Transurban Group Annual Report 2004

Plain-text annual report

annual report 2004 an increasing Night trafﬁ c on CityLink’s gateway ﬂ ow of distributions increasing returns Transurban Group paid a total distribution to investors of 25.5 cents per security in 2003-04, fulﬁ lling its commitment to deliver increasing returns from the company’s cornerstone asset, CityLink. 6% traffic 10% revenue 27 5% . distributions strategy s opportunity t n e t n o c structure report operating assets 3 5 7 9 15 developing assets prospects partnerships governance ﬁ nancials 19 21 25 29 39 annual report 2004 1 Electronic tolling unlocks further opportunity for companies like Transurban. Architectural sound wall on CityLink opportunity The growing number of retail investors on the Transurban Group’s register reﬂ ects the company’s appeal as an inﬂ ation protected investment, which has produced strong distributable cash ﬂ ows as well as growth. Electronic tolling therefore unlocks further opportunity for companies like Transurban. It makes many projects possible in cities all over the world—projects that could not go ahead with manual tolling. Australia has a long history of toll roads. Over many decades they have maintained trafﬁ c and revenue growth through successive economic cycles. The success of CityLink, Transurban’s 22 kilometre toll road in Melbourne, demonstrates that full electronic toll roads can deliver better service—such as time savings— than manual toll roads where drivers have to stop to pay. The electronic tolling system and customer service on CityLink are the keys to its success. The road has multiple on and off ramps in inner suburbs where land is in short supply. There would not have been enough room for toll plazas and manual tolling would have slowed the trafﬁ c, making the project very inefﬁ cient. Continuing economic growth generates the need for major infrastructure. Governments are increasingly turning to the private sector to ﬁ nance, develop and manage new road infrastructure. A number of critical factors provide the basis for carefully planned growth of the company: g expanding opportunities as governments turn to the private sector to help meet community and business demands for new roads and infrastructure; g the expertise in full electronic tolling and customer service that Transurban developed on CityLink; g Transurban’s ability to maximise returns through continuous improvement and innovation; and g the appeal to governments of Transurban’s partnership approach to its relationships with communities. This last point is increasingly signiﬁ cant as governments recognise the importance of the owner/operator to the success of a full electronic toll road. Transurban takes a ‘whole of life’ approach to projects, working in partnership with governments and communities to earn the best returns for investors and the best outcomes for the people who use its roads. This approach recognises that equity investors are responsible for operating the road, tolling system and customer service for 30 years or more. For that reason, Transurban believes it is important for equity investors to be involved from the outset. This will ensure they have a role in allocating and managing project risks even before the road opens. On some projects, the bank and contractor bid for and develop the project, and the equity investor is only involved much later, when they are exposed to risks that have been negotiated by others. annual report 2004 3 Transurban will pursue the most promising new development projects. A CityLink on-ramp and overpass from below With a Group market capitalisation approaching $3.3 billion, Transurban is a major investor in toll roads in Australia. The company is now leveraging its considerable expertise to create new growth opportunities in Australia and overseas. strategy The Transurban Group’s strategy for investors is straightforward: Deliver increasing distributions from our operating assets and pursue the most promising new development projects with our strong focus on risk management and a ‘whole of life’ approach. The strong performance of our cornerstone asset, Melbourne’s CityLink, has underpinned rising distributions to security holders in recent years. Now, Transurban has a developing asset in Sydney— Westlink M7—which is on track to deliver even more value. Transurban’s policy is to steadily increase distributions half yearly in line with distributable cash ﬂ ow generated by the business. The strategy for growth in Australia will closely follow the CityLink model. The company will look to build, own and operate future toll roads. These projects will be delivered on a value accretive basis. Our approach overseas will differ slightly, as Transurban plans to capitalise on its tolling expertise. If successful in an overseas tolling project, Transurban will charge an upfront licence fee for its central tolling system, plus ongoing licence, consulting and management fees. If equity is required for an overseas project, it is expected to be raised primarily in the market in which the project is located, with Transurban earning a management fee. annual report 2004 5 Transurban’s capital structure is designed to maximise after-tax returns to our security holders. A section of CityLink’s sound tube structure triple stapled securities tax deferred distributions Transurban is capitalised through a triple stapled security, which is designed to maximise after-tax returns to security holders. Stapled securities are made up of securities in two (or more) separate entities, and they cannot be traded separately. Transurban’s triple stapled securities comprise shares in Transurban Holdings Limited, units in Transurban Holding Trust and shares in Transurban Infrastructure Developments Limited. Security holders have an equal number of units in each. Some of the other beneﬁ ts of the triple staple structure include: g providing ﬂ exibility to raise debt and equity for pursuing future projects and investments; and g allowing the different risk proﬁ les of mature and new assets to be held in different vehicles—which creates the option of listing those vehicles separately if shareholder returns are maximised. proﬁ t, loss and cash ﬂ ow Infrastructure projects require a huge amount of capital to develop. This capital is depreciated evenly over time, while revenue is lower at the start and grows over time. For this reason, developers like Transurban expect to report accounting losses in a project’s early years. In accounting terms, Transurban expects to record a proﬁ t in 2008-2009. Until then, non cash items such as depreciation will mean we report a loss each year. Investors should remember that it is not the level of accounting proﬁ t that impacts distributions, but the level of free cash ﬂ ow. The greater the cash ﬂ ow, the greater the distributions. Transurban expects to be able to pay 100 per cent tax deferred distributions until the end of 2005. This would be extended if Transurban’s argument that Concession Fees payable to the State of Victoria are tax deductible is accepted by the Federal Court. Tax deferred means that the distribution is not assessable for income tax, but each security holder’s cost base for capital gains tax purposes will be reduced by the amount of the distribution received. This beneﬁ t is derived from Transurban’s Trust structure and relates to the accounting losses the company has recorded. From 2006, distributions are expected to be partially tax deferred. Triple staple security Transurban Holdings Limited (‘THL’) Transurban Holding Trust (‘THT’) Transurban Intrastructure Developments Limited (‘TIDL’) Transurban (WSO) Pty Ltd Transurban CARS Trust (‘TCT’) CityLink Melbourne Limited CityLink Trust Transurban Infrastructure Management Limited (‘TIDL’) Melbourne CityLink Project The responsible entity for Transurban Holding Trust & Transurban CARS Trust Transurban WSO Trust (‘TWT’) CityLink Extension Pty Ltd Exhibition Street Extension Project WSO Co. Pty Ltd WestLink Motorway Partnership annual report 2004 7 Transurban investors can look forward to steadily increasing distributions and carefully planned growth. CityLink gateway in close up report Operating costs continued to come under scrutiny. Greater efﬁ ciencies in the processing of video images of vehicle licence plates will save about $250,000 a year. Programs to move customers to low cost communication channels such as the internet saved about $130,000 in 2003-04. A switch to a new call centre contractor will produce signiﬁ cant savings while increasing service levels. A number of new projects currently under way will further increase revenue and cut costs. One of the most signiﬁ cant will see the installation of additional cameras to capture images of rear number plates as well as the front ones we now process. Distributions were underpinned by a strong performance from our cornerstone asset, CityLink. Dual numberplate images will allow us to automate the bulk of the video imaging currently used to charge customers who do not have an e-TAG® device installed in their vehicle. This will substantially cut labour costs. The dual camera program will also allow us to design better and cheaper products for occasional users of the road, which we believe will attract more customers. We will be able to reduce the number of ‘lazy tags’ currently used by drivers who only travel on CityLink a few times a year. The new program will quickly recover its $9.1 million capital cost and add real value for security holders. Transurban has a continuous improvement program in place to further enhance service, increase revenue and reduce costs. chairman and managing director’s overview laurence g cox chairman kim edwards managing director Transurban has made a commitment to investors that it will deliver a growing stream of distributions. In 2003-04 we delivered on that commitment with a distribution of 25.5 cents per stapled security, an increase of 27.5 per cent on the previous year. The total distributed to security holders for 2003-04 is $134.7 million, up from $103 million. The distributions were underpinned by a strong performance by Transurban’s cornerstone asset, CityLink in Melbourne. Trafﬁ c on CityLink increased 6 per cent over the year and revenue grew by 10.1 per cent. Under Transurban’s agreement with the Government of Victoria, tolls on CityLink will increase each year by 4.5 per cent or the inﬂ ation rate, whichever is higher, until 2015 and by the inﬂ ation rate thereafter. cutting costs, increasing revenue Over the year, CityLink introduced a series of measures designed to lift revenue and cut costs. ACCESS, a new video tolling product introduced in July 2003, has been very successful, attracting about 34,000 new account customers and generating over $1.5 million in revenue. Changes to revenue related processes at CityLink generated an additional $700,000. annual report 2004 9 the promise of Westlink M7 hills motorway CityLink has already proven its value to investors. Revenue from Westlink M7, the new toll road in Sydney in which Transurban holds a 40 per cent stake, will begin ﬂ owing in 2006. Construction is progressing well and the road will beneﬁ t from the rapid industrial and residential development occurring in the Greater Western Sydney region in recent years. Businesses are relocating to the corridor and new housing sub-divisions are springing up at a rapid rate. Freight logistic facilities are already open for business adjacent to the M7. Westlink will become a very signiﬁ cant asset for Transurban. development of the joint venture The New South Wales government has foreshadowed that Sydney’s six existing manual toll roads will move to electronic tolling in coming years. Transurban identiﬁ ed an opportunity to assist in this transition. In December 2003, Transurban and Macquarie Infrastructure Group (MIG) agreed to set up a tolling joint venture and consider joint participation in future bids in Australia (excluding the Mitcham-Frankston bid). The tolling joint venture would offer full electronic tolling and customer management services to Sydney’s toll roads. Details of the joint venture are still being negotiated. On 19 April 2004 Transurban purchased an 8.1 per cent share in Hills Motorway, which owns and operates the M2 in Sydney. This cost $96 million at $6.40 per security. This road will connect to the M7. Securing a stake in Hills allows us to work with its management to extract the beneﬁ t of synergies between the two roads. mitcham-frankston project In Melbourne, Transurban leads Mitcham-Frankston Motorway (MFM), one of two consortia bidding to develop and operate the new Mitcham-Frankston project, a 40 kilometre toll road including tunnels in the east of the city. As this report goes to press, Transurban is awaiting a government decision on the project. With our consortium partners, we consulted widely in the Mitcham-Frankston corridor and have responded to local needs and concerns. We have set new standards in urban design. In preparing our proposal to the Victorian Government, our number one priority was ensuring that the project will be value accretive for our security holders. 10 annual report 2004 Construction of Westlink M7 is well under way stockholm outcome key ﬁ nancial results report Transurban made an accounting loss before tax of $61.5 million, compared to a loss of $83.6 million in the previous year. The loss reﬂ ects depreciation of the major investment in CityLink—a non cash item. Proﬁ t before non cash items was $128.3 million, up from $97.3 million. This ﬁ gure is a more realistic measure of the company’s capacity to pay distributions. Revenue was $467.7 million, made up of $254.5 million from tolling (net of GST), $3.5 million from outdoor advertising, $180.5 million from interest and $29.2 million in other revenue. The $467.7 million ﬁ gure was up from $410.9 million the year before. It should be noted that the ﬁ gure was enhanced by revenue generated by Transurban’s development activities totalling $25.5 million. In Sweden, Transurban was part of a consortium that tendered to develop and manage a congestion charging system in which motorists will pay tolls to travel into Stockholm’s city centre. The tender required no equity investment by Transurban. Our role in the consortium was as a business and operations adviser and supplier of the central toll collection system. While the bid was unsuccessful, the consortium is currently appealing the outcome of the tender. infrastructure bonds There was good news on negotiations with the Federal Government’s Development Allowance Authority (DAA). The authority has agreed to extend the term of Infrastructure Bonds used in the ﬁ nancing of CityLink from December 2004 to April 2007. Infrastructure Bonds are a Commonwealth initiative to assist key infrastructure projects. Essentially they allow Transurban to transfer tax beneﬁ ts it cannot use effectively to investors, and in turn the company receives lower interest costs. The beneﬁ t to Transurban’s security holders of the extension agreed with the DAA will be to generate interest cost savings of approximately $116 million and fees of $6.5 million within the next three years. concession fee tax deductions The Federal Court ruled that Transurban is not entitled to taxation deductions for CityLink Concession Fees it is obliged to pay to the State of Victoria. The ruling does not affect the amount of distributions the company pays to investors. However, it does affect the tax treatment of the distributions in investor hands. On the basis of the court ruling, Transurban anticipates it will be able to pay distributions 100 per cent tax deferred until the end of 2005. From 2006, they are expected to be partially tax deferred. Transurban lawyers say the Concession Fees should be deductible as an ongoing cost of earning CityLink income. The company is appealing the ruling. A Full Bench of the Federal Court began hearing the appeal in August 2004. annual report 2004 11 The CityLink ‘sound tube’ Operating costs were $77.1 million, compared to $69.3 million. This reﬂ ects higher volumes of usage. Net efﬁ ciency gains of $1.7 million were achieved, after allowing for some non recurrent costs. These costs included: g $400,000 to launch the ACCESS video tolling product; g $300,000 in the switch to a new call centre; and g $300,000 associated with the recall of e-TAG® devices following higher than expected battery failures. For more detail, turn to the Directors’ Report in the Transurban Group Financial Report on pages 41 to 42. transurban people Transurban is now a major employer with over 400 employees. The company has established a reputation as a good employer, and we have built up highly skilled teams in new business development, bid management, tolling technology development and operations and customer service. While most employees work in Melbourne, we have a highly professional team in Sydney and representation in Brisbane, London and New York. Transurban is a pioneer in what is still a young industry. This, combined with the growth of the company, means employees are constantly asked to meet new challenges and adapt to new circumstances. The success of the company is built on their hard work and enthusiasm and we thank them for it. Transurban aims to be an employer of choice Our success is built on the hard work and enthusiasm of our people. 12 annual report 2004 Transurban has built up a number of highly skilled teams report the future Our people are at the forefront of an emerging new paradigm in infrastructure development. This paradigm is built around the importance of the long term involvement of an operator. It recognises the converging interests of governments, communities, equity investors in toll roads and the customers who use them. In the past, many projects have been primarily focused on the design and construction phase. There are major risks in this phase and they have to be managed—as they were on CityLink. But there has been too little focus placed on the operational phase, which extends for the majority of most concession periods. There has been little recognition that over the life of a concession the way a road is managed will have to change to accommodate new technologies (such as electronic tolling) and to meet changing community needs and expectations. Increasingly, investors, governments and banks are all recognising that a focused, robust owner and operator with a long term view is important to all stakeholders. The emerging paradigm shift is towards a ‘whole of life’ approach to toll road assets. That is the Transurban approach. And that is why our investors can look forward to steadily increasing distributions and carefully planned growth. Laurence G Cox AO Chairman Kimberley Edwards Managing Director annual report 2004 13 Our projects enhance surrounding communities Transurban’s approach to managing its cornerstone asset, CityLink, is one of the key reasons for its success. Reﬂ ections in the ornamental pool under the CityLink gateway operating assets citylink CityLink had its most successful year so far in 2003-04, with toll and fee revenue reaching $254.5 million (net of GST)—a 10.1 per cent increase over the previous year. Average daily trafﬁ c was up 6 per cent. Transurban’s approach to managing its cornerstone asset is one of the key reasons for this success. The company has set itself apart from other toll road owner-operators by consistently seeking new ways to increase trafﬁ c and cut costs to generate stronger cash ﬂ ows, while maintaining a high standard of service. This strategy means Transurban can deliver increasing returns to investors. raising revenue A number of programs across the business have helped CityLink achieve a record increase in revenue in 2003-04. Last year’s annual report described a new video tolling product designed to attract new customers and expand the choices for existing CityLink users. This product, ACCESS, was launched in July 2003, and has been a resounding success. optimising the cost structure One of the biggest costs for any business with a large customer base is the provision of a call centre. During the year, CityLink contracted a new call centre, SalesForce, a company with a strong track record in customer service. The move will result in signiﬁ cant savings for the business—while also improving service levels. Improvements in the processing of images of vehicle number plates used for tolling will save CityLink about $250,000 a year. The company encourages customers to conduct their transactions with CityLink via the internet or other electronic ‘channels’ such as kiosks in retail outlets. These are quick and easy for customers to use, and less expensive for the business to manage. In 2003-04, the continuing shift to these low cost channels saved CityLink about $130,000. Sales of CityLink Passes on the internet jumped from 6 per cent to 9 per cent of all sales, while account top-ups online increased from 3 per cent to 5 per cent. serving customers Since the launch, about 34,000 new accounts have been established, generating over $1.5 million in toll and fee revenue for the year. Moreover, the new product has saved CityLink from issuing e-TAGs to many customers who would not travel often. The tags are an expensive way to serve infrequent users of CityLink. CityLink has developed a long term strategy to ensure the business maintains a competitive advantage in tolling customer service well into the future. The strategy looks ahead 10 years to think about how the marketplace will change, what our customers will need, and how we can deliver it. More favourable trip patterns and improvements in revenue related processes earned $700,000 more in 2003-04. Further opportunities have been identiﬁ ed. A cornerstone of the plan is to deliver superior service through an initiative called ‘Customer 1st’. It is designed to secure the position of CityLink (and other tolling services we may offer in the future) as attractive to new and existing customers and encourage current customers to increase their use of the road. annual report 2004 15 Sydney’s Harbour Bridge and Harbour Tunnel, plus all Queensland toll roads. improving infrastructure CityLink has made a number of changes to the road and its systems to improve the driving experience for customers, increase safety and enhance overall operations. Some of these improvements include: CityLink’s ‘Customer 1st’ brings new levels of excellence to our customer service operations g updating the communications network that is the backbone of our tolling system; Already, the approach is having a positive impact on CityLink’s day to day operations and its decisions on future business activities. It has also further focused employees on the vital role customer service plays in our company’s success. Some innovative programs created through ‘Customer 1st’ include: g CityLink Customer Charter—a set of promises to customers, and a list of performance targets the company is committed to meeting in customer service, road performance and community involvement (to be launched in September 2004); g CityLink Report Card—an annual public document showing how the company measured up on the performance targets in the Customer Charter (ﬁ rst report scheduled for February 2005); g CityLink Customer Ombudsman—the appointment of an independent ombudsman (the ﬁ rst for an Australian toll road) to review and make a binding decision on the rare customer issues that could not be resolved through standard, internal processes (to be launched in September 2004); and g Bright Spark—an internal program that draws on the feedback of experienced staff to make immediate, measurable improvements to customer service (launched April 2004). In August 2003, interstate roaming for CityLink’s e-TAG customers was expanded to include all New South Wales toll roads. Customers already had access to g installing special barriers at the entrances to the tunnels to warn drivers of overheight trucks that they pose a safety hazard; g using ramp metering at the Gibdon Street interchange of the Southern Link to control the ﬂ ow of trafﬁ c onto the freeway; g posting better speed advisory signs on the road; and g optimising the operation of the tunnels to improve air quality. Melbourne’s major road system Hume Freeway Tullamarine Freeway Hume Highway Melbourne Airport Western Ring Road TULLAMARINE Under construction Planned projects CityLink Tollways Untolled Freeways Hume Freeway Extn Metro. Ring Road Extn Metropolitan Ring Road Calder Freeway Western Highway SUNSHINE Deer Park Bypass Essendon Airport CityLink CityLink CiCCitit yLininn ityLink (Western Link) (Western Link) (Weess st rnrn stern Link) ESSENDON PRESTON Eastern Freeway BULLEEN FOOTSCRAY Port of Melbourne CARLTON CBD CityLink CityLink CityLink (Southern Link) (Southern Link) (Southern Link) BOX HILL West Gate Freeway LAVERTON WILLIAMSTOWN ST KILDA Princes Freeway Princes Highway BURWOOD Monash Freeway CHADSTONE 16 annual report 2004 operating assets CityLink engineers also liaised with VicRoads— the Victorian Government’s public road authority—as it rolled out improvements to the Bolte Bridge to Lorimer Street and Montague Street sections of the Westgate Freeway. This VicRoads project, which began in mid 2004, will increase trafﬁ c lanes in both directions and improve merging. The changes on this key section of road should help alleviate the peak hour congestion many CityLink customers experienced travelling to or from the city’s west. citylink – making melbourne work better CityLink is a 22 kilometre motorway in Melbourne, Victoria, which was Australia’s ﬁ rst fully electronic toll road. It is divided into two sections—the Western and Southern Links—which connect the Tullamarine, Monash and Westgate freeways. The road includes two tunnels, a major bridge over the Yarra River, an elevated roadway and an architecturally designed ‘gateway’ feature on the approach to the city. full electronic tolling With full electronic tolling, motorists do not have to stop at boom gates or toll booths to pay by cash. On CityLink, they are tolled electronically, and must have one of the following: g CityLink account—Motorists with an account receive an e-TAG, a small electronic device they place on the vehicle’s windscreen. When they travel on CityLink, an overhead tolling system scans the e-TAG and deducts the appropriate toll from the account. g ACCESS account—Customers with this account do not need an e-TAG, since CityLink also uses video equipment on the road to recognise a vehicle’s number plate and allocate the toll to a customer’s account. There is a fee associated with matching a vehicle’s details to the customer’s account on each trip. g CityLink pass—This pass allows travel on a particular section of the road or during a set period of time. It can be purchased either before or after travel. In either situation, the vehicle’s number plate is captured during travel by CityLink’s roadside equipment. image processing & enforcement When motorists travel on CityLink without an e-TAG device, their number plate is captured by CityLink’s roadside equipment. This image is then processed by CityLink, and either used to settle a customer’s account or passed on to the Victorian government agency that handles enforcement. This agency administers ﬁ nes to people who have not made arrangements to travel on the road. interstate roaming CityLink customers with an e-TAG device are covered for travel on all tollways in Australia since the company has agreements with all the operators of these roads. annual report 2004 17 Westlink M7 is on track to deliver substantial returns to investors. Reinforcing for concrete pavement on Westlink M7 developing assets westlink M7 Transurban’s ﬁ rst New South Wales project—the $2.23 billion Westlink M7 in Western Sydney—is on track to become another valuable asset delivering substantial returns to investors. Construction of the 40 kilometre motorway is progressing well, and the strong industrial and residential growth in the region is exceeding early forecasts. Due to open in 2006, Westlink M7 will link Sydney’s M5, M4 and M2 and traverse Australia’s fastest growing economic region. It will become the major transport link for the 1.8 million people who live in the Greater Western Sydney Region, bypassing up to 56 sets of trafﬁ c lights and saving more than an hour on some journeys. Transurban is a 40 per cent equity partner in this project, with rights to a further 10 per cent, and holds the electronic tolling and customer service contracts. Our equity partners are Macquarie Infrastructure Group (40 per cent), Leighton Holdings (10 per cent) and Abigroup Limited (10 per cent). growth in the region Transurban targeted this project due to the enormous growth predicted in the Greater Western Sydney Region over the next 15 years. Westlink M7 will signiﬁ cantly contribute to this growth by linking available industrial land to the port and airport and stimulating rapid residential development. As the long-term operator of the road, Transurban and its investors have a substantial stake in this growth. Western Sydney is the third largest economy in Australia, and the home of more than 72,000 businesses. Approximately 90 per cent of the new industrial land in Sydney that is earmarked for development is in the Westlink M7 corridor. In May this year, the New South Wales Government announced an additional 100 hectares of land at the intersection of Westlink M7 and the M4 would be rezoned for employment purposes, expected to create more than 5,000 new jobs. The Government also announced the development of a link road from Westlink M7 to Erskine Park Employment area, a new 500 hectare industrial estate expected to create more than 6,000 jobs. According to the Greater Western Sydney Economic Development Board, Westlink M7 will generate 24,000 new jobs and an additional $3 billion in economic output in the ﬁ rst three years it is open. Details are also expected this year on two large land releases at Bringelly and Marsden Park just to the south and north of Westlink M7. According to the New South Wales Government, these two areas alone could house up to 400,000 people over the next 10 to 15 years. construction progress Westlink M7 is the biggest urban infrastructure project in Australia. The 40 kilometre motorway includes 17 interchanges, 38 overpasses and underpasses, 144 bridges and a 40 kilometre path for pedestrians and cyclists. Construction risks for the Abigroup-Leighton Joint Venture are considered low, given there are no tunnels or difﬁ cult geotechnical issues. Since major construction began in July last year more than seven million cubic metres of earth have been moved. Most of the earthworks and design work are now complete, paving has started and many of the bridges are under construction. Westlink M7 will be Sydney’s ﬁ rst fully electronic toll road with distance based tolling. Work is well underway on the tolling and customer service system, with a range of payment options for motorists currently being ﬁ nalised. annual report 2004 19 We carefully consider projects that ﬁ t strict investment criteria and add value for security holders. CityLink’s Bolte Bridge and towers from below prospects tolling Transurban’s cornerstone asset, CityLink, is widely regarded as the most efﬁ cient full electronic toll road in the world. This has earned the company an international reputation for leadership in tolling and customer service. international opportunities In March 2004 Transurban joined a consortium headed by Fluor Corporation that has submitted a proposal to the Virginia Department of Transportation in the US for the provision of Bus Rapid Transit (BRT) / High Occupancy Toll (HOT) lanes for the I-95 Motorway. Transurban is now leveraging that expertise to pursue projects in Australia and overseas that ﬁ t our strict investment criteria and add value for shareholders. This proposal is only at concept stage. If it develops, Transurban plans to take on the tolling system design and operations role. In February 2004 Transurban announced it had joined the Combitech AB consortium bidding to supply, install and operate a system for collecting ‘environmental taxes’ in Stockholm, Sweden. This is similar to congestion charging schemes in cities like London. It was the company’s ﬁ rst tender outside Australia. The price and contractual terms bid by the Combitech AB consortium would have enabled Transurban to achieve a suitable proﬁ t margin while containing its risk exposure to the project. The proposal was not selected, but the consortium is currently appealing the outcome of the tender. If successful in an overseas tolling project, Transurban will charge an upfront licence fee for its central tolling system (known as GATe), plus ongoing consulting and management fees. If equity is required for an overseas project, it is expected to be raised primarily in the market in which the project is located, with Transurban earning a management fee. There is no shortage of opportunities. Internationally, governments are increasingly turning to advanced tolling technology to manage congestion and generally improve transport networks in and around major cities. Transurban’s approach to these projects involves partnering with established, local players that can beneﬁ t from our expertise and also offer us the greatest chance of success in any bid. joint venture with MIG In Australia, Transurban and Macquarie Infrastructure Group (MIG) agreed in December 2003 to cooperate on establishing, developing and implementing a Tolling Joint Venture which would offer fully electronic tolling and customer management services to Sydney toll roads. Transurban and MIG already have a joint investment in Sydney’s Westlink M7. The Joint Venture will seek tolling contracts with existing and new Sydney toll roads using Transurban’s tolling and customer service technology and expertise, licensed on commercial terms. This will create the opportunity to deliver Sydney road users an efﬁ cient and seamless tolling solution and bring signiﬁ cant beneﬁ ts to freight and logistics companies in particular. Development of the joint venture is progressing. annual report 2004 21 Global demand for automated tolling is growing rapidly development Across the world, many countries are facing a land transport crisis. Trafﬁ c is growing at a rate that signiﬁ cantly exceeds most planners’ forecasts. In Australia, the national forecast is that passenger kilometres will rise 30 per cent in urban areas by 2020. Unless we signiﬁ cantly increase investment in transport solutions, congestion could be costing Australia as much as $30 billion a year in lost productivity by 2015. These predictions are placing governments under increasing pressure. However, ﬁ scal priorities mean they are unwilling or unable to borrow the kind of money required to tackle the backlog of critical road projects. As a result, governments are turning to the private sector to develop and operate new roads. As a pioneer in full electronic tolling, Transurban is uniquely placed to capitalise on the opportunities emerging along the eastern seaboard of Australia. However, the company will continue to apply strict investment criteria in assessing each new opportunity. mitcham-frankston project Transurban is a major equity partner in the Mitcham- Frankston Motorway (MFM) consortium, which is bidding to build, own and operate the newest toll road in Melbourne, Victoria. MFM is one of two groups bidding for the Mitcham- Frankston project. The consortium consists of Transurban Infrastructure Developments Ltd, Leighton Contractors Pty Ltd, Abigroup Ltd and Deutsche Bank AG. The 40 kilometre road is described by the Victorian Government as an integrated transport project that must deliver signiﬁ cant economic, social and environmental beneﬁ ts to the 1.4 million people in the southern and eastern regions of Melbourne. Transurban believes the project will also deliver substantial returns to investors if the MFM consortium is successful and risks are managed. Minimising investor risk is a key consideration. The new road will join the Eastern Freeway at Park Road in Donvale and effectively extend the freeway connection from the city to Ringwood via two tunnels under the Mullum Mullum Creek. It will then turn south, crossing Burwood Highway, Monash Freeway and the Princes Highway before joining the Mornington Peninsula Freeway at Carrum Downs. project objectives In order to deliver fully on the Government’s broad objectives for the project, Transurban and its partners in MFM looked beyond the road itself to develop a strategy for the Mitcham-Frankston corridor as a whole. The corridor strategy was developed as a result of extensive stakeholder consultation and thorough reviews of state and local government policies in an effort to better understand the context of the project in the region. This approach enables better planning to mitigate against future problems and capitalise on future opportunities. It promotes accountability, genuine partnerships with the community and goodwill among customers for the long term. As this report went to press, Transurban was waiting for the Victorian Government’s decision on the preferred tenderer. new south wales opportunities Transurban is also considering several emerging development opportunities along Australia’s eastern seaboard in New South Wales and Queensland. In New South Wales, the State Government has announced its preferred option for the M4 East Motorway in Sydney, which will link the M4 at Strathﬁ eld and the City West Link. The preferred option includes a 5 kilometre tunnel. The Government is expected to release an Environmental Impact Statement for community consultation towards the end of the year. If approved, construction on this project is expected to start in 2007, allowing the tunnel to open to trafﬁ c by late 2009 or early 2010. 22 annual report 2004 prospects generating signiﬁ cant funding pressures and government authorities are considering funding mechanisms and private sector involvement. The Queensland Government is investigating options for duplicating the Gateway Bridge across the Brisbane River and upgrading the Gateway Motorway approaches. The Government is expected to decide the preferred ﬁ nancing and delivery model for the 20 kilometre project by late 2004. Brisbane City Council is also conducting an Environmental Impact Statement and business case for a 4.7 kilometre North South Bypass Tunnel under the Brisbane River. The Council is targeting tunnel opening by 2008. The Council has also released a plan to build four additional tunnels to relieve growing congestion in the inner urban area of Brisbane. The Federal Government has also announced its preferred option for a link between the F3 and the M2 connecting the Central Coast Region and the Sydney motorway network. This is an important link for freight and commuters. The preferred option is a single 8 kilometre tunnel under Pennant Hills Road, which would save motorists up to 15 minutes of travel time by allowing them to avoid 22 sets of trafﬁ c lights. The New South Wales Roads and Trafﬁ c Authority is currently reﬁ ning the preferred option into a concept proposal that will be subject to an Environmental Impact Statement next year. potential queensland projects Transurban established a Brisbane ofﬁ ce in March to capitalise on potential toll road projects being considered by the Queensland Government and Brisbane City Council. South East Queensland is experiencing enormous growth in population and freight. This growth is MARSDEN PARK QUAKERS HILL HORNSBY CASTLE HILL F3-M2 Pacific Highway Under construction Planned projects Westlink M7 Tollway Tolled Freeways Untolled Freeways MT.DRUITT To Penrith ERSKINE PARK Westlink M7 ROOTY HILL Great Western Highway BLACKTOWN M4 EASTERN CREEK HORSLEY PARK FAIRFIELD CECIL PARK CECIL HILLS Hoxton Park Airport BANKSTOWN LIVERPOOL Bankstown Airport M5 HOXTON PARK BRINGELLY Sydney’s developing toll road network EPPING M2 Lane Cove Tunnel RYDE CHATSWOOD PARRAMATTA NORTH SYDNEY Sydney Harbour Bridge & Tunnel M4 East ENFIELD LEICHHARDT M5 East CBD Cross City Tunnel BONDI JUNCTION Eastern Distributor Sydney Airport Port Botany annual report 2004 23 We aim to set a new benchmark for sustainability and social responsibility in our sector. Filters inside CityLink’s water recycling plant partnerships corporate social responsibility Transurban believes a comprehensive Corporate Social Responsibility (CSR) program is integral to delivering strong results for communities, investors and governments. As a company that provides infrastructure and services traditionally delivered by the public sector, Transurban faces heightened public expectation over how we should operate. Our impact on the community and the environment will always come under the microscope. Our challenge is to integrate robust ﬁ nancial performance with environmental and social responsibilities. Transurban’s aim is to set a new benchmark for sustainability and social responsibility in the infrastructure sector. good corporate citizen Our CSR program will help build Transurban’s business over time by creating shareholder value through: g operational efﬁ ciency and risk reduction; g aligning and attracting employees to our culture; g reinforcing our licence to operate with governments and community; g building our reputation and brands; and g supporting innovation and our ability to enter new markets. In 2003 the Australian Stock Exchange (ASX) released its 10 Principles of Good Corporate Governance and Best Practice Recommendations. The ASX notes there is growing acceptance that organisations can create value by better managing natural, human, social and other forms of capital. Increasingly, the performance of companies is being scrutinised from this perspective. The Transurban Board believes CSR is good for our business, and our programs over the next few years will ensure the company can capitalise on the market’s increasing awareness of sustainability issues. building capacity In 2003-04, Transurban created a CSR Committee chaired by a non-executive director of the Board and including a range of senior company representatives. Two respected industry-speciﬁ c external advisers provide independent, critical expertise and advice as members of the Committee. The Committee is working to develop an internal culture that supports the development and implementation of our CSR philosophy as well as integration of CSR principles into all levels of the business to ensure those principles are reﬂ ected in our decisions and actions. Transurban employees have established their own ‘good company group’ and are setting internal and external objectives that are well supported by the company. audits This year Transurban commissioned two comprehensive audits—an environmental and a community audit to inform the implementation of a CSR program. These audits will help us understand our impacts and assist in devising strategies to mitigate them. Once we roll out the CSR program, we will report our outcomes in line with the Global Reporting Initiative guidelines. The Transurban Board believes CSR is good for our business. annual report 2004 25 Transurban has commissioned a report to identify our environmental impacts or ‘footprint’. csr committee Chaired by Board Member Susan Oliver (left), the CSR Committee beneﬁ ts from the experience of external advisors Jan Cochrane- Harry (centre) and Chris Ryan (right). CityLink staff working on one of our community partnerships protecting the environment The environmental audit will detail Transurban’s environmental impacts or ‘footprint’. A report will include an inventory of existing environmental management mechanisms and initiatives that will be rated against industry best practice and regulatory body guidelines. It will provide analysis of environmental risks in the Transurban domain that will help set priorities for preventative and remedial action. The report will also outline environmental opportunities for Transurban to assist with innovation and the potential for investment in R&D or technology transfer. While the audit signiﬁ es the incorporation of environmental best practice into our guidelines and systems, Transurban has already demonstrated its commitment to the environment with its water recycling plant in Melbourne. In 2003, the plant saved 202 million litres of clean water by recycling the hundreds of thousands of litres of water that drain naturally each day around CityLink’s Burnley and Domain Tunnels. We also participate in smaller, but equally important projects. These include a partnership with Greening Australia and local schools that involves our staff in education and revegetation. 26 annual report 2004 partnerships partners in the community the path ahead Transurban’s partnership with the community is the cornerstone of its CSR program. Customers, local residents, schools, environment groups, government, regulatory bodies, industry groups and employees all play signiﬁ cant roles in our operations. The community audit will report on our impacts on the community and how best to inﬂ uence these impacts. It will look at world best practice in stakeholder communications and how we can better listen and learn from those that interact with Transurban. Some of our community partnerships over the past year include: g CityLink School Support Program; g Transurban Excellence in Engineering Scholarships; g 2003 Melbourne International Festival for the Arts; and g Western Sydney Industry Awards. Over the next year we will work towards integrating CSR principles into all levels of the company using methodologies that can be externally veriﬁ ed and publicly reported. Our community audit will help us listen and learn from those who interact with Transurban. CityLink’s water recycling facility in Melbourne annual report 2004 27 Transurban is committed to high standards of corporate governance. Wall at the base of CityLink’s tunnel ventilation stack governance Transurban is committed to high standards of corporate governance. In 2003-04, a review of the Group’s corporate governance framework was undertaken in the light of the ‘Principles and Best Practice Recommendations’ published by the Corporate Governance Council of the Australian Stock Exchange in March 2003. The review found that the framework was substantially compliant with the recommendations. Based on the ﬁ ndings of the review, a number of changes have been made to the framework and these are identiﬁ ed in this statement. This corporate governance statement is formulated on a collective basis and applies to all entities comprising the Transurban Group as described in the Directors’ Report. The ‘Board’ is a reference to the Board of each relevant entity unless otherwise stated. The relationship between the Board and management is critical to the achievement of the Group’s objectives. The directors are responsible to the security holders for the performance of the Group and their key tasks are to enhance the interests of the security holders and other key stakeholders and to ensure the Group is properly managed. Day to day management of the Group’s affairs and the implementation of strategic and policy decisions made by the Board have been formally delegated to the Managing Director and senior executives. These delegations are reviewed regularly. The Group’s main corporate governance practices are described in the following paragraphs. Unless otherwise stated, these practices were in operation for the entire year. During the year material relating to the corporate governance practices of the Group was progressively published in the corporate governance of the Group’s website at www.transurban.com.au. The material presently available comprises: summaries of the Board Charter (ﬁ rst published in April 2004) and the Nomination and Remuneration Committee Charter (February 2004), the Audit Committee Charter (September 2003), Remuneration Policy (April 2004), Code of Conduct laurence g cox kim edwards geoff r phillips david ryan susan m oliver professor jeremy g a davis geoff o cosgriff peter c byers annual report 2004 29 (March 2004), Securities Trading Policy (February 2004), Continuous Disclosure Policy (February 2004), Shareholder Communication Strategy (February 2004), Risk Management Framework (February 2004) and the Corporate Social Responsibility Program. board of directors The Board operates in accordance with the broad principles set out in its charter which was approved in January 2004 and was made available in summary form on the Group’s website in April 2004. The charter covers the following matters: board responsibilities To ensure the efﬁ cient undertaking of its overall responsibilities, the Board has delegated certain aspects of them (in particular, those relating to day to day operations of the entity) to the executive management of the entity. The following responsibilities have been retained by the Board: g reviewing and ratifying the entity’s business strategies and monitoring their implementation; g appointing and removing the Managing Director, regularly evaluating his or her performance and determining his or her remuneration; g appointing and removing the Company Secretary and regularly evaluating his or her performance; g ratifying the appointment of executives reporting to the Managing Director, reviewing the Managing Director’s assessment of the performance of such executives and determining their remuneration based on the Managing Director’s recommendations; g developing and approving succession plans for the Managing Director and reviewing and approving succession plans for those executives reporting to him; g reviewing the entity’s ﬁ nancial reports and certifying that they comply with Australian Accounting Standards and present a true and fair view of the affairs of the entity; g ensuring the ﬁ nancial integrity of the entity through: — overseeing the entity’s systems of internal control and ﬁ nancial reporting; — establishing and reviewing ﬁ nancial performance objectives; and — approving operating and capital budgets. g approving distribution payments; g approving capital management activities, including the issue and redemption of equity and the increase or reduction in borrowings; g approving signiﬁ cant changes to the Group’s organisation structure; g reviewing and ratifying systems of risk management and legal compliance; g ensuring that the entity complies with all disclosure requirements; g approving changes to the authorities delegated to management; g assessing the performance of each individual director and of the Board collectively; g selecting nominees for election as directors; g providing strong leadership of the entity on a continuing basis; and g fostering a culture of compliance with the highest legal, ethical and environmental standards and business practices. board composition The maximum and minimum number of directors is set by the entity’s constitution at 12 and three, respectively. The Board seeks to ensure that its membership provides the mix of qualiﬁ cations, skills and experience to effectively fulﬁ l its responsibilities and that its size facilitates effective discussion and efﬁ cient decision making. board members Details of the members of the Board, their experience, expertise, qualiﬁ cations, term of ofﬁ ce and independence are set out in the Directors’ Report under the heading ‘Information on Directors’ (refer to page 45). 30 annual report 2004 directors’ independence It is the Board’s policy that a majority of directors should be independent directors and the Chairman should be an independent director. The Board regularly determines which directors are considered to be independent directors in the light of their interests as disclosed to the Board. In making this determination, the Board considers whether a director’s security holding in the entity, his or her relationship with security holders, suppliers and competitors and tenure as a director would materially affect the director’s ability to exercise unfettered and independent judgement in the interests of the entity’s security holders. In considering whether a director’s business or other relationships give rise to any conﬂ ict, the Board believes it is inappropriate to solely apply arbitrary dollar, proﬁ t or turnover percentage tests to deﬁ ne the material impact of those business or other interests. Instead, the Board seeks to determine whether the director is generally free of any interest and any business or other relationship which could materially interfere with the director’s ability to act in the best interests of the Group. With regards to these factors, the Board has determined that all non-executive directors—including Mr Cox—are independent directors. Mr Cox is an executive director of Macquarie Bank Limited (‘MBL’). Until 19 December 2003, when it gave notice that it had ceased to be a substantial holder, MBL held 10.73 per cent of the Group’s stapled securities. Based on the last notice of substantial shareholding ﬁ led by MBL, this holding comprised: g 9.80 per cent held by subsidiaries of MBL in their capacities as the responsible entities of the trusts, which comprise Macquarie Infrastructure Group (‘MIG’) and the custodians of the assets of MIG; g 0.54 per cent held by the investment management subsidiaries of MBL on behalf of investment funds managed by the subsidiaries; and g 0.39 per cent held by directors of MBL who have a relevant interest in securities of the Transurban Group. Although MBL was technically required to notify its substantial holding, it is noted that the interests of MBL’s governance subsidiaries in the Group’s stapled securities (which trigger the technical requirement) must be held for the beneﬁ t of parties other than MBL (i.e. the security holders of MIG and the ultimate beneﬁ ciaries of the investment funds). Moreover, the MBL group held only a nominal interest in MIG stapled securities. Hence it is considered that Mr Cox’s relationship with MBL does not have a material effect on his ability to exercise unfettered and independent judgement in the interests of the Group’s security holders. Over the past three years, the Group has paid MBL the following amounts: 2001-02 $mill. 2002-03 $mill. 2003-04 $ mill. Advisory fees 6.82 Underwriting fees Nil Interest 1.57 0.37 7.21 3.85 Nil Nil Nil MBL has advised that each of these amounts represents less than 1 per cent of the total receipts of MBL in the relevant category in each period. This factor has been taken into account in forming the view that these payments would not materially effect Mr Cox’s ability to exercise unfettered and independent judgement in the interests of the Group’s security holders. roles of the chairman and the managing director The Chairman is responsible for leading the Board, ensuring all directors are properly briefed in all matters relevant to their role and responsibilities, facilitating effective discussion of matters considered by the Board and managing the Board’s relationship with the entity’s executive management. The Managing Director is the Chief Executive Ofﬁ cer of the entity and is responsible to the Board for implementation of strategies and policies determined by the Board. The roles of Chairman and Managing Director are undertaken by separate people. annual report 2004 31 commitment The Boards of the entities comprising the Group held a total of 34 meetings during the year. Some of these meetings were held concurrently. The number of meetings held by the Boards of each individual entity and by Board committees is disclosed in the Directors’ Report (refer to page 47). In addition, a corporate strategy workshop was held. The number of meetings of the Boards and of Board committees attended by each director is disclosed in the Directors’ Report (refer to page 47). The commitments of non-executive directors are reviewed by the Nomination and Remuneration Committee prior to their appointment and annually thereafter to ensure that non-executive directors are able to meet the Board’s expectations concerning time commitment. Directors are required to consult with the Chairman prior to accepting appointment as a director of a non-Group entity. conﬂ icts of interest The Group entities have developed protocols to ensure that any ‘interests’ of a director in a particular matter to be considered by the Board are known by each director. These protocols are consistent with obligations imposed by the Corporations Act and the ASX Listing Rules, and they require each director to disclose any contracts, ofﬁ ces held, interests in transactions and other directorships held, to signal any potential conﬂ ict. Procedures have been adopted to ensure that where the possibility arises, information is not provided to the director and the director does not participate in or vote at the meeting where the matter is considered. Further information on this matter is set out in the Board Charter summary. Charter, Mr Cox and Mr Byers declared their interest in these dealings and took no part in the decisions made in relation to them or in the discussions preceding the decisions. No information was provided to those directors in relation to those dealings in which they had declared an interest. independent external advice Independent external professional advice in relation to their roles and responsibilities is available to directors at the relevant entity’s expense. Prior to seeking such advice, directors are required to consult with, and obtain the approval of, the Chairman. The director must consult a suitably qualiﬁ ed adviser in the relevant ﬁ eld and inform the Chairman of the fee payable for the advice. A copy of the advice obtained must be provided to the relevant Board. performance assessment Each year, the following performance reviews are undertaken: g a review of the performance of the Board against the requirements of the Board Charter and any other objectives arising from previous performance reviews; g a review of the performance of each Committee against the requirements of its Charter and of the continuing need for the Committee; g a review by the Chairman with each director of the individual performance of the director; and g a review of the performance of the Chairman by a non-executive director nominated by the Board. These reviews were last undertaken in July 2003. The next reviews are scheduled to be completed by November 2004. Entities connected with Mr L G Cox and Mr P C Byers had business dealings with Group entities during the year, as described in note 25 to the Group ﬁ nancial statements. In addition, the Group entered into contractual arrangements with entities connected with Mr Cox in relation to a potential joint venture to provide fully electronic tolling in customer management services to Sydney toll roads and to the joint pursuit of future toll road projects in Australia. In accordance with the Board induction and training New directors are provided with an induction program to familiarise them with all aspects of the business and each Group entity’s operations, and they are kept informed of other programs available to them. The Board has given the Nomination and Remuneration Committee responsibility for recommending training and further education it considers necessary to enable the Board to meet its responsibilities. 32 annual report 2004 governance certiﬁ cation of ﬁ nancial reports and risk management systems The Managing Director and the Chief Financial Ofﬁ cer have provided the following certiﬁ cations to the Board in connection with the approval by the Board of the ﬁ nancial reports for the Group and the individual entities comprising the Group for the year ended 30 June 2004: g the ﬁ nancial reports are complete and present a true and fair view, in all material respects, of the ﬁ nancial condition and operational results of the entity and the Group and are in accordance with relevant accounting standards; g the above statement is founded on sound systems of risk management and internal compliance and control which shape the policies of the Board; and g the systems of risk management and internal compliance and control are operating efﬁ ciently and effectively in all material respects. board committees At least once each year the Board reviews the appropriateness of the existing committee structure. For those committees considered necessary, it also reviews the membership and the Committee Charter. Minutes of committee meetings are recorded by the Company Secretary and circulated with the papers for the next Board meeting. At that Board meeting, the Chairman of the committee highlights key issues under consideration by the committee. audit committee The Audit Committee consists of the following non- executive directors: P C Byers (Chairman) L G Cox J G A Davis Details of the qualiﬁ cations of these directors and of their attendance at meetings of the Committee are set out in the Directors’ Report (refer to page 10). The Board has established the following committees of directors to assist it in carrying out its responsibilities and to allow detailed consideration of complex issues: All members of the Audit Committee have appropriate ﬁ nancial expertise and an appropriate understanding of the industry in which the Group operates. g Audit Committee; g Risk Management and Compliance Committee; g Nomination and Remuneration Committee; and g Mitcham-Frankston Freeway Project Committee. The Board has also established a committee consisting of directors and external representatives to advise it on matters relating to Corporate Social Responsibility. Each Committee operates under a Committee Charter approved by the Board, which sets out the authority, membership and responsibilities of the committee, together with any relevant administrative arrangements and any other matters considered appropriate by the Board. The Audit Committee Charter and summaries of the charters of the Risk Management and Compliance Committee and of the Nomination and Remuneration Committee are available on the Group’s website. The Managing Director, other members of the management team and representatives of the external and internal auditor attend meetings of the Committee by invitation. The external auditor meets with the Committee without management present on a regular basis. The duties and responsibilities of the Audit Committee are set out in its Charter, which was made available on the Group’s website in September 2003. The primary responsibility of the Committee is to oversee the entity’s ﬁ nancial reporting process on behalf of the Board and to recommend to the Board appropriate actions to ensure high quality ﬁ nancial reporting, sound practices to manage risks and ethical behaviour. In discharging this responsibility, the Committee: g assesses the accounting, ﬁ nancial and internal control systems used by the entity and recommends to the Board changes considered appropriate on the basis of such assessments; annual report 2004 33 g reviews the statutory ﬁ nancial reports of the entity and management’s representations in relation to them, and provides advice for consideration by the Board on adopting the statutory ﬁ nancial reports; nomination and remuneration committee The Nomination and Remuneration Committee consists of the following non-executive directors: g makes recommendations to the Board for the appointment, remuneration and removal of the external auditor and agrees the terms of the auditor’s engagement; g reviews all non-audit services provided by the external auditor; g reviews the objectives, competence and resourcing of the internal audit function (including determining whether the internal audit function should be provided by an internal or external party); and g ensures an appropriate program of internal audit activity is conducted each ﬁ nancial year. risk management and compliance committee The Risk Management and Compliance Committee consists of the following directors: S M Oliver (Chairman) G O Cosgriff D J Ryan G R Phillips (executive director) Details of the qualiﬁ cations of these directors and their attendance at Committee meetings are set out in the Directors’ Report (refer to page 10). The duties and responsibilities of the Risk Management and Compliance Committee are set out in its Charter, a summary of which was made available on the Group’s website in February 2004. The primary responsibility of the Committee is to assist the Board to: L G Cox (Chairman) G O Cosgriff J G A Davis Details of the qualiﬁ cations of these directors and their attendance at Committee meetings are set out in the Directors’ Report (refer to page 10). The duties and responsibilities of the Nomination and Remuneration Committee are set out in its Charter, which was made available on the Group’s website in February 2004. The primary responsibilities of the Committee are to provide advice to the Board on the appointment of new directors, the measurement of Board performance and the remuneration of directors and senior executives. In discharging this responsibility, the Committee: g makes recommendations on the size and composition of the Board and on procedures for identifying and screening candidates for appointment to the Board; g implements these identiﬁ cation and screening procedures when required; g reviews at least annually the time commitments of non-executive directors to help in assessing whether candidates for appointment as directors can meet them given their other commitments; g develops and oversees an orientation and education program for new directors; g makes recommendations regarding succession plans for the Board; g understand the nature of the risks to which the entity g recommends processes for the review of the is exposed; g prioritise those risks for management; g mitigate those risks to an acceptable level; and g communicate its performance in managing risk to interested stakeholders. performance of individual directors and the Board as a whole; and g makes recommendations on the remuneration policies and practices to be introduced and maintained by the entity for the beneﬁ t of directors and employees. To assist in making these recommendations, the Committee consults as necessary with external remuneration consultants. 34 annual report 2004 governance The remuneration of non-executive directors consists entirely of directors’ fees, committee fees and (subject to eligibility) retirement beneﬁ ts. Directors appointed after 25 March 2003 are not eligible for retirement beneﬁ ts but receive an additional director’s fee. external auditors The policy of the Group is to appoint external auditors who are suitably qualiﬁ ed and whose independence is unequivocal. A summary of the Group’s remuneration policies was made available on the Group’s website in April 2004. Further information on the remuneration of directors and executives is set out in note 25 to the Group ﬁ nancial statements (refer to page 46). mitcham-frankston freeway project committee The Mitcham-Frankston Freeway Project Committee consists of all directors except Mr L G Cox. Details of the attendance of these directors at Committee meetings are set out in the Directors’ Report (refer to page 10). An entity connected with Mr L G Cox is a member of the ConnectEast consortium. That consortium was a respondent during the year to a Request for Proposals (‘RFP’) issued by the Southern and Eastern Integrated Transport Authority (‘SEITA’)—an Authority of the State of Victoria—for the Mitcham-Frankston Freeway project. Group entities are members of the Mitcham-Frankston Motorway consortium, which submitted a response to the RFP in competition with ConnectEast. Under information protocols agreed with SEITA, the Group was required to: g establish a committee of the Board, of which Mr Cox was not a member, to consider all matters relating to the response to the RFP; and g ensure that no information relating to the response to the RFP was provided to Mr Cox. Compliance with these requirements is subject to audit by a probity auditor appointed by SEITA. The performance of the external auditors is reviewed annually by the Audit Committee, which is responsible for making recommendations to the Board on the appointment, remuneration and removal of the external auditors. PricewaterhouseCoopers was initially appointed as the Group’s external auditor in 1996 and was subsequently re-appointed in December 2001. The appointment of the external auditors has been approved by security holders as required by the Corporations Act. It is the policy of PricewaterhouseCoopers to rotate audit engagement partners on listed entities at least every ﬁ ve years. In accordance with that policy, a new audit engagement partner was introduced for the year ended 30 June 2003. Details of the fees paid to the external auditors, including a break down of fees paid for non-audit services, are set out in note 26 to the Group ﬁ nancial statements (refer to page 61). All non-audit services provided by the external auditors are subject to review by the Audit Committee. It is the policy of external auditors to provide an annual declaration of their independence to the Audit Committee. The Board has considered the non-audit services provided by the external auditors and is satisﬁ ed they are compatible with the general standard of the independence of auditors. The external auditors attend the Annual General Meeting and are available to answer questions raised by security holders on the conduct of the audit and the preparation and content of the audit report. annual report 2004 35 risk assessment and management The Board—assisted by the Risk Management and Compliance Committee—is responsible for ensuring the Group has an effective framework for managing the risks to which the Group is exposed and that the elements of the framework are operating efﬁ ciently. A summary of the Group’s Risk Management Framework was made available on the Group’s website in February 2004. The framework is based on the recommendations of the Australian/New Zealand Standard for Risk Management AS/NZS 4360:1999 and is subject to regular review by the internal auditor and an independent external auditor. Day to day management of the Group’s risk management and compliance systems is handled by the Risk Management and Compliance Working Group, which consists of senior executives and is chaired by the Group’s General Counsel. Key responsibilities of the Working Group are: g ensuring the Group’s risk management and compliance systems are comprehensive and efﬁ cient (i.e. eliminating gaps and overlaps between the various sub-systems); g monitoring the activities of specialised risk management and compliance working groups such as the Information Security Governance Sub Committee and the Tunnel Integrity Sub Committee; and g promoting a culture of risk awareness across the Group. The Working Group provides quarterly reports to the Risk Management and Compliance Committee. All major proposals submitted to the Board for decision include a comprehensive risk assessment and a description of the strategies proposed for mitigating the identiﬁ ed risks. Information of the Group’s compliance with the environmental regulation to which it is subject is set out in the Directors’ Report (refer to page 7). code of conduct In March 2004 the Board approved a revised Code of Conduct (‘the Code’) for all directors and employees. The purpose of the Code is to nurture the values underpinning the corporate culture which has played an important role in the success achieved by the Group to date and the establishment of its reputation. The Code is discussed with each new employee as part of his or her induction training and ‘refresher’ training is provided on a regular basis. In summary, the Code requires that all employees act with integrity, fairness and respect for others and in compliance with the letter and spirit of all relevant laws and Group policies. The Code is available on the Group’s website. The Code speciﬁ es the procedures directors and employees must follow when dealing in securities issued by the Group and securities of entities with whom the Group has an existing or potential business relationship. Dealing in Transurban stapled securities is only permitted during the thirty day periods following the release of the annual and half year results to the ASX and following the Annual General Meeting. Dealing in CARS is not presently subject to this restriction. Transactions proposed to be undertaken in Transurban stapled securities, CARS and in the securities of other entities speciﬁ ed from time to time under the policy must be notiﬁ ed to the Company Secretary in advance. A summary of the Group’s securities trading policy is available on the Group’s website. The Code requires employees who become aware of unethical behaviour or breaches of the securities trading policy to report these to senior management. The Code provides protection for employees who report such occurrences. The directors are satisﬁ ed that during the year ended 30 June 2004, the Group has complied with the requirements of the Code, including the securities trading policy. 36 annual report 2004 continuous disclosure and shareholder communication In February 2004 the Board approved revised policies on information disclosure, covering: g continuous disclosure of any information concerning the Group that a reasonable person would expect to have a material effect on the price of Transurban stapled securities or CARS; and g arrangements to promote communication with security holders. A summary of this policy is available on the Group’s website. The Deputy Managing Director has been nominated as the person with primary responsibility for operation of the Continuous Disclosure Policy and for all communication with the ASX in relation to the continuous disclosure obligations of Group entities. The Group publishes information on its website as soon as it is disclosed to the ASX. All material used in brieﬁ ng analysts on the Group’s operations is released to the ASX and placed on the Group’s website. governance international ﬁ nancial reporting standards (‘IFRS’) The Australian Accounting Standards Board (‘AASB’) is adopting IFRS for application to reporting periods beginning on or after 1 January 2005. The AASB will issue AASB equivalents to IFRS and the Urgent Issues Group will issue abstracts corresponding to interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The adoption of Australian equivalents to IFRS will be ﬁ rst reﬂ ected in the Group’s ﬁ nancial statements for the half year ending 31 December 2005 and for the year ending 30 June 2006. Entities complying with Australian equivalents to IFRS for the ﬁ rst time will be required to restate their comparative ﬁ nancial statements to amounts reﬂ ecting the application of IFRS to that comparative period. Most adjustments required on transition will be made retrospectively against opening retained earnings as at 1 July 2004. In October 2003 the Group established an IFRS transition project team led by the Chief Financial Ofﬁ cer. The project team has prepared a plan to manage the transition to IFRS. This plan was presented to the Audit Committee together with the results of an initial scoping review of the expected impact on the Group of adopting IFRS. The project plan is currently on schedule. The project team has started a detailed analysis of IFRS and the Group’s accounting policies to determine the effects on the opening balance sheet to be prepared on the transition date to IFRS and required accounting policy changes. The project team has identiﬁ ed a number of accounting policy choices. These are being analysed to determine the most appropriate policy for the Group on transition to IFRS. Note 1(aa) to the Group ﬁ nancial statements (refer to page 25) sets out the major changes expected to require amendments to the Group’s current accounting policies or to require an election. annual report 2004 37 Detail of the cantilevered beam at CityLink’s gateway ﬁnancials The Transurban Group Financial Report consisting of the aggregate Financial Statements of Transurban Holdings Limited and Controlled Entities (ABN 86 098 143 429) and Transurban Holding Trust and Controlled Entities (ABN 30 169 362 255) and Transurban Infrastructure Developments Limited and Controlled Entities (ABN 96 098 143 410) for the year ended 30 june 2004 Statement of Financial Performance s Directors’ Report t n e t n o c Statement of Financial Position Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report to the Members 40 53 54 55 56 102 103 This ﬁnancial report covers the Transurban group which consists of Transurban Holdings Limited, Transurban Holding Trust and Transurban Infrastructure Developments Limited and their controlled entities as described in Note 1 to the Financial Statements. The equity securities of the parent entities are stapled and cannot be traded separately. All entities within the group are domiciled in Australia. Its registered ofﬁce and principal place of business is: Level 43 Rialto South Tower 525 Collins Street Melbourne VIC 3000 Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally. All releases to the ASX and the media, ﬁnancial reports and other information are available on our website: www.transurban.com.au annual report 2004 39 directors’ report The directors of Transurban Infrastructure Developments Limited, Transurban Infrastructure Management Limited as Responsible Entity for Transurban Holding Trust and Transurban Holdings Limited present their report on the Transurban Group Accounts for the year ended 30 June 2004. Group accounts notwithstanding that none of the entities controls any of the others. The ﬁnancial statements have been aggregated in recognition of the fact that the securities issued by THL, THT and TIDL are stapled into parcels (“Stapled Securities”), comprising one share in THL, one share in TIDL and one unit in THT. None of the components of the Stapled Security can be traded separately. These Group Accounts have been prepared as an aggregation of the ﬁnancial statements of Transurban Directors Holdings Limited and controlled entities (“THL”), Transurban Holding Trust and controlled entities (“THT”), and Transurban Infrastructure Developments Limited and controlled entities (“TIDL”) as if all entities operate together. They are therefore treated as a combined entity (“the combined entity” or “Group”), The following persons were directors of Transurban Infrastructure Developments Limited, Transurban Holdings Limited and Transurban Infrastructure Management Limited during the whole of the ﬁnancial year and up to the date of this report: Transurban Infrastructure Developments Limited Transurban Holdings Limited Transurban Infrastructure Management Limited Non-executive directors Laurence G Cox Peter C Byers Geoffrey O Cosgriff Jeremy G A Davis Susan M Oliver David J Ryan Executive Directors Kimberley Edwards Geoffrey R Phillips Principal activities During the year the principal continuing activities of the group were: ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ - ✓ (d) Identiﬁcation and development of infrastructure projects in accordance with the investment strategies of Transurban Holdings Limited and Transurban Holding Trust; (a) Operation of the Melbourne CityLink (“CityLink”); (e) Participation in the direction of the entities (b) Tendering for participation in other toll roads; (c) Development of electronic tolling and other intelligent transport systems for implementation in both the domestic and international markets; responsible for the development of Westlink M7 Motorway project; and (f) Provision of the tolling and customer management system for the Westlink M7 Motorway project. 40 annual report 2004 directors’ report Results The result of operations for the ﬁnancial year ended 30 June 2004 was an operating loss of $61.5 million (2003: $83.6 million). Distributions ﬁnancials Transaction volume for the year ended 30 June 2004 was 218.2 million transactions, representing a 6.04 per cent increase on the prior year. Trafﬁc growth was stronger in the second six months with 6.7 per cent being achieved, compared to 5.4 per cent in the ﬁrst six months. Growth in usage by the light commercial vehicle class was well above the Distributions paid to members during the ﬁnancial year average at 8.4 per cent. 2004 $’000 2003 $’000 The growth in transaction volumes combined with toll escalation resulted in toll and fee revenue (net of GST) of $254.5 million, an increase of 10.1 per cent over the previous year. (b) CityLink customer service 51,847 15,300 product contributed to strong growth in customer The introduction of the video-based “Access” were as follows: Stapled Securities Final distribution for 2003 ﬁnancial year of 10.0 cents (2002 – 3.0 cents) per fully Stapled Security paid 8 October 2003 Interim distribution for 2004 ﬁnancial year of 12.0 cents (2003 – 10.0 cents) per fully paid Stapled Security paid 26 March 2004 62,823 51,163 Total distributions paid 114,670 66,463 Distributions paid in cash or satisﬁed by the issue of Stapled Securities under the distribution reinvestment plan during the years ended 30 June 2004 and 2003 were as follows: Paid in cash Satisﬁed by issue of Stapled Securities 60,525 34,054 114,670 66,463 In addition to the above distributions, the directors have resolved since the end of the ﬁnancial year to pay a ﬁnal distribution of $71.9 million (13.5 cents per Stapled Security) on 8 October 2004. The record date for eligibility to receive the distribution is accounts, particularly in the second half of the year. At 30 June 2004, there were 671,255 accounts (including 32,835 Access accounts), with 943,898 e-TAGs linked to e-TAG accounts. These totals represent rises of 10 per cent and 7 per cent respectively, over the previous year. A continued focus on customer service has resulted in the introduction of two major programmes during the year. Work has been undertaken to develop efﬁcient processes for the identiﬁcation and change- over of e-TAGs approaching the end of their useful require change over. Customer Services has also introduced a philosophy of “Customer 1st” across the business. This initiative will become integrated in to the daily operations at CityLink, improving the customer experience and increasing revenue to the business. Initiatives to deliver long-term cost reductions during 54,145 32,409 life. This will be of major beneﬁt over the next 2 to 3 years as a progressively larger number of e-TAGs 24 September 2004. the year included: Review of operations (a) CityLink trafﬁc Renegotiation of the call centre services contract achieving annual savings of $1.0 million from June 2004. annual report 2004 41 directors’ report Transition of transactional banking arrangements delivering cost reduction of $0.3 million per year from August 2004. Operational improvements in the Image Processing area due to enhanced image quality and improved system performance resulting in a 16 per cent increase in productivity ($0.3 million) per annum during FY04. The result of these cost initiatives is a decrease in costs per transaction (excluding non-recurring costs) of 2.0 per cent over the prior year. Non-recurring costs comprised costs for the launch of the Access product ($0.4 million) and recall of e-TAGs ($1.0 million) following the battery failures detected in August 2003. Customer Services will continue the focus on operational improvements to mitigate the cost impacts of increases in volume and CPI while maintaining or enhancing service standards. At the date of this report, the majority of bulk earthworks are complete and drainage works and bridge construction are well underway. Concrete paving has commenced and the control centre building is due for completion in early 2005. Progress has been very good due to the predominantly dry weather conditions experienced through the year. In addition to being an equity participant in the project, Transurban has contracts for the development and implementation of the electronic tolling system (GATe) and the tolling and customer management (TCM) system for the project. (e) Business development During the year Transurban Infrastructure Developments Limited has continued to pursue new business development opportunities in both the domestic and international markets. Opportunities pursued during the period include: (c) Infrastructure group operations (i) Mitcham Frankston Freeway (“MFF”) Project A ﬁnal settlement of $6.0 million was reached with the Transﬁeld Obayashi Joint Venture (“TOJV”) in October 2003 in relation to a number of outstanding construction defects. The settlement will provide funding for ongoing defect rectiﬁcation works on the CityLink. During the period, $1.7 million was incurred in relation to such rectiﬁcation works. A request for Proposals (“RFP”) for the MFF Project was issued by the State in October 2003. The MFF is a 40 kilometre road which will include a 1.5 kilometre tunnel. The road is to be developed as a privately ﬁnanced toll road and will meet the transport needs of 1.4 million people in the southern and eastern suburbs of Melbourne when it is CityLink has continued to upgrade its automated completed in 2008. systems for the management of trafﬁc, tunnel ventilation and groundwater. Optimisation of the ventilation system in the tunnels has signiﬁcantly improved air quality. Recycling of water drained from the tunnels continues to achieve the 95 per cent reuse target. (d) Westlink M7 The Mitcham – Frankston Motorway consortium in which Transurban is a participant with Leighton Contractors Pty Limited, Abigroup Limited and Deutsche Bank AG submitted a response to the RFP in April 2004. A decision on the preferred bidder for the MFF Project is expected later in 2004. The Westlink M7 Project, in which the Transurban Group has a 40 per cent interest, is progressing ahead of schedule and is well on target to achieve completion in 2006. (ii) Hills Motorway Group Acquisition During the year Transurban purchased an 8.1 per cent interest in the Hills Motorway Group (“HLY”) from Abigroup Limited, at a price of $6.40 per 42 annual report 2004 directors’ report ﬁnancials security. The purchase consideration of $96 million In December 2003, Transurban entered into an has been funded from existing facilities. agreement with Macquarie Infrastructure Group Distributions anticipated to be received on the (“MIG”) and Macquarie Bank under which: HLY securities will offset the costs of servicing Transurban and MIG will cooperate to establish, the acquisition and the purchase will not impact develop and implement a joint venture which Transurban’s ability to fulﬁl its objective of delivering will offer fully electronic tolling and customer steady growth in distributions. management services to Sydney toll roads; and (iii) Stockholm Congestion Charging Project The parties will cooperate to jointly pursue, bid, A proposal to provide the installation and operation of a congestion charging system proposed for the central area of Stockholm was submitted to the acquire, develop and manage future toll road projects in Australia (excluding the MFF Project). The agreement is for ﬁve years. Swedish National Road Authority (Vagverket) by the (vi) I95 Virginia USA proposal Combitech AB consortium in which Transurban is a participant in March 2004. Other participants in the consortium include Kapsch TrafﬁcCom AB and Atos Origin AB. Transurban has joined a consortium headed by Fluor Corporation that has submitted a proposal to the Virginia Department of Transportation for the provision of Bus Rapid Transit (“BRT”) / High Transurban’s role in the project was to provide Occupancy Toll (“HOT”) lanes for the I95 Motorway business and systems advice as well as being the in Virginia. central system provider. This proposal is only at concept stage but should On 9 July 2004, Vagverket advised the Combitech AB it develop it is intended that Transurban would consortium that its proposal had not been accepted. undertake the design and operation of the tolling Vagverket cited price and contractual terms as the system. reason for not achieving preferred status. (iv) Extension of term of Infrastructure borrowing facilities (f) Income tax Transurban has advice from Senior Counsel that the concession fees paid to the State of Victoria under the On 18 February 2004, a settlement of the matters CityLink Concession Deed are immediately deductible in dispute in relation to the extension of the term expenditure. The Group Accounts have been prepared of the Group’s infrastructure borrowing facilities on this basis for the year ended 30 June 2004 and all (“the Facilities”) was reached with the Development prior years. Allowance Authority and the Australian Taxation Ofﬁce. The settlement will allow Transurban to extend the term of the Facilities to April 2007, generating additional savings in interest costs of approximately $50.0 million per year over the period from October 2004 to April 2007. Transurban received management fees of $6.5 million from Macquarie Bank (“MBL”), the provider of the Facilities in relation to the extension of their term. (v) Transurban, Macquarie Infrastructure Group and Macquarie Bank Joint Agreement The Australian Taxation Ofﬁce (“ATO”) and Transurban have been unable to agree on the treatment to be applied to concession fees and as a consequence, the ATO issued an assessment in respect of CityLink Melbourne’s income tax return for the year ended 30 June 1998. Transurban appealed against the ATO’s decision to disallow its objection to the assessment. The appeal was heard before Mr Justice Merkel in the Federal Court on 3 October 2002. On 2 February 2004, Mr Justice Merkel dismissed Transurban’s appeal. annual report 2004 43 directors’ report Transurban has lodged a Notice of Appeal against the dismissal. The appeal was heard by a Full Court of the Federal Court on 17 and 18 August 2004. The Court reserved its judgement in the matter. Signiﬁcant changes in the state of affairs (a) Acquisition of 8.1 per cent interest in Hills Motorway Group Until a deﬁnitive resolution of this matter has been achieved, Transurban intends to continue preparing the Group ﬁnancial statements on the basis that the concession fees are deductible. If the ﬁnding of Mr Justice Merkel is ﬁnally conﬁrmed, certain items in the Group ﬁnancial statements will require amendment. These amendments are quantiﬁed in the following table, assuming that the amendments were applicable for the year ended 30 June 2004: Item Statement of Financial Performance Current Amended Basis $000 Basis $000 • Concession Note 36,985 78,170 Valuation Adjustment (Expense)/Beneﬁt Statement of Financial Performance • Non-interest bearing non-current liabilities 207,681 166,496 • Accumulated losses (404,841) (363,656) Carried forward tax loss at 30 June 2004 ($million) 938.1 142.0 As a result of the reduction in the carried forward tax loss, the date at which distributions would cease to be 100 per cent tax deferred would be advanced from 2014 to the end of 2005. The tax effect will be partially offset by an increase in the value of the distributions received. This increase will occur because the threshold return for commencement of redemption of Concession Notes is calculated on an after tax basis. Refer to Item (e)(ii) of Review of Operations. (b) Mitcham Frankston Freeway Project Refer to Item (e)(i) of Review of Operations. (c) Extension of Infrastructure Borrowing Facilities Refer to Item (e)(iv) of Review of Operations. Matters subsequent to the end of the ﬁnancial year With the exception of the decision by Vagverket on the Stockholm Congestion Charging Project (see Review of Operations Item (e)(iii) above), at the date of this report, the directors are not aware of any circumstances that have arisen since 30 June 2004 that have signiﬁcantly affected or may signiﬁcantly affect the operations, and results of those operations or the state of affairs, of the combined entity in ﬁnancial years subsequent to 30 June 2004. Likely developments and expected results of operations Information on likely developments in the operations of the Group and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the Group. Environmental regulation CityLink Melbourne Limited is subject to regulation by the Victorian Environmental Protection Authority (“EPA”) in respect of: discharges from the tunnel ventilation system; and groundwater quality in the aquifers surrounding the tunnels Under this regulation, Transurban is required to monitor the emissions of carbon monoxide, oxides of nitrogen and particulate matter from the exhaust stacks and ambient air quality in the vicinity of the stacks. 44 annual report 2004 directors’ report ﬁnancials This monitoring is undertaken by several specialist organisations under the supervision of the CityLink operator, Translink Operations Pty Ltd. The monitoring organisations are certiﬁed by the National Association of Testing Authorities. Current monitoring veriﬁes that emission levels are well below the maximum levels speciﬁed in the licence issued by the EPA and that there has been an improvement in ambient air quality since the tunnels opened. Monitoring of groundwater quality veriﬁes that the requirements of the EPA are being met. Information on directors Laurence G Cox AO, B Com, FCPA, FSIA – Non Executive Chairman Mr Laurie Cox has had many years’ experience in Australian and international ﬁnancial markets. He was the Chairman of the Australian Stock Exchange Limited from 1989 to 1994. Prior to joining Transurban, Mr Cox was Executive Chairman of the Potter Warburg Group of Companies and a Director of S G Warburg Securities of London. He is a director of Macquarie Bank Limited and Smorgon Steel Group Ltd and Chairman of The Murdoch Children’s Research Institute and SMS Management and Technology Ltd. Date of initial appointment: 13 February 1996. Special Responsibilities: Group Chairman, Chairman of Nomination and Remuneration Committee, Member of Audit Committee and Member of Risk Management and Compliance Committee. Independence status: independent. Kimberley Edwards BE, MAdmin (Bus), FIE (Aust), MAICD – Managing Director Mr Kim Edwards joined Transurban when it was originally bidding for the CityLink project. He brought international engineering, business and project management experience that added a new dimension to the bid. Over the past 25 years, Mr Edwards has held senior management positions on major commercial and infrastructure projects in Australia, the United Kingdom and the Middle East. More recently, as Managing Director of Transurban, he oversaw the expansion of the company into the Sydney market through the company’s successful bid for the Westlink M7 project. In recent years Mr Edwards has led the development of the Group into other toll road opportunities and the deployment of its electronic tolling technology in Australia and overseas. Date of initial appointment: 29 October 1996. Special Responsibilities: Group Managing Director. Peter C Byers B Com (Hons) – Non Executive Director Mr Peter Byers is a director of Airport Motorway Management Ltd, Hills Motorway Management Ltd, Hills Motorway Ltd, Foundation Capital Ltd and a director of the responsible entity for Hills Motorway Trust. He is an alternate director for Hancock Victorian Plantations Holdings Ltd. He was formerly business manager and deputy principal of the University of Tasmania, a director of Adelaide Airport Ltd and the Blair Athol Group and a founding director and chairman of the Investment Committee of the Superannuation Scheme for Australian Universities. Date of initial appointment: 2 January 1996. Special Responsibilities: Chairman of Audit Committee. Independence status: independent. Geoffrey O Cosgriff BAppSc, Company Director Diploma, FIE(Aust), FAICD – Non Executive Director Mr Geoff Cosgriff is Executive Director for LogicaCMG Pty Ltd, the Australian subsidiary of the UK- listed company LogicaCMG. In December 2000, Logica Pty Ltd, acquired MITS Limited of which Mr Cosgriff was the founding Managing Director. Over the period from its formation in 1990, MITS grew to 600 staff and nearly $100 million in sales of information technology solutions. He is also a non-executive director of UXC Limited, Skilltech Consulting Services and a Council Member for Leadership Victoria. Previously Mr Cosgriff annual report 2004 45 directors’ report held executive management roles with Melbourne & Metropolitan Board of Works and has had extensive experience in the information technology industry. Committee. Independence status: independent. Date of initial appointment: 19 December 2000. Special Responsibilities: Member of Risk Management and Compliance Committee and Member of Nomination and Remuneration Committee. Independence status: independent. Jeremy G A Davis BEc, MBA, MA, FAICD – Non Executive Director Professor Jeremy Davis holds the AMP Chair of Management in the Australian Graduate School of Management at the University of Sydney. His academic interests are in the ﬁelds of corporate strategy and negotiation. He is a Fellow of the Australian Institute of Company Directors. Professor Davis is a former chairman of Capral Aluminium Ltd, former vice- president and director of the Boston Consulting Group, and a former director of the Australian Stock Exchange, AIDC Ltd and Nucleus Ltd. Date of initial appointment: 16 December 1997. Special Responsibilities: Member of Audit Committee and Member of Nomination and Remuneration Committee. Independence status: independent. Susan M Oliver BP&C, MAICD – Non Executive Director Ms Susan Oliver is a director of MBF Group, Programmed Maintenance Services Ltd, Methodist Ladies College Ltd, The Smith Family Ltd, The Australian Business Foundation Ltd and wwITe Pty Ltd. Ms Oliver was formerly a Senior Manager of Andersen Consulting. She has held board positions with the Victorian Institute of Marine Sciences, Interact Events Limited, FHA Design Pty Ltd and The Swish Group Ltd. Ms Oliver was also Managing Director of the Australian Commission for the Future Ltd. Date of initial appointment: 25 June 1996. Special Responsibilities: Chairperson of Risk Management and Compliance Committee and Chairperson of Corporate Social Responsibility Geoffrey R Phillips BE (Chem), MBA, MAICD – Executive Director Mr Geoffrey Phillips joined Transurban in 1996 as Executive General Manager, Finance and was subsequently appointed Finance Director. Prior to joining Transurban, he worked for the Potter Warburg Group for 6 years as director in both the Corporate Finance and Fixed Interest Divisions. He is currently a director of Yarra Valley Water Limited. Date of initial appointment: 28 August 1998. Special Responsibilities: Deputy Managing Director, Chief Financial Ofﬁcer and Member of Risk Management and Compliance Committee. David J Ryan AO, B.Bus, FCPA, FAICD – Non Executive Director Mr David Ryan is Chairman of Residual Assco Limited, DJL Limited, Tooth & Co Limited and Industrial Equity Limited. He is also a director of ABC Learning Centres Limited, Virgin Blue Holdings Limited and a member of the Advisory Board of the Caliburn Partnership. Mr Ryan’s experience covers commercial banking, investment banking and operational business management in the transportation services sector. From 1992 to 2002, Mr Ryan held various senior positions in the Adelaide Steamship Group and from 1997 to 2002 he was the foundation Managing Director of Adsteam Marine Limited. Date of initial appointment: 29 April 2003. Special Responsibilities: Member of Risk Management and Compliance Committee. Independence status: independent. Meetings of directors The number of meetings of the board of directors of Transurban Infrastructure Developments Limited, Transurban Holdings Limited and Transurban Infrastructure Management Limited held during the year ended 30 June 2004, and the numbers of meetings attended by each director were: 46 annual report 2004 directors’ report Name Board of Directors Transurban Infrastructure Developments Limited ﬁnancials Board of Directors Board of Directors Transurban Holdings Transurban Infrastructure Management Limited Limited L G Cox P C Byers G O Cosgriff J G A Davis S M Oliver D J Ryan K Edwards G R Phillips A 12 (1) 13 14 14 13 13 14 14 B 14 14 14 14 14 14 14 14 A 7 8 8 8 8 8 8 8 B 8 8 8 8 8 8 8 8 A 10 11 12 12 11 12 x 11 B 12 12 12 12 12 12 x 12 A= Number of meetings attended B= Number of meetings held during the time the director held ofﬁce X= Not a director of the relevant company (1) Mr Cox was granted leave of absence from two meetings in April and May 2004 due to illness. In addition to the meeting of the full board listed above, a number of meetings of directors were held duing the period for administrative purposes. The number of meetings of each board committee of Transurban Infrastructure Developments Limited, Transurban Holdings Limited and Transurban Infrastructure Management Limited held during the year ended 30 June 2004, and the numbers of meetings attended by each director are set out in the following table. All meetings were held jointly. Name L G Cox P C Byers G O Cosgriff J G A Davis S M Oliver D J Ryan K Edwards (1) G R Phillips (1) Audit committee Mitcham- Frankston Freeway committee Nomination & remuneration committee Risk management & compliance A 3 (2) 4 x 4 x x x x B 4 4 x 4 x x x x A x 11 9 11 11 11 10 11 B x 11 11 11 11 11 11 11 A 2 x 1 2 x x x x B 2 x 2 2 x x x x A x x 3 x 3 3 x 3 B x x 3 x 3 3 x 3 A= Number of meetings attended B= Number of meetings held during the time the director held ofﬁce X= Not a member of the relevant committee (1) Messrs Edwards and Phillips are not members of the Audit and Nomination & Remuneration Committees but have been in attendance at all of these meetings. (2) Mr Cox was granted leave of absence from one meeting in May 2004, due to illness. annual report 2004 47 directors’ report Directors’ interests As at the date of this Directors’ Report, the directors of the Group have disclosed relevant interests in Stapled Securities, options over Stapled Securities and Convertible Adjusting Rate Securities (“CARS”) as follows: Name L G Cox P C Byers J G A Davis S M Oliver G O Cosgriff D J Ryan K Edwards G R Phillips Number of Stapled Securities Options over Stapled Securities 775,000 50,000 50,000 60,993 24,910 21,043 61,000 - - - - - - - 1,500,000 500,000 Number of CARS 1,000 - - - 121 - - - Remuneration report Principles used to determine the nature and amount of remuneration Non-executive directors The remuneration of non- executive directors consists of director’s fees, committee fees and (subject to eligibility) retirement beneﬁts. The constitution of each of the entities comprising the Group provides that the total remuneration paid in a year to non-executive directors by the entity may not exceed $950,000. Subject to this limit, remuneration structure and amounts for non-executive directors are recommended by the Nomination & Remuneration Committee of the Board with assistance from external remuneration consultants. Liability for the Superannuation Guarantee Contribution is met from gross remuneration. In 1997, the Board implemented a policy to provide retirement allowances to non-executive directors. The policy provides for an entitlement to a lump sum payment (not exceeding the maximum allowable under the Corporations Act 2001) if the non-executive director has completed a minimum of three years service. The lump sum is equivalent to the total emoluments received during the Relevant Period. The Relevant Period is one-third of the director’s total period of service or three years (both calculated to the day of retirement), whichever is the lesser. This policy was reviewed in April 2003 and it was resolved to continue the policy for directors appointed prior to 29 April 2003, but not to extend the policy to appointments made after that date. Non–executive directors not entitled to retirement beneﬁts receive an additional director’s fee. Executive directors and executives The key objectives of the Group’s policy for executive remuneration are: To secure employees with the skills and experience necessary to meet business objectives; To motivate employees to the highest levels of performance; and To align employee incentives with increased shareholder value. The policy seeks to support the Group’s objective to be perceived as “the employer of choice” by: Offering remuneration levels which are attractive relative to those offered by comparable employers; and Providing strong, transparent linkages between individual and group performance and rewards. In consultation with external remuneration consultants, the Group has structured its executive remuneration to reward both growth and the delivery of improved returns. 48 annual report 2004 directors’ report Executives are remunerated through a combination of base salary, short-term incentives (“STI”) in the form of cash bonuses and long-term incentives (“LTI”) provided via either the Executive Option Plan (“EOP”) or the Executive Long-term Incentive Plan (“ELTIP”). The proportion of each component of an executive’s total remuneration is established by reference to remuneration survey data for comparable companies. The remuneration of the Managing Director is established by the Board, based on the recommendation of the Nomination & Remuneration Committee. The remuneration of senior executives reporting to the Managing Director is established by the Nomination and Remuneration Committee, based on the recommendation of the Managing Director. The components of Executive remuneration are described below: Base pay Base pay is structured as a Total Employment Cost (TEC). This provides a mix of cash, superannuation and prescribed beneﬁts. An executive’s pay is reviewed annually against market rates for comparable roles, however changes to an executive’s pay are ultimately determined based on their performance and perceived value to Transurban. There are no guaranteed base pay increases ﬁxed in any executive’s contract of employment. Short-term incentives On an annual basis, the Group makes available Short-term Incentive (“STI”) payments to executives for the achievement of Group and individual performance. STI amounts are expressed as a percentage of TEC, but are also subject to further adjustment using Economic Value Added (“EVA”) methodology for the variance between a target EVA and the EVA actually achieved. The purpose of the EVA adjustment is to ensure that STI payments reﬂect management’s performance in adding security holder value. Long-term incentives Two forms of Long-term Incentives (“LTI”) are currently in operation, the Executive Option Plan (“EOP”) and ﬁnancials the Executive Long-term Incentive Plan (“ELTIP”). The EOP provides Executives with equity-based rewards, where as the ELTIP provides cash-based rewards. Both plans utilise Total Shareholder Return as the basis for determining payment. The EOP was introduced with a ﬁve year term in 2001. Following a review of the EOP in 2003, it was decided to make no further issues of options under the EOP and to introduce the ELTIP to provide long-term incentives beyond the period covered by the EOP. No options were granted under the EOP during this ﬁnancial year. Details regarding the EOP are available in the note 25 of the Group ﬁnancial statements. Business generation incentive plan The Group also has in place a Business Generation Incentive Plan (“BGIP”) in which executives may participate depending upon their level of involvement in generating new business. The BGIP (based on the risk adjusted value [RAV] of a project/business venture) has been designed to link incentive/variable pay rewards to the increase in value derived from generating new business. BGIP payments are determined and awarded by the Board, on the recommendation of the Managing Director. Employee security ownership plan Executives may elect to participate in the Employee Security Ownership Plan on the same basis as that offered to all permanent employees. Executive Directors do not currently participate in the Plan. Employee insurance In addition to their TEC, executives are covered by the Group’s salary insurance and death and disablement plan on the same basis as that offered to all permanent employees. Details of remuneration Details of the nature and amount of each element of the emoluments of each director of the Transurban Group and each of the 5 ofﬁcers of the Group receiving the highest emoluments for the year ended 30 June 2004 are set out in the following tables. annual report 2004 49 directors’ report Directors of the Transurban Group Primary Post-employment Equity Name Cash salary & fees $ L G Cox 250,043 P C Byers 96,347 J G A Davis 89,997 S M Oliver 95,429 G O Cosgriff 86,253 D J Ryan 100,935 Cash bonus Long Non- term monetary beneﬁts $ incentive $ $ - - - - - - - - - - - - - - - - - - K Edwards 1,013,000 550,000 204,528 G R Phillips 463,998 225,000 - 7,300 7,300 Super- Retirement Options (1) beneﬁts annuation Total $ $ 22,504 157,393 8,671 12,020 8,589 7,763 9,084 87,000 11,002 47,705 37,767 44,186 105,774 - - - $ - - - - - - $ 429,940 152,723 139,784 148,204 199,790 110,019 184,503 2,046,331 61,501 768,801 Total 2,196,002 775,000 204,528 14,600 166,633 392,825 246,004 3,995,592 Other executives of the Transurban Group Primary Post-employment Name Cash salary & fees $ Cash bonus $ Long Non- term monetary beneﬁts $ incentive $ B Bourke 332,057 150,000 38,499 15,942 K Daley 218,851 100,000 40,906 18,532 P O’Shea 193,851 130,000 31,281 9,778 K Reynolds 261,469 90,000 30,078 18,434 F Browne 348,530 - - 18,585 Super- annuation $ 42,943 91,149 91,149 23,531 31,470 Equity Options (1) Total $ $ 43,664 623,105 37,264 31,940 31,940 506,702 487,999 455,452 47,798 446,383 Total 1,354,758 470,000 140,764 81,271 280,242 192,606 2,519,641 (1) No options were granted during the year over Transurban Group Stapled Securities. Option remuneration relates to options granted to Executive Directors and Executives in prior ﬁnancial years. The amounts disclosed as remuneration in the current year is that part of the value of the options which is attributable to the current year portion of the vesting period. To calculate remuneration from options, the options were valued as at grant date using a Black-Scholes derived option valuation model taking into consideration the exercise price, the term of the option, the market price of Transurban Group Stapled Securities on the date of granting the option, the expected price volatility of Transurban Group Stapled Securities, expected future distributions and the risk free rate of interest over the term of the options. 50 annual report 2004 directors’ report Stapled Securities under option ﬁnancials Unissued stapled securities of the Transurban Group under option at the date of this report are as follows. No options were issued during the year. Date options granted 26 April 2001 23 October 2001 1 February 2002 9 April 2002 20 May 2002 Expiry date 30 April 2006 31 October 2006 30 April 2007 30 April 2007 30 April 2007 Issue price of Stapled Securities Number under option $3.817 $4.404 $4.280 $4.030 $4.220 1,654,300 2,000,000 400,000 300,000 950,000 Options have no voting or distribution entitlements and have no rights to participate in any other issues of the Group. Shares issued on the exercise of options The following Stapled Securities were issued during the year ended 30 June 2004 on the exercise of options granted under the Transurban Group’s Employee Option Plan. No further securities have been issued since that date. No amounts are unpaid on any of the securities. Date options granted Issue price of securities Number of securities issued 26 April 2001 $3.817 95,700 Indemniﬁcation and insurance The ofﬁcers of the Group are indemniﬁed against liability incurred by the person in their capacity as an ofﬁcer unless the liability arises out of conduct on the part of the ofﬁcer which involves a lack of good faith. The Group also indemniﬁes each person who is or has been an ofﬁcer against liability for costs or expenses incurred by the person in his or her capacity as an ofﬁcer in defending civil or criminal proceedings in which judgment is given in favour of the person or the person is acquitted or in connection with an application in which the Court grants relief to the person under the Corporations Act 2001. Pursuant to this indemniﬁcation, the individual entities of the Group have paid premiums for an insurance policy for the beneﬁt of directors, secretaries and executive ofﬁcers and related bodies corporate of the Group, in the case of the Trusts within the Group the ofﬁcers are indemniﬁed out of the assets of the Trusts. In accordance with common practice, the insurance policies prohibit disclosure of the nature of the liability covered and the amount of the premium. annual report 2004 51 directors’ report Rounding off The Group is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investment Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars. Auditor PricewaterhouseCoopers continues in ofﬁce in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the directors. Jeremy G A Davis Director Melbourne, 25 August 2004 Kimberley Edwards Managing Director 52 annual report 2004 statements of ﬁnancial performance for the year ended 30 June 2004 Revenue from ordinary activities Expenses from ordinary activities: Operational costs Administration Business Development Corporate and Community Relations Concession Fees Net valuation adjustment on Concession Notes Depreciation and amortisation expenses Borrowing costs expense Loss from ordinary activities before income tax Income tax on operating loss Loss from ordinary activities after income tax Basic earnings per Stapled Security Diluted earnings per Stapled Security ﬁnancials Notes 2004 $’000 2003 $’000 3 467,666 410,868 (67,899) (18,504) (9,172) (2,454) (95,600) 58,615 (152,400) (241,742) (61,490) - (59,242) (16,354) (10,045) (2,577) (95,600) 62,896 (148,233) (225,291) (83,578) - (61,490) (83,578) Cents (11.7) (4.1) Cents (16.3) (16.1) 4 4 5 35 35 The above statements of ﬁnancial performance should be read in conjunction with the accompanying notes. annual report 2004 53 statements of ﬁnancial position as at 30 June 2004 Current assets Cash assets Receivables Other Total current assets Non-current assets Property, plant and equipment Intangible assets Financial assets Investments accounted for using the equity method Other Total non-current assets Total assets Current liabilities Payables Interest bearing liabilities Non-Interest bearing liabilities Provisions Total current liabilities Non-current liabilities Interest bearing liabilities Non-Interest bearing liabilities Provisions Total Non-Current Liabilities Total liabilities Net assets Equity Contributed equity Accumulated losses Total equity Notes 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2004 $’000 207,452 25,757 6,914 2003 $’000 172,277 24,926 2,605 240,123 199,808 3,604,281 3,728,251 8,752 486,419 6,236 29,920 9,252 392,000 5,888 19,573 4,135,608 4,154,964 4,375,731 4,354,772 79,422 8,000 25,585 5,570 118,577 54,471 8,000 28,049 5,072 95,592 2,210,248 2,131,897 207,681 173,846 2,036 974 2,419,965 2,306,717 2,538,542 2,402,309 1,837,189 1,952,463 2,242,030 (404,841) 2,181,144 (228,681) 1,837,189 1,952,463 The above statements of ﬁnancial position should be read in conjunction with the accompanying notes. 54 annual report 2004 statements of cash ﬂows for the year ended 30 June 2004 Cash ﬂows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Interest received Other revenue Borrowing costs ﬁnancials Notes 2004 $’000 2003 $’000 309,806 (146,034) 173,553 15,687 260,718 (113,291) 154,384 20,788 (214,768) (227,306) Net cash inﬂows from operating activities 33 138,244 95,293 Cash ﬂows from investing activities Payments for property, plant and equipment Payments for project development Payments for investments Payment for single purpose Investment in CPLN’s Proceeds from sale of assets Loans to related parties Repayment of loans by related parties (22,602) (5,334) (96,347) (3,150) - 6 (2,801) 909 (19,261) - (7,514) (3,700) (392,000) - - - Net cash (outﬂows) from investing activities (129,319) (422,475) Cash ﬂows from ﬁnancing activities Proceeds from issue of CARS Proceeds from issue of stapled securities – options Repayment of borrowings Proceeds from borrowings Payment of interest rate swap termination Payment of premium on mezzanine debt termination Distributions paid 23 Net cash inﬂows from ﬁnancing activities Net increase in cash at bank and cash collateral - 365 430,000 - - (2,958,872) 80,000 3,040,000 - - (54,145) 26,220 35,145 (90,573) (20,750) (32,409) 367,396 40,214 Cash at bank and cash collateral at the beginning of the ﬁnancial year 1,421,277 1,381,063 Effects of exchange rate changes on cash 30 - Cash at bank and cash collateral at the end of the ﬁnancial year 1,456,452 1,421,277 Less cash collateral Cash at bank at the end of the ﬁnancial year Financing arrangements and credit facilities Non cash ﬁnancing activities 6 18 34 The above statements of cash ﬂows should be read in conjunction with the accompanying notes. (1,249,000) (1,249,000) 207,452 172,277 annual report 2004 55 notes to the ﬁnancial statements for the year ended 30 June 2004 1. Summary of signiﬁcant accounting policies components of the Stapled Security are able to be traded separately. This general purpose ﬁnancial report has been prepared in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the Corporations Act 2001. Where necessary, comparatives have been reclassiﬁed for consistency with current year disclosures. In the current year, amounts previously categorised under the two main headings of Administration and Operational costs have been split to more accurately reﬂect the nature of the Group’s operations. Prior year comparative information has been amended in a consistent manner. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. a) Principles of aggregation The Group Financial Report consists of the aggregated ﬁnancial statements of the combined entity comprising Transurban Holdings Limited and controlled entities, Transurban Holding Trust and controlled entities and Transurban Infrastructure Developments Limited and controlled entities, notwithstanding that none of the entities controls the others. The aggregated accounts incorporate an elimination of inter-entity transactions and balances and other adjustments necessary to present the ﬁnancial statements on a combined basis. The accounting policies adopted in preparing the ﬁnancial statements have been consistently applied by the individual entities comprising the Group Accounts except as otherwise indicated. Where control of an entity is obtained during a ﬁnancial year, its results are included in the combined statement of ﬁnancial performance from the date on which control commences. Where control of an entity ceases during a ﬁnancial year its results are included for that part of the year during which control existed. Investments in associates are accounted for in the combined ﬁnancial statements using the equity method. Under this method, the combined entity’s share of post acquisition proﬁts or losses of associates is recognised in the combined statement of ﬁnancial performance, and its share of post acquisition movements in reserves is recognised in combined reserves. The cumulative post acquisition movements are adjusted against the cost of the investment. Associates are those entities over which the combined entity exercises signiﬁcant inﬂuence, but not control. b) Historical cost convention The ﬁnancial statements are prepared on the basis of the historical cost convention and, except where stated, do not take into account current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The fair value of cash consideration with deferred settlement terms is determined by discounting any amounts payable in the future to their present value as at the date of acquisition. Present values are calculated using rates applicable to similar borrowing arrangements of the Group. The Group has not adopted a policy of revaluing its non-current assets on a regular basis. c) Income tax The ﬁnancial statements have been aggregated in recognition of the fact that the securities issued by the parent entities were stapled into parcels during the year ended 30 June 2004. A Stapled Security comprises one share in Transurban Holdings Limited, one share in Transurban Infrastructure Developments Limited and one unit in Transurban Holding Trust. None of the Income tax is brought to account in respect of the Group, which has adopted the liability method of tax effect accounting. Income tax expense is calculated on the operating proﬁt of the Group, adjusted for permanent differences between taxable and accounting income. The tax effect of timing differences which arise from items being brought to account in different periods 56 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials for income tax and accounting purposes is carried The impact on the income tax expense for the year is forward in the balance sheet as a future income tax disclosed in note 5. beneﬁt or a deferred tax liability. However, the future tax beneﬁt relating to timing differences and tax losses is not carried forward as an asset unless the beneﬁt is virtually certain of realisation. The tax losses are shown in aggregate for the Group. However, the losses remain with the legal entities and cannot be transferred between entities comprising the Stapled Security. Tax consolidation legislation The Transurban Group has completed an analysis of the tax consolidation legislation and its applicability to the Group. In reaching a decision on the extent to which it would adopt the provisions of the legislation, the Group considered the following: d) Foreign currency translation Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the transaction. At balance date, amounts payable and receivable in foreign currencies are translated to Australian currency at rates of exchange current at the date. Resulting exchange differences are recognised in determining the proﬁt or loss for the year. e) Acquisition of assets The purchase method of accounting is used for all acquisitions of assets. Cost is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition. the ability of entities comprising the stapled security to consolidate; f) Revenue recognition the effect of the legislation on each entity’s carry- forward loss position; and Toll charges and related fees are recognised when the charge is incurred by the user. transitional concessions available to entities electing g) Receivables to consolidate at 1 July 2004. Based on its analysis, the Group has elected to implement tax consolidation legislation for Transurban Infrastructure Developments Limited and its wholly owned entities with effect from 1 July 2003. The Australian Tax Ofﬁce has not yet been notiﬁed of this decision. As a consequence, Transurban Infrastructure Developments Limited, as the head entity in the tax consolidated group recognises events and transactions Collectibility of trade debtors is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful debts is raised when reasonable doubt as to collection exists. h) Recoverable amount of non-current assets The recoverable amount of an asset is the net amount expected to be recovered through the cash inﬂows and outﬂows arising from its continued use and subsequent disposal. of its wholly owned entities as if those transactions were Where the carrying amount of a non-current asset is its own. The remaining entities, comprising Transurban Holdings Limited and the Transurban Holding Trust have elected not to participate in the tax consolidation legislation. greater than its recoverable amount, the asset is written down to its recoverable amount. The decrement in the carrying amount is recognised as an expense in net proﬁt or loss in the reporting period in which the recoverable amount write-down occurs. annual report 2004 57 notes to the ﬁnancial statements for the year ended 30 June 2004 In assessing recoverable amounts of non-current l) Intangible assets assets, the relevant cash ﬂows have been discounted to their present value, except where speciﬁcally stated. The excess of the cost over the identiﬁable net assets acquired is brought to account as goodwill i) Amortisation and depreciation and amortised on a straight line basis over the period of ﬁxed assets CityLink ﬁxed assets Amounts classiﬁed as CityLink ﬁxed assets are during which the beneﬁts are expected to arise. This period is presently estimated to be 20 years. m) Trade and other creditors amortised over the estimated term of the right granted Trade and other creditors represent liabilities for goods to operate CityLink (32 years), or the estimated useful lives of the assets, whichever is less. Amortisation by and services provided to the combined entity prior to the end of the ﬁnancial year and which are unpaid. The the combined entity commenced on 18 December 2001 amounts are unsecured and are usually paid within 45 and is calculated on a straight line basis. The period of days of recognition. amortisation will be assessed annually. Other plant and equipment n) Interest bearing liabilities Loans are carried at their principal amounts which Depreciation is calculated on a straight line basis so as represent the present value of future cash ﬂows to write off the net cost of items of plant and equipment associated with servicing the debt. Interest is accrued over their expected useful lives. Estimates of remaining over the period it becomes due and is recorded as part useful lives will be made on a regular basis for all assets. of other creditors. The expected useful lives are as follows: o) Infrastructure loan facilities Plant and Equipment 3 – 15 years The Group has two Infrastructure Loan facilities. Under j) Leased non-current assets Leases of plant and equipment where the combined entity assumes all the risks and beneﬁts of ownership are classiﬁed as ﬁnance leases. Other leases are classiﬁed as operating leases. Other operating lease payments are charged to the statement of ﬁnancial performance in the periods in which they are incurred, as this represents the pattern of beneﬁts derived from the leased assets. k) Non-current assets constructed by the combined entity the terms of these facilities, cash collateral equal to the utilised amounts of the facilities must be provided. This cash collateral has been set-off against the outstanding infrastructure borrowing facilities so that no asset or liability in respect of those facilities has been recorded in the balance sheet of the entity. p) Concession notes Non-interest bearing long-term debt represented by the Concession Notes has been included in the ﬁnancial statements at the present value of the expected future repayments. As the timing and proﬁle of these repayments is largely determined by the available equity cash ﬂows of CityLink, the present The cost of non-current assets constructed by the combined entity includes the cost of all materials used value of the expected future repayments is determined using a discount rate which recognises their in construction, direct labour on the project and an subordinated nature. appropriate proportion of directly attributable variable and ﬁxed overheads. 58 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials q) Employee entitlements as share capital. The amounts disclosed for (i) Wages, 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 reporting date remuneration of directors and executives in note 25 include the assessed fair value of options at the date they were granted. (iv) Share-based compensation beneﬁts are recognised in other creditors in respect of Share based compensation beneﬁts are provided employees’ services up to the reporting date and to employees via the Transurban Group Long-term are measured at the amounts expected to be paid Incentive Plan. Information relating to this plan is set when the liabilities are settled. An expense for non- out in note 25. accumulating sick leave is recognised when the leave is taken and measured at the rates paid or payable. (ii) Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee beneﬁts Units are allocated to reporting periods on a pro- rata basis from the grant date to the maturity date. Units allocated to a particular reporting period are valued on the reporting date and an employee beneﬁt expense and an employee beneﬁt liability are recognised at the amount of the valuation for each unit allocated. and is measured in accordance with (i) above. The liability for long service leave expected to be settled more than 12 months from the reporting date is On each reporting date, the units allocated to prior periods are revalued and the liability is adjusted to the new valuation. The movement in the liability recognised in the provision for employee beneﬁts is recognised as an employee beneﬁts expense. and measured as the present value of expected This revaluation occurs until all the units are future payments to be made in respect of services exercised or lapse. provided by employees up to the reporting date. Consideration is given to expected future wages and salary levels 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. (iii) Equity-based compensation beneﬁts Equity based compensation beneﬁts are provided to employees via the Transurban Group Executive Option Plan. Information relating to this scheme is set out in note 25. No accounting entries are made in relation to the Option Plan until options are exercised, at which time the amounts receivable from employees are recognised in the statement of ﬁnancial position On the exercise date where a cash bonus is paid, any difference between the cash payment and the liability in relation to those units is recognised as an adjustment to employee beneﬁts expense in that period. (v) Superannuation Superannuation is contributed to plans as nominated by the employee. The contribution is not less than the statutory minimum. The superannuation plans are all accumulation funds. The cost of current and deferred employee compensation and contributions to employee superannuation plans were charged to the statements of ﬁnancial performance. annual report 2004 59 notes to the ﬁnancial statements for the year ended 30 June 2004 r) Distributions Provision is made for the amount of any distribution to cash on hand and are subject to an insigniﬁcant risk of changes in value, net of outstanding bank overdrafts. declared, determined or publicly recommended by the w) Project development directors on or before the end of the ﬁnancial year but not distributed at balance date. s) Joint venture entity The interest in a joint venture partnership is accounted Costs incurred in developing proposals for speciﬁc projects are charged to the Statement of Financial Performance in the period in which they are incurred except where: for using the equity method. Under this method, the (i) the outcome of the proposal has been determined share of the proﬁts or losses of the partnership is recognised in the statement of ﬁnancial performance, and the outcome will result in the acquisition of an asset; or and the share of movements in reserves is recognised in reserves in the statement of ﬁnancial position. Details relating to the partnership are set out in note 32. (ii) the outcome of the proposal has not been determined but it is considered reasonably probable that the outcome, when determined, will result in the t) Maintenance and repairs acquisition of an asset. The cost of maintenance is charged as expenses as incurred, except where they relate to the replacement of a component of an asset, in which case the costs are capitalised and depreciated in accordance with note 1i. Other routine operating maintenance, repair and minor renewal costs are also charged as expenses as incurred. u) Borrowing costs Borrowing costs are recognised as expenses in the period in which they are incurred, except to the extent to which they relate to the construction of qualifying assets in which case borrowing costs are capitalised into the cost of the asset. Borrowing costs include interest on short-term, long-term borrowings and amortisation of deferred borrowing costs. Costs meeting these criteria are capitalised. x) Financial instruments Financial instruments, in the form of interest rate swap contracts, are used to manage ﬁnancial risk. Gains and losses on interest rate swaps used as hedges are accounted for on the same basis as the interest payments they are hedging. Realised hedge gains and losses are brought to account in the statement of ﬁnancial performance when the gains and losses arising on the related physical exposures are recognised. Unrealised gains and losses on interest rate swaps not effectively hedging an underlying exposure are recognised in the statement of ﬁnancial performance. Costs incurred in connection with the arrangement of borrowings are deferred and amortised over the y) Earnings per stapled security effective period of the funding. (i) Basic earnings per stapled security v) Cash For the purposes of the statement of cash ﬂows, cash includes cash deposits held at call with ﬁnancial institutions and other highly liquid investments with short periods to maturity which are readily convertible Basic earnings per stapled security is determined by dividing the proﬁt after income tax attributable to shareholders by the weighted average number of stapled securities outstanding during the ﬁnancial period. 60 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials (ii) Diluted earnings per stapled security to IFRS which was presented to the audit committee Diluted earnings per stapled security adjusts the ﬁgures used in the determination of basic earnings per stapled security by taking into account the weighted average number of stapled securities assumed to have been issued for no consideration in relation to dilutive potential securities. z) Rounding of amounts The combined entity 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 are rounded off to the nearest thousand dollars in accordance with that Class Order. aa) International ﬁnancial reporting standards (IFRS) The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (“IFRS”) for application to reporting periods beginning on or after 1 January 2005. The AASB will issue along with the results of an initial scoping review of the expected impact of the adoption of IFRS on the Group. The project plan is currently on schedule. The project team has commenced a detailed analysis of IFRS and the Group’s accounting policies to determine the effects on the opening balance sheet to be prepared on the date of transition to IFRS and future accounting policy differences. The project team has identiﬁed a number of accounting policy choices which are still being analysed by management to determine the most appropriate accounting policy for the Group on transition to IFRS. The major matters identiﬁed to date that are expected to require changes to the Group’s existing accounting policies or allow for an election by the Group are set out below. The major differences identiﬁed to date should not be regarded as a complete list of possible changes in accounting policies that will result from the transition to IFRS as not all standards or elections possible under some standards have been analysed as yet. For these reasons it is not yet possible to quantify the impact of the transition to IFRS. Australian equivalents to IFRS, and the Urgent Issues (i) Income tax Group will issue abstracts corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The adoption of Australian equivalents to IFRS will be ﬁrst reﬂected in the combined entity’s ﬁnancial statements for the half year ending 31 December 2005 and the year ending 30 June 2006. Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the carrying amounts of an entity’s assets and liabilities in the statement of ﬁnancial position and their associated tax bases. In addition, current and deferred taxes attributable to amounts recognised directly in equity are also recognised Entities complying with Australian equivalents to directly in equity. IFRS for the ﬁrst time will be required to restate their comparative ﬁnancial statements to amounts reﬂecting the application of IFRS to that comparative period. Most adjustments required on transition to IFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004. The Group established an IFRS transition project team This will result in a change to the current accounting policy, under which deferred tax balances are determined using the income statement method, items are only tax-effected if they are included in the determination of pre-tax accounting proﬁt or loss and/or taxable income or loss and current and deferred taxes cannot led by the Finance Director in October 2003. The be recognised directly in equity. project team prepared a plan to manage the transition annual report 2004 61 notes to the ﬁnancial statements for the year ended 30 June 2004 The Group has presently recognised deferred tax Measurement there may be major impacts as a balances but due to the existence of unrecognised result of: tax losses these offset future tax liabilities. On the adoption of AASB 112, the Group may recognise deferred tax assets, liabilities and tax losses to the extent it is probable they will be available for use the Group. The impact on the transition balance sheet is still being analysed and due to the present dispute with the ATO in regard to the deductibility of CityLink Concession Fees, the Group is unable to presently estimate the expected impact on the transition balance sheet or opening retained earnings. (ii) Intangible assets – goodwill Financial assets held by the combined entity being subject to classiﬁcation as either held for trading, held-to-maturity, available for sale or loans receivable and, depending upon classiﬁcation, measured at fair value or amortised cost. The most signiﬁcant change identiﬁed to date is investments in listed equity securities will be carried at fair value and may be classiﬁed as available for sale or designated as Fair Value through proﬁt and loss. The Group presently holds an investment in Hills Motorway and is The Group has recognised goodwill which is presently considering the policy options of presently being amortised over a 20 year period. classifying the investment as available for sale Under AASB 3: Business Combinations, goodwill with changes in fair value being recognised cannot be amortised and instead is allocated to directly in equity or designating the investment cash generating units and subject to impairment as fair value through proﬁt and loss. The change testing on each reporting date. This change in in accounting policy to carry listed equity policy may impact on the future volatility of earnings, investments at fair value is expected to increase however, there is not expected to be any impact on assets and retained earnings in the transition Group retained earnings on transition to IFRS. balance sheet, and may lead to greater volatility (iii) Equity-based compensation beneﬁts Under AASB 2 Share-based Payment, equity-based compensation to employees will be recognised as an expense in respect of the services received. This will result in a change to the current accounting policy, under which no expense is recognised for equity-based compensation. This is not expected to impact on the transition balance sheet or opening retained earnings as the present Group share- based long-term incentive plan is already recognised in the ﬁnancial report and options issued to executives fall outside the dates for which retrospective adjustment is mandated. (iv) Financial instruments Under the Australian equivalent to AASB 139 Financial Instruments: Recognition and in future reporting periods. The Group enters into interest rate swaps to hedge the Group’s exposure to interest rate movements. Presently the fair value of the hedges are not recognised in the ﬁnancial statements. Under AASB 139, the fair value of the hedges will be recognised on the balance sheet at each reporting date and the change in fair value during the reporting period reﬂected directly in equity to the extent hedging criteria is met, or in proﬁt and loss if the hedging criteria is not met. The Group is presently evaluating the effectiveness of the hedges. The change in policy is not expected to have a signiﬁcant impact on the transition balance sheet, but will lead to greater volatility in the reported balance sheet and if the hedging criteria are not met, in the reported proﬁt and loss. 62 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials (v) Accounting for associates (vi) Business Combinations Under AASB 128 Investments in Associates, a Under AASB 3: Business Combinations, the Group long-term loan to an associate can be considered can elect to either restate or grandfather acquisition as part of the investment. This is a change in accounting from previous business combinations present accounting policy where only the equity where AASB 3 may have resulted in different component of the investment is included in equity acquisition accounting. In particular, the Group accounting and long-term loans are a separate class restructure in December 2001 would have required of asset subject to recoverable amount testing. This different acquisition accounting under AASB 3 may effect the Group’s investment in the Westlink than that required by current Australian Accounting project which is presently equity accounted. The Standards. The Group has elected to grandfather investment is substantially represented by a long- all previous business combinations and there will term loan rather than an equity investment. If the be no impact on the transition balance sheet or Westlink project incurs accounting losses from the opening retained earnings from restating business commencement of operations greater than the combinations, subject to other standards. Group’s equity investment, the receivable balance may be reduced to the extent of the Group’s remaining share of accounting losses. This may occur despite the recoverable amount of the long- term loan not being impaired due to the expected cashﬂow from the Westlink project. This change in policy is not expected to impact on the transition balance sheet or opening retained earnings as Westlink has not yet commenced operations, but may lead to greater volatility in earnings in future reporting periods. 2. Segment information The Combined Entity’s primary business segment for the period ending 30 June 2004 was the operation of the Melbourne CityLink toll road. The acquisition of a 40 per cent interest in the Westlink M7 project has not resulted in a change to the primary segment of the Group. The Westlink M7 project is presently non- operational and is scheduled for completion in 2007. Geographical segment information is provided in the table below and reﬂects the Transurban Group’s activities in relation to geographically unique locations. Segment Revenues 2004 $’000 $’000 2003 Segment Assets 2004 $’000 2003 $’000 Segment Liabilities 2004 $’000 $’000 2003 Victoria 431,033 390,606 3,960,431 3,907,325 2,091,096 1,965,796 New South Wales 36,633 20,262 415,300 447,447 447,446 436,513 467,666 410,868 4,375,731 4,354,772 2,538,542 2,402,309 annual report 2004 63 notes to the ﬁnancial statements for the year ended 30 June 2004 3. Revenue Revenue from operating activities Toll revenue Fee revenue Advertising revenue Equity commitment fee Revenue from outside operating activities Interest Proceeds from sale of non-current assets Equity investment distributions Foreign exchange gains (net) (note 4) Other Revenue from ordinary activities 2004 $’000 2003 $’000 248,097 223,162 6,361 3,451 - 257,909 7,923 3,378 10,500 244,963 180,480 162,564 6 1,044 59 28,168 209,757 467,666 - - - 3,341 165,905 410,868 64 annual report 2004 ﬁnancials 2004 $’000 2003 $’000 notes to the ﬁnancial statements for the year ended 30 June 2004 4. Operating loss from ordinary activities Net gains and expenses Loss from ordinary activities before income tax expense includes the following speciﬁc net gains and expenses: Net gains Net gain on disposal of property, plant and equipment Net foreign exchange gains recognised in the proﬁt from ordinary activities for the year (as either revenue or expense) 6 59 - - Expenses Losses from ordinary activities before income tax expense includes the following speciﬁc expenses: Depreciation and amortisation CityLink Other ﬁxed assets Amortisation Goodwill Total depreciation/amortisation 141,200 10,700 142,603 5,130 500 500 152,400 148,233 Bad and doubtful debts – trade debtors 635 1,057 Borrowing costs Interest and ﬁnance charges paid/payable Interest rate hedging charges paid/payable Total borrowing costs 230,650 11,092 241,742 210,033 15,258 225,291 Rental expenses relating to operating leases 2,284 1,700 annual report 2004 65 notes to the ﬁnancial statements for the year ended 30 June 2004 5. Income tax Tax consolidation legislation The Transurban Group has elected to implement tax consolidation legislation for Transurban Infrastructure Developments Limited and its wholly owned entities with effect from 1 July 2003. The Australian Tax Ofﬁce has not yet been notiﬁed of this decision. The accounting policy on implementation of the legislation is set out in note 1(c). The impact on the income tax expense for the year is disclosed in the tax reconciliation below. Transurban Holdings Limited and the Transurban Holding Trust have elected not to adopt the tax consolidation legislation. a) The income tax expense for the ﬁnancial year differs from the amount calculated on the loss. The differences are reconciled as follows: Loss from ordinary activities before income tax expense Income tax calculated at 30% (2003-30%) Tax effect of permanent differences: 2004 $’000 2003 $’000 (61,490) (18,447) (83,578) (25,073) Infrastructure borrowing facility interest not deductible 26,439 26,288 Non-deductible depreciation and amortisation Other Income tax adjusted for permanent differences Beneﬁt of (tax losses of prior year recouped)/tax losses not recognised Income tax expense b) Transurban Holding Trust Tax losses at beginning of year Tax (income) for the year Tax losses at end of year Transurban Holdings Limited Tax losses at beginning of year Tax (income)/losses for the year Tax losses at end of year Transurban Infrastructure Developments Limited Tax losses at beginning of year Tax (income) for the year Tax losses at end of year 150 170 8,312 (8,312) - 138,337 (45,054) 93,283 845,986 (6,486) 839,500 249 5,089 5,338 - - 1,215 (1,215) - 173,861 (35,524) 138,337 771,288 74,698 845,986 1,625 (1,376) 249 66 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials Potential future income tax beneﬁts at 30 June 2004 Transurban has advice from Senior Counsel that for tax losses not brought to account for the combined the concession fees are immediately deductible entity are $281.4 million (2003: $295.4 million). These expenditure. The Group ﬁnancial statements have been future income tax beneﬁts are not being brought prepared on this basis for the year ended 30 June 2004 to account as an asset as they do not meet the and all prior years. Deductions in respect of concession requirements described in note 1c. The gross tax losses fees account for $796.1 million of the combined entity’s in relation to the Trust are $93.3 million as at 30 June carried forward loss of $938.1 million at 30 June 2004. 2004 (2003: $138.3 million). These losses can not be used directly by the Trust for the reason outlined in note 1c, but may be available for the beneﬁt of unit holders in the future. The Australian Taxation Ofﬁce (“ATO”) and Transurban have been unable to agree on the treatment to be applied to concession fees and as a consequence the ATO issued an assessment in respect of CityLink The beneﬁt of tax losses will only be realised by each Melbourne’s income tax return for the year ended 30 individual entity if: June 1998. (i) the entity derives future assessable income of a nature and of an amount sufﬁcient to enable the beneﬁt from the deductions for the losses to be realised; and (ii) the entity continues to comply with the conditions for deductibility imposed by tax legislation; and, (iii) no changes in tax legislation adversely affect the entity in realising the beneﬁt from the deductions for the losses. Transurban appealed against the ATO’s decision to disallow its objection to the assessment. The appeal was heard before Mr Justice Merkel in the Federal Court on 3 October 2002. On 2 February 2004, Mr Justice Merkel dismissed Transurban’s appeal. Transurban has lodged a Notice of Appeal against the dismissal. The appeal was heard by a Full Court of the Federal Court on 17 and 18 August 2004. The Court reserved its judgement in the matter. Until a deﬁnitive resolution of this matter has been The above tax position is based on the tax treatment achieved, Transurban intends to continue preparing proposed in tax ruling requests relating to borrowing the Group ﬁnancial statements on the basis that the costs and interentity transactions. However, the Australian Taxation Ofﬁce (“ATO”) has not given its opinion in relation to all of these requests. concession fees are deductible. If the ﬁnding of Mr Justice Merkel is ﬁnally conﬁrmed, certain items in the Group ﬁnancial statements will require amendment. annual report 2004 67 notes to the ﬁnancial statements for the year ended 30 June 2004 6. Current assets – cash assets Cash at bank The above ﬁgures are reconciled to cash at the end of the ﬁnancial period as shown in the statement of cash ﬂows as follows: Cash at bank – as above Cash collateral, Infrastructure Loan Facility (note 1o) Cash collateral, Infrastructure Note Facility (note 1o) The amount shown in Cash at Bank includes $36.2 million comprising the amount required under the CityLink Concession Deed to be held in the maintenance reserve account and the amount held in the CARS funding reserve. These amounts were not available for general use at 30 June 2004 (2003: $36.1 million). 2004 $’000 2003 $’000 207,452 207,452 172,277 172,277 207,452 795,000 454,000 172,277 795,000 454,000 1,456,452 1,421,277 7. Current assets – receivables Trade debtors Less: provision for doubtful debts Other debtors Other debtors generally arise from transactions outside the usual operating activities. The balance includes a distribution of $2.6 million from the investment in Hills Motorway Group Limited (refer note 11). 8. Current assets – other Prepayments Debtors from related parties 11,508 (755) 10,753 15,004 25,757 8,755 (706) 8,049 16,877 24,926 3,627 3,287 6,914 2,605 - 2,605 68 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 9. Non-current assets – property, plant and equipment a) CityLink ﬁxed assets CityLink at cost Less: Accumulated depreciation Equipment and ﬁttings Equipment and ﬁttings at cost Less: Accumulated depreciation ﬁnancials 2004 $’000 2003 $’000 3,910,616 3,910,607 (359,160) (217,959) 3,551,456 3,692,648 80,116 (27,291) 52,825 52,224 (16,621) 35,603 Total property, plant and equipment 3,604,281 3,728,251 Non-current assets pledged as security Refer to note 18 for information on non-current assets pledged as security by the Group. b) Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current ﬁnancial year is set out below: CityLink $’000 Equipment and ﬁttings $’000 Total $’000 2004 Carrying amount at 1 July 2003 3,692,648 35,603 3,728,251 Additions 8 27,922 27,930 Depreciation/amortisation expense charged to statement of ﬁnancial performance (141,200) (10,700) (151,900) Carrying amount at 30 June 2004 3,551,456 52,825 3,604,281 2003 Carrying amount at 1 July 2002 Additions Disposals Transfers between asset classes Depreciation/amortisation expense charged to statement of ﬁnancial performance Carrying amount at 30 June 2003 3,828,159 2,141 - 4,951 (142,603) 3,692,648 27,931 17,761 (8) (4,951) 3,856,090 19,902 (8) - (5,130) 35,603 (147,733) 3,728,251 annual report 2004 69 notes to the ﬁnancial statements for the year ended 30 June 2004 10. Non-current assets – intangible assets Goodwill Less: Accumulated amortisation 11. Non-current assets – other ﬁnancial assets Investments traded on organised markets Shares in other corporations Other ﬁnancial assets Investment in Construction Phase Loan Notes 2004 $’000 2003 $’000 10,000 (1,248) 8,752 10,000 (748) 9,252 94,419 - 392,000 486,419 392,000 392,000 During the year Transurban Holding Trust acquired an 8.1 per cent interest in the Hills Motorway Group. The market value of the investment at 30 June 2004 is $111.0 million. Investment in Construction Phase Loan Notes (“CPLN”) The CPLN represent Transurban’s funding contribution to the Westlink Motorway Partnership. The CPLN earn interest at the ﬁxed rate of 6.27 per cent for the period from the ﬁnancial close of the Westlink M7 project (“the Project”) to the date of completion of the Project, or 3.5 years which ever is the lesser, at which time they convert to Term Loan Notes. 12. Investments accounted for using the equity method Interest in joint venture partnership (note 32) Shares in associates (note 31) 13. Non-current assets – other Debtor from related party Prepayments Project development Deferred borrowing costs 6,236 - 6,236 5,128 2,913 9,139 12,740 29,920 5,888 - 5,888 - 4,813 1,626 13,134 19,573 70 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 14. Current liabilities – payables Trade creditors CARS coupon payment Other creditors ﬁnancials 2004 $’000 7,355 15,009 57,058 79,422 2003 $’000 1,823 6,350 46,298 54,471 CARS coupon payment represents the interest payment due to holders of Convertible Adjusting Rate Securities (“CARS”). The distribution on these securities of 7 per cent for the period 1 January 2004 to 30 June 2004 totalling $15.0 million has been charged to the statement of ﬁnancial performance as a borrowing cost due to the CARS being classiﬁed as a liability. This coupon was paid to CARS holders on 31 July 2004. Other creditors Other creditors represents accruals for operating expenses and interest on the Group’s borrowings. 15. Current liabilities – interest bearing liabilities Secured Bank loan This loan facility was fully utilised at 30 June 2004. 16. Current liabilities – non-interest bearing liabilities Prepaid tolls Unearned income Release from Single Purpose 17. Current liabilities – provisions Employee entitlements 8,000 8,000 8,000 8,000 20,121 2,314 3,150 25,585 18,044 6,855 3,150 28,049 5,570 5,570 5,072 5,072 annual report 2004 71 notes to the ﬁnancial statements for the year ended 30 June 2004 18. Non-current liabilities – interest bearing liabilities Secured Infrastructure Loan facility Less: Cash collateral (note 1o) Infrastructure Note facility Less: Cash collateral (1o) Land Transport Notes Project Debt – Tranche B Capital Markets Debt Convertible Adjusting Rate Securities Subordinated Debt Facility Set-off of assets and liabilities 2004 $’000 2003 $’000 795,000 795,000 (795,000) (795,000) 454,000 454,000 (454,000) (454,000) 248 510,000 1,897 510,000 1,190,000 1,190,000 430,000 430,000 80,000 - 2,210,248 2,131,897 A legal right of set-off exists in respect of the speciﬁc cash deposits of $795 million, representing collateralisation of liabilities under the Infrastructure Loan facility and $454 million, representing collateralisation of liabilities under the Infrastructure Note facility. Financing arrangements and credit facilities Credit facilities are provided as part of the overall debt funding structure of the Transurban Group. Details of each facility are as follows: a) Infrastructure loan facility $795 million facility certiﬁed by the Development Allowance Authority to qualify for concessional tax treatment under Division 16L of the Income Tax Legislation. The loan is secured by cash collateral equal to the amount of the loan which is set-off against the loan liability. The principal of the Infrastructure Loan facility will be repaid from the cash collateral on 15 April 2007. The facility was fully drawn as at 30 June 2004. b) Infrastructure note facility $454 million facility certiﬁed by the Development Allowance Authority to qualify for concessional tax treatment under the Income Tax Legislation. The loan is secured by cash collateral equal to the amount of the loan which is set-off against the loan liability. The principal of the infrastructure note facility will be repaid from the cash collateral on 15 April 2007. The facility was fully drawn as at 30 June 2004. c) Land transport notes The class A land Transport Notes were repaid on 30 June 2004. The class B Land Transport Notes are carried at a present value of $0.2 million and will be repaid no later than 30 days prior to the last day of the concession period. 72 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 d) Tranche B bank debt ﬁnancials $510 million facility which is for a term of 5 years from 28 June 2002. The facility was fully utilised at 30 June 2004. The facility is secured by a ﬁrst ranking charge over the cash ﬂows of the Melbourne CityLink Project. e) Capital markets debt Comprises bonds issued by Transurban Finance Company with terms of 3, 5, and 7 years from 8 August 2002. The facilities are secured by a ﬁrst ranking charge over the cash ﬂows of the Melbourne CityLink Project. Maturing 2005 ‘000 Maturing 2007 ‘000 Maturing 2009 ‘000 Total ‘000 175,000 260,000 435,000 665,000 90,000 755,000 Fixed interest rate Credit wrapped Non-credit wrapped Floating interest rate Credit wrapped (1) Non-credit wrapped Total capital markets debt 175,000 260,000 435,000 65,000 90,000 155,000 590,000 - - - - - - 240,000 360,000 - 240,000 240,000 - 360,000 360,000 1,190,000 (1) The Group has the option to cancel the 5 year and 7 year maturity after 3 years. f) Convertible adjusting rate securities $430 million raised via the issue of 4.3 million securities. Semi annual interest is paid at a ﬁxed rate of 7 per cent per annum until the ﬁrst re-set date on 14 April 2007. These securities are generally convertible into Transurban Securities at a discount of 2.5 per cent and rank ahead of Transurban Stapled Securities on a winding up of Transurban in conjunction with a winding up of Transurban CARS Trust. Transurban Holding Trust acts as guarantor for Transurban CARS Trust in relation to the interest payments to holders of CARS. The term of this guarantee is until the ﬁrst reset date, 14 April 2007, at which time the guarantee may or may not be extended. g) Subordinated debt facility $80 million facility which is for a term of six months from 26 June 2004. The facility was fully utilised at 30 June 2004. The facility can be rolled at the option of the Group upon expiry. h) Cash advance facility $50 million facility which is for a term of 3 years from 28 June 2002. The facility was unused at 30 June 2004. annual report 2004 73 notes to the ﬁnancial statements for the year ended 30 June 2004 Loans Total facilities Used at balance date Unused at balance date 19. Non-current liabilities – non-interest bearing liabilities Release from Single Purpose Concession Notes 2004 $’000 3,087,000 3,037,000 50,000 - 207,681 207,681 2003 $’000 3,087,000 2,957,000 130,000 3,150 170,696 173,846 CityLink Melbourne Limited issues Concession Notes annually in satisfaction of its obligations to pay Concession Fees to the State of Victoria (“the State”) equal to $95.6 million. The notes are due for redemption at the end of the Concession Period, but may be presented earlier where a Notional Initial Equity Investor has achieved a real after tax internal rate of return on its equity investment in the Project equal to 10 per cent per annum. Once the threshold rate of return is achieved, subsequent Concession Note redemption payments are limited to not more than 30 per cent of the distributable cash ﬂow for the previous year. Based on forecast cash ﬂows which assume that concession fees are deductible as incurred, the ﬁrst Concession Note payment is presently expected to occur in the 2012 ﬁnancial year. Concession Notes have been included in the Financial Report as non interest bearing liabilities at the present value of the expected future repayments. As the timing and proﬁle of these repayments is largely determined by the available equity cash ﬂows of CityLink, the present value of the expected future repayments is determined using a discount rate of 12 per cent which recognises their subordinated nature. The face value of Concession Notes on issue at 30 June 2004 is $796.1 million (2003: $700.5 million). The Net Present Value at 30 June 2004 of the redemption payments relating to these Concession Notes is $207.7 million (2003: $170.7 million). The indicative timing of these redemption payments is set out in the following table. Concession note redemption Estimated concession note payments Within ﬁve years Later than 5 years but not later than 10 years Later than 10 years but not later than 15 years Later than 15 years but not later than 20 years - 155,152 525,903 114,999 796,054 - 104,212 463,717 132,524 700,453 74 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 Reconciliation Reconciliation of movement in the Concession Note liability. Concession Note liability at the start of the year Concession Notes issued during the year Valuation adjustments for the year: Charge/(credit) for Concession Notes on issue at beginning of year Credit for Concession Notes issued during the year Concession Note liability at the end of the year 20. Non-current liabilities – provisions Employee entitlements 21. Contributed equity ﬁnancials 2004 $’000 170,696 95,600 20,483 (79,098) 207,681 2,036 2,036 2003 $’000 137,992 95,600 16,559 (79,455) 170,696 974 974 2004 Number ‘000 2003 Number ‘000 2004 2003 $’000 $’000 a) Stapled Securities fully paid 532,630 518,473 2,242,030 2,181,144 532,630 518,473 2,242,030 2,181,144 b) Date Details Notes 1 July 2003 Opening Balance 8 October 2003 Distribution reinvestment plan issue 26 February 2004 Exercise of April 2001 options 26 March 2004 Distribution reinvestment plan issue d f d 30 June 2004 Closing Balance Number of shares ‘000 518,473 Issue price $’000 - 2,181,144 4,957 $4.1241 20,443 96 $3.8170 367 9,104 $4.4020 40,076 532,630 2,242,030 annual report 2004 75 notes to the ﬁnancial statements for the year ended 30 June 2004 c) Stapled Securities Stapled Securities entitle the holder to participate in distributions and the winding up of the Transurban Group in proportion to the number of and amounts paid on the securities held. In the event that Transurban and Transurban CARS Trust are wound up simultaneously, then holders of Transurban CARS securities would rank ahead of Transurban Group Stapled Security holders. On a show of hands every holder of Stapled Securities present at a meeting in person or by proxy, is entitled to one vote. d) Distribution reinvestment plan The Transurban Group has established a distribution reinvestment plan under which holders of Stapled Securities may elect to have all or part of their distribution entitlements satisﬁed by the issue of new Stapled Securities rather than by cash. Securities are issued under the plan at a 2.5 per cent discount to the market price e) Employee share scheme Information relating to the employee share scheme, including details of share issued under the plan, are set out in note 25. f) Options Information relating to the Transurban Group Executive Option Plan, including details of options issued, exercised, and lapsed during the ﬁnancial year and options outstanding at the end of the ﬁnancial year are set out in note 25. 22. Accumulated losses Accumulated losses at the beginning of the year Net losses incurred during the year Trust distributions to security holders Accumulated losses at the end of year 2004 $’000 (228,681) (61,490) (114,670) (404,841) 2003 $’000 (78,640) (83,578) (66,463) (228,681) 76 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials 2004 $’000 2003 $’000 23. Distributions Stapled Securities Final distribution for 2003 ﬁnancial year of 10.0 cents (2002 – 3.0 cents) per fully paid Stapled Security paid 8 October 2003 51,847 Interim distribution for 2004 ﬁnancial year of 12.0 cents (2003 – 10.0 cents) per fully paid Stapled Security paid 26 March 2004 Total distributions paid 62,823 114,670 Distributions paid in cash or satisﬁed by the issue of Stapled Securities under the distribution reinvestment plan during the years ended 30 June 2004 and 2003. Paid in cash Satisﬁed by issue of Stapled Securities 54,145 60,525 114,670 15,300 51,163 66,463 32,409 34,054 66,463 In addition to the above distributions, since year end the directors have recommended the payment of a ﬁnal distribution of 13.5 cents per fully paid stapled security. The aggregate amount of the proposed distribution expected to be paid on 8 October 2004, not recognised as a liability at year end, is $71.9 million (2003: $51.8 million). 24. Financial instruments The combined entity is party to ﬁnancial instruments with off-balance sheet risks in the normal course of business in order to hedge exposure to interest rate ﬂuctuations. These instruments are not included in assets or liabilities. Interest rate swap contracts It is Transurban Group policy to protect ﬂoating rate facilities from exposure to increasing interest rates. Accordingly, the combined entity has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at ﬁxed rates. The contracts are settled on a net basis and the net amount receivable or payable at the reporting date is included in other debtors or other creditors. Swaps currently in place cover approximately 86 per cent (2003: 92 per cent) of the ﬂoating rate loan principal outstanding. At 30 June 2004, the notional principal amounts and periods of expiry of the interest rate swap contracts are as follows: 4 – 5 years annual report 2004 2004 $’000 1,160,000 1,160,000 2003 $’000 1,160,000 1,160,000 77 notes to the ﬁnancial statements for the year ended 30 June 2004 Interest rate risk The combined entity’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following tables. 2004 Floating Fixed interest maturing in: interest rate or less and 5 years $’000 1 year between 1 more than Non interest bearing $’000 5 years $’000 $’000 $’000 Note Total $’000 Financial assets Cash Debtors Other Debtors from related party 7,13 8,13 8 Construction phase loan notes 11 6 207,452 - - - - Total ﬁnancial assets 207,452 Weighted average interest rate 5.05% Financial liabilities Creditors Prepaid tolls Release from single purpose Land transport notes Concession notes Bank loan Tranche B debt Capital markets debt Subordinated debt facility Infrastructure loan facility Cash collateral CARS Interest rate swaps Total ﬁnancial liabilities 14 16 16 18 19 15 18 18 18 18 18 18 24 - - - - - 8,000 510,000 755,000 80,000 - - - (1,160,000) 193,000 Weighted average interest rate 5.97% - - - - - - - - - - - - - - - - - - - - - - - - - - 392,000 392,000 6.27% - - - - - - - 435,000 - 1,249,000 (1,249,000) 430,000 1,160,000 - - - - - - - - - - - 207,452 30,885 30,885 6,540 3,287 6,540 3,287 - 392,000 40,712 640,164 79,422 79,422 20,121 20,121 3,150 3,150 248 - 248 - - - - - - - - - 207,681 207,681 - - 8,000 510,000 - 1,190,000 - 80,000 - 1,249,000 - (1,249,000) - - 430,000 - 2,025,000 248 310,374 2,528,622 3.76% - Net ﬁnancial assets/(liabilities) 14,452 - (1,633,000) (248) (269,662) (1,888,458) 78 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 2003 ﬁnancials Fixed interest maturing in: Floating 1 year interest rate or less and 5 years $’000 $’000 $’000 Note between 1 more than Non interest bearing 5 years $’000 $’000 Total $’000 Financial assets Cash Debtors Other 6 7 8,13 Construction phase loan notes 11 172,277 - - - Total ﬁnancial assets 172,277 Weighted average interest rate 4.47% Financial liabilities Creditors Prepaid tolls 14 16 Release from single purpose 16,19 Land transport notes Concession notes Bank loan Tranche B debt Capital markets debt Infrastructure loan facility Cash collateral CARS 18 19 15 18 18 18 18 18 - - - - - 8,000 510,000 755,000 - - - Interest rate swaps 24 (1,160,000) Total ﬁnancial liabilities 113,000 Weighted average interest rate 4.98% - - - - - - - - - - - - - - - - - - - - - - - 392,000 392,000 6.27% - - - 1,897 - - - 435,000 1,249,000 (1,249,000) 430,000 1,160,000 2,026,897 4.04% - 172,277 24,926 24,926 20,552 20,552 - 392,000 45,478 609,755 54,471 54,471 18,044 18,044 6,300 - 6,300 1,897 170,696 170,696 - - 8,000 510,000 - 1,190,000 - 1,249,000 - (1,249,000) - - 430,000 - 249,511 2,389,408 - - - - - - - - - - - - - - - - - - - - Net ﬁnancial assets/(liabilities) 59,277 - (1,634,897) - (204,033) (1,779,653) annual report 2004 79 notes to the ﬁnancial statements for the year ended 30 June 2004 Reconciliation of net ﬁnancial liabilities to net assets Net ﬁnancial liabilities as above (1,888,458) (1,779,653) Notes 2004 $’000 2003 $’000 Non-ﬁnancial assets and liabilities Property, plant and equipment Other assets Other liabilities Net assets per balance sheet Credit risk 9 3,604,281 3,728,251 10,11,12,13 16,17,20 131,286 (9,920) 16,766 (12,901) 1,837,189 1,952,463 Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The credit risk on ﬁnancial assets is the carrying amount net of any provisions for doubtful debts. Net fair values of ﬁnancial assets and liabilities The carrying amount and net market value of ﬁnancial assets and liabilities brought to account at balance date are the same. The aggregate net fair value of interest rate swaps not recognised in the balance sheet (refer note 1x) held at 30 June 2004 is a liability of $0.3 million (2003: $61.6 million). As these contracts are hedging anticipated future interest payments, any unrealised gains and losses on the contracts, together with the cost of the contracts, are deferred and will be recognised in the measurement of the underlying transaction. The valuation of interest rate swaps reﬂects the estimated amounts which the entity expects to pay or receive to terminate the contracts or replace the contracts at their current market rates as at 30 June 2004. 80 annual report 2004 ﬁnancials notes to the ﬁnancial statements for the year ended 30 June 2004 25. Director and executive disclosures Directors The following persons were directors of entities within the Transurban Group during the ﬁnancial year: Chairman – non-executive Laurence G Cox Non-executive directors Peter C Byers Geoffrey O Cosgriff Jeremy GA Davis Susan M Oliver David J Ryan Executive directors Kimberley Edwards Geoffrey R Phillips Speciﬁed executives The following persons were the 10 executives with the greatest authority for the strategic direction and management of the Group (“speciﬁed executives”) during the ﬁnancial year. All executives are employees of Transurban Infrastructure Developments Limited, except Brendan Bourke, who is an employee of CityLink Melbourne Limited. Name Position Brendan Bourke CEO, CityLink Melbourne Limited Ken Daley Paul O’Shea Ken Reynolds Executive General Manager General Counsel General Manager, Major Projects Francis Browne General Manager, Global and Business Development Lisa Hunt Vic Delosa Joanne Barber Mike Roberts Cesare Tizi General Manager, New South Wales General Manager, Victoria General Manager, Human Resources General Manager, Corporate Relations Chief Information Ofﬁcer annual report 2004 81 notes to the ﬁnancial statements for the year ended 30 June 2004 Remuneration of directors and executives To align employee incentives with increased Principles used to determine the nature and shareholder value. amount of remuneration. Non-executive directors The policy seeks to support the Group’s objective to be perceived as “the employer of choice” by: Offering remuneration levels which are attractive The remuneration of non-executive directors consists of relative to those offered by comparable employers; director’s fees, committee fees and (subject to eligibility) and retirement beneﬁts. The constitution of each of the entities comprising the Group provides that the total remuneration paid in a year to non-executive directors by the entity may not exceed $950,000. Subject to Providing strong, transparent linkages between individual and group performance and rewards. In consultation with external remuneration consultants, this limit, remuneration structure and amounts for the Group has structured its executive remuneration to non-executive directors are recommended by the reward both growth and the delivery of improved returns. Nomination & Remuneration Committee of the Board with assistance from external remuneration consultants. Liability for the Superannuation Guarantee Contribution is met from gross remuneration. Executives are remunerated through a combination of base salary, short-term incentives (“STI”) in the form of cash bonuses and long-term incentives (“LTI”) provided via either the Executive Option Plan (“EOP”) or the In 1997, the Board implemented a policy to provide Executive Long-term Incentive Plan (“ELTIP”). retirement allowances to non-executive directors. The policy provides for an entitlement to a lump sum payment (not exceeding the maximum allowable under the Corporations Act 2001) if the non-executive director has completed a minimum of three years service. The lump sum is equivalent to the total emoluments received during the Relevant Period. The Relevant Period is one-third of the director’s total period of service or three years (both calculated to the day of retirement), whichever is the lesser. This policy was reviewed in April 2003 and it was resolved to continue the policy for directors appointed prior to 29 April 2003, but not to extend the policy to appointments made after that date. Non–executive directors not entitled to The proportion of each component of an executive’s total remuneration is established by reference to remuneration survey data for comparable companies. The remuneration of the Managing Director is established by the Board, based on the recommendation of the Nomination & Remuneration Committee. The remuneration of senior executives reporting to the Managing Director is established by the Nomination and Remuneration Committee, based on the recommendation of the Managing Director. The components of executive remuneration are described below: retirement beneﬁts receive an additional director’s fee. Base pay Executives The key objectives of the Group’s policy for executive remuneration are: To secure employees with the skills and experience necessary to meet business objectives; Base pay is structured as a Total Employment Cost (TEC). This provides a mix of cash, superannuation guarantee contributions and prescribed beneﬁts. An executive’s pay is reviewed annually against market rates for comparable roles, however changes to an executive’s pay are ultimately determined based on their performance and perceived value to Transurban. There To motivate employees to the highest levels of are no guaranteed base pay increases ﬁxed in any performance; and executive’s contract of employment. 82 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials Short-term incentives Business generation incentive plan On an annual basis, Transurban makes available Short- The Group also has in place a Business Generation term Incentive (“STI”) payments to executives for the Incentive Plan (“BGIP”) in which executives may achievement of the Group and individual performance. participate depending upon their level of involvement in STI amounts are expressed as a percentage of TEC, but generating new business. The BGIP (based on the risk are also subject to further adjustment using Economic adjusted value [RAV] of a project/business venture) Value Added (“EVA”) methodology for the variance has been designed to link incentive/variable pay between a target EVA and the EVA actually achieved. rewards to the increase in value derived from generating The purpose of the EVA adjustment is to ensure that STI new business. BGIP payments are determined and payments reﬂect management’s performance in adding awarded by the Board, on the recommendation of the security holder value. Long-term incentives Managing Director. Employee security ownership plan Two forms of Long-term Incentives (“LTI”) are currently Executives may elect to participate in the Employee in operation, the Executive Option Plan (“EOP”) and Security Ownership Plan on the same basis as that the Executive Long-term Incentive Plan (“ELTIP”). The offered to all permanent employees. Executive Directors EOP provides Executives with equity-based rewards, do not currently participate in the Plan. where as the ELTIP provides cash-based rewards. Both plans utilise Total Shareholder Return as the basis for determining payment. The EOP was introduced with a ﬁve year term in 2001. Following a review of the EOP in 2003, it was decided to make no further issues of options under the EOP and to introduce the ELTIP to provide long-term incentives beyond the period covered by the EOP. No options were granted under the EOP during this ﬁnancial year. Employee insurance In addition to their TEC, executives are covered by the Group’s salary insurance and death and disablement plan on the same basis as that offered to all permanent employees. annual report 2004 83 notes to the ﬁnancial statements for the year ended 30 June 2004 Details of remuneration Details of the remuneration of each director of the Transurban Group and each of the ten speciﬁed executives of the Group, including their personally related entities, are set out in the following tables: Directors of the Transurban Group Primary Post-employment Equity 2004 Name Cash salary & fees $ Cash bonus Long Non- term monetary beneﬁts $ incentive $ $ L G Cox 250,043 P C Byers 96,347 J G A Davis 89,997 S M Oliver 95,429 G O Cosgriff 86,253 D J Ryan 100,935 - - - - - - - - - - - - - - - - - - K Edwards 1,013,000 550,000 204,528 G R Phillips 463,998 225,000 - 7,300 7,300 Super- Retirement Options (1) beneﬁts annuation Total $ $ 22,504 157,393 8,671 12,020 8,589 7,763 9,084 87,000 11,002 47,705 37,767 44,186 105,774 - - - $ - - - - - - $ 429,940 152,723 139,784 148,204 199,790 110,019 184,503 2,046,331 61,501 768,801 Total 2,196,002 775,000 204,528 14,600 166,633 392,825 246,004 3,995,592 (1) No options were granted during the year over Transurban Group Stapled Securities. Option remuneration relates to options granted to Executive Directors and Executives in prior ﬁnancial years. The amounts disclosed as remuneration in the current year is that part of the value of the options which is attributable to the current year portion of the vesting period. To calculate remuneration from options, the options were valued as at grant date using a Black-Scholes derived option valuation model taking into consideration the exercise price, the term of the option, the market price of Transurban Group Stapled Securities on the date of granting the option, the expected price volatility of Transurban Group Stapled Securities, expected future distributions and the risk free rate of interest over the term of the options. Total remuneration of directors of for the year ended 30 June 2003 is set out below. Information on individual directors is not shown as this is the ﬁrst ﬁnancial report prepared since the issue of AASB 1046 Director and Executive Disclosures by Disclosing Entities. 2003 Name Cash salary & fees $ Primary Cash Long-term bonus Non- incentive monetary annuation beneﬁts $ $ $ $ Post-employment Super- Retirement Options (1) beneﬁts Equity Total $ $ $ Total 1,932,079 965,000 - 14,600 151,516 378,141 245,332 3,686,668 84 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 Speciﬁed executives of the group ﬁnancials 2004 Name Cash salary & fees $ Primary Post-employment Cash Long-term bonus Non- incentive monetary beneﬁts $ $ $ B Bourke 332,057 150,000 38,499 15,942 K Daley 218,851 100,000 40,906 18,532 P O’Shea 193,851 130,000 31,281 9,778 K Reynolds 261,469 90,000 30,078 18,434 F Browne 348,530 - - 18,585 L Hunt V Delosa J Barber 261,379 100,000 30,078 15,110 261,379 90,000 - 18,527 203,246 100,000 24,062 18,520 M Roberts 229,270 100,000 229,270 - - - 18,821 12,187 C Tizi Total Super- annuation $ 42,943 91,149 91,149 23,531 31,470 23,621 23,621 36,754 20,730 20,730 Equity Options (1) Total $ $ 43,664 623,105 37,264 31,940 31,940 47,798 11,774 506,702 487,999 455,452 446,383 441,962 29,435 422,962 26,617 409,199 29,435 398,256 31,940 294,127 2,539,302 860,000 194,904 164,436 405,698 321,807 4,486,147 Total remuneration of speciﬁed executives for the year ended 30 June 2003 is set out below. Information on individual speciﬁed executives is not shown as this is the ﬁrst ﬁnancial report prepared since the issue of AASB 1046 Director and Executive Disclosures by Disclosing Entities. In some cases, different individuals are included than those speciﬁed in the year ended 30 June 2004. 2003 Name Cash salary & fees $ Total 1,357,416 988,500 Primary Post-employment Cash Long-term bonus Non- incentive monetary beneﬁts Super- annuation Equity Options (1) Total $ $ - $ $ $ $ 36,500 118,791 192,080 2,693,287 annual report 2004 85 notes to the ﬁnancial statements for the year ended 30 June 2004 Service agreements Speciﬁed executives Remuneration and other terms of employment for The major provisions contained in Employment executive directors and speciﬁed executives are Agreements for speciﬁed executives are the same formalised in Employment Agreements. These for all speciﬁed executives except for the base salary Agreements provide for base pay and any speciﬁed component. These provisions are: beneﬁts, the availability of short-term incentives and termination entitlements. Long-term incentives and business generation incentive plan payments are offered (when appropriate and eligible) by the Board. Term of agreement – permanent Termination – 3 months notice Executive directors K Edwards, Managing Director Term of Agreement – permanent Termination – 3 months notice Eligible to participate in the Transurban Group’s Employee Share Ownership Plan and Executive Long-term Incentive Plan Total Employment Cost is reviewed annually by the Nomination and Remuneration Committee Below are the Total Employment Costs, including Base salary, including superannuation, for the year ended 30 June 2004 of $1,100,000 to be superannuation for speciﬁed executives for the year ended 30 June 2004. reviewed annually by the remuneration committee and the Board. Speciﬁed executive Amount G R Phillips, Deputy Managing Director Term of Agreement – permanent Base salary, including superannuation, for the year ended 30 June 2004 of $475,000, to be reviewed annually by the remuneration committee. Termination – 3 months notice B Bourke K Daley P O’Shea K Reynolds F Browne L Hunt V Delosa J Barber M Roberts C Tizi $375,000 $310,000 $285,000 $285,000 $380,000 $285,000 $285,000 $240,000 $250,000 $250,000 Share-based compensation – options The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows: Grant date Expiry date Exercise price Value per option at grant date Date exercisable 26 April 2001 30 April 2006 $3.817 $0.425 One-third after 28/04/03, 26/04/04, 26/04/05 23 October 2001 31 October 2006 $4.404 $0.491 One-third after 28/04/03, 26/04/04, 26/04/05 1 February 2002 30 April 2007 $4.280 $0.477 One-third after 01/02/04, 01/02/05, 01/02/06 9 April 2002 30 April 2007 $4.030 $0.449 One-third after 20/05/04, 20/05/05, 20/05/06 20 May 2002 30 April 2007 $4.220 $0.470 One-third after 20/05/04, 20/05/05, 20/05/06 86 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials Options are issued at no cost to the Option holder exercised, each option is converted into one stapled and vest in three equal tranches on the second, third security, comprising one ordinary share in Transurban and fourth anniversaries of their issue. The Exercise Infrastructure Developments Limited, one ordinary of the options is subject to an Exercise Condition. The Exercise Condition involves a comparison between Total Shareholder Return (“TSR”) of the Transurban Group’s Stapled Securities over the two years prior to a vesting date of options and the TSR of each of the other companies in the S&P/ASX 200 Industrials as at the end of the relevant Exercise Condition Test Period which have been in the S&P/ASX 200 Industrials for the full term of the Exercise Condition Test Period (“Test Companies”) measured over the same period. TSR measures the total return on investment of a security. It takes into account both capital appreciation and distribution income. The Transurban Group and each of the Test Companies will be ranked according to their respective TSRs over the Exercise Condition Test Period. The ranking determines the extent to which vested options may be exercised. If the Group’s TSR exceeds the 65th percentile of the ranking, 100% of the vested options may be exercised. If Transurban Group’s TSR is below the 25th percentile of the ranking, none of the vested options may be exercised. If the TSR falls between these percentiles, the percentage of vested options that may be exercised will be calculated according to a formula. The exercise price of options is the 5 day variable weighted average price of the Group’s stapled securities prior to granting the options. When share in Transurban Holdings Limited and one unit in Transurban Holding Trust. Options can be exercised at any time after vesting. Share-based compensation – Executive long- term incentive (“ELTI”) plan As advised at the 2003 Annual General Meeting the Board has decided to provide long-term incentives in the period after the options currently on issue under the Executive Option Plan have fully vested by way of cash bonuses linked to the growth in the stapled security price and total shareholder return. Under the new long-term incentive plan, participants will be allocated “ELTI units”. Each ELTI unit will entitle the holder to a cash payment on the maturity date, which will be approximately two years after the date of allocation. The cash payment per unit will be equal to the increase in the stapled security price over the period between the date of allocation and the maturity date, subject to adjustment if Transurban’s ranking in the Total Shareholder Returns (“TSRs”) of the ASX 200 Industrials over the two years prior to maturity is below the 70th percentile. If Transurban’s TSR ranking is below the 40th percentile, no payment will be made. For TSR rankings between the 40th and 70th percentiles, the adjustment factor will reduce from 100 per cent to zero. The terms and conditions of each grant of long-term incentive plan units affecting remuneration in this or future reporting periods are as follows: Grant date Expiry date Grant price Value per unit at grant date Value per unit at reporting date Date payable 30 Sept 2003 30 Sept 2005 $4.23 $0.46 $0.64 30 Nov 2005 annual report 2004 87 notes to the ﬁnancial statements for the year ended 30 June 2004 Name Directors of the Transurban Group K Edwards G Phillips Speciﬁed executives of the Transurban Group B.Bourke K Daley P O’Shea K Reynolds F Browne L Hunt V Delosa J Barber M Roberts C Tizi Number of ELTIs granted during the year Number of ELTIs paid during the year 850,000 - 160,000 170,000 130,000 125,000 - 125,000 - 100,000 - 110,000 - - - - - - - - - - - - Equity instrument disclosures relating to directors and executives Options provided as remuneration Details of options over stapled securities provided as remuneration to each director of the Transurban Group and each of the ten speciﬁed executives of the Group are set out below. Name Directors of the Transurban Group K Edwards G R Phillips Speciﬁed executives of the Transurban Group B Bourke K Daley P O’Shea K Reynolds F Browne L Hunt V Delosa J Barber M Roberts C Tizi 88 Number of options granted during the year Number of options vested during the year - - - - - - - - - - - - 500,000 166,667 116,667 116,667 100,000 100,000 133,333 33,333 83,333 83,333 83,333 100,000 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 Shares provided on exercise of remuneration options ﬁnancials Details of stapled securities provided as a result of the exercise of remuneration options to each director of the Transurban Group and each of the ten speciﬁed executives of the Group are set out below. Name Date of exercise of options Number of stapled securities issued on exercise of options during the year Speciﬁed executives of the Transurban Group P O’Shea 26 February 2004 95,700 The amounts paid per stapled security by each director and executive on the exercise of options at the date of exercise were as follows: Exercise date 26 February 2004 Amount paid per stapled security $3.817 No amounts are unpaid on any securities issued on the exercise of options. Option holdings The number of options over stapled securities held during the ﬁnancial year by each director of the Transurban Group and each of the ten speciﬁed exectutives of the Group, including their personally-related entities, are set out below. Name Balance at Granted during Exercised the start of the year the year as remuneration the year during changes Other Balance at Vested and Vested and at the end exercisable unexercisable at the end of the year at the end of the year during of the year the year - - - - - - - - - - - - - - - - 95,700 - - - - - - - Directors of the Transurban Group K Edwards 1,500,000 G R Phillips 500,000 - - Speciﬁed executives of the Transurban Group - - - - - - - - - - B Bourke 350,000 K Daley 350,000 P O’Shea 300,000 K Reynolds 300,000 F Browne 400,000 L Hunt 100,000 V Delosa 250,000 J Barber 250,000 M Roberts 250,000 C Tizi 300,000 annual report 2004 1,500,000 894,657 500,000 298,219 105,343 35,114 350,000 208,753 350,000 208,753 204,300 83,231 300,000 178,931 400,000 100,000 250,000 89,867 20,900 52,250 250,000 149,110 250,000 52,250 300,000 178,931 24,580 24,580 21,069 21,069 37,300 12,433 31,083 17,557 31,083 21,069 89 notes to the ﬁnancial statements for the year ended 30 June 2004 Share holdings The number of Transurban Group Stapled Securities and Covertible Adjusting Rate Securities (“CARS”) held during the ﬁnancial year by each director of the Transurban Group and each of the ten speciﬁed executives of the Group, including their personally-related entities, are set out below. Stapled Securities Name Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year Directors of the Transurban Group L G Cox P C Byers G O Cosgriff J G A Davis S M Oliver D J Ryan K Edwards G R Phillips 775,000 50,000 17,360 40,000 59,375 20,000 61,000 - Speciﬁed executives of the Transurban Group B Bourke K Daley P O’Shea K Reynolds F Browne L Hunt V Delosa J Barber M Roberts C Tizi 2,862 11,033 75,000 10,378 2,949 1,621 1,621 2,949 2,949 2,862 - - - - - - - - - - 95,700 - - - - - - - - - 7,550 10,000 1,618 1,043 - - 2,631 3,503 8,355 332 2,854 343 2,854 2,854 2,854 150 775,000 50,000 24,910 50,000 60,993 21,043 61,000 - 5,493 14,536 179,055 10,710 5,803 1,964 4,475 5,803 5,803 3,012 90 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials CARS Name Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year Directors of the Transurban Group L G Cox P C Byers G O Cosgriff J G A Davis S M Oliver D J Ryan K Edwards G R Phillips 4,000 - 121 150 - 300 348 - Speciﬁed executives of the Transurban Group B Bourke K Daley P O’Shea K Reynolds F Browne L Hunt V Delosa J Barber M Roberts C Tizi 2,000 750 400 205 - 200 - 50 100 - - - - - - - - - - - - - - - - - - - (3,000) - - (150) - (300) (348) - (1,600) - - - - - - - - - 1,000 - 121 - - - - - 400 750 400 205 - 200 - 50 100 - Other transactions with directors and speciﬁed executives Mr Cox is a director of Macquarie Corporate Finance Ltd (a wholly owned subsidiary of Macquarie Bank Ltd), which during the year ended 30 June 2004 provided ﬁnancial advice pursuant to speciﬁc mandates. The Group is entitled to receive management fees of $6.5 million from Macquarie Bank in relation to the extension of the term of the Infrastructure Borrowing Facilities provided by Macquarie Bank. Macquarie Bank Ltd was involved in the ﬁnancial arrangements concerning the Land Transport Notes. Mr. Cox holds $51,155 of Class B Land Transport Notes. Mr Byers is a director of Hills Motorway Limited, in which Transurban Holding Trust has a 8.1 per cent interest, refer note 7 and 11. annual report 2004 91 notes to the ﬁnancial statements for the year ended 30 June 2004 Aggregate amounts of each of the above types of other transactions with directors of the Transurban Group: Amounts recognised as revenue Management fees Distribution from Hills Motorway Group Amounts recognised as expenses Consulting fees Reimbursement of out of pocket expenses Underwriting services Interest Amounts recognised as loans – liability Loans provided and repaid All of the above amounts represent payments on normal commercial terms made in relation to the provision of goods and services. Aggregate amounts payable to or receivable from director related entities of the Transurban Group at balance date relating to the above types of transactions. Current liabilities – Macquarie Bank Limited Current assets – Hills Motorway Group Current assets – Macquarie Bank Limited Non-current assets – Macquarie Bank Limited 2004 $’000 6,523 1,044 7,567 - - - - - - - 2,625 1,395 5,128 9,148 2003 $’000 - - - 372 21 7,208 3,849 11,450 250,000 5 - - - 5 92 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 26. Remuneration of auditors ﬁnancials During the year the following services were paid to the auditor of the Transurban Group and its related practices: Assurance services 1. Audit services Audit and review of ﬁnancial reports and other audit work under the Corporations Act 2001. Total remuneration for audit services 2. Other assurance services Due diligence Compliance plan audit Other assurance services Total remuneration for other assurance services Taxation services Tax compliance services, including review of income tax returns Total remuneration for taxation services 2004 $’000 2003 $’000 297 297 168 21 20 209 200 200 315 315 242 76 51 369 242 242 It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Group are important. These assignments are principally tax advice and ﬁnancial due diligence. It is the Group’s policy to seek competitive tenders for all major consulting projects. 27. Contingent liabilities (a) Transurban Holding Trust acts as guarantor for Transurban CARS Trust in relation to the interest payments to holders of Convertible Adjusting Rate Securities (“CARS”). This guarantee is in place until the ﬁrst reset date (14 April 2007) at which time the guarantee may or may not be extended. The distributions are semi-annual distributions ﬁxed until the ﬁrst reset date at 7 per cent per annum on an amount of $430 million. (b) In May 2003, VicRoads submitted an invoice to CityLink Melbourne Limited for costs of approximately $5 million for rectiﬁcation works associated with the Swan Street Bridge. CityLink Melbourne Limited does not believe that it has any liability to VicRoads to pay those costs. In June 2003, VicRoads and the Minister for Transport (“the plaintiffs”) ﬁled a writ in the Supreme Court of Victoria, claiming certain damage was sustained by the Swan Street Bridge. The plaintiffs claim that this damage was due to tunnelling, roadworks and associated infrastructure works on and in the vicinity of the Swan Street Bridge, arising from the Melbourne CityLink project. The entities forming the Transﬁeld-Obayashi joint venture are also defendants. The writ has not been served and therefore no litigation has been instituted. CityLink Melbourne Limited is facilitating discussions between the parties. annual report 2004 93 notes to the ﬁnancial statements for the year ended 30 June 2004 (c) The Transurban Group has established a bank guarantee of $5 million in favour of a controlled entity in a form prescribed by ASIC to accommodate the net tangible asset conditions of the controlled entity’s Australian Financial Services Licence. The controlled entity is unable to act as a Responsible Entity for certain Transurban Group entities if the bank guarantee conditions are not satisﬁed. 28. Commitments for expenditure Lease commitments Commitments for minimum payments in relation to non-cancellable operating lease contracted for at the reporting date but not recognised as liabilities payable: Within one year Later than one year but not later than 5 years Later than 5 years Concession fees 2004 $’000 2003 $’000 1,905 8,488 10,393 1,577 2,433 - 4,010 The Melbourne CityLink Concession Deed between the Transurban Group and the State of Victoria provides for annual concession fees of $95.6 million during the construction phase and for the ﬁrst 25 years of the operations phase, $45.2 million for years 26 to 34 of the operations phase and $1 million thereafter if the concession continues beyond year 34. Until a certain threshold return is achieved, payments of concession fees due under the Concession Deed will be satisﬁed by means of the issue of non-interest bearing Concession Notes to the State. Refer to note 19 for details. Option over further interest in Westlink M7 Motorway Project Wholly owned entities of the Group have separately granted put options to wholly owned entities of the Leighton group and of Abigroup. Each put option relates to 25 per cent of the interest in the Westlink M7 project held by the grantee entity and is exercisable at the completion of the project at a price of $24.5 million. Wholly owned entities of the Group have been separately granted call options by wholly owned entities of the Leighton group and of Abigroup. Each call option relates to 25 per cent of the interest in the Westlink M7 project held by the grantor entity and is exercisable at completion of the project at a price of $24.5 million. 94 annual report 2004 ﬁnancials 2004 $’000 2003 $’000 5,570 2,036 7,606 5,072 971 6,043 2004 Number 2003 Number 407 407 349 349 notes to the ﬁnancial statements for the year ended 30 June 2004 29. Employee entitlements Employee beneﬁt and related on-costs liabilities Current (note 17) Non-current (note 20) Employee numbers Average number of employees during the ﬁnancial year a) Transurban Group Executive Option Plan Refer to note 25 for details of the Transurban Group Executive Option plan. Set out below are summaries of options granted under the plan. Grant date Expiry date Exercise Balance price at start of the year Issued Exercised during during the year the year Lapsed Balance during at end of the year the year 2004 26 April 2001 April 2006 $3.817 2,100,000 23 October 2001 October 2006 $4.404 2,000,000 1 February 2002 April 2007 $4.280 400,000 9 April 2002 April 2007 $4.030 300,000 20 May 2002 April 2007 $4.220 1,550,000 Total 2003 6,350,000 26 April 2001 April 2006 $3.817 2,350,000 23 October 2001 October 2006 $4.404 2,000,000 1 February 2002 April 2007 $4.280 400,000 9 April 2002 April 2007 $4.030 300,000 20 May 2002 April 2007 $4.220 1,650,000 Total 6,700,000 - - - - - - - - - - - - 95,700 - 2,004,300 - - - - - 2,000,000 - - 400,000 300,000 50,000 1,500,000 95,700 50,000 6,204,300 - - - - - - 250,000 2,100,000 - 2,000,000 - - 400,000 300,000 100,000 1,550,000 350,000 6,350,000 annual report 2004 95 notes to the ﬁnancial statements for the year ended 30 June 2004 Options exercised during the ﬁnancial year and number of stapled securities issued to employees on the exercise of options. Excercise date 26 February 2004 Fair value of stapled securities at issue date $4.465 2004 Number 95,700 95,700 2003 Number - - The fair value of stapled securities issued on the exercise of options is the week weighted average price at which the Transurban Group’s stapled securities were traded on the Australian Stock Exchange during the week prior to the exercise of the options. Options vested at the reporting date Aggregate proceeds received from employees on the exercise of options and recognised as issued capital Fair value of securities issued to employees on the exercise of options as at their issue date b) Employee share scheme 2004 Number 2003 Number 2,100,000 1,307,900 2004 $ 365,287 2004 $’000 2003 $ - 2003 $’000 427 - The Transurban Employee Security Ownership Plan (“the Plan”) was introduced in March 2002. The scheme offers employees the opportunity to participate in the success of the Transurban Group by investing in securities of the Group. All current full-time and permanent part-time (excluding directors) and ﬁxed term staff on contracts greater than 12 months are eligible to participate. Offers under the scheme are at the discretion of the Transurban Group, taking into account the Group’s success and market performance. Stapled Securities issued under the scheme may only be sold once the employee has ceased employment with the Group. In all other aspects the Stapled Securities rank equally with other fully-paid securities on issue. In December 2003, each participant was issued 120 stapled securities (2003 – 120 stapled securities) at a value of $4.44 per stapled security (2003 – $4.25). Prior to 1 July 2003, Stapled Securities provided under the plan were issued to employees for no cash consideration. For the year commencing 1 July 2003, Stapled Securities provided under the plan were purchased on the open market. 96 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials Stapled securities purchased on market under the plan and provided to participating employees on 27 February 2004 (1) (1) The prior year number represents the number of securities issued under the plan to participating employees. c) Employee Long-term Incentive (“ELTI”) Plan Refer to note 25 for details of the Transurban ELTI Plan. 2004 $’000 2003 $’000 40,440 34,560 The terms and conditions of each grant of long-term incentive plan units affecting remuneration in this or future reporting periods are as follows: Grant date Expiry date Grant price Value per unit at grant date Value per unit at reporting date Date payable 30 Sept 2003 30 Sept 2005 $4.23 $0.46 $0.64 30 Nov 2005 30. Investment in controlled entities Name of entity The CityLink Trust CityLink Melbourne Limited City Link Extension Pty Ltd Country of Class of incorporation security Equity holding Equity Date holding acquired 2004 (%) 2003 (%) Australia Ordinary Australia Ordinary Australia Ordinary Transurban Infrastructure Management Limited Australia Ordinary Transurban Collateral Security Pty Ltd Australia Ordinary Transurban Finance Trust Australia Ordinary Transurban Finance Company Pty Ltd Australia Ordinary Transurban Nominees Pty Ltd Transurban Nominees 2 Pty Ltd Transurban WSO Pty Ltd Transurban AL Trust Transurban CARS Trust Transurban WSO Trust Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Transurban Infrastructure Developments WSO Pty Ltd Australia Ordinary Transurban MF 1 Pty Ltd Transurban MF 2 Pty Ltd Australia Ordinary Australia Ordinary Transurban Asset Management Pty Ltd Australia Ordinary Transurban Operations Pty Ltd Australia Ordinary Acquisition of controlled entities All new controlled entities were acquired for a book value of $12 each. 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 - - - - 01/03/04 01/03/04 16/10/03 01/03/04 annual report 2004 97 notes to the ﬁnancial statements for the year ended 30 June 2004 31. Investment in associates Investments in associates are accounted for in the combined ﬁnancial statements using the equity method of accounting. Information relating to the associates is set out below. Combined entity Name of company WSO Company Pty Limited Westlink Motorway Limited WSO Finance Company Ownership interest 2003 2004 % carrying amount 2003 2004 $’000 % 40 40 40 40 40 40 $’000 - - - - - - WSO Company, Westlink Motorway Limited and WSO Finance Company are presently non-operational and are carried at cost of $80 each. WSO Company will be the operator of Westlink M7 Motorway which is presently under construction and is due for completion in 2007. Westlink Motorway Limited is the nominee manager of the Westlink Motorway Partnership and WSO Finance Company will arrange debt facilities for the Westlink Motorway Project. The associates are not expected to have an impact on the combined entity’s equity accounted proﬁts until operations commence. Summary of performance and ﬁnancial position of associates Aggregate net proﬁts of associates after tax Assets Liabilities 32. Interest in joint ventures 2004 $’000 - 108,501 108,501 2003 $’000 - 147,339 147,339 Combined entity Westlink Motorway Partnership 40 Ownership interest 2003 2004 % % 40 carrying amount 2003 2004 $’000 $’000 6,236 5,888 The combined entity has a 40% interest in the Westlink Motorway Partnership, the principal activity of which is the construction of the Westlink M7 Motorway in Sydney. The M7 is presently in the construction phase and is due for completion 2007. The partnership is unlikely to have an impact on the combined entity’s equity accounted proﬁts until operations commence. 98 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 Share of partnership assets and liabilities Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities Net Assets Share of Proﬁts Share of partnership commitments Capital commitments ﬁnancials 2004 $’000 2003 $’000 2,932 355,834 358,766 31,306 327,460 358,766 - - 1,741 235,059 236,800 - 236,800 236,800 - - 327,484 564,266 33. Reconciliation of operating loss after income tax to net cash ﬂow from operating activities Operating loss after income tax Depreciation and amortisation Deferred borrowing costs Change in operating assets and liabilities Increase in Concession Note liability Increase in creditors (Increase) in debtors Increase in provisions (Decrease)/increase in unearned income Net cash inﬂow from operating activities (61,490) 152,400 394 36,985 17,831 (4,895) 1,560 (4,541) (83,578) 148,233 (13,134) 32,704 6,745 (997) 2,693 2,627 138,244 95,293 annual report 2004 99 notes to the ﬁnancial statements for the year ended 30 June 2004 34. Non-cash ﬁnancing and investing activities Pre-acquisition portion of distribution receivable from Hills Motorway Group Ltd offsetting the cash purchase price 1,581 - 2004 $’000 2003 $’000 Distributions satisﬁed by the issue of stapled securities under the distribution reinvestment plan 35. Earnings per stapled security Basic earnings per Stapled Security Diluted earnings per Stapled Security 60,525 62,106 34,054 34,054 2004 (11.7 cents) 2003 (16.3 cents) (4.1 cents) (8.2 cents) Weighted average number of Stapled Securities used as the denominator in calculating basic earnings per Stapled Security 524,512,875 512,976,259 Weighted average number of Stapled Securities and potential Stapled Securities used as the denominator in calculating diluted earnings per Stapled Security 985,000,351 970,462,464 Reconciliation of earnings used in calculating earnings per stapled security Net loss Interest savings on CARS Earnings used in calculating diluted earnings per Stapled Security 2004 $’000 (61,490) 21,128 (40,362) 2003 $’000 (83,578) 4,445 (79,133) 100 annual report 2004 ﬁnancials notes to the ﬁnancial statements for the year ended 30 June 2004 Information concerning the classiﬁcation of securities (a) Stapled Securities All Stapled Securities are fully paid. They carry the right to participate in distributions and have been included in the determination of basic and diluted earnings per stapled security. (b) Options Options granted to executives under the Transurban Executive Option Plan are considered to be potential stapled securities and have been included in the determination of diluted earnings per stapled security. The options have not been included in the determination of basic earnings per stapled security. (c) Convertible Adjusting Rate Securities (“CARS”) CARS on issue are convertible to stapled securities at a maximum conversion ratio of 105, at the ﬁrst reset date 14 April 2007. CARS are considered to be potential stapled securities and have been included in the determination of diluted earnings per stapled security at their maximum conversion ratio. This ratio will be applicable if the volume weighted average price of stapled securities during the period over which the price for the purpose of conversion of CARS is determined is less than $0.98. The directors consider conversion of this basis to be a highly unlikely event. The CARS have not been included in the calculation of basic earnings per stapled security. annual report 2004 101 directors’ declaration The directors declare that the ﬁnancial statements and notes set out on pages 53 to 101. a) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and b) give a true and fair view of the combined entity’s ﬁnancial position as at 30 June 2004 and of their performance, as represented by the results of their operations and its cash ﬂows, for the year ended on that date. In the directors’ opinion a) the ﬁnancial statements and notes are in accordance with the Corporations Act 2001; and b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with separate resolutions of the directors of Transurban Infrastructure Developments Limited, Transurban Infrastructure Management Limited and Transurban Holdings Limited. Jeremy G A Davis Director Kimberley Edwards Managing Director Melbourne, 25 August 2004 102 annual report 2004 independant audit report to the members ﬁnancials annual report 2004 103 shareholder information The security holder information set out below was applicable as at 31 August 2004 (a) Distribution of Stapled Securities 1. The number of holders of Stapled Securities, which comprise one share in Transurban Holdings Limited, one share in Transurban Infrastructure Developments Limited and one unit in Transurban Holding Trust, was 26,258. 2. The voting rights are one vote per Stapled Security. 3. At 31 August 2004 the percentage of the total holdings held by or on behalf of the twenty largest holders of these securities was 66.51 per cent. 4. The distribution of holders was as follows: Share Grouping Number of Holders Stapled Securities Held 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - and over Total 4,689 15,711 3,708 2,003 147 26,258 3,187,058 42,015,938 27,409,057 42,926,618 416,903,531 532,442,202 There were 212 holders of less than a marketable parcel of ordinary shares. 5. Substantial Shareholder’s as at 31 August 2004 are as follows: Name Commonwealth Bank of Australia Limited Ontario Teacher’s Pension Plan Board Schroder Investment Management Australia Limited Investors Mutual Limited Number of Stapled Securities 102,635,578 48,153,103 28,079,322 27,336,730 % 0.60 7.89 5.15 8.06 78.30 100.00 % of Total 19.28 9.04 5.27 5.13 104 annual report 2004 (b) Twenty Largest Holders of Stapled Securities Westpac Custodian Nominees Limited National Nominees Limted JP Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited RBC Global Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited ANZ Nominees Limited Queensland Investment Corporation Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited Cogent Nominees Pty Ltd AMP Life Limited RBC Global Services Australia Nominees Pty Limited Cogent Nominees Pty Ltd UBS Private Clients Australia Nominees Pty Limited Australia Foundation Investment Company Limited Citicorp Nominees Pty Limited ANZ Nominees Limited Total ﬁnancials Number of Stapled Securities Held % of issued Stapled Securities 88,192,077 51,652,696 33,377,585 25,897,894 21,196,303 19,372,044 14,480,269 13,189,166 12,111,230 10,506,217 9,123,404 8,867,671 8,579,154 7,461,510 7,338,379 4,956,957 4,881,456 4,593,898 4,295,386 4,123,171 16.56 9.70 6.27 4.86 3.98 3.64 2.72 2.48 2.27 1.97 1.71 1.67 1.61 1.40 1.38 0.93 0.92 0.86 0.81 0.77 354,196,467 66.51 annual report 2004 105 ﬁnancials Transurban CARS Trust and Controlled Entity (ABN 81 656 633 158) for the year ended 30 june 2004 Statement of Financial Performance s Directors’ Report t n e t n o c Statement of Financial Position Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report to the members 108 112 113 114 115 133 134 This ﬁnancial report covers both Transurban CARS Trust as an individual entity and the consolidated entity consisting of Transurban CARS trust and its controlled entity. Transurban CARS Trust is a Trust formed and domiciled in Australia. Its registered ofﬁce and principal place of business is: Transurban CARS Trust Level 43 Rialto South Tower 525 Collins Street Melbourne VIC 3000 Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally. All releases to the ASX and the media, ﬁnancial reports and other information are available on our website: www.transurban.com.au annual report 2004 directors’ report The directors of Transurban Infrastructure Management Limited, the Responsible Entity of Transurban CARS Trust, present their report on the consolidated entity consisting of Transurban CARS Trust (“the Trust”), and the entity it controlled at the end of, and during, the year ended 30 June 2004. Responsible entity Transurban CARS Trust is registered as a managed investment scheme under Chapter 5C of the Corporations Act 2001 and as a result, requires a Responsible Entity. Transurban Infrastructure Management Limited is the Responsible Entity of Transurban CARS Trust and is responsible for performing all functions that are required under the Corporations Act 2001. Directors Infrastructure Management Limited during the whole of the ﬁnancial year and up to the date of this report: Non-executive directors Executive director Geoffrey R Phillips Laurence G Cox Peter C Byers Geoffrey O Cosgriff Jeremy G A Davis Susan M Oliver David J Ryan Principal activities and operations During the year, the Trust continued to hold the investment in the Westlink Motorway Partnership which it made in February 2003. The Trust holds a 40% interest in the partnership which was formed to undertake the Westlink M7 Motorway Project in Sydney NSW. There were no signiﬁcant changes in the nature of the The following persons were directors of Transurban Trust’s activities during the year. Distributions Distributions paid to CARS holders during the ﬁnancial year were as follows: Convertible Adjusting Rate Securities Distribution payment for the period 14 April 2003 to 30 June 2003 of 7 per cent paid on 31 July 2003 Distribution payment for the half year ended 31 December 2003 of 7 per cent paid on 31 January 2004 2004 $’000 6,350 15,174 21,524 A further distribution for the half year ended 30 June 2004 of $15.0 million was paid on 31 July 2004. Review of operations The investment policy of the Trust continues to be that detailed in the prospectus and in accordance with the provisions of the governing documents of the Trust. Results A summary of the consolidated revenue and overall result is set out below: Consolidated Parent Revenue from ordinary activities Net loss from ordinary activities 2004 $’000 26,259 2003 $’000 9,762 2004 $’000 26,259 2003 $’000 9,762 (8,085) (12,644) (8,085) (12,644) 108 annual report 2004 directors’ report ﬁnancials a) Construction Phase Loan Notes (“CPLN”) During the period, Transurban CARS Trust (“TCT”) Likely developments and expected results of operations received distributions from its wholly owned entity, Information on likely developments in the operations Transurban WSO Trust (“TWT”). The distributions are of the consolidated entity and the expected results funded from interest received by TWT from the CPLN’s of operations have not been included in this report which it acquired to fund Transurban’s contribution to because the directors believe it would be likely to result the Westlink Motorway Partnership. The CPLN’s are in unreasonable prejudice to the consolidated entity. subordinated loan notes which pay interest at the rate of 6.27 per cent per annum. Environmental regulation The income received by way of distribution from TWT is the principal source of cash to fund distributions payable by TCT on the Convertible Adjusting Rate Securities (“CARS”) issued by TCT. b) Convertible Adjusting Rate Securities (“CARS”) During the period, TCT paid distributions to CARS holders at the ﬁxed rate of 7 per cent per annum. The distributions which are paid twice annually No signiﬁcant environmental regulations apply. Insurance and indemniﬁcation of ofﬁcers No insurance premiums are paid for out of the assets of the Trust in regards to insurance cover provided to the Responsible Entity or any of its agents. So long as the ofﬁcers of the Responsible Entity act in accordance with the Trust Constitution and the Act, they remain fully indemniﬁed out of the assets of the Trust against any losses incurred while acting on behalf of the Trust. The with payment dates of 31 July and 31 January auditor of the Trust is in no way indemniﬁed out of the respectively, were 100 per cent tax deferred assets of the Trust. Fees paid to and interest held in the Trust by the Responsible Entity or its Associates Fees paid to the responsible entity and its associates out of Trust property during the year are disclosed in Note 21. No fees were paid out of Trust property to the directors of the Responsible Entity during the year. The number of securities held by the Responsible Entity or its associates as at the end of the ﬁnancial year are disclosed in Note 19 of the ﬁnancial statements. for the year ended 30 June 2004. Signiﬁcant changes in the state of affairs In the opinion of the Directors there were no signiﬁcant changes in the state of affairs of the consolidated entity that occurred during the ﬁnancial year. Matters subsequent to the end of the ﬁnancial period At the date of this report the directors are not aware of any circumstances that have arisen since 30 June 2004 that has signiﬁcantly affected, or may signiﬁcantly affect: (a) the consolidated entity’s operations in future ﬁnancial years, or (b) the results of those operations in future ﬁnancial years, or (c) the consolidated entity’s state of affairs in future ﬁnancial years. annual report 2004 109 Interests in the trust issued during the ﬁnancial year CARS on issue at the beginning of the year Consolidated Parent 2004 4,300,000 2003 - 2004 4,300,000 2003 - CARS issued during the year - 4,300,000 - 4,300,000 CARS on issue at 30 June 2004 4,300,000 4,300,000 4,300,000 4,300,000 Ordinary units on issue at the beginning of the year Ordinary units issued during the year Ordinary units on issue at the end of the year 12 - 12 - 12 12 12 - 12 - 12 12 Units Units Units Units Value of assets Value of Trust assets at 30 June 445,813 441,316 445,813 441,316 The value of the Trust’s assets is derived using the basis of accounting set out in Note 1 to the ﬁnancial statements. Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 Directors’ interests Security Holdings As at the date of this Directors’ Report, the directors of the Responsible Entity have disclosed relevant interests in Stapled Securities, options over Stapled Securities and Convertible Adjusting Rate Securities (“CARS”) issued by the Transurban Group as follows: Name L G Cox P C Byers J G A Davis S M Oliver G R Phillips G O Cosgriff D J Ryan Number of CARS Number of Transurban Stapled Securities Options issued over Transurban Stapled Securities 1,000 - - - - 121 - 775,000 50,000 50,000 60,993 - 24,910 21,043 - - - - 500,000 - - 110 annual report 2004 directors’ report Rounding of amounts ﬁnancials The Trust 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 directors’ report. Amounts in the directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, unless otherwise indicated. Auditor PricewaterhouseCoopers continues in ofﬁce in accordance with the Corporations Act 2001. This report is made in accordance with a resolution of the directors of Transurban Infrastructure Management Limited. Jeremy G A Davis Director Melbourne, 25 August 2004 Geoffrey O Cosgriff Director annual report 2004 111 statements of ﬁnancial performance for the year ended 30 June 2004 Notes Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 Revenue from ordinary activities 4 26,259 9,762 26,259 9,762 Expenses from ordinary activities: Administration (2,483) (667) (2,483) (667) Borrowing costs 5 (31,861) (21,739) (31,861) (21,739) Net loss from ordinary activities (8,085) (12,644) (8,085) (12,644) Basic earnings per ordinary unit Diluted earnings per ordinary unit Dollars Dollars 27 27 (673,750) (1,053,666) (673,750) (1,053,666) The above statements of ﬁnancial performance should be read in conjunction with the accompanying notes. 112 annual report 2004 statements of ﬁnancial position as at 30 June 2004 Current assets Cash assets Receivables Total current assets Non-current assets Financial assets Other Total non-current assets Total assets Current liabilities Payables Non-interest bearing liabilities Total current liabilities Non-current liabilities Interest bearing liabilities Total non-current liabilities Total liabilities ﬁnancials Notes Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 7 8 10 11 12 13 40,707 35,239 40,707 35,239 366 943 366 943 41,073 36,182 41,073 36,182 392,000 392,000 392,000 392,000 12,740 13,134 12,740 13,134 404,740 405,134 404,740 405,134 445,813 441,316 445,813 441,316 15,026 2,420 17,446 6,513 15,026 6,513 - 2,420 - 6,513 17,446 6,513 14 449,096 447,447 449,096 447,447 449,096 447,447 449,096 447,447 466,542 453,960 466,542 453,960 Net assets (20,729) (12,644) (20,729) (12,644) Unitholders’ funds Accumulated losses 15 (20,729) (12,644) (20,729) (12,644) Total unitholders’ funds (20,729) (12,644) (20,729) (12,644) The above statements of ﬁnancial position should be read in conjunction with the accompanying notes. annual report 2004 113 statements of cash ﬂows for the year ended 30 June 2004 Cash ﬂows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Interest received Distributions received Borrowing costs Net cash inﬂows/(outﬂows) from operating activities Cash ﬂows from investing activities Payment for purchase of controlled entity, net of cash required Loans to related parties Net cash outﬂows from investing activities Cash ﬂows from ﬁnancing activities Proceeds from issue of CARS Loans from related parties Notes 2004 $’000 2003 $’000 2004 $’000 2003 $’000 838 (431) 26,221 - (542) 9,658 838 (431) 1,575 - - 24,646 - (542) 500 9,158 (21,528) (20,268) (21,528) (20,268) 25 5,100 (11,152) 5,100 (11,152) - - - - (392,000) (392,000) - (392,000) - - - (392,000) - 430,000 - 430,000 368 157,968 368 157,968 Repayment of loans to related parties - (149,577) - (149,577) Net cash inﬂows from ﬁnancing activities 368 438,391 368 438,391 Net increase in cash held 5,468 35,239 5,468 35,239 Cash at the beginning of the ﬁnancial period 35,239 - 35,239 - Cash at the end of the ﬁnancial period 7 40,707 35,239 40,707 35,239 The above statements of cash ﬂows should be read in conjunction with the accompanying notes. 114 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials 1. Summary of signiﬁcant accounting policies ceases during a ﬁnancial year its results are included for that part of the year during which control existed. This ﬁnancial report covers Transurban CARS Trust and b) Historical cost convention its controlled entity. The responsible entity of Transurban CARS Trust is Transurban Infrastructure Management Limited. The responsible entity’s registered ofﬁce is Level 43, 525 Collins Street, Melbourne VIC 3000. Transurban CARS Trust (the “Trust”) was constituted on 20 December 2002. The Trust will terminate on 20 December 2082 unless terminated earlier in accordance with the provisions of the Trust Constitution. The ﬁnancial statements are prepared on the basis of the historical cost convention and, except where stated, do not take into account current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The fair value of cash consideration with deferred settlement terms is determined by discounting any amounts payable in the future to their present value as at the date of acquisition. Present values are calculated using rates applicable to similar borrowing arrangements of This general purpose ﬁnancial report has been the consolidated entity. prepared in accordance with the requirements of the Trust Constitution, Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views, and the Corporations Act 2001 in Australia. It is prepared in accordance with the historical cost convention, except for certain assets which, as noted, are at valuation. The accounting policies adopted are consistent with those of the previous year. Comparative information is reclassiﬁed where appropriate to enhance comparability. a) Principles of consolidation The consolidated ﬁnancial statements incorporate the assets and liabilities of all entities controlled by Transurban CARS Trust (“trust” or “parent entity”) as at 30 June 2004 and the results of all controlled entities for the period then ended. Transurban CARS Trust and its controlled entity together are referred to in this ﬁnancial report as the consolidated entity. The effects of all transactions between entities in the consolidated entity are eliminated in full. The entity has not adopted a policy of revaluing its non- current assets on a regular basis. c) Income tax Income tax has not been brought to account in the ﬁnancial statements of the Trust as under the terms of the Constitution and pursuant to the provisions of the Income Tax Legislation, the Trust is not liable to income tax provided that its taxable income (including assessable realised capital gains) is fully distributed to unit holders. d) Recoverable amount of non-current assets The recoverable amount of an asset is the net amount expected to be recovered through the net cash inﬂows and outﬂows arising from its continued use and subsequent disposal. Where the carrying amount of a non-current asset is greater than its recoverable amount, the asset is written down to its recoverable amount. Where net cash inﬂows are derived from a group of assets working together, the recoverable amount is applied to the relevant group Where control of an entity is obtained during the ﬁnancial period, its results are included in the consolidated statement of ﬁnancial performance from the date on of assets. The decrement in the carrying amount is recognised as an expense in net proﬁt or loss in the reporting period in which the recoverable amount which control commences. Where control of an entity write-down occurs. annual report 2004 115 notes to the ﬁnancial statements for the year ended 30 June 2004 In assessing recoverable amounts of non-current i) Joint venture entity assets, the relevant cash ﬂows have been discounted to their present value, except where speciﬁcally stated. e) Investments Interests in listed and unlisted securities, other than controlled entities and associates in the consolidated ﬁnancial statements, are brought to account at cost and distribution income is recognised in the statement of The interest in the joint venture partnership is accounted for using the equity method. Under this method, the share of the proﬁts or losses of the partnership is recognised in the statement of ﬁnancial performance, and the share of movements in reserves is recognised in reserves in the statement of ﬁnancial position. Details relating to the partnership are set out in note 23. ﬁnancial performance when receivable. j) Borrowing costs The interest in the joint venture partnership is accounted for as set out in Note 1(i). f) Trade and other creditors Trade and other creditors represent liabilities for goods and services provided to the consolidated entity prior to the end of the ﬁnancial period and which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. g) Interest bearing liabilities On issue of CARS, the fair value of the liability component, being the obligation to make future payments of principal and interest to security holders, is calculated using a market interest rate for an Borrowing costs are recognised as expenses in the period in which they are incurred, except to the extent to which they relate to the construction of a qualifying asset in which case borrowing costs are capitalised into the cost of the asset. Borrowing costs include interest on short term, long term borrowings and amortisation of deferred borrowing costs. Cost incurred in connection with the arrangement of borrowings are deferred and amortised over the effective period of funding. k) Cash For the purpose of the statement of cash ﬂows, cash includes cash on hand. equivalent non-convertible security. The residual l) Earnings per unit amount, representing the fair value of the conversion option, is included in equity as other equity securities with no recognition of any change in the value of the option in subsequent periods. The liability is included in borrowings and carried on an amortised cost basis with interest on the securities recognised as borrowing costs on an effective yield basis until the liability is (i) Basic earnings per unit Basic earnings per unit is determined by dividing the net result from ordinary activities by the weighted average number of units outstanding during the period. extinguished on conversion or maturity of the securities. (ii) Diluted earnings per unit h) Distributions Provision is made for the amount of any distribution declared, determined or publicly recommended by the directors on or before the end of the ﬁnancial period but not distributed at balance date. Diluted earnings per unit adjusts the ﬁgures used in the determination of basic earnings per unit to take into account the weighted average number of units assumed to have been issued for no consideration in relation to dilutive potential units. 116 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 m) Rounding of amounts The Trust 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. o) International Financial Reporting Standards (“IFRS”) The Australian Accounting Standards Board (AASB) is adopting IFRS for application to reporting periods beginning on or after 1 January 2005. The AASB will issue Australian equivalents to IFRS, and the Urgent Issues Group will issue abstracts corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The adoption of Australian equivalents to IFRS will be ﬁrst reﬂected in the consolidated entity’s ﬁnancial ﬁnancials opening balance sheet to be prepared on the date of transition to IFRS and future accounting policy differences. The project team has identiﬁed a number of accounting policy choices which are still being analysed by management to determine the most appropriate accounting policy for the Transurban Group on transition to IFRS. The major matters identiﬁed to date that are expected to require changes to the Transurban Group’s existing accounting policies, or allow for an election by the Transurban Group are set out below. The major differences identiﬁed to date should not be regarded as a complete list of possible changes in accounting policies that will result from the transition to IFRS, as not all standards or elections possible under some standards have been analysed as yet. For these reasons it is not yet possible to quantify the impact of the transition to IFRS. (i) Financial instruments statements for the half year ending 31 December 2005 Under AASB 139 Financial Instruments: Recognition and the year ending 30 June 2006. and Measurement there may be major impacts as a Entities complying with Australian equivalents to result of: IFRS for the ﬁrst time will be required to restate their ﬁnancial assets held by the consolidated entity comparative ﬁnancial statements to amounts reﬂecting being subject to classiﬁcation as either held for the application of IFRS to that comparative period. Most trading, held-to-maturity, available for sale or loans adjustments required on transition to IFRS will be made, receivable and, depending upon classiﬁcation, retrospectively, against opening retained earnings as at measured at fair value or amortised cost. 1 July 2004. The Transurban Group established an IFRS transition project team led by the Finance Director in October 2003. The project team prepared a plan to manage the transition to IFRS which was presented to the audit committee along with the results of an initial scoping review of the expected impact of the adoption of IFRS on the Transurban Group. The project plan is currently on schedule. The project team has commenced a detailed analysis of IFRS and the Transurban Group’s accounting policies to determine the effects on the (ii) Accounting for Associates Under AASB 128 Investments in Associates, a long term loan to an associate can be considered as part of the investment. This is a change in present accounting policy where only the equity component of the investment is included in equity accounting and long term loans are a separate class of asset subject to recoverable amount testing. This may effect the Trust’s investment in the Westlink project which is presently equity accounted. annual report 2004 117 notes to the ﬁnancial statements for the year ended 30 June 2004 The investment is substantially represented by a long term loan rather than an equity investment. If the Westlink project incurs accounting losses from the commencement of operations greater than the Trust’s equity investment, the receivable balance may be reduced to the extent of the Trust’s remaining share of accounting losses. This may occur despite the recoverable amount of the long term loan not being impaired due to the expected cashﬂow from the Westlink project. This change in 2. Trust formation and termination The Trust was established on 20 December 2002 through the issue of 12 ordinary units at $1 per unit to Transurban Holding Trust (“THT”). The term of the Trust ends on 20 December 2082 unless terminated earlier in accordance with the provisions of the Trust Constitution. 3. Segment information policy is not expected to impact on the transition balance sheet or opening retained earnings as The Trust’s sole business segment for the period ending 30 June 2004 was investing in the Westlink Motorway Westlink has not yet commenced operations, but Partnership. All revenues and expenses are directly may lead to greater volatility in earnings in future attributable to this sole purpose. Internal ﬁnancial reporting periods. reporting is based on this sole business segment. Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 4. Revenue Revenue from operating activities Interest Trust distributions 26,259 9,762 1,613 - - 24,646 Revenue from ordinary activities 26,259 9,762 26,259 604 9,158 9,762 5. Loss from ordinary activities Expenses Borrowing costs Interest and ﬁnance charges paid/payable (31,467) (21,739) (31,467) (21,739) Capitalised underwriting fees expensed (394) - (394) - (31,861) (21,739) (31,861) (21,739) 6. Income tax Tax losses at beginning of period Tax losses/(income) for the period Tax losses at end of period 13,204 - 13,204 - 10,324 13,204 10,324 13,204 23,528 13,204 23,528 13,204 118 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials Potential future income tax beneﬁts at 30 June 2004 for tax losses not brought to account for the consolidated entity are $23.5 million. These losses cannot be used directly by the consolidated entity for the reason outlined in Note 1(c), but may be available for the beneﬁt of unit holders in the future. These beneﬁts of tax losses will only be realised for the beneﬁt of security holders in the consolidated entity if: (i) the consolidated entity derives future assessable income of a nature and of an amount sufﬁcient to enable the beneﬁt from the deductions for the losses to be realised; and (ii) the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation; and (iii) no changes in tax legislation adversely affect the ability of the entity to realise the beneﬁt from the deductions for the losses. 7. Current assets – cash assets Cash at bank Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 40,707 35,239 40,707 35,239 40,707 35,239 40,707 35,239 Included in the above amount is $28.2 million (2003: $26.1 million) which is held in a reserve account to fund future CARS distributions, and was not available for general use at 30 June 2004. 8. Current assets – receivables Sundry debtors 9. Non-current assets – investments accounted for using the equity method Interest in Westlink Motorway Partnership The investment in the partnership is carried at cost of $80 (2003: $80). Refer Note 23 for details. 10. Non-current assets – other ﬁnancial assets Non traded investments Units in controlled entity 366 366 943 943 366 366 943 943 - - - - - - - - - - 392,000 392,000 Construction phase loan notes 392,000 392,000 - - 392,000 392,000 392,000 392,000 annual report 2004 119 notes to the ﬁnancial statements for the year ended 30 June 2004 Investment in controlled entity The investment in controlled entity represents 100% ownership of the issued ordinary units of The Transurban WSO Trust (registered in Australia). Investment in Construction Phase Loan Notes (“CPLN”) The CPLN represent Transurban’s funding contribution to the Westlink Motorway Partnership. The CPLN earn interest at the ﬁxed rate of 6.27 per cent for the period from the ﬁnancial close of the Westlink M7 project (“the Project”) to the date of completion of the Project, or 3.5 years, which ever is the lesser, at which time they convert to Term Loan Notes. 11. Non-current assets – other Deferred Borrowing Costs 12. Current liabilities – payables Trade creditors CARS coupon payment Other creditors Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 12,740 13,134 12,740 13,134 12,740 13,134 12,740 13,134 5 23 5 23 15,009 6,350 15,009 6,350 12 140 12 140 15,026 6,513 15,026 6,513 CARS coupon payment represents the interest payment due to holders of Convertible Adjusting Rate Securities (“CARS”). The distribution on these securities of 7 per cent for the period 1 January 2004 to 30 June 2004 totalling $15.0 million has been charged to the statement of ﬁnancial performance as a borrowing cost because the CARS are classiﬁed as a liability. This coupon was paid to CARS holders on 31 July 2004. 13. Current liabilities – non-interest bearing liabilities Loans from related parties Consolidated Parent 2004 $’000 2,420 2,420 2003 $’000 - - 2004 $’000 2,420 2,420 2003 $’000 - - 14. Non-current liabilities - interest bearing liabilities Loan from related parties 19,096 17,447 19,096 17,447 Convertible Adjusting Rate Securities 430,000 430,000 430,000 430,000 449,096 447,447 449,096 447,447 120 annual report 2004 ﬁnancials notes to the ﬁnancial statements for the year ended 30 June 2004 Financing arrangements and credit facilities Convertible Adjusting Rate Securities (“CARS”) Transurban CARS Trust issued 4.3 million convertible securities for $430 million on 14 April 2003. Semi-annual interest is paid at a ﬁxed rate of 7 per cent per annum until the ﬁrst reset date on 14 April 2007. On a reset date, certain terms of the CARS may be reset and Holders will be given the option of: (i) taking no action and therefore, be bound by the new terms from the reset date; or (ii) submitting an Exchange Notice. Additionally, the term of the Guarantee may also be extended on terms and conditions determined by Transurban Holding Trust (“THT”) in its absolute discretion. The interest payments are guaranteed by THT until the ﬁrst reset date. Following the submission of an Exchange Notice, Transurban will elect to either: convert the CARS into Transurban Securities; arrange the acquisition of CARS by a third party and deliver to the Holder the cash proceeds and, to the extent there is a shortfall, Transurban Securities; or a combination of both. It is the present intention of Transurban that Exchange will be satisﬁed by conversion into Transurban Securities. These securities will rank ahead of Transurban Stapled Securities on the winding up of Transurban, in conjunction with the winding up of the Transurban CARS Trust. Other loans The loan from Transurban Holding Trust does not have any ﬁxed date for repayment and bears interest at 7.05% pa (2003 – 7.05%). Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 15. Accumulated losses Accumulated losses at the beginning of the ﬁnancial year (12,644) - (12,644) - Net loss from ordinary activities after tax (8,085) (12,644) (8,085) (12,644) Available for distribution Dividends provided for or paid (20,729) (12,644) (20,729) (12,644) - - - - Accumulated losses carried forward (20,729) (12,644) (20,729) (12,644) annual report 2004 121 notes to the ﬁnancial statements for the year ended 30 June 2004 16. Unitholders’ funds Consolidated Parent 2004 2004 Units $’000 2003 2003 $’000 $’000 2004 2004 Units $’000 2003 2003 Units $’000 Units fully paid 12 - 12 - 12 - 12 - The Trust has issued 12 ordinary units at $1 each. Each unit represents a right to an individual unit in the Trust and does not extend to a right to the underlying assets of the scheme. There are no separate classes of units and each unit has the same rights attaching to it as all other units of the Trust. There were no movements in the number of units during the ﬁnancial year. 17. Distributions Convertible Adjusting Rate Securities Distribution payment for the period 14 April 2003 to 30 June 2003 of 7 per cent paid on 31 July 2003 Distribution payment for the half year ended 31 December 2003 of 7 per cent paid on 31 January 2004 2004 $’000 6,350 15,174 21,524 The coupon payment for the half year ended 30 June 2004 of $15.0 million was paid on 31 July 2004. 18. Remuneration of auditors During the year the following services were paid to the auditor, PricewaterhouseCoopers Australian Firm: Consolidated 2004 $ 2003 $ Parent 2004 $ 2003 $ Audit Services Audit or review of ﬁnancial reports 13,800 11,300 13,800 11,300 Taxation Services GST Advice 19,000 - 19,000 - 32,800 11,300 32,800 11,300 122 annual report 2004 ﬁnancials notes to the ﬁnancial statements for the year ended 30 June 2004 19. Director disclosures Directors The following persons were directors of Transurban Infrastructure Management Limited during the ﬁnancial year: Chairman – non-executive Laurence G Cox Non-executive directors Peter C Byers Geoffrey O Cosgriff Jeremy GA Davis Susan M Oliver David J Ryan Executive director Geoffrey R Phillips Remuneration of directors Details of remuneration Details of the remuneration of each director of Transurban Infrastructure Management Limited, including their personally related entities, are set out in the following tables. The Options granted relate to the Transurban Group as a whole. There is no apportionment between Group entities. As a reasonable basis of apportionment is not available, the full amount has been disclosed. Directors of Transurban Infrastructure Management Limited 2004 Name L G Cox P C Byers Cash salary & fees $ 55,009 21,196 J G A Davis 19,799 S M Oliver 20,994 G O Cosgriff 18,976 D J Ryan 18,168 G R Phillips - Total 154,142 Primary Post-employment Equity Cash bonus Long Non- term monetary beneﬁts $ incentive $ $ - - - - - - - - - - - - - - - - - - - - - - - - Super- Retirement beneﬁts annuation Options Total $ 4,951 1,908 2,644 1,889 1,708 1,635 - $ 34,626 10,495 8,309 9,721 23,270 - - $ - - - - - - $ 94,586 33,599 30,752 32,604 43,954 19,803 61,501 61,501 14,735 86,421 61,501 316,799 Total remuneration of directors of Transurban Infrastructure Management Limited for the year ended 30 June 2003 is set out below. Information on individual directors is not shown as this is the ﬁrst ﬁnancial report prepared since the issue of AASB 1046 Director and Executive Disclosures by Disclosing Entities. annual report 2004 123 notes to the ﬁnancial statements for the year ended 30 June 2004 2003 Name Cash salary & fees $ Primary Post-employment Equity Cash bonus Long Non- term monetary beneﬁts $ incentive $ $ Super- Retirement beneﬁts annuation Options Total $ $ $ $ Total 130,984 - - - 11,789 83,191 61,333 287,297 Share-based compensation – options The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows: Grant date Expiry date Exercise price Value per option at grant date Date exercisable 26 April 2001 30 April 2006 $3.817 $0.425 One-third after 28/04/03, 26/04/04, 26/04/05 23 October 2001 31 October 2006 $4.404 $0.491 One-third after 28/04/03, 26/04/04, 26/04/05 1 February 2002 30 April 2007 $4.280 $0.477 One-third after 01/02/04, 01/02/05, 01/02/06 9 April 2002 30 April 2007 $4.030 $0.449 One-third after 20/05/04, 20/05/05, 20/05/06 20 May 2002 30 April 2007 $4.220 $0.470 One-third after 20/05/04, 20/05/05, 20/05/06 Options are issued at no cost to the Option holder and vest in three equal tranches on the second, third and fourth anniversaries of their issue. The Exercise of the options is subject to an Exercise Condition. The Exercise Condition involves a comparison between Total Shareholder Return (“TSR”) of The Transurban Group’s Stapled Securities over the two years prior to a vesting date of options, and the TSR of each of the other companies in the S&P/ASX 200 Industrials as at the end of the relevant Exercise Condition Test Period which have been in the S&P/ASX 200 Industrials for the full term of the Exercise Condition Test Period (“Test Companies”) measured over the same period. TSR measures the total return on investment of a security. It takes into account both capital appreciation and distribution income. The Transurban Group and each of the Test Companies will be ranked according to their respective TSRs over the Exercise Condition Test Period. The ranking determines the extent to which vested options may be exercised. If the Group’s TSR exceeds the 65th percentile of the ranking, 100% of the vested options may be exercised. If Transurban Group’s TSR is below the 25th percentile of the ranking, none of the vested options may be exercised. If the TSR falls between these percentiles, the percentage of vested options that may be exercised will be calculated according to a formula. The exercise price of options was the 5 day variable weighted average price of the Group’s stapled securities prior to granting the options. When exercised, each option is converted into one stapled security, comprising one ordinary share in Transurban Infrastructure Developments Limited, one ordinary share in Transurban Holdings Limited and one unit in Transurban Holding Trust. Options can be exercised at any time after vesting. 124 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 Equity instrument disclosures relating to directors Options provided as remuneration ﬁnancials Details of options over Transurban Group stapled securities provided as remuneration to each director of Transurban Infrastructure Management Limited are set out below. Name Number of options granted during the year Number of options vested during the year Directors of Transurban Infrastructure Management Limited G R Phillips Option holdings - 166,667 The number of options over Transurban Group stapled securities during the ﬁnancial year held by each director of Transurban Infrastructure Management Limited, including their personally-related entities, are set out below. Name Balance at Granted during Exercised the start of the year the year as remuneration the year Other during changes during of the year Balance Vested and Vested and at the end exercisable unexercisable at the end of the year at the end of the year Directors of Transurban Infrastructure Developments Limited the year G R Phillips 500,000 - - - 500,000 298,219 35,114 Share holdings The number of Transurban Group Stapled Securities and Covertible Adjusting Rate Securities (“CARS”) held during the ﬁnancial year by each director of Transurban Infrastructure Management Limited, including their personally- related entities, are set out below. Stapled Securities Name Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year Directors of Transurban Infrastructure Management Limited L G Cox P C Byers G O Cosgriff J G A Davis S M Oliver D J Ryan G R Phillips annual report 2004 775,000 50,000 17,360 40,000 59,375 20,000 - - - - - - - - - - 7,550 10,000 1,618 1,043 - 775,000 50,000 24,910 50,000 60,993 21,043 - 125 notes to the ﬁnancial statements for the year ended 30 June 2004 CARS Name Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year Directors of Transurban Infrastructure Management Limited L G Cox P C Byers G O Cosgriff J G A Davis S M Oliver D J Ryan G R Phillips 4,000 - 121 150 - 300 - - - - - - - - (3,000) - - (150) - (300) - 1,000 - 121 - - - - Company directors and their director-related entities received normal distributions on these securities. All transactions relating to securities were on the same basis as similar transactions with other security holders. Other transactions with directors and director-related entities Fees have been paid to Transurban Infrastructure Management Limited in its capacity as Responsible Entity of the Transurban CARS Trust. The Responsible Entity is also the Responsible Entity for the Transurban Holding Trust which provides ﬁnancial assistance and acts as guarantor to the consolidated entity. Aggregate amounts of each of the above types of other transactions with directors of the consolidated entity and their director related entities: Amounts recognised as expense Underwriting services Guarantee fee Interest Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 - - 7,208 8,000 - - 7,208 8,000 1,281 6,118 1,281 6,118 Responsible Entity Fee 2,200 Aggregate amounts payable to director-related entities at balance date: Non-interest bearing current liability 2,420 - - 2,200 2,420 - - Interest bearing non-current liability 19,096 267,448 19,096 267,448 126 annual report 2004 ﬁnancials notes to the ﬁnancial statements for the year ended 30 June 2004 20. Contingent liabilities As at the reporting date there are no contingent liabilities. 21. Related parties Responsible entity’s fees Transurban Infrastructure Management Limited (“TIML”) is the Responsible Entity of the Trust and is entitled to receive a fee calculated at the rate of up to 2 per cent per annum of the Gross Asset Value of the Trust. This fee is payable per quarter and because the Trust was established on 14 April 2003, no fee was charged for the period ended 30 June 2003. For the 2004 ﬁnancial year, the responsibility entity fee paid by the Trust was calculated at a rate of 0.5 per cent of the value of the Trust’s assets at 30 June 2004. 2004 $’000 Responsible entity 2003 $’000 Responsible entity Fees for the year paid by the Trust Fees earned by the responsible entity in respect of its role as responsible entity of other entities within the Transurban Group Management fees earned by the responsible entity which are reimbursed in accordance with the Constitution Aggregate amounts payable to the responsible entity at reporting date 2,200 4,187 8,577 7,839 - 1,032 18,363 1,257 Wholly-owned group The wholly-owned group consists of The Transurban CARS Trust and its wholly-owned controlled entity, The Transurban WSO Trust. Details of this controlled entity are set out in Note 22. Transactions between Transurban CARS Trust and the other entity in the wholly-owned group during the years ended 30 June 2003 and 30 June 2004 consisted of: (a) Loans from Transurban WSO Trust (b) Distribution paid to Transurban CARS Trust Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 Aggregate amounts included in the determination of proﬁt from ordinary activities before income tax that resulted from transactions with entities in the wholly owned group: Distribution revenue - - 24,646 9,158 Aggregate amounts receivable from other related parties at balance date: Non-current receivable 392,000 392,000 - - annual report 2004 127 notes to the ﬁnancial statements for the year ended 30 June 2004 Other related parties Aggregate amounts included in the determination of proﬁt from ordinary activities before related income tax that resulted from transactions with each class of other related parties: CPLN’s interest revenue Controlling entities Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 24,646 9,158 - - The ultimate parent entity is Transurban Holding Trust which owns 100% of the issued ordinary units of Transurban CARS Trust. Ownership interests in related parties Transurban CARS Trust, through its wholly owned subsidiary Transurban WSO Trust, has a 40% interest in the joint venture partnership Westlink Motorway. Details of this interest is set out in Note 23. 22. Investments in controlled entity Name of entity Country of incorporation Class of security Transurban WSO Trust Australia Ordinary Equity holding 2004 100% Equity holding 2003 100% 23. Interest in joint venture Westlink Motorway Partnership Ownership interest Combined entity 2004 % 40 2003 % 40 carrying amount 2003 2004 $’000 $’000 6,236 5,888 128 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 ﬁnancials The consolidated entity has a 40% interest in the Westlink Motorway Partnership. The principal activity of the partnership is the construction of the Westlink M7 Motorway in Sydney. The M7 is presently in the construction phase and is due for completion in 2007. The partnership is unlikely to have any impact on the consolidated entity’s equity accounted proﬁts until construction is completed and the operations commence. Information relating to the joint venture partnership, presented in accordance with the accounting policy described in Note 1(i), is set out below: Share of partnership assets and liabilities Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net Assets Share of Proﬁts 2,932 1,741 355,834 235,059 358,766 236,800 31,306 - 327,460 236,800 358,766 236,800 - - - - Share of partnership commitments Capital commitments 327,484 564,266 Contingent liabilities relating to the joint venture As at the reporting date there are no contingent liabilities. - - - - - - - - - - - - - - - - - - annual report 2004 129 notes to the ﬁnancial statements for the year ended 30 June 2004 24. Financial instruments disclosure Credit risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. Interest rate risk The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following table. 2004 Fixed interest maturing in: Floating 1 year Between 1 More than Non Interest bearing $’000 interest rate or less and 5 years $’000 5 years $’000 $’000 $’000 Note Total $’000 Financial assets Cash Sundry debtors 7 8 Construction Phase Loan Notes 10 Total ﬁnancial assets 40,707 142 - 40,849 Weighted average interest rate 5.08% Financial liabilities Creditors CARS Loan from related parties Total ﬁnancial liabilities 12 14 13 - - 19,096 19,096 Weighted average interest rate 7.05% Net ﬁnancial assets/(liabilities) 21,753 - - - - - - - - - - - - - 392,000 392,000 6.27% - 430,000 - 430,000 7.00% (38,000) - - - - - - - - - - - - 40,707 223 365 - 392,000 223 433,072 - - 15,026 15,026 - 430,000 2,420 21,516 17,446 466,542 (17,223) (33,470) 130 annual report 2004 notes to the ﬁnancial statements for the year ended 30 June 2004 2003 ﬁnancials Fixed interest maturing in: Floating 1 year Between 1 More than Non Interest bearing $’000 interest rate or less and 5 years $’000 5 years $’000 $’000 $’000 Note Total $’000 Financial assets Cash Sundry debtors 7 8 Construction Phase Loan Notes 10 Total ﬁnancial assets 35,239 105 - 35,344 Weighted average interest rate 4.45% Financial liabilities Creditors CARS Loan from related parties Total ﬁnancial liabilities 12 14 13 - - 17,447 17,447 Weighted average interest rate 7.05% Net ﬁnancial assets/(liabilities) 17,897 - - - - - - - - - - - - - 392,000 392,000 6.27% - 430,000 - 430,000 7.00% (38,000) - - - - - - - - - - - - 35,239 838 943 - 392,000 838 428,182 - - 6,513 6,513 - 430,000 - 17,447 6,513 453,960 (5,675) (25,778) Net fair values of ﬁnancial assets and liabilities The carrying amount and net market value of ﬁnancial assets and liabilities brought to account at balance date are the same. annual report 2004 131 notes to the ﬁnancial statements for the year ended 30 June 2004 25. Reconciliation of proﬁt/(loss) from ordinary activities to net cash inﬂow/outﬂow from operating activities Net loss from ordinary activities Deferred borrowing costs Change in operating assets and liabilities Increase in creditors (Increase) decrease in debtors Consolidated 2004 $’000 2003 $’000 Parent 2004 $’000 2003 $’000 (8,085) (12,644) (8,085) (12,644) 394 (13,134) 394 (13,134) 8,513 6,513 577 (943) 8,513 577 6,513 (943) Increase in loans from related parties 3,701 9,056 3,701 9,056 Net cash inﬂow/(outﬂow) from operating activities 5,100 (11,152) 5,100 (11,152) 26. Economic dependency Transurban CARS Trust is reliant on the receipt of distributions from Transurban WSO Trust for its ongoing viability. Transurban CARS Trust also has a $28.2 million reserve account to fund future Convertible Adjusting Rate Securities (“CARS”) distributions and is not available for general use. In addition to this, Transurban Holding Trust (Parent entity) acts as Guarantor for Transurban CARS Trust in relation to the interest payments to holders of CARS until 14 April 2007. 27. Earnings per unit Net tangible asset backing per ordinary unit Basic earnings per unit Diluted earnings per unit Weighted average number of units used as the denominator in calculating basic earnings per unit Weighted average number of unit and potential units used used as the denominator in calculating diluted earnings per unit 2004 $’000 Consolidated 2003 $’000 ($1,727,417) ($1,053,644) ($673,750) ($1,053,666) ($673,750) ($1,053,666) 12 12 12 12 132 annual report 2004 directors’ declaration ﬁnancials The directors of Transurban Infrastructure Management Limited, the Responsible Entity for Transurban CARS Trust, declare that the ﬁnancial statements and notes set out on pages 115 to 132: (a) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (b) give a true and fair view of the Trust and consolidated entity’s ﬁnancial position as at 30 June 2004 and of their performance, as represented by the results of their operations and their cash ﬂows, for the ﬁnancial year ended on that date. In the directors’ opinion: (a) the ﬁnancial statements and notes are in accordance with the Corporations Act 2001; and (b) there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the directors of Transurban Infrastructure Management Limited. Jeremy G A Davis Director Melbourne, 25 August 2004 Geoffrey O Cosgriff Director annual report 2004 133 independant audit report to the members 134 annual report 2004 ﬁnancials shareholder information The security holder information set out below was applicable as at 31 August 2004. (a) Distribution of Convertible Adjusting Rate Securities (“CARS”) 1. The number of holders of Convertible Adjusting Rate Securities, which are preference units in Transurban CARS Trust (“TCT”), was 6,928. 2. The voting rights are one vote per security. 3. At 31 August 2004 the percentage of the total holdings held by or on behalf of the twenty largest holders of these securities was 62.68 per cent. 4. The distribution of holders was as follows: Share Grouping Number of Holders Stapled Securities Held 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - and over Total 6,757 134 11 20 6 6,928 1,181,376 262,995 78,870 681,261 2,095,498 4,300,000 There were 48 holders of less than a marketable parcel of preference units. 5. Substantial Holder’s as at 31 August 2004 are as follows: Name Number of Stapled Securities Credit Suisse First Boston Australia (Holdings) Limited 455,244 % 27.47 6.12 1.83 15.84 48.74 100.00 % of Total 10.59 annual report 2004 135 (b) Twenty Largest Holders of Convertible Adjusting Rate Securities (CARS) Number of Convertible Securities Held % of issued Convertible Securities Westpac Custodian Nominees Limited RBC Global Services Australia Nominees Pty Limited JP Morgan Nominees Australia Limited National Nominees Limited ANZ Nominees Limited RBC Global Services Australia Limited UBS Private Clients Australia Nominees Pty Limited Elise Nominees Pty Limited Hastings Funds Management Limited Perpetual Trustee Company Limited Australian Foundation Investment Company Limited JB were Capital Markets Limited Brispot Nominees Pty Limited Tower Trust Limited Sandhurst Trustees Limited Cambooya Pty LImited Fortis Clearing Nominees Pty Limited Permanent Trustee Australia Limited Cogent Nominees Pty Limited Permanent Trustee Australia Limited Total 765,419 442,036 296,903 224,697 220,607 145,836 84,821 75,400 60,000 55,069 52,700 49,971 47,364 41,004 26,751 25,900 22,724 22,030 18,781 17,673 17.80 10.28 6.90 5.23 5.13 3.39 1.97 1.75 1.40 1.28 1.23 1.16 1.10 0.95 0.62 0.60 0.53 0.51 0.44 0.41 2,695,686 62.68 136 annual report 2004 enquiries and information enquiries about your stapled securities The Stapled Securities Register is maintained by Computershare Investor Services Pty Limited. If you have a question about your Transurban Securities, transfer of securities or distributions, please contact: computershare investor services pty limited. Yarra Falls, 52 Johnston Street, Abbotsford Victoria 3067 GPO Box 242 Melbourne Victoria 3001 (within Australia) 1300 850 505 (outside Australia) +613 9415 4000 Facsimile +613 9473 2555 enquiries about transurban Contact Transurban’s Investor Relations: Manager, Investor Relations Telephone +613 9612 6999 Facsimile +613 9649 7380 Email via our website: www.transurban.com.au Or write to: Manager, Investor Relations, Transurban Group Level 43 Rialto South Tower 525 Collins Street, Melbourne Victoria 3000 stock exchange listing The Stapled Securities are listed on the Australian Stock Exchange under the name Transurban Group and under the code ‘TCL’. Transurban CARS Trust: the securities are listed on the Australian Stock Exchange under the name Transurban CARS Trust and under the code ‘TCS’. The securities participate in the Clearing House Electronic Subregister System (‘CHESS’). removal from annual report mailing list Security Holders can nominate not to receive an Annual Report by written notice to the Stapled Securities Register. Security holders will continue to receive all other shareholder information, including Notice of Annual General Meeting and proxy form. tax ﬁ le number (‘TFN’) information While it is not compulsory for security holders to provide a TFN, the Company is obliged to deduct tax from distributions or dividends to holders resident in Australia who have not supplied such information. If you have not already supplied your TFN, you may do so by writing to the Stapled Securities Register. change of address or name A security holder should notify the Register immediately, in writing, if there is any change in his or her registered address or name. transurban group Transurban Holdings Limited ABN 86 098 143 429 Transurban Holding Trust ABN 30 169 362 255 Transurban Infrastructure Developments Limited ABN 96 098 143 410 Transurban Infrastructure Management Limited ABN 27 098 147 678 (as responsible entity of the Transurban CARS Trust ARSN 103 090 928) Registered Ofﬁ ce Level 43 Rialto South Tower 525 Collins Street Melbourne Victoria 3000 Telephone +613 9612 6999 Facsimile +613 9649 7380 www.transurban.com.au directors Laurence G Cox, Chairman Kim Edwards, Managing Director Peter C Byers Geoffrey O Cosgriff Jeremy G A Davis Susan M Oliver Geoffrey R Phillips David J Ryan company secretaries Geoffrey R Phillips Paul O’Shea 4 0 0 2 N A B R U S N A R T © 0 9 7 R O C auditors PricewaterhouseCoopers 333 Collins Street Melbourne Victoria 3000 Telephone +613 8603 1000 Facsimile +613 8603 1999 www.transurban.com.au

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