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Argan2016 TRANSURBAN ANNUAL REPORT transurban.com Contents Transurban Group financial statements Security holder information 1 114 Corporate Governance Statement Transurban’s 2016 Corporate Governance Statement is located at www.transurban.com/corporate-governance-statement Transurban Holdings Limited Transurban Holdings Limited and Controlled Entities and Controlled Entities ABN 86 098 143 429 ABN 86 098 143 429 (Including Transurban International Limited and Transurban Holding Trust) (Including Transurban International Limited and Transurban Holding Trust) Annual report Annual report for the year ended 30 June 2016 for the year ended 30 June 2016 1 2016 Transurban Annual Report Contents Directors’ report ....................................................................................................................................................... 3 Section A: Group financial statements................................................................................................................... 44 Section B: Notes to the Group financial statements .............................................................................................. 50 Section C: Transurban Holding Trust (‘THT’) and Transurban International Limited (‘TIL’) financial statements 94 Section D: Notes to the THT and TIL financial statements ………………………………………………………….. .. 99 Section E: Signed reports.................................................................................................................................... 111 2 2 2016 Transurban Annual Report Directors’ report The Directors of Transurban Holdings Limited (‘the Company’, ‘the Parent’ or ‘THL’) and its controlled entities (‘Transurban Group’ or ‘the Group’), Transurban International Limited and its controlled entities (‘TIL’), and Transurban Infrastructure Management Limited (‘TIML’), as responsible entity of Transurban Holding Trust and its controlled entities (‘THT’), present their report on the Transurban Group for the financial year ended 30 June 2016 (‘FY16’). The controlled entities of THL include the other members of the stapled group being TIL and THT. Result Statutory results Revenue from ordinary activities increased 18.8 per cent to $2,210 million; Profit from ordinary activities after tax increased from a loss of $373 million to a profit of $22 million; Profit from ordinary activities after tax excluding significant items increased 228.9 per cent to $148 million; Earnings before depreciation and amortisation, net finance costs, equity accounted investments and income taxes (‘EBITDA’) increased 59.6 per cent to $1,248 million; EBITDA excluding significant items increased 13.9 per cent to $1,379 million; Statutory net profit attributable to security holders of the stapled group increased from a loss of $182 million to a profit of $99 million; and Statutory net profit attributable to security holders of the stapled group excluding significant items increased 114.5 per cent to $178 million. Proportional results Toll revenue increased 17.5 per cent to $1,946 million; EBITDA increased by 37.5 per cent to $1,398 million; EBITDA excluding significant items increased by 14.8 per cent to $1,480 million; and Free cash increased 20.6 per cent to $926 million. Distributions Final distribution (declared prior to reporting date) Final dividend (declared prior to reporting date) Interim distribution for the current year Interim dividend for the current year Final distribution (prior year) Final dividend (prior year) Amount per security Cents Franked amount per security % 19.5 3.5 23.0 19.0 3.5 22.5 17.0 3.5 20.5 – 100 – 100 – 100 Record date for determining entitlements to distribution and dividend Date of payment of final distribution and dividend 30 June 2016 12 August 2016 3 3 2016 Transurban Annual Report Principal activities The principal activities of the Group during the financial year were the development, financing, operation and maintenance of toll road networks as well as management of the associated customer and client relationships. Operating and financial review Our business Transurban manages and develops urban toll road networks in Australia and the United States of America. The Group owns concession assets across four key market segments: Victoria (‘VIC’), New South Wales (‘NSW’), Queensland (‘QLD’) and the Greater Washington Area (‘GWA’). Transurban is listed on the Australian securities exchange (‘ASX’) and has been in business since 1996. Strategy Transurban’s target markets are the eastern seaboard of Australia and North America. At the heart of our business strategy is our desire to be a partner of choice for our government clients and an organisation that meets the needs of our customers and the community. To achieve this, we provide effective transportation solutions to support the growth and development of the cities in which we operate. At Transurban we do this through management of our existing road networks, through our active involvement in the transport policy debate, and by applying our unique skills to the infrastructure challenges in our markets. In delivering on this objective our business has fostered core capabilities in the following areas: Network planning and forecasting Community engagement Development and delivery Technology Operations and customer management Value proposition Transurban has a market leading position with an interest in 15 operating assets across four markets. The investment proposition for high quality toll road assets lies in providing investors with access to long dated, predictable, growing cash flows generated over the life of the concession. Organic growth is derived from traffic growth and inflation protected toll escalation. It is supported by Transurban’s ability to provide efficient corporate and operational services at scale across its portfolio. Transurban has a track record of leveraging its core competencies to drive cost efficiencies and margin uplift. In addition, value is unlocked through the ongoing development of the portfolio through investment in the underlying assets. 4 4 2016 Transurban Annual Report 5 2016 Transurban Annual Report5Operating and financial review Segments1.Following the acquisition of the non-controlling interest in the GWAassets on 29 June 2015, the proportional ownership of the GWAassets is reported at 100% from 1 July 2015. Prior to this, the proportional ownership interest in the 95 Express Lanes and 495 ExpressLanes were 77.5% and 94.0% respectively. 2.Airportlink M7 was acquired on 1 April 2016.3.Westlink M7 and NorthConnex form the NorthWestern Roads Group. Concession assets timeline Below lists the concession asset end dates.VICNSWQLD Operating and financial review (continued) Accounting for assets – changes during the year During the year ended 30 June 2016, the following changes in accounting for our assets have taken place: Transurban Queensland (‘TQ’) acquisition of AirportlinkM7 On 1 April 2016 Transurban Queensland, in which Transurban has a 62.5 per cent interest, acquired AirportlinkM7 for $1,870 million, plus stamp duty of $108 million and transaction costs of $23 million. Group financial performance Financial performance indicators The Transurban Board and management assess the performance of the networks in which we operate based on a measure of proportional earnings before interest, tax, depreciation and amortisation expenses (‘Proportional EBITDA’) excluding the impact of significant items (‘Underlying proportional EBITDA’). This reflects the contribution of each network in the Group in the proportion of Transurban's equity ownership. Significant items are those items where their nature and amount is considered material to the financial statements and not in the ordinary course of business. To arrive at the proportional result, minority interests in Transurban’s controlled roads are taken out and Transurban’s interests in non-controlled assets are included, in proportion to Transurban’s ownership. Free cash is the primary measure used to assess Transurban’s cash generation. Free cash is used as the guide to determine distributions to security holders. Year ended 30 June 2016 highlights Statutory results Toll revenue1 EBITDA Net profit/(loss) EBITDA excluding significant items Net profit after tax excluding significant items FY16 $M 1,870 1,248 22 1,379 148 FY15 $M 1,611 782 (373) 1,211 45 1. Toll revenue now includes toll revenue and service and fee revenue. Refer to note B5 for further details. Proportional EBITDA Segment information in note B4 to the financial statements presents the proportional result for Transurban Group, including reconciliations to the statutory result. Management considers proportional EBITDA to be the best indicator of asset performance. The table below also provides FY16 results adjusted to exclude certain acquisitions and new assets so as to compare the performance of the existing business to the prior year result. Toll revenue1 Other revenue Total costs EBITDA excluding significant items Significant items EBITDA FY16 $M 1,946 60 (526) 1,480 (82) 1,398 FY16 Adjusted2 $M 1,912 60 (501) 1,471 (7) 1,464 FY15 $M 1,656 70 (437) 1,289 (272) 1,017 % Change3 15.5% (14.3%) 14.6% 14.1% (97.4%) 44.0% 1. Toll revenue now includes toll revenue and service and fee revenue. Refer to note B5 for further details. 2. Excludes contributions associated with AirportlinkM7 and Legacy Way. 3. Percentage change between adjusted FY16 and FY15. 6 6 2016 Transurban Annual Report Operating and financial review (continued) Financial position Market capitalisation – 30 June Shares on issue – 30 June Cash and cash equivalents FY16 M FY15 M $24,406 $17,800 2,036 $834 1,914 $1,249 Transurban’s operating assets are primarily long-life intangible assets (concession assets), representing the provision by Government entities for the right to toll customers for the use of the assets. Concession assets represent 78 per cent of the total assets of the Group. The total duration of the concessions typically range from approximately 30 to 80 years, and for accounting purposes the carrying values are amortised on a straight line basis over the duration of the concession. Free cash and cash flows from operations Free cash Weighted average securities eligible for distribution1 Free cash per security (cents) FY16 $926M 1,978M 46.8 FY15 % Change $768M 1,910M 40.2 20.6% 3.6% 16.4% 1. New securities issued during the year are included only to the extent they were eligible for the interim and/or final distribution. Movements in free cash during the period have been influenced by: $81 million growth in EBITDA from 100 per cent owned Australian assets $58 million contribution from Greater Washington Area assets (100% owned from 29 June 2015) $26 million decrease in net finance costs paid (from 100% owned Australian assets) due to timing of cash flows on new and refinanced debt ($29 million) increase in maintenance provision on 100% owned Australian assets ($18 million) decrease in non-100% owned assets distributions received due to lower distributions from M5 ($28 million) associated with the timing of payment of FY16 distributions and Transurban Queensland ($10 million) due to the timing of interest payments in FY16, partially offset by an increase in Eastern Distributor distributions ($13 million) and the NorthWestern Roads Group distributions ($7 million), noting that the FY15 NorthWestern Roads Group distribution included a $23 million debt service reserve release that did not recur in FY16 $40 million favourable year on year movement in working capital The weighted average securities eligible for distribution have increased due to the half year impact of the equity issued in December 2015 to support the acquisition of AirportlinkM7. These securities issued in December 2015 were eligible for the FY16 2nd half distributions only. Note B10 to the statutory accounts provides a detailed calculation of free cash. 7 7 2016 Transurban Annual Report Operating and financial review (continued) Network performance Network Highlights Prop. Toll revenue contribution Traffic growth (ADT) Toll revenue growth EBITDA growth2 EBITDA margin2 NSW Continued traffic growth across the 41.1% 7.4% 13.9% 14.1% 79.7% network Truck toll multipliers increasing to 3 times car tolls on Lane Cove Tunnel, M5 South West Motorway and Westlink M7. Weighted average truck toll multiplier across Sydney network 2.35 times car toll at 30 June 2016. VIC Average weekend/public holiday traffic 33.9% 1.0% 7.3% 7.9% 85.5% growth increased by 3.2% Major construction works on the CityLink Tulla Widening project commenced mid-March 2016 QLD1 AirportlinkM7 traffic and revenue results 16.1% 26.5% 18.1% 18.1% 69.6% GWA3 at upper end of expectations Excluding Legacy Way and AirportlinkM7 EBITDA increased 13.0% Continued growth observed across both 495 Express Lanes and 95 Express Lanes Average dynamic toll price increased 25.6% for 495 Express Lanes and 20.8% for 95 Express Lanes compared to the prior period. 8.9% 13.5% 107.8% 140.3% 49.5% 1. Excluding Legacy Way and AirportlinkM7 from FY16, ADT increased by 2.7%, toll revenue grew by 5.4%, EBITDA grew by 13% and EBITDA margin is 74.7%. 2. EBITDA Growth and EBITDA margin are calculated before significant items. 3. Toll revenue and EBITDA growth are calculated in USD, EBITDA margin is calculated in AUD. New South Wales Operations GLIDe tolling system Increase in recoveries following implementation of GLIDe on Lane Cove Tunnel, Westlink M7 and Roam Tolling in July 2015 and Roam Express in June 2016 Development NorthConnex Construction proceeding on time and on budget Road headers commenced tunnelling in April 2016 Project cost is approximately $3.0 billion, including Government contribution Westlink M7 truck toll currently 2.33 times car toll and will reach 3 times car toll by 1 January 2017 Expected project completion late 2019 8 8 2016 Transurban Annual Report Operating and financial review (continued) Victoria Operations CityLink Operations Introduction of a Freeway Management System (‘FMS’) that enables Transurban to move from an attendance to an immediate clearance incident response model Development CityLink Tulla Widening Western Distributor Major works commenced in mid-March 2016 The Western Distributor is a proposed tunnel Construction proceeding on time and on budget Project cost is approximately $1.3 billion Expected project completion early 2018 and elevated motorway that connects the West Gate Freeway with the Port of Melbourne, CityLink and the central business district, providing an alternative river crossing and easing pressure on West Gate Bridge. The Reference Design and Request for Tender has been issued to market Works to commence on Monash Freeway Upgrade in September 2016 Financial close expected by late 2017 Total project cost expected to be approximately $5.5 billion Queensland Operations AirportlinkM7 Financial close reached 1 April 2016 Integration of AirportlinkM7 into Transurban Queensland is largely complete Customer accounts transitioned to Transurban Queensland in June 2016 Development Inner City Bypass (‘ICB’) Gateway Upgrade North Logan Enhancement Project Brisbane City Council has entered into discussions with Transurban Queensland for the potential delivery of the ICB upgrade Transurban Queensland is managing the project on behalf of the Queensland and Federal Governments Entered exclusive negotiations and design and construction procurement underway Final business case to be Completion is expected in submitted shortly Project cost expected to be 2018 $80 million Completion expected in 2018 Project cost expected to be $450 million Construction expected to commence early 2017 and be completed early 2019 9 9 2016 Transurban Annual Report Operating and financial review (continued) Greater Washington Area Operations 95 Express Lanes Full year of operation Continued ramp up increasing toll pricing and traffic volumes Development I-66 I-395 Competitive process Agreed development underway to design, build, finance, operate and maintain Express Lanes system on I-66 framework with Virginia Department of Transportation (‘VDOT’) to progress 395 Express Lanes project Transurban shortlisted to participate in Request for Proposal (‘RFP’) process Estimated project cost approximately US$250 to $300 million Proposals due October 2016 Financial close expected in mid-2017 Southern Extensions to 95 Express Lanes In-principle agreement with VDOT to extend 95 Express Lanes by 3 kilometres Capital contribution of US$25 million Construction to commence September 2016 and is expected to be completed by late 2018 Additional 14 kilometre extension to Fredericksburg under negotiation with VDOT as part of the Atlantic Gateway Project 10 10 2016 Transurban Annual Report Operating and financial review (continued) Equity issue During December 2015, the Group successfully completed the fully underwritten institutional and retail components of its renounceable 1 for 18 pro rata entitlement offer. The institutional component raised $726 million and the retail component raised $280 million at an issue price of $9.60 per security. The total proceeds from the entitlement offer were approximately $1,006 million and were used to fund the Group’s equity contribution to the Transurban Queensland acquisition of AirportlinkM7 which occurred in April 2016. Financing activities During the reporting period Transurban completed a number of financing activities including: July 2015 Interlink Roads (operator of the M5) refinanced $742 million of senior secured debt. September 2015 Transurban Queensland issued USD$641 million of 10, 12 and 15 year US private placement notes and AUD$70 million of 15 year US private placement notes. November 2015 USD$550 million of corporate senior secured 10 year notes were issued in the US 144A bond market. March 2016 May 2016 May 2016 June 2016 Transurban Queensland raised AUD$950 million of term bank debt to fund the acquisition of AirportlinkM7. Capital Beltway Express (operator of 495 Express Lanes) refinanced USD$225 million Letters of Credit which support the 495 Express Lane’s senior secured Private Activity Bonds. Lane Cove Tunnel refinanced AUD$260 million of debt facilities and raised an additional AUD$200 million of non-recourse debt facilities. Transurban Queensland issued AUD$280 million of senior secured 7 year notes in the Swiss market. There were no changes to the Transurban Group ratings provided by Standard and Poor’s Financial Services LLC rating service, Moody’s Investors Services Inc. or Fitch Ratings Inc. during the period. Funding structure The following diagram shows the non-recourse and corporate debt balances of the Group. 11 11 2016 Transurban Annual Report Operating and financial review (continued) Debt maturity profiles The following charts show the Group’s current debt maturity profile based on the total facilities available. The charts show the debt in the financial year it matures and in the case of the non-recourse debt, the full value of the debt facilities has been shown as this is the value of debt for refinancing purposes. The debt values are shown at 30 June 2016, with US, Euro, Canadian and Swiss denominated debt converted at the hedged rate where cross currency swaps are in place. Unhedged US dollar debt has been converted to Australian dollars at spot exchange rate ($0.74 at 30 June 2016). Corporate debt maturity profile Non-recourse debt maturity profile Financial risk management Transurban’s exposure to financial risk management and its policies for managing that risk can be found in the Financial Risk Management notes in the financial statements – note B15. This section discusses Transurban’s hedging policies, credit risk, interest rate risk and liquidity and funding policies. 12 12 2016 Transurban Annual Report Operating and financial review (continued) Corporate activities People At Transurban we aim to create an environment where our people are encouraged to reach their full potential, and are recognised and rewarded for their achievements. We strive to maintain an open culture where diversity is welcomed and accepted. We want everyone in our workplace to be treated fairly and to feel their contribution is valued. The safety and wellbeing of our employees are central to everything we do as a business. We recognise that, ultimately, our future successes are a direct result of the people who work with us and the contribution they make every day. We have over 1200 employees located in our four regions, Melbourne, Sydney, Brisbane and Washington, DC. This year, our internal employee opinion survey showed that 77% of employees are proud to work for Transurban. The way we work together and engage with our customers is guided by our values of Integrity, Collaboration, Accountability, Ingenuity and Respect and our survey told us that 90% of our employees believe in the values of the Group. Leadership We support our employees’ career aspirations by offering personal and professional development opportunities. We offer a range of career planning and support programs to suit the many different needs and learning styles of our workforce. We support and encourage eligible employees to pursue further education related to their specific discipline or future career path at Transurban. Through our learning and development framework, eligible employees have access to both study/exam leave and financial assistance. We are dedicated to the ongoing development of our existing and future leaders. This year, 35 senior leaders attended the annual Senior Leadership Program. The key theme of the program continues to be striving for sustained high performance. There has also been a focus on building greater leadership capability through the middle management group. Activities to support this include the cascading of activities from the Senior Leadership Program; the People Leader Fundamentals program and the continuation of the Realise your Potential program for female managers. Transurban conducts a bi-annual talent review with the Executive and Senior Leadership teams. This review helps identify high potential individuals who have the ability to move into Senior Leadership or Executive roles, or those who may be able to move laterally outside of their area of technical expertise. In addition, we recognise those individuals with exceptional technical skills that are highly valued by the organisation. Capability We continue to identify ways to build capability at all layers within the organisation. A key activity throughout FY16 has been to develop a Professional/Technical Career Framework to help support employees in these roles articulate their career pathways and identify development opportunities aligned with this. The inaugural Transurban Graduate Program commenced in February 2016 with Graduates working across Engineering, Technology, Business (Finance), Marketing and HR disciplines. The aim of the program is to attract the next generation of Transurban leaders and professional/technical experts. We have developed relationships with key universities enabling the establishment of summer internships for engineering and business graduates. Performance At Transurban we focus on developing a high performance culture through differentiating performance. The Short Term Incentive (‘STI’) program includes formal performance comparisons against peers, which strengthens the link between individual employee performance and Group performance. We offer a range of employee benefits including an employee share scheme and group insurance including salary continuance, death and permanent disablement insurance cover. 13 13 2016 Transurban Annual Report Operating and financial review (continued) Wellbeing At Transurban, we believe that healthy employees contribute to a high performing company. We are committed to keeping our employees safe, and promoting their health and wellbeing so they can enjoy fit and healthy lives, both at work and at home. Our Wellbeing program has five essential elements: health; work; financial; values and staying connected. Creating awareness and education on Mental Health issues has been a focus throughout 2016 and we have trained over sixty employees to be Mental Health First Aiders in every office location in Australia. The employee volunteer program has continued, which includes the ability for all employees to take one day of paid volunteer leave each year. The Transurban Annual Awards function held in October 2015, recognises achievements of employees in the categories of customer service, diversity, ingenuity, safety, sustainability and overall business excellence. Sustainability Transurban's vision ‘to strengthen communities through transport’ is closely supported by our sustainability strategy. We are committed to making sure that our roads help make our cities great places to live and work — both now and in the future. Transurban’s sustainability strategy has three key pillars: Be good neighbours: We will work with communities to create shared value with our business by anticipating, listening and responding to community needs; Use less: We will minimise natural resource use and create resource efficiencies during development, operations and maintenance to reduce the impacts of our operations on the community and environment; and Think long term: We will look for innovative transport solutions that will create efficient, safe transport networks and thriving cities. During the period Transurban continued with a range of sustainability initiatives including: Community partnerships and grants programs; Two major innovation projects (a more effective road safety barrier design and a noise cancellation and transformation project); An energy efficiency roadmap to deliver on our ‘10-in-10’ commitment to reduce our energy consumption by 10% by 2023; Two major road corridor regeneration projects (one each in Melbourne and Sydney); and Continued public reporting of our sustainability performance. Transurban provides regular progress reports to the Board on our focus areas. The annual Sustainability Report summarises the year’s activities and outlines commitments for the coming years. The 2016 Sustainability Report will be published in October 2016 and will be available via the Transurban website. Safety Safety continues to be a key focus of our business and during this financial year, we worked to integrate and strengthen the links between health, safety and environment (‘HSE’) in order to consider all elements through a holistic risk management approach. An integrated HSE Policy replaced the previous safety and environment policies. A new event reporting system, Enablon was introduced and implemented during the financial year, to capture and report on HSE events that can be used for trend analysis and to support development of improvement strategies in HSE performance. There were no employee lost time injuries recorded, and the contractor recordable injury frequency rate finished below target. The employee recordable injury frequency rate finished at 1.1, above our target of 0 and the Road Incident Crash Index finished at 4.6, also slightly above the 4.3 target. 14 14 2016 Transurban Annual Report Operating and financial review (continued) Business risks and opportunities The following are key opportunities that may impact Transurban’s financial and operating result in future periods: Ability to leverage capabilities to enhance motorway networks; Greater than forecast traffic volumes; Integration of consistent technology and systems to enhance network footprint; Ability to harness knowledge and experience to drive operations and maintenance; Identification of new business opportunities in Transurban’s target markets; and Application of sustainability initiatives to enhance road user and local community experiences. The following are key risks that may impact Transurban’s financial and operating result in future periods: Reduced traffic volumes or an inability to grow traffic volumes; Change in government policies; Competitor growth or behaviour; Access to suitable financing arrangements; Safety incidents through operations or driver behaviour; Dependency on the services of key contractors and counterparties; Unfavourable changes to market or operating conditions; Cyber and information protection; and Failure of technical infrastructure. Risk management Managing risk is an essential part of our business. Key risks are regularly reviewed by the Board, the Audit and Risk Committee and our Executive Committee. Transurban has a business-wide risk framework in place to help create a consistent and rigorous approach to identifying, analysing and evaluating risks. This framework has various policies, standards and guidelines attached to it, including the Risk Management Policy which can be found in the Corporate Governance section of our website (transurban.com). The framework is overseen by the Audit and Risk Committee and is actively managed by the Executive Committee. It is consistent with AS/NZ31000:2009 and is subject to regular review by internal audit. Our Audit and Risk Committee Charter is also available in the Corporate Governance section of our website. Company secretaries Amanda Street LLB (Hons), BComm Amanda joined Transurban in September 2008 and was appointed as Company Secretary in February 2011. Before joining Transurban, Amanda was Assistant Company Secretary at AusNet Services, and Senior Corporate Counsel at National Australia Bank. She has over 16 years of legal, company secretariat and other relevant experience. Prior to her in-house work, Amanda was a solicitor specialising in M&A work with Australian law firm King & Wood Mallesons. Julie Galligan LLB, BA Julie joined Transurban in November 2008 and was appointed as General Counsel in February 2012. Julie has over 16 years' legal experience in private practice and in-house roles in both Australia and the United Kingdom. Prior to joining Transurban, Julie worked in-house at Associated British Ports and at law firms, SJ Berwin LLP and MinterEllison. 15 15 2016 Transurban Annual Report Operating and financial review (continued) Meetings of directors The number of meetings of the Boards of Directors of THL, TIML and TIL and each Board Committee held during the year ended 30 June 2016, and the number of meetings attended by each Director are set out in the following tables. Meetings of the Boards of Directors of THL, TIML and TIL were held jointly. Lindsay Maxsted Scott Charlton Neil Chatfield Robert Edgar Samantha Mostyn Christine O'Reilly Rodney Slater Peter Scott4 Ian Smith5 Board of Directors Audit & Risk Committee1 Remuneration & HR Committee2 Nomination Committee3 Attended Held Attended Held Attended Held Attended Held 9 9 9 9 8 9 9 3 1 9 9 9 9 9 9 9 3 1 6 6 6 6 1 6 * 1 * 6 * 6 6 * 6 * * * 5 5 5 5 5 3 * * * * * 5 5 5 * * * * 3 3 3 3 3 3 3 1 * 3 * 3 3 3 3 3 * * * = Not a member of the relevant Committee 1. Scott Charlton, Samantha Mostyn and Peter Scott were not members of the Audit and Risk Committee but attended meetings during the year. 2. Lindsay Maxsted, Scott Charlton and Christine O'Reilly were not members of the Remuneration and Human Resources Committee but attended meetings during the year. Scott Charlton was excluded from discussions involving his remuneration during meetings which he attended. 3. Scott Charlton and Peter Scott were not members of the Nomination Committee but attended meetings during the year. 4. Peter Scott was appointed to the Board of Directors on 1 March 2016. Only those meetings held since his appointment have been included above. 5. Ian Smith resigned as Non-executive Director effective 10 August 2015. Only those meetings held during his appointment have been included above. 16 16 2016 Transurban Annual Report Directors The following persons were Directors of THL, TIML and TIL during the whole of the financial year and up to the date of this report, unless otherwise stated: Lindsay Maxsted Dip Bus, FCA, FAICD Chair and independent Non-executive Director Director since 1 March 2008. Chair since 12 August 2010. Chair of the Nomination Committee and a member of the Audit and Risk Committee. Lindsay is currently Chair and a Non-executive Director of Westpac Banking Corporation, and a Non-executive Director of BHP Billiton Limited and BHP Billiton plc. He is the Managing Director of Align Capital Pty Limited and the Honorary Treasurer of Baker IDI Heart and Diabetes Institute. Lindsay was formerly a partner of KPMG Australia and was the CEO of that firm from 2001 to 2007. His principal area of practice prior to this was in the corporate recovery field managing a number of Australia’s largest insolvency / workout / turnaround engagements. As at the date of this report, Lindsay holds interests in 70,258 stapled securities. Scott Charlton BSci, MBA Chief Executive Officer and Executive Director Director since 16 July 2012. CEO since 16 July 2012. Scott joined Transurban from Lend Lease, where he was Group COO and Group Director of Operations. Prior to this, Scott held several senior appointments across a range of infrastructure entities and financial institutions, including as CFO of Leighton Holdings Limited and as Managing Director of Deutsche Bank in Australia and Hong Kong. Scott is currently Deputy Chair of Infrastructure Partnerships Australia and is a member of the Monash Industry Council of Advisors, the Business Council of Australia, and of Roads Australia. As at the date of this report, Scott holds interests in 1,047,562 stapled securities, 1,019,868 performance awards (unlisted) and 117,926 STI deferred awards (unlisted). 17 17 2016 Transurban Annual Report Directors (continued) Neil Chatfield M.Bus, FCPA, FAICD Independent Non-executive Director Director since 18 February 2009. Chair of the Audit and Risk Committee and a member of the Remuneration and Human Resources Committee and the Nomination Committee. Neil is an established Executive and Non-executive Director with extensive experience across all facets of company management, and with specific expertise in financial management, capital markets, mergers and acquisitions, and risk management. Neil is currently the Chair and a Non-executive Director of Seek Limited and Costa Group Holdings Limited. Neil is also a Non-executive Director of Iron Mountain Inc. and Chair of Launch Housing, a not-for-profit organisation. He was previously a Non-executive Director of Recall Holdings Limited (to May 2016), Chair and a Non-executive Director of Virgin Australia Holdings Limited (to May 2015) and a Non-executive Director of Grange Resources Limited (to April 2014). Neil previously served as Executive Director and the CFO of Toll Holdings (from 1997 to 2008). As at the date of this report, Neil holds interests in 59,728 stapled securities. Robert Edgar BEc (Hons), PhD, FAICD Independent Non-executive Director Director since 21 July 2009. Chair of the Remuneration and Human Resources Committee and a member of the Audit and Risk Committee and the Nomination Committee. Bob has over 30 years’ experience as a senior executive, with 25 years at ANZ Banking Group in various senior roles, including Deputy CEO, Senior Managing Director, COO, and Chief Economist. Bob is currently a Non-executive Director of Asciano Group, Linfox Armaguard Pty Ltd and Djerriwarhh Investments. He is Chair of the Hudson Institute of Medical Research. Bob was previously Chair and a Non-executive Director of Federation Centres (to June 2015). As at the date of this report, Bob holds interests in 32,009 stapled securities. 18 18 2016 Transurban Annual Report Directors (continued) Samantha Mostyn BA, LLB Independent Non-executive Director Director since 8 December 2010. Member of the Nomination Committee and a member of Remuneration and Human Resources Committee. Sam has significant experience in the Australian corporate sector both in Executive and Non-executive capacities, in particular in the areas of human resources, corporate and government affairs, sustainability management, and diversity. Sam is currently Chair and a Non-executive Director of Citigroup Pty Limited and a Non- executive Director of Virgin Australia Holdings Limited, Cover-More Group Limited, and the Mirvac Group. She is President of the Australian Council for International Development. Sam is also a Non-executive Director of Australia Council for the Arts and Chair of Carriageworks. Sam is currently Deputy Chair of the Diversity Council of Australia, and is a member of the NSW Climate Change Council, the advisory boards of ClimateWorks Australia, the Crawford School of Government and Economics, Australian National University and Commissioner of the Business and Sustainable Development Commission. As at the date of this report, Sam holds interests in 18,215 stapled securities. Christine O'Reilly BBus Independent Non-executive Director Director since 12 April 2012. Member of the Audit and Risk Committee and the Nomination Committee. Christine has over 30 years’ experience in the finance and infrastructure sectors in various roles including as Co-Head of Unlisted Infrastructure at Colonial First State Global Asset Management and as CEO of the GasNet Australia Group. Christine is currently a Non-executive Director of CSL Limited, Energy Australia Holdings Limited, and Medibank Private Limited. She is also a Non-executive Director of Baker IDI Heart and Diabetes Institute and is the Deputy Chair of CARE Australia. As at the date of this report, Christine holds interests in 20,406 stapled securities. 19 19 2016 Transurban Annual Report Directors (continued) Rodney Slater J.D., BS Independent Non-executive Director Director since 22 June 2009. Member of the Nomination Committee. Rodney is a partner in the Government Relations and Lobbying, Transportation, Infrastructure and Local Government, and Construction project groups of Washington, DC firm Squire Patton Boggs (US) LLP where he has been a leader of its transportation practice since 2001. He served as US Secretary of Transportation from 1997 until the end of the Clinton Administration in January 2001 and was the Administrator of the Federal Highway Administration between 1993 and 1996. In the US, Rodney’s current directorships include Kansas City Southern (railroads), Verizon Communications Inc. and Southern Development Bancorporation. He was previously a Director of Parsons Brinckerhoff, Delta Airlines, Northwest Airlines, WS Atkins plc and ICx Technologies Inc. Rodney is a Director of the Congressional Awards Foundation and United Way Worldwide. As at the date of this report, Rodney holds interests in 3,000 stapled securities. Peter Scott BE (Hons), M.Eng.Sc, Hon FIEAust, MICE Independent Non-executive Director Director since 1 March 2016. Member of the Nomination Committee from 8 August 2016. Peter has over 20 years’ of senior business experience in publicly listed companies and considerable breadth and expertise in the engineering and finance sectors. He was formerly the CEO of MLC and head of National Australia Bank’s Wealth Management Division and has held a number of senior positions with Lend Lease. Peter is currently Chair and a Non-executive Director of Perpetual Limited and of Perpetual Equity Investment Company Limited, Chair of Igniting Change Limited, a not-for-profit organisation and a member of the Prime Minister’s Community Business Partnership. He was previously a Non-executive Director of Stockland Corporation Limited (to August 2016). As at the date of this report, Peter holds interests in 20,000 stapled securities. 20 20 2016 Transurban Annual Report Directors (continued) Ian Smith BE Mining (Hons), BFin Admin Independent Non-executive Director Director from 1 January 2012 to 10 August 2015 Ian was previously the Managing Director and CEO of Orica Limited (to March 2015), Managing Director and CEO of Newcrest Mining, the Global Head of Operational and Technical Excellence at Rio Tinto, based in London, and Managing Director of Comalco Aluminium Smelting within the Rio Tinto Group. Prior to this, Ian held senior operational and project management roles with WMC Resources, Pasminco Limited and CRA Limited. Ian was previously the President of The Australian Mines and Metals Association, Chairman of the Minerals Council of Australia, and a Director of the Australian Chamber of Commerce and Industry. Ian is a Fellow of both the Institute of Engineers Australia and the Australasian Institute of Mining and Metallurgy - from which he was awarded its highest honour, the Institute Medal, in June 2012. As at the date of his resignation, Ian held interests in 94,785 stapled securities. 21 21 2016 Transurban Annual Report 2016 Remuneration report (audited) Introduction The Board is pleased to present the Remuneration Report for the Transurban Group (the Group) for the year ended 30 June 2016 (‘FY16’), prepared in accordance with the Corporations Act 2001 and its regulations. This report contains detailed information regarding the remuneration arrangements for the Directors and senior executives who were key management personnel (‘KMP’) of the Group during FY16. Key Management Personnel The following table details the Group’s KMP during FY16. Non-executive Directors Lindsay Maxsted, Chair Neil Chatfield Robert Edgar Samantha Mostyn Christine O'Reilly Peter Scott (from 1 March 2016) Rodney Slater Former Non-executive Directors Ian Smith1 Current senior executives Scott Charlton, Executive Director and Chief Executive Officer (‘CEO’) Tony Adams, Group General Manager, Project Delivery and Operational Excellence Jennifer Aument, Group General Manager, North America Wesley Ballantine, Group General Manager, Queensland Andrew Head, Group General Manager, New South Wales Michele Huey, Group General Manager, Strategy Sue Johnson, Group General Manager, Customer Operations and Human Resources Lisa Tobin, Group General Manager, Technology Vin Vassallo, Group General Manager, Victoria Adam Watson, Chief Financial Officer 1. Ian Smith resigned as a Non-executive Director effective 10 August 2015. Contents Section 1. Remuneration snapshot 2. Remuneration governance 3. Senior executive remuneration policy and structure 4. Group performance, security holder wealth and remuneration 5. Senior executive remuneration outcomes for FY16 6. Service agreements 7. Non-executive Director remuneration 8. Statutory tables 22 22 Page 23 24 25 30 31 33 34 36 2016 Transurban Annual Report Remuneration report (continued) 1. Remuneration snapshot The Transurban Board is committed to an executive remuneration framework that is focused on driving a performance culture and linking pay to the achievement of the Group’s strategy and business objectives that in turn drive long term security holder value. Transurban’s remuneration framework is reviewed annually taking into consideration security holder and other stakeholder feedback, market expectations and regulatory developments. At the 2015 annual general meeting (‘AGM’), the remuneration framework received strong support from security holders, with a 99.52% vote in favour of the resolution to adopt the 2015 Remuneration Report. The Board considers that the current remuneration framework offers a range of mechanisms to balance sensible risk management and motivate executives to deliver outstanding results. The core strategy of the Group is to partner with governments to provide effective and innovative urban road infrastructure. Consistent with this strategy, the Group has significantly expanded its portfolio with acquisitions and development projects in Australia and the USA, leveraging its urban networks and partnering with Governments to develop transport solutions in our core markets of the east coast of Australia and North America. These activities have helped deliver against the Group’s stated objective of growing distributions for security holders. The remuneration outcomes this year reflect Transurban’s strong financial results and achievements across the Group’s operational and development activities. These results are outlined in more detail in the Operating and Financial Review within the Directors’ Report. In comparison with the previous financial year, the following results were achieved in FY16: 14.8% increase in underlying proportional EBITDA; 16.4% increase in free cash flow per security; 13.8% increase in distributions paid to security holders; 28.9% increase in security price; and 26.7% increase in proportional net costs (excluding significant items) to support growth in traffic and business activity and the continued focus on technology and customer initiatives. The Board and the Board’s Remuneration and Human Resources Committee believe that the remuneration outcomes reflect alignment between rewarding senior executive efforts in meeting key targets and recognising security holder outcomes. 23 23 2016 Transurban Annual Report Remuneration report (continued) 2. Remuneration governance A. Board and Remuneration and Human Resources Committee responsibilities The Remuneration and Human Resources Committee assists the Board in fulfilling its responsibilities relating to the remuneration of Non-executive Directors, the remuneration of, and incentives for, the CEO and other senior executives, remuneration budgets for all employees and remuneration practices, strategies and disclosures generally. It is critical that the Remuneration and Human Resources Committee is independent of management when making decisions affecting employee remuneration. Accordingly, the Committee comprises Non-executive Directors, all of whom are independent. Where appropriate, the CEO and the Group General Manager, Customer Operations and Human Resources attend Committee meetings, however they do not participate in formal decision making. The members of the Committee are Robert Edgar (Chair), Samantha Mostyn and Neil Chatfield. Further details regarding the Committee are set out in the Directors’ Report. B. Use of remuneration consultants The Remuneration and Human Resources Committee may seek and consider advice from independent remuneration consultants where appropriate. Any advice from consultants is used to guide the Remuneration and Human Resources Committee and the Board, but does not serve as a substitute for thorough consideration by Non-executive Directors. The Group has a protocol in place governing the appointment of remuneration consultants and the manner in which any recommendations made by those consultants concerning the remuneration of KMP are to be provided to the Group, and in particular the circumstances in which management may be given access to those recommendations. The purpose of the protocol is to ensure that any remuneration recommendations provided by consultants are provided without undue influence by KMP. During FY16, consultants did not provide the Remuneration and Human Resources Committee with remuneration recommendations relating to KMP. Benchmark data only was provided to the Committee. C. Dealing in securities In accordance with the Group’s Dealing in Securities Policy, employees who have awards under a Group equity plan may not hedge against those awards. In addition, senior executives may not hedge against entitlements that have vested but remain subject to a holding lock. Employees and Directors are not permitted to obtain margin loans using Transurban securities (either solely or as part of a portfolio) as security for loans. 24 24 2016 Transurban Annual Report Remuneration report (continued) 3. Senior executive remuneration policy and structure The Group’s executive remuneration strategy is designed to attract, retain and motivate a highly qualified and experienced management team with the necessary skills and attributes to lead the Group in achieving its business objectives. The strategy also aims to encourage management to strive for superior performance by rewarding the achievement of targets that are challenging, clearly understood, and within the control of individuals to achieve through their own success. A. Remuneration framework The Group’s remuneration framework provides a combination of incentives intended to drive performance against the Group’s short and longer term objectives. The framework for each senior executive comprises three components: • Total Employment Cost (‘TEC’): fixed remuneration component comprising salary, superannuation and other prescribed benefits; • Short Term Incentive (‘STI’): an ‘at risk’ component, awarded on performance over a 12 month period against pre-determined individual and Group performance measures that comprises both a cash component and a component deferred into equity; and • Long Term Incentive (‘LTI'): an ‘at risk’ equity component, awarded on the achievement of pre-determined internal and external performance measures over a three year period. B. Remuneration mix A significant proportion of senior executive remuneration is ‘at risk’ to provide alignment with the interests of security holders and to drive performance. The remuneration mix is designed to achieve a balanced reward for achievement of immediate objectives and the creation of long term sustainable value. The remuneration mix at target performance for senior executives is outlined in the diagram below. CEO target remuneration mix Senior executive target remuneration mix 30% 40% 15% 15% 25% 15% 15% 45% Fixed annual remuneration Variable STI - cash Variable STI - deferred Variable LTI C. Fixed total employment cost (‘TEC’) Fixed TEC is set with reference to the market median, using the ASX 10-30 as the primary reference. Remuneration packages (including TEC levels) are reviewed annually by the Remuneration and Human Resources Committee taking into consideration an individual's role, experience and performance, as well as relevant comparative market data provided by remuneration consultants. TEC levels are also reviewed on a change in role. Changes to CEO remuneration package effective FY2017 Following a review of the CEO’s FY2016 remuneration package with the relevant comparator group, the Board has approved a revised remuneration package for the CEO, effective 1 July 2016. The revised package includes an increase in the CEO’s fixed remuneration of 3.69% to $2.2 million as well as a revised remuneration mix resulting in an increase to his total remuneration package. The revised package better aligns the CEO’s total remuneration to the market through an appropriate weighting for each remuneration component, strongly aligning the achievement of the Group’s strategy and security holder value. The revised remuneration mix is weighted 33% for fixed annual remuneration; 33% for variable STI (50% continues to be deferred); and 34% for variable LTI. 25 25 2016 Transurban Annual Report Remuneration report (continued) D. Short term incentive (‘STI’) Description Eligible permanent Group employees, including the CEO and other senior executives, participate in the annual STI plan, which puts a proportion of remuneration 'at risk' subject to meeting specific pre-determined Group and individual performance measures linked to Group objectives. Performance Period Opportunity Payment and deferral The performance period is the financial year preceding the payment date (i.e. 1 July 2015 – 30 June 2016). For ‘at-target’ performance, the CEO has the opportunity to receive 75% of TEC and all other senior executives have the opportunity to receive 67% of TEC. The minimum STI an individual can receive is 0% (if targets are not met) and the maximum is 150% of the STI opportunity, which is only awarded for exceptional performance. The awarded STI for the CEO and other senior executives is settled 50% in cash and 50% is deferred. For Australian employees, the deferral component is into fully paid Transurban securities, which are held on trust for two years following the performance year and are restricted from trading until vesting. USA employees are awarded deferred cash awards (due to legal restrictions on the issue of securities to USA residents). The deferred securities and deferred cash awards participate in dividends and/or distributions paid. The number of securities or awards is determined by dividing the amount to be deferred by a 20 day Volume Weighted Average Price (VWAP) of securities up to and including the last business day of the performance period. Performance measures Performance measures are a mix of Group and individual measures. The diagram below illustrates the weighting of the two performance measures. Individual KPIs are unique to the individual’s area of accountability. Individuals have a clear line of sight to KPIs and are able to directly affect outcomes through their own actions. The total STI performance outcome is calculated: (Individual STI Outcome % + (Individual STI Outcome % x Group Outcome %)) ÷ 2. How is the annual pool determined The Board approves a total pool to be distributed which is the sum of all eligible employees’ possible STI outcomes at target (TEC x STI opportunity). One half of this sum represents the individual component of the STI (capped at 100%) and the second half is multiplied by the Group’s performance outcome to represent the Group’s performance component (capped at 150%). The overall pool is capped at 125%. The Board has discretion as to the proportion of the pool that will be distributed each year. Vesting Performance against Group measures is assessed by the Board and the results of key elements are independently validated. The Board confirms final outcomes for individual and Group performance and has discretion to make adjustments to the performance conditions and outcomes. Payment of STI The payment of the cash component and the allocation of deferred securities and cash awards (USA residents) will occur in August 2016 following finalisation and approval of the audited Group results and the Board’s approval of individual outcomes. Cessation of employment If employment ceases before performance is assessed, generally there is no entitlement to receive any STI award. Any unvested deferred securities will lapse, unless the plan rules provide otherwise or the Board otherwise resolves. Clawback Fraudulent or dishonest behaviour will result in the forfeiture or clawback of any unvested awards. Further, at the discretion of the Board awards are subject to forfeiture or clawback where there is a financial misstatement circumstance or the allocation of awards was made in error, on the basis of the misrepresentation or an omission, or on the basis of facts or circumstances that were later proven to be untrue or inaccurate. 26 26 2016 Transurban Annual Report Remuneration report (continued) STI Group performance measures in detail Group Measure Proportional EBITDA (EBITDA: earnings before interest, taxes, depreciation and amortisation) Weighting Description of Measure 20% Targets: the target for 100% vesting for FY16 was $1,351 million with straight line vesting between the minimum target of 50% vesting of $1,326 million and 150% vesting of $1,378 million. Targets were set by the Board at the beginning of FY16 against the Group’s FY16 budget. The targets excluded Legacy Way and Transurban Queensland integration costs due to Legacy Way being in ramp-up phase and the integration of Queensland being a one-off cost. The Group has consistently applied an approach of excluding assets in ramp-up phase when setting the targets. Legacy Way will be included in the FY17 targets. The recently acquired AirportLinkM7 was also excluded from both the FY16 proportional EBITDA target and outcome. Proportional EBITDA is one of the primary measures the Board uses to assess the operating performance of the Group. It reflects the contribution from individual assets to the Group's operating performance and focuses on elements of the result that management can influence to drive improvements in short term earnings. The Board believes proportional EBITDA provides a better reflection of the underlying performance of the Group’s assets than statutory EBITDA. Definition: Proportional EBITDA is the aggregation of EBITDA from each asset multiplied by the Group's percentage ownership, as well as any contribution from Group functions. Proportional EBITDA figures used to assess performance are included in note B4 of the audited financial statements. Proportional Net Costs 20% Targets: the target for 100% vesting for FY16 was $320 million with straight line vesting between the minimum target of 50% vesting of $333 million and 150% vesting of $307 million. Targets were set by the Board at the beginning of FY16 against the Group’s FY16 budget. The targets excluded Legacy Way and Transurban Queensland integration costs due to Legacy Way being in ramp-up phase and the integration of Queensland being a one-off cost. The recently acquired AirportLinkM7 was also excluded from both the FY16 proportional net costs target and outcome. Definition: Proportional Net Costs are calculated as total costs less fee and other revenues. This measure encourages and allows management to incur additional costs where these are justified by increased revenue results. It also reflects management’s ability to influence the expenditure of the business. Strong cost management throughout the business drives an increase in proportional EBITDA and free cash flow and ultimately security holder value. Health, Safety and Environment (‘HSE’) 10% The HSE target was a combination of a lead indicator (an employee leadership component through KPIs) and three lag indicators. The diagram below illustrates the performance measures within the lag indicators. Targets were set with straight line vesting between 0% and 150%. Targets: the targets for the lag indicators for 100% vesting for FY16 were as follows: • Recordable Injury Frequency Rate – zero for employees and 7.65 for contractors; • Road Injury Crash Index – 4.29 (6% reduction on FY14 outcome); and • High Severity and Recordable Incidents close out – all high severity (actual or potential) and recordable incidents, where Transurban has control, are reported, investigated with lessons learned and shared across the Group. The FY16 target was zero overdue actions within agreed timeframes and quarterly reviews completed and analysis presented to the CEO and other senior executives. The HSE measures focus on improving the Group’s HSE culture and reducing workplace injuries for employees and contractors as well as customer safety. Individual KPIs 50% Individual KPIs related to critical business measures and are not disclosed due to the commercially sensitive nature of these targets. 27 27 2016 Transurban Annual Report Remuneration report (continued) E. Long term incentive (‘LTI’) Description Participation in the LTI plan is offered to the CEO and other senior executives, and a very limited number of other employees nominated by the CEO and approved by the Board. Grants are made in the form of performance awards at no cost to the recipient. Each performance award is an entitlement to receive a fully paid Transurban security, or an equivalent cash payment, on terms and conditions determined by the Board, subject to the achievement of vesting conditions. Performance Period Opportunity The three financial years commencing on 1 July in the year the grant is issued. The CEO’s opportunity is 75% of TEC and the opportunity for all other senior executives is 56% of TEC. Performance measures Two performance measures are used to determine the number of awards that will vest at the end of the performance period; relative Total Shareholder Return (‘TSR’) against a bespoke comparator group, and Free Cash Flow (‘FCF’) (each with a 50% weighting). Allocation TSR component: An independently determined fair value allocation valuation is applied to this component of the LTI. FCF component: An independently determined face value allocation valuation (discounted for distributions and/or dividends foregone throughout the performance period) is applied to this component of the LTI. The Board regularly considers the most appropriate measures for the Group and believe that fair value is the correct measure for the TSR component of the LTI awards as it’s a market based measure and the inclusion of market forces within the discounting calculation is appropriate. Whereas the non-market based performance measure of FCF is more suited to a face value valuation when allocating LTI awards. Vesting TSR component The Group uses an independent report that sets out the Group's TSR growth and that of each company in the bespoke comparator group. A VWAP of securities for the 20 trading days up to and including the testing date is used to calculate TSR. The level of TSR growth achieved by the Group is given a percentile ranking having regard to the Group’s performance compared to the performance of other companies in the comparator group (the highest ranking company is ranked at the 100th percentile). This ranking determines the extent to which performance awards subject to this target vest. FCF component The Group's FCF per security percentage growth rate is calculated based on the FCF per security over the three year performance period. The Board determines in its absolute discretion whether the performance awards are settled in Transurban securities or a cash payment of equivalent value. Due to legal restrictions on the issue of securities to USA residents, the USA senior executive receives a cash payment upon vesting. The maximum vesting following these tests is capped at 100% of awards issued. Following testing, any awards that do not vest, lapse and any awards that vest are automatically exercised. Cessation of employment If employment ceases before the performance measures are tested, generally there is no entitlement to unvested performance awards. Any unvested awards will lapse, unless the plan rules provide otherwise or the Board otherwise resolves. Clawback Fraudulent or dishonest behaviour will result in the forfeiture or clawback of any unvested awards. Further, at the discretion of the Board awards are subject to forfeiture or clawback where there is a financial misstatement circumstance or the allocation of awards was made in error, on the basis of the misrepresentation or an omission, or on the basis of facts or circumstances that were later proven to be untrue or inaccurate. 28 28 2016 Transurban Annual Report Remuneration report (continued) LTI performance measures in detail Group Measure Weighting Description of measure Relative TSR 50% TSR is a relative, external, market-based performance measure against those companies with which the Group competes for capital. It provides a direct link between executive reward and security holder return. TSR measures total return on investment of a security, taking into account both capital appreciation and distributed income which was reinvested on a pre-tax basis. Relative TSR is measured against a bespoke comparator group comprising companies in the transport, utilities, real estate, construction and infrastructure Global industry classification standards (‘GICS’) sectors of the ASX 150. The 36 companies in this group for grants made during FY16 were: Abacus Property Group, AGL Energy Limited, Asciano Limited, APA Group, Aurizon Holdings Limited, Aveo Group, BWP Trust, CIMIC Group Limited, Cromwell Property Group, Charter Hall Group, Charter Hall Retail REIT, DUET Group, Dexus Property Group, Federation Centres, Goodman Group, GPT Group, Growthpoint Properties Australia Limited, iiNet Limited, Investa Office Fund, Lend Lease Group, M2 Group Limited, Macquarie Atlas Roads Group, Mirvac Group, Qantas Airways Limited, Qube Holdings Limited, Scentre Group Limited, Shopping Centres Australasia Property Group, Stockland, Spark Infrastructure Group, Spark New Zealand Limited, AusNet Services, Sydney Airport, Transurban Group, Telstra Corporation Limited, TPG Telecom Limited, Westfield Corporation. The TSR component of performance awards granted during FY16, will vest on a straight line basis in accordance with the following table: The Group’s relative TSR ranking in the comparator group % of performance awards that vest At or below the 50th percentile Zero Above the 50th percentile but below the 75th percentile Straight line vesting between 50 and 100 At or above the 75th percentile 100 Growth in FCF per security 50% Growth in FCF per security reflects the Group’s continued focus on the maximisation of free cash. The FCF calculation is included in note B10 of the audited financial statements. The FCF per security component of performance awards granted during FY16 will vest based on the Group’s compound annual growth targets translated into annual FCF per security over the three year performance period, as set out below: % annual growth in FCF per security (FCF base of 40.2 cents per security) Less than 8% Between 8% and 11% 11% or more % of performance awards that vest Zero Straight line vesting between 50 and 100 100 For performance awards granted during FY17, the performance target range for growth in FCF per security is between 9% and 12% per annum. This is calculated using the FY16 distribution of 45.5 cents per security as the base. The target reflects the Group’s focus on the maximisation of free cash to drive security holder return. Transurban’s distribution policy has been to align distributions with FCF per security; however, free cash coverage may vary from year to year. Owing to a range of factors, the distribution is considered the best point of alignment with security holders’ expectation for growth in free cash.1 1. Using FY16 reported FCF of 46.8 cents per security as the base, the performance target range for growth in FCF per security is between 7.5% and 10.5% per annum. The Group’s compound annual growth targets over the three year performance period remain the same regardless of which base is used. 29 29 2016 Transurban Annual Report Remuneration report (continued) 4. Group performance, security holder wealth and remuneration A. Financial highlights for FY16 The Group’s network portfolio delivered strong EBITDA growth which was mainly caused by increased traffic across our networks and disciplined cost control. The Group recorded proportional EBITDA excluding significant items of $1,480 million for the financial year ended 30 June 2016, an underlying increase of 14.8% on the prior corresponding period. B. Overview of Group performance The variable (or 'at risk') remuneration of the CEO and other senior executives is linked to the Group’s performance through the use of measures based on the operating performance of the business. The graphs below show the Group’s performance over the past five years including metrics used to determine components of STI and LTI awards. Financial measures Underlying proportional EBITDA ($ millions) Proportional Net Costs excluding significant items ($ millions) 1,600 1,400 1,200 1,000 800 600 400 200 0 50 45 40 35 30 25 14 12 10 8 6 4 2 0 30 1,480 1,289 784 828 934 342 270 160 163 183 400 350 300 250 200 150 100 50 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Free Cash per security (cents) 46.8 40.2 33.9 29.8 30.1 2012 2013 2014 2015 2016 Security price at year end ($) 11.99 9.30 6.76 7.39 5.69 Distributions paid per security (cents) 45.5 40.0 35.0 29.5 31.0 2012 2013 2014 2015 2016 Total security holder return performance (%) 35 32 25 15 17 50 45 40 35 30 25 20 40 30 20 10 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 30 2016 Transurban Annual Report Remuneration report (continued) 5. Senior executive remuneration outcomes for FY16 A. STI Outcomes for FY16 Group performance in respect of the proportional EBITDA, proportional Net Costs and HSE STI performance measures for FY16 was assessed by the Board as 116.5% of the possible STI opportunity. Measure Proportional EBITDA1 Proportional net costs1 HSE Overall Group Performance Performance Outcome $1,471 million $319 million – – 150.0% 104.6% 73.4% 116.5% 1. For FY16 Legacy Way and the Transurban Queensland transaction and integration costs were excluded from the Proportional EBITDA and Proportional net costs targets and actual outcomes. Also excluded from the performance outcomes is the AirportlinkM7 which was acquired by Transurban Queensland in April 2016. The Group achieved the following HSE outcomes which are linked to the Group’s STI awards. Measure Score Outcome % STI Outcome % Leadership Recordable Injury Frequency Rate (‘RIFR’)1 – employees Recordable Injury Frequency Rate (‘RIFR’)1 – contractors Road Injury Crash Index (‘RICI’)2 High Severity and Recordable Incidents 3.1 1.1 7.1 4.6 30 incidents 79.0 85.3 111.0 0.0 113.3 Overall HSE Outcome 1. RIFR: recordable injuries (fatalities, lost time and medical treatment injuries) per million work hours. 47.4 6.4 8.3 0.0 11.3 73.4 2. RICI: serious road injury (requiring medical treatment or where emergency medical care is required, other than first aid) crashes per 100 million vehicle kilometres travelled. The individual STI performance outcomes and awards for the CEO and senior executives for FY16 are detailed in the following table: STI outcome (%) STI awarded4 ($) STI forfeited (%) Current senior executives Individual KPIs S Charlton2 T Adams J Aument1 W Ballantine2 A Head M Huey S Johnson L Tobin V Vassallo2 A Watson 140.0 110.0 120.0 140.0 93.0 120.0 110.0 93.0 150.0 93.0 Total3 150.0 119.1 129.9 150.0 100.7 129.9 119.1 100.7 150.0 100.7 2,386,950 426,550 572,313 552,750 444,750 429,500 422,900 375,400 603,000 450,700 – – – – – – – – – – 1. Jennifer Aument is remunerated in USA Dollars. Her awarded STI has been translated to Australian Dollars using the exchange rate at 30 June 2016. 2. The maximum possible total value of the FY16 STI award is the combined value of the cash and deferred STI award and is capped at 150% of the STI opportunity. In accordance with this cap, the STI opportunities for Scott Charlton, Wes Ballantine and Vin Vassallo have been capped at 150% and the STI awarded as shown in the table above is in accordance with this cap. The minimum possible total value of the grant is zero. 3. The total STI performance outcome is calculated: (Individual STI Outcome % + (Individual STI Outcome % x Group Outcome %)) ÷ 2. The Group’s percentage outcome is 116.5%. 4. 50% is paid in cash and 50% is deferred for two years following the performance year. 31 31 2016 Transurban Annual Report Remuneration report (continued) STI deferred securities and cash awards granted in FY16 Current senior executives S Charlton T Adams J Aument W Ballantine A Head M Huey1 S Johnson L Tobin V Vassallo A Watson1 Balance at start of year Granted during year as remuneration Matured and paid during year Forfeited during the year Balance at the end of year 245,695 117,926 108,486 40,979 35,722 44,687 54,018 – 39,349 29,674 36,751 – 20,574 27,073 24,322 30,513 7,398 20,932 23,693 26,643 12,847 18,754 14,282 17,328 15,202 – 21,288 6,612 6,612 – – – – – – – – – – – 255,135 42,799 48,513 51,681 69,329 7,398 38,993 46,755 56,782 12,847 1. Michele Huey and Adam Watson had a zero opening balance at the beginning of FY16, as they joined the Group during FY15. Their STI outcome for FY15 was pro-rated in accordance with their commencement dates. B. LTI Outcomes for FY16 Eligible senior executives (excluding the CEO) received performance awards with a grant date of 17 August 2015. Following the receipt of security holder approval at the 2015 AGM, the CEO received performance awards with a grant date of 2 November 2015. All performance awards granted in FY16 may vest subject to a performance period from 1 July 2015 through to 30 June 2018. The relevant values of the grants are as follows: Recipient Grant date Value of awards at grant date Closing security price at grant date Eligible senior executives 17 August 2015 CEO 2 November 2015 1. Fair value in accordance with AASB 2 treatment of market conditions. Performance awards granted in FY16 Relative TSR1 FCF per security $4.52 $5.12 $8.65 $9.33 $9.77 $10.44 Current senior executives S Charlton T Adams J Aument W Ballantine A Head M Huey S Johnson L Tobin V Vassallo Number of performance awards granted Potential value of grant yet to vest1 ($) 292,441 55,019 65,155 56,603 67,857 50,784 54,545 57,273 61,749 1,933,027 328,836 389,417 338,304 405,566 303,524 326,005 342,309 369,060 A Watson 1. The maximum value of the grant has been estimated based on the award valuations at grant date (a fair value approach for the TSR component and a face value approach discounted for distributions/and or dividends for the FCF component). The minimum total value of the grant, if the applicable performance measures are not met, is zero. 411,011 68,768 32 32 2016 Transurban Annual Report Remuneration report (continued) Value of performance awards vested and lapsed in FY16 The FY13 LTI plan vested on 13 August 2015 (performance period 1 July 2012 to 30 June 2015). The outcome of the performance tests were as follows: Test type TSR Cash Flow Overall vesting Result of test % units vest Transurban ranked 8 out of 31 companies (76.66%) 104.2 cents adjusted to 108.3 cents (100% vesting target was 106.5 cents) 100% 100% 100% Senior Executive Awards Vested S Charlton A Head 448,400 112,754 Value ($)1 1,848,114 427,605 1. Based on the fair value at date of grant. Financial close of the Transurban Queensland (‘TQ’) (formerly, Queensland Motorways) acquisition occurred in July 2015. The associated capital raising (the issue of 404.5 million new securities) occurred in May 2015. The timing of these events (two different financial years) impacted the calculation of the FCF for FY14 and the FCF performance calculation against the FCF targets for the three LTI plans on foot at that time (the FY12, FY13 and FY14 plans). Consistent with the treatment of the FY12 LTI plan, as disclosed in the FY14 Remuneration Report, the Board exercised its discretion to ensure that participants in the FY13 LTI plan were neither advantaged nor disadvantaged as a result of the TQ acquisition and associated capital raising. The Board exercised its discretion to, in effect, exclude the new securities issued from the number of securities used to calculate the FY14 FCF per security for the purposes of calculating the FCF outcome for the FY13 LTI plan. Interest income on the equity raised prior to financial close was similarly excluded from the calculation. The targets set at the beginning of the performance period (1 July 2012) were not adjusted. Value of performance awards vested and lapsed in FY17 Initial vesting calculations indicate that 100% of awards on issue for the FY14 plan will vest for all remaining participants. 6. Service agreements The remuneration and other terms of employment for the CEO and other senior executives are formalised in service agreements that have no specified term. Under these agreements, the CEO and other senior executives are eligible to participate in STI and LTI plans. Some other key aspects of the agreements in place for FY16 are outlined below: CEO Other senior executives Period of notice to terminate (executive) Period of notice to terminate (the Group)1 6 months 3 months 12 months 6 months 1. Payment in lieu of the notice period may be provided (based on the executive's fixed remuneration). The Group may also terminate at any time without notice for serious misconduct. 33 33 2016 Transurban Annual Report Remuneration report (continued) 7. Non-executive Director remuneration A. Remuneration policy The diagram below sets out the key objectives of the Group’s Non-executive Director remuneration policy and how they are achieved through the Group’s remuneration framework: Securing and retaining talented, qualified Directors Preserving independence and impartiality Aligning Director and security holder interests Director fee levels are set with regards to: the responsibilities and risks attached to the role, the time commitment and workload expected, the Director’s experience and expertise, and market benchmark data. Director remuneration consists of base (Director) fees and Committee fees. No element of Director remuneration is 'at risk' (i.e. fees are not based on the performance of the Group or individual Directors from year to year). Directors are encouraged to hold Transurban securities and the Board has recently endorsed guidelines in respect of Director security holdings. B. Remuneration arrangements The Remuneration and Human Resources Committee regularly reviews Non-executive Director remuneration arrangements, which includes periodic benchmarking against other publicly listed entities of similar size and complexity to Transurban. The amount of aggregate remuneration that may be paid to Non-executive Directors in any year is capped at a level approved by security holders. The current aggregate fee pool of $2,400,000 per year (inclusive of superannuation contributions) was approved by security holders at the 2010 AGM. A review of Non-executive Director fees (base Director and Committee fees) was undertaken during FY16 having regard to both the remuneration policy described above and market benchmark data. Following the review, certain fees were increased (effective 1 January 2016) in line with market benchmarks. A review of the aggregate fee pool was subsequently undertaken and as a result, the Board has approved that security holder approval be sought at the 2016 AGM to increase the aggregate fee pool to $3,000,000. The increase is required to ensure adequate headroom allowing the Board flexibility to make additional Non-executive Director appointments, and to facilitate appropriate and coordinated Board succession planning. Base Director and Committee fees per year are set out below: Board Fees Chair Member Committee Fees Audit and Risk Committee Chair Member Remuneration and Human Resources Committee Chair Member Nomination Committee 1 July 2015 1 January 2016 505,000 170,000 48,000 25,000 35,000 20,000 10,000 550,000 185,000 50,000 25,000 40,000 20,000 10,000 The Chair of the Board does not receive any additional fees for Committee responsibilities. The Chair of each Committee only receives the Chair fee (and not a member fee). Non-executive Directors are permitted to be paid additional fees for special duties or exertions. No such fees were paid during FY16. Non-executive Directors are also entitled to be reimbursed for all business related expenses, including travel, as may be incurred in the discharge of their duties. Non-executive Directors are not entitled to any retirement benefits. 34 34 2016 Transurban Annual Report Remuneration report (continued) C. Non-executive Director related party information All Non-executive Director related party relationships are based on normal commercial terms. None of the Non- executive Directors were, or are, involved in any procurement or other Board decision-making regarding the companies or firms with which they have an association. The Group is not required to make the following disclosures but for transparency reasons notes the following relationships and transactions: Director Related Party Services provided R Slater Mr Slater is a partner in the public policy practice group of Squire Patton Boggs (US) LLP. Transurban used Squire Patton Boggs (US) LLP during FY16 for various lobbying activities in the USA, and incurred US$180,000 for services during FY16. L Maxsted Mr Maxsted is Chairman and a Non-executive Director of Westpac Banking Corporation. Westpac provides a number of banking products and services to Transurban. N Chatfield S Mostyn Mr Chatfield is Chairman and a Non-executive Director of Seek Limited. Mr Chatfield is a Non-executive Director of Iron Mountain Inc. Seek provides employment advisory services to Transurban. Iron Mountain Inc. provides document management services to Transurban. Ms Mostyn is a Non-executive Director of Citigroup Pty Ltd. Ms Mostyn is a Non-executive Director of Virgin Australia Holdings Limited. Citigroup provides banking products and services to Transurban. Transurban uses air travel services provided by Virgin Australia. C O’Reilly Ms O’Reilly is a Non-executive Director of EnergyAustralia. EnergyAustralia is one of Transurban’s electricity providers in New South Wales and Queensland. 35 35 2016 Transurban Annual Report Remuneration report (continued) 8. Statutory tables A. Senior executive remuneration Short-term employee benefits Cash salary and fees Cash STI3 Non- monetary benefits4 Deferred STI5 Post- employment benefits Superannuation Long- term benefits Long service leave Share based benefits6 Total Equity awards Cash awards Current CEO S Charlton 2016 2015 2,102,392 2,045,112 1,193,475 1,160,975 13,024 5,814 1,120,400 592,517 19,308 18,783 8,463 – 1,821,975 1,939,196 Current other senior executives T Adams1 2016 2015 515,292 552,978 213,275 200,500 1,983 136,789 191,142 129,188 19,308 18,783 10,052 8,929 214,874 100,314 – – – – 6,279,037 5,762,397 1,165,926 1,147,481 J Aument2 2016 2015 668,904 656,643 286,157 266,525 1,459 1,608 361,400 134,454 W Ballantine 2016 2015 530,692 491,711 640,042 622,524 474,142 208,293 510,692 458,525 537,192 522,517 529,323 541,217 648,892 368,210 A Head 2016 2015 M Huey 2016 2015 S Johnson 2016 2015 L Tobin 2016 2015 V Vassallo 2016 2015 A Watson 2016 2015 TOTAL 2016 2015 276,375 239,450 222,375 300,400 214,750 72,825 211,450 191,375 187,700 233,250 301,500 262,300 225,350 126,475 2,034 123,974 4,306 2,444 1,784 770 2,869 1,685 2,012 1,724 2,065 1,724 1,829 1,001 228,708 108,383 298,267 132,485 48,550 – 182,983 93,892 213,725 73,225 250,958 91,092 84,317 – 14,521 12,548 19,308 18,783 19,308 18,783 19,308 9,392 19,308 18,783 19,308 18,783 19,308 18,783 19,308 10,957 – – – – 992,155 458,905 2,324,596 1,530,683 10,353 9,033 313,368 195,951 12,486 11,437 413,050 419,998 – – 291,326 159,956 9,963 8,620 2,168 – 2,344 – 304,768 191,708 348,614 229,019 360,869 232,625 – – 310,998 154,762 – – – – – – – – – – – – – – 1,380,838 1,187,285 1,609,834 1,508,071 1,049,860 451,236 1,242,033 964,588 1,310,719 1,078,518 1,466,367 1,147,741 1,290,694 661,405 7,157,563 3,332,407 33,365 2,980,450 6,467,730 3,054,075 277,533 1,355,236 188,293 164,378 55,829 4,379,842 992,155 19,119,904 38,019 3,623,529 458,905 15,439,405 1. Amounts shown as ‘cash salary and fees’ in 2015 for Tony Adams includes $58,824 in relocation costs from the USA to Australia. 2. Jennifer Aument is remunerated in USA Dollars. The amounts shown in the table above have been converted to Australian Dollars using the average exchange rate over the reporting period. Amounts disclosed as ‘cash salary and fees’ for FY15 includes $67,506 of annual leave cashed out. 3. The amount represents the cash STI payment to the senior executive for FY16, which will be paid in August 2016. 4. Non-monetary benefits include Group insurance and relocation allowances (where relevant). 5. A component of STI award is deferred into securities. In accordance with accounting standards, the deferred component will be recognised over the three year service period. The amount recognised in this table is the FY16 accounting charge for unvested grants. 6. In accordance with the requirements of the accounting standards, remuneration includes a proportion of the fair value of equity compensation granted or outstanding during the year (i.e. performance awards under the LTI plan). The fair value of equity instruments is determined as at the grant date and is progressively allocated over the performance period. The amount included as remuneration may be different to the benefit (if any) that senior executives may ultimately realise should the equity instruments vest. The fair value of performance awards at the date of their grant has been independently determined in accordance with accounting standards. The fair value of the performance awards has been valued applying a Monte Carlo simulation (using a Black-Scholes framework) to model Transurban’s security price and where applicable, the TSR performance against the comparator group performance. 36 36 2016 Transurban Annual Report Remuneration report (continued) B. Number of performance awards on issue as at 30 June 2016 Balance at start of year Granted during year as remuneration Matured and paid during year Lapsed or forfeited during year Balance at the end of year Current senior executives S Charlton1 T Adams J Aument W Ballantine A Head M Huey2 S Johnson L Tobin V Vassallo A Watson3 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 1,254,579 988,196 64,928 – 137,229 74,494 126,309 62,630 287,601 207,521 48,888 – 123,563 62,630 147,568 79,980 149,902 79,980 69,830 – 292,441 345,135 (527,152) (78,752) 55,019 64,928 65,155 62,735 56,603 63,679 67,857 80,080 50,784 48,888 54,545 60,933 57,273 67,588 61,749 69,922 68,768 69,830 – – – – – – (112,754) – (12,894) – – – – – – – (7,594) – – – – – – – – – – – – – – – – – – – – – 1,019,868 1,254,579 119,947 64,928 202,384 137,229 182,912 126,309 242,704 287,601 86,778 48,888 178,108 123,563 204,841 147,568 211,651 149,902 131,004 69,830 1. Scott Charlton’s number of performance awards granted during FY13 included 236,256 performance awards granted in September 2012 as a sign-on award, to vest, subject to his continued employment, in three equal tranches on the first, second and third anniversaries of his commencement with the Group. The first tranche (78,752) awards vested on 16 July 2013, the second tranche (78,752) awards vested on 16 July 2014 and the third and final tranche (78,752) awards vested on 16 July 2015. 2. Michele Huey received a pro-rated grant of performance awards in FY15 due to her commencement date of 19 January 2015. She also received a one-off equity grant of 25,788 awards recognising the equity awards forfeited when she ceased employment with her former employer. The one-off equity grant will vest, subject to continued employment, in two equal tranches on the first and second anniversaries of her commencement with the Group. The first tranche (12,894) awards vested 19 January 2016. 3. Adam Watson received a pro-rated grant of performance awards in FY15 due to his commencement date of 1 December 2014. He also received a one-off equity grant of 15,188 awards recognising the equity awards forfeited when he ceased employment with his former employer. The one- off equity grant will vest, subject to continued employment, in two equal tranches on the first and second anniversaries of his commencement with the Group. The first tranche (7,594) awards vested 1 December 2015. 37 37 2016 Transurban Annual Report Remuneration report (continued) C. Securities held by senior executives as at 30 June 2016 Current senior executives Balance at start of year Changes during year Balance at end of year S Charlton T Adams J Aument W Ballantine A Head M Huey S Johnson L Tobin V Vassallo A Watson 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 213,374 134,622 5,090 5,0901 – – 5,794 4,685 75,661 87,760 – – 30,099 43,763 – – 11,557 11,048 – – 696,979 78,752 4,278 – – – (2,110) 1,109 923 (12,099) 12,894 – 17,745 (13,664) 9,576 – 7,114 509 8,307 – 910,353 213,374 9,368 5,090 – – 3,684 5,794 76,584 75,661 12,894 – 47,844 30,099 9,576 – 18,671 11,557 8,307 – 1. Opening balance held prior to the senior executive becoming a member of KMP. 38 38 2016 Transurban Annual Report Remuneration report (continued) D. Remuneration paid to Non-executive Directors Short-term benefits Current Non-executive Directors L Maxsted N Chatfield R Edgar S Mostyn C O'Reilly P Scott R Slater2 Former Non-executive Directors I Smith3 Total 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2016 2015 2016 2015 2016 2015 Fees 508,192 462,071 237,492 226,321 230,992 217,321 190,028 183,570 194,365 185,643 56,317 246,575 217,181 17,191 155,973 1,681,152 1,648,080 Post-employment benefits Superannuation1 Total 19,308 18,783 19,308 18,783 19,308 18,783 18,053 17,439 18,465 17,636 5,144 – – 1,270 14,817 100,856 106,241 527,500 480,854 256,800 245,104 250,300 236,104 208,081 201,009 212,830 203,279 61,461 246,575 217,181 18,461 170,790 1,782,008 1,754,321 1. Superannuation contributions made on behalf of Non-executive Directors to satisfy the Group’s obligations under applicable superannuation guarantee legislation. 2. Rodney Slater is remunerated in USA Dollars. The amounts shown in the table above have been converted to Australian Dollars using the average exchange rate over the reporting period. 3. Ian Smith resigned as a Non-executive Director effective 10 August 2015. E. Securities held by Non-executive Directors as at 30 June 2016 Balance at start of year Changes during year Balance at end of year Current Non-executive Directors L Maxsted N Chatfield R Edgar S Mostyn C O'Reilly P Scott1 R Slater 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2016 2015 Former Non-executive Directors I Smith2 2016 2015 66,559 66,559 55,424 50,424 30,324 30,324 17,256 17,256 19,332 13,972 – – – 94,785 92,742 3,699 – 4,304 5,000 1,685 – 959 – 1,074 5,360 20,000 3,000 – (94,785) 2,043 70,258 66,559 59,728 55,424 32,009 30,324 18,215 17,256 20,406 19,332 20,000 3,000 – – 94,785 1. Peter Scott acquired his securities prior to his appointment as a Non-executive Director. 2. Ian Smith resigned as a Non-executive Director effective 10 August 2015. Balance removed due to departure from the Group. 39 39 2016 Transurban Annual Report Auditor PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. Non-audit services The Company has an "External Auditor Independence" policy which is intended to support the independence of the external auditor by regulating the provision of services by the external auditor. The external auditor will not be engaged to perform any service that may impair or be perceived to impair the external auditor's judgment or independence. The external auditor will only provide a permissible non-audit service where there is a compelling reason for it to do so. All non-audit services must be pre-approved by the CFO (services less than $5,000) or the Chair of the Audit and Risk Committee (in all other cases). The Board has considered the position and, in accordance with advice received from the Audit and Risk Committee, is satisfied that the provision of the non-audit services during the period is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: the Audit and Risk Committee reviews the non-audit services to ensure they do not impact the impartiality and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision making capacity for the Group, acting as advocate for the Group or jointly sharing economic risk and rewards. During the year the following fees were paid or payable for audit and non-audit services provided by the auditor of THL, its related practices and non-related audit firms: Amounts received or due and receivable by PricewaterhouseCoopers Audit and other assurance services: Audit and review of financial reports Other assurance services Other consulting services Total remuneration for PricewaterhouseCoopers Total auditors remuneration Indemnification and insurance 2016 $ 2015 $ 2,190,000 444,300 2,634,300 – 2,634,300 2,634,300 2,293,000 173,600 2,466,600 243,915 2,710,515 2,710,515 Each officer (including each director) of the Group is indemnified, to the maximum extent permitted by law, against any liabilities incurred as an officer of the Group pursuant to agreements with the Group. Each officer is also indemnified against reasonable costs (whether legal or otherwise) incurred in relation to relevant proceedings in which the officer is involved because the officer is or was an officer. The Group has arranged to pay a premium for a Director’s and officer’s liability insurance policy to indemnify Directors and officers in accordance with the terms and conditions of the policy. This policy is subject to a confidentiality clause which prohibits disclosure of the nature of the liability covered, the name of the insurer, the limit of liability and the premium paid for this policy. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 42. 40 40 2016 Transurban Annual Report 41 2016 Transurban Annual Report Auditor’s Independence Declaration As lead auditor for the audit of the Transurban Group, THT and TIL for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of the Transurban Group and the entities it controlled during the period, THT and the entities it controlled during the period and TIL and the entities it controlled during the period. Chris Dodd Partner PricewaterhouseCoopers Melbourne 9 August 2016 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 42 42 2016 Transurban Annual Report Transurban Holdings Limited ABN 86 098 143 429 Contents Section A: Group financial statements Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Section B: Notes to the Group financial statements Basis of preparation and significant changes B1 Corporate information Operating performance B4 Segment information B2 Summary of significant changes in the current period B5 Revenue Security holder outcomes B9 Earnings per stapled security B10 Dividends/ distributions and free cash B3 Basis of preparation B6 Significant items B7 Income tax B8 Working capital Capital and borrowings B11 Contributed equity B12 Reserves B13 Net finance costs B14 Borrowings B15 Derivatives and financial risk management Network summary B16 Intangible assets B17 Maintenance provision B18 Other liabilities – concession and promissory notes Group structure B19 Principles of consolidation B20 Material subsidiaries B21 Business combinations B22 Equity accounted investments B23 Non-controlling interests – other B24 Deed of cross and intragroup guarantees Items not recognised B25 Contingencies B26 Commitments B27 Subsequent events Other B28 Related party transactions B29 Key management personnel compensation B30 Remuneration of auditors B31 Parent entity disclosures Section C: Transurban Holdings Trust (‘THT’) and Transurban International Limited (‘TIL’) financial statements Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Section D: Notes to the THT and TIL financial statements Section E: Signed reports Directors’ declaration Independent auditor’s report to the stapled security holders 43 43 2016 Transurban Annual Report Section A: Group financial statements Transurban Holdings Limited for the year ended 30 June 2016 44 44 2016 Transurban Annual Report Transurban Holdings Limited Consolidated statement of comprehensive income for the year ended 30 June 2016 Revenue Expenses Employee benefits expense Road operating costs Construction costs Transaction and integration costs Corporate and other expenses Total expenses Earnings before depreciation, amortisation, net finance costs, equity accounted investments and income taxes Amortisation Depreciation Total depreciation and amortisation Net finance costs Share of net profits of equity accounted investments Loss before income tax Income tax benefit/(expense) Profit/(loss) for the year Profit/(loss) attributable to: Ordinary security holders of the stapled group - Attributable to THL - Attributable to THT/TIL Non-controlling interests - other Other comprehensive income Items that may be reclassified to profit or loss in the future Changes in the fair value of cash flow hedges, net of tax Share of other comprehensive income of equity accounted investments, net of tax Exchange differences on translation of US operations, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year is attributable to: Ordinary security holders of the stapled group - Attributable to THL - Attributable to THT/TIL Non-controlling interests – other Note B5 B16 B13 B22 B7 B23 2016 $M 2,210 (149) (309) (282) (131) (91) (962) 1,248 (527) (57) (584) (728) 17 (47) 69 22 44 55 99 (77) 22 (79) (11) (12) (102) (80) 48 (26) (102) (80) 2015 $M 1,860 (130) (243) (185) (429) (91) (1,078) 782 (513) (38) (551) (611) 17 (363) (10) (373) (57) (125) (182) (191) (373) (50) – (10) (60) (433) (81) (176) (176) (433) Earnings per security attributable to ordinary security holders of the stapled group: Basic and diluted earnings/(loss) per stapled security B9 Cents Cents 5.0 (9.5) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 45 45 2016 Transurban Annual Report ASSETS Current assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Total current assets Non-current assets Equity accounted investments Held-to-maturity investments Derivative financial instruments Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Derivative financial instruments Maintenance provision Distribution provision Other provisions Other liabilities Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Maintenance provision Other provisions Derivative financial instruments Other liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Accumulated losses Non-controlling interests held by security holders of the stapled group (THT/TIL) Equity attributable to security holders of the stapled group Non-controlling interests – other Total equity Transurban Holdings Limited Consolidated balance sheet for the year ended 30 June 2016 Note B8 B8 B15 B22 B15 B7 B16 B8 B14 B15 B17 B10 B14 B7 B17 B15 B11 B12 B23 2016 $M 2015 $M 834 122 – 956 971 369 121 268 1,097 19,248 22,074 23,030 410 405 17 94 516 31 132 1,605 12,468 981 826 47 393 252 14,967 16,572 6,458 1,422 (66) (3,129) 6,808 5,035 1,423 6,458 1,249 117 4 1,370 1,092 165 82 249 961 17,320 19,869 21,239 340 628 4 82 438 27 116 1,635 11,471 969 733 61 325 49 13,608 15,243 5,996 1,237 (70) (3,034) 6,636 4,769 1,227 5,996 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 46 46 2016 Transurban Annual Report Transurban Holdings Limited Consolidated statement of changes in equity for the year ended 30 June 2016 Attributable to security holders of the stapled group No. of securities M Contributed equity $M Reserves $M Accumulated losses $M Non-controlling interests– THT & TIL $M Non- controlling interests–other $M Total $M Total equity $M Balance at 1 July 2015 1,914 1,237 (70) (3,034) 6,636 4,769 1,227 5,996 Comprehensive income Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs1 Employee performance awards issued2 Distributions provided for or paid3 Distribution reinvestment plan4 Distributions to non- controlling interests5 – – – – – – 107 163 1 – 14 – 122 – – 22 – 185 – 4 4 – – – – – – 55 99 (77) 22 (81) (77) (25) (102) (26) 22 (102) (80) 843 1,006 356 1,362 44 – 44 – – 2 2 (139) (762) (901) – – (139) 115 137 – 198 – 244 – – – (58) 298 2 (901) 137 (58) 542 Balance at 30 June 2016 2,036 1,422 (66) (3,129) 6,808 5,035 1,423 6,458 1. During December 2015, the Group successfully completed the fully underwritten institutional and retail components of its renounceable 1 for 18 pro rata entitlement offer. The institutional component raised $726 million and the retail component raised $280 million at an issue price of $9.60 per security. The total proceeds from the entitlement offer (net of equity issue costs) were approximately $1,006 million and were used to fund the Group’s equity contribution for the AirportlinkM7 acquisition which reached financial close in April 2016, with the remainder used for general corporate purposes. In March 2016, the non-controlling partners in Transurban Queensland (Australian Super and Tawreed) contributed $356 million as their equity contribution for the acquisition of AirportlinkM7. The Group’s equity contribution into Transurban Queensland is eliminated upon consolidation. 2. From 2012 it is the Group’s policy that a portion of all Short Term Incentives issued to the CEO and other senior executives are deferred for a period of 2 years. In addition to the Short Term Incentives, Stapled Securities (including units in the Trust) were issued to executives under the Group’s Long Term Incentive share-based payment plans. These securities are held by the executive but will only vest in accordance with the terms of the plans. 3. Refer to note B10 for further details of dividends and distributions provided for or paid. 4. Under the distribution reinvestment plan, 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. 5. Distributions were paid during the period to the non-controlling interest partners in Airport Motorway Trust (Eastern Distributor) and Transurban Queensland Invest Trust (Transurban Queensland). The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 47 47 2016 Transurban Annual Report Transurban Holdings Limited Consolidated statement of changes in equity for the year ended 30 June 2016 Transurban Holdings Limited Consolidated statement of changes in equity for the year ended 30 June 2016 Attributable to security holders of the stapled group Attributable to security holders of the stapled group No. of No. of securities securities M M Contributed Contributed equity equity $M $M Reserves Reserves $M $M Accumulated Accumulated losses losses $M $M Non-controlling Non-controlling interests– interests– THT & TIL THT & TIL $M $M Non- Non- controlling controlling interests–other interests–other $M $M Total Total $M $M Total Total equity equity $M $M Balance at 1 July 2014 Balance at 1 July 2014 1,896 1,896 1,208 1,208 (44) (44) (2,843) (2,843) 7,383 7,383 5,704 5,704 258 258 5,962 5,962 Comprehensive income Comprehensive income Profit/(loss) for the year Profit/(loss) for the year – – – – – – (57) (57) (125) (125) (182) (182) (191) (191) (373) (373) – – (24) (24) – – (51) (51) (75) (75) 15 15 (60) (60) – – (24) (24) (57) (57) (176) (176) (257) (257) (176) (176) (433) (433) Other comprehensive income/(loss) Other comprehensive income/(loss) Total comprehensive income/(loss) Total comprehensive income/(loss) Transactions with Transactions with owners in their owners in their capacity as owners: capacity as owners: Contributions of equity, Contributions of equity, net of transaction net of transaction costs1 costs1 Employee performance Employee performance awards issued2 awards issued2 Distributions provided for or paid3 Distributions provided for or paid3 – – – – – – 1 1 – – Distribution reinvestment Distribution reinvestment plan4 plan4 Distributions to non- Distributions to non- controlling interests5 controlling interests5 Transactions with non- Transactions with non- controlling interests controlling interests 17 17 29 29 – – – – 18 18 – – – – 29 29 – – – – – – – – (2) (2) – – – – – – – – (2) (2) – – – – – – – – 1,342 1,342 1,342 1,342 1 1 (1) (1) – – (1) (1) (134) (134) (630) (630) (764) (764) – – (764) (764) – – – – – – 114 114 143 143 – – 143 143 – – – – (64) (64) (64) (64) (56) (56) (56) (56) (133) (133) (189) (189) (134) (134) (571) (571) (678) (678) 1,145 1,145 467 467 Balance at 30 June 2015 Balance at 30 June 2015 1,914 1,914 1,237 1,237 (70) (70) (3,034) (3,034) 6,636 6,636 4,769 4,769 1,227 1,227 5,996 5,996 1. In July 2014, the non-controlling partners in Transurban Queensland (Australian Super and Tawreed) contributed $1,331 million as their equity 1. In July 2014, the non-controlling partners in Transurban Queensland (Australian Super and Tawreed) contributed $1,331 million as their equity contribution for the acquisition of Transurban Queensland. The Group’s equity contribution into Transurban Queensland is eliminated upon contribution for the acquisition of Transurban Queensland. The Group’s equity contribution into Transurban Queensland is eliminated upon consolidation. The remaining $11 million is due to an equity contribution into DRIVe from the non-controlling partner during the period. consolidation. The remaining $11 million is due to an equity contribution into DRIVe from the non-controlling partner during the period. 2. From 2012 it is the Group’s policy that a portion of all Short Term Incentives issued to the CEO and other senior executives are deferred for a 2. From 2012 it is the Group’s policy that a portion of all Short Term Incentives issued to the CEO and other senior executives are deferred for a period of 2 years as detailed in the Remuneration Report. In addition to the Short Term Incentives, Stapled Securities (including units in the period of 2 years as detailed in the Remuneration Report. In addition to the Short Term Incentives, Stapled Securities (including units in the Trust) were issued to executives under the Group’s Long Term Incentive share-based payment plans as detailed in the Remuneration Report. Trust) were issued to executives under the Group’s Long Term Incentive share-based payment plans as detailed in the Remuneration Report. These securities are held by the executive but will only vest in accordance with the terms of the plans. These securities are held by the executive but will only vest in accordance with the terms of the plans. 3. Refer to note B10 for further details of distributions provided for or paid. 3. Refer to note B10 for further details of distributions provided for or paid. 4. Under the distribution reinvestment plan, holders of stapled securities may elect to have all or part of their distribution entitlements satisfied by 4. Under the distribution reinvestment plan, 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. the issue of new stapled securities rather than by cash. 5. Distributions were paid during the period to the non-controlling interest partners in Airport Motorway Trust (Eastern Distributor) and Transurban 5. Distributions were paid during the period to the non-controlling interest partners in Airport Motorway Trust (Eastern Distributor) and Transurban Queensland Invest Trust (Transurban Queensland). Queensland Invest Trust (Transurban Queensland). The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 48 48 48 2016 Transurban Annual Report Transurban Holdings Limited Consolidated statement of cash flows for the year ended 30 June 2016 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Payments for maintenance of intangible assets Transaction and integration costs related to acquisitions Other revenue Interest received Interest paid Income taxes paid Net cash inflow from operating activities Cash flows from investing activities Payments for held-to-maturity investments Payments for equity accounted investments Payments for intangible assets Payments for property, plant and equipment Distributions received from equity accounted investments Payments for acquisition of subsidiaries, net of cash acquired Net cash outflow from investing activities Cash flows from financing activities Proceeds from equity issued to non-controlling interests Proceeds from issues of stapled securities Proceeds from borrowings (net of costs) Payment for acquisition of non-controlling interest Repayment of borrowings Dividends and distributions paid to the Group's security holders Distributions paid to non-controlling interests Net cash (outflow)/inflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the year Note (a) B21 B10 B10 B8 2016 $M 2,055 (624) (52) (23) 66 31 (543) – 910 (187) – (437) (78) 127 (1,869) (2,444) 356 1,006 3,896 – (3,401) (689) (55) 1,113 (421) 1,249 6 834 (a) Reconciliation of profit/(loss) after income tax to net cash flow from operating activities Profit/(loss) for the year Depreciation and amortisation Non-cash share-based payments expense Net construction revenue Non-cash net finance costs Share of profits of equity accounted investments Change in operating assets and liabilities: Decrease in trade and other receivables Increase in concession and promissory note liability Increase in operating creditors and accruals Decrease in other operating provisions Decrease in provision for income taxes payable Movement in deferred taxes Increase in maintenance provision Net cash inflow from operating activities B22 2016 $M 22 584 3 – 87 (17) 5 21 158 25 (2) (67) 91 910 2015 $M 1,782 (574) (91) (429) 46 79 (506) (3) 304 (108) (2) (203) (77) 95 (6,397) (6,692) 1,342 – 6,562 (189) (2,361) (570) (57) 4,727 (1,661) 2,879 31 1,249 2015 $M (373) 551 7 (5) 52 (17) 1 (10) 52 (1) 3 16 28 304 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 49 49 2016 Transurban Annual Report Section B: Notes to the Group financial statements Transurban Holdings Limited for the year ended 30 June 2016 for the year ended 30 J 50 50 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Basis of preparation and significant changes B1 Corporate information Transurban Holdings Limited (‘the company’, ‘the parent’ or ‘THL’) is a company incorporated in Australia and limited by shares that are publicly traded on the Australian Securities Exchange. These financial statements have been prepared as a consolidation of the financial statements of Transurban Holdings Limited and its controlled entities (‘Transurban Group’ or ‘the Group’). The controlled entities of THL include the other members of the stapled group being Transurban International Limited and its controlled entities (‘TIL’) and Transurban Holding Trust and its controlled entities (‘THT’). The equity securities THL, THT and TIL are stapled and cannot be traded separately. Entities within the Group are domiciled and incorporated in Australia and the United States of America. The consolidated financial statements of Transurban Group for the year ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 9 August 2016. Directors have the power to amend and reissue the financial report. B2 Summary of significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: Equity issuance During December 2015, the Group successfully completed the fully underwritten institutional and retail components of its renounceable 1 for 18 pro rata entitlement offer. The institutional component raised $726 million and the retail component raised $280 million at an issue price of $9.60 per security. The total proceeds from the entitlement offer were $1,006 million and were used to fund the Group’s equity contribution to the Transurban Queensland acquisition of AirportlinkM7 which reached financial close in April 2016, with the remainder used for general corporate purposes. Transurban Queensland acquisition of AirportlinkM7 On 1 April 2016, Transurban Queensland, in which Transurban has a 62.5 per cent interest, acquired AirportlinkM7 for $1,870 million, plus stamp duty of $108 million and transaction costs of $10 million. The details of the assets and liabilities acquired on 1 April 2016 have been detailed in note B21 and are reflected in the operating results and financial position of the Group from 1 April 2016. B3 Basis of preparation The Group financial statements are general purpose financial statements which: Have been prepared in accordance with the Corporations Act 2001, Australian accounting standards, and other authoritative pronouncements of the Australian Accounting Standards Board; Have adopted all accounting policies in accordance with Australian accounting standards, and where a standard permits a choice in accounting policy, the policy adopted by the Group has been disclosed in these financial statements; Have applied the option under ASIC Corporations (Stapled Group Reports) Instrument 2015/838 to present the consolidated financial statements in one section (Section A), and all other reporting group members in a separate section (Section C). Do not early adopt any accounting standards or interpretations that have been issued or amended but are not yet effective; Comply with International financial reporting standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’); Have been prepared under the historical cost convention, as modified by the revaluation of other financial assets and liabilities (including derivative financial instruments); Are presented in Australian dollars, which is THL’s functional and presentation currency. Have been rounded to the nearest million dollars, unless otherwise stated, in accordance with ASIC Corporations (Rounding in Financial/Director’s Reports) Instrument 2016/191; and The presentation of comparative amounts have been restated, where applicable, to conform to the current period presentation. 51 51 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B3 Basis of preparation (continued) Going concern The financial report has been prepared on a going concern basis, which assumes the continuity of normal operations. This is based on the following: The Group has generated positive cash inflows from operating activities of $910 million (2015: $304 million), after payment of $23 million (2015: $429 million) in transaction and integration costs relating to acquisitions; The Group has available a total of $527 million of undrawn borrowing facilities with maturities beyond 12 months across a number of finance providers. The Group has a further $349 million of undrawn borrowing facilities, the majority of which are expected to be refinanced within the next 12 months. Foreign currency translation Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognised in the fair value reserve in equity. Foreign operations The results and financial position of all of the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities are translated at the closing rate at the reporting date; income and expenses are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are taken to other comprehensive income. New and amended standards The Group has not changed or amended any accounting policies as a result of new or revised accounting standards during the annual reporting period commencing 1 July 2015. There were no new or amended accounting standards issued during the annual reporting period that are effective for the report period commencing 1 July 2015. 52 52 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B3 Basis of preparation (continued) Accounting standards and interpretations issued but not yet effective Certain new accounting standards and interpretations have been published but are not mandatory for 30 June 2016 reporting periods. The Group's assessment of the impact of these new standards and interpretations is set out below. Reference Description Impact on the Group AASB 9 Financial instruments AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. It also includes an expected loss impairment model and a reformed approach to hedge accounting. AASB 15 Revenue from contracts with customers AASB 16 Leases AASB 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. AASB 15 supersedes a number of current revenue standards. AASB 16 modifies accounting for leases by removing the current distinction between operating and financing leases. The standard requires recognition of an asset and a financial liability for all leases, with exemptions for short term and low value leases. AASB 2015-1 These amendments clarify various Australian accounting standards. AASB 2015-2 These amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. Management has undertaken an assessment of the impact of this standard on the Group’s financial statements and does not believe that the impact will be significant to the accounting for the Group’s financial assets and liabilities. Management has undertaken an assessment of the impact of this standard and does not believe that the impact will be material. Management has undertaken an assessment of the impact of this standard on the Group’s financial statements and does not believe that the impact will be significant to the accounting of leases in the Group financial statements. The impact of the application of this standard will not be material to the Group. The impact of the application of this standard will not be material to the Group. Application of the standard 1 January 2018 Application by the Group 1 July 2018 1 January 2018 1 July 2018 1 January 2019 1 July 2019 1 January 2016 1 July 2016 1 January 2016 1 July 2016 53 53 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B3 Basis of preparation (continued) Accounting standards and interpretations issued but not yet effective (continued) Reference Description Impact on the Group AASB 2016-1 AASB 2016-2 Amendment to AASB 112 clarifies the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. They do not change the underlying principles for the recognition of deferred tax assets. Amendment to AASB 107 introduces additional disclosures that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The Group for tax purposes records all assets at cost and does not revalue assets to fair value. Therefore the impact of the application of the new standard is not expected to be material. Although a formal assessment has not been completed the impact of the application of the new standard will be additional disclosure in the Group financial statements about the financial liabilities held by the Group. Application of the standard 1 January 2017 Application by the Group 1 July 2017 1 January 2017 1 July 2017 Critical accounting estimates and judgements Estimates and judgements are continually evaluated by management and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are found in the following notes: Income taxes Fair value of derivatives and other financial instruments Note B7 Note B15 Estimated impairment of intangible assets and cash generating units Note B16 Provision for maintenance expenditure Valuation of promissory notes and concession notes Note B17 Note B18 54 54 2016 Transurban Annual Report 55 2016 Transurban Annual ReportTransurban Holdings LimitedNotes to the consolidated financial statementsfor the year ended 30 June 201655Operating performanceB4Segment information In the segment information provided to the Executive Committee (chief operating decision maker), segments are defined by the geographical networks in which the Group operates being Victoria (‘VIC’), New South Wales (‘NSW’), Queensland (‘QLD’) and the Greater Washington Area(‘GWA’). The Group's corporate function is not an operating segment under the requirements of AASB 8 as its revenue generating activities are only incidental to the business. The Executive Committee assess the performance of the networks based on a measure of proportional earnings before interest, tax, depreciation and amortisation expenses (‘Proportional EBITDA’) excluding the impact of significant items (‘Underlying proportional EBITDA’). This reflects the contribution of each network in the Group in the proportion of Transurban's equity ownership. Interest income and expenses are allocated to the networks where the amounts are related specifically to the assets. Otherwise they are allocated to the Corporate function. Significant items are those items where their nature and amount is considered material to the financial statements and not in the ordinary course of business. Refer to note B6 for further details. The diagram below shows the assets included in each geographical network, together with the ownership interests held by the Group for the current financial year:1.Following theacquisition of the non-controlling interest in the GWAassets on 29 June 2015, the proportional ownership of the GWAassets is reported at 100% from July 2015. Prior to this, the proportional ownership interest in the 95 Express Lanes and 495 Express Lanes were 77.5% and 94.0% respectively.2.AirportlinkM7 was acquired on 1 April 2016 (refer note B21).3.Westlink M7 and NorthConnexform the NorthWestern Roads Group. Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B4 Segment information (continued) Segment information – proportional income statement 2016 $M Toll revenue Other revenue Total proportional revenue Underlying proportional EBITDA Significant items Proportional EBITDA 2015 $M Toll revenue1 Other revenue Total proportional revenue Underlying proportional EBITDA2 Significant items Proportional EBITDA NSW QLD GWA Corporate and other VIC 660 21 681 564 – 564 799 28 827 637 – 637 VIC NSW 615 20 635 523 – 523 701 32 733 558 – 558 313 7 320 218 (82) 136 QLD 265 3 268 185 (262) (77) 174 – 174 86 – 86 – 4 4 (25) – (25) GWA Corporate and other 75 6 81 33 – 33 – 9 9 (10) (10) (20) Total 1,946 60 2,006 1,480 (82) 1,398 Total 1,656 70 1,726 1,289 (272) 1,017 1. The presentation of comparative amounts has been restated to reflect the change of toll revenue to now include toll revenue and service and fee revenue. 2. The presentation of comparative amounts has been restated to conform with the current period presentation of technology license fees, which were previously presented in Corporate. Reconciliation of segment information to statutory financial information The proportional results presented above are different from the statutory financial results of the Group due to the proportional presentation of each asset’s contribution to each geographical network. Segment revenue Revenue from external customers is through toll and fee revenues earned on toll roads. There are no material inter-segment revenues. Segment revenue reconciles to total statutory revenue as follows: Note B5 Total segment revenue (proportional) Add: Revenue attributable to non-100% owned consolidated assets Construction revenue from road development activities Less: Revenue of non-100% owned equity accounted assets Total statutory revenue Proportional EBITDA Proportional EBITDA reconciles to profit/(loss) before income tax as follows: Proportional EBITDA Add: EBITDA attributable to non-100% owned consolidated assets Less: Proportional EBITDA of non-100% owned equity accounted assets Statutory profit before depreciation, amortisation, net finance costs, equity accounted investments and income taxes Statutory net finance costs Statutory depreciation and amortisation Share of net profit from equity accounted investments (Loss)/profit before income tax 56 56 2016 $M 2,006 224 282 (302) 2,210 2016 $M 1,398 106 (256) 1,248 (728) (584) 17 (47) 2015 $M 1,726 200 185 (251) 1,860 2015 $M 1,017 (21) (214) 782 (611) (551) 17 (363) 2016 Transurban Annual Report B5 Revenue Toll revenue1 Construction revenue Other revenue Total revenue Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 2016 $M 1,870 282 58 2,210 2015 $M 1,611 190 59 1,860 1. The presentation of comparative amounts has been restated to reflect the change of toll revenue to now include toll revenue and service and fee revenue. Accounting policy The Group generates the following types of revenue: Revenue type Recognition Toll revenue Recognised when the charge is incurred by the user and the amount is determined to be recoverable by the Group. Construction revenue Revenue for the construction of service concession infrastructure assets is recognised in accordance with the percentage of completion method, which is measured by reference to costs incurred to date as a percentage of total forecast costs for each project. Other revenue Includes management fee revenue, business development revenue and other road revenue, and is recognised to the extent that incurred costs will be recovered. B6 Significant items Significant items are those items where their nature and amount is considered material to the financial statements and not in the ordinary course of business. Such items which have been included in transaction and integration costs within the Group's result for the year and are detailed below: 2016 2015 Statutory $M Proportional $M Statutory $M Proportional $M (a) (a) (b) (a) Stamp duty on acquisitions Other transaction fees on acquisitions Integration costs relating to acquisitions Significant items included within EBITDA Significant items included within net finance costs Total significant items Income tax benefit associated with transaction and integration costs of acquisitions Net significant items (a) Stamp duty and other transaction fees 108 10 13 131 5 136 (10) 126 67 6 9 82 3 85 (6) 79 384 23 22 429 – 429 (11) 418 240 18 14 272 – 272 (7) 265 The Transurban Queensland consortium acquisition of AirportlinkM7 was completed on 1 April 2016. The consortium incurred stamp duty and other transaction costs during the year ended 30 June 2016 as a result of the acquisition. The stamp duty is payable in the year ended 30 June 2017. Significant items included within finance costs relate to premiums paid on interest rate swap option contracts entered into as part of the Airportlink M7 acquisition that were not exercised. The acquisition of Queensland Motorways Group (Transurban Queensland) by a Transurban-led consortium was completed on 2 July 2014. The consortium incurred stamp duty and other transaction costs during the year ended 30 June 2015 as a result of the acquisition. (b) Integration costs relating to Transurban Queensland and AirportlinkM7 Since acquisition, the Group has incurred costs to integrate Transurban Queensland and AirportlinkM7 into Transurban. These costs include employee costs, consulting and legal fees. 57 57 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B7 Income tax Income tax expense/(benefit) Current tax Deferred tax Under provision in prior years Deferred income tax expense/(benefit) included in income tax expense/(benefit) comprises: (Increase) in deferred tax assets Decrease in deferred tax liabilities Reconciliation of income tax expense/(benefit) to prima facie tax payable (Loss)/profit before income tax expense/(benefit) Tax at the Australian tax rate of 30.0% (2015: 30.0%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Trust income not subject to tax Trust losses not claimable Equity accounted results Tax rate differential Non-deductible interest Non-deductible stamp duty Prior year tax losses recognised Deferred tax balance derecognised on disposal Sundry items Under/(over) provision in prior years Income tax expense/(benefit) Tax expense/(income) relating to items of other comprehensive income Cash flow hedges Deferred tax assets and liabilities 2016 $M (70) (24) 25 (69) (68) 44 (24) 2016 $M (47) (14) (52) – 13 (9) 21 – (56) – 3 25 (69) (56) (56) 2015 $M (24) 23 11 10 (62) 85 23 2015 $M (363) (109) – 35 13 13 13 25 – 8 1 11 10 (6) (6) The balance comprises temporary differences attributable to: Provisions Current and prior year losses Fixed assets/intangibles Concession fees and promissory notes Cash flow hedges Other Tax assets/(liabilities) Set-off of tax Net tax assets/(liabilities) Movements: Opening balance at 1 July Credited to the statement of comprehensive income Credited/(charged) to equity Acquired Foreign exchange movements Transfer from deferred tax assets/liabilities Other Closing balance at 30 June Deferred tax assets/(liabilities) to be recovered after more than 12 months 58 58 Assets 2016 $M 310 845 693 – 152 4 2,004 (907) 1,097 1,881 68 67 4 8 (65) 41 2,004 2,004 2015 $M 258 729 773 – 108 13 1,881 (920) 961 900 62 (36) 873 15 72 (5) 1,881 1,881 Liabilities 2016 $M 2015 $M – – (1,423) (369) (96) – (1,888) 907 (981) (1,889) (44) (15) – (6) 65 1 (1,888) (1,888) – – (1,434) (368) (87) – (1,889) 920 (969) (1,500) (85) 48 (264) (12) (72) (4) (1,889) (1,889) 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B7 Income tax (continued) Accounting policy The income tax expense/benefit for the period is the tax payable or benefit on the current period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. The Transurban stapled group comprises two corporate entities (THL and TIL) and a trust (THT). THT operates as a flow-through trust, and is not liable to pay tax itself. Instead, security holders pay tax on the distributions they receive from the trust at their individual marginal tax rates. The Group is structured in this way because the initial heavy capital investment and associated debt funding required for infrastructure investments results in accounting losses being generated in the initial years which would otherwise prevent a company from paying dividends. The trust enables distributions to be made to security holders throughout the life of the asset. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. Investment allowances Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets (investment allowances). The Group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits that are carried forward as tax losses. Tax consolidation legislation The Transurban Group has adopted the Australian tax consolidation legislation for THL and its wholly-owned Australian entities from 1 July 2005. All entities within the Australian tax consolidated groups continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidation group is a separate taxpayer within the tax consolidated group. 59 59 2016 Transurban Annual Report 60 2016 Transurban Annual ReportTransurban Holdings LimitedNotes to the consolidated financial statementsfor the year ended 30 June 201660B7Income tax (continued)Tax consolidation legislation (continued) The tax consolidated groups within the Group are summarised as follows:1.Entity is classified as a partnership for tax purposes.2.There are no tax groups under THT.THL tax consolidated groupThe entities in the THL tax consolidated group entered into a tax sharing agreement (‘TSA’) effective from 29 April 2009.The entities in the THL tax consolidated group have also entered into a tax funding agreement (‘TFA’) effective from 1 July 2008. Under the TFA the wholly-owned entities fully compensate THL for any current tax payable assumed and are compensated by THL for any current tax receivable and deferred tax assets relating to tax losses. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.The amount receivable/payable under the TFA is calculated at the end of the financial year for each wholly-owned entity. THL determinesand communicates the amount payable/receivable to each wholly-owned entity along with the method of calculation and any other information deemed necessary.Transurban Queensland tax consolidated groupThe entities in the Transurban Queensland Holdings 1 Pty Ltd (‘TQH1’) tax consolidated group entered into a TSA effective from 2 July 2014. The entities in the TQH1 tax consolidated group have also entered into a TFA effective from 2 July 2014. APL HoldCo Pty Ltd (‘AirportlinkM7’)and its controlledentities entered the Transurban Queensland tax consolidated group effective from 23 November 2015.Under the TFA the wholly-owned entities fully compensate TQH1 for any current tax payable assumed and are compensated by TQH1 for any current tax receivable and deferred tax assets relating to tax losses. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities financial statements.The amount receivable/payable under the TFA is calculated at theend of the financial year for each wholly-owned entity. TQH1 determines and communicates the amount payable / receivable to each wholly-owned entity along with the method of calculation and any other information deemed necessary. Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B7 Income tax (continued) Transurban DRIVe tax consolidated group Transurban DRIVe Holdings LLC (‘TDH’) is the head company of the DRIVe tax consolidated group. The DRIVe tax consolidated group is consolidated for US tax purposes in the sense that the 100% subsidiaries of TDH have elected to be treated as disregarded entities for US tax purposes. This treatment means that those entities are ignored for US tax purposes and that TDH, as head entity, carries any tax liability or benefits arising in the group. The DRIVe tax consolidated group currently owns partnership interests in both 495 Express Lanes and 95 Express Lanes and includes its share of each asset’s profits or losses in its US tax return. The acquisition of the non-controlling interest on 29 June 2015 had no impact on the composition of the Transurban DRIVe tax consolidated group. Goods and Services Tax (‘GST’) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. Key estimate The Group is subject to income taxes in Australia and the USA. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made. The Group has recognised deferred tax assets relating to carried forward tax losses to the extent there are sufficient taxable temporary differences relating to the same taxation authority against which the unused tax losses can be utilised. However, the utilisation of tax losses also depends on the ability of the Group to satisfy certain tests at the time the losses are recouped. In the USA tax losses generally expire after a 20 year period. Management has reviewed the potential future taxable profits and has recognised deferred tax assets in relation to tax losses. 61 61 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B8 Working capital The Group’s working capital balances are summarised as follows: Current assets Cash and cash equivalents Trade receivables Other receivables Prepayments Current liabilities Trade payables and accruals Legacy Way consideration payable Stamp duty payable on AirportlinkM7 acquisition Net working capital Cash and cash equivalents 2016 $M 834 76 35 11 122 956 (302) – (108) (410) 546 2015 $M 1,249 61 45 11 117 1,366 (222) (118) – (340) 1,026 For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities. All cash balances are interest bearing. The amount shown in cash and cash equivalents includes $376 million not available for general use at 30 June 2016 (2015: $202 million) of which $209 million (2015: $140 million) belongs to TIL. This comprises amounts required to be held under maintenance and funding reserves and prepaid tolls, which are not available for general use. Trade and other receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. Trade receivables are due for settlement no more than 30 days from revenue recognition. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be unrecoverable are written off by reducing the carrying amount of trade debtors directly. An allowance for impairment is used when there is evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the allowance for impairment is the difference between the carrying amount and the amount expected to be recoverable. The additional amount of the allowance for doubtful debtors is recognised in profit or loss. As at 30 June 2016, the Group held an allowance for doubtful debtors of $2 million (2015: $7 million), recognised for current trade receivables that were considered potentially unrecoverable. As at 30 June 2016, trade receivables of $20 million (2015: $19 million) were overdue but the Group still believe that these overdue amounts will be received in full. The other classes within trade and other receivables do not contain amounts that are considered to be potentially unrecoverable. The carrying amount of trade and other receivables approximates their fair value. 62 62 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Security holder outcomes B9 Earnings per stapled security Reconciliation of earnings used in calculating earnings per security Profit/(loss) attributable to ordinary security holders of the stapled group ($M) Weighted average number of securities (M) Basic and diluted earnings per security attributable to the ordinary security holders of the stapled group (Cents) 2016 99 1,982 5.0 2015 (182) 1,908 (9.5) B10 Dividends/distributions and free cash Dividends/distributions paid by the Group 2015 Declared 23 May 2014 Franked THL Franked THT Unfranked THT Declared 3 December 20141 Franked THL Unfranked THT Total paid FY15 2016 Declared 15 May 20151 Franked THL Unfranked THT Declared 24 November 20152 Franked THL Unfranked THT Total paid FY16 Dividends/distributions payable by the Group Declared 24 May 20162 Franked THL Unfranked THT 1. Total declared FY15 is $764 million. 2. Total declared FY16 is $901 million. Total $M Paid in cash $M Settled in securities $M Cents Date paid/ payable 19 47 274 340 68 305 373 713 66 326 392 68 366 434 826 71 396 467 3 39 227 269 42 259 301 570 55 269 324 57 308 365 689 – – – 16 8 47 71 26 46 72 143 11 57 68 11 58 69 137 – – – 1.0 2.5 14.5 18.0 3.5 16.0 19.5 37.5 3.5 17.0 20.5 3.5 19.0 22.5 43.0 3.5 19.5 23.0 14 August 2014 13 February 2015 14 August 2015 12 February 2016 12 August 2016 63 63 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B10 Dividends/distributions and free cash (continued) Distribution policy and free cash calculation The Group's distribution policy is to align distributions with free cash from operations. The Group calculates free cash as follows: Cash flows from operating activities Add back transaction and integration costs related to acquisitions (non 100% owned entities) Add back payments for maintenance of intangible assets Less cash flow from operating activities from consolidated non 100% owned entities Less allowance for maintenance of intangible assets for 100% owned assets Adjust for distributions and interest received from non 100% owned entities M1 Eastern Distributor distribution M5 distribution and term loan note interest Transurban Queensland distribution and shareholder loan note interest NWRG distribution and M7 term loan note interest Free cash Weighted average securities on issue (millions)1 Free cash per security (cents) – weighted average securities 1. The weighting applied to securities is based on their eligibility for distributions during the year. Franking credits Franking credits available for subsequent periods based on a tax rate of 30.0% (2015: 30.0%) 2016 $M 910 23 52 (284) (60) 44 39 108 94 926 1,978 46.8 2016 $M 193 2015 $M 304 419 91 (338) (11) 31 67 118 87 768 1,910 40.2 2015 $M 246 Distribution provision A provision for distribution is recognised for any distribution declared and authorised on or before the end of the reporting period, but not distributed by the end of the reporting period. These distributions are provided for once they are approved by the board, are announced to equity holders and are no longer at the discretion of the entity. Movements in distribution provision Movements in the distribution provision during the financial year are set out below: Balance at 1 July 2014 Additional provision recognised Amounts paid Amounts reinvested Balance at 30 June 2015 Additional provision recognised Amounts paid Amounts reinvested Balance at 30 June 2016 Distribution to security holders $M Distributions to non-controlling interest – other $M 340 764 (570) (143) 391 901 (689) (137) 466 40 64 (57) – 47 58 (55) – 50 Total $M 380 828 (627) (143) 438 959 (744) (137) 516 64 64 2016 Transurban Annual Report Capital and borrowings B11 Contributed equity Fully paid stapled securities Stapled securities Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 2016 $M 1,422 1,422 2015 $M 1,237 1,237 Stapled securities are classified as equity and entitle the holder to participate in distributions and on winding up of the Group in proportion to the number of securities held. Every holder of a stapled security present at a meeting, in person or by proxy, is entitled to one vote. The issued units of the Group are made up of a parcel of stapled securities, each parcel comprising one share in THL, one unit in THT and one share in TIL. The individual securities comprising a parcel of stapled securities cannot be traded separately. Other contributed equity attributable to security holders of the Group relating to THT and TIL of $10,822 million is included within non-controlling interests – THT / TIL. B12 Reserves Balance 1 July 2014 Revaluation – gross Deferred tax Currency translation differences Transfers to profit or loss Balance 30 June 2015 Revaluation – gross Deferred tax Share of other comprehensive income of equity accounted investments, net of tax Balance 30 June 2016 Cash flow hedges $M (55) (43) 6 – (2) (94) 18 (2) Share-based payments $M 2 (2) – – – – – – Foreign currency translation $M 8 – – 15 – 23 (1) – Transactions with non- controlling interests $M 1 – – – – 1 – – (11) (89) – – – 22 – 1 Total $M (44) (45) 6 15 (2) (70) 17 (2) (11) (66) Nature of reserves Purpose of reserves Cash flow hedges Used to record gains or losses on cash flow hedging instruments, which are used by the Group to mitigate the risk of movements in exchange rates and interest rates. Amounts are reclassified to profit or loss when the transaction to which the hedge is linked (such as the payment of interest) affects profit or loss. Share-based payments Used to recognise the fair value of long-term incentives issued but not exercised. Foreign currency translation Exchange differences arising on translation of the US operations of the Group are recognised in this reserve. Transactions with non-controlling interests The Group uses the economic entity approach when accounting for transactions with non-controlling interests. 65 65 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B13 Net finance costs Finance income Interest income on held-to-maturity investments Interest income on bank deposits Unwind of discount on liabilities – promissory and concession notes Total finance income Finance costs Interest and finance charges paid/payable Unwind of discount on liabilities – promissory and concession notes Unwind of discount on liabilities – other liabilities Unwind of discount on liabilities – maintenance provision Net foreign exchange losses Total finance costs Net finance costs 2016 $M 23 23 – 46 (698) (19) (11) (41) (5) (774) (728) 2015 $M 41 14 13 68 (625) – – (43) (11) (679) (611) An additional $2 million (2015: $10 million) of financing costs have been capitalised and included in the carrying value of assets under construction. B14 Borrowings Current Capital markets debt U.S. private placement Term debt Total current borrowings Non-current Working capital facilities Capital markets debt U.S. private placement Term debt Syndicated facilities TIFIA Shareholder loan notes Total non-current borrowings Total borrowings Accounting policy 2016 $M – 129 276 405 60 5,308 2,078 3,535 – 1,167 320 12,468 2015 $M 500 128 – 628 530 4,226 1,239 3,883 245 1,067 281 11,471 12,873 12,099 Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as finance income or finance costs. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. 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 specifically identifiable borrowing costs are capitalised into the cost of the asset. Borrowing costs include interest on short-term and long-term borrowings. Costs incurred in connection with the arrangement of borrowings are capitalised and amortised over the effective period of the funding. 66 66 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B14 Borrowings (continued) Financing arrangements and credit facilities Credit facilities are provided as part of the overall debt funding structure of the Group. The drawn component of each facility is shown below: Corporate debt Working capital facilities drawn AUD 125m facility AUD 125m facility AUD 100m facility AUD 100m facility AUD 125m facility AUD 100m facility Net capitalised borrowing costs Capital markets debt Domestic wrapped bond AUD 300m Domestic unwrapped bond AUD 200m Domestic wrapped bond AUD 300m EMTN CAD 250m EMTN EUR 500m EMTN EUR 600m EMTN EUR 500m US 144A USD 550m Net capitalised borrowing costs Syndicated facilities Syndicated debt USD 93m1 Syndicated debt AUD 125m1 U.S. private placement Aug 2005 – Tranche A USD 98m Nov 2006 – Tranche A USD 43m (plus accreted interest) Dec 2004 – Tranche B USD 39m Aug 2005 – Tranche B USD 126m Nov 2006 – Tranche B USD 136m (plus accreted interest) Dec 2004 – Tranche C USD 109m Dec 2004 – Tranche D AUD 72m Aug 2005 – Tranche C USD 157m Nov 2006 – Tranche C USD 121m (plus accreted interest) Nov 2006 – Tranche D USD 50m (plus accreted interest) Net capitalised borrowing costs Maturity Carrying value 2016 $M 2015 $M Aug 2016 Aug 2016 Dec 2016 Apr 2017 Jun 2017 Jun 2018 Nov 2015 Jun 2016 Nov 2017 Mar 2019 Oct 2020 Sep 2024 Aug 2025 Feb 2026 May 2017 Aug 2017 Aug 2015 Nov 2016 Dec 2016 Aug 2017 Nov 2018 Dec 2019 Dec 2019 Aug 2020 Nov 2021 Nov 2026 – – – – – 62 (2) – – 300 260 746 896 746 741 (27) – – – 77 52 169 244 146 72 211 218 91 (1) 124 88 94 91 118 – (2) 300 200 300 262 728 874 728 – (23) 120 125 128 74 51 164 236 141 72 204 211 88 (2) Total corporate debt, net of capitalised borrowing costs 5,001 5,494 1. These facilities were repaid during FY16. 67 67 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B14 Borrowings (continued) Financing arrangements and credit facilities (continued) Non-recourse debt Working capital facilities drawn Transurban Queensland Finance – facility AUD 25m Capital markets debt Airport Motorway Trust – Domestic bond AUD 300m Transurban Queensland Finance – Domestic bond AUD 250m Transurban Queensland Finance – EMTN CHF 200m Transurban Queensland Finance – Domestic bond AUD 200m 95 Express Lanes – Private activity bonds USD 72m 95 Express Lanes – Private activity bonds USD 170m 495 Express Lanes – Private activity bonds USD 225m Net capitalised borrowing costs U.S. private placement Transurban Queensland Finance – Sep 2015 – Tranche A USD 155m Transurban Queensland Finance – Sep 2015 – Tranche B USD 230m Transurban Queensland Finance – Sep 2015 – Tranche C USD 256m Transurban Queensland Finance – Sep 2015 – Tranche D AUD 70m Net capitalised borrowing costs Term debt Transurban Queensland Finance – Bridge facility AUD 350m3 Clem7 – Term debt AUD 270m3 Lane Cove Tunnel Trust – Term debt AUD 260m2 Cross City Tunnel Trust – Term debt AUD 277m Transurban Queensland Finance – Capex facility AUD 158m Transurban Queensland Finance – Term debt AUD 420m4 Hills Motorway Trust – Term debt AUD 405m Airport Motorway Trust – Term debt AUD 225m TQ APL Finance – Term debt AUD 475m Transurban Queensland Finance – Term debt AUD 750m Hills Motorway Trust – Term debt AUD 350m Lane Cove Tunnel Trust – Term debt AUD 160m TQ APL Finance – Term debt AUD 475m Lane Cove Tunnel Trust – Term debt AUD 60m Lane Cove Tunnel Trust – Term debt AUD 40m Transurban Queensland Finance – Term debt AUD 200m Lane Cove Tunnel Trust – Term debt AUD 40m Net capitalised borrowing costs TIFIA loans 495 Express Lanes – Facility limit USD 589m (plus accreted interest) 95 Express Lanes – Facility limit USD 300m (plus accreted interest) Shareholder loan notes Loan from Transurban Queensland consortium partners – AUD 281m Loan from Transurban Queensland consortium partners – AUD 38m Maturity Carrying value 2016 $M 2015 $M Jul 2017 Dec 2020 Dec 2021 Jun 2023 Dec 2024 Jul 20345 Jan 20405 Dec 2047 Sep 2025 Sep 2027 Sep 2030 Sep 2030 Sep 2015 Sep 2015 Aug 2016 Jun 2017 Jul 2017 Jul 2017 Mar 2018 Jul 2018 Apr 2019 Jul 2019 Mar 2020 May 2021 Apr 2021 May 2025 May 2028 Apr 2030 May 2031 Oct 20475 Jan 20485 Jun 2048 Jul 2053 – 300 250 275 200 97 229 303 (8) 209 310 345 70 (5) – – – 277 – 420 405 225 475 750 350 120 475 60 40 200 40 (26) 843 324 281 38 17 300 250 – 200 93 222 293 (1) – – – – – 350 270 260 277 74 750 405 225 – 750 350 – – – – 200 – (28) 768 299 281 – Total non-recourse debt, net of capitalised borrowing costs Total debt 7,872 12,873 6,605 12,099 2. This facility was refinanced during FY16. 3. These facilities were repaid during FY16. 4. This facility was reduced from $750m during FY16. 5. This represents the final maturity. 68 68 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B14 Borrowings (continued) Working capital facilities The corporate facilities are secured by first ranking charges over the cash flows of the Group; The Transurban Queensland Finance facilities are secured against the respective rights of Transurban Queensland Holdings 1 Pty Limited, Transurban Queensland Holdings 2 Pty Limited, Transurban Queensland Invest Trust and their assets; and The AirportlinkM7 facility is fully secured against the respective rights of APL Hold Co Pty Limited, APL Co Pty Limited, TQ APL Hold Trust, TQ APL Asset Trust and their assets. At 30 June 2016 the facility was undrawn. Capital markets debt The corporate domestic bonds are secured by first ranking charges over the cash flows of the Group; A corporate secured EMTN program was established in October 2011 with a program limit of USD $2 billion, which increased to USD $5 billion in May 2015. Under the program the Group may from time to time issue notes denominated in any currency. These facilities are secured by first ranking charges over the cash flows of the Group; The Airport Motorway Trust domestic bond is secured against the respective rights of Airport Motorway Limited and Airport Motorway Trust and their assets; The Transurban Queensland Finance domestic bonds are secured against the respective rights of Transurban Queensland Holdings 1 Pty Limited, Transurban Queensland Holdings 2 Pty Limited, Transurban Queensland Invest Trust and their assets; A Transurban Queensland EMTN program was established in March 2016 with a program limit of USD$2 billion. Under the program, Transurban Queensland may from time to time issue notes denominated in any currency. These facilities are secured against the respective rights of Transurban Queensland Holdings 1 Pty Limited, Transurban Queensland Holdings 2 Pty Limited, Transurban Queensland Invest Trust and their assets; The 95 Express Lanes Private Activity Bonds (‘PABs’) are secured against the rights of 95 Express Lanes LLC and its assets; The 495 Express Lanes PABs are secured against the rights of Capital Beltway Express LLC and its assets; and The US 144A notes are secured by first ranking charges over the cashflows of the Group. Syndicated facilities The corporate syndicated bank debt was secured by first ranking charges over the cash flows of the Group. U.S. private placement Corporate U.S. private placement facilities are secured by a first ranking charge over the cash flows of the Group; and The Transurban Queensland U.S private placement facilities are secured against the respective rights of Transurban Queensland Holdings 1 Pty Limited, Transurban Queensland Holdings 2 Pty Limited, Transurban Queensland Invest Trust and their assets. 69 69 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B14 Borrowings (continued) Term debt The Airport Motorway facility is fully secured against the respective rights of Airport Motorway Limited and the Airport Motorway Trust and their assets; The Hills Motorway Trust facilities are fully secured against the respective rights of Hills Motorway Limited and Hills Motorway Trust and their assets; The Lane Cove Tunnel facility is fully secured against the respective rights of LCT-MRE Pty Limited and LCT-MRE Trust and their assets; The Cross City Tunnel facility is fully secured against the respective rights of Transurban CCT Pty Limited and Transurban CCT Trust and their assets; The Clem7 facility was fully secured against the respective rights of the Project T Partnership and their assets; The AirportlinkM7 facility is fully secured against the respective rights of APL Hold Co Pty Limited, APL Co Pty Limited, TQ APL Hold Trust, TQ APL Asset Trust and their assets; and The Transurban Queensland Finance facilities are secured against the respective rights of Transurban Queensland Holdings 1 Pty Limited, Transurban Queensland Holdings 2 Pty Limited, Transurban Queensland Invest Trust and their assets. Transportation Infrastructure Finance and Innovation Act (‘TIFIA’) The 495 Express Lanes TIFIA facility is secured against the rights of Capital Beltway Express LLC and its assets; and The 95 Express Lanes TIFIA facility is secured against the rights of 95 Express Lanes LLC and its assets. Shareholder loan notes The loans to Transurban Queensland from the non-Transurban Group acquisition consortium partners are unsecured. Letters of credit and corporate credit facilities Letter of credit facility Letter of credit facility General credit facility1 Total Maturity Nov 2016 Dec 2019 Aug 2017 2016 $M 2015 $M Facility amount 60 240 4 304 Amount issued 39 240 3 282 Facility amount 60 240 4 304 Amount issued 37 240 3 280 1. The general credit facility covers corporate requirements including credit card facilities, online banking and an overdraft facility. Letters of credit and bank guarantees to the value of $56 million (2015: $17 million) have also been issued under multi-option facilities and working capital facilities. A separate cash-backed letter of credit to the value of $108 million has been issued in relation to stamp duty payable on the AirportlinkM7 acquisition. All letters of credit are currently undrawn and therefore no liability is recorded. 70 70 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B14 Borrowings (continued) Covenants A number of the Group's consolidated borrowings include covenants, some of which are listed below. There have been no breaches of any of these covenants during the year. Corporate Debt Covenant Senior interest coverage ratio Group Market Capitalisation CityLink Interest Coverage Ratio Non-Recourse Debt Covenant Threshold Greater than 1.25 times Gearing must not exceed 60%1 Greater than 1.1 times Threshold Airport Motorway Trust Interest Coverage Ratio Hills Motorway Trust Interest Coverage Ratio Lane Cove Tunnel Trust Interest Coverage Ratio Cross City Tunnel Trust Senior Debt Service Coverage Ratio Transurban Queensland Finance Interest Coverage Ratio AirportlinkM7 Finance Interest Coverage Ratio2 495 Express Lanes Senior Debt Service Coverage Ratio 95 Express Lanes Senior Debt Service Coverage Ratio3 1. Based on the balance sheet as at 30 June 2016, the Group’s security price would need to close below $4.26 (2015: $5.23) per security for 20 Greater than 1.15 times Greater than 1.15 times Greater than 1.15 times Greater than 1.15 times Greater than 1.20 times Greater than 1.20 times Greater than 1.15 times Greater than 1.30 times consecutive days to trigger this clause. 2. The first relevant calculation date for this ratio was 30 June 2016. 3. The first relevant calculation date is in December 2017, three years from project substantial completion. B15 Derivatives and financial risk management Derivatives 2016 $M 2015 $M Current Non-current Current Non-current Assets Interest rate swap contracts – cash flow hedges Forward exchange contracts – cash flow hedges Cross-currency interest rate swap contracts – cash flow hedges Total derivative financial instrument assets Liabilities Interest rate swap contracts – cash flow hedges Forward exchange contracts – cash flow hedges Cross-currency interest rate swap contracts – cash flow hedges Cross-currency interest rate swap contracts – net investment hedge Total derivative financial instrument liabilities – – – – 12 2 3 – 17 – – 121 121 279 – 46 68 393 – 4 – 4 3 – 1 – 4 71 16 – 66 82 227 – 41 57 325 71 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B15 Derivatives and financial risk management (continued) Accounting policy Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges); or hedges of a net investment in a foreign operation (net investment hedges). At the inception of the hedging transaction the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative financial instruments used for hedging purposes are disclosed in this note. Movements in the cash flow hedging reserve in shareholders' equity are shown in note B12. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months. Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the effective portion of interest rate swaps and cross currency swaps hedging fixed rate borrowings is recognised in profit or loss within finance costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is recognised in profit or loss. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit or loss. Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Gains and losses accumulated in equity are included in profit or loss when the foreign operation is partially disposed of or sold. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss. 72 72 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B15 Derivatives and financial risk management (continued) Hedging strategy and instruments used by the Group The Group uses derivative financial instruments in the normal course of business in order to hedge exposures to fluctuations in interest rates and foreign exchange rates in accordance with the Group’s financial risk management policies. The Group’s policies allow derivative transactions to be undertaken for the purpose of reducing risk and do not permit speculative trading. The instruments used by the Group are as follows: Interest rate swap contracts – cash flow hedges The Group uses interest rate swap contracts to manage the Group’s exposure to variable interest rates related to borrowings. Interest rate swap contracts currently in place cover 100% (2015: 83%) of the variable debt held by the Group (excluding working capital facilities). Forward exchange contracts – cash flow hedges The Group currently uses forward exchange contracts to protect against exchange rate movements between the AUD and foreign currencies. The Group has hedged a portion of its USD interest commitments and its capital expenditure commitments. Cross-currency interest rate contracts – cash flow hedges The Group has entered into cross-currency interest rate swap contracts to remove the risk of unfavourable exchange rate movements on borrowings held in foreign currencies. Under these contracts, the Group receives foreign currency at fixed rates and pays AUD at either fixed or floating rates. The Group then uses the interest rate swap contracts to hedge the floating interest rate commitments back to fixed interest rates. Offsetting financial assets and financial liabilities Currently there is no right or basis to present any financial assets or financial liabilities on a net basis, and as such no financial assets or financial liabilities have been presented on a net basis in the Group's balance sheet at the end of the financial year. Hedge of net investment in foreign entity Transurban's investment in its US based assets (495 Express Lanes and 95 Express Lanes) acts as a natural hedge against the exposure to foreign currency movements for a portion of the Group’s USD denominated borrowings. Exchange differences arising on the revaluation of these USD denominated borrowings are recognised in profit or loss in the separate financial statements of Transurban Finance Company Pty Limited. In the Group financial statements these exchange differences are recognised in the foreign currency translation reserve in equity and will be transferred to profit or loss when the Group disposes its interest in the US based assets. As at 30 June 2016, the Group has deferred $94 million in losses (2015: $87 million losses). Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The financial risk management function is carried out centrally under the policies approved by the Board. The Group reviews operations actively to identify and monitor all financial risks and to mitigate these risks through the use of hedging instruments where appropriate. The Board are informed on a regular basis of any material exposures to financial risks. The Group continuously monitors risk exposures over time through review of cash flows, price movements, market analysis and ongoing communication within the Group. When measuring financial risk, The Group considers positive and negative exposures, existing hedges and the ability to offset exposures where possible. 73 73 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B15 Derivatives and financial risk management (continued) Market risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk when future transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. Foreign currency exposures are viewed as either investment exposures or operating exposures. Exposures from investments in foreign assets are generally managed using foreign currency debt. All known material operating exposures out to 12 months are hedged, either using hedging instruments, or are offset by drawing on foreign currency funds. Exposure to foreign currency risk at the reporting date, denominated in the currency in which the risk arises, was as follows: 2016 $M 2015 $M USD EUR CAD CHF USD EUR CAD CHF 1,192 (2,094) – (1,600) 1,122 220 1,600 – – (250) 250 – – (200) 200 – 1,093 (1,484) – (1,600) 529 138 1,600 – – (250) 250 – – – – – Net investment in foreign operation Borrowings Cross-currency interest rate swaps Net exposure Sensitivity Sensitivity to exchange rate movements based on the translation of financial instruments held at the end of the period is as follows: AUD/USD + 10 cents - 10 cents AUD/EUR + 5 cents - 5 cents AUD/CAD + 10 cents - 10 cents AUD/CHF + 10 cents - 10 cents 2016 $M 2015 $M Movement in post-tax profit Increase / (decrease) in equity Movement in post-tax profit Increase / (decrease) in equity – – – – – – – – (68) 93 (45) 58 (2) 3 (10) 17 – – – – – – – – (36) 50 (42) 56 (2) 3 – – The Group revalues its foreign currency denominated borrowings each period using market spot rates and, where these borrowings have been appropriately hedged, defers these movements in the cash flow hedge reserve in equity. The volatility in the cash flow hedge reserve is caused mainly by fair value movements of the cross currency interest rate swaps, which are affected by changes in forward Australian dollar/foreign currency exchange rates. 74 74 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B15 Derivatives and financial risk management (continued) Interest rate risk The Group’s main exposure to interest rate risk arises from cash and cash equivalents, and long-term borrowings. The Group manages interest rate risk by entering into fixed rate debt facilities or by using interest rate swaps to convert floating rate debt to fixed interest rates. Generally, the Group raises long term borrowings at floating interest rates and swaps them into fixed interest rates that are lower than those available if the Group borrowed at fixed rates directly. The Group’s policy is to hedge interest rate exposure at a minimum in compliance with the covenant requirements of funding facilities and up to 100%. Covenant requirements vary by debt facility, and require a minimum of between 50% and 80% of the interest rate exposure to be hedged. At 30 June 2016, 99% (2015: 75%) of the Group’s interest rate exposure on variable rate borrowings was hedged. As at the reporting date, the Group had the following cash balances, variable rate borrowings and interest rate swap contracts outstanding: Cash and cash equivalents Floating rate borrowings Interest rate swaps (notional principal amount) Net exposure to interest rate risk Sensitivity Sensitivity to interest rate movements based on variable rate obligations is as follows: 2016 $M 834 (4,693) 4,631 772 2015 $M 1,249 (5,852) 4,409 (194) Interest rates +100bps Interest rates –100bps Credit risk Movement in post-tax profit 2016 $M 8 (8) 2015 $M (2) 2 The Group has no significant concentrations of credit risk from operating activities, and has policies in place to ensure that transactions are made with commercial customers with an appropriate credit history. However, as an operator of large infrastructure assets, the Group is exposed to credit risk with its financial counterparties through entering into financial transactions through the ordinary course of business. These include funds held on deposit, cash investments and the market value of derivative transactions. The Group assesses the credit strength of potential financial counterparties using objective ratings provided by multiple independent rating agencies. The Board approved policies ensure that higher limits are granted to higher rated counterparties. The Group also seeks to mitigate its total credit exposure to counterparties by only dealing with credit worthy counterparties, limiting the exposure to any one counterparty, minimising the size of the exposure where possible through netting offsetting exposures, diversifying exposures across counterparties, closely monitoring changes in total credit exposures and changes in credit status, and taking mitigating action when necessary. Liquidity risk The Group maintains sufficient cash and undrawn facilities to maintain short term flexibility and enable the Group to meet financial commitments in a timely manner. The Group assesses liquidity over the short term (up to 12 months) and medium term (one to five years) by maintaining accurate forecasts of operating expenses, committed capital expenditure and payments to security holders. Long term liquidity requirements are reviewed as part of the annual strategic planning process. Short term liquidity is managed by maintaining a strategic liquidity reserve. This reserve is based on the Group’s forecast annual operating costs and certain risk exposure scenarios as maintained by the Group’s strategic risk register, and is maintained as cash and undrawn facilities. The reserve is maintained on a rolling 12 month basis. Medium term liquidity forecasting is maintained on a rolling five year horizon. 75 75 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B15 Derivatives and financial risk management (continued) Financing arrangements The Group had access to the following undrawn borrowing facilities at the end of the reporting period: Floating rate Expiring within one year Expiring beyond one year 2016 $M 349 527 876 2015 $M – 356 356 As at 30 June 2016, the Group has letter of credit facilities and general credit facilities in place with undrawn capacity of $22 million (2015: $24 million). The facilities are committed for the term of the facility and cannot be withdrawn by the lenders without notice. Contractual maturities of financial liabilities The amounts disclosed in the table are the contractual undiscounted cash flows of the Group’s financial liabilities. For interest rate swaps, the cash flows have been estimated using forward interest rates applicable at the end of the reporting period. 2016 $M Trade payables Borrowings Interest rate swaps Cross-currency swaps Concession and promissory notes Other liabilities Total 2015 $M Trade payables Borrowings Interest rate swaps Cross-currency swaps Concession and promissory notes Total 1 year or less 410 652 81 93 – – 1,236 1 year or less 340 903 88 47 – 1,378 Over 1 to 2 years – 1,738 69 80 – 45 1,932 Over 1 to 2 years – 2,266 70 72 – 2,408 Over 2 to 3 years – 1,615 55 54 – 155 1,879 Over 2 to 3 years – 2,113 39 64 – 2,216 Over 3 to 4 years – 1,677 33 74 – – 1,784 Over 3 to 4 years – 1,042 23 35 – 1,100 Over 4 to 5 years – 2,293 18 51 – – 2,362 Over 4 to 5 years – 1,577 8 60 – 1,645 Over 5 years – 11,249 78 (419) 466 – 11,374 Over 5 years – 10,166 7 (345) 440 10,268 Total contractual cash flows Carrying amount 410 19,224 334 (67) 466 200 20,567 410 12,873 291 (2) 67 177 13,816 Total contractual cash flows Carrying amount 340 18,067 235 (67) 440 19,015 340 12,099 214 29 46 12,728 Capital risk management The Group is subject to a gearing ratio covenant imposed by senior secured lenders and monitors capital on the basis of the gearing ratio to ensure compliance with the covenant. There have been no breaches of the covenant during the current financial year. For further information refer to the Borrowings note B14. The Group's objectives when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital, so that it can continue to provide returns to security holders and benefits for other stakeholders. 76 76 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B15 Derivatives and financial risk management (continued) Fair value measurements The carrying value of the Group’s financial assets and liabilities approximate fair value. This is also generally the case with borrowings since either the interest payable on those borrowings is close to current market rates or the borrowings are of a short-term nature. The fair values of non-current borrowings are determined based on discounted cash flows using a current borrowing rate. They are classified as level 2 fair values in the fair value hierarchy due to the use of observable inputs. Fair value is categorised within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement as a whole: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). All of the Group’s financial instruments measured, recognised and disclosed at fair value were valued using market observable inputs (Level 2). There were no transfers between levels during the period and there has been no change in the valuation techniques applied. Key estimate The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses its judgement to select a variety of methods and makes assumptions that are mainly based on market conditions existing at each reporting date. The fair value of both cross-currency interest rate swaps and interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the end of the reporting period. 77 77 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Network summary The table below summarises the key balance sheet items of the Group’s concession assets by network: 2016 $M VIC NSW QLD GWA Total 2015 $M VIC NSW QLD GWA Total Equity accounted investment carrying amount Concession assets Assets under construction Goodwill Maintenance provision – 971 – – 971 2,498 5,176 8,101 2,613 18,388 340 34 13 7 394 1 260 205 – 466 (128) (158) (589) (45) (920) Equity accounted investment carrying amount Concession assets Assets under construction Goodwill Maintenance provision – 1,092 – – 1,092 2,632 5,111 6,411 2,562 16,716 45 83 10 – 138 1 260 205 – 466 (118) (142) (531) (24) (815) Non- recourse borrowings – (1,810) (4,269) (1,793) (7,872) Non- recourse borrowings – (1,810) (3,120) (1,675) (6,605) B16 Intangible assets 2016 $M Cost Accumulated amortisation Net book amount 2015 $M Cost Accumulated amortisation Net book amount Concession assets Assets under construction 22,673 (4,285) 18,388 394 – 394 Concession assets Assets under construction 20,474 (3,758) 16,716 138 – 138 Goodwill 466 – 466 Goodwill 466 – 466 Total 23,533 (4,285) 19,248 Total 21,078 (3,758) 17,320 78 78 2016 Transurban Annual Report B16 Intangible assets (continued) Movement in intangible assets Opening balance 1 July 2014 Additions Acquisition of subsidiary Currency and other adjustments Transfers Amortisation charge Net book amount 30 June 2015 Additions Acquisition of subsidiary Currency and other adjustments Transfers Amortisation charge Net book amount 30 June 2016 Concession assets Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Concession assets $M 9,315 140 6,431 297 1,046 (513) 16,716 165 1,880 78 76 (527) 18,388 Assets under construction $M 810 212 – 162 (1,046) – 138 332 – – (76) – 394 Goodwill $M 261 – 205 – – – 466 – – – – – 466 Total $M 10,386 352 6,636 459 – (513) 17,320 497 1,880 78 – (527) 19,248 Concession assets represent the Group's rights to operate roads under Service Concession Arrangements. All concession assets are classified as intangible assets and are amortised on a straight line basis over the term of the right to operate the asset. Transurban has the right to toll the concession assets for the concession period. Extensions to the concession period have been granted during the period for a number of individual concessions as a result of road development projects and improvements. At the end of the concession period, all concession assets are returned to the respective Government. The remaining terms of the right to operate are reflected below: VIC – Victorian State Government NSW – New South Wales State Government QLD – Queensland State Government and Brisbane City Council GWA – Virginia State Government Assets under construction 2016 Years 19 20 – 32 35 – 49 71 2015 Years 20 21 – 33 36 – 50 72 Assets under construction include upgrade works as part of the CityLink-Tulla Widening project and Hills M2 – NorthConnex Integration works in New South Wales, Australia. Construction costs relating to completed works are transferred to the concession asset upon final completion of the projects. Goodwill Goodwill primarily relates to the Group's NSW Network and Queensland Network and has arisen from the acquisition of Hills Motorway Group, Tollaust Pty Limited and the Sydney Roads Group in NSW and the Queensland Motorways Group in Queensland. 79 79 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B16 Intangible assets (continued) Impairment testing of goodwill and other intangible assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount. Goodwill is tested for impairment on an annual basis, regardless of whether an indicator of impairment exists. Recoverable amount is the greater of fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Where the carrying amount of an intangible asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount through profit or loss. The decrement in the carrying amount is recognized as an expense in profit or loss in the reporting period in which the impairment occurs. The recoverable amount of the Group’s cash generating units have been determined based on value-in-use calculations. The following table sets out the key assumptions on which management has based its cash flow projections. The calculations use 3 year cash flow projections based on financial budgets reviewed by the Board. Cash flows beyond this period are modelled using the same set of assumptions up to the end of the applicable concession period: Long term CPI (% annual growth) Long term average weekly earnings (% annual growth) Pre-tax discount rate (%) VIC NSW QLD GWA 2016 2.5% 4.0% 8.2% 2015 2.5% 4.0% 8.2% 2016 2.5% 4.0% 8.2% 2015 2.5% 4.0% 8.2% 2016 2.7% 2015 2.7% 2016 2.5% 2015 2.5% N/A N/A 3.0% 3.0% 8.2% 8.2% 8.2% 8.2% Management has determined the values assigned to each of the above key assumptions as follows: Assumption Traffic volume Approach used to determine values Based on historical trends and the Group’s long term traffic forecasting models Long term CPI (% annual growth) Based on independent external forecasts Long term average weekly earnings (% annual growth) Pre-tax discount rate Based on independent external forecasts Discount rates consider specific risks relating to the CGU. In performing the value-in-use calculations for each CGU, the Group has applied post-tax discount rates to discount the forecast future attributable post tax cash flows. The equivalent pre-tax discount rates are disclosed in the table above. Key estimate The Group makes certain assumptions in calculating the recoverable amount of its goodwill and other intangible assets. These include assumptions around expected traffic flows and forecast operational costs. In performing the value-in-use calculation, the Group has applied the assumptions noted in the above table. Management does not consider that any reasonable possible change in the assumptions will result in the carrying value of a CGU exceeding its recoverable amount. 80 80 2016 Transurban Annual Report B17 Maintenance provision Movement in maintenance provision Carrying value at 1 July 2014 Additional provision recognised Acquisition of subsidiary Amounts paid/utilised Unwinding of discount Transfer Movement in foreign exchange Carrying value at 30 June 2015 Additional provision recognised Acquisition of subsidiary Amounts paid/utilised Unwinding of discount Transfer Movement in foreign exchange Carrying value at 30 June 2016 Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Current $M Non-current $M 77 80 28 (91) – (10) (2) 82 97 4 (50) – (42) 3 94 211 – 468 – 43 10 1 733 – 10 – 41 42 – 826 Key estimate As part of its obligations under the service concession arrangements, the Group assumes responsibility for the maintenance and repair of installations of the publicly owned roads it operates. The Group records a provision for its present obligation to maintain the motorways held under concession deeds. The provision is included in the financial statements at the present value of expected future payments. The calculations to discount these amounts to their present value are based on the estimated timing and profile of expenditure occurring on the roads. B18 Other liabilities – concession and promissory notes M1 Eastern Distributor concession note M2 Motorway promissory note Total Key estimate 2016 $M 33 34 67 2015 $M 26 20 46 The Group has non-interest bearing long term debt, represented by promissory notes and concession notes payable to the Government, measured at the present value of expected future payments. The calculations to discount these notes to their present value are based on the estimated timing and profile of the repayments. Assumptions are made in determining the timing and profile, based on expected available equity cash flows of the Group's cash generating units. A discount rate is used to value the promissory notes and concession notes to their present value, which is determined through reference to other facilities in the market with similar characteristics. A discount rate of 12% (2015: 12%) has been used, which recognises the subordinated nature of these notes. 81 81 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B18 Other liabilities – concession and promissory notes (continued) M1 Eastern Distributor The Eastern Distributor project deed between Airport Motorway Limited, Airport Motorway Trust and the New South Wales Roads and Maritime Services (‘RMS’) provides for annual concession fees of $15 million during the construction phase and for the first 24 years after completion of construction of the M1 Eastern Distributor. Until a certain threshold return is achieved, payments of concession fees due under the Project Deed will be satisfied by means of the issue of non-interest bearing concession notes. The face value of concession notes on issue at 30 June 2016 is $285 million (2015: $270 million). M2 Motorway The Hills Motorway Trust has entered into leases with the RMS. Annual lease liabilities under these leases total $7 million (2015: $7 million), indexed annually to the consumer price index over the estimated period that the M2 Motorway will be used. Until such time as a threshold return is achieved, payments under these leases can be made at any time at the discretion of the trustee of the Hills Motorway, by means of the issue of non-interest bearing promissory notes to the RMS. The face value of promissory notes on issue at 30 June 2016 is $181 million (2015: $170 million). 82 82 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Group structure B19 Principles of consolidation Subsidiaries Subsidiaries are fully consolidated from the date the Group gains control of the subsidiary and are de- consolidated from the date that control ceases. In preparing the consolidated financial statements of the Group, all inter-entity transactions and balances have been eliminated. The accounting policies adopted by the individual entities comprising the Group are consistent with the parent company. Non-controlling interests consist of two components: Non-controlling interest – other: external non-controlling interests relating to Transurban Queensland and Eastern Distributor in the results and equity of subsidiaries are shown separately in the Group financial statements. The external non-controlling interests related to the 495 Express Lanes and 95 Express Lanes were acquired on 29 June 2015 and accordingly the external non-controlling interest balances have been de-recognised from this date. Non-controlling interests that relate to THT and TIL are presented separately, but relate to equity holders of the stapled group. Associates and joint ventures Associates are all entities over which the Group has significant influence but not control and relate to the Group’s investments in Interlink M5 and the NorthWestern Roads Group (which holds the Westlink M7 and NorthConnex assets). The Group's share of the post-acquisition profits or losses in associates is recognised in profit or loss and its share of post-acquisition movements in reserves is recognised in other comprehensive income. These post- acquisition movements are adjusted against the carrying amount of the investment. When the Group’s cumulative share of losses in an associate exceeds its investment in the asset, the Group does not recognise any further losses from this point. Dividends received from the assets listed above reduce the carrying amount of the investment. Changes in ownership interest The Group treats transactions with non-controlling interests that do not result in a loss of control, as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity. 83 83 2016 Transurban Annual Report 84 2016 Transurban Annual ReportTransurban Holdings LimitedNotes to the consolidated financial statementsfor the year ended 30 June 201684B20Material subsidiariesThe Group’s material subsidiaries are outlined in the Group structure diagram below.1.Acquisition of non-controlling interest occurred on 29 June 2015.2.Acquisition of AirportlinkM7 occurred on 1 April 2016.B21Business combinationsAccounting policyBusiness combinations are accounted for using the acquisition method. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a businesscombination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net identifiable assets.The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B21 Business combinations (continued) Accounting policy (continued) Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. AirportlinkM7 On 24 November 2015 the Group announced that Transurban Queensland (in which the Group holds a 62.5% equity interest) had reached agreement to acquire the AirportlinkM7 concession. The acquisition was completed on 1 April 2016. AirportlinkM7 is an urban tunnel in Brisbane, Australia and is adjacent to three assets owned and operated by Transurban Queensland. The tunnel is complementary to the Transurban Queensland network and contributes additional scale, a long dated concession ending June 2053, investment potential and strategic value to the Group’s current portfolio. Purchase consideration Cash paid Total purchase consideration $M 1,870 1,870 The consideration of $1,870 million was paid on 1 April 2016. This has been reflected in the Group’s current year financial statements. Reconciliation of purchase consideration to cash acquired Cash paid Less: cash acquired Payment for business combination, net of cash Acquisition-related costs $M 1,870 (1) 1,869 Total acquisition and integration costs incurred to date are $120 million, inclusive of $108 million of stamp duty, $10 million of transaction costs and $2 million of integration costs. The total costs have been incurred in the current financial year. These acquisition costs are not included in the purchase consideration disclosed above. 85 85 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B21 Business combinations (continued) AirportlinkM7 (continued) Identifiable assets acquired and liabilities assumed The final fair values of the assets and liabilities of AirportlinkM7 as at acquisition date are as follows: Cash and cash equivalents Trade and other receivables Deferred tax assets Intangible assets Trade and other payables Provisions Total identified assets acquired Revenue and profit contribution Fair value $M 1 2 4 1,880 (3) (14) 1,870 From the date of acquisition to 30 June 2016, revenue of $27 million and a statutory loss after taxation of $125 million was included in the profit or loss with regard to AirportlinkM7. Excluding significant items related to the acquisition, AirportlinkM7 contributed a net loss after taxation of $5 million. If the acquisition had occurred on 1 July 2015, annualised revenue of $109 million and a statutory loss after taxation of $140 million would have been recognised for the year ended 30 June 2016. Excluding significant items related to the acquisition, the net loss after taxation would have been $20 million. These amounts have been calculated using the subsidiaries’ results and adjusting for one-off costs not related to the ongoing operations of the business. B22 Equity accounted investments Below is the reconciliation of the equity accounted carrying value of investments: NorthWestern Roads Group M5 Motorway Total Opening carrying value 1 July Transfer of Westlink M7 Term loan note balance into equity accounted investment Costs capitalised on creation of NWRG Group’s share of net profits Group’s recognised share of other comprehensive income Dividends received Closing carrying value Cumulative losses not recognised 2016 $M 872 – – – – (94) 778 534 2015 $M – 892 10 – – (30) 872 624 2016 $M 220 – – 17 (11) (33) 193 – 2015 $M 268 – – 17 – (65) 220 – 2016 $M 1,092 – – 17 (11) (127) 971 534 2015 $M 268 892 10 17 – (95) 1,092 624 Joint ventures NorthWestern Roads Group (50% ownership interest) The Group has a 50% ownership interest in the NorthWestern Roads Group, which holds 100% of the Westlink M7 Group and the NorthConnex Group. Westlink M7 holds the concession to design, construct, finance and operate the Westlink M7 Motorway in Sydney for a period of 43 years from the date of operation (16 December 2005) until June 2048, and NorthConnex holds the concession to design, construct, finance and operate the NorthConnex Tunnel in Sydney until 2048. 86 86 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B22 Equity accounted investments (continued) Joint ventures (continued) The following entities are a part of the Westlink Group: WSO Co Pty Limited (the operator of the Motorway). Westlink Motorway Limited (the nominee manager of the Westlink Motorway Partnership). WSO Finance Pty Limited (the financier of the Motorway). Westlink Motorway Partnership (was responsible for the construction of the Motorway). The following entities are part of the NorthConnex Group: NorthConnex Company Pty Limited (the operator of the Motorway). NorthConnex Finance Company Pty Limited (the financier of the Motorway). NorthConnex State Works Contractor Pty Limited (was responsible for the construction of the Motorway). M5 Motorway (50% ownership interest) Tolls are collected on the M5 in both directions, with four toll collection points. The concession for the M5 Motorway was extended to December 2026 following completion of the M5 widening. At the end of the concession, all concession assets will be returned to the NSW State Government. Summarised financial information of equity accounted investments Set out below is the summarised financial information for those investments accounted for using the equity method. The summarised financial information presented below is on a 100 per cent basis for each equity accounted investment. NorthWestern Roads Group M5 Motorway Total Summarised balance sheet – 100% Cash and cash equivalents Other current assets Non-current assets Current liabilities Non-current liabilities Net assets Summarised statement of comprehensive income – 100% Revenue Depreciation and amortisation Other expenses Interest expense Income tax benefit / (expense) Profit/(loss) Other comprehensive income Total comprehensive income 2016 $M 84 23 3,196 (109) (2,966) 228 343 (84) (54) (118) 3 90 11 101 2015 $M 53 11 3,118 (4) (2,782) 396 272 (76) (40) (104) 3 55 (2) 53 2016 $M 111 19 419 (84) (946) (481) 261 (43) (39) (48) (43) 88 (23) 65 2015 $M 5 11 459 (48) (904) (477) 230 (28) (32) (36) (46) 88 1 89 2016 $M 195 42 3,615 (193) (3,912) (253) 604 (127) (93) (166) (40) 178 (12) 166 2015 $M 58 22 3,577 (52) (3,686) (81) 502 (104) (72) (140) (43) 143 (1) 142 The following table reconciles the above summarised financial information presented on a 100 per cent basis to the proportional amounts recognised by the Group Ownership interest Proportional total comprehensive income Amortisation of fair value uplift Group's share of comprehensive income Profits not recognised Group's recognised share of total comprehensive income Group's share of dividends / distributions received 50% 50% 50 – 50 (50) – 94 27 – 27 (27) – 30 87 50% 33 (27) 6 – 6 33 50% 44 (27) 17 – 17 65 50% 83 (27) 56 (50) 6 127 50% 71 (27) 44 (27) 17 95 87 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B23 Non-controlling interests – other Set out below is summarised financial information for each material subsidiary (see note B20) that has non- controlling interests that are material and external to the stapled Group and the total external non-controlling interest. The amounts disclosed are before inter-company eliminations. Transurban Queensland 37.5% Airport Motorway 24.9% Total non-controlling interests Summarised balance sheet Current assets Non-current assets Current liabilities Non-current liabilities Net assets Carrying amount of NCI Summarised statement of comprehensive income Revenue Expenses (Loss) / profit for the year Other comprehensive income Total comprehensive income (Loss)/profit allocated to NCI OCI allocated to NCI 2016 $M 244 9,069 (283) (5,549) 3,481 1,305 512 (731) (219) (70) (289) (82) (26) 2015 $M 92 7,267 (243) (4,187) 2,929 1,099 429 (929) (500) (24) (524) (187) (9) Summarised cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increases in cash and cash equivalents 118 (2,006) 2,027 (290) (6,429) 6,745 139 26 B24 Deed of cross and intra-group guarantees Deed of cross guarantee 2016 $M 10 1,740 (211) (1,099) 440 110 127 (107) 20 4 24 5 1 60 – (59) 1 2015 $M 10 1,794 (205) (1,109) 490 122 116 (99) 17 – 17 4 – 39 – (41) (2) 2016 $M 254 10,809 (494) (6,648) 3,921 1,423 639 (838) (199) (66) (265) (77) (25) 178 (2,006) 1,968 2015 $M 102 9,061 (448) (5,296) 3,419 1,227 630 (1,171) (541) (42) (583) (191) 15 (248) (6,595) 7,062 140 219 Transurban Holdings Limited, Transurban Limited, Tollaust Pty Limited, Roam Tolling Pty Limited, Sydney Roads Limited, Sydney Roads Management Limited, Statewide Roads Limited, M4 Holdings No. 1 Pty Limited, M5 Holdings Pty Limited and Devome Pty Limited are party to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. The companies represent a 'closed group' for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by THL, they also represent the 'extended closed group’. Set out on the next page is the summary financial information of the closed group: 88 88 2016 Transurban Annual Report B24 Deed of cross and intra-group guarantees (continued) Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Summarised statement of comprehensive income Revenue Operating costs Depreciation and amortisation expense Net finance costs Profit/(loss) before income tax Income tax benefit/(expense) Profit/(loss) for the year Total comprehensive income/(loss) for the year Summarised movements in retained earnings Accumulated losses at the beginning of the year Profit/(loss) for the year Dividends provided for or paid Retained earnings at the end of the year Summarised balance sheet Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Other financial assets Property, plant and equipment Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Payables Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Other reserves Retained earnings Total equity Intra–group guarantees 2016 $M 578 (208) (47) (22) 301 59 360 360 (624) 360 (139) (403) 63 2,225 2,288 2,384 248 496 3,128 5,416 4,249 95 4,344 17 22 13 52 4,396 1,020 1,422 1 (403) 1,020 2015 $M 321 (186) (25) 22 132 (23) 109 109 (600) 109 (134) (625) 542 1,903 2,445 2,090 227 540 2,857 5,302 4,165 87 4,252 351 78 7 436 4,688 614 1,237 1 (624) 614 As at 30 June 2016, the Transurban Group comprises Transurban Holdings Limited, Transurban Holding Trust and Transurban International Limited, traded and quoted on the ASX as one triple stapled security. Under the stapling arrangement, each entity is able to provide direct and/or indirect support to each other entity and its controlled entities within the Group on a continual basis. 89 89 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Items not recognised B25 Contingencies Contingent liabilities As a result of the acquisition of the concession assets noted below, the Group may be required to make further payments to the respective vendors in the event that the traffic and toll revenue performance of the relevant asset exceeds certain criteria. The contingent consideration is recorded at the end of each reporting period at its fair value based upon the same traffic and revenue assumptions as outlined in note B16. The following table details the current carrying value of the contingent consideration recognised within ‘Other provisions’ in the consolidated balance sheet, the maximum nominal value that could be paid under each contract and the date at which the contingent consideration is assessed and becomes payable: Concession asset Cross City Tunnel Legacy Way Tunnel Legacy Way Tunnel Go-Between Bridge Carrying value $M Maximum consideration payable $M Assessment / payment date – – 26 15 28 200 Unlimited1 Unlimited1 Dec 2017 Jun 2017 Jun 2020 Jun 2018 The parent entity does not have any contingent liabilities at reporting date (2015: nil). The equity accounted investments of the Group do not have any contingent liabilities at reporting date (2015: nil). 1. The maximum consideration payable will reflect a portion of the cumulative outperformance of the concession asset as compared against an internal rate of return agreed between Transurban Queensland and the Brisbane City Council. B26 Commitments Within one year Later than one year but not later than five years Later than five years Operating commitments 2016 $M 121 312 207 640 2015 $M 100 247 248 595 Capital commitments Operating lease commitments 2016 $M 499 200 – 699 2015 $M 139 763 – 902 2016 $M 5 22 20 47 Share of commitments for equity accounted investments Capital commitments Operating commitments NorthWestern Roads Group 50% M5 Motorway 50% 2016 $M 1,078 419 1,497 2015 $M 1,247 186 1,433 2016 $M – 2 2 2015 $M – 2 2 Total 2016 $M 1,078 421 1,499 2015 $M – 13 17 30 2015 $M 1,247 188 1,435 90 90 2016 Transurban Annual Report B27 Subsequent events Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 The following events have occurred subsequent to year end: The following events have occurred subsequent to year end: B27 Subsequent events On 7 July 2016, Westlink M7 priced $500 million of secured notes (‘Notes’) under its Australian Medium Term Note Programme. The Notes will be issued in two tranches, consisting of $400 million secured fixed rate 7- year notes and $100 million of secured floating rate 10-year medium term notes. The floating rate notes will On 7 July 2016, Westlink M7 priced $500 million of secured notes (‘Notes’) under its Australian Medium Term be fully hedged. Note Programme. The Notes will be issued in two tranches, consisting of $400 million secured fixed rate 7- year notes and $100 million of secured floating rate 10-year medium term notes. The floating rate notes will be fully hedged. Approximately $150 million of the proceeds raised will be used to repay existing Westlink M7 debt that begins to reach maturity from August 2017. Approximately $350 million of proceeds will be utilised for general corporate purposes by the NorthWestern Roads Group (‘NWRG’). Settlement of the Notes occurred on 14 Approximately $150 million of the proceeds raised will be used to repay existing Westlink M7 debt that begins July 2016. Transurban holds a 50% interest in NWRG with the investment recorded within the equity to reach maturity from August 2017. Approximately $350 million of proceeds will be utilised for general accounted investments balance. corporate purposes by the NorthWestern Roads Group (‘NWRG’). Settlement of the Notes occurred on 14 On 12 July 2016, Transurban Finance Company priced a private placement of NOK$750 million (AUD$117 July 2016. Transurban holds a 50% interest in NWRG with the investment recorded within the equity accounted investments balance. million) of senior secured 11 year notes under its Euro Medium Term Note Programme. The proceeds will be used to repay existing debt. Settlement occurred on 26 July 2016 and is subject to certain closing conditions. On 12 July 2016, Transurban Finance Company priced a private placement of NOK$750 million (AUD$117 On 20 July 2016, Lane Cove Tunnel drew down $200 million of funds that were raised as part of the Lane million) of senior secured 11 year notes under its Euro Medium Term Note Programme. The proceeds will be used to repay existing debt. Settlement occurred on 26 July 2016 and is subject to certain closing conditions. Cove Tunnel debt refinancing that was announced in May 2016. The funds will be used to repay existing debt at the Transurban Group level. On 20 July 2016, Lane Cove Tunnel drew down $200 million of funds that were raised as part of the Lane Cove Tunnel debt refinancing that was announced in May 2016. The funds will be used to repay existing debt Other than what is noted above, there has not arisen in the interval between the end of the financial year and the at the Transurban Group level. date of this report any matter or circumstance that has significantly affected, or may significantly affect, the operations of the Group, and results of those operations, or the state of affairs of the Group, in future financial Other than what is noted above, there has not arisen in the interval between the end of the financial year and the years. date of this report any matter or circumstance that has significantly affected, or may significantly affect, the operations of the Group, and results of those operations, or the state of affairs of the Group, in future financial years. 91 91 91 2016 Transurban Annual Report Other B28 Related party transactions Transactions with related parties Revenue from services Interest income Repayment of M5 debt notes Outstanding balances with related parties M5 debt notes NorthConnex shareholder loan notes Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 Joint ventures 2016 $’000 14,657 23,283 – 70,000 298,964 2015 $’000 13,346 41,113 11,683 70,000 95,253 No provision for doubtful debts has been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts from related parties. M5 debt notes The M5 debt notes are Transurban’s debt funding contribution to the M5 West Widening Project. The fixed maturity date of the notes is 10 years after financial close of the Project. The interest rate charged on these notes is fixed at 5.0% for the first three years following financial close. NorthConnex shareholder loan notes The Shareholder loan notes (‘SLNs’) earn interest at a fixed rate of 9.0% until the final day of the NorthConnex concession period. Any unpaid interest is capitalised and deemed to subscribe for further loan notes with an aggregate principal amount equal to that unpaid interest. The SLNs are classified as a held-to-maturity receivable. It is not classified as an investment for equity accounting purposes, and therefore has not been affected by equity accounting losses from the associate. All SLNs are denominated in Australian currency. B29 Key management personnel compensation The remuneration amounts below represent the entire amounts paid by the Group. Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Deferred short term incentives Termination benefits 2016 $ 2015 $ 12,204,487 289,149 55,829 5,371,997 2,980,450 – 20,901,912 11,573,323 280,011 (83,978)1 3,631,691 1,279,396 347,272 17,027,715 1. Includes a reversal of accrued long service leave due to the departure of key management personnel during the year. Detailed remuneration disclosures including the key management personnel are made in the remuneration report in the Directors' report. 92 92 2016 Transurban Annual Report Transurban Holdings Limited Notes to the consolidated financial statements for the year ended 30 June 2016 B30 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the Group and its related practices: Amounts received or due and receivable by PricewaterhouseCoopers Audit and other assurance services Audit and review of financial reports Other assurance services Other consulting services Total remuneration for PricewaterhouseCoopers Total auditors remuneration B31 Parent entity disclosures 2016 $ 2015 $ 2,190,000 444,300 2,634,300 – 2,634,300 2,634,300 2,293,000 173,600 2,466,600 243,915 2,710,515 2,710,515 The financial information for the parent entity, Transurban Holdings Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries, associates and joint ventures Investments in subsidiaries, associates and joint ventures are accounted for at cost in the parent entity financial statements of Transurban Holdings Limited. Dividends received from associates are recognised in the parent entity's profit or loss, rather than being deducted from the carrying amount of these investments. Tax consolidation legislation In addition to its own current and deferred tax amounts, Transurban Holdings Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities. Summary financial information The individual financial statements for the parent entity report the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Net assets Shareholders' equity Contributed equity Reserves Retained earnings Total equity Profit for the year Total comprehensive income 2016 $M 2,259 5,868 (124) (4,149) 1,719 1,422 1 296 1,719 376 376 2015 $M 1,933 5,826 (117) (4,531) 1,295 1,237 1 57 1,295 104 104 Guarantees entered into by the parent entity There are cross guarantees given by Transurban Holdings Limited, Transurban Limited, Tollaust Pty Limited, Roam Tolling Pty Limited, Sydney Roads Limited, Sydney Roads Management Limited, Statewide Roads Limited, M4 Holdings No 1 Pty Limited, Devome Pty Limited and M5 Holdings Pty Limited as described in note B24. 93 93 2016 Transurban Annual Report Transurban Holdings Limited for the year ended 30 June 2016 for the year ended 30 June 2 Section C: Transurban Holding Trust (‘THT’) and Transurban International Limited (‘TIL’) financial statements Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Section D: Notes to the THT and TIL financial statements Basis of preparation and significant changes Operating performance D1 Introduction D3 Segment information D2 Trust formation and termination D4 Revenue D5 Income tax Security holder outcomes D6 Distributions D7 Earnings per stapled security Capital and borrowings D8 Reserves D9 Net finance costs D10 Borrowings Network summary D12 Intangible assets D13 Other liabilities – concession and promissory notes Group structure D14 Equity accounted investments D15 Non-controlling interests Other D16 Related party transactions D17 Parent entity financial information D11 Derivatives and financial risk management 94 94 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Consolidated statement of comprehensive income for the year ended 30 June 2016 Transurban Holding Trust Transurban International Limited Revenue Employee benefits expense Road operating costs Construction costs Transaction and integration costs Corporate and other expenses Total expenses Earnings before depreciation and amortisation, net finance costs, equity accounted investments and income tax Note D4 2016 $M 641 – (4) (35) (98) (1) (138) 2015 $M 593 – (4) (18) (311) (2) (335) 503 258 Depreciation and amortisation expense Net finance costs D9 (276) (53) D15 (Loss)/profit before income tax Income tax benefit/(expense) (Loss)/profit for the year (Loss)/profit is attributable to: Ordinary security holders of TIL Ordinary unit holders of THT Non–controlling interests Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of cash flow hedges, net of tax Exchange differences on translation of foreign operations, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year is attributable to: Ordinary security holders of TIL Ordinary unit holders of THT Non-controlling interests 174 (1) 173 – 209 (36) 173 (75) – (75) 98 – 159 (61) 98 (276) (71) (89) (8) (97) – 9 (106) (97) (17) – (17) (114) – 1 (115) (114) 2016 $M 174 (16) (60) – – (12) (88) 86 (37) (234) (185) 31 (154) (154) – – (154) (20) (11) (31) 2015 $M 235 (10) (39) (142) – (9) (200) 35 (29) (165) (159) 17 (142) (134) – (8) (142) 4 (22) (18) (185) (160) (185) – – (185) (177) – 17 (160) Earnings per security attributable to ordinary security holders of the group: Basic and diluted earnings/(loss) per security D7 10.5 0.5 (7.8) (7.0) Cents Cents Cents Cents The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes. 95 95 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Consolidated balance sheet for the year ended 30 June 2016 Transurban Holding Trust Transurban International Limited Note D14 D5 D12 D10 D6 D11 D5 D10 D11 D8 D15 2016 $M 229 2,377 2 2,608 768 – 5,966 961 – 41 9,920 17,656 20,264 – 142 276 – 446 11 44 919 – – 5,101 5,483 148 89 10,821 2015 $M 156 2,468 1 2,625 862 16 5,701 866 – – 8,414 15,859 18,484 629 30 – – 372 2 38 1,071 – – 4,944 4,394 76 20 9,434 11,740 10,505 8,524 7,979 – 10,520 (92) (3,132) 1,228 8,524 – 9,584 (43) (2,579) 1,017 7,979 2016 $M 245 8 16 269 – – – – 4 352 2,620 2,976 3,245 1,560 29 – 3 – – 5 1,597 42 282 – 1,793 87 – 2,204 3,801 (556) 302 – (176) (682) – (556) 2015 $M 179 17 12 208 – – – – 3 163 2,562 2,728 2,936 1,398 39 – 2 – – 6 1,445 22 134 – 1,675 54 – 1,885 3,330 (394) 279 – (145) (528) – (394) ASSETS Current assets Cash and cash equivalents Loans to related parties Trade and other receivables Total current assets Non-current assets Equity accounted investments Derivative financial instruments Related party receivables Concession notes Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Related party payables Trade and other payables Borrowings Maintenance provision Distribution payable Derivative financial instruments Other liabilities Total current liabilities Non–current liabilities Maintenance provision Deferred tax liabilities Related party payables Borrowings Derivative financial instruments Other liabilities Total non–current liabilities Total liabilities Net assets/(liabilities) EQUITY Contributed equity Issued units Reserves Accumulated losses Non-controlling interests Total equity The above consolidated balance sheets should be read in conjunction with the accompanying notes. 96 96 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Consolidated statement of changes in equity for the year ended 30 June 2016 THT Attributable to security holders of Transurban Holding Trust No. of units M Issued units $M Reserves $M 1,896 9,472 – – – – 1 – 17 – 18 1,914 – – – 107 1 – 14 – 122 2,036 – – – – 1 – 111 – 112 9,584 – – – 823 1 – 112 – 936 10,520 (35) – (8) (8) – – – – – – (43) – (50) (50) – 1 – – – – (92) Accumulated losses $M Non- controlling interests $M Total equity $M (1,958) 49 7,528 9 – 9 – – (630) – – (630) (2,579) 209 – 209 – – (762) – – (762) (3,132) (106) (9) (115) 1,147 – – – (64) 1,083 1,017 (36) (25) (61) 330 – – – (58) 272 1,228 (97) (17) (114) 1,147 1 (630) 111 (64) 565 7,979 173 (75) 98 1,153 2 (762) 112 (58) 446 8,524 Balance at 1 July 2014 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Contributions of equity, net of transaction costs Employee share awards issued Distributions Distribution reinvestment plan Distributions to NCI Balance at 30 June 2015 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Contributions of equity, net of transaction costs Employee share awards issued Distributions Distribution reinvestment plan Distributions to NCI Balance at 30 June 2016 TIL Attributable to security holders of Transurban International Limited No. of securities M Contributed equity $M Reserves $M Accumulated losses $M Non- controlling interests $M Total equity $M Balance at 30 June 2014 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Contributions of equity, net of transaction costs Employee share awards issued Distribution reinvestment plan Transactions with NCI Balance at 30 June 2015 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Contributions of equity, net of transaction costs Employee share awards issued Distribution reinvestment plan Balance at 30 June 2016 1,896 276 – – – – 1 17 – 18 1,914 – – – 107 1 14 122 2,036 – – – – – 3 – 3 279 – – – 20 – 3 23 302 (46) – (43) (43) – – – (56) (56) (145) – (31) (31) – – – – (176) (394) (134) – (134) – – – – – (528) (154) – (154) – – – – (682) 107 (8) 25 17 9 – – (133) (124) – – – – – – – – – (57) (142) (18) (160) 9 – 3 (189) (177) (394) (154) (31) (185) 20 – 3 23 (556) The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes. 97 97 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Consolidated statement of cash flows 30 June 2016 Transurban Holding Trust Transurban International Limited Note (a) Cash flows from operating activities Receipts from customers Payments to suppliers Payments for maintenance of intangibles Transaction costs related to acquisitions Interest received Interest paid Income taxes (paid)/refunds received Net cash outflow from operating activities Cash flows from investing activities Payments for acquisition of subsidiary Payments for property, plant and equipment Payments for intangible assets Distributions received from equity accounted investments Net cash outflow from investing activities Cash flows from financing activities Loans (to)/from related parties Repayment of loans from/(to) related parties Proceeds from issue of shares Proceeds from borrowings(net of cost) Repayment of borrowings Payment for acquisition of non-controlling interest Distributions paid to Transurban Group's security holders Distributions paid to non-controlling interests in Subsidiaries Proceeds from equity issued to non-controlling interests Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year 2016 $M 574 (2) – – 220 (495) – 297 (1,710) – (23) 94 (1,639) (278) (160) 821 2,541 (1,205) – (579) (55) 330 1,415 73 156 – 229 2015 $M 551 (42) – (311) 127 (413) (3) (91) (5,240) – (21) – (5,261) (1,590) 3,892 – 3,612 (1,056) – (515) (57) 1,147 5,433 81 75 – 156 2016 $M 167 (70) (1) – – (28) – 68 – (1) (19) – (20) 18 (26) 20 – – – – – – 12 60 179 6 245 (a) Reconciliation of (loss)/profit after income tax to net cash inflow from operation activities THT TIL Profit/(loss) for the year Depreciation and amortisation Non-cash net finance costs Capitalised interest income Net construction revenue Change in operating assets and liabilities: (Increase)/decrease in trade and other receivables (Decrease)/increase in related party operating loans Increase/(decrease) in unearned income Increase/(decrease) in trade creditors and accruals Increase/(decrease) in other operating provisions Increase/(decrease) in provision for income taxes payable Increase/(decrease) in maintenance provision Increase/(decrease) in other liabilities Net cash outflow from operating activities 2016 $M 173 276 36 (95) – (1) (208) – 112 – 1 – 3 297 2015 $M (97) 276 (3) (76) – 43 (260) 1 20 – 5 – – (91) 2016 $M (154) 37 82 – – (4) 115 – 2 – (31) 21 – 68 2015 $M 105 (83) (1) – – (24) – (3) – – (166) – (166) 236 (4) 9 117 – (189) – – – 169 – 147 32 179 2015 $M (142) 29 65 – (5) (10) 80 (10) (1) 10 (19) – – (3) The above consolidated statements of cash flows should be read in conjunction with the accompanying notes. 98 98 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 Basis of preparation and significant changes D1 Introduction The Transurban Holding Trust Group consists of Transurban Holding Trust (‘THT’) and the entities it controls (‘THT Group’) and the Transurban International Limited Group consists of Transurban International Limited (‘TIL’) and the entities it controls (‘TIL Group’). THT and TIL form part of the stapled Transurban Group. THT is registered as a managed investment scheme under Chapter 5C of the Corporations Act 2001, and as a result requires a responsible entity. The responsible entity of the THT is Transurban Infrastructure Management Limited (‘TIML’). TIML is the responsible entity of the Trust and is responsible for performing all functions that are required under the Corporations Act 2001 of a responsible entity. THT is a Trust registered and domiciled in Australia. TIL is a public company limited by shares and incorporated in Australia. Going concern TIL’s current liabilities exceed its current assets by $1,328 million as at 30 June 2016. This is primarily attributable to a $1,560 million loan payable to another entity within the Transurban Group. Excluding this loan, the TIL Group has net current assets of $232 million. Under the stapling arrangement, each entity is able to provide direct and / or indirect support to each other entity and its controlled entities within the Transurban Group. The financial reports have been prepared on a going concern basis, which assumes the continuity of normal operations. D2 Trust formation and termination The Transurban Holding Trust was established on 15 November 2001 and has no termination date. The Trust was registered as a managed investment scheme by the Australian Securities and Investments Commission on 28 November 2001. 99 99 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 Operating performance D3 Segment information Refer to note B4 for further information around the structure of the segments for the Transurban Group. THT operating segments Management has determined that THT has one operating segment. THT operations involve the leasing of assets and the provision of funding to the Transurban Group or associates of the Transurban Group. All revenues and expenses are directly attributable to these activities. The management structure and internal reporting of the Trust are based on this one operating segment. TIL operating segments Management has determined that TIL has one operating segment. TIL operations involve the development, operation and maintenance of toll roads in the Greater Washington Area. All revenues and expenses are directly attributable to these activities. The management structure and internal reporting of TIL are based on this one operating segment. Reconciliation of segment information to statutory financial information Segment information for TIL as disclosed in the Transurban Group segment note at B4 is reconciled to the TIL statutory financial information below. Segment revenue Revenue from external customers is through toll and fee revenues earned on toll roads. There are no inter- segment revenues. Segment revenue reconciles to total statutory revenue as follows: Total segment revenue (proportional) Add: Revenue attributable to non-100% owned consolidated assets Construction revenue from road development activities Total revenue Reconciliation of proportional EBITDA to statutory profit for the year Proportional EBITDA reconciles to statutory net profit as follows: Proportional EBITDA Add: EBITDA attributable to non-100% owned and consolidated assets Statutory earnings before depreciation and amortisation, net finance costs, equity accounted investments and tax Statutory net finance costs Statutory depreciation and amortisation Loss before tax for the year from continuing operations TIL1 2016 $M 174 – – 174 TIL1 2016 $M 86 – 86 (234) (37) (185) 2015 $M 81 10 144 235 2015 $M 33 2 35 (165) (29) (159) 1. Following the acquisition of the non-controlling interest in the GWA assets on 29 June 2015, the proportional ownership of the GWA assets is reported at 100% from 1 July 2015. Prior to this, the proportional ownership interest in the 95 Express Lanes and 495 Express Lanes were 77.5% and 94.0% respectively. 100 100 2016 Transurban Annual Report D4 Revenue Toll revenue1 Rental income Construction revenue Other revenue Concession fees Total revenue Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 THT TIL 2016 $M – 575 35 1 30 641 2015 $M – 546 18 1 28 593 2016 $M 174 – – – – 174 2015 $M 86 – 147 2 – 235 1. The presentation of comparative amounts has been restated to reflect the change of toll revenue to now include toll revenue and service and fee revenue. Revenue type Recognition Rental income Rental income is derived from property held by THT and is recognised in profit and loss in accordance with the lease contract. Concession fees Other income from concession fees relates to the CityLink concession notes. Pursuant to the Agreement for the Melbourne CityLink Concession Deed (the Concession Deed), CityLink Melbourne Limited (‘CityLink’) (a member of the Transurban Group), is required to pay annual concession fees for the duration of CityLink's concession period. Until a certain threshold rate of return on the project is achieved, the payment of concession fees due under the Concession Deed can be satisfied by means of non-interest bearing concession notes. Following agreements reached with the State of Victoria (the State), the Group paid a total of $765 million to the State to have all current concession notes issued by the State assigned to Transurban Holding Trust, and the State directed CityLink to pay future concession notes to Transurban Holding Trust. Accordingly, CityLink continues to issue notes semi-annually to Transurban Holding Trust, and Transurban Holding Trust recognises concession note income from the issue of these notes, at the present value of expected future repayments. D5 Income tax TIL deferred tax assets and liabilities The balance comprises temporary difference attributable to: Accrued expenses Provisions Current and prior year losses Fixed assets/intangibles Cash flow hedges Tax assets/(liabilities) Set off of tax Net tax assets/(liabilities) Movements: Opening balance at 1 July Credited/(charged) to the statement of comprehensive income Credited /(charged) to equity Foreign exchange movements Transfer from deferred tax assets/liabilities Other Closing balance 30 June Deferred tax assets/(liabilities) to be recovered after more than 12 months Asset 2016 $M 2015 $M 7 21 260 42 34 364 (12) 352 239 78 13 8 (44) 70 364 364 8 – 167 43 21 239 (76) 163 109 104 7 15 – 4 239 239 Liability 2016 $M – – – (294) – (294) 12 (282) (210) (117) – (6) 44 (5) (294) (294) 2015 $M – – – (210) – (210) 76 (134) (108) (82) – (12) – (8) (210) (210) 101 101 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 Security holder outcomes D6 Distributions Refer to note B10 of the THL financial statements for the dividends/distributions paid and payable by the Group. Movements in distribution provision – THT Balance at 1 July 2014 Additional provision recognised Amounts paid Amounts reinvested Balance at 30 June 2015 Additional provision recognised Amounts paid Amounts reinvested Balance at 30 June 2016 D7 Earnings per stapled security Profit/(loss) attributable to ordinary security holders ($M) Weighted average number of securities (M) Basic and diluted earnings per security attributable to the ordinary security holders (Cents) Distribution to security holders $M Distributions to non-controlling interest in subsidiaries $M 322 630 (515) (111) 326 762 (579) (112) 397 39 64 (57) – 46 58 (55) – 49 Total $M 361 694 (572) (111) 372 820 (634) (112) 446 THT TIL 2016 209 1,982 10.5 2015 9 1,908 2016 (154) 1,982 2015 (134) 1,908 0.5 (7.8) (7.0) 102 102 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 Capital and borrowings D8 Reserves Refer to note B12 for a description of the nature and purpose of each reserve. THT Balance 1 July 2014 Revaluation Balance 30 June 2015 Revaluation Balance 30 June 2016 TIL Balance 1 July 2014 Revaluation, net of tax Currency translation differences Transactions with NCI Balance 30 June 2015 Revaluation, net of tax Currency translation differences Balance 30 June 2016 Cash flow hedges $M – 4 – – 4 (20) – (16) D9 Net finance income and costs Finance income Interest income from related parties Other interest income Net foreign exchange gains Re-measurement of promissory note payable Re-measurement of concession notes receivable Total finance income Finance costs Interest and finance charges paid/payable Unwind of discount on liabilities – other liabilities Unwind of discount on liabilities – promissory note Net foreign exchange losses Total finance costs Net finance costs Re-measurement of concession notes Cash flow hedges $M Share-based payments $M (40) (8) (48) (50) (98) 5 – 5 1 6 Share- based payments Foreign currency translation Transactions with non- controlling interests $M – – – – – – – – $M (44) – (47) – (91) – (11) (102) THT 2016 $M 477 8 2 – 63 550 (587) (3) (13) – (603) (53) 2015 $M 371 1 9 6 44 431 (502) – – – (502) (71) $M (2) – – (56) (58) – – (58) TIL 2016 $M – – – – – – (230) – – (4) (234) (234) Total $M (35) (8) (43) (49) (92) Total $M (46) 4 (47) (56) (145) (20) (11) (176) 2015 $M – – – – – – (154) – – (11) (165) (165) Re-measurement of concession notes represents the discount unwinding over the passage of time on these notes and the change in the payment profile of the concession notes. 103 103 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 D10 Borrowings Refer to note B14 for a description of each facility type. Current Term debt Non-current Working capital facilities Capital markets debt U.S. private placement Term debt TIFIA Total borrowings D11 Derivative and financial risk management The instruments used by the Group are described in note B15. 2016 $M THT 2016 $M 276 276 – 1,018 929 3,536 – 5,483 5,759 2015 $M – – 16 745 – 3,633 – 4,394 4,394 2015 $M – – – 608 – – 1,067 1,675 1,675 TIL 2016 $M – – – 626 – – 1,167 1,793 1,793 2015 $M Current THT TIL Non-current THT TIL Current THT TIL Non-current THT TIL – 11 – 11 – – – – – – – – 16 – 118 30 148 87 2 – 76 54 – 87 – 2 – – – 76 – 54 Assets Interest rate swap contracts – cash flow hedges Liabilities Interest rate swap contracts – cash flow hedges Cross currency interest rate swap contracts – cash flow hedges Market risk Foreign exchange risk Exposure to foreign currency risk at the reporting date, denominated in the currency in which the risk arises, was as follows: Receivables Payables Borrowings Cross-currency interest rate swaps Net exposure THT TIL 2016 USD $M 1,121 (1,084) (641) 641 37 2015 USD $M 1,110 (1,072) – – 38 2016 CHF $M – – (200) 200 – 2015 CHF $M – – – – – 2016 AUD $M 1 (9) – – (8) 2015 AUD $M 1 (8) – – (7) Sensitivity THT AUD/USD + 10 cents - 10 cents AUD/CHF + 10 cents - 10 cents Movement in post-tax profit Increase / (decrease) in equity 2016 $M 2015 $M (6) 8 – – (6) 7 – – 2016 $M (30) 42 (10) 17 2015 $M – – – – TIL’s profit and equity are not materially impacted by movements in foreign exchange. 104 104 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 D11 Derivative and financial risk management (continued) Interest rate risk THT and TIL are not materially impacted by movements in interest rates. As at the reporting date, the Group had the following variable rate borrowings and interest rate swap contracts outstanding: 2016 $M THT 229 (3,957) 3,957 229 TIL 245 (303) 303 245 2015 $M THT 156 (3,857) 3,417 (284) TIL 179 (293) 293 179 Cash and cash equivalents Floating rate borrowings Interest rate swaps (notional principal amount) Net exposure to interest rate risk Liquidity risk Contractual maturities of financial liabilities The amounts disclosed in the table are the contractual undiscounted cash flows of the Group’s financial liabilities. For interest rate swaps, the cash flows have been estimated using forward interest rates applicable at the end of the reporting period. For further information refer to note B15. THT 2016 $M Trade payables Borrowings Related party loans Interest rate swaps Cross-currency swaps Concession and promissory notes Other liabilities Total 2015 $M Trade payables Borrowings Related party loans Interest rate swaps Concession and promissory notes Total 1 year or less 142 443 634 44 22 – – 1,285 1 year or less 30 137 1,055 44 – Over 1 to 2 years – 1,003 763 37 21 – 14 1,838 Over 1 to 2 years – 1,031 991 31 – Over 2 to 3 years – 858 655 26 21 – 46 1,606 Over 2 to 3 years – 1,348 796 13 – 1,266 2,053 2,157 Over 3 to 4 years Over 4 to 5 years Over 5 years Total contractual cash flows Carrying amount – 1,222 409 10 21 – – 1,662 – 996 1,172 7 20 – – 2,195 – 2,615 3,123 18 (106) 181 – 5,831 142 7,137 6,756 142 (1) 181 60 14,417 142 5,759 5,101 129 30 34 53 11,248 Over 3 to 4 years Over 4 to 5 years Over 5 years Total contractual cash flows Carrying amount – 313 617 3 – 933 – 1,156 375 (2) – 1,529 – 1,114 3,348 (31) 170 4,601 30 5,099 7,182 58 170 30 4,394 5,573 62 20 12,539 10,079 105 105 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 D11 Derivative and financial risk management (continued) TIL 2016 $M Trade payables Borrowings Related party loans Interest rate swaps Total 2015 $M Trade payables Borrowings Related party loans Interest rate swaps Total 1 year or less 29 10 1,651 11 1,701 Over 1 to 2 years Over 2 to 3 years Over 3 to 4 years Over 4 to 5 years – 19 – 11 30 – 69 – 10 79 – 83 – 10 93 – 83 – 9 92 Over 5 years – 4,274 – 60 4,334 Total contractual cash flows Carrying amount 29 4,538 1,651 111 6,329 29 1,793 1,559 87 3,468 1 year or less Over 1 to 2 years Over 2 to 3 years Over 3 to 4 years Over 4 to 5 years Over 5 years Total contractual cash flows Carrying amount 39 20 1,480 9 1,548 – 22 – 8 30 – 22 – 7 29 – 71 – 6 77 – 84 – 5 89 – 4,579 – 34 4,613 39 4,798 1,480 69 6,386 39 1,675 1,398 54 3,166 106 106 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 Network summary Refer to the Network summary section of the Group financial statements for the intangible assets, maintenance provision, goodwill, and concession and promissory note accounting policies. D12 Intangible assets 2016 $M Concession assets Assets under construction Total THT TIL THT TIL THT Cost Accumulated amortisation Net book amount 11,505 (1,616) 9,889 2,681 (68) 2,613 31 – 31 7 – 7 11,536 (1,616) 9,920 2015 $M Concession assets Assets under construction Total THT TIL THT TIL THT Cost Accumulated amortisation Net book amount 9,671 (1,340) 8,331 2,593 (31) 2,562 83 – 83 – – – 9,754 (1,340) 8,414 Movement in intangible assets Opening balance 1 July 2014 Additions Acquisition of subsidiary Currency and other adjustments Transfer Amortisation charge Net book amount 30 June 2015 Additions Acquisition of subsidiary Currency and other adjustments Transfer Amortisation charge Net book amount 30 June 2016 Concession assets $M Assets under construction $M Total $M THT 3,586 – 5,240 – (219) (276) 8,331 50 1,710 – 74 (276) 9,889 TIL 1,289 – – 323 979 (29) 2,562 – – 88 – (37) 2,613 THT 55 19 – – 9 – 83 22 – – (74) – 31 TIL 676 142 – 161 (979) – – 7 – – – – 7 THT 3,641 19 5,240 – (210) (276) 8,414 72 1,710 – – (276) 9,920 TIL 2,688 (68) 2,620 TIL 2,593 (31) 2,562 TIL 1,965 142 – 484 – (29) 2,562 7 – 88 – (37) 2,620 D13 Other liabilities – concession and promissory notes M2 Motorway The face value of promissory notes on issue at 30 June 2016 is $181 million (2015: $170 million). The net present value at 30 June 2016 of the redemption payments relating to these promissory notes is $34 million (2015: $20 million). 107 107 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 Group structure D14 Equity accounted investments Set out below is the summarised financial information for the THT Group’s investments accounted for using the equity method. The summarised financial information presented below is on a 100 per cent basis. Refer to note B22 for the details of the NorthWestern Roads Group. THT NorthWestern Roads Group Summarised balance sheet – 100% Current assets Non-current assets Current liabilities Non-current liabilities Net assets Summarised statement of comprehensive income – 100% Revenue Depreciation and amortisation Other expenses Interest income Income tax expense Profit for the year Other comprehensive income Total comprehensive income 2016 $M – 2,503 (63) (1,346) 1,094 130 (34) (2) 50 (3) 141 – 141 The following table reconciles the above summarised financial information presented on a 100 per cent basis to the proportional amounts recognised by the Group Ownership interest Proportional total comprehensive income Profits not recognised Group's share of comprehensive income 50% 70 70 – 2015 $M 35 2,534 (64) (1,340) 1,165 128 (47) (5) 58 1 135 – 135 50% 68 68 – Reconciliation of summarised financial information Reconciliation of the summarised financial information presented to the carrying amount of the Group’s interest in associates THT Opening carrying value 1 July Transfer of Westlink M7 term loan note balance into equity accounted investment Group’s recognised share of total comprehensive income Distributions received Closing carrying value Cumulative losses not recognised NorthWestern Roads Group 50% 2016 $M 862 – – (94) 768 178 2015 $M – 892 – (30) 862 248 108 108 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 D15 Non-controlling interests Set out below is summarised financial information for each material subsidiary that has non-controlling interests that are material to THT. The amounts disclosed for each subsidiary are before inter-company eliminations. THT Summarised balance sheet Current assets Non-current assets Current liabilities Non-current liabilities Net assets Carrying amount of NCI Summarised statement of comprehensive income Revenue Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) Profit/(loss) allocated to NCI OCI allocated to NCI Summarised cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increases in cash and cash equivalents Transurban Queensland 37.5% Airport Motorway Trust 24.9% Total 2016 $M 2015 $M 265 7,106 (145) (4,064) 3,162 1,186 117 5,114 (21) (2,606) 2,604 976 259 (144) (70) (214) (54) (26) 240 (327) (24) (351) (123) (9) 104 (1,710) 1,630 24 (152) (5,240) 5,417 25 2016 $M 21 881 (198) (536) 168 42 106 72 4 76 18 1 59 – (59) – 2015 $M 21 867 (186) (539) 163 41 103 69 – 69 17 – 41 – (41) – 2016 $M 2015 $M 286 7,987 (343) (4,600) 3,330 1,228 138 5,981 (207) (3,145) 2,767 1,017 365 (72) (66) (138) (36) (25) 343 (258) (24) (282) (106) (9) 163 (1,710) 1,571 24 (111) (5,240) 5,376 25 109 109 2016 Transurban Annual Report Transurban Holding Trust and Transurban International Limited Notes to the THT and TIL financial statements 30 June 2016 Other D16 Related party transactions THT Transactions with related parties Rental income Interest income Interest expense Other expenses Outstanding balances with related parties Current receivables Non-current receivables Concession notes Current liabilities Non-current liabilities TIL Transactions with related parties Interest expense Other expenses Outstanding balances with related parties Loan to related parties Loan from related parties 1. Transactions and outstanding balances between THT/TIL and THL. D17 Parent entity financial information Summary financial information THL1 Joint ventures 2016 $’000 574,993 477,387 311,519 4,263 2015 $’000 545,914 335,706 241,630 4,408 2,376,501 5,966,590 959,850 – 5,101,395 2,468,660 5,701,214 866,153 628,947 4,943,438 2016 $’000 – – – – – – – – – 2015 $’000 – 35,569 – – – – – – – THL1 2016 $’000 127,373 7,470 2015 $’000 75,000 10,374 7,786 1,559,664 17,469 1,398,138 The individual financial statements for the parent entities (THT and TIL) show the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Net assets Contributed equity Reserves Retained earnings Shareholders’ equity Profit/loss for the year Exchange differences on translation of US operations, net of tax Total comprehensive income/(loss) THT 2016 $M 2,828 14,238 687 4,897 9,341 10,520 6 (1,185) 9,341 393 – 393 2015 $M 2,943 13,943 496 5,361 8,582 9,584 4 (1,006) 8,582 787 – 787 TIL 2016 $M 351 372 – – 372 302 69 1 372 3 11 14 2015 $M 338 338 3 3 335 279 58 (2) 335 (3) 58 55 110 110 2016 Transurban Annual Report 111 2016 Transurban Annual Report Independent auditor’s report to the stapled security holders of the Transurban Group Report on the financial report We have audited the accompanying financial report which comprises; • • • Transurban Holdings Limited (the Company), which comprises the consolidated balance sheet as at 30 June 2016, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Transurban Holdings Limited and its controlled entities (the Transurban Group). The Transurban Group comprises the Company and the entities it controlled at year’s end or from time to time during the financial year including the other members of the stapled group being Transurban International Limited and Transurban Holding Trust and their controlled entities. Transurban Holding Trust (the Trust), which comprises the consolidated balance sheet as at 30 June 2016, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Transurban Holding Trust and its controlled entities (THT). THT comprises the Trust and the entities it controlled at year’s end or from time to time during the financial year. Transurban International Limited (the International Company), which comprises the consolidated balance sheet as at 30 June 2016, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Transurban International Limited and its controlled entities (TIL). TIL comprises the International Company and the entities it controlled at year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the Transurban Holdings Limited, Transurban International Limited and Transurban Infrastructure Management the responsible entity of Transurban Holding Trust (collectively referred to as “the directors”) are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards, the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note B3, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 112 112 2016 Transurban Annual Report An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Transurban Group’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Transurban Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial reports of the Transurban Group, THT and TIL are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Transurban Group, THT and TIL financial position as at 30 June 2016 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations), the Corporations Regulations 2001 and (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note B3. Report on the Remuneration Report We have audited the remuneration report included in pages 22 to 39 of the directors’ report for the year ended 30 June 2016. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of the Transurban Group for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Chris Dodd Partner 113 Melbourne 9 August 2016 113 2016 Transurban Annual Report Security holder information The security holder information set out below was applicable as at 16 August 2016. Distribution of stapled securities The number of holders of stapled securities, which comprise one share in Transurban Holdings Limited, one share in Transurban International Limited and one unit in Transurban Holding Trust, was 92,322. The voting rights are one vote per stapled security. The percentage of total holdings held by or on behalf of the 20 largest holders of these securities was 78.20 per cent. The distribution of holders was as follows: Security grouping Total holders Stapled securities 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 999,999,999 Total 32,260 42,637 10,501 6,623 301 92,322 14,270,889 104,337,993 73,154,896 139,872,067 1,710,313,088 2,041,948,933 There were 2,936 holders of less than a marketable parcel of stapled securities. % of issued stapled securities 0.70 5.11 3.58 6.85 83.76 100.00 There were 2,041,948,933 stapled securities on issue. 20 largest holders of stapled securities Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED BNP PARIBAS NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LIMITED AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ARGO INVESTMENTS LIMITED AMP LIFE LIMITED AUSTRALIAN UNITED INVESTMENT COMPANY LIMITED UBS NOMINEES PTY LIMITED MILTON CORPORATION LIMITED NATIONAL NOMINEES LIMITED BOND STREET CUSTODIANS LIMITED CS FOURTH NOMINEES PTY LIMITED DIVERSIFIED UNITED INVESTMENT LIMITED WARBONT NOMINEES PTY LIMITED Total Substantial holders Substantial security holders as at 16 August 2016 were as follows: Number of stapled securities held % of issued stapled securities 551,573,307 312,740,911 263,746,986 186,208,419 138,429,344 37,512,642 35,056,921 18,335,264 8,575,552 6,855,155 5,785,989 5,210,443 4,000,000 3,950,967 3,512,975 3,300,782 3,123,900 3,015,831 3,000,000 2,900,000 27.01 15.32 12.92 9.12 6.78 1.84 1.72 0.90 0.42 0.34 0.28 0.26 0.20 0.19 0.17 0.16 0.15 0.15 0.15 0.14 1,596,835,388 78.20 Name UNISUPER COMMONWEALTH BANK OF AUSTRALIA 114 Number of stapled securities held % of issued stapled securities 255,358,756 121,869,397 12.55 6.42 2016 Transurban Annual Report This page intentionally left blank. 115 2016 Transurban Annual Report This page intentionally left blank. 116 2016 Transurban Annual Report This page intentionally left blank. 117 2016 Transurban Annual Report This page intentionally left blank. 118 2016 Transurban Annual Report Enquiries Enquiries about your Transurban stapled securities The stapled securities register is maintained by Computershare Investor Services Pty Ltd. If you have a question about your Transurban securities or distributions please contact: Computershare Yarra Falls 452 Johnston Street Abbotsford, Victoria 3067 Australia Mail The Registrar Computershare Investor Services Pty Ltd GPO Box 2975 Melbourne, Victoria 3001 Australia Phone (Australia ) 1300 555 159 (Overseas) +61 3 9415 4062 AUSTRALIA MELBOURNE (HEAD OFFICE) Level 23 Tower One, Collins Square 727 Collins Street Docklands Victoria 3008 SYDNEY Level 9 1 Chifley Square Sydney New South Wales 2000 BRISBANE 7 Brandl Street Eight Mile Plains Queensland 4113 MAILING ADDRESS Locked Bag 28 South Melbourne Victoria 3205 Phone +61 3 8656 8900 Fax +61 3 8656 8585 UNITED STATES WASHINGTON DC AREA 6440 General Green Way Alexandria VA 22312 United States Phone 571 419 6100 Email corporate@transurban.com
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