AnnuAl report 2013 our generation your future Contents 2 4 6 Business Highlights Renewable Energy Business Chairman’s Report 8 Managing Director’s Report 12 Management Discussion and Analysis 38 Safety and Sustainability 44 46 Infigen Board Infigen Management 48 Corporate Governance Statement 49 Corporate Structure 58 Directors’ Report 63 Remuneration Report 74 Auditor’s Independence Declaration 75 Financial Statements 80 Notes to Financial Statements 129 Directors’ Declaration 130 Independent Auditor’s Report 132 Additional Investor Information 135 Glossary 137 Corporate Information a LeaDing SPeCiaLiSt reneWaBLe energY BuSineSS 2 | InfIgen energy AnnuAl report 2013 BuSineSS HigHLigHtS We have delivered strong revenue growth this year and continued to focus on containing operating costs with both regions delivering wind farm costs below the lower end of the guidance ranges. production increased by 2% to 4,605 gWh revenue increased by 7% to $286.1 million eBItDA increased by 13% to $158.2 million net operating cash flow increased by 36% to $84.2 million $57.5 million repayment of global facility borrowings – ahead of guidance by $2.5 million BusIness HIgHlIgHts | 3 84.2 62.1 49.6 fy11 fy12 fy13 36% $ mIllIon InCreAse In net operAtIng CAsH floW $57.5m repAyment of gloBAl fACIlIty BorroWIngs groSS Debt by currency 655 593 591 458 378 343 133 93 77 fy11 fy12 fy13 fy11 fy12 fy13 fy11 fy12 fy13 euro (¤ million) uS Dollar (us$ million) auStralian Dollar (AuD$ million) 7% ($ mIllIon) InCreAse In revenue 268 267 286 fy11 fy12 fy13 4 | InfIgen energy AnnuAl report 2013 reneWaBLe energY BuSineSS Developer Infigen Energy has an extensive and geographically diverse pipeline of prospective renewable energy projects at various stages of development. ■ Site identification & landowner negotiations ■ Wind and solar radiance monitoring, project feasibility & investment evaluation ■ Community consultation, cultural heritage, environmental assessment & project planning ■ Design, supplier negotiations & connection ■ Site mobilisation & foundations ■ Electrical works, wind turbine installation & commissioning oWner Infigen Energy owns interests in 24 wind farms (1,646 megawatts equity interest) across Australia and the US. In Australia, Infigen has six operational wind farms with a total operating capacity of 556.6 megawatts, where it holds 100% equity interests and the Capital East solar farm. In the US, Infigen has 18 wind farms, where its equity interest (Class B interest) comprises 1,089.4 megawatts of operating capacity. ■ Whole of life asset & investment management ■ Managing sale of electricity & environmental products ■ Risk management & revenue assurance ■ Arranging and maintaining debt finance ■ Ongoing stakeholder engagement ■ Assessing acquisition & divestment opportunities operAtor Infigen Energy manages predictive and preventive maintenance programs, supply chain, maintenance management systems, inventory optimisation, and the development and capabilities of our workforce to maintain and improve operating cost competitiveness. ■ Safety risk management – actively pursuing zero harm ■ Optimising generation productivity through 24 x 7 Operations Control Centre ■ Bidding & dispatching into electricity market ■ Sustaining plant availability through reliability centred maintenance ■ Managing operating risks & costs ■ Exploring opportunities to refurbish or re-power reneWABle BusIness moDel | 5 6 | InfIgen energy AnnuAl report 2013 CHairman’S rePort Dear Securityholders, On behalf of the Infigen Boards it is my pleasure to present your 2013 annual report. I am pleased to report that your company achieved a 36% increase in net operating cash flow during the 2013 financial year, driven by revenue growth, cost control and good cash conversion. We remain committed to further improving our financial performance for the benefit of securityholders and to deliver environmentally sustainable outcomes. Board and management Changes Your Board remains predominantly independent, with three independent non-executive Directors (including me as the Chairman) plus your Managing Director Miles George, and Philip Green, a non-executive Director from our largest securityholder. Your Board members and committee compositions have remained unchanged for the year. In November 2012 I was re-elected as a Director by securityholders at the Annual General Meeting following my retirement by rotation. At the beginning of the 2013 financial year your Board had its effectiveness assessed by an external consultant. I am pleased to report that, while there are some areas where we can improve, the feedback and assessment was generally positive. The relatively small size of your Board requires us to balance competing needs. We seek to deliver best practice governance standards while living within our means. We continue to engage with advisors who assess and report on our governance practices on behalf of securityholders. They understand that our circumstances give rise to trade-offs, but acknowledge that we have implemented good governance practices within these constraints. Our executive management team also remained unchanged during the year. However, as part of the organisational restructure and cost reduction program undertaken during the year, the role of Chief Operating Officer held by Mr Geoff Dutaillis became redundant. No alternative position could be found for Mr Dutaillis and his employment ended on 30 June 2013. On behalf of the Company I thank Geoff for his dedication, commitment and contribution to Infigen. Business performance Infigen had satisfactory operational and financial performances this year. We achieved net operating cash flow of $84.2 million, 36% higher than the prior year. We also reported wind farm costs below the lower end of our guidance ranges and slightly exceeded our debt amortisation guidance. During the year Infigen applied $57.5 million of cash to repayment of our Global Facility, $13.9 million in cash towards repaying US Class A tax equity members, and $1.5 million in repayment of the Woodlawn project finance facility. The translation of US dollar and Euro denominated borrowings at less favorable foreign exchange rates than the prior year had an adverse effect on the quantum of borrowings when reported in Australian dollar terms at the balance date. Together with debt repayment this resulted in net debt of the Group being $936 million at 30 June 2013. The terms of the tax equity arrangements for Infigen’s US wind farm companies will result in increasing amounts of cash distributions from those companies being allocated to Class A members over the coming year. These cash distributions reduce our liabilities to Class A members. Once those liabilities are satisfied the majority of the cash distributions will be reallocated to Infigen and again become available to amortise the Global Facility. In the year ahead our focus will be on sustaining operating cash flow to maximise the amounts applied to reduce US Class A liabilities, and to reduce the outstanding debt under the Global Facility. Infigen reported a net loss before impairment expense of $21.6 million. This was a $34.3 million improvement compared with a net loss after tax of $55.9 million in the prior year. Infigen’s statutory net loss of $80 million included a $58.4 million non-cash impairment expense in relation to its US Cash Generating Unit. A higher discount rate and lower gearing assumption were primarily responsible for the lower book valuation outcome. These assumptions do not reflect Infigen’s actual Global Facility terms, which are more favourable than those available in the current market. In June 2013, we announced the commercial settlement of long standing disputes with Gamesa related to five of our US wind farms. These wind farms account for 25% of the US portfolio on an equity interest basis. We also announced the execution of 15 year Warranty and Maintenance Agreements to cover those wind farms. Under the terms of the agreements, Gamesa will provide warranties, turbine maintenance services and replacement turbine components until June 2028. During the year we continued the prudent advancement of the development pipelines in the US and Australia, balancing the maintenance of cash reserves with preserving and enhancing the option value of the development project portfolio. In the US we made significant development progress on two solar photovoltaic (PV) development projects in California so that they could commence construction in the 2014. We also executed two power purchase agreements for those projects. We will continue our assessment of the CHAIrmAn’s report | 7 WItH nAtIons CompetIng for lImIteD CApItAl, AnD AustrAlIA keen for eConomIC ACtIvIty to folloW tHe mInIng Investment Boom, DelIverIng regulAtory AnD plAnnIng support for Investment sHoulD Be A prIorIty for AustrAlIAn governments. optimal capital structure for those projects and consider the options available to maximise the value of those projects to Infigen. In Australia we commenced construction of a solar PV and energy storage demonstration facility near our Capital wind farm in NSW. This facility is the first of its kind in Australia, and the first solar farm to be registered in the National Electricity Market. There were many lessons learned on this project. We believe this knowledge and experience will be very valuable to us when we undertake construction of a large scale solar project. We also carried out work that advanced the proposed Bodangora, Cherry Tree and Flyers Creek wind farms toward development approval. We remain committed to community engagement and support in the regions around our operating and development assets. outlook Infigen moves into the 2014 financial year with $124 million of cash, of which $105 million was held by “Excluded Companies” for purposes of Infigen’s Global Facility. This capital provides a prudent liquidity buffer and a source of some cash to fund opportunities that meet stringent investment criteria. Your Board remains conscious of Infigen’s heavy debt burden, and that this is inhibiting the capacity to pay distributions to securityholders and to make major investments. We have continued to comply fully with the obligations associated with our debt facilities, including the Global Facility leverage ratio covenant, and we remain confident that we will sustain this compliance. Our development pipeline in the US and Australia is attractive. We expect to be able to invest in the best of our opportunities to achieve modest growth when investment conditions allow. Therefore, we will continue to fund the minimum necessary expenditure to preserve and enhance the option value of our development project pipeline. In Australia determinations by three independent State-based electricity price regulators found that the Large-scale Renewable Energy Target (LRET) costs the average household only about the price of a cup of coffee each month, or around 2% of a typical household electricity bill. The substantial majority of expected future increases in retail electricity prices are still forecast to come from higher fossil fuel prices, higher network charges and higher retail margins. Our Australian investments were made in good faith based on the expectation of stability and certainty of a legislated renewable energy target (RET) with bipartisan support. While we applaud the development of Australia’s residential solar PV industry, we lament that this was accompanied by the unintended consequence of an artificially oversupplied renewable energy certificate market. This has materially weakened the reasonably expected returns to investors in the sector. During the year we therefore welcomed the Climate Change Authority’s positive findings following its thorough review of the RET legislation in Australia. Unfortunately, the regulatory predictability that it sought to deliver was short-lived. Uncertainty increased once more ahead of the Federal election and yet another review of the RET. We believe the outcome of any transparent and bona fide review undertaken in the near future should reach the same conclusions – that the LRET scheme in its current form provides greater benefits to households and businesses than a reduced target scheme, and that too-frequent reviews undermine investor confidence. Only a review that is based on facts and that delivers regulatory predictability once and for all can restore investor confidence. When the next review is complete we look to the Commonwealth Government to avoid further destabilising reviews. In the US stable and predictable State-based renewable energy programs and Federal renewable energy incentives, combined with more efficient planning laws, have allowed us to substantially advance two solar PV development projects to secure consents and power purchase agreements in an efficient manner during the year. This contrasts sharply with our experience of uncertainty in regulation and planning laws in Australia. With nations competing for limited capital, and Australia keen for economic activity to follow the mining investment boom, delivering regulatory and planning support for investment should be a priority for Australian governments. Despite weakening economic conditions the real challenge of climate change persists. We encourage our political leaders to consider the national interest to maintain stable regulatory settings that will allow the orderly and efficient delivery of a more diverse and sustainable electricity supply portfolio with a greater contribution from renewables. I would like to thank all Infigen staff, as well as my fellow Directors including the Managing Director, Miles George, for their contributions to the business during the year. Finally, I would like to thank securityholders for your continued support. Your Directors look forward to welcoming you to our Annual General Meeting to be held at 11am on 15 November 2013 at the Radisson Blu Plaza Hotel, 27 O’Connell Street, Sydney. Mike Hutchinson Chairman 8 | InfIgen energy AnnuAl report 2013 managing DireCtor’S rePort Dear Securityholders, During the 2013 financial year your management team’s focus was on delivering efficient and predictable operating cost outcomes and maximising cash flow available for debt amortisation. The performance of the business during the year was solid primarily due to good revenue growth and contained operating costs. Infigen repaid $57.5 million of Global Facility debt, directed $13.9 million in cash towards reducing liabilities to United States (US) Class A tax equity members, and repaid $1.5 million of its Woodlawn project finance facility. We continue to strive for our safety goal of zero harm. $124m CAsH BAlAnCe At 30 June 2013 key milestones In February 2013 we announced the implementation of an organisation restructure and cost reduction initiative to improve efficiency and reduce our operating costs in Australia and the US. Our target is to reduce costs by $7 million per annum beginning in the 2014 financial year. This represents approximately 15% of the addressable cost base noting that a significant part of our operational costs are now largely fixed due to warranty or post-warranty service and maintenance agreements. In June 2013, we announced the commercial settlement of long standing disputes with Gamesa related to five of our US wind farms, accounting for 25% of the US portfolio on an equity interest basis. We also announced the execution of 15 year Warranty and Maintenance Agreements to cover those wind farms. Under the terms of the agreements, Gamesa will provide warranties, turbine and maintenance services and replacement components for the turbines until June 2028. Other key achievements in the US region included the execution of power purchase agreements in California for two solar PV development projects for a total of 40 MW. In Australia, Lake Bonney 2 & 3 transitioned on to Vestas post-warranty maintenance contracts following the expiration of those wind farms’ original warranties. These contracts will provide for stable and predictable costs for a further five years. Improvements in Infigen’s asset management arrangements in both countries resulted in lower year-on-year operating costs, and reduced our exposure to adverse financial consequences of component failure in the medium to long term. In April 2013, Infigen commenced construction of its first solar farm, the Capital East solar photovoltaic (PV) demonstration project at the Capital Renewable Energy Precinct near Bungendore in New South Wales. This project will provide valuable insights into the development and construction of utility scale solar PV projects in Australia, and the operation of utility scale solar PV projects in the National Electricity Market. operational and financial review Infigen’s first priority is the safety of our people and the communities in which we operate. Our goal is zero lost time incidents and injuries. Over the last financial year, we have maintained our Lost Time Injury Frequency Rate of 1.2. As reported in February 2013 we regrettably had a lost time injury in the prior month having briefly achieved our goal of zero harm over 12 months. We remain firmly committed to pursuing zero harm and reducing our 12 month lost time injury frequency rate and we continue to introduce new initiatives and enhance existing programs to assist with achieving this goal. Our operating capacity remained the same throughout the year with the first full year of production from the 48 MW Woodlawn wind farm in Australia. Total production increased 2% largely due to better availability, higher compensated production in Australia and a full year of Woodlawn production, partially offset by lost production from Gamesa blade failures in the US. Wind conditions, network and weather related constraints were mixed. Revenue for financial year 2013 was up 7% to $286 million, underpinned by higher electricity prices in Australia and the US, and higher production and compensated revenue in Australia. Operating costs remained flat at $109 million year-on-year notwithstanding the additional costs associated with Woodlawn wind farm’s first full year of operation. Pleasingly, both the US and Australia recorded wind farm operating costs below the lower end of the guidance ranges previously advised to the market. mAnAgIng DIreCtor’s report | 9 tHe performAnCe of tHe BusIness DurIng tHe yeAr WAs solID prImArIly Due to gooD revenue groWtH AnD ContAIneD operAtIng Costs. Effective management of post-warranty operating costs is important to generating stable earnings. Following the execution of post-warranty service and maintenance agreements with Mitsubishi in the US and Vestas in Australia in the 2012 financial year, we retired another significant risk in relation to our US wind farms with Gamesa turbines, and entered into 15 year Warranty and Maintenance Agreements with Gamesa for those sites during the year. 100% of the Australian assets and 71% of the US assets are now covered by their original warranty or a medium to long term post-warranty agreement. This has enabled Infigen to substantially reduce our exposure to adverse financial consequences of future component failures, and to forecast operating costs with a higher degree of certainty in the medium term. Operating EBITDA was $176.8 million, up 12% or $19.4 million primarily due to higher revenue in Australia. Development costs were down 23% to $3.3 million, attributable to lower development expenses in Australia and increased capitalisation of development costs in the US related to two advanced solar PV projects. Corporate costs of $14.1 million were up 23% or $2.6 million after early net savings from the organisation restructure and cost reduction initiative of $0.7 million. The increase in corporate costs largely reflected the write back of non-cash long term employee incentive provisions in the prior period. As a result Infigen achieved strong EBITDA of $158.2 million, up 13% or $17.7 million and a 36% increase in net operating cash flow to $84.2 million. Infigen reported a $34.3 million improvement to its net loss after tax and before impairments of $21.6 million, compared with a net loss after tax of $55.9 million in the prior period. Infigen recorded a one-off impairment expense of $58.4 million related to its US Cash Generating Unit, which is reflected in the statutory net loss. A higher discount rate and lower gearing assumption were primarily responsible for the lower book valuation outcome. Other key operational assumptions including production, merchant prices and operating costs have also been reviewed and updated to reflect the outcome of biannual price forecast updates and the recently executed post-warranty maintenance agreements, but in aggregate these updates have not changed valuation materially. outlook Over the last three years Infigen has been focussed on delivering predictable operating cost outcomes and maximising cash flow available for debt amortisation. Infigen has achieved or outperformed the guidance ranges provided to the market across these periods. A number of key operational achievements have contributed to these outcomes, including improved operating practices in the US and Australia, execution of post-warranty agreements for turbine service and maintenance, a business re-organisation and cost reduction initiative that has improved efficiency and significantly reduced costs, and an embedded culture of safety and continuous improvement. Infigen begins the 2014 financial year with a goal of building upon our steady operational performance improvements. Production in the US is expected to improve primarily due to the return to service of a number of Gamesa turbines and improved availability for the Gamesa fleet. US wind conditions were below the long term mean in the 2013 financial year and have the potential to improve. In the US, the Crescent Ridge wind farm (40.8 MW) PPA expired in June and that wind farm will be operated on a merchant basis, with wholesale prices currently below the previous PPA price. However, Infigen’s US portfolio remains highly contracted with 80% of our assets covered by PPAs with approximately 11.5 years remaining duration. Average prices across Infigen’s US business are expected to be only slightly below those achieved in financial year 2013 due to the highly contracted nature of the assets. In Australia, there is also the potential for improved wind conditions and higher production outcomes but network constraints in South Australia and Western Australia may continue to adversely affect production. In the near term the Australian regulatory environment continues to be challenging. Despite the favourable findings of the Climate Change Authority’s review of the Renewable Energy Target (RET) in 2012, vested interests in the fossil fuel generation sector continue to lobby forcefully to reduce the RET to protect their commercial interests. Independent modelling conducted by SKM-MMA for the Climate Change Authority, and more recent independent modelling conducted by Bloomberg New Energy Finance shows that households and businesses will be worse off under a reduced RET scheme. 10 | InfIgen energy AnnuAl report 2013 mAnAgIng DIreCtor’s report ContInueD The recent Federal election exacerbated uncertainty to a point where the market for new renewable energy project development remains very weak and the appetite to contract existing assets is poor. This has depressed the Large-scale Generation Certificate (LGC) spot price to low $30s levels. Average prices across Infigen’s Australian business are expected to be around the same as the 2013 financial year due to contract escalation and a continuing fixed carbon price in the 2014 financial year, offset by lower LGC prices. In the 2014 financial year, the US and Australian businesses will benefit from the full $7 million cash savings from the reorganisation and cost reduction initiative undertaken in the 2013 financial year. US operating costs are forecast to be between US$73 million and US$76 million (including Infigen Asset Management costs), and Australian operating costs between $35 million and $37 million (including Energy Markets costs). The total cash flow that we expect to have available to distribute to US Class A tax equity members, close out interest rate swaps, and repay the Global Facility will be approximately $80 million. There are a number of growth opportunities that Infigen will continue to pursue in the coming year. In the US, the development team will steadily progress the Wildwood and Pumpjack solar PV developments and seek to enhance the options available to generate further value from these projects. In Australia, the development team will continue to explore solar PV opportunities that are supported by Commonwealth Government initiatives, and to preserve and enhance the value of our wind project development pipeline in readiness for improved market conditions. Beyond the 2014 financial year, in the US the new build signal for all forms of electricity generation has been weakened by low natural gas prices. But increasing demand, reduced capacity investment, continuing retirement of coal fired power stations and increasing natural gas forward prices are expected to tighten capacity reserves and lift prices in the medium term. This is reflected in independent long term electricity price modelling. The Investment Tax Credit for solar development remains in place until December 2016 with healthy demand for solar PV projects under State based renewable portfolio standards. In Australia, the existing LGC surplus can satisfy small deficits until 2017, but the deficits begin to grow dramatically from 2015 onwards and can only be met through new renewable generation investment. Between three to four GW of new capacity will need to be installed between now and 2017 to meet the impending shortfall in 2018 alone. Beyond that up to two GW of new capacity per annum will be required to keep pace with the increasing annual targets to 2020. In tHe 2014 fInAnCIAl yeAr, tHe us AnD AustrAlIAn BusInesses WIll BenefIt from tHe full $7 mIllIon of sAvIngs from tHe reorgAnIsAtIon AnD Cost reDuCtIon InItIAtIve unDertAken In tHe 2013 fInAnCIAl yeAr. These targets are challenging but achievable. Capital providers will only provide the necessary finance if liable entities recommence entering into long term contracts which underwrite efficient investments in long-life renewable energy assets in order to meet their long term obligations at least cost. The Clean Energy Finance Corporation and the Australian Renewable Energy Agency have been playing an active role in building momentum in renewable energy investments but they cannot achieve the targets alone. The liable entities will need to recommence contracting to protect the interests of their customers and their shareholders from the risks of an inefficient boom/bust outcome in new renewable energy investment. I would like to thank all Infigen staff for their contributions to the business during the year. I would also like to thank all the members of the communities that we are part of for their continuing strong support. We aim to share the economic benefits of our industry with local communities by sourcing products and services locally, and by providing direct employment locally where possible. Finally, I would like to thank securityholders for your ongoing support. I look forward to meeting with you at the AGM and reporting further on the performance of the business at that time. Yours sincerely, Miles George Managing Director mAnAgIng DIreCtor’s report | 11 12 | InfIgen energy AnnuAl report 2013 Management Discussion and analysis overvieW Did you know? in 2012 private investment of uS$25 billion drove a record-setting year for new wind installations in the uS. financial performance The performance of the business during the year was solid primarily due to 7% or $19.5 million revenue growth, underpinned by higher wholesale electricity prices in Australia and the US, and higher production and compensated revenue in Australia. Operating costs were flat year on year notwithstanding the additional costs associated with Woodlawn wind farm’s first full year of operation. Both the US and Australia recorded wind farm operating costs below the lower end of the guidance ranges previously advised to the market. Other costs were broadly in line with the prior corresponding period (pcp) with the exception of corporate costs, which were up $2.6 million to $14.1 million as expected due to the non-recurrence of incentive write-backs booked in the pcp. At an underlying level corporate costs included a net $0.7 million reduction realised as part of the previously announced cost review. As a result Infigen has delivered Earnings Before Interest Tax, Depreciation and Amortisation (EBITDA) growth of 13% to $158.2 million and a 36% increase in net operating cash flow to $84.2 million. Infigen repaid $57.5 million of Global Facility debt (ahead of its $55 million guidance), directed $13.9 million in cash towards reducing liabilities to Class A tax equity members and repaid $1.5 million of its Woodlawn project finance facility. Infigen reported a $34.3 million improvement to its net loss after tax and before impairment of $21.6 million compared with a net loss after tax of $55.9 million in the prior year. Infigen’s Statutory Loss for the year of $80 million included a non-cash impairment expense of $58.4 million related to its US Cash Generating Unit (US CGU). A higher discount rate and a lower gearing assumption were primarily responsible for the lower book valuation outcome for the US CGU. Accounting losses arise as Infigen’s business is capital intensive with high gearing through the earlier years of the asset lives. This gives rise to high straight line depreciation and higher initial interest expenses, which reduce as the debt is repaid over time. Infigen believes its net operating cash flow or EBITDA is a more pertinent measure of the financial performance of its operations. Distributions Following consideration by the Board in late 2012 and as advised by the Chairman of the Board at the 2012 Annual General Meeting, the sweeping of surplus cash flow from operating assets held within the Global Facility Borrower Group to repay debt, effectively serves to continue to preclude the payment of distributions to securityholders. safety Infigen’s first priority is the safety of our people and the communities in which we operate. Our goal is zero lost time incidents and injuries. Infigen’s safety performance as measured on a rolling 12 month lost time injury frequency rate (LTIFR) was steady at 1.2 at 30 June 2013. Infigen recorded one lost time injury in each of FY12 and FY13. Infigen’s total recordable injury rate (TRIR) fell from 15.1 to 11.0 over the same period. troy ryAn uS ea Stern regional & allegheny riDge Plant Manager Troy Ryan is the US Eastern Regional Manager and the Allegheny Ridge Plant Manager, Portage, Pennsylvania. “I am currently managing my fifth Infigen US project since joining Infigen in 2007. The challenge will be becoming familiar enough with the Gamesa turbine to help achieve better reliability across the Infigen fleet. My goal with the new contracts is to optimize the relationship with Gamesa to meet the long term objectives for owners and investors of these projects.” “The key to success for any wind farm is quality maintenance done on schedule, with the primary focus on components that affect turbine performance. Each scheduled maintenance cycle is tailored to remedy what is keeping turbines from running optimally and manage challenges that come with individual component life cycles, as turbines age.” mAnAgement DIsCussIon AnD AnAlysIs | 13 Management Discussion and analysis revieW of finanCiaL PerformanCe The following tables provide a summary of the key statutory financial outcomes and metrics compared with the relevant prior period. All reference to $ is a reference to Australian dollars unless specifically marked otherwise. Individual items and totals are rounded to the nearest appropriate number or decimal. Some totals may not add down the column due to rounding of individual components. Period on period changes on a percentage basis are presented as favourable (positive) or unfavourable (negative). Period on period changes to items measured on a percentage basis are presented as percentage point changes (“ppts”). Further segmentation of the profit and loss line items in the table on the right is available in the financial statements and throughout this document. Do wind farms harm wildlife? extensive efforts are made to avoid siting wind farms in areas which might attract large numbers of birds or bats, such as migration routes. avian studies are routinely conducted at wind sites before projects are proposed, and any changes monitored afterwards. With careful siting and strategic planning, the most sensitive areas can be avoided and wind development can proceed with minimum disturbance to wildlife. Table 1 Year ended ($M unless otHerwise indicated) 30 June 2013 30 June 2012 cHanGe % Revenue EBITDA Depreciation and amortisation Impairment EBIT Net borrowing costs FX and interest rate swap revaluations Net Income from IEPs Loss before tax Income tax Net loss after tax Net operating cash flow Capital expenditure1 Operating cash flow per security2 (cps) Earnings per security3 (cps) Table 2 Position at ($M unless otHerwise indicated) Debt Cash Net debt Class A liability Securityholders’ equity 302.6 169.5 283.5 152.7 (137.9) (140.1) (58.4) (26.7) (76.5) (7.2) 26.0 (84.5) 4.5 (80.0) 97.8 21.4 12.8 (10.5) – 12.6 (75.0) (0.1) 4.4 (58.1) 2.3 (55.9) 74.8 35.6 9.8 (7.3) 7 11 2 n.m. (312) (2) n.m.5 494 (45) 96 (43) 31 (40) 31 (43) 30 June 2013 1,060 30 June 2012 1,069 125 936 713 484 127 943 684 526 cHanGe % 1 (2) 1 (4) (8) Book Gearing 65.9% 64.2% (1.7) ppts4 EBITDA/(Net debt + Equity) Net assets per security ($) Net tangible assets per security ($) 11.9% 0.63 10.4% 0.69 0.28 0.27 1.5 ppts (9) – 1 Represents the cash outflow in relation to capital expenditure. 2 Calculated using securities on issue at end of year. 3 Calculated using weighted average issued securities. 4 ppts – percentage points. 5 n.m. – not meaningful 14 | InfIgen energy AnnuAl report 2013 14 | InfIgen energy AnnuAl report 2013 reconciliation of statutory Accounts to economic Interest Infigen has a controlling interest in two wind farm entities in the US in which it owns more than 50% but less than 100% of Class B interests6. Under International Financial Reporting Standards (IFRS) Infigen fully consolidates the financial performance of these wind farm entities within its statutory results and eliminates the net profit or loss related to the non-controlling interest through “Net income from IEPs” line item. Infigen believes it is more useful to review the performance of the business from an economic interest perspective and has therefore provided reconciliation between the economic and statutory presentation for the key Profit and Loss line items below. Following this section all figures will reference “Economic Interest” unless specifically stated otherwise. review of statement of income revenue was $286.1 million, up 7% or $19.5 million reflecting higher revenue in Australia slightly offset by marginally lower revenue in the US. In Australia, revenue increased $20.5 million to $146.3 million as a result of higher average prices (+$13.6 million), higher production (+$6.8 million), and higher compensated revenue (+$2.5 million) partially offset by an unfavourable marginal loss factor (MLF) movement (-$2.4 million). In the US, revenue decreased 1% or US$1.0 million to US$142.9 million7 reflecting lower production (-US$1.9 million) and lower REC prices (-US$1.4 million), partially offset by higher compensated revenue (+US$0.9 million) and higher average electricity prices (+US$1.4 million). Operating Earnings Before Interest, Tax, Depreciation and Amortisation (operating eBitda) was $176.8 million, up 12% or $19.4 million. This was primarily due to: Australia: a 21% or $18.9 million increase in operating EBITDA to $110 million reflecting higher revenue, partially offset by higher costs largely attributable to a full year of operating cost for Woodlawn; and US: a US$0.1 million increase in operating EBITDA to US$68.1 million and a $0.4 million FX benefit as a result of the appreciation of the Australian Dollar (AUD) against the US Dollar (USD). development costs expensed were $3.3 million, down 23% or $1.0 million. The decrease is primarily attributable to the increased capitalisation of development activity in the US in relation to two advanced projects and lower development expenses in Australia. During the year $9.5 million of costs relating to current development projects were capitalised. Further details are provided in the Cash Flow section. Table 3 Year ended 30 June 2013 ($M) Revenue Operating EBITDA Other costs and income EBITDA Depreciation and amortisation Impairment EBIT Net borrowing costs FX and interest rate revaluations Net income from IEPs Loss before tax Income tax Net loss Table 4 Year ended 30 June 2012 ($M) Revenue Operating EBITDA Other costs and income EBITDA Depreciation and amortisation EBIT Net borrowing costs FX and interest rate revaluations Net income from IEPs Loss before tax Income tax Net loss statutorY non- controllinG interest econoMic interest 302.6 188.1 (18.6) 169.5 (137.9) (58.4) (26.7) (76.5) (7.2) 26.0 (84.5) 4.5 (80.0) (16.5) (11.3) – (11.3) 7.6 – (3.7) 0.4 – 3.3 – – – 286.1 176.8 (18.6) 158.2 (130.3) (58.4) (30.4) (76.1) (7.2) 29.3 (84.5) 4.5 (80.0) statutorY non- controllinG interest econoMic interest 283.5 169.6 (16.9) 152.7 (140.1) 12.6 (75.0) (0.1) 4.4 (58.1) 2.3 (55.9) (16.9) (12.2) – (12.2) 7.5 (4.7) (0.1) – 4.8 – – – 266.6 157.4 (16.9) 140.5 (132.6) 7.9 (75.1) (0.1) 9.2 (58.1) 2.3 (55.9) 6 7 Infigen also has a number of joint ventures where its Class B membership interests range from 53% to 59% (joint control). These membership interests are included in both statutory and economic presentations using the same proportional ownership method of consolidation. Includes asset management revenue related to third party Infigen Asset Management (IAM) activity. mAnAgement DIsCussIon AnD AnAlysIs | 15 are wind turbines noisy? technology advancement has drastically reduced the noise of mechanical components so that the most audible sound is that of the wind interacting with the rotor blade, similar to a light swishing sound, but much quieter than other types of modern-day equipment. Background noise on a windy day is often louder than the turbines. Table 5 Year ended ($M unless otHerwise indicated) 30 June 2013 30 June 2012 cHanGe % Revenue Operating EBITDA Development costs Revaluation costs & Gain on disposal Corporate costs EBITDA Depreciation and amortisation Impairment EBIT Net borrowing costs FX and interest rate revaluations Net income from IEPs Loss before tax Income tax Net loss after tax Table 6 ForeiGn excHanGe rates 286.1 176.8 (3.3) (1.2) (14.1) 158.2 266.6 157.4 (4.3) (1.1) (11.5) 140.5 (130.3) (132.6) (58.4) (30.4) (76.1) (7.2) 29.3 (84.5) 4.5 (80.0) – 7.9 (75.1) (0.1) 9.2 (58.1) 2.3 (55.9) 7 12 23 (9) (23) 13 2 n.m. (484) (1) n.m. 219 (45) 96 (43) 30 June 2013 30 June 2012 cHanGe % AUD:USD (average rate) AUD:EUR (average rate) AUD:USD (closing rate) AUD:EUR (closing rate) 1.0242 0.7941 0.9275 0.7095 1.0195 0.7681 1.0238 0.8084 0.5 3.4 (9) (12) Table 7 Year ended ($M) 30 June 2013 30 June 2012 cHanGe % Interest expense (71.6) (75.1) Bank fees & amortisation of loan costs Amortisation of decommissioning costs total Borrowing costs Interest income net borrowing costs FX (loss)/gain Derivative revaluation 8 Institutional Equity Partnerships. (4.3) (2.6) (78.5) 2.4 (76.1) (9.1) 1.8 (2.9) – (78.0) 3.0 (75.1) 8.5 (8.7) 15 (32) (100) (1) (20) (1) (207) 121 Environmental certificate revaluation costs were $1.3 million reflecting the revaluation to market price of the 224,000 LGCs that were held in inventory at 30 June 2013. A gain on disposal of $0.2 million was recognised in relation to a US turbine during the period. corporate costs of $14.1 million, including net savings from the organisational restructure of $0.7 million, were up 23% or $2.6 million. The increase was primarily due to larger write-backs of non-cash Long Term Incentive (LTI) provisions, other employee benefit provisions and miscellaneous items in the prior year. eBitda was $158.2 million, up 13% or $17.7 million reflecting higher operating EBITDA and lower development costs partially offset by higher corporate costs. depreciation and amortisation expense of $130.3 million was 2% lower than $132.6 million in the prior year. An impairment expense of $58.4 million related to the US CGU was recognised following adverse movements in the Group’s discount rate and gearing assumption. Earnings Before Interest and Tax (eBit) for the year of negative $30.4 million, was an adverse movement of $38.3 million. net borrowing costs were $76.1 million, up 1% or $1.0 million. Interest costs reduced by $3.5 million due to lower debt levels offset by amortisation of decommissioning costs ($2.6 million), higher amortisation of loan fees ($1.4 million) and lower interest income ($0.6 million) due to lower interest rates. The foreign exchange loss of $9.1 million was due to the depreciation of the AUD and revaluation on the USD and EUR debt held by an Australian company within the Group at 30 June 2013. The derivative revaluation benefit of $1.8 million reflects a step down in the notional value of the interest rate swaps and increase in value of a foreign exchange (FX) option over the period. Net income from US IEPs8 was $29.3 million, up 219% or $20.1 million compared with $9.2 million in the pcp. Further details are included on page 36. For an explanation of the structure of IEPs (including accounting treatment) refer to Appendix B of the Management Discussion and Analysis for the year ended 30 June 2012 published on 30 August 2012. Income tax benefit of $4.5 million was $2.2 million higher than the prior year. The tax benefit is attributable to the accounting loss in the Australian business. The accounting loss in the Australian business was lower in FY13, but the tax benefit is higher than the pcp due to the downward move in FX. Infigen Energy reported a net loss after tax for the year of $80 million, an unfavourable movement of $24.1 million compared with the prior year. 16 | InfIgen energy AnnuAl report 2013 Management Discussion and analysis CaSH fLoW Cash movement Cash at 30 June 2013 was $124 million, 2% or $2 million lower than 30 June 2012. The cash balance at 30 June 2013 comprises $19 million held by entities within the Global Facility Borrower Group9 with $105 million ($97 million at 30 June 2012) held by entities outside of that group (‘Excluded Companies’). Cash inflows for the year were $84.2 million of net operating cash flow and $7.7 million in non-realised FX gains on cash balances held in USD and EUR due to the depreciation of the AUD. Cash outflows were $59.1 million for debt repayments (refer to the Capital Management section), $13.9 million distributions to US IEP Class A members and $20.5 million for construction, development, property plant and equipment (PP&E). Expenditure on PP&E and development included $5.9 million in Australia for development pipeline activity, Capital East solar PV demonstration plant and wind farm project including communications and SCADA upgrades and balance of plant enhancements. $1.6 million was invested in corporate IT systems. In the US payments of $8.9 million for wind farm capex primarily related to the turbine replacement at Allegheny Ridge and $4.1 million related to the development of two solar projects in California for which PPAs have been secured. The movement in cash held by the Excluded Companies is due to the net cash flow from the Woodlawn wind farm (+$4.5 million), LGC sales (+$8.3m), construction costs and capitalised and expensed development costs (-$14.3 million), and interest income and FX movements (+$9.5 million). net operating Cash flow Net operating cash flow after tax and financing costs was $84.2 million 36% or $22.1 million higher than the pcp due to higher EBITDA (+$19.4 million), lower net financing costs and tax paid (+$4.1 million) and working capital improvements (+$0.2 million) partially offset by higher corporate, development and other costs (-$0.5 million). Table 8 Year ended ($M) 30 June 2013 30 June 2012 cHanGe % Operating EBITDA 176.8 157.4 Corporate & development costs & other Movement in working capital & non-cash items Net financing costs and taxes paid net operating cash Flow Distributions paid (Class A) Non-controlling interests Distributions10 paid (Class A & Class B) Movement in working capital operating cash Flow (Statutory) (18.6) (16.9) (2.0) (2.2) (72.1) 84.2 (76.2) 62.1 (15.1) (15.2) 12 (10) 8 5 36 – 23.4 5.3 27.6 0.3 (15) 1,667 97.8 74.8 31 Do wind turbines cause adverse health effects? there are over 200,000 turbines worldwide with many thousands of people living near wind farms. at least 19 reviews of research literature on wind farms and health have concluded that wind farms do not cause adverse health effects. 9 Infigen’s borrowings include a multi-currency Global Facility secured by Infigen’s interests in all of its operational wind farms except Woodlawn – ‘the Borrower Group’. 10 Distributions paid to IEPs are classified as financing cash flows reflecting their treatment as debt-like instruments. mAnAgement DIsCussIon AnD AnAlysIs | 17 Management Discussion and analysis CaPitaL managment equity Total equity decreased 8% from $525.8 million at 30 June 2012 to $484.0 million at 30 June 2013. The decrease of $41.8 million is attributable to: the net loss for the period (-$80.0 million); a change in the fair value of interest rate hedges (+$26.4 million); exchange difference on the translation of foreign operations and movement in fair value of net investments (+$10.9 million); and net increase in the share based payments reserve (+$0.9 million). The number of securities on issue (762,265,972) did not change during the year. gearing The following table provides a comparison of Infigen’s book gearing (economic interest) at 30 June 2012 and 30 June 2013. The change reflects the movements in net debt and equity described above. Table 9 as at ($M) Net Debt Total Equity Book Gearing US IEP Tax Equity12 total Gearing 30 June 2013 30 June 2012 cHanGe % 936 484 65.9% 589 75.9% 943 526 1 (8) 64.2% (1.7) ppts 565 (4) 74.1% (1.8) ppts A balance sheet by country is provided in Appendix A on page 34. Does renewable energy need back‑up generation? there is no need to back up every megawatt of renewable energy with a megawatt of fossil fuel capacity. networks are planned so that they have enough spare capacity available to deal with sudden surges in demand or disconnections and breakdowns of any power plants. Debt Total debt11 (including capitalised loan costs) was $1,060 million at 30 June 2013 comprising $1,008 million of Global Facility debt and $51.9 million of Woodlawn project finance debt. This was $9.2 million lower than the pcp due to $57.5 million and $1.5 million being applied to repayment of the Global Facility and Woodlawn project finance facility respectively, offset by a $50.1 million FX related increase following the depreciation of the AUD against the USD and EUR. The average interest margin rate payable on the debt was 114 basis points. Infigen has in place interest rate hedges for the majority of its debt. Infigen expects that under reasonable operating conditions and market assumptions it will continue to satisfy the Global Facility leverage ratio covenant in conformity with the terms of the facility. FX risk becomes increasingly relevant as the operating cash flow from Infigen’s US assets is progressively reallocated to the Class A members. If adverse business conditions or significant further adverse FX movements were to place pressure on future covenant compliance, Infigen has available mitigants and remedies that it may use to avoid or cure a potential failure to satisfy the Global Facility leverage ratio covenant test in any particular testing period. This could involve utilising a portion of the liquid assets that Infigen currently holds outside the Global Facility Borrower Group to support the satisfaction of the Global Facility leverage ratio covenant test as required. Infigen has cash balances held in foreign currencies for the purpose of hedging against adverse FX movements. FX movements that have occurred over the course of recent months have resulted in significant unrealised FX gains in relation to those balances, which could be crystallised and applied for this purpose. The Global Facility leverage ratio covenant was met at 30 June 2013. net debt The net debt for the consolidated entity (economic interest) decreased from $943 million at 30 June 2012 to $936 million at 30 June 2013. The net movement of $7 million was primarily due to: net operating cash flow (+$84.2 million); unrealised adverse FX movement (-$42.8 million); capital expenditure (-$20.5 million); and distributions to Class A tax equity members (-$13.9 million). 11 A description of Infigen’s Global Facility and project finance debt is available in note 17 to the financial statements. 12 Refer to Appendix B on page 35. 18 | InfIgen energy AnnuAl report 2013 Management Discussion and analysis oPerationaL PerformanCe overvieW In the US, Infigen has an operating capacity of 1,089 MW (Class B interest) comprising 18 wind farms; 14 of these have PPAs that account for 874 MW of the operating capacity, one of which (4 MW of capacity) generates revenue both through a PPA and on a merchant basis. The four remaining wind farms (215 MW) operate purely on a merchant basis. All of Infigen’s US wind farms generate Production Tax Credits (PTCs) for 10 years from the date of first commercial operation. PTCs are worth US$23 per MWh for the 2013 calendar year. Each wind farm is entitled to one PTC per megawatt hour of production. The Group accounts for PTCs as income in the period that the credit is derived, on the basis that it reduces the liability to the Class A Institutional Equity Partner. This is accounted for in the “Income from Institutional Equity Partnerships” line item in Infigen’s statutory accounts. Further information on Infigen’s US Institutional Equity Partnerships in provided in Appendix B, page 35. Do wind farms limit land use for other activities? Wind turbines take up less than 1% of a wind farm’s land area. once operational, wind farms are compatible with other land uses, like farming. In Australia, Infigen has an operating capacity of 557 MW comprising six wind farms, namely the 89.1 MW Alinta wind farm in Western Australia (WA), the three Lake Bonney wind farms in South Australia (SA) with capacities of 80.5 MW, 159 MW and 39 MW respectively, and the 140.7 MW Capital and 48.3 MW Woodlawn wind farms in New South Wales (NSW). Infigen holds a 100% equity interest in each of its Australian wind farms. Infigen sells the output from its Australian wind farms through ‘run of plant’ PPAs and LGC sales agreements, retail supply agreements and on a merchant basis (wholesale electricity and LGC markets). Output from the Lake Bonney 1 and Alinta wind farms is sold under contracts. The majority of the capacity of the Capital wind farm is contracted to meet demand from the Sydney Desalination Plant under long term retail supply agreements, while a small component of the output is sold on a merchant basis. Output from the Lake Bonney 2 & 3 and the Woodlawn wind farms is sold on a merchant basis. Of Infigen’s six operational Australian wind farms 54% of annual P50 production is currently contracted under medium and long term agreements. mAnAgement DIsCussIon AnD AnAlysIs | 19 Keeping the lights on the regulators make rules and regulations for all energy market participants. the role of balancing electricity supply and demand in the electricity grid and making sure market participants comply with the rules is carried out by these regulators. uS the role of ensuring reliability of the power system is carried out by the north american electric reliability Corporation (nerC), and regulation of interstate transmission by the federal energy regulatory Commission (ferC). australia operating in the eastern seaboard of australia, the australian energy market operator (aemo) supports the delivery of an integrated, secure and cost-effective energy sources. the australian energy market Commission (aemC) is responsible for investigating and developing electricity market rules. the australian energy regulator (aer) monitors compliance and enforces the rules. on the western seaboard the Western australian (Wa) independent market operator (imo) is responsible for both operating and developing the Wholesale energy market, and is regularly monitored by the Wa economic regulation authority (era). 20 | InfIgen energy AnnuAl report 2013 Management Discussion and analysis uniteD StateS There was no change to Infigen’s operating capacity in the US during the period with operating capacity remaining at 1,089 MW (Class B interest). Table 10 Year ended Operating Capacity (MW) Production (GWh) P50 Production (GWh) US Business Total Revenue (US$M) Operating costs (US$M) Operating EBITDA (US$M) EBITDA margin Average price (US$/MWh) Operating costs (US$/MWh) PTCs (US$M) EBITDA margin inc PTCs US Business Translation to AUD Revenue (A$M) Operating EBITDA (A$M) 30 June 2013 30 June 2012 cHanGe cHanGe % 1,089 3,089 3,313 142.9 (74.8) 68.1 47.7% 45.0 24.18 71.1 65.0% 139.8 66.8 1,089 3,136 3,313 143.9 (75.9) 68.0 47.8% 44.7 24.20 72.5 64.9% 140.8 66.3 – (47) – (1.0) (1.1) 0.1 0.3 (0.02) 1.4 (1.0) 0.5 – (2) – (1) 1 – (0.1) ppt 1 1 (2) 0.1 ppt (1) 1 Key achievements in the uS region during the year included: Settlement of the long standing dispute with gamesa and negotiation and execution of 15 year warranty, service and maintenance agreements at infigen sites with gamesa turbines; improvements in infigen’s asset management systems, resulting in more effective supply chain management processes, work order management processes, site operations audits, and root cause analysis systems. these improvements have resulted in lower year over year operating costs and lower major component failure risks; and Steady progress in the development of a solar business, with a healthy pipeline of development projects and the execution of two power purchase agreements in California for a total of 40 mW that enhance the options available to generate further value from these projects. InfIgen’s us generAtIon mAnAgement DIsCussIon AnD AnAlysIs | 21 BuenA vIstA (38 mW) CeDAr Creek (200.3 mW) Blue CAnyon (37.1 mW) gsg (80 mW) BeAr Creek (14.2 mW) Jersey AtlAntIC (4.4 mW) AllegHeny rIDge (80 mW) CresCent rIDge (40.8 mW) menDotA HIlls (51.7 mW) ArAgonne mesA (90 mW) CAproCk (80 mW) sWeetWAter 1–5 (302.4 mW) kumeyAAy (50 mW) ComBIne HIlls (20.5 mW) operAtIonAl Assets (CApACIty) 18 WInD fArms 1,089 InstAlleD CApACIty (mW) 3,089 proDuCtIon (gWh) 142.9 revenue (us$ mIllIon) 3,332 3,136 3,089 fy11 fy12 fy13 150 144 142.9 fy11 fy12 fy13 22 | InfIgen energy AnnuAl report 2013 is wind power predictable? the generation of electricity depends on the strength of the wind. it is therefore variable, but not unpredictable. on-site anemometer masts determine the pattern of the wind “regime”, including its relative strength and direction at different times of the day and year. this enables a reliable forecast of likely output to be made by market operators who balance short term fluctuations in the supply and demand of electricity in the grid. 96.1% turBIne AvAIlABIlIty 95.3% sIte AvAIlABIlIty production Table 11 Year ended Operating Capacity (MW) Capacity Factor Turbine Availability Site Availability13 Production (GWh) 30 June 2013 30 June 2012 1,089 32.4% 96.1% 95.3% 3,089 1,089 32.8% 96.1% 95.3% 3,136 cHanGe – (0.4) ppt – – (47) 13 Excludes downtime related to Gamesa equipment failure that resulted in some turbines being temporarily decommissioned pending resolution of disputes. Including these would result in FY13 site availability of 94.9% compared to 94.5% in the pcp. Site and turbine availability of 95.3% and 96.1%, respectively, were in line with the prior year. Production decreased 47 GWh or 2% to 3,089 GWh due to Gamesa blade failures (-27 GWh), lower average wind speeds (-19 GWh), and weather and network related curtailments (-35 GWh) partially offset by improved site availability and timing of turbine maintenance during low wind periods (+34 GWh). Lower production at GSG, Allegheny, and Bear Creek (-27 GWh) due to Gamesa blade failures, lower wind speeds at the Illinois (Crescent, GSG, Mendota), West Coast (Combine Hills, Buena Vista, Kumeyaay) and Rocky Mountain (Cedar, Caprock, Aragonne) sites (-65 GWh), blade icing at Allegheny and Bear Creek (-23 GWh) and network constraints at Crescent Ridge (-12 GWh) were partially offset by higher wind speeds at the South Central (Sweetwaters and Blue Canyon) and Northeast (Allegheny, Bear Creek, Jersey Atlantic) sites (+46 GWh), higher production at Aragonne (+22 GWh) as a result of electrical equipment upgrades in FY12 and favourable timing of turbine maintenance at a number of sites during low wind periods (+12 GWh). Lost production due to Gamesa blade failures is not expected to recur as a result of the 15 year Warranty and Maintenance Agreements entered into with Gamesa, which covers component failures and availability. Infigen is working with the grid operators to reduce future network curtailments. There was no change to Infigen’s operating capacity in the US during the period with operating capacity remaining at 1,089 MW (Class B interest). price Approximately 80% of Infigen’s US capacity is contracted for a weighted average duration of 11.5 years. The capacity contracted and the PPA expiry dates are provided in the following table. Contract end dates of US Power Purchase Agreements Table 12 wind FarM Sweetwater 2 Buena Vista Sweetwater 314 Blue Canyon Cedar Creek Combine Hills Sweetwater 1 Caprock Sweetwater 314 Kumeyaay Bear Creek Aragonne Mesa Sweetwater 4 Jersey Atlantic Allegheny Ridge total equitY Mw witH PPa PPa end date 45.8 38 16.9 37.1 200.3 20.5 18.8 80 50.6 50 14.2 90 127.6 2.2 80 872.0 Feb-17 Apr-17 Dec-17 Jan-23 Nov-27 Dec-27 Dec-23 Dec-24 Dec-25 Dec-25 Mar-26 Dec-26 May-27 Mar-26 Dec-29 14 Note there are two PPAs related to the Sweetwater 3 wind farm. mAnAgement DIsCussIon AnD AnAlysIs | 23 The simple average electricity price (total wind farm revenue divided by total production) realised of US$45/ MWh was 1% higher compared to US$44.70/MWh in the pcp. This was due to the receipt of higher compensated revenue related to prior periods (see Section 5.2.3), higher realised wholesale electricity prices from most merchant wind farms, and PPA price escalators, partially offset by lower realised REC prices. The PJM and ERCOT time weighted average (TWA) and dispatch weighted average (DWA) prices for the year are outlined below. Time weighted average Table 13 Period (us$/Mwh) PJM-AECO (Jersey Atlantic) PJM-CE (GSG & Mendota) ERCOT-W (Sweetwater 5) Dispatch weighted average Table 14 Period (us$/Mwh) PJM-AECO (Jersey Atlantic) PJM-CE (GSG & Mendota) ERCOT-W (Sweetwater 5) FY13 38.26 31.59 29.55 FY13 30.14 25.57 21.08 FY12 cHanGe % 36.74 29.35 25.71 4 8 15 FY12 cHanGe % 39.99 22.18 16.18 (25) 15 30 Infigen’s merchant dispatch weighted average price was 21%, 20% and 29% less than the time weighted average price in the PJM-AECO, PJM-CE and ERCOT-W markets respectively during the period. Typically wind speeds are greater in the shoulder months and at nights, which correspond with lower wholesale price periods and largely accounts for this discount. Did you know? top installers of new wind capacity in 2012 in the uS by State were: 1,826MW texAs 1,656MW CAlIfornIA 1,441MW kAnsAs 1,127MW oklAHomA 823MW IllInoIs 24 | InfIgen energy AnnuAl report 2013 Did you know? infrasound is generated by both natural sources such as people, wind and waves, and mechanical sources such as travelling in a car with windows open, air conditioners and wind turbines. association of australian acoustical Consultants found that infrasound levels around wind farms are no higher than levels measured at other locations where people live, work and sleep. revenue Revenue decreased 1% or US$1.0 million to US$142.9 million15 reflecting lower production described above (-US$1.9 million) and lower REC prices (-US$1.4 million), partially offset by higher average electricity prices (+US$1.4 million) and higher compensated revenue (+US$0.9 million). Compensated revenue was predominantly attributable to insurance proceeds. REC revenue decreased $1.6 million primarily driven by a large drop in REC pricing in the PJM market partially offset by a slight increase in REC pricing in the ERCOT market. The PJM REC market has since shown improved strength due to the risk of the PTC incentive expiring again and the possibility of some state renewable power standards increasing. The ERCOT REC market is currently trading at similar levels to FY13. operating costs Total operating costs decreased 1% or US$1.1 million to US$74.8 million and primarily reflects: Lower turbine component failure costs as a result of predictive and preventive maintenance measures partially offset by higher fixed costs associated with extended warranty agreements; and Lower balance of plant partially offset by higher other direct costs. Table 15 Year ended (us$M) Asset management16 Turbine O&M Balance of plant Other direct costs Total operating costs 30 June 2013 30 June 2012 cHanGe cHanGe % 15.9 33.1 6.9 18.9 74.8 15.7 34.2 7.2 18.8 75.9 (0.2) 1.1 0.3 (0.1) 1.1 (1) 3 4 (1) 1 15 Includes asset management revenue related to third party IAM activity. 16 Includes asset management costs related to third party IAM activity. On 17 June 2013 Infigen announced the execution of 15 year Warranty and Maintenance Agreements with Gamesa to cover approximately 276 MW or 25% of Infigen’s US installed capacity (on an equity interest basis) across five wind farms (Kumeyaay, Allegheny Ridge, GSG, Bear Creek and Mendota). Under the agreements, Gamesa will provide warranties, turbine maintenance services and replacement components for the turbines until June 2028. These agreements significantly reduce Infigen’s risk to the cost of major component failures. operating eBItDA Operating EBITDA for the US business increased US$0.1 million to US$68.1 million reflecting lower operating costs offset by slightly lower revenue. Operating EBITDA margin was 47.7% compared with 47.8% in the prior year reflecting relatively steady revenue and cost outcomes across both years. Including PTCs, operating EBITDA margin was 67.0% compared with 64.9% in the prior year. The 2.1 ppts variance was largely due to an increase in the PTC rate in since 1 January 2013. Depreciation, amortisation and impairments Depreciation and amortisation increased US$0.5 million to US$81.3 million. Infigen depreciates its US wind farms and associated plant using the straight line method over 25 years reflecting their useful lives. An impairment expense of US$55.0 million related to the US cash generating unit was recognised following adverse movements in the Group’s discount rate and gearing assumption. mAnAgement DIsCussIon AnD AnAlysIs | 25 JoHn WIelAnD Senior buSineSS DeveloPMent Manager DallaS, uS a John Wieland is responsible for development of a large portion of Infigen’s United States development portfolio. “Originating new project opportunities through acquisition, partnership, and greenfield development is one of my primary responsibilities; however, it’s just as important that I ensure that each of these opportunities reaches its full potential by properly managing the permitting, electrical interconnection, and power off-take processes. As a developer I get to wear a lot of different hats, meet a lot of interesting people, and travel to some remarkable places. It’s an exciting job that never gets old.” us solAr Development pumpJACk solAr I (20 mW) rIo BrAvo solAr I & II (20 mW & 20 mW) WIlDWooD solAr I & II (20 mW & 15 mW) ArAgonne solAr (40 mW) CAproCk solAr (25 mW) solAr fArm (proposeD CApACIty) Development During the period the development team continued to advance key projects in its solar PV development pipeline in response to market demand. Wildwood Solar I and Pumpjack Solar I solar PV development projects obtained Conditional Use Permits from the Kern County Planning Commission in February 2013 and executed power purchase agreements with Southern California Edison in March 2013. Both projects have executed electrical Interconnection Agreements allowing for electrical interconnection and initial synchronisation. Following these achievements, the largest development risk factors for these projects have now been eliminated, thereby improving the options available to extract maximum value from them. Two further solar PV development projects, Rio Bravo I and Wildwood II, have received their phase 1 interconnection study results indicating favourable direct interconnection and network upgrade costs. The projects have since commenced the phase 2 study process. Infigen is actively marketing the power sales for Rio Bravo I and Wildwood II via both direct negotiations and participating in requests for proposals from utilities. In addition to the projects within our joint development arrangement with Pioneer Green Energy, we continue to pursue our own greenfield solar PV development efforts in various markets, the most advanced being Aragonne Solar and Georgia Sun I. 26 | InfIgen energy AnnuAl report 2013 Management Discussion and analysis auStralia Table 16 Year ended Operating Capacity (MW)17 Production (GWh) P50 Production (GWh)18 Total Revenue ($M) Operating Costs ($M) Operating EBITDA ($M) Operating EBITDA margin (%) Average Price (A$/MWh) Operating Cost (A$/MWh) 30 June 2013 30 June 2012 cHanGe cHanGe % 557 1,516 1,599 146.3 (36.3) 110.0 75.2 96.57 23.93 557 1,402 1,606 125.8 (34.7) 91.1 72.4 89.72 24.77 – 114 (6) 20.5 (1.6) 18.9 2.8 ppts 6.85 0.84 – 8 – 16 (5) 21 8 3 There was no change to Infigen’s operating capacity in Australia during the period with operating capacity remaining at 556.6 MW. 17 Operating capacity at the end of the period. 18 An updated wind and energy assessment has resulted in Capital wind farm’s P50 production being revised to 373 GWh in FY13 as foreshadowed at the interim results. P50 for the pcp has not been restated. Key achievements in australia during the year included: the identification and resolution of an aemo scheduling error resulting in compensated electricity revenue for the fY10 to fY12 periods. this is a demonstration of infigen’s in-house asset management capability and will also result in fewer constraints to the affected wind farms in future periods; following the expiration of their original warranties Lake Bonney 2 & 3 transitioned to the previously announced vestas maintenance contracts that will provide for stable and predictable costs for a further five years; and Delivered wind farms costs of $32.6 million, $1.4 million below the lower end of the guidance range of $34 to $37 million. mAnAgement DIsCussIon AnD AnAlysIs | 27 InfIgen’s AustrAlIAn generAtIon AlIntA (89 mW) lAke Bonney 1,2,3 (278.5 mW) WooDlAWn (48.3 mW) CApItAl (140.7 mW) CApItAl eAst solAr fArm (0.124 mW) operAtIonAl Assets (CApACIty) 6 WInD fArms 557 InstAlleD CApACIty (mW) 1,516 proDuCtIon (gWh) 146.3 revenue ($ mIllIon) 1,516 1,335 1,402 fy11 fy12 fy13 146.3 117 126 fy11 fy12 fy13 28 | InfIgen energy AnnuAl report 2013 production Table 17 Year ended Operating capacity (MW) Capacity factor Turbine availability Site availability Production (GWh) 30 June 2013 30 June 2012 cHanGe 557 31.1% 97.6% 96.8% 1,516 557 28.9% 96.6% 95.1% 1,402 – 2.2 ppt 1.0 ppt 1.7 ppt prices Electricity The TWA spot electricity prices in SA and NSW were 130% and 86% higher than the pcp respectively following the introduction of a carbon price ($23/tonne) from 1 July 2012 and a number of other market factors described below. Table 18 twa wHolesale electricitY ($/Mwh) 114 SA (Lake Bonney) NSW (Capital & Woodlawn) FY13 69.75 FY12 30.28 10 Year averaGe 47.27 55.10 29.67 41.38 Infigen’s DWA electricity prices increased 108% to $58.93/MWh in SA and increased 84% to $54.55/MWh in NSW. The increases broadly correlate with the TWA price increases in each region. Average spot prices in Australia can be significantly influenced by short term extreme price events. Wholesale electricity spot prices can vary between the market price floor of -$1,000/MWh and the market price cap of $12,500/MWh. There were a number of notable events that caused volatility in the wholesale electricity market during FY13 as follows: In Victoria, in July 2012 flooding reduced the output of the 1,570 MW Yallourn power station, which contributed to higher wholesale electricity prices in SA and NSW. In Queensland, the closure of 750 MW of Stanwell’s 1,500 MW Tarong power station, network constraints and wholesale bidding behaviour led to the dispatch of much higher priced generation in Northern Queensland supplying electricity into Northern NSW. In SA, both units at Northern Power Station (Alinta Energy) were withdrawn for periods of the last quarter, and limitations on regional interconnectors coinciding with major Gentailers realigning their portfolios (favouring wind generation and imports from Victoria over SA gas generation) resulted in high pool prices. Production increased 8% or 114 GWh to 1,516 GWh including 43 GWh of compensated production related to prior periods. On a normalised basis production increased 2% or 36 GWh from 1,437 GWh to 1,473 GWh as a result of less network constraints (+30 GWh), a full year of production from Woodlawn (+22 GWh), improved availability (+18 GWh) and better wind conditions in NSW and WA (+49 GWh), offset by less favourable wind conditions in SA (-48 GWh). The resolution of an AEMO scheduling error and insurance proceeds resulted in recognition of compensated production for Lake Bonney 2 & 3 (+28 GWh). The resolution also led to better scheduling and less network constraint conditions than the pcp (+37 GWh). This was offset by less favourable wind conditions (-48 GWh) and resulted in production at Lake Bonney being 11 GWh lower than the pcp on a normalised basis. At the Alinta wind farm higher turbine availability (+3 GWh) and higher wind speeds (+9 GWh) were partially offset by increased network constraints (-7 GWh) resulting in 5 GWh higher production than the pcp. At Capital wind farm higher site availability (+13 GWh) and improved wind conditions (+35 GWh) resulted in 48 GWh higher production than the pcp. Capital recognised compensated production of 13 GWh related to equipment failures in FY12. At Woodlawn a full year of production (+22 GWh) and improved wind conditions (+5 GWh) resulted in 27 GWh higher production than the pcp. Woodlawn recognised compensated production of 2 GWh related to equipment failures in FY12. 97.6% turBIne AvAIlABIlIty 96.8% sIte AvAIlABIlIty mAnAgement DIsCussIon AnD AnAlysIs | 29 operating Costs Total operating costs increased $1.6 million or 5% to $36.3 million. The key variances include: $0.5 million increase in asset management cost associated with the resolution of AEMO scheduling error (+$0.2 million), end of warranty inspection costs at Lake Bonney 2 & 3 (+$0.2 million) and Woodlawn costs (+$0.1 million); $0.3 million increase in turbine O&M costs associated with Woodlawn full year of operation (+$0.4 million), higher turbine O&M costs under the Vestas agreement (+$2.2 million) offset by lower component failure costs covered under the new Vestas contracts (-$2.3 million); Minor reduction in balance of plant costs (-$0.1 million); CPI linked land and insurance costs (+$0.2 million), a full year of other direct costs associated with Woodlawn (+$0.2 million) and other miscellaneous costs (+$0.2 million); and Energy Markets costs associated with developing longer term contracting options and meeting increased market compliance obligations (+$0.3 million). Table 20 Year ended (a&M) Asset management Turbine O&M Balance of plant other direct costs Total wind farm costs Energy Markets 30 June 2013 30 June 2012 cHanGe cHanGe % 7.0 17.2 0.9 7.5 32.6 3.7 6.5 16.9 1.0 6.9 31.3 3.4 0.5 0.3 (0.1) 0.6 1.3 0.3 1.6 (8) (2) 10 (9) (4) (9) (5) total operating costs 36.3 34.7 Large-scale Generation Certificates (LGCs) Table 19 Period ($/Mwh) FY13 FY12 cHanGe % Large-scale Generation Certificates 35.94 39.39 (9) The average LGC price for the year of $35.94/LGC was 9% lower compared to an average price of $39.39/LGC in the prior year. The closing LGC price at 30 June 2013 was $33.25 compared to $36.42 at 30 June 2012. At 30 June 2013 Infigen held approximately 224,000 LGCs with a book value of $7.6 million compared to approximately 276,000 LGCs with a book value of $10 million at 30 June 2012. These LGCs were recognised in the revenue line at the weighted average market price for the month in which they were created. The closing market price of $33.30 per LGC at 30 June 2013 was slightly lower than the average price at which these LGCs were brought to account. An environmental certificate revaluation expense of $1.3 million was recognised in the FY13 results. Bundled pricing The realised weighted average portfolio bundled (electricity and LGCs) price was $96.57/MWh, 8% higher than $89.72/MWh realised in the prior year. This reflected higher dispatch weighted wholesale electricity prices and price escalation for the contracted assets, partially offset by lower contracted LGC volume as SDP was not operating and lower LGC prices. revenue Revenue increased $20.5 million or 16% to $146.3 million as a result of higher average prices (+$13.6 million), higher production (+$6.8 million), and higher compensated revenue (+$2.5 million) partially offset by an unfavourable MLF movement (-$2.4 million). Compensated revenue included $1.2 million (27 GWh) related to the identification and resolution of an AEMO scheduling error. The remaining $1.7 million (16 GWh) was attributable to the insurance settlement for equipment failures at the Capital and Lake Bonney wind farms in FY12. DAve BroCkWell Site Manager Site manager David Brockwell looks after Capital and Woodlawn wind farms, Bungendore, NSW. “Liaising with different teams and landowners is the major part of my job. Running a wind farm is a 24/7 job so I interact on a daily basis with our Operations Control Centre in Sydney and the on‑site REpower team.” “I drive throughout the wind farm regularly to check roads for erosion and surroundings of the turbines for bushfire risk. Most of our landowners have cattle and sheep on the land alongside the turbines. We need to ensure gates are not left open when attending the turbines.” All of Infigen’s Australian wind turbines are covered by their Original Equipment Manufacturer’s warranty (Suzlon) or post-warranty service agreements (Vestas). This is contributing to improved stability and predictability of wind farm costs. 30 | InfIgen energy AnnuAl report 2013 operating eBItDA Operating EBITDA increased by $18.9 million or 21% to $110.0 million reflecting increased production, higher electricity prices and higher compensated revenue, slightly offset by higher operating costs – including those from a full year contribution from Woodlawn, lower LGC contract volume and lower LGC prices. EBITDA margin for the period was 75.2% compared with 72.4%. Depreciation and amortisation Depreciation and amortisation decreased $2.4 million to $50.9 million reflecting the reclassification of decommissioning and loan costs to financing costs. Infigen depreciates its Australian wind farms and associated plant using the straight line method over 25 years reflecting their useful lives. Did you know? Wind power has a light footprint – it takes a turbine just 3-6 months to produce the amount of energy that goes into its manufacture, installation, operation, maintenance and decommissioning after its 20-25 year lifetime. Development A key area of focus for the development team is managing community, regulatory and/or Government stakeholder relationships. This includes communicating with, informing and consulting with a wide range of stakeholders including in particular the communities in which we operate. During the period the development team continued to advance the most prospective projects in the development pipeline in anticipation of improved market and investment conditions, and carried out work necessary to sustain the option value of the pipeline for growth when investment conditions return. The Bodangora and Cherry Tree wind farm developments are at a very advanced stage and Infigen’s response to public submissions related to Flyers Creek wind farm was accepted by NSW Department of Planning and Infrastructure. A Planning Assessment Commission Hearing date is anticipated in October 2013. Development consent was granted by the local council and connection negotiations are significantly progressed for the Forsayth wind farm development. mAnAgement DIsCussIon AnD AnAlysIs | 31 AustrAlIAn Development pIpelIne forsAytH WInD fArm (70 mW) moree solAr fArm (60 mW) BoDAngorA WInD fArm (100 mW) CHerry tree WInD fArm (50 mW) WAlkAWAy 2 & 3 WInD fArms19 (400 mW) nyngAn solAr fArm20 (100 mW) mAnIlDrA solAr fArm20 (50 mW) flyers Creek WInD fArm (115 mW) WoAkWIne WInD fArm (450 mW) CApItAl solAr fArm20 (50 mW) CApItAl 2 WInD fArm (100 mW) proJeCts (proposeD CApACIty) 19 Infigen has a 32% equity interest 20 Infigen has a 50% equity interest 32 | InfIgen energy AnnuAl report 2013 auStraLia’S Large-SCaLe reneWaBLe energY target Lret aCHievementS Lret BenefitS Powering australia Wind farms powered the equivalent of over one million Australian homes21 in 2012 Keeping the 41,000 GWh target means a significant portion of Australia’s electricity could come from renewable energy sources by 2020 boosting investment $4 billion has been invested in Australian goods and services in the construction and operation of wind energy facilities A further amount of up to $17 billion could be spent if currently proposed wind farms proceed to construction22 creating employment Over 1,700 jobs have been created in the wind energy sector Over 8,000 jobs more could be created in the construction and operation of wind farms22 reducing pollution Delivering at low‑cost Over 7 million tons of CO2e greenhouse gases have been avoided Over 1 billion tons of CO2e emissions could be avoided22 Cost of the LRET scheme is approximately 2% of an average household electricity bill23 A reduced RET is forecast to cost consumers an additional $1.3 billion 21 Annual Clean Energy Report, Clean Energy Council, March 2013 22 Wind Farm Investment, Employment and Carbon Abatement in Australia, Clean Energy Council, June 2012 23 The Facts on Electricity Prices, Department of Resources, Energy and Tourism Management Discussion and analysis outLook Over the last three years Infigen has been focussed on delivering predictable operating cost outcomes and maximising cash flow available for debt amortisation. Infigen has successfully delivered or outperformed the guidance ranges provided to the market across these periods. A number of key operational achievements have contributed to these outcomes including, improved operating practices in the US and Australia, execution of post-warranty agreements for turbine service and maintenance, a business reorganisation and cost reduction initiative that has significantly improved efficiency and reduced costs, and an embedded culture of safety and continuous improvement. Infigen begins the 2014 financial year (FY14) with a goal of building upon our steady operational performances. In FY14, production in the US is expected to improve primarily due to the return to service of a number of Gamesa turbines and improved availability for the Gamesa fleet. US wind conditions were below the long term mean in FY13 and have the potential to improve. In Australia, there is also the potential for improved wind conditions and higher production outcomes but network constraints in SA and WA may continue to adversely affect production. Infigen will continue to publish unaudited production and revenue results each quarter. In the US, the Crescent Ridge wind farm (40.8 MW) PPA expired in June and that wind farm will be operated on a merchant basis with wholesale prices currently below the previous PPA price. However, average prices are nonetheless expected to be only slightly below FY13 due to the highly contracted nature of Infigen’s assets. In Australia, in the near term the regulatory environment continues to be challenging. Despite the favourable findings of the Climate Change Authority’s review of the Renewable Energy Target (RET) in 2012, vested interests in the fossil fuel generation sector continue to lobby forcefully to reduce the RET. The upcoming Federal election has exacerbated the uncertainty to a point where the market for new renewable energy project development is very weak, and the appetite to contract existing assets is poor. This has depressed the Large Scale Generation Certificate (LGC) spot price to low $30s levels. Average Australian prices are expected to be around the same as FY13 due to contract escalation and a higher carbon price, offset by lower LGC prices. mAnAgement DIsCussIon AnD AnAlysIs | 33 tHe ret Is An effICIent mArket BAseD meCHAnIsm – DemonstrAteD By A DeCADe of suCCess of AustrAlIA’s reneWABle energy InDustry In FY14, the US and Australian businesses will benefit from a full year of savings from the cost reduction initiative undertaken in FY13, with the group on track to deliver the full $7 million cash savings benefit in FY14. US operating costs are forecast to be between US$73 million and US$76 million (including Infigen Asset Management costs), and Australian operating costs between $35 million and $37 million (including Energy Markets costs). The number of assets in the US where Infigen’s original investment capital has been returned will begin to increase materially in FY14. The short term variability of production, price and operating costs means it is difficult to predict the precise dates when cash flow will be allocated to Class A tax equity members. The total cash flow that we expect to have available to distribute to Class A tax equity members, close out interest rate swaps, and repay the Global Facility will be approximately $80 million. The FY13 comparative was $75.1 million comprising $57.5 million for the Global Facility, $13.9 million to repay Class A tax equity and $3.7 million of German tax costs. There are a number of growth opportunities that Infigen will continue to pursue in FY14. In the US, the development team will steadily progress the Wildwood and Pumpjack solar PV developments and seek to enhance the options available to generate further value from these projects. In Australia, the development team will continue to explore solar PV opportunities that are supported by Commonwealth Government initiatives. Infigen also looks forward to the expected improvement in investment conditions following the Federal election and a favourable outcome from the scheduled further review of the RET legislation in 2014. 34 | InfIgen energy AnnuAl report 2013 Management Discussion and analysis appendix a BaLanCe SHeet BY CountrY a$ Million Cash Receivables Inventory LGCs Prepayments PPE Goodwill & Intangibles Deferred Tax & Other Assets total assets Payables Provisions Borrowings Tax Equity (US) Deferred Revenue (US) Derivative Liabilities total liabilities 30 June 2013 iFn statutorY interest less us MinoritY interest 30 June 2013 iFn econoMic interest australia united states 124.5 32.5 13.8 17.2 2,478.0 272.1 50.5 (0.6) (0.5) (0.2) (0.1) (160.7) (17.7) 0.6 124.0 32.0 13.6 17.1 2,317.3 254.3 50.5 110.2 25.2 9.0 8.1 918.5 137.5 50.5 13.8 6.8 4.5 8.9 1,398.9 116.9 – 2,988.5 (179.8) 2,808.7 1,258.9 1,549.8 36.6 29.3 1,060.0 712.8 511.1 154.7 (1.9) (1.2) – (124.1) (51.9) – 34.6 27.5 1,060.0 588.7 459.1 154.7 2,504.5 (179.8) 2,324.7 18.7 10.7 723.5 – – 104.7 857.6 16.1 16.8 336.5 588.7 459.1 50.0 1,467.2 net assets 484.0 – 484.0 401.4 82.6 Foreign exchange rates as at USD EUR 30 June 2013 30 June 2012 cHanGe % 0.9275 0.7095 1.0238 0.8084 (9) (12) Did you know? the uS wind fleet is expected to avoid 98.9 million metric tons of Co2e in 2013 – 4.4% of all uS power sector emissions. mAnAgement DIsCussIon AnD AnAlysIs | 35 Management Discussion and analysis appendix b inStitutionaL equitY PartnerSHiPS year ended 30 June 2013 Production (GWh) by Asset Vintage Year ended 30 June 2003/2004 2005 2006 2007 total 2013 722 509 776 1,082 3,089 2012 cHanGe cHanGe % 716 519 820 1,081 3,136 6 (10) (44) 1 (47) 1 (2) (5) – (1) Revenue (US$ million) by Asset Vintage 2012 cHanGe cHanGe % Year ended 30 June 2003/2004 2005 2006 2007 total 2013 22.5 24.6 42.6 53.1 22.8 25.9 43.7 51.5 142.9 143.9 Profit and Loss (US$ million) by Asset Vintage Year ended 30 June 2013 2003/04 Revenue Costs EBITDA D&A eBit25 22.5 (12.5) 10.0 (11.8) (2.0) (0.3) (1.3) (1.1) 1.6 (1.0) (1) (5) (3) 3 (1) 2005 24.6 (13.6) 11.0 (12.9) (2.0) Class A Capital Balance Amortisation (US$ million) by Asset Vintage Year ended 30 June 2013 2003/04 Closing Balance (30 Jun 12) Tax true-up opening Balance (1 Jul 12) Production Tax Credits Tax (losses)/gains Cash distributions Allocation of return (interest) closing Balance 65.8 (0.1) 65.7 (16.2) 3.5 (7.4) 5.8 51.4 2005 95.1 0.3 95.4 (11.7) 2.6 (6.6) 7.2 86.9 24 Includes $0.3m gain on disposal. 25 Before impairment expense of US$50m related to the US CGU. 2006 42.6 (28.1) 14.824 (26.9) (12.1) 2006 162.0 (0.1) 161.9 (18.7) 0.2 – 10.1 153.5 2007 53.1 (20.5) 32.6 (29.6) 3.2 2007 238.6 (0.7) 237.9 (24.4) 0.9 – 15.8 230.2 total 142.9 (74.8) 68.4 (81.3) (12.9) total 561.5 (0.6) 560.9 (71.1) 7.1 (13.9) 38.9 522.0 36 | InfIgen energy AnnuAl report 2013 year ended 30 June 2012 Production (GWh) by Asset Vintage Year ended 30 June 2003/2004 2005 2006 2007 total 2012 716 519 820 1,081 3,136 2011 cHanGe cHanGe % 760 574 859 1,139 3,332 (44) (55) (39) (58) (197) (6) (10) (4) (5) (6) Revenue (US$ million) by Asset Vintage Did you know? to avoid disturbance to neighbours, strict rules are applied by local authorities to ensure that wind turbines are located at an agreed distance from nearby houses. 2011 cHanGe cHanGe % Year ended 30 June 2003/2004 2005 2006 2007 total 2012 21.6 24.9 43.7 50.3 21.1 27.1 45.9 51.2 140.5 145.3 Profit and Loss (US$ million) by Asset Vintage Year ended 30 June 2012 Revenue Costs EBITDA D&A eBit 2003/04 22.8 (13.1) 9.7 (11.6) (2.1) 0.5 (2.3) (2.2) (0.9) (0.4) 2 (8) (5) (2) (3) 2005 25.9 (14.0) 11.9 (12.8) (1.2) Class A Capital Balance Amortisation (US$ million) by Asset Vintage Year ended 30 June 2012 Closing Balance (30 Jun 11) Tax true-up opening Balance (1 Jul 11) Production Tax Credits Tax (losses)/gains Cash distributions Allocation of return (interest) closing Balance 2003/04 83.0 (0.1) 82.9 (16.4) 2.7 (9.5) 6.1 65.8 2005 103.3 (0.2) 103.1 (12.2) 1.4 (4.6) 7.4 95.1 2006 43.7 (30.0) 13.7 (26.9) (13.8) 2006 170.8 - 170.8 (18.6) 0.0 0.0 9.8 2007 51.5 (18.5) 33.0 (29.5) 4.4 2007 253.3 - 253.3 (25.4) (4.0) 0.0 14.7 162.0 238.6 total 143.9 (75.9) 68.0 (80.8) (12.7) total 610.4 (0.3) 610.1 (72.6) 0.1 (14.1) 38.0 561.5 us Cash Distributions Cash flows from the US business are split between the Class A and Class B members in accordance with their entitlements during the various stages of the wind farms’ lives (refer Appendix B of the Management Discussion and Analysis for the year ended 30 June 2012 for more detail). Cash flow allocated to Class A members during the period was US$13.9 million compared with US$14.1 million in the pcp. This relates to the Blue Canyon, Combine Hills, Caprock, Crescent Ridge, Jersey Atlantic, Bear Creek and Sweetwater 1-3 wind farms, where from the second half of FY13 the Class A members will receive all net operating cash flow from those wind farms until their capital balances including agreed return, are fully amortised (refer below for Class A capital balances). Class B capital balances are held at the limited liability company (LLC) level (refer Appendix B of the Management Discussion and Analysis for the year ended 30 June 2012 for the relationship between wind farms, LLCs and asset vintage). Once Class B capital balances are fully repaid (cash flip point) or a fixed (cash cut-off) date is reached (whichever occurs earlier), all operating cash flow from the related wind farm assets is allocated to Class A members until their capital balances are fully amortised and agreed return achieved. Jersey Atlantic, Bear Creek and Sweetwater 1-3 wind farms reached their cash flip point during the year. All of the wind farms in the 2005 vintage portfolio are now distributing cash to the Class A members. The 2006 vintage portfolio will begin to distribute cash to the Class A members no later than the end of November 2015. In the 2007 vintage portfolio Cedar Creek is expected to reach its cash flip point in approximately August 2013 after having its Class B capital balance repaid ahead of investment case expectations. The other wind farms in the 2007 portfolio are Sweetwater 4 & 5, which will begin to distribute cash to the Class A members no later than the end of April 2015. Cedar Creek accounted for 56% of the distributions from the 2007 vintage portfolio in FY13. Once the Class A members achieve their agreed target return, the cash flows are reallocated between the Class A and Class B members. The Blue Canyon and Combine Hills wind farms (2003/04 vintage) are currently expected to return to distributing cash to Infigen no later than December 2016 with the Caprock (2003/04 vintage) and Crescent Ridge (2005 Vintage) wind farms expected to follow in April 2017 and May 2018 respectively. The combined effect of the factors described above on Infigen’s portfolio of 18 US wind farms is that the aggregate distributions to Infigen diminish as more projects reach the cash flip point or cash cut-off date (whichever occurs earlier) and more operating cash flow is directed to reducing Class A capital balances. Infigen’s aggregate distributions will therefore ‘dip’ for a period until projects in the portfolio begin to reach their reallocation dates. For Infigen’s portfolio, the cash flow dip is currently expected to be most pronounced from the second half of FY16 through to the first half of FY18. The timing and duration of the cash flow dip will be influenced by the performance of the US wind farms during the intervening period. Value of Production Tax Credits (PTCs) (Class A) was $76.2 million, down 3% or $2.3 million. This is due to lower production in FY13 and small depreciation of the AUD against the USD partially offset by a higher PTC rate in 2013. The value of PTCs per megawatt hour is US$22 for the 2011 and 2012 calendar years and US$23 for the 2013 calendar year. Value of tax losses (Class A) have switched from being net income to a net cost in FY13 (-$7.3 million) due to the reduction in tax depreciation as most of the assets that benefit from accelerated depreciation become fully depreciated. Benefits deferred during the year also reversed reflecting lower tax depreciation during the period as described above and resulting in income of $9.9 million. Benefits deferred are the difference between tax depreciation and accounting depreciation for the year. Allocation of return (Class A) goes to delivering the agreed target return on Class A capital balances. This was a $39.2 million expense for the year, down 9% or $3.6 million reflecting lower Class A capital balances. The movement in residual interest (Class A) was a negative $10.6 million movement compared with a negative $8.9 million movement in the prior year. This reflects period-on-period changes in expectations of future tax allocations and cash flows. Non-controlling interest (Class B) represents the share of net profit attributable to the non-controlling interest holders in the Cedar Creek and Crescent Ridge wind farms. Non-controlling interest (Class B & Class A) represents the elimination of non-controlling interest contributions of each income and financing cost IEP line item (attributable to both the Class A and Class B non-controlling interests in the Cedar Creek and Crescent Ridge wind farms). mAnAgement DIsCussIon AnD AnAlysIs | 37 The following table provides a summary of Class A capital balance movements. Economic Interest Class A Capital Balance by vintage (US$ million) Year ended 30 June 2003/2004 2005 2006 2007 total 2013 51.4 86.9 153.5 230.2 2012 65.7 95.4 161.9 237.9 522.0 560.9 cHanGe cHanGe % 14.3 8.5 8.4 7.7 38.9 22 9 5 3 7 The following table provides a summary of Class B capital balance movements. Economic Interest Class B Capital Balance by vintage (US$ million) Year ended 30 June 2003/2004 2005 2006 2007 total 2013 – 4.2 104.3 44.4 152.9 2012 cHanGe cHanGe % 0.7 7.4 118.1 74.4 200.6 0.7 3.2 13.8 30.0 47.7 100 44 12 40 24 The following table summarises the components of net income from IEPs in USD. 2012 cHanGe % Year ended 30 June (us$M) Value of production tax credits (Class A) Value of tax losses (Class A) Benefits deferred during the period Income from IEPs Allocation of return (Class A) Movement in residual interest (Class A) Non-controlling interest (Class B) 2013 78.4 (8.1) 10.0 80.3 (40.1) (10.4) (3.2) 80.2 1.2 (16.5) 65.0 (43.7) (9.0) (7.6) Financing costs related to iePs (53.7) (60.3) Net income from IEPs (Statutory) Non-controlling interests (Class B & Class A) 26.6 3.4 4.7 5.0 Net income from IEPs (economic interest) 30.0 9.6 211 The following table summarises the components of net income from IEPs in AUD. 2012 cHanGe % Year ended 30 June (a$M) Value of production tax credits (Class A) Value of tax losses (Class A) Benefits deferred during the period Income from IEPs Allocation of return (Class A) Movement in residual interest (Class A) Non-controlling interest (Class B) 2013 76.2 (7.3) 9.9 78.8 (39.2) (10.6) (3.0) 78.5 1.3 (16.2) 63.6 (42.8) (8.9) (7.4) Financing costs related to iePs (52.8) (59.2) Net income from IEPs (Statutory) Non-controlling interests (Class B & Class A) 26.0 4.4 5494 3.3 4.8 (31) Net income from IEPs (economic interest) 29.3 9.2 219 (2) (746) 161 24 (8) 15 (58) (11) 470 (32) (3) (672) 161 24 (9) 19 (659) (11) 38 | InfIgen energy AnnuAl report 2013 SafetY anD SuStainaBiLitY Health and safety Infigen’s first priority is the safety of our people and the communities in which we operate. Our goal is zero lost time incidents and injuries. We remain firmly committed to pursuing zero harm and reducing our 12 month lost time injury frequency rate. We continue to introduce new initiatives and enhance existing programs to assist with achieving this goal. Employee health and safety Year ended Group TRIR26 Group LTIFR27 30 June 2013 11.0 1.2 30 June 2012 15.1 1.2 Our aim is to build strong relationships through transparent communication with communities during all aspects of development, construction and operations, whilst respecting the diverse cultures, views and needs of these communities. Prior to construction, all proposed wind and solar farms complete a development application process in consultation with specialist engineers, planning authorities and the local community. The areas of engagement vary State by State, but broadly cover: noise studies flora and fauna landscape and visual impact cultural heritage traffic and transport shadow flicker electromagnetic interference As wind and solar farms become operational, Infigen aims to keep an open dialogue with its communities. Infigen has established a complaints handling policy that details fair and accessible processes for dealing with any concerns raised by the community about Infigen’s operating assets. Commitment to community engagement and support Infigen is committed to making positive contributions in each of the communities in which we operate, are part of and live in. Infigen aims to foster lasting relationships with the community and local non-profit organisations by maintaining and enhancing community engagement and providing direct funding for local initiatives. During the year Infigen in Australia held community consultation committee meetings in connection with its proposed Bodangora and Flyers Creek wind farms, and information sessions with various stakeholder groups in connection with its proposed Aragonne, Georgia, Kumeyaay and Pumpjack solar farms in the US, and Cherry Tree wind farm in Australia. Infigen uses these opportunities to establish respectful relationships, share accurate information and address misinformation about the projects and wind energy. Infigen maintains a community engagement register to monitor and track direct financial contribution that Infigen provides to local communities, over and above the significant economic benefit derived from sourcing local products and services in the day to day operations of our assets. Direct financial contributions to community activities and sponsorships totalled $333,000 in the 2013 financial year. Supporting community partnerships Infigen supported the establishment of the Central NSW Renewable Energy Co-operative Ltd (CENREC), a community co-operative in Australia, in October 2012. During the 2013 financial year, the New South Wales Environment Minister, Robyn Parker, announced that CENREC was one of nine community groups to receive a grant ($60,000) to identify opportunities for community renewable energy projects in Central NSW and remove barriers for these projects. 26 Total recordable incident rate 27 Lost time injury frequency rate CommunIty support In 2013 fInAnCIAl yeAr Educational, arts, sports and youth organisations Social welfare, diversity and charities Local community organisations and businesses $333,000 $81,000 $106,000 $146,000 Figures in A$ sAfety AnD sustAInABIlIty | 39 our AIm Is to BuIlD strong relAtIonsHIps tHrougH trAnspArent CommunICAtIon WItH CommunItIes DurIng All AspeCts of Development, ConstruCtIon AnD operAtIons, WHIlst respeCtIng tHe DIverse Cultures, vIeWs AnD neeDs of tHese CommunItIes. During the 2013 financial year in australia two landmark reports examined the levels of infrasound generated by wind farms. Both reports concluding that wind power technology did not generate abnormal or unusually high levels of infrasound when compared with background levels that humans are typically exposed to in everyday life. the South australian environment Protection authority’s report concluded that: “the level of infrasound at houses near the wind turbines is no greater than that experienced in other urban and rural environments”, and that “the contribution of wind turbines to the measured infrasound levels is insignificant in comparison with the background level of infrasound in the environment”. the victorian Department of health released a fact‑sheet stating that: “there is no evidence that sound which is at inaudible levels can have a physiological effect on the human body. this is the case for sound at any frequency, including infrasound.” 40 | InfIgen energy AnnuAl report 2013 We knoW tHe AreA very Well, AnD CAn sAy tHAt tHe WInD fArm resulteD In greAt ACCess to A lot of AreAs tHrougH tHe propertIes. tHe roADs WItHIn tHe WInD fArm ACt As effeCtIve fIre BreAks As Well As provIDIng gooD loCAtIons for potentIAl fIre fIgHtIng. david elward Taylors Creek Rural Fire Service, Captain, Capital and Woodlawn wind farms, NSW, Australia nAomI strInger unSW c o‑oP S tuDent The development and construction of the Capital East solar farm is providing valuable practical experience to our next generation of renewable energy professionals. This includes Naomi Stringer, who is part of a UNSW Co-op student internship program. “I started work with Infigen last November and will be with them for the rest of 2013, before going back to university in 2014. It’s a great opportunity and has been a truly incredible experience so far. Having the opportunity to construct a solar farm is extremely exciting and far beyond what you can learn from a textbook. My supervisors have been fantastic – despite the endless questions they have had to put up with – and I can’t wait to see Infigen expand its solar capacity in the future.” UNSW Co-op student Naomi Stringer, working on Capital East solar farm, Infigen’s first solar farm. Sponsoring causes that matter to the locals Infigen supports various community groups that focus their efforts on helping in the areas of social welfare. Organisations including the Mission of Umatilla County, Young Life, Kids On Land, Sweetwater Goodfellows, University of Illinois, Youth 4H and many others each play an important role in making life better, healthier and safer for individuals and their communities. Cheering for the future generations Youth sports clubs are at the heart of communities and play an important role in shaping healthy lifestyles. During the year Infigen supported many local sporting teams and assisted some of them to participate in regional championships. In November 2012 Infigen championed and sponsored the Run with the Wind fun run at its Woodlawn wind farm. This was the first fun run in Australia to take place at a wind farm. The fun run attracted over 500 participants including an Australian Olympian. Employee led sustainability Infigen supports employees with fundraising activities for events that raise awareness of charities that are close to their hearts. Infigen participated in the MS 150 bike ride and fundraiser for the Multiple Sclerosis Society. Infigen employees raised over US$4,200 and the company matched this amount. Supporting the next generation of renewable energy professionals Infigen supports the Co-op Program hosted by the University of New South Wales (UNSW) in Australia. The Co-op is a scholarship program developed by industry and the university as a strategic initiative to attract, train and develop outstanding young professionals. Participation in this program provides engineering students with practice and hands-on experience throughout their studies. In 2012, we sponsored three students from the 1st, 2nd and 3rd year of that degree. Sourcing locally Infigen seeks to source materials and services from locally based suppliers to support the local economy around its activities, enhance community engagement, and to reduce its impact on the environment from transportation. At Infigen’s Capital East solar demonstration project, activities such as fencing, earth and road works services and construction materials were all procured from local suppliers. Raising awareness about renewable energy Infigen promotes renewable energy using factual and scientific data, and advocates for regulation that delivers increased policy predictability for the renewable energy industry. As a member of the American Wind Energy Association (AWEA) and Australia’s Clean Energy Council (CEC), Infigen participates in their respective annual events – AWEA Windpower Conference and Exhibition and CEC Clean Energy Week. Infigen continues to host open days and visits by parliamentarians, regulators, customers, suppliers and service providers at its wind farms to raise awareness and understanding of renewable energy. In Australia, to celebrate New South Wales’ first Renewable Energy Day, Infigen hosted an open day at its Woodlawn wind farm. More than 350 people attended the open day, and had the opportunity to tour the wind farm and talk to the project developer and host landowners. sAfety AnD sustAInABIlIty | 41 Capital East solar farm – demonstrating solar PV capability In July 2012 Infigen was granted planning approval from Palerang Council for the development of the Capital East project - a solar photovoltaic (PV) and energy storage facility of up to 1 MW capacity. Construction commenced in April 2013, with the first stage designed and built to trial innovative technologies and construction techniques. Biodiversity and Climate Change Responsibility for preserving bird and bat habitat All of Infigen’s activities take into account assessment of impacts on co-existing flora and fauna. During the year, Infigen supported the conservation and restoration of natural ecosystems, focussing on birds and their habitats through the Audubon Society in the US. Reducing risk of fire As part of operations environmental management plans, Infigen is obligated to implement bushfire mitigation strategies at its wind farms, including regular fire prevention inspections. Infigen teams working on wind farms liaise with emergency services and ensure effective access for fire-fighters at all times. Greenhouse gas emissions Infigen’s Australian business unit reports its greenhouse gas emissions under the National Greenhouse and Energy Reporting (NGER) framework, in accordance with Australian legislation. The emissions from all of Infigen’s US wind farms were also calculated using the NGER framework for the first time this year. Scope 1 emissions are defined as the release of greenhouse gases into the atmosphere as a direct result of an activity from a facility such as a wind farm (for example, from diesel fuel use in vehicles on site). Scope 1 emissions of Infigen’s Australian and US wind farms reduced 4% to 825 tons of CO2e, approximately 200g of CO2e gases per megawatt hour generated in 2013 financial year. Scope 2 emissions are those released into the atmosphere as a result of activities at Infigen’s wind farms and offices that consume electricity, heat or steam generated offsite. An example is emissions from the electricity required to power the site during periods of no wind and electricity used in offices. Scope 2 emissions for Infigen’s Australian and US businesses rose 5% to 12,919 tons of CO2e, offset by experiencing less periods of low wind or high wind conditions in 2013 financial year. Both, scope 1 and scope 2, include the emission of carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). GreenHouse Gas eMission in tonnes oF co2 FY13 FY12 cHanGe % Scope 1 – Australia Scope 1 – US scope 1 – Group Scope 2 – Australia Scope 2 – US 319 506 825 2,617 10,302 346 513 859 2,845 9,430 scope 2 – Group 12,919 12,276 scope 1 & 2 Group 13,744 13,135 8 1 4 8 (9) (5) (4) mAx & JoAn lImon lanDo WnerS In Australia, farmers Joan and Max Limon moved to Taylors Creek, Tarago, New South Wales, 33 years ago. “When we were offered the opportunity to sign up for wind turbines at Capital wind farm, we did a lot of research ourselves first.” Joan Limon is a founding member of the Taylors Creek Landcare Group. Since 2004 Joan has helped organise several bird surveys in her local area, covering many properties that now host wind turbines for the Capital and Woodlawn wind farms. “As a landowner involved with the wind farm, I am very pleased to report that I have not seen any wind turbine related bird fatalities on our property, and the turbines have been operating now for 2 ½ years. I love birds and there is no way I would have gone ahead with the wind farm if I had believed that the turbines would result in lots of bird fatalities.” 42 | InfIgen energy AnnuAl report 2013 Diversity and people Infigen’s Diversity Target and Objectives Infigen’s team consisted of 172 people managing 24 operating wind farms, and solar and wind development pipelines in Australia and the US. Infigen aims to provide a work environment in which all employees may excel regardless of race, religion, age, disability, gender, sexual preference or marital status. Infigen maintains policies relating to diversity and workplace practices, including occupational health and safety. Infigen is committed to responsible corporate governance and has implemented a diversity policy as part of its corporate governance framework. sHAre of femAles In WorkforCe 43% (3%) FY13 (Change from FY11) 20% Board 24% (‑16%) 14% (17%) group executive Committee & senior management middle management professional engineers/ Accountants etc tarGet and oBJectives set in FY12 ProGress in FY13 Infigen’s Diversity Target Over the next two years increase the workforce participation of females and persons from minority backgrounds by 10% compared to 1 July 2011. Female participation in the Infigen workforce has increased by 15.6% compared with the 2011 financial year. Infigen’s Diversity Objectives 1) Establish a leadership development program for current and future leaders with specific diversity-related content to assist female and ethnic employees to develop the skills necessary to advance to more senior positions whilst creating a greater awareness in their male colleagues of the need to promote diversity. 2) Require all external recruitment processes to shortlist at least one female or other minority candidate, two preferably. 3) Engage tertiary institutions to help promote female careers in the renewable energy industry. 26% of the workforce has participated in leadership development programs. Hosted three female undergraduate students for industrial placement. Hosted and participated in UNSW Women in Renewable Energy network group in Australia and participated in the Women of Wind Energy forums in the US. Established an informal women’s network group within the US business. Successfully required external recruitment consultants to submit at least one female candidate for most of the Australian recruitment undertaken. WorkforCe ComposItIon auS 69% uSa 81% total 77% auS 66% uSa 80% total 75% auS 66% uSa 77% total 73% Male Female 19% 23% 31% fy11 34% fy12 20% 25% 34% fy13 23% 27% sAfety AnD sustAInABIlIty | 43 policy and regulations Australia In 2013, wind technology is now cheaper than new coal and gas plants in Australia A recent study28 found that new wind farms in Australia can supply electricity at a cost significantly below that of a new coal or gas fired power plant. By the end of the 2012 calendar year Australia’s total installed wind capacity reached 2,584 MW29. The RET Scheme The Renewable Energy Target (RET) has been a successful industry development scheme that has resulted in significant regional investment in clean energy generation facilities and large reductions in greenhouse gas emissions. In 2012, over 13% of total energy generation came from renewable energy, enough to power over 4 million households and saving over 22 million tons of greenhouse gases30. Since the splitting of the RET into large and small scale technology schemes in 2011, the large surplus of Large-scale Generation Certificates (LGCs) has for the most part arrested new development. The average LGC price for the year was 9% lower than the prior year. In December 2012 the Climate Change Authority (CCA) released its final report of the RET review to the Commonwealth Government where it recommended no change to target trajectory and proposed quadrennial, rather than biennial, reviews of the legislation to improve investment certainty. Keeping the RET saves costs to consumers, supports the industry and reduces emissions In line with the CCA’s recommendations, Bloomberg’s modelling31 indicated that while reducing the target of the Large-scale RET scheme (LRET) could reduce the scheme’s cost between 2013 and 2020 by $1.9 billion, it would increase electricity prices by $3.2 billion, resulting in a net cost to businesses and households of $1.3 billion. A reduced LRET target would also mean $11.6 billion of lost investment, electricity sector carbon emissions increasing by 28 million tons between 2013 and 2020 and emissions intensity rising by 8 per cent over that period. CAmeron krAmer PerforMance engineering intern “This is my second summer working for Infigen and I have learned more about wind energy than I could have ever imagined. Coming in, I knew nothing about wind turbines, but working in the Performance Engineering team has taught me how the turbines are designed and how the turbines operate on a day-to-day basis. The Performance Engineering team is full of outstanding team members and great mentors that have helped me build a strong foundation for my engineering career. I have thoroughly enjoyed my time here at Infigen and I thank everyone for the tremendous experience.” US Record year for wind installations in the US The US wind energy industry had its strongest year ever in 2012 in terms of new wind installations, making it the global market leader. The US connected over 13.1 GW32 of new wind power capacity. The country now boasts 60 GW of installed wind power capacity. The Federal Production Tax Credit scheme was renewed for new wind farm developments that begin construction prior to the end of 2013, while the Investment Tax Credit for solar development remains in place until December 2016 with healthy demand for solar PV projects under State based renewable portfolio standards. The new build signal for all forms of electricity generation has been weakened by low natural gas prices. But increasing demand, reduced capacity investment, continuing retirement of coal fired power stations and increasing natural gas forward prices are expected to tighten capacity reserves and lift prices in the medium term. This is reflected in independent long term electricity price modelling. 28 Bloomberg New Energy Finance Report, January 2013 29 Global Wind Energy Council Annual Report, April 2013 30 Clean Energy Council Annual Report, March 2013 31 Bloomberg New Energy Finance Report, August 2013 32 Global Wind Energy Council, April 2013 44 | InfIgen energy AnnuAl report 2013 infigen BoarD michael Hutchinson Non-Executive Chairman Mike was appointed an independent non-executive director of Infigen Energy in June 2009 and subsequently elected Chairman on 11 November 2010. He is also Chairman of the Nomination & Remuneration Committee. Mike was formerly an international transport engineering consultant and has extensive experience in the transport and communications sectors, including as a senior official with the Australian Government. Mike is currently an independent non-executive director of the Australian Infrastructure Fund Ltd and Leighton Holdings Ltd. Mike has previously been an independent non-executive director of Epic Energy Holdings Ltd, Hastings Funds Management Ltd, Westpac Funds Management Ltd, Pacific Hydro Ltd, OTC Ltd, HiTech Group Australia Ltd, the Australian Postal Corporation and the Australian Graduate School of Management Ltd. miles george Managing Director Miles is the Managing Director of Infigen Energy and has over 20 years’ experience in business development, investment, financing and management roles in the infrastructure and energy sectors in Australia, the US and Europe. Over the past 13 years Miles has been focused on development, investment, financing and management in the renewable energy industry. Miles undertook a leading role in the development of Infigen’s first wind farm project at Lake Bonney in South Australia, commencing in 2000. In 2003 Miles jointly led the team which established the renewable energy business now known as Infigen Energy. In 2005 Miles jointly led the Initial Public Offer and listing of Infigen’s business on the ASX. Following listing, Miles continued to work on the development, financing and management of Infigen’s wind farm investments in Australia, the US and Europe. He was appointed as Managing Director of Infigen Energy in 2009. Miles holds degrees of Bachelor of Engineering and Master of Business Administration (Distinction) from the University of Melbourne. BoArD | 45 philip green Non-Executive Director Philip was appointed a non-executive Director of Infigen Energy in November 2010 and is a member of the Audit, Risk & Compliance Committee. Philip is a Partner of The Children’s Investment Fund Management (UK) LLP (“TCI”), a substantial securityholder of Infigen Energy. Philip joined TCI in 2007 and his responsibilities include TCI’s global utility, renewable energy and infrastructure investments. Prior to joining TCI, Philip led European Utilities equity research at Goldman Sachs, Merrill Lynch and Lehman Brothers over a 12 year period. Philip is a UK Chartered Accountant (ACA) and has a Bachelor of Science (Hons) in Geotechnical Engineering. fiona Harris Non-Executive Director Fiona was appointed an independent non-executive director of Infigen Energy in June 2011 and is currently Chairman of the Audit, Risk & Compliance Committee. Fiona is also a member of the Nomination & Remuneration Committee. Fiona has been a professional non-executive director for the past eighteen years, during which time she has been a director of organisations across a variety of industry sectors, including utilities, financial services, resources and property, and been involved in a range of corporate transactions. Fiona spent fourteen years with KPMG, working in Perth, San Francisco and Sydney, and specialising in financial services and superannuation. She was also involved in capital raisings, due diligence, IPOs, capital structuring of transactions and litigation support. Fiona is currently Chairman of Barrington Consulting Group and a director of Aurora Oil & Gas Limited, BWP Trust, Sundance Resources Limited and Oil Search Limited. Directorships of listed companies in the past 3 years are Altona Mining Limited and Territory Resources Limited. Fiona holds a Bachelor of Commerce degree and is a Fellow of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. ross rolfe Ao Non-Executive Director Ross was appointed an independent non-executive director of Infigen Energy in September 2011. Ross is a member of the Audit, Risk & Compliance Committee and the Nomination & Remuneration Committee. Ross has broad experience in the Australian energy and infrastructure sectors in senior management, government and strategic roles. In August 2008 Ross was appointed to the position of Chief Executive Officer of Alinta Energy. Ross completed a capital restructuring of the business and stepped down from the CEO and MD role in April 2011. Prior to that appointment, Ross held the position of Director General of a range of Queensland Government Departments, including Premier and Cabinet, State Development, and Environment & Heritage, as well as the position of Co-ordinator General. Ross was also the Chief Executive Officer of Stanwell Corporation, one of Queensland’s largest energy generation companies from 2001 until 2005. Ross is currently a Chairman of WDS Limited and Chairman of CS Energy, a government owned generation company based in Queensland, as well as a non-executive director of CMI Limited. Ross also holds a senior executive role at Lend Lease. 46 | InfIgen energy AnnuAl report 2013 infigen management miles george Managing Director Miles is the Managing Director of Infigen Energy and has over 20 years’ experience in business development, investment, financing and management roles in the infrastructure and energy sectors in Australia, the US and Europe. Over the past 13 years Miles has been focused on development, investment, financing and management in the renewable energy industry. Miles undertook a leading role in the development of Infigen’s first wind farm project at Lake Bonney in South Australia, commencing in 2000. In 2003 Miles jointly led the team which established the renewable energy business now known as Infigen Energy. In 2005 Miles jointly led the Initial Public Offer and listing of Infigen’s business on the ASX. Following listing, Miles continued to work on the development, financing and management of Infigen’s wind farm investments in Australia, the US and Europe. He was appointed as Managing Director of Infigen Energy in 2009. Miles holds degrees of Bachelor of Engineering and Master of Business Administration (Distinction) from the University of Melbourne. Chris Baveystock Chief Financial Officer Chris was appointed Chief Financial Officer of Infigen Energy in March 2011, with responsibility for managing the financial risks of the business while being responsible for financial control and reporting. Additionally, he is also responsible for investor relations and the information technology and facilities functions in Australia. Chris has over 20 years of experience as a finance executive in mergers and acquisitions, acquisition integration, financing, project evaluation and review, bids and tenders, and all facets of financial reporting. His most recent roles were as Chief Financial Officer of the Tenix Group, and subsequently a number of senior finance roles at Transfield Services, including Group Financial Controller. Chris holds a Bachelor of Arts in History from the University of Cambridge with additional certificate as Chartered Accountant from the Institute of Chartered Accountants England & Wales (ICAEW). CrAIg CArson Chief Executive Officer – United States Craig joined Infigen Energy in 2010 and has responsibility for all of Infigen’s activities in the US. Craig has more than 25 years of leadership and senior management experience in the energy industry. Prior to joining Infigen Energy, Craig was Vice President, US Cogeneration at BP Alternative Energy, where he had full profit & loss responsibility for BP’s US Cogeneration business unit. Craig previously was responsible for the engineering, construction, operations and asset management for BP Wind Energy. Prior to joining BP, Craig held senior positions with ConocoPhillips and SkyGen Energy, and served in the US Navy. Craig holds a BS in Mechanical Engineering from the University of Illinois at Chicago and an MBA from Northwestern University’s Kellogg School of Management. mAnAgement | 47 Brad Hopwood Executive General Manager – Corporate Finance Brad is the Executive General Manager – Corporate Finance for Infigen Energy, with responsibility for managing the sources and uses of capital for the business, corporate activity and projects, and the group’s tax function. Brad has worked with Infigen Energy since 2006 and been responsible for tax, structure and corporate finance matters, as well as acquisition and divestment activities. Brad has over 20 years’ experience in advising on, managing and leading local and international structuring, acquisitions, divestments and financing transactions in a range of sectors including renewable energy, conventional electricity generation, infrastructure, telecoms, property and structured finance. Brad holds Bachelor degrees in Economics and Law and a Graduate Diploma of Legal Practice. Brad is also admitted in New South Wales as a (non-practising) Solicitor. sCott tAylor Executive General Manager – Australian Operations Scott is the Executive General Manager of Infigen Energy’s Australian operations, and is a member of Infigen’s Group Executive reporting to the Managing Director. Scott has been is accountable for the operational performance of the assets, commercial performance of the business and continued growth in the Australian energy market since January 2011. Scott previously managed Infigen Energy’s US wind energy business and was also involved in a number of line management, business transition, and strategy development roles both in Australia and the US since late 2006. Prior to joining Infigen Energy Scott has held a number of senior management roles at QR, Tarong Energy, Energex, and Comalco Smelting. Scott is a Graduate and facilitator with the Australian Institute of Company Directors, Fellow of the Risk Management Institute of Australia and Industry Fellow of the University of Queensland (UQ) Business School. Scott holds a Bachelor Degree of Science (UNSW), and post graduate degrees in Information Systems (UC) and Business Administration (UQ). stefan Wright General Counsel Stefan joined Infigen Energy in October 2009 and has been involved in the renewable energy industry in Australia and overseas since 2007. Stefan advises the Infigen Energy Board and senior management team on corporate, legal and transactional matters and is responsible for the group’s legal function. Stefan has previously worked at leading law firms in Sydney and New York and as corporate counsel at an Australian financial services business during the GFC. His skill set includes advising on acquisitions and divestments, joint ventures, financing and capital markets transactions, major projects, restructurings and dispute resolution. Stefan holds Bachelor degrees in Commerce and Law from the University of Adelaide and a Graduate Diploma of Legal Practice. 48 | InfIgen energy AnnuAl report 2013 48 | InfIgen energy AnnuAl report 2013 CorPorate governanCe Statement 49 Introduction – Structure of the Infigen Energy Group 50 ASX Principles and Recommendations 50 ASX Principle 1: Lay Solid Foundations for Management and Oversight 51 ASX Principle 2: Structure the Board to Add Value 53 ASX Principle 3: Promote Ethical and Responsible Decision-Making 54 ASX Principle 4: Safeguard Integrity in Financial Reporting 55 ASX Principle 5: Make Timely and Balanced Disclosure 55 ASX Principle 6: Respect the Rights of Shareholders 56 ASX Principle 7: Recognise and Manage Risk 57 ASX Principle 8: Remunerate Fairly and Responsibly CORPORATE STRuCTuRE CORPORATE GOVERNANCE STATEMENT | 49 The Infigen Energy group (Infigen) consists of the following entities: Infigen Energy Limited (IEL), a public company incorporated in Australia; Infigen Energy Trust (IET), a managed investment scheme registered in Australia; Infigen Energy (Bermuda) Limited (IEBL), a company incorporated in Bermuda; and the subsidiary entities of IEL and IET. One share in each of IEL and IEBL and one unit in IET have been stapled together to form a single stapled security, tradable on the Australian Securities Exchange under the ‘IFN’ code. Infigen Energy RE Limited (IERL) is the Responsible Entity of IET. The current stapled structure of the Infigen Energy group was established immediately prior to listing on the Australian Securities Exchange in 2005 and currently cannot be materially simplified due to provisions of Infigen’s corporate debt facility (Global Facility). IEBL was established and included in Infigen’s stapled structure in 2005 to provide flexibility regarding potential investment ownership structures. IEBL has not been utilised for that purpose since it was established and Infigen aims to wind-up this entity when it is cost effective to do so. The following diagram represents the structure of the Infigen Energy group, including the entities and assets within the Global Facility borrower group. INfIGEN ENERGy SECuRITyhOLdERS units INfIGEN ENERGy TRuST Stapled Securities Shares INfIGEN ENERGy LIMITEd Shares INfIGEN ENERGy (bERMudA) LIMITEd Responsible Entity INfIGEN ENERGy RE LIMITEd INfIGEN ENERGy hOLdINGS PTy LIMITEd OPERATING wINd fARMS wOOdLAwN wINd fARM dEVELOPMENT ASSETS Entities and assets within the Global Facility borrower group. The wholly-owned subsidiaries of Infigen that are entitled to returns, including cash distributions, from the US institutional equity partnerships (IEPs) are included within the Global Facility borrower group, but the IEPs, which are not wholly owned, are not members of that group. 50 | INfIGEN ENERGy ANNuAL REPORT 2013 CORPORATE GOVERNANCE STATEMENT CONTINuEd Interaction between the roles of IEL, IEBL and IERL The Boards of IEL, IEBL and IERL (the IFN Boards) are responsible for the governance and management of Infigen. The IEL Board, in consultation and agreement with the IEBL and IERL Boards, formulates and approves the strategic direction, investment objectives and goals of Infigen in accordance with the terms of the stapling deed of 16 September 2005 (Stapling Deed). In practice, IEL was responsible for conducting the day-to-day operations of Infigen during the year. IEL will continue to consult and exchange information with and seek the agreement of IEBL and IERL when making relevant decisions in relation to Infigen. The Stapling Deed sets out the details of the relationship between IEL, IEBL and IERL in respect of Infigen. The Stapling Deed provides, to the extent permitted by law, for co-operation and alignment between these entities. It is by operation of the Stapling Deed that the Boards of IEL, IEBL and IERL are together responsible for overseeing the rights and interests of securityholders in Infigen, as well as being accountable to securityholders for the overall corporate governance and management of Infigen. ASX Principles and Recommendations The ASX Corporate Governance Council (ASX CGC) has issued a guideline setting out corporate governance Principles and Recommendations. The ASX Listing Rules require listed entities to include a statement in their annual report disclosing the extent to which they have followed the Principles and Recommendations within the ASX CGC guideline during the reporting period. This Corporate Governance Statement is structured with reference to the second edition of the ASX CGC guideline released on 30 June 2010. Infigen has complied with the Principles and Recommendations within the ASX CGC guideline during the 2013 financial year. Relevant information required to be included in this Statement by the ASX CGC guideline has also been included. ASX Principle 1: Lay solid foundations for management and oversight Companies should establish and disclose the respective roles and responsibilities of Board and management. Recommendation 1.1: Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. The IFN Boards have each adopted a formal Board Charter which details the functions and responsibilities of the relevant Board and distinguishes such functions and responsibilities from those which have been delegated to management. Such delegation is non-exclusive. The Board Charters are reviewed by the IFN Boards annually. A summary of the Board Charters is available in the Corporate Governance section on Infigen’s website at www.infigenenergy.com. In acquitting their responsibilities, the Boards, amongst other things: evaluate and approve material capital expenditure, contribute to and approve Infigen’s corporate strategy; acquisitions, divestitures and other material corporate transactions of Infigen; approve material Infigen policies, including Infigen’s Code of Conduct, Work Health and Safety Policy, Conflicts of Interest Policy, Securities Trading Policy, Continuous Disclosure Policy, Diversity Policy and Risk Management Policy; approve the annual Infigen budget and all accounting policies, financial reports and material reporting by Infigen; approve the appointment or removal of the Chief Executive Officer (CEO); develop a succession plan for the CEO, and review succession plans for other senior managers; monitor the performance of the business and management team, in particular, the CEO and other key management personnel; consider recommendations of Board Committees, such as the Audit, Risk & Compliance Committee and Nomination & Remuneration Committee; determine Infigen’s distribution policy; approve the appointment and terms of appointment of the external auditor; consider, approve and monitor the effectiveness of Infigen’s overall risk management and control framework, including through regular reporting to the Board from the Audit, Risk & Compliance Committee and regular updates (as required) from management on significant risk issues; review the performance and effectiveness of Infigen’s corporate governance policies and procedures and consider any amendments to those policies and procedures; monitor Infigen’s compliance with ASX continuous disclosure requirements; subject to the constituent document of the relevant Infigen entity, approve the appointment of Directors to the relevant Board and members to Committees established by the Board; and at least annually, review and evaluate the performance and effectiveness of the Boards, each Board Committee and each individual Director against the relevant charters, corporate governance policies and agreed goals and objectives of Infigen. The Boards have delegated detailed review and consideration of some of these responsibilities to their respective Committees (refer Principle 2). The Board Charters also set out the specific powers and responsibilities of the Chair and the CEO (refer Principle 2). CORPORATE GOVERNANCE STATEMENT | 51 ASX Principle 2: Structure the Board to add value Companies should have a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. Structure of the board Recommendation 2.1: a majority of the board should be Independent directors. The size and composition of each of the IFN Boards is determined in accordance with the Constitution of the relevant entity, the size and operations of the group and relevant corporate governance standards. It is intended that each of the IFN Boards will comprise Directors with a diverse range of skills, expertise and experience. With reference to the criteria set out in Recommendation 2.1, the IFN Boards have assessed the independent status of each Director. The IFN Boards comprised a majority of Independent Directors throughout the 2013 financial year. There are three Independent Directors and two Non-Independent Directors currently on each of the IFN Boards. When reviewing the independence of a Director who may have a separate contractual relationship with Infigen and/or is an affiliate of a business that has a contractual relationship with IEL, the materiality threshold to be applied to the cost or fees for the good or service being provided is 5% of the revenue of IEL for the prior financial year. During the financial year and up to the date of this report, the Directors of Infigen and their respective appointment dates to the IFN Boards are set out in the table below. Each IFN Board acts independently in exercising its separable responsibilities for each entity. Where there are joint responsibilities the Boards co-operate as provided for in the Stapling Deed. Where appropriate, this is given effect by concurrent Board and Committee meetings to address relevant matters. The Board Charters also include an outline of the responsibilities of each Director. To assist Directors understand Infigen’s expectations of them, all Non-Executive Directors have entered into formal letters of appointment and been provided with copies of relevant Board Charters and policies. Similarly, senior executives, including the CEO and Chief Financial Officer (CFO), have formal letters of employment governing their rights and responsibilities as executives within the Infigen group. Recommendation 1.2: companies should disclose the process for evaluating the performance of senior executives. The Nomination & Remuneration Committee of the IEL Board has the primary responsibility for setting the key performance indicators against which the performance of the CEO and other senior managers are evaluated. At the commencement of the 2013 financial year (and at other relevant times for new senior managers), individual key performance indicators were set for senior managers against which their performance would be evaluated. The key performance indicators included a mix of business performance measures and personal performance measures for each senior manager. At the mid-year and at the conclusion of the financial year, the review of the performance of senior managers is initially undertaken by the CEO and recommendations made to the Nomination & Remuneration Committee. The Nomination & Remuneration Committee undertakes a review of the performance of the CEO and considers the recommendations from the CEO regarding the performance of senior managers. The outcome of the Committee’s review is then reported through to the IEL Board. The Remuneration Report within the Directors’ Report sets out Infigen’s remuneration framework, including the key performance conditions that are assessed in determining the remuneration of the CEO and other senior managers. Appointment Dates Current Directors Position M Hutchinson Independent Chair IEL Board 18 Jun 2009 IEBL Board 18 Jun 2009 IERL Board 18 Jun 2009 P Green F Harris R Rolfe AO M George Non-Executive Director1 18 Nov 2010 18 Nov 2010 18 Nov 2010 Independent Non-Executive Director 21 Jun 2011 21 Jun 2011 21 Jun 2011 Independent Non-Executive Director Executive Director2 9 Sep 2011 1 Jan 2009 9 Sep 2011 1 Jan 2009 9 Sep 2011 1 Jan 2009 1 Mr Green is a Partner of The Children’s Investment Fund Management (UK) LLP which has a substantial shareholding of IFN securities. 2 Mr George is Managing Director and Chief Executive Officer of Infigen. 52 | INfIGEN ENERGy ANNuAL REPORT 2013 CORPORATE GOVERNANCE STATEMENT CONTINuEd Throughout the financial year, the Independent Directors or Non-Executive Directors have met to consider relevant matters, as appropriate, in the absence of Non-Independent Directors or the Executive Director, respectively. Directors are entitled to seek independent professional advice, collectively or on an individual basis (including, but not limited to, legal, accounting and financial advice), at Infigen’s expense on any matter connected with the discharge of their responsibilities, in accordance with the procedures set out in the Board Charters. Each individual Director is subject to re-election from time to time in accordance with the ASX Listing Rules and the respective Constitutions and Bye-Laws of IEL, IERL and IEBL. Recommendation 2.2: The chair should be an Independent director. The Chair of each of the IFN Boards throughout the financial year was an Independent Director. Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same individual. Throughout the financial year, the roles of Chair and CEO were exercised by different people for Infigen. At no stage was the Chair a former CEO of Infigen or any related party of Infigen. Nomination Committee Recommendation 2.4: The Board should establish a nomination committee. The IEL Board established a Nomination & Remuneration Committee in February 2007. In addition to its remuneration and general human resource responsibilities, that Committee is responsible for reviewing the composition of the Boards and their Committees, as well as reviewing the performance of the Boards, their Committees and individual Directors. The Committee met six times throughout the 2013 financial year. The members of the Committee and their attendance at Committee meetings are outlined in the Directors’ Report. The Committee was composed of three Independent Directors throughout the financial year. The Committee sought advice from independent advisers, as necessary. The Nomination & Remuneration Committee Charter sets out the Committee’s roles and responsibilities, composition, membership requirements and operational procedures. A summary of the Charter is available in the Corporate Governance section on Infigen’s website. The Charter is reviewed annually by the Committee and the Board. The IEL Nomination & Remuneration Committee will from time to time carry out, on behalf of IEBL and IERL, similar activities as the Committee is authorised by its Charter to carry out for IEL. Accordingly, the IEL Nomination & Remuneration Committee will provide advice and recommendations regarding relevant nomination and remuneration matters to the Boards of IEBL and IERL. It is intended that the Boards of IEBL and IERL may rely on those activities, advice and recommendations as if the IEL Nomination & Remuneration Committee was a committee of the IEBL and IERL Boards. From time to time the Nomination & Remuneration Committee assesses the relevant skills and experience of Directors to determine whether it would be of benefit and appropriate for the Infigen group to appoint an additional Director(s) to the IFN Boards. The practice of the Nomination & Remuneration Committee in relation to any search for additional Directors has involved an initial assessment of the skills and experience of the then current Directors on the IFN Boards and any of those skill and experience areas that required strengthening and/or complementing. The practice of the Committee has been to engage an external recruitment adviser to undertake a search on behalf of the IFN Boards, including focusing on candidates with energy industry and financial expertise. Candidates were short-listed by the external recruitment adviser in conjunction with the IFN Boards, interviewed initially by the external recruitment adviser and subsequently by the then current IFN Board Directors, followed by further referee and background reviews undertaken by the external recruitment adviser. It is expected that a similar nomination and appointment process would be followed for any additional IFN Board Directors. The Nomination & Remuneration Committee would also assess any Director nominations from substantial securityholders. The skills, experience and areas of expertise of the current IFN Board Directors that are relevant to Infigen are set out in the table below. The IFN Boards are aiming to achieve a mix of skills and experience relating to the energy industry and associated areas of infrastructure, financing and government and regulatory affairs. Directors Skills, experience, areas of expertise M Hutchinson Engineering, communications, transportation, P Green F Harris R Rolfe AO public policy and administration, regulation, infrastructure, energy networks, wind energy, asset sales Engineering, accounting, corporate finance, global utilities, renewable energy and infrastructure Commerce, accounting, mergers & acquisitions, governance, energy utilities (including generation), transmission, distribution and retail Energy generation (including renewable generation), development and financing, government, energy retail, infrastructure, resources, manufacturing M George Engineering, renewable energy development, financing, infrastructure CORPORATE GOVERNANCE STATEMENT | 53 The Code of Conduct requires Directors and employees, among other things, to: avoid conflicts of interest between their personal interests and those of Infigen and its securityholders; not take advantage of opportunities arising from their position for personal gain or in competition with Infigen; and comply with corporate policies. Infigen encourages ethical behaviour and provides protection for those who report any actual or potential breach of legal requirements, the Code of Conduct or other Infigen policies. A summary of the Code of Conduct is available in the Corporate Governance section on Infigen’s website. A copy of Infigen’s Securities Trading Policy is available in the Corporate Governance section on Infigen’s website. diversity Policy Recommendation 3.2: companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them. The IFN Boards have adopted a Diversity Policy which includes requirements for Infigen to establish measurable objectives for achieving gender diversity and to assess annually both the objectives and progress in achieving them. During preparation of the policy, the Board and management actively sought input from all employees to help define the meaning and value of diversity as it related to Infigen. At Infigen, we respect those differences that people bring to the organisation that have an influence on individual identities and perspectives, including gender, ethnicity, religious beliefs, age, sexuality, disability and family responsibilities. We aim to promote a culture that encourages diversity, where our employees benefit from exchanging ideas and learning from each other in order to capture the benefits of diverse backgrounds, experiences and perspectives. A summary of the Diversity Policy is available in the Corporate Governance section on Infigen’s website. Recommendation 3.3: companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. The Diversity policy includes requirements for Infigen to establish measurable objectives for achieving diversity, including gender diversity. The measurable objectives for achieving gender diversity and the progress towards achieving those objectives are included in the Sustainability Report within the Annual Report. Recommendation 3.4: companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. The relevant information for Infigen is included in the Sustainability Report within the Annual Report. Recommendation 2.5: companies should disclose the process for evaluating the performance of the Board, its committees and individual directors. The Nomination & Remuneration Committee engaged an independent consultant firm to undertake a Board effectiveness review in the first half of the 2013 financial year. The review involved an assessment of the following key elements of Board effectiveness: engagement alignment; dynamic and culture. strategic direction and alignment; composition and structure; and The conduct of the review involved: direct interaction with each member of the Board through the completion of surveys and face to face interviews; direct interaction with the senior management team consisting of the Chief Financial Officer, Chief Operating Officer, Company Secretary, GM Corporate Finance, General Counsel, GM Australian Operations and the CEO of the US Business through the completion of surveys and face to face interviews; comparison of the Infigen governance structure against the Board structure of organisations with comparable market capitalisation/revenues; and reference to the independent consultant’s own insights and knowledge of best practices adopted by the Boards of leading organisations. The overall assessment of the IFN Board effectiveness was positive. The review identified a number of areas of strength and also some areas for development that are now focus areas for the Board, such as a greater emphasis on Board and senior management succession planning and Board meeting focus. It is Board and Committee practice that individual Directors do not participate in the review of their own performance, nor participate in any vote regarding their election, re-election or Committee membership. In relation to Directors who are due for re-election at the Annual General Meeting, the Nomination & Remuneration Committee considers the performance of the relevant Directors and provides a recommendation to the IEL and IEBL Boards. ASX Principle 3: Promote ethical and responsible decision‑making Companies should actively promote ethical and responsible decision‑making Code of Conduct Recommendation 3.1: companies should establish a code of conduct and disclose the code or a summary of the code as to: the practices necessary to maintain confidence in the company’s integrity the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. The IFN Boards have adopted a formal Code of Conduct which is designed to ensure that high standards of professional and ethical behaviour are observed by all Directors and employees in relation to Infigen’s activities. 54 | INfIGEN ENERGy ANNuAL REPORT 2013 CORPORATE GOVERNANCE STATEMENT CONTINuEd All Committee members possessed the requisite financial expertise and experience necessary to undertake the responsibilities of the Audit, Risk & Compliance Committees. All members have an understanding of the energy industry and extensive accounting/finance knowledge and experience. Further details of the experience and qualifications of each Committee member are set out in the Directors’ Report. Recommendation 4.3: The audit committee should have a formal charter. The IFN Boards have adopted a Charter for each of the Audit, Risk & Compliance Committees that sets out the role and responsibilities, composition, structure, membership requirements and other relevant procedures for the Committees. A summary of the Charter is available in the Corporate Governance section on Infigen’s website. The Committees meet periodically and report to the IFN Boards following each Committee meeting, including in respect of recommendations of the Committees that require IFN Board consideration. Audit Governance Infigen’s external auditor is PricewaterhouseCoopers, appointed by securityholders at the 2006 Annual General Meeting. The IFN Boards have a policy whereby the responsibilities of each of the lead audit engagement partner and review audit partner cannot be performed by the same people for a period in excess of five consecutive years. The PricewaterhouseCoopers lead audit engagement partner for the 2013 financial year was Darren Ross and the current audit review partner is Michael O’Donnell. Mr Ross has now performed five consecutive years as lead audit engagement partner. Marc Upcroft has now commenced as lead audit engagement partner for the 2014 financial year. The external auditor routinely attends Audit, Risk & Compliance Committee meetings. Periodically, the Committees meet with the external auditor without management being present, and the Committees also meet with management without the external auditor being present. The Chair of the Committee liaises with the auditor outside formal meetings, as necessary. Committee members are able to contact the external auditor directly at any time. Certification and discussions with the external auditor on independence The Audit, Risk & Compliance Committees require that the external auditor confirm each half year that it has maintained its independence and has complied with applicable independence standards. The Committees annually review the independence of the external auditor and notify this assessment to the IFN Boards. A copy of the external auditor’s annual certification of independence is set out in the Annual Report. ASX Principle 4: Safeguard integrity in financial reporting Companies should have a structure to independently verify and safeguard the integrity of their financial reporting Audit, Risk & Compliance Committee Recommendation 4.1: The board should establish an audit committee. The IFN Boards have each established an Audit, Risk & Compliance Committee. In practice the Committees generally hold concurrent meetings. The IFN Boards have delegated the responsibility for overseeing the establishment and maintenance of Infigen’s system of internal control to the Audit, Risk & Compliance Committees. The Committees oversee the financial reporting process, the systems of internal control and risk management, the audit process and Infigen’s processes for monitoring compliance with laws and regulations. The Audit, Risk & Compliance Committees oversee the implementation of the system of risk management at Infigen, ensuring that management has a process in place so that risks are identified, assessed and properly managed. The Committees also monitor compliance by Infigen with its various licensing and other obligations, including specific obligations associated with managed investment scheme requirements. On behalf of the IFN Boards, the Committees review the performance of the external auditor and monitor any non-audit services proposed to be provided to Infigen by the external auditor to ensure external audit independence is maintained. Recommendation 4.2: The audit committee should be structured so that it: consists only of non-executive directors consists of a majority of independent directors is chaired by an independent chair, who is not the chair of the board has at least three members. Throughout the 2013 financial year, each Audit, Risk & Compliance Committee of the IFN Boards comprised only Non-Executive Directors, with a majority being Independent Directors. The Chair of the Committees was not the Chair of the IFN Boards. At the date of this report, each Committee comprises three Non-Executive Directors, with two being Independent Directors. The non-independent Director on the Committee is a nominee of a substantial securityholder. In the interests of a separation of roles and having regard to the size of the IFN Boards and to skills and experience, it was preferred to have a non-independent Director on the Committee than having the Board Chairman continue to serve on the Committee. Further, the IFN Boards assess Audit, Risk & Compliance Committee outcomes carefully to ensure that they are in the interest of the Infigen group as a whole, and as such no issues in that respect have arisen. The Board Chairman nonetheless attends certain Committee meetings as an observer, at the invitation of the Committee Chair where that may facilitate interaction between the Committee and the Board. There were five formal Audit, Risk & Compliance Committee meetings held during the 2013 financial year. The attendance of Committee members at meetings is set out in the Directors’ Report. CORPORATE GOVERNANCE STATEMENT | 55 ASX Principle 6: Respect the rights of shareholders Companies should respect the rights of shareholders and facilitate the effective exercise of those rights. Communications with Shareholders Recommendation 6.1: companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Infigen has a formal Communications Policy that aims to promote effective communication with all stakeholders. A summary of the policy is available in the Corporate Governance section on Infigen’s website. An extensive program of information is made available to securityholders and potential investors throughout the year, including via ASX/market releases, direct mailing, electronic alerts, briefings, presentations and via Infigen’s website. Consistent with Infigen’s Continuous Disclosure Policy, Infigen is committed to communicating with its securityholders effectively and promptly to provide ready access to information relating to Infigen. Infigen’s website (www.infigenenergy.com) provides access to information for securityholders and other potential investors, including: the Board, management and corporate governance framework and policies; the portfolio of operating assets and development pipelines; copies of all market announcements and media releases from Infigen; Annual Reports, other half and full year financial reporting, and relevant investor information regarding distributions and taxation; information regarding sustainability and renewable energy, including our commitment to safety, the environment and the communities in which we participate; a link to the website of Infigen’s security registry, Link Market Services Limited; and a subscriber facility where participants receive updated information alerts regarding Infigen. Infigen encourages securityholders to utilise its website as their primary tool to access securityholder information and disclosures. In addition, the Annual Report facilitates the provision to securityholders of detailed information in respect of the major achievements, financial results and strategic direction of Infigen. Advance notice of significant group briefings and details regarding the various methods to access and participate in these briefings are circulated broadly. Records are kept in relation to investor and analyst briefings. Securityholders are encouraged to attend and participate in general meetings of Infigen, particularly the Annual General Meeting. Infigen provides securityholders with details of proposed meetings and meeting materials well in advance of the relevant dates. Infigen’s external auditor attends the Annual General Meeting and is available to answer securityholder questions regarding the conduct of the external audit and the preparation and content of the auditor’s report. This allows securityholders an opportunity to ask questions of the auditor and reinforces the auditor’s accountability to securityholders. Restrictions on non‑audit services by the external auditor The external auditor is not permitted to carry out certain types of non-audit services for Infigen, including: bookkeeping or other services relating to the accounting records or financial statements; appraisal or valuation services; secondments to management positions; internal audit of financial controls; internal control design or implementation; implementation or design of financial information systems or other information technology systems; legal or litigation support services; and strategic or structural tax planning. For all other non-audit services, any use of the external audit firm must be pre-approved by the Audit, Risk & Compliance Committees, or by delegated authority to a sub-committee consisting of one or more members of the Committee, where appropriate. The breakdown of the aggregate fees invoiced by the external auditor in respect of each of the two most recent financial years for audit and other services is provided in Note 9 accompanying the Financial Statements in the Annual Report. ASX Principle 5: make timely and balanced disclosure Companies should promote timely and balanced disclosure of all material matters concerning the company. Continuous disclosure Policy Recommendation 5.1: companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Infigen has adopted a Continuous Disclosure Policy which is periodically reviewed. That policy seeks to ensure that all securityholders and potential investors have equal and timely access to material information concerning Infigen unless it falls within the scope of the exemptions contained in Listing Rule 3.1A. The IFN Boards are actively and routinely involved in discussing disclosure obligations and reviewing disclosure material in respect of significant Infigen matters. Each Board meeting includes explicit consideration of any potentially disclosable information. The Company Secretary is primarily responsible for communications with the ASX and for overseeing and maintaining the Continuous Disclosure Policy. A summary of the Continuous Disclosure Policy is available in the Corporate Governance section on Infigen’s website. From time to time Infigen conducts analyst and investor briefings and in these situations the following protocols apply: no price sensitive information will be disclosed at those briefings unless it has been previously, or is simultaneously, released to the market; questions at these briefings that relate to price sensitive information not previously disclosed will be answered only through an appropriate ASX/market announcement; and if any price sensitive information is inadvertently disclosed, it will be immediately released to the ASX/market and placed on Infigen’s website. 56 | INfIGEN ENERGy ANNuAL REPORT 2013 CORPORATE GOVERNANCE STATEMENT CONTINuEd ASX Principle 7: Recognise and manage risk Companies should establish a sound system of risk oversight and management and internal control. Recommendation 7.1: companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. Infigen has adopted a Risk Management Policy consistent with International Standard ISO 31000. Infigen is committed to ensuring that its system of risk oversight, management and internal control is consistent with its business strategy and sound commercial practice. Infigen aims to ensure its culture and processes facilitate realisation of Infigen’s business objectives in tandem with appropriate identification and management of business risks. In relation to occupational health and safety risks, Infigen has established regional safety and sustainability committees to ensure implementation of appropriate safety procedures and a system of ongoing environmental and safety improvement programs. In particular, the IFN Boards and management aim to promote an internal culture whereby the health and safety of employees, contractors and visitors to Infigen offices and asset sites is paramount. The IFN Boards are ultimately responsible for overseeing and managing the material risks of Infigen. The Audit, Risk & Compliance Committees assist the Boards in this role. In accordance with their Charters, the role of the Audit, Risk & Compliance Committees includes reviewing the system for identifying, managing and monitoring the key risks of Infigen and obtaining reports from the Risk Manager and other senior managers regarding the status of any key risk exposures or incidents. This enables the Committees to ensure the IFN Boards are informed of all material business risks. The Audit, Risk & Compliance Committees have also implemented a robust internal audit program. A summary of Infigen’s Risk Management Policy is available in the Corporate Governance section on Infigen’s website. Recommendation 7.2: The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. Infigen’s Risk Manager is responsible for the ongoing development and maintenance of an Enterprise Risk Management (ERM) framework consistent with International Standard ISO 31000. The Audit, Risk & Compliance Committees receive routine and exception reports on material business risks. The Risk Management Policy and ERM framework define the processes and responsibilities for managing business risks. As part of the ERM framework, senior management prepare and maintain functional risk registers. A principal aim of the ERM framework is to engage management to accept direct accountability for the identification and management of the business risks and the corresponding internal controls within their areas of responsibility. Senior managers regularly monitor the effectiveness of the controls implemented to manage the business risks identified. To ensure ongoing promotion of an ERM focused culture within Infigen, an Enterprise Risk Management Committee was established in 2012. This is a management committee that meets more regularly than the Audit, Risk & Compliance Committee of the Board. The Committee assesses Infigen’s material risks at an enterprise level as well as conducting regular reviews of risk management policies, registers and procedures. The material risks for Infigen’s business, including operational, financial and strategic risks, are identified within the overarching Top Risks register for the group. This Top Risks register is populated by an assessment of the business risks identified within the functional risk registers, project specific registers (e.g. construction projects) and site specific risk registers for operating assets. These material business risks are actively monitored and managed. In consultation with relevant functional managers, the Top Risks register is updated by the Risk Manager and reviewed by the Enterprise Risk Management Committee at each meeting. The updated risk register is subsequently reported to and reviewed by the Audit, Risk & Compliance Committees. This process involves confirmation of the effectiveness of Infigen’s management of its material business risks. CORPORATE GOVERNANCE STATEMENT | 57 Internal Audit The IFN Boards have overall responsibility for Infigen’s systems of internal control, supported by the Audit, Risk & Compliance Committees and management. The IFN Boards and Committees are assisted by Infigen’s Internal Audit function in assessing the adequacy of the internal control system. The Audit, Risk & Compliance Committees have adopted a Charter for the Internal Audit function. On an annual basis, and following a risk-based assessment of the group, the Internal Audit Manager prepares and presents an Internal Audit plan to the Audit, Risk & Compliance Committees. The annual Internal Audit plan aims to review the adequacy and effectiveness of the relevant internal control systems identified in the plan. Following completion of each Internal Audit review undertaken throughout the year, the Internal Audit Manager presents a report of the findings and recommendations at the subsequent meeting of the Audit, Risk & Compliance Committees. The Internal Audit Manager regularly liaises with the external auditor and also provides copies of Internal Audit reports to the external auditor. Recommendation 7.3: The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the corporations act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The CEO and CFO have provided written assurance to the IFN Boards that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks during the 2013 financial year. The written assurance is based on senior management reviews and sign-off, as well as enquiry by the CEO and CFO as appropriate. ASX Principle 8: Remunerate fairly and responsibly Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear. Information regarding the policies and principles which are applied to determine the nature and amount of remuneration paid to the Directors and management of Infigen are set out in detail in the Remuneration Report. Remuneration Committee Recommendation 8.1: The Board should establish a remuneration committee. The IEL Board has established a Nomination & Remuneration Committee. The Committee met six times throughout the 2013 financial year. The members of the Nomination & Remuneration Committee and their attendance at Committee meetings are listed in the Directors’ Report. The IEL Board has adopted a Charter for the Nomination & Remuneration Committee that sets out the Committee’s roles and responsibilities, composition, membership requirements and operational procedures. A summary of the Charter is available in the Corporate Governance section on Infigen’s website. Further information regarding the responsibilities of the Committee is outlined in the response to Recommendation 2.4. consists of a majority of independent directors is chaired by an independent chair Recommendation 8.2: The remuneration committee should be structured so that it: has at least three members. Throughout the 2013 financial year, the IEL Nomination & Remuneration Committee was composed solely of three Independent Directors and was therefore chaired by an Independent Director. Recommendation 8.3: companies should clearly distinguish the structure of non-Executive directors’ remuneration from that of Executive directors and senior executives. The remuneration structure and amounts paid to Non-Executive Directors, the Managing Director and senior executives for the 2013 financial year are set out in detail in the Remuneration Report. Non-Executive Directors are not provided with retirement benefits, other than statutory superannuation, and do not receive options or other equity incentives or bonus payments. The Securities Trading Policy prohibits employees entering into financial arrangements that limit the economic risk of an employee’s holding of vested or unvested IFN securities, options over IFN securities, or performance rights associated with IFN securities. 58 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT In respect of the year ended 30 June 2013, the Directors submit the following report for the Infigen Energy group (Infigen). directors The following people were Directors of Infigen Energy Limited (IEL), Infigen Energy (Bermuda) Limited (IEBL) and Infigen Energy RE Limited (IERL) in its capacity as responsible entity of the Infigen Energy Trust (IET), during the whole of the financial year and up to the date of this report: Michael Hutchinson Philip Green Fiona Harris Ross Rolfe AO Miles George further Information on directors The particulars of the Directors of Infigen at or since the end of the financial year and up to the date of the Directors’ Report are set out below. Name Particulars Michael Hutchinson Non‑Executive Chairman of IEL, IEBL and IERL Appointed to IEL, IEBL and IERL on 18 June 2009 Chairman of the Nomination & Remuneration Committee Mike was appointed an independent non-executive director of Infigen Energy in June 2009 and subsequently elected Chairman in November 2010. He is also Chairman of the Nomination & Remuneration Committee. Mike was formerly an international transport engineering consultant and has extensive experience in the transport and communications sectors, including as a senior official with the Australian Government. Mike is currently an independent non-executive director of the Australian Infrastructure Fund Ltd and Leighton Holdings Limited. Mike has previously been an independent non-executive director of EPIC Energy Holdings Ltd, Hastings Funds Management Ltd, Westpac Funds Management Ltd, Pacific Hydro Ltd, OTC Ltd, HiTech Group Australia Ltd, the Australian Postal Corporation and the Australian Graduate School of Management Ltd. Fiona Harris Non‑Executive Director of IEL, IEBL and IERL Appointed to IEL, IEBL and IERL on 21 June 2011 Chairman of the Audit, Risk & Compliance Committee Member of the Nomination & Remuneration Committee Fiona was appointed as an independent non-executive director of Infigen Energy in June 2011 and is currently Chairman of the Audit, Risk & Compliance Committee. Fiona is also a member of the Nomination & Remuneration Committee. Fiona has been a professional non-executive director for the past 18 years, during which time she has been a director of organisations across a variety of industry sectors, including utilities, financial services, resources and property, and been involved in a range of corporate transactions. Fiona spent 14 years with KPMG, working in Perth, San Francisco and Sydney, and specialising in financial services and superannuation. Fiona was also involved in capital raisings, due diligence, IPOs, capital structuring of transactions and litigation support. Fiona is currently Chairman of Barrington Consulting Group and a director of Aurora Oil & Gas Limited, BWP Trust, Sundance Resources Limited and Oil Search Limited. Prior directorships of listed companies in the past 3 years are Altona Mining Limited and Territory Resources Limited. Fiona holds a Bachelor of Commerce degree and is a Fellow of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. Philip Green Non‑Executive Director of IEL, IEBL and IERL Appointed to IEL, IEBL and IERL on 18 November 2010 Member of the Audit, Risk & Compliance Committee Philip was appointed a non-executive director of Infigen Energy in November 2010 and is a member of the Audit, Risk & Compliance Committee. Philip is a Partner of The Children’s Investment Fund Management (UK) LLP (TCI), a substantial securityholder of Infigen Energy. Philip joined TCI in 2007 and his responsibilities include TCI’s global utility, renewable energy and infrastructure investments. Prior to joining TCI, Philip led European Utilities equity research at Goldman Sachs, Merrill Lynch and Lehman Brothers over a 12 year period. Philip is a UK Chartered Accountant (ACA) and has a Bachelor of Science (Hons) in Geotechnical Engineering. dIRECTORS’ REPORT | 59 Name Particulars Ross Rolfe AO Non‑Executive Director of IEL, IEBL and IERL Appointed to IEL, IEBL and IERL on 9 September 2011 Member of the Audit, Risk & Compliance Committee Member of the Nomination & Remuneration Committee Ross was appointed an independent non-executive director of Infigen Energy in September 2011. Ross is a member of the Audit, Risk & Compliance Committee and the Nomination & Remuneration Committee. Ross has broad experience in the Australian energy and infrastructure sectors in senior management, government and strategic roles. In August 2008 Ross was appointed to the position of Chief Executive Officer of Alinta Energy. Ross completed a capital restructuring of the business and stepped down from the CEO and MD role in April 2011. Prior to that appointment, Ross held the position of Director General of a range of Queensland Government Departments, including Premier and Cabinet, State Development, and Environment & Heritage, as well as the position of Co-ordinator General. Ross was also the Chief Executive Officer of Stanwell Corporation, one of Queensland’s largest energy generation companies from 2001 until 2005. Ross is currently a Chairman of WDS Limited and Chairman of CS Energy, a government owned generation company based in Queensland, as well as a non-executive director of CMI Limited. Ross also holds a senior executive role at Lend Lease. Miles George Executive Director of IEL, IEBL and IERL Appointed to IEL, IEBL and IERL on 1 January 2009 Miles is the Managing Director of Infigen Energy and has over 20 years’ experience in business development, investment, financing and management roles in the infrastructure and energy sectors in Australia, the US and Europe. Over the past 13 years Miles has been focused on development, investment, financing and management in the renewable energy industry. Miles undertook a leading role in the development of Infigen’s first wind farm project at Lake Bonney in South Australia, commencing in 2000. In 2003 Miles jointly led the team which established the renewable energy business now known as Infigen Energy. In 2005 Miles jointly led the Initial Public Offer and listing of Infigen’s business on the ASX. Following listing, Miles continued to work on the development, financing and management of Infigen’s wind farm investments in Australia, the US and Europe. Miles was appointed as Managing Director of Infigen Energy in 2009. Miles holds degrees of Bachelor of Engineering and Master of Business Administration (Distinction) from the University of Melbourne. directors’ Interests in IfN Stapled Securities One share in each of IEL and IEBL and one unit in IET have been stapled together to form a single stapled security, tradable on the Australian Securities Exchange under the ‘IFN’ code. IERL is the Responsible Entity of IET. The table below lists the current and former Directors of IEL, IEBL and IERL during the financial year as well as showing the relevant interests of those Directors in IFN stapled securities during the financial year. Directors Role M Hutchinson Independent Chairman F Harris P Green1 R Rolfe AO M George Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director Executive Director IFN Stapled Securities Held Balance 1 July 2012 110,000 100,000 0 0 650,000 Acquired during the year 82,500 0 0 0 0 Sold during the year 0 0 0 0 0 Balance 30 June 2013 192,500 100,000 0 0 650,000 1 P Green is a Partner of The Children’s Investment Fund Management (UK) LLP which has a substantial shareholding of IFN securities. Mr Green has advised Infigen that he does not have a relevant interest in those IFN securities. 60 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT CONTINuEd directors’ Meetings The number of Infigen Board meetings and meetings of standing Committees established by the Infigen Boards held during the year ended 30 June 2013, and the number of meetings attended by each Director, are set out below. Board Meetings Committee Meetings IEL IERL IEBL Audit, Risk & Compliance IEL Nomination & Remuneration Directors M Hutchinson F Harris P Green R Rolfe AO M George A 13 13 13 13 13 B 13 13 13 13 13 A 8 8 8 8 8 B 8 8 8 8 8 A 9 9 9 9 9 B 9 9 9 9 9 A n/a 5 4 5 B n/a 5 5 5 n/a n/a A 6 6 n/a 6 n/a B 6 6 n/a 6 n/a A = Number of meetings attended. B = Number of meetings held during the year. Additional meetings of committees of Directors were held during the year, but these are not included in the above table, for example where the Boards delegated authority to a committee of Directors to approve specific matters or documentation on behalf of the Boards. Company Secretaries The names and particulars of the Company Secretaries of Infigen at or since the end of the financial year are set out below. Name Particulars David Richardson Company Secretary of IEL, IEBL and IERL Appointed 26 October 2005 David is the Company Secretary of Infigen Energy and is responsible for the company secretarial, risk management, insurances, corporate compliance and internal audit functions. David joined Infigen Energy as Company Secretary in 2005. David was previously a Company Secretary within the AMP Group, including AMP Capital Investors, Financial Services and Insurance divisions, as well as prior financial services sector and regulator positions. David holds a Diploma of Law, Bachelor of Economics and a Graduate Diploma in Company Secretarial Practice. David is a Member of Chartered Secretaries Australia. Catherine Gunning Alternate Company Secretary of IEL, IEBL and IERL Appointed 18 June 2009 Catherine is a Senior Corporate Counsel within Infigen Energy. Prior to joining Infigen in December 2005, Catherine was a Senior Associate in the Corporate & Commercial Department at Allens Arthur Robinson. Catherine also worked in London for private equity house NatWest Equity Partners (now Bridgepoint Capital Limited). Catherine has a Bachelor of Economics and a Bachelor of Laws, a Graduate Diploma in Applied Finance and Investment and is admitted as a legal practitioner of the Supreme Court of New South Wales. Principal Activities Infigen Energy is a specialist renewable energy business that develops, constructs, owns and operates energy generation assets. Infigen currently has interests in 24 operating wind farms and a pipeline of wind and solar renewable energy developments in Australia and the United States. With a total installed capacity in excess of 1,600 MW (on an equity interest basis), the business currently generates over 4,500 GWh of renewable energy per year. Infigen has six operating wind farms in Australia with a total installed capacity of 557 MW. Infigen’s US business comprises 18 operating wind farms with a total installed capacity of 1,089 MW (on an equity interest basis). dIRECTORS’ REPORT | 61 distributions On 14 June 2011, Infigen advised that no FY11 final distribution would be paid and distributions would be suspended for FY12 and FY13. That initiative aimed to maximise the capital available to Infigen to repay debt and fund future opportunities. As advised at Infigen’s 2012 AGM, the sweeping of surplus cash flows from operating assets held within the Global Facility borrower group to repay debt, effectively serves to continue to preclude the payment of distributions to securityholders. Further details regarding distributions are set out in Note 24 to the Financial Statements. Review of Operations Revenue and result During the year ended 30 June 2013, Infigen recorded revenues from continuing operations of $302.6 million compared with $283.5 million in FY12, representing an increase of approximately 7%. Infigen recorded a statutory net loss for FY13 of $80 million compared to a net loss for FY12 of $55.9 million. The FY13 result includes a non-cash impairment expense against the US Cash Generating Unit of $58.4 million. The underlying net loss, if the impairment expense is excluded, was a $34.3 million improvement to $21.6 million, compared to a net loss after tax of $55.9 million in the prior year. US Business Infigen has an operating capacity of 1,089 MW (on an equity interest basis) in the US comprising 18 wind farms. There was no change to Infigen’s operating capacity in the US during FY13. Of the 18 wind farms, 14 have Power Purchase Agreements (PPAs) in place that account for 874 MW of the operating capacity, one of which (4 MW of capacity) is generating revenue both through a PPA and on a merchant basis. The four remaining US wind farms (215 MW) operate purely on a merchant basis. Key achievements during the year included: settlement of the long standing disputes with Gamesa and negotiation and execution of 15 year warranty, service and maintenance agreements at Infigen sites with Gamesa turbines; improvements in Infigen’s asset management systems, resulting in more effective supply chain management processes, work order management processes, site operations audits, and root cause analysis systems. These improvements have resulted in lower year over year operating costs and lower major component failure risks; and steady progress in the development of a solar business, with a healthy pipeline of development projects and the execution of two PPAs in California for a total of 40 MW that enhance the options available to generate further value from these projects. Australian Business Infigen has an operating capacity of 557 MW in Australia comprising six wind farms, namely the 89.1 MW Alinta wind farm in WA, the three Lake Bonney wind farms in SA with capacities of 80.5 MW, 159 MW and 39 MW respectively, and the 140.7 MW Capital and 48.3 MW Woodlawn wind farms in NSW. Infigen holds a 100% equity interest in each of its Australian wind farms. There was no change to Infigen’s operating capacity in Australia during FY13. Of Infigen’s six operational wind farms in Australia, 55% of annual P50 production is currently contracted under medium and long term PPAs. One of these off-take agreements (a long term retail supply agreement) involves the majority of the capacity of the Capital wind farm being contracted to meet the energy demands of the Sydney Desalination Plant. Key achievements during the year included: the identification and resolution of a scheduling error by the Australian Energy Market Operator (AEMO) resulting in compensated electricity revenue for the FY10 to FY12 periods. This is a demonstration of Infigen’s in-house asset management capability and will also result in fewer constraints to the affected wind farms in future periods; following the expiration of their original warranties, Lake Bonney 2 & 3 wind farms transitioned to the previously announced Vestas maintenance contracts that will provide stable and predictable costs for a further five years; and wind farm costs of $32.6 million, being $1.4 million below the lower end of the guidance range of $34 to $37 million. Further commentary regarding Infigen’s operating and financial performance for the year is included in the Management Discussion and Analysis of Financial and Operational Performance Report. Changes in State of Affairs During the year the development teams in the US and Australia continued to advance the key projects in the wind and solar PV development pipelines. A number of wind farm development projects in Australia are at an advanced stage in anticipation of improved market and investment conditions. A number of solar PV development projects in the US and Australia are also at advanced stages. A key area of focus for the development teams has been managing community, regulatory and other stakeholder relationships. Other changes in the state of affairs of the consolidated entity are referred to in the Financial Statements and accompanying Notes. Subsequent Events Since the end of the financial year, there have not been any transactions or events of a material or unusual nature likely to affect significantly the operations or affairs of Infigen in future financial periods. 62 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT CONTINuEd future developments In FY14 production in the US is expected to improve with the return to service of a number of Gamesa turbines and improved availability for the Gamesa fleet. The Crescent Ridge wind farm (40.8 MW) PPA expired in June and that wind farm will be operated on a merchant basis with wholesale prices currently below the previous PPA price. However, average US prices are nonetheless expected to be only slightly below FY13 due to the highly contracted nature of Infigen’s assets. In Australia, Infigen expects an improvement in investment conditions following the Federal election and a favourable outcome from the scheduled further review of the Renewable Energy Target (RET) legislation in 2014. However, in the near term the regulatory environment continues to be challenging. Despite the favourable findings of the Climate Change Authority’s review of the RET in late 2012, vested interests in the fossil fuel generation sector continue to lobby forcefully to reduce the RET. The upcoming Federal election has exacerbated the uncertainty to a point where the market for new renewable energy project development is very weak, and the appetite to contract with existing assets is poor. This has depressed the Large-scale Generation Certificate (LGC) spot price to low $30s levels. Average Australian prices are expected to be around the same as FY13 due to contract escalation and a higher carbon price, offset by lower LGC prices. In FY14 the US and Australian businesses will benefit from a full year of savings from the cost reduction initiative undertaken in FY13, with the group on track to deliver the full $7 million cash savings benefit in FY14. US operating costs are forecast to be between US$73 million and US$76 million (including Infigen Asset Management costs), and Australian operating costs between $35 million and $37 million (including Energy Markets costs). In FY14 the total cash flow that we expect to have available to distribute to Class A tax equity members, close out interest rate swaps, and repay the Global Facility will be approximately $80 million. Environmental Regulations To the best of the Directors’ knowledge, Infigen has complied with all significant environmental regulations applicable to its operations. Indemnification and Insurance of Officers Infigen has agreed to indemnify all Directors and Officers against losses incurred in their role as Director, Alternate Director, Secretary, Executive or other employee of Infigen or its subsidiaries, subject to certain exclusions, including to the extent that such indemnity is prohibited by the Corporations Act 2001 or any other applicable law. Infigen will meet the full amount of any such liabilities, costs and expenses (including legal fees). Infigen has not been advised of any claims under any of the above indemnities. During the financial year Infigen paid insurance premiums for a Directors’ and Officers’ liability insurance contract which provides cover for the current and former Directors, Alternate Directors, Secretaries and Executive Officers of Infigen and its subsidiaries. The Directors have not included details of the nature of the liabilities covered in this contract or the amount of the premium paid, as disclosure is prohibited under the terms of the contract. Proceedings on behalf of Infigen No person has applied for leave of the Court to bring proceedings on behalf of Infigen, or to intervene in any proceedings to which Infigen is a party, for the purpose of taking responsibility on behalf of Infigen for all or part of those proceedings. Infigen was not a party to any such proceedings during the year. former Partners of the Audit firm No current Directors or Officers of Infigen have been Partners of PricewaterhouseCoopers at a time when that firm has been the auditor of Infigen. Non-Audit Services Based on written advice of the Audit, Risk & Compliance Committee, the Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 9 to the Financial Statements. Auditor’s Independence declaration Infigen’s auditor has provided a written declaration under section 307C of the Corporations Act 2001 that to the best of its knowledge and belief, there have been no contraventions of: the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and the applicable Australian code of professional conduct in relation to the audit. The auditor’s independence declaration is attached to this Directors’ Report. Rounding IEL is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order, amounts in the Directors’ Report and the Financial Report are rounded to the nearest thousand dollars, unless otherwise indicated. dIRECTORS’ REPORT | 63 Remuneration Report Dear Securityholder, We are pleased to present the 2013 Remuneration Report. Maintaining a capable, agile and motivated team has been critical in a year where we faced continued regulatory uncertainty and subdued market conditions. Over the past four years we have attracted a talented and capable team in Australia and the USA. In determining that it remains in the securityholder interest to retain the USA assets, we have now embarked upon a process of harmonising the organisational culture and policy framework in both regions to maximise the potential for longer term collaboration and resource utilisation as “One Team”. We have continued to exercise moderation in remuneration changes, while retaining relatively high levels of potential Long Term Incentive opportunities for key executives. These continue to reflect the current challenging and transitional nature of our business, and will be reviewed once those conditions are overcome. The FY09 and FY10 equity-settled long term incentive payments have lapsed without vesting. The vesting hurdles were again not met. These had been the only grants that had provided for automatic vesting on change of control. This year we have set out more information on the initiatives or goals (Key Performance Indicators, KPIs) that are used in determining Short Term Incentive (STI) payments. These KPIs focus on matters within management control or influence designed to create long term value effects. This was the first year where STI payments were partially deferred, with the deferred element settled in securities rather than cash. These benefits are expected to vest for relevant employees with the issue of securities once a trading window is open following release of the FY13 annual results, provided an employee is not otherwise prevented from trading securities in accordance with the Securities Trading Policy. The STI framework for FY14 has been further refined. Financial goals will now determine 80% of the Key Management Personnel (KMP) STI opportunity. The balance relates to specific short term measures required of management. The Board retains discretion to vary STI payments based on material departures in personal or corporate achievements. New clawback mechanisms now enable unvested Performance Rights or deferred STI to be forfeited in the event of materially adverse financial misstatements. During the year an organisational restructure and cost reduction program was undertaken in Australia and the USA. This has led to the loss of a number of talented employees. One of the roles affected by this restructure was that of the Chief Operating Officer. Regrettably no alternative position could be found for Mr Geoff Dutaillis and his employment ended on 30 June 2013. Geoff diligently served out his notice period in the second half of FY13. On behalf of the Company I thank Geoff for his dedication, commitment and contribution to Infigen. Yours faithfully Mike Hutchinson Chairman Nomination & Remuneration Committee 64 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT CONTINuEd reviewed executive and senior management salaries against market rates; Remuneration Report – Executive Summary The Nomination & Remuneration Committee has: monitored performance and the alignment of Key Performance Indicators (KPIs) to short term business objectives and priorities; made no change to director remuneration other than implementing a minor change deferred from FY12; approved the establishment of the Infigen Employee Equity Trust and outsourced administration to Link Market Services Limited. restructured the FY14 Short Term Incentive (STI) plan and determined KPIs for FY14; reviewed the leadership structure and succession plans; and remuneration of KMP was increased during the year by around 2.9%; there was some realignment of relativities following the organisation restructure and cost reduction initiative; Significant matters to note for director, executive and senior management FY13 remuneration are: no Long Term Incentive (LTI) vested; and at least 50% of the KMP STI was deferred for 12 months. Remuneration framework Infigen’s remuneration framework aims to ensure remuneration: attracts and retains high performing individuals; and is commensurate with contributions, positions and responsibilities; is fair and reasonable relative to market benchmarks; is linked with Infigen’s strategic goals and business performance; rewards the delivery of consistently high performance; is aligned with the interests of securityholders. Remuneration of Senior Management The remuneration framework for KMP comprises three components: fixed pay; Short Term Incentive, which is a variable payment linked to achieving specified performance measured over a 12 month period; and Long Term Incentive, which is payment linked to meeting specified performance hurdles over a 3 or 4 year period. Remuneration is benchmarked by external advisers, Guerdon Associates, against industry peers within the utilities, generation and infrastructure sectors. Fixed Pay Fixed pay is cash salary and benefits, including superannuation. Infigen does not presently offer remuneration packaging other than superannuation salary sacrifice. Temporary deferred fixed pay amounts were introduced in FY11 for some executives in conjunction with recruitment or retention requirements. This resulted in some deferred cash payments being made in February 2012, and further payments to two senior managers in February 2013. No deferred fixed pay amounts were introduced in FY12 or FY13. Adjustments to fixed pay in FY13 reflected an average 2.9% market rate adjustment for KMP. Short Term Incentives STI is an at-risk performance-related component of remuneration. STIs are subject to the achievement of key performance indicators (KPIs). KPIs are set annually and reviewed during the year. KPIs are aligned with overall strategy, budget, and individual objectives and accountabilities. The long life, capital intensive nature of Infigen’s assets with their associated high financing costs and depreciation charges result in expected statutory accounting losses for a significant portion of the asset life. The depreciation element is non-cash and the assets continue to generate strong cash flows. Consequently the Board has determined that it is appropriate and desirable to motivate and reward the KMP to focus on delivering stable and predictable results by delivering annual improvements in operating efficiency (maximising production at lowest cost) to deliver cash flow outcomes. These objectives are complementary to the medium term goals of achieving a more sustainable capital structure and profitable business growth, leading to scope for a resumption of distributions. The maximum STI opportunity for each KMP is determined as part of their recruitment, promotion, and annual job-related challenges. The Board determines the aggregate amount of STI payments, the KPIs for the CEO, the amount of the CEO’s STI payment, and reviews proposed KPIs and STI payments for KMP. In setting the aggregate amount of the STI pool, the Board has regard to any need to balance the results of “bottom up” scoring of annual KPIs with the overall short term performance of the business, and – if applicable – any relevant adverse safety and risk outcomes. This assessment also has regard to the opportunities for management influence on business outcomes, and those matters (such as wind speeds and energy market pricing) that are not subject to short term management influence. dIRECTORS’ REPORT | 65 KMP financial goal outcomes determined 60% of the FY13 STI opportunity. Strategic and operational goal outcomes determined 40%. Management initiatives, including the organisation review and cost reduction initiative in FY13, have helped provide greater control of future operating costs. The STI components for FY14 will increase the financial goals from 60/40 to 80/20, increasing the focus on cost containment and cash conversion. We have set out in Table 1 a description of the management initiatives that were included within the FY13 KPIs used to determine the STI payments. Each KPI is weighted as a percentage of the total STI opportunity and includes an assessment criterion or hurdle. KPI outcome measurements associated with quantitative measures, including budget achievement, are scaled progressively around stretch targets. TABLE 1: FY13 Alignment of Strategic Objectives and Short Term Metrics Strategic Objectives Short Term Metrics Achievement Improve asset Performance Operating cost below budget Quantifiable measures to reduce revenue volatility Site availability > 95% Operating costs below budget and lower guidance Reorganisation and cost reduction initiative saving $7m pa from FY14 Reduced future cost risk via Gamesa warranty and maintenance agreement Quantified revenue benefits of effective hedging and constraint strategies Site Availability USA – 95.3%, AUS 96.8% Develop and provide growth options for the business Prudently advance the development pipeline Pursue new customers and other energy markets opportunities Advanced permits and option value of wind development pipeline Commenced construction of Capital Solar Demonstration plant Advanced permits and secured PPAs for two US solar projects Deleverage and address capital constraints Global Facility debt repayment above budget Identify, evaluate and pursue commercial options to resolve capital constraints Global Facility debt repayment above budget and guidance Explored potential USA asset sale Commenced market testing for Capital wind farm Maintain a capable, agile and motivated team Improve Safety & Sustainability Employee retention and staff engagement LTIFR = 1.2 TRIR = 11 Staff engagement program AGSM leadership development program To illustrate how individual STI payments are determined we have included in Table 2 the CEO’s FY13 KPI assessment. The resulting STI payment awarded to the CEO is illustrated in Table 3. TABLE 2: CEO FY13 Short Term Incentive Performance Measure Operating Costs Debt Amortisation Earnings Volatility Personal Business Goals Total Weighting as a % of Total Opportunity Achievement as a % of Total Opportunity 25% 20% 15% 40% 100% 23.5% 16.2% 7.5% 20.4% 67.6% STI payments include a 12 month partial deferral condition. At least 50% of individual STI amounts exceeding a threshold (initially $50,000) are deferred and paid in IFN securities. Payment of the deferred STI is subject to continued employment. The deferred payment may be forfeited if there is a materially adverse financial restatement. The deferral conditions for the FY14 deferred STI include a new clawback mechanism that complements the LTI clawback provision. The new provision enables forfeiture of some or all unvested STI and/or LTI Performance Rights if a previously vested LTI grant was associated with a materially adverse financial misstatement. From FY12 a total of $834,060 in STI entitlements were deferred in the form of 3,786,020 performance rights at a security value of $0.2203. It is expected that 2,727,462 securities will be issued by Infigen in the relevant trading window following the release of the FY13 annual results with the balance being cash settled at the equivalent market value upon vesting. It is not intended to clawback any of these securities. Since recipients of these securities will incur an associated taxation liability, there may be some sales of securities to fund the tax liability. Any such sales are, of course, subject to Infigen’s securities trading policy and insider trading laws. 66 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT CONTINuEd Long Term Incentives KMP and senior managers in positions that directly affect the long term value of Infigen securities may be eligible for LTIs. LTIs are awarded as future rights to acquire IFN securities. The rights may vest after 3 or 4 years, subject to performance hurdles. The Managing Director’s grant is subject to securityholder approval. The number of rights granted is based on the LTI value, divided by the reference price for IFN securities. This is the volume weighted average ASX market closing price in the last five trading days of the prior financial year. LTI grants comprise two equal tranches, each subject to a different performance test. Vesting of each tranche is contingent on achieving the relevant performance hurdle. The two performance hurdles are (1) Relative Total Shareholder Return (TSR) and (2) a financial performance test. The financial performance test is a test of the cumulative growth in the ratio of earnings before interest, taxes, depreciation and amortisation (EBITDA) to capital base. Tranche 1 Tranche 2 Performance Rights Relative TSR EBITDA Both hurdles are measured over a 3 year period. The three year performance period of the FY13 grant is 1 July 2012 to 30 June 2015. In the event that no performance rights vest after the initial 3 year performance period then the LTI grant will be subject to a single re-test on 30 June 2016, after which all unvested rights will lapse. During the year the Nomination & Remuneration Committee reconsidered the re-testing provision. Given that Infigen’s LTI scheme is presently structured around the current challenging and transitional nature of our business, it was decided to retain the re-test to motivate and reward outcomes even if they span more than the initial 3 year period. The committee also reviewed the two-tranche structure of LTIs and the vesting conditions and decided on no change. TSR performance condition: TSR measures the growth in the price of securities plus cash distributions notionally reinvested in securities. In order for any portion of the Tranche 1 performance rights to vest, the TSR of IFN must outperform that of the median company in the S&P/ASX 200 (excluding financial services and the materials/resources sector). Tranche 1 performance rights will vest progressively as follows: Infigen Energy’s TSR performance compared to the relevant peer group FY11 Grant Percentage of Tranche 1 Performance Rights that vest FY12 & FY13 Grants Percentage of Tranche 1 Performance Rights that vest 0 to 49th percentile Nil Nil 50th percentile 51st to 75th percentile 50% – 98% of the Tranche 1 Performance Rights will vest (i.e. for every percentile increase between 50% and 74% an additional 2% of the Tranche 1 Performance Rights will vest) 76th to 95th percentile 100% 25% of the Tranche 1 Performance Rights will vest 27% – 75% (i.e. for every percentile increase between 51% and 75% an additional 2% of the Tranche 1 Performance Rights will vest) 76.25% – 100% (i.e. for every percentile increase between 76% and 95% an additional 1.25% of the Tranche 1 Performance Rights will vest) EBITDA performance condition: the annual target will be a specified percentage increase in the ratio of EBITDA to capital base over the year. The Capital Base will be measured as prior year net assets less derivative valuations, plus current year’s earnings and net debt, normalised for foreign exchange. Both the EBITDA and Capital Base will be measured on a proportionately consolidated basis to reflect IFN’s economic interest in all investments. The annual target for FY13 was set to reflect the performance expectations of Infigen’s business and prevailing market conditions. The annual target for each subsequent financial year will be established by the Board based on stretch budgets no later than the time of the release of Infigen’s annual financial results for the preceding financial year. The prospective targets are set with reference to Infigen’s annual budgets. They remain confidential to Infigen. However each year’s target, and the performance against that target are disclosed retrospectively. The EBITDA performance condition rewards management in sustaining and delivering capital efficiency performance over an extended period. dIRECTORS’ REPORT | 67 Relevant metrics for the last three financial year periods are provided in the table below. Closing security price EBITDA1 Capital Base2 EBITDA to Capital Base Target 30 June 2011 30 June 2012 30 June 2013 (cents) (AUD’000) (AUD’000) (%) (%) 0.35 145,569 1,589,945 9.16 11.29 0.225 140,500 1,656,177 8.48 9.26 0.251 160,445 1,591,793 10.08 9.40 1 Calculated at Infigen Group economic interest EBITDA (as per segment information Note 2 of the consolidated financial statements) normalised for foreign exchange at the rate used to determine the target. 2 As per the Capital Base definition above with FY13 normalised for impairment. Based on performance to FY13, the FY11 cumulative EBITDA performance condition target has not been met and is now in re-test. The cumulative effect of the annual EBITDA performance condition targets on the FY12 and FY13 LTI grants is that tranche 2 of each of these grants is currently on target to vest. Tranche 2 performance rights in FY12 and FY13 will vest progressively in comparison to FY11 which were subject to cliff vesting at 100% as shown in the table below: Infigen Energy’s EBITDA performance FY11 Grant Percentage of Tranche 2 Performance Rights that vest FY12 & FY13 Grants Percentage of Tranche 2 Performance Rights that vest 0% < 90% Nil Nil 90% ≤ 110% of the cumulative target Cliff vesting at 100% (i.e.100% will vest if the target is achieved) 5% to 100% (i.e. for every 1% increase between 90 and 110% of target an additional 5% of the Tranche 2 Performance Rights will vest) Equity Plan rules: Performance rights and options are governed by the rules of the Infigen Energy Equity Plan (the Plan) that was approved by securityholders in 2011. The Plan provided that the Board may exercise discretion to accelerate the vesting of any performance rights awarded in the FY13 grant in the event of a change in control of Infigen. In exercising its discretion the Board will have regard to performance and the nature of the relevant transaction. It is currently unlikely that the Board would accelerate vesting of any performance rights that were otherwise unlikely to vest in the ordinary course of business. There are now no outstanding LTI grants that provide automatic vesting on change of control. The Plan participants are prohibited from hedging their exposure to Infigen’s security price associated with the Plan. Separation benefits The Board will continue to limit any future separation benefits to a maximum of 12 months fixed remuneration in all foreseeable circumstances. 68 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT CONTINuEd Infigen Energy – KMP remuneration details The following persons were the KMP of the Infigen Energy group during the financial year: M George G Dutaillis C Baveystock B Hopwood S Taylor S Wright C Carson Chief Executive Officer Chief Operating Officer (No longer a KMP as at 30 June 2013) Chief Financial Officer Executive General Manager Corporate Finance Executive General Manager Operations – Australia General Counsel CEO USA TABLE 3: Cash based remuneration received by KMP The following table summarises the cash based and at-risk remuneration KMP received in FY13. The only cash remuneration received in FY13 was in the form of salary, superannuation, non-deferred STI and retention payments. Cash Based Remuneration At‑Risk Remuneration KMP Year Salary Maximum STI Oppor‑ tunity1 Cash STI Awarded for the period Retention Super‑ annuation ($) ($) M George G Dutaillis FY13 FY12 FY13 FY12 585,530 500,000 169,000 569,300 702,000 158,175 380,530 320,000 205,056 370,000 370,000 89,096 C Baveystock FY13 324,530 153,000 FY12 315,000 199,000 B Hopwood FY13 324,530 184,000 315,000 199,000 340,530 154,000 331,000 199,000 324,530 150,000 282,733 199,000 S Taylor S Wright C Carson5 FY12 FY13 FY12 FY13 FY12 FY13 FY12 279,242 279,242 109,882 122,047 268,558 269,500 77,875 – ($) – – – – 81,133 78,750 – 150,000 – 50,000 – 128,750 59,058 63,750 65,504 58,615 50,000 64,178 55,650 59,899 Equity vested during the year Total Actual Remun‑ eration received LTI Oppor‑ tunity Granted in the Year2 Equity Deferred STI3,4 Awarded for the Period ($) ($) – – – – – – – – – – – – – – 771,000 354,854 169,000 743,230 158,634 237,262 602,056 144,244 – 474,851 80,129 133,644 481,191 103,612 473,255 406,504 539,370 53,600 82,619 53,600 407,000 103,612 460,933 341,000 487,137 519,695 350,476 53,600 48,081 – – – 59,058 63,750 65,504 58,615 48,437 64,178 55,650 59,899 109,882 77,875 ($) 16,470 15,755 16,470 15,755 16,470 15,755 16,470 15,755 16,470 15,755 16,470 15,755 8,524 4,043 Totals FY13 2,559,422 1,740,242 714,150 203,179 107,344 – 3,528,445 837,021 507,531 FY12 2,451,591 2,137,500 571,588 407,500 98,573 – 3,529,252 399,563 695,223 1 The maximum STI Opportunity represents the total opportunity available to the KMP should they achieve 100% of the KPI objectives. The minimum STI opportunity is zero. 2 This represents the fair market value of the LTI awarded in the form of a grant of performance rights under the Infigen Energy Equity Plan prior to amortisation. 3 The deferred STI Payment is awarded in the form of a grant of performance rights under the Infigen Energy Equity Plan. The number of performance rights granted is determined by dividing the deferred amount by the value of a performance right using the VWAP of Infigen Energy stapled securities in the five trading days up to 30 June. 4 The VWAP per security of the FY12 grant was $0.2203 and $0.253 for the FY13 grant. 5 The remuneration amounts reflect a conversion of $US into $AUD using an average rate of $1.0195 in FY12 and $1.0242 in FY13. dIRECTORS’ REPORT | 69 TABLE 4: Statutory Remuneration Data for the years ended 30 June 2013 with comparative period The Statutory Remuneration Data table below show the accounting expensed amounts that reflect a portion of possible future remuneration arising from prior and current year LTI grants. Tranche 1 of the FY09 LTI grant expired in FY13. No prior accruals required reversal for this outcome. The FY10 LTI grant expired on 30 June 2013. Short term employee benefits KMP Year Salary STI paid in current period Retention payment Non‑ monetary benefits Total of short term employee benefits Post employ‑ ment benefits Other long term employee benefits Share‑based payments Super‑ annuation LSL accrual Equity settled2 Cash settled ($) ($) M George FY13 585,530 169,000 FY12 569,300 158,175 G Dutaillis1 FY13 380,530 205,056 FY12 370,000 89,096 ($) – – – – C Baveystock FY13 324,530 FY12 315,000 59,058 63,750 81,133 78,750 B Hopwood FY13 324,530 65,504 – FY12 315,000 58,615 150,000 S Taylor FY13 340,530 FY12 331,000 50,000 64,178 – 50,000 S Wright FY13 324,530 55,650 – FY12 282,733 59,899 128,750 C Carson3 FY13 279,242 109,882 122,047 FY12 268,558 77,875 – Total ($) ($) ($) ($) ($) ($) ($) – – – – – – – – – – – – – – 754,530 727,475 585,586 459,096 464,721 457,500 390,034 523,615 390,530 445,178 380,180 471,382 511,171 346,433 16,470 15,755 16,470 15,755 16,470 15,755 16,470 15,755 16,470 15,755 16,470 15,755 8,524 4,043 16,027 548,542 – 1,335,569 11,006 (588,618) – (313,693) 12,018 (530,668) 2,115 110,815 974 47,603 11,469 123,533 10,962 (87,532) 2,936 2,112 2,532 2,281 – – 164,075 92,523 62,452 – – – – – – – – – – – – – – 165,618 288,363 (43,799) 594,121 521,832 541,506 462,800 574,011 555,568 461,634 489,418 78,199 597,893 22,141 372,617 397000 320000 213000 $ 930,000 341,000 153,000 153,000 $ 647,000 341000 184000 122000 $ 647,000 357000 154000 153000 $ 664,000 341000 150000 71000 286,000 286,000 - $ 562,000 $ 572,000 Total Remuneration FY13 2,559,422 714,150 FY12 2,451,591 571,588 203,180 407,500 – 3,476,752 107,344 35,079 695,724 78,199 4,393,097 – 3,430,679 98,573 39,353 (1,066,692) 22,141 2,524,054 1 G Dutaillis FY11 LTI grant expired on 30 June 2013 as the Board did not exercise discretion to keep this grant in the Equity Plan during the retest period, resulting in a write back of prior period provisions. The FY12 & FY13 LTI grants remain in the Equity Plan for the duration of the performance period in accordance with the Equity Plan rules. 2 FY12 equity settled payments adjusted for Deferred STI granted in the period. 3 The remuneration amounts reflect a conversion of $US into $AUD using an average rate of $1.0195 in FY12 and $1.0242 in FY13. TABLE 5: Remuneration Components as a Proportion of Total Remuneration The proportions of fixed remuneration to at-risk performance-based remuneration are decided on a case-by-case basis for each executive. The proportions for FY13 are set out below. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% M George G Dutaillis C Baveystock B Hopwood S Taylor S Wright C Carson Fixed Rem STI LTI 70 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT CONTINuEd TABLE 6: Value of Remuneration that may vest in future years Remuneration amounts provided in the table below refer to the maximum value of performance rights relating to IFN securities. These amounts have been determined at grant date by using a pricing model and amortised in accordance with AASB 2 ‘Share Based Payment’. The minimum value of remuneration that may vest is nil. The current market value is included to provide additional information to illustrate the difference in value of these LTI grants when comparing the accounting value and the current market value. The accounting value relies upon the value of the security at the time the grant was made. The accounting standards are used for the purpose of providing for the LTI liability within the financial statements. KMP Grant Maximum value of remuneration which is subject to vesting in accordance with AASB 2 ‘Share Based Payments’ Current market value of remuneration which is subject to vesting (VWAP 5 trading days prior to 30 June 2013) M George FY11 FY12 FY13 FY131 FY11 ($) FY12 ($) FY13 ($) FY14 ($) FY15 ($) FY11 ($) FY12 ($) FY13 ($) FY14 ($) FY15 ($) 124,548 166,977 166,520 55,086 73,852 73,650 32,898 74,038 51,698 47,752 107,468 75,041 130,818 112,018 112,018 220,094 188,464 188,464 177,166 60,096 201,855 68,471 Total 124,548 199,875 548,542 223,812 112,018 55,086 121,604 603,067 331,976 188,464 G Dutaillis2 FY09 FY11 FY12 FY13 FY131 Total C Baveystock FY11 FY12 FY13 FY131 Total – – (429,124) (225,968) 16,617 63,512 144,244 133,644 – – 16,617 (313,692) – – – – – – – – – – – – 24,121 92,189 242,682 152,268 – – 24,121 487,139 – – – – – – – – 11,116 25,016 17,468 16,135 36,312 25,355 38,197 32,708 32,708 64,264 55,029 55,029 47,603 16,147 54,236 18,397 – 11,116 110,816 66,323 32,708 – 16,135 154,812 98,781 55,029 B Hopwood FY11 18,168 24,357 24,290 8,035 10,773 10,743 S Taylor C Carson S Wright FY12 FY13 FY131 11,116 25,016 17,468 16,135 36,312 25,355 30,458 26,080 26,080 51,243 43,879 43,879 43,769 14,847 49,868 16,916 Total 18,168 35,473 123,533 58,395 26,080 8,035 26,908 148,166 86,150 43,879 FY11 FY12 FY13 FY131 39,597 53,086 52,941 17,513 23,479 23,415 11,116 25,016 17,468 16,135 36,312 25,355 38,197 32,708 32,708 64,264 55,029 55,029 47,922 16,256 54,600 18,521 Total 39,597 64,201 164,076 66,431 32,708 17,513 39,614 178,591 98,905 55,029 FY11 FY12 FY13 FY131 Total FY11 FY12 FY13 FY131 Total 61 22,202 22,141 44 15,922 15,878 – – – – – 57,950 19,657 61 22,202 80,091 19,657 – – – – – – – – – – – – – 66,026 22,396 44 15,922 81,904 22,396 – – – – – – – – 17,725 15,178 15,178 29,822 25,536 25,536 44,727 15,172 50,960 17,286 – – 62,452 30,350 15,178 – – 80,782 42,822 25,536 1 FY13 Deferred STI. 2 In accordance with accounting standards, provisions relating to lapsed LTI grants were reversed and all future year expenses were realised in FY13. dIRECTORS’ REPORT | 71 Legacy Performance Rights Performance rights granted in prior years (FY11 and FY12) were granted in the same 2-tranche structure with the same performance hurdles. No performance rights in relation to IFN securities vested or became exercisable in FY13. All performance rights held as at 30 June 2013 are unvested and are not exercisable. Any performance rights which do not vest following the measurement of performance against the relevant conditions will be subject to a single re-test 4 years after the commencement of the relevant performance period. This will be 30 June 2014 for the FY11 grant (both tranches), 30 June 2015 for the FY12 grant (both tranches) and 30 June 2016 for the FY13 grant (both tranches). Any performance rights which do not vest after each single re-test period will then expire. Tranche 1 of the FY09 grant expired following the re-test conducted on 31 December 2012 and the FY10 grant expired on 30 June 2013. The write-back in table 4 relates to the expiry of the FY10 grant. TABLE 7: Unvested Performance Rights The table below provides details of outstanding performance rights relating to IFN securities that have been granted to KMP (FY11, FY12 and FY13 grants). The performance rights are valued as at the grant date even though the grant was based on the VWAP of the five trading days up to 30 June in the year prior to the grant. KMP Grant Granted number Value per performance right at Grant date grant date Value of performance rights granted at grant date Potential vesting dates ($) ($) LTI Tranche 1 LTI Tranche 2 Deferred STI3 M George G Dutaillis1 C Baveystock B Hopwood S Taylor C Carson2 S Wright FY11 FY12 FY13 FY12 FY12 FY13 FY12 FY12 FY13 FY12 FY11 FY12 FY13 FY12 FY11 FY12 FY13 FY12 FY11 FY12 FY13 FY12 807,1284 30-Sep-10 0.5675 917,374 18-Jan-12 2,378,575 26-Oct-12 1,076,995 26-Oct-12 463,384 966,862 606,645 309,966 694,508 289,377 18-Jan-12 26-Oct-12 26-Oct-12 18-Jan-12 26-Oct-12 26-Oct-12 0.173 0.149 0.22 0.173 0.149 0.22 0.173 0.149 0.22 117,7364 30-Sep-10 0.5675 309,966 553,790 266,071 18-Jan-12 26-Oct-12 26-Oct-12 256,6044 30-Sep-10 309,966 694,508 291,319 18-Jan-12 26-Oct-13 26-Oct-13 126,8664 29-Jun-11 352,279 26-Oct-12 322,288 271,897 26-Oct-12 26-Oct-12 0.173 0.149 0.22 0.5675 0.173 0.149 0.22 0.35 0.22 0.149 0.22 458,045 158,706 354,408 236,939 30-Jun-14 30-Jun-14 30-Jun-14 30-Jun-14 30-Jun-15 30-Jun-15 80,165 30-Jun-14 30-Jun-14 144,062 133,462 30-Jun-15 30-Jun-15 53,624 30-Jun-14 30-Jun-14 103,482 30-Jun-15 30-Jun-15 63,663 66,815 53,624 82,515 58,536 30-Jun-14 30-Jun-14 30-Jun-14 30-Jun-14 30-Jun-15 30-Jun-15 145,623 30-Jun-14 30-Jun-14 53,624 30-Jun-14 30-Jun-14 103,482 30-Jun-15 30-Jun-15 64,090 44,403 77,501 48,021 59,817 30-Jun-14 30-Jun-14 30-Jun-15 30-Jun-15 15-Sep-13 15-Sep-13 15-Sep-13 15-Sep-13 15-Sep-13 15-Sep-13 15-Sep-13 1 G Dutaillis FY11 LTI grant expired on 30 June 2013 as the Board did not exercise its discretion to keep this grant in the Equity Plan during the re-test period. The FY12 & FY13 LTI grants remain in the Equity Plan for the duration of the performance period in accordance with the Equity Plan rules. 2 C Carson participates in a shadow equity plan which is cash settled because he is a US resident. 3 15 September 2013 or earlier, subject to a trading window opening and the employee not being prevented from trading securities in accordance with the Securities Trading Policy. 4 This grant has now entered the final re-test period. Legacy Options All options previously granted have expired. No further options have been granted. 72 | INfIGEN ENERGy ANNuAL REPORT 2013 dIRECTORS’ REPORT CONTINuEd KMP Employment Contracts The base salaries for KMP as at 30 June 2013 are as follows: M George B Hopwood C Baveystock S Taylor S Wright C Carson $585,530 $324,530 $324,530 $340,530 $324,530 $286,000 USD Employment contracts relating to the KMP contain the following conditions: Duration of contract Open-ended Notice period to terminate the contract For M George and S Taylor, their employment is able to be terminated by either party on 6 months’ written notice. For B Hopwood, C Baveystock, C Carson and S Wright their employment is able to be terminated by either party on 3 months’ written notice. Infigen may elect to pay an amount in lieu of completing the notice period, calculated on the base salary as at the termination date. Termination payments provided under the contract Upon termination, any accrued but untaken annual and long-service (but not sickness or personal) leave entitlements, in accordance with applicable legislation, are payable. On redundancy a severance payment is made equivalent to 4 weeks base salary for each year of service (or part thereof), up to a maximum of 36 weeks. Remuneration of Non-Executive directors Non-Executive Director fees are determined by the Infigen Boards within the aggregate amount approved by securityholders. The approved aggregate fee pool for IEL and IEBL is $1,000,000. The fee paid to Directors varies with individual board and committee responsibilities. Non-Executive Director fees are reviewed periodically. Fees were not adjusted during the year and no change is proposed for FY14. The 2012 review of Board fees by Guerdon Associates had recommended that the Chairman’s fee be reset to remove additional fees for participation in committees. This led to a proposed fee of $250,000 which the Board, in the absence of the Chairman, accepted. The change was deferred to 1 July 2012 at the request of the Chairman, who continued to decline committee fees in the interim period. Non-Executive Directors receive a cash fee for service inclusive of statutory superannuation. Non-Executive Directors do not receive any performance-based remuneration or retirement benefits other than statutory superannuation contributions. Board/Committee Fees Aggregate annual fees payable to Non-Executive Directors during the year ended 30 June 2013 are set out below. Board/Committee Infigen Boards Infigen Audit, Risk & Compliance Committees IEL Nomination & Remuneration Committee Role Chairman Non-Executive Director Chairman Member Chairman1 Member 1 The present Committee Chairman is also the Chairman of the Board and does not receive this fee. Fee (pa) $250,000 $125,000 $18,000 $9,000 $12,000 $6,000 dIRECTORS’ REPORT | 73 Remuneration of Non‑Executive Directors for the year ended 30 June 2013 with comparative period The nature and amount of each element of fee payments to each Non-Executive Director of Infigen for the years ended 30 June 2012 and 2013 are set out in the table below. Short term benefits Post-employment benefits Non‑Executive Directors M Hutchinson P Green1 F Harris R Rolfe AO D Clemson2 Total Remuneration Year FY13 FY12 FY13 FY12 FY13 FY12 FY13 FY12 FY13 FY12 FY13 FY12 Fees ($) 233,530 209,225 – – 136,697 137,045 128,440 102,310 – 49,743 498,667 498,323 Superannuation ($) 16,470 15,775 – – 12,303 12,313 11,560 9,305 – 4,477 40,332 41,870 Total ($) 250,000 225,000 – – 149,000 149,358 140,000 111,615 – 54,220 538,999 540,193 1 P Green is a partner of The Children’s Investment Fund Management LLP which is a substantial shareholder of the Infigen group. Since his appointment Mr Green has elected to receive no Director fees. 2 D Clemson retired as a Non-Executive Director of IEL, IEBL and IERL on 11 November 2011. Remuneration Adviser The Nomination & Remuneration Committee engaged the services of Guerdon Associates throughout FY13 to provide market data, review remuneration reporting, incentive plan design and measures, and advise on other miscellaneous matters. The consultant provided no other services to Infigen during this period. No advice was provided that falls within the definition of a remuneration recommendation of the Corporations Act 2001, Chapter 1, Part 1.2, Division 1, section 9B(1)(a) and (b). To ensure the Nomination & Remuneration Committee is provided with advice and, as required, remuneration recommendations, free from undue influence by members of the Executive KMP to whom the recommendations may relate, the engagement of Guerdon Associates is based on an agreed set of protocols to be followed by Guerdon Associates, members of the Committee and members of Executive KMP. The Board was satisfied that the advice received was free from the undue influence of the Executive KMP to whom the advice related because: Guerdon Associates was appointed by independent directors; Guerdon Associates did not provide services to management; reports with recommendations were only received by Non-Executive Directors; and the agreed protocols were followed. This report is made in accordance with a resolution of the Directors pursuant to section 298(2) of the Corporations Act 2001. On behalf of the Directors of IEL: F Harris Director M George Director Sydney, 23 August 2013 74 | INfIGEN ENERGy ANNuAL REPORT 2013 Auditor’s Independence Declaration As lead auditor for the audit of Infigen Energy Limited for the year ended 30 June 2013, 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 Infigen Energy Limited and the entities it controlled during the period. Darren Ross Partner PricewaterhouseCoopers Sydney 23 August 2013 PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. fINANCIAL STATEMENTS | 75 Financial StatementS Consolidated Statements of Comprehensive Income Consolidated Statements of financial Position Consolidated Statements of Changes in Equity Consolidated Cash flow Statements Notes to the financial Statements 1. Summary of accounting policies 2. Segment information 3. Revenue 4. Other income 5. Expenses 6. discontinued operations 7. Income taxes and deferred taxes 8. Key management personnel remuneration 9. Remuneration of auditors 10. Trade and other receivables 11. Inventory 12. derivative financial instruments 13. Investments in associates 14. Property, plant and equipment 15. Intangible assets 16. Trade and other payables 17. borrowings 18. Provisions 19. Institutional equity partnerships classified as liabilities 20. Contributed equity 21. Reserves 22. Retained earnings 23. Earnings per security/share 24. distributions paid 25. Share-based payments 26. Commitments for expenditure 27. Contingent liabilities 28. Leases 29. Subsidiaries 30. deed of cross guarantee 31. Acquisition of businesses 32. Related party disclosures 33. Subsequent events 34. Notes to the cash flow statements 35. financial risk management 36. Interests in joint ventures 37. Parent entity financial information 76 77 78 79 80 80 89 91 91 92 92 93 95 96 97 97 98 98 99 100 102 102 105 106 107 108 109 109 110 110 112 112 113 113 116 117 118 118 118 118 127 128 directors’ declaration 129 76 | INfIGEN ENERGy ANNuAL REPORT 2013 CONSOLIdATEd STATEMENTS Of COMPREhENSIVE INCOME fOR ThE yEAR ENdEd 30 JuNE 2013 Revenue from continuing operations Income from institutional equity partnerships Other income Operating expenses Corporate costs Other expenses Depreciation and amortisation expense Impairment expense Interest expense Finance costs relating to institutional equity partnerships Other finance costs Share of net losses of associates accounted for using the equity method Net loss before income tax benefit Income tax benefit Net loss for the year from continuing operations Other comprehensive income/(loss) Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Changes in the fair value of cash flow hedges, net of tax Other comprehensive income/(loss) for the year, net of tax Total comprehensive income/(loss) for the year, net of tax Net loss for the year is attributable to stapled security holders as: Equity holders of the parent Equity holders of the other stapled entities (non-controlling interests) Total comprehensive income/(loss) for the year is attributable to stapled security holders as: Equity holders of the parent Equity holders of the other stapled entities (non-controlling interests) Note 3 4 4 5 5 5 5 5 5 13 7 21(a) 21(b) 2013 $’000 2012 $’000 302,640 283,473 78,786 4,471 63,554 11,468 (115,854) (114,954) (14,124) (3,276) (11,521) (3,874) (137,888) (140,125) (58,362) (71,593) (52,805) (16,362) (86) – (74,785) (59,180) (11,772) (432) (84,453) 4,478 (58,148) 2,271 (79,975) (55,877) 10,862 26,408 37,270 10,522 (68,519) (57,997) (42,705) (113,874) (79,320) (55,195) (655) (682) (79,975) (55,877) (42,050) (113,192) (655) (682) (42,705) (113,874) Earnings per share of the parent based on earnings from continuing operations attributable to the equity holders of the parent: Basic (cents per security) Diluted (cents per security) 23 23 (10.4) (10.4) (7.2) (7.2) The above statements of comprehensive income should be read in conjunction with the accompanying Notes to the Financial Statements. CONSOLIdATEd STATEMENTS Of fINANCIAL POSITION AS AT 30 JuNE 2013 fINANCIAL STATEMENTS | 77 Current assets Cash and cash equivalents Trade and other receivables Inventory Derivative financial instruments Total current assets Non‑current assets Receivables Derivative financial instruments Investment in associates Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Derivative financial instruments Current tax liabilities Provisions Total current liabilities Non‑current liabilities Borrowings Derivative financial instruments Provisions Total non-current liabilities Institutional equity partnerships classified as liabilities Total liabilities Net assets Equity holders of the parent Contributed equity Reserves Retained earnings Equity holders of the other stapled entities (non‑controlling interests) Contributed equity Reserves Retained earnings Total equity Note 2013 $’000 2012 $’000 34(a) 124,524 126,703 10 11 12 10 12 13 14 7 15 16 17 12 7 18 17 12 18 44,182 13,756 2,585 39,944 15,736 3,242 185,047 185,625 5,513 438 922 8,590 579 728 2,478,019 2,435,300 46,503 272,060 48,359 318,044 2,803,455 2,811,600 2,988,502 2,997,225 36,561 31,164 52,187 – 2,795 40,005 56,000 42,578 3,660 3,449 122,707 145,692 1,028,879 1,013,214 102,520 26,539 148,575 6,778 1,157,938 1,168,567 19 1,223,842 1,157,133 2,504,487 2,471,392 484,015 525,833 20 21 22 20 21 22 2,305 2,305 (208,349) (246,506) (47,495) 31,825 (253,539) (212,376) 759,337 759,337 – – (21,783) (21,128) 737,554 738,209 484,015 525,833 The above statements of financial position should be read in conjunction with the accompanying Notes to the Financial Statements. 78 | INfIGEN ENERGy ANNuAL REPORT 2013 CONSOLIdATEd STATEMENTS Of ChANGES IN EquITy fOR ThE yEAR ENdEd 30 JuNE 2013 Attributable to equity holders of the parent Contributed equity $’000 Note 2,305 – Reserves $’000 (187,440) – Retained earnings $’000 Total equity of the parent $’000 Non‑ controlling interests $’000 Total equity $’000 87,020 (55,195) (98,115) (55,195) 738,891 (682) 640,776 (55,877) 21(b) – (68,519) – (68,519) – (68,519) 21(a) – – 10,522 – 10,522 – 10,522 (57,997) (55,195) (113,192) (682) (113,874) 21(d) – (1,069) – (1,069) – (1,069) Total equity at 1 July 2011 Net loss for the year Changes in the fair value of cash flow hedges, net of tax Exchange differences on translation of foreign operations and movement in fair value Total comprehensive loss for the year Transactions with owners in their capacity as owners: Recognition of share-based payments Total equity at 30 June 2012 2,305 (246,506) 31,825 (212,376) 738,209 525,833 Net loss for the year Changes in the fair value of cash flow hedges, net of tax Exchange differences on translation of foreign operations and movement in fair value Total comprehensive loss for the year Transactions with owners in their capacity as owners: Recognition of share-based payments 21(b) 21(a) – – – – – (79,320) (79,320) (655) (79,975) 26,408 – 26,408 – 26,408 10,862 – 10,862 – 10,862 37,270 (79,320) (42,050) (655) (42,705) 21(d) – 887 – 887 – 887 Total equity at 30 June 2013 2,305 (208,349) (47,495) (253,539) 737,554 484,015 The above statements of changes in equity should be read in conjunction with the accompanying Notes to the Financial Statements. CONSOLIdATEd CASh fLOw STATEMENTS fOR ThE yEAR ENdEd 30 JuNE 2013 Cash flows from operating activities Loss for the period Adjustments for: Net income from institutional equity partnerships (Gain)/loss on revaluation for fair value through profit or loss financial assets – financial instruments Share of loss in associates Depreciation and amortisation of non-current assets Impairment expense Foreign exchange loss/(gain) Amortisation of share based expense Amortisation of borrowing costs capitalised Accretion of decommissioning & restoration provisions (Decrease)/Increase in current tax liability (Decrease)/Increase in deferred tax balances Changes in operating assets and liabilities, net of effects from acquisition and disposal of businesses: (Increase)/decrease in assets: Current receivables and other current assets Increase/(decrease) in liabilities: Current payables Non-current payables Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds on sale of property, plant and equipment Payments for intangible assets Payments for investments in controlled and jointly controlled entities Payments for investments in associates Net cash inflow/(outflow) from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Distributions paid to institutional equity partners Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on the balance of cash held in foreign currencies fINANCIAL STATEMENTS | 79 Note 2013 $’000 2012 $’000 (79,975) (55,877) (25,981) (4,374) (1,832) 86 137,888 58,362 5,049 828 1,492 2,744 (1,920) (3,902) 8,676 432 140,125 – (8,468) (1,154) 1,621 – (688) (2,538) 937 362 3,903 96 (3,199) (109) 97,775 74,809 (11,042) (27,481) – (10,070) – (281) 667 (7,571) (1,061) (155) (21,393) (35,601) – 22,258 (59,069) (23,409) (214,930) (27,620) (82,478) (220,292) (6,096) (181,084) 126,703 3,917 304,875 2,912 21(d) 17(a) 17(a) 19 Cash and cash equivalents at the end of the financial year 34(a) 124,524 126,703 The above cash flow statements should be read in conjunction with the accompanying Notes to the Financial Statements. 80 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS fOR ThE yEAR ENdEd 30 JuNE 2013 1. Summary of accounting policies The principal accounting policies adopted in the preparation of the consolidated financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Stapled security The shares of Infigen Energy Limited (‘IEL’) and Infigen Energy (Bermuda) Limited (‘IEBL’) and the units of Infigen Energy Trust (‘IET’) are combined and issued as stapled securities in Infigen Energy Group (‘Infigen’ or the ‘Group’). The shares of IEL and IEBL and the units of IET cannot be traded separately and can only be traded as stapled securities. This financial report consists of the consolidated financial statements of IEL, which comprises IEL and its controlled entities, IET and its controlled entities and IEBL, together acting as Infigen. Summarised financial information relating to the parent entity, Infigen Energy Limited, is presented in note 37. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Infigen is a for-profit entity for the purpose of preparing the financial statements. Compliance with IFRS The consolidated financial report and parent entity information of IEL complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss, and as modified by reductions in carrying value of assets from impairment expenses. (b) Consolidated accounts (i) Application of UIG 1013 Pre‑date of Transition Stapling Arrangements and AASB Interpretation 1002 Post‑date of Transition Stapling Arrangements For the purpose of UIG 1013 and AASB Interpretation 1002, IEL was identified as the parent entity in relation to the pre-date of transition stapling with IET and the post-date of transition stapling with IEBL. In accordance with UIG 1013, the results and equity of IEL and of IET have been combined in the financial statements. However, since IEL had entered into both pre and post-date of transition stapling arrangements, the results and equity of IET and IEBL are both treated and disclosed as non-controlling interests under the principles established in AASB Interpretation 1002. (c) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of IEL as at 30 June 2013 and the results of all subsidiaries for the year then ended. IEL and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all those entities (including certain institutional equity partnerships and other special purpose 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. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The Group applies a policy of treating transactions with non-controlling interests as transactions with a shareholder. Purchases from non-controlling interests result in an acquisition reserve being the difference between any consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the subsidiary. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheets respectively. (ii) Jointly controlled entities Jointly controlled entities, consolidated under the proportionate consolidation method, are entities over whose activities the Group has joint control, under a contractual agreement, together with the other owners of the entity. They include certain institutional equity partnerships. The consolidated financial statements include the Group’s proportionate share of the joint venture’s assets and liabilities, revenues and expenses, from the date the joint control begins until it ceases. (iii) 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 in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s income statement, while in the consolidated financial statements they reduce 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 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. NOTES TO ThE fINANCIAL STATEMENTS | 81 1. Summary of accounting policies (continued) (d) Trade and other payables Trade payables and other accounts payable are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (e) Business combinations The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the 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 measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer Note 1(o)). If the cost of acquisition is less than the Group’s share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired. 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 as either 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 and loss. (f) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses. 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. (g) Borrowing costs Borrowing costs directly attributable to the construction of qualifying assets are capitalised as part of the cost of those assets. Other borrowing costs are expensed. (h) Assets under construction Costs incurred in relation to assets under construction are deferred to future periods. Deferred costs are transferred to plant and equipment from the time the asset is held ready for use on a commercial basis. Revenue generated in advance of the asset being ready for use on a commercial basis is capitalised as a component of property, plant and equipment. (i) Property, plant and equipment Wind turbines and associated plant, including equipment under finance lease, are stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the item. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. 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 the replaced part is recognised. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The Group’s policy is to provide for the future costs relating to the decommissioning of wind turbines and associated plant if the amounts are expected to result in an outflow of economic benefits. The cost of decommissioning wind turbines and associated plant are reviewed at the end of each annual reporting period. Depreciation is provided on wind turbines and associated plant. Depreciation is calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives. Wind turbines and associated plant Fixtures and fittings Computer equipment 25 years 10 – 20 years 3 – 5 years (j) Derivative financial instruments The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including forward foreign exchange contracts, interest rate caps, interest rate swaps and cross currency swaps. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date. The resulting gain or loss is recognised in the income statement immediately unless the derivative is designated and effective as a hedging instrument; in which event the timing of the recognition in the income statement depends on the nature of the hedge relationship. 82 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 1. Summary of accounting policies (continued) The Group designates certain derivatives as either hedges of the cash flows of highly probable forecast transactions (cash flow hedges) or hedges of net investments in foreign operations (net investment hedges). At the inception of the hedging transaction 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 are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. (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 equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or other expenses. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within ‘finance costs’. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging overseas businesses is recognised in the income statement. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, fixed assets) the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as depreciation in the case of fixed assets. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in the income statement. (ii) Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the foreign currency translation reserve; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses deferred in the foreign currency translation reserve are recognised immediately in the income statement when the foreign operation is partially disposed of or sold. (iii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement. (k) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST unless the GST incurred is not recoverable from the taxation authority. In this case it 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 taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (l) Segment reporting Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. The Group has determined the operating segments based on reports reviewed by the Board of Directors of IEL that are used to make strategic decisions. (m) Foreign currency translation (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 the Group’s presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when they are deferred in equity as qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and all resulting exchange differences are recognised as a separate component of equity. NOTES TO ThE fINANCIAL STATEMENTS | 83 1. Summary of accounting policies (continued) On consolidation, exchange differences arising from the translation of any net investment in foreign entities including balances of cash held in foreign currency, and of borrowings and other financial instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences is recognised in the income statement, as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. (n) Income tax Current tax Current tax expense is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax expense is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to realise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company/Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. Under current Bermudian law, IEBL will not be subject to any income, withholding or capital gains taxes in Bermuda. Current and deferred tax is determined with reference to the tax jurisdiction in which the relevant entity resides. Tax consolidation IEL and its wholly-owned Australian controlled entities have implemented the Australian tax consolidation legislation. The head entity, IEL, and the controlled entities in the tax consolidated group continue to 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. In addition to its own current and deferred amounts, IEL also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the group. Details about the tax funding agreement are disclosed in Note 7. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. (o) Intangible assets (i) Project‑related agreements and licences Project-related agreements and licences include the following items: licences, permits and approvals to develop and operate a wind farm, including governmental authorisations, land rights and environmental consents; interconnection rights; and power purchase agreements. Project-related agreements and licences are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of licences over their estimated useful lives, which are based on the lease term of the related wind farm. (ii) Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities acquired at the date of acquisition. Goodwill on acquisition is separately disclosed in the balance sheet. Goodwill acquired in business combinations is not amortised, but tested for impairment annually and whenever there is an indication that the goodwill may be impaired. Any impairment is amortised immediately in the income statement and is not subsequently reversed. Goodwill on acquisitions of subsidiaries is included in intangible assets. 84 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 1. Summary of accounting policies (continued) Goodwill is allocated to cash-generating units (“CGU”) for the purpose of impairment testing. Each of those cash-generating units represents the Group’s investment in each country of operation by each primary reporting segment. (iii) Development assets Development assets represent development costs incurred prior to commencement of construction for wind and solar farms. Development assets are not amortised, but are transferred to plant and equipment and depreciated from the time the asset is held ready for use on a commercial basis. (p) Leased assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. (i) Group as lessee Assets held under finance leases are initially recognised at their fair value; or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are recognised in accordance with the Group’s general policy on borrowing costs. Finance leased assets are amortised on a straight line basis over the shorter of the lease term and estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (ii) Group as lessor Refer to Note 1(u) for the accounting policy in respect of lease income from operating leases. (q) Impairment of assets At each reporting date, the consolidated group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that the carrying values have been impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group has estimated the recoverable amount of the CGU to which the asset belongs. Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed. Recoverable amount is the higher of 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 discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. For assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (CGUs). If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (CGU) is reduced to its recoverable amount. An impairment loss is recognised in the income statement immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (CGU) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (CGU) in prior years. A reversal of an impairment loss is recognised in the income statement immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. (r) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, 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 insignificant risk of changes in value, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. (s) Provisions Provisions are recognised when the consolidated group has a present legal or constructive obligation as a result of past events, it is probable an outflow of resources will be required to settle the obligation, and the amount of the provision can be measured reliably. Provisions are not recognised for future operating losses. The amount recognised as a provision is management’s best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. (t) Distributions and dividends Provision is made for the amount of any declared distribution or dividend which has been appropriately authorised on or before the end of the financial year and which is no longer at the discretion of the entity, but not distributed at balance date. NOTES TO ThE fINANCIAL STATEMENTS | 85 1. Summary of accounting policies (continued) (u) 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 amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. 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) Electricity sales Product sales are generated from the sale of electricity generated from the Group’s wind farms. Revenues from product sales are recognised on an accruals basis. Product sales revenue is only recognised when the significant risks and rewards of ownership of the products have passed to the buyer and the Group attains the right to be compensated. (ii) Lease income In accordance with UIG 4 Determining whether an Asset Contains a Lease, revenue that is generated under certain power purchase agreements, where the Group sells substantially all of the related electricity to one customer, is classified as lease income. Lease income from operating leases is recognised in income on an accruals basis. Lease income is only recognised when the significant risks and rewards of ownership of the products have passed to the buyer and the Group attains the right to be compensated. (iii) Large-scale Generation Certificates (LGCs) (formerly Renewable Energy Certificates (RECs)) In accordance with AASB 102 revenue from the sale of LGCs is recognised at fair value when they are generated. By recognising LGCs at fair value, income is recognised in the same period as the costs incurred. AASB102 requires LGCs held in inventory to be valued at the lower of cost and net realisable value at the end of each reporting period. Hence where the market value of LGCs falls, inventory is reduced and expense is recorded through the Statement of Comprehensive Income as a component of Operating expenses. Where the circumstances that caused the inventory to be written-down have changed, the write-down will be reversed. Upon sale, the difference between the sale price and the book value of the inventory is recorded through the Statement of Comprehensive Income as a component of revenue. (iv) Production Tax Credits (PTCs) PTCs are recognised as other income when generated by the underlying wind farm assets and used to settle the obligation to Class A institutional investors. (v) Accelerated tax depreciation credits and operating tax gains/(losses) The tax losses arising from accelerated tax depreciation result in benefits that are used to settle the obligation to Class A institutional investors. The associated benefits arising from accelerated tax depreciation are held on the balance sheet as a component of ‘Institutional equity partnerships classified as liabilities’ and recognised over the life of the wind farms to which they relate. (vi) Government grants Grants from 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 them with the costs that they are intended to compensate. (vii) Other income Interest income is recognised using the effective interest method. Dividend income is recognised when the right to receive payment is established. Revenue from rendering of services is recognised when services are provided. (v) Loans and receivables Trade receivables, loans and other receivables are recorded at amortised cost less impairment. Trade receivables are generally due for settlement within 30 days. A provision for impairment of loans and 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 loans and receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the impairment loss is recognised in the income statement within other expenses. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. (w) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the entity reacquires its own equity instruments, for example, as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. (x) Earnings per security/share Basic earnings per security/share is calculated by dividing the profit attributable to equity holders of the Group, 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. Diluted earnings per security/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 shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. 86 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 1. Summary of accounting policies (continued) (y) Fair value estimation The fair value of the financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date. These instruments are included in level 2 (refer to Note 35). The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (z) Employee benefits (i) Wages and salaries and annual leave Liabilities for wages and salaries, including non monetary benefits and annual leave expected to be settled within 12 months of the balance date in which employees render the related service are recognised in respect of employees’ services up to the balance date and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in payables. All other short term employee benefit obligations are presented as provisions. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of 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 payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the balance date, regardless of when the actual settlement is expected to occur. (iii) Share‑based payments Share based compensation benefits are provided to certain executives via the Infigen Energy Equity Plan (Equity Plan). Information relating to the Equity Plan is set out in Note 25. The fair value of performance rights/units granted under the Equity Plan is measured at grant date and is recognised as an employee benefit expense over the period during which the executives become unconditionally entitled to the performance rights/units, with a corresponding increase in equity. (iv) Short term incentive plans The Group recognises a liability and an expense for short term incentives and based on a formula that takes into consideration the performance of the Group for the corresponding period. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (v) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value. (aa) Institutional equity partnerships classified as liabilities (i) Class A members Initial contributions by Class A members into US partnerships are recognised at cost using the effective interest method. Class A carrying amounts are adjusted when actual cash flow differs from estimated cash flow. The adjustment is calculated by computing the present value of the actual difference using the original effective interest rate. The adjustment is recognised through income or expense in profit or loss. This difference represents the change in residual interest due to the Class A institutional investors. (ii) Class B members On consolidation of the US partnerships the Group’s Class B membership interest and associated finance charge for the year is eliminated and any external Class B member balances remaining represent net assets of US partnerships attributable to non-controlling interests. Refer 1(c) for further details of the Group’s accounting policy for consolidation. (bb) Rounding of amounts The Group is of a kind referred to in Class order 98/0100, 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 thousand dollars, or in certain cases, the nearest dollar. (cc) New accounting standards and UIG interpretations Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2013 reporting periods. The Group’s assessment of the effect of these new standards and interpretations is set out below. (i) AASB 9 Financial Instruments and AASB 2009‑11 Amendments to Australian Accounting Standards arising from AASB 9, AASB 2010‑7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) and AASB 2012‑6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures (effective from 1 January 2015) NOTES TO ThE fINANCIAL STATEMENTS | 87 1. Summary of accounting policies (continued) AASB 9 Financial Instruments addresses the classification and measurement of financial assets and financial liabilities. The standard is not applicable until 1 January 2015 but is available for early adoption. When adopted, it is likely to affect the Group’s accounting for its 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. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. The Group has not yet decided when to adopt AASB 9 and has not assessed the effect. (ii) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements, AASB 128 Investments in Associates and Joint Ventures, AASB 2011‑7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards and AASB 2012‑10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments (effective 1 January 2013) AASB 10 replaces all guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 12 Consolidation – Special Purposes 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. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also new guidance on participating and protective rights and on agent/principal relationships. 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. 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 127 and 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. 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 the ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a “partial disposal” concept. The Group will be required to change its accounting method for jointly controlled entities that are considered to be joint ventures under AASB 11, from the proportionate consolidation method of accounting to the equity method. The Group will adopt the new standards from their operative date. They will therefore be applied in the financial statements for the annual reporting period ending 30 June 2014. Had the Group adopted the new rules in the current period, net loss after tax for the current period would have been approximately $3,813,000 higher than reported with a corresponding increase in retained losses in the balance sheet. The Group expects a similar impact on the profit in the 2014 financial year. (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 has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules 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 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. (dd) Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial effect 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. Some of the estimates and assumptions that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are: (i) Estimated useful economic life of wind turbines and associated plant As disclosed in Note 1(i) the Group depreciates property, plant and equipment over 25 years. This period of depreciation is utilised for wind turbines and associated plant that have useful economic lives in excess of 25 years. (ii) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1. The recoverable amounts of CGUs have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to Note 15 for details of these assumptions and the potential effect of changes to the assumptions. 88 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 1. Summary of accounting policies (continued) (iii) Income taxes The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group is required to make assessments in relation to the recoverability of future tax losses which have been recognised as deferred tax assets. (iv) Contingent liabilities As disclosed in note 27, the Group has made estimates and assumptions in relation to its contingent liabilities. By their nature, the exact value of these contingent liabilities is uncertain and the Group has made estimates of their value based on the facts and circumstances known at the reporting date. (v) Institutional Equity Partnerships The Group has made estimates and assumptions in relation to Institutional equity partnerships classified as liabilities. These estimates are long term in nature, and where applicable are sourced from third party information. Where these estimates and assumptions are unable to be sourced from third parties, the Group has used its own estimates based on the information available at reporting date. (ee) Parent entity financial information The financial information for the parent entity, Infigen Energy Limited, disclosed in note 37, 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 Infigen Energy Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. (ii) Tax consolidation legislation Infigen Energy Limited and its wholly-owned Australian controlled entities have implemented the Australian tax consolidation legislation. The head entity, Infigen Energy 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. In addition to its own current and deferred tax amounts, Infigen Energy 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 consolidated group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Infigen Energy Limited for any current tax payable assumed and are compensated by Infigen Energy Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Infigen Energy Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. (iii) Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. NOTES TO ThE fINANCIAL STATEMENTS | 89 2. Segment information (a) Segment information provided to the Board of Directors The Group has determined the operating segments based on the reports reviewed by the Board of Directors of IEL that are used to make strategic decisions. The Board of Directors considers the business primarily from a geographic perspective and has identified two reportable segments. The reporting segments consist of the wind farm generation and asset management businesses held within each geographical area. The segment information provided to the Board of Directors for the operating segments is as follows: Australia $’000 US $’000 Total $’000 Year ended 30 June 2013 Statutory revenue Revenue – non-controlling interests Segment revenue (economic interest basis) Segment EBITDA from Operations (economic interest basis) LGCs revaluation and other Corporate costs Development costs1 EBITDA (economic interest basis) Year ended 30 June 2012 Statutory revenue Revenue – non-controlling interests Segment revenue (economic interest basis) Segment EBITDA from Operations (economic interest basis) LGCs revaluation and other Corporate costs Development costs1 EBITDA (economic interest basis) 146,316 110,036 139,786 66,762 125,804 140,773 91,058 66,339 302,640 (16,538) 286,102 176,798 (1,152) (14,124) (3,281) 158,241 283,473 (16,896) 266,577 157,397 (1,077) (11,521) (4,306) 140,493 1 Includes share of net losses of associates accounted for using the equity method. The Board of Directors assesses the performance of the operating segments based on a measure of EBITDA (Segment EBITDA). This measurement basis (Segment EBITDA) excludes the effects of equity-settled share-based payments which are included in Corporate costs and unrealised gains/losses on financial instruments. Segment EBITDA is calculated on an economic interest basis. The entity has a controlling interest in two US LLCs in which it owns more than 50% but less than 100% of the Class B interests. Under IFRS the Group fully consolidates the financial performance of these companies within its statutory results and recognises a non-controlling interest. Under economic interest basis, the non-controlling interest portion is not included in the results. 90 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 2. Segment information (continued) (b) Reconciliation of segment information to statutory information Interest income and expenditure are not allocated to segments, as this type of activity is managed by the corporate treasury function as part of the cash position of the Group. The Board of Directors review segment revenues on a proportional basis, reflective of the economic ownership held by the Group. A reconciliation of Segment EBITDA to operating profit before income tax and discontinued operations is provided as follows: Segment EBITDA (economic interest basis) Non-controlling interests proportionally consolidated for segment reporting Income from institutional equity partnerships Other income Depreciation and amortisation expense Impairment expense Interest expense Finance costs relating to institutional equity partnerships Other finance costs 2013 $’000 2012 $’000 158,241 140,493 11,059 78,786 4,471 12,199 63,554 11,468 (137,888) (140,125) (58,362) (71,593) (52,805) (16,362) – (74,785) (59,180) (11,772) Net loss before income tax expense and discontinued operations (84,453) (58,148) A summary of assets and liabilities by operating segment is provided as follows: As at 30 June 2013 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Institutional equity partnerships classified as liabilities Total liabilities As at 30 June 2012 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Institutional equity partnerships classified as liabilities Total liabilities Australia $’000 US $’000 Total $’000 148,756 36,291 185,047 1,109,311 1,694,144 2,803,455 1,258,067 1,730,435 2,988,502 73,053 778,508 49,654 122,707 379,430 1,157,938 – 1,223,842 1,223,842 851,561 1,652,926 2,504,487 144,534 41,091 185,625 1,161,781 1,649,819 2,811,600 1,306,315 1,690,910 2,997,225 104,318 790,497 41,374 145,692 378,070 1,168,567 – 1,157,133 1,157,133 894,815 1,576,577 2,471,392 NOTES TO ThE fINANCIAL STATEMENTS | 91 3. Revenue From continuing operations Sale of energy and environmental products1 Lease of plant and equipment2 Compensation for revenues lost as a result of O&M providers not meeting contracted turbine availability targets Asset management services Grant revenue 2013 $’000 2012 $’000 84,594 208,665 46,618 227,130 5,530 3,643 208 6,144 3,361 220 302,640 283,473 1 2 Includes revenue from the sale of electricity and from the generation of environmental certificates. The Group generates environmental certificates (including LGCs) and sells them under contractual arrangements and on market. In accordance with UIG 4 Determining whether an Asset Contains a Lease, revenue that is generated under certain power purchase agreements, where the Group sells substantially all of the related electricity and environmental certificates to one customer, is classified as lease income. Refer Note 1(u) for further information. 4. Other income From continuing operations: Income from institutional equity partnerships Value of production tax credits offset against Class A liability1 Value of tax benefits/(expenses) offset against Class A liability1 Tax benefits recognised/(deferred) during the period1 Other income Interest income Net foreign exchange gains Fair value gains on financial instruments2 Other income 2013 $’000 2012 $’000 76,178 (7,316) 9,924 78,519 1,279 (16,244) 78,786 63,554 2,390 – 1,832 249 3,000 8,468 – – 4,471 11,468 1 Refer Note 19 for further details. 2 Included within fair value gains on financial instruments in the year ended 2013 is a gain of $1,832,000 relating to interest rate swaps and an FX Option which does not qualify for hedge accounting. Therefore the unrealised gain from its revaluation has been taken to the profit and loss. 92 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 5. Expenses From continuing operations: Loss before income tax has been arrived at after charging the following expenses: Other expenses: Development costs Depreciation and amortisation expense: Depreciation of property, plant and equipment (Note 14) Amortisation of intangible assets (Note 15) Impairment expense: Impairment of goodwill (Note 15) Impairment of project related agreements and licences (Note 15) Interest expense: Interest expense on borrowings Interest expense on derivative financial instruments Finance costs relating to institutional equity partnerships: Allocation of return on outstanding Class A liability1 Movement in residual interest (Class A)1 Movement in non-controlling interest (Class B)1 Other finance costs: Fair value losses on financial instruments2 Foreign exchange losses Bank fees and loan amortisation costs Recognition and unwinding of discount on decommissioning provisions 2013 $’000 2012 $’000 3,276 3,276 3,874 3,874 123,261 14,627 125,632 14,493 137,888 140,125 3,787 54,575 58,362 34,514 37,079 – – – 44,305 30,480 71,593 74,785 39,181 10,580 3,044 42,830 8,924 7,426 52,805 59,180 – 9,078 4,540 2,744 8,676 – 3,096 – 16,362 11,772 1 Refer Note 19 for further details. 2 Included within fair value losses on financial instruments in the year ended 2012 is an expense of $5,924,354 relating to an interest rate swap which does not qualify for hedge accounting. Therefore the unrealised loss from its revaluation has been taken to the profit and loss. 6. discontinued operations Infigen did not dispose or discontinue any of its operations in the years ended 30 June 2013 and 30 June 2012. NOTES TO ThE fINANCIAL STATEMENTS | 93 7. Income taxes and deferred taxes (a) Income tax benefit Current tax Deferred tax Income tax benefit is attributable to: Loss from continuing operations Aggregate income tax benefit Deferred income tax (benefit)/expense included in income tax benefit comprises: Decrease in deferred tax assets Increase/(Decrease) in deferred tax liabilities (b) Numerical reconciliation of income tax expense/(benefit) to prima facie tax payable: Loss from continuing operations before income tax (benefit)/expense Income tax benefit calculated at 30% (2012: 30%) Increase/(decrease) in tax benefit due to: Tax losses not recognised as an asset Impairment expenses in relation to US assets Unrealised foreign exchange movement Sundry items Income tax (benefit)/expense 2013 $’000 (723) (3,755) 2012 $’000 (15,320) 13,049 (4,478) (2,271) (4,478) (2,271) (4,478) (2,271) 1,374 (5,129) 2,990 10,059 (3,755) 13,049 2013 $’000 (84,453) (25,336) 4,802 17,509 (2,123) 670 2012 $’000 (58,148) (17,445) 11,147 – 1,416 2,611 (4,478) (2,271) (c) Amounts recognised directly in equity The following deferred amounts were not recognised in net profit or loss but charged directly to equity during the period: Deferred tax asset Deferred tax liabilities Net deferred tax (d) Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% 2013 $’000 (5,757) – 2012 $’000 15,598 – (5,757) 15,598 2013 $’000 2012 $’000 453,832 372,910 136,150 111,873 (e) Tax consolidation IEL and its wholly-owned Australian resident entities have formed an Australian tax consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax consolidated group is IEL. The members of the tax consolidated group are identified in Note 29. Entities within the tax consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, IEL and each of the entities in the tax consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax consolidated group. The tax sharing agreement entered into between members of the tax consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. 94 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 7. Income taxes and deferred taxes (continued) (f) Current tax liabilities Income tax payable attributable to: Overseas entities in the Group Year ended 30 June 2013 Gross deferred tax assets: Unused revenue tax losses Effect of hedge movements Unrealised foreign exchange loss Gross deferred tax liabilities: Depreciation Unrealised foreign exchange gains Other Total deferred tax assets Year ended 30 June 2012 Gross deferred tax assets: Unused revenue tax losses Effect of hedge movements Unrealised foreign exchange loss Gross deferred tax liabilities: Depreciation Unrealised foreign exchange gains Other 2013 $’000 2012 $’000 – – 3,660 3,660 Opening balance $’000 Charged to Income $’000 Charged to Equity $’000 Acquisitions/ disposals $’000 Closing balance $’000 83,803 32,450 7,614 1,031 (1,434) (825) – (5,757) – 123,867 (1,228) (5,757) (59,380) (12,589) (3,539) (75,508) 48,359 70,546 12,253 12,873 396 5,007 (274) 5,129 3,901 13,257 4,599 (5,259) – – – – (5,757) – 15,598 – 95,672 12,597 15,598 (50,182) (12,500) (2,767) (9,198) (89) (772) (65,449) (10,059) – – – – – – – – – – – – – – – – – – – – – – 84,834 25,259 6,789 116,882 (58,984) (7,582) (3,813) (70,379) 46,503 83,803 32,450 7,614 123,867 (59,380) (12,589) (3,539) (75,508) 48,359 Total deferred tax assets 30,223 2,538 15,598 The group has assessed the expected taxable income to be generated in future periods and based on this assessment, temporary differences for deferred tax assets have been recognised to the extent that it is probable that they will be utilised. Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after more than 12 months Total deferred tax assets 2013 $’000 – 2012 $’000 – 46,503 48,359 46,503 48,359 NOTES TO ThE fINANCIAL STATEMENTS | 95 8. Key management personnel remuneration (a) Details of key management personnel The following Directors were Key Management Personnel (KMP) of Infigen during the financial years ended 30 June 2013 and 30 June 2012: Michael Hutchinson – Non-Executive Chairman Miles George – Managing Director & Chief Executive Officer Philip Green – Non-Executive Director Fiona Harris – Non-Executive Director Ross Rolfe AO – Non-Executive Director Other KMP of Infigen were: Name G Dutaillis1 C Baveystock B Hopwood S Taylor S Wright C Carson Role Chief Operating Officer Chief Financial Officer General Manager – Corporate Finance Executive General Manager – Australian Operations General Counsel Chief Executive Officer – USA 1 Employment ceased 30 June 2013. 2013 2012 (b) Key management personnel remuneration The aggregate remuneration of KMP of Infigen for the years ended 30 June 2013 and 30 June 2012 is set out below: Short term employee benefits2 Post-employment benefits (superannuation) Other long term benefits and equity-based incentive expense allocation3 Write-back prior years long term share-based incentive expense allocation Total 2013 $ 2012 $ 3,975,419 3,928,999 147,676 1,464,002 140,443 956,223 (655,000) (1,961,421) 4,932,097 3,064,244 Includes short term incentives accrued in respect of the current period. 2 3 Share-based incentive expense allocations are subject to performance rights and units vesting in the future. FY12 equity-based adjusted for Deferred STI granted in the period. (c) Rights and performance units held over Infigen securities Performance rights/units over Infigen securities were granted to certain KMP in the year ended 30 June 2009 under the Infigen Energy Equity Plan (Equity Plan). During the year ended 30 June 2013 Performance Rights and units were granted to KMP under the Equity Plan. No performance rights/units over Infigen securities were vested or became exercisable in the years ended 30 June 2013 and 30 June 2012. Performance rights/units held by KMP over Infigen securities over the period 1 July 2012 to 30 June 2013 are set out below. The expense recognised in relation to the performance rights/units under the Equity Plan is recorded within corporate costs. Set out below are summaries of the number of performance rights and units granted to KMP: M George G Dutaillis B Hopwood C Baveystock S Taylor S Wright C Carson Balance at 30 June 2011 1,920,053 976,903 291,352 – 343,7361 – 126,8661 Granted 917,374 463,384 309,966 309,966 309,966 – – Other Changes2 (556,463) (289,361) (86,808) – – – – Balance at 30 June 2012 2,280,964 1,150,926 514,510 309,966 653,702 – 126,866 Granted Other Changes2 Balance at 30 June 2013 3,455,570 (556,462) 5,180,072 1,573,507 (2,724,433)3 – 819,861 983,885 985,827 594,185 352,279 (86,808) 1,247,563 – 1,293,851 (87,132) 1,552,397 – – 594,185 479,145 1 Granted before becoming a KMP. 2 Represents forfeitures due to vesting conditions not met. 3 Employment ceased 30 June 2013. Refer to the table titled “Outstanding Performance Rights” in the Directors’ report for further details of the balances held at 30 June 2013. 96 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 8. Key management personnel remuneration (continued) (d) Loans from Infigen to key personnel and their personally related entities No loans have been made by Infigen to KMP or their personally related parties during the years ended 30 June 2013 and 30 June 2012. There are no other transactions with KMP. (e) Security holdings in Infigen No Infigen securities were granted as remuneration to KMP during the years ended 30 June 2013 and 30 June 2012. Security holdings of KMPs, including their personally related parties, in Infigen securities over the period 1 July 2012 to 30 June 2013 are set out below: M Hutchinson P Green2 F Harris R Rolfe AO D Clemson1 M George G Dutaillis C Baveystock B Hopwood S Taylor S Wright C Carson Balance at 30 June 2011 – – – – 140,000 500,000 641,820 – 10,000 5,9173 – – Acquired during 2012 110,000 – 100,000 – – 150,000 100,000 40,000 – – – – Other changes – – – – (140,000) – – – – – – – Balance at 30 June 2012 110,000 – 100,000 – N/A 650,000 741,820 40,000 10,000 5,917 – – Acquired during 2013 82,500 – – – Other changes – – – – N/A N/A – – – – – – 100,000 – – – – – – – Balance at 30 June 2013 192,500 – 100,000 – N/A 650,000 741,820 40,000 10,000 5,917 – 100,000 1 Mr Clemson retired as a Director on 11 November 2011. 2 Mr Green is a partner of The Children’s Investment Fund Management (UK) LLP which has a substantial shareholding of Infigen securities. Mr Green has advised Infigen that he does not have a relevant interest in those Infigen securities. 3 Granted before becoming a KMP. 9. 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: Audit services by: Auditors of the Company (PricewaterhouseCoopers) Australia Audit and review of the financial statements Audit and review of subsidiaries’ financial statements Overseas Audit and review of subsidiaries’ financial statements Other services by: Auditors of the Company (PricewaterhouseCoopers) Australia Taxation compliance and advisory services Due diligence services Overseas Taxation compliance and advisory services Liquidation services Total remuneration of auditors 2013 $ 2012 $ 755,000 90,000 900,691 174,309 405,830 486,432 1,250,830 1,561,432 73,500 210,000 1,280 37,644 70,000 – – – 322,424 70,000 1,573,254 1,631,432 10. Trade and other receivables Current Trade receivables Prepayments (Note 10(f)) Other receivables Non‑current Amounts due from related parties – associates (Note 32(c)) Prepayments (Note 10(f)) NOTES TO ThE fINANCIAL STATEMENTS | 97 2013 $’000 2012 $’000 30,229 12,449 1,504 29,621 8,834 1,489 44,182 39,944 764 4,749 5,513 1,348 7,242 8,590 (a) Past due but not impaired There were no trade receivables that were past due but not impaired as at 30 June 2013 and 30 June 2012. Refer to Note 35(b) for more information. 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 that these amounts will be received when due. The Group does not hold any collateral in relation to these receivables. (b) Impairment of trade receivables There were no impaired trade receivables for the Group as at 30 June 2013 or 30 June 2012. (c) Other receivables These amounts generally arise from transactions outside the usual operating activities of the Group. (d) Foreign exchange and interest rate risk Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in Note 35. (e) Fair value and credit risk Due to the nature of these receivables, their carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. Refer to Note 35 for more information on the risk management policy of the Group and the credit quality of the Group’s trade receivables. (f) Prepayments Included within current prepayments is $12,449,000 (2012: $8,834,000) of prepaid operational expenses. Included within non-current prepayments is $4,749,000 (2012: $7,242,000) of prepaid operational expenses. 11. Inventory Environmental certificates Spare parts 2013 $’000 9,046 4,710 2012 $’000 10,297 5,439 13,756 15,736 98 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 12. derivative financial instruments Current assets At fair value: Electricity option At fair value: FX forward option Non‑current assets At fair value: Interest rate cap Current liabilities At fair value: Interest rate swaps At fair value: FX forward contract Non‑current liabilities At fair value: Interest rate swaps Refer to Note 35 for further information. 2013 $’000 2012 $’000 49 2,536 2,585 438 438 – 3,242 3,242 579 579 52,187 – 35,732 6,846 52,187 42,578 102,520 148,575 102,520 148,575 13. Investments in associates Year ended 30 June 2013 During the year, the Group invested $280,000 in existing solar and wind farm projects to provide additional funding for the continuing development activities in these projects. The increased investments in the existing development projects did not result in any change to the Group’s ownership level in these interests. Year ended 30 June 2012 During the year, the Group invested $395,000 in existing development projects to provide additional funding for continuing development activities in these projects. Of the amount invested during the year, $155,000 was in the form of cash payments. The increased investments in the existing development projects did not result in any change to the Group’s ownership level in these interests. (a) Movements in carrying amounts Carrying amount at the beginning of the financial year Additions during the year Share of net losses after income tax Carrying amount at the end of the financial year 2013 $’000 728 280 (86) 922 (b) Summarised financial information of associates The Group’s share of the results of their associates and its aggregated assets (including goodwill) and liabilities are as follows: Assets Liabilities Revenues Net loss after tax (c) Contingent liabilities of associates There were no contingent liabilities relating to associates at the end of the financial year. 2013 $’000 1,309 743 – (86) 2012 $’000 765 395 (432) 728 2012 $’000 1,198 605 – (432) 14. Property, plant and equipment At 30 June 2011 Cost or fair value Accumulated depreciation Net book value Year ended 30 June 2012 Opening net book value Additions1 Transfers Disposals Depreciation expense1 Net foreign currency exchange differences Closing net book value At 30 June 2012 Cost or fair value1 Accumulated depreciation1 Net book value Year ended 30 June 2013 Opening net book value Additions Additions due to recognition of decommissioning assets Transfers to intangible assets Disposals Depreciation expense Net foreign currency exchange differences Closing net book value At 30 June 2013 Cost or fair value Accumulated depreciation Net book value NOTES TO ThE fINANCIAL STATEMENTS | 99 Assets under construction $’000 Plant & Equipment $’000 Total $’000 96,332 2,779,082 2,875,414 – (408,762) (408,762) 96,332 2,370,320 2,466,652 96,332 20,264 2,370,320 2,466,652 7,073 27,337 (116,596) 116,596 (667) – (667) – – – – – – – – – – – – – – (125,632) (125,632) 67,610 67,610 2,435,300 2,435,300 2,980,377 2,980,377 (545,077) (545,077) 2,435,300 2,435,300 2,435,300 2,435,300 11,042 15,791 (4,116) (2,376) 11,042 15,791 (4,116) (2,376) (123,261) (123,261) 145,639 145,639 – 2,478,019 2,478,019 – – – 3,190,773 3,190,773 (712,754) (712,754) 2,478,019 2,478,019 1 Includes the creation of decommissioning asset and corresponding depreciation. Assets under construction are deemed to be qualifying assets. Borrowing costs that are directly attributable to the construction of a qualifying asset are capitalised as part of the cost of that asset. 100 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 15. Intangible assets At 30 June 2011 Cost Accumulated amortisation and impairment Net book value Year ended 30 June 2012 Opening net book value Additions Transfers Amortisation expense1 Net foreign currency exchange differences Closing net book value At 30 June 2012 Cost Accumulated amortisation and impairment Net book value Year ended 30 June 2013 Opening net book value Additions Transfers Transfers from plant & equipment Transfers to capitalised loan costs Amortisation expense1 Impairment expense Net foreign currency exchange differences Closing net book value At 30 June 2013 Cost Accumulated amortisation and impairment Net book value Goodwill $’000 Development assets $’000 Project‑ related agreements and licences $’000 Total $’000 18,469 25,553 – – 316,076 (43,639) 360,098 (43,639) 18,469 25,553 272,437 316,459 18,469 – – – 154 25,553 5,918 (6,063) – – 272,437 1,653 6,063 (14,493) 8,353 316,459 7,571 – (14,493) 8,507 18,623 25,408 274,013 318,044 18,623 25,408 – – 333,323 (59,310) 377,354 (59,310) 18,623 25,408 274,013 318,044 18,623 – – – – – (3,787) 300 25,408 7,928 (928) – – – – – 274,013 2,165 928 4,116 (1,549) (14,627) (54,575) 14,045 318,044 10,093 – 4,116 (1,549) (14,627) (58,362) 14,345 15,136 32,408 224,516 272,060 15,136 32,408 361,175 408,719 – – (136,659) (136,659) 15,136 32,408 224,516 272,060 1 Amortisation expense is included in the line item Depreciation and Amortisation Expense in the statement of comprehensive income. (a) Impairment tests for cash‑generating units containing goodwill and other intangible assets For the purposes of impairment testing, goodwill is allocated to the Group’s countries of operation which represent the lowest level within the Group at which goodwill is monitored for internal management purposes as follows: Australia United States Total goodwill 2013 $’000 15,136 – 2012 $’000 15,136 3,487 15,136 18,623 Changes in the carrying amount of goodwill for United States resulted from impairment expenses due to carrying values exceeding realisable values. The recoverable amount of the CGU is determined based on value-in-use calculations. The calculations use cash flow projections based on financial projections approved by management covering the life of the wind farms. NOTES TO ThE fINANCIAL STATEMENTS | 101 15. Intangible assets (continued) Key assumptions for value‑in‑use calculations The Group makes assumptions around expected wind resources, availability, prices, operating expenses, discount rates and gearing in calculating the value-in-use of its CGUs. The Group uses production estimates to reflect the currently expected performance of the assets throughout the forecast period. The forecast period reflects the useful life of the assets held by each CGU as future cash flows over the forecast periods can be reliably estimated. Production is estimated by independent technical consultants on behalf of the Group for each wind farm. Pricing assumptions are based on the contractual terms of power purchase agreements where applicable, and third party assessments of merchant electricity and environmental certificate prices over the forecast period. In determining future cash flows for each CGU, the Group has adopted an equity risk premium of 4.7% to 5.2% for the United States CGU, and 5.1% to 5.6% for the Australian CGU to the cost of equity in addition to country specific risk premiums. This compares to an equity risk premiums of 6.0% to 6.5% adopted in 2012. In performing value-in-use calculations for each CGU, the group has applied post-tax discount rates to discount the forecast future attributable post-tax cash flows. The equivalent pre-tax discount rates are disclosed below. Australia United States Pre‑tax discount rates 2013 2012 10.8% – 12.4% 8.3% – 9.1% 8.8% – 10.0% 7.0% – 7.8% The discount rates used reflect specific risks relating to the relevant countries in which they operate. For some wind farms with power purchase agreements, future growth rates are based on the contractual escalation provisions in the relevant jurisdiction. For wind farms subject to market prices, future growth rates are based on long term industry price expectations. Impairment expense The Group booked an impairment expense of AUD$58,362,000 (USD$55,000,000) in the current year (2012: nil) in relation to the US CGU. The impairment expense was made as a result of changes in assumptions resulting in lower levels of gearing available to each CGU and the higher discount rates shown above. No other classes of assets other than intangible assets were impaired. The impairment expense was allocated firstly to the balance of goodwill, and then to the balance of licences relating to the US CGU. The impairment expense relating to goodwill was AUD$3,787,000 being the balance of goodwill relating to the US CGU at the end of the year, and the remainder of AUD$54,575,000 being allocated to the balance of licences attributable to the US CGU. Following the impairment, yearly amortisation expenses in future periods will be lower as a result of the lower carrying value of intangible assets being amortised over the remaining life of the assets. Sensitivity to changes in assumptions After effecting the impairment of the US CGU, the carrying value has been reduced to equate to the recoverable amount as at 30 June 2013. Variations to the key assumptions used to determine the recoverable amount would result in a change in the assessed recoverable amount. If the variation in assumptions had a negative impact on recoverable amount it could indicate a requirement for additional impairment expenses. The estimation of the recoverable amount of each CGU was tested for sensitivity using reasonably possible changes in key assumptions. These changes included decreases of up to 10% in gearing assumptions and increases in the equity discount rates of up to 1% with all other assumptions remaining constant. The testing for sensitivity in changes to key assumptions also included the impact of varying future cash flows for increases and decreases of up to 10% in market prices, 5% in production, and 10% in operating costs. It is estimated that adverse changes in these assumptions would have the following approximate impact on the carrying amount of the US CGU which was subject to impairment in the 2013 results. The amounts below represent the amount of additional impairment expense that would have been required after applying the adverse assumption changes listed below. It should be noted that each of the sensitivities below assumes that the specific assumption moves in isolation. Sensitivity to adverse assumption changes to the US CGU 10% decrease in gearing 1% increase in discount rate 10% decrease in market prices 5% decrease in production 10% increase in uncontracted operating costs USD millions <$10m <$10m $10m $20m <$10m None of these tests resulted in the carrying amount of the Australian CGU exceeding its recoverable amount. 102 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 15. Intangible assets (continued) (b) Project‑related agreements and licences Project-related agreements and licences include the following items: licences, permits and approvals to develop and operate a wind farm, including governmental authorisations, land rights and environmental consents; interconnection rights; and power purchase agreements. Project-related agreements and licences are carried at cost less accumulated amortisation and impairment expenses. Amortisation is calculated using the straight-line method to allocate the cost of licences over their estimated useful lives, which are based on the expected life of the related wind farm. Details of key assumptions used for value-in-use calculations, impairment expenses and sensitivities to changes in assumptions of Project-related Agreements and Licences are outlined above. (c) Development assets Development assets represent the cost of licences and wind farm development costs incurred prior to commencement of construction for wind farms. When a wind farm is constructed, the development assets relating to that wind farm are capitalised with the cost of constructing wind farms upon completion. Development assets are not amortised but are reclassified and depreciated over the effective life of the eventuating asset as property, plant and equipment when they become ready for use. 16. Trade and other payables Current Trade payables and accruals Goods and services and other taxes payable Deferred income Other1 2013 $’000 2012 $’000 18,744 24,412 5,742 6,595 5,480 6,077 6,575 2,941 36,561 40,005 1 Includes accrual for employee benefits and annual leave. The entire obligation for annual leave is presented as current because the Group does not have an unconditional right to defer payment. 17. borrowings Current Secured At amortised cost: Global Facility (i) Project finance debt – Woodlawn (ii) Non‑current Secured At amortised cost: Global Facility (i) Project finance debt – Woodlawn (ii) Capitalised loan costs Total debt 2013 $’000 2012 $’000 30,082 1,082 54,466 1,534 31,164 56,000 987,815 970,206 50,780 (9,716) 51,862 (8,854) 1,028,879 1,013,214 1,060,043 1,069,214 17. borrowings (continued) (a) Reconciliation of borrowings Opening balance Debt repayments – German Sale Debt repayments – Global Facility Debt repayments – Woodlawn Other financing repayments Draw down from project financing – Woodlawn (ii) Loan costs expensed/(capitalised) Loan costs capitalised – transferred from intangible assets Net foreign currency exchange differences Closing balance NOTES TO ThE fINANCIAL STATEMENTS | 103 2013 $’000 2012 $’000 1,069,214 1,252,417 – (154,264) (57,534) (1,535) – – 1,199 (1,549) 50,248 (57,300) (1,600) (1,766) 22,258 2,393 – 7,076 1,060,043 1,069,214 (b) Borrowings by currency The total value of funds that have been drawn down by currency, converted to Australian dollars (AUD) at the year end exchange rate, are presented in the following table: As at 30 June 2013 Australian dollars (AUD) – Global facility Australian dollars (AUD) – Woodlawn Euro (EUR) – Global facility US dollars (USD) – Global facility Gross debt Less capitalised loan costs Total debt As at 30 June 2012 Australian dollars (AUD) – Global facility Australian dollars (AUD) – Woodlawn Euro (EUR) – Global facility US dollars (USD) – Global facility Gross debt Less capitalised loan costs Total debt Total Borrowings (Local Currency ‘000) Total Borrowings (AUD ’000) 539,380 51,862 77,485 342,532 539,380 53,396 93,356 378,081 539,380 51,862 109,211 369,306 1,069,759 (9,716) 1,060,043 539,380 53,396 116,000 369,292 1,078,068 (8,854) 1,069,214 104 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 17. borrowings (continued) (i) Global Facility The Group’s corporate debt facility (the Global Facility) is a fully amortising, multi-currency facility that matures in 2022. The Global Facility is a syndicated facility among a group of Australian and international lenders. The Global Facility delineates between those Infigen group entities that comprise the Global Facility borrower group (Borrower Group) and those Infigen group entities that are not within the Borrower Group. The latter are generally referred to as “Excluded Companies”. In broad terms, the Borrower Group comprises IEL and substantially all of its subsidiaries, with the exception that none of the following fall within the Borrower Group: IET or IEBL Infigen Energy Holdings Pty Limited and its subsidiaries, which primarily include the Group’s Australian development pipeline project entities, the Group’s interests in US development opportunities and the cash balances of Excluded Companies Woodlawn Wind Pty Limited (which owns Woodlawn wind farm) the US wind farm entities and the institutional equity partnerships which own those US wind farm entities For clarity, the wholly-owned subsidiaries of IEL that are entitled to returns, including cash distributions, from the US wind farm entities, or institutional equity partnerships (refer Note 19), are included within the Borrower Group. Excluded Companies Excluded Companies: are not entitled to borrow under the Global Facility; must deal with companies within the Global Facility on arm’s length terms; and are not subject to, or the subject of, the representations, covenants or events of default applicable to the Borrower Group. Amounts outstanding under the Global Facility The amounts outstanding under the Global Facility are in Euro, United States dollars and Australian dollars. The base currency of the Global Facility is the Euro. Principal repayments under the Global Facility Subsequent to 30 June 2010 and for the remaining term of the Global Facility (expiring December 2022), all surplus cash flows of the Borrower Group, after taking account of working capital requirements, are used to make repayments under the Global Facility on a semi-annual basis (Cash Sweep). The net disposal proceeds of any disposals by Borrower Group entities must also be applied to make repayments under the Global Facility. During the year ended 30 June 2013 repayments of $57,534,000 (2012: $57,300,000) were made. Interest payments The Group pays interest each six months based on Euribor (Euro drawings), BBSY (Australian dollar) or LIBOR (United States dollar), plus a margin. It is the Group’s policy and a requirement of the Global Facility to use financial instruments to fix the interest rate for a portion of the borrowings (refer Note 35). Financial covenants During the period of the Cash Sweep, the only financial covenant that applies under the Global Facility is a leverage ratio covenant. This covenant is based on the results of each twelve month period ending 30 June or 31 December and is as follows: Through to June 2016: not more than 8.5 times; July 2016 to June 2019: not more than 6.0 times; July 2019 to expiry of facility (December 2022): not more than 3.0 times. The leverage ratio is determined by taking the quotient of Net Debt and EBITDA of entities that are within the Borrower Group. EBITDA represents the consolidated earnings of the Borrower Group entities before finance charges, unrealised gains or losses on financial instruments and material items of an unusual or non-recurring nature. The calculation of EBITDA from US wind farm operations is specifically defined under the Global Facility as cash distributions to Infigen for the leverage ratio purposes. Distributions to Infigen, from the US wind farm entities, can vary materially from the US reported EBITDA as a result of Institutional Equity Partnerships (Refer to Note 19). Review events A review event would occur if the shares of IEL were removed from the official list of the Australian Securities Exchange or were unstapled from units of IET and shares of IEBL. Such an event would require assessment of the effect on the Global Facility and, if necessary, agreement of an action plan. Security The Global Facility has no asset level security, however, each borrower under the Global Facility is a guarantor of the facilities. In addition, lenders have first ranking security over the issued share capital of, or other ownership interest in: the borrowers (other than Infigen Energy Limited); and the direct subsidiaries of the borrowers, which are holding entities of each operating wind farm in Infigen’s portfolio (other than Woodlawn wind farm). Global Facility lenders have no security over Excluded Companies. NOTES TO ThE fINANCIAL STATEMENTS | 105 17. borrowings (continued) (ii) Project finance facility – Woodlawn Wind Pty Ltd Woodlawn Wind Pty Ltd, the Infigen entity that owns the Woodlawn wind farm, is the borrower under an AUD $55 million project finance facility that matures in September 2014. The lender is Westpac Banking Corporation. Principal repayments under the Project finance facility The borrower is required to make debt repayments on a quarterly basis. During the year ended 30 June 2013 repayments of $1,534,700 (2012: $1,600,000) were made. Interest payments Interest is payable quarterly based on BBSY (Australian dollar) plus a margin. Interest obligations have been hedged at a fixed rate of 4.48% plus the margin for the period to maturity in September 2014. Security The lender under the Project Finance facility has security over the shares in, and assets and undertaking of Woodlawn Wind Pty Ltd. 18. Provisions Current Employee benefits1 Non‑current Employee benefits1 Decommission and restoration2 2013 $’000 2012 $’000 2,795 2,795 451 26,088 26,539 29,334 3,449 3,449 354 6,424 6,778 10,227 1 The current provision for employee benefits represents provision for short term incentives and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. 2 The decommission and restoration provision represents estimates of future expenditure relating to dismantling and removing of wind turbines and associated plant, and restoration of wind farm site. A reconciliation of the carrying amounts of provisions is set out below: Decommissioning and restoration $’000 Employee benefits $’000 Year ended 30 June 2012 Opening balance of provision at the start of the year Provision recognised during the year Effect of movements in foreign exchange rates Carrying amount at the end of the year Year ended 30 June 2013 Carrying amount at start of the year Provision reversed the year Provision recognised due to change in discount rates Recognition and unwinding of discount Effect of movements in foreign exchange rates 6,881 – (457) 6,424 6,424 – 15,791 2,744 1,129 Total $’000 10,593 91 (457) 3,712 91 – 3,803 10,227 3,803 (557) – – – 10,227 (557) 15,791 2,744 1,129 Carrying amount at the end of the year 26,088 3,246 29,334 106 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 19. Institutional equity partnerships classified as liabilities Nature of institutional equity partnerships Infigen is a Class B member in twelve (12) US limited liability companies (LLCs) that directly or indirectly own the US wind farms. The Group owns between 50% and 100% of the Class B membership interests in these LLCs. Each of these LLCs also has one or more Class A members (institutional investors), and where the Group does not own 100% of the Class B interests, one or more other Class B members. These LLCs are referred to as institutional equity partnerships (IEPs). The Group’s relationship with the Class A institutional investors and other Class B members is established through a LLC operating agreement. That operating agreement contains rules by which the cash flows and tax benefits, including Production Tax Credits (PTCs) and accelerated depreciation, generated by the wind farms are allocated between the Class A and Class B members during the life of the wind farms. The Class A institutional investors purchase their partnership interests for an upfront cash payment. This payment is fixed so that the investors, from the date that they purchase their interest, anticipate earning an agreed targeted internal rate of return by the end of the ten-year period over which PTCs are generated. This anticipated return is computed based on the total anticipated benefit that the institutional investors will receive and includes the value of PTCs, allocated taxable income or loss and cash distributions. Pursuant to the allocation rules specified in the LLC operating agreement, all operating cash flow is allocated to the Class B members until the earlier of a fixed date, or when the Class B members recover the amount of invested Class B capital. This is expected to occur between five to ten years from the initial closing date. Thereafter, all operating cash flow is allocated to the Class A institutional investors until they receive the targeted internal rate of return (the ‘Reallocation Date’). Prior to the Reallocation Date, a significant part of the tax income and benefits generated by the partnerships are allocated to the Class A institutional investors, with any remaining benefits allocated to the Class B members. After the Reallocation Date, the Class A institutional investors retain a non-controlling interest for the duration of their membership in the LLC. The Group also has an option to purchase the Class A institutional investors’ residual interests at fair market value. Recognition of institutional equity partnerships The Group either controls or jointly controls the strategic and operating decisions of institutional equity partnerships. Notes 29 and 36 provide further details of controlled and jointly controlled partnerships. Classification of institutional equity partnerships Class A institutional investors’ and Class B members’ investments in institutional equity partnership structures are classified as liabilities in the financial statements of the Group as the partnerships have limited lives and the allocation of income earned is governed by contractual agreements over the life of the investment. The following should be noted: Should future operational revenues from the US wind farms be insufficient, there is no contractual obligation on the Group to repay the liabilities. Balances outstanding (Class A institutional investors and Class B non-controlling members) do not impact the Group’s lending covenants. There is no exit mechanism by which investors can require repayment of their remaining capital and consequently there is no re-financing risk for each of the LLCs. NOTES TO ThE fINANCIAL STATEMENTS | 107 19. Institutional equity partnerships classified as liabilities (continued) The following table includes the components of institutional equity partnerships classified as liabilities: Class A member liabilities; non-controlling interests relating to Class B members and deferred revenue. Class A members Class B members Total 2013 $’000 2012 $’000 2013 $’000 2012 $’000 2013 $’000 2012 $’000 632,309 (15,141) 645,965 (15,228) 52,057 (8,268) 54,451 (12,392) 684,366 (23,409) 700,416 (27,620) (76,178) (78,519) 7,316 (1,279) 39,181 10,580 42,830 8,924 – – – – – – – – 3,044 5,056 7,426 2,572 (76,178) (78,519) 7,316 (1,279) 39,181 10,580 3,044 67,873 42,830 8,924 7,426 32,188 660,884 632,309 51,889 52,057 712,773 684,366 Foreign exchange loss/(gain) 62,817 29,616 Components of institutional equity partnerships: At 1 July Distributions/financing Value of production tax credits offset against Class A liability Value of tax expenses (benefits) allocated against Class A liability Allocation of return on outstanding Class A liability Movement in residual interest (Class A) Non-controlling interest (Class B) At 30 June Deferred benefits: At 1 July Deferred tax benefits recognised in profit and loss during the period Foreign exchange loss/(gain) At 30 June 20. Contributed equity Fully paid stapled securities/shares Opening balance Capital distribution Closing balance 472,767 436,560 (9,924) 48,226 16,244 19,963 511,069 472,767 1,223,842 1,157,133 2013 No. ’000 2013 $’000 2012 No. ’000 2012 $’000 762,266 761,642 762,266 761,642 – – – – 762,266 761,642 762,266 761,642 2013 $’000 2012 $’000 2,305 759,337 2,305 759,337 761,642 761,642 Attributable to: Equity holders of the parent Equity holders of the other stapled securities (non-controlling interests) Stapled securities entitle the holder to participate in dividends from IEL and IEBL and in distributions from IET. The holder is entitled to participate in the proceeds on winding up of the stapled entities in proportion to the number of and amounts paid on the securities held. 108 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 21. Reserves Foreign currency translation Hedging Acquisition Share-based payment Attributable to: Equity holders of the parent Equity holders of the other stapled securities (non-controlling interests) (a) Foreign currency translation reserve Balance at beginning of financial year Movements increasing/(decreasing) recognised: Translation of foreign operations Balance at end of financial year 2013 $’000 2012 $’000 (39,610) (50,472) (124,656) (151,064) (47,675) 3,592 (47,675) 2,705 (208,349) (246,506) (208,349) (246,506) – – (208,349) (246,506) 2013 $’000 2012 $’000 (50,472) (60,994) 10,862 10,862 10,522 10,522 (39,610) (50,472) Exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve, as described in Note 1(m). The reserve is recognised in profit and loss when the net investment is disposed of. (b) Hedging reserve Balance at beginning of financial year Movement increasing/(decreasing) recognised: Interest rate swaps Deferred tax arising on hedges Balance at end of financial year 2013 $’000 2012 $’000 (151,064) (82,545) 32,165 (5,757) 26,408 (84,117) 15,598 (68,519) (124,656) (151,064) The hedging reserve is used to record movements on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in Note 1(j). Amounts are recognised in profit and loss when the associated hedged transaction settles. (c) Acquisition reserve Balance at the beginning and end of the financial year 2013 $’000 2012 $’000 (47,675) (47,675) The acquisition reserve relates to the acquisition of non-controlling interests in entities over which Infigen Energy already exerted control. Therefore, the acquisition of these non-controlling interests did not result in a change of control but was an acquisition of the minority shareholders. These transactions are treated as transactions between owners of the Group. The difference between the purchase consideration and the amount, by which the non-controlling interest is adjusted, has been recognised in the acquisition reserve. (d) Share‑based payment reserve Balance at beginning of financial year Share-based payments expense1/(benefit) Balance at end of financial year 2013 $’000 2,705 887 3,592 2012 $’000 3,774 (1,069) 2,705 1 The share-based payments reserve is used to recognise the fair value of performance rights/units issued to employees but not exercised. Refer Note 25 for further detail. 22. Retained earnings Balance at beginning of financial year Net loss attributable to stapled security holders Balance at end of financial year Attributable to: Equity holders of the parent Equity holders of the other stapled securities (non-controlling interests) 23. Earnings per security/share (a) Basic and diluted earnings per stapled security/parent entity share: Parent entity share From continuing operations From discontinued operations Total basic and diluted earnings per share1 Stapled security From continuing operations From discontinued operations Total basic and diluted earnings per security1 NOTES TO ThE fINANCIAL STATEMENTS | 109 2013 $’000 10,697 (79,975) 2012 $’000 66,574 (55,877) (69,278) 10,697 (47,495) (21,783) 31,825 (21,128) (69,278) 10,697 2013 Cents per security 2012 Cents per security (10.4) – (10.4) (10.5) – (10.5) (7.2) – (7.2) (7.3) – (7.3) 1 The number of performance rights/units outstanding have not been included in the calculation of diluted EPS as they are anti-dilutive. Refer to Note 25 for the number of performance rights/units outstanding. (b) Reconciliation of earnings used in calculating earnings per security/share The earnings and weighted average number of securities/shares used in the calculation of basic and diluted earnings per security/share are as follows: Earnings attributable to the parent entity shareholders From continuing operations From discontinued operations Total earnings attributable to the parent entity shareholders Earnings attributable to the stapled security holders From continuing operations From discontinued operations Total earnings attributable to the stapled security holders (c) Weighted average number of shares used as the denominator Weighted average number of securities/shares for the purposes of basic earnings per security/share Weighted average number of securities/shares for the purposes of diluted earnings per security/share 2013 $’000 2012 $’000 (79,320) (55,195) – – (79,320) (55,195) (79,975) (55,877) – – (79,975) (55,877) 2013 No.’000 762,266 762,266 2012 No.’000 762,266 762,266 110 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 24. distributions paid Ordinary securities Following consideration by the Board of Directors in 2012 and as advised by the Chairman of the Board of Directors at the 2012 Annual General Meeting, the requirement to make debt repayments using surplus cash flow from operating assets held within the Group’s Global Facility Borrower Group effectively serves to continue to preclude the payment of distributions to security holders. Final and interim distributions in respect of the 2012 and 2013 years were nil cents per stapled security. Franking credits The parent entity has franking credits of $6,228,093 for the year ended 30 June 2013 (2012: $6,228,093). 25. Share-based payments (a) Long Term Incentive (LTI) – Employee equity plan LTI Equity Plan arrangements for the FY11, FY12 & FY13 grants Senior Managers have received a long term incentive award under the Infigen Energy Equity Plan (“Equity plan”) that encompass the Senior Manager’s long term incentive award for FY11, FY12 and FY13. Performance conditions of awards granted under the LTI Equity Plan FY11 plan participants received 100% performance rights or units in two tranches of equal value (Tranche 1 and Tranche 2). In FY12 plan participants received 100% performance rights or units in two tranches of equal value (Tranche 1 and Tranche 2). In FY13 plan participants received 100% performance rights or units in two tranches of equal value (Tranche 1 and Tranche 2). The measures used to determine performance and the subsequent vesting of performance rights/units are, Total Shareholder Return (TSR) and a financial performance (EBITDA) test. The vesting of Tranche 1 of the performance rights/units is subject to the TSR condition, while Tranche 2 of the performance rights/units are subject to the Operational Performance condition. The Operational Performance condition is determined by an earnings before interest, taxes, depreciation and amortisation (EBITDA) test. Performance rights Performance units Period 2011 Tranche 1 TSR condition TSR condition 30 September 2010 – 30 June 2013 Tranche 2 Operational Performance condition Operational Performance condition 30 September 2010 – 30 June 2013 2012 Tranche 1 TSR condition TSR condition 1 July 2011 – 30 June 2014 Tranche 2 Operational Performance condition Operational Performance condition 1 July 2011 – 30 June 2014 2013 Tranche 1 TSR condition TSR condition 1 July 2013 – 30 June 2015 Tranche 2 Operational Performance condition Operational Performance condition 1 July 2013 – 30 June 2015 TSR condition (applicable to Tranche 1 performance rights or units): TSR measures the growth in the price of securities plus cash distributions notionally reinvested in securities. In order for the Tranche 1 performance rights to vest, the TSR of Infigen will be compared to companies in the S&P/ASX 200 (excluding financial services and the materials/resources sectors). For the purpose of calculating the TSR measurement, the security prices of each company in the S&P/ASX 200 (as modified above) and of Infigen will be averaged over the 30 trading days preceding the start and end date of the performance period. The percentage of the Tranche 1 performance rights that vest under the LTI plans are as follows: Infigen Energy’s TSR performance compared to the relevant peer group FY11 Grant Percentage of Tranche 1 Performance Rights that vest FY12 & 13 Grant Percentage of Tranche 1 Performance Rights that vest 0 to 49th percentile Nil Nil 50th percentile 51st to 75th percentile 50% – 98% of the Tranche 1 Performance Rights will vest (i.e. for every percentile increase between 50% and 74% an additional 2% of the Tranche 1 Performance Rights will vest) 76th to 95th percentile 96th to 100th percentile 100% 100% 25% of the Tranche 1 Performance Rights will vest 27% – 75% (i.e. for every percentile increase between 51% and 75% an additional 2% of the Tranche 1 Performance Rights will vest) 76.25% – 100% (i.e. for every percentile increase between 76% and 95% an additional 1.25% of the Tranche 1 Performance Rights will vest) 100% NOTES TO ThE fINANCIAL STATEMENTS | 111 25. Share-based payments (continued) Operational Performance condition (applicable to Tranche 2 performance rights/units): the vesting of the Tranche 2 performance rights or units is subject to an Operational Performance condition. The Operational Performance condition will test the multiple of EBITDA to Capital Base, with the annual target being a specified percentage increase in the multiple over the year. The Capital Base will be measured as equity (net assets) plus net debt. Both the EBITDA and Capital Base will be measured on a proportionately consolidated basis to reflect Infigen’s economic interest in all investments. Set out below are summaries of performance rights that have been granted under the LTI plan: Deemed grant date 30 Sept 2010 (FY11 plan) 22 Dec 2011 (FY12 plan) 15 Nov 2012 (FY13 plan) Total 29 June 2011 (FY11 plan) Total Grand Total Balance at start of the year Number 1,943,172 2,608,098 Granted during the year Number – – – 5,610,531 Lapsed during the year Number Balance at end of the year Number (398,182) 1,544,990 – – 2,608,098 5,610,531 4,551,270 5,610,531 (398,182) 9,763,619 126,866 126,866 – – – – 126,866 126,866 4,678,136 5,610,531 (398,182) 9,890,485 Fair value of performance rights granted under the LTI plan 2011 Tranche 1 Tranche 2 2012 Tranche 1 Tranche 2 2013 Tranche 1 Tranche 2 Grant date Performance rights Performance units 30 September 2010/29 June 2011 30 September 2010/29 June 2011 22 December 2011 22 December 2011 15 November 2012 15 November 2012 0.439 0.696 0.091 0.255 0.078 0.220 0.19 0.23 N/A N/A N/A N/A The fair values of performance rights/units at grant date are determined using market prices and a model that takes into account the exercise price, the term of the performance right/unit and the security price at grant date. The model inputs for performance rights/units granted include: Performance rights/units are granted for no consideration and vest in accordance with the TSR condition and the Operational Performance condition outlined above for Tranche 1 and Tranche 2, respectively. Performance rights/units have a nil exercise price and vest automatically as stapled securities for rights and as cash for units. Grant dates: 30 September 2010 (FY11 rights plan); 29 June 2011 (FY11 unit plan); 22 December 2011 (FY12 plan); 15 November 2012 (FY13 plan). Security price at grant date: $0.735 (FY11 rights plan), $0.35 (FY11 unit plan), $0.255 (FY12 plan), $0.22 (FY13 plan). Where performance rights/units are issued to employees of subsidiaries within the Group, the expense in relation to these performance rights, is recognised by the relevant entity with the corresponding increase in stapled securities. In FY12 Senior Management received at least 50% of their short term incentive allocation as performance rights, Deferred STI (b) Deferred short term incentive granted as performance rights (Deferred STI) The Deferred STI vests over 2 years and has a forfeiture condition relating to continued employment. The Deferred STI is recognised as a Share Based Payment expense over the 2 year vesting period The grant date for the Deferred STI was 15 November 2012 The number of units issued under the Deferred STI was 3,786,020 The security price at grant date for the Deferred STI was $0.22 The expense recognised in FY13 relating to the Deferred STI was $622,802 112 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 25. Share-based payments (continued) (c) 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 were as follows: Performance rights, units issued under the plans – current year Deferred STI – issued as performance rights Write-back prior years long term share-based incentive expense allocation 26. Commitments for expenditure (a) Capital expenditure commitments Capital expenditure commitments 2013 $’000 860 623 (655) 828 2012 $’000 807 – (1,961) (1,154) 2013 $’000 524 2012 $’000 1,690 Capital expenditure commitments in the year ended 30 June 2013 related to capital spare parts and solar energy projects. Capital expenditure commitments in year ended 30 June 2012 include commitment arrangements relating to IT projects and solar energy projects. (b) Lease commitments Non-cancellable operating lease commitments are disclosed in Note 28 to the financial statements. (c) Other expenditure commitments Repairs and maintenance 2013 $’000 2012 $’000 303,566 70,426 Other expenditure commitments relate to contractual obligations for future repairs and maintenance of the wind plant and equipment which have not been recognised as a liability. During the current period, agreements were executed which extended the contractual obligations for future. 27. Contingent liabilities Contingent liabilities Letters of credit 2013 $’000 2012 $’000 41,754 42,151 Letters of credit generally relate to wind farm construction, operations and decommissioning and represent the maximum exposure. No liability was recognised by the parent entity of the Group in relation to these letters of credit, as their combined fair value is immaterial. Deed of Cross Guarantee Under the terms of ASIC Class Order 98/1418 (as amended by Class Order 98/2017) certain wholly-owned controlled entities are granted relief from the requirement to prepare audited financial reports. Infigen Energy Limited has entered into an approved deed of indemnity for the cross-guarantee of liabilities with those controlled entities (refer to note 30). NOTES TO ThE fINANCIAL STATEMENTS | 113 28. Leases Operating leases The Group leases land for its wind farms under non-cancellable operating leases expiring within 20 to 55 years. The leases have varying terms, escalation clauses and renewal rights. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years 29. Subsidiaries Name of entity Parent entity Infigen Energy Limited * Other stapled entities Infigen Energy (Bermuda) Limited Infigen Energy Trust Subsidiaries of the parent and other stapled entities Allegheny Ridge Wind Farm LLC Aragonne Wind LLC Aragonne Wind Investments LLC * Bodangora Wind Farm Pty Ltd Blue Canyon 1 Member LLC Buena Vista Energy LLC * Capital East Solar Pty Limited * Capital Solar Farm Pty Limited * Capital Solar Farm Holdings Pty Limited * Capital Wind Farm 2 Pty Limited *# Capital Wind Farm Holdings Pty Limited * Capital Wind Farm (BB) Trust Caprock Wind LLC Caprock Wind Investments LLC Caprock Wind Member LLC CCWE Holdings LLC Cedar Creek Wind Energy LLC Cedar Creek Wind 1 Member LLC * Cherry Tree Wind Farm Pty Ltd Combine Hills 1 Member LLC Crescent Ridge Holdings LLC Crescent Ridge LLC * CS CWF Trust CS Walkaway Trust * * Flyers Creek Wind Farm Pty Ltd Forsayth Wind Farm Pty Limited GSG LLC 2013 $’000 2012 $’000 8,766 33,994 8,010 31,114 131,685 124,473 174,445 163,597 Ownership interest Country of incorporation 2013 % 2012 % Australia Bermuda Australia USA USA USA Australia USA USA Australia Australia Australia Australia Australia Australia USA USA USA USA USA USA Australia USA USA USA Australia Australia Australia Australia USA 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%1 100% 100% 67%1 67% 100% 100% 100% 75%1 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – 100% 100% 100% 100%1 100% 100% 67%1 67% 100% 100% 100% 75%1 75% 100% 100% 100% 100% 100% 114 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 29. Subsidiaries (continued) Name of entity IFN Crescent Ridge LLC Infigen Energy Management Holdings LLC Infigen Energy Europe Pty Limited Infigen Energy Europe 2 Pty Limited Infigen Energy Europe 3 Pty Limited Infigen Energy Europe 4 Pty Limited Infigen Energy Europe 5 Pty Limited Infigen Energy Germany Holdings Pty Limited Infigen Energy Germany Holdings 2 Pty Limited Infigen Energy Germany Holdings 3 Pty Limited * * * * * * * * ^^ Infigen Energy Verwaltungs GmbH ^ Infigen Energy (Niederrhein) Limited ^ Infigen Energy (Eifel) Ltd ^^ Infigen Energy GmbH Infigen Energy Holdings Sarl Infigen Energy Germany Holdings Sarl Infigen Energy Vest Holdings Sarl Infigen Energy US LLC Infigen Energy T Services Pty Limited Infigen Energy Custodian Services Pty Limited Infigen Energy Development Holdings Pty Limited Infigen Energy Development Pty Ltd Infigen Energy Services Holdings Pty Limited Infigen Energy Services Pty Limited Infigen Energy RE Limited Infigen Energy Investments Pty Limited Infigen Energy Markets Pty Limited Infigen Energy US Partnership Infigen Energy US Corporation Infigen Energy (US) Pty Limited Infigen Energy (US) 2 Pty Limited Infigen Energy Finance (Australia) Pty Limited Infigen Energy Finance (Germany) Pty Limited Infigen Energy Finance (Lux) SARL Infigen Energy (Malta) Limited Infigen Energy Holdings Pty Limited Infigen Energy Niederrhein Pty Limited Infigen Asset Management LLC Infigen Management Services LLC Kumeyaay Holdings LLC Kumeyaay Wind LLC Kumeyaay Wind Member LLC Lake Bonney Wind Power Pty Limited Lake Bonney Wind Power 2 Pty Limited Lake Bonney Wind Power 3 Pty Limited * * * * * * * * * * * * * * * * * * * *# Lake Bonney Holdings Pty Limited * Lake Bonney 2 Holdings Pty Limited Ownership interest Country of incorporation 2013 % 2012 % USA USA Australia Australia Australia Australia Australia Australia Australia Australia Germany UK UK Germany Luxembourg Luxembourg Luxembourg USA Australia Australia Australia Australia Australia Australia Australia Australia Australia USA USA Australia Australia Australia Australia Luxembourg Malta Australia Australia USA USA USA USA USA Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%1 100%1 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 29. Subsidiaries (continued) Name of entity Mendota Hills LLC * NPP LB2 LLC * NPP Projects I LLC * NPP Projects V LLC * NPP Walkaway Pty Limited * NPP Walkaway Trust * Renewable Energy Constructions Pty Limited *# Renewable Power Ventures Pty Ltd RPV Investment Trust Sweetwater 1 Member LLC Sweetwater 2 Member LLC Sweetwater 3 Member LLC Sweetwater 4-5 Member LLC *# Walkaway Wind Power Pty Limited * Walkaway (BB) Pty Limited Walkaway (BB) Trust * Walkaway (OS) Pty Limited * Woakwine Wind Farm Pty Ltd Wind Park Jersey Member LLC Wind Portfolio I Member LLC Wind Portfolio Holdings I LLC * Woodlawn Wind Pty Ltd * Woodlawn Wind Holdings Pty Limited *# WWP Holdings Pty Limited BBWP Holdings (Bermuda) Limited * Infigen Energy US Holdings Pty Limited Infigen Energy US Development LLC Infigen Energy Solar One LLC Pumpjack Solar I LLC Wildwood Solar I LLC Rio Bravo Solar I LLC Limestone Solar I LLC Mesquite Solar I LLC Rio Bravo Solar II LLC Wildwood Solar II LLC Tortolita Solar I LLC Mexia Solar I LLC Sandy Hills Solar I LLC Mustang Solar I LLC Georgia Sun I LLC NOTES TO ThE fINANCIAL STATEMENTS | 115 Ownership interest Country of incorporation USA USA USA USA Australia Australia Australia Australia Australia USA USA USA USA Australia Australia Australia Australia Australia USA USA USA Australia Australia Australia Bermuda Australia USA USA USA USA USA USA USA USA USA USA USA USA USA USA 2013 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%1 100% 100% 100% 100% 100% 100% 100% 100%2 100%2 100%2 100%2 100%2 100%2 100%2 100%2 100%2 100%2 100%2 100%2 2012 % 100% 100% 100% 100% 100% 100% – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%1 100% 100% 100% 100% 100% 100% 100% 100%2 100%2 100%2 100%2 100%2 – 100%2 100%2 100%2 100%2 100%2 – * Denotes a member of the IEL tax consolidated group. 1 Class B Member interest. 2 Equity member interest. # Entered into a class order 98/1418 and related deed of cross guarantee with Infigen Energy Limited removing the requirement for the preparation of separate financial statements (refer note 30). ^ Placed into voluntary liquidation during 2012. ^^ Placed into voluntary liquidation during 2013. 116 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 30. deed of cross guarantee Set out below is a consolidated statement of comprehensive income and balance sheet, comprising Infigen Energy Limited and its controlled entities which are parties to the Deed of Cross Guarantee (refer note 29), after eliminating all transactions between parties to the Deed. The Deed of Cross Guarantee was executed on 18 June 2012. Consolidated statement of comprehensive income Revenue from continuing operations Other income Operating expenses Depreciation and amortisation expense Interest expense Other finance costs Net profit before income tax Income tax expense Net profit after income tax Net profit for the year Other comprehensive income – movements through equity Changes in the fair value of cash flow hedges, net of tax Total comprehensive loss for the year, net of tax 2013 $’000 75,991 – (12,462) (20,574) (23,850) (24,158) (5,053) (2,823) (7,876) (7,876) 2,402 (5,474) 2012 $’000 62,502 3,331 (11,820) (21,667) (26,453) (367) 5,526 (3,319) 2,207 2,207 (2,402) (195) NOTES TO ThE fINANCIAL STATEMENTS | 117 30. deed of cross guarantee (continued) (a) Consolidated balance sheet Current assets Trade and other receivables Derivative financial asset Inventory Total current assets Non‑current assets Receivables Shares in controlled entities Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Derivative financial instruments Total current liabilities Non‑current liabilities Payables Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 2013 $’000 2012 $’000 15,875 – 3,008 15,365 3,241 469 18,883 19,075 785,039 33,589 415,508 51,298 64,090 757,740 33,589 433,151 39,767 64,304 1,349,524 1,328,551 1,368,407 1,347,626 7,447 – 13,696 6,847 7,447 20,543 1,349,230 1,312,940 3,762 702 1,352,992 1,313,642 1,360,439 1,334,185 7,968 13,441 2,305 (23,005) 28,668 2,305 (25,407) 36,543 7,968 13,441 31. Acquisition of businesses Year ended 30 June 2013 There were no businesses acquired by the Group during the year ended 30 June 2013. Year ended 30 June 2012 (i) Transaction with Pioneer Green Solar In February 2012, the Group completed a transaction with renewable energy project developer Pioneer Green Solar (Pioneer) in relation to the ownership of certain solar development projects in the United States. Under the terms of the transaction, the Group acquired 100% of the equity interests in a number of solar development projects. As full consideration for the acquisition of equity interests in the solar development project entities, the Group paid USD 650,000 (AUD 606,000) in cash to Pioneer Green Solar in February 2012. 118 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 32. Related party disclosures (a) Equity interests in related parties Details of the percentage ownership held in subsidiaries are disclosed in Note 29 to the financial statements. (b) Key management personnel disclosures Details of key management personnel remuneration are disclosed in Note 8 to the financial statements. (c) Other related party transactions At the year end the Group was owed an amount of $764,000 (2012: $1,348,000) from various associated entities. (d) Parent entities The parent entity in the Group is IEL. The ultimate Australian parent entity is IEL. The ultimate parent entity is IEL. 33. Subsequent events Since the end of the financial year, in the opinion of the directors of IEL, there has not been any transaction or event of a material or unusual nature likely to affect significantly the operations or affairs of IEL in future financial periods. 34. Notes to the cash flow statements 2013 $’000 2012 $’000 (a) Reconciliation of cash and cash equivalents For the purposes of the cash flow statements cash and cash equivalents includes cash on hand and in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows: Cash and cash equivalents 124,524 126,703 (b) Restricted cash balances As at 30 June 2013 $17,264,125 (2012: $18,474,457) of cash is held in escrow in relation to payments retained by the Group under turbine supply and wind farm construction contracts, as well as the decommissioning of certain sites. 35. financial risk management The Group is exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and electricity price risk), credit risk and liquidity risk. The principal financial instruments that give rise to these risks comprise cash, receivables, payables and interest bearing debt. Risk management is carried out by the Group’s corporate treasury function under policies approved by the Board. The Group’s treasury department identifies, evaluates and hedges certain financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. The Group’s treasury policy provides a framework for managing the financial risks of the Group. The key philosophy of the Group’s treasury policy is risk mitigation. The Group’s treasury policy specifically does not authorise any form of speculation. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to manage potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments to hedge certain risk exposures. In line with the Group’s treasury policy derivatives are exclusively used for risk management purposes, not as trading or other speculative instruments. (a) Market risks (i) Interest rate risks The Group’s income and operating cash flows are exposed to interest rate risk as it borrows funds at floating interest rates. The risk is managed by fixing a portion of the floating rate borrowings, by use of interest rate derivatives. During 2013 and 2012, the Group’s borrowings at variable rates were denominated in Australian Dollars, US Dollars and Euros. A high percentage of the face value of debt in each of the relevant currencies is hedged using interest rate derivatives. The table below shows a breakdown of the Group’s interest rate debt and interest rate derivative positions. In undertaking this strategy the Group is willing to forgo a percentage of the potential economic benefit that would arise in a falling interest rate environment, in order to partially protect against downside risks of increasing interest rates and to secure a greater level of predictability for cash flows. NOTES TO ThE fINANCIAL STATEMENTS | 119 35. financial risk management (continued) Under interest rate derivative contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. The fair values of interest rate derivatives are based on market values of equivalent instruments at the reporting date and are disclosed below. The average interest rate is based on the outstanding balances at the start of the financial year. The following tables detail the notional principal amounts and remaining terms of interest rate derivative contracts outstanding as at reporting date: Outstanding pay fixed/receive floating interest rate swaps Fixed swap – AUD – GF Fixed swap – AUD – Woodlawn Fixed swap – Euro – GF Fixed swap – US dollar – GF Average contracted fixed interest rate Notional principal amount Fair value 2013 % 6.76 4.48 4.93 5.29 2012 % 6.77 4.48 4.93 5.29 2013 $’000 488,732 41,551 112,755 316,165 2012 $’000 531,685 42,348 98,961 301,210 2013 $’000 (83,281) (913) (20,486) (50,027) 2012 $’000 (83,594) (1,111) (20,365) (79,237) 959,203 974,204 (154,707) (184,307) Bank debt as at balance date The table below details the total amount of debt and breakdown of fixed and floating debt the Group held at 30 June 2013. The Global Facility debt is denominated in AUD, USD and EUR and the debt is re-priced every 6 months. AUD debt is priced using the 6 month BBSW rate plus the defined facility margin. EUR debt is priced using the 6 month Euribor rate plus the defined facility margin. USD debt is priced using the 6 month Libor rate plus the defined facility margin. The Woodlawn Project finance debt is re-priced quarterly using the 3 month BBSY (AUD) rate plus the defined facility margin. The current floating rate debt detailed in the table below is not inclusive of the facility margin. The current average interest rate, pre-margin across all facilities, is 5.97% (2012: 6.15%) The current average margin across all facilities is 114 basis points (2012: 111 basis points). Floating rate debt AUD debt – GF AUD debt – Woodlawn EUR debt – GF USD debt – GF Debt fixed by interest rate derivatives AUD debt – GF AUD debt – Woodlawn EUR debt – GF USD debt – GF Floating debt Debt principal amount 2013 % 2.89 2.82 0.34 0.42 2012 % 3.44 3.56 0.86 0.73 2013 $’000 50,647 10,311 (3,545) 53,143 2012 $’000 7,695 10,171 17,039 68,958 110,556 103,863 Debt fixed by derivatives Debt principal amount % of debt hedged 2013 % 6.76 4.48 4.93 5.29 2012 % 6.77 4.48 4.93 5.29 2013 $’000 488,732 41,551 112,755 316,165 2012 $’000 531,685 42,348 98,961 301,210 959,203 974,204 2013 % 2012 % 91 80 103 86 88 99 81 85 81 90 Total debt 5.97 6.15 1,069,759 1,078,067 120 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 35. financial risk management (continued) The table below shows the maturity profile of the interest rate swaps and interest rate caps as of 30 June 2013 and 30 June 2012. 2013 AUD swaps GF AUD swap Woodlawn EUR swaps GF USD swaps GF AUD interest rate caps 2012 AUD swaps GF AUD swap Woodlawn EUR swaps GF USD swaps GF AUD interest rate caps Undiscounted Fair value AUD$’000 fair value AUD$’000 Up to 12 months AUD$’000 1 to 5 years AUD$’000 After 5 years AUD$’000 (83,281) (913) (20,486) (50,027) 438 (91,499) (931) (21,212) (51,604) 552 (21,272) (362) (5,164) (26,550) – (53,883) (569) (10,034) (23,047) 188 (16,344) – (6,014) (2,007) 364 (154,269) (164,694) (53,348) (87,345) (24,001) (83,196) (1,111) (20,365) (79,237) 579 (94,769) (1,154) (21,155) (82,790) 723 (17,676) (225) (4,084) (14,176) – (51,339) (929) (10,361) (47,509) 297 (25,754) – (6,710) (21,105) 426 (183,330) (199,145) (36,161) (109,841) (53,143) The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and reclassified into profit and loss when the hedged interest expense is recognised. The ineffective portion is recognised in the income statement immediately. In the year ended 30 June 2013, a net gain of $1,832,343 was recorded (2012: $8,675,342 net loss) and included in finance costs. NOTES TO ThE fINANCIAL STATEMENTS | 121 35. financial risk management (continued) Sensitivity The sensitivity to interest rate movement of net result before tax and equity has been determined based on the exposure to interest rates at the reporting date. A sensitivity of 100 basis points has been selected across the 3 currencies to which the Group is exposed to floating rate debt: AUD, EUR, and USD. The 100 basis points sensitivity is reasonable as it is deemed to be flat across the yield curve. AUD +100 bps AUD ‑100 bps EUR +100 bps EUR ‑100 bps USD +100 bps USD ‑100 bps 2013 AUD $’000 Effect on income statement Cash Borrowings Woodlawn Capitalised loan cost Derivatives – interest rate swaps Woodlawn Derivatives – interest rate cap Total income statement Effect on hedge reserve Derivatives – interest rate swaps Woodlawn Total hedge reserve Total effect on equity AUD EUR USD AUD EUR USD AUD AUD AUD EUR USD AUD AUD 48,276 21,893 54,355 124,524 539,380 109,211 369,306 51,862 (9,716) 1,060,043 488,732 112,755 316,165 41,551 39,998 483 (483) (506) 506 (103) – 103 – 2,654 (2,654) – 376 – (212) 219 – 544 – (35) 12 (531) 224 208 (208) – – 2,904 (2,740) 392 (196) 13 224 AUD EUR USD AUD 488,732 112,755 316,165 41,551 21,553 (21,553) 502 (502) 6,207 (6,207) 19,412 (19,412) 22,055 (22,055) 24,959 (24,795) 6,207 6,599 (6,207) 19,412 (19,412) (6,403) 19,425 (19,188) 122 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 35. financial risk management (continued) AUD +100 bps AUD ‑100 bps EUR +100 bps EUR ‑100 bps USD +100 bps USD ‑100 bps 2012 AUD $’000 Effect on income statement Cash Borrowings Woodlawn Capitalised loan cost Derivatives – interest rate swaps Woodlawn Derivatives – interest rate cap Total income statement Effect on hedge reserve Derivatives – interest rate swaps Woodlawn Total hedge reserve Total effect on equity AUD EUR USD AUD EUR USD AUD AUD AUD EUR USD AUD AUD AUD EUR USD AUD 50,722 19,521 56,460 126,703 539,380 116,000 370,169 52,519 (8,854) 1,069,214 531,685 98,961 301,210 42,348 42,348 507 (507) 195 (13) (53) 53 (174) 174 564 (67) (703) 352 (100) – 100 – 3,200 (3,200) – 331 – (195) – – – – 3,885 (3,749) 21 161 (139) 285 531,685 11,901 (11,901) 98,961 301,210 42,348 896 (896) 3,581 (3,581) 11,881 (11,881) 12,797 (12,797) 16,682 (16,546) 3,581 3,602 (3,581) 11,881 (11,881) (3,420) 11,742 (11,596) The effect on the Group’s net result is largely due to the Group’s exposure to interest rates on its non-hedged variable rate borrowings. The effect on hedge reserve is due to the effective portion of the change in fair value of derivatives that are designated as cash flow hedges. (ii) Foreign exchange risk Operational FX risk The Group has wind farm operations in Australia and the US. The Group generates AUD and USD revenue from these operations. The Group is exposed to a decline in value of USD versus the AUD, decreasing the value of AUD equivalent revenue from its US wind farm operations. Equity FX risk The Group has an investment in its US wind farms that exceeds the value of its external USD debt. The Group is exposed to a decline in value of USD versus the AUD, decreasing the AUD equivalent value of its investment in the US wind farms. EUR debt FX risk The Group has a residual EUR77m (EUR93m FY12) debt position from its previous investments in Spain, France and Germany. This legacy EUR debt is not offset with any operational EUR assets. The Group is exposed to a decline in value of AUD versus the EUR, increasing the AUD equivalent value of its EUR debt. The Group has partially hedged this EUR77m exposure with: Prepayments of EUR15m of EUR debt in the period EUR 15.5m cash holdings as an FX Call option The table below splits out the P&L and equity movements of this exposure NOTES TO ThE fINANCIAL STATEMENTS | 123 35. financial risk management (continued) EUR Exposure EUR€’000 Market value – FX Derivatives AUD$’000 FX Gain/Loss Movement FY13 AUD$’000 Gain taken to P&L FY13 AUD$’000 Gain Equity – Hedge Accounted FY13 AUD$’000 (93,356) 15,871 – 15,533 (61,952) (93,356) 30,000 – 15,780 (47,576) – – 2,536 – 2,536 – (6,846) 3,242 – (3,604) (16,097) 2,736 2,536 2,678 (16,097) 2,736 – 2,678 (8,147) (10,683) 11,016 (6,846) 3,242 (1,862) 5,550 11,016 (3,414) 3,242 (1,862) 8,982 – – 2,536 – 2,536 – (3,432) – – (3,432) FX Hedging Base $’000 Maturity FX Rate at inception Spot FX Rate Market Value Financial Asset/ (Liability) AUD$’000 2013 EUR GF Debt EUR Repayment USD FX Call Option Cash 2012 EUR GF Debt EUR FWD FX EUR FWD Cover Cash FX Hedging Summary 2013 USD Call Option USD 25,000 November 13 1.0170 0.9275 AUD 2,536 2012 EUR FX FWD EUR FWD Cover EUR 30,000 – EUR 30,000 March 13 March 13 0.7028 0.7395 0.8079 0.8079 AUD (6,846) AUD 3,241 AUD (3,605) The Group has a multi-currency corporate debt facility and where practicable aims to ensure the majority of its debt and expenses are denominated in the same currency as the associated revenue and investments. The Group’s balance sheet exposure to foreign currency risk at the reporting date is shown below. This represents the EUR and USD assets and liabilities the Group holds in AUD functional currency. Foreign currency (AUD’000) Cash Trade receivables Short term intercompany loans FX Forward Contracts Net investment in foreign operations Trade payables Bank loans 2013 2012 EUR 21,546 – 24,499 – USD 40,013 – 2,710 26,954 20,679 296,896 (768) (158) EUR 19,161 – (10,156) 37,110 18,149 (14) USD 40,520 – 5,383 – 266,440 (295) (96,970) (27,429) (92,369) (37,547) Total exposure (foreign currency’000) (31,014) 338,986 (28,119) 274,501 124 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 35. financial risk management (continued) Sensitivity The following table details the Group’s pre-tax sensitivity to a 10 percent change in the AUD against the USD and the EUR, with all other variables held constant, as at the reporting date, for its unhedged foreign exchange exposure. A sensitivity of 10 percent has been selected as this is determined to be a reasonable measure for assessing the effect of exchange rate movements. Consolidated AUD’000 2013 Income statement Foreign currency translation reserve 2012 Income statement Foreign currency translation reserve AUD/EUR +10 % AUD/EUR ‑10% AUD/USD +10% AUD/USD ‑10% 5,169 (2,068) 4,627 (1,814) (5,169) 2,068 (4,627) 1,814 (4,209) (29,690) (806) (26,644) 4,209 29,690 806 26,644 (iii) Electricity and environmental certificates (including LGC) price risks The Group has wind farm operations in Australia and the US and sells electricity and environmental certificates to utility companies, an industrial customer and to wholesale markets in the regions it operates. The financial risk to the Group is that a decrease in the electricity or environmental certificate price reduces revenue earned. To mitigate the financial risks of electricity and environmental certificate prices falling, the Group has entered into power purchase agreements and green product purchase agreements to partially contract the sale price of the electricity and environmental certificates it produces. In undertaking this strategy of contracting a percentage of its electricity and environmental certificate sales, the Group is willing to forgo a percentage of the potential economic benefit that would arise in an increasing electricity and environmental certificate price environment, to protect against downside risks of decreasing electricity and environmental certificate prices; thereby securing a greater level of predictability of cash flows. Sensitivity The following table details the Group’s pre-tax sensitivity to a 10 percent change in the electricity and environmental certificate price, with all other variables held constant as at the reporting date, for its exposure to the electricity market. A sensitivity of 10 percent has been selected given the current level of electricity and environmental certificate prices and the volatility observed on an historic basis and market expectations for future movement. Consolidated AUD $’000 2013 Income statement 2012 Income statement Electricity/LGC Price +10% Electricity/LGC Price ‑10% 6,911 5,110 (6,911) (5,110) (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks, as well as credit exposures to customers. The Group’s exposure is continuously monitored and the aggregate value of transactions is spread among creditworthy counterparties. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Infigen as a wind generator generally sells electricity to large utility companies that operate in the regions Infigen has wind farms. The utility companies are situated in Australia and in many different states of the US. No one utility company or other off take counterparty represents a significant portion of the total accounts receivable balance. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with credit ratings assigned by international credit-rating agencies at above investment grade. The carrying amount of financial assets, recorded in the financial statements, represents the Group’s maximum exposure to credit risk. NOTES TO ThE fINANCIAL STATEMENTS | 125 35. financial risk management (continued) Consolidated 2013 Bank deposits Trade receivables Other current receivables Amounts due from related parties (associates) 2012 Bank deposits Trade receivables Other current receivables Amounts due from related parties (associates) Within credit terms $’000 Past due but not impaired $’000 Impaired $’000 Description 123,114 30,222 1,504 771 125,466 29,622 1,482 1,409 – Credit Rating Investment Grade – – – – Spread geographically with large utility companies – Sale settlement period – Loan to associated entities 1,237 – Credit Rating Investment Grade – – – Spread geographically generally with large utility companies – Sale Settlement period 722 627 – Loan to associated entities (c) Liquidity risks The Group manages liquidity risks by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The tables below set out the Group’s financial assets and financial liabilities at balance sheet date and places them into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. The tables include forecast contractual repayments under the Global Facility and the Project Finance Facility. From 1 July 2010 the Global Facility terms provide that net cash flows from the companies included in the Global Facility borrower group be applied to repay amounts outstanding under the Global Facility. Woodlawn Wind Pty Ltd, an Excluded Company for the purposes of the Global Facility, is the holder of project finance debt. For interest rate swaps and interest rate caps, the cash flows have been estimated using forward interest rates applicable at the reporting date. 2013 Global Facility debt Project finance debt – Woodlawn Interest rate swap payable – GF Interest rate swap payable – Woodlawn Interest rate cap receivable FX and other options Current payables 2012 Global Facility debt Project finance debt – Woodlawn Interest rate swap payable – GF Interest rate swap payable – Woodlawn Interest rate cap receivable Covered Forward FX Contract Current payables Up to 12 months $’000 1 to 5 years $’000 After 5 years $’000 Total contractual cash flows $’000 30,082 1,082 52,986 362 – 2,585 36,561 54,466 1,534 35,936 1,153 (723) 3,605 41,234 280,327 707,489 1,017,898 50,780 86,965 569 (188) – – 249,256 50,985 109,209 225 – – – – 24,365 – (364) – – 51,862 164,316 931 (552) 2,585 36,561 721,827 1,025,549 – 53,573 929 (297) – – 52,519 198,718 2,307 (1,020) 3,605 41,234 126 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 35. financial risk management (continued) (d) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. From 1 July 2009, the Group adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2); and c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following tables present the Group’s assets and liabilities measured and recognised at fair value at 30 June 2013. Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 2013 Assets FX Option Interest rate cap – Woodlawn Total assets Liabilities Interest rate swaps – Global Facility Interest rate swaps – Woodlawn Total liabilities 2012 Assets EUR FX Forward Cover option Interest rate cap – Woodlawn Total assets Liabilities EUR FX Forward Contract Interest rate swaps – Global Facility Interest rate swaps – Woodlawn Total liabilities – – – – – – – – – – – – 2,585 438 3,023 153,793 913 154,706 3,242 579 3,821 6,846 183,196 1,111 191,153 – – – – – – – – – – – – – 2,585 438 3,023 153,793 913 154,706 3,242 579 3,821 6,846 183,196 1,111 191,153 (e) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to generate value for securityholders and benefits for other stakeholders and to maintain an appropriate capital structure to minimise the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of distributions or dividends paid to securityholders, return capital to securityholders, buy back existing securities or issue new securities or sell assets. The capital structure of the Group consists of debt finance facilities as listed in Note 17, and equity, comprising issued capital, reserves and retained earnings as listed in Notes 20, 21 and 22. The Directors review the capital structure, and as part of this review, consider the cost of capital and the risks and rewards associated with each class of capital. Through the year to 30 June 2013, the Group has had to maintain the following ratio in regards to compliance with its Global Facility: Leverage ratio – Net Debt/EBITDA1 The Group has maintained this ratio during and at the end of the year. 1 Refer to Note 17(i) – Financial Covenants. NOTES TO ThE fINANCIAL STATEMENTS | 127 36. Interests in joint ventures Interests in the following institutional equity partnerships in the US are accounted for in the consolidated financial statements as joint venture partnerships and are proportionately consolidated based on Infigen’s Class B interest. Institutional equity partnership Related wind farms Sweetwater Wind 1 LLC Sweetwater Wind 2 LLC Sweetwater Wind 3 LLC Blue Canyon Windpower LLC Eurus Combine Hills 1 LLC Sweetwater 1 Sweetwater 2 Sweetwater 3 Blue Canyon Combine Hills Sweetwater Wind 4-5 Holdings LLC Sweetwater 4, Sweetwater 5 JB Wind Holdings LLC Jersey Atlantic, Bear Creek Further information relating to these institutional equity partnerships is set out below: Share of institutional equity partnerships’ assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Share of institutional equity partnerships’ revenues and expenses Revenues Expenses Profit before tax Class B Interest held by Infigen (30 June 2012 and 30 June 2013) 50% 50% 50% 50% 50% 53% 59.3% 2013 $’000 2012 $’000 10,316 466,915 10,442 429,100 477,231 439,542 2,795 373,835 4,099 355,702 376,630 359,801 100,601 79,741 69,133 (42,951) 26,182 63,799 (69,291) (5,492) 128 | INfIGEN ENERGy ANNuAL REPORT 2013 NOTES TO ThE fINANCIAL STATEMENTS CONTINuEd 37. Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Retained earnings Profit for the year Total comprehensive income 2013 $’000 705,911 826,336 831,212 834,807 2,305 (10,775) (8,470) (19,543) (19,543) 2012 $’000 920,531 1,026,648 1,014,297 1,017,978 2,305 6,365 8,670 466 466 Due to the stapled structure of IEL, IET and IEBL, the summary financial information of the parent entity shows a net current liability. When combined with the other stapled entities, the parent has positive net current assets and net total assets. (b) Guarantees entered into by the parent entity IEL has provided a guarantee over a lease in favour of American Fund US Investments LP in relation to its Dallas office which was executed on 26 June 2009. A performance guarantee dated 31 March 2010 has also been provided by IEL in relation to a contract to supply energy. The fair value of these guarantees is immaterial. (c) Contingent liabilities of the parent entity As at the end of the period, IEL did not have any contingent liabilities that it would expect to have a material impact on its financial statements. (d) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2013, the parent entity had no contractual commitments for the acquisition of property, plant or equipment (30 June 2012 – $nil). (e) Deed of Cross Guarantee The parent entity has entered into a Deed of Cross Guarantee with the effect that the company guarantees debts in respect of certain of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in notes 29 and 30. dIRECTORS’ dECLARATION dIRECTORS’ dECLARATION | 129 In the opinion of the Directors of Infigen Energy Limited (‘IEL’): a) the financial statements and notes set out on pages 76 to 128 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the financial 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. 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 the Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors pursuant to section 295(5) of the Corporations Act 2001. On behalf of the Directors of IEL: F Harris Director M George Director Sydney, 23 August 2013 130 | INfIGEN ENERGy ANNuAL REPORT 2013 Independent auditor’s report to the members of Infigen Energy Limited Report on the financial report We have audited the accompanying financial report of Infigen Energy Limited (the company), which comprises the statement of financial position as at 30 June 2013, 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 Infigen Energy Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at 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. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. INdEPENdENT AudITOR'S REPORT | 131 Auditor’s opinion In our opinion: (a) the financial report of Infigen Energy Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity's financial position as at 30 June 2013 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. (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 64 to 73 of the directors’ report for the year ended 30 June 2013. 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 Infigen Energy Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Darren Ross Partner Sydney 23 August 2013 132 | INfIGEN ENERGy ANNuAL REPORT 2013 AddITIONAL INVESTOR INfORMATION further Investor Information Further information required by the Australian Securities Exchange and not shown elsewhere in this Report is as detailed below. The information is current as at 16 September 2013. Number of Stapled Securities and holders One share in each of IEL and IEBL, and one unit in IET, have been stapled together to form a single IFN stapled security. The total number of IFN stapled securities on issue as at 16 September 2013 is 764,993,434 and the number of holders of these stapled securities is 21,450. Substantial Securityholders The names of substantial IFN securityholders who have notified IFN in accordance with section 671B of the Corporations Act 2001 are set out below. IFN Stapled Securities Number 249,603,481 % 32.74 Substantial IFN Securityholder The Children’s Investment Fund Management (UK) LLP Kairos Fund Limited Leo Fund Managers Limited VV and SS Sethu Date of Notice 6 July 2012 12 July 2013 28 May 2010 49,870,102 40,045,240 6.54 5.07 5.22 10 September 2013 40,000,000 Voting Rights It is generally expected that General Meetings of shareholders of IEL, shareholders of IEBL, and unitholders of IET will be held concurrently where proposed resolutions relate to all three Infigen entities. At these General Meetings of IEL, IEBL and IET the voting rights outlined below will apply. Voting rights in relation to General Meetings of IEL and IEBL: on a show of hands, each shareholder of IEL and IEBL who is present in person and each other person who is present as a proxy, attorney or duly appointed corporate representative of a shareholder has one vote; and on a poll, each shareholder of IEL and IEBL who is present in person has one vote for each share they hold. Also each person present as a proxy, attorney or duly appointed corporate representative of a shareholder, has one vote for each share held by the shareholder that the person represents. Important Aspects of the uS Assets LLC Project Agreements – Change of Control Provisions The limited liability company agreements (each a Project LLC Agreement) of the various Project LLCs for the US Assets provide for two levels of membership interests: Class A and Class B. The Class B Members serve as the managing members of the company. The managing members have control over and manage the affairs of the Project LLC, but the consent of the Class A Members is required for certain material actions to be taken by the Project LLC (such as the incurrence of debt, sale of material assets, mergers, acquisitions, sale of the Project LLC or other similar actions). Transfers of membership interests are permitted subject to (a) a right of first bid procedure for the benefit of non-transferring members, (b) a prohibition against transfers to certain disqualified transferees (such as competitors of the Project LLC), (c) prior to the Reallocation Date, transfers of Class B interests require consent of a designated super-majority of the Class A interests, and (d) Class A interests may be transferred after ten years if the Reallocation Date has not been reached and distributions have failed to exceed the sum of the Class B Members’ capital contributions. A change of control in a member of a Project LLC must comply with the foregoing transfer restrictions, except that an event causing a change of control of a member’s ultimate parent company does not constitute a change of control. The relevant Project LLC Agreements provide that a change purported to be made in breach of these provisions is void and that specific performance in respect of those clauses can be sought. In addition, breach of these provisions may give rise to a claim of damages. bermuda Law Issues Incorporation: Infigen Energy (Bermuda) Limited (IEBL) is incorporated in Bermuda. Takeovers: Unlike IEL and IET, IEBL is not subject to the sections in Chapter 6 of the Corporations Act dealing with the acquisition of shares (including substantial holdings and takeovers). Bermuda company law does not have a takeover code which effectively means that a takeover of IEBL will be regulated under Australian takeover law. However, Section 103 of the Bermuda Companies Act provides that where an offer is made for shares of a company and, within four months of the offer the holders of not less than 90% of the shares which are the subject of such offer accept, the offeror may by notice require the non-tendering shareholders to transfer their shares on the terms of the offer. Dissenting shareholders may apply to the court within one month of the notice, objecting to the transfer. The test is one of fairness to the body of the shareholders and not to individuals, and the burden is on the dissentient shareholder to prove unfairness, not merely that the scheme is open to criticism. Stapled Securities Each Stapled Security is made up of one IEL share, one IET unit and one IEBL share which, under each of the Constitutions and Bye-Laws respectively, are stapled together and cannot be traded or dealt with separately. In accordance with its requirements in respect of listed stapled securities, ASX reserves the right to remove any or all of IEL, IEBL and IET from the Official List if, while the stapling arrangements apply, the securities in one of these entities ceases to be stapled to the securities in the other entities or one of these entities issues securities which are not then stapled to the relevant securities in the other entities. AddITIONAL INVESTOR INfORMATION | 133 Voting rights in relation to General Meetings of IET: on a show of hands, each unitholder who is present in person and each other person who is present as a proxy, attorney or duly appointed corporate representative of a unitholder has one vote; and on a poll, each unitholder who is present in person has one vote for each one dollar of the value of the units in IET held by the unitholder. Also, each person present as proxy, attorney or duly appointed corporate representative of a unitholder has one vote for each one dollar of the value of the units in IET held by the unitholder that the person represents. Stapled Securities that are Restricted or Subject to Voluntary Escrow There are currently no IFN stapled securities which are restricted or subject to voluntary escrow. On-Market Security buy-back There is no current on-market buy-back of IFN stapled securities. distribution of IfN Stapled Securities The distribution of IFN stapled securities amongst IFN securityholders as at 16 September 2013 is set out below. Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total Securityholders 9,181 8,614 1,687 1,803 165 21,450 Securities 4,245,283 21,822,873 12,719,293 48,699,696 677,506,289 764,993,434 As at 16 September 2013, the number of securityholders holding less than a marketable parcel of IFN stapled securities was 12,211. Twenty Largest IfN Securityholders The 20 largest IFN securityholders as at 16 September 2013 are set out below. Rank IFN Securityholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC Custody Nominees (Australia) Limited Citicorp Nominees PTY Limited HSBC Custody Nominees (Australia) Limited – A/C 3 HSBC Custody Nominees (Australia) Limited-GSCO ECA National Nominees Limited J P Morgan Nominees Australia Limited JP Morgan Nominees Australia Limited Valamoon PTY LTD Bond Street Custodians Limited BNP Paribas Noms PTY LTD CS Fourth Nominees PTY LTD Mr Trevor Yuen Mr Paul Frederick Bennett UBS Wealth Management Australia Nominees PTY LTD ABN Amro Clearing Sydney Nominees PTY LTD HSBC Custody Nominees (Australia) Limited - A/C 2 Pacific Custodians PTY Limited QIC Limited Cheryl Babcock Chriswall Holdings PTY LTD Total Top 20 Total of Other Securityholders Grand Total of IFN Stapled Securities IFN Stapled Securities Held Number Percentage 340,992,952 82,345,465 53,529,528 47,582,994 30,078,468 26,171,209 10,927,369 6,950,864 6,127,735 4,960,929 4,633,505 3,438,321 3,139,532 3,119,008 2,952,361 1,903,638 1,777,163 1,544,451 1,365,420 1,300,000 44.57% 10.76% 7.00% 6.22% 3.93% 3.42% 1.43% 0.91% 0.80% 0.65% 0.61% 0.45% 0.41% 0.41% 0.39% 0.25% 0.23% 0.20% 0.18% 0.17% 634,840,912 130,152,522 82.99% 17.01% 764,993,434 100.00% 134 | INfIGEN ENERGy ANNuAL REPORT 2013 AddITIONAL INVESTOR INfORMATION CONTINuEd Key ASX Releases The key releases lodged with the Australian Securities Exchange and released to the market throughout FY13 are listed below. Dates shown are when releases were made to the ASX. 2012 02/07/2012 Infigen Announces Extended Warranty, Service & Maintenance Agreements with Mitsubishi 16/08/2012 Infigen Announces Full Year Production and Revenue 30/08/2012 Infigen Energy FY12 Full Year Results 28/09/2012 Infigen Energy Trust – FY12 Annual Financial Report 12/10/2012 Infigen Energy 2012 Annual Report and AGM Notice of Meeting 31/10/2012 Infigen Announces First Quarter FY13 Production and Revenue 15/11/2012 AGM Presentations and AGM Results 2013 31/01/2013 Infigen Announces Second Quarter FY13 Production and Revenue 21/02/2013 FY13 Interim Results 04/03/2013 Response to Media Report 21/03/2013 Government Endorsement of CCA RET Review Recommendations 05/04/2013 Cherry Tree Wind Farm – Interim Planning Decision 24/04/2013 Capital Wind Farm 30/04/2013 Infigen Announces Third Quarter FY13 Production and Revenue 17/06/2013 Infigen Settles Disputes with Gamesa and Enters Long-Term Agreements The above list does not include all releases made to the ASX. A comprehensive list and full details of all publications can be found on the Infigen website: www.infigenenergy.com, and the ASX website: www.asx.com.au. GLOSSARy | 135 GLOSSARy ASX AWEA BOP CAPACITY CAPACITY FACTOR CARBON PRICE CEC Australian Securities Exchange Limited (ABN 98 008 624 691) or Australian Securities Exchange as the context requires American Wind Energy Association, a trade association representing wind power project developers, equipment suppliers, services providers, parts manufacturers, utilities, researchers, and others involved in the wind industry. Infigen is a member. www.awea.org Balance of plant The maximum power that a wind turbine was designed to produce A measure of the productivity of a wind turbine, calculated by the amount of power that a wind turbine produces over a set time period, divided by the amount of power that would have been produced if the turbine had been running at full capacity during that same time period The currency of greenhouse gas emission schemes. The price is normally attributable to one tonne of carbon dioxide equivalent Clean Energy Council, the peak body representing Australia’s clean energy sector. It is an industry association made up of operating member companies in the fields of renewable energy and energy efficiency. Infigen is a member. www.cleanenergycouncil.org.au CLASS A MEMBERS Holders of Class A membership interests in Institutional Equity Partnerships (IEPs) in relation to the US wind farms CLASS A MEMBERSHIP INTERESTS The interests held by Class A members which have varying economic entitlements (tax allocations and cash distributions) depending on the age of the US wind farms CLASS B MEMBERS Holders of Class B membership interests in Institutional Equity Partnerships (IEPs) in relation to the US wind farms CLASS B MEMBERSHIP INTERESTS The interests held by Class B members which have varying economic entitlements depending on the age of the US wind farms CLEAN ENERGY FUTURE CLIMATE CHANGE PLAN Policy of the Australian Government that encompasses a carbon pricing mechanism, which commenced on 1 July 2012 CO2 CO2e Carbon dioxide Carbon dioxide equivalent DEVELOPMENT PIPELINE Infigen’s prospective renewable energy projects that are in various stages of development prior to commencing construction. Stages of development include: landowner negotiations; wind monitoring, project feasibility and investment evaluation; community consultation, cultural heritage, environmental assessment; design, supplier negotiations and connection DISTRIBUTIONS Distributions of cash or stapled securities under the DRP made by Infigen to securityholders DRP EBITDA Distribution Reinvestment Plan Earnings before interest, taxes, depreciation and amortisation FINANCIAL YEAR A period of 12 months starting on 1 July and ending on 30 June in the next calendar year GRID GW GWh IEBL IAM IEL IERL IEPs IET IFN INFIGEN LGC LLC The network of power lines and associated equipment required to deliver electricity from generators to consumers, also termed ‘transmission system’ Gigawatt. One billion Watts of electricity Gigawatt hour Infigen Energy (Bermuda) Limited (ARBN 116 360 715) Infigen Asset Management. Infigen’s US asset management business Infigen Energy Limited (ABN 39 105 051 616) Infigen Energy RE Limited (ACN 113 813 997) (AFSL 290 710), the responsible entity of IET Institutional equity partnerships Infigen Energy Trust (ARSN 116 244 118) The code for the trading of listed IFN stapled securities on the ASX Infigen Energy, comprising IEL, IEBL, IET and their respective subsidiary entities from time to time Large-scale Generation Certificate. The certificates are created by large-scale renewable energy generators and represent 1 MWh of renewable generation Limited liability companies formed under US law 136 | INfIGEN ENERGy ANNuAL REPORT 2013 GLOSSARy CONTINuEd LLC AGREEMENT LRET MW MWh OCC P50 PV PPA A limited liability company agreement between the members of an LLC Large-scale Renewable Energy Target – Legislated Australian target effective 1 January 2011. The rate of liability for LRET is established by the Renewable Power Percentage (RPP), which is used to determine how many LGCs need to be surrendered each year. The RPP for the 2013 calendar year is 10.65%. It is equivalent to 19.1 million LGCs and represents a proportion of total estimated Australian electricity consumption for the 2013 year Megawatt. One million Watts of electricity Megawatt hour Operations Control Centre, a centrally located business function within Infigen that monitors and directs the operations of Infigen’s wind farms The best estimate of annual electricity production where there is a 50% probability that that estimate of electricity production will be exceeded in any year. This may also be referred to as Long Term Mean Electricity Production Photovoltaic Power Purchase Agreement PRACTICAL COMPLETION The date on which construction has been completed in accordance with the respective delivery contract(s), typically including all regulatory requirements PRE-COMMISSIONING Operation of the wind farm prior to practical completion, during which all aspects are tested for performance against specified criteria PROJECT LLC PTC Limited liability companies in the US which each hold a wind farm where Infigen has aquired direct or indirect Class B membership interests Production Tax Credit: the result of the US Energy Policy Act of 1992, a tax credit that applies to wholesale electrical generators of wind energy facilities based upon the amount of electricity generated in a year REALLOCATION DATE The date on which tax benefits and cash distributions are shared between the Class A Members and the Class B Members, being a date which occurs when the Class A Members’ target return has been achieved REC RES RET RPP RPS SECURITYHOLDER SITE AVAILABILITY SOLAR PV STAPLED SECURITY TURBINE AVAILABILITY Renewable Energy Certificate Renewable Electricity Standards, also known as a Renewable Portfolio Standard (RPS). These programs apply for 37 US states plus the District of Columbia, and are based on a fixed quantity system whereby a renewable energy generator such as a wind farm is issued with renewable energy certificates which can be onsold to energy retailers who are required to surrender them to a state based regulator Renewable Energy Target, consists of Large-scale Renewable Energy Target and Small-scale Renewable Energy Scheme, to create a financial incentive for investment in renewable energy sources through the creation and sale of certificates in Australia Renewable Power Percentage, being an annual target set by the Clean Energy Regulator designed to achieve the target of generation of 41,850 GWh of electricity from renewable sources in Australia by 2020. www.ret.cleanenergyregulator.gov.au Renewable Portfolio Standards. See RES The registered holder of an IFN stapled security A percentage to indicate the duration of time a wind turbine has been available to generate. A number lower than 100% indicates a wind turbine has not been able to generate because of a reason attributed to a balance of plant or wind turbine problem Solar photovoltaic One unit in IET, one ordinary share in IEL and one ordinary share in IEBL, stapled together to form an IFN stapled security such that the unit and those shares cannot be traded or dealt with separately A percentage to indicate the duration of time a wind turbine has been available to generate. A number lower than 100% indicates a wind turbine has not been able to generate because of a reason attributed to a wind turbine problem TW TWh UNIT UNITHOLDER WTG Terawatt. One trillion Watts of electricity Terawatt hour An ordinary unit in IET The registered holder of a Unit Wind turbine generator CorporAte InformAtIon Infigen energy Level 22, 56 Pitt Street Sydney NSW 2000 Australia T: +61 2 8031 9900 www.infigenenergy.com Directors Michael Hutchinson (Non-Executive Chairman) Miles George (Managing Director) Philip Green (Non-Executive Director) Fiona Harris (Non-Executive Director) Ross Rolfe AO (Non-Executive Director) Company secretary David Richardson Annual general meeting Infigen Energy’s 2013 Annual General Meeting will be held at the Radisson Blu Plaza Hotel, 27 O’Connell Street, Sydney, Australia on 15 November 2013. Ifn stapled securities Each stapled security in Infigen Energy, tradable on the Australian Securities Exchange under the ‘IFN’ code, comprises: one share of Infigen Energy Limited, an Australian public company; one share of Infigen Energy (Bermuda) Limited, a company incorporated in Bermuda; and one unit of Infigen Energy Trust, an Australian registered managed investment scheme. responsible entity for Infigen energy trust Infigen Energy RE Limited Level 22, 56 Pitt Street Sydney NSW 2000 T: +61 2 8031 9900 registry Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 T: +61 1800 226 671 (toll free within Australia) F: +61 2 9287 0303 Email: registrars@linkmarketservices.com.au www.linkmarketservices.com.au Auditor PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 2650 DIsClAImer This publication is issued by Infigen Energy Limited (IEL), Infigen Energy (Bermuda) Limited (IEBL) and Infigen Energy RE Limited as responsible entity for Infigen Energy Trust (collectively Infigen). To the maximum extent permitted by law, Infigen and its respective related entities, directors, officers and employees (collectively Infigen Entities) do not accept, and expressly disclaim, any liability whatsoever (including for negligence) for any loss howsoever arising from any use of this publication or its contents. This publication is not intended to constitute legal, tax or accounting advice or opinion. No representation, warranty or other assurance is made or given by or on behalf of the Infigen Entities that any projection, forecast, forward-looking statement or estimate contained in this publication should or will be achieved. None of the Infigen Entities or any member of the Infigen Energy group guarantees the performance of Infigen, the repayment of capital or a particular rate of return on Infigen stapled securities. IEL and IEBL are not licensed to provide financial product advice. This publication is for general information only and does not constitute financial product advice, including personal financial product advice, or an offer, invitation or recommendation in respect of securities, by IEL, IEBL or any other Infigen Entities. Note that, in providing this publication, the Infigen Entities have not considered the objectives, financial position or needs of the recipient. The recipient should obtain and rely on its own professional advice from its tax, legal, accounting and other professional advisers in respect of the recipient’s objectives, financial position or needs. All amounts expressed in dollars ($) in this Annual Report are Australian dollars, unless otherwise specified. Acknowledgment of sources used in the “Did you know?” and “Myths and facts” sections goes to: 1. European Wind Energy Association 2. American Wind Energy Association 3. Sydney University Medical School 4. Bloomberg New Energy Finance Report, January 2013. 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