More annual reports from Aurizon:
2023 ReportPeers and competitors of Aurizon:
CSXDominic D Smith
SVP & Company Secretary
QR National Limited
ABN 14 146 335 622
Level 17, 175 Eagle St
Brisbane QLD 4000, Australia
GPO Box 456
Brisbane QLD 4001, Australia
T +61 7 3019 1976
F +61 7 3019 2188
companysecretary@qrnational.com.au
23 August 2012
ASX Market Announcements
ASX Limited
20 Bridge Street
Sydney NSW 2000
BY ELECTRONIC LODGEMENT
QR National – Annual Report
Please find attached a copy of QR National’s 2012 Annual Report.
In accordance with the relief from dual lodgment of financial statements under ASIC
Class Order 98/104, the Annual Report will not be lodged separately with ASIC.
Copies of the Annual Report are expected to be dispatched to all shareholders, whom
have elected to receive a copy of the Annual Report, in mid-September 2012.
The Company’s Annual General Meeting will be held at 10:00am (Brisbane time) on 7
November 2012. A copy of the Notice of Annual General Meeting is expected to be sent
to all shareholders in mid-September 2012.
Yours faithfully
QR National
Dominic D Smith
SVP & Company Secretary
SECTION HEADING | QR NATIONAL
1
AnnuAl RepoRt
2011–12
ANNuAL REpORT 2011–12
QR NATIONAL
QR National is Australia’s largest rail freight operator, with more than 145 years’ experience.
Each day, the Company moves on average more than 500,000 tonnes of coal, iron ore and
other minerals, as well as agricultural and general freight, around the nation.
QR National owns and operates a coal network made up of almost 2,670 kilometres of heavy
haul rail infrastructure in Central Queensland. The Company also provides a range of specialist
services in rail design, engineering, construction, management and maintenance, and offers
large-scale supply chain solutions to a diverse range of customers Australia-wide.
QR National has played a critical role in the economic development and growth of the
minerals-rich state of Queensland, providing the transport backbone for one of the world’s
largest coal supply chains. Over recent years, QR National has extended its business focus
beyond Queensland and applied its expertise and capabilities to coal and iron ore opportunities
in New South Wales and Western Australia, as well as intermodal freight across the nation.
QR National’s business comprises three major product lines – Coal, Freight and Network.
The Company’s performance and future growth is linked to the key demand drivers of the
Australian resources sector. As a result, QR National is well placed to benefit from the expected
growth in demand for coal and iron ore, particularly from fast-growing Asian economies such
as China and India.
Our Vision
Grow our People. Grow with our Customers. Grow the Nation.
Our Mission
To be a world-leading transport business, to partner with customers for growth and to double the
value of the Company every five years, while becoming the safest transport company in the world.
Our Employee Promise
To build a diverse, collaborative and creative workplace where people know what they are
accountable to do and can count on having what they need to succeed.
Our Values
Safety — Safety of ourselves and others is our number one priority.
Integrity — We are honest and fair and conduct business with the highest ethical standards.
Leadership, Passion & Courage — We are passionate about leading change. We deliver results
with energy and conviction.
World Class Performance — We deliver world class performance and superior value for our
shareholders, customers and staff.
Contents
Chairman’s Report
Managing Director &
CEO’s Report
Year in Review
Sustainability
4
6
9
Directors’ Report
Remuneration Report
Corporate Governance
Financial Report
14
Shareholder Information
18
24
39
45
94
QR nAtionAl limited | ABn 14 146 335 622
QR NATIONAL
1
Image: QRN Moura Line
QR National’s commitment to achieving
quality results, despite the shortfall
of almost 50 million tonnes of forecast
growth in coal volumes, helped deliver
a 52% improvement in EBIT in FY12.
Coal volumes (mt)
Revenue1 ($m)
EBITDA1 ($m)
EBIT1 ($m)
+2%
198
184 187
182
186
300
240
180
120
60
0
+10%
3,293
3,625
2,973
2,605
2,344
4000
3500
3000
2500
2000
1500
1000
500
0
+25%
840
1,048
716
505
359
1200
1000
800
600
400
200
0
+52%
584
383
289
600
500
400
300
200
100
0
148
41
FY08
FY09 FY10
FY11
FY12
FY08
FY09 FY10
FY11
FY12
FY08
FY09 FY10
FY11
FY12
FY08
FY09 FY10
FY11
FY12
1Underlying revenue, EBITDA and EBIT. Underlying results differ from the Group’s statutory results. Refer reconcilliation to statutory earnings on page 69.
2
ANNuAL REpORT 2011–12
Image: Moura Line – Big Country
Lost Time Injury Frequency Rate
6.14
-22%
3.08
2.40
7.00
5.25
R
F
I
T
L
3.50
1.75
0.00
FY10
FY11
FY12
Total Volumes
4%
262
252
243
300
250
200
a
p
t
M
150
100
50
0
FY10
FY11
FY12
Group Operating Ratio
- 4%
91%
88%
84%
%
100
80
60
40
20
0
FY10
FY11
FY12
Cash Flow from Operations
1000
)
(
A
m
$
800
600
400
200
0
+58%
924
639
585
FY10
FY11
FY12
Safety
22%Reduction
in lost time injuries
Total Volumes
252Million
tonnes hauled
Operating Ratio
4ppt Reduction
in Group operating ratio
Cash Flow
58%Increased
cash inflow
pERfORmANCE HIGHLIGHTS | QR NATIONAL
3
Image: Moura Line – Big Country
Variance
Group Operating Metrics1
FY11
FY12 Variance
Financial Highlights
FY11
($m)
FY12
($m)
Statutory Revenue
3,293
3,634
Statutory EBITDA1
Underlying EBITDA1,2
Statutory EBIT1
Underlying EBIT1,2
Statutory NPAT1,3
Underlying NPAT
Statutory EPS (cps)1
Total Dividends (cps)
679
840
222
383
361
172
15.4
3.7
10%
56%
25%
168%
52%
22%
144%
1,057
1,048
593
584
441
420
18.1
18%
8.3
124%
1 FY11 comparative restated due to a retrospective application of
a voluntary change in accounting policy relating to mechanised
Ballast undercutting.
2 Underlying EBITDA and EBIT in FY12 were adjusted by $8.8m
relating to the reversal of stamp duty. Underlying EBITDA and EBIT
in FY11 were adjusted for one-off IPO related costs and voluntary
redundancy expenses totalling $161.7m.
Revenue / ntk (A$/000 ntk)
55.1
57.7
5%
Labour Costs / Revenue
34% 31% 3 ppt
ntk / employee (MNTK)
6.6
7.0
6%
Opex / ntk (A$/000 ntk)
48.6
48.4
0%
EBITDA Margin
26% 29% 3 ppt
Operating Ratio
88% 84% 4 ppt
ROIC
ntk (bn)
Tonnes (m)
People
4.4% 6.7% 2.3 ppt
59.8
62.9
5%
243.1
252.2
4%
9,001 8,969
0%
3 FY11 statutory NPAT includes $281m tax benefit.
1 The Group Operating Metrics are calculated to underlying results.
Our 146 years’ experience combined with our recent
transformation has made us commercially driven,
customer-focused, efficient and primed for future success.
4
ANNuAL REpORT 2011–12
Chairman’s
Report
QR National has embraced a
strategy to achieve world-class
performance across the business,
with our commitment to customers
at the core of our reforms.
Image: Moura Line
The completion of QR National’s first full financial
year as a listed company is an important milestone
in our 146-year history. The 12 months to 30 June
2012 have been an industrious period for the
Company supporting our customers with rail
transportation services in the coal, bulk and general
freight markets. We have navigated the heightened
volatility of global markets, a tough domestic
economic environment, and diverse operational
challenges to deliver a quality financial result and
achieve significant gains with our major growth
and transformation programs.
Quality Results in Challenging
Conditions
The difficult operating conditions that prevailed
in the months following our transition to publicly-
listed life persisted over the course of 2011–12.
The lingering impacts of Queensland’s record
floods in 2010–11, softer global demand and
industrial action at some Queensland mines have
resulted in lower coal production. These events,
together with some adverse weather impacting
on network availability, contributed to weaker
demand for the Company’s coal haulage services.
It is against this backdrop that our Company
demonstrated the resilience of our business and
the benefits of reform initiatives, with the Company
posting a 22 per cent increase in net profit after
tax to $441 million. Underlying1 Earnings Before
Interest and Tax (EBIT) was $584 million, a
52 per cent increase over the prior year, and
earned on revenues of $3.6 billion.
On the strength of these results, at year end the
QR National Board declared a final dividend of
4.6 cents per share, giving a full-year dividend
of 8.3 cents per share. This represents an increase
of 4.6 cents, or 124 per cent over the prior year.
While there has been significant market volatility
in global equity markets since the unfolding of
the European debt crisis, QR National’s Total
Shareholder Returns for the year outperformed
the S&P/ASX 200 index by 8.8 per cent.
QR National’s financial performance for the
2011–12 year is set out in detail in the latter
half of this report on pages 45 to 93.
1 Underlying results differ from the Group’s statutory
results. Refer reconciliation to statutory earnings on
page 69.
CHAIRmAN’S REpORT | QR NATIONAL
5
Growth and Transformation
The transformation of QR National gathered pace
in 2011–12. The Company embraced a strategy
to achieve world-class performance across the
business with our commitment to customers at
the core of our reforms. A new functional structure
took effect during the year, removing operational
silos, driving cost efficiencies and better positioning
the Company to tackle legacy issues associated
with our long history of Government ownership.
As part of this process, in June, the Company
proposed a range of reforms including a second
round of voluntary redundancies. We recognise
that in the current challenging environment it is
more important than ever to lower the Company’s
cost base and to match capacity with demand.
During the year we continued to invest heavily
in new rail infrastructure collaborating with our
customers on future supply chain solutions for
the Australian resources sector. QR National has
growth projects underway which will deliver
a one-third increase in the capacity of our Central
Queensland Coal Network by 2015. The Company
is also planning for growth beyond this timeframe
and recently received the support of the
Queensland Government for new rail expansions
to realise the vast export potential of the Bowen
and Galilee Basins.
In Western Australia’s rich iron ore province of
the Pilbara, the Company is pursuing strategic
opportunities that leverage our capability to build
and operate multi-user railways. Details of our
progress on these major growth projects can be
found on pages 12–13 of this Annual Report.
Safety and Sustainability
As always, safety is QR National’s first priority.
Providing a safe environment for our stakeholders,
particularly our employees around Australia, is
our most important responsibility. In 2011–12
we were heartened by improving trends across
our key safety metrics, particularly as we view
these improvements as a barometer of the
changing culture within the Company. However,
I speak for both the Board and executive team
when I reiterate that QR National will never be
satisfied with anything less than ZEROHARM,
which means no injuries to anyone, ever.
As QR National grows and builds value as a listed
entity operating sustainably will continue to be
at the heart of our approach to doing business.
We operate in all mainland states of Australia
and our employees live and work in local
communities. The Company recognises our clear
duty to employees, customers, communities and
shareholders to be a responsible corporate citizen.
In April, Mrs Karen Field and Mr John Cooper were
appointed to the Board of Directors. Karen and
John bring additional diversity and broad industry
knowledge in mining, construction and engineering
and human resources management. Their
appointments have strengthened the QR National
Board and I am confident the Company will benefit
from their astute counsel over the coming periods.
Our commitments and progress in the areas of
safety, people, environment and community are
discussed in detail on pages 14–17 of this report.
Government Holding
Following QR National’s privatisation and listing
on the Australian Securities Exchange (ASX) in
late 2010 the Queensland Government retained
an interest of approximately 34 per cent in the
Company. The Government of the day entered
into an escrow arrangement with QR National for
its retained shareholding until the release of the
Company’s 2011–12 financial results. The new
Queensland Government has indicated it does
not intend to remain a long-term shareholder
in QR National, however the nature and timing
of any sell-down is ultimately a matter for them
to determine. QR National takes an active role
in managing of the Company’s balance sheet
and will aim to work with the Government to
facilitate an outcome in the best interests of
all shareholders.
Board Composition
As Chairman of QR National I am grateful to
work with Company Directors of the highest
calibre. During 2011–12 we welcomed two
new Directors to the QR National Board but
also farewelled two of our esteemed colleagues.
In October we were deeply saddened by the
passing of fellow Director Mr Peter Kenny. Peter
was a highly valued member of our Board and a
distinguished figure in Queensland’s rural sector.
He will be greatly missed.
Mr Allan Davies resigned from the Board during
the year due to the pressure of other professional
commitments. Both Peter and Allan were
foundation Directors of the Company, joining at its
incorporation in 2010. The Board places on record
its gratitude for the significant contribution made
by Peter and Allan to the Company’s achievements
and its successful transition from Government-
owned corporation to publicly-listed company.
Outlook
Entering 2012–13 the Company remains positive
in its outlook. Short-term global economic
uncertainties have not changed the medium to
long-term outlook for the markets we serve. Further
growth opportunities are expected for resource-
related Australian companies in the Asian century
and QR National is primed to benefit with our
leverage to this sector. The Company’s balance
sheet is strong and we have a well developed
pipeline of growth projects to execute in the
coming years. We will also continue to extract value
by transforming the Company into a commercially
driven, customer-focused and highly efficient
rail operator.
Acknowledgements
The transformation and revitalisation of
QR National is taking shape with remarkable
clarity. I would like to thank all QR National
employees for their efforts and contributions
to the widespread change that is underway.
Also my appreciation goes to the executive
team competently led by Managing Director
& CEO Lance Hockridge for the great strides
taken over the past 12 months.
We also owe our success to date to the support
of our shareholders. On behalf of the Board, I
thank you for taking this journey with QR National.
Be assured we will continue to target superior
returns for shareholders in 2012–13 and the years
which follow.
I look forward to welcoming you at the Company’s
AGM on Wednesday 7 November 2012 at the
Brisbane Convention and Exhibition Centre.
John B Prescott AC
Chairman
6
ANNuAL REpORT 2011–12
Managing
Director &
CEO’s Report
In 2012, the Company delivered
on all of its major commitments,
including project delivery and
safety performance.
Since the privatisation and ASX listing of
QR National the Company has generated
strong momentum with its strategic growth
and transformation program. Over the past
12 months we have executed our strategy
and examined every aspect of the business to
determine how and where we can improve the
Company’s future performance. It has been
a huge body of work, culminating in a major
corporate restructure that is in the midst of
implementation.
As outlined to shareholders in last year’s Annual
Report our efforts have concentrated on five key
strategic drivers:
1. Achieving excellence in customer service
2. Establishing an accountable, performance-
based culture
3. Improving asset utilisation and return
on capital
4. Leveraging and expanding our leadership
position in coal
5. Pursuing opportunities for growth and
diversification.
These imperatives continue to form the
fundamental platform from which we are
growing and transforming Australia’s largest rail
freight business. Indeed, this strategy has served
QR National well in a very complex and challenging
operating environment during 2011–12 with the
Company delivering a strong increase in underlying
earnings despite significantly weaker coal
tonnages. Importantly, the Company delivered
on all of its major commitments, including project
delivery and safety performance.
Image: Port of Brisbane
mANAGING DIRECTOR & CEO’S REpORT | QR NATIONAL
7
Financial Results
Weaker demand due to a delayed recovery from
Queensland’s floods in the year prior and industrial
action at a key customer’s operations contributed to
a 47 million tonne reduction in coal haulage volumes
for the year compared to initial expectations.
However, the impact of lower tonnages was largely
offset by the benefits of greater revenue quality and
the achievement of cost efficiencies delivered by
the Company’s transformation program, leading to
improved margins.
Underlying1 Earnings Before Interest and Tax
(EBIT) for the year was $584 million, up 52 per cent
(FY112: $383 million).
Statutory revenue rose to $3.6 billion for the
reporting period to 30 June 2012, a 10 per cent
increase over the prior year (FY11: $3.3 billion).
The combination of revenue growth with cost
reduction and reform initiatives contributed to a
25 per cent improvement in underlying1 Earnings
Before Interest, Tax, Depreciation and Amortisation
(EBITDA) to $1,048 million (FY112: $840 million).
Total assets were $10.0 billion, and earnings
per share was 18.1 cents. We continued to generate
strong cash flows to fund our major growth projects,
with capital expenditure totalling $1.2 billion for the
year. The Company’s net debt position as at 30 June
2012 was $1.1 billion, reflecting a net gearing ratio
of 13 per cent.
The quality of these results in challenging
economic conditions, both in Australia and abroad,
highlights the solid operating fundamentals
of QR National, as well as the potential for the
Company to add value through its comprehensive
growth and transformation program.
Operational Performance
During the first half of 2011–12, coal tonnages
were gradually recovering from the impacts of
Queensland’s natural disasters in the prior year.
However, customer tonnages remained volatile
in the second half of 2011–12 with QR National
having significant track and haulage capacity for
further volume increases. This was due to several
factors including the ongoing industrial action at
BHP Mitsubishi Alliance’s (BMA) Queensland mines,
lower than anticipated customer demand for coal
rail transport and wet weather which led to the
temporary closure of several of our coal systems.
Coal tonnages were flat in Queensland compared
to the prior year, but up 15 per cent in New South
Wales reflecting our progress in that market. This
resulted in a net 2 per cent improvement
in coal volumes to 186 million tonnes compared
to 2010–11.
Stronger bulk, general and intermodal freight
volumes of 67 million tonnes compared to
62 million tonnes in the prior year contributed
to an improved result for our freight business.
In the Western Australian iron ore market, the
Company continued to make solid progress,
with the business doubling iron ore EBIT over
the prior year and progressing to schedule its
plans to achieve 30 million tonnes per annum
in haulage by 2013–14.
Safety
QR National’s journey towards becoming world
class in safety progressed in 2011–12. Already,
the Company stands among Australia’s leaders
in rail safety. Over recent years, the Company
has implemented a range of safety, health
and behavioural change campaigns targeting
ZEROHARM, injury prevention, road safety and
workplace health and safety. These cultural change
projects have driven a steady decline in the Lost
Time Injury Frequency Rate (LTIFR), which reduced
by 22 per cent to 2.40 recordable injuries per million
hours in 2011–12. However, every injury is one too
many and in the coming year we will continue the
very important work of cementing
the ZEROHARM philosophy as a way of life for all
our people.
Transformation
In December QR National transitioned to a new
functional organisational structure, similar to
that of the Class 1 railroads of North America.
These rail companies are the global leaders across
a range of metrics and performance measures
including customer service and shareholder returns
and we are drawing much inspiration from their
performance and success.
The Company’s restructure has been designed
to accelerate our transformation and put the
customer at the front and centre of all we do.
In June, the next phase of this restructure was
announced with a range of company-wide
proposals targeting greater productivity and
lower costs. These centre on the reduction
of management and supervisory levels, the
rationalisation of back-office support functions
and non-core business activity and the
consolidation of the Company’s operations
and commercial functions.
We acknowledge these are difficult reforms for
many of our employees and we have taken a
sensible and constructive approach during the
consultation and implementation phases. Board
and management however remain convinced
on the imperative for change that will underpin
a competitive, strong future for the Company.
QR National’s operating ratio, which sat at
approximately 84 per cent in 2011–12 is too high
when compared to our competitors and global rail
industry peers. The Company has set an operating
ratio target of 75 per cent to be achieved by 2015.
With implementation of transformation and
growth initiatives and continued tight operational
and financial discipline we are focused on delivering
on this target.
Growth
QR National strengthened its medium to
long term position during the year through the
advancement of growth opportunities in the
target markets of Queensland, Western Australia
and New South Wales. The Company has a
unique value proposition to offer existing and
new customers in the resources sector, premised
on four key capabilities:
1. Our rail infrastructure construction and
maintenance expertise
2. Our heavy haulage expertise honed over
decades of export coal operations in
Queensland
3. Our track record in successfully operating
multi-user resource railways
4. Our proven ability to provide an integrated and
scalable transport solution from mine to port.
QR National is midway through a program that
is injecting another 71 million tonnes per annum
of capacity into the Central Queensland Coal
Network, lifting total system capacity to more
than 300 million tonnes per annum by 2015.
Two of Australia’s largest rail expansions will
contribute the bulk of this capacity, the Wiggins
Island Rail Project (WIRP) and the Goonyella to
Abbot Point Expansion (GAPE). Both of these major
capital projects reached pivotal milestones during
2011–12, with the WIRP beginning construction
early this year and the $1.1 billion GAPE project
starting services ahead of schedule and on budget
for our customers in December.
1 Underlying results differ from the Group’s statutory results. Refer reconcilliation to statutory earnings on page 69.
2 Restated due to a retrospective application of a voluntary change in accounting policy relating to mechanised Ballast undercutting, as explained in note 1(q) on page 56.
8
ANNuAL REpORT 2011–12
Managing Director
& CEO’s Report (continued)
Beyond WIRP and GAPE QR National is progressing
an expansion of our existing rail system in Central
Queensland to facilitate the ongoing development
of the Bowen and Galilee Basins. In June, we
announced we are committing to the next stage of
the planned expansion of the Goonyella/Newlands
corridors by at least 25 million tonnes per annum,
to 75 million tonnes per annum, by duplicating
sections of GAPE.
The Company is also advancing work for the
emerging Galilee Basin following the Queensland
Government’s decision in June to nominate
a west-east common corridor for the Galilee,
connecting with QR National’s Central Queensland
coal network.
In Western Australia, the Pilbara iron ore region
offers one of the Company’s most outstanding
growth prospects. We are investigating an
independent, multi-party railway to connect iron
ore mines in the East Pilbara to Port Hedland.
There is considerable work ahead to demonstrate
the technical and commercial merits of such a
project, however, its success would be of major
strategic significance to QR National, delivering
a step change in our national footprint and the
diversification of our business.
Acknowledgments
The Company’s transition to a new structure
in 2011–12 has been smooth, with business
continuity maintained throughout and for this
I am greatly in debt to my leadership team and
our motivated, professional employees. It is to
their credit that QR National rose to the challenges
presented during the year and delivered a solid
financial performance.
As always, we are grateful to QR National’s
highly valued customers for their business and
trust in 2011–12. Across the Company, we are
more determined than ever to meet and exceed
our customers’ expectations in all that we do.
Finally, on behalf of all of the employees at
QR National, I would like to express our gratitude
to our shareholders for your continued strong
support of the Company and the strategic direction
we are pursuing to bring you value in 2012–13
and beyond.
Lance Hockridge
Managing Director & Chief Executive Officer
It is through these projects and others which
are outlined on pages 12–13 of this Annual Report,
that QR National has set an exciting course for
our future growth, extending the Company’s
geographic reach to open new markets for
our customers and to generate strong financial
returns for our shareholders.
Outlook
The past year has shown the real value of the
transformation underway at QR National and
gives us good reason to be confident about the
future. In the near-term, given the context
of uncertain global economic conditions, we
are expecting a continuation of softer coal
demand in Queensland. The Company has
provided guidance for coal volumes in the range
of 195 to 205 million tonnes for 2012–13,
which is dependent on minimal disruptions
and no adverse shocks to the global economy.
Looking forward to the medium-term, however,
we remain optimistic about the outlook for the
markets we serve. We expect a more cautious
and rigorous approach to investment decisions,
but the fundamentals underpinning resource
growth remain unchanged. The strong demand
for resources from growth economies, such as
India and China, will continue to bring
opportunities for companies like QR National.
From a company perspective, QR National is
strongly positioned for the future. We have a
strong balance sheet and a program of solid
growth opportunities set to expand the scale
and diversity of our business. Undoubtedly,
we will continue to face difficult decisions to
ensure the continuing competitiveness of our
company, but I believe with consistent and
focused execution, QR National’s growth and
transformation strategy will deliver further
performance improvements.
Image: GAPE Track Duplication Kaile to Durroburra
section – Nigel Green, Robert Merrel (contractor)
YEAR IN REVIEW | QR NATIONAL
9
Image: GAPE Leichhardt Yard, Northern Missing
Link Project – ballast train – Martin Mills
Year in
Review
Whether it is through
our coal and freight
transport operations
or the extensive rail
network we maintain
and operate, QR National
is moving a nation.
Our coal business is one of the largest rail transporters of coal
anywhere in the world. We are the integral link between mine
and port for coal producers at more than 50 mine sites, spread
across Australia’s six major coal chain systems. Having been a
part of the coal industry since the beginning of the modern coal
era we understand our customers’ needs.
Operating primarily in Queensland and Western Australia our
extensive freight business transports more than 60 million tonnes
per annum. This includes bulk minerals and commodities like
iron ore, agricultural products, mining and industrial inputs and
general and containerised freight.
We also operate and manage the Central Queensland Coal
Network (CQCN). The open access rail network is the largest coal
rail network in Australia and one of the country’s most complex
rail freight networks with more than 100 trains running on the
2,670 kilometre network every day.
10
ANNuAL REpORT 2011–12
Year in Review
(continued)
COAL
300
250
200
150
100
50
0
Business Summary
QR National’s coal business is one of the world’s
largest rail transporters of coal from mine to port
for export markets, hauling an average 500,000
tonnes a day. Servicing the majority of Australia’s
coal producers across more than 50 mine sites,
QR National operates in each of Australia’s six
major coal chain systems: the Newlands, Goonyella,
Blackwater, Moura and West Moreton systems in
Queensland and the Hunter Valley coal system in
New South Wales.
QR National has offered rail solutions to the coal
industry since the start of the modern coal era in
the 1960s. As the world’s appetite for Australian
coal grows QR National continues to be a major
player and innovator in the coal industry. The
Company plays a leadership role in driving supply
chain improvements, working collaboratively with
supply chain partners and customers.
Performance Overview
A range of negative factors translated into weaker
than expected haulage volumes of 186 million
tonnes for 2011–12. These factors included softer
global coal demand, a slower than anticipated
ramp-up of mine production following the 2010–11
Queensland floods and prolonged industrial
disputes at some mines.
While Queensland coal tonnages were flat on
the prior comparable period this was balanced
by a 15 per cent increase in New South Wales
coal volumes, for a net 2 per cent improvement
compared to 2010–11 to 182 million tonnes.
Despite weaker volumes higher revenue rates
increased 2011–12 revenue by 8 per cent to
$1,828 million and revenue per net tonne kilometre
(ntk) by 5 per cent. Underlying3 EBIT increased
by 62 per cent, or $98 million, to $257 million,
due to stronger above rail revenue rates, receipt
of contract performance payments, reduced
labour costs and reduced maintenance costs.
The ntk improvement was achieved through
improved revenue quality due to the ongoing
introduction of new performance-based contracts
which deliver higher returns and growth in margins.
The continuing renegotiation of legacy contracts
was progressed during 2011–12 with coal volumes
under new form contracts now at approximately
38 per cent. These new contracts provide
customers with greater certainty and flexibility
to meet unexpected increases in volume in
return for more favourable revenue protection
arrangements in the form of capacity charges.
Coal – Key Financials and Metrics
FY11
FY12 VARIANCE
Tonnages
(million)
181.6
185.6
ntk (billion)
40.9
41.9
Revenue ($m)
1,691
1,828
EBITDA ($m)
369
441
Margin %
EBIT ($m)
Margin %
Capital
Expenditure1 ($m)
Revenue / NTK
(A$/000 NTK)
Opex / NTK
(A$/000 NTK)
22% 24%
159
257
9% 14%
451
123
– 73%
41.4
43.6
5%
37.5
37.5
Operating Ratio
91% 86%
1 Excludes capitalised interest
2%
2%
8%
20%
2 ppt
62%
5 ppt
0%
5 ppt
NETWORK SERVICES
Network Services – Underlying3 EBIT
$294.3M
$301.0M
350
300
250
200
150
100
50
0
2 Restated due to a retrospective application of a voluntary
change in accounting policy relating to mechanised
Ballast undercutting as explained in note 1(q) on page 56.
Business Summary
QR Network operates and manages the Central
Queensland Coal Network, which is the largest
export coal rail network in Australia and comprises
the major coal systems in Queensland’s Bowen
Basin. This 2,670 kilometre track network comprises
four major coal systems: Moura, Blackwater,
Goonyella and Newlands.
Performance Overview
Lower coal tonnages from the lingering impacts
of the 2011 floods on mine production combined
with lower production at Queensland coal mines
as a result of softer global demand and industrial
action at some mines led to flat railings across
the network of 167 million tonnes, up 2 per cent
from 164 million tonnes in 2010–11. Though
tonnages were flat, access revenue increased due
to the combination of Goonyella to Abbot Point
Expansion (GAPE) revenue at commercial returns
commencing in January 2012 and tariffs being set
at a lower forecast tonnage level.
3 Underlying results differ from the Group’s statutory results. Refer reconciliation to statutory earnings on page 69.
$257.0M$158.8MFY12FY11FY10$224.2MCoal – Underlying3 EBIT$341.4MFY12FY112FY102 YEAR IN REVIEW | QR NATIONAL
11
Image: Pring facility – Sam Merrypor
Capital expenditure grew from $196 million to
$332 million to support iron ore growth projects
which is expected to result in iron ore tonnages
tripling between 2010 and 2014.
Freight – Key Financials and Metrics
FY11
FY12 VARIANCE
Tonnages
(million)
ntk (billion)
61.5
19.0
66.6
21.0
Revenue ($m)
1,277
1,524
8%
11%
19%
94%
4 ppt
226%
5 ppt
89
7%
31
2%
173
11%
100
7%
196
332
69%
67.3
72.6
8%
65.7
98%
67.8
93%
3%
5 ppt
EBITDA ($m)
Margin %
EBIT ($m)
Margin %
Capital
Expenditure1 ($m)
Revenue / NTK
(A$/000 NTK)
Opex/ NTK
(A$/000 NTK)
Operating Ratio
1 Excludes capitalised interest
Network Services contributed full year revenue
of $1,210 million and underlying3 EBIT of
$341 million, up on the prior comparable period
by 3 per cent and 13 per cent respectively.
Work continued on a number of strategic growth
projects to position the Company to capture
the forecasted increase in coal production over
coming years with capital expenditure for the
year totalling $663 million. During the year, the
Company delivered the $1.1 billion GAPE project,
the largest single growth project on the Central
Queensland Coal Network. Construction also
began on the Wiggins Island Rail Project. Further
details about QR National’s growth projects in the
Network business are contained on pages 12–13
of this Annual Report.
Network Services – Key Financials
and Metrics
FY112
FY12 VARIANCE
FREIGHT
Freight – Underlying3 EBIT
120
100
80
60
40
20
0
$30.6M
FY10
FY12
2%
3%
3%
13%
5 ppt
13%
2 ppt
4%
4%
0%
3 ppt
Tonnages
(million)
164.0
166.7
ntk (billion)
40.0
41.2
Revenue ($m)
1,180
1,210
EBITDA ($m)
466
527
Margin %
EBIT ($m)
Margin %
Capital
Expenditure1 ($m)
Access Revenue
/ NTK (A$/000
NTK)
Maintenance $
/ ’000 NTK
NTK / Track km
(000’s)
39% 44%
301
341
26% 28%
683
663
– 3%
17.4
18.1
2.5
2.6
17,558
17,518
Operating Ratio
75% 72%
1 Excludes capitalised interest
2 Restated due to a retrospective application of a voluntary
change in accounting policy relating to mechanised
Ballast undercutting as explained in note 1(q) on page 56.
Business Summary
QR National’s freight business transports more
than 60 million tonnes per annum of bulk minerals
and commodities including iron ore, agricultural
products, mining and industrial inputs and general
and containerised freight.
$(95.8)M
The bulk business operates primarily in Queensland
and Western Australia providing transport services
to the mining sector and a range of companies
marketing chemical, industrial and agricultural
products. QR National is Australia’s largest iron ore
haulier outside of Western Australia’s Pilbara region.
The intermodal business offers containerised rail
freight and road haulage services nationally from
Cairns through to Perth. It includes a network of
freight terminals and distribution centres located
near major transport hubs and warehouses and
storage facilities across five states.
Performance Overview
Total revenue in the Freight business grew
19 per cent in 2011–12, or $247 million, to
$1,524 million, over the prior year. Underlying3
EBIT grew by 226 per cent, or $69 million, to
$100 million.
This result included sustained growth from
the national bulk business, iron ore in Western
Australia and the intermodal business together
with the ongoing Transport Services Contract
with the Queensland Government for the provision
of general freight and livestock services to
Queensland customers.
3 Underlying results differ from the Group’s statutory results. Refer reconciliation to statutory earnings on page 69.
$99.9MFY11
12
ANNuAL REpORT 2011–12
Growth
QR National has a broad portfolio
of capital projects that will help
create long term growth for the
Company and our valued customers.
These initiatives, which are at
various stages of investigation and
development and across our major
product lines, are set out in the
following pages.
Image: GAPE – First Train on Northern “Missing” Link
Goonyella to Abbot Point Expansion
QR National unveiled a new transport link for
the Queensland coal industry in December 2011,
opening the $1.1 billion Goonyella to Abbot Point
Expansion project (GAPE) in the northern Bowen
Basin coalfields. Construction of the 69-kilometre
Northern “Missing” Link was the central component
of the GAPE project, coupled with major upgrades
to the existing Newlands and Goonyella coal
systems. The GAPE project enables up to 50 million
tonnes of coal a year to be railed to the upgraded
Abbot Point Coal Terminal which is more than
double the present capacity and provides the
platform for potential future expansions of
200 million tonnes and more. Despite the
challenges of Queensland’s extraordinary wet
weather in 2010–11, the GAPE project was
commissioned a month ahead of schedule, with
final associated works completed by year end.
It demonstrated the Company’s strong capability
to build major rail infrastructure, aligned to customer
and market demand, on time and budget.
Wiggins Island Rail Project
In September 2011, QR National signed an
agreement with a consortium of coal companies
to construct the $900 million Wiggins Island Rail
Project to service the new Wiggins Island Coal
Export Terminal (WICET) at the Port of Gladstone.
The project will support the initial 27 million tonnes
per annum of coal to WICET and leverage
QR National’s existing rail infrastructure to boost
coal exports from the southern end of the Bowen
Basin by 30 per cent. Construction began in March
2012 with timeframes aligned to the coal export
terminal and the development of related mining
projects. First railings are scheduled for mid-2014
with overall project completion by March 2015.
The Wiggins Island Rail Project is QR National’s
first major rail infrastructure investment since the
Company was listed.
Blackwater Electrification
The $195 million Blackwater Power Strengthening
Project is scheduled for completion in the first
quarter of 2012–13. The project will nearly double
the electrical capacity on the Blackwater rail
system in Central Queensland which connects coal
mines west of Rockhampton (in the south Bowen
Basin) to the export terminals at Gladstone. The
project involves the expansion of the Blackwater
electric traction system, including four electrical
feeder stations and associated infrastructure at
Bluff, Wycarbah, Duaringa and Raglan, between
Blackwater and Mount Larcom. The project, which
is the largest electrical upgrade since the initial
electrification of the network in the 1980s, provides
coal customers with greater flexibility for rail
haulage on the Blackwater rail system.
GROWTH | QR NATIONAL
13
Goonyella System Expansion
QR National continues to progress a $185 million
expansion to increase the Goonyella system
capacity from 129 to 140 million tonnes per annum.
This is supporting a project by BHP Billiton
Mitsubishi Alliance (BMA) to lift the capacity
at Hay Point Coal Terminal, near Mackay in
Queensland. Delivery of the capital project will be
aligned to the port expansion that is due to come
on line in early 2014. The project includes an
electricity feeder station as well as track duplication.
Surat Basin Railway
QR National is a one third joint-venture partner in
the Surat Basin Railway, with the ATEC Rail Group
and Xstrata Coal. The proposed Surat Basin Rail
includes a new 210 kilometre rail corridor from
Wandoan to the Moura system near Banana,
130 kilometres west of Gladstone. The Surat Basin
Railway will align with the second stage of the
development of the Wiggins Island Coal Export
Terminal. Pending the necessary approvals, Surat
Basin Rail is working toward a final investment
decision on the project in 2013 with construction
to follow thereafter. QR National is also progressing
feasibility and design work on a capacity increase
for the Moura line that will connect with the Surat
Basin Railway.
Bowen and Galilee Basin Expansion
In January 2012, QR National’s Central
Queensland Integrated Rail Project (CQIRP) was
declared a “significant project” by the Queensland
Co-ordinator General. Subsequently the Company
welcomed an announcement by the Queensland
Government in June to facilitate development of
the Bowen and Galilee Basins via an expansion of
QR National’s existing rail system. The project is
focused on delivering an innovative supply chain
solution for Queensland’s coal sector comprising
both above and below rail. The first stage includes
QR National’s commitment to expand the current
capacity on the Goonyella/Newlands corridors by
at least 25 million tonnes per annum.
QR National is also progressing a proposal for the
staged development of a west to east common
corridor and supporting north-south connections,
connecting new Galilee mines to the existing
coal network near North Goonyella mine. These
expansions will be undertaken in consultation
with customers to ensure alignment with their
development plans and to support growth of the
Queensland resources sector. The Company is
working closely with customers on their preferred
solution and recently signed with miners Vale and
Adani to explore rail solutions for their new mines
in both the Galilee and Bowen Basins.
Expansions of the existing coal chain offers
producers efficient, cost effective rail solutions
to support the development of new resources
in a competitive global coal market, while also
minimising impact on the environment and
regional and rural communities. The Central
Queensland coal network represents a unique
and highly valued asset which the Company
aims to continue to grow for the benefit of our
customers and for the sustainability of the coal
industry in Queensland.
Hexham Train Maintenance Facility
Since commencing operations in the Hunter
Valley coal region in 2005, QR National has
secured significant market share. As the business
expands the Company continues to make
significant investments to support future growth
with $385 million committed between FY10–FY12
in 19 new 5020-class locomotives, 800 wagons
and supporting infrastructure.
During 2011–12, QR National signalled its
long term commitment to the Hunter Valley by
announcing plans for a modern train support
facility at Hexham, near the Port of Newcastle.
The 255 hectare project site at Hexham is a
strategic parcel of industrial land that QR National
has owned since 2008. At an estimated capital cost
of $100 million the proposed Hexham facility will
support the Company’s growing New South Wales
coal haulage business and help alleviate capacity
pressures in the Hunter Valley coal supply chain.
QR National plans to redevelop approximately
30 hectares of the site for the facility. The balance
of the land will be environmental reserve and
available for future use. The detailed design phase
has begun and depending on government planning
approvals and consultation with stakeholders
QR National plans to have the facility operational
by mid 2014.
Iron Ore haulage growth
QR National is the fastest growing haulier of
iron ore outside the Pilbara. The Company has
positioned itself for involvement in the expanding
iron ore haulage markets in Western Australia and
has invested heavily in new facilities, rollingstock
and people to grow the iron ore business. With
cornerstone customers – Cliffs Natural Resources,
Karara Mining Limited, Mt Gibson Iron and Mineral
Resources – the Company is on track to triple the
size of the iron ore haulage business to 30 million
tonnes per annum by 2014.
Independent Pilbara Railway
QR National’s unique heavy haulage railway
capability and expertise in building and operating
multi-user railways, presents a niche opportunity
in the Western Australian iron ore market which is
currently dominated by single-company railways.
The Company is evaluating the development of
a standard gauge, multi-party railway to connect
iron ore mines in the East Pilbara to Port Hedland.
The value of an independent railway is that
economies of scale can be achieved by aggregating
the tonnages of multiple parties, as well as
delivering efficiency gains across a co-ordinated
supply chain. The current use of road haulage is not
sustainable or efficient for large scale tonnages.
The Company is working with Atlas Iron and
Brockman Resources to jointly study a proposal to
service iron ore deposits of Atlas, Brockman and
other miners in the first stage of the proposed
infrastructure development. The railway would be
developed on the basis of miners connecting and
accessing the railway through staged development.
The study is expected to be completed by the end
of 2012. Any developed proposal would be subject
to further agreement between each company
and the approvals and investment hurdles of their
respective Boards, however, commencement of
operations for the initial stages could commence
in 2015.
Moorebank
During 2011–12, QR National exercised its
pre-emptive rights to acquire additional equity
in the Moorebank Industrial Property Trust (MIPT)
for $41 million taking the Company’s stake in
the site to 33 per cent. Qube Logistics holds the
remaining 67 per cent. The Moorebank site is a
key strategic development for Sydney land based
logistics and a critical component in the growth of
Australia’s intermodal freight sector. QR National
acquired its original stake in Moorebank in 2007
because of its strategic value for future land based
freight logistics. The 83 hectare site requires
redevelopment to accommodate a multi-user open
access intermodal rail facility with a capacity of
up to one million containers per year and enabling
rail links to the interstate network and to Port
Botany. The development proposal for the site
is significantly advanced and an environmental
assessment (EA) of the concept plan for the
project has been recently lodged with New South
Wales planning authorities. Subject to approvals
by the Federal Government and the NSW
Government and agreement with the current tenant
of the property, the Department of Defence, the
Moorebank site development could be completed
during 2014.
14
ANNuAL REpORT 2011–12
Sustainability
QR National’s operations are
underpinned by our commitment to
economically viable, environmentally
sound and socially responsible
performance. Our approach seeks to
minimise risk to the environment
while contributing to the economic
growth and development of the
communities in which we operate.
Image: Graduates Renee Johnson, Darnah Egert, Tony Cao
SAFETy
At QR National, the safety of our employees,
our customers and the communities in which we
operate is our number one priority. Our safety goal
of ZEROHARM means no injuries to anyone, ever.
QR National has a comprehensive approach to
safety and risk management, which includes
targeted internal initiatives to improve safety
culture and to establish robust safety systems
and behaviours among the workforce.
Our aim is to become world class in safety, and
the Company is already among Australia’s leaders
in rail safety. This steadfast commitment to
safety is also the basis of our drive for continuous
improvement across the Company.
QR National’s Central Safety Committee, which
includes the Managing Director & CEO, his
direct reports and other senior executives, is
tasked with leading, reviewing and directing the
implementation of all safety programs. Its core
function is to promote and advance safety at
QR National.
QR National has sought to embed our safety
culture in the mindset of every employee and to
prioritise ZEROHARM as a way of life. During the
year, we implemented a range of safety, health
and behavioural change campaigns targeting
ZEROHARM, injury prevention, road safety, and
workplace health and safety.
In February 2012, QR National announced a
long-term sponsorship with the Heart Foundation.
This partnership is a key part of our commitment
to the health and well-being of our employees.
The Heart Foundation program promotes a healthy
lifestyle and the importance of early detection
of stroke to our employees and their families.
Throughout the year, the Company continued
to build on the safety focused Communities
of Competence program. Communities of
Competence provides a collaborative, co-ordinated
and best-practice approach to targeting critical
safety areas for the Company, including Trackside
Safety, Road Safety, Isolation and Lockout, Fitness
for Work, Derailments, Signals Passed At Danger,
and Peer Review.
These safety based cultural change programs
have delivered significant improvement in our
safety performance over the past few years,
in particular, a decline in our Lost Time Injury
Frequency Rate (LTIFR). Since June 2009, QR
National has achieved a 79 per cent reduction on
our LTIFR from 11.43 to 2.40 as at 30 June 2012.
Rail safety in the community is an important
area of focus for QR National. We are an
active participant in the Australasian Railway
Association’s TrackSAFE Foundation, which is
working to reduce incidents on rail networks.
Our Company also implemented several targeted
rail safety programs in the communities in which
we operate over the past year.
Between February and June 2012 QR National
worked collaboratively with Queensland Rail
on a community based rail safety program in
Central Queensland. The campaign targeted local
schools, transport operators, local businesses and
community groups to promote rail safety. In May
2012 we also launched a campaign targeted at
transport operators in Queensland to promote
electrical safety on the rail network, in conjunction
with the Department of Transport and Main Roads.
QR National is in the process of investing
$15 million to upgrade level crossings with
boom gates and/or flashing lights on the Central
Queensland Coal Network. We are also contributing
$10 million to build a rail overpass at Gracemere
(near Rockhampton). When complete in early
2013 two level crossings in Queensland on the
Blackwater line at Somerset Road and Malchi-Nine
Mile Road will be permanently closed.
In New South Wales, as part of the Company’s
three-year sponsorship of the Newcastle Knights,
the Company launched a rail safety education
program in March. Hundreds of school children in
the Hunter region will learn about the dangers of
rail level crossings and trespassing over the next
three years through the program.
Road safety is a critical issue, both inside and
outside of work, for our employees. In September
2011, QR National launched a company wide
campaign to encourage employees (and their
families and friends) to be safe on the roads.
The ‘Thanks Mate’ campaign acknowledges
that most people drive and ride safely and it
aims to reinforce this positive behaviour.
A range of road safety topics which
have been addressed through the campaign over
the past 12 months are key contributors to the
Australian road toll including speeding, drink
driving, fatigue, not wearing a seatbelt, distractions,
pedestrian and cycle safety, motorcycle safety,
and driving to the conditions.
SuSTAINAbILITY | QR NATIONAL
15
For more information on QR National’s Values,
please refer to the Corporate Governance
Statement on page 39 of this Annual Report.
The Code is available on the Company’s website
at www.qrnational.com.au/Corporate/Pages/
Governance.aspx
Diversity
QR National recognises the social and commercial
value of a diverse workforce that is representative
of Australian society. The Company continues its
efforts to build a stronger female workforce in a
traditionally male dominated industry, recognising
that such diversity will produce more innovative
outcomes for our stakeholders.
QR National’s Diversity Council and its leadership
team have been tasked with ensuring frontline
leaders in our workforce strive for diverse teams.
The number of female employees has increased
by six percent in 2011–12. Across the workforce
12.3 per cent of employees are female. The
Diversity Council has an explicit focus on gender
diversity, setting specific targets and launching
initiatives to support our diversity goals.
As part of our commitment under the Australian
Employment Covenant to provide sustainable
job opportunities for Indigenous Australians,
QR National continued our Indigenous employment
journey during 2011–12. QR National is committed
to working closely with Indigenous communities
to attract and retain at least 400 Indigenous
employees, while providing support mechanisms
for the development of long-term careers with
the Company.
Further details on the Company’s diversity policy and
performance are set out in the Corporate Governance
Statement on page 39 of this Annual Report.
PEOPLE
In positioning QR National for long term growth
and superior performance, the Company is
committed to developing a highly skilled and
diverse workforce. Our greatest strength will always
be our people and the capability they bring to the
business each and every day.
The Company’s 9,000 employees live and work in
those local communities throughout Australia where
we operate. The majority of our employees live and
work in regional Australia, outside of State capitals.
Our Values
•
•
•
Safety
Integrity
Leadership, Passion and Courage
• World Class Performance.
QR National’s values are an integral component
of the Company’s new Code of Conduct (Code),
which was launched nationally in July 2011. The
Code clearly identifies a high set of expectations
in the way members of our workforce interact with
one another, our customers and other stakeholders,
to ensure our business is respected for its safe,
professional, honest and commercial outlook.
This includes all employees
•
•
Targeting ZEROHARM
Living our values and complying with our
policies, standards and other management
frameworks
• Valuing and appreciating each others’ unique
contributions to the Company’s future and
treating one another with respect.
An e-learning module was implemented during
the year to assist all QR National employees to
understand the Code. This training package was
recognised with an award at the Asia Pacific
Learning and Technology Impact Awards 2012.
TOTAL EMPLOyEES
8,969
1,079
64
Queensland total comprises regions:
North –896; Central –2,940; South–3,338
7,174
427
225
16
ANNuAL REpORT 2011–12
PEOPLE (continued)
‘Grow our own’
We know that attracting the right people
and nurturing a pipeline of talent is critical to
QR National’s future commercial success.
The Company provides employees with internal
promotion opportunities across the nation, working
with employees to improve performance and build
capabilities through apprenticeships, traineeships
and graduate programs.
QR National’s approach to attracting and
retaining talent in particular labour segments is
supported by the implementation of the ‘grow
our own’ strategies. The Company’s commitment
to increase the intake of graduates, apprentices
and trainees to 300 per annum by 2013 is well
underway, with a 2011–12 intake of 219 compared
to a target of 200.
Work has begun in earnest to recruit 300
apprentices, graduates and trainees for 2012–13.
Following a fresh, targeted attraction campaign
during the year, the Company recorded a
ENVIRONMENT
Environmental sustainability is an important area
of focus for QR National. As one of Australia’s
largest rail transport providers, QR National
acknowledges the important role it can play in
leading environmental sustainability for customers,
communities and for the transport industry generally.
Environmental Policy
In adopting a proactive approach to mitigating
the Company’s environmental footprint, a
company wide Environmental Policy is in place to
guide continuous improvement in environmental
performance of the operational activities and
services QR National provide. Under this Policy,
the Company assesses environmental risk before
undertaking activities. QR National employees
are accountable for ensuring all business activities,
facilities and equipment within their area of
responsibility are managed in accordance with
this Policy.
This policy is available on the Company’s website
at: www.qrnational.com.au/Corporate/Pages/
Environment.aspx
144 per cent increase in graduate applications.
Energy
Overall female applications increased by
166 per cent which was an extremely positive
outcome for the Company’s promotion of
gender diversity.
Enhanced partnerships with Indigenous community
groups and secondary schools have also
increased the number of Indigenous employment
opportunities for apprentices and trainees. An
Indigenous Ambassador works with QR National
managers in targeted areas to strengthen
community connections which is resulting in
a higher level of interest in work experience
placements and school based apprenticeships.
During 2011–12 QR National continued to improve
processes to ensure the Company’s environmental
obligations were met and managed and energy
efficiency savings identified.
QR National met all of its obligations under
the National Greenhouse Energy Reporting
(NGER) Act 2007 (Cth) and Energy Efficiency
Opportunity (EEO) Act 2006 (Cth) during the
period. The Company received renewed
confirmation of registration under the NGER Act
on 26 September 2011 and the EEO Act on
29 May 2012. An independent regulatory audit
of QR National’s NGER report for 2010–11
confirmed the report was in accordance with
section 19 of the NGER Act in all material respects.
An automated e-learning Environmental
Compliance module was developed during the
year to allow live compliance tracking against
100 per cent of our compliance requirements
and to collate and track NGER data.
In a new initiative, the Company implemented
data loggers and event recorders on a number
of our train consists. The New South Wales Hunter
Valley Coal System is trialling the use of event
recorders on the 5020-class locomotives for safety
and fuel consumption improvements. Early studies
show the data loggers, when combined with
adequate training and analytics, can deliver an
estimated 10 per cent saving in fuel use.
An EEO Steering Committee was established in
2011–12. The Committee oversees compliance
responsibilities, undertakes assessments and
identifies new opportunities for energy efficiency.
The Committee will also progress a number of
previously identified opportunities to achieve
energy efficiencies across the QR National business
including improving driver performance via training
and feedback systems and the introduction of new
generation lAC traction locomotives.
Carbon
QR National is committed to finding and adopting
environmentally sound practices to effectively
reduce the Company’s carbon footprint across its
operations. Rail freight is up to 10 times more fuel
efficient and produces up to 10 times less carbon
emissions than road transport, highlighting the
inherent environmental advantages of rail over road.
On 1 July 2012 the Federal Government introduced
a carbon tax levied at $23 per tonne. QR National
will not be required to trade in permits but will
see an increase in costs through an adjustment
of fuel tax rebates and electricity tariffs. To ensure
a smooth transition to the new program, a carbon
tax working group was established during the
year to evaluate the implications of the tax
and to notify customers of pricing changes. The
financial impact of the carbon tax on QR National
will be minimal.
Coal Dust
During 2011–12, QR National collaborated with
the coal industry in Queensland to implement
a Coal Dust Management Plan. This involves
the implementation of spray stations with dust
suppressing chemicals, known as “veneers”, to
reduce coal dust produced from wagons. Over
the course of the year, QR National installed
12 veneering stations to service 13 mines in
Central Queensland. It is planned that all Central
Queensland mines will have the spray stations
installed by December 2013.
Image: Graduate – Renee Johnson
SuSTAINAbILITY | QR NATIONAL
17
This regional partnership supports the Company’s
national business growth, as well as assists
in improving brand awareness and employee
attraction and retention. The partnership provides
an extensive range of community initiatives,
including a Rail Safety Term (targeting over
1,000 school children with rail safety messaging),
an employee health and well-being program,
community recognition programs and gala days.
50%
Making a Difference
COMMuNITy
Community Commitment
As an engaged corporate citizen, QR National has
designed its social investment portfolio to enhance
and support communities, its employees and
customers in three broad areas: health and
well being, community safety and education.
As Queensland communities began the recovery
process from the previous year of devastating
natural disasters, QR National increased its
contributions to communities where it operates
and employees reside through dedicated company
programs and partnerships.
QR National’s commitment to communities
encompasses charitable gifts and donations,
in-kind support, community investment and
commercial initiatives.
Community Giving
In September 2011 QR National announced the
launch of its dedicated charitable grants program,
the Community Giving Fund. The Community
Giving Fund is a national bi-annual round of cash
grants to non-profit organisations. These grants
have been designed to help improve and sustain
local communities with their immediate and
long-terms needs.
During the year QR National’s Community Giving
Fund distributed grants ranging from $1,000 to
$20,000 to more than 53 charities across the nation.
Community Giving Fund
Focus area %
Community Giving Fund
By region %
6%
23%
21%
QLD
NSW
WA
VIC
A full listing of QR National’s Community Giving
Fund recipients is available on the Company’s
website at: www.qrnational.com.au/community
In May 2012 QR National was awarded the
Charities Aid Foundation 2012 Community Award,
acknowledging the efforts of companies and
foundations excelling in community giving.
Assisting Families in Need
QR National provides an in-kind freight assistance
program supporting a number of Queensland
charities in the distribution of donated goods
(such as recycled clothing and books) to struggling
families in need.
During 2011–12, the QR National in-kind freight
support provided assistance to charities including:
•
•
The Salvation Army
Lifeline
• Australian Red Cross
•
St Vincent de Paul.
21%
36%
43%
Annually, QR National and its employees donate
to a number of charities, including The Salvation
Army Christmas Toy Appeal and the Red Shield
Doorknock Appeal.
Health and Well-being
Community Safety
Education
Community Partnerships
During the year QR National announced national,
regional and local community and commercial
partnerships forming part of our broader social
investment portfolio.
Expanding our Reach
In November 2011, QR National entered into a
major regional partnership, the first outside of
Queensland, announcing a dual-club sponsorship
with the Hunter Sports Group as Major Sponsor of
the Newcastle Knights and Newcastle Jets.
On 14 February 2012 QR National announced a
three year national partnership with the Heart
Foundation in a mission to raise awareness of
Australia’s number one disease and to prevent
cardiovascular-related deaths across the nation.
As one of the most recognised charities in Australia,
the Heart Foundation plays an important role in
providing Australians with the best heart health
information and raising funds for life-saving research.
As a Foundation Sponsor of the Heart Foundation,
QR National is the largest supporter of this charity,
involved with flagship programs such as their
national Warning Signs campaign, Go Red for
Women, Workplace Walking Groups, and Jump
Rope for Heart. The partnership also conducts
between 30 and 50 depot site visits across the
organisation in a bid to raise awareness and bring
change to employee health and well-being.
Continuing to Support the CQNRL Bid
During the year QR National continued its support
of the Central Queensland National Rugby League
(CQNRL) in its bid for a national rugby league
licence in the Central Queensland region. The bid
covers a large area of our operations within Central
Queensland — stretching as far north as Mackay,
south to Bundaberg and west to the border. With a
large portion of the Company’s employees living or
working in the area, the Company is proud to back
the bid for a second year. As part of its support of
the CQNRL Bid, QR National continued its health,
well-being and education focus with a dedicated
scholarship program and more than 120 visits to
local schools.
Support at a Local Level
Functional areas across QR National also provide
local support aligning with our business interests
or geographic reach. Some of our partners include
the Esperence Tradies of Tomorrow, Mackay Bike
Safety, North Queensland Bush Children’s Program,
Gladstone Botanic to Bridge Fun Run, Alligator
Creek State School Shade Program, Tannum Sands
Surf Life Saving Club and the Collinsville Youth Hall
and Sporting Facility.
An overview of QR National’s local partnerships
is available on the Company’s website:
www.qrnational.com.au/community
18
ANNuAL REpORT 2011–12
Directors’ Report
QR National Limited Directors’ Report
For the year ended 30 June 2012
The Directors of QR National present their Directors’
Report together with the Financial Report of the
Company and its controlled entities (collectively,
“the Consolidated Entity” or “the Group”) for
the financial year ended 30 June 2012 and the
Independent Auditor’s Report thereon. This
Directors’ Report has been prepared in accordance
with the requirements of Division 1 of Part 2M.3
of the Corporations Act.
Board Of Directors
The following people are Directors of the Company,
or were Directors during the reporting period:
J B Prescott AC
(appointed 14 September 2010)
(Chairman, Independent Non-Executive Director)
L E Hockridge
(appointed 14 September 2010)
(MD & CEO)
G T John AO
(appointed 14 September 2010)
(Independent Non-Executive Director)
J Atkin
(appointed 14 September 2010)
(Independent Non-Executive Director)
R R Caplan
(appointed 14 September 2010)
(Independent Non-Executive Director)
A J P Staines
(appointed 14 September 2010)
(Independent Non-Executive Director)
G T Tilbrook
(appointed 14 September 2010)
(Independent Non-Executive Director)
K L Field
(appointed 19 April 2012)
(Independent Non-Executive Director)
J D Cooper
(appointed 19 April 2012)
(Independent Non-Executive Director)
A J Davies
(appointed 14 September 2010)
(resigned 13 December 2011)
(Independent Non-Executive Director)
P C Kenny
(appointed 14 September 2010)
(passed away 8 October 2011)
(Independent Non-Executive Director)
Details of the experience, qualifications and
special responsibilities and other Directorships
of listed companies in respect to each of the
directors as at the date of this Directors’ Report
are set out in the pages following.
J B Prescott AC
Experience:
Mr Prescott has substantial
experience in the mining,
manufacturing, transport
and government sectors.
He was a long term executive of The Broken Hill
Proprietary Company Limited (now BHP Billiton
Limited), serving 10 years as an Executive Director
and seven years as Managing Director and Chief
Executive Officer (1991–98). He was also Chairman
of ASC (formerly Australian Submarine Corporation
Pty Ltd) from 2000–2009.
Mr Prescott has been a Director of Newmont
Mining Corporation, a Global Counsellor of The
Conference Board since 2001 and a member of
the Commonwealth Remuneration Tribunal since
2010. Other Directorships and consulting/advisory
positions have included Conference Board USA,
World Economic Forum, Booz Allen and Hamilton,
J.P. Morgan Chase & Co, Proudfoot Consulting, and
Asia Pacific Advisory Committee of New York
Stock Exchange.
Qualifications:
BCom (Indus Rel), HonDsc, HonLLD, FAICD,
FAIM, FTSE
Special Responsibilities:
Member of:
(i) Governance & Nomination Committee
(ii) Remuneration & Succession Committee
(iii) Safety & Environment Committee
Australian Listed Company Directorships
held in the past three years
None other than QR National Limited.
L E Hockridge
Experience:
Mr Hockridge joined
QR Limited as Chief
Executive Officer in 2007
with extensive experience
in the transportation and heavy industrial sectors
in Australia and the United States. He is a Director
of a number of QR National Limited wholly owned
subsidiaries and Chairman of the Australasian
Railway Association. During a 30 year career with
The Broken Hill Proprietary Company Limited
(now BHP Billiton Limited) and BlueScope Steel,
Mr Hockridge was a member of the leadership
team that led to BlueScope Steel’s successful
demerger from BHP and the creation of a new
publicly listed company.
In 2005, Mr Hockridge was appointed President
of BlueScope Steel’s North American operations,
where he led a major turnaround in safety,
production and financial performance. Other roles
at BHP included human resources and industrial
relations, General Manager of BHP Transport,
Head of Long Products Business and President
of Industrial Markets.
Qualifications:
FCILT, FAIM, MAICD
Special Responsibilities:
Director of QR Network Pty Ltd
Member of:
(i) Governance & Nomination Committee
(ii) Safety & Environment Committee
Australian Listed Company Directorships
held in the past three years:
None other than QR National Limited.
DIRECTORS’ REpORT | QR NATIONAL
19
Australian Listed Company Directorships held
in the past three years
Sipa Resources Limited – Independent Non-
Executive Director
Commenced – 16 September 2004 (ongoing)
MACA Limited
(27 May 2011 – 1 May 2012)
Perilya Limited (16 August 2007 – 5 February 2009)
J D Cooper
Experience:
Mr Cooper has more
than 35 years experience
in the construction and
engineering sector in
Australia and overseas. Currently, Mr Cooper is
Chairman and Non-Executive Director of Southern
Cross Electrical Engineering Limited and also holds
Non-Executive Directorships with NRW Holdings
Limited, Flinders Mines Limited and Neptune
Marine Services Ltd.
During his career as an executive Mr Cooper’s roles
have encompassed large civil, commercial and
infrastructure projects and complex engineering
and project management activities in the mining,
oil and gas, engineering and property sectors.
Qualifications:
BSc (Building), FIE Aust, FAICD, FAIM
Special Responsibilities:
Member of Safety & Environment Committee
Director of QR Network Pty Ltd
Australian Listed Company Directorships held
in the past three years:
Southern Cross Electrical Engineering Limited –
Chairman and Non-Executive Director
Commenced – 30 October 2007 (ongoing)
Flinders Mines Limited – Non-Executive Director
Commenced – 13 September 2010 (ongoing)
NRW Holdings Limited – Non-Executive Director
Commenced – 29 March 2011 (ongoing)
Neptune Marine Services Ltd – Non-Executive Director
Commenced – 4 April 2012 (ongoing)
Clough Limited (24 August 2006 – 31 January 2010)
J Atkin
Experience:
Mr Atkin has more than
25 years experience in
financial services and the
legal profession in Australia and internationally.
Mr Atkin is Chief Executive Officer of The Trust
Company Limited, a Director of The Australian
Outward Bound Foundation and a member of the
Financial Services Advisory Council of the Australian
Government. Previously, Mr Atkin was Managing
Partner of Blake Dawson (2002-2008) and a
Corporate and Mergers & Acquisitions partner at
Mallesons Stephen Jacques (1987-2002). During
the period he was a practising lawyer Mr Atkin was
widely regarded as one of the leading corporate
lawyers in Australia.
Qualifications:
BA (Hons), LLB (Hons), FAICD
Special Responsibilities:
Chairman of Governance & Nomination Committee
Director of QR Network Pty Ltd
Australian Listed Company Directorships held
in the past three years:
The Trust Company Limited – CEO and
Executive Director
Commenced – 19 January 2009 (ongoing)
R R Caplan
Experience:
Mr Caplan has extensive
international experience
in the oil and gas industry.
In a 42 year career with Shell, he held senior roles
in the upstream and downstream operations and
corporate functions in Australia and overseas. From
1997 to 2006 he had senior international postings
in the UK, Europe and the USA. From 2006 to
July 2010 he was Chairman of the Shell Group of
Companies in Australia.
Mr Caplan is Chairman of the Melbourne and
Olympic Parks Trust, Chairman of the Cooperative
Research Centre for Contamination Assessment
and Remediation of the Environment, a Non-
Executive Director of Orica Limited and member
of the Board of the Committee for the Economic
Development of Australia (CEDA). He is a former
Non-Executive Director of Woodside Petroleum
Limited and the former Chairman of the Australian
Institute of Petroleum.
Qualifications:
LLB, FAICD
Special Responsibilities:
Chairman of Remuneration & Succession Committee
Member of Audit & Risk Management Committee
Australian Listed Company Directorships held
in the past three years:
Orica Limited – Non-Executive Director
Commenced – 1 October 2007 (ongoing)
G T John AO
Experience:
Mr John has 30 years
management experience
in the transport operations
sector including 16 years as Managing Director of
Australia Post. He was also a Senior Executive of
TNT Australia Ltd.
Mr John is a Director of Seven West Media Ltd,
Racing Victoria and a commissioner of the
Australian Football League. His previous roles
include Chairman of Australian Air Express,
Chairman of Star Track Express, Chairman of the
Kahala Posts Group, Director of the International
Post Corporation (Netherlands), Vice Chairman of
Sai-Cheng Logistics International (China) and a
trustee of the Committee for Melbourne and the
MCG. He has received the Australian Sports Medal
and Centenary Medal.
Qualifications:
FCILT, MAICD
Special Responsibilities:
Chairman of Safety & Environment Committee
Member of Remuneration & Succession Committee
Director of QR Network Pty Ltd
Australian Listed Company Directorships held
in the past three years:
Seven West Media Ltd – Non-Executive Director
Commenced – 3 December 2008 (ongoing)
K L Field
Experience:
Mrs Field has more than
30 years experience in the
mining industry in Australia
and overseas and has a
strong background in human resources and project
management.
Currently Mrs Field is a Non-Executive director of
a number of listed and unlisted entities including
Sipa Resources Limited and Water Corporation
of Western Australia. Prior to this, Mrs Field held
Non-Executive Directorships with the Centre
for Sustainable Resource Processing, Electricity
Networks Corporation (Western Power), MACA
Limited and Perilya Limited.
In addition Mrs Field is a Director of a number
of community based organisations including
aged care provider Amana Living Inc, The Gravity
Discovery Centre Foundation and the University of
Western Australia’s Centenary Trust for Women.
Qualifications:
B Econ, MACD
Special Responsibilites
Member of
(i) Audit & Risk Committee
(ii) Remuneration & Succession Committee
20
ANNuAL REpORT 2011–12
Directors’ Report
(continued)
A J P Staines
Experience:
Ms Staines has extensive
corporate, financial and
commercial experience and
advisory experience in governance, strategy and
risk management. She is a Director of Goodstart
Early Learning, North Queensland Airports and
Allconnex Water. Former Directorships include the
Australian Rail Track Corporation, Gladstone Ports
Corporation and Early Learning Services (now G8).
Ms Staines is a former Chief Executive Officer
of Australian Airlines, a Qantas subsidiary she
co-launched in 2002 as a member of the carrier’s
12 person senior team. She previously held
various financial, strategy and economic roles
at Qantas. Prior to this, she held various financial
roles at American Airlines’ headquarters in Dallas.
Ms Staines is a Member of CEW (Chief Executive
Women).
Qualifications:
BEcon, MBA, FAICD
Special Responsibilities:
Chairman of QR Network Pty Ltd
Member of Audit & Risk Management Committee
Australian Listed Company Directorships held
in the past three years:
G8 Education Limited (12 May 2009 – 27 May 2010)
G T Tilbrook
Experience:
Mr Tilbrook has broad
experience in corporate
strategy, investment and
finance. He joined Wesfarmers in 1985 and was an
Executive Director from 2002 to 2009. Between
2000 and 2006, when Wesfarmers was a joint
owner of the Australian Railroad Group (ARG),
he was a Director of ARG and Chairman of
Westnet Rail. Mr Tilbrook is Chairman of
Transpacific Industries and a Director of Fletcher
Building, GPT Group, the Perth International Arts
Festival, the Bell Shakespeare Company and the
Committee for Perth. He is also a Councillor of
Curtin University and the Australian Institute of
Company Directors WA.
Qualifications:
BSc, MBA
Special Responsibilities:
Chairman of Audit & Risk Management
Committee
Member of Governance & Nomination Committee
Australian Listed Company Directorships held
in the past three years:
GPT Group Limited – Non-Executive Director
Commenced – 11 May 2010 (ongoing)
Fletcher Building Limited – Non-Executive Director
Commenced – 1 September 2009 (ongoing)
Transpacific Industries Group Ltd – Non-Executive
Chairman
Commenced – 3 September 2009 (ongoing)
Company Secretary
Mr D D Smith, BA, LLB, LLM,
DipLegS, FCSA, FCIS, FAICD,
was appointed Company
Secretary of the QR Limited
Group in May 2010 and
to QR National Limited upon its incorporation on
14 September 2010.
Mr Smith has over 18 years’ company secretariat,
governance, corporate legal and senior
management experience in ASX-listed companies.
Mr Smith holds a Masters of Laws degree from the
University of Sydney and is a Fellow of both the
Chartered Secretaries Australia and the Australian
Institute of Company Directors.
Principal Activities
The principal activities of entities within the Group,
during the year, were:
• Integrated heavy haul freight railway operator
• Rail transporter of coal from mine to port for
export markets
• Bulk, general and containerised freight
businesses
• Large scale rail services activities.
Coal
Transport of coal from mines in Queensland and
New South Wales to end customers and ports.
Freight
Transport of bulk mineral commodities (including
iron ore), agricultural products, mining and
industrial inputs and general freight throughout
Queensland and Western Australia, and
containerised freight throughout Australia.
Network Services
Provision of access to, and operation and
management of, the Queensland coal network.
Provision of design, construction, overhaul,
maintenance and management services to
the Group as well as external customers.
Review of Operations
A review of the Group’s operations for the
financial year and the results of those operations,
are contained in the Chairman’s Report, the MD
& CEO’s Report, and the Year in Review as set out
on pages 4 to 11 of this report.
Dividends
An unfranked final dividend of 3.7 cents per fully
paid ordinary share was paid on 30 September
2011 and an unfranked interim dividend of
3.7 cents per fully paid ordinary share was paid
on 30 April 2012. Further details of dividends
provided for or paid are set out in note 26 to the
consolidated financial statements.
Since the end of the financial year the Directors
have declared to pay a final dividend of 4.6 cents
per fully paid ordinary share. The dividend will not
be franked and is payable on 28 September 2012.
State of Affairs
During the year the Company implemented a
functional organisational structure which aligns
with global best practice. The new structure aligns
operational focus and customer service.
In the opinion of the Directors there were no
other significant changes in the state of affairs
of the Company that occurred during the financial
year under review.
Events Since the End of the
Financial Year
On 23 August 2012 QR National Limited, after
considering cash forecasts and current balance
sheet, announced to the ASX an on market
program to buy-back up to 10% of its issued share
capital (244 million shares).
The Group announced a voluntary redundancy
program on 5 June 2012. As at the date of this
document, the Group determined to accept
approximately 750 voluntary redundancy
applications. Further information is set out in
Note 39 on page 91.
The Directors are not aware of any events or
developments which are not set out in this report
that have or would have a significant effect on
the Group’s state of affairs, its operations or its
expected results in future years.
Likely Developments
Information about likely developments in the
operations of the Group and the expected results
of those operations are covered in the Chairman’s
Report, the MD & CEO’s Report, and the Year in
Review as set out on pages 4 to 11 of this report.
In the opinion of the Directors, disclosure of any
further information would be likely to result in
unreasonable prejudice to the Group.
DIRECTORS’ REpORT | QR NATIONAL
21
Environmental Regulation and
Performance
QR National is committed to managing its
operational activities and services in an
environmentally responsible manner to meet
legal, social and moral obligations. In order to
deliver on this commitment QR National seeks
to comply with all applicable environmental
laws and regulations.
The EEO Act requires the Group to assess its energy
usage including the identification, investigation
and evaluation of energy-saving opportunities and
to report publicly on the assessments undertaken,
including what action the Group intends to take
as a result. The Group continues to meet its
obligations under the EEO Act.
The NGER Act requires the Group to report its
annual greenhouse gas emissions and energy use.
The Group has implemented systems and
processes for the collection and calculation of the
data required and is registered under the NGER Act.
Further details of the Company’s Environmental
Performance are set out on page 16 of the
Annual Report.
Environmental Prosecutions
There have been no environmental prosecutions
during this financial year.
Risk Management
The Company is committed to managing its
risks in an integrated, systematic and practical
manner. The overall objective of risk management
is to assist the Company to achieve its objectives
by appropriately considering both threats and
opportunities and making informed decisions.
The Audit & Risk Management Committee oversees
the process for identification and management
of risk in the Company (see page 41 of this Annual
Report). The Company’s Risk Management Division
is responsible for providing oversight of the risk
management function and assurance on the
management of significant risks to the Managing
Director & CEO and the Board.
The Company’s risk management framework,
responsibilities and accountabilities are aligned
with the Company’s business model where
the individual businesses are accountable for
demonstrating they are managing their risks
effectively and in accordance with the Board-
approved risk management policy and framework.
The risk management framework has a strong
focus on key organisational controls. A focus on
the key organisational controls helps to shape
the strategies, capabilities and culture of the
organisation, identify and address vulnerabilities,
strengthen the system of internal controls and
build a more resilient organisation.
The Company also has a risk register with risk
profiles populated at the various layers of the
organisation, and a management specification that
outlines the processes for the prevention, detection
and management of fraud within the Company,
and for fair dealing in matters pertaining to fraud.
Directors’ Meetings
The number of Board meetings (including Board Committee meetings) and number of meetings attended by each of the Directors of the Company during the
financial year are listed below:
DIRECTOR
QR NATIONAL
AUDIT & RISK
MANAGEMENT
GOVERNANCE &
NOMINATION
REMUNERATION &
SUCCESSION
SAFETY &
ENVIRONMENT
J B PRESCOTT AC
L E HOCKRIDGE
J ATKIN
R R CAPLAN
G T JOHN AO
A J P STAINES
G T TILBROOK
K L FIELD
J D COOPER
A J DAVIES
P C KENNY
A
151
151
15
15
15
15
15
4
4
9
4
B
15
15
15
15
15
14
15
42
43
94
35
A
-
-
-
6
-
6
6
1
-
-
-
B
-
-
-
6
-
6
6
12
-
-
-
A
5
5
5
2
-
-
5
-
-
-
-
B
5
5
5
25
-
-
5
-
-
-
-
A
6
-
-
3
6
-
-
1
-
3
-
B
6
-
-
3
5
-
-
1
-
34
-
A
4
4
-
-
4
-
-
-
1
2
1
B
4
4
-
-
4
-
-
-
1
24
1
A - Number of meetings held while appointed as a Director or Member of a Committee.
B - Number of meetings attended by the Director while appointed as a Director or Member
of a Committee.
1 In addition to the meetings above, a Committee of the Board comprising of Mr J B Prescott
and Mr L E Hockridge met on three occasions.
2 Mrs K L Field was appointed as an Independent Non-Executive Director on 19 April 2012.
3 Mr J D Cooper was appointed as an Independent Non-Executive Director on 19 April 2012.
4 Mr A J Davies resigned on 13 December 2011.
5 Mr P C Kenny passed away on 8 October 2011.
6 Mr R R Caplan resigned from the Governance and Nomination Committee on 26 October 2011.
During the year, the QR Network Pty Ltd Board met on six occassions.
Directors’ Interests
DIRECTOR
J B PRESCOTT AC
L E HOCKRIDGE
J ATKIN
R R CAPLAN
G T JOHN AO
NUMBER OF ORDINARY SHARES
DIRECTOR
NUMBER OF ORDINARY SHARES
215,434
538,763
20,908
82,132
57,132
A J P STAINES
G T TILBROOK
K L FIELD
J D COOPER
5,223
31,112
0
12,000
Directors’ interests are as at 30 June 2012.
The performance rights of Directors are set out in Section 6.1 of the Remuneration Report.
22
ANNuAL REpORT 2011–12
Directors’ Report
(continued)
Non-Audit Services
CEO and CFO Declaration
Remuneration Report
The Remuneration Report is set out on pages
24 to 38 and forms part of the Directors’ Report
for the financial year ended 30 June 2012.
Rounding of Amounts
The Group is within the class specified in ASIC Class
Order 98/100 dated 10 July 1998 relating to the
“rounding off” of amounts in the Directors’ Report
and the Financial Report. Amounts in the Directors’
Report and Financial Report have been rounded
off to the nearest hundred thousand dollars, in
accordance with ASIC Class Order 98/100, except
where stated otherwise.
Auditor’s Independence Declaration
A copy of the auditor’s independence declaration,
as required under section 307C of the Corporations
Act, is set out on page 23.
The Directors’ Report is made in accordance with
a resolution of the Directors of the Company.
John B Prescott AC
Chairman
23 August 2012
During the year the Company’s auditor (PwC)
performed other services in addition to its audit
responsibilities. The Directors are satisfied that
the provision of non-audit services by PwC during
the reporting period did not compromise the
auditor independence requirements set out in
the Corporations Act.
All non-audit services were subject to the
Company’s Non-Audit Services Policy and do
not undermine the general principles relating
to auditor independence set out in APES 110
Code of Ethics for Professional Accountants, as
they did not involve reviewing or auditing the
auditor’s own work, acting in a management or
decision-making capacity for the Company, or
jointly sharing risks and rewards.
No officer of the Company was a former Partner
or Director of PwC and a copy of the auditor’s
independence declaration as required under the
Corporations Act 2001 is set out in, and forms part
of, this Directors’ Report.
Details of the amounts paid to the auditor of the
Company and its related practices for non-audit
services provided throughout the year are as set
out below:
Other assurance services
PwC Australian firm:
Audit of regulatory returns
Other assurance services
Total remuneration for
other assurance services
Taxation services
PwC Australian firm:
Tax compliance services
Total remuneration for
taxation services
Other services
PwC Australian firm:
Advisory services
Total remuneration for
other services
2012
$’000
230.0
79.0
309.0
539.0
539.0
1,619.0
1,619.0
The Managing Director & CEO and Chief Financial
Officer (CFO) have provided a written statement to
the Board in accordance with section 295A of the
Corporations Act.
With regard to the financial records and systems
of risk management and internal compliance
in this written statement, the Board received
assurance from the Managing Director & CEO
and CFO that the declaration was founded on a
sound system of risk management and internal
control and that the system was operating
effectively in all material aspects in relation to
the reporting of financial risks.
Indemnification and Insurance
of Officers
The Company’s Constitution provides that it may
indemnify any person who is, or has been, an
officer of the Group, including the Directors, the
Secretaries and other Executive Officers, against
liabilities incurred whilst acting as such officers
to the extent permitted by law. The Company has
entered into a Deed of Access, Indemnity and
Insurance with each of the Company’s Directors.
No Director or officer of the Company has received
benefits under an indemnity from the Company
during or since the end of the year.
The Company has paid a premium for insurance
for officers of the Group. This insurance is against
a liability for costs and expenses incurred by officers
in defending civil or criminal proceedings involving
them as such officers, with some exceptions.
The contract of insurance prohibits disclosure of
the nature of the liability insured against and the
amount of the premium paid.
Proceedings Against the Company
The Directors are not aware of any current or
threatened civil litigation proceedings, arbitration
proceedings, administration appeals, or criminal
or governmental prosecutions of a material nature
in which QR National is directly or indirectly
concerned which are likely to have a material
adverse effect on the business or financial position
of the Company.
DIRECTORS’ REpORT | QR NATIONAL
23
Auditor’s Independence Declaration
As lead auditor for the audit of QR National Limited for the full year ended 30 June 2012, I declare that to the
best of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of QR National Limited and the entities it controlled during the period.
Robert Hubbard
Partner
PricewaterhouseCoopers
Brisbane
23 August 2012
PricewaterhouseCoopers, ABN 52 780 433 757
Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
24
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
The Directors of QR National Limited present the Remuneration Report prepared in accordance with section 300A of the Corporations Act 2001 for the year ended
30 June 2012. The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001.
Table of Contents
1.
2.
3.
4.
5.
6.
Remuneration snapshot .............................................................................................................................................................................................................................................................. 24
Remuneration framework .......................................................................................................................................................................................................................................................... 26
Key Management Personnel ..................................................................................................................................................................................................................................................... 26
Actual remuneration outcomes ............................................................................................................................................................................................................................................... 27
Remuneration governance ........................................................................................................................................................................................................................................................ 27
Remuneration components ....................................................................................................................................................................................................................................................... 28
6.1 Executives ............................................................................................................................................................................................................................................................................ 28
6.2 Non-Executive Directors ................................................................................................................................................................................................................................................ 31
6.3 MD & CEO remuneration and Service Agreement .............................................................................................................................................................................................. 32
6.4 Executive KMP Service Agreements .......................................................................................................................................................................................................................... 33
6.5 Hedging and margin lending policies ...................................................................................................................................................................................................................... 33
6.6 KMP share ownership policy ........................................................................................................................................................................................................................................ 33
6.7 Company performance and its link to remuneration ......................................................................................................................................................................................... 33
7.
Key Management Personnel remuneration ........................................................................................................................................................................................................................ 34
7.1 Rights granted as compensation ............................................................................................................................................................................................................................... 36
7.2 Bonuses and share-based compensation benefits ............................................................................................................................................................................................. 38
1. Remuneration snapshot
The QR National remuneration strategy seeks to encourage high performance over the short, medium and longer terms by using several distinct reward plans.
One of the indicators of the performance of QR National is the share price appreciation since Initial Public Offer (IPO). The graph below shows the QRN share price
and the ASX100 index value over the period from 22 November 2010 to 30 June 2012. The graph assumes that a shareholder starts with an initial investment of
$100 in QR National and the ASX100 index, and shows the change in the value of that investment, based on changes in share price/index value over the period.
For QR National, the graph assumes a starting price of $2.45 – the share price offered to retail investors on the date of listing.
Assumes QRN day 1 starting share
price for retail investors of $2.45
$170
$160
$150
$140
$130
$120
$110
$100
$90
$80
$139
$89
22/11/2010
22/01/2011
22/03/2011
22/05/2011
22/07/2011
22/09/2011
22/11/2011
22/01/2012
22/03/2012
22/05/2012
22/07/2012
QR National
ASX 100 Index
DIRECTORS’ REpORT | QR NATIONAL
25
The following Table 1 summarises how each of the remuneration components works:
Table 1 – Remuneration components
Remuneration component
Summary
Fixed remuneration
Short-term Incentive Awards
(“STIA”)
Deferred Short-term Incentive
Awards (“STIAD”)
Fixed remuneration, which comprises base salary, superannuation benefits and other benefits, is determined
with reference to the applicable market range assessed by collecting and collating market data for comparable
roles in similarly sized companies operating in similar market sectors. An individual’s position within the
range and the value of any annual increase in fixed remuneration is determined with reference to market
movements and the individual’s experience, competence level, qualifications, etc. Performance outcomes
are rewarded through the various incentive programs (see below).
For the 2012 fixed remuneration review for all non-award employees, QR National has applied an overall
increase of less than 4.3% across the enterprise.
A STIA plan was introduced at the time of the Initial Public Offer (“IPO”) which provides the possibility
of cash awards at the absolute discretion of the Board, having regard to QR National and individual key
performance indicators (“KPIs”). The QR National KPIs specify minimum target and stretch performance
expectations in relation to EBIT, Safety, and Transformation. The individual KPIs specify minimum target
and stretch performance expectations which relate to that particular position. For 2013 and subsequent
years an additional QR National KPI will be required to be achieved – Return on Invested Capital (ROIC).
The EBIT, Transformation, Safety and ROIC targets for 2013 have been set considerably higher than prior
year actual results and prior year targets.
For each individual a target STIA percentage (of fixed remuneration) is specified in the employment
agreement. All employees at the same level will have the same target STIA percentage. For the Key
Management Personnel (KMP) and the MD & CEO the target STIA percentage during 2012 was 50% and
75% of fixed remuneration respectively. For 2013 and subsequent years this target will be set at 75% and
100% of fixed remuneration respectively.
In the event that QR National and individual performance outcomes are all below the minimum
expectation no STIA will be awarded.
In the event that QR National and individual performance outcomes are between minimum and target, the
individual can expect an incentive payment somewhere between zero and the target STIA percentage.
In the event that QR National and individual target performance outcomes are achieved the individual can
expect an incentive payment at the target STIA percentage.
In the event that QR National and individual stretch performance outcomes are achieved the individual can
expect an incentive payment close to the maximum, which is 1½ times the target STIA percentage for all
plan participants. The maximum STIA for KMP during 2012 was, therefore, 75% of fixed remuneration. The
maximum for the MD & CEO was 100%.
Being a recently listed public company QR National did not have prior year Long-term Incentive Awards to
assist with retention of executives. In order to mitigate this risk to some degree the Remuneration and
Succession Committee (the “Committee”) recommended the implementation of a deferred STIA arrangement
for the first two years after listing. Under this deferred component, two tranches of rights to QR National
shares will be granted to executives in the event that they are awarded an STIA in 2011 and 2012. The
number of performance rights an executive was awarded was 50% of the STIA outcome in 2011 and 2012
divided by the share price at that time (Volume Weighted Average Price “VWAP” five days prior to the award).
The award made in 2012 will be the final award under the plan.
Sections
6.1.2
6.1.3
6.1.3.3
Long-term Incentive Awards
(“LTIA”)
Participation in the QR National LTIA plan awards senior executives with rights to QR National shares
which will only vest in the event that performance hurdles are achieved.
6.1.4
There were two performance hurdles for the IPO and 2011 awards – Total Shareholder Return (“TSR”)
relative to a peer group and Earnings Per Share (“EPS”) growth. In the initial years after IPO the EPS
growth targets have been substituted with the Offer Document earnings targets. These arrangements
were described on page 132 of the Offer Document.
For the award made at the time of the IPO the level of performance required for 100% vesting of the
performance rights is the top quartile TSR performance amongst the peer group PLUS the aggregate earnings
predicted in the Offer Document for 2011 and 2012 PLUS EPS growth of 10% between 2012 and 2013.
For the award made in September 2011 the level of performance below which no rights will vest is TSR
performance below the median of the peer group AND either failure to achieve the aggregate earnings
predicted in the Offer Document or failure to achieve EPS growth of at least 7.5% between 2012 and 2013.
For the 2012 and subsequent awards an additional hurdle has been introduced – operating ratio. At the
time of the IPO the operating ratio was 94%. The Managing Director & CEO has publicly committed the
Company to the achievement of 75% within five years of the IPO. The operating ratio performance hurdle
under the LTIA requires that the Company meets that target in that time frame. As at the end of 2012, the
Company’s operating ratio had reduced to 84%.
26
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
2. Remuneration framework
The primary purpose of the QR National
remuneration framework is the delivery of superior
shareholder returns. The guiding principles
which underpin the remuneration framework are
shareholder alignment, performance improvement
and market competitiveness:
•
actively encourage performance improvement
at all levels – QR National-wide, within each
team and for each individual.
In summary, the objective of QR National’s
executive reward framework is to ensure reward
for performance is both competitive and
appropriate, particularly when considering
• Alignment with shareholder interests – the
remuneration outcomes in the light of the results
delivered. The framework aligns executive reward
with achievement of strategic objectives and the
creation of value for shareholders, and has been
designed having considered market practices in
terms of both quantum and structure.
Name
Executive
Position
3. Key Management Personnel
The Key Management Personnel (“KMP”) of the
Group (which is a defined term under the Australian
Accounting Standards and includes Directors)
comprise all of the Directors of QR National Limited
and those executives who have the authority and
responsibility for planning, directing and controlling
the activities of QR National. The executives that
form part of KMP (“KMP Executives”) have been
determined to be those members of the Executive
Leadership Team that report directly to the
Managing Director & Chief Executive Officer
(“MD & CEO”). The KMP of QR National for the
whole of the financial year ended 30 June 2012
(unless otherwise indicated) were:
•
determination of incentive outcomes depends
on the achievement of performance hurdles
which, if achieved, will add shareholder value.
Performance improvement – QR National’s
remuneration, performance improvement
and performance management programs
are closely integrated to ensure that
QR National, and individual performance
continually improve. In this way, superior
performance is rewarded and differentiated
from performance which is only adequate or
inferior. The performance indictors are derived
from the business strategy and targets. In
addition, all participants in the incentive
plans are rewarded only in the event that
the QR National values and behaviours are
consistently demonstrated.
• Market competitiveness – the quantum and
structure of remuneration is determined with
reference to competitive market practices
evident at similarly sized companies in similar
industry sectors. In order to secure talent in
the industry sectors with whom we compete,
we have found that we sometimes need to
offer remuneration above median.
QR National’s remuneration strategy is to:
•
•
•
•
support and reinforce the entire suite of
performance improvement apparatus at
the disposal of management
support, reinforce and enhance the
achievement of QR National’s operational,
tactical and strategic objectives
assist, as part of the wider employee value
proposition, with the attraction and retention
of key employees, particularly in circumstances
where there is a scarcity of talent and/or
required skills in the marketplace
assist management in their efforts to
communicate complex strategies, tactics and
performance objectives to employees
Lance Hockridge
Managing Director and Chief Executive Officer
Deborah O’Toole
Executive Vice President and Chief Financial Officer
Lindsay Cooper
Executive Vice President Operations (Acting)
Ken Lewsey
Michael Carter
Greg Pringle
John Stephens
Greg Robinson
Executive Vice President Strategy and Business Development
Executive Vice President Network
Executive Vice President Enterprise Services
Executive Vice President Human Resources
Executive Vice President Business Sustainability
(appointed 1 December 2011)
Paul Scurrah
Executive Vice President Marketing (appointed 1 January 2012)
Marcus McAuliffe
Executive Vice President and CEO Coal (ceased employment 30 June 2012)
Curtis Davies
Executive Vice President and CEO Coal Customers (ceased employment
25 May 2012)
Apart from Paul Scurrah and Greg Robinson, who were appointed during the year, each of these
individuals were also a KMP for the whole of the previous financial year (except for Curtis Davies, who
was appointed on 16 August 2010).
Non-Executive Directors
John B Prescott AC
Independent Non-Executive Chairman
John Atkin
Russell Caplan
Allan Davies
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director (resigned on 13 December 2011)
Graeme John AO
Independent Non-Executive Director
Peter Kenny (deceased)
Independent Non-Executive Director (passed away on 8 October 2011)
Andrea Staines
Gene Tilbrook
John Cooper
Karen Field
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director (appointed 19 April 2012)
Independent Non-Executive Director (appointed 19 April 2012)
4. Actual remuneration outcomes
The cash remuneration actually received by the MD & CEO and the other senior executives in respect of the year ended 30 June 2012 is shown
in table 2 below. The remuneration details, prepared in accordance with the accounting standards, are included in table 11.
DIRECTORS’ REpORT | QR NATIONAL
27
Table 2 – Remuneration outcomes
Fixed pay (including
superannuation)
Name
L E Hockridge
D M O'Toole
K R Lewsey
M G Carter
G P Pringle
R J Stephens
L J Cooper
G Robinson 1
P Scurrah 1
M P McAuliffe 2
C M Davies 2
$’000
1,701
771
683
631
578
578
560
626
398
701
705
Short-term
Incentive
$’000
1,539
450
400
375
345
345
340
340
400
-
-
Total Executive remuneration
7,932
4,534
1 Mr Robinson was appointed on 1 December 2011 and Mr Scurrah was appointed on 1 January 2012.
2 Mr Davies ceased employment on 25 May 2012 and Mr McAuliffe ceased employment on 30 June 2012.
Termination
Benefits
$’000
-
-
-
-
-
-
-
-
-
556
615
1,171
Total
$’000
3,240
1,221
1,083
1,006
923
923
900
966
798
1,257
1,320
13,637
5. Remuneration governance
The Board takes an active role in the governance and oversight of QR National’s remuneration policies and practices. The Remuneration and Succession Committee
(details of which are set out on pages 21 and 41 of the Annual Report) (“the Committee”) assists the Board in relation to QR National’s remuneration framework.
Specifically, the Committee seeks to ensure that QR National strikes a balance between the ability to compete for scarce talent in an increasingly competitive
market and the need to ensure that remuneration arrangements are reasonable, appropriate, clear and understandable. In addition, the Committee undertakes
functions delegated to it by the Board including consideration and approval of the annual remuneration program and all aspects of the long and short-term
incentive plans. The Committee’s Terms of Reference is available on the website (www.qrnational.com.au).
The Committee is independent of management and obtains advice from independent experts as necessary. The use of external specialists in relation to the
remuneration of the KMP is initiated directly by the Committee and/or the Board and these specialists are directly engaged by the Committee Chairman where
advice and recommendations about the KMP is provided. The Committee is satisfied that advice received was free from any undue influence by KMP to whom
advice may relate, because strict protocols were observed and complied with regarding any interaction between each organisation and management, and because
all remuneration advice was provided to the Committee Chairman.
During the year ended 30 June 2012 the Committee received advice from the following independent organisations:
Table 3 – External remuneration advice
Organisation
Egan Associates
KPMG
Purpose
Remuneration benchmarking and remuneration plan structure and operation to assist with the
determination of fixed pay for KMP, the remuneration components, the quantum of each, and
the mix between these components and was paid $74,400 for these services.
Remuneration benchmarking and remuneration plan structure and operation to assist with the
determination of fixed pay for KMP, the remuneration components, the quantum of each, and
the mix between these components and was paid $68,200 for these services.
Tower Watson
Relative TSR calculations and peer group definition and was paid $21,600 for these services.
Deloitte
LTIA and STIAD valuation and was paid $22,850 for these services.
Ernst & Young
Ad-hoc benchmarking and KMP remuneration advice and was paid $42,500 for these services.
PwC
Advice on taxation and benchmarking information.
Role
KMP advice and
recommendations
KMP advice and
recommendations
Calculations and plan
operations
Calculations and plan
operations
KMP advice and
recommendations
Tax advice and implications
and general review
Further discussion of the Committee’s involvement in determining the amount and nature of remuneration is included in the respective remuneration sections.
Voting and comments made at the company’s 2011 Annual General Meeting
QR National received more than 96% of “For” votes on its remuneration report for the 2011 financial year. Feedback received during the year from shareholders
and shareholders’ representatives has been positive.
28
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
6. Remuneration components
The remuneration framework provides a mix
of fixed and variable pay, and a blend of short
and long-term incentives.
6.1 Executives
During 2012, the executive remuneration and
reward framework had four components:
•
•
fixed remuneration
STIA
•
•
STIAD
LTIA.
The combination of these components comprises
an executive’s total remuneration. As of the end
of 2012 no further awards will be made under
the STIAD and the plan has terminated.
6.1.1 Mix of remuneration components
The mix of remuneration components for the
MD & CEO and the KMP Executives (assuming
achievement of the ‘at target’ outcomes for
STIA and STIAD and assuming the LTIA vested
at a value equal to the original award) are set
out in the following diagram.
Mix of Remuneration Components (at Target STIA)
MD & CEO (FY12)
MD & CEO (FY13)
KMP (FY12)
KMP (FY13)
30.8%
33.3%
44.4%
40.0%
23.1%
15.4%
30.8%
33.3%
33.3%
22.2%
11.1%
22.2%
30.0%
30.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fixed pay
STIA
STIAD
LTIA
Table 4 summarises the nature of each remuneration component, the manner in which each piece is determined, and the link that each piece has to performance.
Table 4 – Remuneration Components
Description
Determination
Link to performance
Remuneration
component
Fixed
remuneration
Comprises base salary, superannuation
benefits and
other benefits.
STIA
STIAD
LTIA
Annual ‘bonus’ component. Paid in cash
subject to meeting and/or exceeding
performance targets set in relation
to KPIs.
Medium-term share-based component
intended to mitigate the attraction
and retention risk associated with the
unavailability of prior year LTI.
Long-term share-based component, with
vesting of shares assessed three years
after an award of performance rights.
Fixed remuneration is determined with reference to a market
range for the particular role based on comparable roles in
similarly sized companies operating in similar market sectors.
An individual’s position within the range and the value of any
annual increase in fixed remuneration will be determined with
reference to market movements and to a number of other
factors including the individual’s experience, competence level
and qualifications.
Performance is assessed with reference to pre-determined
targets set in relation to specified KPIs for QR National and
for the individual.
50% of the actual annual STIA bonus for 2011 and 2012.
Only those senior employees whose daily activities and decisions
impact the long-term outcomes of QR National are eligible
to participate. Generally, this group includes the MD & CEO,
the KMP Executives and their direct reports (less than 1% of
the full-time workforce). The number of performance rights
awarded and, hence, the maximum number of shares that
might eventually vest, is determined by a percentage of fixed
remuneration divided by the share price (VWAP) at the time of
the award. The percentage of fixed pay is, in turn, assessed with
reference to market practices and is the same for all participants
at the same level (for 2013 and subsequent years, 75% for KMP
and 100% for the MD & CEO).
Performance will be considered at
the time of the annual remuneration
review, when annual increases in fixed
pay are determined.
Directly linked to performance, STIA
awards are completely ‘at risk’.
The number of rights is directly related
to performance by virtue of the value
being 50% of the STIA awarded.
Vesting depends on QR National’s
TSR performance relative to a peer
group and EPS growth. In the initial
years after IPO, the EPS growth targets
have been substituted with the Offer
Document earnings targets. These
arrangements are described on page
132 of the Offer Document.
The award offered in September 2012
and all future awards will also include a
performance hurdle requiring a reduction
in QR National operating ratio.
DIRECTORS’ REpORT | QR NATIONAL
29
6.1.2 Fixed remuneration / Base salary and benefits
Executives are offered a competitive base salary
that comprises the fixed component of pay and
rewards. The Committee reviews the remuneration
and other terms of employment of executives,
having regard to performance against goals set
at the start of the year, relevant comparative
information and independent expert advice.
In setting remuneration, regard is given to
performance, market conditions and QR National’s
desired market positioning. Advice is taken from
independent external professional advisers to
determine the remuneration range evident in the
marketplace and the individual is paid within that
range. A fully competent individual can expect
to be paid close to the middle of the market
range, while an individual growing into a role
can expect to be paid towards the bottom of the
market range until they are able to demonstrate
full competency. An individual who consistently
exceeds the requirements of the role by virtue of
their experience, qualifications, performance and
marketability may well be paid towards the top
of the market range.
Fixed remuneration for executives is reviewed
annually through a process which considers market-
based increases generally, market movements in
specific industry sectors and professional disciplines,
and perhaps market movements in relation to
specific roles. There are no guaranteed fixed
remuneration increases included in any executive’s
contracts, although there is a contractual
commitment to review fixed remuneration on an
annual basis. The fixed remuneration amount is
used as the basis for calculating variable pay, if any.
6.1.3 Short-term incentive
QR National operates an annual STIA plan
which applies equally (other than the target
award amount) to all non-enterprise agreement
employees and is the same plan used to reward
KMP Executives. The STIA awards a cash bonus
subject to the achievement of pre-defined QR
National-wide and individual targets set by the
Committee in relation to certain KPIs.
6.1.3.1 STIA operation
Notwithstanding anything that follows, the Board
has absolute discretion as to whether a STIA is
awarded and, if so, to what extent. This absolute
discretion is cited in the contract of employment
of each KMP Executive. For each individual, a
target STIA percentage (of fixed remuneration)
is specified in the employment agreement. All
employees at the same level will have the same
target STIA percentage. For the KMP Executives
for 2012, the target STIA percentage is 50% of
fixed remuneration and the maximum is 75%.
For the MD & CEO the target percentage is 75%
of fixed remuneration and the maximum is 100%.
The Committee commissioned two separate
independent studies during 2012. Both studies
confirmed that these target percentages were below
market and exposed the company to potential
retention risk. For 2013 and beyond, these target
percentages have been adjusted accordingly.
In the event that QR National and individual
performance outcomes are all below the minimum
expectation, no STIA will be awarded.
In the event that QR National and individual
performance outcomes are between minimum
and target, the individual can expect an incentive
payment somewhere between zero and the target
STIA percentage
In the event that QR National and individual target
performance outcomes are achieved the individual
can expect an incentive payment at the target
STIA percentage.
In the event that QR National and individual
stretch performance outcomes are achieved the
individual can expect an incentive payment close
to the maximum STIA percentage.
6.1.3.2 STIA performance targets and
measurement
The Board can vary the KPIs, the targets set in
relation to them and their relative importance from
year to year depending on the strategic imperative
and the desired performance message. For 2013,
the primary KPIs common to all participants
are EBIT, Safety, Transformation and Return
on Invested Capital (ROIC) and their relative
importance was assessed by the Board for each
KMP Executive. These four primary indicators of
performance were chosen because they captured
the need to continuously improve safety across all
aspects of the business, the need to quickly change
from a statutory government owned organisation
to a world-class, profitable listed company and, at
the same time, deliver benefits to shareholders.
The performance expectations for these KPIs for
2012 are set out below.
EBIT
Minimum, target and stretch achievement levels
are set for QR National. The minimum performance
level below which no EBIT component STIA
would be payable is a ‘Threshold’ EBIT outcome.
‘Threshold’ is set above previous year actual but
below budget EBIT. As an example, the 2013
Threshold EBIT level is 14% above the 2012
outcome disclosed in this Annual Report. The
target is approximately equivalent to the EBIT
level that QR National considered to have a 75%
chance of achievement under favourable market
and environmental conditions. The stretch EBIT
level is much higher than the target level and the
likelihood of attainment, although assessed by the
Board as being achievable, would be considered
remote even under favourable conditions.
Safety
The minimum safety performance level below
which no safety component STIA would be payable
is a consistent reduction in LTIFRs, MTIs (Medically
Treated Injuries) and a consistent frequency of
safety interactions. That is, it is not sufficient
to maintain the number of LTIFRs and MTIs; it
is a minimum requirement that the number of
hours lost to injury and the number of injuries be
reduced. The target level of achievement is a more
significant reduction in LTIFRs and MTIs and an
even higher frequency of safety interactions. The
stretch performance level is the achievement of
what would be considered a world-class reduction
in LTIFRs and MTIs and an optimal frequency of
safety interactions.
Transformation
The Board recognised the strategic imperative
that QR National be transformed very quickly
after the IPO from the characteristics typical of
a long-standing public sector organisation to an
efficient, profitable, listed market leader. To do
this, a number of specific change programs were
identified and allocated to specific KMP Executives.
Minimum, target and stretch levels of achievement
were identified in relation to each transformation
project and in relation to transformation overall.
Performance was defined in terms of project and
program completion (or milestone achievement),
benefits delivery (or progression towards delivery
for lengthy transformational projects) and
sustainable capability improvement. The Board
then assessed the level of achievement in relation
to each transformation project, having regard to
pre-determined levels of expected achievement.
ROIC (To form part of KPIs in 2013 and
subsequent years):
To meet the long term strategy, QR National
needs to invest heavily in infrastructure, process
improvement, systems and capacity. The ROIC
performance measure is intended to ensure that
there is alignment between these investment
decisions and shareholder expectations that the
return on these investments is superior.
6.1.3.3 STIAD – Deferred Short-term Incentive Award
As a recently listed public company, QR National
did not have prior year LTIA awards to assist with
retention of executives. In order to mitigate this risk
to some degree, the Board implemented
a deferred STIA arrangement for the first two years
after listing. Under this deferred component of STIA,
two tranches of rights were granted to executives
in the event they were awarded an STIA in 2011
and 2012. The number of performance rights an
executive was awarded was dependent on the
STIA outcome in 2011 and 2012. By that time,
the LTIA plan (see below) will have begun to vest
(or not, as the case may be) and no further awards
will be made under the STIAD.
30
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
6.1.3.3 STIAD – Deferred Short-term Incentive Award
(continued)
Executives will be granted an award of performance
rights equivalent to 50% of the STIA they receive in
the relevant year of award as follows:
•
•
Tranche 1 was awarded in September 2011
with one half of these performance rights
vesting and becoming fully-paid shares in
September 2012 and the other half vesting
in September 2013
Tranche 2 will be awarded in September 2012
with one half of these vesting in September 2013
and the other half vesting in September 2014.
Both tranches will only vest and become
exercisable if the executive remains employed
by QR National as at the vesting date. If the
executive ceases employment with QR National
prior to the vesting of the rights the rights will
lapse unless otherwise determined by the Board.
Performance rights are granted by the Company
for nil consideration. Each performance right is
a right to receive one fully-paid ordinary share
in QR National Limited at no cost if the vesting
conditions are satisfied. Performance rights do not
carry voting or dividend rights, however shares
allocated upon vesting of rights will carry the
same rights as other ordinary shares. For further
information regarding the terms and conditions of
rights, refer to note 37 of the Financial Report.
The deferred component of STIA to which the MD
& CEO was entitled (and described in the offer
document and in last year’s Annual Report) has
vested. This plan has now terminated.
6.1.4 Long-term incentive
Performance rights have been granted to certain
employees, including KMP Executives and the MD
& CEO, under the LTIA. Each performance right
is a right to receive one fully paid ordinary share
in QR National Limited at no cost if the vesting
conditions are satisfied. The LTIA is designed to
provide long-term incentives for executives to
deliver long-term shareholder returns. Under the
plan, performance rights will only vest on the
satisfaction of the relevant performance hurdle
that is measured by reference to the three years
following the award (performance period) or a
re-testing, which will occur one year thereafter.
Participation in the plan is at the Board’s discretion
and no individual has a contractual right to be
awarded performance rights or to receive any
guaranteed benefits.
6.1.4.1 LTIA eligibility
Eligibility to participate in the LTIA is at the
absolute discretion of the Board. In exercising
that discretion, the Board will seek to identify
those executive and management employees
who occupy roles of which the daily activities,
decisions and responsibilities are likely to impact
the long-term prosperity of QR National. During
the first round of awards, at the time of the IPO,
this group included the MD & CEO, KMP Executives,
the direct reports to KMP Executives and a
small number of other management employees
nominated by the MD & CEO and approved by
the Board. It is intended that performance rights
will be awarded each year, although this, too,
is at the absolute discretion of the Board. The
awarding of performance rights to an individual
in one year does not necessarily create an
entitlement to an award in any subsequent year.
6.1.4.2 Number of performance rights
The number of performance rights awarded at
the time of the IPO and, hence, the maximum
number of shares that might eventually vest, was
determined by a percentage of fixed remuneration
divided by the institutional share price on the day
of listing ($2.55).
The number of performance rights awarded in
September 2011, the maximum number of shares
that might eventually vest, was determined by a
percentage of fixed remuneration divided by a five
day volume weighted average price (15 – 19 Aug
2011, $3.44).
The percentage of fixed pay was, in turn, assessed
with reference to market practices and was the
same for all participants at the same level (50%
of fixed pay for KMP). The resulting number of
performance rights is the maximum number
of shares that can vest in the event that all of
the performance hurdles are met or exceeded.
For the MD & CEO, the number of performance
rights awarded was calculated on the same basis,
except that the percentage of fixed remuneration
was 100%. The Committee commissioned two
separate independent studies during 2012.
Both studies confirmed that these percentages
were below market and exposed the company
to potential retention risk. For 2013 and beyond,
these target percentages have been adjusted
accordingly (75% for KMP. The percentage remains
unchanged for the MD & CEO).
6.1.4.3 Performance period
The performance hurdles (below) will be measured
over a three year period. In the event that the
performance hurdle is not achieved, the Board has
the discretion to extend the performance period for
a further year.
6.1.4.4 Performance hurdles
The rights granted are subject to two performance
hurdles – the Earnings hurdle, which determines
whether and to what extent half of the award
will vest, and the relative TSR hurdle, which will
determine whether and to what extent the other
half will vest. The rights granted in 2012 will be
subject to a third performance hurdle – operating
ratio. At the time of the IPO the operating ratio
was 94%. The MD & CEO has publicly committed
the company to the achievement of 75%
within five years of the IPO. The operating ratio
performance hurdle under the LTIA requires that
the company meets that target in that time frame.
As at the end of 2012, the operating ratio had
reduced to 84%.
The Earnings hurdle
Prior to the floods and cyclone in the previous
financial year, half of the performance rights would
have vested in full if the aggregate EBIT forecasts
in the IPO Offer Document for the periods 2011
and 2012 were achieved and EPS growth between
2012 and 2013 is at least 10%. No vesting of
this half of the award would have occurred if this
initial target was not achieved. Having achieved
the aggregate earnings in 2011 and 2012, an EPS
growth of at least 7.5% on the actual 2012 results
for 2013 is required, otherwise no vesting of this
half will occur. If the aggregate EBIT forecasts for
2011 and 2012 have been achieved, and in 2013,
the EPS growth is:
•
•
•
10% or above, 100% of this component
will vest
from 7.5% to 10%, 50% to 100% of this half
will vest, calculated on a pro rata basis
below 7.5%, no vesting of this component will
occur in 2013.
Following the floods, the aggregate earnings test
described above was adjusted to reflect the net
impact of the floods and cyclone, as approved by
shareholders at the 2011 Annual General Meeting.
DIRECTORS’ REpORT | QR NATIONAL
31
These adjusted arrangements are outlined in the
following table:
business days after the Grant Date and 20 business
days before the end of the performance period.
Table 5 – Earnings hurdle (2011 Grant)
If QR National’s TSR is:
Percentage of
Earnings hurdle
rights to vest
0%
0%
50 - 100%
100%
Earnings hurdle outcome
No achievement of the adjusted
Aggregate 2011 and 2012 EBIT
forecasts
Achievement of the adjusted
Aggregate 2011 and 2012 EBIT
forecasts PLUS less than 7.5%
EPS growth in 2013
Achievement of the adjusted
aggregate 2011 and 2012 EBIT
forecasts PLUS between 7.5%
and 10% EPS growth in 2013
Achievement of the adjusted
aggregate 2011 and 2012 EBIT
forecasts PLUS more than 10%
EPS growth in 2013
For 2012 and subsequent awards, 0% of this part
of the award will vest if the average EPS growth
is less than 7.5%, 50% - 100% will vest if the
average EPS growth is between 7.5% and 10%,
while 100% will vest if the average EPS growth is
10% or more.
Relative TSR hurdle
The vesting of the remaining half of the
performance rights is conditional on QR National’s
TSR performance relative to a peer group of
companies. After taking independent advice the
Board sought to construct a peer group comprising
those companies with whom QR National was likely
to compete for both capital and talent, as well
as those few companies with whom QR National
competes for business and customers. As a result,
the peer group comprises the companies in the
ASX Top 100 index, other than financial, medical,
telecommunications, pharmaceutical, gaming and
property trusts.
TSR measures the growth in the price of shares
plus cash distributions notionally reinvested in
shares. To determine whether and to what extent
the TSR tested performance rights will vest, the TSR
of QR National over the performance period will
be compared to the TSR of all of the companies in
the peer group which are still listed at the end of
the performance period. Each of these comparator
companies will be ranked from highest to lowest,
based on their TSR over the performance period,
and the number of rights that vest will depend
on where QR National is ranked amongst these
comparator companies. For the purpose of
calculating the TSR measurement, the relevant
share prices will be determined by reference to the
volume weighted average share price over the 20
•
•
•
•
between the 75th and 100th percentile of
the peer group, 100% of the Tranche 1 Rights
will vest
between the 51st and 74th percentile, 52%
to 98% of the Tranche 1 Rights will vest (that
is, for every 1 percentile additional ranking,
the proportion of Tranche 1 Rights vesting will
increase by 2%)
at the 50th percentile, 50% of the Tranche 1
Rights will vest
below the 50th percentile, no vesting of the
Tranche 1 Rights will occur.
This is outlined in the following table:
Table 6 – TSR hurdle
Group’s TSR performance
compared to the relevant
peer group
Percentage of TSR
half of awarded
rights that will vest
0 to 49th percentile
Nil
50th percentile
51st to 74th percentile
75th to 100th percentile
50% of the Tranche 1
rights will vest
52% - 98% of the
Tranche 1 rights will
vest (on a straight line
basis)
100% of the Tranche
1 rights will vest
TSR performance is monitored by an independent
expert at the end of each financial year.
Operating Ratio hurdle
For future awards (2013 and beyond), there will
be a third hurdle, requiring that a three year
operating ratio target be achieved in the third year.
The specific hurdle for the 2012 award is that the
operating ratio be reduced from its current level
(84%) to the target level of 75%. 0% of this third
tranche of the LTIA will vest if the operating ratio in
2015 is more than 79.5%. Between 50% and 100%
will vest if the operating ratio in 2015 is between
79.5% and 75%, while 100% of this third tranche
will vest if the operating ratio in 2015 is 75% or less.
Performance rights do not carry voting or dividend
rights, however shares allocated upon vesting of
rights will carry the same rights as other ordinary
shares. For further information regarding the terms
and conditions of rights in the LTIA, refer to note 37
of the Financial Report. The table in this note provides
details of the rights awarded during the year.
6.1.5 Total remuneration
When all components of remuneration are
taken together and the share-based awards
are independently valued, the sum total is
considered to be well within market parameters.
The Committee has received independent,
external advice that the market relativity of total
remuneration for KMP Executives, including the
MD & CEO, is close to market median.
6.2 Non-Executive Directors
On appointment to the Board, all Non-Executive
Directors enter into a Service Agreement with the
Company, incorporated in a letter of appointment.
The letter summarises the Board policies and
terms, including compensation relevant to the
office of Director.
Under QR National’s Constitution, Non-Executive
Directors are to be paid by way of fees for their
services with an initial maximum aggregate cap
of $2.5 million. The Directors Fee is a composite
fee and covers all responsibilities of the respective
member including Board and Committee duties.
The Fee is also a total fee in that it covers both
cash and any contributions to a fund for the
purposes of superannuation benefits. Apart from
superannuation, there are no other retirement
benefits in place for Non-Executive Directors. The
cap does not include remuneration for performing
additional or special duties for the Company at the
request of the Board. The Constitution also states
that the Company will pay all reasonable travelling,
accommodation and other expenses of directors in
attending meetings and carrying out their duties.
Within the overall pool amount, remuneration
for Non-Executive Directors is reviewed by the
Committee, taking into account recommendations
from an external expert, and set by the Board.
Fees for Non-Executive Directors are set at a level
to attract and retain Directors with the necessary
skills and experience to allow the Board to have a
proper understanding of, and competence to deal
with, current and emerging issues for QR National.
Fees and payments to Non-Executive Directors
reflect the demands which are made on, and the
responsibilities of, the Directors. Non-Executive
Directors’ fees and payments are reviewed
annually by the Board. The Chairman’s fees are
determined independently to the fees of Non-
Executive Directors, based on comparative roles in
the external market. The Chairman is not present
at any discussions relating to the determination of
his own remuneration. Non-Executive Directors do
not receive performance-based pay.
6.2.1 Directors’ fees
The current annual base fees were last reviewed
with effect from 1 July 2012, from $180,000 to
$190,000 (inclusive of all responsibilities and
superannuation) for other Non-Executive Directors
and from $400,000 to $475,000 (inclusive of
all responsibilities and superannuation) for
the Chairman.
32
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
6.3 MD & CEO remuneration and Service Agreement
The terms of Mr Hockridge’s appointment were disclosed in the IPO Offer Document. The Board sought expert external advice from Egan Associates to ensure
the remuneration arrangements offered to Mr Hockridge were both reasonable and sufficiently competitive to secure the services of an MD & CEO of a Top
50 Australian publicly listed company. A significant proportion of the total remuneration is subject to the achievement of QR National performance outcomes,
in particular those relating to earnings, safety, transforming the business, and total shareholder returns.
The MD & CEO’s total remuneration (assuming the achievement of performance hurdles over the next several years) is split between fixed and variable
components as follows:
Table 7 – MD & CEO Remuneration Components (2012)
MD & CEO - Percentage of Total Remuneration
Fixed Remuneration
STIA
STIAD
LTIA
Total Received
in 2012
(at Maximum)
$
% of Total
$
% of Total
$
% of Total
$
% of Total
$
$1,700,000
33.3%
$1,700,000
33.3%
$3,400,000
$1,700,000
28.6%
$1,700,000
28.6%
$3,400,000
$850,000
16.7%
$850,000
16.7%
$850,000
14.3%
$1,700,000
28.6%
Received in 2012
(at Maximum STIA)
Payable in later years subject
to performance hurdles
(at Target LTIA)
Received in 2012
(at Maximum STIA)
Payable in later years subject
to performance hurdles
(at Maximum LTIA)
* Target LTI vesting refers to the satisfaction of threshold performance hurdles which generates vesting of 50% of the performance rights awarded. Performance below this level would
result in no rights vesting.
The fixed remuneration for the MD & CEO for 2013 has been set at $1,950,000.
Remuneration and other terms of employment for the MD & CEO, as with the other KMP Executives, is formalised in a Service Agreement.
Table 8 – Summary of MD & CEO’s Service Agreement
Term
Duration
Service Agreement Summary
Ongoing, until notice given by either party.
Termination by the MD & CEO
6 months notice.
Termination by the Company
12 months notice. Termination payment of 12 months fixed pay. Treatment of unvested prior year STIA,
STAID and LTIA Awards will be in accordance with the plan rules and Board-approved policies.
Post-employment restraints
12 months in any competitor business in Australia.
The MD & CEO is employed pursuant to an employment contract until terminated by either the MD & CEO or by QR National. He may terminate his employment
contract by giving six months notice, and QR National may terminate his employment by giving 12 months notice. If his employment is terminated (other than
for cause), he will be entitled to payment of his total fixed annual remuneration, calculated to the termination date, plus any leave entitlements, as well as any
entitlements already owing or vested under the STIA, STIAD and LTIA. Whether payments are made in recognition of unvested awards under these plans will be
assessed by the Board, having regard to the Board approved plan rules and plan policies. All payments and awards are subject to applicable laws.
The MD & CEO has agreed, and the contract provides that, in the event of termination, he will not accept employment or otherwise be engaged in a competitor
business in Australia for 12 months.
6.4 Executive KMP Service Agreements
The standard terms of the employment contracts for KMP Executives are shown in Table 9:
DIRECTORS’ REpORT | QR NATIONAL
33
Table 9 – Summary of KMP Executives’ Service Agreement (2012)
KMP Executives
CFO
Term
Duration
Service Agreement Summary
Ongoing, until notice given by either party.
Termination by the CFO
3 months notice.
Termination by the Company
Before 31 December 2011, by giving 12 months notice; and at any time after 1 January 2012,
by giving nine months notice.
Post-employment restraints
Restricted from competitive business in Australia for a period aligned to the notice period.
Base salary including
superannuation
$770,000
All other KMP Executives
Duration
Ongoing, until notice given by either party.
Termination by the executive
3 months notice.
Termination by the Company
Before 31 December 2011, by giving 12 months notice; from 1 January 2012 to 31 December 2012,
by giving nine months notice; and at any time after 1 January 2013, by giving six months notice.
Post-employment restraints
Restricted from competitive business in Australia for a period aligned to the notice period.
K R Lewsey
M G Carter
G P Pringle
R J Stephens
L J Cooper
G Robinson
P Scurrah
Base salary including super
Base salary including super
Base salary including super
Base salary including super
Base salary including super
Base salary including super
Base salary including super
$682,500
$630,000
$577,500
$577,500
$577,500
$577,500
$800,000
6.5 Hedging and margin lending policies
Upon listing on the ASX, QR National introduced a policy that prohibits executives granted share-based payments as part of their remuneration from hedging
economic exposure to unvested rights that have been issued pursuant to a Group employee share plan. The policy also prohibits margin loan arrangements for
the purpose of purchasing QR National shares. Adherence to this policy is monitored regularly and involves each KMP signing an annual declaration of
compliance with the policy.
6.6 KMP share ownership policy
During the past financial year, the Board approved a policy whereby within six years of the date of listing of the Company or appointment (whichever is the later),
Non-Executive Directors are required to accumulate and maintain one year’s Directors’ fees worth of shares in the Company; the MD & CEO one year’s fixed
remuneration in shares; and the MD & CEO’s direct reports equivalent to 50% of their fixed remuneration in shares.
6.7 Company performance and its link to remuneration
In considering QR National’s performance, the Committee has regard to the following performance measures in respect of the current financial period. As the
Company was only listed on 22 November 2010, these performance measures are not available for prior financial periods. The performance measures for the
2011 financial year are based on results for the full financial year, where available, as QR National’s results were prepared as a continuation of the QR Limited
consolidated group (refer to note 1 of the Financial Report).
Table 10 – Company performance
Closing share price/Change in share price
3.40 (95¢ above ‘retail’ price)
3.38 (93¢ above ‘retail’ price)
30 June 2012
30 June 2011
Dividends per share
TSR
Underlying EBIT
LTIFR
Safety interactions
Transformation project completion,
benefit delivery and capability
7.4 cents
1.3%
$584m
n/a
20.2% (against 20-day VWAP after IPO)
$383m1
2.4 (down from 3.08)
3.08 (down from 6.14)
1.13 per employee per month
1.10 per employee per month
Majority completed on-time, in full
Majority completed on-time, in full
1 Restated underlying EBIT due to change in accounting policy
The performance measure which drives half of the LTIA vesting is the Company’s TSR performance relative to the companies in an identified peer group.
Note, the share price appreciation graph on page 24 excludes the value that would have been received from dividend payments during the year, and is not
equivalent to TSR. The TSR percentage shown in table 10 for 30 June 2011 compares the 20 day VWAP immediately after IPO with the 20-day VWAP up to
30 June 2011. For this reason, the TSR, so calculated, is lower than that suggested by the graph on page 24 of this Annual Report.
34
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
7. Key Management Personnel remuneration
Details of the nature and amount of each major element of compensation of each KMP for the financial year ended 30 June 2012 and 30 June 2011 are set out below.
Table 11 – 2012 Key Management Personnel remuneration
2012
Name
Short-term employee benefits
Cash
salary
and fees
$’000
Cash
Bonus
$’000
Non-
monetary
benefits1
$’000
Other
$’000
Post-
employment
benefits
Super-
annuation
$’000
Long-term benefits
Long-
service
leave
$’000
Termination
benefits
$’000
Equity-
settled
share-
based
payments
Proportion of
compensation
performance
related5
Remuneration
consisting of
rights for the
year
Rights2
$’000
Total
$’000
%
%
Non-Executive Directors
J B Prescott AC
359
165
165
75
165
45
165
165
33
33
-
-
-
-
-
-
-
-
-
-
1,370
-
1,651
1,539
755
658
526
553
539
472
575
391
685
690
450
400
375
345
345
340
340
400
-
-
6
-
-
-
-
-
-
-
-
-
6
25
(37)
(12)
4
31
31
48
49
94
(59)
(24)
-
-
-
-
-
-
-
-
-
-
42
15
15
7
15
3
15
15
3
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
407
180
180
82
180
48
180
180
36
36
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
133
-
-
-
1,509
-
-
-
-
-
-
-
-
-
-
-
-
-
50
16
25
105
25
39
88
51
7
16
15
31
16
14
60
9
10
97
6
35
(17)
(5)
-
-
-
-
-
-
-
-
-
556
615
1,270
4,566
293
261
237
223
223
205
129
251
105
1,493
1,346
1,307
1,186
1,187
1,250
1,150
1,178
1,286
41
1,332
62
50
49
47
48
48
44
41
55
8
3
28
20
19
18
19
19
16
11
21
8
3
J Atkin
R R Caplan
A J Davies
G T John AO
P C Kenny
A J P Staines
G T Tilbrook
K Field
J Cooper
Sub-total
Non-Executive
Directors
Executive
L E Hockridge
D M O'Toole
K R Lewsey
M G Carter
G P Pringle
R J Stephens
L J Cooper
G Robinson 3
P Scurrah 3
M P McAuliffe 4
C M Davies 4
Total Key
Management
Personnel
compensation
(Group)
8,865
4,534
156
-
570
256
1,171
3,238
18,790
41
17
1 Non-monetary benefits represent the value of Reportable Fringe Benefits for the respective Fringe Benefits Tax year ending 31 March, the estimated value of car parking provided, and
annual leave accrued or utilised during the financial year.
2 The value of rights granted in the year is the fair value independently calculated at grant date using an expected outcome model, this was consistent with the Monte-Carlo simulation
conducted in the prior year and resulted in similar outcomes. This amount is progressively expensed over the vesting period. The value disclosed includes the value of rights to be granted
under the STIAD based on 50% of the 2012 cash STIA. Refer to note 37 for further details regarding the fair value of rights. These values may not represent the future value that the
executive will receive, as the vesting of the rights is subject to the achievement of performance conditions.
3 Mr Robinson was appointed on 1 December 2011 and Mr Scurrah was appointed on 1 January 2012.
4 Mr Davies ceased employment on 25 May 2012 and Mr McAuliffe ceased employment 30 June 2012.
5 The short-term incentives (cash bonus) and deferred short-term incentives and long-term incentives (equity-settled share-based payments) represent the at risk performance-
related remuneration.
6 Mr Davies was appointed on 16 August 2010.
7 Retention bonuses paid in relation to the IPO are shown as ‘Other’.
DIRECTORS’ REpORT | QR NATIONAL
35
Table 12 – 2011 Key Management Personnel remuneration
2011
Short-term employee benefits
Post-
employment
benefits
Name
Cash
salary
and fees
$’000
Cash
bonus
$’000
Non-
monetary
benefits 1
$’000
Other 7
$’000
Super-
annuation
$’000
Long-term benefits
Long-
service
leave
$’000
Termination
benefits
$’000
Equity-
settled
share-
based
payments
Proportion of
compensation
performance
related 5
Remuneration
consisting of
rights for the
year
Rights 2
$’000
Total
$’000
%
%
Non-Executive Directors
J B Prescott AC
J Atkin
R R Caplan
A J Davies
G T John AO
P C Kenny
A J P Staines
G T Tilbrook
Sub-total
Non-Executive
Directors
Executive
361
163
162
163
163
162
163
163
1,500
-
-
-
-
-
-
-
-
-
L E Hockridge
1,341
1,664
581
669
510
470
444
477
392
501
462
407
362
353
350
350
310
348
D M O'Toole
K R Lewsey
M P McAuliffe
M G Carter
G P Pringle
R J Stephens
L J Cooper
C M Davies 6
Total Key
Management
Personnel
compensation
(Group)
-
-
-
-
-
-
-
-
-
417
177
96
155
133
13
122
24
35
-
-
-
-
-
-
-
-
-
434
388
319
319
299
330
271
-
31
12
12
12
12
12
12
11
114
71
63
32
44
81
74
56
66
31
-
-
-
-
-
-
-
-
-
34
10
8
8
96
6
6
90
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
392
175
174
175
175
174
175
174
-
1,614
555
4,082
99
89
80
78
76
76
68
78
1,826
1,689
1,478
1,530
1,262
1,417
1,221
998
-
-
-
-
-
-
-
-
-
54
31
29
30
28
34
30
31
43
-
-
-
-
-
-
-
-
-
14
5
5
5
5
6
5
6
8
6,885
4,606
1,172
2,360
632
263
-
1,199
17,117
34
7
36
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
7.1 Rights granted as compensation
Details of rights granted as compensation, exercised and forfeited during the year in the Performance Rights Plan, including vesting profiles, are as follows:
Table 13 – Rights granted as compensation
Name
Date
granted
Incentive
Plan
Balance at
beginning
of year
Rights
awarded
during the
year
Exercised
during the
year
Forfeited in
year
Balance
at end of
year
Fair value
per right
at grant
date
Exercise
price
Vested
in year
Forfeited
in year
Value of
rights
granted in
year 1
Value of
rights
forfeited
in year
Date on
which
grant vests Expiry date
No.
No.
No.
No.
No.
$
$
%
%
$’000
$’000
L E Hockridge 22-Nov-10
STIAD
333,333
-
(333,333)
22-Nov-10
STIAD
333,333
1-Dec-10 LTIAD - EPS 333,333
1-Dec-10 LTIAD - TSR 333,333
-
-
-
22-Aug-11 LTIAD - EPS
-
247,093
22-Aug-11 LTIAD - TSR
-
247,093
D M O'Toole
22-Nov-10 LTIAD - EPS
68,627
22-Nov-10 LTIAD - TSR
68,627
-
-
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
28-Sep-11
STIAD
28-Sep-11
STIAD
-
-
-
-
55,959
55,959
33,612
33,612
K R Lewsey
22-Nov-10 LTIAD - EPS
63,725
22-Nov-10 LTIAD - TSR
63,725
-
-
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
28-Sep-11
STIAD
28-Sep-11
STIAD
-
-
-
-
49,600
49,600
29,615
29,615
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2.07
333,333
2.07
333,333
1.14
333,333
0.94
247,093
2.93
247,093
1.28
68,627
1.14
68,627
0.94
55,959
2.93
55,959
1.28
33,612
3.44
33,612
3.44
63,725
1.14
63,725
0.94
49,600
2.93
49,600
1.28
29,615
3.44
29,615
3.44
M P McAuliffe 22-Nov-10 LTIAD - EPS
58,824
22-Nov-10 LTIAD - TSR
58,824
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
28-Sep-11
STIAD
28-Sep-11
STIAD
-
-
-
-
M G Carter
22-Nov-10 LTIAD - EPS
58,824
22-Nov-10 LTIAD - TSR
58,824
-
-
(31,042)
(27,782)
(31,041)
(27,783)
45,785
(15,260)
(30,525)
45,785
(15,260)
(30,525)
(26,344)
(26,344)
26,344
26,344
-
-
-
-
-
-
-
-
1.14
0.94
2.93
1.28
3.44
3.44
-
-
-
-
-
-
58,824
1.14
58,824
0.94
45,785
2.93
45,785
1.28
25,618
3.44
25,618
3.44
-
-
-
-
-
-
-
-
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
28-Sep-11
STIAD
28-Sep-11
STIAD
-
-
-
-
45,785
45,785
25,618
25,618
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53.00
47.00
53.00
47.00
-
-
-
-
723
316
-
-
164
72
116
116
-
-
145
63
102
102
-
-
- 22-Nov-11 30-Sep-12
- 22-Nov-12 30-Sep-13
- 22-Nov-13 31-Dec-14
- 22-Nov-13 31-Dec-14
- 30-Jun-14 31-Dec-15
- 30-Jun-14 31-Dec-15
- 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
- 30-Jun-14 31-Dec-15
- 30-Jun-14 31-Dec-15
- 28-Sep-12
1-Oct-14
- 28-Sep-13
1-Oct-14
- 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
- 30-Jun-14 31-Dec-15
- 30-Jun-14 31-Dec-15
- 28-Sep-12
1-Oct-14
- 28-Sep-13
1-Oct-14
32 30-Sep-13 31-Dec-14
26 22-Nov-13 31-Dec-14
33.00
67.00
134
89 30-Jun-14 31-Dec-15
33.00
67.00
-
100.00
-
100.00
-
-
-
-
-
-
-
-
-
-
-
-
59
91
91
-
-
39 30-Jun-14 31-Dec-15
91 28-Sep-12
1-Oct-14
91 28-Sep-13
1-Oct-14
- 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
134
- 30-Jun-14 31-Dec-15
59
88
88
- 30-Jun-14 31-Dec-15
- 28-Sep-12
1-Oct-14
- 28-Sep-13
1-Oct-14
DIRECTORS’ REpORT | QR NATIONAL
37
Table 13 – Rights granted as compensation (continued)
Name
Date
granted
Incentive
Plan
Balance at
beginning
of year
Rights
awarded
during the
year
Exercised
during the
year
Forfeited in
year
Balance
at end of
year
Fair value
per right
at grant
date
Exercise
price
Vested
in year
Forfeited
in year
Value of
rights
granted in
year 1
Value of
rights
forfeited
in year
Date on
which
grant vests Expiry date
No.
No.
No.
No.
No.
$
$
%
%
$’000
$’000
G P Pringle
22-Nov-10 LTIAD - EPS
53,922
22-Nov-10 LTIAD - TSR
53,922
-
-
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
28-Sep-11
STIAD
28-Sep-11
STIAD
-
-
-
-
41,969
41,969
25,436
25,436
R J Stephens
22-Nov-10 LTIAD - EPS
53,922
22-Nov-10 LTIAD - TSR
53,922
-
-
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
28-Sep-11
STIAD
28-Sep-11
STIAD
-
-
-
-
41,969
41,969
25,436
25,436
L J Cooper
22-Nov-10 LTIAD - EPS
49,020
22-Nov-10 LTIAD - TSR
49,020
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
28-Sep-11
STIAD
28-Sep-11
STIAD
G Robinson
14-Jun-11 Retention
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
P Scurrah
1-Jan-12 Retention
1-Jan-12 Retention
-
-
-
-
-
-
-
-
-
C M Davies
22-Nov-10 LTIAD - EPS
58,824
22-Nov-10 LTIAD - TSR
58,824
-
-
38,154
38,154
22,529
22,529
30,000
-
-
16,000
(16,000)
17,442
17,442
-
-
40,000
(40,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53,922
1.14
53,922
0.94
41,969
2.93
41,969
1.28
25,436
3.44
25,436
3.44
53,922
1.14
53,922
0.94
41,969
2.93
41,969
1.28
25,436
3.44
25,436
3.44
49,020
1.14
49,020
0.94
38,154
2.93
38,154
1.28
22,529
3.44
22,529
3.44
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3.24
-
100.00
17,442
2.93
17,442
1.28
-
-
-
-
-
3.44
-
100.00
30,000
3.44
58,824
1.14
58,824
0.94
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100.00
100.00
-
-
- 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
123
- 30-Jun-14 31-Dec-15
54
88
88
-
-
- 30-Jun-14 31-Dec-15
- 28-Sep-12
1-Oct-14
- 28-Sep-13
1-Oct-14
- 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
123
- 30-Jun-14 31-Dec-15
54
88
88
-
-
- 30-Jun-14 31-Dec-15
- 28-Sep-12
1-Oct-14
- 28-Sep-13
1-Oct-14
- 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
112
- 30-Jun-14 31-Dec-15
49
78
78
52
51
22
138
103
-
-
87
87
- 30-Jun-14 31-Dec-15
- 28-Sep-12
1-Oct-14
- 28-Sep-13
1-Oct-14
- 14-Jun-12
- 30-Jun-14 31-Dec-15
- 30-Jun-14 31-Dec-15
- 24-Feb-12
- 1-Jan-13
- 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
87 28-Sep-12
1-Oct-14
87 28-Sep-13
1-Oct-14
28-Sep-11
STIAD
28-Sep-11
STIAD
-
-
25,524
25,524
(25,524)
(25,524)
-
-
3.44
3.44
2,264,708 1,681,740 (481,936)
(220,351) 3,244,161
4,226
542
1 The value of rights granted in the year is the fair value independently calculated at grant date using an expected outcome model, this was consistent with the Monte-Carlo simulation
conducted in the prior year and resulted in similar outcomes. This amount is progressively expensed over the vesting period.
The number of rights to be granted under the STIAD for performance throughout the year ended 30 June 2012 was determined by the Remuneration and Succession
Committee in August 2011, based on the five-day VWAP of the Company’s share price leading up to that date. The total value of rights to be granted represents 50%
of the STIA bonuses paid to executives in respect of the year ended 30 June 2011.
38
ANNuAL REpORT 2011–12
Directors’ Report (continued)
Remuneration Report
7.2 Bonuses and share-based compensation benefits
For each cash bonus and grant of rights during the financial year, the percentage of the available bonus or grant that was payable or that vested in the financial
year, and the percentage that was forfeited because the person did not meet the service and performance criteria, is set out below. The rights vest after three years,
provided the vesting conditions are met. No rights will vest if the conditions are not satisfied, hence the minimum value of the right yet to vest is nil. The maximum
value of the right yet to vest has been determined as the amount of the grant date fair value of the rights, which will be expensed over the vesting period of the award.
Table 14 – Bonuses and share-based compensation benefits
Cash bonus
Share-based compensation benefits (rights)
Name
Payable
Forfeited
Year granted
Vested
Forfeited
Financial years in which
rights may vest
Minimum total value
of grant yet to vest
Maximum total value
of grant yet to vest
L E Hockridge
91%
9%
%
%
D M O'Toole
78%
22%
K R Lewsey
78%
22%
M P McAuliffe
0%
100%
M G Carter
79%
21%
G P Pringle
80%
20%
R J Stephens
80%
20%
L J Cooper
78%
22%
G Robinson
78%
22%
P Scurrah
67%
33%
C M Davies
0%
100%
2011
2011
2011
2012
2011
2012
2012
2011
2012
2012
2011
2012
2012
2011
2012
2012
2011
2012
2012
2011
2012
2012
2011
2012
2012
2011
2012
2012
2012
2011
2012
2012
%
%
100.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52.77
47.23
-
100.00
25.88
74.12
-
-
-
-
-
-
-
-
-
-
-
-
100.00
-
100.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100.00
100.00
2012
2013
2014
2014
2014
2013
2014
2014
2013
2014
2014
2013
2014
2014
2013
2014
2014
2013
2014
2014
2013
2014
2014
2013
2014
2012
2014
2012
2013
2014
2013
2014
$’000
$’000
-
691
694
1,039
143
116
351
133
102
310
-
-
-
123
88
281
112
88
264
112
88
264
102
78
238
-
73
-
103
123
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
CORpORATE GOVERNANCE STATEmENT | QR NATIONAL
3939
Corporate Governance
Statement
In operating its portfolio of above and below rail
and road transport assets, QR National Limited
and the entities it controls (QR National or
the Company) business objective is to create
sustainable value growth for its shareholders by:
•
Raising performance of the Company’s
operations to ‘best in class’ levels
• Maximising our share of the strong underlying
growth within our core markets through
innovative customer focused solutions
•
Seeking out profitable new growth
opportunities in existing and adjacent markets.
Fundamental to the long term success of
QR National’s business objective is a commitment
to achieving and demonstrating the highest
standards of corporate governance.
The Board is committed to pursuing its business
objectives in a manner which is consistent with
the highest standards of corporate governance
and, in so doing, to embed, promote and foster
high standards of corporate integrity, transparency
and ethical standards in all its activities.
This Statement sets out QR National’s corporate
governance practices as at 30 June 2012.
Since listing on the Australian Securities Exchange
(ASX) on 22 November 2010, the Company has
complied with all of the Corporate Governance
Principles and Recommendations released by the
ASX Corporate Governance Council.
Further information regarding the Company’s
corporate governance and Board practices,
including copies of the Company’s Constitution,
Charters, Committee Terms of Reference and key
corporate governance documents referred to in
this Statement are available in the Corporate
Governance section of the Company’s website,
www.qrnational.com.au (QR National website).
These documents are reviewed regularly to
address any changes in governance practices and
changes to the law. Any additional key corporate
governance documents that may be adopted by
the Company during the year will also be made
available via the Company’s website at or about
the time they are adopted.
The Board of Directors
The Board is responsible for the overall stewardship,
strategic direction, governance and performance of
QR National.
The Company’s Constitution empowers the Board
to conduct the business of the Company and also
enables the Board to delegate authority to Board
Committees and/or the MD & CEO.
The Board operates under a Charter which sets out
the responsibilities of the Board and also the roles
of the Chairman, individual Directors, the MD & CEO
and the Company Secretary.
The key functions and responsibilities reserved to
the Board include:
•
The appointment of the MD & CEO and reports
• Approval of the overall Company strategy
• Approving annual budgets
• Approving and monitoring the framework
on governance, safety and risk management
•
The succession and remuneration of the
Board and senior executives.
The roles and responsibilities of Directors are also
formalised in the letter of appointment which
each Director receives and commits to on their
appointment.
The letters of appointment also specify the time
commitment envisaged, expectations in relation
to committee work, remuneration arrangements,
induction processes and details of the Company’s
key governance policies, such as the securities
dealing policy.
Board Membership and Size
The Board currently comprises nine Directors,
including a Non-Executive Chairman, seven
Non-Executive Directors and the MD & CEO.
The Chairman, MD & CEO, and five of the
Non-Executive Directors were appointed
on the date of incorporation of QR National
(14 September 2010). Two of the Non-Executive
Directors were appointed on 19 April 2012.
The Board comprises Directors who bring with
them a range of skills, expertise and experience
in finance, human resources, engineering,
transportation and heavy industry, mining and
resources, strategy, governance, risk management
and government. The Board is skills based and all
of the Non-Executive Directors are independent.
Details of Directors’ skills, experience, expertise
and committee memberships are disclosed on
pages 18 to 20 of the Annual Report.
The Board’s composition is determined by the
Company’s Constitution and the principles set
out in the Board Charter, Diversity Policy and
Selection, Appointment and Re-election of
Non-Executive Director Policy.
In summary, the Board composition principles
are as follows:
• A majority of Directors are to be independent
Non-Executive Directors
•
•
•
•
•
•
•
There are to be a minimum of three Directors
There must be at least one female Director
The roles of Chairman and that of MD & CEO
must be held by separate persons
The Chairman must be an independent
Non-Executive Director
The Board as a whole should comprise a
range and mix of skills and experience
The principles of diversity are to be embraced
In the absence of special circumstances or
a contrary decision by the Board, a Non-
Executive Director must retire (or stand for
re-election annually) at the next Annual
General Meeting (AGM) held after that
Director has served nine years or more on
the Board, calculated from the date of the
Director’s first election.
The Board reviewed its composition and size in
2011. The review determined the appropriate size
of the Board for QR National should be a maximum
of 10 Directors. At the 2011 AGM shareholders
approved an amendment to the QR National
Constitution to reduce the maximum size of the
Board from 12 to 10 Directors.
Director Independence
In accordance with the Board Charter the majority
of Directors are independent. Only the MD & CEO
is not considered independent, by virtue of being
an executive of the Company.
The Board Charter provides that an independent
Director is a Non-Executive Director who is not a
member of management and whom the Board
considers independent, having regard to the
following guidelines, without limitation:
•
The Director is not a substantial shareholder
of the Company or an officer of a substantial
shareholder of the Company.
40
ANNuAL REpORT 2011–12
Corporate Governance
Statement (continued)
•
•
•
•
The Director has not, within the past three
years, been employed by the Company in an
executive capacity, or in the past three years,
been a principal or employee of a material
professional adviser or consultant of the
Company.
The Director has not been a material supplier or
customer of the Company, or otherwise been
associated directly or indirectly with a material
supplier or customer of the Company, where
materiality as a customer of the Company refers
to payments of more than 2% of the Company’s
total consolidated revenue accumulated over the
Company’s past financial year, and in relation to
materiality as a supplier, to payments that are
the greater of either $250,000 or 2% of total
consolidated revenue accumulated over the
supplier’s past financial year.
In the absence of special circumstances or a
contrary decision by the Board, the period of
office held by the Director is not more than
nine years, calculated from the date of the
Director’s first election.
The Director is free from any interest or
relationship which could, or could reasonably
be perceived to, materially interfere with the
Director’s ability to act in the best interests
of the Company.
If a Director does not meet these guidelines, it is
not conclusive that the Director is independent.
The decision as to whether a Director is
independent is a decision made by the Board.
The Board considers materiality thresholds on
a case-by-case basis, if required. Each Director
confirms their independence at each Board meeting
and the Board as a whole assesses Directors’
independence regularly. During the year, the Board
reviewed existing guidelines and an outcome of the
review was the adoption of additional guidelines
setting out quantitative materiality thresholds to
assist Directors’ when assessing the continuing
independence of Directors. The Board has confirmed
the independence of all Non-Executive Directors.
Only the MD & CEO is not considered independent,
by virtue of being an executive of the Company.
All Directors must declare actual or potential
conflicts of interest and excuse themselves from
discussions on issues where they may have an
actual or potential conflict of interest.
In circumstances where a conflict is believed
to exist the Director concerned will not take
part in any decision or consideration of the issue.
In addition, the Director will not receive copies
of the relevant Board papers.
During the year, the Board adopted a Related
Party Transactions Policy and Procedure. This
policy further refines the procedure for identifying,
disclosing and, as required, seeking approval of
related party transactions.
Tenure and Retirement
To promote demonstrable independence the
Company has in place a tenure policy for Directors,
which provides that, in the absence of special
circumstances or a decision made otherwise by the
Board, a Non-Executive Director must retire (or stand
for re-election annually) at the next AGM which is
held after a Director has served nine years or more
on the Board from the date of their first election.
In accordance with the Company’s Constitution
and ASX Listing Rules, a Non-Executive Director
who wishes to continue in their role as
Non-Executive Director must seek re-election
by shareholders at a general meeting.
Chairman
John Prescott AC, an independent Non-Executive
Director has been Chairman of the Company
since September 2010. The role of the Chairman
is clearly set out in the Board Charter. It includes
chairing meetings, providing Board leadership and
promoting a respectful, consultative relationship
between Board and management as well as
maintaining relationships with key stakeholders.
Company Secretary
Details of Board and Committee meetings held
during the year, and attendances at those meetings,
are set out in the Annual Report on page 21.
Each formal Board meeting considers various
matters including, but not limited to, the MD &
CEO’s Report, the QR National Group Monthly
Performance Report and a Workplace Health and
Safety Report. Periodic reports are also provided
on diversity, governance, and compliance, as well
as submissions on the items specified in the Board
Charter. At the end of each Board meeting, the
Non-Executive Directors meet without management.
The Chief Financial Officer (CFO) and Company
Secretary are present at all QR National Board
meetings, and other senior executives attend
from time to time at the invitation of the Board or
when a matter under their responsibility is being
considered. In accordance with the Board Charter,
Directors may also access senior management
at any time through the Chairman, MD & CEO or
Company Secretary.
To provide due consideration of items for discussion
and/or decision, Board and Committee papers
are distributed five business days prior to each
meeting. The Company continues to deliver Board
and Committee Papers electronically, as part of the
Company’s commitment to governance excellence
and innovation.
Director Induction and Ongoing
Education
The Company Secretary is accountable to the Board
for facilitating the Company’s corporate governance
processes. Each Director is entitled to access the
advice and services of the Company Secretary.
An induction process including appointment letters
and ongoing education exists to promote early,
active and relevant involvement of new members
of the Board.
In accordance with the Company’s Constitution,
the appointment or removal of the Company
Secretary is a matter for the Board as a whole.
Details of the Company Secretary’s experience
and qualifications are set out on page 20 of the
Annual Report.
Board Process
Formal Board meetings are held at least nine
times during the year. In addition to these
formal meetings the Board schedules off-site
meetings dedicated to strategy and site visits
of the Company’s operations.
The Board also holds supplementary meetings
to address financial updates and any significant
matters that may arise.
All QR National Directors are members of the
Australian Institute of Company Directors and
are encouraged to further their knowledge
through participation in industry, governance and
government forums, and attend seminars hosted by
the Australian Institute of Company Directors and
other peak professional bodies.
In addition to peer review, interaction and
networking with other Directors and industry
leaders, QR National Directors participate
from time to time in QR National leadership
forums and actively engage with QR National
employees by visiting QR National operations to
gain an understanding of operational employee
requirements, challenges and issues.
CORpORATE GOVERNANCE STATEmENT | QR NATIONAL
4141
Directors are encouraged and given the opportunity
to broaden their knowledge of the business by
visiting offices in different locations. During the
year, Directors conducted site visits at Abbott Point,
Queensland and Altona, Victoria.
Independent Advice and Access to
Information
A process is in place whereby Directors, either
collectively or individually, may seek independent
professional advice where it is considered necessary
to fulfil their duties and responsibilities. This is done
at QR National’s expense. A Director wishing to
seek such advice must obtain the approval of the
Chairman.
Board Committees
To assist the Board in performing its responsibilities,
it has established four Committees. Those
Committees are:
• Audit & Risk Management Committee
•
Remuneration & Succession Committee
• Governance & Nomination Committee
•
Safety & Environment Committee.
Each Committee is chaired by a Non-Executive
Director and comprises a majority of independent
Non-Executive Directors.
Each Committee is governed by its own Terms of
Reference which are reviewed annually.
Details of the membership of each of the
Committees, including the names and qualifications
of the Committee members and their attendance
(along with details of the number of meetings held
in the 2011–2012 financial year) are set out on
page 21 of the Annual Report.
Audit & Risk Management Committee
The Audit & Risk Management Committee assists
the Board by reviewing and monitoring the integrity
of QR National’s financial reporting systems, as well
as risk management, internal control structures and
compliance systems.
Under the Audit & Risk Management Committee’s
Terms of Reference there must be at least three
members of the Committee, all of whom must
be independent Non-Executive Directors, and the
Chair of the Committee must not be the Chairman
of the Board. Currently, the Committee consists of
four members that are all (including the Chairman)
independent Non-Executive Directors.
In addition to the Audit & Risk Management
Committee members, the MD & CEO, CFO,
Chief Internal Auditor, external auditors and
Company Secretary regularly attend Audit & Risk
Management Committee meetings.
Remuneration & Succession Committee
The Remuneration & Succession Committee
assists the Board by reviewing and providing
recommendations to the Board on the recruitment,
retention and remuneration of the MD & CEO
and senior executives, as well as the performance
measurement arrangements for Directors, the MD
& CEO and senior executives.
Under the Remuneration & Succession Committee’s
Terms of Reference there must be at least three
members of the Committee, a majority of whom
must be independent Non-Executive Directors, and
the Chair of the Committee must be an independent
Non-Executive Director. Currently, the Committee
consists of four members that are all (including the
Chairman) independent Non-Executive Directors.
Governance & Nomination Committee
The Governance & Nomination Committee
assists the Board by reviewing and making
recommendations on the governance framework,
policies and compliance, as well as on Board
appointments, succession, diversity, composition
and performance.
Under its Terms of Reference, the Governance
& Nomination Committee is to consist of at least
three Board members. The Committee currently
consists of four members, including three
independent Non-Executive Directors. The Chairman
of the Governance & Nomination Committee is
an independent Non-Executive Director.
Safety & Environment Committee
The Safety & Environment Committee assists the
Board by reviewing and making recommendations
to the Board on safety and environmental
performance, strategies, policies and compliance.
Under its Terms of Reference, the Safety
& Environment Committee is to consist of at
least three Board members. The Committee
currently consists of four members, including
three independent Non-Executive Directors. The
Chairman of the Safety & Environment Committee
is an independent Non-Executive Director.
QR Network Board
QR Network Pty Ltd (QR Network) is a wholly-owned
subsidiary of QR National and operates the below
rail business of QR National. QR Network is subject
to ring-fencing obligations under the Queensland
Competition Authority Act 1997 (Qld) and the
access undertakings it provides to the Queensland
Competition Authority from time to time.
Additional governance requirements operate to
ensure that QR Network’s ring-fencing obligations
are met.
A majority of QR Network Directors are required
to be independent. The QR Network Board
is currently comprised of five Directors, including
three independent Non-Executive Directors.
The Network Board Charter is available on the
QR National website.
The Chairman of the QR Network Board is an
independent Non-Executive Director.
Board and Committee Performance
Evaluation
A performance review is undertaken annually in
relation to the Board and the Board Committees.
In addition to individual evaluation sessions
between the Chairman and individual Directors,
a formal self-evaluation questionnaire is used to
facilitate the annual performance review process.
The annual review of the Chairman of the Board
is facilitated by the Chairman of the Governance
& Nominations Committee.
During the year, a review and evaluation of the
performance of the Board, the Chairman, each
Director and each Board Committee was conducted
in accordance with the process described above.
As part its ongoing responsibilities, the Board
actively focuses on strategy development, the
development of talent and executive succession,
and engagement in the Company’s operations
by undertaking site visits.
Management Performance Evaluation
A key function of the Board is to monitor the
performance of management according to the
strategies and objectives decided by the Board.
The Board sets the financial, operational,
management and individual targets of the MD
& CEO annually. The MD & CEO (in consultation
with the Board) sets targets for his direct reports.
Performance against these targets is assessed
periodically throughout the year. Performance
evaluations for senior management have been
completed for the year end and details of the
process followed are set out in the Remuneration
Report within the Annual Report.
The Board, together with the Remuneration &
Succession Committee, reviews the performance
of the MD & CEO and Executive Leadership Team
members, inclusive of the CFO and Company
Secretary.
Further details are set out in the Remuneration
Report within the Annual Report.
42
ANNuAL REpORT 2011–12
Corporate Governance
Statement (continued)
MD & CEO, Senior Management and
Delegations
The day-to-day management of the Company
and the execution of the Company’s policies and
strategies are delegated to the MD & CEO, and
through the MD & CEO, to other Senior Executives.
The MD & CEO and those senior executives
comprising the Executive Leadership Team have
their roles and responsibilities set out in their
employment contracts.
Delegations made by the Board and the delegation
framework supporting delegations by the MD
& CEO are reviewed annually by the Board.
Executive Management Structure
The senior executive management structure of
the Company comprises the MD & CEO and the
Executive Leadership Team.
The Executive Leadership Team comprises the
MD & CEO and his direct reports.
The role of the Executive Leadership Team is to
provide the MD & CEO with support and assistance
in managing the Group’s performance and
implementing the key strategic initiatives set
by the Board.
The Executive Leadership Team supports the MD
& CEO in leading change in the QR National Group,
assessing risk and executing mitigation actions,
monitoring compliance with policies, developing
strategies for Board approval, assessing business
and key organisational matters and making
recommendations on courses of action.
The Executive Leadership Team also provides
organisational leadership to ensure alignment
and execution of corporate strategy.
Typically, the Executive Leadership Team meets
every week and has full day meetings once a month.
Remuneration Practices
The Company seeks to attract and retain high-
performance Directors and executives with
appropriate skills, qualifications and experience to
add value to the company and fulfil the roles and
responsibilities required.
Executive remuneration is to reflect performance
and, accordingly, remuneration is structured
with a fixed component and performance-based
remuneration component.
Non-Executive Directors are paid fixed fees for
their services in accordance with the Company’s
Constitution. Fees paid are a composite fee
(covering all Board and Committee responsibilities)
and any contributions by QR National to a fund
for the purposes of superannuation benefits for a
Director. No other retirement benefits schemes are
in place in respect to Non-Executive Directors.
The QR National Code of Conduct supports the
Company’s values and provides guidance on
Company expectations, with respect to compliance
with its ethical, legal and statutory obligations.
Senior Executive and Non-Executive
Director Share Holding and Retention
Policy
The Company has in place a share holding and
retention policy which applies to Non–Executive
Directors, the MD & CEO and the direct reports of
the MD & CEO. It provides that within six years of
the date of listing of the Company or appointment
(whichever is the later date):
• Non-Executive Directors are expected to
•
•
accumulate and maintain one year worth
of Directors’ fees of shares in the Company
(to be calculated with reference to the total
fees paid during the period divided by the
number of years).
The MD & CEO is expected to accumulate and
maintain one year worth of fixed remuneration
in shares in the Company (to be calculated
with reference to the total fixed remuneration
paid during the period divided by the number
of years).
The MD & CEO’s direct reports are expected
to accumulate and maintain 50% of one year
worth of fixed remuneration in shares in the
Company (to be calculated with reference to
the total fixed remuneration paid during the
period divided by the number of years).
Further information on remuneration is disclosed
on pages 24 to 38 in the Remuneration Report
within the Annual Report.
Code of Conduct
The Company recognises the critical importance of
integrity, honesty and fairness in its dealings.
QR National has adopted and continues to promote
its Company values, which are:
•
•
•
Safety – Safety of ourselves and others is our
number one priority.
Integrity – We are honest and fair and conduct
business with the highest ethical standards.
Leadership, Passion and Courage – We are
passionate about leading change. We deliver
results with energy and conviction.
• World Class Performance – We deliver world
class performance and superior value for our
shareholders, customers and staff.
These values shape how QR National makes
decisions, treats people, runs its business and
gets results.
The key principles of the Code of Conduct provide
that QR National Group employees must:
• Be safe and fit for work
• Behave professionally
•
Respect others
• Conduct ourselves lawfully, ethically and fairly
•
•
Responsibly manage conflicts of interest
Protect confidential information
• Use the Company’s systems, equipment,
property and tools appropriately
• Uphold securities exchange requirements
• Consider the community and the environment
•
Report suspected breaches of the Code of
Conduct.
Compliance and Assurance
Adherence to the Company’s Code of Conduct
and other policies is monitored by QR National’s
Internal Audit and Risk Management teams.
The Company also conducts an annual compliance
certificate process through which business units
evaluate and report to management on their
compliance with the Company’s key legislative
obligations.
An e-learning module was implemented during
the year to assist all QR National employees to
understand the Code. This training package was
recognised with an award at the Asia Pacific
Learning and Technology Impact Awards 2012.
Whistleblower Policy
The Company is committed to ensuring all of its
business activities are carried out in a way that is
both ethical and compliant and also recognises
that any genuine commitment to detecting and
preventing illegal and/or improper conduct must
include a mechanism whereby employees and
others can report their concerns freely and without
fear of reprisal or intimidation. QR National has
adopted a Whistleblower Policy that provides
such a mechanism.
The Whistleblower Policy provides guidance on how
illegal or improper conduct can be reported, how
it will be investigated, and the protection available
to those acting as whistleblowers. QR National has
established a Whistleblower Hotline as a means by
which concerns about illegal or improper conduct
can be reported.
CORpORATE GOVERNANCE STATEmENT | QR NATIONAL
4343
Political Donations
QR National has a policy of impartiality with
respect to party politics and does not make
donations to political parties or their members.
Diversity
QR National has a Diversity Policy which sets out its
objectives and reporting practices with respect to
diversity. This policy is available on the QR National
website.
The measurable objectives for gender diversity,
agreed by QR National’s Board in 2011 for the
2012 year, are set out below:
• At least one female Director at all times
•
•
The percentage of females in the Management
Leadership Team to be a minimum of 15% by
the end of FY13
From FY12 at least 25% of future graduate
intakes to be female.
A comparative of QR National Group’s female
employees between 30 June 2011 and 30 June
2012 is set out below:
•
•
•
•
12.35% of total employees at 30 June 2012
(11.64% at 30 June 2011)
10.53% of Management Leadership Team
at 30 June 2012 (11.29% at 30 June 2011)
30% of graduate intake
22% of the Board at 30 June 2012
(11.11% at 30 June 2011).
During the year, QR National established a
Diversity Council. Consistent with the stated
purpose of the QR National Diversity Policy, the
aim of the Diversity Council is to build a workforce
and a work environment that promotes diversity by
employing people from both genders, with different
gender identities, impairments and abilities, ages,
languages, ethnicities, cultural backgrounds, sexual
orientations, religious beliefs, political beliefs, trade
union activities, parental and family responsibilities,
and social backgrounds. During the year, the
Diversity Council successfully established various
nationwide initiatives including:
• A Senior Women’s Networking Group was
•
established in December 2011, providing the
opportunity for female employees to connect
and network with women in senior and middle
management positions within QR National.
The Group meets on a bi-monthly basis.
The Inaugural QR National International
Women’s Day Lunch was launched. Women
from high schools, universities and Indigenous
groups had the opportunity to hear from
and engage with women employed in a range
of positions in QR National.
• Management leadership teams have
undertaken development to raise
understanding and awareness of unconscious
bias and how it can influence key decision-
making in recruitment, promotion and
development opportunities.
• Women in senior roles have been sponsored
to participate in the Chief Executive Women’s
Leaders program. QR National hosted a
Chief Executive Women’s program session
in May 2012.
• QR National is committed to increasing
Indigenous employment across its national
footprint. The Company signed the Australian
Employment Covenant in 2011 to provide
sustainable job opportunities for Indigenous
Australians. Through the work of an
Indigenous Ambassador, the Major Skills team,
and management, throughout key locations,
QR National has been able to build important
relationships and networks with local
communities, high schools and employment
groups, resulting in increased employment
prospects for Indigenous young people.
• A variety of employment strategies including
site visits, school talks, Indigenous career
fairs, work experience, school-based
apprentices and full apprenticeships, have
been used for Indigenous young men and
women to join QR National. Mentors have
been used to support these young people
through their careers.
• QR National has reviewed its recruitment
practices to ensure there are no barriers
for Indigenous applicants. This has included
cross-cultural training for the National
Employment Centre staff.
Corporate Responsibility Statement
QR National recognises that acting responsibly,
operating in a sustainable manner, making a
positive contribution to society is vital to our
ongoing business success.
We adhere to the following principles:
Safety
•
Safety for ourselves and others is our number
one priority.
• We work with our people, customers and
suppliers to create and maintain a safe
workplace.
• We have comprehensive safety policies and
are committed to our target of ZEROHarm.
Community
• We support the communities in which we
work through community investment and
engagement programs.
• We are part of the community and we are
here for the long term.
People
• We are committed to promoting a non-
discriminatory, diverse, inclusive, respectful
and collaborative business.
• We promote equal employment opportunity
in our recruitment, selection and employment
practices.
• We are committed to the ongoing education
and training of our people.
Performance
• We strive to deliver world-class performance
and superior value for our customers.
• We deliver results with energy and conviction.
• We commit to delivering outstanding corporate
performance and returns to our shareholders.
Integrity
• We adhere to our Code of Conduct.
• We are honest and fair, and conduct business
with the highest ethical standards.
• We adhere to high standards of corporate
governance, and report annually on our
corporate governance.
Environment
• We responsibly consider the community and
the environment in our actions and decisions.
• We are committed to the efficient use of
resources, and waste minimisation.
• We are committed to promoting rail as an
energy efficient mode of transport.
Details of the Company’s safety, people,
environment and community activities and
details of the Company’s sustainability activities
are set out on pages 14 to 17 of the Annual Report.
Disclosure and Communications Policy
QR National is committed to keeping its
shareholders fully informed on all matters that are
relevant or material to its financial performance.
QR National has detailed policies and procedures
in place to ensure compliance with ASX Listing
Rules and Corporations Act continuous disclosure
requirements including a Disclosure and
Communications Policy.
In addition to complying with its disclosure
obligations under Listing Rule 3.1 by issuing
ASX announcements, QR National communicates
with its shareholders through its Half Year Results,
Full Year Results and Annual Report. Market
announcements made to the ASX are also made
available on the QR National website. Shareholders
are also given an opportunity to ask questions of
the Company at its Annual General Meeting.
44
ANNuAL REpORT 2011–12
Corporate Governance
Statement (continued)
These policies and practices ensure that all
shareholders and investors have equal access
to QR National’s information.
Disclosure Committee
In accordance with the Company’s Disclosure
and Communications Policy the Company has
established a Disclosure Committee.
The Disclosure Committee’s role is to consider
potentially material price sensitive information and
determine whether that information is required to
be disclosed to the ASX.
The members of the Committee may vary from
time to time but must consist of at least two
members of the Executive Leadership Team and
a Non-Executive Director of the Company. In
practice, the Committee has comprised the MD
& CEO, CFO, Company Secretary and Chairman
of the Board.
The Company has established guidelines to assist
officers and employees of the Company with
complying with the Company’s Disclosure and
Communications Policy and these are available
on the QR National website.
Securities Dealing
QR National is committed to ensuring the Company
and its employees act lawfully at all times in their
dealings with securities and inside information.
The Company’s Securities Dealing Policy applies
to all Directors and employees of the Group and:
•
•
•
Provides guidance on the legal restrictions
on dealing in securities
Prescribes share trading black-out periods
(commencing 1 January and 1 July and
continuing until, and inclusive of, the day
of filing each of the Half Year and Full Year
Financial Reports respectively)
Sets out additional limitations on trading by
Directors and executives including a prohibition
on margin loans and hedging arrangements.
Material Business Risk Management
The Company is committed to managing risks in
an integrated, systematic and practical manner.
The overall objective of risk management is to
assist the Company to achieve its objectives
by appropriately considering both threats and
opportunities and making informed decisions.
The Audit & Risk Management Committee
oversees the process for identifying and managing
risk in QR National, in accordance with the
Risk Management, Compliance & Assurance Policy
(Risk Policy).
The Chief Internal Auditor provides ongoing
audit reports to the Audit & Risk Management
Committee, as well as an annual assessment of
the adequacy and effectiveness of the Group’s
control processes and risk management procedures.
The external audit function is performed by
PricewaterhouseCoopers.
QR National has adopted a Non-Audit Services
Policy which prescribes the manner in which
QR National will engage PricewaterhouseCoopers,
without compromising their independence as the
Company’s external auditor.
The Non-Audit Services Policy also sets out
prohibited services which PricewaterhouseCoopers
may not provide to the Company in order to
maintain the independence required to execute
the role of external auditor. In essence, this policy
provides that PricewaterhouseCoopers must not
provide services that have the potential to impair or
appear to impair the independence of its audit role.
PricewaterhouseCoopers has provided an Auditor’s
Independence Declaration in relation to its audit
of the QR National FY12 Financial Report. A copy
of this Declaration is set out on page 23 of the
Annual Report.
Further details are set out in the Directors’ Report
on pages 18 to 44 of the Annual Report.
CEO and CFO Declaration
The Board has obtained a written assurance from
the MD & CEO and CFO that the declaration
provided under section 295A of the Corporations Act
and Corporate Governance Principle 7.3 are founded
on a sound system of risk management and internal
control, and that the system is operating effectively
in all material respects in relation to financial
reporting and material business risks.
The MD & CEO and CFO Declaration, relating
to the Company’s Financial Report for the year
ended 30 June 2012, was provided prior to
approving and signing the Financial Report.
The Risk Policy, summarised below, sets out the
actions that QR National will undertake to
manage risk:
• Applying risk tolerance thresholds, both at
the enterprise level and at the business level,
for each major category of identified risks.
• Developing, implementing and maintaining
principles and processes that support the
effective management of QR National’s
compliance obligations.
•
Effectively managing risks and compliance
obligations, documenting risk management
and compliance activities, and providing timely
assurance to the MD & CEO and the Board.
• Assessing and continuously improving the
effectiveness of the risk management and
compliance processes and controls, through
training, ongoing monitoring, periodic reviews,
communication and consultation.
During the reporting period management has
reported to the Board on the effectiveness of the
Company’s management of material business risks.
Management has confirmed that the Company’s
Risk Management, Compliance & Assurance
Framework (Framework) and Risk Policy align
with the best practice guidelines, and that the
Framework is adequate in terms of its design and
content to give effect to the Risk Policy.
Further supporting the Company’s risk
management processes QR National has:
• An internal audit function that is independent
of the external auditor (described below)
• A risk register with risk profiles populated at the
various layers of the organisation
• A management specification that outlines the
processes for the prevention, detection and
management of fraud within QR National, and
for fair dealing in matters pertaining to fraud.
Internal and External Audit
The Company has an internal audit function
that operates under an internal audit charter.
The internal audit function is independent of
management and the external auditor, and
is overseen by the Audit & Risk Management
Committee.
Financial
Report
for the year ended
30 June 2012
ABN: 14 146 335 622
These financial statements are the consolidated financial statements
of the consolidated entity consisting of QR National Limited and
its subsidiaries (“Group”). The financial statements are presented in
Australian dollars.
QR National Limited is a company limited by shares, incorporated
and domiciled in Australia. Its registered office is:
QR National Limited
Level 17
175 Eagle Street
BRISBANE, QLD 4000
A description of the nature of the consolidated entity’s operations
and its principal activities are included in the review of operations
and activities and in the Directors’ Report, which are not part of these
financial statements.
The financial statements were authorised for issue by the Directors on
23 August 2012. The Directors have the power to amend and reissue
the financial statements.
Through the use of the internet, we have ensured that our corporate
reporting is timely and complete. All press releases, financial reports
and other information are available at our Investor Centre on our
website; www.qrnational.com.au.
FINANCIAL REPORT | QR NATIONAL
QR NATIONAL
45
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
1
2
3
4
5
Summary of significant accounting policies
Critical accounting estimates and judgements
Financial risk management
Segment information
Revenue
6 Other income
7
8
9
Expenses
Income tax expense
Cash and cash equivalents
10 Trade and other receivables
11
Inventories
12 Derivative financial instruments
13 Other assets
14
Investments accounted for using the equity method
15 Property, plant and equipment
16
Intangible assets
17 Other financial assets
18 Deferred tax assets
19 Trade and other payables
20 Borrowings
21 Provisions
22 Other liabilities
23 Deferred tax liabilities
24 Contributed equity
25 Reserves
26 Dividends
27 Key management personnel disclosures
28 Contingencies
29 Commitments
30
Interests in joint ventures and associates
31 Related party transactions
32 Business combination
33 Deed of cross guarantee
34 Remuneration of auditors
35 Reconciliation of profit after income tax to net cash
inflow from operating activities
36 Earnings per share
37 Share-based payments
38 Parent entity financial information
39 Events occurring after the reporting period
Directors’ declaration
Independent auditor’s report to the members of QR National Limited
46
46
47
48
49
50
50
61
62
66
69
69
70
71
71
72
72
73
73
73
74
75
75
75
76
76
76
78
78
79
79
80
80
82
83
84
85
86
86
88
88
89
89
91
91
91
92
46
ANNuAL REPORT 2011–12
Consolidated inCome statement
For the year ended 30 June 2012
Revenue from continuing operations
Other income
Consumables
Employee benefits expense
Depreciation and amortisation expense
Other expenses
Finance costs
Share of net profit of associates and joint venture partnership accounted for using the equity method
Profit before income tax
Income tax (expense)/benefit
Profit for the year
Notes
5
6
7
7
7
7
7
8
2012
$m
3,504.0
130.1
(1,400.1)
(1,132.7)
(463.7)
(41.9)
(41.5)
0.1
554.3
(113.4)
440.9
2011(1)
$m
3,196.7
96.0
(1,327.2)
(1,220.5)
(457.2)
(62.8)
(141.2)
-
83.8
277.1
360.9
Cents
Cents
Earnings per share for profit attributable to the ordinary equity holders of the Company:
Basic and diluted earnings per share
36
18.1
15.4
The above consolidated income statement should be read in conjunction with the accompanying notes.
Consolidated statement oF Comprehensive inCome
For the year ended 30 June 2012
Profit for the year
Other comprehensive income
Changes in the fair value of cash flow hedges recognised in equity
Changes in the fair value of cash flow hedges recognised in the income statement
Income tax relating to components of other comprehensive income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result of a change in accounting policy.
Notes
2012
$m
2011(1)
$m
440.9
360.9
25(a)
25(a)
8(c)
(1.4)
1.8
(0.1)
0.3
(2.3)
1.9
0.1
(0.3)
441.2
360.6
Consolidated balanCe sheet
as at 30 June 2012
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Derivative financial instruments
Inventories
Property, plant and equipment
Intangible assets
Investments accounted for using the equity method
Other financial assets
Other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Derivative financial instruments
Trade and other payables
Provisions
Other liabilities
Current tax liabilities
Total current liabilities
Non-current liabilities
Derivative financial instruments
Provisions
Borrowings
Deferred tax liabilities
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result of a change in accounting policy.
FINANCIAL REPORT | QR NATIONAL
47
Notes
9
10
11
12
13
15
12
11
15
16
14
17
12
19
21
22
12
21
20
23
22
24(b)
25(a)
2012
$m
98.8
548.1
215.8
0.1
8.0
8.7
879.5
-
8.7
9,037.2
16.6
78.0
-
0.5
9,141.0
10,020.5
1.3
349.6
371.4
37.5
7.9
767.7
2.0
81.3
1,201.6
363.5
310.2
1,958.6
2,726.3
7,294.2
6,119.1
(2.0)
1,177.1
7,294.2
2011(1)
$m
117.1
473.5
177.6
21.3
10.6
-
800.1
3.5
20.7
8,325.2
24.9
0.5
36.3
-
8,411.1
9,211.2
27.3
310.2
320.2
36.2
-
693.9
3.8
81.3
803.2
257.9
344.7
1,490.9
2,184.8
7,026.4
6,111.9
(2.3)
916.8
7,026.4
48
ANNuAL REPORT 2011–12
Consolidated statement oF Changes in equity
For the year ended 30 June 2012
Attributable to owners of QR National Limited
Balance at 1 July 2010
Impact of change in accounting policy (net of tax)
Restated total equity at the beginning of the financial year
Profit for the year as reported in 2011 financial statements
Impact of change in accounting policy (net of tax)
Restated profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Capital distribution to Queensland Rail Limited
Capital distribution to State of Queensland
Capital contribution from State of Queensland
Dividends provided for or paid
Share-based payments
Balance at 30 June 2011
Balance at 1 July 2011
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Share-based payments
Balance at 30 June 2012
Notes
1(q)
1(q)
24(c)
24(c)
24(b)
26(a)
24(b)
26(a)
24(b)
Contributed
equity
$m
2,067.0
–
2,067.0
–
–
–
–
–
(332.3)
(23.0)
4,397.3
–
2.9
4,044.9
6,111.9
6,111.9
–
–
–
–
7.2
Reserves
$m
(2.0)
–
(2.0)
–
–
–
(0.3)
(0.3)
–
–
–
–
–
–
(2.3)
(2.3)
–
0.3
0.3
–
–
Retained
profits
$m
619.0
23.3
642.3
349.5
11.4
360.9
–
360.9
–
–
–
(86.4)
–
(86.4)
Total
equity
$m
2,684.0
23.3
2,707.3
349.5
11.4
360.9
(0.3)
360.6
(332.3)
(23.0)
4,397.3
(86.4)
2.9
3,958.5
916.8
7,026.4
916.8
440.9
–
440.9
(180.6)
–
7,026.4
440.9
0.3
441.2
(180.6)
7.2
7,294.2
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
6,119.1
(2.0)
1,177.1
Consolidated statement oF Cash Flows
For the year ended 30 June 2012
FINANCIAL REPORT | QR NATIONAL
49
Cash flows from operating activities
Receipts from customers
Interest received
Payments to suppliers and employees
Interest and other costs of finance paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Payments for acquisition of business, net of cash acquired
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
Payments for investment in associates
Payments for available-for-sale financial assets
Proceeds from sale of business
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to Company's shareholders
Net cash inflow from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial half-year
Cash and cash equivalents at end of year
Notes
2012
$m
2011(1)
$m
3,884.3
2.5
(2,881.7)
(80.7)
–
924.4
–
45.8
(1,156.3)
(41.2)
–
–
3,665.8
3.2
(2,847.1)
(234.5)
(2.3)
585.1
(12.3)
21.3
(1,352.0)
–
(0.5)
2.1
(1,151.7)
(1,341.4)
390.0
–
(180.6)
209.4
(17.9)
116.7
98.8
1,423.3
(471.2)
(86.4)
865.7
109.4
7.3
116.7
35
32
26(a)
9
Given the short-term nature of the drawdowns and repayments, cash flows in relation to the Syndicated Debt Facility (effective from November 2010) are presented
on a net basis in the cash flows from financing activities.
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result of a change in accounting policy.
50
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise
stated. The financial statements are for the consolidated entity consisting
of QR National Limited (“the company”) and its subsidiaries, and together
are referred to as the “Group” or “QR National”.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance
with Australian Accounting Standards, other authoritative pronouncements
of the Australian Accounting Standards Board and the Corporations Act 2001.
QR National Limited is a for-profit entity for the purpose of preparing the
financial statements.
The financial statements were approved for issue by the Directors on
23 August 2012. The Directors have the power to amend and reissue the
financial statements.
(i) Compliance with IFRS
The consolidated financial statements of the Group also comply with
International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).
(ii) New and amended standards adopted by the Group
The Group adopted a number of Australian Accounting Standards and
Interpretations which were mandatory for annual reporting periods
beginning on or after 1 July 2011. There has been no effect on the financial
performance or position of the Group from the adoption of these standards
and interpretations.
(iii) Historical cost convention
These financial statements have been prepared under the historical cost
convention, as modified by the revaluation of available-for-sale financial
assets, and financial assets and liabilities (including derivative instruments)
at fair value.
(iv) Critical accounting estimates
The preparation of financial statements requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement
in the process of applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the financial statements, are disclosed in note 2.
(b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities
of all subsidiaries of the Group as at reporting date, and the results of all
subsidiaries for the year then ended.
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies, generally accompanying a shareholding of
more than one-half of the voting rights.
Subsidiaries are fully consolidated from the date on which control is transferred
to the Group, and deconsolidated from the date that control ceases.
Transactions between continuing and discontinued operations are treated
as external from the date the operation was discontinued.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated on consolidation.
(ii) Associates
Associates are all entities over which the Group has significant influence but
not control or joint control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Investments in associates are accounted
for using the equity method of accounting, after initially being recognised
at cost. The Group’s investment in associates includes goodwill identified on
acquisition. Details of investment in associates are set out in note 30(d).
The Group’s share of its associates’ post-acquisition profits or losses
is recognised in profit or loss, and its share of post-acquisition 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
are recognised as reduction in the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest
in the associate, including any other unsecured long-term receivables, the
Group does not recognise further losses, unless it has incurred obligations or
made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are
eliminated to the extent of the Group’s 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 Group.
(iii) Joint ventures
Jointly controlled assets or operations
Where the Group has jointly controlled assets or operations, the proportionate
interests in the assets, liabilities, revenues and expenses of a joint venture
activity are incorporated in the financial statements under the appropriate
headings. Details of joint venture operations and jointly controlled assets are
set out in note 30(a) and (b).
Joint venture entities
Where the Group has an interest in a joint venture entity, the interest is
accounted for using the equity method, after initially being recognised at cost.
Under the equity method, the share of the profits or losses of the joint venture
entity is recognised in the income statement, and the share of post-acquisition
movements in reserves is recognised in other comprehensive income. Details of
joint venture entities are set out in note 30(c).
Profits or losses on transactions establishing the joint venture entity, and
transactions with the joint venture, are eliminated to the extent of the Group’s
ownership interest, until such time as they are realised by the joint venture
entity on consumption or sale. However, a loss on the transaction is recognised
immediately if the loss provides evidence of a reduction in the net realisable
value of current assets, or an impairment loss.
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Executive
Leadership Team (“ELT”).
notes to the Consolidated FinanCial statements
30 June 2012
FINANCIAL REPORT | QR NATIONAL
51
1 Summary of significant accounting policies (continued)
(d) Foreign currency and commodity transactions
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are
measured using the currency of the primary economic environment in which
the entity operates (“the functional currency”). The consolidated financial
statements are presented in Australian dollars, which is QR National Limited’s
functional and presentation currency.
(ii) Transactions and balances
Where the Group is exposed to the risk of fluctuations in foreign exchange
rates and commodity prices, it enters into financial arrangements to reduce this
exposure. While the value of these financial instruments is subject to risk that
market rates/prices may change subsequent to acquisition, such changes will
generally be offset by opposite effects on the items being hedged.
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, except when they are deferred in equity as qualifying cash flow hedges
and qualifying net investment hedges, or are attributable to part of the net
investment in a foreign operation.
Foreign exchange gains and losses that relate to borrowings are presented in
the income statement, within finance costs. All other foreign exchange gains
and losses are presented in the income statement on a net basis within other
income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was
determined. Translation differences on assets and liabilities carried at fair
value are reported as part of the fair value gain or loss. For example, translation
differences on non-monetary assets and liabilities, such as equities held at
fair value through profit or loss, is recognised in profit or loss as part of the fair
value gain or loss, and translation differences on non-monetary assets, such as
equities classified as available-for-sale financial assets, are recognised in other
comprehensive income.
(e) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable. Amounts disclosed as revenue are net of returns, trade allowances,
rebates, and amounts collected on behalf of third parties.
The Group recognises revenue when the amount of revenue can be reliably
measured, it is probable that future economic benefits will flow to the entity,
and specific criteria have been met for each of the Group’s activities as
described below. The Group bases its estimates on historical results, taking
into consideration the type of customer, the type of transaction, and the
specifics of each arrangement.
Revenue is recognised for the major business activities as follows:
(i) Services revenue
Services revenue comprises revenue earned from the provision of the
following services:
• Track access
• Freight transport
• Other services revenue.
The Group also has operations that provide construction and engineering services
that are substantially internal to the Group and eliminate on consolidation.
Track access
Access revenue generated from the regulated rail network Central Queensland
Coal Network (“CQCN”) is recognised as services are provided, and is calculated
on a number of operating parameters such as the tonnage hauled, and applied
to regulator-approved tariffs. The tariff is determined by the total maximum
allowable revenue, applied to the regulatory approved annual tonnage forecast.
Where annual actual tonnages railed are less than the annual tonnage
forecast, an annual take or pay mechanism may become operative. A variable
component of take or pay may also be applied where tonnage forecasts do not
meet certain consecutive monthly thresholds. The take or pay portion of
access revenue is recognised in the year the contractual railings were not achieved.
In addition, access revenue is subject to a revenue cap mechanism that serves
to ensure the network recovers its maximum allowable revenue over the
regulatory period, such that where actual tonnages railed are less than the
regulatory approved tonnage forecast, the revenue shortfall (net of take or pay)
is recovered in subsequent years, and conversely, where actual tonnages railed
are greater, the excess revenue received is refunded through the access tariffs
in subsequent years. The majority of under or over recovery in access tariffs
(net of take or pay charges) are recognised as revenue in the second year
following the period in which the contractual railings were not achieved in
accordance with the regulatory framework.
Freight transport
Revenue from freight transport services is calculated based on the rates
agreed with customer on a tonnes per delivery basis, either by way of
long-term contract or on an ad-hoc basis. Revenue is recognised once the
service has been provided.
In some circumstances, the Group is able to recover extra charges where the
revenue receivable (based on tonnage hauled and agreed price) falls below
minimum levels under contractual arrangements with customers. These
additional revenues include Deficit Tonnage Charges (“DTC”). Recognition
of DTC revenue is considered on a contract-by-contract basis, and generally
recognised in the period following that in which the service was due to be
provided (where the customer elects to pay the charges rather than to reduce
future tonnage entitlements).
Other services revenue
Revenue includes Transport Service Contract (“TSC”) payments received from
Queensland Department of Transport and Main Roads for some specific rail
and road-based regional freight services and livestock transportation services.
Base amounts receivable under the TSC (regional freight and livestock) are
recognised on a straight-line basis over the term of the contract. Additional
payments are recognised when the revenue can be measured reliably on a
‘stage of completion’ basis over the term of the agreement. Refer to note 5 for
details related to TSC revenue recognised in the financial statements.
(ii) Other revenue
Revenue from other service works is recognised by reference to the contractual
entitlement.
52
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(e) Revenue recognition (continued)
(ii) Other revenue (continued)
Access facilitation deeds for mine-specific infrastructure
The Group builds mine-specific infrastructure for customers and provides
access to those clients under access facilitation deeds. In substance, charges
under the deeds comprise capital charges and interest charges (where the
Group finances the assets). The capital charges are recognised on a straight-
line basis over the term of the access facilitation deed, while the interest
charges are accrued in accordance with the contractual terms of the access
facilitation deed arrangements. Where the customer prepays the future charges,
the amounts received are recognised as deferred income and recognised within
income, on a straight-line basis over the term of the access facilitation deed.
Liquidated damages
Liquidated damages occur when contractors fail to meet the key performance
indicators set out in their contract with the Group. Income resulting from
claims for liquidated damages is recognised as other income when all
performance obligations are met (including when a contractual entitlement
exists), it can be reliably measured (including the impact of the receipt, if any,
on the underlying asset’s carrying value) and it is probable that the economic
benefits will flow to the Group.
(f) Other income
(i) Disposal of assets
The gain or loss on disposal of assets is recognised at the date the significant
risks and rewards of ownership of the asset passes to the buyer, usually when
the purchaser takes delivery of the assets. The gain or loss on disposal is
calculated as the difference between the carrying amount of the asset at the
time of disposal and the net proceeds on disposal and is recognised as other
income or expenses in the income statement.
(ii) Interest income
Interest income is recognised using the effective interest method.
(iii) Government grants
Grants from the government are recognised at their fair value, where there is a
reasonable assurance that the grant will be received and the Group will comply
with all attached conditions.
Government grants relating to costs are deferred, and recognised in the income
statement over the period necessary to match those with the costs that they
are intended to compensate.
(iv) Dividends
Dividends are recognised as revenue when the right to receive payment
is established.
(v) Fuel Rebates
Fuel rebates are recognised as revenue during the period in which they relate.
(g) Income tax
The income tax expense or revenue for the period is the tax payable on the
current period’s taxable income, based on the applicable income tax rate for
each jurisdiction, adjusted for the changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws
enacted (or substantively enacted) at the end of the reporting period in the
countries where the Group’s subsidiaries and associates operate and generate
taxable income. Management periodically evaluates positions taken in tax
returns, with respect to situations in which applicable tax regulation is subject
to interpretation. It establishes provisions, where appropriate, on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, deferred
tax liabilities are not recognised if they arise from the initial recognition of
goodwill. Deferred income tax is also 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 the transaction affects neither accounting
nor taxable profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the end of the
reporting period, 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 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.
Deferred tax liabilities and assets are not recognised for temporary differences
between the carrying amount and tax bases of investments in foreign
operations where the company is able to control the timing of the reversal
of the temporary differences, and it is probable that the differences will not
reverse in the foreseeable future.
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. Current tax assets and tax
liabilities are offset where the entity has a legally enforceable right to offset,
and intends either to settle on a net basis, or to realise the asset and settle the
liability simultaneously.
To the extent that an item is recognised directly in equity, the deferred tax is
also recognised directly in equity.
(h) Leases
Leases on property, plant and equipment
Leases of property, plant and equipment, where the Group, as lessee, has
substantially all the risks and rewards of ownership, are classified as finance
leases. Finance leases are capitalised at the leases inception at the fair value
of the leased property or, if lower, the present value of the minimum lease
payments. The corresponding rental obligations, net of finance charges, are
included in other short-term and long-term payables. Each lease payment is
allocated between the liability and finance cost. The finance cost is charged to
profit or loss over the lease period, so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period. The property,
plant and equipment acquired under finance leases is depreciated over the
asset’s useful life or over the shorter of the asset’s useful life and the lease
term if there is no reasonable certainty that the Group will obtain ownership at
the end of the lease term.
Leases in which a significant portion of the risks and rewards of ownership
are not transferred to the Group as lessee are classified as operating leases.
Payments made under operating leases (net of any incentives received from
the lessor) are charged to the income statement on a straight-line basis over
the period of the lease.
Rental revenue from operating leases where the Group is a lessor is recognised
as income on a straight-line basis over the lease term. Where a sale and lease-
back transaction has occurred, the lease is classified as either a finance lease or
operating lease, based on the factors described above.
FINANCIAL REPORT | QR NATIONAL
53
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(h) Leases (continued)
Cross-border leases
The cross-border lease arrangement does not, in substance, involve a lease.
The arrangement involves transferring the legal title of the rollingstock to the
lessor, but the Group retains the risk and rewards incidental to ownership of
the rollingstock and enjoys substantially the same rights to its use as before
the arrangement. Under the cross-border lease arrangement, the rollingstock
cannot be sold without the consent of the lessor. The rollingstock is depreciated
based on its estimated useful life, as the Group intends to re-acquire the legal
title of these assets. Benefits received from the cross-border lease arrangement
are recognised as income at the inception of the arrangement.
Where it is necessary under the cross-border lease provisions to terminate
part or all of a lease due to damaged or disposed leased assets, and there is a
difference between the value of the owned asset and the termination cost of
the leased asset, the net book value of the damaged asset is recognised in the
income statement as loss (or gain) on disposal, and termination costs incurred
are recognised in the income statement as other expenses.
(i) Business combinations
The acquisition method of accounting is used to account for all business
combinations, 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 Group. The consideration transferred also
includes the fair value of any asset or liability resulting from a 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. On an acquisition-by-acquisition basis,
the Group recognises any non-controlling interest in the acquiree, either at fair
value or at the non-controlling interest’s proportionate share of the acquiree’s
net identifiable assets.
The excess of the consideration transferred, and the amount of any non-
controlling interest in the acquiree over the fair value of the net identifiable
assets acquired, is recorded as goodwill. If those amounts are less than the
fair value of the net identifiable assets of the subsidiary acquired, and the
measurement of all amounts has been reviewed, the difference is recognised
directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts
payable in the future are discounted to their present value as at the date
of exchange. The discount rate used is the entity’s incremental borrowing
rate, being the rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability.
Amounts classified as a financial liability are subsequently remeasured to fair
value, with changes in fair value recognised in profit or loss.
Impairment of assets
(j)
Goodwill, and intangible assets that have an indefinite useful life, are not
subject to amortisation and are tested annually for impairment, or more
frequently if events or changes in circumstances indicate they might be
impaired. Other assets are tested for impairment whenever events or changes
in circumstances indicate 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. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows, largely independent of the cash flows from
other assets or groups of assets (cash-generating units).
The recoverable amount is the greater of an asset’s fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset.
Impairment losses are recognised in the income statement. After the
recognition of an impairment loss, the depreciation (amortisation) charge for
the asset is adjusted in future periods, to allocate the asset’s revised carrying
amount, less its residual value (if any), on a systematic basis over its remaining
useful life. Impairment losses, if any, recognised in respect of cash-generating
units, are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units, and then, to reduce the carrying amount
of other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other
non-financial assets, impairment losses recognised in prior periods are assessed
at each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed only to the extent the asset’s
carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had
been recognised.
(k) Cash and cash equivalents
For the purpose of presentation in the statement of cash flow, cash and
cash equivalents include cash on hand, deposits held ‘at call’ with financial
institutions, and other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible to known amounts
of cash and which are subject to an insignificant risk of changes in value.
(l) Trade and other receivables
Trade and other receivables are recognised initially at fair value, and
subsequently measured at amortised cost using the effective interest method,
less provision for impairment. Trade receivables generally have credit terms
ranging from seven to 31 days. They are presented as current assets, unless
collection is not expected for more than 12 months after the reporting date.
Collectability of trade and other receivables is reviewed on an ongoing basis.
Debts which are known to be uncollectible are written off by reducing the
carrying amount directly. A provision for impairment of trade and other
receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due, according to the original terms
of the receivables.
Significant financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation, and default or delinquency in
payments (more than 90 days overdue) are considered indicators that the
trade receivable is impaired. The amount of the impairment allowance is the
difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective interest rate.
Cash flows relating to short-term receivables are not discounted if the effect of
discounting is immaterial.
The amount of the impairment loss is recognised in the income statement
within other expenses. When a trade or other receivable for which an
impairment allowance had been recognised becomes uncollectible in a
subsequent period, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against other
expenses in the income statement.
54
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(m) Inventories
Inventories include items held in centralised stores, workshops, and
infrastructure and rollingstock depots, and are stated at the lower of cost and
net realisable value. Cost comprises the cost of purchase, cost of conversion,
and other costs incurred in bringing the inventories to its present location
and condition. Cost is determined predominantly on an average cost basis.
Items expected to be consumed after more than one year are classified as
non-current.
The provision for inventory obsolescence is based on assessments by
management of particular inventory classes, and relates specifically to
infrastructure and rollingstock maintenance items. The amount of the provision
is based on a proportion of the value of damaged stock, slow-moving stock,
and stock that has become obsolete during the reporting period.
(n) Investments and other financial assets
Classification
The Group classifies its non-derivative financial assets in the following
categories: financial assets at fair value through profit or loss, loans and
receivables, and ‘available-for-sale’ financial assets. The classification depends
on the purpose for which the investments were acquired. Management
determines the classification of its investments at initial recognition.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for
trading. A financial asset is classified in this category if acquired principally
for the purpose of selling in the short term. Derivatives are classified as held
for trading unless they are designated as hedges. Assets in this category are
classified as current assets if they are expected to be settled within 12 months,
otherwise they are classified as non-current.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
are included in current assets, except for those with maturities greater than
12 months after the reporting period, which are classified as non-current
assets. Loans and receivables are included in trade and other receivables
(note 10) in the balance sheet.
Measurement
At initial recognition, the Group measures a financial asset at its fair value
plus, in the case of a financial asset not at fair value through the income
statement, transaction costs that are directly attributable to the acquisition
of the financial asset. Transaction costs of financial assets carried at fair value
through the income statement are expensed in the income statement.
Loans and receivables are subsequently carried at amortised cost using the
effective interest method. Available-for-sale financial assets are subsequently
carried at fair value. Changes in the fair value of other monetary and non-
monetary securities classified as available-for-sale are recognised in equity,
unless they are impaired.
The Group assesses at each reporting date whether there is objective evidence
that a financial asset (or group of financial assets) are impaired. A financial
asset (or a group of financial assets) is impaired and impairment losses are
incurred only if there is objective evidence of impairment, as a result of one
or more events that occurred after the initial recognition of the asset (a “loss
event”) and that loss event (or events) has an impact on the estimated future
cash flows of the financial asset (or group of financial assets) that can be
reliably estimated. In the case of securities classified as available-for-sale, a
significant or prolonged decline in the fair value of a security below its cost is
considered as an indicator that the securities are impaired.
Assets carried at amortised cost
For loans and receivables, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated
future cash flow (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The carrying
amount of the asset is reduced, and the amount of the loss is recognised, in the
income statement. If a loan has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined
under the contract. As a practical expedient, the Group may measure
impairment on the basis of an instrument’s fair value using an observable
market price.
If, in a subsequent period, the amount of the impairment loss decreases,
and the decrease can be related objectively to an event occurring after the
impairment was recognised (such as an improvement in the debtor’s credit
rating), the reversal of the previously recognised impairment loss is recognised
in the income statement.
(iii) Available-for-sale financial assets
Assets classified as available-for-sale
Available-for-sale financial assets, comprising principally marketable equity
securities, are non-derivatives that are either designated in this category or
not classified in any of the other categories. They are included in non-current
assets unless the investment matures or management intends to dispose of the
investment within 12 months of the end of the reporting period. Investments
are designated as available-for-sale if they do not have fixed maturities and
fixed or determinable payments and management intends to hold them for the
medium to long-term.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on trade date
being the date on which the Group commits to purchase or sell the asset.
Financial assets are derecognised when the rights to receive cash flows from
the financial assets have expired or have been transferred and the Group has
transferred substantially all the risks and rewards of ownership. When securities
classified as available-for-sale are sold, the accumulated fair value adjustments
recognised in equity are reclassified to the income statement as gains or losses
from investment securities.
If there is objective evidence of impairment for available-for-sale financial
assets, the cumulative loss (measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that financial asset
previously recognised in profit or loss) is removed from equity and recognised
in the income statement. Impairment losses on equity instruments that are
recognised in the income statement are not reversed through the income
statement in a subsequent period.
If the fair value of a debt instrument classified as available-for-sale increases
in a subsequent period, and the increase can be objectively related to an
event occurring after the impairment loss was recognised in profit or loss,
the impairment loss is reversed through profit or loss.
FINANCIAL REPORT | QR NATIONAL
55
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(o) Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured to their fair value
at the end of each reporting period. The method of recognising the resulting
gain or loss depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of the cash flows of
recognised assets and liabilities and highly probable forecast transactions
(“cash flow hedges”).
At inception, the Group documents the relationship between hedging
instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that is used in hedging transactions have
been, and will continue to be, highly effective in offsetting future cash flows
of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset
or liability when the remaining maturity of the hedged item is more than
12 months: It is classified as a current asset or liability when the remaining
maturity of the hedged item is less than 12 months.
(i) Cash flow hedge
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in other
comprehensive income and accumulated in reserves in equity. The gain
or loss relating to the ineffective portion is recognised immediately in the
income statement in other income or expense.
Amounts accumulated in equity are reclassified to the income statement
to consumables in the periods when the hedged item affects profit or
loss. However, when the forecast transaction that is hedged results in the
recognition of a non-financial asset, the gains and losses previously deferred
in equity are reclassified from equity and included in the initial measurement
of the cost or carrying amount of the asset.
When a hedging instrument expires or is sold or terminated, or when a hedge
no longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in equity at that time remains in equity and is recognised when
the forecast transaction is ultimately recognised in the income statement in
consumables. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately reclassified
to the income statement.
(ii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes
in fair value of any derivative instrument that does not qualify for hedge
accounting are recognised immediately in the income statement in other
income or expense.
(iii) Embedded derivatives
Through the Group’s purchase and sale contracts, it is possible that embedded
derivatives have been entered into. An embedded derivative will cause some
or all of the cash flows of the purchase or sale contract (i.e. the host contract)
to be modified by reference to a variable, such as a foreign exchange rate or a
commodity price.
Embedded derivatives are separated from the host contract and accounted
for as a stand-alone derivative if the economic characteristics and risks of the
embedded derivatives are not closely related to those of the host contract.
(p) Property, plant and equipment
(i) Methodology for valuation of fixed assets
Buildings, plant and equipment, and rollingstock
Buildings, plant and equipment, and rollingstock are carried at cost less
accumulated depreciation. Cost includes expenditure that is directly
attributable to the acquisition of the asset or the fair value of the other
consideration given to acquire an asset at the time of its acquisition or
construction. Cost may also include interest and transfers from equity of any
gains or losses on qualifying cash flow hedges of foreign currency purchases
of property, plant and equipment, and may include capitalised interest.
Land
Land is carried at cost. As the Transport Infrastructure Act 1994 stipulates that
corridor land is owned by the State, only non corridor land owned by the Group
is recorded in the financial statements. Ownership of corridor land is with the
Department of Environment and Resource Management, on behalf of the
State. This land is leased to the Department of Transport and Main Roads and
subsequently sub leased to QR Network Pty Ltd under two separate subleases,
each with a rental of $1.00 per year if demanded. The subleases each expire on
30 June 2109.
The land subleases will automatically be renewed for a period of 99 years
if the infrastructure leases are renewed for that period (refer leased coal
infrastructure below).
Leased property, plant and equipment
Leases of property, plant and equipment where the Group, as lessee, has
substantially all the risks and rewards of ownership, are classified as finance
leases. Assets held under finance leases are recorded at the lower of the net
present value of the minimum lease payments or the fair value of the leased
asset at the inception of the lease. Each lease payment is allocated between
the liability and finance cost. The finance cost is charged to profit or loss on an
effective interest rate basis.
Owned infrastructure
Infrastructure assets are transferred from Assets under construction once
fully constructed and available for use. They are carried at cost and represent
capitalised expenditures that are directly related to capital projects and may
include materials, labour and equipment, in addition to an allocable portion of
indirect costs that clearly relate to a particular project that will provide future
economic benefit and remain within the control of the Group.
Leased coal infrastructure
Coal infrastructure assets are owned by (a) the State, with respect to the
Central Queensland Coal Network and (b) Queensland Rail, with respect to
the North Coast Line (each referred to as the Infrastructure Lessors). Under
each infrastructure lease, the infrastructure is leased to QR Network Pty Ltd,
a controlled entity. The term of each of the leases is 99 years (at a peppercorn
rate of $1 per year), unless the Infrastructure Lessor exercises an option to
extend its lease for a further 99 years. The notice period for the Infrastructure
Lessor to renew or allow expiry of the lease is not less than 20 years prior
to the end of the 99 year term. To the extent that the lease expires at the
end of 99 years, the Infrastructure Lessor will pay QR Network Pty Ltd the
fair market value of the infrastructure assets, including the infrastructure
existing on commencement of the lease, as well as any railway assets added
during the lease term as are reasonably required to enable the infrastructure
to be operated as a fully functioning railway network. As the assets are not
considered to be providing a public service, the Group’s economic interest in
the assets is accounted for as property, plant and equipment.
56
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
The depreciation and amortisation rates used during the year were based on
the following range of useful lives:
(p) Property, plant and equipment (continued)
(i) Methodology for valuation of fixed assets (continued)
Assets under construction
Assets under construction represents the cost of fixed assets currently under
construction and includes the cost of all materials used in construction, direct
labour, site preparation, interest, foreign currency gains and losses incurred
where applicable, and an appropriate proportion of variable and fixed
overheads.
Costs of assets under construction are only capitalised when it is probable that
future economic benefits associated with the asset will flow to the Group and
the costs can be measured reliably.
(ii) Subsequent costs
Subsequent costs are included in the asset’s carrying amount or recognised
as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying amount of any component
accounted for as a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to the income statement during the
reporting period in which they are incurred.
(iii) Depreciation and amortisation
Assets are depreciated or amortised from the date of acquisition, or, in respect
of internally constructed or manufactured assets, from the time an asset is
completed and held ready for use.
Buildings, infrastructure, rollingstock, plant and equipment are depreciated
using the straight-line method to allocate their costs, net of their residual
values, over their estimated useful lives. Motor vehicles are depreciated using
the diminishing value basis (percentages range from 13.6% to 35.0%). Land
and assets under construction are not depreciated.
Assets controlled by the Group under finance leases are amortised over the
useful lives of the assets. Leasehold improvements are depreciated over the
shorter of either the unexpired period of the lease or the estimated useful lives
of the improvements.
Where assets have separately identifiable components that are subject to
regular replacement, these components are assigned useful lives distinct from
the asset to which they relate. Any expenditure that increases the originally
assessed capacity or service potential of an asset is capitalised, and the new
depreciable amount is depreciated over the remaining life of the asset.
The Group builds mine-specific infrastructure for customers and provides access
to those clients under access facilitation deeds. Infrastructure controlled by
the Group under these deeds is depreciated over the term of the deed, except
where economic benefits are expected to flow to the Group after the end of the
term of the deed.
– Owned and leased infrastructure, including:
Tracks
Track turnouts
Ballast
Civil works
Bridges
Electrification
Field signals
– Buildings
– Rollingstock, including:
Locomotives
Wagons
– Plant and equipment
– Leased property
30–45 years
20–25 years
8–20 years
20–100 years
50–100 years
20–50 years
15–40 years
10–40 years
8–40 years
25–35 years
25–35 years
3–20 years
3–40 years
The depreciation and amortisation rates are reviewed annually and adjusted if
appropriate, refer note 2(iv). An asset’s carrying amount is written down to its
recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the
carrying amount and are recognised in the income statement.
(q) Voluntary change in accounting policy
The financial statements have been prepared on the basis of a retrospective
application of a voluntary change in accounting policy relating to mechanised
Ballast undercutting.
Ballast is the layer of crushed rock or gravel upon which the railway track is laid
and ballast undercutting is the renewal of this ballast that supports the track.
The new ballast undercutting accounting policy is to capitalise all mechanised
ballast undercutting costs as separate identifiable assets with a useful life of 8
years (20 years for spur line).
The previous accounting policy was to charge ballast undercutting expenditure
against the profit and loss as incurred. The new accounting policy was adopted
on 1 July 2011 and has been applied retrospectively from 1 September 2008
onwards, as it was not practicable to apply for periods prior to 1 September 2008.
The revised policy will now align with global industry practice and hence makes
benchmark comparisons with industry peers more relevant and meaningful.
FINANCIAL REPORT | QR NATIONAL
57
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(q) Voluntary change in accounting policy (continued)
The tables below show the impact of the change in accounting policy:
Consolidated balance sheet (extract)
Property, plant and equipment
Deferred tax liabilities
Net assets
Retained earnings
Total equity
30 June
2011
$m
Increase/
(Decrease)
$m
30 June 2011
(Restated)
$m
30 June
2010
$m
Increase/
(Decrease)
$m
30 June 2010
(Restated)
$m
8,275.7
(463.5)
6,991.7
882.1
6,991.7
49.6
(14.9)
34.7
34.7
34.7
8,325.2
7,383.8
(478.4)
(693.3)
7,026.4
2,684.0
916.8
619.0
7,026.4
2,684.0
33.3
(10.0)
23.3
23.3
23.3
7,417.0
(703.3)
2,707.3
642.3
2,707.3
Balance sheet items, other than those mentioned above, were not affected by the change in accounting policy.
30 June 2011
Profit
Increase/
(Decrease)
$m
2011
(Restated)
$m
2011
$m
30 June 2012
Before
voluntary
change in
policy
$m
Profit
Increase/
(Decrease)
$m
2012
$m
Consolidated income statement (extract)
Consolidated income statement (extract)
Depreciation and
amortisation expense
Consumables
(446.4)
(10.8)
(457.2)
Depreciation and
amortisation expense
(1,358.0)
30.8
(1,327.2)
Consumables
(447.6)
(16.1)
(463.7)
(1,434.8)
34.7
(1,400.1)
Other expenses
(60.7)
Other income
Profit before income tax
Income tax (expense)/benefit
Profit for the year
97.6
67.5
282.0
349.5
(2.1)
(1.6)
16.3
(4.9)
11.4
(62.8)
96.0
83.8
277.1
360.9
Other expenses
Profit before income tax
Income tax (expense)/benefit
Profit for the year
(38.3)
539.3
(108.9)
430.4
(3.6)
15.0
(4.5)
10.5
(41.9)
554.3
(113.4)
440.9
Basic and diluted earnings per share for the prior year have also been restated.
The amount of the adjustment for both basic and diluted earnings per share
was an increase of 0.5 cents per share.
The change in accounting policy has resulted in both the basic and diluted
earnings per share increase by 0.4 cents per share.
The impact of the change in accounting policy on the current year is as
follows:
30 June 2012
Before
voluntary
change in
policy
$m
Increase/
(Decrease)
$m
Consolidated balance sheet (extract)
Property, plant and equipment
9,022.2
Deferred tax liabilities
Net assets
Retained earnings
Total equity
(534.1)
7,283.7
1,166.6
7,283.7
15.0
(4.5)
10.5
10.5
10.5
2012
$m
9,037.2
(538.6)
7,294.2
1,177.1
7,294.2
Balance sheet items, other than those mentioned above, were not affected by
the change in accounting policy.
(r) Intangible assets
(i)
Goodwill
Goodwill represents the excess of the purchase consideration for an acquisition
over the fair value of the Group’s share of the net identifiable assets of the
acquired subsidiary at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in intangible assets. Goodwill is not amortised but is
tested for impairment annually or more frequently if events or changes in
circumstances indicate that it might be impaired, and is carried at cost less
accumulated impairment losses. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units (or groups
of cash-generating units) that are expected to benefit from the business
combination in which the goodwill arose, identified according to operating
segments.
58
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(r) Intangible assets (continued)
(ii) IT development and software
Software (mainly comprising the SAP development costs) has a finite useful
life and is carried at cost less accumulated amortisation and impairment.
Amortisation is calculated using the straight-line method over the estimated
useful life which varies from 3 to 11 years.
(iii) Key customer contracts
Key customer contracts have a finite useful life and are carried at cost
less accumulated amortisation and impairment losses. Amortisation is
calculated using the straight-line method over the useful life, which varies
from 3 to 6 years.
(iv) Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred
on development projects (relating to the design and testing of new or
improved products) are recognised as intangible assets when it is probable
that the project will, after considering its commercial and technical feasibility,
be completed and generate future economic benefits, and its costs can
be measured reliably. The expenditure capitalised comprises all directly
attributable costs, including costs of materials, services, direct labour and an
appropriate proportion of overheads. Other development expenditures that do
not meet these criteria are recognised as an expense as incurred. Development
costs previously recognised as an expense are not recognised as an asset in a
subsequent period. Capitalised development costs are recorded as intangible
assets and amortised from the point at which the asset is ready for use on a
straight-line basis over its useful life.
(s) Trade and other payables
These amounts represent liabilities for goods and services provided to the
Group prior to the end of financial year, which are unpaid. The amounts are
unsecured and are usually paid within 30 days or within the terms set by the
supplier. Trade and other payables are presented as current liabilities. They are
recognised initially at their fair value and subsequently measured at amortised
cost using the effective interest method.
(t) Borrowings and borrowing costs
(i) Borrowings
Debt is drawn from a syndicated debt arrangement and is initially recognised
at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost, using the effective interest rate method.
Interest costs are calculated using the effective interest rate method. The
effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial instrument.
Interest is accrued monthly and paid on maturity. Commitment and agency
fees are accrued monthly and paid quarterly.
Syndicated facility establishment costs have been capitalised and are
amortised over the life of the facility.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the reporting date.
(ii) Borrowing costs
Borrowing costs which are directly attributable to the acquisition, construction
or production of a material qualifying asset are capitalised during the period
of time that is required to complete and prepare the asset for its intended use
or sale. A qualifying asset is an internally funded asset that necessarily takes
a substantial period of time to be prepared for its intended use or sale. The
rate used to determine the amount of borrowing costs to be capitalised is the
interest rate applicable to the Group’s outstanding borrowings during the year.
Other borrowing costs are expensed.
(u) Provisions
Provisions are recognised when the Group has 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 obligation and the amount has been 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 reporting
date. 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. The increase in the provision resulting from the
passage of time is recognised in finance costs.
In accordance with Group’s environmental sustainability policy, and applicable
legal and constructive obligations, a provision for land rehabilitation in respect
of contaminated land is recognised when an obligation for rehabilitation is
identified.
(v) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits, annual
leave and leave loading are recognised as current liabilities. These liabilities are
in respect of employees’ services up to the reporting date and are measured
at the amounts expected to be paid when the liabilities are settled plus related
on-costs.
(ii) Other long-term employee benefit obligations
Liabilities for long-service leave, where employees have completed the required
period of service, or are entitled to pro-rata payments, are recognised as current
liabilities. The remaining unvested liabilities are included as non-current liabilities.
The liability for long-service leave is measured using the present value of
the expected future payments to be made in respect of services provided by
employees up to the reporting date. Consideration is given to expected future
wage and salary levels, experience of employee departures and periods of
service. Expected future non-current payments are discounted using market
yields at the reporting date on Commonwealth government bonds with terms to
maturity that match, as closely as possible, the estimated future cash outflows.
(iii) Retirement allowance
Retirement allowance is payable to employees who fulfil the following
requirements:
•
Employees who retire or who are paid according to a Voluntary
Redundancy Scheme or Medical Separation;
•
are not members of an accumulation super fund; and
• were employed prior to 1 February 1995.
Liabilities for retirement allowance for employees who have fulfilled these
requirements are recognised as current liabilities. The remaining liabilities are
included within employee benefits and recognised as non-current liabilities.
The non-current liability for retirement allowance is measured at the present
value of expected future payments to be made in respect of services provided
by qualifying employees. Consideration is given to expected future wage and
salary levels, experience of the departure of qualifying employees and periods
of service. Expected future payments are discounted using market yields at
the reporting date on Commonwealth government bonds with maturities that
match, as closely as possible, to the estimated future cash outflows.
FINANCIAL REPORT | QR NATIONAL
59
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(v) Employee benefits (continued)
(iv) Share-based payments
The fair value of rights granted under the Performance Rights 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 rights granted, which includes any market performance conditions
and the impact of any non-vesting conditions, but excludes the impact of any
service and non-market performance vesting conditions.
Non-market vesting conditions are included in assumptions about the number
of rights that are 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 entity revises
its estimates of the number of rights that are expected to vest based on the
non-marketing vesting conditions. It recognises the impact of the revision
to original estimates, if any, in profit or loss, with a corresponding adjustment
to equity.
The Group settles the share-based compensation by making on-market
purchases of the company’s ordinary shares.
(v) Bonus plans
The Group recognises a liability and an expense for bonuses, based on
a formula that takes into consideration the Group and individual key
performance indicators, including profit attributable to the Company’s
shareholders after certain adjustments. The Group recognises a provision
where contractually obliged or where there is a past practice that has
created a constructive obligation.
(vi) Sick leave
Sick leave is not provided for on the grounds that it is non-vesting and
on average, no more than the annual entitlement is taken each year.
(vii) Superannuation
Contributions are expensed as they are made.
The Group pays an employer subsidy to the Government Superannuation
Office in respect of employees who are contributors to the Public Sector
Superannuation (QSuper) scheme.
Employer contributions to the QSuper Defined Benefit Fund are determined
by the State of Queensland Treasurer, having regard to advice from the State
Actuary. The primary obligation to fund the defined benefits obligations
are that of the State. However, the Treasurer has the discretion to request
contributions from employers that contribute to the defined benefit category of
QSuper. No liability is recognised for accruing superannuation benefits, as this
liability is held on a Whole of Government basis and reported in the Whole of
Government financial statements. The State Actuary performs a full actuarial
valuation of the assets and liabilities of the fund on a triennial basis. The latest
valuation was completed as at 30 June 2010, and the State Actuary found
the fund was in surplus from a Whole of Government perspective. In addition,
from late 2007, the Defined Benefit Fund was closed to new members, so any
potential future deficit would be diluted as membership decreases. Accordingly,
no liability/asset is recognised for the Group’s share of any potential deficit/
surplus of the Super Defined Benefit Fund of QSuper.
The Group also makes superannuation guarantee payments into the QSuper
Accumulation Fund (Non-Contributory) and QSuper Accumulation Fund
(Contributory) administered by the Government Superannuation Office, and to
other complying Superannuation Funds designated by employees nominating
Choice of Fund.
(w) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable
to the issue of new shares are shown in equity as a deduction, net of tax, from
the proceeds.
Where any Group company purchases the Company’s equity instruments, for
example as the result of a share-based payment plan, the consideration paid,
including any directly attributable incremental costs (net of income taxes) is
deducted from equity attributable to the owners of QR National Limited as
treasury shares until the shares are cancelled or reissued. Where such ordinary
shares are subsequently reissued, any consideration received (net of any
directly attributable incremental transaction costs and the related income tax
effects) is included in equity attributable to the owners of QR National Limited.
(x) Dividends
Provision is made for the amount of any dividend declared, being appropriately
authorised and no longer at the discretion of the entity, on or before the end of
the financial year but not distributed at reporting date.
(y) Earnings per share
(i) Basic earnings per share
Basic earnings per share are calculated by dividing:
•
•
the profit attributable to owners of the Company, excluding any costs of
servicing equity other than ordinary shares
by the weighted average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary shares issued
during the year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account:
•
•
the after income tax effect of interest and other financing costs associated
with dilutive potential ordinary shares; and
the weighted average number of additional ordinary shares that would
have been outstanding, assuming the conversion of all dilutive potential
ordinary shares.
(z) Goods and Services Tax (“GST”)
Revenues, expenses and assets are recognised net of the amount of associated
GST, unless the amount of GST incurred is not recoverable from the Australian
Tax Office (“ATO”). In this case, the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable
or payable. The net amount of GST recoverable from, or payable to, the ATO is
included with other receivables or payables in the balance sheet.
Cash flows are presented in the cash flow statement on a gross basis. The
GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to the ATO, are presented as operating
cash flows.
QR National Limited and its subsidiaries are grouped for GST purposes.
Therefore, any inter-company transactions within the Group do not attract GST.
(aa) Rounding of amounts
The Company is of a kind referred to in Class Order 98/100, issued by the
Australian Securities and Investments Commission, relating to the ‘rounding
off’ of amounts in the Financial Report. Amounts in the Financial Report have
been rounded off in accordance with that Class Order to the nearest hundred
thousand dollars, unless otherwise indicated.
60
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(ab) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published
that are not mandatory for 30 June 2012 reporting periods, and have not
yet been applied in the financial statements. The Group’s assessment of the
impact of these new standards and interpretations is set out below.
(i)
AASB 9 Financial Instruments, AASB 2009 11 Amendments to Australian
Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments
to Australian Accounting Standards arising from AASB 9 (December 2010)
(effective from 1 January 2013)
AASB 9 Financial Instruments addresses the classification, measurement and
derecognition of financial assets and financial liabilities. The standard is not
applicable until 1 January 2013 but is available for early adoption. When
adopted, the standard will affect, in particular the Group accounting for its
available-for-sale financial assets, since AASB 9 only permits the recognition
of fair value gains and losses in other comprehensive income if they relate to
equity investments that are not held for trading.
There will be no impact on the Group accounting for financial liabilities, as
the new requirements only affect the accounting for financial liabilities that
are designated at fair value through profit or loss. The derecognition rules
have been transferred from AASB 139 Financial Instruments: Recognition
and Measurement and have not been changed. The Group does not intend to
adopt the new standard before their operative date. They would therefore be
first applied in the financial statements for the annual reporting period ending
30 June 2014.
(ii)
AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements,
AASB 12 Disclosure of Interests in Other Entities, revised AASB 127
Separate Financial Statements and AASB 128 Investments in Associates
and Joint Ventures and AASB 2011-7 Amendments to Australian
Accounting Standards arising from the Consolidation and Joint
Arrangements Standards (effective 1 January 2013)
In August 2011, the Australian Accounting Standards Board (AASB) issued
a suite of five new and amended standards, which address the accounting
for joint arrangements, consolidated financial statements and associated
disclosures.
AASB 10 replaces all of the guidance on control and consolidation in AASB
127 Consolidated and Separate Financial Statements, and Interpretation 12
Consolidation – Special Purpose Entities. The core principle that a consolidated
entity presents a parent and its subsidiaries as if they are a single economic
entity remains unchanged, as do the mechanics of consolidation. However,
the standard introduces a single definition of control that applies to all entities.
It focuses on the need to have both power and rights or exposure to variable
returns before control is present. Power is the current ability to direct the
activities that significantly influence returns. Returns must vary and can be
positive, negative or both. There is also new guidance on participating and
protective rights and on agent/principal relationships. The Group does not
expect the new standard to have a substantial impact on its composition.
AASB 11 introduces a principles based approach to accounting for joint
arrangements. The focus is no longer on the legal structure of joint
arrangements, but rather on how rights and obligations are shared by the
parties to the joint arrangement. Based on the assessment of rights and
obligations, a joint arrangement will be classified as either a joint operation or
a joint venture. Joint ventures are accounted for using the equity method, and
the choice to proportionately consolidate will no longer be permitted.
Parties to a joint operation will account their share of revenues, expenses,
assets and liabilities in much the same way as under the previous standard.
AASB 11 also provides guidance for parties that participate in joint
arrangements but do not share joint control. The Group does not expect the
new standard to have any significant impact on its financial statements.
AASB 12 sets out the required disclosures for entities reporting under the
two new standards, AASB 10 and AASB 11, and replaces the disclosure
requirements currently found in AASB 128. Application of this standard by
the Group will not affect any of the amounts recognised in the financial
statements, but will impact the type of information disclosed in relation to
the Group’s investments.
AASB 127 is renamed Separate Financial Statements and is now a standard
dealing solely with separate financial statements. Application of this standard
by the Group will not affect any of the amounts recognised in the financial
statements.
Amendments to AASB 128 provide clarification that an entity continues to
apply the equity method and does not remeasure its retained interest as part
of ownership changes where a joint venture becomes an associate, and vice
versa. The amendments also introduce a ‘partial disposal’ concept. There will
be no impact on the Group’s financial statements from these amendments.
The Group does not intend to adopt the new standards before their operative
date. They would therefore be first applied in the financial statements for the
annual reporting period ending 30 June 2014.
(iii) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments
to Australian Accounting Standards arising from AASB 13 (effective
1 January 2013)
AASB 13 was released in September 2011. It explains how to measure fair
value and aims to enhance fair value disclosures. The Group does not use fair
value measurements extensively. It is therefore unlikely that the new rules will
have a significant impact on any of the amounts recognised in the financial
statements. However, application of the new standard will impact the type of
information disclosed in the notes to the consolidated financial statements.
The Group does not intend to adopt the new standard before its operative
date, which means that it would be first applied in the annual reporting period
ending 30 June 2014.
(iv) Revised AASB 119 Employee Benefits, AASB 2011-10 Amendments to
Australian Accounting Standards arising from AASB 119 (September
2011) and AASB 2011-11 Amendments to AASB 119 (September 2011)
arising from Reduced Disclosure Requirements (effective 1 January 2013)
In September 2011, the AASB released a revised standard on accounting for
employee benefits. It requires the recognition of all remeasurements of defined
benefit liabilities/assets immediately in other comprehensive income (removal
of the so called ‘corridor’ method) and the calculation of a net interest expense
or income by applying the discount rate to the net defined benefit liability
or asset. This replaces the expected return on plan assets that is currently
included in profit or loss. The standard also introduces a number of additional
disclosures for defined benefit liabilities/assets and could affect the timing of
the recognition of termination benefits. It also changes the distinction between
short and long-term benefits for measurement purposes, to be based on when
payment is expected to be made, not when payment can be demanded.
Since QR National Limited does not have any defined benefit obligations, the
amendments are not expected to have any significant impact on the Group’s
financial statements. The Group does not intend to adopt the new standard
before their operative date, which means that it would be first applied in the
annual reporting period ending 30 June 2014.
FINANCIAL REPORT | QR NATIONAL
61
notes to the Consolidated FinanCial statements
30 June 2012
1 Summary of significant accounting policies (continued)
(ii) Tax consolidation legislation
(ab) New accounting standards and interpretations (continued)
(v)
AASB 2011-9 Amendments to Australian Accounting Standards -
Presentation of Items of Other Comprehensive Income (effective
1 July 2012)
In September 2011, the AASB made an amendment to AASB 101 Presentation
of Financial Statements which requires entities to separate items presented
in other comprehensive income into two groups, based on whether they may
be recycled to profit or loss in the future. This will not affect the measurement
of any of the items recognised in the balance sheet or the profit or loss in the
current period. The group intends to adopt the new standard from 1 July 2012.
QR National and its wholly-owned Australian controlled entities have
implemented the tax consolidation legislation with effect from 22 November
2010. All Australian wholly-owned companies in the QR National Limited Group
are part of the tax consolidated group and are therefore taxed as a single
entity. The head entity of the tax consolidated group is QR National Limited.
The Group has notified the Australian Taxation Office that it has formed a tax
consolidated group, applying from 22 November 2010.
The head entity, QR National Limited, 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 stand-alone taxpayer in its own right.
(vi) AASB 2012-3 Amendments to Australian Accounting Standard - Offsetting
Financial Assets and Financial Liabilities and AASB 2012-2 Disclosures -
Offsetting Financial Assets and Financial Liabilities (effective 1 January
2014 and 1 January 2013 respectively)
In addition to its own current and deferred tax amounts, QR National Limited
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 consolidation group.
In June 2012, the AASB approved amendments to the application guidance
in AASB 132 Financial Instruments: Presentation, to clarify some of the
requirements for offsetting financial assets and financial liabilities in the
balance sheet. These amendments are effective from 1 January 2014.
They are unlikely to affect the accounting for any of the entity’s current
offsetting arrangements. However, the AASB has also introduced more
extensive disclosure requirements into AASB 7 which will apply from
1 January 2013. When they become applicable, the Group will have to
provide a number of additional disclosures in relation to its offsetting
arrangements. The Group intends to apply the new rules for the first time
in the financial year commencing 1 July 2013.
The entities have also entered into a tax funding agreement which sets out
the funding obligations of members of the tax consolidated group in respect
of income tax amounts. The tax funding arrangements require payments to
the head entity equal to the current tax liability assumed by the head entity.
In addition, the head entity is required to make payments equal to the current
tax asset or deferred tax asset arising from unused tax losses and tax credits
assumed by the head entity from a subsidiary member.
These tax funding arrangements result in the head entity recognising a
current inter-entity receivable/payable equal in amount to the tax liability/
asset assumed.
(vii) AASB 2011-4 Amendments to Australian Accounting Standards to
(iii) Employee benefits – share-based payments
Remove Individual Key Management Personnel Disclosure Requirements
(effective 1 July 2013)
In July 2011, the AASB removed the individual Key Management Personnel
disclosure requirements from AASB 124 Related Party Disclosures, to achieve
consistency with the international equivalent standard and remove a
duplication of the requirements with the Corporations Act 2001. While this will
reduce the disclosures that are currently required in the notes to the financial
statements, it will not affect any of the amounts recognised in the financial
statements. The amendments apply from 1 July 2013 and cannot be adopted
early. The Corporations Act requirements in relation to remuneration reports,
will remain unchanged for now, but these requirements, are currently subject
to review and may also be revised in the near future.
(ac) Parent entity financial information
The financial information for the parent entity, QR National Limited, disclosed
in note 38, has been prepared on the same basis as the consolidated financial
statements, except as set out below.
(i)
Investments in subsidiaries, associates, and joint-venture entities
Investments in subsidiaries, associates, and joint-venture entities are
accounted for at cost in the financial statements of QR National Limited.
Dividends received from associates are recognised in the parent entity’s
income statement, rather than being deducted from the carrying amount
of these investments.
The grant by the Company of rights over its equity instruments to the
employees of subsidiary undertakings in the Group is treated as a capital
contribution to that subsidiary undertaking. The fair value of employee services
received, measured by reference to the grant date fair value, is recognised over
the vesting period as an increase to investment in subsidiary undertakings, with
a corresponding credit to equity.
2 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events
that may have a financial impact on the entity and that are believed to be
reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed over page.
62
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
2 Critical accounting estimates and judgements (continued)
(i)
Impairment
The Group considers annually whether there has been any indicators of
impairment and then tests whether non-current assets, including goodwill, have
suffered any impairment, in accordance with the accounting policy
stated in note 1(j). The recoverable amounts of cash generating units have
been determined based on value in use calculations, or fair value less costs
to sell. These calculations require the use of assumptions. Refer to note 15
and 16 for further details on the carrying amounts of non-current assets
subject to impairment testing.
(ii) Employee benefits
The determination of the provisions required is dependent on specific
assumptions, including expected wage increases, length of employee service,
and bond rates. Refer to note 21 for further information.
(iii) Taxation
The Group’s accounting policy for taxation requires management’s judgement
as to the types of arrangements considered to be subject to tax. Judgement
is also required in assessing whether certain deferred tax assets and certain
deferred tax liabilities are recognised on the balance sheet. Deferred tax assets,
including those arising from non-recoupable tax losses, capital losses and
temporary differences, are recognised only when it is considered probable they
will be recovered. Recoverability is dependent on the generation of sufficient
future taxable profits.
Assumptions about the generation of future taxable profits depend on
management’s estimates of future cash flows. These, in turn, depend on
estimates of future sales volumes, operating costs, capital expenditure and
other capital management transactions. Judgements are also required about
the application of income tax legislation. These judgements and assumptions
are subject to risk and uncertainty; hence, there is a possibility that changes
in circumstances will alter expectations, which may impact the amount of
deferred tax assets and deferred tax liabilities recognised on the balance
sheet, and the amount of other tax losses and temporary differences not yet
recognised. In such circumstances, some or all of the carrying amounts of
recognised deferred tax assets and liabilities may then require adjustment,
resulting in a corresponding credit or charge to the income statement.
Refer to notes 18 and 23 for carrying amounts of deferred tax assets and
deferred tax liabilities respectively.
(iv) Depreciation
Management estimates the useful lives and residual values of property, plant
and equipment based on the expected period of time over which economic
benefits from use of the asset will be derived. Management reviews useful
life assumptions on an annual basis, having given consideration to variables,
including historical and forecast usage rates, technological advancements and
changes in legal and economic conditions. Refer to note 1(p) for details of
current depreciation rates used.
Revision of useful lives of plant and equipment
During the year, the useful lives of rollingstock were adjusted upwards from
25 to 30 years to more accurately reflect the useful lives of these assets, as
part of a management review (refer to note 1p(iii)). There has also been a
reduction in the value ascribed to the initial overhaul component of rollingstock
used within the Coal and Freight businesses. The overhaul component is
depreciated over a useful life of 15 years. The change in accounting estimate
has been applied with effect from 1 July 2011. The net effect of these changes
for the year ended 30 June 2012 was a decrease in depreciation expense for
the Group of $36.5 million. Assuming the assets are held until the end of their
estimated useful lives, depreciation expensed will decrease by $36.5 million
next financial year, however, the life over which depreciation is recognised will
be extended.
The revised useful lives have been adopted following a detailed review and
analysis of the current fleet, taking into consideration current and forecast
operating statistics, detailed history of maintenance costs and overhaul profile.
(v) Take or pay
The calculation of ‘take or pay’ is based on an assessment of access charges
from contracted railings that have not been achieved, subject to an adjustment
for QR Network Pty Ltd (“below rail”) cause. Below rail cause is based on
information on below rail versus operator/mine cancellations in the relevant
year. The estimate of ‘take or pay’ is based on management’s judgement of
below rail cause and is recognised in the year in which the contractual railings
have not been achieved.
(vi) Strategic infrastructure projects
During the period, work continued on various significant infrastructure projects
in relation to above and below rail development. For the year ended 30 June
2012, $42.3 million (2011: $nil) of costs were capitalised. Management’s
judgement has been applied to the extent to which capitalisation of these
projects is appropriate. The application of this judgement will be re-assessed
throughout the life of the projects.
These projects have significantly advanced since the half-year report, which
includes announcements by the State of Queensland in respect of the rail
corridor, announcements by the Group of a 25 mtpa expansion of the
Goonyella to Abbot Point rail line, as well as customer announcements of joint
agreements in respect of progressing the feasibility of those projects.
3 Financial risk management
The Group has exposure to a variety of financial risks, including market risk
(foreign exchange risk, interest rate risk and fuel price risk), credit risk and
liquidity risk. The Board approved Treasury Policy addresses the management
of these risks using various financial instruments. Trading for speculation is
strictly prohibited. Compliance with the Policy is monitored on an ongoing basis
through regular reporting to the Board.
(a) Market risk
Market risk is the risk that adverse movements in fuel price, foreign exchange,
interest rates and equity prices will increase costs and negatively impact the
Group’s income or the value of its holdings of financial instruments. The Group
measures market risk using cash flow at risk. The objective of risk management
is to manage the market risks inherent in the business to protect profitability
and return on assets.
(i) Foreign exchange risk
Exposure to foreign exchange risk
Foreign exchange risk arises from the purchase of capital equipment and
operating expenditure (primarily fuel expenses) that are denominated in
or related to a currency that is not the entity’s functional currency. These
transactions apply in large part to the US Dollar (“USD”) and the Euro (“EUR”).
The Group’s exposure to foreign currency risk at the end of the reporting
period, expressed in AUD, was as follows:
Cash and cash equivalents
Trade receivables
Net forward exchange contracts
Net exposures
2012
2011
USD
$m
1.1
–
(8.8)
(7.7)
EUR
$m
0.1
–
(5.1)
(5.0)
USD
$m
1.2
0.8
(75.2)
(73.2)
EUR
$m
0.2
_
(2.3)
(2.1)
notes to the Consolidated FinanCial statements
30 June 2012
FINANCIAL REPORT | QR NATIONAL
63
3 Financial risk management (continued)
(a) Market risk (continued)
(i) Foreign exchange risk (continued)
Risk management
In order to protect against foreign exchange movements, the Group enters
into forward foreign exchange contracts. These contracts are hedging highly
probable forecast foreign currency exposures. Such contracts are designated
as cash flow hedges. Realised gains or losses on these contracts arise due to
differences between the spot rates on settlement and the forward rates of the
derivative contracts.
During the year, the net realised loss arising from foreign exchange hedging
activities for the Group was $16.3 million (2011: loss of $15.4 million) as a
result of the AUD appreciating above the average hedged rate. Of this net
amount, a realised loss of $9.3 million (2011: loss of $17.2 million) represents
the effective portion of the hedges which has been recognised in the relevant
expenditure category which the contract was hedging or capitalised to
a project, and a realised loss of $7.0 million (2011: gain of $1.8 million)
represents the ineffective portion of hedges and non designated derivatives,
which has been recognised in other expenses.
(ii) Fuel price risk
Exposure to fuel price risk
Fuel price risk arises on the Group’s exposure to fuel prices, predominately Gasoil.
Risk management
In order to protect against adverse fuel price movements, the Group enters
into commodity swap contracts. These contracts are hedging highly probable
forecast fuel consumption. Realised gains and losses on these contracts arise
due to differences between the actual fuel prices on settlement and the
forward price of the derivative contract.
During the year, the net realised gain arising from fuel hedging activities
for the Group was $9.9 million (2011: gain of $3.0 million) as a result of
actual fuel prices moving higher than the average hedged price. Of this net
amount, a realised gain of $6.0 million (2011: $3.5 million) represents the
effective portion of the hedges which has been recognised in diesel expense,
and a realised gain of $3.9 million (2011: loss of $0.5 million) represents the
ineffective portion of the hedges which has been recognised in other expenses.
As at the reporting date, both fuel commodity and fuel foreign exchange
hedging derivatives were closed out due to the reduction in fuel at risk as a
result of the shift to new form contracts.
(iii) Equity securities price risk
The Group was exposed to equity securities price risk in the prior period
through its investment in an unlisted equity trust which is classified as an
available-for-sale investment. In the current period, the investment has been
classified as an associate following the acquisition of an additional 18%
interest in the unit trust (refer to note 14). An increase/decrease of 10% to the
valuation of property owned by the unlisted entity in which securities are held
would increase equity/decrease profit before tax by $nil (2011: $3.6 million).
(iv) Interest rate risk
Exposure to interest rate risk
The Group holds both interest bearing assets and interest bearing liabilities,
and therefore the Group’s income and operating cash flows are subject to
changes in market interest rates.
The Group’s main interest rate risk arises from long term borrowings. Borrowings
issued at variable rates expose the Group to cash flow interest rate risk.
30 June 2012
30 June 2011
Weighted
average
interest
rate
%
Weighted
average
interest
rate
%
Balance
$m
Balance
$m
5.4%
1,220.0
6.7%
830.0
3.6%
(500.0)
–
–
720.0
830.0
Bank overdrafts
and bank loans
Interest rate
swaps
Net exposure to
cash flow interest
rate risk
Risk management
In order to protect against adverse interest rate movements, the Group enters
into derivative contracts.
During the year, the net realised gain arising from interest rate hedging
activities for the Group was $1.5 million (2011: nil) as a result of market
interest rates closing higher than the average hedged rate. The total realised
gain represents the effective portion of the hedges which has been recognised
in interest expense.
The Group accounts for financial assets at fair value through profit or loss, and
financial liabilities at amortised cost using the effective interest method.
(v) Sensitivity on foreign exchange, fuel price and interest rate risk
The following table summarises the gain/(loss) impact of reasonably possible
changes in market risk, relating to existing financial instruments, on net
profit and equity before tax. For the purpose of this disclosure, the following
assumptions were used:
• 15% (2011: 15%) appreciation/depreciation of the AUD against the USD;
• 40% (2011: 40%) increase/decrease in the price of fuel;
• 100 basis points increase/decrease in interest rates;
• Sensitivity analysis assumes hedge designations and effectiveness test
results as at 30 June 2012 remain unchanged;
• Sensitivity analysis is isolated for each risk assuming all other variables
remain constant; and
• Sensitivity analysis on foreign currency rates and fuel indices represent
current market conditions.
15% movement in foreign
currency rates
15% USD depreciation
15% USD appreciation
40% movement in fuel indices
40% decrease per barrel in
fuel indices
40% increase per barrel in
fuel indices
100bps movement in interest rates
100 bps decrease in interest rates
borrowings
derivatives
100 bps increase in interest rates
Profit
(before tax)
2011
$m
2012
$m
Equity
(before tax)
2011
$m
2012
$m
0.2
(0.1)
1.0
(0.7)
2.4
(1.8)
9.5
(7.0)
–
–
10.9
–
(10.9)
–
(0.6)
0.6
8.3
–
(8.3)
–
–
–
(13.6)
13.6
–
(4.2)
–
4.2
–
–
–
–
At the reporting date, the interest rate profile of the Group’s interest bearing
financial instruments was:
borrowings
derivatives
64
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
3 Financial risk management (continued)
(b) Credit risk
Credit risk is managed on a group basis. Credit risk is the risk of financial loss to
the Group if a customer or counterparty to a financial instrument fails to meet
its contractual obligations. Credit risk arises from cash and cash equivalents,
derivative financial instruments, deposits with financial institutions and
receivables from customers.
The maximum exposure to credit risk, excluding the value of any collateral or
other security, at balance date, to recognised financial assets, is the carrying
amount, net of any provisions for impairment of those assets, as disclosed in the
balance sheet and notes to the financial statements. Credit risk further arises in
relation to financial guarantees given to certain parties. Refer to note 3(d).
The Group does not have any material credit risk exposure to any single
receivable (or group of receivables) under financial instruments entered into by
the Group. For some trade receivables, the Group may also obtain security in
the form of guarantees, deeds of undertaking, or letters of credit, which can be
called upon if the counterparty is in default under the terms of the agreement.
Refer to note 3(d) for further details.
The Group has policies in place to ensure that sales of services are only made
to customers with an appropriate credit profile. If customers are independently
rated, these ratings are used. Otherwise, if there is no independent rating, the
credit quality of the customer is assessed, taking into account its financial
position, past experience and other factors.
Credit risk on cash transactions and derivative contracts is managed through
the Board approved Treasury Policy, which restricts the Group to financial
institutions whose long-term credit ratings, determined by a recognised ratings
agency, are at or above the minimum rating of A-. This Policy also limits the
amount of credit exposure to any one financial institution. The Group’s net
exposures and the credit ratings of its counterparties are regularly monitored.
The Group’s available-for-sale equity securities held in the prior period were
units in an unlisted property trust with an unrated counterparty, where the
underlying investment was commercial property. The Group has policies
in place to ensure that investments are made with counterparties with an
appropriate credit history/low credit risk.
An analysis of the Group’s trade and other receivables that have been impaired
and the ageing of those that are past due but not impaired at the balance
date is presented in note 10(b).
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in meeting
the obligations associated with its financial liabilities. The Group’s approach
to managing liquidity is to ensure, as far as possible, sufficient liquidity is
available to meet its liabilities when due, under both normal and stressed
conditions without incurring unacceptable losses or risking damage to the
Group’s reputation.
Financing arrangements
The Group has access to undrawn borrowing facilities through its Syndicated
Facility Agreement.
The total amount of credit unused as at 30 June 2012 was $1,775.0 million
(2011: $2,170.0 million).
The Group also has a credit standby arrangement with the Commonwealth
Bank of Australia in the form of a bank overdraft totalling $2.0 million (2011:
$2.0 million).
The following table summarises the contractual timing of undiscounted
cash flows including estimated interest payments, of financial liabilities and
derivative instruments. The contractual amount assumes current interest rates
and foreign exchange rates estimated using forward curves applicable at the
end of the reporting period.
For cash flows relating to cash and cash equivalents, refer to note 9.
(c) Liquidity risk (continued)
2012
Non-derivatives
Non-interest bearing
Variable rate borrowings
Financial guarantees
Total non-derivatives
Derivatives
Forward commodity derivatives used
for hedging
Interest rate swaps used for hedging
Foreign exchange contracts used for hedging
- (inflow)
- outflow
Total derivatives
Less than
1 year
$m
Between
1 and 5 years
$m
Over 5 years
$m
Total contractual
cash flows
$m
Carrying amount
(assets)/
liabilities
$m
349.6
60.2
54.1
463.9
–
(0.4)
(11.3)
12.1
0.4
–
1,254.6
–
1,254.6
–
(0.5)
(2.6)
3.0
(0.1)
–
–
–
–
–
–
–
–
–
349.6
1,314.8
54.1
1,718.5
–
(0.9)
(13.9)
15.1
0.3
349.6
1,201.6
–
1,551.2
–
2.4
0.8
3.2
FINANCIAL REPORT | QR NATIONAL
65
notes to the Consolidated FinanCial statements
30 June 2012
3 Financial risk management (continued)
(c) Liquidity risk (continued)
2011
Non-derivatives
Non-interest bearing
Variable rate borrowings
Financial guarantees
Total non-derivatives
Derivatives
Forward commodity derivatives used
for hedging
Interest rate swaps used for hedging
Foreign exchange contracts used for hedging
- (inflow)
- outflow
Total derivatives
Less than
1 year
$m
Between
1 and 5 years
$m
Over 5 years
$m
Total contractual
cash flows
$m
Carrying amount
(assets)/
liabilities
$m
310.2
55.9
40.5
406.6
(7.3)
(80.3)
96.2
8.6
–
931.5
–
931.5
(2.7)
(12.4)
16.0
0.9
–
–
–
–
–
–
–
–
310.2
987.4
40.5
1,338.1
(10.0)
(92.7)
112.2
9.5
310.2
803.2
–
1,113.4
(10.0)
16.3
6.3
(d) Fair value measurements
The net fair value of cash, cash equivalents and non interest bearing financial assets and liabilities approximates their carrying value due to their short maturity.
The net fair value of other financial assets and liabilities is determined by valuing them at the present value of future contracted cash flows. Cash flows are
discounted using standard valuation techniques at the applicable market yield, having regard to the timing of the cash flows.
The net fair value of forward foreign exchange and fuel contracts is determined as the unrealised gain/loss at balance date by reference to market exchange
rates and fuel prices. The net fair value of interest rate swaps is determined as the present value of future contracted cash flows. Cash flows are discounted using
standard valuation techniques at the applicable market yield, having regard to the timing of the cash flow.
66
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
3 Financial risk management (continued)
(d) Fair value measurements (continued)
Financial assets
carried at fair value
Forward exchange
contracts
Interest rate swaps
Commodity swaps
Financial assets
carried at amortised
cost
Cash and cash
equivalents
Trade and other
receivables
Financial assets
available-for-sale
Equity securities
Financial liabilities
carried at fair value
Forward exchange
contracts
Interest rate swaps
Commodity swaps
Financial liabilities
carried at amortised
cost
Trade and other
payables
Carrying
amount
Fair value
2012
$m
2011
$m
2012
$m
2011
$m
0.1
–
–
0.1
4.5
–
20.3
24.8
0.1
–
–
0.1
4.5
–
20.3
24.8
98.8
117.1
98.8
117.1
548.1
646.9
473.5
590.6
548.1
646.9
–
–
36.3
36.3
(0.9)
(2.4)
–
(3.3)
(20.8)
–
(10.3)
(31.1)
–
–
(0.9)
(2.4)
–
(3.3)
(349.6)
(310.2)
(349.6)
473.5
590.6
36.3
36.3
(20.8)
–
(10.3)
(31.1)
(310.2)
(856.2)
Borrowings
(1,201.6)
(803.2)
(1,210.6)
Off-balance sheet
Unrecognised
financial assets
Third party
guarantees
Bank guarantees
Insurance company
guarantees
Unrecognised
financial liabilities
Bank guarantees
(1,551.2)
(1,113.4)
(1,560.2)
(1,166.4)
–
–
–
–
–
–
–
–
–
–
48.5
247.4
50.5
203.8
27.3
25.2
(54.1)
269.1
(40.5)
239.0
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as follows:
•
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets
or liabilities
Level 2: inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e., as prices)
or indirectly (i.e., derived from prices)
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs)
2012
Derivative financial
assets
Derivative financial
liabilities
Net financial
instruments measured
at fair value
2011
Derivative financial
assets
Derivative financial
liabilities
Available-for-sale
financial assets
Net financial
instruments measured
at fair value
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
–
–
–
0.1
(3.3)
(3.2)
–
–
–
Level 1
$m
Level 2
$m
Level 3
$m
24.8
(31.1)
–
–
0.1
(3.3)
(3.2)
Total
$m
24.8
(31.1)
–
36.3
36.3
(6.3)
36.3
30.0
–
–
–
–
During the year, there were no transfers between Level 1 and Level 2 fair value
hierarchies. Level 3 instruments comprise of unlisted equity securities which
are no longer an available-for-sale instrument in the current period as it is now
an investment in an associate following the acquisition of an additional 18%
interest in the unit trust (refer to note 14). The determination of the fair value
of these available-for-sale securities in the prior period was calculated with
reference to an independent valuation of the investment property trust.
4 Segment information
(a) Description of segments
Business Segments
The Group has determined operating segments based on the operating
structure of the Group and the different reports reviewed by the Executive
Leadership Team. The segments are based on the operational structure of
the Group and the different products and services provided by each segment.
The chief operating decision makers assess the performance of the operating
segments based on the underlying earnings before interest and tax (“EBIT”).
Amounts included in the report by the chief operating decision maker are in
accordance with the Group’s accounting policies.
Interest expense for the entire Group is not allocated to specific segments but
rather recorded as a corporate expense. With the exception of property, plant
and equipment, asset and liability positions of the Group are only reviewed at
the consolidated level. All assets and revenues are located in or attributable to
the provision of services within Australia.
FINANCIAL REPORT | QR NATIONAL
67
notes to the Consolidated FinanCial statements
30 June 2012
4 Segment information (continued)
(a) Description of segments (continued)
The following summary describes the operations in each of the Group’s
reportable segments:
Network Services
Provision of access to, and operation and management of the Central
Queensland Coal Network.
Coal
Transport of coal from mines in Queensland and NSW to end customers and ports.
Provision of design, construction, overhaul, maintenance and management
service to the Group as well as external customers.
Freight
Transport of bulk mineral commodities (including iron ore), agricultural
products, mining and industrial inputs and general freight throughout
Queensland, New South Wales and Western Australia, and containerised
freight throughout Australia.
Unallocated
Items of revenue and expense of a corporate nature, as well as those
relating to minor operations within the Group, and ineffective hedging
gains and losses.
Coal
$m
Freight
$m
Network
Services
$m
Unallocated
$m
Total
$m
699.9
1,057.9
–
11.4
1,769.2
–
21.1
–
–
21.1
2.8
1,110.1
178.0
61.6
1,352.5
–
103.1
–
–
103.1
106.5
–
108.6
138.1
353.2
637.6
–
221.9
–
859.5
Total revenue
1,790.3
1,455.6
1,212.7
Other income (note 6)
Total segment revenue and other income
37.3
1,827.6
68.0
1,523.6
(2.6)
1,210.1
(b) Segment information
2012
Segment revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Total revenue from external customers
Intersegment revenue
Services revenue
Track access
Freight transport
Other services
Other revenue
Total intersegment revenue
Intersegment elimination
Consolidated revenue and other income
Segment result
Underlying EBITDA
Depreciation and amortisation
Underlying EBIT
Significant adjustments (note 4(c))
EBIT
Net finance costs
Profit before income tax
Income tax (expense)/benefit
Profit for the year
Other segment information
Property, plant and equipment
441.2
(184.2)
257.0
172.8
(72.9)
99.9
527.2
(185.8)
341.4
(93.0)
(20.8)
(113.8)
3,117.0
1,145.8
4,520.4
254.0
9,037.2
–
–
–
29.1
29.1
–
–
–
97.6
97.6
126.7
27.4
154.1
809.2
2,168.0
286.6
240.2
3,504.0
637.6
124.2
221.9
97.6
1,081.3
4,585.3
130.1
4,715.4
(1,081.3)
3,634.1
1,048.2
(463.7)
584.5
8.8
593.3
(39.0)
554.3
(113.4)
440.9
68
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
4 Segment information (continued)
(b) Segment information (continued)
2011(1)
Segment revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Intersegment revenue
Services revenue
Track access
Freight transport
Other services
Other revenue
Total intersegment revenue
Total revenue
Other income (note 6)
Coal
$m
Freight
$m
Network
Services
$m
Unallocated
$m
Total
$m
708.8
926.0
–
6.2
8.4
959.7
148.6
32.6
–
14.4
–
–
14.4
–
71.7
–
–
71.7
112.6
–
106.4
138.3
357.3
590.4
–
211.3
20.8
822.5
–
–
–
49.1
49.1
–
–
–
106.3
106.3
155.4
829.8
1,885.7
255.0
226.2
3,196.7
590.4
86.1
211.3
127.1
1,014.9
4,211.6
1,655.4
1,221.0
1,179.8
35.1
56.2
–
4.7
96.0
Total revenue from external customers
1,641.0
1,149.3
Total segment revenue and other income
1,690.5
1,277.2
1,179.8
160.1
4,307.6
Intersegment elimination
Consolidated revenue and other income
Segment result
Underlying EBITDA
Depreciation and amortisation
Underlying EBIT
Significant adjustments (note 4(c))
EBIT
Net finance costs
Profit before income tax
Income tax (expense)/benefit
Profit for the year
Other segment information
Property, plant and equipment
368.9
(210.1)
158.8
89.2
(58.6)
30.6
465.8
(164.8)
301.0
(83.4)
(23.7)
(107.1)
(1,014.9)
3,292.7
840.5
(457.2)
383.3
(161.7)
221.6
(137.8)
83.8
277.1
360.9
3,194.4
864.5
4,007.2
259.1
8,325.2
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result of a change in accounting policy. The amounts disclosed in this note are after these adjustments.
FINANCIAL REPORT | QR NATIONAL
69
notes to the Consolidated FinanCial statements
30 June 2012
4 Segment information (continued)
(c) Significant adjustments
The group’s underlying results differs from the statutory result. The exclusion of
certain items permits a more appropriate and meaningful analysis of Group’s
underlying performance on a comparative basis. The significant adjustments
for the current and prior year are:
(d) Customer disclosure
The nature of the Group’s business is that it enters into long-term contracts
with key customers. It also earns material revenues from the Queensland
Government under various contractual and non-contractual arrangements.
A customer from the Coal segment represents approximately $335.1 million
(2011: $398.6 million) of the Group’s total revenue.
Employee benefits
Restructure costs
Voluntary redundancy schemes
Stamp duty
Total significant adjustments
2012
$m
–
–
–
(8.8)
(8.8)
2011
$m
54.7
33.3
62.7
11.0
161.7
2012
As noted below, New South Wales (NSW) stamp duty was triggered on
21 September 2010 with the interposing of QR National Limited as part of
the pre IPO restructuring. At the time of interposing there were some
uncertainties regarding whether NSW stamp duty should be payable in
respect of only the land held by the Group in NSW or both the land and
other assets (i.e. Rollingstock) held in NSW. QRN lodged an application with
the NSW Office of State Revenue (“OSR”) that stamp duty was only payable
on the land, however at the time of the IPO, QRN raised a provision of $11.0
million on the assumption that OSR may impose stamp duty on both land and
rollingstock. After review the OSR confirmed that stamp duty was only payable
in respect of the land ($2.2 million). Accordingly, the remaining provision of
$8.8 million has been released back to the income statement.
2011
The Group incurred $33.3 million of non-operating costs in respect of the
restructuring and separation of the discontinued businesses, which were
transferred to Queensland Rail, and in respect of the IPO. These costs comprise
advisory and system separation costs incurred in respect of the restructure and
the IPO.
Employee benefit expense of $54.7 million comprises the payment of
$41.9 million to employees under enterprise agreements negotiated with
union representatives, which provide for a one-off payment of $4,000 per
eligible employee as at settlement; $9.0 million expense related to the
Employee Gift Offer; and $3.8 million related to incentive schemes for
management and employees in relation to the IPO.
A major voluntary redundancy scheme was completed in April 2011, with costs
of $54.7 million. Additional redundancies during the year totalled $8.0 million.
NSW stamp duty was triggered on 21 September 2010 with the interposing of
QR National Limited as part of the IPO restructuring. The Group recognised a
provision of $11.0 million in relation to the stamp duty event.
5 Revenue
Services revenue
Track access
Freight transport
Other services revenue
Other revenue
2012
$m
809.2
2,168.0
286.6
240.2
2011
$m
829.8
1,885.7
255.0
226.2
3,504.0
3,196.7
Included within the Freight transport revenue is $28.6 million (2011: $14.9
million) of Deficit Tonnage Charges.
Included in Track access is nil (2011: $26.1 million) of Revenue Cap recovered
in year in relation to contractual railings that were not achieved in 2010.
Included in Other services is revenue from Transport Service Contracts
(for Regional Freight and Livestock Transport Services) from the State of
Queensland of $177.9 million (2011: $148.3 million) including $33.0 million
(2011: nil) of accrued additional payments earned through meeting
performance criteria under the contract.
6 Other income
Net gain on disposal of property, plant
and equipment
Fair value gains on financial assets at fair
value through profit or loss
Foreign exchange gains (net)
Fuel rebates
Interest revenue
Stamp duty release of provision
Other income
2012
$m
2011(1)
$m
16.2
0.6
0.1
97.8
2.5
8.8
4.1
130.1
–
–
–
90.2
3.3
–
2.5
96.0
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a
result of a change in accounting policy. The amounts disclosed in this note are after these
adjustments.
70
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
2012
$m
2011(1)
$m
Other expenses
2012
$m
2011(1)
$m
Rental expense relating to leases
18.9
19.3
Inventory obsolescence
Research & development
Losses on derivatives at fair value through
profit or loss
Loss on sale of asset
Impairment losses - financial assets
Trade receivables
Impairment/devaluation of non-current assets
Property, plant and equipment
Stamp duty
Other expenses
Total other expenses
Finance costs
Interest and finance charges paid/payable
Provisions: unwinding of discount
Total finance costs
Amount capitalised to qualifying assets (a)
Total finance costs
2.9
0.1
1.1
–
0.7
–
0.2
18.0
41.9
88.6
(1.7)
86.9
(45.4)
41.5
2.4
0.3
6.4
2.1
0.6
2.2
11.0
18.5
62.8
183.2
(0.6)
182.6
(41.4)
141.2
(a) Capitalised borrowing costs
The capitalisation rate used to determine the amount of borrowing costs to
be capitalised is the weighted average interest rate applicable to the entity’s
outstanding borrowings during the year of 6.10% (2011: 7.37%).
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result
of a change in accounting policy. The amounts disclosed in this note are after these
adjustments.
7 Expenses
Profit/(loss) before income tax includes
the following specific expenses:
Consumables
Repairs and maintenance
Track access
Energy and fuel
Other
290.2
371.4
429.9
308.6
277.4
383.6
359.8
306.4
Total consumables
1,400.1
1,327.2
Employee benefits expenses
Defined benefit superannuation expense
Defined contribution superannuation
expense
Voluntary redundancies and ex-gratia
payments
IPO related incentives
21.0
64.0
14.9
–
23.2
60.1
64.9
54.7
Salaries, wages and allowances
686.9
725.8
Other employment expenses including
on-costs
Total employee benefit expense
345.9
1,132.7
291.8
1,220.5
Depreciation and amortisation expense
Depreciation
Buildings
Plant and equipment
Rollingstock
Infrastructure
Total depreciation
Amortisation
Leased property
Leased rollingstock
Leased infrastructure
Plant and equipment under
finance leases
Total amortisation
Total depreciation and amortisation of
property, plant and equipment (note 15)
Other amortisation
Software
Customer contracts
Total amortisation (note 16)
12.3
45.1
198.1
67.3
322.8
2.3
19.3
101.1
0.1
122.8
445.6
16.3
1.8
18.1
12.5
48.0
202.6
61.1
324.2
0.7
31.1
83.3
0.1
115.2
439.4
16.5
1.3
17.8
Total depreciation and amortisation
expense
463.7
457.2
notes to the Consolidated FinanCial statements
30 June 2012
FINANCIAL REPORT | QR NATIONAL
71
8
Income tax expense
(a) Income tax expense
Current tax
Deferred tax
Deferred tax base reset on consolidation
and privatisation
Prior period adjustments
Income tax (benefit)/expense is
attributable to:
2012
$m
7.9
138.8
2011(1)
$m
–
9.2
(33.3)
(290.3)
–
4.0
113.4
(277.1)
Profit/(loss) from continuing operations
113.4
(277.1)
Deferred income tax (revenue) expense
included in income tax expense/(benefit)
comprises:
Decrease (increase) in deferred tax assets
(note 18)
Increase (decrease) in deferred tax liabilities
(note 23)
45.3
(56.2)
60.2
105.5
(224.9)
(281.1)
(b)
Numerical reconciliation of income tax expense/(benefit) to prima
facie tax payable
Profit before income tax expense
Tax at the Australian tax rate of 30%
(2011: 30%)
Tax effect of amounts which are not
deductible (taxable) in calculating taxable
income:
Entertainment
Research and development
Tax base reset on consolidation and
privatisation (note 8(f))
Non-assessable income
Stamp duty on business restructure/
acquisition of subsidiary
Share-based payments
Other
Prior period adjustments
2012
$m
554.3
166.3
0.2
(6.0)
(33.3)
(7.7)
(2.7)
–
(3.4)
–
2011 (1)
$m
83.8
25.1
0.1
(2.5)
(290.3)
(16.6)
3.3
2.8
(3.0)
4.0
(d) Tax privatisation legislation
Entities within the Group exited the State administered National Tax
Equivalents Regime upon privatisation on 22 November 2010. At the same
time, QR National Limited and its wholly-owned Australian subsidiaries entered
the Federal Tax Regime.
(e) Tax consolidation
QR National Limited and its wholly-owned Australian subsidiaries have
implemented the tax consolidation legislation as of 22 November 2010. All
Australian wholly-owned companies in the QR National Limited Group are
part of the tax consolidated group and are therefore taxed as a single entity.
The Group has notified the ATO that it has formed a tax consolidated group,
applying from 22 November 2010.
(f) Tax base reset
During the year ended 30 June 2011, as a consequence of the privatisation of
QR National Limited and the proposed election to consolidate its wholly-owned
Australian subsidiaries under the Australian tax consolidation regime, the
Group reset the tax base of its assets and liabilities as required by the specific
privatisation tax rules and the tax consolidation regime. This resulted in an
initial assessment of the net tax benefit of $290.3 million at 30 June 2011.
At 30 June 2012, this net tax benefit upon privatisation has been reassessed
to $323.6 million, and as a result, an additional income tax benefit of $33.3
million has been recognised in the year ended 30 June 2012.
Government review of rights to future income legislation
Included in the $323.6 million net tax benefit upon privatisation is a
benefit of $126.8 million relating to valuable customer contracts that can
be deducted for tax purposes over an average life of seven years under rights
to future income legislation. On 30 March 2011, the Assistant Federal Treasurer
requested that the Board of Taxation review the application of the rights to
future income rules, including the possibility of retrospective law changes,
and make recommendations to the Government. The Board of Taxation has
reported on its finding to the Government and the Government has enacted
amending legislation to the rights to future income rules with retrospective
effect from 1 July 2002. The amended legislation has not significantly
impacted QR National’s tax claim under these provisions. This is because
QR National’s claim arose after the original legislation was enacted but prior
to the Government’s announcement to review the legislation.
(g) Tax sharing agreement
The entities within the QR National Limited tax consolidated group have
entered into a tax sharing agreement which limits the joint and several liability
of the wholly-owned entities in the case of a default by the head entity.
9 Cash and cash equivalents
Cash on hand
2012
$m
–
98.8
–
98.8
–
98.8
2011
$m
0.1
116.6
0.4
117.1
(0.4)
116.7
Total income tax expense/(benefit)
113.4
(277.1)
Cash at bank
(c)
Tax expense (income) relating to items of other comprehensive income
Cash flow hedges
2012
$m
0.1
2011
$m
(0.1)
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result
of a change in accounting policy. The amounts disclosed in this note are after these
adjustments.
Trust monies
Total cash and cash equivalents
Less: Trust monies
Balance as per cash flow statement
72
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
(b) Past due but not impaired
As at 30 June 2012, trade receivables of $59.1 million (2011: $37.6 million)
were past due but not impaired. The ageing of these trade receivables is as
follows:
10 Trade and other receivables
Current
Trade receivables
Provision for impairment of
receivables (note (a))
Net trade receivables
Other receivables
Coal network access undertaking receivables
2012
$m
384.5
(2.9)
381.6
166.5
–
548.1
2011
$m
368.4
(2.2)
366.2
105.2
2.1
473.5
Up to 3 months
3 to 6 months
More than 6 months
11 Inventories
Other receivables include revenue for services performed but not yet invoiced
under contracts including TSC, Take or Pay, and insurance receivables.
Current
(a) Impaired trade receivables
As at 30 June 2012, the amount of the provision for impaired trade receivables
was $2.9 million (2011: $2.2 million).
Movements in the provision for impairment of receivables are as follows:
Raw materials and stores - at cost
Work in progress - at cost
At 1 July
Provision for impairment recognised
during the year
Receivables written off during the year
as uncollectable
Unused amounts reversed
At 30 June
2012
$m
2.2
1.3
0.0
(0.6)
2.9
2011
$m
4.5
1.0
(1.4)
(1.9)
2.2
The creation or release of the provision for impaired receivables has been
included in the income statement. Amounts charged to the provision account
are generally written off when there is no expectation of recovering additional
cash.
The other classes within trade and other receivables do not contain impaired
assets and are not past due. Based on the credit history of these other classes,
it is expected these amounts will be received when due.
Non-current
Raw materials and stores - at cost
Provision for inventory obsolescence
Inventory at lower of cost or net
realisable value
Inventory expense
a)
Inventory recognised as expense during the year ended 30 June 2012
amounted to $707.4 million (2011: $709.9 million). Write-downs of inventories
to net realisable value recognised as an expense during the year ended
30 June 2012 amounted to $1.9 million (2011: $2.0 million).
2012
$m
48.4
5.1
5.6
59.1
2012
$m
204.0
11.8
215.8
2012
$m
14.1
(5.4)
8.7
2011
$m
33.9
2.5
1.2
37.6
2011
$m
162.1
15.5
177.6
2011
$m
24.2
(3.5)
20.7
notes to the Consolidated FinanCial statements
30 June 2012
FINANCIAL REPORT | QR NATIONAL
73
12 Derivative financial instruments
Current assets
Forward exchange contracts -
cash flow hedges
Forward exchange contracts -
at fair value through profit or loss
Commodity contracts -
at fair value through profit or loss
Commodity contracts - cash flow hedges
Total current derivative financial
instrument assets
Non-current assets
Forward exchange contracts - at fair value
through profit or loss
Commodity contracts - at fair value through
profit or loss
Commodity contracts - cash flow hedges
Total non-current derivative financial
instruments assets
Total derivative financial
instrument assets
Current liabilities
Forward exchange contracts -
cash flow hedges
Forward exchange contracts -
at fair value through profit or loss
Commodity contracts -
at fair value through profit or loss
Interest rate swap contracts -
cash flow hedges
Total current derivative
financial instrument liabilities
0.1
–
–
–
0.1
–
–
–
–
–
4.3
10.8
6.2
21.3
0.2
0.8
2.5
3.5
7.8
9.3
–
–
–
0.6
1.3
2012
$m
2011
$m
Non-current liabilities
Forward exchange contracts -
cash flow hedges
Forward exchange contracts - at fair value
through profit or loss
Commodity contracts - at fair value through
profit or loss
Interest rate swap contracts - cash flow
hedges
Total non-current derivative financial
instrument liabilities
Total derivative financial
instrument liabilities
(a) Instruments used by the group
The Group holds derivative financial instruments to hedge (including
economically hedge) its foreign currency, interest rate and fuel price risk
exposures in accordance with the Group’s financial risk management policy
(refer to note 3).
0.1
24.8
13 Other assets
0.7
10.2
Current
Prepayments
14 Investments accounted for using the equity method
27.3
Shares in associates (refer note 30(d))
Interest in joint ventures (refer note 30(c))
During the year the Group acquired a further 18% interest in Moorebank
Industrial Property Trust (unlisted entity) for $41.1 million taking its stake to
33%. Following the acquisition of the additional equity, the investments have
been classified as an investment in an associate. In the prior year, these were
classified as other financial assets in note 17.
2012
$m
2011
$m
0.2
–
–
1.8
2.0
3.3
1.9
1.0
0.9
–
3.8
31.1
2012
$m
8.0
8.0
2012
$m
77.5
0.5
78.0
2011
$m
10.6
10.6
2011
$m
–
0.5
0.5
74
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
15 Property, plant and equipment
Assets under
construction
$m
Land
$m
Leased
property
$m
Build-
ings
$m
Plant and
equipment
$m
Rolling-
stock
$m
Leased
infra-
structure
$m
Leased
rolling-
stock
$m
Leased
plant and
equipment
$m
Infra-
structure
$m
Total
$m
2012
Opening net
book amount
Additions
Transfers
between asset
classes
Disposals
Impairment
reversal
Assets classified
as held-for-sale
Depreciation/
amortisation
expense
Closing net
book amount
Cost
Accumulated
depreciation
and impairment
losses
Net book
amount
2011(1)
Opening net
book amount
Additions
Transfers
between asset
classes
Disposals
Impairment
reversal
Depreciation/
amortisation
expense
Closing net
book amount
5.6
1.2
5.2
–
–
–
302.9
0.2
56.4
(0.9)
–
–
275.3
15.3
2,978.6
1,776.9
197.7
–
–
–
0.6
–
1,239.0
18.9
8,325.2
1,201.6
41.9
(9.0)
1.6
–
492.8
(10.4)
0.0
(2.2)
109.9
–
–
–
(2.8)
(2.8)
(0.1)
–
–
–
–
–
1,393.2
(3.8)
(9.3)
(29.6)
0.0
3.6
–
(8.7)
1,365.7
1,166.0
182.9
–
1.6
(2.7)
–
(6.5)
(2,107.5)
–
2.1
–
–
0.0
(2.3)
(12.3)
(45.1)
(198.1)
(101.1)
(19.3)
(0.1)
(67.3)
(445.6)
426.3
175.3
9.7
346.3
280.0
3,260.7
1,785.7
172.7
0.5
2,580.0
9,037.2
426.3
175.3
14.6
460.2
528.0
4,496.8
2,182.3
336.3
0.8
2,825.4
11,446.0
–
0.0
(4.9)
(113.9)
(248.0)
(1,236.1)
(396.6)
(163.6)
(0.3)
(245.4)
(2,408.8)
426.3
175.3
9.7
346.3
280.0
3,260.7
1,785.7
172.7
0.5
2,580.0
9,037.2
811.8
1,283.3
182.4
1.6
3.4
1.4
225.5
1.4
275.1
28.1
2,529.0
1,554.3
304.0
19.0
–
–
1.6
(2.7)
2.2
(0.7)
87.7
(0.3)
31.2
(11.1)
636.5
(3.3)
–
1.1
–
–
305.9
–
–
(74.5)
(0.7)
–
(729.4)
–
–
–
–
–
(0.7)
(12.5)
(48.0)
(202.6)
(83.3)
(31.1)
(0.1)
(61.1)
(439.4)
1,365.7
182.9
5.6
302.9
275.3
2,978.6
1,776.9
197.7
0.6
1,239.0
8,325.2
–
–
0.7
–
–
1,531.5
36.3
7,417.0
1,371.1
(263.6)
(4.1)
(1.7)
(22.9)
–
1.1
Cost
1,365.7
182.9
8.2
405.3
516.7
4,039.5
2,046.7
372.6
0.8
1,444.7
10,383.1
Accumulated
depreciation
and impairment
losses
Net book
amount
–
–
(2.6)
(102.4)
(241.4)
(1,060.9)
(269.8)
(174.9)
(0.2)
(205.7)
(2,057.9)
1,365.7
182.9
5.6
302.9
275.3
2,978.6
1,776.9
197.7
0.6
1,239.0
8,325.2
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result of a change in accounting policy. The amounts disclosed in this note are after these adjustments.
FINANCIAL REPORT | QR NATIONAL
75
notes to the Consolidated FinanCial statements
30 June 2012
15 Property, plant and equipment (continued)
17 Other financial assets
(a) Non-current assets pledged as security
Leased rollingstock assets of $172.7 million (2011: $197.7 million) have been
pledged as security under the terms of the cross border lease arrangements.
Unlisted equity securities
2012
$m
–
2011
$m
36.3
During the year the Group exercised its pre-emptive rights to acquire additional
equity in the Moorebank Industrial Property Trust (MIPT) for $41.1 million,
taking its stake to 33%.
Following the acquisition of additional equity, the investments have been
classified as investment in an associate in note 14.
18 Deferred tax assets
The balance comprises temporary differences attributable to:
2012
$m
Provisions/accruals
Tax losses
Customer contracts
Unearned revenue
Cash flow hedges
Other temporary differences
70.5
–
91.4
2.9
1.0
9.3
2011
$m
45.7
37.5
116.1
3.1
9.3
8.8
175.1
220.5
Set-off of deferred tax liabilities pursuant to
set-off provisions (note 23)
Net deferred tax assets
(175.1)
(220.5)
–
–
16 Intangible assets
Goodwill
$m
Software
$m
Key
customer
contracts
$m
Total
$m
24.9
0.5
0.0
9.3
21.5
–
–
9.3
3.1
0.5
0.0
–
0.3
–
–
–
–
(16.3)
(1.8)
(18.1)
0.3
14.5
1.8
16.6
73.3
107.2
9.3
189.8
(73.0)
0.3
(92.7)
14.5
(7.5)
1.8
(173.2)
16.6
–
0.3
–
–
–
–
36.5
–
0.1
(0.3)
1.7
2.9
–
1.5
–
–
39.4
0.3
1.6
(0.3)
1.7
(16.5)
(1.3)
(17.8)
2012
Opening net
book amount
Additions
Disposals
Transfers
Amortisation
expense
Closing net
book amount
Cost
Accumulation
amortisation
and impairment
Net book amount
2011
Opening net
book amount
Acquisition
of business
Additions
Disposals
Transfers
Amortisation
expense
Closing net
book amount
0.3
21.5
3.1
8.8
24.9
180.5
Cost
73.3
98.4
Accumulated
amortisation
and impairment
Net book amount
(73.0)
0.3
(76.9)
21.5
(5.7)
3.1
(155.6)
24.9
76
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
18 Deferred tax assets (continued)
Movements
At 30 June 2010
(Charged)/credited
– to profit or loss
– to profit or loss as a result of consolidation
and privatisation
– to other comprehensive income
At 30 June 2011
At 30 June 2011
(Charged)/credited
– to profit or loss
– to profit or loss as a result of consolidation
and privatisation
– to other comprehensive income
At 30 June 2012
Provisions/
accruals
$m
111.9
Tax losses
$m
41.0
Customer
contracts
$m
–
Unearned
revenue
$m
3.3
Cash flow
hedges
$m
0.9
27.0
(93.2)
–
45.7
45.7
24.3
0.5
–
70.5
31.3
(34.8)
–
37.5
(19.6)
135.7
–
116.1
37.5
116.1
2.7
(2.9)
–
3.1
3.1
(37.5)
(15.8)
(0.2)
–
–
–
(8.9)
–
91.4
–
–
2.9
9.1
(0.8)
0.1
9.3
9.3
(8.2)
–
(0.1)
1.0
19 Trade and other payables
21 Provisions
Trade payables
Other payables
20 Borrowings
Non-current - Unsecured
Syndicated debt facility
Capitalised borrowing costs
Total unsecured non-current borrowings
2012
$m
313.5
36.1
349.6
2012
$m
1,220.0
(18.4)
1,201.6
2011
$m
280.1
30.1
310.2
2011
$m
830.0
(26.8)
803.2
The Group entered into a $3,000 million Syndicated Facility Agreement on
7 October 2010, with the first draw down of the facility in November 2010.
A syndicate of lenders have provided $1,425 million in a facility expiring in
December 2013 and $1,575 million in facilities expiring in December 2015.
The Syndicated Debt Facility imposes certain covenants on the Group to
ensure that certain financial ratios are met, and restricts the amount of
security that the Group and its subsidiaries can provide over their assets in
certain circumstances.
Current
Employee benefits (a)
Provision for insurance claims (b)
Litigation and workers’ compensation
provision (c)
Decommissioning/make good and other
provisions (d)
Total current provisions
Non-current
Employee benefits (a)
Litigation and workers’
compensation claim (c)
Decommissioning/make good
and other provisions (d)
Land rehabilitation (e)
Total non-current provisions
Other
$m
7.1
4.2
(2.5)
–
8.8
8.8
Total
$m
164.2
54.7
1.5
0.1
220.5
220.5
(0.1)
(37.5)
0.6
–
9.3
2012
$m
325.8
20.0
24.0
1.6
371.4
25.6
15.5
4.0
36.2
81.3
(7.8)
(0.1)
175.1
2011
$m
295.2
12.0
11.0
2.0
320.2
23.4
20.0
3.5
34.4
81.3
Total provisions
452.7
401.5
(a) Employee benefits
Annual leave
Long service leave
Other
89.3
193.0
69.1
351.4
85.2
173.9
59.5
318.6
FINANCIAL REPORT | QR NATIONAL
77
notes to the Consolidated FinanCial statements
30 June 2012
21 Provisions (continued)
(a) Employee benefits (continued)
The current provision for employee benefits includes accrued annual leave,
leave loading, retirement allowances, long service leave and bonus accrual.
Included in long service leave are all unconditional entitlements where
employees have completed the required period of service and also a provision
for the chance that employees will reach the required period of service.
The entire amount of the provision is presented as current, since the Group
does not have an unconditional right to defer settlement for any of these
obligations. However, based on past experience, the Group does not expect
all employees to take the full amount of accrued leave or require payment
within the next 12 months. The current provision for employee benefits
includes an amount of $197.5 million (2011:$155.2 million) that is not
expected to be taken or paid within the next 12 months.
Other employee benefit liabilities includes payroll tax and retirement allowances.
(b) Provision for insurance claims
The provision for insurance claims is raised for insurance claims external to the
Group and represents the aggregate deductible component in relation to loss
or damage to property, plant and equipment and rollingstock.
(c) Litigation and workers’ compensation
A provision of $39.5 million (2011: $31.0 million) is made for the estimated
liability for workers’ compensation and litigation claims. Claims are assessed
separately for common law, statutory and asbestos claims. The outstanding
liability is determined after factoring future claims inflation and discounting
future claim payments. Estimates are made based on the average number of
claims and average claim payments over a specified period of time. Claims
Incurred But Not Reported (“IBNR”) are also included in the estimate. Claims
are expected to be paid over a period exceeding more than one year.
(d) Decommissioning/make good and other provisions
A provision of $4.9 million (2011: $3.6 million) has been made for the
anticipated costs of the future restoration of leased office premises. Make
good requirements vary for different properties. The provision includes future
cost estimates associated with the restoration of office fixtures and fittings
to original condition; removal of all property and equipment to return the
premises to a vacant shell, and making good any damage caused by their
removal; and repairing and making good any damage which may be caused to
land adjoining the premises as a result of carrying out structural work or other
improvements. The provision has been calculated based on recent comparable
make good costs or independent assessments.
A provision of $0.7 million (2011: $1.9 million) has been made for onerous
lease contracts which represent the net unavoidable costs in meeting the
obligations under property leases over the remaining lease terms.
(e) Land rehabilitation
A provision of $36.2 million (2011: $34.4 million) has been recognised for
the estimated costs to remediate contaminated land in accordance with the
Group’s constructive obligations following the Board’s review of its revised
sustainability policy at 30 June 2010. The provision is based on an estimated
long-term inflation rate in the order of 3.2% (2011: 4.5%). The projected
remediation dates for the various sites ranges from 10 to 40 years. To measure
the present value of the estimated costs, a discount rate in the order of 4.5%
(2011: 5.7%) was used, based on the interest rate which reflects the maturity
profile of the liability.
(f) Movements in provisions
Movements in each class of provision during the financial year, other than
employee benefits, are set out below:
2012
Current and non-current
Carrying amount at start of the year
Charged/(credited) to profit or loss
– Additional provision recognised
– Unused amounts released or reversed
– Charged/(credited) to the profit or loss -
unwinding of discount
Amounts used during the year
Carrying amount at end of year
2011
Carrying amount at start of year
Charged/(credited) to profit or loss
– Additional provision recognised
– Unused amounts released or reversed
– Increase/(decrease) in discounted amount
arising from passage of time and effect of
any change in the discount rate
Amounts used during the year
Carrying amount at end of year
Provision for
insurance claims
$m
Litigation
and workers
compensation
provision
$m
Decommissioning/
make good and
other provision
$m
Provision for land
rehabilitation
$m
12.0
18.1
–
–
(10.1)
20.0
–
13.9
(1.9)
–
–
12.0
31.0
21.1
–
–
(12.6)
39.5
28.5
12.7
(1.2)
–
(9.0)
31.0
5.5
1.0
(0.3)
–
(0.6)
5.6
4.2
2.6
–
–
(1.3)
5.5
34.4
0.1
–
1.7
–
36.2
34.7
0.3
–
(0.6)
–
34.4
Total
$m
82.9
40.3
(0.3)
1.7
(23.3)
101.3
67.4
29.5
(3.1)
(0.6)
(10.3)
82.9
78
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
22 Other liabilities
23 Deferred tax liabilities
Current
Income received in advance
Other current liabilities
Non-current
Income in advance
Other non-current liabilities
2012
$m
36.9
0.6
37.5
291.5
18.7
310.2
2011
$m
36.0
0.2
36.2
314.6
30.1
344.7
The balance comprises temporary
differences attributable to:
Property, plant and equipment
Capitalised deductible expenditure
Consumables and spares
Accrued income
Cash flow hedges
Other temporary difference
Total deferred tax liabilities
2012
$m
2011(1)
$m
399.9
100.5
16.7
12.4
–
9.1
416.7
32.4
14.3
1.5
7.5
6.0
538.6
478.4
Income received in advance represents amounts received from customers
as prepayment of future rentals under agreements of customer specific
infrastructure. These amounts are deferred and earned over the term of the
agreement.
Other non-current liabilities include a $17.1 million (2011:$26.4 million)
non-interest bearing loan with a former subsidiary, On Track Insurance Pty Ltd.
Set-off of deferred tax assets pursuant to
set-off provisions (note 18)
Net deferred tax liabilities
(175.1)
363.5
(220.5)
257.9
Property,
plant and
equipment
$m
629.7
Capitalised
deductible
expenditure
$m
10.0
Consumables
and spares
$m
20.9
Accrued
income
$m
50.8
Cash flow
hedges
$m
(1.1)
Movements
At 1 July 2010
Charged/(credited)
– to profit or loss
– to profit or loss as result of
consolidation and privatisation
At 30 June 2011
19.2
(232.2)
416.7
58.5
(36.1)
32.4
27.3
(33.9)
14.3
At 1 July 2011
416.7
32.4
14.3
Charged/(credited)
– to profit or loss
– to profit or loss as result of
consolidation and privatisation
At 30 June 2012
22.5
(39.3)
399.9
68.1
–
100.5
2.8
(0.4)
16.7
(46.9)
(2.4)
1.5
1.5
10.9
-
12.4
8.6
–
7.5
7.5
(7.4)
(0.1)
-
Other
$m
(7.0)
(2.9)
15.9
6.0
6.0
4.5
(1.4)
9.1
Total
$m
703.3
63.8
(288.7)
478.4
478.4
101.4
(41.2)
538.6
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result of a change in accounting policy. The amounts disclosed in this note are after these adjustments.
FINANCIAL REPORT | QR NATIONAL
79
notes to the Consolidated FinanCial statements
30 June 2012
24 Contributed equity
(a) Issued capital
2012
Shares
‘000
2011
Shares
‘000
2012
$m
2011
$m
Ordinary
shares
Fully paid
2,440,000
2,440,000
1,711.7
1,711.7
(f) Capital risk management
The Group’s objective is to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future development of
the business.
The Group and the parent entity monitor its capital structure by reference to
its gearing ratio. This ratio is calculated as net debt divided by total capital.
Net debt is calculated as total borrowings less cash and cash equivalents. Total
capital is calculated as ‘equity’ as shown in the balance sheet plus net debt.
There were no changes in the Group’s approach to capital management during
the year.
(b) Other contributed equity
Share-based payments
Capital contributions from the State
on retirement of borrowings
Capital contribution from the State for
employee gift shares
2012
$m
10.1
2011
$m
2.9
4,388.3
4,388.3
9.0
9.0
4,407.4
4,400.2
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
2012
$m
1,201.6
(98.8)
1,102.8
7,294.2
8,397.0
2011(1)
$m
803.2
(117.1)
686.1
7,026.4
7,712.5
13%
9%
Total contributed equity
6,119.1
6,111.9
The Group has complied with externally imposed capital debt covenants.
(c) Movements in ordinary share capital
Date
1 July 2010
31 August 2010
Details
Opening balance
Capital distribution to
Queensland Rail
21 September 2010 Change in legal capital
6 October 2010
structure from QR
Limited to QR National
Limited
Capital distribution on
disposal of OTI pursuant
to Transfer Notice
6 October 2010
Share split
30 June 2011
Closing balance
Number
of shares
(‘000)
3,792,757
$m
2,067.0
–
(332.3)
25 Reserves
(a) Reserves
Hedging reserve – cash flow hedges
(3,792,757)
–
Hedging reserve - cash flow hedges
Movements:
–
2,440,000
2,440,000
(23.0)
–
1,711.7
Balance 1 July
Fair value (losses) taken to equity
Deferred tax
Fair value losses transferred to profit or loss
Deferred tax
Balance 30 June
(b) Nature and purpose of reserves
Hedging reserve - cash flow hedges
30 June 2012
Closing balance
2,440,000
1,711.7
(d) Ordinary shares
Ordinary shares have no par value and the Group does not have a limited
amount of authorised capital. Ordinary shares entitle the holder to participate
in dividends and the proceeds on winding up of the Company in proportion to
the number of and amounts paid on the shares held.
(e) Share-based payments
Share-based payments represent the fair value of share-based remuneration
provided to employees.
2012
$m
(2.0)
(2.0)
(2.3)
(1.4)
0.4
1.8
(0.5)
(2.0)
2011
$m
(2.3)
(2.3)
(2.0)
(2.3)
0.7
1.9
(0.6)
(2.3)
The hedging reserve is used to record gains or losses on a hedging instrument
in a cash flow hedge that are recognised in other comprehensive income, as
described in note 1(o). Amounts are recognised in the income statement when
the associated hedged transaction affects the income statement.
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result
of a change in accounting policy. The amounts disclosed in this note are after these
adjustments.
80
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
26 Dividends
(a) Ordinary shares
27 Key Management Personnel disclosures
(a) Key Management Personnel compensation
Interim dividend for the year ended
30 June 2012 of 3.7 cents per share
(2011: nil), paid 30 April 2012 (unfranked)
Final dividend for the year ended
30 June 2011 of 3.7 cents per share,
paid September 2011 (unfranked)
Special dividend for the period to
21 September 2010 of 3.54 cents per
fully paid share, paid November 2010
(unfranked)
2012
$m
2011
$m
90.3
90.3
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
–
–
2012
$’000
13,555
570
256
1,171
3,238
18,790
2011
$’000
15,023
632
263
–
1,199
17,117
–
180.6
86.4
86.4
Short-term employee benefits include cash salary, at risk performance
incentives and fees and non monetary benefits. Non-monetary benefits
represent the value of Reportable Fringe Benefits for the respective Fringe
Benefits Tax year ending 31 March, the estimated value of car parking
provided and annual leave accrued or utilised during the financial year.
(b) Dividends not recognised at the end of the reporting period
Since 30 June 2012, the Directors have
declared the payment of a final dividend
of 4.6 cents per fully paid ordinary share
(2011:3.7 cents), unfranked. The aggregate
amount of the proposed dividend expected
to be paid on 28 September 2012 out of
retained earnings, but not recognised as a
liability at year end is:
112.2
90.3
(b) Equity instrument disclosures relating to Key Management Personnel
(i) Rights provided as remuneration and shares issued on exercise of such rights
Details of the rights provided as remuneration, and shares issued on the
exercise of such rights, together with terms and conditions of the rights, can be
found in sections 6.1.3, 6.1.4 and 7.1 of the remuneration report.
(ii) Rights holdings
The numbers of rights over ordinary shares in the Group held during the
financial year by each Director of QR National Limited and other Key
Management Personnel of the Group, including their personally related
parties, are set out below.
2012
Name
L E Hockridge
D M O’Toole
K R Lewsey
M P McAuliffe
M G Carter
G P Pringle
R J Stephens
L J Cooper
C M Davies
G Robinson
P Scurrah
Balance at start
of the year
‘000
Granted as
compensation
‘000
Exercised
‘000
Other changes
‘000
1,333
137
127
118
118
108
108
98
118
–
–
494
179
158
144
143
135
135
121
51
51
70
(333)
–
–
(93)
–
–
–
–
–
(16)
(40)
–
–
–
(169)
–
–
–
–
(51)
–
–
Balance at end
of the year
‘000
1,494
316
285
–
261
243
243
219
118
35
30
Vested and
exercisable
‘000
–
–
–
–
–
–
–
–
–
–
–
Unvested
‘000
1,494
316
285
–
261
243
243
219
118
35
30
FINANCIAL REPORT | QR NATIONAL
81
notes to the Consolidated FinanCial statements
30 June 2012
27 Key Management Personnel disclosures (continued)
(b)
Equity instrument disclosures relating to Key Management Personnel (continued)
Balance at start
of the year
‘000
Granted as
compensation
‘000
Exercised
‘000
Other changes
‘000
–
–
–
–
–
–
–
–
–
1,333
137
127
118
118
108
108
98
118
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at end
of the year
‘000
1,333
137
127
118
118
108
108
98
118
Vested and
exercisable
‘000
–
–
–
–
–
–
–
–
–
Unvested
‘000
1,333
137
127
118
118
108
108
98
118
2011
Name
L E Hockridge
D M O’Toole
K R Lewsey
M P McAuliffe
M G Carter
G P Pringle
R J Stephens
L J Cooper
C M Davies
(iii) Share holdings
The numbers of shares in the Group held during the financial year by each Director of QR National Limited and other Key Management Personnel of the Group,
including their personally related parties, are set out below.
2012
Name
Directors of QR National Limited(1)
J B Prescott AC
L E Hockridge
J Atkin
R R Caplan
G T John AO
A J P Staines
G T Tilbrook
K Field
J Cooper
Other Key Management Personnel of the Group(2)
D M O’Toole
K R Lewsey
M G Carter
G P Pringle
R J Stephens
L J Cooper
G Robinson
P Scurrah
Balance at the
start of the year
‘000
Received during
the year on the
exercise of rights
‘000
Other changes
during the year
‘000
Balance at end of
the year
‘000
157
204
20
82
47
5
31
–
–
105
61
41
29
91
12
9
–
–
333
–
–
–
–
–
–
–
–
–
–
–
–
–
16
40
58
1
1
–
10
–
–
–
12
1
2
22
1
–
1
20
–
215
539
21
82
57
5
31
–
12
106
63
63
30
91
13
45
40
(1) Mr A J Davies resigned on 13 December 2011 and Mr P C Kenny (deceased) ceased being director on 8 October 2011.
(2) Mr M P McAuliffe and Mr C M Davies ceased employment on 30 June 2012 and 25 May 2012 respectively and are no longer considered as key management personnel.
82
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
27 Key Management Personnel disclosures (continued)
Equity instrument disclosures relating to Key Management Personnel (continued)
(b)
(iii) Share holdings (continued)
2011
Name
Directors of QR National Limited
J B Prescott AC
L E Hockridge
J Atkin
R R Caplan
A J Davies
G T John AO
P C Kenny (deceased)
A J P Staines
G T Tilbrook
Other Key Management Personnel of the Group
D M O’Toole
K R Lewsey
M P McAuliffe
M G Carter
G P Pringle
R J Stephens
L J Cooper
C M Davies
Balance at the
start of the year
‘000
Received during
the year on the
exercise of rights
‘000
Other changes
during the year
‘000
Balance at end of
the year
‘000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
157
204
20
82
184
47
2
5
31
105
61
20
41
29
91
12
112
157
204
20
82
184
47
2
5
31
105
61
20
41
29
91
12
112
(c) Transactions with Directors and Key Management Personnel
There were no Key Management Personnel related party transactions during
the year.
Deed of cross guarantee
Cross guarantees are given by the Company and some of its wholly owned
subsidiaries as described in note 33.
28 Contingencies
The Group had contingencies at 30 June 2012 in respect of:
(a) Contingent liabilities
Issues relating to common law claims and product warranties are dealt with as
they arise. There were no material contingent liabilities requiring disclosures in
the financial statements, other than as set out below.
Litigation
A number of common law claims are pending against the Group. Provisions
are taken up for some of these exposures based on the management’s
determination, and are included as such in note 21.
Guarantees and letters of credit
For information about guarantees and letters of credit given by the Group, refer
to note 3(d).
Defined benefit fund liabilities
The State of Queensland has permitted existing employees of QR National
Limited and its subsidiaries including QR Limited (the QR National Group), as at
the date of the IPO, to retain their existing superannuation arrangements with
the State Superannuation Public Sector Scheme (QSuper), and has provided the
Group an indemnity if the State of Queensland Treasurer requires the Group to
pay any amounts required to meet the defined benefit obligations. An actuarial
assessment of the fund as at 30 June 2010 has been completed which showed
the fund to be in surplus. Existing contribution arrangements are to continue
into the foreseeable future.
Joint venture arrangements
Refer to note 30 for details of the Group’s share of the net asset deficiencies
in joint venture investments. The Group is required to contribute additional
capital, if requested, to make good any deficiency under the terms of the joint
venture agreements.
FINANCIAL REPORT | QR NATIONAL
83
notes to the Consolidated FinanCial statements
30 June 2012
28 Contingencies (continued)
(b) Contingent assets
Revenue cap adjustments
The Group has a contingent asset in respect of revenue cap adjustments
in Network Services. Access revenue is subject to a revenue cap mechanism
that serves to ensure the network recovers its full regulated revenue over the
regulatory period, with the majority of under or over recovery in access tariffs
(net of take or pay charges) during a financial year being charged or refunded,
and recognised as revenue, in the second year following the period in which
the contractual railings were not achieved. Subject to regulatory approval and
any adjustments resulting from below rail cause, recovery of shortfalls via the
revenue cap of $65.3 million (2011: $46.5 million) will be received during the
year ending 30 June 2013 ($49.2 million) and 30 June 2014 ($16.1 million).
Deficit tonnage charges
The Group has a contingent asset of $33.2 million (2011: $21.1 million) in
respect of deficit tonnage charges relating to contracts with a period ending 30
June 2012. Deficit tonnage charges are recognised in the period following that
in which the service was due to be provided where the customer elects to pay
the charges rather than reduce future tonnage entitlements.
Stamp duty
In 2010, the Group recognised an expense of $24.9 million for stamp duty
paid in relation to the 2006 acquisition of Australian Railroad Group (“ARG”).
The amount was paid based on an assessment issued by the WA Office of
State Revenue and as required under the Group’s Joint Acquisition Agreement
(“JAA”) with Brookfield Infrastructure Group (Australia) Pty Ltd (“Brookfield”)
(previously Prime Infrastructure). Brookfield, as the primary legal party,
subsequently appealed the assessment through a submission to the WA State
Advisory Tribunal. Under the JAA, the above amount would be refunded to QR
National by Brookfield upon a favourable decision.
On 9 March 2012, the Tribunal found in favour of Brookfield. In late March
2012, the WA Office of State Revenue appealed the decision to the WA Court
of Appeal. The appeal is expected to be heard before December 2012. The
Group is optimistic there will be a favourable outcome and the above amount
will be refunded to QR National by Brookfield, as there are strong legal
arguments to support the case.
Flood recovery
The Group has incurred $6.9 million (2011: $nil) to repair the damages
resulting from the severe flood event across Central Queensland. The Group has
lodged a submission with Queensland Competition Authority (“QCA”) for the
recovery of these costs as adjustments to tariffs. QCA is currently reviewing the
submission.
Guarantees and letters of credit
For information about guarantees given to the Group, refer to note 3(d).
29 Commitments
(a) Capital commitments
2011
$m
Capital expenditure contracted for at the reporting date but not recognised
as liabilities is payable as follows:
2012
$m
Property, plant and equipment
Within one year
Later than one year but not later than
five years
254.2
2.3
256.4
353.4
–
353.4
(b) Lease commitments
Commitments for minimum lease payments in relation to non-cancellable
operating leases (excluding GST) are payable as follows:
Within one year
46.8
46.2
Later than one year but not later than
five years
Later than five years
56.7
3.9
107.4
81.0
6.9
134.1
The above commitments flow primarily from operating leases of property and
machinery. These leases, with terms mostly ranging from one to ten years,
generally provide the Group with a right of renewal, at which times the lease
terms are renegotiated. The lease payments comprise a base amount, while
the property leases also contain a contingent rental, which is based on either
the movements in the Consumer Price Index or another fixed percentage as
agreed between the parties.
(c) Lease commitments receivable: where the Group is the lessor
Some fixed assets are leased to tenants with rents payable monthly.
Minimum lease payments (excluding GST) not recognised in the financial
statements are receivable as follows:
2012
$m
2011
$m
Within one year
Later than one year but not later than
five years
Later than five years
8.2
6.2
7.2
21.6
5.9
9.3
8.0
23.2
84
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
30 Interests in joint ventures and associates
(a) Joint venture operation
The Group has an interest in the Nickel West Land Logistics Joint Venture
Agreement. The Group severally provides rail freight services under this
agreement, and the joint venture partner severally provides road freight
services. There are no assets jointly controlled by the operation.
(b) Jointly controlled assets
The Group has a 33.3% (2011: 33.3%) participating interest in a joint venture
through its wholly owned subsidiary, QR Surat Basin Pty Ltd, together with two
other parties.
The Group’s share of the joint assets, any liabilities that it has incurred directly
and its share of any liabilities incurred jointly with the other venturers, income
from the sale or use of its share of the output of the joint venture, its share
of expenses incurred by the joint venture, and expenses incurred directly in
respect of its interest in the joint venture, are detailed below.
The amounts are included in the consolidated financial statements under their
respective asset, liability, income and expense categories:
Group’s share of:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total net assets
Revenue
Expenses
Tax benefit
Net profit/(loss) after tax
2012
$m
2011
$m
1.0
8.7
(1.2)
(9.3)
(0.8)
0.0
0.0
0.0
0.0
0.3
2.5
(0.1)
(3.9)
(1.2)
0.0
0.0
0.0
0.0
The balance sheet and income statement is based on the unaudited financial
statements of the Surat Basin Rail joint venture as at 30 June 2012 (2011:
30 June 2011).
Under Clause 7.3 of the QR Surat Basin Pty Ltd Joint Venture Agreement dated
4 December 2006, the Project Director may call for additional contributions of
funding from the participants in order to fund any expenditure incurred or to
be incurred.
(c) Joint venture entities
The joint venture entities in which the Group has an interest and which are
equity accounted in the financial statements are as follows:
Name
CHCQ
Country of
operation
China-Hong Kong
Chun Wo/CRGL
China-Hong Kong
KMQR Sdn Bhd
Malaysia
ARG Risk
Management
Limited
QLM Pty Ltd
Australia
Australia
(i) Movements in carrying amounts
Carrying amount at the beginning of the
financial year
Share of profits after income tax
Dividends received/receivable
Carrying amount at the end of the
financial year
Ownership
interest
2012
%
15
20
30
50
50
2011
%
15
20
30
50
50
Principal
activity
Construction
Construction
Consulting
Insurance
Dormant
2012
$m
2011
$m
0.5
0.0
0.0
0.5
0.5
0.0
0.0
0.5
(ii) Share of joint ventures’ assets, liabilities, revenue, expenses and results
2012
$m
2011
$m
Group’s share of:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total net assets
Revenue
Expenses
Profit before income tax
Tax
Profit after income tax
2.2
0.0
2.2
(1.7)
0.0
(1.7)
0.5
0.0
0.0
0.0
0.0
0.0
2.2
0.0
2.2
(1.7)
0.0
(1.7)
0.5
0.0
0.0
0.0
0.0
0.0
FINANCIAL REPORT | QR NATIONAL
85
notes to the Consolidated FinanCial statements
30 June 2012
30 Interests in joint ventures and associates (continued)
31 Related party transactions
(d) Investments in associates
(i) Movement in carrying values
(a) Parent entities
The parent and ultimate parent entity within the Group is QR National Limited.
Opening balance
Additional investments
Transfer from available-for-sale investments
Share of profit in associates
Closing balance (note 14)
(ii) Fair value of unlisted investments in associates
Moorebank Industrial Property Trust
2012
$m
–
41.1
36.3
0.1
77.5
2012
$m
77.5
2011
$m
–
–
–
–
–
2011
$m
–
(iii) Summarised financial information of associates
The Group’s share of the results of its principal associates and its aggregated
assets (including goodwill) and liabilities are as follows:
Company’s share of:
Ownership
Interest %
Assets
$m
Liabilities
$m
Revenues
$m
Profit
$m
2012
Moorebank
Industrial
Property Trust
33.0
78.2
0.7
–
–
(iv) Contingent liabilities of associates
Share of contingent liabilities incurred
jointly with other investors
Contingent liabilities relating to liabilities
of the associate for which the company
is severally liable
2012
$m
2011
$m
–
–
–
–
–
–
(b) Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and
results of the following principal subsidiaries in accordance with the accounting
policy described in note 1(b):
Name of entity
QR Limited
Country of
incorporation
Australia
QR Intermodal Pty Ltd Australia
Class of
shares
Ordinary
Ordinary
Equity holding
2012
%
2011
%
100.0
100.0
100.0
100.0
Interail Australia
Pty Ltd
Logistics Australasia
Pty Ltd
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
100.0
Golden Bros.
Group Pty Ltd
CRT Group Pty Ltd
NHK Pty Ltd
Australia
Australia
Australia
Australian Rail Pty Ltd Australia
Ordinary
Ordinary
Ordinary
Ordinary
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Australian Eastern
Railroad Pty Ltd
Australian
Railroad
Group
Employment
Pty Ltd
Australian Western
Railroad Pty Ltd
AWR Lease
Co Pty Ltd
QR Network Pty Ltd
QR Surat Basin
Pty Ltd
QRN Property Holding
Pty Ltd
QRN Property
Pty Ltd
QRN Terminal
Pty Ltd
QRN Moorebank
Holdings Pty Ltd
QRN Moorebank
Pty Ltd
QRN Moorebank
Unit Trust
QRN Finance Pty Ltd
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia
Australia
Ordinary
Ordinary
100.0
100.0
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
Australia
Ordinary
100.0
Australia
Australia
Units
Ordinary
100.0
100.0
–
–
–
100.0
(c) Key Management Personnel
Disclosures relating to Key Management Personnel are set out in note 27.
86
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
31 Related party transactions (continued)
32 Business combination
(d) Transactions with other related parties
The following transactions occurred with related parties:
Dividend revenue - other related parties
2012
$’000
7
2011
$’000
39
(e) Terms and conditions of transactions with related parties other than
Key Management Personnel or entities related to them
All other transactions, other than those with the State as described below, were
made on normal commercial terms and conditions and at market rates, except
that there are no fixed terms for the repayment of loans between the parent
and its subsidiaries. All loans are non interest bearing. Outstanding balances
are unsecured.
(f) Transactions with State of Queensland controlled entities
Until its 22 November 2010 listing on the ASX, the Group was a Queensland
Government Owned Corporation, with all shares held by the Shareholding
Ministers, on behalf of the State. Following listing, the State retained a 34.0%
interest in the Company, which reduced to 33.7% in December 2011. The
State remains a related party to the Group.
Queensland Treasury Corporation (“QTC”) borrowings of $4,388.3 million were
replaced by a capital contribution from the State via Transfer Notice just prior
to the listing on the ASX. Interest expense of $140.7 million was paid to QTC
during the prior financial year. A dividend of $86.4 million was paid to the
State prior to listing.
Transport Services Contracts
The Group has entered into Transport Service Contracts (“TSCs”) with the
State (acting through the Department of Transport and Main Roads) to
provide general freight and livestock transportation services. The contracts
commenced on 1 July 2010 and expire on 30 June 2015 and 31 December
2015 respectively.
Under the contracts, for the initial two and a half years, the Group will
receive monthly base payments and quarterly payments in aggregate
totalling $150.0 million for the year ended 30 June 2011, $148.1 million
for the year ended 30 June 2012 and $75.1 million for the six months ended
31 December 2012.
After 31 December 2012, and until expiry of the contract, there is a process
to calculate payment amounts for the services then required by the State as
detailed in the contract.
In addition, the contracts provide for additional payments of $90.0 million
(general freight) and $13.0 million (livestock) between 31 December 2012
and the expiry of the contracts relating to services provided over the life of the
contracts (refer to note 5).
Service contracts with Queensland Rail
There exist a number of related party transactions between the Group and
Queensland Rail Limited (“Queensland Rail”) arising from the separation of
Queensland Rail from the Group on 30 June 2010. These transactions relate
to service contracts (entered into between the parties) that are broadly priced
on the basis of cost recovery plus a profit margin. At the conclusion of each
contract (tenors range between one and five years), they will ordinarily be
renegotiated by business as usual tender processes.
The largest service contracts (by financial value) are for the provision of
maintenance services; repairs, manufacture and overhaul of rollingstock; hook
and pull services for passenger rollingstock; IT services; and stowing services.
(a) Summary of acquisition
There were no acquisitions undertaken in the current year.
During the prior year, CRT Group Pty Ltd acquired assets and liabilities that
were considered to constitute a business of Isa Freight Express. The acquisition
occurred in two Tranches, in July 2010 and October 2010. In June 2011,
CRT Group Pty Ltd acquired assets and liabilities that were considered to
constitute a business of Pittman Transport Pty Ltd. These businesses were
acquired for $12.3 million.
(b) Cash flow information
Outflow of cash to acquire business, net of
cash acquired
Cash consideration
Less: balances acquired
Cash
Outflow of cash - investing activities
(c) Assets and liabilities acquired
Plant and equipment
Provisions
Net identifiable assets acquired
Add: Goodwill
Net assets acquired
33 Deed of cross guarantee
2012
$m
2011
$m
–
–
–
12.3
–
12.3
30 June 2011
Acquiree’s
carrying
amount
$m
12.2
(0.2)
12.0
Fair
value
$m
12.2
(0.2)
12.0
0.3
12.3
QR National Limited, QRN Finance Pty Ltd, QRN Property Holding Pty Ltd, QRN
Property Pty Ltd, QRN Terminal Pty Ltd, QR Limited, QR Intermodal Pty Ltd,
Logistics Australasia Pty Ltd, Golden Bros. Group Pty Ltd, CRT Group Pty Ltd,
Interail Australia Pty Ltd, Australian Rail Pty Ltd, Australia Eastern Railroad Pty
Ltd, Australia Western Railroad Pty Ltd, Australian Railroad Group Employment
Pty Ltd and QR Network Pty Ltd (the “QR National Deed Parties”, and each a
“QR National Deed Party”) entered into a Deed of Cross Guarantee dated 11
March 2011 (the “Cross Guarantee”) with QR National Limited as the ‘Holding
Entity’, under which each QR National Deed Party guarantees the debts of
each other QR National Deed Party. By entering into the new Deed and lodging
it with the Australian Securities and Investments Commission (“ASIC”) on 29
March 2011, the wholly-owned QR National Deed Parties have been relieved
from the requirement to prepare separate financial and Directors’ reports by
the operation of ASIC Class Order 98/1418 (as amended) (the “Class Order”).
The cross guarantee became effective on lodgement with ASIC on 29 March
2011.
FINANCIAL REPORT | QR NATIONAL
87
notes to the Consolidated FinanCial statements
30 June 2012
33 Deed of cross guarantee (continued)
(a)
Consolidated income statement, consolidated statement of
comprehensive income and summary of movements in consolidated
retained earnings
The QR National Deed Parties represent the ‘closed group’ for the purposes of
the Class Order, and as there are no other parties to the cross guarantee that
are controlled by QR National Limited, they also represent the ‘extended
closed group’.
The results of all the QR National Deed Parties are presented below in the
consolidated income statement, a consolidated statement of comprehensive
income, and a summary of movements in consolidated retained earnings.
This represents the results of the Group, excluding On Track Insurance Pty Ltd,
NHK Pty Ltd, AWR Lease Co Pty Ltd, QRN Moorebank Holdings Pty Ltd, QRN
Moorebank Pty Ltd, QRN Moorebank Unit Trust and QR Surat Basin Pty Ltd.
Income statement
Revenue from continuing operations
Other income
Consumables
Employee benefits expense
Depreciation and amortisation expense
Other expenses
Finance costs
Share of net profits of associates and joint
venture partnership accounted for using the
equity method
Profit before income tax
Income tax (expense)/benefit
Profit for the year
Statement of comprehensive income
Profit for the year
Other comprehensive income
Cash flow hedges
Income tax relating to components of other
comprehensive income
Other comprehensive income
for the year, net of tax
Total comprehensive income for the year
2012
$m
2011(1)
$m
3,469.1
130.2
(1,400.1)
(1,132.6)
(463.5)
(41.6)
(41.5)
0.2
547.2
(117.7)
429.5
3,195.0
148.4
(1,330.4)
(1,220.5)
(456.8)
(63.2)
(141.2)
0.0
131.3
280.5
411.8
429.5
411.8
0.4
(0.1)
0.3
429.8
(0.4)
0.1
(0.3)
411.5
Summary of movements in consolidated
retained earnings
Retained earnings at the beginning of the
financial year
Profit for the year
Dividends provided for or paid
Disposal of subsidiary
Retained earnings at the end of the
financial year
2012
$m
2011(1)
$m
927.1
564.2
429.5
(180.6)
–
411.8
(86.4)
37.5
1,176.0
927.1
(b) Consolidated balance sheet
The balance sheet of the parties to the Deed of Cross Guarantee at each
reporting date is presented below.
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Other assets
Inventories
2012
$m
98.5
549.8
215.8
0.1
8.0
8.7
881.0
0.5
8.7
2011(1)
$m
117.0
480.9
177.6
21.3
10.3
–
807.1
37.0
20.7
Property, plant and equipment
9,012.1
8,305.6
Intangibles
Investments accounted for using the equity
method
Derivative financial instruments
Other financial assets
Total non-current assets
16.6
0.5
-
18.8
24.9
0.5
3.5
18.8
9,057.2
8,411.0
Total assets
9,938.1
9,218.1
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a
result of a change in accounting policy. The amounts disclosed in this note are after
these adjustments.
88
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
Net assets
7,292.3
7,035.9
Fair value adjustment to derivatives
33 Deed of cross guarantee (continued)
(b) Consolidated balance sheet (continued)
Current liabilities
Trade and other payables
Derivative financial instruments
Provisions
Other liabilities
Total current liabilities
Non-current liabilities
Derivative financial instruments
Borrowings
Deferred tax liabilities
Provisions
Other liabilities
2012
$m
348.4
1.3
379.2
37.5
766.4
2.0
1,201.6
366.8
81.3
227.7
2011(1)
$m
309.9
27.3
320.3
36.2
693.7
3.8
803.2
257.2
81.3
343.0
Total non-current liabilities
1,879.4
1,488.5
Total liabilities
2,645.8
2,182.2
Equity
Contributed equity
Reserves
Retained earnings
Total equity
6,119.1
(2.8)
1,176.0
7,292.3
6,111.9
(3.1)
927.1
7,035.9
34 Remuneration of auditors
During the year the following fees were paid or payable for services provided by
the auditor of the parent entity, its related practices and non-related audit firms:
PwC Australia
Audit and other assurance services
Audit and review of financial statements
1,670
1,956
2012
$’000
2011
$’000
Other assurance services
Audit of regulatory returns
Other assurance services
Total remuneration for audit and other
assurance services
Taxation services
Tax advisory services
Other services
Advisory services
230
79
35
48
1,979
2,039
539
1,225
1,619
3,153
Total remuneration of PwC Australia
2012
$’000
4,137
2011
$’000
6,417
Auditor remuneration in the prior year includes $3,439,000 of non-audit
services performed prior to listing on 22 November 2010 and prior to the
appointment of PwC as auditor of the Company.
35 Reconciliation of profit after income tax to net cash inflow
from operating activities
Profit for the year
Depreciation and amortisation
Impairment of non-current assets
Impairment of financial assets
Non-cash employee benefits expense -
share-based payments
Interest capitalised to qualifying assets
Net (gain) loss on sale of non-current assets
Inventory obsolescence
Amortisation of prepaid access facilitation
deed charges
Change in operating assets and liabilities:
(Increase) in trade debtors
(Increase) in inventories
(Increase) decrease in other operating
assets
(Decrease) increase in trade and other
payables
(Decrease) increase in other operating
liabilities
(Decrease) increase in other provisions
Net cash inflow (outflow) from operating
activities
2012
$m
440.9
463.7
–
0.7
7.2
(45.4)
(16.2)
2.9
(28.5)
(0.6)
(75.4)
(29.1)
27.2
36.2
81.9
58.9
2011(1)
$m
360.9
457.2
2.2
0.5
12.0
(41.4)
2.1
2.4
(26.4)
5.3
67.6
(9.5)
0.8
(29.6)
(259.0)
40.0
924.4
585.1
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result
of a change in accounting policy. The amounts disclosed in this note are after these
adjustments.
notes to the Consolidated FinanCial statements
30 June 2012
FINANCIAL REPORT | QR NATIONAL
89
36 Earnings per share
(a) Basic earnings per share
Total basic and diluted earnings per share
attributable to the ordinary equity holders
of the Company
2012
Cents
2011(1)
Cents
18.1
15.4
(b) Reconciliation of earnings used in calculating earnings per share
Basic and diluted earnings per share
Profit from continuing operations
440.9
360.9
2012
$m
2011(1)
$m
(c) Weighted average number of shares used as denominator
2012
Number
’000
2011
Number
’000
Weighted average number of ordinary shares
used as the denominator in calculating basic
and diluted earnings per share
2,440,000
2,339,726
(d) Information on the classification of securities
All shares issued by QR National Limited are fully paid ordinary shares that
participate equally in profit distributions.
(1) Refer to note 1(q) for explanations of retrospective adjustments recognised as a result
of a change in accounting policy. The amounts disclosed in this note are after these
adjustments.
37 Share-based payments
(a) Performance rights plan
The Performance Rights Plan was established by the Board of Directors
to provide long-term incentives to the Group’s senior executives based on
shareholder returns taking into account the Group’s financial and operational
performance. Under the Plan, eligible executives may be granted rights
on terms and conditions determined by the Board from time to time.
Participation in the plan is at the Board’s discretion so that no individual
has a contractual right to be awarded rights under the plan or to receive any
guaranteed benefits.
The Board will determine the exercise price payable on exercise of a vested
right, and the exercise period of a right. The Board may, at its discretion,
determine that early vesting of a right will occur if there is a takeover bid,
scheme of arrangement or some other change of control transaction of
the Group. The Board may also accelerate the vesting of some or all of the
rights held by an executive in specified circumstances. These include, but
are not limited to, death, total and permanent disablement, or cessation of
employment.
Performance rights are granted by the Company for nil consideration. Each
right is a right to receive one fully-paid ordinary share in QR National Limited
at no cost if the vesting conditions are satisfied. Rights granted under the plan
carry no dividend or voting rights.
Deferred Short-term Incentive Award (“STIAD”)
The STIAD was implemented in the 2011 financial year under which rights to
the value of 50% of the cash Short-term Incentive Awards (“STIA”) received by
eligible executives would be granted as rights to ordinary shares. The rights will
vest equally over a two-year period, and become exercisable, provided that the
executive remains employed by the group at the vesting date, unless otherwise
determined by the Board.
The CEO was granted rights under STIAD on listing based on the likelihood of
achieving EBITDA performance hurdles.
Long-term Incentive Award (“LTIA”)
Performance rights are granted to senior executives as part of the Group’s
LTIA. The first grant of LTIA rights was in November 2010. The rights are
subject to the executives remaining employed by the Group and satisfying
market-based performance hurdles of Total Shareholder Return (“TSR”) and
non-market-based EPS and EBIT targets. The proportion of the LTIA rights
that become exercisable will depend upon the TSR achieved by the Group,
relative to a peer group of companies over a three-year period. The peer group
comprises the companies in the ASX Top 100 index, other than financial,
medical, telecommunications, pharmaceutical and gaming companies. To
determine to what extent the TSR-related performance rights will vest, the TSR
of the Group, over the performance period, will be compared to the TSR of all
the companies in the peer group. Each of these peer companies will be ranked
from highest to lowest based on their TSR over the performance period and the
number of rights that vest will depend on where the group is ranked amongst
the peer group. For the purposes of calculating the TSR measurement, the
relevant share prices will be determined by reference to the volume weighted
average share price over the 20 business days after the grant date and 20
business days before the end of the performance period.
90
ANNuAL REPORT 2011–12
notes to the Consolidated FinanCial statements
30 June 2012
37 Share-based payments (continued)
(a) Performance rights plan (continued)
Retentions
At the Board’s discretion, eligible executives may be granted retention rights
that may vest at the end of the specified retention period, provided that the
executive remains employed by the Group at the vesting date.
Set out below are summaries of rights granted under the plan:
Balance
at start
of the
year
Number
‘000
667
4,582
–
5,249
–
–
–
2012
STIAD
LTI
Retentions
Total
2011
STIAD
LTI
Total
Granted
during
the year
Number
‘000
Exercised
during
the year
Number
‘000
Forfeited
during
the year
Number
‘000
Balance
at the
end of
the year
Number
‘000
1,573
3,774
476
5,823
667
4,582
5,249
(333)
(93)
(56)
(482)
–
–
–
(192)
(544)
–
(736)
–
–
–
1,715
7,719
420
9,854
667
4,582
5,249
The key assumptions adopted for the valuation of performance rights granted
during 2012 are contained below:
STIAD
LTIA
Tranche
Year 1
Year 2
TSR
EBIT/EPS
Grant date
28 Sep 2011
28 Sep 2011
22 Aug 2011 22 Aug 2011
Vesting date
28 Sep 2012
28 Sep 2013
30 Jun 2014
30 Jun 2014
Share price at
grant date
$3.17
Expected life
1 year
Dividend yield 3.05%
Fair value
$3.08
$3.17
2 years
3.05%
$2.99
$3.25
$3.25
3.5 years
3.5 years
3.05%
$1.28
3.05%
$2.93
2011
The valuation of rights granted under the STIAD for the CEO was estimated
with reference to historical EBIT performance from previous years for the QR
Limited Group for which the Company became the parent on 21 September
2010. Given the limited data, this was considered the best proxy available. For
other executives, the fair value is based on 50% of their cash STIA.
The fair value of performance rights granted under the LTI was determined
independently by Deloitte using the Monte-Carlo valuation method. The model
takes into account a range of assumptions and the fair values have been
calculated including the assumptions below:
The weighted average exercise price of rights granted during the year was nil
(2011: nil), as the rights have no exercise price.
The weighted average share price at the date of exercise for rights exercised
during the period was $3.24.
The weighted average remaining contractual life of share rights outstanding at
30 June 2012 was 1.4 years (2011: 2.2 years).
Grant date
Vesting date
Exercise price
Volatility
Risk free interest rate
Fair value of rights
2012
In determining the fair value below standard market techniques for valuation
were applied in accordance with AASB2. The fair value of the STIAD and the
portion of LTIA rights, that are subject to non-market based performance
conditions, are determined by the share price at grant date less an adjustment
for estimated dividends payable during the vesting period. The fair value of
the LTIA rights subject to the TSR market based performance condition has
been calculated using an expected vesting under the TSR performance test and
applying it to the share price at grant date. In estimating expected vesting it,
was assumed an equal chance that each company in the TSR peer group may
finish the performance period ranked at any position within the group. Analysis
was performed comparing this approach to the Monte-Carlo simulation
conducted in the prior year and resulted in similar outcomes.
TSR
EPS
22 Nov 2010
22 Nov 2011
22 Nov 2013
30 Sep 2013
n/a
30%
5.25%
n/a
n/a
n/a
n/a
n/a
3.5
$2.54
$1.14
Dividend yield - 2011 financial year
2.1% - 2.5%
Dividend yield - 2012 financial year
2.8% - 3.3%
Expected life (years)
Share price at grant date
Fair value per right
3.5
$2.54
$0.94
As the company did not have historical share price data, the volatility of peer
companies, Qantas, Asciano and Toll were used as a proxy. The expected
volatility of the share price of each company’s in the peer group is determined
based on the historical volatility of that company’s share price. Two years of
historic volatility for each peer company were used. It was deemed appropriate
to exclude the abnormal volatility score through the height of the Global
Financial Crisis.
(b) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised
during the period, as part of employee benefit expense, was $8.7 million
(2011: $11.9 million, including shares to the value of $9.0 million gifted to
eligible employees from the State in relation to the IPO).
notes to the Consolidated
FinanCial statements
30 June 2012
FINANCIAL REPORT | QR NATIONAL
91
direCtors’ deClaration
38 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity show the following
aggregate amounts below.
In accordance with a resolution of the Directors of the Company, I state that:
In the opinion of the Directors of the Company:
(a)
the financial statements and notes set out on pages 46 to 91 are in
accordance with the Corporations Act 2001, including:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Shareholders' equity
Contributed equity
Retained earnings
Total equity
2012
$m
7.8
2011
$m
0.0
6,121.3
6,149.6
(7.9)
(2.0)
6,119.2
–
(37.6)
6,112.0
(i)
complying with Accounting Standards and other mandatory
professional reporting requirements as detailed above, and the
Corporations Regulations 2001; and
(ii) giving a true and fair view of the consolidated entity’s financial
position as at 30 June 2012 and of its performance for the year
ended on that date, and
(b)
there are reasonable grounds to believe that the Company will be
able to pay its debts as and when they become due and payable, and
6,119.1
6,111.9
(c)
0.1
0.1
6,119.2
6,112.0
at the date of this declaration, there are reasonable grounds to believe
the members of the extended closed group identified in note 33 will
be able to meet any obligations or liabilities to which they are, or may
become, subject by virtue of the Deed of Cross Guarantee described in
note 33.
Note 1(a) confirms that the financial statements also comply with
International Financial Reporting Standards as issued by the International
Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive
Officer and Chief Financial Officer required by section 295A of the
Corporations Act 2001.
John B Prescott AC
Chairman
Brisbane QLD
23 August 2012
Profit or loss for the year
Total comprehensive income
–
–
0.1
0.1
The parent entity has several employees. All costs associated with these
employees are borne by a subsidiary of the parent entity and are not included
in the above disclosures.
(b) Guarantees entered into by the parent entity
There are cross guarantees given by QR National Limited, QR Limited, QRN
Finance Pty Ltd, QRN Property Holding Pty Ltd, QRN Terminal Pty Ltd, QRN
Property Pty Ltd, QR Intermodal Pty Ltd, Logistics Australasia Pty Ltd, Golden
Bros. Group Pty Ltd, CRT Group Pty Ltd, Interail Australia Pty Ltd, Australian
Rail Pty Ltd, Australia Eastern Railroad Pty Ltd, Australia Western Railroad Pty
Ltd, Australian Railroad Group Employment Pty Ltd and QR Network Pty Ltd
as described in note 33.
(c) Contingent liabilities of the parent entity
The parent entity did not have any material contingent liabilities as at
30 June 2012 or 30 June 2011. For information about guarantees given
by the parent entity, please see above.
(d)
Contractual commitments for the acquisition of property, plant
or equipment
As at 30 June 2012, the parent entity did not have any contractual
commitments for the acquisition of property, plant or equipment (2011: nil).
39 Events occurring after the reporting period
On 23 August 2012 QR National Limited , after considering cash forecasts
and current balance sheet, announced to the ASX an on market program
to buy-back up to 10% of its issued share capital (244 million shares).
On 5 June 2012, the Group announced the commencement of its consultation
process on the voluntary redundancy program as a result of a further strategic
review and restructure of the workforce. As at the date of this report, the
Group has determined to accept approximately 750 voluntary redundancy
applications at a one-off cost estimated at $75 million to be incurred in
the 2013 financial year. The expected payback period in respect of this is
approximately 12 months.
92
ANNuAL REPORT 2011–12
independent auditor’s report to the members oF
qr national limited
Report on the financial report
We have audited the accompanying financial report of QR National Limited (the company), which comprises the
balance sheet as at 30 June 2012, and the income statement, the statement of comprehensive income, statement
of changes in equity and statement of cash flows for the year ended on that date, a summary of significant
accounting policies, other explanatory notes and the directors’ declaration for the QR National Limited Group
(the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year’s
end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that is free from
material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with
International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant
ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
Our procedures include reading the other information in the Annual Report to determine whether it contains any
material inconsistencies with the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
FINANCIAL REPORT | QR NATIONAL
93
independent auditor’s report to the members oF
qr national limited
Auditor’s opinion
In our opinion:
(a) the financial report of QR National Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001; and
(b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in
Note 1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 24 to 38 of the directors’ report for the year ended
30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on
the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of QR National Limited for the year ended 30 June 2012, complies with
section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Robert Hubbard
Partner
Brisbane
23 August 2012
94
ANNuAL REPORT 2011–12
shareholder inFormation
Range of Fully Paid Ordinary Shares as at 17 August 2012
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 999,999,999
1,000,000,000 – 9,999,999,999
Rounding
Total
Unmarketable Parcels
Total holders
22,401
28,922
3,856
3,425
141
0
58,745
Units
14,723,485
64,856,589
28,290,169
65,619,839
2,266,509,918
0
2,440,000,000
Minimum $ 500.00 parcel at $ 3.35 per unit
Minimum Parcel Size
150
Holders
528
The number of shareholders holding less than the marketable parcel of shares is 528 (shares: 27,427).
Substantial Holders of 5% or more of Fully Paid Ordinary Shares as at 17 August 2012*
% of Issued Capital
0.60
2.66
1.16
2.69
92.89
0.00
0.00
100
Units
27,427
Name
Notice date
Shares
Queensland Treasury Holdings Pty Ltd, Gerard Bradley (Under Treasurer of the State of Queensland)
3 December 2010
829,600,000
Perpetual Limited
Children’s Investment Fund Management
Commonwealth Bank of Australia and its subsidiaries
*As disclosed in substantial shareholder notices received by the Company.
16 July 2012
8 May 2012
23 August 2011
150,152,065
125,051,143
122,611,329
Investor Calendar
2013 Dates
21 February 2013
29 March 2013
22 August 2013
30 September 2013
7 November 2013
Details
Half year results and interim dividend announcement
Interim dividend payment date
Full Year results and final dividend announcement
Final dividend payment date
Annual General Meeting
Note:
The payment of a dividend is subject to the Corporations Act and Board discretion.
The timing of any event listed above may change. Please refer regularly to the QR National website, www.qrnational.com.au, for an up-to-date list of upcoming events.
ASX code: QRN
Contact details
QR National
GPO Box 456
Brisbane, Qld, 4001
Investor Relations
For all information about your shareholding, including employee
shareholdings, dividend statements and change of address, contact
the share registry Computershare on 1800 776 476 or visit
www.investorcentre.com/au
For general enquiries, please call 13 23 32 within Australia.
If you are calling from outside Australia, please dial +61 7 3019 5555
To request information relating to Investor Relations please contact
our Investor Relations team on +61 7 3019 5451 or email:
www.qrnational.com.au
investor.relations@qrnational.com.au
FINANCIAL REPORT | QR NATIONAL
95
shareholder inFormation
Top 20 Holders of Fully Paid Ordinary Shares as at 17 August 2012
Name
Address
Units
% of
Units
QUEENSLAND TREASURY HOLDINGS PTY LTD
LEVEL 14, QLD MINERALS AND ENERGY CENTRE,
61 MARY STREET, BRISBANE QLD, 4000
821,507,659
33.67
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
GPO BOX 5302, SYDNEY NSW, 2001
485,355,502
19.89
NATIONAL NOMINEES LIMITED
GPO BOX 1406, MELBOURNE VIC, 3001
255,183,965
10.46
J P MORGAN NOMINEES AUSTRALIA LIMITED
LOCKED BAG 7, ROYAL EXCHANGE NSW, 1225
195,650,244
8.02
CITICORP NOMINEES PTY LIMITED
GPO BOX 764G, MELBOURNE VIC, 3001
124,188,498
5.09
JP MORGAN NOMINEES AUSTRALIA LIMITED
Continue reading text version or see original annual report in PDF format above