway,
Cash
Bermudan
exempted mutual
fund company
APRR, ADELAC,
Dulles Greenway,
Warnow Tunnel,
Cash
Source of income
ATLAX derives its
income primarily
from returns from
its asset portfolio
ATLIX derives its
income primarily
from returns from
its asset portfolio
The ALX Manager makes staff available as part of its
management services, to perform the roles of ALX Chief
Executive Officer (CEO), Chief Financial Officer (CFO) and
other senior management roles.
In preparation for the Internalisation, ALX has commenced
employing its own staff including the CEO Elect and CFO
Elect (ALX Employees).
Key decision making is reserved for the ATLAX Board and the
ATLIX Board (together the ALX Boards). The ALX Boards have no
obligation to act on the recommendations of the ALX Manager
and can appoint other advisers if they wish.
The ALX Manager has sub-advisory agreements with
appropriately licensed or registered Macquarie Group
companies in various non-Australian jurisdictions to assist with
its management and advisory functions at no additional cost
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ALX’s Corporate Governance Statement, as well as other
governance documents referred to within the statement, can
be viewed on ALX’s website at www.atlasarteria.com/about.
These governance documents are regularly reviewed and
updated to ensure that they remain consistent with the
objectives of the ALX Boards.
to ALX. All staff are supplied to these Macquarie management
and advisory entities via resourcing arrangements with the
Macquarie employing entity in the relevant jurisdiction.
A high level summary of the ALX Management Agreements,
addressing the disclosure recommended in ASX Guidance
Note 26, can be found on the ALX website.
Governance disclosures
More detail about ALX’s operational and governance
arrangements can also be found in the ASIC 231 Regulatory
Guide disclosure on the ALX website. This disclosure includes
details of any change of control provisions in ALX asset debt
documents or shareholder arrangements triggered on removal
of the ALX Manager as the manager/adviser of ALX.
We recommend that you also read the following constituent
documents on the ALX website:
• ATLIX Advisory Agreement (as amended)
• ATLIX Transition Services Agreement
• ATLIX Bye-Laws
• ATLAX Management Agreement (as amended)
• ATLAX Transition Services Agreement
• ATLAX Constitution
• ALX Cooperation Deed.
Corporate Governance Statement
The ALX Boards determine the corporate governance
arrangements for ALX with regard to what they consider to be in
the long term interests of ALX and its investors, and consistent
with its responsibilities to other stakeholders.
ALX’s corporate governance arrangements conform to the
Corporate Governance Principles and Recommendations
(3rd edition) issued by the ASX Corporate Governance Council,
taking into account ALX being an externally managed vehicle.
ALX’s Corporate Governance Statement has been approved by
the ALX Boards and outlines ALX’s main corporate governance
practices for the year ended 31 December 2018 and up to
the date of issue of this 2018 Annual Report. Included in the
statement are details relating to:
• Board composition, skills matrix and performance
• Director independence
• Director attendance at 2018 ALX Board and
Committee meetings
• Diversity
• Securities trading policy
• Market disclosures
• Risk management framework
• Auditor independence.
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06
Sustainability
Our approach
At ALX, we believe that many environmental, social and
economic benefits arise from the responsible and sustainable
development and operation of infrastructure. We are also
aware that with these benefits, there are risks that may
have commercial, reputational and regulatory impact on our
business and affect the communities in which our portfolio
companies operate.
Accordingly, the identification, assessment and responsible
management of (and ongoing reduction in) environmental and
social risks is fundamental to our day-to-day business activities
and is an essential part of ensuring our long-term success.
We are dedicated not only to our securityholders, but also to
the community and we remain committed to our approach to
environmental, social and economic responsibility.
We structure our sustainability approach into six priority areas
that we consider to have the highest impact on our portfolio:
01
Safety
The safety of our customers, staff and
contractors is paramount.
02
Climate change & the environment
Actively reducing the impact of our roads on
the surrounding environment and addressing
climate change.
03
People & diversity
Promoting a culture of equal opportunity,
diversity and learning.
04
Supply chain
Ensuring suppliers and partners observe appropriate
working conditions and environmental and social
responsibility policies.
05
Community
Recognising the important role our businesses
play in the communities in which we operate, by
supporting these communities and responding
to their needs.
06
Technology
Leveraging advances in technology and planning
for future innovations.
22
Our approach to each of our focus areas is provided in more
detail within this report.
Sustainability governance
Existing portfolio companies
Each of our portfolio companies is responsible for adopting and
maintaining its own environmental and social risk management
framework that adequately ensures compliance with the
relevant regulation and standards in the country and industry
in which the business operates.
Our ability to control or influence the ongoing management of
environmental and social responsibility (ESR) issues will differ
for each business depending on the extent of our control/
governance rights at each company (e.g. based on the level
of ownership influence, board representation and/or the
regulatory environment).
At APRR (including ADELAC), ALX has a non-controlling
interest and accordingly ALX-appointed board representatives
promote and support the implementation of good ESR
practices to the extent that they are able to under the
co-ownership arrangements.
In May 2017, ALX gained effective control of the Dulles
Greenway with an estimated economic interest of 100%.
ALX management works closely with management of the Dulles
Greenway to assess new ESR initiatives and reporting outcomes
at the company. For the year ended December 2018, the Dulles
Greenway was in compliance with ALX’s standards and policies.
ALX is not aware of any breaches of regulatory standards at the
Dulles Greenway for the year ended 31 December 2018.
As of 21 September 2018, ALX gained control over the Warnow
Tunnel with 100% interest. As part of a broader transition
process, ALX management has conducted a risk assessment of
the company, including its ESR practices and reporting, and is in
the process of ensuring that the Warnow Tunnel’s ESR policies
and procedures are in line with ALX standards and expectations.
For the year ended 31 December 2018, ALX is not aware of any
breaches of regulatory standards at the Warnow Tunnel.
Regular reporting from each portfolio company to ALX also
assists in monitoring compliance with ESR requirements and in
the identification of ESG issues across ALX’s portfolio. The ESR
performance of each portfolio company is reported to the
ALX Boards regularly, with major environmental and social
incidents and governance breaches reportable within 48 hours
of occurrence.
New investments
ESR risks and opportunities are central considerations in ALX’s
evaluation of new investments. ALX aims to invest in businesses
that regard environmental and social issues as a high priority
| 2018 Atlas Arteria Annual Report 01 2018 AT A GLANCE
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03 OUR PORTFOLIO AND PERFORMANCE
04 OUR BOARDS’ DIRECTORS
05 GOVERNANCE
06 SUSTAINABILITY
and we are committed to complying with all regulations and
engaging responsibly with the community.
Accordingly, all potential investments in new businesses will
be screened as part of a comprehensive due diligence process,
in relation to ESR risks, including workplace health and safety
and climate change. To date, all investments made by ALX
have been in businesses where ALX has already held an equity
investment and has had a detailed understanding of the ESR
risks and performance. ESR risks are also included as part
of the independent due diligence performed and included
in any investment proposal presented to the ALX Boards
for consideration.
In addition to our own processes and policies, new
infrastructure projects are often subject to extensive social and
environmental impact reviews by governments, prior to being
given approval to proceed.
Sustainability policies
ESR-related risks are dealt with under several of ALX’s policies:
• Environmental and Social Responsibility Policy: sets out the
requirements for identifying and managing environmental
and social risks that arise in the day-to-day activities of ALX.
• Risk Management Policy: sets out the risk thresholds,
framework and policies in place to manage investment,
credit, liquidity, operational and legal risks associated with
ALX’s operations and investments.
• Workplace Health and Safety Risk Policy: sets out the
requirements for identifying and managing workplace health
and safety risks that arise in the day-to-day activities of ALX.
• Diversity Policy: outlines ALX’s commitment and approach
to ensuring diversity of experiences, skills, views and
backgrounds for its directors and management.
• Code of Conduct: sets out the expectations for ALX
employees in conducting business and outlines the values
by which employees are expected to act.
These policies are available on the ALX website and form part
of ALX’s overarching risk management framework in accordance
with Principle 7 of its Corporate Governance Statement.
ALX’s governance responsibilities and policies are covered in its
Corporate Governance Statement. For more information, visit
our website at www.atlasarteria.com
23
2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
Stakeholder engagement
ALX regularly engages with a broad range of stakeholders
who are involved in, or impacted by, our business. ALX’s key
stakeholders include our co-investors, portfolio company
employees, governments and regulators, suppliers,
securityholders and the wider communities in which our
portfolio businesses operate. Clear dialogue with these
stakeholders is important to building strong relationships,
maintaining trust and enhancing our business performance
for the long term.
The Manager’s approach to Sustainability
For the full year ended 31 December 2018, the day-to-day
management and administration of ALX was delegated to the
Manager under the management and advisory agreements.
The Manager, as part of Macquarie Asset Management,
a division within the Macquarie Group, is committed to
strong corporate governance and environmental and
social responsibility.
It adopts a rigorous risk management framework that
incorporates active management and monitoring of a broad
range of risks, including environmental and social risks.
This approach is governed by Macquarie’s ESG framework
and related policies.
The Manager is also guided by the International Finance
Corporation’s (IFC) Environmental and Social Performance
Standards and Environmental, Health and Safety Guidelines.
Refer to the Macquarie Group website:
www.macquarie.com/esg
The Manager’s approach to Modern Slavery
Macquarie Group’s Modern Slavery Act Transparency Statement
2018 is the third report published by Macquarie Group, outlining
the actions undertaken by the Group and the Macquarie Group
entities to identify and mitigate the risk of Modern Slavery and
human trafficking occurring in its supply chains or businesses.
Macquarie has an established set of policies and procedures
that govern the way it operates. These are relevant to how
Macquarie manages potential human rights related issues with
regard to its employees, supply chain and business operations
and include:
• Code of conduct
• Equal Employment Opportunity Policies
• Procurement Policy and Principles for Suppliers
• Financial Crime Compliance framework
• Environmental and Social Risk Policy
• Whistleblower Program.
24
In relation to ALX, a review was undertaken of the businesses
in which ALX holds a 100% interest (i.e. Dulles Greenway and
Warnow Tunnel) to identify potential areas of risk in relation
to Modern Slavery. No material risks were identified.
ALX regards Modern Slavery as an important risk area and will
continue to review and monitor relevant risks and develop
appropriate responses. This includes ensuring our compliance
in relation to potential legislative developments.
ALX respects human rights. This is fundamental to our value of
treating each other with dignity and respect. Over the 2019 year
we will be rolling out a number of initiatives aimed at protecting
the human rights of people who come into contact with our
business, including employees, contractors and the employees
of our suppliers. This programme will include our response to
new Modern Slavery laws in Australia and elsewhere.
ESR-related regulatory requirements
ALX and Macquarie Group policies outline the framework in
which breaches of policies or regulatory standards are identified
and addressed. ALX is not aware of any material breaches of
relevant ESR-related regulatory standards by its businesses
during the year ended 31 December 2018.
Achieving our goals and establishing best practice
Over the last 24 months as ALX has moved to 100% ownership
at two of our businesses, Dulles Greenway and Warnow Tunnel,
we are better able to implement sustainability goals at these
portfolio companies. ALX management actively engages with the
management and employees of these companies to establish
strategies and measures, and benchmarks and monitors
progress against these measures in order to better achieve
these sustainability goals.
We will continue to assess our sustainability strategy with
reference to key industry guidelines and reporting standards.
ALX’s sustainability approach and six priority areas are drawn
from certain objectives and goals outlined in the United Nations’
Sustainable Development Goals. Our largest business, APRR, has
been an asset assessment participant of GRESB Infrastructure
since 2017, allowing us to better assess our ESG performance
against our peers.
At the Dulles Greenway, the local management team has
been working with other toll road operators in Virginia and
Pennsylvania to establish a peer working group, tasked with
addressing climate change initiatives and establishing best
practice standards on energy efficiency and safety across the
toll road sector.
| 2018 Atlas Arteria Annual ReportSustainability continued 01 2018 AT A GLANCE
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04 OUR BOARDS’ DIRECTORS
05 GOVERNANCE
06 SUSTAINABILITY
Our Sustainability focus areas:
01
Safety
In 2018, road users travelled 24.9 billion kilometres across
ALX’s portfolio companies. The safety of our road users, staff
and contractors is paramount.
It is therefore with great sadness that we recorded a fatality
during 2018 at APRR, an ALX portfolio company. The incident
involved a sub-contractor to APRR’s engineering, procurement
and construction (EPC) contractor. The French Work Inspection
Agency mobilised on the day of the incident to conduct an
independent investigation of the incident, with all work at the
site suspended during the investigation. The Manager continues
to monitor the APRR and French Work Inspection Agency’s
investigation of this incident and reports to the ALX Boards.
Details of the incident, as far as they are currently known,
were shared with other ALX businesses in safety briefings.
We reinforce “health and safety first” at all our businesses and
are committed to promoting a “zero harm” culture across the
employment of staff, use of contractors, interaction with the
public, control of premises and provision of services to ensure
we remain in compliance with all relevant regulatory and
legal obligations.
The workplace health and safety performance for each of
ALX’s portfolio companies is reported to the Audit and Risk
Committees on a quarterly basis and presented to the ALX
Boards annually. Our policies require any major incidents to
be reported to the ALX Boards within 48 hours of notification
being received of such an occurrence.
Case study
Safety at work, and achieving a “zero-accident” target are
among the top priorities of APRR and ADELAC. The Group
operates an all-round safety strategy which includes
rigorous operating procedures. The APRR and ADELAC
network is under constant safety monitoring to ensure
rapid response to help keep customers safe at all times:
In 2018, APRR trialled and deployed new technologies
including thermal cameras and counting loops to detect
and minimise accidents caused by drivers travelling in
the wrong direction on the motorway network.
550 video cameras and 380 traffic counting stations,
with emergency phones located every two kilometres
along the network.
Approximately one third of employees have safety-
related roles with a fleet of 1,500 monitoring and
response vehicles.
As at 31 December, APRR reported a LTIFR of 5.2
(5.9 as at 31 December 2017). Note that the calculation
of LTIFR does not take into account the aforementioned
fatality.1
In 2018, all employees and contractors completed the
‘National Traffic Incident Management Responder Course’,
a new safety and incident response course led by Virginia
State Police.
In 2018, no serious accident was reported at the Greenway,
leading to a zero LTIFR as at 31 December 2018. However, an
employee has received treatment in May 2018 for a previous
back injury, which occurred at work in December 20172.
This has led to a restatement of the 2017 LTIFR from zero
to 11.3. In 2018, the Dulles Greenway also strengthened
regular reporting for “near misses” for any safety incidents.
Warnow Tunnel has been named one of the safest tunnels
in Europe by ADAC (the General German Automobile Club).
Since opening to traffic, it has continued to implement
modernisation works to maintain its high safety and
environmental standards. In 2018, Warnow Tunnel
experienced no serious accidents (LTIFR of 0) and upon
ALX acquiring a remaining 30% interest in Warnow Tunnel,
there has been a strengthening of regular reporting for
safety incidents.
Employees at the Dulles Greenway are actively
involved in regular safety initiatives and training
programmes which are provided throughout the year.
During 2019, ALX intends to focus on further enhancing
regular reporting of safety incidents at both the Dulles
Greenway and Warnow Tunnel.
1. Customary practice in the LTIFR calculation. Any fatalities or serious injuries are reported as separate events in addition to LTIFR measures.
2. The incident occurred in December 2017, where an employee suffered a back injury at work but did not suffer serious injury at the time. This resulted in zero LTIFR prior
to restatement for 2017.
25
2018 Atlas Arteria Annual Report | 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
02
Climate change & the environment
Climate change is an important consideration for our portfolio
businesses. We seek to minimise our impact on climate change
and to manage the risks associated with carbon emissions.
The roads which we operate have an important role in the
community and its environment. As part of ALX’s staff ethos,
we aim to care for our communities and the environment by
being proactive in pursuing options that minimise adverse
environmental impact. Our roads are operated in a way which
aims to minimise our impact on the environment and facilitates
reductions in carbon dioxide emissions by providing more
efficient transportation routes, reducing traffic congestion
and fuel consumption.
The environmental impact of our actions is a consideration as
we assess both the day-to-day operations of our businesses
and projects. We seek to implement technological options
and processes that minimise or mitigate environmental
impact. Each business has developed eco-friendly policies and
initiatives focused on identifying and minimising any negative
environmental impact including preserving surrounding water
resources, fauna and flora; reducing emissions; reducing the
impact of noise, visual and environmental pollution.
ALX management works closely with each of our operating
businesses to identify key climate change regulatory
benchmarks and industry practices to ensure our businesses
meet high industry standards.
Case study
APRR has set goals and targets to reduce its greenhouse
gas emissions at every level of its operations, from
infrastructure construction and modernisation, to
building renovations and curtailing unnecessary employee
travel, with no adverse impact on motorway users’
safety or comfort. In 2018, APRR Group developed a list
of environmental objectives to be achieved by 2025,
for example:
20% of running water to be replaced by renewable
sources for washing operations
10% energy reduction for heating and cooling
of buildings
20% reduction in CO2 produced by combustion.
As an example of the initiatives to minimise carbon
emissions, 20% of APRR electricity is sourced from
renewable energy. In 2018, renovations were undertaken
at APRR tunnels to replace lighting with more efficient,
lower emission LED technology, resulting in significant
reduction in APRR’s carbon emission.
Parking for carpooling: with more than 1 million
passengers in France carpooling per month, APRR has
collaborated with local authorities to create dedicated
car parks offering secure dedicated parking near road
infrastructure. At the end of 2018, more than 2,000
parking spots were available for carpooling.
Carpooling routes: from September 2017, seven
carpooling routes (Lyon, Chambéry, Grenoble,
Valence) and one carpooling route reserved for APRR’s
employees (Dijon–Lyon) have been opened.
Non-stop electronic tolling: improves driving comfort
while reducing fuel consumption and greenhouse gas
emissions by allowing a speed of 30 kilometres per hour
when crossing through the toll barrier.
Electric charging stations: are placed every 50 kilometres
along the network. These charging stations limit
greenhouse gas emissions and promote the use of
electric vehicles. The electricity for these stations is
produced from renewable energy sources.
At Dulles Greenway, 149 acres of new wetlands have
been established adjacent to the road to protect local
wildlife and mitigate the loss of environmental habitats.
All construction activities on the Dulles Greenway are
required to be conducted in a way that respects the
surrounding environment:
The current Metrorail construction on the Dulles
Greenway is monitored, and stormwater run-off
and waste water are required to be collected
and treated in order to minimise the impact on
surrounding waterways.
After any incident on the Dulles Greenway, a revegetation
policy requires impacted vegetation to be rehabilitated
or replaced.
Management recently conducted a pilot programme,
replacing existing highway light bulbs with more energy
efficient alternatives, as part of an ongoing review of the
Dulles Greenway’s energy efficiency.
Since the beginning of Warnow Tunnel’s operations, the
day-to-day operations are conducted with consideration
to the surrounding environment, including policies around
waste water treatment. Excess water, for example from
flood events or traffic incidents, is collected and treated
to protect against water pollution in the Warnow River and
surrounding environment.
26
| 2018 Atlas Arteria Annual ReportSustainability continued 01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
04 OUR BOARDS’ DIRECTORS
05 GOVERNANCE
06 SUSTAINABILITY
03
People & diversity
04
Supply chain
The commitment to the wellbeing of our corporate employees
and the employees of our portfolio companies is important for
the effective performance of ALX and our portfolio companies.
We endeavour to create a strong learning environment where
our focus is on continually developing our own and others’ skills.
Our businesses are service providers in a competitive market
with a multitude of stakeholders. We engage with and listen
to our stakeholders to understand their needs and develop our
business in a mutually beneficial manner. This extends to our
engagement with our supply chain operations.
At our portfolio companies, ALX-appointed board
representatives support the implementation of appropriate
diversity, equality and employee engagement policies, including
the employment and representation of women across all levels
of the company.
ALX also adopts a Diversity Policy at the ALX Board
and management levels through consultation with the
Manager. Details of our progress are provided in ALX’s
Corporate Governance Statement, as well as ALX’s website:
https://www.atlasarteria.com/sustainability.
Our portfolio companies engage with thousands of suppliers
through day-to-day operations, and construction projects drive
significant economic development in the communities in which
our businesses operate. ALX recognises that global emerging
issues, such as Modern Slavery, have the potential to impact our
businesses and their supply chains.
Control measures at each portfolio business include a supplier
code that sets community, environmental management, social
responsibility, governance and supply chain criteria for all
suppliers. Tender and contract management processes also
include environmental, sustainability and safety requirements
specific to each contract.
Case study
Case study
APRR and AREA have been granted the “Diversity Label”
from Association Française de Normalisation (AFNOR),
France’s national organisation for standardisation.
More than 80 employees are now “diversity” ambassadors.
APRR has adopted a series of diversity and equality
benchmarks, including a company-wide employee target
of 50% female representation.
APRR promotes a diverse and inclusive environment not
only for its own employees, but also for the employees of
its suppliers and partners who are required to adopt the
best practices to which APRR adheres. In addition to this,
APRR has policies in place to ensure suppliers are tested
against environmental, sustainability and safety criteria in
a competitive tendering process.
Supply chain risk management is a key aspect of ensuring
safe and uninterrupted operations at the Dulles Greenway.
As part of the Dulles Greenway’s procurement policy, for
each operations and maintenance service, management
will maintain relationships with more than one vendor to
minimise disruption risk.
The Dulles Greenway dedicates significant time and
resources to providing training and development
opportunities for employees. In 2018, a new online training
programme was introduced covering topics such as safety,
customer service, basic first aid, chemicals, weather and
safety. Since inception of the online programme, 100% of
employees have participated in the 17 online courses that
have been offered.
Providing an engaging and inclusive work environment is
a key priority for the Warnow Tunnel. Warnow Tunnel’s
Code of Ethics outlines the key principles of mutual respect
and trust within the workplace, stipulating that there is
no tolerance for discrimination. During 2018, employees
from various function roles undertook a range of training
courses which included English language courses, a first
aid refresher course, stress relief and management, data
privacy and self-defence.
27
2018 Atlas Arteria Annual Report |
01 2018 AT A GLANCE
02 CHAIRPERSONS AND CEO MESSAGE
03 OUR PORTFOLIO AND PERFORMANCE
05
Community
06
Technology
We recognise the important role and long-term impact of
infrastructure businesses on local communities in the regions
in which they operate.
In addition to compliance with the relevant laws and regulations,
we seek to ensure our portfolio businesses constantly pay
attention and respond to community needs, to support and
build strong relationships with these communities.
We promote this first through ensuring our customers continue
to benefit from the high level of service, user-friendly initiatives,
operational safety, and time efficiencies provided by our
roads, as well as by supporting our local communities through
donations, sponsorships and partnerships.
The employees at our portfolio companies are an inherent part
of the communities in which they operate, and are the face of
ALX to the community.
ALX is keenly aware of the benefits of leveraging technology
across its corporate business and portfolio operations,
to provide a better customer experience and to improve
productivity and reduce costs.
However, ALX is also aware that with these benefits lies the
potential for cybersecurity, privacy and data protection risks,
which can have reputational, regulatory and economic impacts
on our business and our customers. ALX is working together
with its portfolio companies to prepare for the opportunities
presented by technological advancements and to mitigate the
potential threat of cyber and security risks.
A combination of technological transformation and social
change is also prompting a profound shift in our societies’
attitude to travel. In response, our businesses are working
towards supporting the development of new means of transport
(such as electric and autonomous vehicles) and new practices
such as carpooling and the use of social media.
Through both the Manager and ALX’s appointed Board
representatives, ALX is committed to ensuring its portfolio
companies adequately understand the technology-related risks
and opportunities facing their operations and have in place
appropriate protocols and innovation planning to prepare for
changes in technology.
Case study
Case study
APRR regularly adapts its commercial offering to support
more environmentally friendly and user-friendly means of
transport, including non-stop electronic tolling, parking for
carpooling, electric vehicle charging stations, carpooling
lanes, discounted ETC tags for electric vehicles and
carpooling users, dynamic speed control systems, as well as
other safety measures, including APRR’s mobile safety app.
In 2018, Dulles Greenway held its 14th Annual “Drive
for Charity” during which 100% of toll proceeds for the
day were distributed to charitable and not-for-profit
organisations in the local community. In 2018 a total of
US$316K was raised. Since its inception, the Drive for
Charity has raised and distributed over US$3.4 million.
Warnow Tunnel continues to be an active participant
in the local community through various sponsorships
and donations across a diversified range of initiatives. In
2018, Warnow Tunnel provided sponsorship to a diverse
number of regional sports clubs, as well as a local school
for refugees, and an academy for young musicians.
Warnow Tunnel is also a long-time sponsor of the
Marlow Bird Park and Rostock Zoo.
APRR’s Horizon 2020 programme, Start.Lab, encourages
all employees to think about and design tomorrow’s
motorways and services. Over a 16-month period,
110 employees have tackled challenges posed by a series
of Start.Lab workshops. Each workshop provides the
opportunity for participants to reflect on technological and
social changes in areas such as smart vehicles, urban tolls,
eco-mobility and multimodal transport, and determine ways
to address these paradigm shifts.
During 2018, the Dulles Greenway collaborated with
Virginia Tech University and Virginia Department of
Transport to provide a safe testing environment for
driverless vehicles.
Warnow Tunnel maintains a policy for cyber risk
management and continues to participate in the Federal
Research Institute’s Cyber Safe project. Penetration tests
are executed regularly at every network level in order to
mitigate the risk of attacks.
28
| 2018 Atlas Arteria Annual ReportSustainability continued 07
Financial Report
for the year ended 31 December 2018
This report comprises:
Atlas Arteria International Limited
(formerly Macquarie Atlas Roads International Limited)
and its controlled entities.
Atlas Arteria Limited
(formerly Macquarie Atlas Roads Limited)
and its controlled entities.
29
2018 Atlas Arteria Annual Report | Important Notice
Atlas Arteria (“ALX”) (formerly Macquarie Atlas Roads) comprises Atlas Arteria International Limited (Registration No. 43828)
(“ATLIX”) (formerly Macquarie Atlas Roads International Limited) and Atlas Arteria Limited (ACN 141 075 201) (“ATLAX”) (formerly
Macquarie Atlas Road Limited). ATLIX is an exempted mutual fund company incorporated and domiciled in Bermuda with limited
liability and the registered office is Belvedere Building, 69 Pitts Bay Road, Pembroke HM08, Bermuda. ATLAX is a company limited
by shares incorporated and domiciled in Australia and the registered office is Level 7, 50 Martin Place, Sydney, NSW 2000, Australia.
Macquarie Fund Advisers Pty Limited (ACN 127 735 960) (AFS License No.318123) (“MFA”) is the adviser/manager of ATLIX and
ATLAX. MFA is a wholly owned subsidiary of Macquarie Group Limited (ACN 122 169 279) (“MGL”).
None of the entities noted in these reports is an authorised deposit-taking institution for the purposes of the Banking Act 1959
(Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of Macquarie Bank
Limited (ABN 46 008 583 542) (“MBL”). MBL does not guarantee or otherwise provide assurance in respect of the obligations of
these entities.
These reports are not an offer or invitation for subscription or purchase of or a recommendation of securities. It does not take into
account the investment objectives, financial situation and particular needs of the investor. Before making an investment in ALX, the
investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs,
objectives and financial circumstances and consult an investment adviser if necessary.
MFA as adviser/manager of ATLIX and ATLAX is entitled to fees for so acting. MGL and its related corporations (including MFA), ATLAX
and ATLIX together with their officers and directors may hold stapled securities in ALX from time to time.
30
| 2018 Atlas Arteria Annual Report Directors’ Reports
for the year ended 31 December 2018
The directors of Atlas Arteria International Limited (“ATLIX”) (formerly Macquarie Atlas Roads International Limited) submit the
following report together with the Financial Report of Atlas Arteria (“ALX” or the “Group”) (formerly Macquarie Atlas Roads) for the
year ended 31 December 2018.
An ALX stapled security comprises one ATLIX share ‘stapled’ to one Atlas Arteria Limited (“ATLAX”) (formerly Macquarie Atlas Roads
Limited) share to create a single listed security traded on the Australian Securities Exchange (“ASX”). The stapled securities cannot
be traded or dealt with separately.
AASB 3 Business Combinations and AASB 10 Consolidated Financial Statements require one of the stapled entities of a stapled
structure to be identified as the parent entity for the purpose of preparing a consolidated Financial Report. In accordance with this
requirement, ATLIX has been identified as the parent entity of the consolidated group comprising ATLIX and its controlled entities
and ATLAX and its controlled entities (“ATLAX Group”), together comprising ALX.
The directors of ATLAX submit the following report together with the Financial Report of the ATLAX Group for the year ended
31 December 2018.
Macquarie Fund Advisers Pty Limited (the “Adviser/Manager” or “MFA”) acts as the adviser for ATLIX and the manager of ATLAX.
Directors
The following persons were directors of ATLIX during the whole of the year and up to the date of this report:
• Jeffrey Conyers
• James Keyes
• Christopher Leslie
• Nora Scheinkestel
• Derek Stapley
(Chairman)
The following persons were directors of ATLAX during the whole of the year and up to the date of this report (unless otherwise stated):
• Nora Scheinkestel
• David Bartholomew
• Richard England
• Debra Goodin
• Jean-Georges Malcor (Appointed on 1 November 2018)
(Resigned on 28 September 2018)
• John Roberts
(Chairman)
(Appointed on 1 October 2018)
(Resigned on 30 November 2018)
31
2018 Atlas Arteria Annual Report | Operating and financial review
Principal activities
The principal activity of the Group and the ATLAX Group (together, the “Groups”) is to invest in infrastructure assets in Organisation
for Economic Co-operation and Development (“OECD”) and OECD equivalent countries; and non-infrastructure assets where ancillary
to a major infrastructure investment but with the current focus on toll road investments, both greenfield and mature. Other than as
disclosed elsewhere in these reports, there were no significant changes in the nature of the Groups’ activities during the year.
Distributions
Distributions paid to security holders were as follows:
Distribution of 12.0 cents per stapled security (“cps”) paid on 5 October 20181
Dividend of 12.0 cps paid on 13 April 20182
Dividend of 10.0 cps paid on 29 September 20173
Distribution of 10.0 cps paid on 7 April 20174
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
81,992
80,375
–
–
–
–
58,188
57,294
162,367
115,482
1. Comprised a capital return of 11.3 cps and an unfranked Australian ordinary dividend of 0.7 cps. The distribution was paid in full by ATLAX.
2. Comprised an ordinary dividend of 12.0 cps. The dividend was paid in full by ATLIX.
3. Comprised an ordinary dividend of 10.0 cps. The dividend was paid in full by ATLIX.
4. Comprised a capital return of 9.8 cps and an ordinary dividend of 0.2 cps. The distribution was paid in full by ATLIX.
Review and results of operations1, 2, 3
The performance of ALX and the ATLAX Group for the year, as represented by the results of their operations, was as follows:
Revenue and other income from operations
Operating expenses
Finance costs
Share of net profits/(losses) of investments accounted for using the equity
method
Income tax (expense)/benefit
Profit/(loss) from operations after income tax
Profit/(loss) attributable to:
Equity holders of the parent – ATLIX
Equity holders of other stapled entity – ATLAX
(as non-controlling interest/parent entity)
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
145,987
(222,458)
(108,920)
246,141
(898)
59,852
76,683
(16,831)
473,001
(104,343)
(53,795)
187,971
16,749
519,583
462,200
57,383
5,764
(17,795)
–
(4,801)
1
(16,831)
68,166
(8,493)
–
(626)
(1,664)
57,383
–
–
(16,831)
57,383
Profit/(loss) attributable to stapled security holders
59,852
519,583
(16,831)
57,383
Basic profit/(loss) per ALX stapled security
Diluted profit/(loss) per ALX stapled security
Cents
8.84
8.84
Cents
87.66
87.66
Cents
(2.49)
(2.49)
Cents
9.68
9.68
1. On 20 September 2018 (“WQG Acquisition Date”), ALX completed the acquisition of the remaining 30% equity interest and shareholder loan in Warnowquerung GmbH & Co KG,
the concessionaire of Warnow Tunnel and its general partner Warnowquerung Verwaltungsgesellschaft mbH (collectively “WQG”). WQG’s results are consolidated from the WQG
Acquisition Date in the current year.
2. On 16 May 2017 (“TRIP II Acquisition Date”), ALX completed the acquisition of the remaining 50% estimated economic interest in Toll Road Investors Partnership II (“TRIP II”),
the concessionaire for Dulles Greenway. TRIP II’s results were consolidated from the TRIP II Acquisition Date in the prior year and for the entire period in the current year.
3. On 24 October 2017, ALX acquired an additional 4.86% indirect interest in APRR via Macquarie Autoroutes de France 2 SA (“MAF2”) bringing its indirect economic interest to 25.00%.
ALX’s share of the results of its non-controlled toll road assets are disclosed as share of net profit of investments accounted for using the equity method.
32
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual Report ALX’s profit after income tax for the year ended 31 December 2018 was $59.9 million (2017: $519.6 million). The movement in
results for the year reflects the following significant items:
• Revenue and other income from operations of $146.0 million (2017: $473.0 million) has decreased due to:
– The non-recurrence of the one-off gain on revaluation of the original investment in Dulles Greenway in the prior year of
$375.6 million; which is partly offset by
– The consolidation of a full year of TRIP II’s toll revenue of $121.2 million (2017: $75.7 million);
– The consolidation of WQG’s toll revenue of $5.7 million from WQG Acquisition Date; and
– Gain on revaluation of the original investment in WQG of $13.5 million (2017: Nil).
• Operating expenses of $222.5 million (2017: $104.3 million) have increased due to:
– An increase in performance fee expense to $70.6 million (2017: $8.0 million). The current year expense was calculated in
accordance with, and due to the renegotiation of, the management agreements and reflects the full 2018 performance fee of
$54.7 million and the second and third instalments of the 2017 performance fee totalling $15.9 million. In the prior year, only
the first instalment of the 2017 fee was required to be recognised due to the level of outperformance against the benchmark.
A total performance fee liability of $115.3 million was payable at 30 June 2018, of which $25.0 million was settled in cash and
$90.3 million was settled through a subscription of new ALX securities in July 2018.
– Management internalisation expenses of $10.3 million (2017: $0.5 million).
– The consolidation of a full year of TRIP II’s expenses of $90.8 million (2017: $53.2 million).
– The consolidation of WQG’s expenses of $3.8 million from the WQG Acquisition Date.
• Finance costs of $108.9 million (2017: $53.8 million) include:
– Consolidation of a full year TRIP II’s bond interest expenses of $71.8 million (2017: $42.4 million).
– Consolidation of WQG’s interest expenses of $4.0 million from the WQG Acquisition Date.
– Interest, amortisation expense and early repayment fees of $15.7 million (2017: $10.1 million) up to the date of repayment
of the loan facility used to acquire a portion of the remaining estimated 50% economic interest in TRIP II.
– Interest and amortisation expense of $6.2 million (2017: $1.3 million) up to the date of repayment of the loan facility used
to acquire a portion of an additional stake in APRR.
– Interest and amortisation expense of $9.2 million (2017: Nil) on the new loan facility after refinancing of the APRR asset
finance facility and repayment of Dulles Greenway asset finance facility.
• Share of net profit of investments accounted for using the equity method of $246.1 million (2017: $188.0 million), primarily
comprising:
– APRR profit of $246.1 million is up on the prior year (2017: $192.0 million) primarily reflecting ALX’s increased share of profits
resulting from the acquisition of the additional 4.86% indirect interest on 24 October 2017. Additional growth is due to foreign
exchange, as well as improved performance and the reduction in finance costs following the termination of the Eiffarie swap.
– Dulles Greenway loss of $3.9 million included in the prior year up to the TRIP II Acquisition Date.
• Income tax expense of $0.9 million (2017: benefit of $16.7 million) includes:
– WQG’s trade tax of $2.1 million from the WQG Acquisition Date; offset by
– Amortisation of deferred tax liability recognised on acquisition of TRIP II and WQG of $1.2 million (2017: $1.0 million).
In 2017, a reduction in deferred tax liability of $17.5 million was recognised on acquisition of remaining interest in TRIP II
due to decrease in United States Federal Income tax rate.
– Prior year expense includes final tax expense of $1.7 million on the distribution proceeds relating to the sale of Skyway
Concession Company LLC.
33
2018 Atlas Arteria Annual Report | Significant changes in state of affairs
Change in management arrangements
Following the announcement of the Boards’ intention to internalise the management of ALX in November 2017, ALX reached an
agreement with MFA on the terms of the internalisation of management. This agreement was approved by the shareholders at
the 2018 Annual General Meeting.
The key terms of the agreement were as follows:
• Macquarie Atlas Roads to change its name to Atlas Arteria and its ticker code from MQA to ALX.
• No consideration to be payable to MFA for terminating the management agreements.
• MFA to remain as the adviser/manager of ALX under the current management arrangements until 15 May 2019
(unless terminated earlier although fees will continue to be paid until that date).
• MFA to provide specific transition services from the date of termination of the management arrangements to 31 December 2019
for a fee of $750,000 per month from 15 May 2019.
• A final performance fee to be calculated for the year ending 30 June 2018 and, if earned, to be paid in full. The second instalment
of 2017 fees and third instalment of 2016 fee to be subject to their respective performance hurdles and tested on 30 June 2018.
The third instalment of the 2017 fee to become payable without further testing.
• At the point of the termination of the ALX management agreements, Macquarie Group will start to receive fees for the ongoing
management of ALX’s interest in APRR.
The Boards have since appointed Graeme Bevans as Chief Executive Officer (CEO) Elect and Nadine Lennie as Chief Financial Officer
(CFO) Elect. Graeme and Nadine are working together to establish the necessary infrastructure, systems and processes in order for
ALX to manage its own operations independently and separately from Macquarie.
Acquisition of remaining 30% interest in Warnow Tunnel
On 15 August 2018, ALX announced that it had entered into an agreement to acquire the remaining 30% equity interest and
shareholder loan in WQG for €3.7 million ($6.0 million) as gross consideration prior to adjusting for applicable transaction taxes.
Financial close for the acquisition was reached on 20 September 2018. This acquisition was funded by existing cash.
Refinancing of loans
On 31 May 2018, ALX refinanced and increased the APRR asset finance facility from €150.0 million to €350.0 million with revised
terms. The APRR asset finance facility was put in place in October 2017 to partially fund the acquisition of an additional stake in APRR.
On 4 June 2018, part of the additional proceeds from the refinanced APRR asset finance facility were used to fully repay
the US$175.0 million Dulles Greenway asset finance facility along with accrued interest up to the date of repayment.
Remaining proceeds from the new asset finance facility will be used for general corporate expenses.
In June 2018, ATLIX entered into €350.0 million of interest rate caps expiring June 2023 to hedge the EURIBOR floating rate interest
expense on the new APRR asset finance facility.
In the opinion of the directors, there were no other significant changes in the state of affairs during the year.
Likely developments and expected results of operations
No change is contemplated to the principal activities stated on page 32. Comments on the expected outlook for ALX are included in
the annual report within the letters from the Chairpersons and Chief Executive Officer.
Events occurring after balance sheet date
Since the balance date, the directors of ATLIX and ATLAX are not aware of any other matter or circumstance not otherwise dealt with
in the Directors’ Reports that has significantly affected or may significantly affect the operations of the Groups, the results of those
operations or the state of affairs of the Groups in years subsequent to the year ended 31 December 2018.
Indemnification and insurance of officers and auditors
During the year, ATLAX paid premiums of $230,446 and ATLIX paid premiums of $196,844 to insure the directors and officers of
ATLAX and ATLIX. The liabilities insured are legal and defence costs that may be incurred in defending civil or criminal proceedings
that may be brought against the directors and officers in their capacity as directors and officers of ATLAX and ATLIX, and any other
payments arising from liabilities incurred by the directors and officers in connection with such proceedings. This does not include
such liabilities that arise from conduct involving a wilful breach of duty by the directors and officers or the improper use by the
directors and officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to
ATLAX or ATLIX. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those
relating to other liabilities. So long as the directors and officers of ATLAX and ATLIX act in accordance with the constitutions and the
34
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual Report law, the directors and officers remain indemnified out of the assets of the Groups against any losses incurred while acting on behalf
of the Groups.
The auditors of the Groups are in no way indemnified out of the assets of the Groups.
Environmental regulation
The operations of the underlying assets in which the Groups invest are subject to environmental regulations particular to the
countries in which they are located.
Each of our portfolio companies is responsible for adopting and maintaining its own environmental and social risk management
framework that seeks to adequately ensure compliance with the relevant regulation and standards for environmental and social
responsibility (ESR) matters in the country and industry in which the asset operates.
Our ability to control or influence the ongoing management of ESR issues will differ for each asset based on the extent of our
control/governance rights at each asset through the level of ownership influence, board representation and regulatory environment.
Regular reporting from each portfolio company to ALX also assists in monitoring compliance with ESR requirements and in the
identification of environmental, social and governance issues across ALX’s portfolio. The ESR performance of each portfolio company
is reported to the ALX Boards regularly, with major environmental and social incidents and governance breaches reportable within
48 hours of occurrence.
Rounding of amounts in the Directors’ Reports and the Financial Reports
The Groups are of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued
by the Australian Securities and Investments Commission relating to the “rounding off” of amounts in the Directors’ Reports.
Amounts in the Directors’ Reports have been rounded to the nearest thousand dollars in accordance with that Instrument,
unless otherwise indicated.
Application of class order
The Directors’ Reports and Financial Reports for ALX and the ATLAX Group have been presented in the one report, as permitted by
ASIC Class Order 13/1050 and ASIC Corporations (Stapled Group Reports) Instrument 2015/838.
Information on ATLIX directors
Name
Experience and Directorships
Jeffrey Conyers
BA (Toronto)
Non-Executive
Independent
Chairman
James Keyes
MA (Oxon)
Non-Executive
Independent
Director
Experience: Jeffrey Conyers is a director of numerous companies in Bermuda
and is the former Chief Executive Officer of First Bermuda Securities Limited,
which provided advisory and execution services on worldwide offshore
mutual funds to individuals and local companies based in Bermuda. He is a
founding executive council member and deputy chairman of the Bermuda
Stock Exchange. Jeffrey has previously served on the boards of MAp Airports
International Limited and Intoll International Limited, parts of the previously
Macquarie-managed and ASX-listed vehicles MAp Group and Intoll Group
respectively.
Other current listed company directorships: None.
Former listed company directorships in last 3 years: None.
Experience: James Keyes is a Bermudan solicitor and barrister with over 25
years’ experience.
James was a partner in Appleby, one of the largest offshore law firms in
Bermuda, and held a part-time position as Managing Director of Renaissance
Capital, an investment bank, until December 2012. James was a director of the
Bermudan entity within Transurban Group for six years, as well as a director of
a company in the Moto group which operated road service stations in the UK,
from which he gained experience in the toll road sector.
Other current listed company directorships: Oakley Capital Investments Ltd
(LSE: OCI), Catco Reinsurance Opportunities Fund Ltd (LSE: CAT).
Former listed company directorships in last 3 years: None.
Particulars of
director’s interests
in ALX stapled
securities as at
Special
Responsibilities
31 Dec
2018
31 Dec
2017
40,000
40,000
Chairman of
Board and
Nomination and
Governance
Committee
Chairman of
Remuneration
Committee
5,000
5,000
35
2018 Atlas Arteria Annual Report | Information on ATLIX directors continued
Name
Experience and Directorships
Christopher Leslie
BCom (Hons)
(Melb), CA
Non-Executive
Director
Nora Scheinkestel
LLB (Hons) (Melb),
PhD, FAICD,
Centenary Medal
Non-Executive
Independent
Director
Derek Stapley
BA (Glas Cal), CA
Non-Executive
Independent
Director
Experience: Christopher Leslie is a senior managing director of Macquarie
Infrastructure and Real Assets (“MIRA”) based in New York, with 25 years’
experience in the acquisition, development and management of infrastructure
assets across Australia, Asia and North America.
Christopher has extensive experience in the infrastructure sector, having been
integral to the expansion of MIRA’s infrastructure business in the US since 1999.
He has also served as Chief Executive Officer of MIRA’s North American series of
unlisted infrastructure funds from 2006 to 2016, which collectively raised and
invested more than US$8 billion into infrastructure assets.
He is currently a board member of several companies including Puget Energy,
Cleco Corporation and InSite Wireless. Christopher is also a member of
Chartered Accountants Australia and New Zealand.
Other current listed company directorships: None.
Former listed company directorships in last 3 years: None.
Experience: Nora Scheinkestel is an experienced company director having
served as chairman and director on public and private sector boards in a wide
range of industries and with a long track record in the infrastructure sector.
Her background is as a senior banking executive in international and project
financing, responsible for the development and financing of major mining and
infrastructure projects in Australasia and South East Asia.
Other current listed company directorships: Telstra Corporation Limited,
AusNet Services Limited and OceanaGold Corporation.
Former listed company directorships in last 3 years: Stockland Corporation
Limited (retired March 2018) and Orica Limited (retired December 2015).
Experience: Derek Stapley, Chairman of the Audit and Risk Committee of ATLIX,
is a Chartered Accountant with over 30 years’ experience and is a former
partner with Ernst & Young. Derek has extensive experience as an independent
director of several public and private investment funds, insurance companies
and private client structures, and he works directly with a diverse range of
global retail and institutional investors.
Derek’s position on other boards, and in particular as Chair of several Audit
and Risk Committees, provides ATLIX with a deep and current understanding of
public company reporting and evolving trends in corporate governance and risk
management.
Other current listed company directorships: None.
Former listed company directorships in last 3 years: None.
Particulars of
director’s interests
in ALX stapled
securities as at
Special
Responsibilities
31 Dec
2018
31 Dec
2017
–
–
–
–
78,431
78,431
Chairman of
Audit and Risk
Committee
5,000
–
36
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual Report Information on ATLAX directors continued
Name
Experience and Directorships
Nora Scheinkestel
LLB (Hons) (Melb),
PhD, FAICD,
Centenary Medal
Non-Executive
Independent
Chairman
David Bartholomew
BEc (Hons), MBA
Non-Executive
Independent
Director
Appointed on
1 October 2018
Jean-Georges
Malcor
Ecole Centrale de
Paris (Eng), Msc
(Stanford)
Non-Executive
Independent
Director
Appointed on
1 November 2018
Debra Goodin
BEc (AU), FCA
Non-Executive
Independent
Director
Experience: Nora Scheinkestel is an experienced company director having
served as chairman and director on public and private sector boards in a wide
range of industries and with a long track record in the infrastructure sector.
Her background is as a senior banking executive in international and project
financing, responsible for the development and financing of major mining and
infrastructure projects in Australasia and South East Asia.
Other current listed company directorships: Telstra Corporation Limited,
AusNet Services Limited and OceanaGold Corporation.
Former listed company directorships in last 3 years: Stockland Corporation
Limited (retired March 2018) and Orica Limited (retired December 2015).
Experience: David Bartholomew is an experienced director in the infrastructure
and utilities sector. In addition to being a non-executive director of ATLAX, he
currently serves on the boards of Endeavour Energy (the New South Wales
electricity distributor), Power & Water Corporation (the multi-utility owned by
the Northern Territory Government) and the Saudi Arabia Industrial Investment
Company, Dussur. He is also a director of The Helmsman Project, a not-for-profit
organisation that provides coaching and development programmes for year 9
students, predominantly in western Sydney.
Other current listed company directorships: None.
Former listed company directorships in last 3 years: Vector Limited (retired
November 2018).
Experience: Jean-Georges Malcor completed eight years as Chief Executive
Officer at CGG (EPA: CGG), a Euronext listed French geoscience company
providing services primarily to customers in the global oil and gas industry.
Prior to CGG, he spent 25 years at Thales Group (EPA:HO) in France and Australia.
Jean-Georges currently serves as a non-executive director on the board and
audit and risk committee of STMicroelectronics (NYSE: STM), and as a non-
executive director on the boards of ORTEC, a construction and engineering
company and Fives, a global industrial engineering group. Jean-Georges is also
a Chevalier (Knight) of the French Légion d’honneur Order and National Order
of Merit.
Other current listed company directorships: STMicroelectronics.
Former listed company directorships in last 3 years: CGG (retired April 2018).
Experience: Debra Goodin, who is also Chairman of the Audit and Risk
Committee of ATLAX, is an experienced independent director currently serving
on the boards of ASX-listed companies APA Group, Senex Energy Limited and
Ooh!Media Limited. She is currently also the chairperson of the Audit and Risk
Committees for these boards.
Debra has more than 20 years’ senior management experience with professional
services firms, government authorities and ASX listed companies across finance,
operations, corporate strategy, mergers and acquisitions. She is a fellow of
Chartered Accountants Australia and New Zealand.
Other current listed company directorships: APA Group, Senex Energy Limited
and oOh!media Limited.
Former listed company directorships in last 3 years: Ten Network Holdings
Limited (de-listed November 2017).
Particulars of
director’s interests
in ALX stapled
securities as at
Special
Responsibilities
31 Dec
2018
31 Dec
2017
78,431
78,431
Chairman of
Board and
Nomination and
Governance
Committee
Chairman of
People and
Remuneration
Committee
–
–
–
–
–
Chairman of
Audit and Risk
Committee
5,671
5,671
37
2018 Atlas Arteria Annual Report | Company Secretaries
Andrew Davidson was appointed as the company secretary of ATLIX on 26 April 2018. He has over 15 years of governance and
company secretarial experience. Dennika Durrant was the company secretary of ATLIX prior to 26 April 2018.
Christine Williams is a dual company secretary of ATLAX. She is an Executive Director of Macquarie Group Limited and Global Head
of Legal for MIRA which she joined in 1998. She is a practising solicitor with over 37 years of governance and transactional legal
experience. She has also performed company secretarial roles for various listed property and infrastructure funds for the past 26 years.
Lyndal Coates is a dual company secretary of ATLAX. She joined MIRA in 2009 and has over 17 years of governance and company
secretarial experience.
Meetings of directors
The number of meetings of the ATLIX Board, Audit and Risk Committee, Nomination and Governance Committee and Remuneration
Committee held during the year ended 31 December 2018, and the numbers of meetings attended by each director are shown
below. In addition, ad-hoc committees were also held as required for transactional activity.
Board
Audit and Risk
Committee
Nomination and
Governance Committee
Remuneration
Committee
Ad-Hoc
Committees1
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
19
19
19
19
19
19
19
19
19
18
6
N/A
6
6
6
6
N/A
6
6
6
3
3
3
3
3
3
3
3
3
3
3
3
N/A
3
N/A
3
3
N/A
3
N/A
19
14
5
19
14
18
14
4
19
13
ATLIX Directors
Jeffrey Conyers
James Keyes
Christopher Leslie
Nora Scheinkestel
Derek Stapley
1. Ad-hoc committee meetings were held in relation to working groups relating to the internalisation of ALX management as well as portfolio company matters.
The number of meetings of the ATLAX Board, Audit and Risk Committee, Nomination and Governance Committee and People and
Remuneration Committee held during the year ended 31 December 2018, and the numbers of meetings attended by each director
are show below. In addition, ad-hoc committees were also held as required for transactional activity.
Board
Audit and Risk
Committee
Nomination and
Governance Committee
People and
Remuneration
Committee
Ad-Hoc
Committees1
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
Meetings
held
Meetings
attended
18
2
17
18
2
16
18
2
17
18
2
13
6
N/A
6
6
1
6
N/A
6
6
1
N/A
N/A
3
1
3
3
1
2
3
1
3
3
1
2
N/A
N/A
1
3
3
N/A
2
1
3
3
N/A
2
18
3
12
18
4
18
3
11
18
4
N/A
N/A
ATLAX Directors
Nora Scheinkestel
David Bartholomew2
Richard England3
Debra Goodin
Jean-Georges Malcor4
John Roberts5
1. Ad-hoc committee meetings were held in relation to working groups relating to the internalisation of ALX management as well as portfolio company matters.
2. Appointed as a director of ATLAX effective from 1 October 2018.
3. Resigned as a director of ATLAX effective from 30 November 2018.
4. Appointed as a director of ATLAX effective from 1 November 2018.
5. Resigned as a director of ATLAX effective from 28 September 2018.
38
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual Report Remuneration Report (audited)
Introduction
On behalf of the ATLAX and ATLIX Remuneration Committees, we are pleased to present the Remuneration Report for the 2018
financial year.
Under the Corporations Act it is only Australian listed companies that are required to prepare a remuneration report. Whilst the
obligation to provide a Remuneration Report only applies to ATLAX as an Australian listed company, given the stapled security
holding structure, the Boards and Remuneration Committees of both ATLAX and ATLIX have worked together on the Remuneration
Report with the disclosures extended to cover ATLIX key management personnel.
Only ATLAX securityholders participate in a non-binding vote on this report, however, detail on ATLIX and ALX as a whole have been
included for good corporate governance, as well as details of the:
• Management fee paid to Macquarie under the management agreements;
• Remuneration arrangements of the Macquarie-appointed CEO; and
• Remuneration arrangements for the CEO Elect and CFO Elect as though they were already Key Management Personnel.
Atlas Arteria experienced another year of positive performance in 2018, with our portfolio continuing to deliver growth in business
value and distributions for securityholders.
The past year also saw significant corporate structural change. At the 2018 Annual General Meeting, you as our securityholders
voted in favour of the agreement to internalise management. Since this time, the Boards have recruited an executive team that will
take over from the management of Macquarie Fund Advisers Pty Limited (“Macquarie”).
In the months following the agreement to internalise management, the Remuneration Committees have worked to build an effective
remuneration and governance structure to prepare the business for internalisation. We have:
• Designed and implemented an executive remuneration framework for our incoming management team;
• Finalised employment terms and contracts for our incoming management team; and
• Undertaken a market review of Non-Executive Director fees.
We take investor feedback seriously and have engaged with investors over the past year in relation to developing the remuneration
structure for the new internal management team and reviewing non-executive director fees.
In the current financial year, we look forward to updating you on our progress as we implement our internalisation plan and establish
our internal management team and remuneration governance structure. We invite you all to review the full report and thank you for
your interest.
David Bartholomew
Atlas Arteria Limited Committee Chair
James Keyes
Atlas Arteria International Limited Committee Chair
This Remuneration Report contains the following sections:
1. Who is covered by this report
2. Key questions
3. FY18 performance highlights
4. Macquarie: Management fees and CEO remuneration
5. Remuneration framework for management post internalisation
6. Non-Executive Director fees
7. Remuneration Governance
8. Statutory disclosures
39
2018 Atlas Arteria Annual Report |
1 Who is covered by this report
This Remuneration Report outlines the remuneration framework and outcomes for ATLAX and ATLIX Key Management Personnel
(“KMP”) and the management arrangements in place with Macquarie for FY18.
For the purposes of this report, KMP are those persons having authority and responsibility for planning, directing and controlling
the major activities of Atlas Arteria, directly or indirectly. For the FY18 year, KMP are limited to ATLAX and ATLIX Non-Executive
Directors. In addition to the required disclosures, and for the purposes of good governance, this report also contains information on:
• the management fee paid to Macquarie under the Management Agreements;
• the Macquarie appointed CEO; and
• the CEO Elect and the CFO Elect.
Details regarding the individuals covered by this report (outside the Management Agreements) are outlined below:
Name
Management
James Hooke1
Graeme Bevans
Nadine Lennie
Non-Executive Directors
Nora Scheinkestel
Role
Date of appointment
Chief Executive Officer
Chief Executive Officer Elect
Chief Financial Officer Elect
1 February 2018
1 May 2018
16 July 2018
Independent Chairman (ATLAX) and
Independent Non-Executive Director (ATLIX)
17 April 2015
(Director of ATLAX from 28 August 2014)
David Bartholomew
Independent Non-Executive Director (ATLAX)
1 October 2018
Independent Non-Executive Director (ATLAX)
1 June 2010 (retired on 30 November 2018)
Richard England
Debbie Goodin
Independent Non-Executive Director (ATLAX)
Jean-Georges Malcor
Independent Non-Executive Director (ATLAX)
John Roberts
Jeffrey Conyers
James Keyes
Non-Executive Director (ATLAX)
Independent Chairman (ATLIX)
Independent Non-Executive Director (ATLIX)
Christopher Leslie
Non-Executive Director (ATLIX)
1 September 2017
1 November 2018
2 February 2010 (retired on 28 September 2018)
16 December 2009
21 February 2013
1 September 2017
Derek Stapley
Independent Non-Executive Director (ATLIX)
1 June 2010
1. James Hooke will cease as CEO upon internalisation.
2 Key questions
In May 2018, securityholders approved the proposal to internalise management and to terminate the management arrangements
with Macquarie. Our securityholders have asked us about our management arrangements and the remuneration arrangements for
FY18 and following internalisation in FY19.
We have set out below a number of questions that we have received from securityholders and have provided a brief response to
each of them. Further detail regarding our remuneration arrangements is outlined in the remainder of this Remuneration Report.
40
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued At the AGM, shareholders agreed to internalise management. What has this meant for the existing management arrangements?
Following the announcement of the Boards’ intention to internalise the management of ALX in November 2017, ALX reached an
agreement with Macquarie on the terms of the internalisation of management. This agreement was approved by the shareholders
at the 2018 Annual General Meeting.
The key terms of the agreement were as follows:
• Macquarie Atlas Roads to change its name to Atlas Arteria and its ticker code from MQA to ALX.
• No consideration to be payable to Macquarie for terminating the management agreements.
• Macquarie to remain as the adviser/manager of ALX under the current management arrangements until 15 May 2019
(unless terminated earlier although fees will continue to be paid until that date).
• Macquarie to provide specific transition services from the date of termination of the management arrangements to
31 December 2019 for a fee of $750,000 per month from 15 May 2019.
• A final performance fee to be calculated for the year ending 30 June 2018 and, if earned, to be paid in full. The second instalment
of 2017 fees and third instalment of 2016 fee to be subject to their respective performance hurdles and tested on 30 June 2018.
The third instalment of the 2017 fee to become payable without further testing.
• At the point of the termination of the ALX management agreements, Macquarie Group will start to receive fees for the ongoing
management of ALX’s interest in APRR.
On 2 July 2018, Macquarie and ALX’s independent directors agreed that total performance fees for the 2016, 2017 and 2018 years,
due as at 30 June 2018, of $115.3 million (excluding GST) be settled by a combination of equity and cash. Accordingly, 13,476,174
ALX securities were issued to Macquarie’s assignee at a price of $6.700906 per security on 2 July 2018. The remaining performance
fee payable of $25.0 million was settled in cash on 3 July 2018. For further information, see section 4.1
What was the management and performance fee for FY18?
Based on the terms of the ALX management agreement, Macquarie received fees of $152.1 million (excluding GST), comprising a
contractual base fee and performance-based fee as follows:
• Base Management fee: $36.8 million
• Performance fees (recognised at 30 June 2018): $115.3 million
– FY18: $54.7 million
– FY17 (instalments 2 and 3): $16 million, being $8.0 million each
– FY16 (instalment 3): $44.7 million
The base fee is paid in cash and equates to 0.85% of ALX’s market value over the last 10 ASX trading days in the relevant calendar
quarter. The performance fee is reflective of the total shareholder returns received by ALX investors compared with a target
benchmark return. For further information regarding the performance fee, see section 3.2.
Has the internalisation management team commenced? If so, on what basis?
To allow for effective transition to internalised management by May 2019, we commenced recruitment for key roles following
shareholder approval to internalise management at the 2018 AGM, with all senior executives having commenced in their roles
by the end of 2018. The senior executive team following internalisation comprises:
• Chief Executive Officer – Graeme Bevans
• Chief Financial Officer – Nadine Lennie
• Chief Operating Officer – Vincent Portal
• General Counsel & Company Secretary – Clayton McCormack
The remuneration arrangements of our executive team have been structured to attract high calibre executives and to align
management incentives with the successful transition to internalised management and with the short term and long term interests
of security holders. For further details of these arrangements for the CEO Elect and CFO Elect, see section 5.
41
2018 Atlas Arteria Annual Report | What remuneration principles guided the design of the remuneration framework post internalisation?
We developed the following six principles to underpin the management remuneration framework post internalisation.
The remuneration principles will help guide how remuneration decisions will be made and remuneration outcomes will be determined.
The executive remuneration framework should be:
Description
1. Simple
Be simple to understand, implement and communicate
2. Balance short and long-term needs
3. Reflect role complexity
4. Reflect our values and behaviours
5. Specific and differentiated
performance outcomes
6. Securityholder alignment
Be able to adapt to meet short-term imperatives during the current period of significant
change, but also reflect the long-term needs of the business
Reflect the experience of the executive, complexity/nature of the role and the business
compared to the market
Encourage appropriate behaviours and actions which are aligned to ALX’s business strategy,
performance and securityholders
Reflect specific performance measures which executives have the ability to influence, and
allow for differentiation of executive incentive outcomes
Encourage executive equity ownership so that executives have “skin in the game”, aligning
executives to securityholder returns
How will executives be remunerated following internalisation and how is this aligned with ALX performance?
The Boards recognise that to build sustainable long-term growth in securityholder wealth, ALX must attract and retain talented
people, and align their interests and behaviours with securityholders’ interests.
To do so, we have developed a remuneration framework that aligns executive remuneration and ALX performance. The framework
aims to achieve a balance between fixed and performance-based remuneration and between short- and long-term performance
incentives. To ensure our remuneration quantum and structure is market competitive, consideration has been given to the market
median remuneration of companies of a similar size and complexity to ALX.
CEO Elect
Variable
remuneration
67%
Other senior executives elect
Fixed
remuneration
33%
Variable
remuneration
57%
Fixed
remuneration
43%
Performance based remuneration comprises both short and long-term performance components:
• For the FY18 short term incentive component, the CEO Elect and CFO Elect will be paid based on the success of achieving key
milestones for a successful internalisation on or ahead of plan. Following internalisation, their STI will be paid based on an
assessment against a balanced scorecard of financial measures (weighted 70%) and non-financial measures (weighted 30%)
linked to business imperatives. For further information regarding the performance measures and STI structure for the CEO Elect
and CFO Elect, see section 5.2.
• For the long-term incentive component, ALX’s Total Securityholder Return (“TSR”) performance is assessed relative to a group
of local and international companies with similar characteristics to ensure there is alignment between the financial interests
of executives and securityholders. The Boards will continue to consider whether the introduction of a second LTI performance
measure is appropriate for the future. For further information regarding the LTI structure, performance measure, relative TSR
comparator group constituents and vesting schedule, see section 5.3.
Information on governance provisions such as malus, treatment of awards on cessation of employment and change of control are
provided in section 7.3.
42
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued What happens to variable remuneration awards in the event there is a change of control?
In the event of a change of control, the Boards have absolute discretion to determine the treatment of STI and LTI awards.
However, if the Boards do not exercise their discretion, the following default treatments will apply:
• STI: Cash based STI will be assessed on a pro-rata basis and paid at that time based on performance; deferred STI will vest in full
on the basis that it relates to performance targets which have already been achieved.
• LTI: Vesting based on performance to the end of the most recent period and pro-rated for time.
What did the CEO Elect and CFO Elect receive during FY18?
The CEO Elect and CFO Elect received fixed remuneration only during FY18.
The CEO Elect and CFO Elect are eligible to participate in the STI which, for FY18, is linked to successful internalisation. The outcome
of the FY18 STI award will be determined in FY19, once the internalisation is complete and its success can be determined.
An LTI will apply with respect to FY18. This LTI grant will be tested against the LTI performance targets and, if the targets are met,
will vest following the conclusion of the performance period ending 31 December 2020. For further information regarding the LTI
performance targets, see section 5.3.
Why have NED fees increased for FY19?
During the 2018 financial year, we undertook a comprehensive market review to determine the level of our fees relative to
companies of a similar size and those which operate in similar industries. The review indicated that both our Board and Committee
fee levels were low relative to market. As a result, we have made adjustments to our fees for 2019 to make them market
competitive. Although the increase in fees is proposed to be effective 1 January 2019, NEDs will not have their fees adjusted until
securityholder approval is received for the NED fee pool increases. For further information, see section 6.3.
Why does Atlas Arteria have two Boards?
Although ALX is listed using a stapled structure on the Australian Securities Exchange (“ASX”), meaning that the securities of ATLAX
and ATLIX are stapled and must trade and otherwise be dealt with together from a securityholder perspective, the stapling does not
detract from the fact that ATLAX and ATLIX remain separate and distinct legal entities. ATLAX and ATLIX accordingly each have their
own board of directors, with the ATLAX board being governed by the ATLAX constitution and the ATLIX board being governed by the
ATLIX bye-laws. Each company has also adopted its own formal board charter, which sets out the roles and responsibilities of their
respective boards as well as each board’s composition and membership criteria.
Whilst there are arrangements in place for sharing of information, the adoption of consistent accounting policies and the
coordination of reporting to securityholders (details are provided on the ALX website), key decision making is still reserved to the
ATLAX board and the ATLIX board respectively, with each board being independently bound by their respective fiduciary duties
and each independently retaining ultimate accountability and responsibility to their respective securityholders. Each board is
also independently responsible for the overall corporate governance of ATLAX and ATLIX respectively. As a result of ALX’s stapled
structure, the corporate governance and regulatory requirements of both Australia and Bermuda must be considered, with the
boards having to collectively meet the ‘highest common standard’. This is in addition to ALX’s corporate governance arrangements
conforming to the Corporate Governance Principles and Recommendations (3rd edition) issued by the ASX Corporate Governance
Council (“ASX Principles”).
As part of discharging their respective duties, ATLAX and ATLIX each hold full board meetings at least every two months, with
other ad-hoc meetings being called as required. The ATLAX and ATLIX boards have also each constituted a number of separate
board committees, including remuneration committees. The ATLAX People and Remuneration Committee and ATLIX Remuneration
Committee (together the “Remuneration Committees”) each operate under a similar formal charter and each comply with the
requirements of the ASX Principles. The Remuneration Committees have overall responsibility for reviewing and recommending
the compensation for ALX’s key management personnel as well as reviewing and recommending the Remuneration Report.
43
2018 Atlas Arteria Annual Report | 3 FY18 performance highlights
During 2018, ALX continued to deliver solid operational performance resulting in growth of distributions for security holders and
strong growth in the share price.
3.1 Atlas Arteria’s performance
The following table outlines the distributions for ALX over the past five financial years up to and including FY18. Market capitalisation
at 31 December 2018 was over A$4.2 billion, an increase of over 700% since listing.
Financial performance
Distributions (cps)
ALX security price1
FY14
13.20
FY15
16.00
FY16
18.00
FY17
20.00
FY18
24.00
$8.00
$6.00
$4.00
$2.00
$0.00
FY10
1. Source: ASX
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
3.2 Atlas Arteria’s financial performance as it relates to the Macquarie Management fee
Macquarie Management fee
For 2018, the fees paid or payable are as follows:
• Base fee: $36.8m, being 0.85% of ALX’s market value (excluding any securities issued post 30 June 2018) over the 10 ASX trading
days in the relevant calendar quarter
• Performance fees: $115.3m comprising instalments due for the 2016, 2017 and 2018 years
The performance fees reflect our performance against the S&P/ASX300 Industrials Accumulation Index (the “Index”). For the
one year period 1 July 2017 to 30 June 2018, ALX outperformed the Index with a TSR of 18.3% compared to 7.5% for the Index.
For the three year period 1 July 2015 to 30 June 2018, ALX continued to outperform the Index with a TSR of 133% compared to 23%.
Growth in Atlas Arteria’s TSR relative to the S&P/ASX300 Industrials Accumulation Index: July 2015 – June 2018
160%
140%
120%
100%
80%
60%
40%
20%
0%
-20%
44
Jul 15
Jan 16
Jul 16
Jan 17
Jul 17
Jan 18
Jul 18
ALX
S&P ASX300 Industrials Accumulation Index
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued 3.3 Atlas Arteria’s financial performance as it relates to remuneration for the KMP Elect
Short term incentive
During FY18, no STI was awarded to the KMP Elect. The performance of each KMP Elect will be assessed following the transition to
internalised management in 2019. For further details regarding the STI plan, refer to section 5.2.
Long term incentive
ALX’s long-term performance is measured against a single measure of TSR relative to a group of local and international companies
with similar characteristics. For the FY18 LTI award, performance is measured from 1 May 2018 to 31 December 2020. There was
no LTI award vesting during the 2018 financial year. For further details regarding the LTI plan, see section 5.3.
4 Macquarie: Management fees and CEO remuneration
During 2018, agreement was reached to internalise ALX’s management with effect no later than 15 May 2019. In reaching
agreement, transitional arrangements were approved for the management fee structure with Macquarie, as outlined below. For the
purposes of good governance, the remuneration arrangements of the ALX CEO are also outlined below. As the CEO is employed by
Macquarie Group, not Atlas Arteria, his remuneration is disclosed in this Report on a voluntary basis. The remuneration of the CEO
is under the Macquarie Group remuneration structure. Macquarie Group’s approach to executive remuneration is detailed in the
Macquarie Group Annual Report.
4.1 Macquarie Management fees
Element
Description
Management fee
structure
Base fees
ATLAX and ATLIX entered into advisory and management agreements (collectively, the “ALX Management Agreements”)
with Macquarie, a wholly owned subsidiary of Macquarie Group Limited (“MGL” or “Macquarie Group”). Under the
ALX Management Agreements, ALX is required to pay a management fee comprising a base and performance-based fee,
calculated in accordance with defined formulae (outlined below). The management fee structure is linked to ALX’s market
performance and, in the case of performance fees, ongoing ALX outperformance against a market benchmark.
In exchange for the management fee, Macquarie makes employees available (including senior executives) to discharge its
obligations to the relevant ALX entity. These staff are employed by Macquarie Group entities and made available through
formalised resourcing arrangements.
The fee arrangements with Macquarie were adjusted as part of the negotiations with Macquarie to amend the advisory
and management agreements in the lead up to internalisation. Details of these changes were outlined in the Explanatory
Memorandum to the 2018 Notice of Meeting.
A base fee is paid to Macquarie at a rate of 0.85% per annum of ALX’s market value.
Market value means the market capitalisation of ALX calculated on the basis of the average number of ALX securities
on issue during the last 10 ASX trading days in the relevant calendar quarter (excluding any ALX securities issued post
30 June 2018) multiplied by the volume weighted average price (“VWAP”) of all ALX securities traded on the ASX during
those 10 trading days.
The quantum of the base management fee can increase or decrease as a result of any movement in both the number of
ALX securities on issue (excluding any ALX securities issued post 30 June 2018) and the security price. Whilst the base
management fee remains in place, no additional management fees are levied by Macquarie at the asset level for any of
ALX’s investments.
The base fee will be payable until 15 May 2019. From 16 May 2019 to 31 December 2019, a fee of $750,000 per month
will be payable for specific transition services.
45
2018 Atlas Arteria Annual Report | Element
Description
Performance fees
Reinvestment
of fees
Expense
reimbursement
A performance fee was payable to Macquarie if the ALX accumulation index outperformed its benchmark, the S&P/ALX300
Industrials Accumulation Index, in the year having made up for any previous underperformance.
Historically, performance fees were payable in three equal annual instalments. The first instalment was payable
immediately, with subsequent instalments subject to further performance conditions. The second and third instalments
were payable on the first and second anniversaries of the calculation date respectively, only if ALX’s performance equalled
or exceeded that of the benchmark over the period to that date.
At 30 June 2018, the following performance fees became payable in accordance with, and due to the renegotiation of, the
management agreements. Fees are apportioned between ATLAX and ATLIX based on each entity’s share of the value of
ALX’s net assets.
• 2018 performance fee: $54.7 million (excluding GST). In accordance with, and due to the renegotiation of, the
management agreements, the 2018 performance fee was payable in full.
• 2017 performance fee: the second instalment of $8.0 million (excluding GST) was tested at 30 June 2018 and became
payable at this time due to outperformance against the benchmark. In accordance with, and due to the renegotiation
of, the management agreements, the third instalment of $8.0 million (excluding GST), was payable in full.
• 2016 performance fee: $44.7million (excluding GST) for the third instalment fee was tested at 30 June 2018 and
became payable at this time due to outperformance against the benchmark.
On 2 July 2018, Macquarie and ALX’s independent directors agreed that the total performance fees of $115.3 million
(excluding GST) be settled by a combination of equity and cash. Accordingly, 13,476,174 ALX securities were issued to
Macquarie’s assignee at a price of $6.700906 per security on 2 July 2018. The remaining performance fee payable of
$25.0 million was settled in cash on 3 July 2018.
Following the above settlement, Macquarie is no longer eligible to earn performance fees under its management
agreement with ALX.
Per ALX’s constituent documents and ALX Management Agreements, Macquarie can request the application of base or
performance fees payable be used to subscribe for new ALX securities. This subscription is subject to the approval of ALX’s
independent directors.
Where this occurs, the issue price for the new ALX stapled securities is the VWAP of all ALX stapled securities traded on the
ASX during the last 10 trading days of the relevant instalment period.
Macquarie is reimbursed, out of the assets of ALX, for any out of pocket expenses incurred in relation to the proper
performance of its duties as set out in the ALX Management Agreements. Macquarie is not reimbursed for staff costs,
or costs associated with their employment and premises.
Fees paid or payable to ALX group entities for services provided by other Macquarie entities are disclosed in the ALX
financial statements and are subject to strict protocols.
4.2 ALX CEO remuneration
Mr James Hooke was appointed CEO of ALX effective 1 February 2018 and is employed by the Macquarie Group. Mr Hooke’s
remuneration is determined and paid by the Macquarie Group and not recharged to ALX. As such, his remuneration is not
required to be disclosed, however, Macquarie has agreed to provide details of Mr Hooke’s remuneration in his capacity as ALX CEO.
Macquarie’s remuneration approach is detailed in the MGL Annual Report available at www.macquarie.com. An overview of this
approach, as applicable to Mr Hooke, is provided below.
Macquarie Group’s remuneration framework works as an integrated whole and comprises fixed remuneration and profit share
with an emphasis on performance-based remuneration.
Fixed remuneration is reviewed annually and reflects technical and functional expertise, role scope, market practice and regulatory
requirements.
Profit share allocations for individuals are primarily based on business profits and individual contribution to profits. Profit share
allocations may be adjusted downwards based on an assessment of risk or conduct issues that have arisen during the year.
For Mr Hooke, his profit share allocation is determined with reference to his individual contribution to the performance of ALX,
and includes consideration of:
• ALX’s overall performance as a listed entity;
• Management and leadership of ALX including the management of ALX’s investments;
• Effective risk management and capital management; and
• Maintenance of ALX’s reputation.
46
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued Macquarie Group retains a percentage of certain individual’s annual profit share allocation (retained profit share) which is invested in
a combination of MGL equity under the Macquarie Group Employee Retained Equity Plan (“MEREP”) and via notional investment in
Macquarie Group managed funds. One third of Mr Hooke’s retained profit share vests and is released in each of years 3 to 5 from the
date of award.
Mr Hooke’s fixed remuneration and profit share allocation are determined with reference to MGL’s financial year ended 31 March,
which is a different cycle to ALX’s financial year ended 31 December. Consequently, Mr Hooke’s profit share, for the period ending
31 March 2019, attributable to his contribution to ALX has not yet been determined.
Inclusive of superannuation, Mr Hooke’s fixed remuneration for the period 1 February 2018 to 31 December 2018 was $426,251.
5 Remuneration framework for management post internalisation
The remuneration framework for the executive team post internalisation, including executive KMP, aims to achieve balance –
between fixed and performance based remuneration, between short- and long-term performance incentives, and between financial,
non-financial and strategic outcomes – as well as providing a balance of remuneration received in cash and in securities.
Our objectives for the executive remuneration framework for internalised management are to ensure that it:
• Is simple to understand, implement and communicate
• Meets short-term imperatives during the current period of significant change, whilst also reflecting the long-term needs of
the business
• Reflects the experience of the executive and complexity of the role and business compared to the market
• Encourages behaviours that are aligned to our business strategy, performance and securityholders
• Reflects performance measures which our executives have the ability to influence, and
• Encourages executive equity ownership.
5.1 Positioning and mix of executive remuneration
To ensure our remuneration quantum and structure is market competitive, we reference the median of a group of comparator
companies of similar size and complexity to ALX. For FY18, the primary reference point was a group of 72 companies with a
12-month average market capitalisation between 50% to 200% of ALX. The remuneration arrangements of selected industry
comparators were also considered for each role.
The target and maximum remuneration framework for the CEO Elect and CFO Elect comprises fixed remuneration, STI and LTI as in
the graphs below.
Remuneration mix based on achieving ‘target’ performance
CEO Elect
Maximum LTI
33%
Target STI –
deferred
17%
CFO Elect
Maximum LTI
30%
Target STI –
deferred
13%
Fixed
remuneration
33%
Target STI –
cash
17%
Fixed
remuneration
44%
Target STI –
cash
13%
47
2018 Atlas Arteria Annual Report | Remuneration mix based on achieving ‘maximum’ performance
CEO Elect
CFO Elect
Maximum LTI
29%
Target STI –
deferred
21%
Fixed
remuneration
29%
Target STI –
cash
21%
Maximum LTI
27%
Target STI –
deferred
17%
Fixed
remuneration
39%
Target STI –
cash
17%
Outlined below is further detail regarding the STI and LTI plans for the 2018 financial year. Any changes to the remuneration
framework that will apply following the transition to internalised management have also been highlighted.
5.2 Short-term incentive
Executives, middle management and additional participants as determined by the Boards are eligible to participate in the annual STI
plan. Details regarding the STI arrangements of the CEO Elect and CFO Elect are set out below. The size of each STI award is capped
at an agreed percentage of fixed remuneration for each executive. The value of the STI payment made at the end of the performance
period is a function of performance against a balance of financial and non-financial performance measures aligned with ALX’s
short term interests.
Element
Opportunity
Performance measures
pre-internalisation
Description
The STI is subject to achievement of defined performance targets, which is delivered 50% in cash and 50% in
restricted securities.
The target STI represents an opportunity to earn 100% of fixed remuneration for the CEO Elect and 60% of fixed
remuneration for the CFO Elect. The CEO Elect and CFO Elect have the opportunity to earn up to a maximum of
150% of these target STIs. For FY18, the STI opportunity is pro-rated for the portion of the performance period for
which the KMP was employed.
Performance is assessed against the following measures:
CEO Elect
Performance area
Strategic
Transition activities
Transition budget
Stakeholder engagement
CFO Elect
Weighting
Performance area
Weighting
30%
30%
25%
15%
Transition budget
Stakeholder engagement
Financial transition activities
Transition activities
Risk related transition activities
Strategic
25%
20%
20%
15%
15%
5%
Performance period
Performance is measured over a one-year performance period, from 1 January to 31 December. However, as
a result of KMP Elect commencing employment during FY18, the performance period is the date each KMP
commenced employment (being 1 May 2018 for the CEO Elect and 16 July 2018 for the CFO Elect) to the date
of internalisation.
48
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued Element
STI deferral
Description
To assist in creating alignment with securityholders and in achieving the minimum shareholding requirement,
50% of the STI outcome is deferred into restricted securities for a one-year period following the conclusion of
the performance period, subject to ongoing service and the discretion of the Boards.
Performance measures
post internalisation
Following transition to internalised management, executives, middle management and additional participants as
determined by the Boards will be eligible to participate in the STI, with performance assessed from the date of
internalisation to 31 December 2019 against financial measures and individual measures. Performance measures
for the CEO Elect and CFO Elect in FY19 are as follows:
CEO Elect
Performance area
CFO Elect
Weighting
Performance area
Comprises of a combination of the
following:
• Proportional adjusted EBITDA
(reflecting proportional
performance of each business
adjusted for items determined
by the Boards)
• Distributions per security
• Cashflow available for distribution
• Corporate operational
expenditure
70%
Comprises of a combination of the
following:
• Proportional adjusted EBITDA
(reflecting proportional
performance of each business
adjusted for items determined
by the Boards)
• Distributions per security
• Cashflow available for distribution
• Corporate operational
expenditure
Weighting
70%
KPIs relating to culture, behaviours
and specific strategic outcomes
30%
KPIs relating to culture, behaviours
and specific strategic outcomes
30%
For FY19, STI awards will be pro-rated to reflect the period from the date of internalisation to 31 December 2019.
5.3 Long-term incentive
To align with the interests of shareholders, executives and other participants as determined by the Boards are eligible to participate
in an LTI plan. Details of the LTI arrangements of the CEO Elect and CFO Elect are set out below. The size of each year’s grant is
capped at an agreed percentage of fixed remuneration for each executive. The value of the LTI payment made at the end of the
vesting period is a function of:
• ALX TSR performance relative to a group of Australian and international peer companies (which determines the number of
securities granted that vest)
• The change in the price per ALX stapled security (which determines the value of each stapled security that vests), and
• The value of distributions that would have been made during the vesting period in relation to the number of securities that vest
(Distribution Equivalents).
As a result, management incentives are aligned with the long-term interests of securityholders to achieve strong performance
relative to peers and to generate an appropriate balance of security price performance and distributions.
Element
Opportunity
Description
The maximum grant value of LTI opportunities represents 100% of fixed remuneration for the CEO Elect and 70% of
fixed remuneration for the CFO Elect.
For FY18 only, the number of instruments granted will be determined based on the 10 day VWAP immediately
following the 2018 Annual General Meeting (which was held on 15 May 2018).
For FY19, the number of instruments granted will be determined based on the 10 day VWAP immediately following
the announcement by ALX its FY18 results.
For the CEO Elect, the 2018 grant will be made in 2019 following approval from securityholders at the 2019 AGM.
If securityholder approval is not obtained, the CEO Elect will be eligible to receive a cash award of equivalent value
subject to the same performance measures and performance period.
Vehicle
Awards are delivered in the form of performance rights. A performance right is a right to acquire one fully paid
Atlas Arteria security, subject to meeting predetermined performance measures, for nominal consideration.
49
2018 Atlas Arteria Annual Report | Element
Description
Performance measure
For the FY18 grant, LTI performance is assessed against relative TSR. Relative TSR was selected as the sole
performance measure as it measures securityholding value creation objectively, can be used for comparing
performance across different jurisdictions and is widely understood and accepted by stakeholders.
Atlas Arteria’s TSR performance is assessed against a local and global industry comparator group, comprising
Abacus Property Group, APA Group, Aurizon Holdings Limited, AusNet Services, Charter Hall Group, Growthpoint
Properties Australia, Qube Holdings Limited, Spark Infrastructure Group, Sydney Airport, Transurban Group,
3i Infrastructure, Cogent Communications Holdings Limited, Eiffage SA, Genesee & Wyoming Inc., Getlink,
Macquarie Infrastructure Corporation and Zayo Group Holdings, Inc. These companies were selected as they
operate in comparable industries, with asset size, market capitalisation, jurisdiction of assets and operational
control, in relevant ranges.
The comparator group may, at the discretion of the Boards, be adjusted to take into account events during the
Performance Period including, but not limited to takeovers, mergers, demergers or delistings.
Vesting schedule
Relative TSR performance is assessed on a sliding scale, with vesting determined as follows:
Atlas Arteria’s TSR performance
Below the 51st percentile
At the 51st percentile
% vesting
0%
50%
Between the 51st percentile and 75th percentile
Pro-rata between 50% and 100%
At the 75th percentile
100%
The Boards retain discretion to adjust the relative TSR measure in exceptional circumstances to ensure that
participants are neither advantaged nor disadvantaged by matters outside management’s control.
Performance period
Performance is measured over a three-year performance period, from 1 January to 31 December. However, as
Atlas Arteria is working towards internalisation of management, the performance for FY18 will be measured from
1 May 2018 to 31 December 2020 to align with the period commencing when the internalisation was approved.
Vesting and allocation
of securities
If and when the Boards determine that the relative TSR performance measure has been achieved, the performance
rights will automatically be exercised and the relevant number of securities will be allocated.
Distribution equivalents
Distribution equivalents will be payable (via a grant of securities or a cash payment, at the Boards’ discretion)
on performance rights that have vested, to the value of any distributions paid during the performance period in
respect of an equivalent number of ALX securities.
50
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued 6 Non-Executive Director fees
6.1 Determination of Non-Executive Director fees
In order to attract and retain high calibre non-executive directors, fees are reviewed periodically by the Remuneration Committees
and set with reference to the market. The Board fee structure (inclusive of superannuation) for FY18 is as follows.
Fees
Board
Audit and Risk Committee
Remuneration Committee
Nominations and Governance Committee
1. Committee fees are not payable to the Chair of the ATLAX or ATLIX Board.
2. For Australia-based director.
ATLAX
Chair
(AUD)
Member
(AUD)
Chair
(USD)
$200,0001
$120,000
$110,0001
$25,000
$10,000
Nil
$12,500
$5,000
$5,000
$15,000
$7,500
Nil
ATLIX
Member
(USD)
$70,000
$7,500
$3,750
$2,500
Member
(AUD)2
$70,000
$7,500
$3,750
$2,500
In addition to base fees and additional fees for service on a committee of the Board as outlined above, non-executive directors are
also entitled to the following:
Additional fees
Travel fee (per annum)
Additional ad hoc committee fee (per day)
Internalisation committee (per annum)
Additional working group fee
ATLAX
Chair
(AUD)
Member
(AUD)
$10,000
$2,500
$5,000
Chair
(USD)
$10,000
ATLIX
Member
(USD)
$5,000
$1,750
$2,500
US$5,000 and A$20,0002
Member
(AUD)1
N/A
$1,750
$2,500
1. For Australian based director.
2. An additional working group was set up for the internalisation. Fees vary depending on level of involvement.
ATLAX and ATLIX directors are not entitled to ALX options or securities or to retirement benefits as part of their remuneration
package.
6.2 Aggregate fee pool
As approved by securityholders, the aggregate ATLAX Non-Executive Director fee pool is capped at A$1,000,000 and the ATLIX
Non-Executive Director fee pool is capped at US$500,000.
6.3 FY19 aggregate fee pool and non-executive director fees
A review of market non-executive director fees was undertaken in FY18, which included a review of market benchmarking
information for companies of a similar size and complexity to ALX (being companies with a 12-month average market capitalisation
between 50% to 200% of ALX). The review highlighted that remuneration for ATLAX’s and ATLIX’s non-executive directors is materially
below the median level for companies of similar size and complexity.
We propose to increase the level of remuneration for ATLAX’s and ATLIX’s non-executive directors to a level that is at or close to the
median for the benchmark group of companies as follows:
Fees
Board
Audit and Risk Committee
Remuneration Committee
Nominations and Governance Committee
1. Committee fees are not payable to the Chair of the ATLAX Board or ATLIX Board.
2. For Australia-based director.
ATLAX
Chair
(AUD)
Member
(AUD)
Chair
(USD)
$280,0001
$140,000
$160,0001
$30,000
$30,000
Nil
$15,000
$15,000
Nil
$18,000
$18,000
Nil
ATLIX
Member
(USD)
$80,000
$9,000
$9,000
Nil
Member
(AUD)2
$80,000
$9,000
$9,000
Nil
51
2018 Atlas Arteria Annual Report | Non-Executive Directors will also be entitled to receive a travel fee of A$10,000 where for each occasion where they are required to
travel over 8 hours to attend a Board meeting or strategy session.
To allow for these proposed increases in Non-Executive Director remuneration, an increase in the ATLAX and ATLIX Non-Executive
Director fee pools to A$1,100,000 (from A$1,000,000) and US$700,000 (from US$500,000) respectively will be proposed for approval
at the Annual General Meeting in April 2019.
The combined ATLAX and ATLIX NED fee pool (converted to Australian dollars) is positioned at the 75th percentile of the market.
This higher positioning is consistent with the need to have separate boards in place for each of the two legal entities which comprise
ALX’s stapled structure.
7 Remuneration Governance
7.1 Roles and responsibilities
The table below outlines the roles and responsibilities of the Boards, Remuneration Committees, Management and external advisers
in relation to the remuneration arrangements of Directors, CEO Elect and other KMP Elect.
The Boards
Remuneration Committees
Management
External advisers
Approves remuneration
strategy and approves
recommendations from the
Remuneration Committees
Makes recommendations to the Boards
regarding the remuneration framework,
policies and practices for ALX as well as
remuneration for KMP
Makes recommendations to the
Remuneration Committees on the
ALX’s remuneration framework,
policies and practices
Provides independent advice to the
Remuneration Committees and/or
Management on remuneration
market data, market practice and
other remuneration related matters
The requirement for external remuneration advisor services is assessed in the context of matters the Remuneration Committees
need to address. External advice is used as a guide but does not serve as a substitute for directors’ consideration of the relevant
matters. Therefore, no remuneration recommendations, as defined by the Corporations Act 2001 (Cth), were made by external
remuneration advisers.
7.2 Executive Contracts
The remuneration and other terms of employment for the CEO Elect and CFO Elect are formalised in executive contracts.
Key contractual terms in place for FY18 are outlined below.
Contract type
Termination notice
by either party
Termination notice with cause
Termination notice by KMP Elect
for fundamental change in role
CEO Elect
Ongoing
12 months
Immediate without notice period
CFO Elect
Ongoing
6 months
Immediate without notice period
30 days within 21 days of
fundamental change
30 days within 21 days of
fundamental change
52
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued 7.3 Additional provisions as related to STI and LTI arrangements – KMP Elect
The table below summarises additional arrangements as they relate to the CEO Elect and CFO Elect.
Provision
Malus
STI
LTI
In the event of:
• Material non-compliance with any financial reporting requirement or other company policies and
Cessation of employment
Change of control
operating procedures
• Fraudulent or dishonest behaviour, or
• Misconduct.
The Boards have discretion to determine that some or all deferred STI and unvested LTI awards are
forfeited.
If a participant resigns or is terminated for cause
(including gross misconduct), any deferred
securities are forfeited and the participant is not
entitled to any further payment of cash STI. If a
participant leaves for any other reason, subject
to Board discretion, the participant will be entitled
to a pro-rata payment of cash STI subject to
performance and deferred securities will stay
“on foot” until the end of the deferred period.
If a participant resigns or is terminated for cause
(including gross misconduct), unvested performance
rights will automatically lapse. If a participant leaves
for any other reason, subject to Board discretion,
a pro-rata number of unvested performance rights
(reflecting the portion of performance period
served) will stay “on-foot” to be tested against
the performance condition at the end of the original
performance period.
Upon a change of control:
• The Boards will determine in their absolute
discretion the treatment for STI opportunity
• Subject to the Boards determining otherwise,
cash based STI will be assessed on a pro-
rata basis and paid at that time based on
performance, and deferred STI will vest in full.
Where a change of control occurs or is likely to
occur, the Boards have discretion to determine the
treatment of unvested equity awards and the timing
of such treatment. In the event the Boards do not
exercise their discretion, the LTI will vest pro-rata for
time and performance.
7.4 Minimum securityholding requirements – Non-Executive Directors and KMP Elect
Minimum securityholding requirements help ensure there is alignment between the interests of ALX’s Directors, KMP
and securityholders.
Role
Minimum shareholding
Timing to meet requirement
Non-Executive Directors
100% of annual director base fees
3 years from the later of July 2017
(when the policy was implemented) or from the date
of their appointment
CEO Elect
CFO Elect
100% of fixed remuneration
50% of fixed remuneration
5 years from appointment
5 years from appointment
53
2018 Atlas Arteria Annual Report | 8 Statutory disclosures
8.1 Executive statutory remuneration disclosures for FY18
The following table shows the total remuneration for the CEO Elect and CFO Elect for FY18.
Name
Financial
year
Graeme Bevans
Nadine Lennie
2018
2018
Cash
salary
$
696,356
256,619
Cash
STI
$
Non-cash
benefits
$
Super-
annuation
$
Value of
share-based
payments
$
Long
service
leave
$
Termination
benefit
$
Total
$
Performance
based equity
%
–
–
–
–
33,554
9,501
109,857
28,384
–
–
–
–
839,767
294,504
13.1%
9.6%
For the CEO Elect, the 2018 grant will be made in 2019 following approval from security holders at the 2019 AGM. If securityholder
approval is not obtained, the CEO Elect will be eligible to receive a cash award of equivalent value and subject to the same
performance measures and performance period. The performance rights have been valued and included in the financial statements
for each member of the elect executive team on this basis.
8.2 Non-Executive Director statutory remuneration disclosures for FY18 and FY17
The following table shows the actual fees paid to Non-Executive Directors of ATLAX and ATLIX for FY18 and FY17.
ATLAX fees1 (AUD)
ATLIX fees1
Name
Nora Scheinkestel
Richard England2
Debra Goodin3
John Roberts4
David Bartholomew5
Jean-Georges Malcor6
Marc de Cure7
Jeffrey Conyers
Derek Stapley
James Keyes
Christopher Leslie8
Financial
year
Cash salary
and fees
Superannuation
189,710
208,606
136,826
180,060
162,864
75,914
105,000
142,083
32,380
24,583
71,918
20,290
19,832
14,424
15,681
15,261
4,837
–
–
3,037
–
6,832
2018
2017
2018
2017
2018
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Total
210,000
228,438
151,250
195,741
178,125
80,751
105,000
142,083
35,417
24,583
78,750
Cash salary
and fees
AUD 83,750
AUD 86,250
Superannuation
Total
–
–
AUD 83,750
AUD 86,250
USD 120,000
USD 122,500
USD 92,500
USD 102,437
USD 85,000
USD 92,500
USD 85,000
USD 28,300
–
–
–
–
–
–
–
–
USD 120,000
USD 122,500
USD 92,500
USD 102,437
USD 85,000
USD 92,500
USD 85,000
USD 28,300
1. In 2017, Committees set up specifically for the ALX internalisation were remunerated at a rate of A$5,000 per annum for ATLAX and US$2,500 per annum for ATLIX (A$2,500 per
annum for the Australian based director). In addition, a working group was set up with fees ranging between US$5,000 and A$20,000 depending on the level of involvement. In 2018,
Debra Goodin was paid a one-off fee of A$20,000 for additional duties performed in relation to internalisation.
2. Resigned as a Non-Executive Director, effective 30 November 2018.
3. Commenced as a Non-Executive Director, effective 1 September 2017.
4. Resigned as a Non-Executive Director, effective 28 September 2018.
5. Commenced as a Non-Executive Director, effective 1 October 2018.
6. Commenced as a Non-Executive Director, effective 1 November 2018.
7. Resigned as a Non-Executive Director, effective 30 June 2017.
8. Commenced as a Non-Executive Director, effective 1 September 2017.
54
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual ReportRemuneration Report (audited) continued 8.3 Equity instrument disclosures relating to KMP and KMP Elect
Securityholdings
The table below outlines the number of ordinary securities held by each KMP and KMP Elect, including their personally related
parties, as at 31 December 2018, and the minimum securityholding requirements. Non-Executive Directors have acquired their
security holdings on market and in accordance with the ALX’s Securities Trading Policy.
Non-Executive Directors
Name
Nora Scheinkestel
Debra Goodin
David Bartholomew
Jean-Georges Malcor
Jeffrey Conyers
James Keyes
Christopher Leslie
Derek Stapley
Balance at
1 Jan 2018
No. of
securities
78,431
5,671
–
–
40,000
5,000
–
–
Changes
No. of
securities
Balance at
31 Dec 2018
No. of
securities
–
–
–
–
–
–
–
5,000
78,431
5,671
–
–
40,000
5,000
–
5,000
Value at
31 Dec 20181
A$
490,978
35,500
–
–
250,400
31,300
–
31,300
Minimum
securityholding
requirement2
A$
Date
securityholding
to be attained
190,000
July 2020
120,000
September 2020
120,000
October 2021
120,000
November 2021
99,385
99,385
July 2020
July 2020
99,385
September 2020
99,385
July 2020
1. Based on the closing share price of ALX securities on 31 December 2018 of A$6.26.
2. Minimum securityholding requirement for ATLIX Board members has been converted to AUD at the 31 December 2018 exchange rate of A$1 = US$0.7043.
KMP Elect
Graeme Bevans
Nadine Lennie
–
–
–
–
–
–
–
–
1,100,000
287,500
May 2023
July 2023
Options
No options over unissued ordinary securities of ALX existed or were granted to KMP during FY18.
Performance rights held during the year
Performance rights held by KMP Elect have been disclosed in this report.
Equity grants on foot during FY18
No equity grants were on foot for KMP Elect during FY18.
8.4 Loans to directors or related parties
There were no loans to directors or related parties during FY18.
8.5 Other transactions with KMP
There were no other transactions with KMP.
55
2018 Atlas Arteria Annual Report |
Auditor services (audited)
The Group has an auditor independence policy which precludes the auditors from performing certain services. This ensures that
the audit firm does not review or audit their own work, act in a management or a decision-making capacity for the Group, act as
advocate for the Group or jointly share economic risks and rewards. When permissible by this policy, the Group may decide to
employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with
the Groups are important. Details of the amounts paid or payable to the Group auditor (PricewaterhouseCoopers) as well as the non
PricewaterhouseCoopers audit firms for services provided during the year are set out below.
The Boards have considered the position and, in accordance with the advice received from the Audit and Risk Committee, are
satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed
by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below,
did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
• All non-audit services have been reviewed by the Audit and Risk Committees to ensure they do not impact the impartiality and
objectivity of the auditor; and
• None of the services undermine the general principles relating to auditor independence as set out in APES 110: Code of Ethics
for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-
making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards.
Amounts paid or payable to PricewaterhouseCoopers Australia for:
Audit services
Taxation services
Other assurance services1
Amounts paid or payable to network firms of PricewaterhouseCoopers for:
Audit services
Taxation services2
Other services
Amounts paid or payable to non-PricewaterhouseCoopers audit firms for:
Audit services
ALX
ATLAX Group
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
479,130
–
60,680
539,810
314,211
155,974
–
364,743
14,240
261,918
640,901
239,416
29,757
4,830
239,565
186,110
–
30,340
269,905
–
25,904
212,014
32,745
41,927
–
–
–
–
470,185
274,003
32,745
41,927
64,866
64,866
–
–
–
–
–
–
1. Other assurance services provided in 2018 related to management internalisation. Other assurance services provided in 2017 related to the capital raising services associated with the
acquisition of the 50% estimated economic interest in TRIP II and 4.86% indirect interest in APRR via MAF2.
2. Taxation services provided by network firms of the auditor relates to the filing of corporate income tax returns for the Group’s entities domiciled outside of Australia.
56
Directors’ Reports continuedfor the year ended 31 December 2018| 2018 Atlas Arteria Annual Report Auditor’s Independence Declaration
A copy of the auditor’s independence declaration, as required under section 307C of the Corporations Act 2001 for ATLAX is set out
on page 58.
Signed in accordance with a resolution of the directors of Atlas Arteria International Limited:
Jeffrey Conyers
Chairman
Atlas Arteria International Limited
Pembroke, Bermuda
27 February 2019
Derek Stapley
Director
Atlas Arteria International Limited
Pembroke, Bermuda
27 February 2019
Signed in accordance with a resolution of the directors of Atlas Arteria Limited:
Nora Scheinkestel
Chairman
Atlas Arteria Limited
Sydney, Australia
28 February 2019
Debra Goodin
Director
Atlas Arteria Limited
Sydney, Australia
28 February 2019
57
2018 Atlas Arteria Annual Report |
Auditor’s Independence Declaration
Financial Reports for the year ended 31 December 2018
Page 30 of 84
Atlas Arteria International Limited
Atlas Arteria Limited
Auditor’s Independence Declaration
As lead auditor for the audits of Atlas Arteria International Limited and Atlas Arteria Limited for the year ended 31 December 2018,
I declare that to the best of my knowledge and belief there have been:
1
2
no contraventions of the auditor independence requirements of the Corporations Act 2001 (as applicable) in relation to the
audits; and
no contraventions of any applicable code of professional conduct in relation to the audits.
This declaration is in respect of Atlas Arteria International Limited and Atlas Arteria Limited and the entities they controlled during the year.
SJ Smith
Partner
PricewaterhouseCoopers
Sydney
28 February 2019
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 1171.
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation
58
| 2018 Atlas Arteria Annual Report
Consolidated Statements of Comprehensive Income
for the year ended 31 December 2018
Revenue and other income from operations
Revenue from operations
Other income from operations
Total revenue and other income from operations
Operating expenses
Finance costs
Share of net profits/(losses) of investments accounted
for using the equity method
Profit/(loss) from operations before income tax
Income tax (expense)/benefit
Profit/(loss) for the year
Profit/(loss) attributable to:
Equity holders of the parent entity – ATLIX
Equity holders of other stapled entity – ATLAX
(as non-controlling interest/parent entity)
Stapled securityholders
Other comprehensive income/(loss)
Items that may be reclassified to profit or loss:
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Note
2.1(a)
2.1(b)
2.1(c)
3.2(b)
2.4
132,378
13,609
145,987
(222,458)
(108,920)
246,141
60,750
(898)
59,852
78,732
394,269
473,001
(104,343)
(53,795)
187,971
502,834
16,749
519,583
5,540
224
5,764
(17,795)
–
(4,801)
(16,832)
1
(16,831)
3,024
65,142
68,166
(8,493)
–
(626)
59,047
(1,664)
57,383
76,683
(16,831)
462,200
57,383
–
–
(16,831)
57,383
59,852
519,583
(16,831)
57,383
Exchange differences on translation of foreign operations
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income/(loss) for the year
178,502
178,502
238,354
(14,940)
(14,940)
504,643
16,547
16,547
(284)
(14,518)
(14,518)
42,865
238,638
461,778
–
–
Total comprehensive income/(loss) attributable to:
Equity holders of the parent entity – ATLIX
Equity holders of other stapled entity – ATLAX
(as non-controlling interest/parent entity)
Stapled securityholders
Profit/(loss) per share attributable to ATLIX/ATLAX shareholders
Basic profit/(loss) per share attributable to:
ATLIX (as parent entity)
ATLAX (as non-controlling interest)
Basic profit/(loss) per ALX stapled security
Diluted profit/(loss) per share attributable to:
ATLIX (as parent entity)
ATLAX (as non-controlling interest)
Diluted profit/(loss) per ALX stapled security
(284)
238,354
42,865
504,643
(284)
(284)
Cents
Cents
Cents
2.3
2.3
2.3
2.3
11.33
–
8.84
11.33
–
8.84
77.98
–
87.66
77.98
–
87.66
–
(2.49)
(2.49)
–
(2.49)
(2.49)
The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
42,865
42,865
Cents
–
9.68
9.68
–
9.68
9.68
5959
2018 Atlas Arteria Annual Report | Consolidated Statements of Financial Position
as at 31 December 2018
Current assets
Cash and cash equivalents
Other assets
Total current assets
Non-current assets
Intangible assets – Tolling concessions
Investments accounted for using the equity method
Restricted cash
Goodwill
Property, plant and equipment
Derivative financial instruments
Other assets
Total non-current assets
Total assets
Current liabilities
Debt at amortised cost
Other liabilities
Derivative financial instruments
Total current liabilities
Non-current liabilities
Debt at amortised cost
Deferred tax liabilities
Other liabilities
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Equity attributable to equity holders of the parent – ATLIX
Contributed equity
Reserves
Accumulated losses
ATLIX securityholders’ interest
Equity attributable to other stapled securityholders – ATLAX
Contributed equity
Reserves
Accumulated income
Other stapled securityholders’ interest
Total equity
Note
3.1
4.3
4.1
3.2
3.1
4.2
4.3
5.1
4.4
5.1
2.4
4.4
5.2
5.3
5.2
5.3
ALX
ATLAX Group
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
186,468
2,495
188,963
2,578,434
1,569,970
203,961
79,390
4,595
2,900
319
122,690
1,342
124,032
2,189,724
1,483,337
153,440
58,726
728
–
140
4,439,569
4,628,532
3,886,095
4,010,127
(77,322)
(34,859)
(3,108)
(66,286)
(63,327)
–
(115,289)
(129,613)
(2,101,962)
(1,668,352)
(57,709)
(11,571)
(13,495)
(40,333)
(9,754)
–
(2,184,737)
(1,718,439)
(2,300,026)
(1,848,052)
2,328,506
2,162,075
1,995,994
1,911,877
190,155
(87,522)
28,122
(84,040)
2,098,627
1,855,959
197,311
(7,528)
40,096
229,879
268,334
(24,216)
61,998
306,116
2,328,506
2,162,075
12,461
47,337
59,798
34,304
2,196
36,500
–
–
164,644
153,110
–
–
561
–
8,274
173,479
233,277
–
(3,398)
–
(3,398)
–
–
–
–
–
–
–
–
–
122,882
275,992
312,492
–
(6,376)
–
(6,376)
–
–
–
–
–
(3,398)
229,879
(6,376)
306,116
–
–
–
–
–
–
–
–
197,311
(7,528)
40,096
229,879
229,879
268,334
(24,216)
61,998
306,116
306,116
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes.
As required by Bermuda regulations, the ALX financial information was approved by the directors of the Atlas Arteria International
Limited (“ATLIX”) Board on 27 February 2019 and was signed on ATLIX’s behalf by:
Jeffrey Conyers,
Atlas Arteria International Limited,
Pembroke, Bermuda
Derek Stapley,
Atlas Arteria International Limited,
Pembroke, Bermuda
60
| 2018 Atlas Arteria Annual Report Consolidated Statements of Changes in Equity
for the year ended 31 December 2018
ALX
Total equity at 1 January 2018
Attributable to ATLIX securityholders
Contributed
equity
$’000
1,911,877
Reserves
$’000
28,122
Accumulated
Losses
$’000
Attributable
to ATLAX
securityholders
$’000
Total
$’000
Total ALX
equity
$’000
(84,040)
1,855,959
306,116
2,162,075
Opening adjustment on adoption of AASB 91
–
–
288
288
(288)
–
Total equity at 1 January 2018 (restated)
1,911,877
28,122
(83,752)
1,856,247
305,828
2,162,075
Profit/(loss) for the year
Exchange differences on translation of
foreign operations
Transfer from foreign currency translation
reserve to accumulated losses2
Total comprehensive income/(expense)
Transactions with equity holders in their
capacity as equity holders:
Application of performance fees to
subscription for new securities
Employee performance rights3
Capital return4
Dividends paid4
–
–
–
–
84,117
–
–
–
84,117
–
76,683
161,955
78
–
(78)
76,683
161,955
(16,831)
16,547
59,852
178,502
–
–
–
162,033
76,605
238,638
(284)
238,354
–
–
–
–
–
–
–
–
(80,375)
(80,375)
(87,522)
84,117
6,186
90,303
–
–
(80,375)
3,742
141
(77,209)
(4,783)
(75,665)
141
(77,209)
(85,158)
(71,923)
2,098,627
229,879
2,328,506
Total equity at 31 December 2018
1,995,994
190,155
1. Refer note 7.5(e) for details.
2. Foreign exchange translation gain of $0.1 million transferred to accumulated losses on derecognition of joint venture (refer note 6.2 for details).
3. Refer note 7.4 for details.
4. On 5 October 2018, ATLAX paid a distribution of 12.0 cents per stapled security (“cps”), comprising a capital return of 11.3 cps and an unfranked Australian ordinary dividend of 0.7 cps.
On 13 April 2018, ATLIX paid an ordinary dividend of 12.0 cps.
ALX
Total equity at 1 January 2017
Profit for the year
Exchange differences on translation of
foreign operations
Transfer from foreign currency translation
reserve to accumulated losses1
Total comprehensive income/(expense)
Transactions with equity holders in their
capacity as equity holders:
Issue of securities during the year
Application of performance fees to
subscription for new securities
Other equity transactions
Capital return2
Dividends paid2
Total equity at 31 December 2017
Contributed
equity
$’000
1,323,651
–
–
–
–
595,789
48,585
–
(56,148)
–
588,226
1,911,877
Attributable to ATLIX securityholders
Reserves
$’000
58,378
–
(422)
Accumulated
Losses
$’000
(517,041)
462,200
Total
$’000
864,988
462,200
–
(422)
Attributable
to ATLAX
securityholders
$’000
208,010
57,383
(14,518)
Total ALX
equity
$’000
1,072,998
519,583
(14,940)
(30,135)
30,135
–
–
–
(30,557)
492,335
461,778
42,865
504,643
–
–
301
–
–
301
28,122
–
–
–
–
(59,334)
(59,334)
(84,040)
595,789
48,585
301
(56,148)
(59,334)
529,193
1,855,959
51,035
4,054
152
–
–
55,241
306,116
646,824
52,639
453
(56,148)
(59,334)
584,434
2,162,075
1. Foreign exchange translation gain of $30.1 million transferred to accumulated losses on derecognition of associate.
2. On 29 September 2017, ALX paid an ordinary dividend of 10.0 cps. On 7 April 2017, ALX paid a distribution of 10.0 cps, comprising a capital return of 9.8 cps and an ordinary dividend of 0.2 cps.
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes.
61
2018 Atlas Arteria Annual Report | ATLAX Group
Total equity at 1 January 2018
Opening adjustment on adoption of AASB 91
Total equity at 1 January 2018 (restated)
Loss for the year
Exchange differences on translation of foreign operations
Total comprehensive expense
Transactions with equity holders in their capacity as equity holders:
Application of performance fees to subscription for new securities
Employee performance rights2
Capital return3
Dividend paid3
Total equity at 31 December 2018
Attributable to ATLAX securityholders
Contributed
equity
$’000
268,334
–
Reserves
$’000
(24,216)
–
268,334
(24,216)
–
–
–
6,186
–
(77,209)
–
(71,023)
197,311
–
16,547
16,547
–
141
–
–
141
(7,528)
Accumulated
income
$’000
Total ATLAX
Group equity
$’000
61,998
(288)
61,710
(16,831)
–
(16,831)
–
–
–
(4,783)
(4,783)
40,096
306,116
(288)
305,828
(16,831)
16,547
(284)
6,186
141
(77,209)
(4,783)
(75,665)
229,879
1. Refer note 7.5(e) for details.
2. Refer note 7.4 for details.
3. On 5 October 2018, ATLAX paid a distribution of 12.0 cps, comprising a capital return of 11.3 cps and an unfranked Australian ordinary dividend of 0.7 cps.
Attributable to ATLAX securityholders
ATLAX Group
Total equity at 1 January 2017
Profit for the year
Exchange differences on translation of foreign operations
Transfer from foreign currency translation reserve to accumulated losses1
Total comprehensive income
Transactions with equity holders in their capacity as equity holders:
Issue of securities during the year
Application of performance fees to subscription for new securities
Other equity transactions
Total equity at 31 December 2017
Contributed
equity
$’000
213,245
–
–
–
–
51,035
4,054
–
55,089
268,334
Reserves
$’000
(7,131)
–
(14,518)
(2,719)
(17,237)
–
–
152
152
Accumulated
income
$’000
Total ATLAX
Group equity
$’000
1,896
57,383
–
2,719
60,102
–
–
–
–
208,010
57,383
(14,518)
–
42,865
51,035
4,054
152
55,241
306,116
(24,216)
61,998
1. Foreign exchange translation gain of $2.7 million transferred to accumulated income on derecognition of associate.
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes.
62
| 2018 Atlas Arteria Annual ReportConsolidated Statements of Changes in Equityfor the year ended 31 December 2018 Consolidated Statements of Cash Flows
for the year ended 31 December 2018
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Note
Cash flows from operating activities
Toll revenue received (net of transaction fees)
Interest received
Other income received
Net indirect taxes received
Property taxes paid
Manager’s and adviser’s base fees paid
Manager’s and adviser’s performance fees paid
Payments to suppliers and employees (inclusive of GST/VAT)
M6 Toll management fees received
Net income taxes paid
123,174
2,001
634
430
(5,889)
(36,874)
(25,000)
(35,328)
–
(8)
Net cash flows from operating activities
7.1
23,140
73,560
1,907
371
268
(5,713)
(30,578)
–
(19,538)
5,155
(7,312)
18,120
Cash flows from investing activities
Return on preferred equity certificates issued by Macquarie
Autoroutes de France 2 SA (“MAF2”)
Proceeds from/(payments for) purchase of investments, net of cash
acquired
Purchase of fixed assets
Sale of fixed assets
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from debt (net of transaction costs)
Repayment of debt and interest (including transaction costs)
Proceeds from issue of securities (net of transaction costs)
Transfers to restricted cash
Capital return
Dividends paid
Repayment of loan by related parties
Loans advanced to related parties
Payments to related parties
Purchase of derivative financial instrument
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate movements on cash and cash equivalents
Cash and cash equivalents at the end of the year
3.1
249,417
147,779
1,890
(1,215,113)
(1,102)
4
(277)
138
250,209
(1,067,473)
534,699
(555,834)
–
(25,702)
(77,209)
(85,158)
–
–
–
(4,818)
(214,022)
59,327
122,690
4,451
186,468
450,530
(9,117)
646,824
(27,855)
(56,148)
(59,334)
–
–
–
–
944,900
(104,453)
223,367
3,776
122,690
–
4,977
–
430
–
(2,711)
(1,713)
(9,673)
–
–
(8,690)
–
–
(548)
–
(548)
–
–
–
–
(77,209)
(4,783)
77,411
(8,232)
–
–
(12,813)
(22,051)
34,304
208
12,461
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes.
–
1,131
–
265
–
(2,818)
–
(5,119)
–
(7,307)
(13,848)
–
(79,162)
–
–
(79,162)
–
–
51,035
–
–
–
–
(122,812)
(841)
–
(72,618)
(165,628)
204,129
(4,197)
34,304
63
2018 Atlas Arteria Annual Report | Notes to the Financial Reports
for the year ended 31 December 2018
1 Introduction
Atlas Arteria – Stapled security
An Atlas Arteria (“ALX”) stapled security comprises one Atlas Arteria International Limited (“ATLIX”) share ‘stapled’ to one Atlas
Arteria Limited (“ATLAX”) share to create a single listed security traded on the Australian Securities Exchange (“ASX”). The stapled
securities cannot be traded or dealt with separately.
AASB 3 Business Combinations and AASB 10 Consolidated Financial Statements require one of the stapled entities of a stapled
structure to be identified as the parent entity for the purpose of preparing a consolidated Financial Report. In accordance with this
requirement, ATLIX has been identified as the parent entity of the consolidated group comprising ATLIX and its controlled entities
and ATLAX and its controlled entities (“ATLAX Group”), together comprising ALX.
As permitted by ASIC Class Order 13/1050 and ASIC Corporations (Stapled Group Reports) Instrument 2015/838, these reports
consist of the Financial Report of ATLIX and its controlled entities at the end of and during the year (collectively, “ALX” or the
“Group”) and the Financial Report of ATLAX and its controlled entities at the end of and during the year (collectively, “ATLAX Group”).
The Group and the ATLAX Group are collectively referred to as the “Groups”.
The Financial Report of the Group should be read in conjunction with the separate Financial Report of the ATLAX Group presented in
these reports for the year ended 31 December 2018.
Basis of preparation
Both ATLIX and ATLAX are for-profit entities for the purpose of preparing the Financial Reports.
The Financial Reports were authorised for issue by the directors of the ATLIX Board and the ATLAX Board (together, the “Boards”)
on 27 February 2019 and 28 February 2019 respectively. The Boards have the power to amend and reissue the Financial Reports.
The Financial Reports are general purpose financial reports that:
• have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting
Standards Board (“AASB”) and the Corporations Act 2001 (where applicable)
• have also been prepared in accordance with and comply International Financial Reporting Standards (“IFRS”) as issued by the
•
International Accounting Standards Board (“IASB”)
include the assets and liabilities of all subsidiaries as at 31 December 2018 and the results of the subsidiaries for the year then
ended. Inter-entity transactions with, or between, subsidiaries are eliminated in full on consolidation
• have been prepared under the historical cost conventions except for certain assets and liabilities which have been measured at
fair value
• are presented in Australian dollars with all values rounded to the nearest thousand dollars unless otherwise stated, in accordance
with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191.
Significant accounting policies and key judgements and estimates are contained in shaded text and included in the relevant note.
These policies have been consistently applied to all years presented, unless otherwise stated. Refer note 7.5 for other accounting
policies which have not been presented along with their respective notes.
Certain prior year amounts in the Financial Reports and accompanying notes have been reclassified to conform to the current year
presentation. The reclassifications had no effect on previously reported consolidated total assets, total liabilities, comprehensive
income or shareholders’ equity.
Critical accounting estimates and judgements
The preparation of the Financial Reports in accordance with Australian Accounting Standards requires the use of certain critical
accounting estimates. It also requires the directors to exercise judgement in the process of applying the accounting policies.
Estimates and judgements are continually evaluated and are based on historic experience and other factors, including reasonable
expectations of future events. The directors believe the estimates used in the preparation of the Financial Reports are reasonable.
Actual results in the future may differ from those reported.
Significant judgements made in applying accounting policies, estimates and assumptions that have a risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next year are discussed in the following notes:
• Income tax (note 2.4)
• Control assessment (note 3.2 and 6.2)
• Impairment of assets and reversal of impairment (note 3.2)
• Intangible assets – Tolling concessions (note 4.1)
64
| 2018 Atlas Arteria Annual Report 2 Financial performance
2.1 Profit/(loss) for the year
Revenue recognition
Revenue and other income is recognised as follows:
Toll revenue
Toll revenue from customers is earned as performance obligations are satisfied. A singular performance
obligation has been assessed as the use of the road, and the transaction price which is calculated based on
passing through toll points, is fully allocated to this performance obligation. Toll revenue is recognised at the
time the customers use the road.
Other revenue Other revenue from customers consists of revenue earned in respect to rental income from cell towers and
income from advertising hoardings on the toll road. Other revenue is recognised over the period of the
contract in accordance with the contracts governing these services as performance obligations are satisfied.
Interest income Interest income is brought to account on an accruals basis.
Change in accounting policy
AASB 15 Revenue from Contracts with Customers replaces all the current guidance on revenue recognition from contracts with
customers. It requires identification of discrete performance obligations within a transaction and an associated transaction price
allocation to these obligations. Revenue is recognised upon satisfaction of these performance obligations, which occur when
control of the goods or services are transferred to the customer.
The Groups have adopted AASB 15 from 1 January 2018 which resulted in changes in accounting policies and the analysis of
possible adjustments to the amounts recognised in the financial reports. In accordance with the transition provisions in AASB 15,
the Groups have elected to adopt the new rules retrospectively, however this has not resulted in any adjustments to the prior
year comparatives.
The profit/(loss) from operations before income tax includes the following specific items of income and expense:
a) Revenue and other income
Revenue from operations:
Toll revenue
Other revenue
Interest income:
Related parties
Other persons and corporations
Total interest income
Total revenue from operations
Other income from operations:
Gain on revaluation1
Other income
Reversal of impairment on financial assets2
Net foreign exchange gain
M6 Toll management fee income
Guarantee fee income
Total other income from operations
Total revenue and other income from operations
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
126,811
769
877
3,921
4,798
75,697
343
1,564
1,128
2,692
132,378
78,732
13,470
139
–
–
–
–
13,609
145,987
375,615
42
–
14,119
4,493
–
394,269
473,001
–
1,678
3,862
–
3,862
5,540
–
–
161
63
–
–
224
5,764
–
–
3,024
–
3,024
3,024
61,710
–
–
2,247
–
1,185
65,142
68,166
1. The current year includes a gain on revaluation of ALX’s existing investment in Warnowquerung GmbH & Co KG, the concessionaire of Warnow Tunnel and its general partner Warnowquerung
Verwaltungsgesellschaft mbH (collectively “WQG”). Refer note 6.2 for details. In 2017, there was a gain on revaluation on the Groups’ existing investment in Dulles Greenway.
2. Refer note 4.3 for details.
65
2018 Atlas Arteria Annual Report | 2 Financial performance continued
2.1 Profit/(loss) for the year continued
b) Operating expenses
Operating expenses
Amortisation of tolling concession
Cost of operations:
Toll road maintenance expenses
Other operating expenses
Employment costs
Total cost of operations
Manager’s and adviser’s performance fees1
Manager’s and adviser’s base fees
Consulting and administration fees
Other expenses
Net foreign exchange loss
Depreciation and amortisation
Total operating expenses2
1. Refer note 4.4 for details.
2. Includes ALX’s management internalisation expenses of $10.3 million (2017: 0.5 million).
c) Finance costs
Interest on debt
Mark to market loss on derivatives
Issue costs written off on loans repaid during the year1
Fee on early repayment of borrowings from financial institutions
Amortisation of issue cost on borrowings from financial institutions
Total finance costs
1. Refer note 5.1(c) for details.
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
61,768
36,520
10,597
12,042
9,487
32,126
70,625
36,759
11,920
5,427
3,483
350
5,524
5,234
4,489
15,247
7,979
32,813
7,613
4,019
–
152
–
–
172
3,236
3,408
4,984
2,236
6,104
1,024
–
39
–
–
–
730
730
639
2,625
3,454
1,045
–
–
222,458
104,343
17,795
8,493
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
89,975
51,511
2,055
6,688
4,576
5,626
108,920
–
–
–
2,284
53,795
–
–
–
–
–
–
–
–
–
–
–
–
66
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 2.2 Distributions
Distributions
A distribution payable is recognised for the amount of any distribution declared, or publicly recommended by the directors on or
before the end of the year but not distributed at balance date.
Distributions paid
Distribution paid on 5 October 20181
Dividend paid on 13 April 20182
Dividend paid on 29 September 20173
Distribution paid on 7 April 20174
Total distributions paid
Distributions paid
Distribution per security paid on 5 October 20181
Dividend per security paid on 13 April 20182
Dividend per security paid on 29 September 20173
Distribution per security paid on 7 April 20174
Total distributions paid
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
81,992
80,375
–
–
–
–
58,188
57,294
81,992
–
–
–
162,367
115,482
81,992
–
–
–
–
–
Cents per
stapled
security
Cents per
stapled
security
Cents per
stapled
security
Cents per
stapled
security
12.0
12.0
–
–
24.0
–
–
10.0
10.0
20.0
12.0
–
–
–
12.0
1. Comprised a capital return of 11.3 cps and an unfranked Australian ordinary dividend of 0.7 cps. The distribution was paid in full by ATLAX.
2. Comprised an ordinary dividend of 12.0 cps. The dividend was paid in full by ATLIX.
3. Comprised an ordinary dividend of 10.0 cps. The dividend was paid in full by ATLIX.
4. Comprised a capital return of 9.8 cps and an ordinary dividend of 0.2 cps. The distribution was paid in full by ATLIX.
–
–
–
–
–
67
2018 Atlas Arteria Annual Report | 2 Financial performance continued
2.3 Earnings per stapled security
Earnings per stapled security
Basic earnings per stapled security
Basic earnings per stapled security is determined by dividing the profit attributable to securityholders by the weighted average
number of securities on issue during the year.
Diluted earnings per stapled security
Diluted earnings per stapled security is calculated by adjusting basic earnings per stapled security for the effects of all dilutive
potential ordinary stapled securities.
Basic earnings/(loss) per ATLIX/ATLAX share
Diluted earnings/(loss) per ATLIX/ATLAX share
Earnings/(loss) used in the calculation of basic and diluted profit/(loss) per
ATLIX/ATLAX share1
Weighted average number of shares used in calculation
of basic earnings/(loss) per ATLIX/ATLAX share
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
11.33
11.33
$’000
77.98
77.98
$’000
(2.49)
(2.49)
$’000
76,683
462,200
(16,831)
9.68
9.68
$’000
57,383
Number
Number
Number
Number
676,545,113
592,724,448
676,545,113
592,724,448
Adjustment for employee performance rights1
101,974
–
101,974
–
Weighted average number of shares and potential shares used
in calculation of diluted earnings/(loss) per ATLIX/ATLAX share
1. Refer note 7.4 for details.
676,647,087
592,724,448
676,647,087
592,724,448
The basic and diluted profit per ALX stapled security for the year ended 31 December 2018 was 8.84 cps (2017: 87.66 cps) using ALX
profit attributable to ALX stapled securityholders of $59.9 million (2017: $519.6 million).
68
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 2.4 Income tax
Income tax
The income tax expense or benefit for the year is the tax payable on the current year’s taxable income based on the national
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences
between the tax bases of assets and liabilities and their carrying amounts in the Financial Reports, and to unused tax losses.
Deferred income tax is determined using the balance sheet method, being the temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the Financial Reports. Deferred tax assets are recognised for
deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to
utilise those temporary differences and losses. However, the deferred income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the time of transaction affects neither
accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised
or the deferred income tax liability is settled. Deferred tax assets and liabilities are offset when there is a legally enforceable right
to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.
Under current Bermudan law, ATLIX will not be subject to any income, withholding or capital gains taxes in Bermuda. Controlled
entities of ATLIX that are subject to taxes in their jurisdictions recognise income tax using the balance sheet approach of tax
effect accounting.
Income tax expense/(benefit)
This note provides an analysis of the Groups’ income tax expense, shows what amounts are recognised directly in equity and how
the tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the
Groups’ tax position.
(a) Income tax expense/(benefit)
Income tax expense/(benefit) comprises:
Current tax
Deferred tax
Total income tax expense/(benefit)
(b) Reconciliation of income tax expense/(benefit) to prima facie tax payable
Profit/(loss) from operations before income tax
Prima facie income tax on profit at the Australian tax rate of 30%
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
2,118
(1,220)
898
60,750
18,225
1,699
(18,448)
(16,749)
(1)
–
(1)
1,664
–
1,664
502,834
150,850
(93,988)
(16,832)
(5,050)
50
59,047
17,714
(2,098)
Impact of different tax rates of operations in jurisdictions other than Australia
141,010
Tax effect of amounts that are not deductible/(taxable) in calculating
taxable income:
Non-assessable income
Non-deductible expenditure
Share of net profits/(losses) of investments accounted for using the equity
method
Temporary differences not brought to account
Impact of change in tax rates on deferred tax liabilities1
Deferred tax asset on taxable losses not brought to account
Aggregate income tax expense/(benefit)2
(4,088)
1,405
(18,513)
670
(73,842)
(56,391)
7,152
–
(88,964)
898
1,147
(17,484)
16,960
(16,749)
1. The reduction in deferred tax liability recognised on acquisition of additional interest in TRIP II by $17.5 million due to decrease in United States Federal Income Tax rate.
2. Neither ALX nor the ATLAX Group recognised any current or deferred tax that was debited or credited directly to equity.
(47)
(18,513)
1,354
1,440
(990)
–
3,242
(1)
670
188
(1,278)
–
4,981
1,664
69
2018 Atlas Arteria Annual Report | 2 Financial performance continued
2.4 Income tax continued
(c) Tax losses
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit of unused tax losses
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
274,589
72,140
230,002
60,174
274,056
72,039
229,477
60,074
Deferred tax assets and liabilities
The Groups have no deferred tax assets. The movement in the balance of deferred tax liability is as follows:
Deferred tax liabilities
Opening balance at 1 January
Acquisition of subsidiary1
Amortisation of Deferred Tax Liabilities (“DTL”)
Revaluation due to changes in income tax rates
Foreign exchange movement
Closing balance at 31 December
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
(40,333)
(14,193)
1,220
–
(4,403)
(57,709)
–
(61,712)
964
17,484
2,931
(40,333)
–
–
–
–
–
–
–
–
–
–
–
–
1. In the current year, a DTL of $14.2 million was recognised following the fair value pick up of intangible assets resulting from acquisition of the remaining 30% equity interest in WQG. In
the prior year, a DTL of $61.7 million was recognised following the fair value pick up of intangible assets resulting from acquisition of the remaining 50% estimated economic interest in
TRIP II.
2.5 Segment information
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
makers. The chief operating decision makers, who are responsible for allocating resources and assessing performance of the
operating segments, have been identified as the directors of the companies.
a) Description of segments
Management has determined the operating segments based on the reports reviewed by the Boards in their capacity as chief
operating decision makers. However, the Boards do not manage the day-to-day activities of the business. The directors have
appointed Macquarie Fund Advisers Pty Limited (“MFA”) to run and manage the ongoing operations of the business and pay a
quarterly management fee in return for these services.
The Boards consider the business from the aspect of each of the portfolio assets and have identified four and one operating
segments for ALX and the ATLAX Group respectively. The segments of ALX are the investments in APRR, ADELAC, Dulles Greenway
and Warnow Tunnel. The only segment of the ATLAX Group is the investment in Dulles Greenway.
The operating segment note discloses the segment revenue and segment EBITDA for the year ended 31 December 2018 by individual
portfolio asset. The ALX Boards are provided with performance information on each asset to monitor the operating performance of
each asset.
70
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 b) Segment information provided to the Boards
The proportionally consolidated segment information provided to the Boards for the reportable segments for the year ended
31 December 2018, based on ALX’s economic ownership interest is as follows:
ALX
Year ended
APRR
$’000
Segment revenue
31 December 2018
1,002,663
31 December 2017
Segment expenses
31 December 2018
31 December 2017
Segment EBITDA
31 December 2018
31 December 2017
EBITDA margin
31 December 2018
31 December 2017
751,765
(262,489)
(200,805)
740,174
550,960
74%
73%
ADELAC
$’000
22,184
16,787
(3,874)
(3,002)
18,310
13,785
83%
82%
Dulles
Greenway
$’000
Warnow
Tunnel
$’000
121,800
98,105
(22,772)
(18,200)
99,028
79,905
81%
81%
15,618
11,574
(3,697)
(3,378)
11,921
8,196
76%
71%
Total
ALX
$’000
1,162,265
878,231
(292,832)
(225,385)
869,433
652,846
75%
74%
Total
ATLAX
$’000
16,361
13,178
(3,059)
(2,445)
13,302
10,733
81%
81%
The segment revenue disclosed in the table above primarily relates to toll revenue generated by the assets from external customers
and the proportionally consolidated segment information provided to the Boards for the reportable segments for the year ended
31 December 2018 and year ended 31 December 2017.
ATLAX Group information includes its economic ownership in Dulles Greenway only.
A reconciliation of the Groups’ segment revenue and EBITDA to its total revenue and profit from operations before income tax is
provided as follows:
Reconciliation of segment revenue to revenue
Segment revenue
Revenue attributable to non-consolidated investments
Unallocated revenue and other income
Total revenue and other income from operations
Reconciliation of segment EBITDA to profit/(loss) before income tax
Segment EBITDA
EBITDA attributable to non-consolidated investments
Unallocated revenue
Unallocated expenses
Finance costs
Share of net profits/(losses) of investments accounted
for using the equity method
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
1,162,265
878,231
(1,036,064)
(878,231)
19,786
145,987
473,001
473,001
869,433
652,846
(766,738)
(652,846)
19,786
(198,952)
(108,920)
246,141
473,001
(104,343)
(53,795)
187,971
16,361
(16,361)
5,764
5,764
13,302
(13,302)
5,764
(17,795)
–
(4,801)
13,178
(13,178)
68,166
68,166
10,733
(10,733)
68,166
(8,493)
–
(626)
Profit/(loss) from operations before income tax
60,750
502,834
(16,832)
59,047
71
2018 Atlas Arteria Annual Report | 3 Cash and investments
3.1 Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term, highly
liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value. Restricted cash includes funds held in escrow, funds backing guarantees or amounts otherwise not available
to meet short-term commitments of the Groups and is classified as a non-current asset.
Current
Cash and cash equivalents (a)
Non-current
Restricted cash (b)
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
186,468
186,468
203,961
203,961
122,690
122,690
153,440
153,440
12,461
12,461
34,304
34,304
–
–
–
–
a) Cash and cash equivalents
During the year cash on hand was held in bank accounts earning money market rates of interest between nil to 2.52%
(2017: nil to 1.71%) per annum.
Cash equivalents include TRIP II’s money market deposits outstanding which matured within 30 days and paid interest between
2.32% to 2.56% (2017: 1.04% to 1.23%) per annum.
b) Restricted cash
This comprises funds held in escrow pursuant to the TRIP II bond indenture agreements, WQG loan agreements and cash-backed
guarantees provided in relation to Warnowquerung GmbH & Co. KG. Discussion of the Groups’ policies concerning the management
of credit risk can be found in note 5.4.
72
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 3.2 Investments accounted for using the equity method
Associates
Associates are entities over which the Groups have significant influence but not control. Investments in associates are accounted
for using the equity method of accounting, after initially being recognised at cost. The Groups’ investment in associates includes
the fair value of goodwill (net of any accumulated impairment loss) identified on acquisition.
The Groups’ share of their associates’ post-acquisition profits or losses is recognised in profit or loss, and their share of post-
acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-
acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates
reduce the carrying amount of the investment.
When the Groups’ share of losses in an associate equals or exceeds its interest in the associate, including any long-term interests
that, in substance, form part of the Groups’ net investment in the associate, the Groups do not recognise further losses, unless
they have incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Groups and their associates are eliminated to the extent of the Groups’ interest
in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies
adopted by the Groups.
Joint arrangements
Investments in joint arrangements are classified as either joint operations or joint ventures depending upon the contractual
rights and obligations each investor has, and the legal structure of the joint arrangement. The Groups have no joint operations
and account for joint ventures using the equity method.
Impairment of assets and reversal of impairment
An investment accounted for using the equity method is assessed for impairment whenever there are indications that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount.
The recoverable amount of the asset is determined as the higher of the fair value less costs of disposal and the value in use.
If it is not possible to determine a recoverable amount for the individual assets, the assets are assessed together in the smallest
group of assets which generate cash inflows that are largely independent of those from other assets or groups of assets.
Discounted cash flow analysis is the methodology applied in determining recoverable amount. Discounted cash flow analysis is
the process of estimating future cash flows that are expected to be generated by an asset and discounting these to their present
value by applying an appropriate discount rate. The discount rate applied to the cash flows of a particular asset is reflective of
the uncertainty associated with the future cash flows. Periodically, independent traffic forecasting experts provide a view on the
most likely level of traffic to use the toll road having regard to a wide range of factors including development of the surrounding
road network and economic growth in the traffic corridor.
Assets (other than goodwill) that have suffered an impairment are reviewed for possible reversal of the impairment at the end
of each reporting period. An impairment loss is reversed if the recoverable amount of an asset is more than its carrying value.
AASB 136 Impairment of Assets states that impairment losses shall be reversed if, and only if, there has been a change in the
estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised and the estimated
service potential of the asset has increased. The impairment loss is not reversed just because of the passage of time, even if the
recoverable amount of the asset becomes higher than its carrying value.
Investment in associates and joint venture – equity method
ALX
ATLAX Group
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
1,569,970
1,569,970
1,483,337
1,483,337
164,644
164,644
153,110
153,110
73
2018 Atlas Arteria Annual Report | 3 Cash and investments continued
3.2 Investments accounted for using the equity method continued
Information relating to associates and joint arrangements is set out below:
a) Carrying amounts
ALX
Economic
Interest
As at
31 Dec 2018
and
31 Dec 2017
%
ALX
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
ATLAX
Economic
Interest
As at
31 Dec 2018
and
31 Dec 2017
%
ATLAX Group
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
50.0/50.0
1,569,953
1,483,327
–/–
–
–
13.4/13.4
164,627
153,100
–/–
–/70.0
50.0/50.0
49.0/49.0
–
–
14
3
–
–
–/–
10
50.0/50.0
–
49.0/49.0
–
14
3
–
10
–
Country of
Incorporation/
Principal Place
of Business
Name of
Entity1,2
MAF23
Luxembourg
TRIP II4
USA
WQG5
Germany
USA
USA
Chicago
Skyway
Partnership
(“CSP”)6
Indiana
Toll Road
Partnership
(“ITRP”)7
Principal Activity
Investment in toll
road network located
in the east of France
(APRR)
Investment in toll
road located in
northern Virginia,
USA
Investment in toll
road located in
Rostock, north-
eastern Germany
Former owner of an
investment in toll
road located south of
Chicago, USA
Former owner of
an investment in
toll road located in
northern Indiana,
USA
1,569,970
1,483,337
164,644
153,110
1. TRIP II and WQG are in “lockup” under their debt documents, meaning that they are currently unable to make distributions to ALX and the ATLAX Group. ALX and ATLAX Group’s
investment in TRIP II cannot come out of lockup before December 2019.
2. All associates and joint arrangements have 31 December year end reporting requirements except for MAF2 which has 31 March.
3. ALX’s investment in MAF2 is classified as an associate as any decision made with regard to the relevant activities requires 85% of the voting members to proceed, meaning at least 85%
of shareholders must agree before any decision can be reached.
4. The ATLAX Group has a 13.4% interest in TRIP II, the concessionaire for Dulles Greenway, and is accounted for as an equity accounted associate. ALX has a 100% estimated economic
interest in TRIP II after combining ATLAX Group’s 13.4% equity interest with ATLIX Group’s 86.6% economic interest. Accordingly, TRIP II is accounted for as subsidiary of ALX.
5. On 15 August 2018, ALX announced that it had entered into an agreement to acquire the remaining 30% equity interest and shareholder loan in WQG for €3.7 million as gross
consideration prior to adjusting for applicable transaction taxes. Financial close for the acquisition was reached on 20 September 2018 (“WQG Acquisition Date”). Following the
acquisition, WQG is accounted for as a subsidiary and its results consolidated from the WQG Acquisition Date. As such it is no longer accounted for as a joint venture. Refer note 6.2
for details.
6. At 31 December 2018, ALX legally owned a 50% equity interest in CSP, the former owner of the Chicago Skyway toll road, but was no longer exposed to any variable returns from the
ongoing operation of the toll road. The small residual investment balance represents cash left in CSP for payment of expenses.
7. At 31 December 2018, ALX legally owned a 49% equity interest in ITRP, the former owner of the Indiana Toll Road, but was no longer exposed to any variable returns from the ongoing
operations of the toll road. The small residual investment balance represents cash left in ITRP for payment of expenses.
74
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 b) Movement in carrying amounts
Carrying amount at the beginning of the year
Investment in associates (including transaction costs)1
Share of profits/(losses) after income tax
Distributions received
Gain on revaluation of joint venture/associate
Derecognition of joint venture/associate
Foreign exchange movement
Carrying amount at the end of the year2
ALX
ATLAX Group
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
1,483,337
–
246,141
950,912
673,121
187,971
(249,417)
(147,779)
13,470
(13,470)
89,909
375,615
(598,891)
42,388
1,569,970
1,483,337
153,110
–
(4,801)
–
–
–
16,335
164,644
19,972
160,963
(626)
–
61,710
(80,552)
(8,357)
153,110
1. On 24 October 2017, ALX acquired an additional 9.72% interest in MAF2 with a final purchase price of €439.9 million. On 16 May 2017, ALX acquired the remaining 50% estimated
economic interest in TRIP II for US$445.0 million. Refer footnote 4 of note 3.2(a) for details of ATLAX’s investment in TRIP II.
2. The gain on revaluation of joint venture in 2018 of $13.5 million relates to revaluation of ALX’s investment in WQG on acquisition of the additional stake. Refer note 6.2 for detail. The gain
on revaluation of associate in 2017 of $375.6 million and $61.7 million for ALX and ATLAX Group respectively relates to the revaluation of the Groups’ investment in Dulles Greenway on
acquisition of their additional stakes in the prior year.
c) Summarised financial information for material associates
The following tables provide summarised financial information for those associates that are material to the Groups. The information
disclosed reflects the amounts presented in the Financial Reports of the relevant entities and not the Groups’ share of those
amounts. They have been amended to reflect adjustments made by the Groups when using the equity method, including fair
value adjustments and modifications for differences in accounting policy.
Summarised Statement of Financial Position
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Net assets
Reconciliation to carrying amounts:
Opening net assets
Profit/(loss) for the year
Distributions paid
MAF21
TRIP II
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
1,098,238
9,721,036
1,691,692
9,411,522
117,034
83,816
2,603,485
2,400,788
(1,870,916)
(2,001,664)
(83,568)
(81,563)
(7,064,727)
(7,323,317)
(1,411,403)
(1,263,312)
1,883,631
1,778,233
1,225,548
1,139,729
1,778,233
1,604,518
1,139,729
1,197,640
492,192
454,177
(35,774)
(498,753)
(366,826)
–
(48)
–
Foreign exchange and other equity movements
111,959
86,364
121,593
(57,863)
Closing net assets
ALX’s share in %
ALX’s share of net assets in $
ATLAX Group’s share in %
ATLAX Group’s share of net assets in $
ALX’s carrying amount
ATLAX Group’s carrying amount
1,883,631
1,778,233
1,225,548
1,139,729
50.0%
941,967
50.0%
889,260
–
–
–
–
1,569,953
1,483,327
–
–
13.4%
164,627
–
–
–
164,627
–
–
13.4%
153,100
–
–
1. MAF2 proportionately consolidates the results of APRR. APRR has performed an assessment of the impact of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with
Customers and has determined that the adoption of these standards at 1 January 2018 has not had a material impact on the results of APRR.
75
2018 Atlas Arteria Annual Report | 3 Cash and investments continued
3.2 Investments accounted for using the equity method continued
Summarised Statement of Comprehensive Income
Revenue
Profit/(loss) for the year
ALX’s share
ATLAX Group’s share
ALX’s distributions received
ATLAX Group’s distributions received
MAF2
TRIP II
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
2,313,925
2,032,718
492,192
246,136
–
454,177
191,959
–
249,417
147,779
–
–
121,736
(35,774)
–
(4,806)
–
–
76,041
(48)
–
(89)
–
–
d) Share of losses not brought to account attributable to immaterial associate1 and joint venture2
Share of losses not brought to account attributable
to immaterial associate and joint venture
Balance at the beginning of the year
Investment made during the year
Share of profits/(losses) brought to account
Share of profits/(losses) not brought to account
Derecognition of joint venture2
Balance at the end of the year
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
(24,816)
(22,875)
–
2
438
24,376
60
(60)
(1,941)
–
–
(24,816)
(2)
–
2
–
–
–
–
–
–
(2)
–
(2)
1. ITRP, accounted for using the equity method.
2. On 20 September 2018, ALX acquired the remaining 30% equity interest and shareholder loan in WQG for €3.7 million as gross consideration prior to adjusting for applicable transaction
taxes. Prior to this, ALX’s investment in WQG was classified as a joint venture. Following the acquisition, WQG is accounted for as a subsidiary and its results consolidated from the WQG
Acquisition Date. Refer footnote 5 of note 3.2(a) for details.
76
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 4 Other balance sheet assets and liabilities
4.1 Intangible assets – Tolling concessions
Intangible assets – Tolling concessions
Tolling concessions are intangible assets and represent the right to levy tolls in respect of controlled motorways. Tolling concessions
relating to the non-controlled investments are recognised as a component of the investments accounted for using the equity method.
Tolling concessions have a finite useful life by the terms of the concession arrangement and are carried at cost which represents
the fair value of the consideration paid on acquisition less accumulated amortisation. Amortisation is calculated using the
straight-line method to allocate the cost of tolling concessions over their estimated useful lives which are as follows:
Asset description
Dulles Greenway
Warnow Tunnel
APRR2
ADELAC2
Estimated useful life1
Period to February 2056
Period to September 2053
Period to November 2035
Period to December 2060
Amortisation basis
Straight-line basis
Straight-line basis
Straight-line basis
Straight-line basis
1. There has been no change to the estimated useful life during the year.
2. The tolling concessions in relation to the non-controlled investments are not recognised on the statement of financial position but instead form part of investments accounted for
using the equity method. The amortisation of tolling concessions in relation to the non-controlled investments is included in the share of net profit of investments accounted for
using the equity method.
Impairment
Tolling concessions with a finite useful life are assessed for impairment whenever there are indications that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. Refer note 3.2 for additional detail on the accounting policy for impairment of assets and
reversal of impairment.
Balance at the beginning of the year
Acquisition cost1
Amortisation of tolling concession
Foreign exchange movement
Balance at the end of the year
ALX
ATLAX Group
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
2,189,724
–
214,772
2,339,025
(61,768)
235,706
(36,520)
(112,781)
2,578,434
2,189,724
–
–
–
–
–
–
–
–
–
–
1. In the current year, a tolling concession of $214.8 million was recognised following the acquisition of the remaining 30% equity interest in WQG. In the prior year, a tolling concession of
$2,339.0 million was recognised following the acquisition of the remaining 50% estimated economic interest in TRIP II.
77
2018 Atlas Arteria Annual Report | 4 Other balance sheet assets and liabilities continued
4.2 Goodwill
Goodwill
Goodwill represents the excess of the consideration paid over the fair value of the identifiable net assets of the acquired entity
at the date of acquisition. Goodwill arising from business combinations is included on the face of the statement of financial
position. Goodwill arising from acquisitions of associates is included in the carrying amount of investments in associates.
Impairment
Goodwill is not subject to amortisation but is tested annually for impairment, or more frequently if events or changes in
circumstances indicate that the carrying amount may not be recoverable. The recoverable amount of a cash generating
unit (“CGU”) is determined based on fair value less costs of disposal calculations which requires the use of assumptions.
The calculations use detailed cash flow projections covering the remaining concession life of the CGU.
Refer note 3.2 for additional detail on the accounting policy for impairment.
Balance at the beginning of the year
Acquisition cost1
Foreign exchange movement
Balance at the end of the year
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
58,726
14,193
6,471
79,390
–
61,712
(2,986)
58,726
–
–
–
–
–
–
–
–
1. In the current year, goodwill of $14.2 million was recognised as a result of the deferred tax liability calculated on concession rights value following the acquisition of the remaining 30%
equity interest in WQG. Refer note 6.2 for details. In prior year, goodwill of $61.7 million was recognised as a result of the deferred tax liability calculated on concession rights value
following the acquisition of the remaining 50% estimated economic interest in TRIP II.
Key assumptions used for fair value less costs of disposal calculations – Dulles Greenway
Assumption
Approach used to determine values
Traffic volume
Based on the Groups’ internal long-term traffic forecasts (which were informed by independent third party analysis conducted
as part of the acquisition of the additional 50% estimated economic interest in TRIP II).
Traffic forecasts for TRIP II are based on assumptions of traffic growth broadly in line with economic development and population
growth within its catchment area.
Long-term CPI (%
annual growth)
Based on the Group’s long-term internal forecasts and independent third-party projections, long-term CPI rates are forecast to
grow by between 2.2% and 2.3%.
Average toll
(% annual
growth)
Based on current regulation and the Group’s long-term internal forecasts.
Toll rates for TRIP II were determined by decisions of the State Corporations Commission (SCC) from the road’s inception until
31 December 2012. The legislation governing the SCC’s decisions stipulates that toll rates must be set at a level that:
• Will provide the operator with no more than a reasonable rate of return as determined by the SCC;
•
Is reasonable to the user in relation to the benefit obtained; and
• Will not materially discourage use of the roadway by the public.
From 1 January 2013 to 1 January 2020, toll rates for TRIP II were determined by a legislated formula that specified that rates
would increase annually at the highest of CPI+1%, real GDP or 2.8%.
From 2020, the SCC will again determine the rates under the legislative framework that was used pre-2013.
The Groups’ long-term assumption forecasts toll rates to escalate in a range in line within the historical experience from
inception to 1 January 2020. However, historical results provide no guarantee as new legislation or regulatory decisions could
impact future outcomes.
Post-tax
discount rate
Detailed cash flows were discounted using an equity discount rate of 9%. The discount rate is based on a number of factors
including, but not limited to, the asset’s nature of operations, regulatory environment, macroeconomic conditions, risk profile
and observed market prices for similar transactions.
78
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 Impact of possible changes in key assumptions
The assets and liabilities associated with the CGU were initially recognised in ALX’s balance sheet at their fair values on the dates
on which ALX achieved control of the CGU. Since the step-up acquisition of TRIP II in 2017, actual traffic experience has been lower
than initially forecast, however the estimated fair value of that investment, as at the current reporting date, remains in line with its
carrying value. As such, an adverse change in any of the key assumptions could result in the recoverable amount of the CGU falling
below its carrying amount. For example, an increase in the discount rate applied to the TRIP II valuation of 0.5% would lead to a
reduction in the asset’s carrying value by $96m.
The assumptions used in the fair value less costs of disposal calculation are measured at Level 3 in the fair value hierarchy
(refer Note 5.4 for additional detail on the fair value hierarchy).
4.3 Other assets
Receivables
Receivables are initially recognised at fair value and subsequently measured at amortised cost because their cash flows represent
solely payments of principal and interest. Interest income from loans and receivables is recognised on an accruals basis.
Receivables are generally received within 30 days of becoming due and receivable. A provision is raised for any doubtful debts
based on a review of all outstanding amounts at year end. Bad debts are written off in the year in which they are identified.
Impairment
The Groups were required to revise their impairment methodology under AASB 9 for loan assets carried at amortised cost.
The impact of the change in impairment methodology resulted in a loss allowance through the Groups’ retained earnings at
1 January 2018 was $0.3 million (refer note 7.5(e)). The Groups assess, on a forward looking basis, the expected credit losses
associated with their loan assets carried at amortised cost. The impairment methodology applied depends on whether there
has been a significant increase in credit risk.
The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Groups
use judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Groups’
past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
Current
Receivables from related parties
Less: Loss allowance
Prepayments
Tax receivable
Trade receivables and other assets
Total current other assets
Non-current
Receivables from related parties
Less: Loss allowance
Prepayments
Other assets
Total non-current other assets
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
–
–
723
279
1,493
2,495
–
–
120
199
319
–
–
724
188
430
46,510
(108)
125
279
531
1,892
–
116
188
–
1,342
47,337
2,196
–
–
140
–
140
8,232
122,812
(18)
60
–
–
70
–
8,274
122,882
The Groups’ maximum credit exposure for receivables is the carrying value. Discussion of the Groups’ policies concerning the
management of credit risk can be found in Note 5.4. The fair values of receivables approximate their carrying values.
79
2018 Atlas Arteria Annual Report | 4 Other balance sheet assets and liabilities continued
4.4 Other liabilities
Payables and other liabilities
Liabilities are recognised when an obligation exists to make future payments as a result of a purchase of assets or services,
whether or not billed. Trade creditors are generally settled within 30 days.
Provisions
Provisions are recognised when: the Groups have a present legal or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle the obligations; and the amount can be reliably estimated.
Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability.
Employee benefits
(i) Short-term obligation
Liabilities for salaries, including non-monetary benefits and leaves that are expected to be settled wholly within 12 months after
the end of the period in which the employees render the related service are recognised in respect of employees’ services up to
the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Share-based payments
Share-based compensation benefits are provided to employees via the Long-Term Incentive Plan (LTI Plan). Information relating
to this plan is set out in note 7.4.
The fair value of performance rights granted under the LTI Plan is recognised as an employee benefits expense with a
corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the
performance rights granted including the market performance conditions and the number of equity instruments expected
to vest.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are
to be satisfied. At the end of each period, the Group revises its estimates of the number of performance rights that are expected
to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates,
if any, in profit or loss, with a corresponding adjustment to equity.
Performance fees
Historically, performance fees have been payable at 30 June each year in the event that the ALX security price outperforms
its benchmark in that year after making up any carried forward underperformance. The performance fee is calculated with
reference to the performance of the ALX accumulated index compared with the performance of the S&P/ASX 300 Industrials
Accumulation Index. As a result of the agreement to internalise management, the performance fee that has become payable
at 30 June 2018 will be the last performance fee to be paid.
The performance fee at 30 June 2018 was determined in accordance with, and due to, the renegotiated management
agreements as follows:
• The third instalment of the 2016 performance fee and second instalment of the 2017 performance fee were subject to
performance testing and became payable after outperforming their respective performance hurdles at 30 June 2018;
• The third instalment of the 2017 performance fee became payable without further testing as on renegotiation of the
management agreements, instalments of performance fees that would be subject to testing in future years became payable
immediately at 30 June 2018, regardless of whether respective performance criteria has been met; and
• The 2018 performance fee was calculated at 30 June 2018 based on outperformance of the benchmark and became payable
in full at that time.
Performance fees payable are accounted for as a liability in accordance with AASB 9. The liability is recognised at its fair value
upon initial and subsequent recognition.
80
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 ALX
ATLAX Group
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
Current
Manager and adviser performance fees payable1
–
44,689
Manager and adviser fees payable
Provision for toll maintenance
Sundry creditors and accruals
Tax payable
Total current other liabilities
Non-current
Easement accruals2
Total non-current other liabilities
9,063
14,987
8,288
2,521
34,859
11,571
11,571
8,939
5,509
4,183
7
63,327
9,754
9,754
–
471
–
2,905
22
3,398
–
–
4,337
707
–
1,332
–
6,376
–
–
1. For the year ended 30 June 2018, a total performance fee of $54.7 million (excluding GST) was calculated for ALX (30 June 2017: $23.9 million). In accordance with, and due to the
renegotiation of, the management agreements, the full 2018 performance fee became payable at 30 June 2018. Accordingly, the full 2018 performance fee was recognised as at
30 June 2018.
The second instalment of the 2017 performance fee of $8.0 million (excluding GST) and third instalment of the 2016 performance fee of $44.7 million (excluding GST) became payable at
30 June 2018 due to outperformance of the benchmark. The third instalment of the 2017 performance fee of $8.0 million (excluding GST) became payable at 30 June 2018 in accordance
with, and due to the renegotiation of, the management agreements.
On 2 July 2018, MFA and ALX’s independent directors agreed that the total performance fee of $115.3 million (excluding GST) be settled by a combination of equity and cash.
Accordingly, $90.3 million was applied to a subscription for new ALX securities and the remaining $25.0 million was settled in cash in July 2018.
2. TRIP II has an agreement with the Metropolitan Washington Airports Authority (“MWAA”) for easements over Washington Dulles International Airport property necessary to construct,
operate and maintain the toll road. The minimum annual payments are accrued using the straight-line method based upon the total minimum payments to be made over the term of
the agreement. Additional payments may be due under the agreement should the toll road exceed certain specified traffic volumes.
5 Capital and risk management
5.1 Debt at amortised cost
Financial liabilities
Financial liabilities are initially recorded at fair value plus directly attributable transaction costs and thereafter at amortised cost
using the effective interest method.
ALX
ATLAX Group
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
Current
Non-recourse TRIP II bonds and accrued interest thereon (a)
Non-recourse WQG borrowings and accrued interest thereon (b)
Accrued interest on borrowings from financial institutions (c)
Total current debt at amortised cost
Non-current
73,595
3,696
31
77,322
64,585
–
1,701
66,286
Non-recourse TRIP II bonds and accrued interest thereon (a)
1,356,286
1,222,979
Non-recourse WQG borrowings and accrued interest thereon (b)
Borrowings from financial institutions (c)
Total non-current debt at amortised cost
180,730
564,946
–
445,373
2,101,962
1,668,352
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
81
2018 Atlas Arteria Annual Report |
5 Capital and risk management continued
5.1 Debt at amortised cost continued
(a) Non-recourse TRIP II bonds
The ALX consolidated financial statements incorporate bonds raised by TRIP II to finance the construction of infrastructure assets.
These bonds are non-recourse beyond the TRIP II assets and ALX has no commitments to provide further debt or equity funding
to TRIP II in order to meet these liabilities.
All of these bonds are in the form of fixed interest rate senior bonds, with US$35.0 million of current interest bonds and
US$971.2 million of zero coupon bonds with maturities extending to 2056.
(b) Non-recourse WQG borrowings
The ALX consolidated financial statements incorporate borrowings raised by WQG to finance the construction of infrastructure
assets. These borrowings are non-recourse beyond the WQG assets and ALX has no commitments to provide further debt or equity
funding to WQG in order to meet these liabilities. The borrowings are payable in three tranches with maturities extending to 2040.
(c) Borrowings from financial institutions
(i) New APRR asset finance facility
On 31 May 2018, ALX repaid the previous APRR asset finance facility of €150.0 million using a new APRR facility of €350.0 million
negotiated with revised terms. On 4 June 2018, a portion of the additional proceeds was used to repay the US$175.0 million
Dulles Greenway asset finance facility along with accrued interest up to this date. Residual proceeds from the new APRR asset
finance facility will be used for general corporate expenses.
ALX incurred upfront issue costs of €4.0 million ($6.2 million), of which, €1.8 million ($2.8 million) has been amortised to
31 December 2018. Unamortised debt raising costs of €1.7 million ($2.6 million) on the previous APRR asset finance facility and
US$3.1 million ($4.1 million) on the Dulles Greenway asset finance facility have been expensed to finance costs in the income
statement (refer note 2.1(c) for details).
The maturity date of the new facility remains the same as the previous APRR asset finance facility, i.e. 24 October 2024. Interest accrues
on the borrowing at the aggregate of the margin and EURIBOR. Key changes to the margin rates are set out below:
Periods
Margin (Previous APRR facility)
Margin (New APRR facility)
From 24 Oct 2017 to 23 Oct 2019
From 24 Oct 2019 to 23 Oct 2021
From 24 Oct 2021 to 23 Oct 2022
From 24 Oct 2022 to 23 Oct 2023
From 24 Oct 2023 to 23 Oct 2024
2.25% per annum
2.50% per annum
2.75% per annum
3.25% per annum
3.75% per annum
2.25% per annum
2.25% per annum
2.25% per annum
2.75% per annum
3.25% per annum
(ii) Previous APRR asset finance facility
In October 2017, ALX drew down €150.0 million of a seven-year, senior secured facility to facilitate the acquisition of a 9.72% stake in
MAF2 and incurred interest and amortisation expense of €4.0 million ($6.2 million) up to the date of refinancing during the current year.
(iii) Dulles Greenway asset finance facility
In May 2017, ALX drew down US$175.0 million of an eight-year bullet financing facility to facilitate the acquisition of the remaining
50% stake in TRIP II and incurred interest, amortisation expense and early repayment fee of US$12.1 million ($15.7 million) up to the
date of repayment during the current year.
82
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 5.2 Contributed equity
Ordinary shares
Contributed equity
On issue at the beginning of the year
Issue of Placement securities1
Issue of Security Purchase Plan securities1
Application of performance fees to subscription for new securities2
Issue of Institutional entitlement securities1
Issue of Retail entitlement securities1
Capital return
On issue at the end of the year
Attributable to ATLIX
equity holders
Attributable to ATLAX
equity holders
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
1,995,994
1,995,994
1,911,877
1,911,877
1,911,877
1,323,651
–
–
84,117
–
–
–
168,054
20,165
48,585
329,257
78,313
(56,148)
1,995,994
1,911,877
197,311
197,311
268,334
–
–
6,186
–
–
(77,209)
197,311
268,334
268,334
213,245
14,021
1,682
4,054
28,541
6,791
–
268,334
1. Net of transaction costs.
2. During the year ended 31 December 2018, $90.3 million of the full 2018 performance fee, the second and third instalments of the 2017 performance fee and the third instalment
of June 2016 performance fee (31 December 2017: first instalment of the June 2017 performance fee and second instalment of the June 2016 performance fee) was applied to a
subscription for new ATLAX and ATLIX securities, the remaining $25.0 million of performance fees was settled in cash.
On issue at the beginning of the year
Issue of Placement securities
Issue of Security Purchase Plan securities
Application of performance fees to subscription for new securities1
Issue of Institutional entitlement securities
Issue of Retail entitlement securities
On issue at the end of the year
Attributable to ATLIX
equity holders
Attributable to ATLAX
equity holders
Year ended
31 Dec 2018
Year ended
31 Dec 2017
Year ended
31 Dec 2018
Year ended
31 Dec 2017
Number of
shares
’000
669,789
–
–
13,476
–
–
Number of
shares
’000
530,130
38,144
4,664
8,942
70,994
16,915
Number of
shares
’000
669,789
–
–
13,476
–
–
Number of
shares
’000
530,130
38,144
4,664
8,942
70,994
16,915
683,265
669,789
683,265
669,789
1. During the year ended 31 December 2018, full 2018 performance fee, the second and third instalments of the 2017 performance fee and the third instalment of June 2016 performance
fee (31 December 2017: first instalment of the June 2017 performance fee and second instalment of the June 2016 performance fee) were applied to a subscription for new ATLAX and
ATLIX securities.
Ordinary shares in ATLIX and in ATLAX
Each fully paid stapled security confers the right to vote at meetings of securityholders, subject to any voting restrictions imposed on
a securityholder under the Corporations Act 2001 in Australia, Companies Act in Bermuda and the ASX Listing Rules. On a show of
hands, every securityholder present in person or by proxy has one vote.
On a poll, every securityholder who is present in person or by proxy has one vote for each fully paid share in respect of ATLIX and
one vote for each fully paid share in respect of ATLAX.
The directors of ATLIX and ATLAX may declare distributions which are appropriate given the financial position of ATLIX and ATLAX.
If ATLIX and ATLAX are wound up, the liquidator may, with the sanction of an extraordinary resolution and any other requirement
of law, divide among the securityholders in specie or in kind the whole or any part of the assets of ATLIX and ATLAX.
83
2018 Atlas Arteria Annual Report | 5 Capital and risk management continued
5.3 Reserves
Balance of reserve
Foreign currency translation reserve
Other reserve1
Balance at the end of the year
1. Refer note 7.4 for details.
Movements of reserves
Foreign currency translation reserve
Balance at the beginning of the year
Net exchange differences on translation of foreign controlled entities
Transfer to accumulated losses1
Balance at the end of the year
Other reserve
Balance at the beginning of the year
Other equity transactions
Employee performance rights2
Balance at the end of the year
Attributable to ATLIX
equity holders
Attributable to ATLAX
equity holders
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
190,155
28,122
–
–
190,155
28,122
(7,669)
141
(7,528)
(24,216)
–
(24,216)
Attributable to ATLIX
equity holders
Attributable to ATLAX
equity holders
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
28,122
161,955
78
190,155
–
–
–
–
58,679
(422)
(30,135)
28,122
(301)
301
–
–
(24,216)
16,547
–
(7,669)
–
–
141
141
(6,979)
(14,518)
(2,719)
(24,216)
(152)
152
–
–
1. During the year ended 31 December 2018, foreign exchange translation gains in ATLIX Group of $0.1 million were transferred to accumulated losses from foreign currency translation
reserves following the acquisition of the remaining 30% interest of WQG. These transfers arose as the increase in investment is treated as a disposal of the existing interest in joint
venture. Refer note 6.2. for details.
During the year ended 31 December 2017, foreign exchange translation gains in ATLIX Group and ATLAX Group of $30.1 million and $2.7 million respectively were transferred to
accumulated losses from foreign currency translation reserves following the acquisition of the remaining 50% estimated economic interest of TRIP II. These transfers arose as the increase
in investment was treated as a disposal of the existing interest in associate.
2. Refer note 7.4 for details.
5.4 Financial risk and capital management
Financial risk management
The Groups’ activities expose them to a variety of financial risks: market risk (including foreign exchange risk and fair value interest
rate risk), credit risk, liquidity risk and cash flow interest rate risk. The Groups’ overall risk management programme focuses on
the unpredictability of financial markets and seeks to minimise potential adverse effects on financial performance of the Groups.
The Groups use derivative financial instruments such as foreign exchange contracts to hedge certain risk exposures.
The Risk Management Policy and Framework is implemented by management under policies approved by the Boards. MFA identifies,
quantifies and qualifies financial risks and provides written principles for overall risk management, as well as written policies
covering specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of derivative financial instruments
and investing excess liquidity.
84
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 Derivatives
a) Classification of derivatives
Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives do not
meet the hedge accounting criteria, they are accounted for at fair value through profit or loss. They are presented as current assets
or liabilities to the extent they are expected to be settled within 12 months after the end of the reporting period.
b) Fair value measurement
From time to time, the Group enters into forward exchange contracts.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to
their fair value at each reporting date.
The accounting for subsequent changes in fair value depends on whether or not derivatives are designated as in hedge accounting
relationships. If hedge accounting is not designated, any changes in their fair value are recognised immediately in the Consolidated
Statement of Comprehensive Income.
Market risk
a) Foreign exchange risk
Foreign exchange risk arises when recognised assets and liabilities and future commercial transactions are denominated in a
currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.
The Groups operate internationally and are exposed to foreign exchange risk mainly arising from currency exposures to the
Euro (“EUR”) and United States Dollar (“USD”).
The Groups do not hedge the foreign exchange exposure on overseas investments.
Financial instruments are converted to Australian Dollars (“AUD”) at the rate of exchange ruling at the financial reporting date.
Derivative instruments are valued with reference to forward exchange rates from the year end to settlement date, as provided
by independent financial institutions.
In assessing foreign exchange risk, management has assumed the following possible movements in the AUD:
• AUD/EUR exchange rate increased/decreased by 6 Euro cents (2017: 8 Euro cents)
• AUD/USD exchange rate increased/decreased by 8 US cents (2017: 10 US cents)
• AUD/GBP exchange rate increased/decreased by 6 UK pence (2017: 8 UK pence)
The below tables display the amounts for financial instruments that would be recognised in profit or loss or directly in equity if the
movements in foreign exchange rates as outlined above occur. The Groups’ management have determined the above movements in
the AUD to be a reasonably possible shift following analysis of foreign exchange volatility for relevant currencies over the last five years.
ALX
Total financial assets1
Total financial liabilities2
Total
ATLAX Group
Total financial assets1
Total financial liabilities2
Total
P&L
2018
$’000
(1,185)
89
(1,096)
P&L
2018
$’000
(21)
32
11
Appreciation in Australian Dollar
Depreciation in Australian Dollar
Foreign exchange risk
P&L
2017
$’000
(600)
20
(580)
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
P&L
2018
$’000
1,448
(112)
1,336
P&L
2017
$’000
779
(25)
754
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
Appreciation in Australian Dollar
Depreciation in Australian Dollar
Foreign exchange risk
P&L
2017
$’000
(82)
3
(79)
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
P&L
2018
$’000
27
(40)
(13)
P&L
2017
$’000
106
(3)
103
1. Financial assets include cash, cash equivalents, restricted cash, receivables and derivative financial instruments.
2. Financial liabilities include payables, debt at amortised cost and derivative financial instruments.
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
85
2018 Atlas Arteria Annual Report | 5 Capital and risk management continued
5.4 Financial risk and capital management continued
b) Interest rate risk
The Groups have no significant interest bearing assets and liabilities whose fair value is significantly impacted by changes in market
interest rates.
In assessing interest rate risk, management has assumed the following movements in the identified interest rates:
• Bank bill swap reference rate (AUD BBSW 90 days) increased/decreased by 34 bps (2017: 39 bps)
• Bank bill swap reference rate (EURIBOR 90 days) increased/decreased by 13 bps (2017: 15 bps)
• Bank bill swap reference rate (USD LIBOR 90 days) increased/decreased by 39 bps (2017: 23 bps)
• Bank bill swap reference rate (GBP LIBOR 90 days) increased/decreased by 19 bps (2017: 12 bps)
• Bank bill swap reference rate (EURIBOR 6 months) increased/decreased by 13 bps (2017: 15 bps)
• Bank bill swap reference rate (AUD BBSW 6 months) increased/decreased by 33 bps (2017: 14 bps)
The below tables display the amounts for financial instruments that would be recognised in profit or loss or directly in equity if the
above interest rate movements occur. The Groups’ management have determined the above movements in interest rates to be a
reasonably possible shift following analysis of the interest spreads of comparable debt instruments over the past five years.
Interest rate risk
Increase in interest rates
Decrease in interest rates
P&L
2017
$’000
139
(840)
(701)
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
P&L
2018
$’000
(643)
998
355
P&L
2017
$’000
(139)
840
701
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
Interest rate risk
Increase in interest rates
Decrease in interest rates
P&L
2017
$’000
309
–
309
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
P&L
2018
$’000
(219)
–
(219)
P&L
2017
$’000
(309)
–
(309)
Equity
2018
$’000
Equity
2017
$’000
–
–
–
–
–
–
P&L
2018
$’000
643
(998)
(355)
P&L
2018
$’000
219
–
219
ALX
Total financial assets
Total financial liabilities
Total
ATLAX Group
Total financial assets
Total financial liabilities
Total
86
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 Credit risk
Potential areas of credit risk consist of deposits with banks and financial institutions as well as receivables from associates
and governments. The Groups limit their exposure in relation to cash balances by only dealing with well-established financial
institutions of high-quality credit standing. With the exception of the transactions between ATLIX and ATLAX, the Groups transact
with independently rated parties with appropriate minimum short-term credit ratings. The Boards set exposure limits to financial
institutions and these are monitored on an ongoing basis.
Sound credit risk management involves prudently managing the risk and reward relationship and controlling and minimising credit
risks across a variety of dimensions, such as quality, concentration, maturity and security.
The below table sets out the counterparties with which the Groups transact and therefore provides an indication of the credit
risk exposures.
Financial
institutions
$’000
ALX
Corporates
and others
$’000
Total
$’000
Financial
institutions
$’000
ATLAX Group
Corporates
and others
$’000
2018
Cash and cash equivalents
Restricted cash
Receivables – current
Receivables – non-current
Tax receivables
Derivative financial instruments
Total
2017
Cash and cash equivalents
Restricted cash
Receivables – current
Receivables – non-current
Tax receivables
Total
186,468
203,961
–
–
–
2,900
393,329
–
–
1,493
–
279
–
1,772
Financial
institutions
$’000
ALX
Corporates
and others
$’000
122,690
153,440
–
–
–
276,130
–
–
430
–
188
618
Total
$’000
12,461
–
47,041
8,232
279
–
12,461
–
–
–
–
–
–
–
47,041
8,232
279
–
12,461
55,552
68,013
Financial
institutions
$’000
34,304
–
–
–
–
ATLAX Group
Corporates
and others
$’000
–
–
1,892
122,812
188
Total
$’000
34,304
–
1,892
122,812
188
186,468
203,961
1,493
–
279
2,900
395,101
Total
$’000
122,690
153,440
430
–
188
276,748
34,304
124,892
159,196
Financial institutions
The credit risk to financial institutions relates to cash held by and term deposits due from Australian and OECD banks. In line with
the credit risk policies of the Groups these counterparties must meet a minimum Standard and Poor’s short-term credit rating of
A-1 unless an exception is approved by the Boards.
Corporates and others
The ALX and ATLAX Group credit risk relates primarily to receivables from related parties and governments. These counterparties
have a range of credit ratings.
87
2018 Atlas Arteria Annual Report | 5 Capital and risk management continued
5.4 Financial risk and capital management continued
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount
of committed credit facilities and the ability to close out market positions. The Groups have a liquidity management policy which
manages liquidity risk by monitoring the stability of funding, surplus cash or highly liquid cash assets, anticipated cash in and
outflows and exposure to connected parties.
The below table displays the forecast contractual undiscounted future cash outflows of the liabilities at balance date of ALX and the
ATLAX Group.
Financial Liabilities
2018
Debt at amortised cost1
Payables
Derivatives
Total
2017
Debt at amortised cost1
Payables
Total
Less than
1 year
$’000
77,322
34,859
3,108
115,289
66,286
18,638
84,924
ALX
ATLAX Group
1-2 years
$’000
2-3 years
$’000
3-5 years
$’000
Greater than
5 years
$’000
Total
$’000
Less than
1 year
$’000
44,687
57,049
202,472
1,714,065
2,095,595
–
2,942
47,629
–
2,744
59,793
–
4,802
11,571
3,007
46,430
16,603
207,274
1,728,643
2,158,628
65,180
35,855
130,878
1,436,439
1,734,638
–
–
–
9,754
28,392
65,180
35,855
130,878
1,446,193
1,763,030
–
3,398
–
3,398
–
2,039
2,039
Total
$’000
–
3,398
–
3,398
–
2,039
2,039
1. Includes consolidated debt held by TRIP II and WQG that is non-recourse to ALX.
Fair value measurement of financial instruments
The fair value measurements of financial assets and liabilities are assessed in accordance with the following hierarchy.
(i) Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities
(ii) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices), and
(iii) Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable valuation input).
ALX has derivative financial instruments that are measured at fair value on a recurring basis. These instruments are entered to
minimise potential variations in cash flows resulting from fluctuations in interest rates and their impact on its variable-rate debt.
The Company does not enter into derivative instruments for any purpose other than economic interest rate hedging. That is, the
Company does not speculate using derivative instruments. They are presented as current assets or liabilities to the extent they are
expected to be settled within 12 months after the end of the reporting period. These instruments are measured at Level 2 hierarchy
and are revalued using externally provided dealer quotes.
The Groups’ policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
There were no transfers in the current year.
The Groups do not measure any financial assets or financial liabilities at fair value on a non-recurring basis.
Fair values of other financial instruments (unrecognised)
The Groups also have a number of financial instruments that are not measured at fair value in the balance sheet. With the exception
of those listed below, the fair values are not materially different to their carrying amounts as: the interest receivable/payable is
either close to current market rates; the instruments are short term in nature; or the instruments have recently been brought onto
the balance sheet and therefore the carrying amount approximated the fair value. The fair value of these financial instruments is
determined using discounted cash flow analysis. The fair value of all financial assets (excluding Investments accounted for using the
equity method) and financial liabilities approximated their carrying amounts at 31 December 2017. There is no debt at amortised
cost in the ATLAX Group.
88
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 Debt at amortised cost
Non-recourse TRIP II bonds and accrued interest thereon
Carrying amount
$’000
Fair value
$’000
1,429,881
1,346,192
Capital management
The Groups’ capital management objectives are to:
• Ensure sufficient capital resources to support the Groups’ business and operational requirements
• Safeguard the Groups’ ability to continue as a going concern.
Annual reviews of the Groups’ capital requirements are performed to ensure the Groups are meeting their objectives.
Capital is defined as contributed equity plus reserves. The Groups do not have any externally imposed capital requirements at
31 December 2018 or 31 December 2017.
6 Group disclosures
6.1 Parent entity financial information
Parent entity financial information
The financial information for ATLIX and ATLAX for this disclosure has been prepared on the same basis as the Financial Reports,
except as set out below:
Investments in subsidiaries, associates and joint venture entities
Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the separate financial information
of ATLIX and ATLAX.
Tax consolidation legislation
ATLAX and its wholly owned Australian controlled entities have implemented the tax consolidation legislation as of
2 February 2010.
The head entity, ATLAX, and the controlled entities in the tax consolidated group account for their own current and deferred tax
amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer
in its own right. In addition to its own current and deferred tax amounts, ATLAX also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities
in the tax consolidated group.
The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate ATLAX for
any current tax payable assumed and are compensated by ATLAX for any current tax receivable and deferred tax assets relating
to unused tax losses or unused tax credits that are transferred to ATLAX under the tax consolidation legislation. The funding
amounts are determined by reference to the amounts recognised in the wholly owned entities’ Financial Reports.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head
entity, which is issued as soon as practicable after the end of each financial year.
The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts
receivable from or payable to other entities in the ATLAX Group. Any difference between the amounts assumed and amounts
receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned
tax consolidated entities.
Financial guarantees
Where the parent entities have provided financial guarantees in relation to loans and payables of subsidiaries for no consideration,
the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.
89
2018 Atlas Arteria Annual Report | 6 Group disclosures continued
a) Summary financial information
In accordance with the Corporations Act 2001, the individual Financial Reports for ATLIX and ATLAX are shown in aggregate
amounts below:
Statement of Financial Position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Reserves
Retained earnings
Total equity
Profit/(loss) for the year
Total comprehensive income/(loss)
ALX
ATLAX Group
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
As at
31 Dec 2018
$’000
As at
31 Dec 2017
$’000
74,319
1,332,757
1,407,076
(56,184)
(8,232)
(64,416)
4,694
1,429,837
1,434,531
(52,886)
(122,812)
(175,698)
59,717
83,862
143,579
(2,894)
–
35,697
197,877
233,574
(6,241)
–
(2,894)
(6,241)
1,995,994
1,911,877
197,311
268,334
–
–
(653,334)
(653,044)
1,342,660
1,258,833
80,085
80,085
(40,894)
(40,894)
141
(56,767)
140,685
(10,983)
(10,983)
–
(41,001)
227,333
79,625
79,625
b) Guarantees entered into by the parent entities
ATLIX and ATLAX have not directly provided any financial guarantees in respect to bank overdrafts and loans of subsidiaries as
at 31 December 2018 and 31 December 2017. ATLIX and ATLAX have not given any unsecured guarantees at 31 December 2018
and 31 December 2017.
However, financial guarantees are held by ETI UK, a subsidiary of ATLIX, in respect of external borrowings held by WQG.
c) Contingent liabilities of the parent entities
Refer note 7.2 for ATLIX and ATLAX’s contingent liabilities as at 31 December 2018 and 31 December 2017.
90
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 6.2 Acquisition of subsidiaries
Business combinations
The acquisition method of accounting is used to account for all business combinations other than those under common control,
regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of
a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the
Groups. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair
value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured
initially at their fair values at the acquisition date. Contingent consideration is subsequently remeasured to its fair value with
changes recognised in the profit or loss.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date
fair value of any previous equity interest in the acquiree over the fair value of the Groups’ share of the net identifiable assets
acquired is recorded as goodwill.
Acquisition of Warnow Tunnel/WQG
On WQG Acquisition Date, ALX acquired the remaining 30% equity interest and shareholder loan in WQG for €3.7 million as gross
consideration prior to adjusting for applicable transaction taxes. The acquisition was funded by existing cash.
Pre-acquisition, ALX held 70% interest in WQG and the balance of 30% was held by Bouygues Travaux Publics SA. Per the agreement,
any decision made with regard to the relevant activities required 75% of the voting members to proceed. As a result, ALX’s
investment in WQG was treated as a joint venture. Post-acquisition, ALX has a 100% equity interest in WQG. Accordingly, WQG is
accounted for as a subsidiary of ALX which is wholly consolidated in the ALX Financial Report.
As per AASB 3 Business Combinations, this acquisition is treated as a sale of the existing interest in WQG and subsequent purchase of
a 100% interest, giving rise to revaluation of ALX’s existing investment in WQG.
The table below reconciles the 1 January 2018 carrying value of Warnow Tunnel with the value of the existing investments at
WQG Acquisition Date based on ALX’s existing ownership interest.
Opening investments in Warnow Tunnel as at 1 January 2018 – equity method
Share of losses accounted for using equity method up to the WQG Acquisition Date
Foreign exchange movement up to WQG Acquisition Date
Revaluation of existing investment as a result of the acquisition
Value of existing investment held at WQG Acquisition Date
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Total purchase consideration
ALX
$’000
ATLAX Group
$’000
–
–
–
13,470
13,470
–
–
–
–
–
ALX
ATLAX Group
$’000
5,975
$’000
–
91
2018 Atlas Arteria Annual Report | 6 Group disclosures continued
6.2 Acquisition of subsidiaries continued
The fair value of WQG’s and its General Partner’s identifiable assets acquired and liabilities assumed by the Group on WQG
Acquisition Date are as follows:
Cash and cash equivalents
Restricted cash
Other assets
Intangible assets – Tolling concessions
Property, plant and equipment
Capital work in progress
Debt at amortised cost
Deferred tax liabilities
Derivative financial instruments
Other liabilities
Fair value of identifiable assets acquired and liabilities assumed for WQG
Goodwill1
Net assets acquired
ALX
€’000
3,616
3,111
1,640
ALX
$’000
5,840
5,024
2,648
133,003
214,772
215
1,770
347
2,858
(115,117)
(185,889)
(8,790)
(10,474)
(5,847)
3,127
8,790
11,917
(14,193)
(16,913)
(9,443)
5,051
14,193
19,244
1. Goodwill arises as a result of the deferred tax liability calculated on concession rights value.
Revenue and profit contribution
WQG contributed revenues of $5.8 million and a net loss after tax of $4.0 million to the Group for the period from WQG Acquisition
Date to 31 December 2018.
If the acquisition had have of occurred on 1 January 2018, consolidated pro-forma revenue and net loss after tax for the year would
have been $20.2 million and $5.4 million respectively. These amounts have been calculated using the subsidiary’s results and
adjusting them for:
• Differences in accounting policies between the Group and the subsidiary; and
• The additional depreciation and amortisation that would have been charged assuming the fair value to property, plant and
equipment and concession rights had applied from 1 January 2018, together with the consequential tax effects.
Purchase consideration – cash inflow
Inflow of cash to acquire subsidiary, net of cash acquired
Cash consideration paid during the year
Cash and cash equivalents acquired
Net inflow of cash – investing activities
ALX
$’000
(3,950)
5,840
1,890
92
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 6.3 Subsidiaries
Subsidiaries
Subsidiaries, other than those that ATLIX has been deemed to have directly acquired through stapling arrangements, are those
entities over which the Groups are exposed to, or have the right to, variable returns from their involvement with the entity and have
the ability to affect those returns through their power over the entity. Subsidiaries are fully consolidated from the date on which
control is transferred to the Groups. The acquisition method of accounting is used to account for the acquisition of subsidiaries by
the Groups. Where control of an entity is obtained during a financial year, its results are included in the Statement of Comprehensive
Income from the date on which control commences. Where control of an entity ceases during a financial year, its results are included
for that part of the year during which control existed and the subsidiary is deconsolidated from the date that control ceases.
a) ALX
Name of controlled entity
Atlas Arteria Limited
ALX Infrastructure US Pty Limited
ALX Infrastructure Australia Pty Limited
ALX Investments (Australia) Pty Limited
Green Bermudian Holdings Limited
ALX Investments Limited
MIBL Finance (Luxembourg) Sarl
Tollway Holdings Limited
European Transport Investments (UK) Limited (“ETI UK”)
Tipperhurst Limited
Greenfinch Motorways Limited
MQA 125 Holdings, Inc.1
ALX Indiana Holdings LLC
ALX Holdings (US) LLC
Dulles Greenway Partnership
Dulles Greenway Investments 3 (US) LLC
Shenandoah Greenway Corporation
Toll Road Investors Partnership II, L.P.
Warnowquerung GmbH & Co. KG2
Warnowquerung Verwaltungsgesellschaft mbH2
Country of establishment
2018 voting
%
2017 voting
%
Australia
Australia
Australia
Australia
Bermuda
Bermuda
Luxembourg
UK
UK
UK
UK
USA
USA
USA
USA
USA
USA
USA
Germany
Germany
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
–
–
1. Filed for dissolution on 7 December 2018.
2. On 20 September 2018, ALX acquired the remaining 30% equity interest in WQG. Prior to this, ALX’s investment in WQG was classified as a joint venture.
b) ATLAX Group
Name of controlled entity
Country of establishment
2018 voting
%
2017 voting
%
ALX Infrastructure Australia Pty Limited
ALX Investments Australia Pty Limited
ALX Indiana Holdings LLC
ALX Holdings (US) LLC
Dulles Greenway Partnership
Dulles Greenway Investments 3 (US) LLC
Shenandoah Greenway Corporation
Australia
Australia
USA
USA
USA
USA
USA
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
93
2018 Atlas Arteria Annual Report | 6 Group disclosures continued
6.4 Related party disclosures
Adviser and Manager
The Adviser of ATLIX and the Manager of ATLAX is MFA, a wholly owned subsidiary of Macquarie Group Limited (“MGL”).
Directors
The following persons were directors of ATLIX during the whole of the year and up to the date of this report:
• Jeffrey Conyers (Chairman)
• James Keyes
• Christopher Leslie
• Nora Scheinkestel
• Derek Stapley
The following persons were directors of ATLAX during the whole of the year and up to the date of this report (unless
otherwise stated):
• Nora Scheinkestel (Chairman)
• David Bartholomew (Appointed on 1 October 2018)
• Richard England (Resigned on 30 November 2018)
• Debra Goodin
• Jean-Georges Malcor (Appointed on 1 November 2018)
• John Roberts (Resigned on 28 September 2018)
Key Management Personnel
Key Management Personnel (“KMP”) are defined in AASB 124 Related Party Disclosures as those having authority and responsibility
for planning, directing and controlling the activities of the entity. The directors of ATLIX and ATLAX meet the definition of KMP as
they have this authority in relation to the activities of ALX and the ATLAX Group respectively, however they do not manage day-to-
day activities of the business.
The compensation paid to directors of ATLIX and ATLAX is determined by reference to directorships of similar entities. The level of
compensation is not related to the performance of ALX.
94
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 Compensation in the form of directors’ fees that were paid to directors is as follows:
ATLIX
Jeffrey Conyers
James Keyes
Christopher Leslie
Nora Scheinkestel
Derek Stapley
ATLAX
Nora Scheinkestel
David Bartholomew
Richard England
Debra Goodin
Jean-Georges Malcor
John Roberts
Marc de Cure
Year ended 31 Dec 2018
Year ended 31 Dec 2017
Cash salary
and fees
$
Superannuation
$
Total
directors’ fees
$
Cash salary
and fees
$
Superannuation
$
Total
directors’ fees
$
161,478
114,380
114,380
83,750
124,473
598,461
189,710
32,380
136,826
162,864
24,583
105,000
–
–
–
–
–
–
–
20,290
3,037
14,424
15,261
–
–
–
161,478
114,380
114,380
83,750
124,473
598,461
210,000
35,417
151,250
178,125
24,583
105,000
–
651,363
53,012
704,375
159,234
120,258
36,720
86,250
133,256
535,718
–
–
–
–
–
–
159,234
120,258
36,720
86,250
133,256
535,718
208,606
19,832
228,438
–
180,060
75,914
–
142,083
71,918
678,581
–
15,681
4,837
–
–
6,832
47,182
–
195,741
80,751
–
142,083
78,750
725,763
The number of ALX stapled securities held directly, indirectly or beneficially by the KMP at 31 December is set out below:
Directors’ interests in ALX
stapled securities
At 31 Dec 2018
Directors’ interests in ALX
stapled securities
At 31 Dec 2017
Jeffrey Conyers
David Bartholomew1
Richard England2
Debra Goodin
James Keyes
Christopher Leslie
Jean-Georges Malcor3
John Roberts4
Nora Scheinkestel
Derek Stapley
Total
1. Appointed 1 October 2018.
2. Resigned 30 November 2018.
3. Appointed 1 November 2018.
4. Resigned 28 September 2018.
40,000
–
–
5,671
5,000
–
–
–
78,431
5,000
134,102
40,000
–
49,670
5,671
5,000
–
–
53,073
78,431
–
231,845
95
2018 Atlas Arteria Annual Report | 6 Group disclosures continued
6.4 Related party disclosures continued
Adviser and Manager fees
Under the terms of the governing documents of the individual entities within the Groups, fees incurred (inclusive of non-recoverable
GST) to the Adviser/Manager of ALX and the ATLAX Group were:
Base fee (a)
Performance fee (b)
Total
ALX
ATLAX Group
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
36,758,504
32,812,601
70,625,097
7,978,730
107,383,601
40,791,331
2,235,911
4,983,932
7,219,843
2,625,042
639,491
3,264,533
a) Base fee
As a part of the terms of internalised management agreements, MFA will remain as the adviser/manager of ALX under the current
management arrangements until 15 May 2019 (unless terminated earlier although fees will continue to be paid until that date).
During this period, base management fees will be paid to MFA at the current rate of 0.85% per annum on ALX’s market capitalisation
(excluding any shares issued after 30 June 2018).
b) Performance fee
The performance fee is calculated with reference to the performance of the ALX accumulated index compared with the performance
of the S&P/ASX 300 Industrials Accumulation Index. For the 12 months ended 30 June 2018, a total performance fee of $54.7 million
(excluding GST) was calculated for ALX. In accordance with, and due to the renegotiation of, the management agreements, the
full 2018 performance fee became payable at 30 June 2018. Accordingly, the full 2018 performance fee has been recognised as at
30 June 2018. For the period ended 30 June 2017, a performance fee for $8.0 million (excluding GST) was expensed.
The full 2018 performance fee of $54.7 million (excluding GST), the second and third instalment of the 2017 performance fee
totalling $15.9 million (excluding GST) and the third instalment of the 2016 performance fee of $44.7 million (excluding GST) became
payable at 30 June 2018 out of which $90.3 million was applied to a subscription for new ALX securities in July 2018 and $25.0
million was settled in cash.
Fees are apportioned between ATLIX and ATLAX based on each entity’s share of the net assets of ALX.
Other balances and transactions
MGL and companies within the MGL Group undertake various transactions with and perform various services for ALX. Fees paid to
the MGL Group are approved solely by the independent directors on the Boards and, where appropriate, external advice is sought
by the directors to ensure that the fees and terms of engagement are representative of arm’s length transactions.
In July 2018, MGL sold all of the 13,476,174 stapled securities held in ALX which were acquired by MGL on settlement of
performance fee.
ALX utilises services provided by Macquarie Bank Limited (“MBL”), a wholly owned subsidiary of MGL. MBL’s foreign exchange and
treasury departments provide services from time to time on arm’s length terms.
96
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 At 31 December 2018, entities within the Groups had the following balances with related parties:
Cash held with MBL1
Interest bearing loan receivable from ATLIX2
Current3
Non-current
Other intercompany receivables from/(payables to) ATLIX
ALX
ATLAX Group
As at
31 Dec 2018
$
As at
31 Dec 2017
$
As at
31 Dec 2018
$
As at
31 Dec 2017
$
85,815,683
37,990,680
12,317,726
34,172,171
–
–
–
–
–
–
46,179,915
1,893,879
8,232,108
122,812,094
329,842
(1,604)
1. Macquarie Bank Limited (“MBL”), a wholly owned subsidiary of MGL.
2. Tranches of the loan owing from ATLIX to ATLAX bear interest at 6-month BBSW plus a margin of 0.9% – 1.1%.
3. Includes accrued interest of $778,623 (2017: $1,893,879).
During the year, entities within the Groups had the following transactions with related parties:
ALX
ATLAX Group
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
Interest earned on deposits with MBL
876,577
1,564,302
396,181
1,130,495
Interest between ATLAX and ATLIX on loan amount
–
–
3,465,711
1,893,879
Reimbursement of expenses paid by companies within
the MGL Group on behalf of ALX
Reimbursement of ATLIX’s portion of expenses paid by
ATLAX on behalf of ALX
Guarantee fee income from ATLIX Group
Fees paid to Macquarie Capital (Australia) Limited1
1,215,254
919,572
795,626
685,012
–
–
–
–
–
9,468,959
1,677,700
–
–
–
1,185,466
762,976
1. Fees paid to Macquarie Capital (Australia) Limited in 2017 relate to capital raisings undertaken as part the acquisition of additional interests in APRR and TRIP II.
During the year, entities within the Groups received the following from associates:
ALX
ATLAX Group
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
Principal and interest received from
preferred equity certificates issued by MAF2
M6 Toll management fee
Adviser's fee from WQG
249,416,735
147,779,372
–
5,154,626
135,420
28,224
–
–
–
All of the amounts represent payments on normal commercial terms made in relation to the provision of goods and services.
–
–
–
97
2018 Atlas Arteria Annual Report | 7 Other disclosures
7.1 Cash flow information
Reconciliation of profit after income tax to the net cash flows from operating activities
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Profit/(loss) from activities after income tax
(Gain)/loss on equity accounted assets
Net foreign exchange differences
Finance costs
Depreciation and amortisation
Amortisation of tolling concession
Amortisation of deferred tax liabilities
Gain on revaluation of investment
Bad debt written off
Current tax expense/(benefit)
Guarantee fee classified as investing cash flows
59,852
519,583
(246,141)
(187,971)
(16,831)
4,801
3,483
108,920
350
61,768
(1,220)
(14,119)
53,795
152
36,520
(18,448)
(13,470)
(375,615)
6
2,118
–
–
1,699
–
(63)
–
39
–
–
–
–
(1)
–
Issue of securities against performance fees payable
90,303
52,640
6,186
Changes in operating assets and liabilities
(Increase)/decrease in receivables
(Decrease) in payables and provisions
Net cash flows from operating activities
(4,855)
(37,974)
23,140
15
(50,131)
18,120
(457)
(2,364)
(8,690)
Non-cash financing and investing activities
Refer note 5.2 for further details on application of performance fees to subscription of new securities.
Net debt reconciliation
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.
57,383
626
(2,247)
–
–
–
–
(61,710)
–
1,664
(1,185)
4,950
(1,675)
(11,654)
(13,848)
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
186,468
(77,322)
122,690
(66,286)
(2,101,962)
(1,668,352)
(1,992,816)
(1,611,948)
186,468
122,690
(1,429,881)
(1,287,564)
(749,403)
(447,074)
12,461
34,304
–
–
12,461
12,461
–
–
–
–
34,304
34,304
–
–
(1,992,816)
(1,611,948)
12,461
34,304
Net debt
Cash and cash equivalents
Borrowings – current
Borrowings – non-current
Net debt
Cash and cash equivalents
Gross debt – fixed interest rates
Gross debt – variable interest rates
Net debt
98
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 ALX
Net debt at 1 January 2017
Cash flows
Loan facilities
Other non-cash adjustments1
Foreign exchange adjustments
Net debt at 31 December 2017
Cash flows
Loan facilities
Other non-cash adjustments1
Foreign exchange adjustments
Net debt at 31 December 2018
1. Relates to unpaid interest that has accrued during the period.
ATLAX Group
Net debt at 1 January 2017
Cash flows
Foreign exchange adjustments
Net debt at 31 December 2017
Cash flows
Foreign exchange adjustments
Net debt at 31 December 2018
Assets
Liabilities from financing activities
Cash and cash
equivalent
$’000
Borrowings
current
$’000
Borrowings
non-current
$’000
Total
$’000
223,367
(104,453)
–
–
3,776
122,690
59,327
–
–
4,451
186,468
–
–
223,367
9,117
(450,530)
(545,866)
(67,449)
(1,243,113)
(1,310,562)
(10,675)
2,721
(43,120)
68,411
(53,795)
74,908
(66,286)
(1,668,352)
(1,611,948)
21,081
(9,068)
(19,136)
(3,913)
54
(176,821)
(89,784)
(167,059)
80,462
(185,889)
(108,920)
(166,521)
(77,322)
(2,101,962)
(1,992,816)
Cash and cash
equivalent
$’000
204,129
(165,628)
(4,197)
34,304
(22,051)
208
12,461
Total
$’000
204,129
(165,628)
(4,197)
34,304
(22,051)
208
12,461
7.2 Contingent liabilities
ALX had the following contingent liabilities at 31 December 2018. No provision has been raised against these items unless
stated below.
Warnow Tunnel
ETIUK, a subsidiary of ATLIX, has made guarantees, totalling €2.0 million ($3.2 million) (31 December 2017: €1.2 million
($1.8 million)), in the event of a senior debt payment event of default by Warnowquerung GmbH & Co KG.
This contingent commitment is backed by an on-demand guarantee, provided through a pledged cash account into which
€2.0 million ($3.2 million) (31 December 2017: €1.2 million ($1.8 million)) has been deposited. These funds are restricted
and are classified as restricted cash on the Consolidated Statements of Financial Position.
99
2018 Atlas Arteria Annual Report | 7 Other disclosures continued
7.3 Remuneration of auditors
Amounts paid or payable to PricewaterhouseCoopers Australia for:
Audit services
Taxation services
Other assurance services
Amounts paid or payable to network firms of PricewaterhouseCoopers for:
Audit services
Taxation services
Other services
Amounts paid or payable to non PricewaterhouseCoopers audit firms for:
Audit services
ALX
ATLAX Group
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
Year ended
31 Dec 2018
$
Year ended
31 Dec 2017
$
479,130
–
60,680
539,810
314,211
155,974
–
364,743
14,240
261,918
640,901
239,416
29,757
4,830
239,565
186,110
–
30,340
269,905
–
25,904
212,014
32,745
41,927
–
–
–
–
470,185
274,003
32,745
41,927
64,866
64,866
–
–
–
–
–
–
7.4 Share based payments
LTI Plan
The LTI Plan is designed to provide long-term incentives to key employees to deliver long-term securityholder returns. Under the
plan, participants are granted performance rights which only vest if certain performance standards are met. Participation in the plan
is at the Board’s discretion and no individual has a contractual right to receive any guaranteed benefits.
The amount of performance rights that will vest depends on Groups’ relative Total Shareholder return (TSR) against the TSR
performance of a peer group of companies approved by the Board. Performance rights are granted under the plan for no
consideration and carry equal voting rights with other Securityholders. These performance rights are exercisable at no consideration.
Set out below are summaries of performance rights granted under the plan:
As at 1 January
Granted during the year
Exercised during the year
Forfeited during the year
As at 31 December
ALX
ATLAX Group
Year ended
31 Dec 2018
Year ended
31 Dec 2017
Year ended
31 Dec 2018
Year ended
31 Dec 2017
Number of
performance
rights
Number of
performance
rights
Number of
performance
rights
Number of
performance
rights
–
237,765
–
–
237,765
–
–
–
–
–
–
237,765
–
–
237,765
–
–
–
–
–
All performance rights outstanding at the end of the year will vest on 28 February 2021 only if performance conditions are met.
100
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 a) Fair value of performance rights granted
The assessed fair value at grant date of performance rights granted during the year ended 31 December 2018 ranged from $3.57
to $4.21 per performance right (2017: nil). The fair value at grant date is independently determined using an adjusted form of
the Black Scholes Model which includes a Monte Carlo simulation model that takes into account the exercise price, the term of
the performance right, the impact of dilution (where material), the share price at grant date and expected price volatility of the
underlying share, the expected dividend yield, the risk-free interest rate for the term of the performance right and the correlations
and volatilities of the peer group companies.
The model inputs for performance rights granted during the year ended 31 December 2018 included:
(i) Performance rights are granted for no consideration and vest based on Groups’ TSR ranking within a peer group of selected
companies over vesting period. Vested performance rights are exercisable immediately after vesting
(ii) Grant date: Between 1 May 2018 and 28 December 2018
(iii) Expiry date: 28 February 2021
(iv) Expected price volatility of the ALX stapled securities: 24%
(v) Expected dividend yield: 4.1%
(vi) Risk-free interest rate: Between 1.88% and 2.16%
The expected price volatility is based on the historic volatility (based on the remaining life of the performance rights), adjusted for
any expected changes to future volatility due to publicly available information.
b) Expenses arising from share-based payment transactions
Employee performance rights
ALX
ATLAX Group
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
Year ended
31 Dec 2018
$’000
Year ended
31 Dec 2017
$’000
141
141
–
–
141
141
–
–
7.5 Other accounting policies
This note provides a list of the significant accounting policies adopted in preparation of these Financial Reports to the extent they
have not already been disclosed in the other notes above.
a) Transaction costs
Transaction costs related to a business combination are recognised in the profit or loss. Transaction costs arising on the issue of
equity instruments are recognised directly in equity and those arising on borrowings are netted with the liability and included in
interest expense using the effective interest method.
b) GST
The amount of GST incurred by the Groups that is not recoverable from the Australian Taxation Office (“ATO”) is recognised as
an expense or as part of the cost of acquisition of an asset or adjusted from the proceeds of securities issued. These expenses
have been recognised in profit or loss net of the amount of GST recoverable from the ATO. Receivables and payables are stated at
amounts inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the Consolidated Statement
of Financial Position. Cash flows relating to GST are included in the Consolidated Statements of Cash Flows on a gross basis.
c) Foreign currency translation
Functional and presentation currency
Items included in the Financial Reports of each of the Groups’ entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The Financial Reports are presented in Australian Dollars, which
is the functional and presentation currency of ATLIX and ATLAX.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
101
2018 Atlas Arteria Annual Report | 7 Other disclosures continued
7.5 Other accounting policies continued
Group companies
The results and financial position of the Groups’ entities that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
• Assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that
Statement of Financial Position
• Income and expenses for each Statement of Comprehensive Income are translated at exchange rates at the dates of transactions
or at an average rate as appropriate
• All resulting exchange differences are recognised as a separate component of equity
On consolidation, exchange differences arising from the translation of any net investment in foreign entities are taken to
securityholders’ equity. When a foreign operation is disposed of or borrowings that form part of the net investment are
repaid, a proportionate share of such exchange differences is recognised in profit or loss as part of the gain or loss on disposal.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
d) Offsetting financial instruments
Financials assets and financial liabilities may be offset and the net amount reported on the Statement of Financial Position when
there is a legally enforceable right to offset the amounts and either there is an intention to settle on a net basis, or realise the
financial asset and settle the financial liability simultaneously.
e) Change in accounting policy – AASB 9 Financial Instruments
Impact of Changes
The Groups have adopted AASB 9 from 1 January 2018 which has resulted in changes to accounting policies and the analysis for
possible adjustments to amounts recognised in the Financial Reports. In accordance with the transitional provisions in AASB 9,
the reclassifications and adjustments are not reflected in the balance sheet as at 31 December 2017 but recognised in the opening
balance sheet as at 1 January 2018. As per the new impairment model introduced by AASB 9, ATLAX Group has recognised a loss
allowance of $0.3 million on the intercompany loan receivable owing to ATLAX from ATLIX as at 1 January 2018.
(i) Classification and Measurement
On 1 January 2018, the Groups have assessed which business models apply to the financial instruments held by the Groups and
have classified them into the appropriate AASB 9 categories. The main effects resulting from this reclassification are shown in the
table below.
On adoption of AASB 9, the Groups classified financial assets and liabilities as subsequently measured at either amortised cost
or fair value through profit or loss, depending on the business model for those assets and on the asset’s contractual cash flow
characteristics. There were no changes in the measurement of the Groups’ financial instruments.
There was no impact on the statement of comprehensive income or the statement of changes in equity on adoption of AASB 9
in relation to classification and measurement of financial assets and financial liabilities.
The following table summarises the impact on the classification and measurement of the Groups’ financial instruments at
1 January 2018:
Presented in statement of financial position
Financial asset
AASB 139
AASB 9
Reported
$’000
Restated
$’000
Cash and cash equivalents
Restricted cash
Bank deposits
Bank deposits
Loans and receivables
Amortised cost
No change
No change
Loans and receivables
Amortised cost
No change
No change
Receivables from related parties
Loans and receivables
Loans and receivables
Amortised cost
No change
No change
Trade and other receivables/payables
Loans and receivables
Loans and receivables
Amortised cost
No change
No change
(ii) Changes to Hedge Accounting
ALX does not currently enter into any hedge accounting and therefore there is no impact to the Groups’ Financial Reports.
(iii) Impairment
AASB 9 introduces a new expected credit loss (“ECL”) impairment model that requires the Groups to adopt an ECL position across
the Groups’ financial assets at 1 January 2018. The Groups have performed a detailed assessment of its receivable balances which
materially consist only of an intercompany loan owing to ATLAX from ATLIX. While cash and cash equivalents are also subject to the
impairment requirements of AASB 9, the identified impairment loss was immaterial.
102
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Groups use
judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Groups’ past history,
existing market conditions as well as forward looking estimates at the end of each reporting period.
Applying the expected credit risk model on the intercompany loan receivable in the ATLAX Group at 1 January 2018 resulted
in the recognition of a loss allowance of $0.3 million through opening retained earnings. This provision was reassessed at
31 December 2018 and will be reassessed at each reporting date.
f) Accounting standards and interpretations issued
Certain new accounting standards and interpretations have been published that are not mandatory for the current reporting year.
The Groups’ assessment of the impact of the relevant new standards and interpretations which have not been early adopted in
preparing the Financial Reports is set out below.
AASB 16 Leases (effective for annual reporting periods beginning on or after 1 January 2019)
AASB 16 Leases will replace AASB 117 Leases. It requires the recognition of a right-of-use asset along with an associated lease
liability, where the entity is a lessee. Interest expense will be recognised in profit or loss using the effective interest rate method, and
the right of use asset will be depreciated. The standard is effective for annual reporting periods beginning on or after 1 January 2019.
The Groups have assessed the new standard’s impact on the Groups’ Financial Reports and anticipate that the most significant
impact will arise on the TRIP II easement and the ALX head office lease. The Groups are still finalising their assessment which is
subject to change, however a summary of the anticipated impact on the Financial Reports for the year ended 31 December 2019 is
shown below:
Balance sheet at 1 January 2019
Non-current assets
Right of use asset – TRIP II easement
Right of use asset – ALX head office lease
Non-current liabilities
Deferred liability – TRIP II easement
Lease liability – TRIP II easement
Lease liability – ALX head office lease
Equity
Retained earnings – TRIP II easement
Retained earnings – ALX head office lease
Income statement
Operating expenses – TRIP II easement
Depreciation – TRIP II easement
Finance costs – TRIP II easement
Operating expenses – ALX head office lease
Depreciation – ALX head office lease
Finance costs – ALX head office lease
Cash flow Statement
Operating cash flows – TRIP II easement
Financing cash flows – TRIP II easement
Operating cash flows – ALX head office lease
Financing cash flows – ALX head office lease
ALX
ATLAX Group
AASB 16
$’000
AASB 117
$’000
AASB 16
$’000
AASB 117
$’000
4,380
2,026
–
–
–
(15,130)
(18,129)
(2,067)
13,750
41
–
–
(15,130)
–
–
(81)
(904)
–
(186)
(37)
–
(600)
–
(172)
(600)
–
–
(172)
–
–
(600)
–
(172)
–
–
2,026
–
–
(2,067)
–
41
–
–
–
–
(186)
(37)
–
–
–
(172)
–
–
–
–
–
–
–
–
–
–
(172)
–
–
–
–
(172)
–
There are additionally a number of small operating leases where an asset (the right to use the leased item) and a financial liability to
pay rentals will be recognised. For these leases, the application of AASB 16 is not expected to have a material impact on the Groups’
Financial Reports.
103
2018 Atlas Arteria Annual Report | 7 Other disclosures continued
7.5 Other accounting policies continued
Upon adoption of AASB 16, assets and liabilities arising from a lease will be initially measured at their net present value. The lease
payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the estimated incremental
borrowing rates specific to the entity that has entered into the lease.
The Groups’ leases are materially all denominated in foreign currencies, and as such the numbers forecast are subject to change
based on FX rates applicable when AASB 16 comes into effect.
The Groups will apply the standard from its mandatory adoption date of 1 January 2019, right-of-use assets for leases will be
measured on transition as if the new rules had always been applied. The Group intends to apply the simplified transition approach
and will not restate comparative amounts for the year prior to first adoption.
Revised IFRS Conceptual Framework
The IASB has issued the revised IFRS Conceptual Framework (“Framework”) for financial reporting. The main purpose of the
Framework is to assist the IASB in developing accounting standards and assist financial report preparers to develop accounting
policies when there is no specific or similar standard that addresses a particular issue.
Amendments made include the definition and recognition criteria for assets, liabilities, income and expenses, and other relevant
financial reporting concepts. The Framework is effective for annual periods beginning on or after 1 January 2020. The Groups are
currently assessing the impact of the Framework and timing of adoption. The Australian equivalent Conceptual Framework has not
yet been amended.
There are no other standards or interpretations that are not yet effective and that would be expected to have a material impact on
the entity in the current or future reporting periods and on foreseeable future transactions.
7.6 Events occurring after balance sheet date
Since the balance sheet date, there have been no other matters or circumstances not otherwise dealt with in the Financial Reports
that have significantly affected or may significantly affect the operations of the Groups, the result of those operations or the state of
affairs of the Groups in the period subsequent to the year ended 31 December 2018.
104
| 2018 Atlas Arteria Annual ReportNotes to the Financial Reports continuedfor the year ended 31 December 2018 Directors’ Declaration – Atlas Arteria International Limited
for the year ended 31 December 2018
The directors of Atlas Arteria International Limited (“ATLIX”) declare that:
a) the Financial Report of ATLIX and its controlled entities (“ALX”) and notes set out on pages 59 to 104:
i) comply with Australian Accounting Standards and other mandatory professional reporting requirements; and
ii) give a true and fair view of the financial position of the ALX as at 31 December 2018 and of its performance for the year ended
on that date; and
b) there are reasonable grounds to believe that ATLIX will be able to pay its debts as and when they become due and payable.
The directors confirm that the Financial Report also complies with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
This declaration is made in accordance with a resolution of the directors.
Jeffrey Conyers
Chairman
Atlas Arteria International Limited
Pembroke, Bermuda
27 February 2019
Derek Stapley
Director
Atlas Arteria International Limited
Pembroke, Bermuda
27 February 2019
105
2018 Atlas Arteria Annual Report |
Directors’ Declaration – Atlas Arteria Limited
for the year ended 31 December 2018
The directors of Atlas Arteria Limited (“ATLAX”) declare that:
a) the Financial Report of ATLAX and its controlled entities (“ATLAX Group”) and notes set out on pages 59 to 104 are in accordance
with the constitution of ATLAX and the Corporations Act 2001, including:
i) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements, and
ii) giving a true and fair view of the financial position of the ATLAX Group as at 31 December 2018 and of its performance for the
year ended as on that date; and
b) there are reasonable grounds to believe that ATLAX will be able to pay its debts as and when they become due and payable.
The directors confirm that the Financial Report also complies with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The directors have been given the declaration by the Chief Executive Officer and Chief Financial Officer required by section 295A of
the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
Nora Scheinkestel
Chairman
Atlas Arteria Limited
Sydney, Australia
28 February 2019
Debra Goodin
Director
Atlas Arteria Limited
Sydney, Australia
28 February 2019
106
| 2018 Atlas Arteria Annual Report
Independent Auditor’s Report
for the year ended 31 December 2018
Financial Reports for the year ended 31 December 2018
Atlas Arteria International Limited
Atlas Arteria Limited
Page 80 of 84
Independent auditor’s report
To the stapled security holders of Atlas Arteria International Limited (formerly Macquarie Atlas Roads International
Limited) and Atlas Arteria Limited (formerly Macquarie Atlas Roads Limited)
Report on the audits of the financial reports
Our opinion
In our opinion:
The accompanying financial reports of Atlas Arteria (“ALX or “Group”) (formerly Macquarie Atlas Roads), being the
consolidated stapled group which comprises Atlas Arteria International Limited (“ATLIX”) and its controlled entities and
Atlas Arteria Limited (“ATLAX”) and its controlled entities, and the Atlas Arteria Limited Group (“ATLAX Group”) which
comprises ATLAX and its controlled entities, are in accordance with the Corporations Act 2001 (as applicable), including:
(a) giving a true and fair view of the financial positions of ALX and ATLAX Group as at 31 December 2018 and of their
financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001 (as applicable).
What we have audited
The financial reports of ALX and ATLAX Group (the “financial reports”) comprise:
•
•
•
•
•
•
the consolidated statements of financial position as at 31 December 2018
the consolidated statements of comprehensive income for the year then ended
the consolidated statements of changes in equity for the year then ended
the consolidated statements of cash flows for the year then ended
the notes to the financial reports, which include a summary of significant accounting policies
the directors’ declarations.
Basis for opinion
We conducted our audits in accordance with Australian Auditing Standards. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audits of the financial reports section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of ALX and ATLAX 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 audits of the financial reports
in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
107
2018 Atlas Arteria Annual Report |
Financial Reports for the year ended 31 December 2018
Page 81 of 84
Atlas Arteria International Limited
Atlas Arteria Limited
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.
We tailored the scope of our audits to ensure that we performed enough work to be able to give an opinion on the financial
reports as a whole, taking into account the geographic and management structure of ALX and ATLAX Group (together,
“Groups”), their accounting processes and controls and the industry in which they operate.
ALX invests in an international portfolio of toll road assets, the most significant of which are Autoroutes Paris-Rhin-
Rhone (“APRR”) in France and Dulles Greenway (“DG”) in the United States of America. We engaged with the auditors
of APRR and Toll Road Investors Partnership II, L.P. (“TRIP II”), the concessionaire for DG, to report to us in respect of
their audit procedures performed on these entities.
Materiality
Audit scope
Key audit matters
• ALX materiality was $18.2 million,
• Our audits focused on where the
• Amongst other relevant topics, we
communicated the following key
audit matters to the Audit and
Risk Committees:
- Value of the DG concession and
goodwill for ALX and value of the
equity accounted investment in
DG for ATLAX Group
Consolidation of subsidiaries and
equity accounting of associates.
-
•
They are further described in the Key
audit matters section of our report.
Groups made subjective judgements;
for example, significant accounting
estimates involving assumptions and
inherently uncertain future events.
• We decided the nature, timing and
extent of work that needed to be
performed by other auditors
operating under our instruction
("component auditors").
•
For APRR, DG and Warnow Tunnel,
we determined the level of
involvement we needed to have in
the audit work performed by the
component auditors to enable us
to conclude whether sufficient
appropriate audit evidence had been
obtained. Our involvement included
discussions, written instructions and
reviewing a selection of their
workpapers.
which represents approximately 2.5%
of its segment EBITDA. ATLAX
Group materiality was $2.3 million,
which represents approximately 1% of
its total assets.
• We applied these thresholds, together
with qualitative considerations, to
determine the scope of our audits and
the nature, timing and extent of our
audit procedures and to evaluate the
effect of misstatements on the
financial reports as a whole.
• As the operating activities of both DG
and Warnowquerung GmbH & Co.,
KG, the concessionaire of Warnow
Tunnel (“Warnow Tunnel”) are
reflected in ALX's financial report,
using segment EBITDA as a
benchmark reflects the operating
activities of ALX.
• We continued to use total assets for
ATLAX Group because, in our view, it
remains the primary metric against
which its performance is most
commonly measured. It presents its
holding as an investment, which is
net of associated debt held at the level
of the underlying asset.
• We utilised a 2.5% threshold for ALX
and a 1% threshold for ATLAX Group
based on our professional judgement,
noting that both are within the range
of commonly acceptable thresholds.
108
| 2018 Atlas Arteria Annual ReportIndependent Auditor’s Report continuedfor the year ended 31 December 2018
Financial Reports for the year ended 31 December 2018
Page 82 of 84
Atlas Arteria International Limited
Atlas Arteria Limited
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audits of the
financial reports for the current period. The key audit matters were addressed in the context of our audits of the financial
reports as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated
the key audit matters to the Audit and Risk Committees.
Key audit matter of ALX and ATLAX Group
How our audits addressed the key audit matter
Value of the DG Concession and goodwill for ALX and
value of the equity accounted investment in DG for
ATLAX Group
(Refer to note 4.1, note 4.2 and note 3.2)
We evaluated the Groups’ assessments by comparing their analysis
to our knowledge of DG and the environment in which it operates.
Our understanding was informed by enquiries of DG’s auditors
and review of publicly available information regarding the road
network and the macroeconomic environment of the region.
The value of the DG Concession for ALX is $2.4 billion of
the total tolling concession balance disclosed in note 4.1
($2.6 billion). ALX Goodwill relating to DG amounts to
$65 million of the $79 million balance disclosed in note 4.2.
The value of the equity accounted investment in DG for ATLAX
Group is $165 million as disclosed in note 3.2.
The carrying value of ALX goodwill has to be tested annually for
impairment by the Directors. At each reporting period, the DG
Concession and goodwill for ALX, and the value of the equity
accounted investment in DG for ATLAX Group, need to be
assessed for indicators of impairment. If indicators of
impairment exist, the recoverable amount for each asset needs to
be estimated. These assessments involve significant judgements
in estimating future cash flows and the rate at which they are
discounted.
For ALX, the test for impairment focuses on the DG Concession
and goodwill. For ATLAX Group, it is the equity accounted
investment in DG that is assessed for impairment.
The assessment of the carrying value of the DG Concession and
goodwill for ALX and the equity accounted investment in DG
for ATLAX Group was a key audit matter due to the judgement
involved in developing the discounted cashflow model used in
determining the recoverable amounts.
We evaluated the Groups’ discounted cashflow model used to
estimate the recoverable amount of the DG Concession and
goodwill for ALX and the equity accounted investment in DG
for ATLAX Group, and the process by which it was developed.
Our procedures included:
•
•
•
•
evaluating the discount rate applied to cashflow forecasts
by using our valuation experts to develop an independent
range. This range was determined with reference to
externally derived data where possible, including market
expectations of investment return, projected economic
growth, interest rates, valuations of comparable assets and
asset specific characteristics
comparing previous cashflow forecasts to actual results to
assess the ability of the Groups to forecast accurately and
to incorporate actual results into future cashflow forecasts
applying sensitivity analysis to key assumptions, in
particular the discount rate, toll escalation rates and
traffic forecasts
sample testing the mathematical accuracy of the Groups’
discounted cashflow model which was used to determine
the recoverable amount of the DG Concession and goodwill
for ALX and the equity accounted investment in DG for
ATLAX Group.
The impairment assessment remains highly sensitive to a number
of assumptions, in particular to changes in the discount rate
and achievement of traffic forecasts and toll escalation rates.
Accordingly, we assessed the relevant disclosures which have
been made in note 4.2.
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Financial Reports for the year ended 31 December 2018
Page 83 of 84
Atlas Arteria International Limited
Atlas Arteria Limited
Key audit matter of ALX and ATLAX Group
How our audits addressed the key audit matter
Consolidation of subsidiaries and equity accounting
for associates
(Refer to note 3.2)
ALX applies equity accounting to its investment in APRR
and consolidates its investments in DG and Warnow Tunnel.
ATLAX Group applies equity accounting to its investment in DG.
In doing so, they are required to make a number of adjustments
to the underlying financial information to ensure alignment
to Australian Accounting Standards and to the Groups’
accounting policies.
This was a key audit matter because certain adjustments are
material and technical in nature such as adjusting the results
of international subsidiaries and investments in associates
prepared using local accounting policies to reflect Australian
Accounting Standards.
Through interaction with the Groups and the APRR, DG and
Warnow Tunnel audit teams, we developed an understanding
of operational developments and local accounting policies of the
subsidiaries and associates and the nature and extent of any
accounting standard or accounting policy adjustments required
to align with those of the Groups. We sample tested that the
adjustments made by the Groups were consistent with this
understanding.
Upon receipt of the audited balance sheet and income statement
for DG, we re-performed management’s calculation of
adjustments impacting ALX’s consolidated statement of
comprehensive income and consolidated statement of financial
position and re-performed management’s calculation of
adjustments impacting ATLAX Group’s share of net profits
or losses and carrying value of DG and compared to those
calculated by the Groups.
Upon receipt of the audited balance sheet and income statement
for APRR, we re-performed management’s calculation of
adjustments impacting ALX’s share of net profits or losses and
carrying value of APRR and compared to those calculated by
the Groups.
Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report for the year ended 31 December 2018, but does not include the financial reports and our auditor’s report
thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors' Reports.
We expect the remaining other information to be made available to us after the date of this auditor's report.
Our opinion on the financial reports does not cover the other information and we do not and will not express an opinion
or any form of assurance conclusion thereon.
In connection with our audits of the financial reports, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial reports or our knowledge obtained in
the audits, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s
report, 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.
When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are
required to communicate the matter to the directors and use our professional judgement to determine the appropriate
action to take.
Responsibilities of the directors for the financial reports
The directors of ATLIX and ATLAX are responsible for the preparation of the financial reports that give a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 (as applicable) and for such
internal control as the directors determine is necessary to enable the preparation of the financial reports that give a true
and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the financial reports, the directors are responsible for assessing the ability of the Groups to continue as
going concerns, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Groups or to cease operations, or have no realistic alternative
but to do so.
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Financial Reports for the year ended 31 December 2018
Page 84 of 84
Atlas Arteria International Limited
Atlas Arteria Limited
Auditor’s responsibilities for the audits of the financial reports
Our objectives are to obtain reasonable assurance about whether the financial reports as a whole are 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 the financial reports.
A further description of our responsibilities for the audits of the financial reports is located at the Auditing and Assurance
Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of
our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited ATLIX and ATLAX’s remuneration report included in pages 39 to 55 of the directors’ reports for the
year ended 31 December 2018.
In our opinion, the remuneration report of ATLIX and ATLAX for the year ended 31 December 2018 comply with
section 300A of the Corporations Act 2001 (as applicable).
Responsibilities
The directors of ATLIX and ATLAX are responsible for the preparation and presentation of the remuneration report in
accordance with section 300A of the Corporations Act 2001 (as applicable). Our responsibility is to express an opinion
on the remuneration report, based on our audits conducted in accordance with Australian Auditing Standards.
PricewaterhouseCoopers
SJ Smith
Partner
Sydney
28 February 2019
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2018 Atlas Arteria Annual Report |
Securityholder Information
as at 31 January 2019
Distribution of securities
Investor Ranges
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Investors with less than the minimum marketable parcel1
Twenty largest investors
Investor
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMS (NZ) LTD
DIVERSIFIED UNITED INVESTMENT LIMITED
AUSTRALIAN UNITED INVESTMENT COMPANY LIMITED
SANDHURST TRUSTEES LTD
DJERRIWARRH INVESTMENTS LIMITED
UBS NOMINEES PTY LTD
AMP LIFE LIMITED
INVIA CUSTODIAN PTY LIMITED
BNP PARIBAS NOMS PTY LTD
CUSTODIAL SERVICES LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
MIRRABOOKA INVESTMENTS LIMITED
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Total
Details of substantial stapled securityholders
Holders
11,056
9,187
2,555
1,858
94
24,750
2,465
Total securities % of issued securities
4,169,998
23,347,968
18,386,042
43,039,644
594,321,087
683,264,739
59,124
0.61
3.42
2.69
6.30
86.98
100.00
0.01
Number of securities % of issued securities
271,667,427
124,228,195
60,814,148
53,300,009
24,112,666
8,410,727
6,478,986
4,131,415
4,095,203
3,000,000
2,526,835
2,310,324
1,865,000
1,738,470
1,683,197
1,242,000
1,225,342
1,152,760
1,119,230
950,000
39.76
18.18
8.90
7.80
3.53
1.23
0.95
0.60
0.60
0.44
0.37
0.34
0.27
0.25
0.25
0.18
0.18
0.17
0.16
0.14
576,051,934
84.31
Holder
Lazard Asset Management
Yarra Funds Management
FIL Limited
Deutsche Bank AG
Macquarie Group Limited
Magellan Financial Group Limited
The Vanguard Group, Inc.
Date of most recent substantial holder notice
Number of securities % of issued securities
2 July 2018
4 December 2017
21 September 2018
16 September 2018
31 October 2018
3 October 2018
12 December 2018
74,314,975
44,715,685
40,713,558
38,929,779
36,534,903
34,214,121
34,163,388
11.10%
5.81%
5.96%
5.70%
5.34%
5.01%
5.00%
1. Minimum marketable parcel is $500.00 equating to 76 shares at $6.65 per security.
112
| 2018 Atlas Arteria Annual Report Corporate Directory
Atlas Arteria
Level 7, 50 Martin Place
Sydney NSW 2000
Australia
Telephone (Australia): 1800 621 694
Telephone (International): +61 2 8232 7455
Facsimile: +61 2 8232 4713
Email:
Website: www.atlasarteria.com
alx@macquarie.com
Manager of Atlas Arteria Limited and Adviser to
Atlas Arteria International Limited
Macquarie Fund Advisers Pty Limited
ABN 84 127 735 960
AFS Licence No. 318 123
Atlas Arteria Limited
Level 7, 50 Martin Place
Sydney NSW 2000
Australia
Directors
Nora Scheinkestel (Chairman)
Debra Goodin
David Bartholomew
Jean-Georges Malcor
Secretaries
Lyndal Coates
Christine Williams
Atlas Arteria International Limited
The Belvedere Building
69 Pitts Bay Road Pembroke HM08
Bermuda
Directors
Jeffrey Conyers (Chairman)
James Keyes
Derek Stapley
Christopher Leslie
Nora Scheinkestel
Secretary
Andrew Davidson
Registry
Computershare Investor Services Pty Ltd
GPO Box 2975
Melbourne VIC 3001
Telephone: 1800 267 108 or +61 3 9415 4053
Facsimile: +61 3 9473 2500
Email:
Website: www.computershare.com
web.queries@computershare.com.au
RM #ALX-19001
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2018 Atlas Arteria Annual Report |