ck asset holdings limited 長江實業集團有限公司 · a letter from the board is set out on...

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult yourstockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or otherprofessional adviser.

If you have sold or transferred all your shares in CK Asset Holdings Limited, you should at once hand thiscircular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker orother agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take noresponsibility for the contents of this circular, make no representation as to its accuracy or completeness andexpressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole orany part of the contents of this circular.

CK ASSET HOLDINGS LIMITED長江實業集團有限公司(Incorporated in the Cayman Islands with limited liability)(Stock Code: 1113)

CONNECTED TRANSACTION AND MAJOR TRANSACTION

PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST SCHEMES OFALL OF THE STAPLED SECURITIES IN ISSUE OF APA

WHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGEAND FORMATION OF JOINT VENTURE

Independent Financial Adviserto the Independent Board Committee and Independent Shareholders

A letter from the Board is set out on pages 11 to 44 of this circular. A letter from the Independent BoardCommittee containing its advice and recommendation to the Independent Shareholders in respect of the JointVenture Transaction is set out on pages 45 to 46 of this circular. A letter from the Independent Financial Advisercontaining its advice and recommendation to the Independent Board Committee and Independent Shareholders inrespect of the Joint Venture Transaction is set out on pages 47 to 78 of this circular.

A notice convening the EGM to be held at the Grand Ballroom, 1st Floor, Harbour Grand Hong Kong, 23 OilStreet, North Point, Hong Kong on Tuesday, 30 October 2018 at 10:15 a.m. (or, in the event that a black rainstormwarning signal or tropical cyclone warning signal no. 8 or above is in force in Hong Kong at 8:00 a.m. on thatday, at the same time and place on Wednesday, 31 October 2018) is set out on pages N-1 to N-3 of this circular.A form of proxy for use at the EGM is also enclosed. Whether or not you are able to attend the EGM or anyadjournment thereof in person, you are requested to complete, sign and return the accompanying form of proxy inaccordance with the instructions printed thereon and deposit it to the Company’s principal place of business inHong Kong at 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong as soon as practicable and inany event not less than 48 hours before the time appointed for the holding of the EGM or any adjournmentthereof (as the case may be). Completion and return of the form of proxy will not preclude you from attendingand voting in person at the EGM or at any adjournment thereof if you so wish.

In the case of inconsistency between the Chinese version and the English version of this circular, the Englishversion will prevail.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

10 October 2018

Page

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3. Joint Venture Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

4. Information on the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5. Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

6. Information on the CKI Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

7. Information on the PAH Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

8. Reasons for, and benefits of, the Acquisition and Joint Venture Transaction . . . . 34

9. Financial effects of the Acquisition on the Group . . . . . . . . . . . . . . . . . . . . . . . . 36

10. Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

11. Waiver from strict compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . 38

12. EGM and voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

13. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

14. Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . 45

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . 47

APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . I-1

APPENDIX II – FINANCIAL INFORMATION OF THE TARGET GROUP . . II-1

APPENDIX III – UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . III-1

APPENDIX IV – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1

NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . N-1

CONTENTS

– i –

In this circular, the following expressions have the following meanings unless the contextotherwise requires:

“30 June 2018 Distribution” has the meaning given to it in the section headed“2. Acquisition – 2.2 Implementation of the TrustSchemes” in the Letter from the Board

“ACCC” the Australian Competition and Consumer Commission

“Acquisition” the proposed acquisition by Bidco of all of the TargetSecurities in issue from the Target Securityholders byway of the Trust Schemes to be carried outconcurrently with one another

“Announcement” the joint announcement of the Company, CKI, PAH andCKHH dated 13 August 2018 in relation to theAcquisition and the Joint Venture Transaction

“Approval Determination Date” the date on which the relevant meetings of shareholdersare held to consider the JV Transaction Shareholders’Approvals

“APT” Australian Pipeline Trust, a unit trust formed under thelaws of Australia and a registered managed investmentscheme

“APTIT” APT Investment Trust, a unit trust formed under thelaws of Australia and a registered managed investmentscheme

“ASIC” the Australian Securities and Investments Commission

“Asset/Business” has the meaning given to it in paragraph 2.3.10(vii) inthe section headed “2. Acquisition – 2.3 Conditions tothe Trust Schemes” in the Letter from the Board

“associate” has the meaning ascribed to such term in the ListingRules

“ASX” ASX Limited or the market operated by it, as thecontext requires

“AUD” Australian dollars, the official currency of Australia

“Bidco” CKM Australia Bidco Pty Ltd, an indirectwholly-owned subsidiary of JV Co and a companyincorporated under the laws of Australia with limitedliability

DEFINITIONS

– 1 –

“Board” the board of Directors

“business day(s)” a day other than a Saturday, Sunday, public holiday orbank holiday in Hong Kong, Sydney, Australia andLondon, United Kingdom and on which the StockExchange and the ASX are open for business of dealingin securities

“CKHH” CK Hutchison Holdings Limited, a companyincorporated in the Cayman Islands with limitedliability, the shares of which are listed on the MainBoard of the Stock Exchange (Stock Code: 1)

“CKI” CK Infrastructure Holdings Limited, a companyincorporated in Bermuda with limited liability, theshares of which are listed on the Main Board of theStock Exchange (Stock Code: 1038)

“CKI Group” CKI and its subsidiaries

“CKI Holdco” CKI Gas Infrastructure Limited, an indirectwholly-owned subsidiary of CKI which is incorporatedunder the laws of England and Wales

“Company” CK Asset Holdings Limited, a company incorporated inthe Cayman Islands with limited liability, the shares ofwhich are listed on the Main Board of the StockExchange (Stock Code: 1113)

“Company Holdco” CKA Holdings UK Limited, an indirect wholly-ownedsubsidiary of the Company which is incorporated underthe laws of England and Wales

“Company TransactionShareholders’ Approval”

if the Joint Venture Transaction does not proceed, theapproval by the Shareholders as required under theListing Rules for approving the Acquisition as a majortransaction for the Company. For the avoidance ofdoubt, the resolution for the Company TransactionShareholders’ Approval is resolution 1 of the Notice ofEGM

“connected person” has the meaning ascribed to such term in the ListingRules

“Consortium” the Company, CKI and PAH (until such time as any ofthem becomes a Non-Continuing Member), and“Consortium Member(s)” shall be construedaccordingly

DEFINITIONS

– 2 –

“Consortium FormationAgreement”

the consortium formation agreement dated12 August 2018 which was entered into between,among others, the Consortium Members, theConsortium Holdcos, the Consortium Midcos, JV Coand Bidco with respect to the direct or indirectsubscription for equity interest in JV Co and fundingfor the Acquisition

“Consortium Holdcos” the Company Holdco, CKI Holdco and PAH Holdcoand “Consortium Holdco” shall be construedaccordingly

“Consortium Midcos” a number of private limited liability companiesincorporated under the laws of England and Wales eachholding a certain percentage of the equity interest in JVCo and which, together, hold 100% of the equityinterest in JV Co and “Consortium Midco” shall beconstrued accordingly

“Corporations Act” the Australian Corporations Act 2001 (Cth), asmodified by any applicable ASIC relief

“Court” the Supreme Court of the New South Wales or suchother court of competent jurisdiction under theCorporations Act as Bidco and Target RE may agree

“Deloitte Australia” has the meaning given to it in the section headed“11. Waiver from strict compliance with the ListingRules” in the Letter from the Board

“Deloitte Hong Kong” has the meaning given to it in the section headed“11. Waiver from strict compliance with the ListingRules” of the Letter from the Board

“Director(s)” the director(s) of the Company

“DT1” The Li Ka-Shing Unity Discretionary Trust, of whichMr. Li Ka-shing is the settlor and, among others,Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary,and the trustee of which is TDT1

“DT2” a discretionary trust of which Mr. Li Ka-shing is thesettlor and, among others, Mr. Li Tzar Kuoi, Victor is adiscretionary beneficiary, and the trustee of which isTDT2

DEFINITIONS

– 3 –



“DUET Assets” the energy utility assets in Australia, the United States,the United Kingdom and Europe, consisting of fourseparate legal entities, being DUET Company Limited,DUET Finance Limited, DUET Investment HoldingsLimited and DUET Finance Trust, which together wereacquired by the Consortium in a transaction announcedby the Company, CKI, PAH and CKHH in anannouncement dated 16 January 2017

“EC Approval” the European Commission taking a decision (or deemedto have taken a decision) under Article 6(1)(b) of theEU Merger Regulation declaring the Joint VentureTransaction and the Acquisition (or part thereof)compatible with the common market

“EGM” the extraordinary general meeting of the Company to beheld on Tuesday, 30 October 2018 at 10:15 a.m. at theGrand Ballroom, 1st Floor, Harbour Grand Hong Kong,23 Oil Street, North Point, Hong Kong for the purposesof considering and, if thought fit, passing ordinaryresolutions to approve the Acquisition and the JointVenture Transaction, being the resolutions for theCompany Transaction Shareholders’ Approval and the JVTransaction Shareholders’ Approvals in respect of theCompany respectively

“End Date” 31 March 2019, or such other date as is agreed byBidco and Target RE

“Enlarged Group” the Group as enlarged by the Acquisition

“Explanatory Memorandum” the information booklet to be despatched to TargetSecurityholders which must include a notice of meetingand proxy form for the proposed resolutions to be putto the Target Securityholders as detailed in paragraph2.3.5 of the section headed “2. Acquisition –2.3 Conditions to the Trust Schemes” in the Letter fromthe Board

DEFINITIONS

– 4 –

“FIRB” the Australian Foreign Investment Review Board

“FIRB Act” the Foreign Acquisitions and Takeovers Act 1975 (Cth)

“Funding Date” three business days prior to the implementation date ofthe Trust Schemes or such other date agreed by theparties to the Consortium Formation Agreementprovided that such date is at least two business daysbefore the implementation date of the Trust Schemes

“Group” the Company and its subsidiaries

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong” the Hong Kong Special Administrative Region of thePeople’s Republic of China

“IFRS” the International Financial Reporting Standards

“Implementation Agreement” the implementation agreement dated 12 August 2018and entered into by the Company, Bidco, the Target,CKI and PAH in respect of the Trust Schemes

“Independent BoardCommittee”

the independent board committee of the Boardestablished to advise the Independent Shareholders onthe Joint Venture Transaction, comprising Mr. ChowNin Mow, Albert, Ms. Hung Siu-lin, Katherine andMr. Donald Jeffrey Roberts, being independentnon-executive Directors

“Independent Expert” the independent expert appointed by Target REpursuant to the Implementation Agreement

“Independent FinancialAdviser” or “Anglo Chinese”

Anglo Chinese Corporate Finance, Limited, acorporation licensed to carry on type 1 (dealing insecurities), type 4 (advising on securities), type 6(advising on corporate finance), and type 9 (assetmanagement) regulated activities under the SFO, andwhich is the independent financial adviser to theIndependent Board Committee and the IndependentShareholders in respect of the Joint Venture Transaction

“Independent Shareholders” Shareholders other than those who have a materialinterest in the Joint Venture Transaction

“Joint Venture Transaction” the arrangements contemplated under the ConsortiumFormation Agreement and the Shareholders’ Agreementto form the Consortium and to effect the Acquisition

DEFINITIONS

– 5 –

“JV Co” CKM UK Holdings Limited, a private limited liabilitycompany, which is incorporated under the laws ofEngland and Wales, and an indirect holding companyof Bidco

“JV Transaction Shareholders’Approvals”

(a) the approval by the shareholders (excluding anyshareholders with a material interest in the JointVenture Transaction) of each of the Company, CKI andPAH as required under the Listing Rules for approvingthe Joint Venture Transaction as a connected transactionfor each of them, and (b) the approval by theIndependent Shareholders of the Company as requiredunder the Listing Rules for approving the Joint VentureTransaction and the Acquisition by Bidco (as an entitywhich shares are held as to 60% or 80% by theCompany) as major transactions for the Company, ineach case by the Approval Determination Date, andeach a “JV Transaction Shareholders’ Approval”. Forthe avoidance of doubt, the resolution for the JVTransaction Shareholders’ Approvals in respect of theCompany is resolution 2 of the Notice of EGM

“Latest Practicable Date” 3 October 2018, being the latest practicable date priorto the printing of this circular for the purpose ofascertaining certain information contained in thiscircular

“Letter from the Board” the letter from the Board contained in this circular

“Letter from the IndependentBoard Committee”

the letter from the Independent Board Committeecontained in this circular

“Listing Rules” the Rules Governing the Listing of Securities on theStock Exchange (as amended, supplemented orotherwise modified from time to time)

“Longstop Date” 12 February 2020, being the date falling 18 monthsafter the date of the Consortium Formation Agreement

“Main Board” the Main Board of the Stock Exchange

“Maximum FinancialCommitment”

in relation to a Consortium Member and itssubsidiaries, the maximum financial commitment ofsuch Consortium Member and its subsidiaries under theJoint Venture Transaction, based on the SchemeConsideration and the transaction costs

DEFINITIONS

– 6 –

“Non-Continuing Member(s)” means:

(a) CKI, if one or both of the JV TransactionShareholders’ Approvals in respect of theCompany and CKI is/are not obtained on theApproval Determination Date; and/or

(b) PAH, if one or both of the JV TransactionShareholders’ Approvals in respect of theCompany and PAH is/are not obtained on theApproval Determination Date

“Notice of EGM” the notice convening the EGM, as set out on pages N-1to N-3 of this circular

“PAH” Power Assets Holdings Limited, a companyincorporated in Hong Kong with limited liability, theshares of which are listed on the Main Board of theStock Exchange (Stock Code: 6)

“PAH Group” PAH and its subsidiaries

“PAH Holdco” PAH Gas Infrastructure Limited, an indirectwholly-owned subsidiary of PAH which is incorporatedunder the laws of England and Wales

“percentage ratios” have the meaning ascribed to such term in Chapter 14of the Listing Rules

“Respective Proportion(s)” means:

(a) in relation to the Company, 60%;

(b) in relation to CKI, 20%; and

(c) in relation to PAH, 20%

“Respective ProportionsDetermination Side Letter”

a letter agreement dated 5 October 2018 between theCompany, CKI and PAH, together with the other partiesof the Consortium Formation Agreement, pursuant towhich the Respective Proportions and the RevisedRespective Proportions have, among other things, beendetermined and agreed

DEFINITIONS

– 7 –

“Revised RespectiveProportion(s)”

means:

(a) in the event that PAH becomes a Non-ContinuingMember:

(i) in relation to the Company, 80%; and

(ii) in relation to CKI, 20%; and

(b) in the event that CKI becomes a Non-ContinuingMember:

(i) in relation to the Company, 80%; and

(ii) in relation to PAH, 20%

“Sale Shares” have the meaning given to it in paragraph 3.2.6 in thesection headed “3. Joint Venture Transaction – 3.2 TheShareholders’ Agreement” in the Letter from the Board

“Scheme Consideration” the consideration payable by Bidco for the transfer toBidco of the Target Securities held by a TargetSecurityholder in accordance with the ImplementationAgreement, which is AUD11.00 (equivalent toapproximately HK$63.80) per Target Security

“Second Judicial Advice” has the meaning given to it in paragraph 2.3.6 in thesection headed “2. Acquisition – 2.3 Conditions to theTrust Schemes” in the Letter from the Board

“SFO” the Securities and Futures Ordinance, Chapter 571 ofthe Laws of Hong Kong (as amended, supplemented orotherwise modified from time to time)

“Shareholder(s)” the holders of Shares

“Shareholders’ Agreement” the shareholders’ agreement to be entered into betweenthe Company, the other Consortium Members, theConsortium Midcos and JV Co to govern theshareholder relationship in JV Co as well as thedownstream businesses of the Target

“Shares” ordinary shares in the capital of the Company with anominal value of HK$1.00 each

“Special Distribution” has the meaning given to it in the section headed“2. Acquisition – 2.2 Implementation of the TrustSchemes” in the Letter from the Board

DEFINITIONS

– 8 –

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Supplemental FinancialInformation”

has the meaning given to it in the section headed“11. Waiver from Strict Compliance with the ListingRules” in the Letter from the Board

“Target” the ASX-listed stapled entity known as APA whichcomprises APT and APTIT, and a reference to “Target”is to any one or more of APT or APTIT (as the contextrequires)

“Target FY 2018 report” has the meaning given to it in the section headed“11. Waiver from Strict Compliance with the ListingRules” in the Letter from the Board

“Target Group” the Target and its subsidiaries and controlled entities

“Target Joint Venture Entity” any entity in which a member (or members, inaggregate) of the Target Group has an ownershipinterest of less than 100%

“Target RE” Australian Pipeline Limited, a public companyincorporated under the laws of Australia, whoseregistered office is at Level 25, 580 George Street,Sydney NSW 2000, Australia, in its capacity as theresponsible entity of APT and APTIT

“Target Scheme Meeting(s)” the meeting or meetings of the unitholders of APT andAPTIT to consider the Trust Schemes

“Target Securities” the stapled securities of the Target, each comprisingone unit in APT and one unit in APTIT, which arequoted on the ASX (ASX Code: APA)

“Target Securityholders” each person registered as the holder of TargetSecurities

“TDT1” Li Ka-Shing Unity Trustee Corporation Limited, acompany incorporated in the Cayman Islands, which isthe trustee of DT1

“TDT2” Li Ka-Shing Unity Trustcorp Limited, a companyincorporated in the Cayman Islands, which is thetrustee of DT2

“TDT3” Li Ka-Shing Castle Trustee Corporation Limited, acompany incorporated in the Cayman Islands, which isthe trustee of DT3

DEFINITIONS

– 9 –

“TDT4” Li Ka-Shing Castle Trustcorp Limited, a companyincorporated in the Cayman Islands, which is thetrustee of DT4

“Trust” DT1, DT2, DT3, DT4, UT1 and UT3, and where thecontext requires, any of them

“Trustee Shares” 1,028,753,254 Shares in the Company held by thetrustees of the Trust and/or their relevant subsidiariesas at the date of the Implementation Agreement,representing approximately 27.82% of the issued sharecapital and voting rights in the Company as at that date

“Trust Schemes” the arrangement, to be implemented in accordance withAustralian Takeovers Panel Guidance Note 15 (TrustScheme Mergers), ASIC Regulatory Guide 74 andfacilitated by amendments to the constitutions of APTand APTIT, under which Bidco will acquire all of theTarget Securities from Target Securityholders

“UK Gas Group” a body with members comprising companies involvedin gas investments globally (currently in Australia andthe United Kingdom) to provide a discussion forumamong its members

“UK Gas ExCo” the executive committee of the UK Gas Group

“UT1” The Li Ka-Shing Unity Trust

“UT3” The Li Ka-Shing Castle Trust

“Voting Undertaking” has the meaning given to it in paragraph 2.7(ii) in thesection headed “2. Acquisition” in the Letter from theBoard

“%” per cent

Note: The figures in “AUD” are converted into HK$ at a rate of AUD1.00 : HK$5.80 (being the exchange rateused in the Announcement) throughout this circular for indicative purposes only, and should not beconstrued as a representation that any amount has been, could have been or may be, exchanged at this orany other rate.

DEFINITIONS

– 10 –


Registered Office: PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman IslandsPrincipal Place of Business: 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong

Board of DirectorsExecutive DirectorsLI Tzar Kuoi, Victor Chairman and Managing Director

KAM Hing Lam Deputy Managing Director

IP Tak Chuen, Edmond Deputy Managing Director

CHUNG Sun Keung, DavyCHIU Kwok Hung, JustinCHOW Wai KamPAU Yee Wan, EzraWOO Chia Ching, Grace

Company SecretaryEirene YEUNG

Independent Non-executive DirectorsCHEONG Ying Chew, HenryCHOW Nin Mow, AlbertHUNG Siu-lin, KatherineColin Stevens RUSSELDonald Jeffrey ROBERTS

10 October 2018

Dear Shareholder(s),




1. INTRODUCTION

Reference is made to the Announcement of the Company, CKI, PAH and CKHH on13 August 2018 in relation to the Acquisition and the Joint Venture Transaction.

As stated in the Announcement:

(i) on 12 August 2018, a consortium comprising the Company, CKI and PAH enteredinto the Implementation Agreement with Bidco and the Target to implement theAcquisition; and

LETTER FROM THE BOARD

– 11 –

(ii) in connection with the Acquisition, the Company, CKI and PAH (being theConsortium Members) have also entered into the Consortium FormationAgreement on 12 August 2018 pursuant to which, subject to the fulfilment ofcertain conditions, the relevant Consortium Members will enter into the JointVenture Transaction to, among other things, form the Consortium, enter into theShareholders’ Agreement and indirectly fund the Acquisition by Bidco accordingto the Respective Proportions or the Revised Respective Proportions (as the casemay be).

On 5 October 2018, the Company, CKI and PAH entered into the RespectiveProportions Determination Side Letter and determined and agreed the final percentagesmaking up the Respective Proportions and the Revised Respective Proportions asfollows:

(i) if all three of the Company, CKI and PAH will participate in the Joint VentureTransaction, the Respective Proportions of the Company, CKI and PAH should berespectively 60%, 20% and 20%; and

(ii) if the Company and only one of CKI or PAH will participate in the Joint VentureTransaction, the Revised Respective Proportions of the Company and CKI or PAHshould be respectively 80% and 20%.

The participation of the Company, CKI and PAH in the Joint Venture Transaction issubject to, among other conditions, obtaining the necessary JV TransactionShareholders’ Approvals. If such conditions are not fulfilled, the Joint VentureTransaction will not proceed and the Company will, subject to obtaining the CompanyTransaction Shareholders’ Approval and the fulfilment of certain conditions, proceedwith the Acquisition alone. If the necessary JV Transaction Shareholders’ Approvals inrespect of only one of CKI’s or PAH’s participation in the Joint Venture Transactionare obtained, the composition of the Consortium shall be varied accordingly.

The purpose of this circular is to:

(i) provide you with further information regarding details of the Acquisition and theJoint Venture Transaction;

(ii) set out the recommendation of the Independent Board Committee to theIndependent Shareholders in relation to the Joint Venture Transaction;

(iii) set out the letter of advice from the Independent Financial Adviser to theIndependent Board Committee and the Independent Shareholders in relation to theJoint Venture Transaction;

(iv) give Shareholders the Notice of the EGM at which the Company TransactionShareholders’ Approval and the JV Transaction Shareholders’ Approvals in respectof the Company will be sought; and


– 12 –

(v) provide Shareholders with other information required under the Listing Rules inconnection with the Acquisition and the Joint Venture Transaction, including butnot limited to audited financial information on the Target Group for the financialyears ended 30 June 2016, 2017 and 2018 and certain pro forma financialinformation of the Enlarged Group.

2. ACQUISITION

On 12 August 2018, the Company, the other Consortium Members, Bidco and theTarget entered into the Implementation Agreement in connection with the Acquisition.The Acquisition and the Implementation Agreement are not conditional on thecompletion of the Joint Venture Transaction but are conditional upon obtaining theCompany Transaction Shareholders’ Approval and the fulfilment of certain otherconditions as set out in the Implementation Agreement.

If the conditions to the Joint Venture Transaction are not fulfilled and the Joint VentureTransaction does not proceed:

(i) the Consortium will not be formed and Bidco will remain wholly-owned by theCompany;

(ii) CKI’s and PAH’s participation in the Acquisition, including to provide guaranteesin respect of the relevant obligations of Bidco under the ImplementationAgreement as set out in section 2.4 below, will lapse;

(iii) subject to the Company obtaining the Company Transaction Shareholders’Approval and the Trust Schemes becoming effective, the Company will proceedwith the Acquisition on the terms and conditions of the ImplementationAgreement alone;

(iv) the guarantee in respect of the relevant obligations of Bidco under theImplementation Agreement as set out in section 2.4 below will be provided solelyby the Company (namely, as to 100%);

(v) the Scheme Consideration and transaction costs and estimated stamp duty payableby the Company under the Implementation Agreement will be up toAUD13,166 million (equivalent to approximately HK$76,363 million); and

(vi) the Company intends to finance the Scheme Consideration and transaction costsunder the Implementation Agreement from its internal resources and/or externalborrowings.

The principal terms of the Implementation Agreement are as follows:


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2.1 The outline of the Trust Schemes

Subject to the Trust Schemes becoming effective in accordance with theirrespective terms, the general effect of the Trust Schemes will be as follows:

(i) all of the Target Securities will be transferred to Bidco in accordance withthe terms of the Trust Schemes; and

(ii) in consideration for the transfer to Bidco of all of the Target Securities, theTarget Securityholders will receive the Scheme Consideration in accordancewith the terms of the Trust Schemes.

2.2 Implementation of the Trust Schemes

Target RE agrees to take all reasonable steps to implement the Trust Schemes.Bidco and the Consortium Members agree to take all reasonable steps to assistTarget RE in the implementation of the Trust Schemes and, if the Trust Schemesbecome effective, to pay the Scheme Consideration. The implementation of theTrust Schemes is subject to certain conditions as described in section 2.3 below.

Based on the Scheme Consideration of AUD11.00 (equivalent to approximatelyHK$63.80) per Target Security held by a Target Securityholder and the totalnumber of Target Securities in issue as at the Latest Practicable Date, being1,179,893,848 Target Securities, the Scheme Consideration for all the TargetSecurities would be approximately AUD12,979 million (equivalent toapproximately HK$75,278 million). The Scheme Consideration was determinedbased on the Consortium’s valuation of the Target’s businesses.

Pursuant to an announcement by the Target on 22 August 2018, Target RE shallpay to the Target Securityholders a cash distribution equal to AUD0.24(equivalent to approximately HK$1.39) per Target Security for the six monthsended 30 June 2018 (the “30 June 2018 Distribution”), and no adjustment willbe made to the Scheme Consideration payable by Bidco as a result of the 30 June2018 Distribution.

If the Trust Schemes are implemented after 31 December 2018, Target RE maypay to the Target Securityholders a cash distribution of up to AUD0.04(equivalent to approximately HK$0.23) per Target Security for each full calendarmonth between 31 December 2018 up to, and including, the date the TrustSchemes are implemented (except that in respect of March 2019, if the TrustSchemes are implemented on or after 29 March 2019, AUD0.04 (equivalent toapproximately HK$0.23) per Target Security shall be payable for March 2019)(the “Special Distribution”). No adjustment will be made to the SchemeConsideration payable by Bidco as a result of the Special Distribution.

The implementation of the Trust Schemes will be subject to the terms of theImplementation Agreement and other customary conditions contained therein.


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2.3 Conditions to the Trust Schemes

Each of the Trust Schemes are inter-conditional and shall be implemented at thesame time. In order for the Trust Schemes to become effective, the followingconditions precedent must be satisfied:

2.3.1 either:

(i) the Treasurer of the Commonwealth of Australia (or his delegate)provides a written no objection notification under the FIRB Act to theAcquisition either without conditions or subject only to (a) tax-relatedconditions which are in the form, or substantially in the form, of thoseset out in Part A of Attachment A of FIRB Guidance Note 47 on ’TaxConditions’ (in the form released on 24 November 2016) and (b) anyconditions that Bidco reasonably considers to be acceptable; or

(ii) following notice of the Acquisition having been given by Bidco to theTreasurer of the Commonwealth of Australia under the FIRB Act, theTreasurer has ceased to become empowered to make any order underPart 3 of the FIRB Act because the applicable time limited on makingorders and decisions under the FIRB Act has expired;

2.3.2 ASIC and ASX issue or provide any consents or approvals, or do any otheracts, which Target RE and Bidco agree are reasonably necessary or desirableto implement the Trust Schemes, and those consents, approvals or other actshave not been withdrawn or revoked at that time, including:

(i) ASIC granting a modification of item 7 of section 611 of theCorporations Act allowing the Target Securityholders (other than thoseexcluded from voting because they are associates of Bidco) to vote infavour of the implementation of the Trust Schemes at the TargetScheme Meeting;

(ii) Target RE obtaining relief from the requirement to provide a financialservices guide in connection with the Explanatory Memorandum;

(iii) ASIC granting relief from prohibitions on making unsolicited offers toacquire Target Securities under the Acquisition under the CorporationsAct; and

(iv) ASX confirming that it does not object to the proposed amendments tothe constitutions of APT and APTIT to be made in connection with theimplementation of the Trust Schemes;


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2.3.3 ACCC advises Bidco in writing that it does not intend to oppose theAcquisition or does not intend to oppose the Acquisition subject toundertakings, commitments or conditions that Bidco reasonably considers tobe acceptable, and that advice has not been withdrawn or revoked;

2.3.4 the EC Approval is obtained;

2.3.5 the Target Securityholders approve the following resolutions by the requisitemajorities at the Target Scheme Meeting in accordance with the CorporationsAct:

(i) in respect of each of APT and APTIT, an ordinary resolution to approvethe Acquisition for the purposes of item 7 of section 611 of theCorporations Act including the acquisition of a relevant interest in allthe Target Securities by Bidco; and

(ii) conditional on the ordinary resolution referred to in sub-paragraph (i)above being duly approved, in respect of each of APT and APTIT, aspecial resolution for the purposes of section 601GC(1) of theCorporations Act to approve certain amendments to the constitutions ofeach of APT and APTIT which are required for the implementation ofthe Trust Schemes;

2.3.6 Target RE obtains confirmations from the Court under section 63 of theTrustee Act 1925 (NSW) confirming, among other things, that:

(i) Target RE would be justified in convening the Target Scheme Meeting;and

(ii) Target RE would be justified in proceeding to implement the TrustSchemes (the “Second Judicial Advice”);

2.3.7 the Company Transaction Shareholders’ Approval is obtained by the date thatis seven days before the date of the Target Scheme Meeting;

2.3.8 no Court or regulatory authority has issued or taken steps to issue an order,temporary restraining order, preliminary or permanent injunction, decree orruling or taken any action enjoining, restraining or otherwise prohibiting,materially restricting, making illegal or restraining the implementation of theTrust Schemes, or taken any material enforcement action or announced orcommenced any investigation against or involving a member of the TargetGroup, Bidco or the Consortium Members or any of their subsidiaries, andno such order, decree, ruling, other action or refusal is in effect as at8:00 a.m. (Sydney time) on the date on which the Second Judicial Advice isobtained;


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2.3.9 the Independent Expert provides the independent expert’s report to theTarget, stating that in its opinion the Trust Schemes are fair and reasonableand in the best interests of Target Securityholders before the date on whichthe Explanatory Memorandum is provided to ASIC, and the IndependentExpert does not change that opinion or withdraw its independent expert’sreport prior to the Target Scheme Meeting;

2.3.10 none of the “Target Prescribed Events”, which are events (including those setout below) specifically set out in the Implementation Agreement, occursbetween the date of the Implementation Agreement and 8:00 a.m. (Sydneytime) on the date on which the Second Judicial Advice is obtained:

(i) Target RE converts all or any of the Target Securities into a larger orsmaller number of securities, or a resolution is passed to do so;

(ii) any member of the Target Group reduces, or resolves to reduce, itscapital in any way, or reclassifies, combines, splits or redeems orrepurchases directly or indirectly any of its securities, other than toeffect a distribution of cash from: (a) a wholly-owned subsidiary ofTarget to its immediate holding entity or entities within the TargetGroup; or (b) a Target Joint Venture Entity to its securityholders on apro rata basis;

(iii) any member of the Target Group buys back or agrees to buy back anyof its securities, other than for cash consideration payable by: (a) awholly-owned subsidiary of Target to its immediate holding entity orentities within the Target Group; or (b) a Target Joint Venture Entity toits securityholders on a pro rata basis;

(iv) Target RE makes or declares, or announces an intention to make ordeclare, any distribution in respect of Target Securities (whether by wayof dividend, capital reduction or otherwise, and whether in cash or inspecie), other than the 30 June 2018 Distribution and any SpecialDistribution;

(v) any member of the Target Group issues or agrees to issue units, equitysecurities, options over its units or equity securities, or instrumentsconvertible into its units or equity securities, or issues or agrees toissue any other form of equity instrument, other than: (a) to an entity,all the issued shares or units of which are owned by one or moremembers of the Target Group, or (b) where the issuing entity is aTarget Joint Venture Entity, an issuance by the entity to itssecurityholders on a pro-rata basis (including where the members of theTarget Group who directly own an interest in a Target Joint VentureEntity subscribes, on a pro rata basis, for any additional securities as aresult of other members in the Target Joint Venture Entity not taking uptheir full entitlement), to fund the operation of the Target Joint VentureEntity in the ordinary course of its business;


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(vi) Target RE or the Target adopts a new constitution, makes any materialchange or repeals its respective constitution or a provision of it (otherthan pursuant to the amendments required for the implementation of theTrust Schemes);

(vii) any member of the Target Group acquires or disposes of, agrees toacquire or dispose of, or offers, proposes, announces a bid or tendersfor, any asset, security, entity, business or undertaking (or similarbusiness arrangement) (each an “Asset/Business”):

A. of any consideration or value, where the Asset/Business is, orinvolves assets or securities that are, located or issued outside ofAustralia; or

B. if sub-paragraph A above does not apply, the total consideration orvalue of which exceeds AUD50 million (equivalent toapproximately HK$290 million) (either individually or, in the caseof related businesses or classes of assets or a series of relatedtransactions, collectively),

other than:

C. a lease, licence or acquisition of an Asset/Business (other than asecurity, entity, business or undertaking (or similar businessarrangement)) in, or which is used in, the ordinary and usualcourse of business;

D. for a development or capital project which is one of the capitalprojects disclosed, or which is of a type consistent with the typesor categories of capital projects disclosed, to Bidco prior to thedate of the Implementation Agreement;

E. the acquisition or disposal of any financial Asset/Business (otherthan an entity, business or undertaking (or similar businessarrangement)) or financial instrument located outside Australia orissued by an entity that is located outside Australia, in each caseas part of the Target Group’s treasury management activities in theordinary course and consistent with past practice;

F. the transfer of an Asset/Business (other than a security in amember of the Target Group) to or from a member of the TargetGroup (where no party to the transaction is a Target Joint VentureEntity); or


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G. the transfer of a security in a member of the Target Group to orfrom a member of the Target Group (where no party to thetransaction is a Target Joint Venture Entity) that Bidco has givenits prior written consent to (such consent not to be unreasonablywithheld);

(viii) any member of the Target Group enters into, or materially varies orterminates, any contract that:

A. is not consistent with the Target Group’s past practice or wouldreasonably be expected to result in a credit rating downgrade byMoody’s Investor Services Limited or S&P Global Ratings of theTarget Group;

B. generates, or is expected to generate, annual revenue for theTarget Group in excess of AUD50 million (equivalent toapproximately HK$290 million) individually, or in excess ofAUD150 million (equivalent to approximately HK$870 million)when aggregated with all related contracts; or

C. generates, or is expected to generate, gross annual expenditure forthe Target Group in excess of AUD20 million (equivalent toapproximately HK$116 million) individually, or in excess ofAUD100 million (equivalent to approximately HK$580 million)when aggregated with all related contracts,

other than in relation to capital projects which have been disclosed, orwhich are of a type consistent with the types or categories of capitalprojects which have been disclosed, to Bidco prior to the date of theImplementation Agreement;

(ix) any member of the Target Group enters into any commitments forcapital expenditure on capital projects, other than commitments forcapital expenditure on capital projects:

A. under a legally binding contract entered into by a member of theTarget Group which has been disclosed to Bidco prior to the dateof the Implementation Agreement; or

B. which have been disclosed, or which are of a type consistent withthe types or categories of capital projects which have beendisclosed, to Bidco prior to the date of the ImplementationAgreement;


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(x) any member of the Target Group takes any action that is intended toresult in any asset becoming subject to economic regulation by theAustralian Energy Regulator, Economic Regulation Authority WesternAustralia or a similar body that is material to the Acquisition (takinginto account the entirety of the operations of the Target Group);

(xi) a claim is brought against any member of the Target Group (other thana frivolous or vexatious claim) which will or is likely to have anadverse effect on the Target in excess of AUD50 million (equivalent toapproximately HK$290 million) (excluding any amount recoverable, orreasonably considered to be recoverable, under a contract of insuranceto which a member of the Target Group is a party) or if any member ofthe Target Group becomes the subject of regulatory prosecution thatwill or is likely to have an adverse effect on the Target in excess ofAUD50 million (equivalent to approximately HK$290 million)(excluding any amount recoverable, or reasonably considered to berecoverable, under a contract of insurance to which a member of theTarget Group is a party) (either individually or in the case of relatedclaims or a series of related claims, collectively); or

(xii) the Target is delisted from ASX or the quotation on ASX of TargetSecurities is subject to suspension or cessation for five or morebusiness days other than due to, or as a result of, an action taken byBidco or a Consortium Member or at the request of the Target or TargetRE arising from the need to provide information to ASX in connectionwith acquisition proposals relating to the Target or its material assets,

provided that a “Target Prescribed Event” will not occur (among otherexceptions) where (a) the event is required or permitted by theImplementation Agreement, the Supplemental Deeds Poll or Deed Poll (asdefined in the Implementation Agreement), the Acquisition or thetransactions contemplated by any of them, (b) the event has been disclosedto Bidco prior to the date of the Implementation Agreement, (c) Target REhas first consulted with Bidco in relation to the event and Bidco or aConsortium Member has approved the proposed event or not objected to itwithin 5 business days of being so consulted, (d) the event is undertaken orimplemented by, or occurs in relation to, a Target Joint Venture Entity,without being authorised or permitted by a member of the Target Group, or(e) a Target Joint Venture Entity enters into any financing arrangement,agreement or instrument in relation to the financing of a capital projectwhich has been disclosed to the Bidco prior to the date of theImplementation Agreement; and

2.3.11 no “Target Material Adverse Change” occurs between the date of theImplementation Agreement and 8:00 a.m. (Sydney time) on the date onwhich the Second Judicial Advice is obtained, and “Target Material AdverseChange”, being an event, occurrence or matter that:


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(i) occurs after the date of Implementation Agreement;

(ii) occurs before the date of the Implementation Agreement but is onlyannounced or publicly disclosed after the date of the ImplementationAgreement; or

(iii) will or is likely to occur after the date of the ImplementationAgreement and which has not been publicly announced prior to the dateof the Implementation Agreement,

which has, has had or is reasonably likely to have, either individually orwhen aggregated with any event, occurrence or matters of a similar kind orcategory, the effect of (a) the consolidated net assets (but not including anydiminution in intangible assets) of the Target Group, taken as a whole, beingreduced by at least AUD500 million (equivalent to approximately HK$2,900million) against what it would reasonably be expected to have been but forthat event, occurrence or matter; or (b) the consolidated earnings beforeinterest, tax, depreciation and amortisation (excluding the value of any assetvalue adjustments) of the Target Group being reduced by at least AUD150million (equivalent to approximately HK$870 million) per financial year inany two or more financial years, but does not include:

A. any matter required or permitted by the Implementation Agreement, theSupplemental Deeds Poll or Deed Poll (as defined in theImplementation Agreement), the Acquisition or the transactionscontemplated by any of them;

B. any matter disclosed to Bidco prior to the date of the ImplementationAgreement (or which ought reasonably have been expected to arisefrom a matter, event or circumstance which was so disclosed);

C. any matter, event or circumstance which arises from:

(a) changes in commodity prices, exchange rates or interest rates;

(b) general economic, political or business conditions, includingmaterial adverse changes or major disruptions to, or fluctuationsin, domestic or international financial markets, and acts ofterrorism, war (whether or not declared), natural disaster or thelike;

(c) changes to accounting standards, laws or policies of a governmentagency in Australia; or


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(d) any law not in force as at the date of the ImplementationAgreement or the application, or any change in the application orinterpretation, by any regulatory authority of any law, requirement,obligation, principle, standard, policy, rule, regulation oradministrative practice in respect of which any member of theTarget Group is required to comply or which otherwise has anydirect or indirect impact on a member of the Target Group,

but excludes any matter, event or circumstances which has adisproportionate effect on the Target Group, taken as a whole, ascompared to other participants in the industries in which the TargetGroup operates; or

D. any change occurring with the written consent of Bidco or anyConsortium Member, or as a result of any action taken within thecontrol of Bidco or any Consortium Member.

Pursuant to the Implementation Agreement, Bidco is required to use its reasonableendeavours to satisfy or procure satisfaction of the conditions set out inparagraphs 2.3.1, 2.3.3, 2.3.4 and 2.3.7 above, Target RE is required to use itsreasonable endeavours to satisfy or procure satisfaction of the conditions set outin paragraphs 2.3.5, 2.3.6, 2.3.9, 2.3.10 and 2.3.11 above, and Bidco and TargetRE are required to each use its respective reasonable endeavours to satisfy orprocure the satisfaction of the conditions set out in paragraphs 2.3.2 and 2.3.8above.

Bidco and Target RE may jointly waive any condition set out in paragraphs 2.3.2,2.3.3, 2.3.6 and 2.3.8 above, Bidco may alone waive any condition set out inparagraphs 2.3.4, 2.3.7, 2.3.10 and 2.3.11 above, and Target RE may alone waivethe condition set out in paragraph 2.3.9. The conditions set out in paragraphs2.3.1 and 2.3.5 above may not be waived by either Bidco or Target RE.

The condition set out in paragraph 2.3.4 above will cease to apply and beautomatically waived if the JV Transaction Shareholders’ Approvals in respect ofthe Joint Venture Transaction are not obtained or if such condition is not satisfiedor waived on or before the date that is seven days before the date of the TargetScheme Meeting.

The condition set out in paragraph 2.3.7 above will cease to apply and beautomatically waived if the JV Transaction Shareholders’ Approvals in respect ofthe Joint Venture Transaction and EC Approval are obtained.

As at the Latest Practicable Date, the condition set out in paragraph 2.3.3 abovehas been satisfied, and the other conditions are yet to be satisfied.


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In connection with the condition set out in paragraph 2.3.3 above, ACCCannounced on 12 September 2018 that it will not oppose the Acquisition subjectto binding undertakings given by Bidco and the Consortium Members to disposeof certain assets of the Target Group following completion of the Trust Schemes,namely the Parmelia Gas Pipeline, the Goldfields Gas Pipeline, the Kalgoorlie toKambalda Pipeline and the Mondarra gas storage facility (the “Disposals”).

The Company and the other Consortium Members were aware of potentialconcerns which may be raised by the ACCC, particularly over the potentialoverlapping gas transmission and storage services in Western Australia. It wastherefore anticipated that the Disposals may be required, and the Company andthe other Consortium Members took into account the potential Disposals whendetermining their valuation of the Target Group’s businesses and agreeing theScheme Consideration at the time of execution of the Implementation Agreement.As the Disposals would be carried out with independent third parties on arms’length terms, thereby achieving market value for the Disposal assets, theCompany and the Consortium Members had expected that the Disposals wouldhave a neutral effect on the Scheme Consideration. As at the Latest PracticableDate, the Company and the other Consortium Members are not in anynegotiations, nor have they reached any agreement, with any third partiesregarding the Disposals.

The Disposal assets comprise gas transmission and storage services assets locatedwithin Western Australia. The Company and the Consortium Members understandfrom the Target Group that these assets have their own separate on-the-groundoperations teams, and therefore the Disposals would not have any impact on theoverall operations of the Target Group.

The Company will comply with the applicable requirements of the Listing Rulesas and when the Disposals materialise.

Upon the Trust Schemes becoming effective, the Trust Schemes will be bindingon all Target Securityholders, irrespective of whether they attended or voted at theTarget Scheme Meeting (and if they attended and voted, whether or not they votedin favour).

2.4 Guarantee

Under the Implementation Agreement, each of the Consortium Members agrees toguarantee, on a several basis and in its Respective Proportion or RevisedRespective Proportion (as applicable), the performance and observance by Bidcoof all of the obligations of Bidco under the Implementation Agreement (includingthe payment of the Scheme Consideration and the reverse break fee as set outbelow). However, the obligations of CKI and PAH to provide the guaranteesunder the Implementation Agreement are conditional on the necessary JVTransaction Shareholders’ Approvals being obtained. If the necessary JV


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Transaction Shareholders’ Approvals are not obtained, Bidco shall remain anindirect wholly-owned subsidiary of the Company in which case the Companyalone will provide the guarantee.

2.5 Exclusivity

Under the Implementation Agreement, Target RE has represented and warrantedthat, as at the date of that agreement, it is not in any negotiations or discussionsin respect of any competing transaction. During the period from the date of theImplementation Agreement until the earlier of termination of the ImplementationAgreement and the End Date, Target RE shall not (and shall procure itsrepresentatives shall not) directly or indirectly solicit, invite, encourage or initiateany competing transaction, or (subject to fiduciary duties or statutory obligationsof the directors of Target RE) negotiate or enter into, or participate in,negotiations or discussions with any other person regarding a competingtransaction.

2.6 Target break fee

Pursuant to the Implementation Agreement, Target RE has agreed to pay to Bidcoa break fee of AUD130 million (equivalent to approximately HK$754 million) if:

(i) at least a majority of the directors of Target RE fail to recommend to theTarget Securityholders that they vote in favour of the Trust Schemes or,having made such recommendation, withdraw their recommendation oradversely change their recommendation, provided that in each case Bidcohas terminated the Implementation Agreement (except where (A) that failureis because the Independent Expert does not give an opinion that theAcquisition is fair and reasonable and in the best interests of the TargetSecurityholders (other than where the reason for that opinion is a competingtransaction); (B) Target RE has validly terminated, or has the right toterminate, the Implementation Agreement due to Bidco being in material andunremedied breach of the Implementation Agreement; or (C) the conditionsin section 2.3 above are not satisfied other than as a result of a breach byTarget RE of its obligation to use reasonable endeavours to procuresatisfaction of such conditions); or

(ii) a competing transaction is announced or made prior to the date on which theSecond Judicial Advice is obtained and is completed within nine months ofthe Implementation Agreement being entered into.

In addition, Target RE has agreed to pay to Bidco a break fee of AUD50 million(equivalent to approximately HK$290 million) if Bidco validly terminates theImplementation Agreement due to Target RE being in material and unremediedbreach of the Implementation Agreement.


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Upon payment by Target RE of the break fees, Target RE shall not have anyfurther liabilities under the Implementation Agreement. The maximum aggregateliability of Target RE under or in connection with the Implementation Agreementis AUD50 million (equivalent to approximately HK$290 million) or, if anAUD130 million (equivalent to approximately HK$754 million) break fee ispayable as described above, AUD130 million (equivalent to approximatelyHK$754 million).

2.7 Recommendations and undertaking with respect to the Company TransactionShareholders’ Approval

Pursuant to the Implementation Agreement, the Company has agreed to procurethat:

(i) the Board states in this circular that the Board unanimously recommends thatShareholders approve the resolution for the Company TransactionShareholders’ Approval, and must not change that recommendation unlessthe Board determines that it must change the recommendation because ofany fiduciary or statutory duties to Shareholders; and

(ii) within five business days after this circular has been despatched toShareholders, the trustees of the Trust and/or their relevant subsidiaries whoare registered holders of the Trustee Shares, provide to the Target anirrevocable and unconditional undertaking to vote the Trustee Shares infavour of the resolution for the Company Transaction Shareholders’ Approval(the “Voting Undertaking”).

Please refer to section 13.1 below for the Board’s recommendation.

2.8 Reverse break fee

Pursuant to the Implementation Agreement, Bidco has agreed to pay to the Targeta reverse break fee of AUD50 million (equivalent to approximatelyHK$290 million) if:

(i) both of the following occur: (A) the Company has not procured the VotingUndertaking or the trustees of the Trust and/or their relevant subsidiarieswho are registered holders of the Trustee Shares fail to vote the TrusteeShares in favour of the resolution for the Company TransactionShareholders’ Approval in accordance with the Voting Undertaking; and(B) the EGM is held and the Company Transaction Shareholders’ Approvalis not obtained; or

(ii) Target RE validly terminates the Implementation Agreement due to Bidcobeing in material and unremedied breach of the Implementation Agreement.


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Upon payment by Bidco of the reverse break fee, Bidco and the relevantConsortium Members shall not have any further liabilities under theImplementation Agreement. The maximum aggregate liability of Bidco and theConsortium Members under or in connection with the Implementation Agreement(other than the obligation to pay the Scheme Consideration if the Trust Schemesbecome effective) is AUD50 million (equivalent to approximatelyHK$290 million).

2.9 End Date

If the Trust Schemes do not become effective on or before the End Date and theparties do not agree an extension of the End Date, then either Target RE or Bidcohas the right to terminate the Implementation Agreement.

2.10 Recommendation by and voting intentions of directors of Target RE

Pursuant to the Implementation Agreement, Target RE has agreed to procure that:

(i) the Target announcement that was released on the date of the Announcement,as well as the Explanatory Memorandum, states that the directors of TargetRE unanimously consider the Trust Schemes to be in the best interests ofTarget Securityholders and recommend that Target Securityholders approvethe Trust Schemes, subject to the Independent Expert concluding, andcontinuing to conclude, that the Trust Schemes are fair and reasonable and inthe best interests of Target Securityholders and subject also to there being nosuperior proposal for the Target; and

(ii) Target RE shall use its best endeavours to ensure that no Target RE directorchanges such a recommendation, unless the provisos in paragraph (i) aboveapplies or if the Target RE directors determine that they must change therecommendation because of any fiduciary or statutory duties to TargetSecurityholders.

3. JOINT VENTURE TRANSACTION

3.1 The Consortium Formation Agreement

In connection with the Acquisition, on 12 August 2018, the Company entered intothe Consortium Formation Agreement with, among others, the other ConsortiumMembers, JV Co, Consortium Midcos and Bidco in order to govern the formationof the Consortium, including the funding and operation of JV Co and Bidco forthe purposes of the Acquisition. Formation of the Consortium is subject toobtaining the necessary JV Transaction Shareholders’ Approvals and the fulfilmentof certain conditions.


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Subject to other conditions, including EC Approval, being fulfilled:

(i) the Company’s participation in the Joint Venture Transaction with CKI issubject to obtaining the JV Transaction Shareholders’ Approvals in respect ofthe Company and CKI;

(ii) the Company’s participation in the Joint Venture Transaction with PAH issubject to obtaining the JV Transaction Shareholders’ Approvals in respect ofthe Company and PAH; and

(iii) the Company’s participation in the Joint Venture Transaction with both CKIand PAH is subject to obtaining the JV Transaction Shareholders’ Approvalsin respect of the Company, CKI and PAH.

Assuming satisfaction of the other conditions, including EC Approval:

(i) if the JV Transaction Shareholders’ Approvals in respect of the Company,CKI and PAH are all obtained, the Joint Venture Transaction will proceedbetween the Company, CKI and PAH as to 60%, 20% and 20% respectively;

(ii) if the JV Transaction Shareholders’ Approvals in respect of the Companyand CKI are both obtained, but the JV Transaction Shareholders’ Approval inrespect of PAH is not obtained, the Joint Venture Transaction will proceedbetween the Company and CKI as to 80% and 20% respectively; and

(iii) if the JV Transaction Shareholders’ Approvals in respect of the Companyand PAH are both obtained, but the JV Transaction Shareholders’ Approvalin respect of CKI is not obtained, the Joint Venture Transaction will proceedbetween the Company and PAH as to 80% and 20% respectively.

As at the Latest Practicable Date, Bidco is an indirect wholly-owned subsidiary ofJV Co, which is in turn owned by the Consortium Midcos. The ConsortiumMidcos are then wholly-owned by the Company Holdco, a wholly-ownedsubsidiary of the Company.

The principal terms of the Consortium Formation Agreement are as follows:

3.1.1 Participation of the Consortium Members – JV Transaction Shareholders’Approvals and EC Approval

The EGM of the Company for obtaining the necessary JV TransactionShareholders’ Approvals in respect of the Company will be held in advanceof the Funding Date. The Company has been informed that the specialgeneral meeting of CKI and the general meeting of PAH for the purposes ofobtaining the JV Transaction Shareholders’ Approvals in respect of CKI andPAH will also be held in advance of the Funding Date.


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If:

(i) the JV Transaction Shareholders’ Approvals in respect of the Companyand CKI and the EC Approval are obtained, subject to the fulfilment ofcertain conditions, CKI, through its wholly-owned subsidiary CKIHoldco, will acquire the entire issued share capital in the relevantConsortium Midcos (so as to allow CKI to hold its final RespectiveProportion of interests in JV Co) from the Company Holdco. Followingsuch acquisition, such relevant Consortium Midcos will becomewholly-owned subsidiaries of CKI Holdco; and

(ii) the JV Transaction Shareholders’ Approvals in respect of the Companyand PAH and the EC Approval are obtained, subject to the fulfilment ofcertain conditions, PAH, through its wholly-owned subsidiary PAHHoldco, will acquire the entire issued share capital in the relevantConsortium Midcos (so as to allow PAH to hold its final RespectiveProportion of interests in JV Co) from the Company Holdco. Followingsuch acquisition, such relevant Consortium Midcos will becomewholly-owned subsidiaries of PAH Holdco.

If the relevant Consortium Midcos become wholly-owned subsidiaries ofCKI Holdco and PAH Holdco respectively, JV Co will be owned by theCompany, CKI and PAH in the Respective Proportions or RevisedRespective Proportions (as the case may be). In such case, the relevantConsortium Members, the Consortium Midcos and JV Co will enter into theShareholders’ Agreement, the principal terms of which are summarised underthe section headed “3. Joint Venture Transaction – 3.2 The Shareholders’Agreement” below.

Thereafter, if the conditions precedent to the Trust Schemes becomingeffective (as set out in the section headed “2. Acquisition – 2.3 Conditions tothe Trust Schemes” above) are satisfied or waived, each relevant ConsortiumHoldco (directly or indirectly, including through its wholly-ownedConsortium Midco(s)) will contribute its Respective Proportion (or RevisedRespective Proportion, as appropriate) of funding to JV Co by subscribingfor additional shares in JV Co and/or providing loans to JV Co and/or itswholly-owned subsidiary, which will in turn provide funding down to Bidcoto satisfy the Scheme Consideration and the transaction costs.

Please refer to the section headed “2. Acquisition” above for further detailsregarding the terms of the Acquisition.

Subject to the relevant JV Transaction Shareholders’ Approvals and the ECApproval being obtained, each of the relevant Consortium Members andBidco agrees to use its best endeavours to procure that the Trust Schemesare implemented in accordance with the Implementation Agreement.


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3.1.2 Maximum Financial Commitment

If all JV Transaction Shareholders’ Approvals and EC Approval are obtainedand the Consortium shall comprise the Company, CKI and PAH, theMaximum Financial Commitment of the Company will be up toapproximately AUD7,900 million (equivalent to approximately HK$45,818million), representing its Respective Proportion of the Scheme Considerationand the transaction costs under the Implementation Agreement. If, however,any necessary JV Transaction Shareholders’ Approval is not obtained suchthat the Consortium shall comprise the Company and only one of CKI orPAH, the Company is expected to assume the Respective Proportion of theNon-Continuing Member. As a result, the Maximum Financial Commitmentof the Company will be increased by the Respective Proportion of theNon-Continuing Member.

The Company intends to finance its Respective Proportion (or RevisedRespective Proportion, as applicable) of the Scheme Consideration and thetransactions costs under the Implementation Agreement from its internalresources and/or external borrowings.

If the Consortium is formed pursuant to the Joint Venture Transaction:

(i) JV Co will be indirectly held by the relevant Consortium Membersthrough the Consortium Midcos in the Respective Proportions (orRevised Respective Proportions, as applicable); and

(ii) (if either or both CKI and PAH are Consortium Members) the Targetwill be accounted for as a joint venture by the Company in itsconsolidated financial statements.

3.1.3 Termination

Among other things, the Consortium Formation Agreement will automaticallyterminate:

(i) on the Longstop Date;

(ii) if the JV Transaction Shareholders’ Approvals in respect of theCompany, on the one hand, or the JV Transaction Shareholders’Approvals in respect of both CKI and PAH, on the other hand, are notobtained on the Approval Determination Date;

(iii) if EC Approval with respect to the Joint Venture Transaction and/or theAcquisition is not obtained on or before the date that is seven daysbefore the date of the Target Scheme Meetings; or

(iv) if the Implementation Agreement is terminated in accordance with itsterms.


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If the necessary JV Transaction Shareholders’ Approvals and EC Approvalare obtained, the Consortium Formation Agreement will also be terminatedon the first business day following the indirect contribution of the relevantfunding by each Consortium Midco to JV Co as described in paragraph 3.1.1in this section above.

3.2 The Shareholders’ Agreement

Pursuant to the Consortium Formation Agreement, following the acquisition of therelevant Consortium Midcos by CKI Holdco and/or PAH Holdco (as applicable) inaccordance with the terms and conditions set out therein, the relevant ConsortiumMembers, the Consortium Midcos and JV Co will enter into the Shareholders’Agreement. Under the terms of the Shareholders’ Agreement, the relevantConsortium Members will agree on certain ongoing rights and obligationsgoverning their relationship as ultimate shareholders of JV Co and themanagement and operation of JV Co and the Target Group upon implementationof the Trust Schemes.

The principal terms of the Shareholders’ Agreement (as agreed under theConsortium Formation Agreement and the Respective Proportions DeterminationSide Letter) are as follows:

3.2.1 Board role and composition

The business of JV Co shall be managed by its board of directors, who mayexercise all the powers of JV Co subject to the terms and provisions of theShareholders’ Agreement, the articles of association or applicable laws. EachConsortium Holdco, through its relevant Consortium Midcos, shall have theright to procure the nomination of one director for appointment on the boardof directors of JV Co in respect of each 10% of the shares in JV Co itindirectly owns.

3.2.2 Quorum

The quorum for the transaction of business at any board meeting of JV Coshall be at least one director indirectly nominated by each relevantConsortium Member (through its Consortium Midco, as shareholder of JVCo) (unless a relevant Consortium Member procures its Consortium Midco towaive the quorum requirement to the extent that it relates to its nominateddirector(s) or if that Consortium Member, through its Consortium Midco, hasa conflict of interest), provided that if a quorum is not present (or ceases tobe present) at a board meeting, the board meeting shall be adjourned.

3.2.3 Voting on board resolutions

Except for reserved matters, all board resolutions of JV Co are made bysimple majority of directors present and entitled to vote on the resolution.


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A small number of board matters of JV Co require a special majority, beinga resolution which is approved by directors who together hold greater than85% of the total number of votes held by directors present and entitled tovote on the resolution. The matters subject to such special majority include,among other customary reserved matters:

(i) any change to the dividend and distribution policy;

(ii) the declaration, determination or payment of any dividend ordistribution by JV Co and its wholly-owned subsidiaries other than inaccordance with the dividend and distribution policy;

(iii) the acquisition of any assets or business which are not related to theoperation of the business of JV Co and its wholly-owned subsidiarieswhere the assets or business to be acquired have a value in excess of2% of the enterprise value of JV Co and its subsidiaries as determinedby the board of directors of JV Co from time to time;

(iv) the adoption and/or amendment of an annual business plan;

(v) the appointment or removal of the chief executive officer or chieffinancial officer of the Target Group; and

(vi) JV Co and its wholly-owned subsidiaries borrowing money in excess of3% (per annum in aggregate) of the enterprise value of JV Co and itssubsidiaries as determined by the board of directors of JV Co from timeto time.

3.2.4 Shareholder Reserved Matters

In addition, a number of fundamental corporate actions are expresslyreserved as shareholder matters. These include, among other things,amendments to JV Co’s constitution and (save for certain exceptions) theallotment and issue of share or loan capital by JV Co. JV Co and itswholly-owned subsidiaries cannot take any of these actions unless theresolution is approved by shareholders of JV Co who together hold greaterthan a 85% of the total number of votes held by shareholders of JV Copresent and entitled to vote on the resolution.

3.2.5 Dividend and distribution policy

Unless otherwise agreed as a shareholder reserved matter of JV Co, thedividend and distribution policy of JV Co and its wholly-owned subsidiariesshall be to maximize distributions subject to normal commercialconsiderations deemed appropriate by the relevant board of directors,including requirements for capital and operating expenditure, taxation and


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other liabilities and obligations and future potential acquisitions, andmaintenance of the then existing rating of JV Co and its wholly-ownedsubsidiaries.

3.2.6 Pre-emption rights

Unless a Consortium Midco, as shareholder of JV Co, is transferring some orall of its equity interest in JV Co held by it or its direct or indirectsubsidiaries to a member of its group as permitted under the Shareholders’Agreement (the “Sale Shares”), such Consortium Midco must first offerthese Sale Shares to the other shareholders of JV Co on a pro rata basis. Ifthe Sale Shares are not fully taken up by the aforesaid shareholders of JVCo, the selling Consortium Midco will be entitled to sell all of (and notsome of) the unsold Sale Shares within three months of completion of thepre-emption process.

4. INFORMATION ON THE TARGET GROUP

The Target is an owner and operator of energy infrastructure assets in Australia,including: energy infrastructure (comprising gas transmission, gas storage andprocessing, gas-fired and renewable energy power generation businesses located acrossAustralia), asset management services for the majority of the Target’s energyinvestments and for third parties, and energy investments in unlisted entities. It consistsof two separate entities, being APT and APTIT. The interests in these two entities(being the ordinary units in each of APT and APTIT) are traded together as stapledsecurities which are listed on the ASX (ASX Code: APA).

The principal assets currently owned and operated by the Target include:

(a) Wallumbilla Gladstone Pipeline, a gas transmission pipeline in Queensland,Australia;

(b) South West Queensland Pipeline, a gas transmission pipeline in Queensland,Australia;

(c) Moomba Sydney Pipeline, a gas transmission pipeline in New South Wales,Australia;

(d) Central West Pipeline, a gas transmission pipeline in New South Wales, Australia;

(e) Central Ranges Pipeline, a gas transmission pipeline in New South Wales,Australia

(f) Victorian Transmission System, a transmission system in Victoria, Australia;

(g) Dandenong LNG Storage Facility, a gas storage facility in Victoria, Australia;


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(h) Goldfields Gas Pipeline, a gas transmission pipeline in Western Australia,Australia; and

(i) Diamantina and Leichardt Power Stations, power stations in Queensland,Australia.

According to the audited consolidated financial statements of the Target Group for thefinancial years ended 30 June 2016, 30 June 2017 and 30 June 2018 prepared inaccordance with Australian Accounting Standards, the Corporations Act and otherauthoritative pronouncements of the Australian Accounting Standards Board and whichcomply with the IFRS as issued by the International Accounting Standards Board, theaudited consolidated profit before and after income tax of the Target Group for thefinancial years ended 30 June 2016, 30 June 2017 and 30 June 2018 are set out below:

Year ended 30 June2016 2017 2018

Profit before taxation AUD302 million(equivalent toapproximately

HK$1,752 million)

AUD386 million(equivalent toapproximately

HK$2,239 million)


HK$2,494 million)

Profit after taxation AUD179 million(equivalent toapproximately

HK$1,038 million)


HK$1,375 million)


HK$1,537 million)

According to the audited consolidated financial statements of the Target Group for thefinancial year ended 30 June 2018 prepared in accordance with the AustralianAccounting Standards, the Corporations Act and other authoritative pronouncements ofthe Australian Accounting Standards Board, the audited consolidated net asset value ofthe Target Group as at 30 June 2018 was approximately AUD4,127 million (equivalentto approximately HK$23,937 million).

The implied multiple of the Acquisition is 14.8x of FY2018 EV/EBITDA.

(Note: Enterprise Value (“EV”) is based on 1,179,893,848 APA stapled securities in issue and APA net debtas at 30 June 2018 of AUD9,550 million (equivalent to approximately HK$55,390 million) and APA FY2018

EBITDA of AUD1,518 million (equivalent to approximately HK$8,804 million).)

To the best of the knowledge, information and belief of the Directors, having made allreasonable enquiries, the Target and its ultimate beneficial owners are third partiesindependent of the Group and connected persons of the Group under the Listing Rules.


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5. INFORMATION ON THE GROUP

The Group is a leading multinational corporation and has diverse capabilities withactivities encompassing property development and investment, hotel and serviced suiteoperation, property and project management, joint ventures in infrastructure and utilityasset operation and aircraft leasing.

6. INFORMATION ON THE CKI GROUP

The principal activities of the CKI Group are development, investment and operation ofinfrastructure businesses in Hong Kong, Mainland China, the United Kingdom,Continental Europe, Australia, New Zealand and North America.

7. INFORMATION ON THE PAH GROUP

The principal activities of the PAH Group are investment in energy and utility-relatedbusinesses in the United Kingdom, Hong Kong, Australia, New Zealand, MainlandChina, Thailand, the Netherlands, Portugal, Canada and the United States.

8. REASONS FOR, AND BENEFITS OF, THE ACQUISITION AND JOINTVENTURE TRANSACTION

The Consortium Members believe that the Target’s energy infrastructure assets inAustralia represent an attractive opportunity for investors with the potential for growthopportunities. Among the Consortium Members, the Company is the only bidding partywith the size and immediate resources to make an offer conditional only upon theconditions detailed in the section headed “2. Acquisition – 2.3 Conditions to the TrustSchemes” above.

The Acquisition is consistent with Company’s global diversification strategy, is inaccordance with the Group’s investment criteria to extend its reach to other businessareas to increase stable recurrent income, and will further develop the Company’sintent to consolidate its holdings in and through the United Kingdom via the CompanyHoldco. In circumstances where the Company is extending its reach into other businessareas globally, it would, where appropriate, collaborate with parties with a proven trackrecord and expertise in the relevant area, in particular, as reputable managers who areable to grow the value of the business over time. The Company can collaborate mosteffectively with parties with which its management has a history of working togethersuccessfully in the past. The formation of the Consortium under the Joint VentureTransaction would allow the Company, CKI and PAH to continue to share themanagement and strategic expertise of the UK Gas ExCo in the management andoperation of the Target Group. Therefore, the Joint Venture Transaction with CKI andPAH would be beneficial to the Company’s business and consistent with its strategysince CKI and PAH both have a strong track record in infrastructure investments of thekind that meet the Company’s investment criteria and also have historical ties with theCompany.


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If the JV Transaction Shareholders’ Approvals are not obtained or certain otherconditions are not fulfilled and the Joint Venture Transaction does not proceed, theCompany will, through Bidco which will remain as its indirect wholly-ownedsubsidiary, proceed with the Acquisition to acquire 100% of the Target. In such case,the Target still represents a quality investment for the Group for the following reasons:

(a) the Target Group is a sizeable business, and will provide the Company with theopportunity to make a further investment in infrastructure and utility assetoperation in Australia, which is consistent with the Company’s globaldiversification strategy;

(b) the Target Group provides stable revenue and cash flows which will help tocompensate for the reduced contribution from property development, and isexpected to generate long-term stable liquidity, provide income in the short tomedium term, and strengthen further the Group’s dividend distribution capability;

(c) the Target Group’s energy infrastructure assets across Australia will represent aquality investment for the Group with potential for appropriate growthopportunities;

(d) the Company can leverage on the expertise of the Target’s existing managementas well as through service agreements with the joint ventures with, and associatesof, CKI and/or PAH and/or other professionals to support the management of theTarget’s business; and

(e) the Company, through the Company Holdco and its interests in the DUET Assetsin Australia, is already a participant in the UK Gas Group and a member of theUK Gas ExCo to facilitate its exposure to, and development of, industry expertise.The Company will continue to benefit from its participation in the UK Gas Groupand membership of the UK Gas ExCo through the significant advantage of havingaccess to the operational and management expertise in the gas sector to be foundin other existing members of the UK Gas ExCo.

The Directors (including the independent non-executive Directors) are of the opinionthat, whether or not the Joint Venture Transaction proceeds, the Acquisition is fair andreasonable and in the interests of the Company and the Shareholders as a whole.

Having considered the above reasons, the Directors (other than Mr. Chow Nin Mow,Albert, Ms. Hung Siu-lin, Katherine and Mr. Donald Jeffrey Roberts, being independentnon-executive directors of the Company who are members of the Independent BoardCommittee established to make recommendations to the Independent Shareholders onthe Joint Venture Transaction, and whose views are set out in the Letter from theIndependent Board Committee, but including Mr. Cheong Ying Chew, Henry andMr. Colin Stevens Russel, being the other independent non-executive Directors, each ofwhom has not been appointed as a member of the Independent Board Committee due toeach of them also being an independent non-executive director of CKI) consider thatthe terms of the Joint Venture Transaction are on normal commercial terms and theterms of the Joint Venture Transaction are fair and reasonable and in the interest of theCompany and its shareholders as a whole.


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As Mr. Li Tzar Kuoi, Victor has or may be regarded as having a material interest inthe Joint Venture Transaction, he has voluntarily abstained from voting on the boardresolutions of the Company for approving the Joint Venture Transaction.

9. FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

As set out in the Target Group’s audited financial statements for the financial yearended 30 June 2018, the profit for the year of the Target Group was AUD265 million(equivalent to approximately HK$1,537 million). On this basis, the Directors expectthat the Acquisition would have a positive impact on the Group’s earnings followingcompletion of the Acquisition.

Appendix III to this circular sets out certain unaudited pro forma financial informationof the Enlarged Group, which illustrates the financial effects of the Acquisition on theassets and liabilities of the Group assuming completion of the Acquisition had takenplace on 30 June 2018.

As set out in Appendix III to this circular:

(i) in the event that the Consortium had not been formed and the Company hadproceeded with the Acquisition alone:

(A) the total assets of the Group as at 30 June 2018 would have increased fromapproximately HK$458,639 million to approximately HK$543,321 millionfor the Enlarged Group; and

(B) the total liabilities of the Group as at 30 June 2018 would have increasedfrom approximately HK$128,851 million to approximately HK$214,619 millionfor the Enlarged Group.

(ii) in the event that the Consortium had been formed and the Company hadproceeded with the Acquisition together with CKI and PAH as ConsortiumMembers:

(A) the total assets of the Enlarged Group as at 30 June 2018 would haveremained the same as the total assets of the Group as at 30 June 2018 ofapproximately HK$458,639 million; and

(B) the total liabilities of the Enlarged Group as at 30 June 2018 would haveremained the same as the total liabilities of the Group as at 30 June 2018 ofapproximately HK$128,851 million.


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(iii) in the event that the Consortium had been formed and the Company hadproceeded with the Acquisition together with only one of CKI or PAH as aConsortium Member:

(A) the total assets of the Group as at 30 June 2018 would have increased fromapproximately HK$458,639 million to approximately HK$464,613 millionfor the Enlarged Group; and

(B) the total liabilities of the Group as at 30 June 2018 would have increasedfrom approximately HK$128,851 million to approximately HK$134,825 millionfor the Enlarged Group.

The Directors are of the view that the Acquisition is not expected to have any materialadverse impact on the financial position of the Group.

In addition, as set out in the section headed “3.Working Capital” in Appendix I to thiscircular, the Directors are of the opinion that the Enlarged Group will have sufficientworking capital for its present requirements for at least the next 12 months from thedate of this circular.

Shareholders should note that the earnings contribution from the Target Group aftercompletion of the Acquisition will depend on the future performance of the TargetGroup, and the actual effect of the Acquisition (including the debt financing for theAcquisition) on the assets and liabilities of the Group will depend on the financialposition of the Target Group as of the date of completion of the Acquisition, whichcannot be quantified as of the Latest Practicable Date. The unaudited pro formafinancial information of the Enlarged Group set out in Appendix III to this circular hasbeen prepared for illustrative purposes only and because of its hypothetical nature, itmay not give a true picture of the financial position of the Group and the EnlargedGroup at any future date.

10. IMPLICATIONS UNDER THE LISTING RULES

If the Company proceeds with the Acquisition alone (because none of the necessary JVTransaction Shareholders’ Approvals are obtained or certain other conditions are notfulfilled and the Joint Venture Transaction does not proceed), as one or more of theapplicable percentage ratios of the Company based on Scheme Consideration and thetransaction costs under the Acquisition exceeds 25% but all are less than 100%, theAcquisition by the Company alone constitutes a major transaction for the Company andis subject to the Company’s compliance with the announcement, notification andshareholders’ approval requirements under Chapter 14 of the Listing Rules.

If the Acquisition proceeds under the Joint Venture Transaction, as one or more of theapplicable percentage ratios of the Company based on the Maximum FinancialCommitment of the Group under the Joint Venture Transaction or the SchemeConsideration and the transaction costs under the Acquisition, as applicable, exceeds25% but all are less than 100%, the Joint Venture Transaction also constitutes a majortransaction for the Company and is subject to the Company’s compliance with the


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announcement, notification and shareholders’ approval requirements under Chapter 14of the Listing Rules. In this circumstance, however, as Mr. Li Ka-shing, Mr. Li TzarKuoi, Victor and the Trust together hold more than 30% of the issued share capital ofCKHH as at the Latest Practicable Date, CKHH and its subsidiary CKI may beregarded as associates (as used in the Listing Rules) of them. As a result, they togetherhave or may be regarded as having a material interest in the Joint Venture Transactionand shall abstain from voting on the relevant shareholders’ resolution regarding theJoint Venture Transaction under Chapter 14 of the Listing Rules, being the JVTransaction Shareholders’ Approval in respect of the Company.

CKHH has been deemed by the Stock Exchange to be a connected person of theCompany under the Listing Rules. As at the Latest Practicable Date, CKHH holdsapproximately 71.93% of the issued share capital of CKI through its wholly-ownedsubsidiaries and as a result CKI may also be regarded as a connected person of theCompany by virtue of it being a subsidiary of CKHH. Therefore, the Joint VentureTransaction as between the Company and CKI also constitutes a connected transactionfor the Company under Chapter 14A of the Listing Rules. As one or more of theapplicable percentage ratios of the Company based on the Maximum FinancialCommitment of the Group under the Joint Venture Transaction exceeds 5%, the JointVenture Transaction as between the Company and CKI is subject to the Company’scompliance with the announcement, reporting and independent shareholders’ approvalrequirements under Chapter 14A of the Listing Rules.

For the avoidance of doubt, the Maximum Financial Commitment referred to in thisregard represents the Maximum Financial Commitment of the Group if the Group holdsup to 80% of JV Co, which is the highest shareholding in JV Co that the Group canhold under the Consortium Formation Agreement if the Joint Venture Transactionproceeds.

The Independent Board Committee is required under the Listing Rules to advise theIndependent Shareholders in relation to the Joint Venture Transaction after taking intoaccount the advice from the Independent Financial Adviser. Since Mr. Cheong YingChew, Henry and Mr. Colin Stevens Russel, being independent non-executive Directors,are also independent non-executive directors of CKI, they were not appointed asmembers of the Independent Board Committee. As a result, Mr. Chow Nin Mow,Albert, Ms. Hung Siu-Lin, Katherine and Mr. Donald Jeffrey Roberts, being theremaining independent non-executive Directors, have been appointed to and constitutethe Independent Board Committee to advise the Independent Shareholders in relation tothe Joint Venture Transaction.

11. WAIVER FROM STRICT COMPLIANCE WITH THE LISTING RULES

Pursuant to Rule 14.67(6)(a)(i) of the Listing Rules, the Company is required toinclude in this circular an accountants’ report on the Target Group prepared inaccordance with Chapter 4 of the Listing Rules. The accountants’ report must includethe financial information of the Target Group for each of the three financial yearsended 30 June 2018 prepared using accounting policies which should be materiallyconsistent with those adopted by the Company.


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The Target Group’s audited annual financial statements are prepared in accordance withthe requirements of the Corporations Act, the Australian Accounting Standards andother authoritative pronouncements of the Australian Accounting Standards Board andalso comply with IFRS. The Target Group’s annual financial statements have beenaudited by its auditors in accordance with the Australian Auditing Standards and itshalf year financial information are also reviewed by its auditors prior to theirpublication.

The Target Group’s auditors are Deloitte Touche Tohmatsu Australia (“DeloitteAustralia”). Deloitte Australia is a firm with international name and reputation and isregistered under the applicable laws of Australia and is a member of the CharteredAccountants Australia and New Zealand, which is a member of the InternationalFederation of Accountants, a global organisation for the accountancy profession.Deloitte Australia is also regulated by ASIC. The Target Group has a 30 June financialyear end and published its financial results for the financial year ended 30 June 2018on 22 August 2018.

The Company’s financial statements are prepared in accordance with IFRS and theCompany’s auditors are Deloitte Touche Tohmatsu Hong Kong (“Deloitte HongKong”). The Company has a 31 December financial year end.

Complying with the strict requirements of Rule 14.67(6)(a)(i) of the Listing Rules inhaving to produce an accountants’ report on the Target Group in this circular would beunduly burdensome and have timing and cost implications for both the Target Groupand the Company. Since the Target Group already publishes audited financial reports inaccordance with ASX requirements and which comply with IFRS, the same set ofaudited financial reports on the Target Group which have been provided to the TargetSecurityholders should be provided to the Shareholders of the Company.

In replacement of an accountants’ report on the Target Group, the following disclosurehas been included in this circular:

(i) the audited financial information on the Target Group for the financial yearsended 30 June 2016, 2017 and 2018 prepared in accordance with the AustralianAccounting Standards and which comply with IFRS, including the managementdiscussion and analysis, extracted from the annual reports of the Target Group foreach of such years, as set out in Appendix II to this circular;

(ii) a line-by-line reconciliation of the consolidated statements of financial position ofthe Target Group for the financial years ended 30 June 2016, 2017 and 2018 toaddress the differences in the Target Group’s financial information had it beenprepared in accordance with the Company’s accounting policies (the“Reconciliation”). The Reconciliation is reported on by Deloitte Hong Kong inaccordance with Hong Kong Standard of Assurance Engagements 3000, as set outin the section headed “Reconciliation” in Appendix II to this circular. Aline-by-line reconciliation of the consolidated statements of profit or loss of theTarget Group for the financial years ended 30 June 2016, 2017 and 2018 has not


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been included in this circular as Deloitte Hong Kong has confirmed that there areno differences between the accounting policies of the Target Group and theCompany in respect of those statements; and

(iii) supplemental financial information of the Target Group for the financial yearsended 30 June 2016, 2017 and 2018 (the “Supplemental Financial Information”)which is required for an accountants’ report under the Listing Rules but notdisclosed in the published financial information of the Target Group, excludingthe information required under Listing Rule 4.08(3) (which requires theaccountants’ report to state that it has been prepared in accordance with theAuditing Guideline – Prospectuses and the reporting accountant (Statement 3.340)issued by the Hong Kong Institute of Certified Public Accountants), as set out insection D of Appendix II to this circular.

The Company has early adopted IFRS 9 “Financial Instruments” while the TargetGroup will adopt AASB 9 (which is the IFRS 9 equivalent in Australia) for accountingperiods commencing on or after 1 July 2018. Deloitte Hong Kong has confirmed that,save for the foregoing, there are no material differences between the accountingpolicies adopted by the Company and the Target Group.

In addition, as disclosed in the consolidated financial statements of the Target for theyear ended 30 June 2018 (published on 22 August 2018) (the “Target FY2018report”), the Target has completed an assessment of the potential impact of theadoption of AASB 9 (the IFRS 9 equivalent in Australia) on the Target Group’sconsolidated financial statements and does not expect the new standard to affect theclassification and measurement of the Target Group’s financial assets or financialliabilities. The Target confirmed in the Target FY2018 report that the Target Group’scurrent hedge relationships will qualify as continuing hedges upon the adoption ofAASB 9. Based upon this assessment, the Target confirmed in the Target FY2018report that it is not expected that AASB 9 will have any material impact on the TargetGroup’s consolidated financial statements, except for the additional disclosurerequirements under AASB 9 (the IFRS 9 equivalent in Australia).

The Directors consider that the published financial information in relation to the TargetGroup reproduced in this circular, when taken together with the related managementdiscussion and analysis, the Supplemental Financial Information and the Reconciliation,will afford Shareholders with all material information necessary to assess the financialperformance of the Target Group throughout the periods presented, such informationbeing broadly commensurate in all material respects to the disclosure that wouldotherwise have been provided if an accountants’ report on the Target Group had beenproduced under Rule 14.67(6)(a)(i) of the Listing Rules.

Accordingly, the Company has applied to the Stock Exchange for, and the StockExchange has granted, a waiver from strict compliance with Rule 14.67(6)(a)(i) of theListing Rules such that the Company is not required to include an accountants’ reporton Target Group in this circular.


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12. EGM AND VOTING

The Company will convene the EGM:

(a) for the Shareholders to consider and, if thought fit, pass an ordinary resolution toapprove the Acquisition (being the resolution for the Company TransactionShareholders’ Approval); and

(b) for the Independent Shareholders to consider and, if thought fit, pass an ordinaryresolution to approve the Joint Venture Transaction (being the resolution for theJV Transaction Shareholders’ Approvals in respect of the Company).

A notice convening the EGM to be held at the Grand Ballroom, 1st Floor, HarbourGrand Hong Kong, 23 Oil Street, North Point, Hong Kong on Tuesday, 30 October2018 at 10:15 a.m. is set out on pages N-1 to N-3 of this circular. Pursuant to theListing Rules, any vote of shareholders at a general meeting must be taken by poll. Thechairman of the forthcoming EGM will therefore put the ordinary resolutions to beproposed at the EGM to be voted by way of a poll pursuant to Article 81 of theAmended and Restated Articles of Association of the Company. After the conclusion ofthe EGM, the results of the poll will be released on the website of the Stock Exchangeat www.hkexnews.hk and the Company’s website at www.ckah.com.

All Shareholders who have a material interest in the Acquisition and the Joint VentureTransaction will be required to abstain from voting on the ordinary resolutions toapprove the Acquisition and the Joint Venture Transaction at the EGM. Each of Mr. LiKa-shing, Mr. Li Tzar Kuoi, Victor and the relevant entities under the Trust will, andwill procure their respective associates to, abstain from voting on the ordinaryresolution to approve the Joint Venture Transaction at the EGM (being the resolutionfor the JV Transaction Shareholders’ Approvals in respect of the Company).

A proxy form for use at the EGM is enclosed with this circular. Whether or not you areable to attend the EGM or any adjourned meeting in person, you are requested tocomplete, sign and return the enclosed proxy form in accordance with the instructionsprinted thereon to the Company’s principal place of business in Hong Kong at7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong as soon aspracticable and in any event not less than 48 hours before the time appointed for theholding of the EGM or any adjournment thereof (as the case may be). Completion andreturn of the proxy form will not preclude you from attending and voting in person atthe EGM or any adjournment thereof should you so wish and, in such event, the proxyform shall be deemed to be revoked.


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13. RECOMMENDATIONS

13.1. Recommendation from the Directors (including those on the IndependentBoard Committee)

Having taken into account the reasons for and the benefits of the Acquisition asset out in the section headed “8. Reasons for, and Benefits of, the Acquisition andJoint Venture Transaction” above, the Directors (including the independentnon-executive Directors) unanimously recommend the Shareholders to vote infavour of the ordinary resolution to be proposed at the EGM to approve theAcquisition (being the resolution for the Company Transaction Shareholders’Approval) and will not change that recommendation unless the Board determinesit must do so because of any fiduciary or statutory duties to the Shareholders.

Each Director (including the independent non-executive Directors) who has apersonal interest in any Shares in the Company has indicated that he or she willvote such Shares in favour of the ordinary resolution for the Company TransactionShareholders’ Approval and will not change that voting intention unless a majorityof the Directors (including the independent non-executive Directors) cease torecommend the Shareholders to vote in favour of the resolution for the CompanyTransaction Shareholders’ Approval.

13.2 Recommendation from the Directors (other than those on the IndependentBoard Committee)

Having taken into account the reasons for and benefits of the Joint VentureTransaction as set out in the section headed “8. Reasons for, and Benefits of theAcquisition and Joint Venture Transaction” above, the Directors (other than thoseon the Independent Board Committee, whose views are set out in the Letter fromthe Independent Board Committee) consider that the Joint Venture Transaction ison normal commercial terms, the terms of the Joint Venture Transaction are fairand reasonable and the entry into the Joint Venture Transaction is in the interestsof the Company and the Shareholders as a whole.

Accordingly, the Directors (other than those on the Independent Board Committee,whose views are set out in the Letter from the Independent Board Committee)recommend the Shareholders to vote in favour of the ordinary resolution to beproposed at the EGM to approve the Joint Venture Transaction (being theresolution for the JV Transaction Shareholders’ Approvals in respect of theCompany).

As Mr. Li Tzar Kuoi, Victor has or may be regarded as having a material interestin the Joint Venture Transaction, he has voluntarily abstained from voting on theboard resolutions of the Company for approving the Joint Venture Transaction.


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13.3 Recommendation from the Independent Board Committee

The Independent Board Committee (Mr. Chow Nin Mow, Albert, Ms. HungSiu-Lin, Katherine and Mr. Donald Jeffrey Roberts, each being independentnon-executive Directors) has been formed to advise and provide recommendationto the Independent Shareholders in respect of the Joint Venture Transaction aftertaking into account the advice from the Independent Financial Adviser. SinceMr. Cheong Ying Chew, Henry and Mr. Colin Stevens Russel, being independentnon-executive Directors, are also independent non-executive directors of CKI,they were not appointed as members of the Independent Board Committee.

Your attention is drawn to (i) the Letter from the Independent Board Committeeset out on pages 45 and 46 of this circular which contains its recommendation tothe Independent Shareholders on the Joint Venture Transaction; and (ii) the letterfrom the Independent Financial Adviser set out on pages 47 to 78 of this circularwhich contains its advice to the Independent Board Committee and theIndependent Shareholders in relation to the Joint Venture Transaction and theprincipal factors and reasons considered by the Independent Financial Adviser inarriving at its advice.

The Independent Board Committee, having considered the reasons for and benefitsof the Joint Venture Transaction as set out above and the terms of the JointVenture Transaction and having taken into account the advice of the IndependentFinancial Adviser, and in particular, the factors, reasons and recommendations setout in letter from the Independent Financial Adviser in this circular, considers thatthe Joint Venture Transaction is on normal commercial terms and in the ordinaryand usual course of business of the Group, and the terms of the Joint VentureTransaction are fair and reasonable so far as the Independent Shareholders areconcerned and is in the interests of the Company and the Shareholders as a whole.

Accordingly, the Independent Board Committee recommends that the IndependentShareholders vote in favour of the ordinary resolution to be proposed at the EGMto approve the Joint Venture Transaction (being the resolution for the JVTransaction Shareholders’ Approvals in respect of the Company).

13.4 Recommendation from the Independent Financial Adviser

Anglo Chinese has been engaged as the independent financial adviser to advisethe Independent Board Committee and the Independent Shareholders on thefairness and reasonableness of the Joint Venture Transaction, and whether it is inthe ordinary and usual course of business of the Group, on normal commercialterms and is in the interests of the Company and the Shareholders as a whole andto advise the Independent Shareholders on how to vote.


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Your attention is drawn to the letter from the Independent Financial Adviser setout on pages 47 to 78 of this circular which contains its advice andrecommendation to the Independent Board Committee and the IndependentShareholders in relation to the Joint Venture Transaction and the principal factorsand reasons considered by the Independent Financial Adviser in arriving at itsadvice.

Having taken into account the principal factors and reasons therein, theIndependent Financial Adviser considers that the terms of the Joint VentureTransaction are fair and reasonable so far as the Independent Shareholders areconcerned. In addition, the Independent Financial Adviser considers that the JointVenture Transaction is on normal commercial terms and in the ordinary and usualcourse of business of the Group, and in the interests of the Company and theShareholders as a whole. Accordingly, the Independent Financial Adviser advisesthe Independent Board Committee to recommend, and it recommends, theIndependent Shareholders to vote in favour of the ordinary resolution to beproposed at the EGM to approve the Joint Venture Transaction (being theresolution for the JV Transaction Shareholders’ Approvals in respect of theCompany).

14. FURTHER INFORMATION

Your attention is drawn to the Letter from the Independent Board Committee as set outon pages 45 to 46 of this circular, the letter from the Independent Financial Adviser asset out on pages 47 to 78 of this circular, the additional information as set out inAppendices I to IV of this circular, and the Notice of EGM as set out on pages N-1 toN-3 of this circular.

As completion of the Acquisition and/or the Joint Venture Transaction isconditional on the satisfaction or waiver of certain conditions, including theobtaining of the Company Transaction Shareholders’ Approval or the JVTransaction Shareholders’ Approvals (as applicable), there remains the possibilitythat the Acquisition and/or the Joint Venture Transaction may not proceed.Shareholders and potential investors should exercise caution when dealing in theShares and other securities of the Company.

Yours faithfully,

For and on behalf of the Board ofCK ASSET HOLDINGS LIMITED

LI Tzar Kuoi, VictorChairman and Managing Director


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The following is the full text of the letter from the Independent Board Committee setting outits recommendation to the Independent Shareholders in respect of the Joint VentureTransaction


10 October 2018

To the Independent Shareholders




We refer to the circular of CK Asset Holdings Limited dated 10 October 2018 (the“Circular”), of which this letter forms part. Capitalised terms used in this letter have thesame meanings as defined in the Circular, unless the context otherwise requires.

We have been appointed by the Board as members of the Independent Board Committee toadvise you in connection with the Joint Venture Transaction, details of which are set out inthe “Letter from the Board” of the Circular.

Anglo Chinese has been engaged to act as the independent financial adviser to advise theIndependent Board Committee and the Independent Shareholders on the fairness andreasonableness of the Joint Venture Transaction, and whether it is in the ordinary and usualcourse of business of the Group, on normal commercial terms and in the interests of theCompany and the Shareholders as a whole and to advise the Independent Shareholders onhow to vote.

We wish to draw your attention to the letter from the Independent Financial Adviser as setout on pages 47 to 78 of the Circular, which contains its advice and recommendation to usand the Independent Shareholders and its recommendation to Independent Shareholders as tohow to vote in respect of the ordinary resolution to be proposed at the EGM to approve theJoint Venture Transaction (being the resolution for the JV Transaction Shareholders’Approvals in respect of the Company).

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 45 –

Having considered the reasons for and benefits of the Joint Venture Transaction as set out inthe Circular, the terms of the Joint Venture Transaction, the reasons considered by, and theopinion of, the Independent Financial Adviser as stated in its letter of advice, and therelevant information contained in the Letter from the Board, we are of the opinion that theJoint Venture Transaction is on normal commercial terms and in the ordinary and usualcourse of business of the Group, is on terms which are fair and reasonable so far as theIndependent Shareholders are concerned and is in the interests of the Company and theShareholders as a whole.

Accordingly, we recommend that you vote in favour of the ordinary resolution to beproposed at the EGM to approve the Joint Venture Transaction (being the resolution for theJV Transaction Shareholders’ Approvals in respect of the Company).

Yours faithfully,

CHOW Nin Mow, Albert HUNG Siu-lin, Katherine

Donald Jeffrey ROBERTS

Independent Board Committee

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 46 –

Set out below is the letter of advice from Anglo Chinese, the Independent Financial Adviser,setting out its advice to the Independent Board Committee and the Independent Shareholdersin respect of the Joint Venture Transaction, which has been prepared for the purpose ofinclusion in this circular.

40th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong

www.anglochinesegroup.com

Independent Board Committeeand the Independent Shareholders ofCK Asset Holdings Limited

10th October, 2018

Dear Sirs,

CONNECTED TRANSACTION AND MAJOR TRANSACTION –PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST

SCHEMES OF ALL OF THE STAPLED SECURITIES IN ISSUE OF APAWHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGE

AND FORMATION OF JOINT VENTURE

I. INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise theIndependent Board Committee and the Independent Shareholders, being thoseshareholders in the Company other than Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor, theTrust and their respective associates as defined by the Listing Rules, who in aggregatehold approximately 32.40% of the issued share capital of the Company as at the LatestPracticable Date, with respect to the formation of a joint venture between theCompany, CKI and PAH to acquire all the stapled securities in issue of the Target byway of the Trust Schemes, details of which are set out in the Letter from the Board, setout in the circular dated 10th October, 2018 issued by the Company, and in our letter.The Target is the ASX-listed stapled entity known as APA which comprises APT andAPTIT, being an owner and operator of energy infrastructure assets in Australia. As theIndependent Financial Adviser to the Independent Board Committee we are required bythe Listing Rules to state whether the terms of the Joint Venture Transaction are fairand reasonable and in the interests of the Company and its Shareholders as a whole, aswell as the Joint Venture Transaction is on normal commercial terms and in theordinary and usual course of the business of the Company, and advise whether theIndependent Shareholders should vote in favour of the Joint Venture Transaction (beingthe resolution for the JV Transaction Shareholders’ Approvals in respect of theCompany) at the EGM convened to approve it. The terms used in this letter shall havethe same meaning as defined in the circular, of which this letter forms part, unless thecontext requires otherwise.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 47 –

The participation of the Company, CKI and PAH in the Joint Venture Transaction issubject to, among other conditions, obtaining the necessary JV TransactionShareholders’ Approvals. If such conditions are not fulfilled, the Joint VentureTransaction will not proceed and the Company will, subject to obtaining the CompanyTransaction Shareholders’ Approval and the fulfilment of certain conditions, proceedwith the Acquisition alone. If the necessary JV Transaction Shareholders’ Approvals inrespect of only one of CKI’s or PAH’s participation in the Joint Venture Transactionare obtained, the composition of the Consortium shall be varied accordingly. Based onthe Maximum Financial Commitment of the Group under the Joint Venture Transactionof up to approximately AUD7,900 million (equivalent to approximately HK$45,818million), representing its Respective Proportion of the Scheme Consideration and thetransaction costs under the Acquisition, one or more of the applicable percentage ratiosfor notifiable transaction under the Listing Rules exceeds 25% but all are less than100%. As a result, the Joint Venture Transaction constitutes a major transaction for theCompany and is subject to the Company’s compliance with the announcement,notification and shareholders’ approval requirements under Chapter 14 of the ListingRules. If the Company proceeds with the Acquisition alone (because none of thenecessary JV Transaction Shareholders’ Approvals are obtained or certain otherconditions are not fulfilled and the Joint Venture Transaction does not proceed), as oneor more of the applicable percentage ratios of the Company based on SchemeConsideration and the transaction costs under the Acquisition exceeds 25% but all areless than 100%, the Acquisition by the Company alone constitutes a major transactionfor the Company and is subject to the Company’s compliance with the announcement,notification and shareholders’ approval requirements under Chapter 14 of the ListingRules.

As at the Latest Practicable Date, Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor (who is aDirector) and the Trust currently directly and, or indirectly hold an aggregate ofapproximately 32.40% of the issued share capital of the Company and an aggregate ofapproximately 30.17% of the issued share capital of CKHH. CKHH has been deemedby the Stock Exchange to be a connected person of the Company under the ListingRules. As CKHH holds approximately 71.93% of the issued share capital of CKIthrough its wholly-owned subsidiaries as at the Latest Practicable Date, CKI may alsobe regarded as a connected person of the Company by virtue of it being a subsidiary ofCKHH. Therefore, the Joint Venture Transaction as between the Company and CKI alsoconstitutes a connected transaction for the Company under Chapter 14A of the ListingRules. As one or more of the applicable percentage ratios of the Company based on theMaximum Financial Commitment of the Group under the Joint Venture Transactionexceeds 5%, the Joint Venture Transaction as between the Company and CKI is subjectto the Company’s compliance with the announcement, reporting and independentshareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all the independent non-executiveDirectors, other than Mr. Cheong Ying Chew, Henry and Mr. Colin Stevens Russel asthey are the independent non-executive directors of both the Company and CKI, hasbeen formed to advise the Independent Shareholders on whether the terms of the JointVenture Transaction are on normal commercial terms, are fair and reasonable and in theinterests of the Company and its Shareholders as a whole, and how they arerecommended to vote on the relevant resolution to be proposed at the forthcoming


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EGM convened to approve the Joint Venture Transaction. We have been appointed toadvise the Independent Board Committee and the Independent Shareholdersaccordingly.

In formulating our recommendation, we have relied on the information and factssupplied, and the opinions expressed, by the Company. We have also assumed that theinformation and representations contained or referred to in this letter were true andaccurate at the time they were made and continued to be so at the date of this letter.We have reviewed (i) the audited financial information on the Target Group for thefinancial years ended 30th June, 2016, 2017 and 2018; (ii) the pro forma informationof the Group upon the Trust Schemes become effective; (iii) the Consortium FormationAgreement; (iv) the agreed form of the Shareholders’ Agreement; (v) theImplementation Agreement; and (vi) the published information in relation to the TargetGroup and the Acquisition. We have also discussed with the management of theCompany, among other things, the Company’s prospect and the background to andreasons for the Acquisition and the Joint Venture Transaction. We have sought andobtained confirmation from the Company that no material facts have been omitted fromthe information provided to us. We consider that we have reviewed sufficientinformation to reach an informed view, to justify reliance on the accuracy of theinformation contained in this circular and to provide a reasonable basis for our opinionand advice. We have no reason to doubt the truth, accuracy and completeness of theinformation and representations provided to us by the Company. We have not, however,conducted an independent investigation into the business and affairs of the Group andthe Target Group, and, or the associates of either of them, nor have we carried out anyindependent verification of the information supplied.

Apart from professional fees for our services to the Company in connection with theengagement described above, no arrangement exists whereby we will receive any feesor benefits from the Company, its subsidiaries, directors, chief executive, substantialshareholders or any associate of any of them. Within the past three years from theLatest Practicable Date, we were previously engaged as an independent financialadviser by CKI, and details of which was set out in the circular of CKI dated 20thOctober, 2015. We were also engaged as an independent financial adviser by theCompany in relation to three connected and discloseable transactions, and details ofwhich were set out in the circulars of the Company dated 22nd February, 2017, 8thAugust, 2017 and 20th September, 2017, respectively. Given our independent role andnormal professional fees received from CKI and the Company under these pastengagements, we do not consider that they will affect our independence in relation toour present engagement to advise the Independent Board Committee and IndependentShareholders.

II. BACKGROUND

The Acquisition and the Joint Venture Transaction

On 13th June, 2018, the Company, CKHH, CKI and PAH made an announcementnoting an announcement by the Target on the same date regarding a non-bindingindicative proposal from a consortium comprising the Company, CKI and PAH to


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acquire the Target (the “Proposal Announcement”). The Consortium had submitted anindicative, non-binding conditional proposal for the Consortium or the Company toacquire all of the issued stapled securities in the Target.

On 12th August, 2018, the Consortium Members, Bidco and the Target entered into theImplementation Agreement in connection with the Acquisition. On the same date, theConsortium Members have entered into the Consortium Formation Agreement, pursuantto which, subject to the fulfilment of certain conditions, the relevant ConsortiumMembers will enter into the Joint Venture Transaction to, among other things, form theConsortium, enter into the Shareholders’ Agreement and indirectly fund the Acquisitionby Bidco according to the Respective Proportions or the Revised RespectiveProportions (as the case may be).

To support the ACCC’s review of the Acquisition, the Bidco has proposed to divest ofcertain assets of the Target Group following completion of the Trust Schemes, namelythe Goldfields Gas Pipeline, a gas transmission pipeline in Western Australia, theMondarra gas storage facility located in southern Western Australia, and the ParmeliaGas Pipeline, a gas transmission pipeline in Western Australia. On 12th September,2018, the ACCC has made the media release and stated that the ACCC will not opposethe Acquisition subject to the binding undertakings given by the Bidco and theConsortium Members to dispose of certain assets of the Target Group followingcompletion of the Trust Schemes, namely the Parmelia Gas Pipeline, the GoldfieldsGas Pipeline, the Kalgoorlie to Kambalda Pipeline and the Mondarra gas storagefacility (the “Disposals”). Such undertaking addressed the concerns by the ACCC inrelation to (i) the removal of the Consortium as a competitor in relation to the newpipeline development; and (ii) the Consortium would own most gas transmission andstorage facilities in west Australia as stated in the media release.

On 5th October 2018, the Company, CKI and PAH entered into the RespectiveProportions Determination Side Letter and determined and agreed the final percentagesmaking up the Respective Proportions and the Revised Respective Proportions asfollows:

(i) if all three of the Company, CKI and PAH will participate in the Joint VentureTransaction, the Respective Proportions of the Company, CKI and PAH should berespectively 60%, 20% and 20%; and

(ii) if the Company and only one of CKI or PAH will participate in the Joint VentureTransaction, the Revised Respective Proportions of the Company and, CKI orPAH, should be respectively 80% and 20%.

The Acquisition and the Implementation Agreement are not conditional on thecompletion of the Joint Venture Transaction but are conditional upon obtaining theCompany Transaction Shareholders’ Approval and the fulfilment of certain otherconditions as set out in the Implementation Agreement. Please refer to the followingsection for the detailed discussion on the Implementation Agreement.


– 50 –

The Acquisition and the Joint Venture Transaction follow similar structures that wereadopted in respect of the acquisition of the DUET Assets, which owns and operatesenergy utility assets in Australia, the United States, the United Kingdom and Europe,and ista Luxemburg GmbH, one of the world’s leading fully integrated energymanagement service providers in Europe. References are made to the Company’scirculars relating to these two acquisitions and formation of joint ventures dated 22ndFebruary, 2017 and 20th September, 2017, respectively.

The participation of the Consortium Members in the Joint Venture Transaction issubject to, among other conditions, obtaining the necessary JV TransactionShareholders’ Approvals. If such conditions are not fulfilled, the Joint VentureTransaction will not proceed and the Company will, subject to obtaining the CompanyTransaction Shareholders’ Approval and the fulfilment of certain conditions, proceedwith the Acquisition alone. Please refer to the section headed “2. ACQUISITION” ofthe Letter from the Board for the details of conditions.

If the necessary JV Transaction Shareholders’ Approvals in respect of only one ofCKI’s or PAH’s participation in the Joint Venture Transaction is obtained, thecomposition of the Consortium shall be varied accordingly. Nevertheless, theAcquisition and Joint Venture Transaction have the objective of the Company acquiringa 60% interests in the Target with the balance being held by CKI and PAH in equalproportions. Among the Consortium Members, the Company is the only bidding partywith the size and immediate resources to make an offer conditional only upon theconditions referred to in the section headed “2. ACQUISITION – 2.3 Conditions to theTrust Schemes” in the Letter from the Board and our discussion in the section headed“III. THE IMPLEMENTATION AGREEMENT” below. Subject to the Shareholdersapproving the Acquisition as a major transaction it will proceed without the approval ofthe Joint Venture Transaction.

From the point of view of the Target Securityholders, such arrangements have reducedthe number of conditions for completion of the Acquisition thereby increasing thecertainty of the outcome for them. The Acquisition will be implemented by the TrustSchemes to be proposed to the Target Securityholders at the Target Scheme Meeting.The directors of the Target RE have stated that they unanimously consider the TrustSchemes to be in the best interests of the Target Securityholders and recommend TargetSecurityholders vote in favour of the Trust Schemes in the absence of a superiorproposal and subject to the Independent Expert concluding (and continuing toconclude) that the Trust Schemes are fair and reasonable and in the best interests ofTarget Securityholders.

The negotiation of the terms of the Acquisition with the Target were conducted withthe intention that if successful the Consortium would be formed. Accordingly, theconsideration for the Acquisition was arrived at through the consensus of theConsortium Members and the contribution to the consideration by the Company, CKIand PAH under the Consortium Formation Agreement reflects directly without anyadjustment in proportion to their interests in the Target following completion of theAcquisition and the Joint Venture Transaction.


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Reference is made to the Announcement and the Letter from the Board in this circularwhich set out in further detailed information relating to the Acquisition and the JointVenture Transaction.

III. THE IMPLEMENTATION AGREEMENT

The principal terms of the Implementation Agreement in respect of the Trust Schemesunder which Bidco will acquire all of the Target Securities are set out in sections 2.2 to2.10 of the Letter from the Board. Subject to the Trust Schemes becoming effective inaccordance with their respective terms, the general effect of the Trust Schemes will beas follows:

(i) all of the Target Securities will be transferred to Bidco in accordance with theterms of the Trust Schemes; and

(ii) in consideration for the transfer to Bidco of all of the Target Securities, the TargetSecurityholders will receive the Scheme Consideration in accordance with theterms of the Trust Schemes.

Scheme Consideration

The Scheme Consideration was arrived at by the Consortium Members and proposed tothe directors of the Target RE. Further analysis of the Scheme Consideration is set outin under the section headed “X. FURTHER FACTORS AND CONSIDERATIONS INTHE ASSESSMENT OF THE SCHEME CONSIDERATION” below. According to themanagement of the Company, the Consortium has performed the due diligence anddeveloped a valuation of the Target’s businesses internally for facilitating thenegotiations with the Target, which was referenced to in determining the SchemeConsideration of AUD11.00 (equivalent to approximately HK$63.80) per TargetSecurity held by a Target Securityholder. Based on this Scheme Consideration and thetotal number of Target Securities in issue as at the Latest Practicable Date, being1,179,893,848 Target Securities, the Scheme Consideration for all the Target Securitieswill be approximately AUD12,979 million (equivalent to approximately HK$75,278million).

As discussed in the section headed “II. BACKGROUND – The Acquisition and theJoint Venture Transaction”, the ACCC will not oppose the Acquisition subject to thebinding undertakings given by Bidco and Consortium Members regarding theDisposals. The Company and the other Consortium Members were aware of potentialconcerns which may be raised by the ACCC, particularly over the potential overlappinggas transmission and storage services in Western Australia. It was therefore anticipatedthat the Disposals may be required, and the Company and the other ConsortiumMembers took into account the potential Disposals when determining their valuation ofthe Target Group’s businesses and agreeing the Scheme Consideration at the time ofexecution of the Implementation Agreement.


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As the Disposals would be carried out with independent third parties on arms’ lengthterms, thereby achieving market value for the Disposal assets, the Company and theConsortium Members had expected that the Disposals would have a neutral effect onthe Scheme Consideration. As at the Latest Practicable Date, the Company and theother Consortium Members are not in any negotiations, nor have they reached anyagreement, with any third parties regarding the Disposals.

Arrangement of the cash distribution

As announced by the Target on 22nd August, 2018, the directors of the Target RE havedeclared the cash distribution for the six months ended 30th June, 2018, of AUD0.24(equivalent to approximately HK$1.39) per Target Security and payable on 12thSeptember, 2018. According to the terms of the Implementation Agreement, the TargetRE must pay to the Target Securityholders such 30th June 2018 Distribution and noadjustment will be made to the Scheme Consideration payable by Bidco as a result ofsuch distribution.

If the Trust Schemes are implemented after 31st December, 2018, the Target RE maypay to the Target Securityholders a cash distribution of up to AUD0.04 (equivalent toHK$0.23 per Target Security) for each full calendar month between 31st December,2018 up to, and including, the date the Trust Schemes are implemented by way ofSpecial Distribution. No adjustment will be made to the Scheme Consideration payableby Bidco as a result of such Special Distribution.

Conditions to the Trust Schemes

Each of the Trust Schemes are inter-conditional and shall be implemented at the sametime, and the following is, in simplified terms, certain key conditions precedent of theTrust Schemes:

(a) approval of Australian Competition and Consumer Commission (the ACCC) andthe Australian Foreign Investment Review Board (the FIRB);

(b) no “material adverse change” or “prescribed events” occurring in relation to theTarget prior completion of the Implementation Agreement;

(c) approval of the Acquisition by the Shareholders;

(d) the approval of Target Securityholders of the Trust Schemes; and

(e) approvals by the Court.

In connection with the condition regarding approval by the ACCC, as discussed above,the ACCC announced on 12th September, 2018 that it will not oppose the Acquisitionsubject to binding undertakings given by Bidco and the Consortium Members todispose of certain assets of the Target Group following completion of the TrustSchemes, namely the Parmelia Gas Pipeline, the Goldfields Gas Pipeline, theKalgoorlie to Kambalda Pipeline and the Mondarra gas storage facility.


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For details on the conditions to the Trust Schemes reference should be made to sectionheaded “2.3 Conditions to the Trust Schemes” of the Letter from the Board.

Further terms

Set out below is a summary of the further terms of the Implementation Agreement.

Guarantee

Under the Implementation Agreement, each of the Consortium Members agrees toguarantee, on a several basis and in its Respective Proportion or Revised RespectiveProportion (as applicable), the performance and observance by Bidco of all of theobligations of Bidco under the Implementation Agreement (including the payment ofthe Scheme Consideration and the reverse break fee as set out below).

However, the obligations of CKI and PAH to provide the guarantees under theImplementation Agreement are conditional on the necessary JV TransactionShareholders’ Approvals being obtained. If the necessary JV Transaction Shareholders’Approvals are not obtained, Bidco shall remain an indirect wholly-owned subsidiary ofthe Company in which case the Company alone will provide the guarantee.

Exclusivity

Under the Implementation Agreement, the Target RE has represented and warrantedthat, as at the date of that agreement, it is not in any negotiations or discussions inrespect of any competing transaction. During the period from the date of theImplementation Agreement until the earlier of termination of the ImplementationAgreement and the End Date, Target RE shall not (and shall procure its representativesshall not) directly or indirectly solicit, invite, encourage or initiate any competingtransaction, or (subject to fiduciary duties or statutory obligations of the directors ofTarget RE) negotiate or enter into, or participate in, negotiations or discussions withany other person regarding a competing transaction.

Target break fee (Target RE pay to Bidco)

Pursuant to the Implementation Agreement, Target RE has agreed to pay to Bidco abreak fee of AUD130 million (equivalent to approximately HK$754 million) if:

(i) at least a majority of the directors of Target RE fail to recommend to the TargetSecurityholders that they vote in favour of the Trust Schemes or, having madesuch recommendation, withdraw their recommendation or adversely change theirrecommendation, provided that in each case Bidco has terminated theImplementation Agreement (except where (a) that failure is because theIndependent Expert does not give an opinion that the Acquisition is fair andreasonable and in the best interests of the Target Securityholders (other thanwhere the reason for that opinion is a competing transaction); (b) Target RE hasvalidly terminated, or has the right to terminate, the Implementation Agreementdue to Bidco being in material and unremedied breach of the Implementation


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Agreement; or (c) the conditions set out in the section headed “2.3 Conditions tothe Trust Schemes” of the Letter from the Board are not satisfied other than as aresult of a breach by Target RE of its obligation to use reasonable endeavours toprocure satisfaction of such conditions); or

(ii) a competing transaction is announced or made prior to the date on which theSecond Judicial Advice is obtained and is completed within nine months of theImplementation Agreement being entered into.

In addition, Target RE has agreed to pay to Bidco a break fee of AUD50 million(equivalent to approximately HK$290 million) if Bidco validly terminates theImplementation Agreement due to Target RE being in material and unremedied breachof the Implementation Agreement.

Upon payment by Target RE of the break fees, Target RE shall not have any furtherliabilities under the Implementation Agreement. The maximum aggregate liability ofTarget RE under or in connection with the Implementation Agreement is AUD50million (equivalent to approximately HK$290 million) or, if an AUD130 million(equivalent to approximately HK$754 million) break fee is payable as described above,AUD130 million (equivalent to approximately HK$754 million).

Recommendations and undertaking with respect to the Company TransactionShareholders’ Approval

Pursuant to the Implementation Agreement, the Company has agreed to procure that:

(i) the Board states in the Letter from the Board that it unanimously recommendsthat Shareholders approve the resolution for the Company TransactionShareholders’ Approval and must not change that recommendation unless theBoard determines that it must change the recommendation because of anyfiduciary or statutory duties to Shareholders; and

(ii) within five business days after the circular has been despatched to Shareholders,the trustees of the Trust and, or their relevant subsidiaries who are registeredholders of the Trustee Shares, provide to the Target the Voting Undertaking (i.e.an irrevocable and unconditional undertaking to vote the Trustee Shares in favourof the resolution for the Company Transaction Shareholders’ Approval).

Reverse break fee (Bidco pay to Target)

Pursuant to the Implementation Agreement, Bidco has agreed to pay to the Target areverse break fee of AUD50 million (equivalent to approximately HK$290 million) if:

(i) both of the following occur: (a) the Company has not procured the VotingUndertaking or the trustees of the Trust and, or their relevant subsidiaries who areregistered holders of the Trustee Shares fail to vote the Trustee Shares in favour


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of the resolution for the Company Transaction Shareholders’ Approval inaccordance with the Voting Undertaking; and (b) the EGM is held and theCompany Transaction Shareholders’ Approval is not obtained; or

(ii) Target RE validly terminates the Implementation Agreement due to Bidco being inmaterial and unremedied breach of the Implementation Agreement.

Upon payment by Bidco of the reverse break fee, Bidco and the relevant ConsortiumMembers shall not have any further liabilities under the Implementation Agreement.The maximum aggregate liability of Bidco and the Consortium Members under or inconnection with the Implementation Agreement (other than the obligation to pay theScheme Consideration if the Trust Schemes become effective) is AUD50 million(equivalent to approximately HK$290 million).

End Date

If the Trust Schemes do not become effective on or before the End Date and the partiesdo not agree an extension of the End Date, then either Target RE or Bidco has the rightto terminate the Implementation Agreement.

IV. JOINT VENTURE TRANSACTION

The Consortium Formation Agreement

As mentioned above, in connection with the Acquisition, on 12th August, 2018, theCompany entered into the Consortium Formation Agreement with, among others, theother Consortium Members, JV Co, Consortium Midcos and Bidco in order to governthe formation of the Consortium, including the funding and operation of JV Co andBidco for the purposes of the Acquisition. Formation of the Consortium is subject toobtaining the necessary JV Transaction Shareholders’ Approvals and the fulfilment ofcertain conditions.

JV Transaction Shareholders’ Approvals

The Company’s participation in the Joint Venture Transaction with CKI is subject toobtaining the JV Transaction Shareholders’ Approvals in respect of the Company andCKI. The Company’s participation in the Joint Venture Transaction with PAH is subjectto obtaining the JV Transaction Shareholders’ Approvals in respect of the Company andPAH. The Company’s participation in the Joint Venture Transaction with both CKI andPAH is subject to obtaining the JV Transaction Shareholders’ Approvals in respect ofthe Company, CKI and PAH. The following is the three possible scenarios as a resultof the JV Transaction Shareholders’ Approvals, assuming satisfaction of the otherconditions, including EC Approval:

(i) Respective Proportion(s) – If the JV Transaction Shareholders’ Approvals inrespect of the Company, CKI and PAH are all obtained, the Joint VentureTransaction will proceed between the Company, CKI and PAH as to 60%, 20%and 20%, respectively; or


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(ii) Revised Respective Proportion(s) – If the JV Transaction Shareholders’ Approvalsin respect of the Company and CKI are both obtained, but the JV TransactionShareholders’ Approval in respect of PAH is not obtained, the Joint VentureTransaction will proceed between the Company and CKI as to 80% and 20%,respectively; or

(iii) Revised Respective Proportion(s) – If the JV Transaction Shareholders’ Approvalsin respect of the Company and PAH are both obtained, but the JV TransactionShareholders’ Approval in respect of CKI is not obtained, the Joint VentureTransaction will proceed between the Company and PAH as to 80% and 20%,respectively.

As at the Latest Practicable Date, Bidco is an indirect wholly-owned subsidiary of JVCo, which is in turn owned by the Consortium Midcos. The Consortium Midcos arethen wholly-owned by the Company Holdco, a wholly-owned subsidiary of theCompany. Please refer to the section headed “The proposed ownership structures of JVCo and Bidco” below for the proposed ownership structure.

Maximum Financial Commitment

If all JV Transaction Shareholders’ Approvals and EC Approval are obtained and theConsortium shall comprise the Company, CKI and PAH, the Maximum FinancialCommitment of the Company will be up to approximately AUD7,900 million(equivalent to approximately HK$45,818 million), representing its RespectiveProportion of the Scheme Consideration and the transaction costs under theImplementation Agreement.

If, however, any necessary JV Transaction Shareholders’ Approval is not obtained suchthat the Consortium shall comprise the Company and only one of CKI or PAH, theCompany is expected to assume the Respective Proportion of the Non-ContinuingMember. As a result, the Maximum Financial Commitment of the Company will beincreased by the Respective Proportion of the Non-Continuing Member.

The Company intends to finance its Respective Proportion (or Revised RespectiveProportion, as applicable) of the Scheme Consideration and the transactions costs underthe Implementation Agreement from its internal resources and, or external borrowings.

If the Consortium is formed pursuant to the Joint Venture Transaction:

(i) JV Co will be indirectly held by the relevant Consortium Members through theConsortium Midcos in the Respective Proportions (or Revised RespectiveProportions, as applicable); and

(ii) (if either or both CKI and PAH are Consortium Members) the Target will beaccounted for as a joint venture by the Company in its consolidated financialstatements.


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Further principal terms of the Consortium Formation Agreement are set out in sectionsheaded “3.1.1 Participation of the Consortium Members – JV TransactionsShareholders’ Approvals and EC Approval” and “3.1.3 Termination” of the Letter fromthe Board, to which the Independent Board Committee and the IndependentShareholders are referred.

As at the Latest Practicable Date, the management of the Company has yet to finalisethe funding method. However, the Group maintains investment grade rating, withstrong relationships with a number of leading financial institutions. The management ofthe Company believes the Group could obtain favourable financing terms for fundingthe Acquisition while maintaining sufficient cash resources. As stated in the 2018interim report of the Company, the Group has available banking facilities to satisfyworking capital requirements.

The proposed ownership structures of JV Co and Bidco

As at the Latest Practicable Date, the Bidco is an indirect wholly-owned subsidiary ofthe Company. It is intended that CKI will, through its wholly-owned subsidiary, CKIHoldco, subscribe for, or otherwise acquire, shares in the relevant Consortium Midcosfrom the Company Holdco if the relevant approvals with respect to CKI are obtained.It is intended that PAH will, through its wholly-owned subsidiary, PAH Holdco,subscribe for, or otherwise acquire, shares in the relevant Consortium Midcos from theCompany Holdco if the relevant approvals with respect to PAH are obtained.

The chart below gives in summary form the ownership structure of Bidco and JV Co,which is in turn owned by the Consortium Midcos as at Latest Practicable Date. TheConsortium Midcos are then wholly-owned by Company Holdco, a wholly-ownedsubsidiary of the Company as at the Latest Practicable Date.

Company

Company Holdco (England &

Wales)

JV Co (England & Wales)

Bid Co(Australia)

As at the Latest Practicable Date

Target

PAH Company CKI

PAH Holdco

(England & Wales)

Company Holdco

(England & Wales)

CKI Holdco

(England & Wales)

Consortium Member(s)

Consortium Holdco

Consortium Midco 1

(England & Wales)

JV Co (England & Wales)

Bidco (Australia)

Upon completion of the Acquisition and the Consortium Formation Agreement

100%

100%

100%

100%

100%

100%

100% 100% 100%

Consortium Midco 2

(England & Wales)

Consortium Midco 3

(England & Wales)

Consortium Midco 4

(England & Wales)

Consortium Midco 5

(England & Wales)

60% 20% 10% 5% 5%

Consortium Midco 1

(England & Wales)

Consortium Midco 2

(England & Wales)

Consortium Midco 3

(England & Wales)

Consortium Midco 4

(England & Wales)

Consortium Midco 5

(England & Wales)

60% 20% 10% 5% 5%

Consortium Midcos

Consortium Midcos


– 58 –

Subject to the approval of the Joint Venture Transaction by the respective independentshareholders of CKI and PAH, CKI and PAH will acquire their interests in JV Cothrough the acquisition of Consortium Midco 2, Consortium Midco 3, ConsortiumMidco 4 and Consortium Midco 5.

In the event that the Consortium is not formed, Bidco will continue to be indirectlywholly-owned by the Company.

V. THE SHAREHOLDERS’ AGREEMENT

Pursuant to the Consortium Formation Agreement, following the acquisition of therelevant Consortium Midcos by CKI Holdco and, or PAH Holdco (as applicable) inaccordance with the terms and conditions set out therein, the relevant ConsortiumMembers, the Consortium Midcos and JV Co will enter into the Shareholders’Agreement. Under the terms of the Shareholders’ Agreement, the relevant ConsortiumMembers will agree on certain ongoing rights and obligations governing theirrelationship as ultimate shareholders of JV Co and the management and operation ofJV Co and the Target Group upon implementation of the Trust Schemes.

The principal terms of the Shareholders’ Agreement are set out in section headed “3.2The Shareholders’ Agreement” of the Letter from the Board, to which the IndependentBoard Committee and the Independent Shareholders are referred.

VI. THE TARGET GROUP

Background

The Target is an owner and operator of energy infrastructure assets in Australia,including: energy infrastructure (comprising gas transmission, gas storage andprocessing, gas-fired and renewable energy power generation businesses located acrossAustralia), asset management services for the majority of the Target’s energyinvestments and for third parties, and energy investments in unlisted entities. It consistsof two separate entities, being APT and APTIT. The interests in these two entities(being the ordinary units in each of APT and APTIT) are traded together as stapledsecurities which are listed on the ASX (ASX Code: APA).

The following is the summary of the principal energy infrastructure assets currentlyowned and operated by the Target Group as stated in the Letter from the Board:

Assets Type of asset Location(s)

(a) Wallumbilla Gladstone Pipeline(WGP)

Gas transmissionpipeline

Queensland, Australia

(b) South West Queensland Pipeline(SWQP)

Gas transmissionpipeline

Queensland, Australia

(c) Moomba Sydney Pipeline (MSP) Gas transmissionpipeline

New South Wales,Australia


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Assets Type of asset Location(s)

(d) Central West Pipeline (CWP) Gas transmissionpipeline


(e) Central Ranges Pipeline (CRP) Gas transmissionpipeline


(f) Goldfields Gas Pipeline (GGP) Gas transmissionpipeline

Western Australia,Australia

(g) Victorian Transmission System(VTS)

Transmission system Victoria, Australia

(h) Dandenong LNG StorageFacility (DSF)

Gas storage facility Victoria, Australia

(i) Diamantina and Leichardt PowerStations (DPS and LPS)

Power stations Queensland, Australia

According to “Gas Price Trends Review 20171” commissioned by the Gas MajorProjects Implementation Team (an officials-level group from each state and territoryand the Commonwealth of Australia that prepares advice for the Council of AustralianGovernments Energy Council), there are five companies, or groups of companies,which own multiple pipelines or gas storage in Australia, and the Target Group is oneof them. The Target Group is the largest investor in pipelines in Australia in terms ofthe number of pipelines owned. The Target Group also ranked first in Australia interms of total length of pipelines owned and capacity by kilometre length of pipelines,which spans into every state and territory on mainland Australia.

The Target Group has a large diversified portfolio of infrastructure assets and isengaged in various business across the gas value chain beyond pipelines, includingdistribution, storage, processing and power generation, and renewable generation.Please refer to the 2018 annual report of the Target Group for the further details of theTarget Group’s other energy infrastructure assets, businesses and their performance.

Financial analysis

The following table sets out a summary of the audited consolidated financial results ofthe Target Group for each of the three financial years ended 30th June, 2016, 2017 and2018 prepared in accordance with Australian Accounting Standards, the CorporationsAct and other authoritative pronouncements of the Australian Accounting StandardsBoard and which comply with the IFRS as issued by the International AccountingStandards Board and as extracted from the Target Group’s 2016, 2017 and 2018 annualreports as set out in Appendix II to the circular:

1 Gas Price Trends Review 2017, Commonwealth of Australia 2017, pages 115 – 117, March 2018


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For the year ended 30th June,2016 2017 2018

(AUD’000) (Audited) (Audited) (Audited)

Revenue– Energy Infrastructure 1,558,161 1,821,638 1,848,224– Asset Management 504,174 475,918 509,579– Energy Investments 28,272 24,382 23,068– Others 3,697 4,482 5,851

Total 2,094,304 2,326,420 2,386,722Pass-through revenue (note 1) 438,330 438,140 445,307

Total revenue excluding pass-through 1,655,974 1,888,280 1,941,415

EBITDA– Energy Infrastructure 1,335,599 1,453,672 1,497,096– Asset Management 53,858 58,719 66,204– Energy Investments 27,796 24,382 23,068– Corporate costs (86,710) (66,651) (67,894)

Total 1,330,543 1,470,122 1,518,474

Profit before income tax expense 301,995 386,334 429,894Profit after income tax expense 179,471 236,846 264,839

Profit/(loss) attributable to– Stapled securityholders 179,622 236,846 264,839– Other non-controlling interests (151) 0 0

Basic earnings per stapled security (AUDcents) 16.1 21.3 23.3

Distribution per stapled security (AUD cents) 41.5 43.5 45.0

Sources: Target Group’s published annual reports

Note:

1. As stated in the published financial reports of the Target Group, pass-through revenue is the revenueon which no margin is earned. Pass-through revenue arises in the asset management operations inrespect of costs incurred in, and passed on to Australian Gas Networks Limited (“AGN”) and GDI(EII) Pty Ltd (“GDI”) in respect of the operation of the AGN and GDI assets, respectively.

For the year ended 30th June, 2018, the Target Group recorded revenue ofapproximately AUD2,386.7 million and earnings before interests, taxes, depreciationand amortisation (“EBITDA”) of AUD1,518.5 million, representing a slight increase of2.6% and 3.3% compared to the previous year. The energy infrastructure segmentcontributed 94.4% of the Target Group’s EBITDA before corporate costs. The increasesin revenue and EBITDA were mainly attributable to the part-year contributions from


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organic growth assets including the Reedy Creek Wallumbilla Pipeline, Mt MorgansGas Pipeline and the Emu Downs Solar Farm, and the new contracts across the Eastand West Coast Grids, as well as the benefit from the United States Consumer PriceIndex escalation and favourable currency exchange rates in relation to the WallumbillaGladstone Pipeline contract. Net profit attributable to Target Securityholders for theyear ended 30th June, 2018 increased by 11.8% to AUD264.8 million, withdepreciation and amortisation expenses reflecting an expanded asset base and higherincome tax expense reflecting the Target’s increased profit.

For the year ended 30th June, 2017, the Target Group recorded revenue ofapproximately AUD2,326.4 million and EBITDA of AUD1,470.1 million, representingan increase of 11.1% and 10.5% compared to the previous year. The increase inrevenues and EBITDA was mainly due to the full year contribution from the EasternGoldfields Pipeline in Western Australia, the Diamantina and Leichhardt Power Stationsin Queensland and the Ethane Pipeline in New South Wales to the energy infrastructuresegment. The energy infrastructure segment in turn contributed 94.6% of the TargetGroup’s total EBITDA before corporate costs. Net profit attributable to TargetSecurityholders for the year ended 30th June, 2017 increased by 31.9% to AUD236.8million.

For each of the financial years ended 30th June, 2016, 2017 and 2018, the distributionsper Target Securityholders was approximately AUD41.5 cents, AUD43.5 cents andAUD45.0 cents, respectively, which represented a compound annual growth rate ofapproximately 4.1%.

The following table sets out a summary of the audited consolidated financial positionsof the Target Group as at 30th June, 2016, 2017 and 2018 prepared in accordance withAustralian Accounting Standards, the Corporations Act and other authoritativepronouncements of the Australian Accounting Standards Board and which comply withthe IFRS as issued by the International Accounting Standards Board and as extractedfrom the Target Group’s 2016, 2017 and 2018 annual reports as set out in Appendix IIto the circular:


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As at 30th June,2016 2017 2018

(AUD’000) (Audited) (Audited) (Audited)

Current assets 420,792 772,331 448,909Non-current assets 14,421,883 14,273,617 14,778,317

Total assets 14,842,675 15,045,948 15,227,226

Current liabilities 883,932 698,235 954,847Non-current liabilities 9,929,632 10,369,530 10,145,552

Total liabilities 10,813,564 11,067,765 11,100,399

Net assets 4,029,111 3,978,183 4,126,827

Sources: Target Group’s published annual reports

The asset base of the Target Group showed an increasing trend from 30th June, 2016 to30th June, 2018 of which a significant portion of the assets comprised property, plantand equipment, as well as goodwill and intangible assets, which contributed to about91.1% of total assets.

Based on the Scheme Consideration per stapled security of the Target of AUD11.00(equivalent to approximately HK$63.80) and the total number of the stapled securitiesin issue, being 1,179,893,848 stapled securities as at the Latest Practicable Date, themarket capitalisation of Target Group is estimated to be approximately AUD12,979million (equivalent to approximately HK$75,278 million).

We noted that a line-by-line reconciliation of the consolidated statements of financialposition of the Target Group for the financial years ended 30th June, 2016, 2017 and2018 were prepared to address any difference in the Target Group’s financialinformation had it been prepared in accordance with the Company’s accounting policiesand has been reported on Deloitte Hong Kong in accordance with Hong Kong Standardof Assurance Engagements 3000 as set out in Appendix II to the circular. We havereviewed the reclassification adjustments as set out in the Reconciliation in Appendix IIto the circular. A line-by-line reconciliation of the consolidated statements of profit orloss of the Target Group for the financial years ended 30th June, 2016, 2017 and 2018has not been included in this circular as Deloitte Hong Kong has confirmed that thereare no differences between the accounting policies of the Target Group and theCompany in respect of those statements.

Having considered the above, we consider it appropriate for our purposes to base ourfinancial analysis together with the related management discussion and analysis on theTarget Group based on its published financial information which were prepared inaccordance with the Australian Accounting Standards and which comply with IFRS.


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Industry and prospects

In the year ended 30th June 2017, the Target Group embarked upon a three-yeargrowth program which would see it invest in excess of AUD1.4 billion in a variety ofenergy infrastructure growth projects. As stated in the chairman’s report of the Target’s2018 annual report, the Target has been working on its AUD1.4 billion plus ofcommitted growth projects, including the commissioning of the Emu Downs SolarFarm, Reedy Creek Wallumbilla Pipeline, Mt. Morgans Gas Pipeline and Yamarna GasPipeline, and as at 30th June, 2018, the Target has already spent AUD1 billion incapital expenditure with the balance to be realised in the coming financial year (i.e.2019). These assets are expected to contribute to the earnings starting from the nextfinancial year and beyond. According to the “Gas inquiry 2017-2020 – interim report”published by ACCC in July, 2018, there have been numerous developments in the gasmarket of Australia since 2018, which would result in the additional supply of gas tothe Australian domestic market in the future, such as the discovery of new gas field inOtway Basin, South Australia, the gas exploration in south-west Queensland, and theGas Acceleration Program supported by the Australian Government for boostingdomestic supply in the New East Coast. These new projects may bring developmentopportunities for the gas market players in Australia.

As discussed in the sections headed “II. BACKGROUND – The Acquisition and theJoint Venture Transaction” and “III. THE IMPLEMENTATION AGREEMENT –Scheme Consideration” regarding the Disposals, the Disposal assets comprise gastransmission and storage services assets located within Western Australia. TheCompany and the Consortium Members understand from the Target Group that theseassets have their own separate on-the-ground operations teams, and thereforemanagement of the Company believes that the Disposals would not have any impact onthe overall operations of the Target Group.

Share price

Set out below are the two graphs showing the historical price performance of TargetSecurity from 12th June, 2015, being three years prior to the date of the announcementof the Company dated 13th June, 2018 in relation to the Proposal Announcement untilthe Latest Practicable Date, (the “Review Period”). The first graph compares theclosing price of the Target Security with the Scheme Consideration of AUD11.00 perthe Target Security. The second graph shows the relative price performance of theTarget Security compared to the S&P/ASX Infrastructure Index.


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7

8

9

10

11

12

Sta

pled

sec

urit

y pr

ice

(AU

D)

Scheme Consideration at AUD11.00 per stapled security

13th June, 2018 Issue of the Proposal Announcement

12th August, 2018 Issue of the Announcement

0

2

4

6

8

10

12

Vol

ume

(mil

lion

s of

sta

pled

sec

irit

y)

80

90

100

110

120

130

140

Target Group S&P/ASX Infrastructure Index

13th June, 2018Issue of the Proposal Announcement

12th August, 2018Issue of the Announcement

Source: Bloomberg

During the three-year period prior to 13th June, 2018, the date of the ProposalAnnouncement, the Target Security price in general fluctuated between the lowest pointof AUD7.24 on 15th November, 2016 and the highest point of AUD9.86 on 2nd June,2017, representing a discount to the Scheme Consideration of 34.16% and 10.34%,respectively. Overall, during the three-year period prior to 13th June, 2018, the TargetSecurity traded in line with the S&P/ASX Infrastructure Index. The Target Securityprice jumped from AUD8.27 on 12th June 2018 to AUD10.00 on 13th June 2018, or20.92%, following the issue of the Proposal Announcement including the cashconsideration of AUD11.00 per Target Security. Subsequently and up to the Latest


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Practicable Date, the Target Security price fluctuated between the lowest point ofAUD9.33 on 23rd August, 2018 and the highest point of AUD10.15 on 5th July, 2018,representing a discount to the Scheme Consideration of 15.18% and 7.73%,respectively. The Target Security price moved up only 0.30% from AUD9.84 toAUD9.87 following the publication of the Announcement, indicating the market havealready factored the Acquisition into the Target Security price after the ProposalAnnouncement.

The performance of the Target Security set out above represents that of a portfolioinvestment and does not include the control premia that minority investors mightexpect from an offeror seeking to acquire 100% control of the Target Company, withaccess to all its free cash flow. As set out below in the section headed “Premia impliedby the control premium” below we analysed the control premia offered.

VII. REASONS FOR, AND BENEFITS OF, THE ACQUISITION AND THE JOINTVENTURE TRANSACTION

The Consortium Members, the Company being one of the members, believe that theTarget’s energy infrastructure assets in Australia represent an attractive opportunity forinvestors with the potential for growth opportunities. Among the Consortium Members,the Company is the only bidding party with the size and immediate resources to makean offer conditional only upon the conditions detailed in section “2.3 Conditions to theTrust Schemes” of the Letter from the Board.

The Acquisition is consistent with the Company’s global diversification strategy, is inaccordance with the Group’s investment criteria to extend its reach to other businessareas to increase stable recurrent income, and will further develop the Company’sintent to consolidate its holdings in and through the United Kingdom via the CompanyHoldco. In circumstances where the Company is extending its reach into other businessareas globally, it would, where appropriate, collaborate with parties with a proven trackrecord and expertise in the relevant area, in particular, as reputable managers who areable to grow the value of the business over time. The Company can collaborate mosteffectively with parties with which its management has a history of working togethersuccessfully in the past. The formation of the Consortium under the Joint VentureTransaction would allow the Company, CKI and PAH to continue to share themanagement and strategic expertise of the UK Gas ExCo note 2 in the management andoperation of the Target Group. Therefore, the Joint Venture Transaction with CKI andPAH will be beneficial to the Company’s business and consistent with its strategy sinceCKI and PAH both have a strong track record in infrastructure investments of the kindthat meet the Company’s investment criteria and also have historical ties with theCompany.

If the JV Transaction Shareholders’ Approvals are not obtained or certain otherconditions are not fulfilled and the Joint Venture Transaction does not proceed, theCompany will, through Bidco which will remain as its indirect wholly-ownedsubsidiary, proceed with the Acquisition to acquire 100% of the Target. In such case,the Target still represents a quality investment for the Group for the following reasons:


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(a) the Target Group is a sizeable business, and will provide the Company with theopportunity to make a further investment in infrastructure and utility assetoperations in Australia, which is consistent with the Company’s globaldiversification strategy;

(b) the Target Group provides stable revenue and cash flows which will help tocompensate for the reduced contribution from property development, and isexpected to generate long-term stable liquidity, provide income in the short tomedium term, and strengthen further the Group’s dividend distribution capability;

(c) the Target Group’s energy infrastructure assets across Australia will represent aquality investment for the Group with potential for appropriate growthopportunities;

(d) the Company can leverage on the expertise of the Target’s existing managementas well as through service agreements with the joint ventures with, and associatesof, CKI and, or PAH and, or other professionals to support the management of theTarget’s business; and

(e) the Company, through the Company Holdco and its interests in the DUET Assetsin Australia, is already a participant in the UK Gas Group note 1 and a member ofthe UK Gas ExCo note 2 to facilitate its exposure to, and development of, industryexpertise. The Company will continue to benefit from its participation in the UKGas Group note 1 and membership of the UK Gas ExCo note 2 through thesignificant advantage of having access to the operational and managementexpertise in the gas sector to be found in other existing members of the UK GasExCo note 2.

Having considered that (i) the Acquisition is consistent with the Company’s globaldiversification strategy and represents a quality investment in accordance with theGroup’s investment criteria; and (ii) collaboration with parties with proven track recordand expertise as details above, we are of the view that the Acquisition as well as theJoint Venture Transaction are in the interests of the Company and the Shareholders as awhole.

Notes:

1. The UK Gas Group is a body with members comprising companies involved in gas investmentsglobally (currently in Australia and the United Kingdom) to provide a discussion forum among itsmembers.

2. CKI and PAH have, since the beginning of 2015, formed the UK Gas Executive Committee (UK GasExCo), a body with members comprising companies involved in gas investments in the UnitedKingdom and Australia, to provide a discussion forum among its members. The purpose forestablishing the UK Gas ExCo is to develop a centre of excellence in the gas sector, facilitate theflow of information between operating entities and make recommendations for the centralisation ofgroup functions (such as treasury and management) to drive group efficiencies.

The Company, through the Company Holdco and its interests in the DUET Assets in Australia, isalready a participant in the UK Gas Group and a member of the UK Gas ExCo to facilitate itsexposure to, and development of, industry expertise. The Company will continue to benefit from its


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participation in the UK Gas Group and membership of the UK Gas ExCo through the significantadvantage of having access to the operational and management expertise in the gas sector to be foundin other existing members of the UK Gas Group and UK Gas ExCo.

VIII.FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Effect on earnings

As set out in the Target Group’s audited financial statements for the financial yearended 30th June, 2018, the profit for the year of the Target Group were approximatelyAUD265 million (equivalent to approximately HK$1,537 million). On this basis, theDirectors expect that the Acquisition will have a positive impact on the Group’searnings following completion of the Acquisition. Upon completion of the Acquisition,the results of the Target Group will be consolidated or equity accounted for, dependingon whether the Joint Venture Transaction proceeds or not, in the consolidated financialstatements of the Group. As such, we consider that the Acquisition alone, or with theimplementation of the Joint Venture Transaction will have a positive impact on the netprofit of the Group.

Effect on net assets value

As further stated in the Letter from the Board and based on the unaudited pro formafinancial information of the Enlarged Group as set out in the Appendix III to thiscircular, the financial effects of the Acquisition on the assets and liabilities of theGroup would have been as follows assuming the completion of the Acquisition hadtaken place on 30th June, 2018,

(i) in the event that the Consortium had not been formed and the Company hadproceeded with the Acquisition alone:

(a) the total assets of the Group as at 30th June, 2018 would have increasedfrom approximately HK$458,639 million to approximately HK$543,321million for the Enlarged Group;

(b) the total liabilities of the Group as at 30th June, 2018 would have increasedfrom approximately HK$128,851 million to approximately HK$214,619million for the Enlarged Group; and

(c) accordingly, the Group’s net assets as at 30th June, 2018 would havedecreased from approximately HK$329,788 million to approximatelyHK$328,702 million upon completion of the Acquisition, representing adecrease of approximately 0.33%.

(ii) in the event that the Consortium has been formed and the Company hadproceeded with the Acquisition together with CKI and PAH as ConsortiumMembers:


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(a) the total assets of the Enlarged Group as at 30th June, 2018 would haveremained the same as the total assets of the Group as at 30th June, 2018 ofapproximately HK$458,639 million;

(b) the total liabilities of the Enlarged Group as at 30th June, 2018 would haveremained the same as the total liabilities of the Group as at 30th June, 2018of approximately HK$128,851 million; and

(c) accordingly, with the implementation of the Joint Venture Transaction, therewould have been no impact on the Group’s net assets as at 30th June, 2018.

(iii) in the event that the Consortium had been formed and the Company hadproceeded with the Acquisition together with only one of CKI or PAH as aConsortium Member:

(a) the total assets of the Group as at 30th June, 2018 would have increasedfrom approximately HK$458,639 million to approximately HK$464,613million for the Enlarged Group;

(b) the total liabilities of the Group as at 30th June, 2018 would have increasedfrom approximately HK$128,851 million to approximately HK$134,825million for the Enlarged Group; and

(c) accordingly, with the implementation of the Joint Venture Transaction, therewould have been no impact on the Group’s net assets as at 30th June, 2018.

Effect on working capital

As stated in the Letter from the Board, the Directors are of the view that theAcquisition is not expected to have any material adverse impact on the financialposition of the Group.

In addition, as set out in the section headed “3. Working Capital” in Appendix I to thiscircular, the Directors are of the opinion that the Enlarged Group will have sufficientworking capital for its present requirements for at least the next 12 months from thedate of the circular.

As stated in the 2018 interim report of the Company, the Group has current assets ofapproximately HK$208,373 million including bank balances and deposits ofapproximately HK$55,222 million and current liabilities of approximately HK$58,270million as at 30th June, 2018. On the basis that the settlement of the SchemeConsideration and the transaction costs for the Acquisition under the ImplementationAgreement will be funded from the Company’s its internal resources and, or externalborrowing, the effect on the working capital will be limited. As discussed above, themanagement of the Company has yet to finalise the funding method as at the LatestPracticable Date. However, the Group maintains investment grade rating, with strong


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relationships with leading financial institutions. The management of the Companybelieves the Group could obtain favourable financing terms for funding the Acquisitionwhile maintaining sufficient cash resources.

Our view

As the consideration will be funded from internal resources and, or externalborrowings, the Acquisition will have positive impact on the performance of the Groupwithout causing any significant cash flow burden to the Group given that it hassufficient working capital for the next 12 months from the date of the circular, we areof the view that the Acquisition is beneficial to the Group from the financial point ofthe view. However, the Shareholders should note that the earnings contribution fromthe Target Group after completion of the Acquisition will depend on the futureperformance of the Target Group, and the actual effect of the Acquisition, including thedebt financing for the Acquisition, on the assets and liabilities of the Group willdepend on the financial position of the Target Group as of the date of completion ofthe Acquisition, which cannot be quantified as of the Latest Practicable Date.

IX. OUR ASSESSMENT OF THE JOINT VENTURE TRANSACTION

The Acquisition

The Company alone

The Acquisition without taking into account any participation by the other ConsortiumMembers constitutes a major transaction for the Company under the Listing Rules andwill be subject to the approval of Shareholders. As the Acquisition itself is from anindependent third party unrelated to the Company, its controlling shareholder and theirrespective associates as defined in the Listing Rules, there is no requirement under theListing Rules for the Acquisition to be subject to the approval of the IndependentShareholders. Accordingly, the consideration of the terms of the Acquisition fallsbeyond the scope of our engagement, as summarised above, which is to give advice onthose aspects of the Joint Venture Transaction which relate to Company and the otherConsortium Members. We have nevertheless provided in this letter some analysis of theScheme Consideration, which is set out below.

The Joint Venture Transaction

As described earlier, the negotiation of the Acquisition involved all three ConsortiumMembers and the commercial basis of the transaction was for each to take an agreedpercentage interest in the Target through Bidco at a price which each ConsortiumMember had agreed and was manifestly determined by negotiation at arm’s length withthe directors of the Target RE who are independent of the Consortium Members, theircontrolling shareholders and their respective associates. The Scheme Consideration willonly be paid if the Trust Schemes are approved by the Target Securityholders togetherwith the fulfillment of the other conditions of the Trust Schemes as stated above. Forthese reasons we do not consider that the Scheme Consideration forms part of theconnected transactions between the Company and the other Consortium Members on


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which we have been engaged to give our advice. The Scheme Consideration was notdetermined by negotiation between parties who are deemed to be connected but bynegotiation by the Consortium Members on the one hand, and the directors of theTarget RE on the other. Further, the mechanism and formation of the Joint VentureTransaction will not result in any sale by the Company, however indirectly, of interestsin the Target provided the approval of their independent shareholders is obtained by theFunding Date. Since the general meetings of the shareholders of CKI and PAH toapprove the Joint Venture Transaction take place contemporaneously with the EGM ofthe Company, which is in advance of the despatch of the documents containing theTrust Schemes to the Target Securityholders, the Funding Date and the date on whichthe consideration payable under the Trust Schemes will be made will therefore followCKI and PAH subscribing for shares in the JV Co. Accordingly, CKI and PAH willacquire their interests in the Target at the time the Trust Schemes are implemented andnot from the Company.

The participation of CKI and PAH in the Joint Venture Transaction

It is intended that the Company will on completion of the Acquisition be interestedindirectly in 60% of the stapled securities of the Target, with CKI and PAH havinginterest of 20% each. CKI is the listed company which has concentrated its businessactivity on infrastructure and utility investments on a world-wide basis both directlythrough subsidiary operations and jointly with PAH or through its controlling interestin PAH. In particular, CKI and PAH have a proven record of managing successfullyinfrastructural and utility operations on an international basis and, as a consequence,are the logical entities within the wider CKHH and CKA group to participate in theAcquisition.

CKI and PAH’s position in electricity and gas distribution in Australia makes themlogical investors in the Target which operates in similar market in every state inAustralia. The Target is the largest gas transmission pipeline owner in Australia; andfurther information on the Target has been set out above. CKI and PAH, through theirrespective subsidiaries and, or associates, have well-regarded management teams inAustralia which have established a reputation for the efficient management of itsoperations and assets. For example, CKI and PAH have a combined interest of 51% ineach of (i) SA Power Networks, the primary electricity supplier in the state of SouthAustralia; and (ii) Victoria Power Networks Pty Ltd., which is engaged in theelectricity distribution business in the state of Victoria. Both SA Power Networks andVictoria Power Networks Pty Ltd. had received numerous awards in past few yearswhich included project management with significant reputation and recognition by theindustry, such as the Project Management Achievement Awards established by theAustralian Institute of Project Management. Please refer to the annual reports of CKIand PAH for further details of SA Power Networks and Victoria Power Networks PtyLtd. The Company already has a record of collaborating successfully with CKI andPAH and with this favourable experience, CKI and PAH are obvious choices for furthercollaboration for expansion in such infrastructure projects. The formation of theConsortium under the Joint Venture Transaction will allow the Company, CKI and PAHto continue to share the management and strategic expertise of the UK Gas ExCo in themanagement and operation of the Target Group.


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For the reasons given above, the Directors consider that the inclusion of CKI and PAHas Consortium Members confers significant benefits to its proposed investment in theTarget Group and, for these reasons, CKI and PAH’s participation should be welcomed.In addition, the Target Group will become a member of the UK Gas ExCo establishedby CKI and PAH since the beginning of 2015, and can benefit from the considerableexpertise of CKI’s and PAH’s investments in the gas sector. It is accepted that undercertain circumstances, however unlikely they may be, the Company could acquire all ofthe Target Group or a majority shareholding without the benefit of the participation ofeither CKI or PAH. In this event, the Company believes it has the resources bothfinancial and managerial to manage the Target Group successfully. It is, however, notthe preferred outcome. The Company’s preferred position is for it to be a member ofthe co-investors in the Target.

The Consortium Formation Agreement

The Consortium Formation Agreement establishes the structure and mechanism for bothCKI and PAH to participate in the Joint Venture Transaction. On receipt of the requisiteapprovals from independent shareholders, CKI and, or, PAH will acquire the entireissued share capital in the relevant Consortium Midcos from the Company Holdco,thereby constituting the relevant Consortium Midcos as wholly-owned subsidiaries ofeither CKI or PAH. The present timetable of the Joint Venture Transaction anticipatesthat the EGM of the Shareholders of the Company, the general meetings of theshareholders of CKI and the shareholders of PAH to obtain JV TransactionShareholders’ Approvals for the Joint Venture Transaction will have taken place beforethe despatch of the document containing the Trust Schemes to the TargetSecurityholders; that is well before the Funding Date, the day on which the TargetScheme Meetings are held and the date by which the consideration for the Acquisitionis required to be paid. Accordingly, for all practical purposes, the participation of CKIand PAH will be known well before the Consortium Midcos are required to be fullycapitalised. The arrangements under the Consortium Formation Agreement should notresult in the Company having effectively to fund the relevant Consortium Midcos to beacquired by CKI and PAH respectively, in advance of the subscription and advances byCKI and PAH. We consider that the Consortium Formation Agreement fairly andreasonably reflects the respective contributions, rights and obligations of the parties forimplementing the Joint Venture Transaction.

The Shareholders’ Agreement

The Shareholders’ Agreement sets out how the board of directors of JV Co will becomposed and the reserved matters which require the approval of either the directors orthe shareholders of JV Co by special majorities of 85%. The reserved matters,themselves, are ones that we would expect to find in an agreement by this kind and,given the level of the special majorities required to approve reserved matters and theproposed shareholding of Consortium Members in JV Co, even if either CKI or PAHdo not become shareholders due to the failure to obtain the JV TransactionShareholders’ Approval for the Joint Venture Transaction, the approval of reservedmatters requires for all practical purposes unanimity among shareholders and nearunanimity among directors. Accordingly, we consider that these arrangements


– 72 –

adequately protect the interests of the Company by giving it an effective veto over allmaterial decisions and decisions outside the normal and usual course of the operationof JV Co and its group following the Acquisition.

The Implementation Agreement

The Implementation Agreement makes clear the several obligations of the ConsortiumMembers in funding the Bidco and the obligations of the parties in working towardsthe implementation of the Trust Schemes to effect the Acquisition. For the ConsortiumMembers it also sets out the circumstances when they would be entitled to receive abreak fee in the event the Trust Schemes are not implemented and when ConsortiumMembers are obligated to reimburse the costs of the Target RE in connection withproposing and implementing the Trust Schemes, the amount of which has been fixed,which have been stated in the section headed “III. THE IMPLEMENTATIONAGREEMENT – Further terms” above.

In our view none of the provisions of the Implementation Agreement are unusual orcontroversial. Indeed, these are the provisions we would expect in an agreement of thiskind and such an agreement is an essential element to a public transaction involving anunsolicited offer for a company to be implemented by way of a scheme of arrangement.

X. FURTHER FACTORS AND CONSIDERATIONS IN THE ASSESSMENT OF THESCHEME CONSIDERATION

In addition to the background to, and the reasons and benefits for, the Acquisition andthe Joint Venture Transaction as discussed above, we have further taken into accountthe following factors and considerations in arriving at our recommendations to theIndependent Board Committee and the Independent Shareholders.

As we have stated above, the Scheme Consideration was negotiated on an arm’s lengthbasis and, if the Joint Venture Transaction proceeds as contemplated and on the basisof the present timetable, the Consortium Members will become shareholders of the JVCo and, in such capacity, fund the subsequent acquisition of the stapled securities ofthe Target by Bidco. We would also expect that in a joint venture arrangement of thekind contemplated by the Joint Venture Transaction, each joint venture party would paythe same consideration for the stapled securities being acquired, as in the case with theJoint Venture Transaction. However, for completeness sake, we have included anassessment of the Scheme Consideration of AUD11.00 per Target Security, which basedon the 1,179,893,848 Target Securities in issue at the Latest Practicable Date gives riseto a total consideration of approximately AUD12,979 million (equivalent toapproximately HK$75,278 million).

We have done so on two bases: (i) by comparing the present market valuation of thestapled securities of the Target with comparable companies or trusts listed in Australiaand are engaged principally in the distribution and, or, transmission of gas and, or,electricity; and (ii) by comparing the consideration to be paid for the Target Group bythe Consortium Members with publicly disclosed transactions involving the acquisitionof companies or operations which are primarily engaged in the distribution and, or,


– 73 –

transmission of gas and, or, electricity in Australia. We have also examined the premiaoffered of such acquisition over the market value of the respective offeree companiesor operations prior to the announcement of the acquisition terms.

Trading statistics of comparable listed companies in Australia

The Target is an owner and operator of energy infrastructure assets in Australia,including: energy infrastructure (comprising gas transmission, gas storage andprocessing, gas-fired and renewable energy power generation businesses located acrossAustralia), and asset management services for the majority of the Target’s energyinvestments and for third parties, and energy investments in unlisted entities.

We have therefore identified two Australian listed companies, which are primarilyengaged in the distribution and, or, transmission of gas and, or, electricity in Australia.We consider these companies are comparable with the Target Group and should give anindication of whether the Scheme Consideration is fair and reasonable.

As 100% of the Target Group will be controlled jointly by the Company, CKI and PAHwho together will be able to determine the capital structure and deployment of thecashflow of the Target Group, we believe that the most relevant comparable measure isthe enterprise value (the “EV”) to the EBITDA ratio. We have therefore assessed thesecompanies and the Target Group using an EV/EBITDA multiple, which we believe isthe more appropriate measure when assessing the acquisition of a company or business.For the comparable listed Australian companies and the Target Group the ratio has beencalculated using figures extracted from the respective latest published full year auditedfinancial statements.

Ticker Company

Marketcapitalisation

(note 1)

EV(note 2)

EBITDA(note 3)

EV/EBITDA

(AUDmillion)

(AUDmillion)

(AUDmillion) (times)

ASX: AST AusNet ServicesLimited

5,927.5 12,834.4 1,142.9 11.2

ASX: SKI Spark InfrastructureGroup

3,801.3 9,173.6 891.4 10.3

Maximum 11.2Minimum 10.3

Average 10.8

Target (note 4) 12,978.8 22,528.8 1,518.0 14.8

Sources: Bloomberg, and published financial statements of relevant comparable companies

Notes:

1. The market capitalisation is taken at the Latest Practicable Date.


– 74 –

2. EV is the enterprise value of a company or business. In the tabulation above, it has been calculatedby taking the sum of the market capitalisation of the relevant company at the Latest Practicable Date,and net debt, less cash and bank deposits, extracted from the respective company’s latest publishedfull year audited financial statements. If EV is not available, the total equity value on the basis ofconsideration will be adopted.

3. EBITDA represents the earnings before interest paid, taxation, depreciation and amortisation, andadjusted for any one-off extraordinary expenses and incomes (if any). It is a measure of gross fundsgenerated by a normal business. Such figure was extracted from the respective company’s latestpublished full year audited financial statements.

4. For the Target, its market capitalisation has been calculated by multiplying the Scheme Considerationby the number of stabled securities of the Target in issue as at the date of the Announcement. TheScheme Consideration and the latest available financial information of the Target as at the LatestPracticable Date are used to determine the implied EV and EBITDA of the Target.

As can be seen, the valuation of the Target Group falls outside the range of the twocomparable companies. However, the above multiplies of the comparable companies donot take into account of the any premium being paid for the control of the TargetGroup, and please refer to the section headed “Premia implied by the control premium”below for our analysis on the control premium.

Recent precedent transactions in Australia

We have attempted to identify acquisitions of comparable companies or assets (the“Comparable Transactions”) in which the principal nature is the distribution and, or,transmission of gas and, or, electricity in Australia in the past three years, and fourComparable Transactions have been selected, to the best of our endeavours, in ourresearch through public information. As mentioned above we have assessed them onthe basis of their respective EV/EBITDA multiples, which we regard is the moreappropriate measure. The figures used for these comparisons have been extracted frompress releases, public announcements and regulatory filings and have been convertedinto AUD, if necessary. However, no public information was available for thecalculation of the EV and EBITDA values for one of these four ComparableTransactions, and we have discussed this one in footnote no. 1 below.


– 75 –

Date ofannouncement

Target company orassets

Size ofconsideration EV EBITDA

EV/EBITDAmultiple

(AUD million)(percentage of

interestacquired)

(AUDmillion)

(AUDmillion) (times)

May 2017 Endeavour Energy 7,624(50.4%)

N/A (note 1) 697 N/A (note 1)

May 2017 Darling DownsPipeline Network

392(100%)

392 N/A 13.0(note 2)

January 2017 DUET Group 7,412(100%)

13,470 972 13.9

November2015

TransGrid 10,258(100%)

10,258 705 14.6

Maximum 14.6Minimum 13.0

Median 13.9Average 13.8

Target (note 3) 12,979 (100%) 22,529 1,518 14.8

Sources: Bloomberg, press releases, public announcements, or regulatory filings of relevant comparablecompanies

Notes:

1. On 11th May, 2017, the NSW Government of Australia announced the long-term lease of 50.4% ofEndeavour Energy to an Australian-led consortium, which comprised of Macquarie Infrastructure &Real Assets, AMP Capital on behalf of Retail Employees Superannuation Trust, Canada’s BritishColumbia Investment Management Corporation and the Qatar Investment Authority. However, nopublic information regarding the EV and EV/EBITDA ratio of such Endeavour Energy transactionwere available.

2. According to the press releases by the seller (Origin Energy Limited) and the buyer (Jemena GasPipelines Holdings Pty Ltd.), the seller and buyer of Darling Downs Pipeline disclosed transactionEV/EBITDA multiples of 16.9x and 13.0x, respectively. For conservative approach, we have adoptedthe lower figure for calculation purpose.

3. The Scheme Consideration and the latest available financial information of the Target as at the LatestPracticable Date are used to determine the implied EV and EBITDA of the Target

As can be seen, the implied multiple of the Acquisition of 14.8x of the FY2018 EV/EBITDA is slightly higher than the average and median of the ComparableTransactions in terms of their respective EV/EBITDA multiples.

Premia implied by the control premium

The valuation of the Target Group under the Scheme Consideration falls outside therange of the two comparable companies as shown above. As the EV used at arriving atthe EV/EBITDA multiple of the comparable companies are based on their respectivemarket capitalisation of the issued share capital, and therefore a takeover premium forcontrol should not be generally included. In the precedent transactions we have


– 76 –

identified in the section headed “Recent precedent transactions in Australia”, only theacquisition of DUET group by the Company, CKI and PAH joint venture on 16thJanuary, 2017 involved an acquisition of a listed company. The considerationrepresented a premium of approximately 27.7% to the closing share price of the DUETgroup prior to the date of the announcement by DUET group regarding the non-bindingproposal on the acquisition. The Scheme Consideration represented an approximately33.0% premium over the unaffected closing share price of the Target of AUD8.27 perstapled security on 12th June, 2018 (the date of the Proposal Announcement), We havefurther made reference to the Control Premium Study (1st quarter, 2018) which waspublished by Factset Mergerstat, LLC. (the “Mergerstat”), an independent informationprovider for merger and acquisition transaction data, in relation to the examination ofcontrol premia of the transactions whereby 50.01% or more of a company wasacquired. As indicated by such market data and for illustrative purposes, the overallaverage and median premiums for the 89 transactions (excluding negative premiumtransactions) in this study report were approximately 41.6% and 26.0%, respectively,while the overall average and median premiums for the 107 transactions (includingnegative premium transactions) were approximately 30.0% and 22.0%, respectively note 1. Assuch, the higher EV/EBITDA multiple of the Target, with reference to theabovementioned premium control data as proxy only, should reflect the takeoverpremium for control for the Acquisition, which we are of the opinion is fair andreasonable.

Implied operating cash flow yield and distribution yield of the Target

The Target Group generated operating cash flow (defined as net cash from operationsafter interest and tax payments) of approximately AUD90.7 cents per stapled security,and distributed to the Target Securityholders AUD45.0 cents per stapled security for theyear ended 30th June, 2018. Based on the Scheme Consideration of AUD11.0 perstapled security, the implied operating cash flow yield and distribution yield areapproximately 8.2% and 4.1% respectively. According to the management of theCompany, given that the Group maintains investment grade rating and strongrelationships with a number of leading financial institutions as mentioned before, it isexpected that the Group could obtain favourable financing terms and lower borrowingcosts as compared to the implied cash distribution yield calculated above for fundingthe Acquisition while maintaining sufficient cash resources.

Assessment of the Scheme Consideration

On the basis of our analyses of the traded prices of securities in comparable companieslisted in Australia and the comparable acquisitions of businesses operating incomparable sector to the Target Group (i.e. the Comparable Transactions), and takinginto account of the premium being paid for the control of the Target Group, we

Note:

1. The control premium calculated in the Control Premium Study (1st quarter, 2018) report was the percentagedifference between the total consideration price per share of the target company’s common stock and themarket trading price per share prior to the acquisition announcement as analysed and determined byMergerstat.


– 77 –

consider that the Scheme Consideration is fair and reasonable, and a fair andreasonable basis for all the Consortium Members to participate in the Joint VentureTransaction.

XI. RECOMMENDATIONS

Taking into account the considerations and factors set out above, we are of the opinionthat the terms of the Joint Venture Transaction in so far as they affect the Company,CKI and PAH are fair and reasonable, the Acquisition is on normal commercial termsand in the ordinary and usual course of the business of the Company. The Joint VentureTransaction follows a pattern of similarly structured infrastructure projects in which theConsortium Members have participated in Australia and elsewhere. For the Company itrepresents a further realisation of its diversification strategy and is consistent with theGroup’s investment criteria to extend its reach to other business areas to increase stablerecurrent earnings. We consider the Joint Venture Transaction is in the ordinary andusual course of business, on normal commercial terms, and is in the interests of theCompany and its Shareholders as a whole. Accordingly, we advise the IndependentBoard Committee to recommend to the Independent Shareholders to vote in favour of,and we also advise the Independent Shareholders to vote in favour of, the ordinaryresolutions to be proposed at the EGM of the Company to approve the Joint VentureTransaction and the transactions contemplated thereunder.

Yours faithfully,For and on behalf of

Anglo Chinese Corporate Finance, LimitedStephen Clark

Managing DirectorDennis Cassidy

Director – Head of Corporate Finance

1. Mr. Stephen Clark is a licensed person registered with the Securities and Futures Commission and as aresponsible officer of Anglo Chinese to carry out Type 1 (dealing in securities), Type 4 (advising onsecurities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities underthe SFO. He has over 35 years of experience in corporate finance.

2. Mr. Dennis Cassidy is a licensed person registered with the Securities and Futures Commission and as aresponsible officer of Anglo Chinese to carry out Type 1 (dealing in securities), Type 4 (advising onsecurities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities underthe SFO. He has over 35 years of experience in corporate finance.


– 78 –

1. FINANCIAL INFORMATION OF THE GROUP FOR EACH OF THE THREEYEARS ENDED 31 DECEMBER 2015, 2016 AND 2017 AND THE SIX MONTHSENDED 30 JUNE 2018

Financial information of the Group for each of the three years ended 31 December2015, 2016 and 2017, and the six months ended 30 June 2018, are disclosed in thefollowing documents which have been published on the websites of the StockExchange (www.hkexnews.hk) and the Company (http://www.ckah.com) and can beaccessed at the website addresses below:

(i) annual report of the Company for the year ended 31 December 2015(http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0408/LTN20160408361.pdf)

(ii) annual report of the Company for the year ended 31 December 2016(http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0405/LTN201704051352.pdf)

(iii) annual report of the Company for the year ended 31 December 2017(http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0406/LTN20180406599.pdf)

(iv) interim report of the Company for the six months ended 30 June 2018(http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0816/LTN20180816700.pdf)

2. INDEBTEDNESS

As at 31 August 2018, being the latest practicable date for the purpose of thisstatement of indebtedness, the Group and the Target Group had the followingoutstanding indebtedness:

(a) Borrowings

As at 31 August 2018:

(i) the Group had total bank and other borrowings of HK$64,436 million, ofwhich HK$5,365 million were secured and HK$59,071 million wereunsecured; and

(ii) the Target Group had total bank and other borrowings of approximatelyHK$55,458 million, all of which were unsecured.

(b) Charge on Assets

As at 31 August 2018, except for properties held by the Group amounting toHK$14,995 million, which were charged to secure bank loans arranged forproperty projects on Mainland China, no material asset of the Group or the TargetGroup was under any charge.

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

– I-1 –

(c) Contingent Liabilities

As at 31 August 2018:

(i) the Group provided guarantees amounting to HK$3,309 million; and

(ii) the Target Group provided guarantees amounting to approximatelyHK$303 million.

Save as disclosed above and apart from intra-group liabilities and guarantees, asof the close of business on 31 August 2018, the Group and the Target Group didnot have any outstanding debt securities, loan capital, bank overdrafts, loans,mortgages, charges or other similar indebtedness, hire purchase or finance leasecommitments, liabilities under acceptances or acceptance credits, guarantees orother material contingent liabilities.

3. WORKING CAPITAL

The Directors are of the opinion that, following completion of the Acquisition and inthe absence of unforeseeable circumstances, after taking into account the EnlargedGroup’s business prospects, internal resources and available credit facilities, theEnlarged Group will have sufficient working capital for its present requirements for atleast the next 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS

The Group recorded satisfactory results for the first half of 2018 as various businessescontinued to perform solidly. Good progress was made in executing the Group’stwo-pronged strategy. The Group continued to enhance the property businessfundamentals while strengthening the recurring earnings base through portfolio andgeographic diversification to generate stable shareholder returns.

The Group has made various investments since late 2016 which include investmentproperties and hotel projects in Hong Kong and overseas markets; infrastructure andutility assets in continental Europe, Australia, Canada and the United Kingdom; and theaircraft leasing business. As recurring income and profit contribution of theseinvestments grow, the Group is expected to record an increase of over 50% in recurrentprofit contribution for 2018 as compared to 2016. In furtherance of the Group’sfundamental principle “to advance while maintaining stability”, the Group will focus onpotential investments with stable recurring income to propel earnings growth andenhance strategic flexibility, while ensuring its financial strength is not compromised.A strong recurring income base is strategically critical to stable and sustainabledividend distributions in a changing and unpredictable property market. Barring anyunforeseen adverse circumstances, the Group expects to achieve its scheduledinvestment target of expanding stable income in the near term.


– I-2 –

Notwithstanding all the recent acquisitions, the Group has ample cash on hand with adebt ratio below 2% as at 30 June 2018. The established strong operating and financialplatform of the Group that is anchored in stability is the cornerstone for sustainablegrowth of its diversified businesses and generating solid and stable returns forShareholders in a challenging market environment. The Group will continue to pursueselective investments in global quality assets that would create synergistic benefits andcontribute to long-term sustainable earnings. The Group is confident that it iswell-placed for the next phase of growth.

The Target Group’s energy infrastructure assets in Australia represent an attractiveopportunity with the potential for growth opportunities and is in accordance with theGroup’s investment criteria to extend its reach to other business areas to increase stablerecurrent income. In the year ended 30 June 2017, the Target Group embarked upon athree year growth program which will see it invest in excess of AUD1.4 billion in avariety of energy infrastructure growth projects. As at 30 June 2018, the Target Grouphad spent AUD1 billion in capital expenditure with the balance to be realised in thecoming financial year. These assets are expected to contribute to additional revenue tothe Target Group in the coming financial year and beyond. The Target Group also seesmore growth with in excess of AUD4 billion of growth opportunities currentlyidentified over the next four to five years. These opportunities range across gaspipeline developments, gas and renewables power generation and other opportunitiesthat are currently at various stages of development.

5. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there was no materialadverse change in the financial or trading position of the Group since 31 December2017, being the date to which the latest published audited consolidated financialstatements of the Group have been made up.


– I-3 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

– II-1 –

A. PUBLISHED FINANCIAL INFORMATION OF THE TARGET GROUP OF EACH OF THE THREE YEARS ENDED 30 JUNE 2016, 2017 AND 2018

For the purpose of this section only, unless the context requires otherwise, references to the “Company”, “we”, “us” and “our” refer to the Target and references to “$” refer to AUD.

1. The following is an extract of the audited financial statements of the Target Group for the year ended 30 June 2016, which were prepared in accordance with the Australian Accounting Standards and which comply with IFRS, from the 2016 annual report of the Target issued on 24 August 2016.

LR14.67(4)App 1 Part BPara 31(1)LR14.67(6)(a)(i)


– II-2 –

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOMEFor the financial year ended 30 June 2016

2016 2015Note $000 $000

Continuing operationsRevenue 5 2,077,327 1,539,694Share of net profits of associates and joint ventures using the equity method 5 16,977 13,921

2,094,304 1,553,615Net profit on sale of equity accounted investment 3 – 430,039Asset operation and management expenses (129,534) (55,053)Depreciation and amortisation expense 6 (520,890) (208,200)Other operating costs – pass-through 6 (438,330) (434,382)Finance costs 6 (511,355) (348,484)Employee benefit expense 6 (180,103) (176,174)Other expenses (12,097) (24,233)

Profit before tax 301,995 737,128Income tax expense 7 (122,524) (177,198)

Profit for the year 179,471 559,930

Other comprehensive income, net of income taxItems that will not be reclassified subsequently to profit or loss:Actuarial (loss)/gain on defined benefit plan (8,148) 18,354Income tax relating to items that will not be reclassified subsequently 2,444 (5,506)

(5,704) 12,848

Items that may be reclassified subsequently to profit or loss:Gain on available-for-sale investments taken to equity 1,027 2,591Transfer of loss on cash flow hedges to profit or loss 121,922 68,960Loss on cash flow hedges taken to equity (249,150) (316,555)Loss on associate hedges taken to equity (9,429) (9,660)Recycling of reserves on disposal of available-for-sale-investments/associate 11,356 (19,416)Income tax relating to items that may be reclassified subsequently 37,136 82,520

(87,138) (191,560)

Other comprehensive income for the year (net of tax) (92,842) (178,712)

Total comprehensive income for the year 86,629 381,218


– II-3 –

2016 2015Note $000 $000

Profit attributable to:Unitholders of the parent 94,520 513,581Non-controlling interest – APT Investment Trust unitholders 85,102 46,348

APA stapled securityholders 179,622 559,929Non-controlling interest – other (151) 1

179,471 559,930

Total comprehensive income attributable to:Unitholders of the parent 2,273 333,880Non-controlling interest – APT Investment Trust unitholders 84,507 47,337

APA stapled securityholders 86,780 381,217Non-controlling interest – other (151) 1

86,629 381,218

Earnings per security 2016 2015

Basic and diluted (cents per security) 8 16.1 56.3

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.


– II-4 –

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2016

2016 2015Note $000 $000

Current assetsCash and cash equivalents 19 84,506 411,921Trade and other receivables 10 263,232 254,940Other financial assets 22 35,140 24,789Inventories 24,891 21,290Other 13,023 8,314

Current assets 420,792 721,254

Non-current assetsCash on deposit 19 2,149 –Trade and other receivables 10 17,283 92,470Other financial assets 22 447,070 496,537Investments accounted for using the equity method 25 197,185 257,425Property, plant and equipment 12 9,189,087 8,355,193Goodwill 13 1,184,588 1,140,500Other intangible assets 13 3,355,707 3,556,246Other 16 28,814 33,261

Non-current assets 14,421,883 13,931,632

Total assets 14,842,675 14,652,886

Current liabilitiesTrade and other payables 11 252,661 405,685Borrowings 20 409,829 164,353Other financial liabilities 22 114,674 145,815Provisions 15 93,033 85,452Unearned revenue 13,735 7,477

Current liabilities 883,932 808,782


– II-5 –

2016 2015Note $000 $000

Non-current liabilitiesTrade and other payables 11 3,007 3,261Borrowings 20 9,314,373 9,141,497Other financial liabilities 22 194,591 44,793Deferred tax liabilities 7 304,849 194,692Provisions 15 70,917 60,410Unearned revenue 41,895 16,801

Non-current liabilities 9,929,632 9,461,454

Total liabilities 10,813,564 10,270,236

Net assets 4,029,111 4,382,650

EquityAustralian Pipeline Trust equity:Issued capital 23 3,195,445 3,195,449Reserves (395,335) (308,792)Retained earnings 182,062 463,772

Equity attributable to unitholders of the parent 2,982,172 3,350,429

Non-controlling interests:APT Investment Trust:Issued capital 1,005,074 1,005,086Reserves – 595Retained earnings 41,812 26,488

Equity attributable to unitholders of APT Investment Trust 24 1,046,886 1,032,169

Other non-controlling interest 53 52

Total non-controlling interests 1,046,939 1,032,221

Total equity 4,029,111 4,382,650

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.


– II-6 –

AU

ST

RA

LIA

N P

IPE

LIN

E T

RU

ST

AN

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NT

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na

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al

yea

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30

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ne

20

16 Au

stralia

n Pipe

line Tr

ustAP

T Inve

stment

Trust

Other

non-co

ntrolli

ng int

erest

Issued

Ca

pital

Asset

Reval

uation

Re

serve

Availa

ble-

for-sa

le Inv

estme

nt Re

valuat

ion

Reser

veHe

dging

Reser

veOth

er Re

serve

Retain

ed ear

nings

Attrib

utable

to o

wner

of the

paren

tIss

ued

Capit

al

Availa

ble-

for-sa

le Inv

estme

nt Re

valuat

ion

Reser

veRe

tained

earnin

gs

APT

Invest

ment

Trust

Issued

Ca

pital

Other

Retain

ed ear

nings

Other

non-

contro

lling

intere

stsTo

tal$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0$00

0

Balan

ce at 1

July 2

0141,8

16,460

8,669

363(12

5,275)

–200

,978

1,901,

195576

,172

(394)

19,465

595,24

34

146

512,4

96,489

Profit

for the

year

––

––

–513

,581

513,58

1–

–46,

34846,

348–

–1

1559

,930

Other c

ompre

hensiv

e incom

e–

–1,6

02(27

6,671)

–18,

354(25

6,715)

–989

–989

––

––

(255,7

26)Inc

ome ta

x relati

ng to c

ompon

ents

of ot

her co

mpreh

ensive

incom

e–

–(48

1)83,

001–

(5,506)

77,014

––

––

––

––

77,014

Total

compre

hensiv

e incom

e for th

e year

––

1,121

(193,6

70)–

526,42

9333

,880

–989

46,348

47,337

––

11

381,21

8

Payme

nt of di

stribut

ions

––

––

–(26

3,635)

(263,6

35)–

–(39

,325)

(39,32

5)–

––

–(30

2,960)

Securi

ties iss

ued un

der en

titlem

ent off

er1,4

00,122

––

––

–1,4

00,122

438,35

1–

–438

,351

––

––

1,838,

473Iss

ue cos

t of sec

urities

(30,19

0)–

––

––

(30,19

0)(9,4

37)–

–(9,4

37)–

––

–(39

,627)

Tax rel

ating to

securi

ty issu

e cost

s9,0

57–

––

––

9,057

––

––

––

––

9,057

Balan

ce at 3

0 June

2015

3,195,

4498,6

691,4

84(31

8,945)

–463

,772

3,350,

4291,0

05,086

59526,

4881,0

32,169

41

4752

4,382,

650


– II-7 –

Austr

alian P

ipeline

Trust

APT I

nvestm

ent Tr

ustOth

er non

-contr

olling

intere

st

Issued

Ca

pital

Asset

Reval

uation

Re

serve

Availa

ble-

for-sa

le Inv

estme

nt Re

valuat

ion

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veHe

dging

Reser

veOth

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serve

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0$00

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0$00

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Balan

ce at 1

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0153,1

95,449

8,669

1,484

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463,77

23,3

50,429

1,005,

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26,488

1,032,

1694

147

524,3

82,650

Profit

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year

––

––

–94,

52094,

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–85,

10285,

102–

–(15

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–(15

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––

––

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––

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––

–(44

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Issue

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securi

ties(6)

––

––

–(6)

(12)

––

(12)

––

––

(18)

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ty issu

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––

––

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––

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Balan

ce at 3

0 June

2016

3,195,

4458,6

69–

(404,0

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182,06

22,9

82,172

1,005,

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41,812

1,046,

8864

148

534,0

29,111

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no

tes.


– II-8 –

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF CASH FLOwSFor the financial year ended 30 June 2016

2016 2015Note $000 $000

Cash flows from operating activitiesReceipts from customers 2,286,248 1,584,738Payments to suppliers and employees (964,879) (827,797)Receipts of Hastings Funds Management fees 3 – 17,201Dividends received from associates and joint ventures 22,186 46,526Proceeds from repayment of finance leases 3,399 4,621Interest received 9,660 30,296Interest and other costs of finance paid (493,586) (293,395)Income tax paid (593) –

Net cash provided by operating activities 862,435 562,190

Cash flows from investing activitiesPayments for property, plant and equipment (455,975) (2,814,559)Proceeds from sale of property, plant and equipment 386 876Payments for equity accounted investments – (17,383)Payments for controlled entities net of cash acquired 26 (217,340) –Payments for other assets – (18,612)Payments for intangible assets (705) (3,429,281)Loans advanced to related parties – (3,490)Proceeds from sale of finance lease asset – 8,683Proceeds from sale of equity accounted investment – 783,758

Net cash used in investing activities (673,634) (5,490,008)

Cash flows from financing activitiesProceeds from borrowings 1,110,153 5,279,188Repayments of borrowings (1,176,899) (1,429,500)Proceeds from issue of securities – 1,838,473Payment of debt issue costs (9,623) (32,398)Payments of security issue costs (77) (39,567)Proceeds from early settlement of derivatives – 19,515Release of restricted cash 20 –Distributions paid to: Unitholders of APT (370,374) (263,636) Unitholders of non-controlling interests – APTIT (69,778) (39,324)

Net cash (used)/provided by financing activities (516,578) 5,332,751

Net (decrease)/increase in cash and cash equivalents (327,777) 404,933Cash and cash equivalents at beginning of financial year 411,921 7,009Unrealised exchange gains/(losses) on cash held 362 (21)

Cash and cash equivalents at end of financial year 19 84,506 411,921

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.


– II-9 –

Reconciliation of profit for the year to the net cash provided by operating activities

2016 2015Note $000 $000

Profit for the year 179,471 559,930Loss on previously held interest on obtaining control 476 –Acquisition costs from business combinations 3,387 –Loss on disposal of property, plant and equipment 447 3,337Loss on write-off of inventories 127 –Profit on sale of finance lease asset – (1,764)Share of net profits of joint ventures and associates using the equity method (16,977) (13,921)Dividends/distributions received from equity accounted investments 21,537 45,989Net profit on sale of equity accounted investment 3 – (430,039)Depreciation and amortisation expense 520,890 208,200Finance costs 12,225 21,221Unrealised foreign exchange (gain)/loss (938) 35Realised hedging loss/(gain) 7,540 (19,258)Changes in assets and liabilities: Trade and other receivables (15,742) (49,880) Inventories (3,605) (3,936) Other assets 3,195 (24,725) Trade and other payables (8,456) 65,083 Provisions 4,524 14,725 Other liabilities 32,403 9,995 Income tax balances 121,931 177,198


Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows.


– II-10 –

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the financial year ended 30 June 2016

BASIS OF PREPARATION

1. ABOUT THIS REPORT

The content and format of the financial statements is streamlined to present the financial information in a meaningful manner to securityholders. Note disclosures are grouped into six sections being Basis of Preparation, Financial Performance, Operating Assets and Liabilities, Capital Management, Group Structure and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used. The purpose of the format is to provide readers with a clear understanding of what are the key drivers of financial performance for APA Group.

Basis of Preparation Financial Performance Operating Assets and Liabilities

1. About this report

2. General information

3. Significant items and events

4. Segment information

5. Revenue

6. Expenses

7. Income tax

8. Earnings per security

9. Distributions

10. Receivables

11. Payables

12. Property, plant and equipment

13. Goodwill and intangibles

14. Impairment of non-financial assets

15. Provisions

16. Other non-current assets

17. Employee superannuation plans

18. Leases

Capital Management Group Structure Other

19. Cash balances

20. Borrowings

21. Financial risk management

22. Other financial instruments

23. Issued capital

24. Non-controlling interests

25. Joint arrangements and associates

26. Business combinations

27. Subsidiaries

28. Commitments and contingencies

29. Director and senior executive remuneration

30. Remuneration of external auditor

31. Related party transactions

32. Parent entity information

33. Adoption of new and revised Accounting Standards

34. Events occurring after reporting date


– II-11 –

2. GENERAL INFORMATION

APA Group comprises of two trusts, Australian Pipeline Trust (“APT”) and APT Investment Trust (“APTIT”), which are registered managed investment schemes regulated by the Corporations Act 2001. APT units are “stapled” to APTIT units on a one-to-one basis so that one APT unit and one APTIT unit form a single stapled security which trades on the Australian Securities Exchange under the code “APA”.

Australian Accounting Standards require one of the stapled entities of a stapled structure to be identified as the parent entity for the purposes of preparing a consolidated financial report. In accordance with this requirement, APT is deemed to be the parent entity. The results and equity attributable to APTIT, being the other stapled entity which is not directly or indirectly held by APT, are shown separately in the financial statements as non-controlling interests.

The financial report represents the consolidated financial statements of APT and APTIT (together the “Trusts”), their respective subsidiaries and the share of joint arrangements and associates (together “APA Group”). For the purposes of preparing the consolidated financial report, APA Group is a for-profit entity.

Total comprehensive income attributable to non-controlling interests is reported as disclosed in the separate financial statements of APTIT. Comprehensive income arising from transactions between the parent (APT) group entities and the non-controlling interest (APTIT) have not been eliminated in the reporting of total comprehensive income attributable to non-controlling interests.

All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of subsidiaries, joint arrangements, associates, and joint ventures to bring their accounting policies into line with those used by APA Group.

APT’s registered office and principal place of business is as follows:

Level 19HSBC Building580 George StreetSYDNEY NSW 2000Tel: (02) 9693 0000

The consolidated general purpose financial report for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 24 August 2016.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AIFRS) and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

The financial report has been prepared on the basis of historical cost, except for the revaluation of financial instruments. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) in accordance with ASIC Corporations Instrument 2016/191, unless otherwise stated.


– II-12 –

working capital position

The working capital position as at 30 June 2016 for APA Group is that current liabilities exceed current assets by $463.1 million (2015: $87.5 million) primarily as a result of $114.7 million (AUD equivalent) of cash flow hedge liabilities and current borrowings of $409.8 million.

APA Group has access to sufficient available committed, un-drawn bank facilities of $672.5 million as at 30 June 2016 (2015: $1,175.0 million) to meet the repayment of current borrowings on due date.

The Directors continually monitor APA Group’s working capital position, including forecast working capital requirements and have ensured that there are appropriate refinancing strategies and adequate committed funding facilities in place to accommodate debt repayments as and when they fall due.

Foreign currency transactions

Both the functional and presentation currency of APA Group and APT is Australian dollars (A$). All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date and resulting exchange differences are recognised in profit or loss in the period in which they arise, unless they qualify for hedge accounting.

3. SIGNIFICANT ITEMS AND EvENTS

Individually significant items included in profit after income tax expense are as follows:

2016 2015$000 $000

Significant items impacting EBITDA Net profit on sale of equity accounted investment (a) – 430,039 Recovery of fees paid by HDF to Hastings Funds Management Limited (b) – 17,201

Total significant items impacting EBITDA – 447,240

Income tax related to significant items above – (91,222)

Profit from significant items after income tax – 356,018

(a) During August 2014, APA Group sold its investment in Envestra Limited to Cheung Kong Group consortium for $1.32 per share amounting to $783.8 million in gross proceeds which realised a net pre-tax profit of $430.0 million.

(b) In November 2014, APA Group successfully appealed the NSW Supreme Court decision in a matter regarding performance fees previously paid by Hastings Diversified Utilites Fund (HDF) to Hastings Funds Management Limited (HFML).


– II-13 –

FINANCIAL PERFORMANCE

4. SEGMENT INFORMATION

APA Group operates in one geographical segment, being Australia and the revenue from major products and services is shown by the reportable segments.

APA Group comprises the following reportable segments:

• Energy Infrastructure, which includes all wholly or majority owned pipelines, gas storage assets, the Emu Downs Wind Farm, and the Diamantina Power Station;

• Asset Management, which provides commercial, operating services and/or asset maintenance services to APA Group’s energy investments and Austral ian Gas Networks Limited for appropriate fees; and

• Energy Investments, which includes APA Group’s strategic stakes in a number of investment entities that house energy infrastructure assets, generally characterised by long term secure cashflows, with low capital expenditure requirements.

Reportable segments

Energy Infrastructure

Asset Management

Energy Investments Other Consolidated

2016 $000 $000 $000 $000 $000

Segment revenue (a)

External sales revenue 1,526,658 95,430 – – 1,622,088Equity accounted net profits – – 16,977 – 16,977Pass-through revenue 29,586 408,744 – – 438,330Finance lease and investment interest income 1,917 – 10,783 – 12,700Distribution – other entities – – 512 – 512

Total segment revenue 1,558,161 504,174 28,272 – 2,090,607Other interest income 3,697

Consolidated revenue 2,094,304

Segment resultEarnings before interest, tax, depreciation and amortisation (“EBITDA”) 1,333,682 53,858 36 – 1,387,576Share of net profits of joint ventures and associates using the equity method – – 16,977 – 16,977Finance lease and investment interest income 1,917 – 10,783 – 12,700Corporate costs – – – (86,710) (86,710)

Total EBITDA 1,335,599 53,858 27,796 (86,710) 1,330,543Depreciation and amortisation (508,710) (12,180) – – (520,890)

Earnings before interest and tax (“EBIT”) 826,889 41,678 27,796 (86,710) 809,653Net finance costs (b) (507,658)

Profit before tax 301,995Income tax expense (122,524)

Profit for the year 179,471


– II-14 –

(a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.

(b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.


Asset Management

Energy Investments Consolidated

2016 $000 $000 $000 $000

Segment assets and liabilitiesSegment assets 13,873,683 213,973 17,499 14,105,155Carrying value of investments using the equity method – – 197,185 197,185Unallocated assets (a) 540,335

Total assets 14,842,675

Segment liabilities 319,995 63,574 – 383,569Unallocated liabilities (b) 10,429,995

Total liabilities 10,813,564

(a) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.

(b) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.


Asset Management (a)

Energy Investments (a) Other Consolidated

2015 $000 $000 $000 $000 $000

Segment revenue (b)

External sales revenue 984,184 85,056 – – 1,069,240Equity accounted net profits – – 13,921 – 13,921Pass-through revenue 13,514 420,868 – – 434,382Finance lease and investment interest income 2,896 – 8,308 – 11,204Distribution – other entities – – 546 – 546



(a) During August 2014, APA Group sold its investment in Envestra Limited to a Cheung Kong Group consortium for $1.32 per share. This resulted in a $440.0 million gain in Energy Investments being the gross proceeds less the carrying value of the equity accounted investment affected by a reassessment of the carrying value of the asset management business to reflect future growth opportunities, resulting in a reduction of goodwill ($10.0 million).

(b) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.


– II-15 –



Energy Investments (a) Other Consolidated

2015 $000 $000 $000 $000 $000

Segment resultEarnings before interest, tax, depreciation and amortisation (“EBITDA”) 838,462 39,448 440,584 – 1,318,494Share of net profits of joint ventures and associates using the equity method – – 13,921 – 13,921Finance lease and investment interest income 2,896 – 8,308 – 11,204Corporate costs – – – (74,129) (74,129)

Total EBITDA 841,358 39,448 462,813 (74,129) 1,269,490Depreciation and amortisation (195,635) (12,565) – – (208,200)

Earnings before interest and tax (“EBIT”) 645,723 26,883 462,813 (74,129) 1,061,290Net finance costs (b) (324,162)





Energy Investments (a) Consolidated

2015 $000 $000 $000 $000

Segment assets and liabilitiesSegment assets 13,146,538 239,798 110,874 13,497,210Carrying value of investments using the equity method – – 257,425 257,425Unallocated assets (c) 898,251


Segment liabilities 507,565 71,521 – 579,086Unallocated liabilities (d) 9,691,150


(a) During August 2014, APA Group sold its investment in Envestra Limited to a Cheung Kong Group consortium for $1.32 per share. This resulted in a $440.0 million gain in Energy Investments being the gross proceeds less the carrying value of the equity accounted investment affected by a reassessment of the carrying value of the asset management business to reflect future growth opportunities, resulting in a reduction of goodwill ($10.0 million).



– II-16 –

(c) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.

(d) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.

Information about major customers

Included in revenues arising from energy infrastructure of $1,526.7 million (2015: $984.2 million) are revenues of approximately $652.0 million (2015: $437.4 million) which arose from sales to APA Group’s top three customers.

5. REvENUE

An analysis of APA Group’s revenue for the year is as follows:

2016 2015$000 $000

Energy infrastructure revenue 1,526,050 983,587Pass-through revenue 29,586 13,514

Energy infrastructure revenue 1,555,636 997,101

Asset management revenue 95,430 85,056Pass-through revenue 408,744 420,868

Asset management revenue 504,174 505,924

Operating revenue 2,059,810 1,503,025

Interest 3,697 24,322

Interest income on redeemable ordinary shares (EII), redeemable preference shares (GDI) and loans to related parties (DPS) 10,783 8,308Finance lease income 1,917 2,896

Finance income 16,397 35,526

Dividends 512 546Rental income 608 597

Total revenue 2,077,327 1,539,694

Share of net profits of joint ventures and associates using the equity method 16,977 13,921

2,094,304 1,553,615


– II-17 –

Revenue is recognised to the extent that it is probable that the economic benefits will flow to APA Group and can be reliably measured. Amounts disclosed as revenue are net of duties and taxes paid. Revenue is recognised for the major business activities as follows:

• Operating revenue, which is earned from the transportation of gas, generation of electricity and other related services and is recognised when the services are provided net of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority;

• Pass-through revenue, for which no margin is earned, is recognised when the services are provided and offset by corresponding pass-through costs;

• Interest revenue, which is recognised as it accrues and is determined using the effective interest method;

• Dividend revenue , which is recognised when the right to receive the payment has been established; and

• Finance lease income, which is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

6. EXPENSES

2016 2015$000 $000

Depreciation of non-current assets 337,426 182,084Amortisation of non-current assets 183,464 26,116

Depreciation and amortisation expense 520,890 208,200

Gas pipeline costs 29,586 13,514Management, operating and maintenance costs 408,744 420,868

Other operating costs – pass-through 438,330 434,382

Interest on bank overdrafts and borrowings (a) 500,588 357,255Amortisation of deferred borrowing costs 9,227 14,978Other finance costs 5,084 14,641

514,899 386,874Less: amounts included in the cost of qualifying assets (6,157) (20,002)

508,742 366,872Gain on derivatives (698) (19,643)Unwinding of discount on non-current liabilities 3,311 1,255

Finance costs 511,355 348,484

Defined contribution plans 11,406 10,116Defined benefit plans (Note 17) 2,741 4,146

Post-employment benefits 14,147 14,262Termination benefits 2,995 2,172Cash settled security-based payments (b) 27,585 23,629Other employee benefits 135,376 136,111

Employee benefit expense 180,103 176,174


– II-18 –

(a) The average interest rate on funds borrowed is 5.80% p.a. (2015: 7.12% p.a.) including amortisation of borrowing costs and other finance costs.

(b) APA Group provides benefits to certain employees in the form of cash settled security-based payments. For cash settled security-based payments, a liability equal to the portion of services received is recognised at the current fair value determined at each reporting date.

7. INCOME TAX

The major components of tax expense are:

2016 2015$000 $000

Income statement (continuing operations)Current tax expense in respect of the current year (9,076) (8,734)Adjustments recognised in the current year in relation to current tax of prior years 2,216 1,516Deferred tax expense relating to the origination and reversal of temporary differences (115,664) (169,980)

Total tax expense (122,524) (177,198)

Tax reconciliation (continuing operations)Profit before tax 301,995 737,128

Income tax expense calculated at 30% (90,599) (221,138)Non-assessable trust distribution 25,530 13,904Non deductible expenses (62,884) (13,567)Non assessable income 2,984 4,278Excess of equity accounted book value over tax base of Envestra shares – 12,149Unfranked dividends from associates – (4,530)

(124,969) (208,904)Previously unbooked losses now recognised 229 30,190Adjustment recognised in the current year in relation to the current tax of prior years 2,216 1,516

(122,524) (177,198)

Income tax expense comprises of current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in equity. Current tax represents the expected taxable income at the applicable tax rate for the financial year, and any adjustment to tax payable in respect of previous financial years.

Income tax expense for the 2016 year is $122.5 million (2015: $177.2 million). An income tax provision of $13.8 million (2015: $7.2 million) has been recognised after utilisation of all available group tax losses and partial utilisation of available transferred tax losses (refer to Note 11).


– II-19 –

Deferred tax balances

Deferred tax (liabilities)/assets arise from the following:

Opening balance

Charged to income

Charged to equity

Acquired/disposed

Closing balance

2016 $000 $000 $000 $000 $000

Gross deferred tax liabilitiesIntangible assets (2,668) 2,668 – – –Property, plant and equipment (586,107) (102,407) – (36,011) (724,525)Deferred expenses (51,669) (3,022) – 128 (54,563)Other 1,421 (2,151) – – (730)Available for sale investments (639) – 639 – –

(639,662) (104,912) 639 (35,883) (779,818)

Gross deferred tax assetsProvisions 45,051 (1,136) – 1,808 45,723Cash flow hedges 127,474 (713) 38,266 – 165,027Security issue costs 7,261 (1,820) 2 – 5,443Deferred revenue 6,729 (918) – – 5,811Investments equity accounted 10,192 (1,978) (1,769) – 6,445Defined benefit obligation (1,007) (54) 2,444 – 1,383Tax losses 249,270 (4,133) – – 245,137

444,970 (10,752) 38,943 1,808 474,969

Net deferred tax liability (194,692) (115,664) 39,582 (34,075) (304,849)

2015Gross deferred tax liabilitiesIntangible assets (3,437) 769 – – (2,668)Property, plant and equipment (486,629) (99,478) – – (586,107)Deferred expenses (49,683) (1,986) – – (51,669)Defined benefit obligation 4,328 171 (5,506) – (1,007)Available for sale investments (157) – (482) – (639)

(535,578) (100,524) (5,988) – (642,090)

Gross deferred tax assetsProvisions 37,448 7,603 – – 45,051Cash flow hedges 52,516 193 74,765 – 127,474Security issue costs 186 (1,982) 9,057 – 7,261Deferred revenue 2,465 4,264 – – 6,729Investments equity accounted (990) 2,945 8,237 – 10,192Other 32 1,389 – – 1,421Tax losses 333,138 (83,868) – – 249,270

424,795 (69,456) 92,059 – 447,398

Net deferred tax liability (110,783) (169,980) 86,071 – (194,692)


– II-20 –

Unrecognised deferred tax assets

2016 2015$000 $000

The following deferred tax assets have not been brought to account as assets:Tax losses – capital 1,641 2,012

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:

i) initial recognition of goodwill;

ii) initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and

iii) differences relating to investments in wholly-owned entities to the extent that they will probably not reverse in the foreseeable future.

Deferred tax is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using the appropriate tax rates at the end of the reporting period.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax consolidation

APT and its wholly-owned Australian resident entities formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is APT. The members of the tax-consolidated group are identified at Note 27.

Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial reports of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach, by reference to the carrying amounts in the separate financial reports of each entity and the tax values applying under tax consolidation.

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the wholly-owned entities are assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts.

The head entity recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the assets can be utilised.


– II-21 –

Nature of tax funding arrangement and tax sharing agreement

Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, each of the entities in the tax-consolidated group have agreed to pay a tax equivalent payment to or from the head entity based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group.

The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax-consolidated group. The effect of the tax sharing agreement is that each member’s liability for the tax payable by the tax-consolidated group is limited to the amount payable to the head entity under the tax funding arrangement.

8. EARNINGS PER SECURITY

2016 2015cents cents

Basic and diluted earnings per security 16.1 56.3

The earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows:

2016 2015$000 $000

Net profit attributable to securityholders for calculating basic and diluted earnings per security 179,622 559,929

2016 2015No. of No. of

securities securities000 000

Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security 1,114,307 995,245


– II-22 –

9. DISTRIBUTIONS

2016 cents per

2016 Total

2015 cents per

2015 Total

security $000 security $000

Recognised amountsFinal distribution paid on 16 September 2015(2015: 10 September 2014)Profit distribution – APT (a) 18.12 201,945 16.42 137,239Profit distribution – APTIT (a) (Note 24) 2.38 26,488 2.33 19,465

20.50 228,433 18.75 156,704

Interim distribution paid on 16 March 2016(2015: 18 March 2015) (b)

Profit distribution – APT (a) 15.12 168,429 15.12 126,396Profit distribution – APTIT (a) (Note 24) 3.88 43,290 2.38 19,860

19.00 211,719 17.50 146,256

Total distributions recognisedProfit distributions (a) 39.50 440,152 36.25 302,960

Unrecognised amountsFinal distribution payable on 16 September 2016 (c)

(2015: 16 September 2015)Profit distribution – APT (a) 16.34 182,063 18.12 201,945Capital distribution – APT 1.78 19,869 – –Profit distribution – APTIT (a) 3.75 41,811 2.38 26,488Capital distribution – APTIT 0.63 6,976 – –

22.50 250,719 20.50 228,433

(a) Profit distributions were unfranked (2015: unfranked).

(b) New securities issued under the entitlement offer were not eligible for the FY2015 interim distribution.

(c) Record date 30 June 2016.

The final distribution in respect of the financial year has not been recognised in this financial report because the final distribution was not declared, determined or publicly confirmed prior to the end of the financial year.

2016 2015$000 $000

Adjusted franking account balance (tax paid basis) 8,210 6,811


– II-23 –

OPERATING ASSETS AND LIABILITIES

10. RECEIvABLES

2016 2015$000 $000

Trade receivables 250,875 223,806Allowance for doubtful debts (2,658) (4,411)

Trade receivables 248,217 219,395Receivables from associates and related parties 12,447 15,630Finance lease receivables (Note 18) 2,290 4,005Interest receivable 91 688Other debtors 187 15,222

Current 263,232 254,940

Finance lease receivables (Note 18) 17,283 18,968Loan receivable – related party – 73,502

Non-current 17,283 92,470

Trade receivables are non-interest bearing and are generally on 30 day terms.

There are no material trade receivables past due and not provided for.

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Trade and other receivables are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are stated at amortised cost less impairment.

11. PAYABLES

Trade payables (a) 27,310 29,615Income tax payable 13,848 7,216Other payables (b) 211,503 368,715Payables to associates – 139

Current 252,661 405,685

Other payables 3,007 3,261


(a) Trade payables are non-interest bearing and are normally settled on 15 – 30 day terms.

(b) Other payables at 30 June 2015 include $137.2m of stamp duty on the acquisition of the Wallumbilla Gladstone Pipeline (formerly QCLNG Pipeline), other expenditure accruals and external interest payable accruals.


– II-24 –

Trade and other payables are recognised when APA Group becomes obliged to make future payments resulting from the purchase of goods and services. Trade and other payables are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are stated at amortised cost.

Payables are recognised inclusive of GST, except for accrued revenue and accrued expense at balance dates which exclude GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. GST receivable or GST payable is only recognised once a tax invoice has been issued or received.

12. PROPERTY, PLANT AND EqUIPMENT

Freehold land Leasehold Plant and work inand buildings – improvements – equipment – progress –

at cost at cost at cost at cost Total$000 $000 $000 $000 $000

Gross carrying amountBalance at 1 July 2014 139,434 5,015 5,766,626 478,861 6,389,936Additions 78,679 – 2,501,924 386,406 2,967,009Disposals (165) (571) (17,367) (52) (18,155)Transfers 11,103 – 686,038 (697,141) –

Balance at 30 June 2015 229,051 4,444 8,937,221 168,074 9,338,790Additions – – 21,735 283,242 304,977Acquisitions through business combinations (note 26) 3,234 – 852,485 11,457 867,176Disposals (651) (285) (15,323) – (16,259)Transfers 3,204 913 263,524 (267,641) –

Balance at 30 June 2016 234,838 5,072 10,059,642 195,132 10,494,684

Accumulated depreciationBalance at 1 July 2014 (21,854) (2,288) (791,313) – (815,455)Disposals 75 571 13,296 – 13,942Depreciation expense (3,257) (486) (178,341) – (182,084)

Balance at 30 June 2015 (25,036) (2,203) (956,358) – (983,597)Disposals 434 285 14,707 – 15,426Depreciation expense (7,324) (357) (329,745) – (337,426)Transfers (89) (4) 93 – –

Balance at 30 June 2016 (32,015) (2,279) (1,271,303) – (1,305,597)

Net book valueAs at 30 June 2015 204,015 2,241 7,980,863 168,074 8,355,193

As at 30 June 2016 202,823 2,793 8,788,339 195,132 9,189,087

Property, plant and equipment is stated at cost, less accumulated depreciation and impairment losses. Work in progress is stated at cost. Cost includes expenditure that is directly attributable to the acquisition or construction of the item.


– II-25 –

Depreciation is provided on property, plant and equipment excluding land. Depreciation is calculated on either a straight-line or throughput basis depending on the nature of the asset so as to write off the net cost of each asset over its estimated useful life.

Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method. The estimated useful lives and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes recognised on a prospective basis.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (i.e. assets that take a substantial period of time to get ready for their intended use or sale) are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Critical accounting judgements and key sources of estimation uncertainty – useful lives of non-current assets

APA Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. Any reassessment of useful lives in a particular year will affect the depreciation expense.

The following estimated useful lives are used in the calculation of depreciation:

• buildings 30–50years;• compressors 10–50years;• gastransportationsystems 10–80years;• meters 20–30years;and• otherplantandequipment 3–20years.

13. GOODwILL AND INTANGIBLES

2016 2015$000 $000

GoodwillBalance at beginning of financial year 1,140,500 1,150,500Acquisitions (note 26) 44,088 –Goodwill impairment – (10,000)

Balance at end of financial year 1,184,588 1,140,500

Allocation of goodwill to cash-generating units

Goodwill has been allocated for impairment testing purposes to individual cash-generating units.

The East Coast Grid is an interconnected pipeline network that includes, inter alia, the Wallumbilla Gladstone, Moomba Sydney, Roma Brisbane, Carpentaria Gas and South West Queensland pipelines and the Victorian Transmission System. Since the acquisition of the South West Queensland Pipeline to complete the formation of APA’s East Coast Grid in December 2012, APA has installed facilities to enable bi-directional transportation of gas to meet the demand of our major customers who now typically operate portfolios of gas supply and demand. Through the provision of multi-asset services, bi-directional transportation, capacity trading and gas storage and parking facilities, APA’s East Coast Grid delivers options for customers to choose from, and move gas between, more than 40 receipt points and over 100 delivery points on the east coast of Australia. During the year, to reflect this change in business, APA Group reassessed its cash-generating units and determined that the East Coast Grid is henceforth an individual cash-generating unit.


– II-26 –

The carrying amount of goodwill allocated to cash-generating units that are significant individually or in aggregate is as follows:

2016 2015$000 $000

Asset Management business 21,456 21,456Energy Infrastructure East Cost Grid 1,060,681 1,060,681 Diamantina Power Station 44,088 – Other energy infrastructure (a) 58,363 58,363

1,184,588 1,140,500

(a) Primarily represents goodwill relating to the Pilbara Pipeline System ($32.6m) and the Goldfields Gas Pipeline ($18.5m).

Goodwill acquired in a business combination is initially measured at cost and subsequently at cost less accumulated impairment.

2016 2015$000 $000

Contract and other intangiblesGross carrying amountBalance at beginning of financial year 3,623,011 209,286Acquisitions/additions 705 3,414,122Disposals/write-offs (19,573) (397)


Accumulated amortisation and impairmentBalance at beginning of financial year (66,765) (38,482)Amortisation expense (183,464) (26,116)Impairment (8,897) (2,564)Write-offs 10,690 397

Balance at end of financial year (248,436) (66,765)

3,355,707 3,556,246

APA Group holds various third party operating and maintenance contracts. The combined gross carrying amount of $3,604.1 million amortises over terms ranging from one to 20 years. Useful life is determined based on the underlying contractual terms plus estimations of renewal of up to two terms where considered probable by management. Amortisation expense is not a cash item, and is included in the line item of depreciation and amortisation expense in the statement of profit or loss and other comprehensive income.

Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired in a business combination are identified and recognised separately from goodwill and are initially recognised at their fair value at the acquisition date and subsequently at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effects of any changes in estimate being accounted for on a prospective basis.


– II-27 –

14. IMPAIRMENT OF NON-FINANCIAL ASSETS

APA Group tests property, plant and equipment, intangibles and goodwill for impairment at least annually or whenever there is an indication that the asset may be impaired. Assets other than goodwill that have previously reported an impairment are reviewed for possible reversal of the impairment at each reporting period.

If the asset does not generate independent cash inflows and its value in use cannot be estimated to be close to its fair value, the asset is tested for impairment as part of the cash-generating unit (CGU) to which it belongs.

Assets are impaired if their carrying value exceeds their recoverable amount. The recoverable amount of an asset or CGU is determined as the higher of its fair value less costs of disposal or value-in-use.

Determining whether identifiable intangible assets and goodwill are impaired requires an estimation of the value-in-use or fair value of the cash-generating units. The calculations require APA Group to estimate the future cash flows expected to arise from cash-generating units and suitable discount rates in order to calculate the present value of cash-generating units. These estimates and assumptions are reviewed on an ongoing basis.

The recoverable amounts of cash-generating units are determined based on value-in-use calculations. These calculations use cash flow projections based on a five year financial business plan and thereafter a further 15 year financial model. This is the basis of APA Group’s forecasting and planning processes which represents the underlying long term nature of associated customer contracts on these assets.

In accordance with the requirements of AASB 136 Impairment of Assets, APA Group reviewed its CGUs for indicators of impairment at the end of the reporting period. No such indicators were identified and no impairment recognised.

Critical accounting judgements and key sources of estimation uncertainty – impairment of assets

For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected contract renewals with a resulting average annual growth rate of 1.7% p.a. These expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the cash generating unit operates.

For non-regulated assets, APA has assumed no capacity expansion beyond installed and committed levels; utilisation of capacity is based on existing contracts, government policy settings and expected market outcomes.

As contracts mature, given ongoing demand for capacity, it is assumed that the majority of the capacity is resold at similar pricing levels.

Asset Management cash flow projections reflect long term agreements with assumptions of renewal on similar terms and conditions based on management’s expectations.

Cash flow projections are estimated for a period of up to 20 years, with a terminal value, recognising the long term nature of the assets. The pre-tax discount rates used are 8.25% p.a. (2015: 8.25% p.a.) for Energy Infrastructure assets and 8.25% p.a. (2015: 8.25% p.a.) for Asset Management.

These assumptions have been determined with reference to historic information, current performance and expected changes taking into account external information.


– II-28 –

15. PROvISIONS

2016 2015$000 $000

Employee benefits 83,240 76,953Other 9,793 8,499

Current 93,033 85,452



Employee benefitsIncentives 28,401 25,556Cash settled security-based payments 9,477 10,009Leave balances 39,587 39,608Termination benefits 5,775 1,780

Current 83,240 76,953

Cash settled security-based payments 19,467 17,215Defined benefit liability (Note 17) 7,017 4,425Leave balances 10,419 8,844


A provision is recognised when there is a legal or constructive obligation as a result of a past event, it is probable that future economic benefits will be required to settle the obligation and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the financial year, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the receivable can be measured reliably.

Provision is made for benefits accruing to employees in respect of wages and salaries, incentives, annual leave and long service leave when it is probable that settlement will be required. Provisions made in respect of employee benefits expected to be settled within 12 months, are recognised for employee services up to reporting date at the amounts expected to be paid when the liability is settled. Provisions made in respect of employee benefits which are not expected to be wholly settled within 12 months are measured as the present value of the estimated future cash outflows using a discount rate based on the corporate bond yields in respect of services provided by employees up to reporting date.


– II-29 –

16. OTHER NON-CURRENT ASSETS

2016 2015$000 $000

Line pack gas 20,208 20,200Gas held in storage 6,010 5,085Defined benefit asset (Note 17) 2,404 7,784Other assets 192 192

28,814 33,261

17. EMPLOYEE SUPERANNUATION PLANS

All employees of APA Group are entitled to benefits on retirement, disability or death from an industry sponsored fund, or an alternative fund of their choice. APA Group has three plans with defined benefit sections (due to the acquisition of businesses) and a number of other plans with defined contribution sections. The defined benefit sections provide lump sum benefits upon retirement based on years of service. The defined contribution sections receive fixed contributions from APA Group and APA Group’s legal and constructive obligations are limited to these amounts.

The most recent actuarial valuations of plan assets and the present value of the defined benefit obligations were determined at 30 June 2016. The present value of the defined benefit obligations, and the related current service cost and past service cost, were measured using the projected unit credit method.

The following sets out details in respect of the defined benefit plans only:

2016 2015$000 $000

Amounts recognised in the statement of profit or loss and other comprehensive incomeCurrent service cost 2,783 3,730Net interest expense (42) 416

Components of defined benefit costs recognised in profit or loss (Note 6) 2,741 4,146

Amounts recognised in the statement of financial positionFair value of plan assets 138,488 140,500Present value of benefit obligation (143,101) (137,141)

Defined benefit asset – non-current (Note 16) 2,404 7,784Defined benefit liability – non-current (Note 15) (7,017) (4,425)

Opening defined benefit obligation 137,141 144,621Current service cost 2,783 3,730Interest cost 5,807 4,909Contributions from plan participants 1,332 1,388Actuarial gains and losses arising from changes in financial assumptions 625 (9,747)Actuarial gains and losses arising from experience adjustments 3,268 (1,181)Benefits paid (7,855) (6,579)

Closing defined benefit obligation 143,101 137,141


– II-30 –

Movements in the present value of the plan assets in the current period were as follows:

2016 2015$000 $000

Opening fair value of plan assets 140,500 130,195Interest income 5,849 4,493Actual return on plan assets excluding interest income (4,255) 7,426Contributions from employer 2,917 3,577Contributions from plan participants 1,332 1,388Benefits paid (7,855) (6,579)Taxes and premiums paid – –

Closing fair value of plan assets 138,488 140,500

Defined contribution plans

Contributions to defined contribution plans are expensed when incurred.

Defined benefit plans

Actuarial gains and losses and the return on plan assets (excluding interest) are recognised immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement, comprising of actuarial gains and losses and the return on plan assets (excluding interest), is recognised in other comprehensive income and immediately reflected in retained earnings and will not be reclassified to profit or loss.

Past service cost is recognised in profit or loss in the period of a plan amendment.

The defined benefit obligation recognised in the consolidated statement of financial position represents the actual deficit or surplus in APA Group’s defined benefit plans. Any asset resulting from this calculation is limited to the present value of economic benefits available in the form of refunds and reductions in future contributions to the plan.

Key actuarial assumptions used in the determination of the defined obligation is a discount rate of 3.3%, based on the corporate bond yield curve published by Milliman, and an expected salary increase rate of 3.0%. The sensitivity analysis below has been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant:

– If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $5,680,000 (increase by $6,373,000); and

– If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $6,136,000 (decrease by $5,525,000).

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position.

APA Group expects $3.0 million in contributions to be paid to the defined benefit plans during the year ending 30 June 2017.


– II-31 –

18. LEASES

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to the ownership of the leased asset to the lessee. All other leases are classified as operating leases.

Finance lease receivables relate to the lease of a metering station, natural gas vehicle refuelling facilities and two pipeline laterals.

2016 2015$000 $000

Finance lease receivablesNot longer than 1 year 3,933 5,317Longer than 1 year and not longer than 5 years 10,646 12,347Longer than 5 years 16,951 19,183

Minimum future lease payments receivable (a) (b) 31,530 36,847

Gross finance lease receivables 31,530 36,847Less: unearned finance lease receivables (11,957) (13,874)

Present value of lease receivables 19,573 22,973

Included in the financial statements as part of:Current trade and other receivables (Note 10) 2,290 4,005Non-current receivables (Note 10) 17,283 18,968

19,573 22,973

(a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.

(b) X41 power station expansion was disposed of during the 2015 financial year.

APA Group as a lessor

Amounts due from a lessee under finance leases are recorded as receivables. Finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the leases.

APA Group as a lessee

Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are allocated between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Finance lease assets are amortised on a straight-line basis over the estimated useful life of the asset.


– II-32 –

Non-cancellable operating leases

Operating lease obligations are primarily related to commercial office leases and motor vehicles.

2016 2015$000 $000

Not longer than 1 year 12,138 11,270Longer than 1 year and not longer than 5 years 35,282 29,418Longer than 5 years 25,189 21,115

72,609 61,803

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time patterns in which economic benefits from the leased asset are consumed. Operating lease incentives are recognised as a liability when received and released to the statement of profit or loss on a straight line basis over the lease term.

CAPITAL MANAGEMENT

APA Group’s objectives when managing capital are to safeguard its ability to continue as a going concern while maximising the return to securityholders through the optimisation of the debt to equity structure.

APA Group’s overall capital management strategy is to continue to target strong BBB/Baa2 investment grade ratings through maintaining sufficient flexibility to fund organic growth and investment from internally generated and retained cash flows, equity and, where appropriate, additional debt funding.

The capital structure of APA Group consists of cash and cash equivalents, borrowings and equity attributable to securityholders of APA. APA Group’s policy is to maintain balanced and diverse funding sources through borrowing locally and from overseas, using a variety of capital markets and bank loan facilities, to meet anticipated funding requirements.

Operating cash flows are used to maintain and expand APA Group’s assets, make distributions to securityholders and to repay maturing debt.

Controlled entities are subject to externally imposed capital requirements. These relate to the Australian Financial Services Licence held by Australian Pipeline Limited, the Responsible Entity of the APA Group and were adhered to for the entirety of the 2016 and 2015 periods.

APA Group’s capital risk management strategy remains unchanged from the previous period.

APA Group’s Board of Directors reviews the capital structure on a regular basis. As part of the review, the Board considers the cost of capital and the state of the markets. APA Group targets gearing in a range of 65% to 68%. Gearing is determined as the proportion of net debt to net debt plus equity. Based on recommendations of the Board, APA Group balances its overall capital structure through equity issuances, new debt or the redemption of existing debt and through a disciplined distribution payment policy.


– II-33 –

19. CASH BALANCES

Cash and cash equivalents comprise of cash on hand, at call bank deposits and investments in money market instruments that are readily convertible to known amounts for cash. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows:

2016 2015$000 $000

Cash and cash equivalentsCash at bank and on hand 83,389 190,834Short-term deposits 1,117 221,087

84,506 411,921

Non-current cash on depositCash on deposit (a) 2,149 –

(a) As at 30 June 2016 Gorodok Pty Limited held $2.1 million cash on deposit to support bank guarantees in relation to various contractual arrangements. APA Group had no restricted cash as at 30 June 2015.


– II-34 –

20. BORROwINGS

Borrowings are recorded initially at fair value less attributable transaction costs and subsequently stated at amortised cost. Any difference between the initial recognised cost and the redemption value is recognised in the statement of profit or loss and other comprehensive income over the period of the borrowing using the effective interest method.

2016 2015$000 $000

Unsecured – at amortised costGuaranteed senior notes (a) 398,058 158,134Other financial liabilities 11,771 6,219

Current 409,829 164,353

Guaranteed senior notes (a) 8,043,377 8,481,768Bank borrowings (b) 707,501 125,000Subordinated notes (c) 515,000 515,000Other financial liabilities 95,155 70,630Less: unamortised borrowing costs (46,660) (50,901)

Non-current 9,314,373 9,141,497

9,724,202 9,305,850

Financing facilities availableTotal facilitiesGuaranteed senior notes (a) 8,441,435 8,639,902Bank borrowings (b) 1,380,000 1,300,000Subordinated notes (c) 515,000 515,000

10,336,435 10,454,902

Facilities used at balance dateGuaranteed senior notes (a) 8,441,435 8,639,902Bank borrowings (b) 707,501 125,000Subordinated notes (c) 515,000 515,000

9,663,936 9,279,902

Facilities unused at balance dateGuaranteed senior notes (a) – –Bank borrowings (b) 672,499 1,175,000Subordinated notes (c) – –

672,499 1,175,000


– II-35 –

(a) Represents USD denominated private placement notes of US$725 million, CAD MTN of C$300 million, JPY MTN of ¥10,000 million, GBP MTN of £950 million, EUR MTN of €1,350 million and USD denominated 144A notes of US$2,150 million measured at the exchange rate at reporting date, and A$315 million of AUD denominated Private Placement Notes and AUD Medium Term Notes (MTN) of A$300 million. Refer to Note 21 for details of interest rates and maturity profiles.

(b) Relates to the non-current portion of long-term borrowings. Refer to Note 21 for details of interest rates and maturity profiles.

(c) Represents AUD denominated subordinated notes. Refer to Note 21 for details of interest rates and maturity profiles.

21. FINANCIAL RISk MANAGEMENT

The Treasury department within Finance is responsible for the overall management of APA Group’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. APA Group’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department.

APA Group’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:

(a) Market risk including currency risk, interest rate risk and price risk;

(b) Credit risk; and

(c) Liquidity risk.

Treasury as a centralised function provides APA Group with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost and manages risks through the use of natural hedges and derivative instruments. APA Group does not engage in speculative trading. All derivatives have been traded to hedge underlying or existing exposures and have adhered to the Board approved Treasury Risk Management Policy.

(a) Market risk

APA Group’s market risk exposure is primarily due to changes in market prices such as interest and foreign exchange rates. APA Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:

• forward exchange contracts to hedge the exchange rate risk arising from foreign currencycash flows, mainly US dollars, derived from revenues, interest payments and capital equipment purchases;

• cross currency interest rate swaps to manage the currency risk associated with foreigncurrency denominated borrowings;

• foreign currency denominated borrowings to manage the currency risk associated withforeign currency denominated revenue and receivables; and

• interestrateswapstomitigatetheriskofrisinginterestrates.

APA Group is also exposed to price risk arising from its forward purchase contracts over listed equities.


– II-36 –

Foreign currency risk

APA Group’s foreign exchange risk arises from future commercial transactions (including revenue, interest payments and principal debt repayments on long-term borrowings and the purchases of capital equipment), and the recognition of assets and liabilities (including foreign receivables and borrowings). Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts, cross currency swap contracts and foreign currency denominated borrowings. All foreign currency exposure was managed in accordance with the Treasury Risk Management Policy in both 2016 and 2015.

The carrying amount of APA Group’s foreign currency denominated monetary assets, monetary liabilities and derivative notional amounts at the reporting date is as follows:

Cash & cash equivalents Receivables

Total borrowings

Cross currency

swaps

Foreign exchange contract

Net foreign currency position

2016 $000 $000 $000 $000 $000 $000

US Dollar (a) 1,068 30,691 (3,694,558) (1,277,253) 703,317 (4,236,735)Japanese yen – – (129,964) 129,964 – –Canadian dollar – – (310,555) 310,555 – –British pound – – (1,688,747) 1,688,747 – –Euro – – (2,008,378) 2,008,378 (1,392) (1,392)Swedish Krona – – – – (29,606) (29,606)

1,068 30,691 (7,832,202) 2,860,391 672,319 (4,267,733)

2015

US Dollar (a) 1,723 38,639 (3,726,507) (1,075,496) 2,216 (4,759,425)Japanese yen – – (106,005) 106,005 – –Canadian dollar – – (311,394) 311,394 – –British pound – – (1,937,372) 1,937,372 – –Euro – – (1,950,107) 1,950,107 – –

1,723 38,639 (8,031,385) 3,229,382 2,216 (4,759,425)

(a) Net US$ foreign currency position of $4,236.1 million is predominantly hedging part of the committed US$ revenue arising from the Wallumbilla Gladstone Pipeline (2015: $4,759.4 million).

Forward foreign exchange contracts

To manage fore ign exchange r i sk ar is ing f rom future commercia l t ransact ions such as forecast capital purchases, revenue and interest payments, APA Group uses forward foreign exchange contracts. Gains and losses recognised in the cash flow hedge reserve (statement of comprehensive income) on these derivatives will be released to profit or loss when the underlying anticipated transaction affects the statement of profit or loss or will be included in the carrying value of the asset or liability acquired.

It is the policy of APA Group to hedge 100% of all foreign exchange capital purchases in excess of US$1 million that are certain. Forecast foreign currency denominated revenues and interest payments will be hedged by forward exchange contracts on a rolling basis for a minimum of one year with the objective being to lock in the AUD gross cash flows and manage liquidity.


– II-37 –

The following table details the forward foreign exchange currency contracts outstanding at reporting date:

Cash flow hedgesAverage

exchange ratesForeign

currency < 1 year

Contract value1 – 2

years2 – 5

years Fair value2016 $ US$000 $000 $000 $000 $000

Pay USD/receive AUDForecast revenue and associated receivable 0.7200 (507,689) 292,569 265,907 146,605 12,849

Pay AUD/receive USDForecast capital purchases 0.7666 1,353 (995) (313) (457) 71

(506,336) 291,574 265,594 146,148 12,920



currency < 1 year


years2 – 5

years Fair value2016 $ EUR$000 $000 $000 $000 $000

Pay AUD/receive EURForecast capital purchases 0.6703 933 (334) (910) (148) 48

933 (334) (910) (148) 48



currency < 1 year


years2 – 5

years Fair value2016 $ SEK$000 $000 $000 $000 $000

Pay AUD/receive SEkForecast capital purchases 6.0727 179,795 (16,309) (8,009) (5,289) (164)

179,795 (16,309) (8,009) (5,289) (164)



currency < 1 year


years2 – 5


Pay USD/receive AUDForecast revenue and associated receivable 0.7574 (193,837) 255,913 – – 1,845

Pay AUD/receive USDForecast capital purchases 0.9011 1,969 (2,185) – – 371

(191,868) 253,728 – – 2,216


– II-38 –

As at reporting date, APA Group has entered into forward contracts to hedge net US exchange rate risk arising from anticipated future transactions with an aggregate notional principal amount of $705.1 million (2015: $253.7 million) which are designated in cash flow hedge relationships. The hedged anticipated transactions denominated in US dollars are expected to occur at various dates between one month to three years from reporting date.

Cross currency swap contracts

APA Group enters into cross currency swap contracts to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from foreign currency borrowings. APA Group receives fixed amounts in the various foreign currencies and pays both variable interest rates (based on Australian BBSW) and fixed interest rates based on agreed swap rates for the full term of the underlying borrowings. In certain circumstances borrowings are left in the foreign currency, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency.

The following table details the cross currency swap contract principal payments due as at the reporting date:

Cash flow hedgesForeign

currencyExchange

rateLess than

1 year 1 – 2 years 2 – 5 yearsMore than

5 years2016 $ $000 $000 $000 $000

Pay AUD/receive foreign currency2003 USPP Notes AUD/USD 0.6573 – – (95,847) –2007 USPP Notes AUD/USD 0.8068 (190,878) – (151,215) (153,694)2009 USPP Notes AUD/USD 0.7576 (85,787) – (98,997) –2012 JPY Medium Term Notes AUD/JPY 79.4502 – (125,865) – –2012 CAD Medium Term Notes AUD/CAD 1.0363 – – (289,494) –2012 US144A AUD/USD 1.0198 – – – (735,438)2012 GBP Medium Term Notes AUD/GBP 0.6530 – – – (535,988)

Pay USD/receive foreign currency2015 EUR Medium Term Notes USD/EUR 0.9514 – – – (1,904,107)2015 GBP Medium Term Notes USD/GBP 0.6773 – – – (1,188,888)

(276,665) (125,865) (635,553) (4,518,115)

Cash flow hedgesForeign

currencyExchange

rateLess than


5 years2015 $ $000 $000 $000 $000

Pay AUD/receive foreign currency2003 USPP Notes AUD/USD 0.6573 (185,608) – (95,847) –2007 USPP Notes AUD/USD 0.8068 – (190,878) (151,215) (153,694)2009 USPP Notes AUD/USD 0.7576 – (85,787) (98,997) –2012 JPY Medium Term Notes AUD/JPY 79.4502 – – (125,865) –2012 CAD Medium Term Notes AUD/CAD 1.0363 – – (289,494) –2012 US144A AUD/USD 1.0198 – – – (735,438)2012 GBP Medium Term Notes AUD/GBP 0.6530 – – – (535,988)


(185,608) (276,665) (761,418) (4,412,476)


– II-39 –

Foreign currency denominated borrowings

APA Group maintains a level of borrowings in foreign currency, or swapped from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency. This mitigates the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from these foreign currency borrowings as well as future revenues.

Foreign currency sensitivity analysis

The analysis below shows the effect on profit and total equity of retranslating cash, receivables, payables and interest-bearing liabilities denominated in USD, JPY, CAD, GBP and EUR into AUD, had the rates been 20 percent higher or lower than the relevant year end rate, with all other variables held constant, and taking into account all underlying exposures and related hedges. A sensitivity of 20 percent has been selected and represents management’s assessment of the possible change in rates taking into account the current level of exchange rates and the volatility observed both on a historical basis and on market expectations for future movements.

• There would be no impact on net profit as all foreign currency exposures are fully hedged(2015: nil); and

• Equity reserves would decrease by $1,410.2 million with a 20 percent depreciation of theA$ or increase by $940.5 million with a 20 percent increase in foreign exchange rates (2015: decrease by $1,268.4 million or increase by $845.1 million respectively). The increase in sensitivity is due to the increase in the notional value of forward exchange contracts that are in a hedging relationship with highly probable forecast transactions.

Interest rate risk

APA Group’s interest rate risk is derived predominately from borrowings subject to fixed and floating interest rates. This risk is managed by APA Group by maintaining an appropriate mix between fixed and floating rate borrowings, through the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined policy, ensuring appropriate hedging strategies are applied.

APA Group’s exposures to interest rate risk on financial liabilities are detailed in the liquidity risk management section of this note. Exposure to financial assets is limited to cash and cash equivalents amounting to $84.5 million as at 30 June 2016 (2015: $411.9 million).

Cross currency swap and interest rate swap contracts

Cross currency swap and interest rate swap contracts have the economic effect of converting borrowings from floating to fixed rates on agreed notional principal amounts enabling APA Group to mitigate the risk of cash flow exposures on variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at reporting date. The average interest rate is based on the outstanding balances at the end of the financial year.


– II-40 –

The following table details the notional principal amounts and remaining terms of the cross currency and interest rate swap contracts outstanding as at the end of the financial year:

weighted average interest rate

Notional principal amount Fair value

2016 2015 2016 2015 2016 2015% p.a. % p.a. $000 $000 $000 $000

Cash flow hedges – Pay fixed AUD interest – receive floating AUD or fixed foreign currency

Less than 1 year 8.58 7.10 276,665 185,608 17,700 (32,637)1 year to 2 years 6.80 8.58 125,865 276,665 (2,403) 7,5202 years to 5 years 7.76 7.60 635,553 761,418 10,284 (31,028)5 years and more (a) 5.08 5.10 4,518,115 4,412,476 116,089 352,208

5,556,198 5,636,167 141,670 296,063

(a) This amount includes a notional of USD 3 billion which is subject to USD interest rate risk.

The cross currency swap and interest rate swaps settle on a quarterly or semi-annual basis. The floating rate benchmark on the interest rate swaps is Australian BBSW. APA Group will settle the difference between the fixed and floating interest rate on a net basis.

All cross currency swap and interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce APA Group’s cash flow exposure on borrowings.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments held. A 100 basis point increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, APA Group’s:

• net profit would decrease by $12,225,000 or increase by $12,225,000 (2015: decreaseby $5,150,000 or increase by $5,150,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings, including its Australian Dollar subordinated notes; and

• equity reserveswoulddecreaseby$143,644,000witha100basispointdecrease in interestrates or increase by $129,922,000 with a 100 basis point increase in interest rates (2015: increase by $14,483,000 or increase by $38,594,000 respectively). This is due to the changes in the fair value of derivative interest instruments.

APA Group’s profit sensitivity to interest rates has increased during the current period due to the overall increase in the level of APA Group’s unhedged floating rate borrowings. The valuation of the increase/decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. The increase in sensitivity in equity is due to the increase in the notional value of interest rate and cross currency swaps.


– II-41 –

Price risk

APA Group is exposed to price risk arising from its forward purchase contracts over listed equities. The forward purchase contracts are held to meet hedging objectives rather than for trading purposes. APA Group does not actively trade these holdings.

Price risk sensitivity

The sensitivity analysis below has been determined based on the exposure to price risks at the reporting date. At the reporting date, if the prices of APA Group’s forward purchase contracts over listed equities had been 5 percent p.a. higher or lower:

• net profit would have been unaffected as there is no effect from the forwards as thecorresponding exposure will offset in full (2015: $nil); and

• there isnoeffectonequity reserves asAPAGroupholdsnoavailable-for-sale investments(2015: $4,000).

APA Group’s analysis of its exposure to price risk has declined during the current period compared to the prior period. During the financial year, APA Group acquired Ethane Pipeline Income Fund. As a result, the previously held interest is no longer classified as an available-for-sale investment.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to APA Group. APA Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, APA Group’s policy is to only transact with counterparties that have a credit rating of A- (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above APA Group’s minimum threshold. APA Group’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the Audit and Risk Management Committee. These limits are regularly reviewed by the Board.

Trade receivables consist of mainly corporate customers which are diverse and geographically spread. Most significant customers have an investment grade rating from either Standard & Poor’s or Moody’s. Ongoing credit monitoring of the financial position of customers is maintained.

The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents APA Group’s maximum exposure to credit risk in relation to those assets.

Cross guarantee

In accordance with a deed of cross guarantee, APT Pipelines Limited, a subsidiary of APA Group, has agreed to provide financial support, when and as required, to all wholly-owned controlled entities with either a deficit in shareholders’ funds or an excess of current liabilities over current assets. The fair value of the financial guarantee as at 30 June 2016 has been determined to be immaterial and no liability has been recorded (2015: $nil).


– II-42 –

(c) Liquidity risk

APA Group has a policy of dealing with liquidity risk which requires an appropriate liquidity risk management framework for the management of APA Group’s short, medium and long-term funding and liquidity management requirements. Liquidity risk is managed by maintaining adequate cash reserves and banking facilities, by monitoring and forecasting cash flow and where possible arranging liabilities with longer maturities to more closely match the underlying assets of APA Group.

Detailed in the table following are APA Group’s remaining contractual maturities for its non-derivative financial liabilities. The table is presented based on the undiscounted cash flows of financial liabilities taking account of the earliest date on which APA Group can be required to pay. The table includes both interest and principal cash flows.

The table below shows the undiscounted Australian dollar cash flows associated with the foreign currency notes, cross currency interest rate swaps and fixed interest rate swaps in aggregate.

MaturityAverage

interest rateLess than

1 year 1 – 5 yearsMore than

5 years% p.a. $000 $000 $000

2016Unsecured financial liabilitiesTrade and other payables – 252,661 – –Unsecured bank borrowings (a) 2.82 19,610 726,228 –2012 Subordinated Notes 1-Oct-72 6.78 33,267 130,200 2,381,395

Denominated in A$Other financial liabilities (b) 7,841 31,367 42,806

Guaranteed Senior Notes (c)

Denominated in A$2007 Series A 15-May-17 7.33 5,367 – –2007 Series C 15-May-17 7.38 106,475 – –2007 Series E 15-May-19 7.40 5,045 78,259 –2007 Series G 15-May-22 7.45 6,002 24,008 86,5842007 Series H 15-May-22 7.45 4,617 18,468 66,6032010 AUD Medium Term Notes 22-Jul-20 7.75 23,250 381,375 –

Denominated in US$2003 Series D 9-Sep-18 6.02 6,930 106,290 –2007 Series B 15-May-17 5.89 204,864 – –2007 Series D 15-May-19 5.99 11,111 173,435 –2007 Series F 15-May-22 6.14 11,354 45,416 165,0792009 Series A 1-Jul-16 8.35 90,569 – –2009 Series B 1-Jul-19 8.86 11,761 128,286 –2012 US 144A 11-Oct-22 3.88 49,123 196,762 809,0562015 US 144A (b) 23-Mar-25 4.20 62,001 248,004 1,724,3892015 US 144A (b) 23-Mar-35 5.00 20,130 80,521 684,650

Denominated in stated foreign currency2012 JPY Medium Term Notes 22-Jun-18 1.23 8,559 134,424 –2012 CAD Medium Term Notes 24-Jul-19 4.25 19,529 338,237 –2012 GBP Medium Term Notes 26-Nov-24 4.25 39,459 157,943 674,3642015 GBP Medium Term Notes (b) 22-Mar-30 3.50 53,312 213,349 1,668,8982015 EUR Medium Term Notes (b) 22-Mar-22 1.38 36,060 144,240 1,023,2842015 EUR Medium Term Notes (b) 22-Mar-27 2.00 40,301 161,205 1,158,689

1,129,198 3,518,017 10,485,797


– II-43 –

(a) Facilities mature on 19 September 2017 ($311.25 million limit), 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).

(b) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2016. These amounts are fully hedged by forward exchange contracts or future US$ revenues.

(c) Rates shown are the coupon rate.

MaturityAverage



5 years% p.a. $000 $000 $000

2015Unsecured financial liabilitiesTrade and other payables – 405,685 – –Unsecured bank borrowings (a) 3.09 2,935 125,975 –2012 Subordinated Notes 1-Oct-72 7.20 34,203 148,917 2,795,775Interest rate swaps (net settled) 6.28 3,844 1,302 –

Denominated in A$Other financial liabilities (b) 7,574 30,296 48,918

Guaranteed Senior Notes (c)

Denominated in A$2007 Series A 15-May-17 7.33 367 5,367 –2007 Series C 15-May-17 7.38 7,318 106,475 –2007 Series E 15-May-19 7.40 5,045 83,304 –2007 Series G 15-May-22 7.45 6,002 24,008 92,5862007 Series H 15-May-22 7.45 4,617 18,468 71,2202010 AUD Medium Term Notes 22-Jul-20 7.75 23,250 93,000 311,625

Denominated in US$2003 Series C 9-Sep-15 5.77 192,773 – –2003 Series D 9-Sep-18 6.02 6,949 113,220 –2007 Series B 15-May-17 5.89 13,986 204,864 –2007 Series D 15-May-19 5.99 11,111 184,546 –2007 Series F 15-May-22 6.14 11,354 45,416 176,4332009 Series A 1-Jul-16 8.35 9,805 90,569 –2009 Series B 1-Jul-19 8.86 11,825 140,047 –2012 US 144A 11-Oct-22 3.88 48,989 197,031 857,9102015 US 144A (b) 23-Mar-25 4.20 59,883 239,533 1,725,3772015 US 144A (b) 23-Mar-35 5.00 19,443 77,771 680,709

Denominated in stated foreign currency2012 JPY Medium Term Notes 22-Jun-18 1.23 4,291 147,274 –2012 CAD Medium Term Notes 24-Jul-19 4.25 19,422 357,766 –2012 GBP Medium Term Notes 26-Nov-24 4.25 39,567 157,943 713,8232015 GBP Medium Term Notes (b) 22-Mar-30 3.50 51,894 206,081 1,663,4262015 EUR Medium Term Notes (b) 22-Mar-22 1.38 35,023 139,314 1,023,1632015 EUR Medium Term Notes (b) 22-Mar-27 2.00 39,142 155,699 1,158,040

1,076,297 3,094,186 11,319,005


– II-44 –

(a) Facilities mature on 19 September 2016 ($400 million limit), 19 September 2017 ($425 million limit), 19 December 2018 ($200 million limit), and 19 September 2019 ($275 million limit).



Critical accounting judgements and key sources of estimation uncertainty – fair value of financial instruments

APA Group has financial instruments that are carried at fair value in the statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, APA Group determines fair value by using various valuation models. The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants. The chosen valuation models make maximum use of market inputs and rely as little as possible on entity specific inputs. The fair values of all positions include assumptions made as to recoverability based on the counterparty’s and APA Group’s credit risk.

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

• Level1fairvaluemeasurementsarethosederivedfromquotedprices(unadjusted)inactivemarkets for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted pricesincluded within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that includeinputs for the asset or liability that are not based on observable market data (unobservable inputs).

There have been no transfers between the levels during 2016 (2015: none). Transfers between levels of the fair value hierarchy occur at the end of the reporting period. Transfers between level 1 and level 2 are triggered when there are changes to the availiability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.


– II-45 –

Fair value of the Group’s financial assets and liabilities that are measured at fair value on a recurring basis

The fair values of financial assets and financial liabilities are measured at the end of each reporting period and determined as follows:

• the fair values of available-for-sale financial assets and financial liabilities with standardterms and conditions and traded on active liquid markets are determined with reference to quoted market prices. These instruments are classified in the fair value hierarchy at level 1;

• the fair values of forward foreign exchange contracts included in hedging assets andliabilities are calculated using discounted cash flow analysis based on observable forward exchange rates at the end of the reporting period and contract forward rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• the fair values of interest rates swaps, cross currency swaps, equity forwards and otherderivative instruments included in hedging assets and liabilities are calculated using discounted cash flow analysis using observable yield curves at the end of the reporting period and contract rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• the fair values of other financial assets and financial liabilities (excluding derivativeinstruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• the fair value of financial guarantee contracts is determined based upon the probability ofdefault by the specified counterparty extrapolated from market-based credit information and the amount of loss, given the default. These instruments are classified in the fair value hierarchy at level 2; and

• the carrying value of financial assets and liabilities recorded at amortised cost in thefinancial statements approximate their fair value having regard to the specific terms of the agreements underlying those assets and liabilities.


– II-46 –

Fair value hierarchy

Level 1 Level 2 Level 3 Total2016 $000 $000 $000 $000

Financial assets measured at fair valueEquity forwards designated as fair value through profit or loss – 2,566 – 2,566Cross currency interest rate swaps used for hedging – 417,949 – 417,949Forward foreign exchange contracts used for hedging – 22,941 – 22,941

– 443,456 – 443,456

Financial liabilities measured at fair valueInterest rate swaps used for hedging – 8,993 – 8,993Cross currency interest rate swaps used for hedging – 267,287 – 267,287Forward foreign exchange contracts used for hedging – 10,137 – 10,137

– 286,417 – 286,417

2015Financial assets measured at fair valueAvailable-for-sale listed equity securities Ethane Pipeline Income Fund 7,162 – – 7,162Equity forwards designated as fair value through profit or loss – 5,199 – 5,199Cross currency interest rate swaps used for hedging – 461,484 – 461,484Forward foreign exchange contracts used for hedging – 4,016 – 4,016

7,162 470,699 – 477,861


– 167,222 – 167,222


– II-47 –

Fair value measurements of financial instruments measured at amortised cost

The financial liabilities included in the following table are fixed rate borrowings. Other debts held by APA Group are floating rate borrowings and amortised cost as recorded in the financial statements approximate their fair values.

Carrying amount Fair value (level 2) (a)

2016 2015 2016 2015$000 $000 $000 $000

Financial liabilitiesUnsecured long term Private Placement Notes 1,124,099 1,254,594 1,246,720 1,388,789Unsecured Australian Dollar Medium Term Notes 300,000 300,000 346,153 351,024Unsecured Japanese Yen Medium Term Notes 129,964 106,005 132,575 108,594Unsecured Canadian Dollar Medium Term Notes 310,555 311,394 317,912 323,954Unsecured Australian Dollar Subordinated Notes 515,000 515,000 656,141 646,661Unsecured US Dollar 144A Medium Term Notes 2,885,325 2,786,779 3,015,771 3,000,016Unsecured British Pound Medium Term Notes 1,688,747 1,937,372 1,822,352 1,864,624Unsecured Euro Medium Term Notes 2,008,378 1,950,107 1,958,596 1,872,050

8,962,068 9,161,251 9,496,220 9,555,712

(a) The fair values have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets, discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2.

22. OTHER FINANCIAL INSTRUMENTS

Assets Liabilities2016 2015 2016 2015$000 $000 $000 $000

Derivatives at fair value: Equity forward contracts 1,864 3,527 – –Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges 1,389 4,016 1,421 1,800 Interest rate swaps – cash flow hedges - - 3,925 13,003 Cross currency interest rate swaps – cash flow hedges 31,602 16,961 109,328 131,012Financial item carried at amortised cost: Redeemable preference share interest 285 285 – –

Current 35,140 24,789 114,674 145,815


– II-48 –


Available-for-sale investments carried at fair value: Ethane Pipeline Income Fund – 7,162 – –Financial items carried at amortised cost: Redeemable ordinary shares 15,699 17,152 – – Redeemable preference shares 10,400 10,400 – –Derivatives – at fair value: Equity forward contracts 702 1,672 – –Derivatives at fair value designated as hedging instruments: Foreign currency contracts – cash flow hedges 21,552 – 8,716 – Interest rate swaps – cash flow hedges – – 6,246 8,728 Cross currency interest rate swaps – cash flow hedges 398,717 460,151 179,629 36,065

Non-current 447,070 496,537 194,591 44,793

Available-for-sale investments consist of investments in ordinary securities, and therefore have no fixed maturity date or coupon rate. The fair value of listed available-for-sale investments has been determined directly by reference to published price quotations in an active market.

Redeemable ordinary shares relate to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where APL, as responsible entity for APTIT, acquired the redeemable ordinary shares, which include a debt component.

Redeemable preference shares relate to APA Group’s 20% interest in GDI (EII) Pty Ltd. In December 2011, APA sold 80% of its gas distribution network in South East Queensland (Allgas) into an unlisted investment entity, GDI (EII) Pty Ltd. At that date GDI issued 52 million Redeemable Preference Shares (RPS) to its owners. The shares attract periodic interest payments and have a redemption date 10 years from issue.

Recognition and measurement

Hedge accounting

APA Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges or cash flow hedges. There are no fair value hedges in the current or prior year, hedges of foreign exchange and interest rate risk are accounted for as cash flow hedges.

At the inception of the hedge relationship, APA Group formally designates and documents the hedge relationship, including the risk management strategy for undertaking the hedge. This includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and their effectiveness is regularly assessed to ensure they continue to be so.


– II-49 –

Note 21 contains details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are detailed in the Consolidated Statement of Changes in Equity.

Derivatives are initially recognised at fair value at the date a derivatives contract is entered into and subsequently remeasured to fair value at each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. A derivative with a positive fair value is recognised as a financial asset, a derivative with a negative fair value is recognised as a financial liability.

The fair value of hedging derivatives is classified as either current or non-current based on the timing of the underlying discounted cash flows of the instrument. Cash flows due within 12 months of the reporting date are classified as current and cash flows due after 12 months of the reporting date are classified as non-current.

Cash flow hedges

For cash flow hedges, the portion of the gain or loss on the hedging instrument that is effective is recognised directly in equity, while the ineffective portion is recognised in profit or loss.

Amounts recognised in equity are transferred to the profit or loss when the hedged transaction affects profit or loss, such as when the hedged income or expenses are recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non- financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the profit or loss. If the hedging instrument expires or is sold, terminated or exercised, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs.

Available-for-sale financial assets

APA Group previously held certain shares which were classified as being available-for-sale. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, which are recognised in other comprehensive income and accumulated in the available-for-sale investment revaluation reserve. When these assets are derecognised, the gain or loss in equity is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognised in profit or loss when the APA Group’s right to receive the dividends is established.

Determining whether available-for-sale investments are impaired requires an assessment as to whether declines in value are significant or prolonged. Management has taken into account a number of qualitative and quantitative factors in making this assessment. Any assessment of whether a decline in value represents an impairment would result in the transfer of the decrement from reserves to the statement of profit or loss and other comprehensive income.


– II-50 –

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where, as a result of one or more events that occurred after the initial recognition of the financial asset, there is objective evidence that the estimated future cash flows of the investments have been unfavourably impacted.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss.

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed, does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income.

23. ISSUED CAPITAL

2016 2015$000 $000

Securities1,114,307,369 securities, fully paid (2015: 1,114,307,369 securities, fully paid) (a) 3,195,445 3,195,449

2016 2015No. of

securities 2016No. of

securities 2015000 $000 000 $000

MovementsBalance at beginning of financial year 1,114,307 3,195,449 835,751 1,816,460Issue of securities under entitlement offer – – 278,556 1,400,122Issue costs of securities – (6) – (30,190)Deferred tax on issue costs of securities – 2 – 9,057

Balance at end of financial year 1,114,307 3,195,445 1,114,307 3,195,449

(a) Fully paid securities carry one vote per security and carry the right to distributions.

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to issued capital from 1 July 1998. Therefore, the Trust does not have a limited amount of authorised capital and issued securities do not have a par value.


– II-51 –

GROUP STRUCTURE

24. NON-CONTROLLING INTERESTS

APT is deemed the parent entity of APA Group comprising of the stapled structure of APT and APTIT. Equity attributable to other trusts stapled to the parent is a form of non-controlling interest and represents 100% of the equity of APTIT.

Summarised financial information for APTIT is set out below, the amounts disclosed are before inter-company eliminations.

2016 2015$000 $000

Financial positionCurrent assets 704 701Non-current assets 1,046,193 1,031,517

Total assets 1,046,897 1,032,218

Current liabilities 11 49

Total liabilities 11 49

Net assets 1,046,886 1,032,169

Equity attributable to non-controlling interests 1,046,886 1,032,169

Financial performanceRevenue 85,483 46,359Expenses (381) (11)

Profit for the year 85,102 46,348Other comprehensive income (595) 989

Total comprehensive income allocated to non-controlling interests for the year 84,507 47,337

Cash flowsNet cash provided by operating activities 86,451 46,672Net cash used in investing activities (16,647) (436,276)Distributions paid to non-controlling interests (69,778) (39,324)Net cash (used in)/provided by financing activities (69,804) 389,604

The accounting policies of APTIT are the same as those applied to APA Group.

There are no material guarantees, contingent liabilities or restrictions imposed on APA Group from APTIT’s non-controlling interests.


– II-52 –

2016 2015$000 $000

APT Investment Trust 1,046,886 1,032,169Other non-controlling interest 53 52

1,046,939 1,032,221

APT Investment TrustIssued capital:Balance at beginning of financial year 1,005,086 576,172Issue of securities under entitlement offer – 438,351Distribution – capital return (Note 9) – –Issue costs of units (12) (9,437)

1,005,074 1,005,086

Reserves:Available-for-sale investment revaluation reserve:Balance at beginning of financial year 595 (394)Valuation loss recognised (595) 989

– 595

Retained earnings:Balance at beginning of financial year 26,488 19,465Net profit attributable to APTIT unitholders 85,102 46,348Distributions paid (Note 9) (69,778) (39,325)

41,812 26,488

Other non-controlling interestIssued capital 4 4Reserves 1 1Retained earnings 48 47

53 52


– II-53 –

25. JOINT ARRANGEMENTS AND ASSOCIATES

The table below lists APA Group’s interest in joint ventures and associates that are reported as part of the Energy Investments segment. APA Group provides asset management, operation and maintenance services and corporate services, in varying combinations to the majority of energy infrastructure assets housed within these entities.

Countryof incorporation

Ownership interest %Name of entity Principal activity 2016 2015

Joint ventures: SEA Gas Gas transmission Australia 50.00 50.00 Diamantina Power Station Power generation (gas) Australia – 50.00 Energy Infrastructure Investments Unlisted energy vehicle Australia 19.90 19.90 EII 2 Power generation (wind) Australia 20.20 20.20

Associates: GDI (EII) Gas distribution Australia 20.00 20.00

2016 2015$000 $000

Investment in joint ventures and associates using the equity method 197,185 257,425

Joint venturesAggregate carrying amount of investment 170,408 228,556APA Group’s aggregated share of: Profit from continuing operations 13,640 10,288 Other comprehensive income (8,103) (9,786)

Total comprehensive income 5,537 502

AssociatesAggregate carrying amount of investment 26,777 28,869APA Group’s aggregated share of: Profit from continuing operations 3,337 3,633 Other comprehensive income (1,327) (19,290)

Total comprehensive income 2,010 (15,657)

Investment in associates

An associate is an entity over which APA Group has significant influence and that is neither a subsidiary nor a joint arrangement. Investments in associates are accounted for using the equity accounting method.

Under the equity accounting method the investment is recorded initially at cost to APA Group, including any goodwill on acquisition. In subsequent periods the carrying amount of the investment is adjusted to reflect APA Group’s share of the retained post-acquisition profit or loss and other comprehensive income, less any impairment.


– II-54 –

Losses of an associate or joint venture in excess of APA Group’s interests (which includes any long-term interests, that in substance, form part of the net investment) are recognised only to the extent that there is a legal or constructive obligation or APA Group has made payments on behalf of the associate or joint venture.

Contingent liabilities and capital commitments

APA Group’s share of the cont ingent l iabi l i t ies , capi ta l commitments and other expendi ture commitments of joint operations is disclosed in Note 28.

APA Group is a venturer in the following joint operations:

Output interest2016 2015

Name of venture Principal activity % %

Goldfields Gas Transmission Gas pipeline operation – Western Australia 88.2 (a) 88.2 (a)

Mid West Pipeline Gas pipeline operation – Western Australia 50.0 (b) 50.0 (b)

(a) On 17 August 2004, APA acquired a direct interest in the Goldfields Gas Transmission joint operations as part of the SCP Gas Business acquisition.

(b) Pursuant to the joint venture agreement, APA Group receives a 70.8% share of operating income and expenses.

Interest in joint arrangements

A joint arrangement is an arrangement whereby two or more parties have joint control. Joint control is the contractually agreed sharing of control such that decisions about the relevant activities of the arrangement (those that significantly affect the returns) require the unanimous consent of the parties sharing control. APA Group has two types of joint arrangements:

Joint ventures: A joint arrangement in which the parties that share joint control have rights to the net assets of the arrangement. Joint Ventures are accounted for using the equity accounting method; and

Joint operations: A joint arrangement in which the parties that share joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement. In relation to its interest in a joint operation, APA Group recognises its share of assets and liabilities, revenue from the sale of its share of the output and its share of any revenue generated from the sale of the output by the joint operation and its share of expenses. These are incorporated into APA Group’s financial statements under the appropriate headings.

26. BUSINESS COMBINATIONS

Acquisitions of businesses are accounted for using the acquisition method. Under the acquisition method of accounting, the purchase consideration is allocated to the identifiable assets acquired and liabilities and contingent liabilities assumed (the identifiable net assets) on the basis of their fair value at the date of acquisition which is the date on which control is obtained.

Provisional fair values allocated at a reporting date are finalised within 12 months of the acquisition date. 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 identifiable net assets acquired is recorded as goodwill. Any shortfall is immediately recognised in the statement of profit or loss.

Costs related to the acquisition of a subsidiary are expensed as incurred.


– II-55 –

On an acquisition-by-acquisition basis, APA Group recognises any non-controlling interest in the acquiree either at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets or at fair value. Goodwill and amounts attributable to non-controlling interests will differ depending on the basis used.

Where APA Group has a previously held non-controlling interest in the acquiree, this is remeasured to fair value at the date control is gained with any gain or loss recognised in the statement of profit or loss. Amounts recognised in other comprehensive income prior to the acquisition are reclassified to profit or loss.

Subsidiaries acquired

Name of entity Principal activityDate ofAcquisition

Proportion of shares acquired

Cost of acquisition

% $000

2016Diamantina Power Station Power generation (gas) 31 March 2016 50.00 151,000Ethane Pipeline Income Fund Gas transmission 18 April 2016 93.92 122,368APA Ethane Limited Trustee 15 June 2016 50.50 –

Diamantina Power Station

On 31 March 2016, APA Group acquired the remaining 50 per cent of the Diamantina Power Station (DPS) that it did not already own from AGL Energy Limited for a cash payment of $151.0 million.

The acquisition includes two power stations with shared infrastructure, the 242MW Diamantina Power Station with combined cycle gas turbines and the 60MW Leichhardt Power Station with an open cycle gas turbine. These energy assets are connected to our East Coast Grid and underwritten by two highly credit worthy counterparties.

Included in the consolidated net profit for the year is revenue of $56.3 million and earnings before interest, tax, depreciation and amortisation of $23.3 million attributable to DPS.

Had the business combination been effected at 1 July 2015, DPS would have contributed revenue of $245.5 million and earnings before interest, tax, depreciation and amortisation of $89.3 million.

Ethane Pipeline Income Fund

On 7 March 2016, APA Group announced an unconditional off-market takeover offer for all remaining securities of Ethane Pipeline Income Fund (EPX) that APA did not already own at a cash only offer price of $1.88 per security. By 18 April 2016, APA Group had obtained a controlling interest of 51.01% of EPX resulting in a non-controlling interest of 48.99%. The non-controlling interest was acquired over the period 19 April to 15 June 2016 when compulsory acquisition was completed.

The non-controlling interest in EPX recognised at acquisition date was measured by reference to the fair value of the non-controlling interest and amounted to $63.8 million. The fair value was derived from a quoted price in an active market for the equity securities.

The acquisition of EPX extends and further diversifies APA Group’s investment in related energy infrastructure including expanding its footprint into transporting alternate fuels. The ethane pipeline asset has a long term customer contract in place. APA Group currently has an operating agreement over the ethane pipeline and expects to reduce costs from removal of EPX from the official list of ASX, and through economies of scale.

On 15 June 2016, APA Group acquired the remaining 50 shares in APA Ethane Limited, the Responsible Entity of Ethane Pipeline Income Fund.


– II-56 –

Included in the consolidated net profit for the year is revenue of $4.1 million and earnings before interest, tax, depreciation and amortisation of $2.8 million attributable to EPX.

Had the business combination been effected at 1 July 2015, EPX would have contributed revenue of $20.1 million and earnings before interest, tax, depreciation and amortisation of $16.2 million.

Assets acquired and liabilities assumed at the date of acquisition

EPX DPS TotalNet assets acquired $000 $000 $000

Current assetsCash and cash equivalents 5,594 53,062 58,656Trade and other receivables 1,126 5,508 6,634Other financial assets – 347 347Inventories – 5,937 5,937Other 417 6,066 6,483Non-current assetsCash on deposit 2,169 – 2,169Other financial assets – 597 597Property, plant & equipment 142,085 725,091 867,176Goodwill – 44,088 44,088Current liabilitiesTrade and other payables (1,654) (26,292) (27,946)Income tax payable (365) – (365)Current borrowings – (447,051) (447,051)Other financial liabilities – (16,134) (16,134)Provisions (866) (549) (1,415)Other (18) – (18)Non-current liabilitiesDeferred tax liabilities (16,317) (17,758) (34,075)Other financial liabilities – (28,208) (28,208)Provisions (1,882) (2,728) (4,610)

Fair value of net assets acquired 130,289 301,976 432,265

Previously held interest (7,921) (150,976) (158,897)

Cost of acquisition 122,368 151,000 273,368

Cash balances acquired (5,593) (53,062) (58,655)Dividend on securities acquired (Cum Dividend) during the takeover offer 102 – 102Transaction costs paid 2,172 353 2,525

Net cash outflow on acquisitions 119,049 98,291 217,340

The accounting for the acquisition of EPX and DPS has been provisionally determined at the reporting date.


– II-57 –

27. SUBSIDIARIES

Subsidiaries are entities controlled by APT. Control exists where APT has power over the entities, i.e. existing rights that give it the current ability to direct the relevant activities of the entities (those that significantly affect the returns); exposure, or rights, to variable returns from its involvement with the entities; and the ability to use its power to affect those returns.

Country of registration/ Ownership interest

Name of entity incorporation 2016 2015% %

Parent entityAustralian Pipeline Trust (a)

SubsidiariesAPT Pipelines Limited (b),(c) Australia 100 100Australian Pipeline Limited (b) Australia 100 100Agex Pty Ltd (b),(c) Australia 100 100Amadeus Gas Trust Australia 96 96APT Goldfields Pty Ltd (b),(c) Australia 100 100APT Management Services Pty Limited (b),(c) Australia 100 100APT Parmelia Holdings Pty Ltd (b),(c) Australia 100 100APT Holdings Pty Ltd (b),(c) Australia 100 100APT Parmelia Trust (b) Cayman Islands 100 100APT Petroleum Pipelines Holdings Pty Limited (b),(c) Australia 100 100APT Petroleum Pipelines Pty Limited (b),(c) Australia 100 100APT Pipelines (NSW) Pty Limited (b),(c) Australia 100 100APT Pipelines (NT) Pty Limited (b),(c) Australia 100 100APT Pipelines (QLD) Pty Limited (b),(c) Australia 100 100APT Pipelines (WA) Pty Limited (b),(c) Australia 100 100APT Pipelines Investments (NSW) Pty Limited (b),(c) Australia 100 100APT Pipelines Investments (WA) Pty Limited (b),(c) Australia 100 100East Australian Pipeline Pty Limited (b),(c) Australia 100 100Gasinvest Australia Pty Ltd (b),(c) Australia 100 100Goldfields Gas Transmission Pty Ltd (b) Australia 100 100N.T. Gas Distribution Pty Limited (b),(c) Australia 100 100N.T. Gas Easements Pty Limited (b),(c) Australia 100 100N.T. Gas Pty Limited Australia 96 96Roverton Pty Ltd (b),(c) Australia 100 100SCP Investments (No. 1) Pty Limited (b),(c) Australia 100 100SCP Investments (No. 2) Pty Limited (b),(c) Australia 100 100SCP Investments (No. 3) Pty Limited (b),(c) Australia 100 100Sopic Pty Ltd (b),(c) Australia 100 100Southern Cross Pipelines (NPL) Australia Pty Ltd (b),(c) Australia 100 100Southern Cross Pipelines Australia Pty Limited (b),(c) Australia 100 100Trans Australia Pipeline Pty Ltd (b),(c) Australia 100 100Western Australian Gas Transmission Company 1 Pty Ltd (b),(c) Australia 100 100GasNet Australia Trust (b) Australia 100 100APA VTS Australia (Holdings) Pty Limited (b),(c) Australia 100 100APA VTS Australia (Operations) Pty Limited (b),(c) Australia 100 100APA VTS A Pty Limited (b),(c) Australia 100 100GasNet A Trust Australia 100 100APA VTS Australia (NSW) Pty Limited (b),(c) Australia 100 100APA VTS B Pty Limited (b),(c) Australia 100 100APA VTS Australia Pty Limited (b),(c) Australia 100 100GasNet B Trust (b) Australia 100 100


– II-58 –



GasNet Australia Investments Trust Australia 100 100APA Operations Pty Limited (b),(c) Australia 100 100APT AM Holdings Pty Limited (b),(c) Australia 100 100APT O&M Holdings Pty Ltd (b),(c) Australia 100 100APT O&M Services Pty Ltd (b),(c) Australia 100 100APT O&M Services (QLD) Pty Ltd (b),(c) Australia 100 100APT AM (Stratus) Pty Limited (b),(c) Australia 100 100APT Facility Management Pty Limited (b),(c) Australia 100 100APT AM Employment Pty Limited (b),(c) Australia 100 100APT Sea Gas Holdings Pty Limited (b),(c) Australia 100 100APT SPV2 Pty Ltd (b) Australia 100 100APT SPV3 Pty Ltd (b) Australia 100 100APT Pipelines (SA) Pty Limited (b),(c) Australia 100 100APT (MIT) Services Pty Limited (b),(c) Australia 100 100APA Operations (EII) Pty Limited (b),(c) Australia 100 100Central Ranges Pipeline Pty Ltd (b),(c) Australia 100 100APA Country Pipelines Pty Limited (b),(c) Australia 100 100APA Facilities Management Pty Limited (b),(c) Australia 100 100APA (NBH) Pty Limited (b),(c) Australia 100 100APA Pipelines Investments (BWP) Pty Limited (b),(c) Australia 100 100APA Power Holdings Pty Limited (b),(c) Australia 100 100APA (EDWF Holdco) Pty Ltd (b),(c) Australia 100 100APA (BWF Holdco) Pty Ltd (b),(c) Australia 100 100EDWF Holdings 1 Pty Ltd (b),(c) Australia 100 100EDWF Holdings 2 Pty Ltd (b),(c) Australia 100 100EDWF Manager Pty Ltd (b),(c) Australia 100 100Wind Portfolio Pty Ltd (b),(c) Australia 100 100Griffin Windfarm 2 Pty Ltd (b) Australia 100 100APA AM (Allgas) Pty Limited (b),(c) Australia 100 100APA DPS Holdings Pty Limited (b),(c) Australia 100 100APA Power PF Pty Limited (b),(c) Australia 100 100APA Sub Trust No 1 (b) Australia 100 100APA Sub Trust No 2 (b) Australia 100 100APA Sub Trust No 3 (b) Australia 100 100APA (Pilbara Pipeline) Pty Ltd (b),(c) Australia 100 100APA (Sub No 3) International Holdings 1 Pty Ltd (b),(e),(f) Australia – 100APA (Sub No 3) International Holdings 2 Pty Ltd (b),(e),(f) Australia – 100APA (Sub No 3) International Holdings 3 Pty Ltd (b),(e),(f) Australia – 100APA (SWQP) Pty Limited (b),(c) Australia 100 100APA (WA) One Pty Limited (b),(c) Australia 100 100APA AIS 1 Pty Limited (b),(c) Australia 100 100APA AIS 2 Pty Ltd (b),(c) Australia 100 100APA AIS Pty Limited (b),(c) Australia 100 100APA Biobond Pty Limited (b),(c) Australia 100 100APA East One Pty Limited (b),(e),(f) Australia – 100APA East Pipelines Pty Limited (b),(c) Australia 100 100APA EE Pty Limited (b),(c) Australia 100 100APA EE Australia Pty Limited (b),(c) Australia 100 100APA EE Corporate Shared Services Pty Limited (b),(c) Australia 100 100APA EE Holdings Pty Limited (b),(c) Australia 100 100Epic Energy East Pipelines Trust (b) Australia 100 100APA (NT) Pty Limited (b),(e),(f) Australia – 100


– II-59 –



APA Bid Co Pty Limited (b),(c) Australia 100 100APA Transmission Pty Limited (b),(c),(g) Australia 100 100APA WGP Pty Limited (b),(c) Australia 100 100APA Newco Pty Limited (b),(d) Australia 100 –APA SEA Gas (Mortlake) Holdings Pty Ltd (b),(d) Australia 100 –APA SEA Gas (Mortlake) Pty Ltd (b),(d) Australia 100 –APA DPS2 Pty Limited (b),(d) Australia 100 –Diamantina Holding Company Pty Limited (b),(h) Australia 100 –Diamantina Power Station Pty Limited (b),(h) Australia 100 –Ethane Pipeline Income Trust (b),(h) Australia 100 –Ethane Pipeline Income Financing Trust (b),(h) Australia 100 –Moomba to Sydney Ethane Pipeline Trust (b),(h) Australia 100 –Gorodok Pty Ltd (b),(h) Australia 100 –APA Ethane Limited (b),(h) Australia 100 –Votraint No 1606 Pty Ltd (b),(h) Australia 100 –Votraint No 1613 Pty Ltd (b),(h) Australia 100 –EPX HoldCo Pty Ltd (b)(d) Australia 100 –APA (EPX) Pty Limited (b),(d) Australia 100 –EPX Trust (b),(d) Australia 100 –EPX Member Pty Ltd (b),(d) Australia 100 –

(a) Australian Pipeline Trust is the head entity within the APA tax-consolidated group.

(b) These entities are members of the APA tax-consolidated group.

(c) These wholly-owned subsidiaries have entered into a deed of cross guarantee with APT Pipelines Limited pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report.

(d) Entity was acquired or registered during the 2016 year.

(e) Entity was deregistered during the 2016 year.

(f) Entity party to a revocation deed, in relation to the APT Pipelines Limited deed of cross guarantee, lodged with ASIC on 1 August 2014 which has taken affect in the 2015 year and is therefore no longer a party to the deed.

(g) Entity previously known as “APA Holdco Pty Limited” during the 2015 year.

(h) Remaining shares/units acquired during the 2016 year, entity now classified as a subsidiary (refer to Note 26).


– II-60 –

OTHER ITEMS

28. COMMITMENTS AND CONTINGENCIES

2016 2015$000 $000

Capital expenditure commitmentsAPA Group – plant and equipment 151,710 94,169APA Group’s share of jointly controlled operations – plant and equipment 4,402 5,987

156,112 100,156

Contingent liabilitiesBank guarantees 42,027 49,049

APA Group had no contingent assets as at 30 June 2016 and 30 June 2015.

29. DIRECTOR AND SENIOR EXECUTIvE REMUNERATION

Remuneration of Directors

The aggregate remuneration of Directors of APA Group is set out below:

2016 2015$ $

Short-term employment benefits 1,548,424 1,268,500Post-employment benefits 217,041 132,105

Total remuneration: Non-Executive Directors 1,765,465 1,400,605

Short-term employment benefits 3,544,861 3,109,447Post-employment benefits 35,000 35,000Cash settled security-based payments 1,579,531 1,564,212

Total remuneration: Executive Director (a) 5,159,392 4,708,659

Total remuneration: Directors 6,924,857 6,109,264

Remuneration of senior executives (a)

The aggregate remuneration of senior executives of APA Group is set out below:Short-term employment benefits 10,992,475 9,977,891Post-employment benefits 856,636 258,778Cash settled security-based payments 4,429,999 4,242,640Retention award – 430,666

Total remuneration: senior executives 16,279,110 14,909,975

(a) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for senior executives.


– II-61 –

30. REMUNERATION OF EXTERNAL AUDITOR

2016 2015$ $

Amounts received or due and receivable by Deloitte Touche Tohmatsu for:Auditing the financial report 643,000 659,500Compliance plan audit 18,500 18,000Other assurance services (a) 75,000 436,500

736,500 1,114,000

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services mainly comprise assurance services in relation to Diamantina Holding Company Pty Limited and Diamantina Power Station Pty Limited.

31. RELATED PARTY TRANSACTIONS

(a) Equity interest in related parties

Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 27 and the details of the percentage held in joint operations, joint ventures and associates are disclosed in Note 25.

(b) Responsible Entity – Australian Pipeline Limited

The Responsible Entity is wholly owned by APT Pipelines Limited.

(c) Transactions with related parties within APA Group

Transactions between the entities that comprise APA Group during the financial year consisted of:

• dividends;• assetleaserentals;• loansadvancedandpaymentsreceivedonlong-terminter-entityloans;• managementfees;• operationalservicesprovidedbetweenentities;• paymentsofdistributions;and• equityissues.

The above transactions were made on normal commercial terms and conditions. The Group charges interest on inter-entity loans from time to time.

All transactions between the entities that comprise APA Group have been eliminated on consolidation.

Refer to Note 27 for details of the entities that comprise APA Group.


– II-62 –

Australian Pipeline Limited

Management fees of $3,999,694 (2015: $3,451,167) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APA Group. No amounts were paid directly by APA Group to the Directors of the Responsible Entity, except as disclosed at Note 29.

Australian Pipeline Limited, in its capacity as trustee and Responsible Entity of the Trust, has guaranteed the payment of principal, interest and other amounts as provided in the senior debt facilities of APT Pipelines Limited, the principal borrowing entity of APA Group.

(d) Transactions with other associates and joint ventures

The following transactions occurred with APA Group’s associates and joint ventures on normal market terms and conditions:

Dividends from

related parties

Sales to related parties

Purchases from

related parties

Amount owed by

related parties

Amount owed to related parties

2016 $000 $000 $000 $000 $000

SEA Gas 10,523 3,371 – 10 –Energy Infrastructure Investments 3,810 35,114 157 4,344 –EII 2 3,102 725 – 45 –APA Ethane Ltd – 192 – – –Diamantina Power Station (a) – 950 – – –GDI (EII) 4,102 55,775 54 7,830 –

21,537 96,127 211 12,229 –

2015SEA Gas 14,164 3,733 – 181 –Energy Infrastructure Investments 3,460 27,021 139 3,074 139EII 2 3,105 661 – – –APA Ethane Ltd – 200 – – –Diamantina Power Station (a) – 1,608 – – –GDI (EII) 4,479 51,190 – 5,749 –

25,208 84,413 139 9,004 139

(a) At year end, APA Group had no shareholder loan receivable from Diamantina Power Station (2015: $75.7 million). Following APA Group’s acquisition of the remaining 50% of Diamantina Power Station on 31 March 2016, the shareholder loan receivable from Diamantina Power Station now forms part of the inter entity balances and is eliminated on consolidation.


– II-63 –

32. PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements.

2016 2015$000 $000

Financial positionAssetsCurrent assets 2,573,646 2,869,731Non-current assets 752,939 632,553

Total assets 3,326,585 3,502,284

LiabilitiesCurrent liabilities 112,169 105,763

Total liabilities 112,169 105,763

Net assets 3,214,416 3,396,521

EquityIssued capital 3,195,445 3,195,449Retained earnings 18,971 199,587Available-for-sale investment revaluation reserve – 1,485

Total equity 3,214,416 3,396,521

Financial performanceProfit for the year 186,014 449,311Other comprehensive income 2,258 1,122

Total comprehensive income 188,272 450,433

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries.

Contingent liabilities of the parent entity

No contingent liabilities have been identified in relation to the parent entity.


– II-64 –

33. ADOPTION OF NEw AND REvISED ACCOUNTING STANDARDS

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

There has not been any new or revised Standards and Interpretations issued by the AASB that are relevant to the consolidated entity’s operations that would be effective for the current reporting period.

Standards and Interpretations issued not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective.

Standard/Interpretation

Effective for annual reporting periods beginning on or after

Expected to be initially applied in the financial year ending

• AASB9‘FinancialInstruments’,andtherelevantamending standards 1 January 2018 30 June 2019

• AASB15‘RevenuefromContractswithCustomers’,and AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective date of AASB 15’ 1 January 2018 30 June 2019

• AASB16‘Leases’ 1 January 2019 30 June 2020

The potential impacts of the initial application of the Standards above are yet to be determined.

34. EvENTS OCCURRING AFTER REPORTING DATE

On 24 August 2016, the Directors declared a final distribution of 22.50 cents per security ($250.7 million) for APA Group (comprising a distribution of 18.12 cents per security from APT and a distribution of 4.38 cents per security from APTIT), comprising 20.09 cents per security profit distribution (unfranked) and 2.41 cents per security capital distribution. The distribution will be paid on 16 September 2016.

Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the accounts.


– II-65 –

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIESDECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITEDFor the financial year ended 30 June 2016

The Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that Australian Pipeline Trust will be able to pay its debts as and when they become due and payable;

(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of APA Group;

(c) in the Directors’ opinion, the f inancial s tatements and notes thereto are in accordance with Internat ional Financial Report ing Standards issued by the International Accounting Standard Boards;

(d) the Directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Directors

Leonard Bleasel AMChairman

Steven CraneDirector

SYDNEY, 24 August 2016


– II-66 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOMEFor the financial year ended 30 June 2016

2016 2015Note $000 $000

Continuing operationsRevenue 3 85,483 46,359Expenses 3 (381) (11)

Profit before tax 85,102 46,348Income tax expense 4 – –


Other comprehensive incomeItems that may be reclassified subsequently to profit or loss:(Loss)/gain on movement and disposal of available-for-sale investments (595) 989

Other comprehensive income for the year (595) 989


Profit Attributable to:Unitholders of the parent 85,102 46,348

85,102 46,348

Total comprehensive income attributable to:Unitholders of the parent 84,507 47,337

Earnings per unit 2016 2015

Basic and diluted (cents per unit) 5 7.6 4.7



– II-67 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2016

2016 2015Note $000 $000

Current assetsReceivables 7 704 701

Non-current assetsReceivables 7 9,249 9,951Other financial assets 9 1,036,944 1,021,566


Total assets 1,046,897 1,032,218

Current liabilitiesTrade and other payables 8 11 49


Net assets 1,046,886 1,032,169

EquityIssued capital 11 1,005,074 1,005,086Reserves – 595Retained earnings 41,812 26,488

Total equity 1,046,886 1,032,169



– II-68 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF CHANGES IN EqUITYFor the financial year ended 30 June 2016

Issued capital Reserves

Retained earnings Total

Note $000 $000 $000 $000

Balance at 1 July 2014 576,172 (394) 19,465 595,243Profit for the year – – 46,348 46,348Other comprehensive income for the year – 989 – 989

Total comprehensive income for the year – 989 46,348 47,337Issue of capital (net of issue costs) 11 428,914 – – 428,914Distributions to unitholders 6 – – (39,325) (39,325)

Balance at 30 June 2015 1,005,086 595 26,488 1,032,169

Balance at 1 July 2015 1,005,086 595 26,488 1,032,169Profit for the year – – 85,102 85,102Other comprehensive income for the year – (595) – (595)

Total comprehensive income for the year – (595) 85,102 84,507Issue of capital (net of issue costs) 11 (12) – – (12)Distributions to unitholders 6 – – (69,778) (69,778)

Balance at 30 June 2016 1,005,074 – 41,812 1,046,886

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.


– II-69 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF CASH FLOwSFor the financial year ended 30 June 2016

2016 2015$000 $000

Cash flows from operating activitiesTrust distribution – related party 31,747 23,184Dividends received 126 125Interest received – related parties 53,229 21,889Proceeds from repayment of finance leases 1,167 1,167Receipts from customers 193 318Payments to suppliers (11) (11)


Cash flows from investing activitiesAdvances to related parties (18,192) (436,276)Proceeds from disposal of availiable-for-sale investment 1,545 –

Net cash used in investing activities (16,647) (436,276)

Cash flows from financing activitiesProceeds from issue of units – 438,351Payment of unit issue costs (26) (9,422)Distributions to unitholders (69,778) (39,325)

Net cash (used in)/provided by financing activities (69,804) 389,604

Net increase in cash and cash equivalents – –Cash and cash equivalents at beginning of financial year – –

Cash and cash equivalents at end of financial year – –




– II-70 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the financial year ended 30 June 2016



The content and format of the financial statements is streamlined to present the financial information in a meaningful manner to unitholders. Note disclosures are grouped into six sections being Basis of Preparation, Financial Performance, Operating Assets and Liabilities, Capital Management, Group Structure and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used. The purpose of the format is to provide readers with a clearer understanding of what are the key drivers of financial performance for the Consolidated Entity.




3. Profit from operations

4. Income tax

5. Earnings per unit

6. Distributions

7. Receivables

8. Payables




11. Issued capital

12. Subsidiaries 13. Commitments and contingencies





18. Leases




– II-71 –


APT Investment Trust (“APTIT” or “Trust”) is one of the two stapled trusts of APA Group, the other stapled trust being Australian Pipeline Trust (“APT”). Each of APT and APTIT are registered managed investment schemes regulated by the Corporations Act 2001. APTIT units are “stapled” to APT units on a one-to-one basis so that one APTIT unit and one APT unit form a single stapled security which trades on the Australian Securities Exchange under the code “APA”.

This financial report represents the consolidated financial statements of APTIT and its controlled entities (together the “Consolidated Entity”). For the purposes of preparing the consolidated financial report, the Consolidated Entity is a for-profit entity.

All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of subsidiaries, joint arrangements and associates to bring their accounting policies into line with those used by the Consolidated Entity.

APTIT’s registered office and principal place of business is as follows:


APTIT operates as an investment entity within APA Group.

The financial report for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 24 August 2016.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AIFRS), and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board.


Subsidiaries

Subsidiaries are entities controlled by APTIT. Control exists where APTIT has power over an entity, i.e. existing rights that give APTIT the current ability to direct the relevant activities of the entity (those that significantly affect the returns); exposure, or rights, to variable returns from its involvement with the entity; and the ability to use its power to affect those returns.

Segment information

The Consolidated Entity has one reportable segment being energy infrastructure investment.

The Consolidated Entity is an investing entity within the Australian Pipeline Trust stapled group. As the Trust only operates in one segment, it has not disclosed segment information separately.


– II-72 –


3. PROFIT FROM OPERATIONS

Profit before income tax includes the following items of income and expense:

2016 2015$000 $000

RevenueDistributionsTrust distribution – related party 31,747 23,184Other entities 95 125

31,842 23,309

Finance incomeInterest – related parties 53,684 22,157(Loss)/gain on financial asset held at fair value through profit or loss (756) 70Finance lease income – related party 497 529

53,425 22,756

Other revenueOther 216 294

Total revenue 85,483 46,359

ExpensesAudit fees (11) (11)Loss on disposal of available-for-sale investment (370) –

Total expenses (381) (11)

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Consolidated Entity and can be reliably measured. Amounts disclosed as revenue are net of duties and taxes paid. Revenue is recognised for the major business activities as follows:


• Distribution revenue, which is recognised when the right to receive a distribution has been established;

• Dividend revenue, which is recognised when the right to receive a dividend has been established; and

• Finance lease income, which is recognised when receivable.


– II-73 –

4. INCOME TAX

Income tax expense is not brought to account in respect of APTIT as, pursuant to Australian taxation laws, APTIT is not liable for income tax provided that its realised taxable income (including any assessable realised capital gains) is fully distributed to its unitholders each year.

5. EARNINGS PER UNIT


Basic and diluted earnings per unit 7.6 4.7

The earnings and weighted average number of units used in the calculation of basic and diluted earnings per unit are as follows:

2016 2015$000 $000

Net profit attributable to unitholders for calculating basic and diluted earnings per unit 85,102 46,348

2016 2015No. of No. of

units units000 000

Adjusted weighted average number of ordinary units used in the calculation of basic and diluted earnings per unit 1,114,307 995,245


– II-74 –

6. DISTRIBUTIONS

2016 2016 2015 2015cents per Total cents per Total

unit $000 unit $000

Recognised amountsFinal distribution paid on 16 September 2015(2015: 10 September 2014)Profit distribution (a) 2.38 26,488 2.33 19,465Capital distribution – – – –

2.38 26,488 2.33 19,465

Interim distribution paid on 16 March 2016(2015: 18 March 2015) (b)

Profit distribution (a) 3.88 43,290 2.38 19,860Capital distribution – – – –

3.88 43,290 2.38 19,860

Total distributions recognisedProfit distributions (a) 6.26 69,778 4.71 39,325Capital distributions – – – –


(2015: 16 September 2015)Profit distribution (a) 3.75 41,811 2.38 26,488Capital distribution 0.63 6,976 – –

4.38 48,787 2.38 26,488

(a) Profit distributions unfranked (2015: unfranked).

(b) New securities issued under the December 2014 entitlement offer were not eligible for the FY2015 interim distribution.




– II-75 –


7. RECEIvABLES

2016 2015$000 $000

Other debtors – 31Finance lease receivable – related party (Note 18) 704 670

Current 704 701

Finance lease receivable – related party (Note 18) 9,249 9,951


In determining the recoverability of a receivable, the Consolidated Entity considers any change in the credit quality of the receivable from the date the credit was initially granted up to the reporting date. The directors believe that there is no credit provision required.

None of the above receivables is past due.

8. PAYABLES

Other payables 11 49

Trade and other payables are recognised when the Consolidated Entity becomes obliged to make future payments resulting from the purchase of goods and services. Trade and other payables are stated at amortised cost.



– II-76 –

CAPITAL MANAGEMENT


2016 2015$000 $000

Non-currentAdvance to related party 895,102 876,911Investments carried at cost:Investment in related party (a) 107,379 107,379

1,002,481 984,290

Financial assets carried at fair value:Redeemable ordinary shares (b) 34,463 34,765Available-for-sale investments carried at fair value (c) – 2,511

1,036,944 1,021,566

(a) The investment in related party reflects GasNet Australia Investments Trust’s (“GAIT”) investment in 100% of the B Class units in GasNet A Trust. The B Class units give GAIT preferred rights to the income and capital of GasNet A Trust, but hold no voting rights. The A Class unitholder may however suspend for a period or terminate all of the B Class unitholder rights to income and capital. As such, GAIT neither controls nor has a significant influence over GasNet A Trust. GasNet Australia Trust, a related party wholly owned by APA Group, owns 100% of the A Class units in GasNet A Trust and, accordingly, GasNet A Trust is included in the consolidation of the APA Group. The investment has not been measured at fair value as the units of GasNet A Trust are not available for trade on an active market and as such, the fair value of the units cannot be reliably determined. The Consolidated Entity does not intend to dispose of its interest in GasNet A Trust.

(b) Financial assets carried at fair value relate to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where Australian Pipeline Limited (APL), as Responsible Entity for APTIT, acquired the redeemable ordinary shares (“Ros”). This investment is classified at fair value through profit or loss.

(c) Available-for-sale investments at 30 June 2015 reflect a 6% unitholding in Ethane Pipeline Income Financing Trust. During the current financial year, the Consolidated Entity disposed of these units to APT as part of APT’s takeover of Ethane Pipeline Income Fund.

Financial assets are classified into the following specified categories: ‘available-for-sale’ financial assets, ‘loans and receivables’ and ‘fair value through profit or loss’.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or where appropriate, a shorter period.


– II-77 –

Fair value through profit or loss

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.

Available-for-sale financial assets

Financial assets classified as being available-for-sale are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in the available-for-sale investment revaluation reserve.

The available-for-sale investment revaluation reserve arises on the revaluation of available-for-sale financial assets. When a revalued financial asset is sold, the portion of the reserve which relates to that financial asset is effectively realised, and is recognised in profit or loss. When a revalued financial asset is impaired, the portion of the reserve which relates to that financial asset is recognised in profit or loss.

Receivables and loans

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Trade and other receivables are stated at their amortised cost less impairment.


Financial assets are assessed for indicators of impairment at the end of each reporting date. Financial assets are impaired where, as a result of one or more events that occurred after initial recognition of the financial asset, there is objective evidence that the estimated future cash flows of the investment have been adversely impacted.


The Treasury department within Finance is responsible for the overall management of the Consolidated Entity’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. The Consolidated Entity’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department.

The Consolidated Entity’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:



(c) Liquidity risk.

Treasury as a centralised function provides the Consolidated Entity with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost, and minimises risks through the use of natural hedges and derivative instruments. The Consolidated Entity does not engage in speculative trading. All derivatives have been traded to hedge underlying or existing exposures and have adhered to the Board approved Treasury Risk Management Policy.


– II-78 –

(a) Market risk

The Consolidated Entity’s activities exposure is primarily to the financial risk of changes in interest rates. There has been no change to the Consolidated Entity’s exposure to market risk or the manner in which it manages and measures the risk from the previous period.


The sensitivity analysis below has been determined based on the exposure to interest rates on loans with related parties. A 100 basis points increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were constant, the Consolidated Entity’s net profit would increase by $5,963,000 or decrease by $5,883,000 (2015: increase by $3,335,000 or decrease by $1,090,000 respectively). This is mainly attributable to the Consolidated Entity’s exposure to interest rates on its variable rate inter-entity balances and the fair value movement on the ROS. The sensitivity has increased due to higher inter-entity balances resulting in interest income sensitivity which is greater than the Ros sensitivity.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Entity. The Consolidated Entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, the Consolidated Entity’s policy is to only transact with counter parties that have a credit rating of A- (Standard & Poors)/A3 (Moody’s) or higher unless specifically approved by the Board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above the Consolidated Entity’s minimum threshold. The Consolidated Entity’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the Board. These limits are regularly reviewed by the Board.

The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents the Consolidated Entity’s maximum exposure to credit risk in relation to those assets.

(c) Liquidity risk

The Consolidated Entity’s exposure to liquidity risk is limited to trade payables of $11,000 (2015: $49,000), all of which are due in less than 1 year (2015: less than 1 year).

(d) Fair value of financial instruments

The Consolidated Entity has financial instruments that are carried at fair value in the statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, the Consolidated Entity determines fair value by using various valuation models. The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants. The chosen valuation models make maximum use of market inputs and rely as little as possible on entity specific inputs. The fair values of all positions include assumptions made as to recoverability based on the counterparty’s and the Consolidated Entity’s credit risk.


– II-79 –






There have been no transfers between the levels during 2016 (2015: none). Transfers between levels of the fair value hierarchy occur at the end of the reporting period. Transfers between level 1 and level 2 are triggered when there are changes to the availability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.



Available-for-sale listed equity securities

• the fair values of available-for-sale financial assets and financial liabilities with standardterms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and

• theseinstrumentsareclassifiedinthefairvaluehierarchyatlevel1.

Unlisted redeemable ordinary shares

The financial statements include redeemable ordinary shares (“ROS”) held in an unlisted entity which are measured at fair value (Note 9). The fair market value of the ROS is derived from a binomial tree model, which includes some assumptions that are not able to be supported by observable market prices or rates. The model maps the different possible valuation paths of three distinct components:

• valueofthedebtcomponent;

• valueoftheROSdiscretionarydividends;and

• valueoftheoptiontoconverttoordinaryshares.


– II-80 –

In determining the fair value, the following assumptions were used:

• the risk adjusted rate for the ROS is estimated as the required rate of return based onprojected cash flows to equity at issuance assuming the ROS price at issuance ($0.99) and the ordinary price at issuance ($0.01) are at their fair value;

• the risk free rate of return is 1.57% (2015: 2.13%) per annum and is based upon aninterpolation of the three and five year Government bond rates at the valuation date;

• the ROS discretionary dividends are estimated based on an internal forecasted cash flowmodel;

• the value of the option to convert is deemed to be zero (2015: zero). For conversion tooccur, a number of conditions must be met. At the reporting date, it was deemed highly unlikely these conditions would occur based on an internal forecasting model; and


The fair value is impacted by the following unobservable inputs:

• anincreaseinthediscountratewillresultinadecreaseinthefairvalue;

• anincreaseindiscretionarydividendswillresultinaincreaseinthefairvalue;and

• meetingconditionstotriggertheconversionoftheoptionwouldresultinanincreaseinthefair value.



Financial assets measured at fair valueAvailable-for-sale listed equity securities Ethane Pipeline Income FundUnlisted redeemable ordinary shares – – – – Energy Infrastructure Investments – – 34,463 34,463

– – 34,463 34,463

2015Financial assets measured at fair valueAvailable-for-sale listed equity securities Ethane Pipeline Income Fund 2,511 – – 2,511Unlisted redeemable ordinary shares Energy Infrastructure Investments – – 34,765 34,765

2,511 – 34,765 37,276


– II-81 –

Fair value through Profit or Loss2016 2015$000 $000

Reconciliation of Level 3 fair value measurements of financial assetsOpening balance 34,765 34,427Total gains or losses: – in profit or loss: Interest – related parties 4,264 3,522 – in profit or loss: (Loss)/gain on financial asset held at fair value through profit or loss (756) 70Distributions (3,810) (3,254)

Closing balance 34,463 34,765

11. ISSUED CAPITAL

2016 2015$000 $000

Units1,114,307,369 units, fully paid (2015: 1,114,307,369 units, fully paid) (a) 1,005,074 1,005,086

2016 2015No. of units 2016 No. of units 2015

000 $000 000 $000

MovementsBalance at beginning of financial year 1,114,307 1,005,086 835,751 576,172Issue of units under entitlement offer – – 278,556 438,351Capital distributions paid (Note 6) – – – –Issue cost of units – (12) – (9,437)


(a) Fully paid units carry one vote per unit and carry the right to distributions.



– II-82 –

GROUP STRUCTURE

12. SUBSIDIARIES

Ownership interestCountry of 2016 2015

Name of entity registration % %

Parent entityAPT Investment Trust

Controlled entityGasNet Australia Investments Trust Australia 100 100

OTHER


The Consolidated Entity had no material contingent assets, liabilities and commitments as at 30 June 2016 and 30 June 2015.



The aggregate remuneration of Directors of the Consolidated Entity is set out below:

2016 2015$ $





Total Remuneration: Directors 6,924,857 6,109,264


The aggregate remuneration of senior executives of the Consolidated Entity is set out below:

Short-term employment benefits 10,992,475 9,977,891Post-employment benefits 856,636 258,778Cash settled security-based payments 4,429,999 4,242,640Retention award – 430,666


(a) The remuneration of the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for senior executives.


– II-83 –


Amounts received or due and receivable by Deloitte Touche Tohmatsu for:

2016 2015$ $

Auditing the financial report 5,800 5,700Compliance plan audit 5,500 5,400

11,300 11,100



Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 12.


The Responsible Entity is wholly owned by APT Pipelines Limited (2015: 100% owned by APT Pipelines Limited).

(c) Transactions with related parties within the Consolidated Entity

During the financial year, the following transactions occurred between the Trust and its other related parties:

• loansadvancedandpaymentsreceivedonlong-terminter-entityloans;and

• disposalofavailable-for-saleinvestment;and

• paymentsofdistributions.

All transactions between the entities that comprise the Consolidated Entity have been eliminated on consolidation.

Refer to Note 12 for details of the entities that comprise the Consolidated Entity.

(d) Transactions with other related parties

APTIT and its controlled entities have a loan receivable balance with another entity in APA. This loan is repayable on agreement between the parties. Interest is recognised by applying the effective interest method, agreed between the parties at the end of each month and is determined by reference to market rates.

The following balances arising from transactions between APTIT and its other related parties are outstanding at reporting date:

• current receivables totalling$704,000areowingfromasubsidiaryofAPTforamountsdueunder a finance lease arrangement (2015: $701,000);

• non-current receivables totalling $9,249,000 are owing from a subsidiary of APT foramounts due under a finance lease arrangement (2015: $9,951,000); and

• non-current receivables totalling $895,102,000 (2015: $876,911,000) are owing from asubsidiary of APT for amounts due under inter-entity loans.


– II-84 –


Management fees of $957,000 (2015: $820,000) were paid to the Responsible Enti ty as reimbursement of costs incurred on behalf of APTIT. No amounts were paid directly by APTIT to the Directors of the Responsible Entity.

Australian Pipeline Trust

Management fees of $957,000 (2015: $820,000) were reimbursed by APT.



2016 2015$000 $000

Financial positionAssetsCurrent assets 704 701Non-current assets 1,046,193 1,031,517

Total assets 1,046,897 1,032,218

LiabilitiesCurrent liabilities 11 49


Net assets 1,046,886 1,032,169

EquityIssued capital 1,005,074 1,005,086Retained earnings 41,812 26,488Reserves – 595

Total equity 1,046,886 1,032,169

Financial performanceProfit for the year 85,102 46,348Other comprehensive income (595) 989







– II-85 –

18. LEASES

2016 2015$000 $000

Finance leasesLeasing arrangements – receivablesFinance lease receivables relate to the lease of a pipeline lateral.There are no contingent rental payments due.Finance lease receivablesNot longer than 1 year 1,167 1,167Longer than 1 year and not longer than 5 years 4,669 4,669Longer than 5 years 7,004 8,171

Minimum future lease payments receivable (a) 12,840 14,007



Included in the financial statements as part of:Current receivables (Note 7) 704 670Non-current receivables (Note 7) 9,249 9,951

9,953 10,621


Leases are classified as finance leases when the terms of the lease transfer substantially all of the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases.

Consolidated Entity as lessor

Amounts due from a lessee under a finance lease are recorded as receivables. Finance lease receivables are initially recognised at the amount equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease receipts are allocated between interest revenue and reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease.


– II-86 –

OTHER ITEMS



There have not been any new or revised Standards and Interpretations issued by the AASB that are relevant to the consolidated entity’s operations that would be effective for the current reporting period.




Effective for annual reporting periods beginning on or after

Expected to be initially applied in the financial year ending


• AASB15‘RevenuefromContractswithCustomers’,and AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective date of AASB 15’ 1 January 2018 30 June 2019


The potential impacts of the initial application of the Standards above are yet to be determined.


On 24 August 2016, the Directors declared a final distribution for the 2016 financial year of 4.38 cents per unit ($48.8 million). The distribution represents a 3.75 cents per security unfranked profit distribution and 0.63 cents per security capital distribution. The distribution will be paid on 16 September 2016.

Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the accounts.


– II-87 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESDECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITEDFor the financial year ended 30 June 2016


(a) in the Directors’ opinion, there are reasonable grounds to believe that APT Investment Trust will be able to pay its debts as and when they become due and payable;

(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of the Consolidated Entity;

(c) in the Directors‘ opinion, the f inancial s tatements and notes thereto are in accordance with Internat ional Financial Report ing Standards issued by the International Accounting Standards Board; and

(d) the Directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001.







– II-88 –



– II-89 –


2017 2016Note $000 $000


2,326,420 2,094,304Asset operation and management expenses (207,329) (129,534)Depreciation and amortisation expense 5 (570,021) (520,890)Other operating costs – pass-through 5 (438,140) (438,330)Finance costs 5 (518,249) (511,355)Employee benefit expense 5 (197,747) (180,103)Other expenses (8,600) (12,097)



Other comprehensive income, net of income taxItems that will not be reclassified subsequently to profit or loss:Actuarial gain/(loss) on defined benefit plan 5,452 (8,148)Income tax relating to items that will not be reclassified subsequently (1,636) 2,444

3,816 (5,704)

Items that may be reclassified subsequently to profit or loss:Gain on available-for-sale investments taken to equity – 1,027Transfer of gain on cash flow hedges to profit or loss 92,459 121,922Gain/(loss) on cash flow hedges taken to equity 164,536 (249,150)Gain/(loss) on associate hedges taken to equity 10,921 (9,429)Recycling of reserves on disposal of available-for-sale-investments/associate – 11,356Income tax relating to items that may be reclassified subsequently (80,354) 37,136

187,562 (87,138)

Other comprehensive income for the year (net of tax) 191,378 (92,842)



– II-90 –

2017 2016Note $000 $000


APA stapled securityholders 236,846 179,622Non-controlling interest – other – (151)

236,846 179,471


APA stapled securityholders 428,224 86,780Non-controlling interest – other – (151)

428,224 86,629

Earnings per security 2017 2016

Basic and diluted (cents per security) 7 21.3 16.1



– II-91 –


2017 2016Note $000 $000



Non-current assetsCash on deposit 18 – 2,149Trade and other receivables 9 15,496 17,283Other financial assets 21 458,773 447,070Investments accounted for using the equity method 24 259,882 197,185Property, plant and equipment 11 9,150,165 9,189,087Goodwill 12 1,183,604 1,184,588Other intangible assets 12 3,174,282 3,355,707Other 15 31,415 28,814


Total assets 15,045,948 14,842,675




– II-92 –

2017 2016Note $000 $000




Net assets 3,978,183 4,029,111



Non-controlling interests:APT Investment Trust:Issued capital 976,284 1,005,074Retained earnings 34,198 41,812




Total equity 3,978,183 4,029,111



– II-93 –

AU

ST

RA

LIA

N P

IPE

LIN

E T

RU

ST

AN

D I

TS

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RO

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ED

EN

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IES

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qU

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Fo

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e fi

na

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yea

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ded

30

Ju

ne

20

17

Austr

alian P

ipeline

Trust

APT I

nvestm

ent Tr

ustOth

er non

-contr

olling

intere

st

Issued

Ca

pital

Asset

Reval

uation

Re

serve

Availa

ble-

for-sa

le Inv

estme

nt Re

valuat

ion

Reser

veHe

dging

Reser

veOth

er Re

serve

Retain

ed ear

nings

Attrib

utable

to o

wners

of t

he par

entIss

ued

Capit

al

Availa

ble-

for-sa

le Inv

estme

nt Re

valuat

ion

Reser

veRe

tained

earnin

gs

APT

Invest

ment

Trust

Issued

Ca

pital

Other

Retain

ed ear

nings

Other non

- con

trollin

g int

erest

Total

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

Balan

ce at 1

July 2

0153,1

95,449

8,669

1,484

(318,9

45)–

463,77

23,3

50,429

1,005,

086595

26,488

1,032,

1694

147

524,3

82,650

Profit

for the

year

––

––

–94,

52094,

520–

–85,

10285,

102–

–(15

1)(15

1)179

,471

Other c

ompre

hensiv

e incom

e–

–(2,1

21)(12

1,558)

–(8,1

48)(13

1,827)

–(59

5)–

(595)

––

––

(132,4

22)Inc

ome ta

x relati

ng to c

ompon

ents

of ot

her co

mpreh

ensive

incom

e–

–637

36,499

–2,4

4439,

580–

––

––

––

–39,

580

Total

compre

hensiv

e incom

e for th

e year

––

(1,484)

(85,05

9)–

88,816

2,273

–(59

5)85,

10284,

507–

–(15

1)(15

1)86,

629

Acqui

sition

of non-

contro

lling in

terest

––

––

(152)

–(15

2)–

––

––

–152

152–

Transf

er to re

tained

earnin

gs–

––

–152

(152)

––

––

––

––

––

Payme

nt of di

stribut

ions (N

ote 8)

––

––

–(37

0,374)

(370,3

74)–

–(69

,778)

(69,77

8)–

––

–(44

0,152)

Issue

cost of

securi

ties(6)

––

––

–(6)

(12)

––

(12)

––

––

(18)

Tax rel

ating to

securi

ty issu

e cost

s2

––

––

–2

––

––

––

––

2

Balan

ce at 3

0 June

2016

3,195,

4458,6

69–

(404,0

04)–

182,06

22,9

82,172

1,005,

074–

41,812

1,046,

8864

148

534,0

29,111

Balan

ce at 1

July 2

0163,1

95,445

8,669

–(40

4,004)

–182

,062

2,982,

1721,0

05,074

–41,

8121,0

46,886

41

4853

4,029,

111Pro

fit for

the ye

ar–

––

––

163,87

9163

,879

––

72,967

72,967

––

––

236,84

6Oth

er com

prehen

sive in

come

––

–267

,916

–5,4

52273

,368

––

––

––

––

273,36

8Inc

ome ta

x relati

ng to c

ompon

ents

of ot

her co

mpreh

ensive

incom

e–

––

(80,35

4)–

(1,636)

(81,99

0)–

––

––

––

–(81

,990)

Total

compre

hensiv

e incom

e for th

e year

––

–187

,562

–167

,695

355,25

7–

–72,

96772,

967–

––

–428

,224

Acqui

sition

of non-

contro

lling in

terest

––

––

––

––

––

––

––

––

Transf

er to re

tained

earnin

gs–

––

––

––

––

––

––

––

–Pay

ment o

f distri

bution

s (Note

8)(80

,828)

––

––

(288,9

53)(36

9,781)

(28,79

0)–

(80,58

1)(10

9,371)

––

––

(479,1

52)

Balan

ce at 3

0 June

2017

3,114,

6178,6

69–

(216,4

42)–

60,804

2,967,

648976

,284

–34,

1981,0

10,482

41

4853

3,978,

183

Th

e ab

ov

e co

nso

lid

ated

sta

tem

ent

of

chan

ges

in

eq

uit

y s

ho

uld

be

read

in

co

nju

nct

ion

wit

h t

he

acco

mp

any

ing

no

tes.


– II-94 –


2017 2016Note $000 $000

Cash flows from operating activitiesReceipts from customers 2,508,269 2,286,248Payments to suppliers and employees (1,065,473) (964,879)Dividends received from associates and joint ventures 22,411 22,186Proceeds from repayment of finance leases 2,290 3,399Interest received 5,755 9,660Interest and other costs of finance paid (481,427) (493,586)Income tax paid (17,889) (593)


Cash flows from investing activitiesPayments for property, plant and equipment (340,753) (455,975)Proceeds from sale of property, plant and equipment 693 386Payments for equity accounted investments (35,250) –Payments for controlled entities net of cash acquired (760) (217,340)Payments for intangible assets (1,456) (705)


Cash flows from financing activitiesProceeds from borrowings 2,144,576 1,110,153Repayments of borrowings (1,944,932) (1,176,899)Payment of debt issue costs (8,446) (9,623)Payments of security issue costs – (77)Release of restricted cash 2,149 20Distributions paid to: Unitholders of APT (369,781) (370,374) Unitholders of non-controlling interests – APTIT (109,371) (69,778)

Net cash used in financing activities (285,805) (516,578)

Net increase/(decrease) in cash and cash equivalents 310,605 (327,777)Cash and cash equivalents at beginning of financial year 84,506 411,921Unrealised exchange (losses)/gains on cash held (610) 362




– II-95 –


2017 2016Note $000 $000

Profit for the year 236,846 179,471Loss on previously held interest on obtaining control – 476Acquisition costs from business combinations (101) 3,387(Profit)/loss on disposal of property, plant and equipment (311) 447Loss on write-off of inventories – 127Share of net profits of joint ventures and associates using the equity method (21,793) (16,977)Dividends/distributions received from equity accounted investments 22,411 21,537Depreciation and amortisation expense 570,021 520,890Finance costs 13,926 12,225Unrealised foreign exchange loss/(gain) 28 (938)Realised hedging loss 7,514 7,540Changes in assets and liabilities: Trade and other receivables (16,766) (15,742) Inventories (371) (3,605) Other assets 266 3,195 Trade and other payables 27,286 (8,456) Provisions (562) 4,524 Other liabilities 3,943 32,403 Income tax balances 131,599 121,931




– II-96 –




In the following financial statements, note disclosures are grouped into six sections being: Basis of Preparation; Financial Performance; Operating Assets and Liabilities; Capital Management; Group Structure; and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used.





4. Revenue

5. Expenses

6. Income tax


8. Distributions

9. Receivables

10. Payables




14. Provisions



17. Leases


18. Cash balances

19. Borrowings



22. Issued capital



25. Subsidiaries









– II-97 –




The financial report represents the consolidated financial statements of APT and APTIT (together the “Trusts”), their respective subsidiaries and their share of joint arrangements and associates (together “APA Group”). For the purposes of preparing the consolidated financial report, APA Group is a for-profit entity.



APT’s registered office and principal place of business is as follows:



This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.





– II-98 –





• Energy Infrastructure, which includes all wholly or majority owned pipelines, gas storage and processing assets, and power generation assets;

• Asset Management , which provides commercial services, operating services and/or asset maintenance services to APA Group’s energy investments and Australian Gas Networks Limited for appropriate fees; and


Reportable segments

EnergyInfrastructure

AssetManagement

EnergyInvestments Other Consolidated

2017 $000 $000 $000 $000 $000

Segment revenue (a)

External sales revenue 1,771,349 86,424 – – 1,857,773Equity accounted net profits – – 21,793 – 21,793Pass-through revenue 48,646 389,494 – – 438,140Finance lease and investment interest income 1,643 – 2,589 – 4,232



Segment resultEarnings before interest, tax, depreciation and amortisation (“EBITDA”) 1,452,029 58,719 – – 1,510,748Share of net profits of joint ventures and associates using the equity method – – 21,793 – 21,793Finance lease and investment interest income 1,643 – 2,589 – 4,232Corporate costs – – – (66,651) (66,651)






– II-99 –




AssetManagement

EnergyInvestments Consolidated

2017 $000 $000 $000 $000

Segment assets and liabilitiesSegment assets 13,670,034 210,449 10,662 13,891,145Carrying value of investments using the equity method – – 259,882 259,882Unallocated assets (a) 894,921


Segment liabilities 376,220 55,626 – 431,846Unallocated liabilities (b) 10,635,919


(a) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.

(b) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.


Asset Management

Energy Investments Other Consolidated

2016 $000 $000 $000 $000 $000

Segment revenue (a)

External sales revenue 1,526,658 95,430 – – 1,622,088Equity accounted net profits – – 16,977 – 16,977Pass-through revenue 29,586 408,744 – – 438,330Finance lease and investment interest income 1,917 – 10,783 – 12,700Dividends – other entities – – 512 – 512





– II-100 –


AssetManagement

EnergyInvestments Other Consolidated

2016 $000 $000 $000 $000 $000

Segment resultEarnings before interest, tax, depreciation and amortisation (“EBITDA”) 1,333,682 53,858 36 – 1,387,576Share of net profits of joint ventures and associates using the equity method – – 16,977 – 16,977Finance lease and investment interest income 1,917 – 10,783 – 12,700Corporate costs – – – (86,710) (86,710)


Earnings before interest and tax (“EBIT”) 826,889 41,678 27,796 (86,710) 809,653Net finance costs (a) (507,658)




AssetManagement

EnergyInvestments Consolidated

2016 $000 $000 $000 $000

Segment assets and liabilitiesSegment assets 13,873,683 213,973 17,499 14,105,155Carrying value of investments using the equity method – – 197,185 197,185Unallocated assets (b) 540,335


Segment liabilities 319,995 63,574 – 383,569Unallocated liabilities (c) 10,429,995


(a) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.

(b) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.

(c) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.


– II-101 –


Included in revenues arising from energy infrastructure of $1,771.3 million (2016: $1,526.7 million) are revenues of approximately $704.8 million (2016: $652.0 million) which arose from sales to APA Group’s top three customers.

4. REvENUE


2017 2016$000 $000

Energy infrastructure revenue 1,770,794 1,526,050Pass-through revenue 48,646 29,586

Energy infrastructure revenue 1,819,440 1,555,636

Asset management revenue 86,424 95,430Pass-through revenue 389,494 408,744

Asset management revenue 475,918 504,174


Interest 4,482 3,697Interest income on redeemable ordinary shares (EII) and redeemable preference shares (GDI)(a) 2,589 10,783Finance lease income 1,643 1,917


Dividends – 512Rental income 555 608

Total revenue 2,304,627 2,077,327


2,326,420 2,094,304

(a) 2016 includes interest on loans to related parties (DPS).


• Operating revenue, which is earned from the transportation, processing and storage of gas, generation of electricity and other related services and is recognised when the services are provided net of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority;


– II-102 –





5. EXPENSES

2017 2016$000 $000



Energy infrastructure costs – pass-through 48,646 29,586Asset management costs – pass-through 389,494 408,744




514,345 508,742Gain on derivatives (152) (698)Unwinding of discount on non-current liabilities 4,056 3,311



Post-employment benefits 14,341 14,147Termination benefits 2,295 2,995Cash settled security-based payments (b) 25,993 27,585Other employee benefits 155,118 135,376


(a) The average interest rate applying to drawn debt is 5.56% p.a. (2016: 5.78% p.a.) excluding amortisation of borrowing costs and other finance costs.



– II-103 –

6. INCOME TAX


2017 2016$000 $000

Income statement (continuing operations)Current tax expense in respect of the current year (34,518) (9,076)Adjustments recognised in the current year in relation to current tax of prior years 456 2,216Deferred tax expense relating to the origination and reversal of temporary differences (115,426) (115,664)


Tax reconciliation (continuing operations)Profit before tax 386,334 301,995

Income tax expense calculated at 30% (115,900) (90,599)Non-assessable trust distribution 21,891 25,530Non deductible expenses (59,263) (65,048)Non assessable income 319 2,984

(152,953) (127,133)Franking credits received 708 2,164Previously unbooked losses now recognised 533 229Adjustment recognised in the current year in relation to the current tax of prior years 456 1,037R&D tax incentive (a) 1,768 1,179

(149,488) (122,524)

(a) 2016 includes $1.2 million in relation to adjustments recognised in relation to current tax of the prior year.


Income tax expense for the year is $149.5 million (2016: $122.5 million). An income tax provision of $28.9 million (2016: $13.8 million) has been recognised after utilisation of all available group tax losses and partial utilisation of available transferred tax losses (refer to Note 10).


– II-104 –



Openingbalance

Charged toincome

Charged toequity

Acquired/disposed

Closingbalance

2017 $000 $000 $000 $000 $000

Gross deferred tax liabilitiesProperty, plant and equipment (724,525) (85,596) – – (810,121)Deferred expenses (54,563) (1,917) – – (56,480)Defined benefit obligation 1,383 185 (1,636) – (68)Other (730) (324) – – (1,054)

(778,435) (87,652) (1,636) – (867,723)

Gross deferred tax assetsProvisions 45,723 168 – – 45,891Cash flow hedges 165,027 (305) (76,903) – 87,819Security issue costs 5,443 (1,819) – – 3,624Deferred revenue 5,811 (1,405) – – 4,406Investments equity accounted 6,445 (553) (3,451) – 2,441Tax losses 245,137 (23,860) – – 221,277

473,586 (27,774) (80,354) – 365,458

Net deferred tax liability (304,849) (115,426) (81,990) – (502,265)

2016Gross deferred tax liabilitiesIntangible assets (2,668) 2,668 – – –Property, plant and equipment (586,107) (102,407) – (36,011) (724,525)Deferred expenses (51,669) (3,022) – 128 (54,563)Other 1,421 (2,151) – – (730)Available for sale investments (639) – 639 – –

(639,662) (104,912) 639 (35,883) (779,818)

Gross deferred tax assetsProvisions 45,051 (1,136) – 1,808 45,723Cash flow hedges 127,474 (713) 38,266 – 165,027Security issue costs 7,261 (1,820) 2 – 5,443Deferred revenue 6,729 (918) – – 5,811Investments equity accounted 10,192 (1,978) (1,769) – 6,445Defined benefit obligation (1,007) (54) 2,444 – 1,383Tax losses 249,270 (4,133) – – 245,137

444,970 (10,752) 38,943 1,808 474,969

Net deferred tax liability (194,692) (115,664) 39,582 (34,075) (304,849)


– II-105 –


2017 2016$000 $000








Tax consolidation






– II-106 –








2017 2016$000 $000


2017 2016No. of No. of

securities securities000 000

Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security 1,114,307 1,114,307


– II-107 –

8. DISTRIBUTIONS



Recognised amountsFinal distribution paid on 16 September 2016(2016: 16 September 2015)Profit distribution – APT (a) 16.34 182,063 18.12 201,945Capital distribution – APT 1.78 19,869 – –Profit distribution – APTIT (a) 3.75 41,811 2.38 26,488Capital distribution – APTIT 0.63 6,976 – –

22.50 250,719 20.50 228,433

Interim distribution paid on 15 March 2017(2016: 16 March 2016)Profit distribution – APT (b) 9.59 106,890 15.12 168,429Capital distribution – APT 5.47 60,959 – –Profit distribution – APTIT (a) 3.48 38,770 3.88 43,290Capital distribution – APTIT 1.96 21,814 – –

20.50 228,433 19.00 211,719

Total distributions recognisedProfit distributions 33.16 369,534 39.50 440,152Capital distributions 9.84 109,618 – –

43.00 479,152 39.50 440,152


(2016: 16 September 2016)Profit distribution – APT (d) 5.46 60,803 16.34 182,063Capital distribution – APT 10.78 120,183 1.78 19,869Profit distribution – APTIT (a) 3.07 34,198 3.75 41,811Capital distribution – APTIT 3.69 41,107 0.63 6,976

23.00 256,291 22.50 250,719


(b) Interim profit distributions are 4.67 cents per security franked and 4.92 cents per security unfranked (2016: unfranked).


(d) Final profit distributions are 4.67 cents per security franked and 0.79 cents per security unfranked (2016: unfranked).


– II-108 –


2017 2016$000 $000



9. RECEIvABLES

2017 2016$000 $000


Trade receivables 273,211 248,217Receivables from associates and related parties 13,028 12,447Finance lease receivables (Note 17) 1,787 2,290Interest receivable 1,605 91Other debtors 78 187

Current 289,709 263,232

Finance lease receivables (Note 17) 15,496 17,283


Trade receivables are non-interest bearing and are generally on 30 day terms. There are no material trade receivables past due and not provided for.


10. PAYABLES

Trade payables (a) 40,827 27,310Income tax payable 28,914 13,848Other payables 242,870 211,503

Current 312,611 252,661





– II-109 –





Freehold landand buildings

– at cost

Leaseholdimprovements

– at cost

Plant andequipment

– at cost

work inprogress– at cost Total

$000 $000 $000 $000 $000

Gross carrying amountBalance at 1 July 2015 229,051 4,444 8,937,221 168,074 9,338,790Additions – – 21,735 283,242 304,977Acquisitions through businesscombinations 3,234 – 852,485 11,457 867,176Disposals (651) (285) (15,323) – (16,259)Transfers 3,204 913 263,524 (267,641) –

Balance at 30 June 2016 234,838 5,072 10,059,642 195,132 10,494,684Additions 2,280 – 5,150 340,309 347,739Disposals (24) – (9,089) – (9,113)Transfers 5,639 5,095 295,300 (306,034) –

Balance at 30 June 2017 242,733 10,167 10,351,003 229,407 10,833,310

Accumulated depreciationBalance at 1 July 2015 (25,036) (2,203) (956,358) – (983,597)Disposals 434 285 14,707 – 15,426Depreciation expense (Note 5) (7,324) (357) (329,745) – (337,426)Transfers (89) (4) 93 – –

Balance at 30 June 2016 (32,015) (2,279) (1,271,303) – (1,305,597)Disposals 24 – 8,707 – 8,731Depreciation expense (Note 5) (7,430) (750) (378,960) – (387,140)Transfers 260 – (260) – –Reclassification to inventories – – 861 – 861

Balance at 30 June 2017 (39,161) (3,029) (1,640,955) – (1,683,145)


As at 30 June 2017 203,572 7,138 8,710,048 229,407 9,150,165


– II-110 –









• buildings 30–50years;• compressors 10–50years;• gastransportationsystems 10–80years;• meters 20–30years;• powergenerationfacilities 3–25years;and• otherplantandequipment 3–20years.


2017 2016$000 $000

GoodwillBalance at beginning of financial year 1,184,588 1,140,500Acquisitions – 44,088Finalisation of provisional purchase price accounting (984) –





– II-111 –

The East Coast Grid is an interconnected pipeline network that includes, inter alia, the Wallumbilla Gladstone, Moomba Sydney, Roma Brisbane, Carpentaria Gas and South West Queensland pipelines and the Victorian Transmission System. Since the acquisition of the South West Queensland Pipeline to complete the formation of APA’s East Coast Grid in December 2012, APA has installed facilities to enable bi-directional transportation of gas to meet the demand of our major customers who now typically operate portfolios of gas supply and demand. Through the provision of multi-asset services, bi-directional transportation, capacity trading and gas storage and parking facilities, APA’s East Coast Grid delivers options for customers to choose from, and move gas between, more than 40 receipt points and over 100 delivery points on the east coast of Australia. The East Coast Grid is categorised as an individual cash-generating unit.


Asset Management business 21,456 21,456Energy Infrastructure East Cost Grid 1,060,681 1,060,681 Diamantina Power Station 43,104 44,088 Other energy infrastructure (a) 58,363 58,363

1,183,604 1,184,588



2017 2016$000 $000

Contract and other intangiblesGross carrying amountBalance at beginning of financial year 3,604,143 3,623,011Acquisitions/additions 1,456 705Write-offs (15,800) (19,573)


Accumulated amortisation and impairmentBalance at beginning of financial year (248,436) (66,765)Amortisation expense (Note 5) (182,881) (183,464)Impairment – (8,897)Write-offs 15,800 10,690


3,174,282 3,355,707


– II-112 –



Amortisation is recognised on a straight-line basis over the estimated useful life of each asset. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effects of any changes in estimate being accounted for on a prospective basis.

13. IMPAIRMENT OF NON-FINANCIAL ASSETS








For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected contract renewals with a resulting average annual growth rate of 1.1% p.a. (2016: 1.7% p.a.). These expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the cash generating unit operates.


– II-113 –






14. PROvISIONS

2017 2016$000 $000


Current 93,773 93,033



Employee benefitsIncentives 29,357 28,401Cash settled security-based payments 8,857 9,477Leave balances 39,976 39,587Termination benefits 5,597 5,775

Current 83,787 83,240





– II-114 –



Provision is made for benefits accruing to employees in respect of wages and salaries, incentives, annual leave and long service leave when it is probable that settlement will be required. Provisions made in respect of employee benefits expected to be settled within 12 months, are recognised for employee services up to reporting date at the amounts expected to be paid when the liability is settled. Provisions made in respect of employee benefits which are not expected to be wholly settled within 12 months are measured as the present value of the estimated future cash outflows using a discount rate based on the corporate bond yields in respect of services provided by employees up to reporting date.


2017 2016$000 $000


31,415 28,814

16. EMPLOYEE SUPERANNUATION PLANS




– II-115 –


2017 2016$000 $000

Amounts recognised in the statement of profit or loss and other comprehensive incomeCurrent service cost 2,842 2,783Net interest expense 191 (42)


Amounts recognised in the statement of financial positionFair value of plan assets 135,029 138,488Present value of benefit obligation (134,804) (143,101)


Opening defined benefit obligation 143,101 137,141Current service cost 2,842 2,783Interest cost 4,599 5,807Contributions from plan participants 1,001 1,332Actuarial gains 1,550 3,893Benefits paid (17,665) (7,855)Administrative expenses, taxes and premiums paid (624) –



2017 2016$000 $000

Opening fair value of plan assets 138,488 140,500Interest income 4,408 5,849Actual return on plan assets excluding interest income 7,002 (4,255)Contributions from employer 2,419 2,917Contributions from plan participants 1,001 1,332Benefits paid (17,665) (7,855)Administrative expenses, taxes and premiums paid (624) –





– II-116 –





Key actuarial assumptions used in the determination of the defined obligation is a discount rate of 4.1%, based on the corporate bond yield curve published by Milliman, and an expected salary increase rate of 3.0%. The sensitivity analysis below has been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant:

– If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $5,466,000 (increase by $6,043,000); and

– If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $2,133,000 (decrease by $1,999,000).



APA Group expects $2.3 million in contributions to be paid to the defined benefit plans during the year ending 30 June 2018.


– II-117 –

17. LEASES



2017 2016$000 $000






17,283 19,573








– II-118 –



2017 2016$000 $000


81,092 72,609


CAPITAL MANAGEMENT


APA Group’s overall capital management strategy is to continue to target BBB/Baa2 investment grade ratings through maintaining sufficient flexibility to fund organic growth and investment from internally generated and retained cash flows, equity and, where appropriate, additional debt funding.


Operating cash flows are used to maintain and expand APA Group’s assets, make distr ibutions to securityholders and to repay maturing debt.

Controlled entities are subject to externally imposed capital requirements. These relate to the Australian Financial Services Licence held by Australian Pipeline Limited, the Responsible Entity of APA Group, and were adhered to for the entirety of the 2017 and 2016 periods.

APA Group’s capital management strategy remains unchanged from the previous year.

APA Group’s Board of Directors reviews the capital structure on a regular basis. As part of the review, the Board considers the cost of capital and the state of the markets. APA Group targets gearing in a range of 65% to 68%. Gearing is determined as the proportion of net debt to net debt plus equity. APA Group balances its overall capital structure through equity issuances, new debt or the redemption of existing debt and through a disciplined distribution payment policy.


– II-119 –

18. CASH BALANCES

Cash and cash equivalents comprise of cash on hand, at call bank deposits and investments in money market instruments that are readily convertible to known amounts for cash. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows are reconciled to the related items in the statement of financial position as follows:

2017 2016$000 $000

Cash and cash equivalentsCash at bank and on hand 43,087 83,389Short-term deposits 351,414 1,117

394,501 84,506

Non-current cash on depositCash on deposit (a) – 2,149

(a) As at 30 June 2016 Gorodok Pty Limited held $2.1 million cash on deposit to support bank guarantees in relation to various contractual arrangements. APA Group had no restricted cash as at 30 June 2017.


– II-120 –

19. BORROwINGS


2017 2016$000 $000

Unsecured – at amortised costGuaranteed senior notes (a) 115,738 398,058Other financial liabilities 11,120 11,771

Current 126,858 409,829

Guaranteed senior notes (a) 9,022,710 8,043,377Bank borrowings (b) – 707,501Subordinated notes (c) 515,000 515,000Other financial liabilities 82,059 95,155Less: unamortised borrowing costs (45,862) (46,660)

Non-current 9,573,907 9,314,373

9,700,765 9,724,202

Financing facilities availableTotal facilitiesGuaranteed senior notes (a) 9,138,448 8,441,435Bank borrowings (b) 1,068,750 1,380,000Subordinated notes (c) 515,000 515,000

10,722,198 10,336,435

Facilities used at balance dateGuaranteed senior notes (a) 9,138,448 8,441,435Bank borrowings (b) – 707,501Subordinated notes (c) 515,000 515,000

9,653,448 9,663,936

Facilities unused at balance dateGuaranteed senior notes (a) – –Bank borrowings (b) 1,068,750 672,499Subordinated notes (c) – –

1,068,750 672,499


– II-121 –

(a) Represents USD denominated private placement notes of US$384 million, CAD medium term notes (MTN) of C$300 million, JPY MTN of ¥10,000 million, GBP MTNs of £950 million, EUR MTN of € 1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date, and A$211 million of AUD denominated private placement notes and AUD MTN of A$500 million. Refer to Note 20 for details of interest rates and maturity profiles.

(b) Refer to Note 20 for details of interest rates and maturity profiles.



APA Group’s corporate Treasury department is responsible for the overall management of APA Group’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee (“ARMC”) approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. APA Group’s ARMC ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting to the Board from the Treasury department.




(c) Liquidity risk.

Treasury as a centralised function provides APA Group with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost and manages risks through the use of natural hedges and derivative instruments. APA Group does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the ARMC approved Treasury Risk Management Policy.

(a) Market risk





• interestrateswapstomitigateinterestraterisk.


– II-122 –

APA Group is also exposed to price risk arising from its forward purchase contracts over listed equities.


APA Group’s foreign exchange risk arises from future commercial transactions (including revenue, interest payments and principal debt repayments on long-term borrowings and the purchases of capital equipment), and the recognition of assets and liabilities (including foreign receivables and borrowings). Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts, cross currency swap contracts and foreign currency denominated borrowings. All foreign currency exposure was managed in accordance with the Treasury Risk Management Policy in both 2017 and 2016.


Cash & cash equivalents Receivables

Total borrowings

Cross currency

swaps

Foreign exchange contract

Net foreign currency position

2017 $000 $000 $000 $000 $000 $000

US Dollar 3,393 40,002 (4,406,537) (417,663) (347,362) (5,128,167)Japanese Yen – – (115,738) 115,738 – –Canadian Dollar – – (301,230) 301,230 – –British Pound – – (1,610,280) 1,610,280 – –Euro – – (2,007,377) 2,007,377 45,024 45,024Swedish Krona – – – – 61,196 61,196Danish Krona – – – – 104,038 104,038

3,393 40,002 (8,441,162) 3,616,962 (137,104) (4,917,909)

2016US Dollar 1,068 30,691 (3,694,558) (1,277,253) (703,317) (5,643,369)Japanese Yen – – (129,964) 129,964 – –Canadian Dollar – – (310,555) 310,555 – –British Pound – – (1,688,747) 1,688,747 – –Euro – – (2,008,378) 2,008,378 1,392 1,392Swedish Krona – – – – 29,606 29,606

1,068 30,691 (7,832,202) 2,860,391 (672,319) (5,612,371)



It is the policy of APA Group to hedge 100% of all foreign exchange capital purchases in excess of US$1 million equivalent that are certain. Forecast foreign currency denominated revenues and interest payments will be hedged by forward exchange contracts on a rolling basis with the objective being to lock in the AUD gross cash flows and manage liquidity.


– II-123 –


Cash flow hedges

Average exchange

rateForeign

currency < 1 year

Contract value 1 – 2

years2 – 5


Pay USD/receive AUDForecast revenue and associated receivable 0.7082 (320,885) 306,474 146,605 – 33,119Pay AUD/receive USDForecast capital purchases 0.7507 79,359 (92,269) (13,308) (140) (2,113)

(241,526) 214,205 133,297 (140) 31,006

Cash flow hedges

Averageexchange

rateForeign

currency < 1 year


years2 – 5

years Fair value$ EUR$000 $000 $000 $000 $000

Pay AUD/receive EURForecast capital purchases 0.6884 30,994 (26,461) (16,691) (1,872) 2,153

30,994 (26,461) (16,691) (1,872) 2,153

Cash flow hedges

Averageexchange

rateForeign

currency < 1 year


years2 – 5

years Fair value$ SEK$000 $000 $000 $000 $000

Pay AUD/receive SEkForecast capital purchases 5.8684 359,124 (18,108) (1,831) (41,257) (2,129)

359,124 (18,108) (1,831) (41,257) (2,129)

Cash flow hedges

Averageexchange

rateForeign

currency < 1 year


years2 – 5

years Fair value$ DKK$000 $000 $000 $000 $000

Pay AUD/receive DkkForecast capital purchases 5.2308 544,203 (99,936) (4,102) – 6,543

544,203 (99,936) (4,102) – 6,543


– II-124 –

Cash flow hedges

Averageexchange

rateForeign

currency < 1 year


years2 – 5


Pay USD/receive AUDForecast revenue and associated receivable 0.7200 (507,689) 292,570 265,907 146,605 12,849Pay AUD/receive USDForecast capital purchases 0.7666 1,353 (995) (313) (457) 71

(506,336) 291,575 265,594 146,148 12,920

Cash flow hedges

Average exchange

rateForeign

currency < 1 year

Contract value 1 – 2

years2 – 5

years Fair value$ EUR$000 $000 $000 $000 $000

Pay AUD/receive EURForecast capital purchases 0.6703 933 (334) (910) (148) 48

933 (334) (910) (148) 48

Cash flow hedges

Averageexchange

rateForeign

currency < 1 year


years2 – 5

years Fair value$ SEK$000 $000 $000 $000 $000

Pay AUD/receive SEkForecast capital purchases 6.0727 179,795 (16,308) (8,009) (5,289) (164)

179,795 (16,308) (8,009) (5,289) (164)



APA Group enters into cross currency swap contracts to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from foreign currency borrowings. APA Group receives fixed amounts in the various foreign currencies and pays both variable interest rates (based on Australian BBSW) and fixed interest rates based on agreed swap rates for the full term of the underlying borrowings. In certain circumstances borrowings are retained in the foreign currency, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency.


– II-125 –


Cash flow hedges ForeignExchange

rateLess than

1 year1 – 2

years2 – 5

yearsMore than

5 years2017 currency $ $000 $000 $000 $000

Pay AUD/receive foreign currency2003 USPP Notes AUD/USD 0.6573 – (95,847) – –2007 USPP Notes AUD/USD 0.8068 – (151,215) (153,694) –2009 USPP Notes AUD/USD 0.7576 – – (98,997) –2012 JPY Medium Term Notes AUD/JPY 79.4502 (125,865) – – –2012 CAD Medium Term Notes AUD/CAD 1.0363 – – (289,494) –2012 US144A AUD/USD 1.0198 – – – (735,438)2012 GBP Medium Term Notes AUD/GBP 0.6530 – – – (535,988)2017 US144A AUD/USD 0.7668 – – – (1,108,503)

Pay USD/receive foreign currency2015 EUR Medium Term Notes USD/EUR 0.9514 – – (957,914) (889,661)2015 GBP Medium Term Notes USD/GBP 0.6773 – – – (1,153,591)

(125,865) (247,062) (1,500,099) (4,423,181)

2016Pay AUD/receive foreign currency2003 USPP Notes AUD/USD 0.6573 – – (95,847) –2007 USPP Notes AUD/USD 0.8068 (190,878) – (151,215) (153,694)2009 USPP Notes AUD/USD 0.7576 (85,787) – (98,997) –2012 JPY Medium Term Notes AUD/JPY 79.4502 – (125,865) – –2012 CAD Medium Term Notes AUD/CAD 1.0363 – – (289,494) –2012 US144A AUD/USD 1.0198 – – – (735,438)2012 GBP Medium Term Notes AUD/GBP 0.6530 – – – (535,988)


(276,665) (125,865) (635,553) (4,518,115)


– II-126 –




The analysis below shows the effect on profit and total equity of retranslating cash, receivables, payables and interest- bearing liabilities denominated in USD, JPY, CAD, GBP and EUR into AUD, had the rates been 20 percent higher or lower than the relevant year end rate, with all other variables held constant, and taking into account all underlying exposures and related hedges. A sensitivity of 20 percent has been selected and represents management’s assessment of the possible change in rates taking into account the current level of exchange rates and the volatility observed both on an historical basis and on market expectations for possible future movements.


• Equity reserves would decrease by $1,255.0 million with a 20 percent depreciation of theA$ or increase by $839.8 million with a 20 percent increase in foreign exchange rates (2016: decrease by $1,410.2 million or increase by $940.5 million respectively). The decrease in sensitivity is due to the decrease in the notional value of forward exchange contracts that are in a hedging relationship with highly probable forecast transactions.

Interest rate risk




Cross currency swap and interest rate swap contracts have the economic effect of converting borrowings from floating to fixed rates and/or fixed rate foreign currency to fixed or floating AUD rates on agreed notional principal amounts enabling APA Group to mitigate the risk of cash flow exposures on variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at reporting date. The average interest rate is based on the outstanding balances at the end of the financial year.


– II-127 –


weighted average interest rate

Notional principal amount Fair value

2017 2016 2017 2016 2017 2016% p.a. % p.a. $000 $000 $000 $000

Cash flow hedges – Pay fixed AUD interest – receive floating AUD or fixed foreign currencyLess than 1 year 6.80 8.58 125,865 276,665 (14,249) 17,7001 year to 2 years 7.30 6.80 247,062 125,865 (9,706) (2,403)2 years to 5 years (a) 5.18 7.76 1,500,099 635,553 85,006 10,2845 years and more (a) 5.38 5.08 4,423,181 4,518,115 81,206 116,089

6,296,207 5,556,198 142,257 141,670

(a) This amount includes a notional amount of USD2.3 billion (2016: USD2.3 billion) which is subject to USD interest rate risk.

The cross currency swap and interest rate swap contracts settle on a quarterly or semi-annual basis. The floating rate benchmark on the interest rate swaps is Australian BBSW. APA Group will settle the difference between the fixed and floating interest rate on a net basis.




• net profit would decrease by $5,150,000 or increase by $5,150,000 (2016: decrease by$12,225,000 or increase by $12,225,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings, including its Australian Dollar subordinated notes; and

• equity reserves would increase by $31,379,000 with a 100 basis point decrease in interestrates or decrease by $27,772,000 with a 100 basis point increase in interest rates (2016: increase by $25,722,000 or decrease by $28,287,000 respectively). This is due to the changes in the fair value of derivative interest instruments.

APA Group’s profit sensitivity to interest rates has decreased during the current year due to the overall decrease in the level of APA Group’s unhedged floating rate borrowings. The valuation of the increase/decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. The increase in sensitivity in equity is due to the increase in the notional value of interest rate and cross currency swaps.


– II-128 –

Price risk





• there isnoeffectonequity reserves asAPAGroupholdsnoavailable-for-sale investments(2016: $nil).

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to APA Group. APA Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, APA Group’s policy is to only transact with counterparties that have a credit rating of A- (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the Board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above APA Group’s minimum threshold. APA Group’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the ARMC. These limits are regularly reviewed by the Board.



Cross guarantee



– II-129 –

(c) Liquidity risk



The table below shows the undiscounted Australian dollar cash flows associated with the AUD and foreign currency denominated notes, cross currency interest rate swaps and fixed interest rate swaps in aggregate.

Maturity

Average interest

rateLess than


5 years % p.a. $000 $000 $000

2017Unsecured financial liabilitiesTrade and other payables – 312,611 – –Unsecured bank borrowings (a) – – – –2012 Subordinated Notes (b) 1-Oct-72 6.30 32,221 142,361 2,567,692Denominated in A$Other financial liabilities (c) 7,609 30,436 33,927Guaranteed Senior Notes (d)

Denominated in A$2007 Series E 15-May-19 7.40 5,045 73,214 –2007 Series G 15-May-22 7.45 6,002 104,590 –2007 Series H 15-May-22 7.45 4,617 80,454 –2010 AUD Medium Term Notes 22-Jul-20 7.75 23,250 358,125 –2016 AUD Medium Term Notes 20-Oct-23 3.75 7,500 30,000 211,250Denominated in US$2003 Series D 9-Sep-18 6.02 6,930 99,360 –2007 Series D 15-May-19 5.99 11,111 162,324 –2007 Series F 15-May-22 6.14 11,354 199,141 –2009 Series B 1-Jul-19 8.86 5,897 116,558 –2012 US 144A 11-Oct-22 3.88 49,123 196,627 760,0682015 US 144A (c) 23-Mar-25 4.20 60,160 240,641 1,613,0332015 US 144A (c) 23-Mar-35 5.00 19,533 78,130 644,7902017 US 144A 15-Jul-27 4.25 48,046 235,087 1,430,522Denominated in stated foreign currency2012 JPY Medium Term Notes 22-Jun-18 1.23 134,424 – –2012 CAD Medium Term Notes 24-Jul-19 4.25 19,529 318,708 –2012 GBP Medium Term Notes 26-Nov-24 4.25 39,783 157,619 634,9052015 GBP Medium Term Notes (c) 22-Mar-30 3.50 51,729 207,013 1,567,6172015 EUR Medium Term Notes (c) 22-Mar-22 1.38 34,990 1,097,872 –2015 EUR Medium Term Notes (c) 22-Mar-27 2.00 39,105 156,419 1,085,184

930,569 4,084,679 10,548,988


– II-130 –

(a) Undrawn bank facilities mature on 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).

(b) The first call date is 31 March 2018.

(c) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2017. These amounts are fully hedged by forward exchange contracts or future US$ revenues.

(d) Rates shown are the coupon rate.

Maturity

Averageinterest

rateLess than


5 years% p.a. $000 $000 $000

2016Unsecured financial liabilitiesTrade and other payables – 252,661 – –Unsecured bank borrowings (a) 2.82 19,610 726,228 –2012 Subordinated Notes 1-Oct-72 6.78 33,267 130,200 2,381,395Interest rate swaps (net settled) – – – –Denominated in A$Other financial liabilities (b) 7,841 31,367 42,806Guaranteed Senior Notes (c)

Denominated in A$2007 Series A 15-May-17 7.33 5,367 – –2007 Series C 15-May-17 7.38 106,475 – –2007 Series E 15-May-19 7.40 5,045 78,259 –2007 Series G 15-May-22 7.45 6,002 24,008 86,5842007 Series H 15-May-22 7.45 4,617 18,468 66,6032010 AUD Medium Term Notes 22-Jul-20 7.75 23,250 381,375 –Denominated in US$2003 Series C 9-Sep-15 5.77 – – –2003 Series D 9-Sep-18 6.02 6,930 106,290 –2007 Series B 15-May-17 5.89 204,864 – –2007 Series D 15-May-19 5.99 11,111 173,435 –2007 Series F 15-May-22 6.14 11,354 45,416 165,0792009 Series A 1-Jul-16 8.35 90,569 – –2009 Series B 1-Jul-19 8.86 11,761 128,286 –2012 US 144A 11-Oct-22 3.88 49,123 196,762 809,0562015 US 144A (b) 23-Mar-25 4.20 62,001 248,004 1,724,3892015 US 144A (b) 23-Mar-35 5.00 20,130 80,521 684,650Denominated in stated foreign currency2012 JPY Medium Term Notes 22-Jun-18 1.23 8,559 134,424 –2012 CAD Medium Term Notes 24-Jul-19 4.25 19,529 338,237 –2012 GBP Medium Term Notes 26-Nov-24 4.25 39,459 157,943 674,3642015 GBP Medium Term Notes (b) 22-Mar-30 3.50 53,312 213,349 1,668,8982015 EUR Medium Term Notes (b) 22-Mar-22 1.38 36,060 144,240 1,023,2842015 EUR Medium Term Notes (b) 22-Mar-27 2.00 40,301 161,205 1,158,689

1,129,198 3,518,017 10,485,797


– II-131 –

(a) Facilities mature on 19 September 2017 ($311.25 million limit), 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).










Transfers between levels of the fair value hierarchy occur at the end of the reporting period. There have been no transfers between the levels during 2017 (2016: none). Transfers between level 1 and level 2 are triggered when there are changes to the availiability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.


– II-132 –



• the fair values of available-for-sale financial assets and financial liabilities with standardterms and conditions and traded on active liquid markets are determined with reference to quoted market prices. These instruments are classified in the fair value hierarchy at level 1;

• the fair values of forward foreign exchange contracts included in hedging assets andliabilities are calculated using discounted cash flow analysis based on observable forward exchange rates at the end of the reporting period and contract forward rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• the fair values of interest rate swaps, cross currency swaps, equity forwards and otherderivative instruments included in hedging assets and liabilities are calculated using discounted cash flow analysis using observable yield curves at the end of the reporting period and contract rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• the fair values of other financial assets and financial liabilities (excluding derivativeinstruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• the fair value of financial guarantee contracts is determined based upon the probability ofdefault by the specified counterparty extrapolated from market-based credit information and the amount of loss, given the default. These instruments are classified in the fair value hierarchy at level 2; and

• the carrying value of financial assets and liabilities recorded at amortised cost in thefinancial statements approximate their fair value having regard to the specific terms of the agreements underlying those assets and liabilities.


– II-133 –




– 484,414 – 484,414


– 301,908 – 301,908

2016Financial assets measured at fair valueEquity forwards designated as fair value through profit or loss – 2,566 – 2,566Cross currency interest rate swaps used for hedging – 417,949 – 417,949Forward foreign exchange contracts used for hedging – 22,941 – 22,941

– 443,456 – 443,456


– 286,417 – 286,417


– II-134 –




2017 2016 2017 2016$000 $000 $000 $000

Financial liabilitiesUnsecured long term Private Placement Notes 710,742 1,124,099 774,803 1,246,720Unsecured Australian Dollar Medium Term Notes 500,000 300,000 534,030 346,153Unsecured Japanese Yen Medium Term Notes 115,738 129,964 116,681 132,575Unsecured Canadian Dollar Medium Term Notes 301,230 310,555 308,490 317,912Unsecured US Dollar 144A Medium Term Notes 3,906,504 2,885,325 4,008,505 3,015,771Unsecured British Pound Medium Term Notes 1,610,281 1,688,747 1,721,799 1,822,352Unsecured Euro Medium Term Notes 2,007,377 2,008,378 1,976,924 1,958,596

9,151,872 8,447,068 9,441,232 8,840,079




Derivatives at fair value: Equity forward contracts 1,484 1,864 – –Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges 32,991 1,389 14,267 1,421 Interest rate swaps – cash flow hedges - - 4,214 3,925 Cross currency interest rate swaps – cash flow hedges 17,574 31,602 127,287 109,328Financial item carried at amortised cost: Redeemable preference share interest 285 285 – –

Current 52,334 35,140 145,768 114,674


– II-135 –


Financial items carried at amortised cost: Redeemable ordinary shares – 15,699 – – Redeemable preference shares 10,400 10,400 – –Derivatives – at fair value: Equity forward contracts 1,189 702 – –Derivatives at fair value designated as hedging instruments: Foreign currency contracts – cash flow hedges 32,494 21,552 13,645 8,716 Interest rate swaps – cash flow hedges – – 2,072 6,246 Cross currency interest rate swaps – cash flow hedges 414,690 398,717 166,370 179,629

Non-current 458,773 447,070 182,087 194,591

Redeemable ordinary shares related to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where APL, as responsible entity for APTIT, acquired the redeemable ordinary shares, which included a debt component. The redeemable ordinary shares were redeemed for ordinary shares in Energy Infrastructure Investments Pty Ltd on 23 December 2016.



Hedge accounting


At the inception of the hedge relationship, APA Group formally designates and documents the hedge relationship, including the risk management strategy for undertaking the hedge. This includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and they are regularly assessed to ensure they continue to be effective.



– II-136 –



Cash flow hedges


Amounts recognised in equity are transferred to the profit or loss when the hedged transaction affects profit or loss, such as when the hedged income or expenses are recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non- financial asset or liability.





With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed, does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income.


– II-137 –

22. ISSUED CAPITAL

2017 2016$000 $000

Units1,114,307,369 units, fully paid (2016: 1,114,307,369 units, fully paid)(a) 3,114,617 3,195,445

2017 2016No. of No. of units 2017 units 2016

000 $000 000 $000

MovementsBalance at beginning of financial year 1,114,307 3,195,445 1,114,307 3,195,449Capital distributions paid (Note 8) – (80,828) – –Issue costs of securities – – – (6)Deferred tax on issue costs of securities – – – 2





– II-138 –

GROUP STRUCTURE




2017 2016$000 $000


Total assets 1,010,495 1,046,897



Net assets 1,010,482 1,046,886


Financial performanceRevenue 72,979 85,483Expenses (12) (381)

Profit for the year 72,967 85,102Other comprehensive income – (595)


Cash flowsNet cash provided by operating activities 75,570 86,451Net cash provided by/(used in) investing activities 33,801 (16,647)Distributions paid to non-controlling interests (109,371) (69,778)Net cash used in financing activities (109,371) (69,804)




– II-139 –

2017 2016$000 $000


1,010,535 1,046,939

APT Investment TrustIssued capital:Balance at beginning of financial year 1,005,074 1,005,086Distribution – capital return (Note 8) (28,790) –Issue costs of units – (12)

976,284 1,005,074

Reserves:Available-for-sale investment revaluation reserve:Balance at beginning of financial year – 595Valuation loss recognised – (595)

– –


34,198 41,812


53 53


– II-140 –



Country of incorporation

Ownership interest %Name of entity Principal activity 2017 2016

Joint ventures: SEA Gas Gas transmission Australia 50.00 50.00 SEA Gas (Mortlake) Gas transmission Australia 50.00 – Energy Infrastructure Investments Energy infrastructure Australia 19.90 19.90 EII 2 Power generation (wind) Australia 20.20 20.20


2017 2016$000 $000


Joint venturesAggregate carrying amount of investment 229,693 170,408APA Group’s aggregated share of: Profit from continuing operations 17,175 13,640 Other comprehensive income 8,007 (8,103)


AssociatesAggregate carrying amount of investment 30,189 26,777APA Group’s aggregated share of: Profit from continuing operations 4,618 3,337 Other comprehensive income 2,914 (1,327)






– II-141 –
















– II-142 –

25. SUBSIDIARIES


Name of entity

Country of registration/incorporation

Ownership interest2017 2016

% %


SubsidiariesAgex Pty. Ltd. (b),(c) Australia 100 100Amadeus Gas Trust (g) – 96 96APA (BWF Holdco) Pty Ltd (b),(c) Australia 100 100APA (EDWF Holdco) Pty Ltd (b),(c) Australia 100 100APA (EPX) Pty Limited (b),(c) Australia 100 100APA (NBH) Pty Limited (b),(c) Australia 100 100APA (Pilbara Pipeline) Pty Ltd (b),(c) Australia 100 100APA (SWQP) Pty Limited (b),(c) Australia 100 100APA (WA) One Pty Limited (b),(c) Australia 100 100APA AIS 1 Pty Limited (b),(c) Australia 100 100APA AIS 2 Pty Ltd (b),(c) Australia 100 100APA AIS Pty Limited (b),(c) Australia 100 100APA AM (Allgas) Pty Limited (b),(c) Australia 100 100APA BIDCO Pty Limited (b),(c) Australia 100 100APA Biobond Pty Limited (b),(c) Australia 100 100APA Country Pipelines Pty Limited (b),(c) Australia 100 100APA DPS Holdings Pty Limited (b),(c) Australia 100 100APA DPS2 Pty Limited (b),(c) Australia 100 100APA East Pipelines Pty Limited (b),(c) Australia 100 100APA EE Australia Pty Limited (b),(c) Australia 100 100APA EE Corporate Shared Services Pty Limited (b),(c) Australia 100 100APA EE Holdings Pty Limited (b),(c) Australia 100 100APA EE Pty Limited (b),(c) Australia 100 100APA Ethane Pty Limited (b),(c),(f) Australia 100 100APA Facilities Management Pty Limited (b),(c) Australia 100 100APA Midstream Holdings Pty Limited (b),(c),(d) Australia 100 –APA Operations (EII) Pty Limited (b),(c) Australia 100 100APA Operations Pty Limited (b),(c) Australia 100 100APA Pipelines Investments (BWP) Pty Limited (b),(c) Australia 100 100APA Power Holdings Pty Limited (b),(c) Australia 100 100APA Power PF Pty Limited (b),(c) Australia 100 100APA Reedy Creek Wallumbilla Pty Limited (b),(c),(e) Australia 100 100APA SEA Gas (Mortlake) Holdings Pty Ltd (b),(c) Australia 100 100APA SEA Gas (Mortlake) Pty Ltd (b) Australia 100 100APA Services (Int) Inc. (d) United States 100 –APA Sub Trust No 1 (b),(g) – 100 100APA Sub Trust No 2 (b),(g) – 100 100APA Sub Trust No 3 (b),(g) – 100 100APA Transmission Pty Limited (b),(c) Australia 100 100APA VTS A Pty Limited (b),(c) Australia 100 100APA VTS Australia (Holdings) Pty Limited (b),(c) Australia 100 100APA VTS Australia (NSW) Pty Limited (b),(c) Australia 100 100


– II-143 –

Name of entity



% %

APA VTS Australia (Operations) Pty Limited (b),(c) Australia 100 100APA VTS Australia Pty Limited (b),(c) Australia 100 100APA VTS B Pty Limited (b),(c) Australia 100 100APA Western Slopes Pipeline Pty Limited (b),(c),(d) Australia 100 –APA WGP Pty Ltd (b),(c) Australia 100 100APT (MIT) Services Pty Limited (b),(c) Australia 100 100APT AM (Stratus) Pty Limited (b),(c) Australia 100 100APT AM Employment Pty Limited (b),(c) Australia 100 100APT AM Holdings Pty Limited (b),(c) Australia 100 100APT Facility Management Pty Limited (b),(c) Australia 100 100APT Goldfields Pty Ltd (b),(c) Australia 100 100APT Management Services Pty Limited (b),(c) Australia 100 100APT O&M Holdings Pty Ltd (b),(c) Australia 100 100APT O&M Services (QLD) Pty Ltd (b),(c) Australia 100 100APT O&M Services Pty Ltd (b),(c) Australia 100 100APT Parmelia Holdings Pty Ltd (b),(c) Australia 100 100APT Parmelia Pty Ltd (b),(c) Australia 100 100APT Parmelia Trust (b),(g) – 100 100APT Petroleum Pipelines Holdings Pty Limited (b),(c) Australia 100 100APT Petroleum Pipelines Pty Limited (b),(c) Australia 100 100APT Pipelines (NSW) Pty Limited (b),(c) Australia 100 100APT Pipelines (NT) Pty Limited (b),(c) Australia 100 100APT Pipelines (QLD) Pty Limited (b),(c) Australia 100 100APT Pipelines (SA) Pty Limited (b),(c) Australia 100 100APT Pipelines (WA) Pty Limited (b),(c) Australia 100 100APT Pipelines Investments (NSW) Pty Limited (b),(c) Australia 100 100APT Pipelines Investments (WA) Pty Limited (b),(c) Australia 100 100APT Pipelines Limited (b),(c) Australia 100 100APT Sea Gas Holdings Pty Limited (b),(c) Australia 100 100APT SPV2 Pty Ltd (b) Australia 100 100APT SPV3 Pty Ltd (b) Australia 100 100Australian Pipeline Limited (b) Australia 100 100Central Ranges Pipeline Pty Ltd (b),(c) Australia 100 100Darling Downs Solar Farm Pty Ltd (b),(c),(d) Australia 100 –Diamantina Holding Company Pty Limited (b),(c) Australia 100 100Diamantina Power Station Pty Limited (b),(c) Australia 100 100East Australian Pipeline Pty Limited (b),(c) Australia 100 100EDWF Holdings 1 Pty Ltd (b),(c) Australia 100 100EDWF Holdings 2 Pty Ltd (b),(c) Australia 100 100EDWF Manager Pty Ltd (b),(c) Australia 100 100Epic Energy East Pipelines Trust (b),(g) – 100 100EPX Holdco Pty Limited (b),(c) Australia 100 100EPX Member Pty Limited (b),(c) Australia 100 100EPX Trust (b),(g) – 100 100Ethane Pipeline Income Financing Trust (b),(g) – 100 100Ethane Pipeline Income Trust (b),(g) – 100 100Gasinvest Australia Pty Ltd (b),(c) Australia 100 100GasNet A Trust (g) – 100 100GasNet Australia Investments Trust (g) – 100 100GasNet Australia Trust (b),(g) – 100 100GasNet B Trust (b),(g) – 100 100Goldfields Gas Transmission Pty Ltd (b) Australia 100 100


– II-144 –

Name of entity



% %

Gorodok Pty. Ltd. (b),(c) Australia 100 100Griffin Windfarm 2 Pty Ltd (b) Australia 100 100Moomba to Sydney Ethane Pipeline Trust (b),(g) – 100 100N.T. Gas Distribution Pty Limited (b),(c) Australia 100 100N.T. Gas Easements Pty. Limited (b),(c) Australia 100 100N.T. Gas Pty Limited Australia 96 96Roverton Pty. Ltd. (b),(c) Australia 100 100SCP Investments (No. 1) Pty Limited (b),(c) Australia 100 100SCP Investments (No. 2) Pty Limited (b),(c) Australia 100 100SCP Investments (No. 3) Pty Limited (b),(c) Australia 100 100Sopic Pty. Ltd. (b),(c) Australia 100 100Southern Cross Pipelines (NPL) Australia Pty Ltd (b),(c) Australia 100 100Southern Cross Pipelines Australia Pty Limited (b),(c) Australia 100 100Trans Australia Pipeline Pty Ltd (b),(c) Australia 100 100Votraint No. 1606 Pty Ltd (b) Australia 100 100Votraint No. 1613 Pty Ltd (b) Australia 100 100Western Australian Gas Transmission Company 1 Pty Ltd (b),(c) Australia 100 100Wind Portfolio Pty Ltd (b),(c) Australia 100 100



(c) These wholly-owned subsidiaries have entered into a deed of cross guarantee with APT Pipelines Limited pursuant to ASIC Corporations Instrument 2016/785 and are relieved from the requirement to prepare and lodge an audited financial report.


(e) Entity previously known as “APA Newco Pty Limited” during the 2016 year.

(f) Entity changed its company type from Limited to Pty. Limited during the 2017 year.

(g) These trusts are unincorporated and not required to be registered. In respect of APT Parmelia Trust, the governing law of the trust deed was changed from Cayman Islands to New South Wales, Australia on 7 August 2017.


– II-145 –

OTHER ITEMS


2017 2016$000 $000


586,085 156,112






2017 2016$ $







The aggregate remuneration of senior executives of APA Group is set out below:Short-term employment benefits 11,108,724 10,992,475Post-employment benefits 551,107 856,636Cash settled security-based payments 3,730,048 4,429,999


(a) The remuneration for the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.


– II-146 –


2017 2016$ $

Amounts received or due and receivable by Deloitte Touche Tohmatsu for:Auditing the financial report 654,900 643,000Compliance plan audit 18,900 18,500Other assurance services (a) 263,700 75,000

937,500 736,500

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services mainly comprise assurance services in relation to the 2017 144A debt issuance and procedures in relation to ASIC Regulatory Guide 231 requirements.








• dividends;

• assetleaserentals;

• loansadvancedandpaymentsreceivedonlong-terminter-entityloans;

• managementfees;

• operationalservicesprovidedbetweenentities;

• paymentsofdistributions;and

• equityissues.





– II-147 –






Dividendsfrom

related parties

Sales to related parties

Purchasesfrom

related parties

Amount owed by

related parties

Amount owed to related parties

2017 $000 $000 $000 $000 $000

SEA Gas 10,357 3,717 – 96 –Energy Infrastructure Investments 4,689 26,553 – 5,792 –EII 2 3,244 752 – 46 –GDI (EII) 4,121 51,711 99 7,094 –

22,411 82,733 99 13,028 –

2016SEA Gas 10,523 3,371 – 10 –Energy Infrastructure Investments 3,810 35,114 157 4,344 –EII 2 3,102 725 – 45 –APA Ethane Ltd – 192 – – –Diamantina Power Station(a) – 950 – – –GDI (EII) 4,102 55,775 54 7,830 –

21,537 96,127 211 12,229 –

(a) Following APA Group’s acquisition of the remaining 50% of Diamantina Power Station on 31 March 2016, transactions with Diamantina Power Station now form part of inter entity balances and are eliminated on consolidation.


– II-148 –



2017 2016$000 $000


Total assets 3,255,167 3,326,585



Net assets 3,127,898 3,214,416

EquityIssued capital 3,114,616 3,195,445Retained earnings 13,282 18,971

Total equity 3,127,898 3,214,416

Financial performanceProfit for the year 283,264 186,014Other comprehensive income – 2,258




Due to the contingent nature of these financial guarantees no liability has been recorded (2016: $nil).




– II-149 –







Effective for annualreporting periods

beginning on or after

Expected to beinitially applied in the

financial year ending

• AASB 9 ‘F inanc ia l Ins t ruments ’ , and therelevant amending standards 1 January 2018 30 June 2019

• A A S B 1 5 ‘ R e v e n u e f r o m C o n t r a c t s w i t hCustomers’, and AASB 2015-8 ‘Amendments t o A u s t r a l i a n A c c o u n t i n g S t a n d a r d s – Effective date of AASB 15’ 1 January 2018 30 June 2019


The potential impacts of the initial application of the Standards above are yet to be fully quantified.


On 22 August 2017, the Directors declared a final distribution of 23.00 cents per security ($256.3 million) for APA Group. This is comprised of a distribution of 16.24 cents per unit from APT and a distribution of 6.76 cents per unit from APTIT. The APT distribution represents a 4.67 cents per unit franked profit distribution, a 0.79 cents per unit unfranked profit distribution and 10.78 cents per unit capital distribution. The APTIT distribution represents a 3.07 cent per unit profit distribution and a 3.69 cents per unit capital distribution. Franking credits of 2.0 cents per security will be allocated to the franked profit distribution. The distribution will be paid on 13 September 2017.

Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the financial statements.


– II-150 –





(c) in the Directors’ opinion, the f inancial s tatements and notes thereto are in accordance with Internat ional Financial Report ing Standards issued by the International Accounting Standards Board;

(d) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.







– II-151 –


2017 2016Note $000 $000




Other comprehensive incomeItems that may be reclassified subsequently to profit or loss:Loss on disposal of available-for-sale investments – (595)

Other comprehensive income for the year – (595)



72,967 85,102


Earnings per unit 2017 2016

Basic and diluted (cents per unit) 6 6.5 7.6



– II-152 –


2017 2016Note $000 $000




Total assets 1,010,495 1,046,897



Net assets 1,010,482 1,046,886

EquityIssued capital 13 976,284 1,005,074Retained earnings 34,198 41,812

Total equity 1,010,482 1,046,886



– II-153 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESCONSOLIDATED STATEMENT OF CHANGES IN EqUITYFor the financial year ended 30 June 2017

Issuedcapital Reserves

Retained earnings Total

Note $000 $000 $000 $000

Balance at 1 July 2015 1,005,086 595 26,488 1,032,169Profit for the year – – 85,102 85,102Other comprehensive income for the year – (595) – (595)

Total comprehensive income for the year – (595) 85,102 84,507Issue of capital (net of issue costs) 13 (12) – – (12)Distributions to unitholders 7 – – (69,778) (69,778)

Balance at 30 June 2016 1,005,074 – 41,812 1,046,886

Balance at 1 July 2016 1,005,074 – 41,812 1,046,886Profit for the year – – 72,967 72,967

Total comprehensive income for the year – – 72,967 72,967Distributions to unitholders 7 (28,790) – (80,581) (109,371)

Balance at 30 June 2017 976,284 – 34,198 1,010,482



– II-154 –


2017 2016$000 $000

Cash flows from operating activitiesTrust distribution – related party 28,610 31,747Dividends received – 126Interest received – related parties 45,531 53,229Proceeds from repayment of finance leases 1,167 1,167Receipts from customers 274 193Payments to suppliers (12) (11)


Cash flows from investing activitiesProceeds from transfer of financial asset to related party 32,566 –Receipts from/(advances to) related parties 1,235 (18,192)Proceeds from disposal of available-for-sale investment – 1,545

Net cash provided by/(used in) investing activities 33,801 (16,647)

Cash flows from financing activitiesPayment of unit issue costs – (26)Distributions to unitholders (109,371) (69,778)







– II-155 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the financial year ended 30 June 2017









5. Income tax


7. Distributions

8. Receivables

9. Payables

10. Leases




13. Issued capital









– II-156 –









This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), and also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.



– II-157 –







2017 2016$000 $000

RevenueDistributionsTrust distribution – related party 28,610 31,747Other entities – 95

28,610 31,842

Finance incomeInterest – related parties 44,141 53,684Loss on financial asset held at fair value through profit or loss (510) (756)Finance lease income – related party 464 497

44,095 53,425



ExpensesAudit fees (12) (11)Loss on disposal of available-for-sale investment – (370)







– II-158 –

5. INCOME TAX






2017 2016$000 $000


2017 2016No. of

unitsNo. of

units000 000

Adjusted weighted average number of ordinary units used in the calculation of basic and diluted earnings per unit 1,114,307 1,114,307


– II-159 –

7. DISTRIBUTIONS


unit $000 unit $000

Recognised amountsFinal distribution paid on 16 September 2016(2016: 16 September 2015)Profit distribution (a) 3.75 41,811 2.38 26,488Capital distribution 0.63 6,976 – –

4.38 48,787 2.38 26,488

Interim distribution paid on 15 March 2017(2016: 16 March 2016)Profit distribution (a) 3.48 38,770 3.88 43,290Capital distribution 1.96 21,814 – –

5.44 60,584 3.88 43,290

Total distributions recognisedProfit distributions (a) 7.23 80,581 6.26 69,778Capital distributions 2.59 28,790 – –

9.82 109,371 6.26 69,778

Unrecognised amountsFinal distribution payable on 13 September 2017 (b)

(2016: 16 September 2016)Profit distribution (a) 3.07 34,198 3.75 41,811Capital distribution 3.69 41,107 0.63 6,976

6.76 75,305 4.38 48,787

(a) Profit distributions unfranked (2016: unfranked).(b) Record date 30 June 2017.



– II-160 –


8. RECEIvABLES

2017 2016$000 $000

Finance lease receivable – related party (Note 10) 738 704

Current 738 704





9. PAYABLES





– II-161 –

10. LEASES

Finance leases

Leasing arrangements – receivables

Finance lease receivables relate to the lease of a pipeline lateral.

There are no contingent rental payments due.

Finance lease receivables

2017 2016$000 $000






9,249 9,953






– II-162 –

CAPITAL MANAGEMENT


2017 2016$000 $000

Non-currentAdvance to related party 893,867 895,102Investments carried at cost:Investment in related party (a) 107,379 107,379

1,001,246 1,002,481Financial assets carried at fair value:Redeemable ordinary shares (b) – 34,463

1,001,246 1,036,944


(b) Financial assets carried at fair value related to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where Australian Pipeline Limited (APL), as Responsible Entity for APTIT, acquired the redeemable ordinary shares (“ROS”). This investment was classified at fair value through profit or loss. The redeemable ordinary shares held in Energy Infrastructure Investments were disposed of by the Consolidated Entity on 22 December 2016, transferring the investment to another entity within the APA Group via an inter-company loan.

Financial assets are classified into the following specified categories: ‘available-for-sale’ financial assets, ‘loans and receivables’ and ‘fair value through profit or loss’.




Fair value through profit or loss

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.


– II-163 –






APA Group’s corporate Treasury department is responsible for the overall management of the Consolidated Entity’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. The Consolidated Entity’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department.




(c) Liquidity risk.

Treasury as a centralised function provides the Consolidated Entity with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost, and minimises risks through the use of natural hedges and derivative instruments. The Consolidated Entity does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the Audit and Risk Management Committee approved Treasury Risk Management Policy.

(a) Market risk

The Consolidated Entity’s activities exposure is primarily to the financial risk of changes in interest rates. There has been no change to the Consolidated Entity’s exposure to market risk or the manner in which it manages and measures the risk from the previous year.


– II-164 –


The sensitivity analysis below has been determined based on the exposure to interest rates on loans with related parties. A 100 basis points increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were constant, the Consolidated Entity’s net profit would increase by $6,431,000 or decrease by $6,372,000 (2016: increase by $5,963,000 or decrease by $5,883,000 respectively). This is mainly attributable to the Consolidated Entity’s exposure to interest rates on its variable rate inter-entity balances and the fair value movement on the ROS. The sensitivity has increased due to higher inter-entity balances.

(b) Credit risk



(c) Liquidity risk

The Consolidated Entity’s exposure to liquidity risk is limited to trade payables of $13,000 (2016: $11,000), all of which are due in less than 1 year (2016: less than 1 year).

(d) Fair value of financial instruments

The Consolidated Entity has financial instruments that are carried at fair value in the statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, the Consolidated Entity determines fair value by using various valuation models. The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants. The chosen valuation models make maximum use of market inputs and rely as little as possible on entity specific inputs. The fair values of all positions include assumptions made as to recoverability based on the counterparty’s and the Consolidated Entity’s credit risk.


– II-165 –






Transfers between levels of the fair value hierarchy occur at the end of the reporting period. There have been no transfers between the levels during 2017 (2016: none). Transfers between level 1 and level 2 are triggered when there are changes to the availability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.

Fair value of the Group‘s financial assets and liabilities that are measured at fair value on a recurring basis


Unlisted redeemable ordinary shares

The 2016 financial statements included redeemable ordinary shares (“ROS”) held in an unlisted entity which were measured at fair value (Note 11). The redeemable ordinary shares held in Energy Infrastructure Investments were disposed of by the Consolidated Entity on 22 December 2016, transferring the investment to another entity within APA Group. In 2016 the fair market value of the ROS was derived from a binomial tree model, which included some assumptions that were not able to be supported by observable market prices or rates. The model mapped the different possible valuation paths of three distinct components:

• valueofthedebtcomponent;

• valueoftheROSdiscretionarydividends;and

• valueoftheoptiontoconverttoordinaryshares.


– II-166 –

In determining the fair value in 2016, the following assumptions were used:

• the risk adjusted rate for the ROS was estimated as the required rate of return based onprojected cash flows to equity at issuance assuming the ROS price at issuance ($0.99) and the ordinary price at issuance ($0.01) are at their fair value;

• theriskfreerateofreturnwas1.57%perannumandwasbaseduponaninterpolationofthethree and five year Government bond rates at the valuation date;

• the ROS discretionary dividends were estimated based on an internal forecasted cash flowmodel;

• thevalueoftheoptiontoconvertwasdeemedtobezero.Forconversiontooccur,anumberof conditions must be met. At the reporting date, it was deemed highly unlikely these conditions would occur based on an internal forecasting model; and

• theseinstrumentswereclassifiedinthefairvaluehierarchyatlevel3.

The fair value was impacted by the following unobservable inputs:

• anincreaseinthediscountratewouldhaveresultedinadecreaseinthefairvalue;

• an increase in discretionary dividends would have resulted in an increase in the fair value;and

• meetingconditionstotriggertheconversionoftheoptionwouldresultinanincreaseinthefair value.



Financial assets measured at fair valueUnlisted redeemable ordinary shares Energy Infrastructure Investments – – – –

– – – –

2016Financial assets measured at fair valueUnlisted redeemable ordinary shares Energy Infrastructure Investments – – 34,463 34,463

– – 34,463 34,463


– II-167 –

Fair value through Profit or Loss2017 2016$000 $000

Reconciliation of Level 3 fair value measurements of financial assetsOpening balance 34,463 34,765Total gains or losses: – in profit or loss: Interest – related parties 1,071 4,264 – in profit or loss: Loss on financial asset held at fair value through profit or loss (510) (756)Distributions (2,459) (3,810)Disposal (a) (32,565) –

Closing balance – 34,463

(a) The redeemable ordinary shares held in Energy Infrastructure Investments were disposed of by the Consolidated Entity on 22 December 2016, transferring the investment to another entity within APA Group.

13. ISSUED CAPITAL

2017 2016$000 $000

Units1,114,307,369 units, fully paid (2016: 1,114,307,369 units, fully paid) (a) 976,284 1,005,074

2017 No. of units 2017

2016 No. of units 2016

000 $000 000 $000

MovementsBalance at beginning of financial year 1,114,307 1,005,074 1,114,307 1,005,086Capital distributions paid (Note 7) – (28,790) – –Issue cost of units – – – (12)

Balance at end of financial year 1,114,307 976,284 1,114,307 1,005,074




– II-168 –

GROUP STRUCTURE

14. SUBSIDIARIES


Ownership interestName of entity Country of registration 2017 2016

% %

Parent entityAPT Investment TrustSubsidiaryGasNet Australia Investments Trust Australia 100 100

OTHER






2017 2016$ $







– II-169 –

Remuneration of senior executives(a)




(a) The remuneration of the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.


Amounts received or due and receivable by Deloitte Touche Tohmatsu for:Auditing the financial report 5,900 5,800Compliance plan audit 5,600 5,500

11,500 11,300









• disposalofunlistedredeemableordinaryshares;and





– II-170 –








Management fees of $943,000 (2016: $957,000) were paid to the Responsible Enti ty as reimbursement of costs incurred on behalf of APTIT. No amounts were paid directly by APTIT to the Directors of the Responsible Entity.


Management fees of $943,000 (2016: $957,000) were reimbursed by APT.


– II-171 –



2017 2016$000 $000


Total assets 1,010,495 1,046,897



Net assets 1,010,482 1,046,886

EquityIssued capital 976,284 1,005,074Retained earnings 34,198 41,812Reserves – –

Total equity 1,010,482 1,046,886

Financial performanceProfit for the year 72,967 85,102Other comprehensive income – (595)







– II-172 –











• AASB9‘FinancialInstruments’,andtherelevant amending standards

1 January 2018 30 June 2019

• AASB15‘RevenuefromContractswithCustomers’, and AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective date of AASB 15’

1 January 2018 30 June 2019


The potential impacts of the initial application of the standards above are not expected to be material for the consolidated entity.


On 22 August 2017, the Directors declared a final distribution for the 2017 financial year of 6.76 cents per unit ($75.3 million). The distribution represents a 3.07 cents per unit unfranked profit distribution and 3.69 cents per unit capital distribution. The distribution will be paid on 13 September 2017.



– II-173 –





(c) in the Directors’ opinion, the f inancial s tatements and notes thereto are in accordance with Internat ional Financial Report ing Standards issued by the International Accounting Standards Board; and








– II-174 –



– II-175 –


2018 2017Note $000 $000


2,386,722 2,326,420Asset operation and management expenses (214,339) (207,329)Depreciation and amortisation expense 5 (578,916) (570,021)Other operating costs – pass-through 5 (445,307) (438,140)Finance costs 5 (515,515) (518,249)Employee benefit expense 5 (197,545) (197,747)Other expenses (5,206) (8,600)



Other comprehensive income, net of income taxItems that will not be reclassified subsequently to profit or loss:Actuarial gain on defined benefit plan 1,588 5,452Income tax relating to items that will not be reclassified subsequently (476) (1,636)

1,112 3,816

Items that may be reclassified subsequently to profit or loss:Transfer of gain on cash flow hedges to profit or loss 93,901 92,459(Loss)/gain on cash flow hedges taken to equity (278,831) 164,536Gain on associate hedges taken to equity 8,632 10,921Income tax relating to items that may be reclassified subsequently 52,906 (80,354)

(123,392) 187,562

Other comprehensive income for the year (net of tax) (122,280) 191,378



– II-176 –

2018 2017Note $000 $000


APA stapled securityholders 264,839 236,846


APA stapled securityholders 142,559 428,224

2018 2017(Restated)

Earnings per securityBasic and diluted (cents per security) 7 23.3 21.2



– II-177 –


2018 2017Note $000 $000



Non-current assetsTrade and other receivables 9 14,030 15,496Other financial assets 20 591,487 458,773Investments accounted for using the equity method 23 271,597 259,882Property, plant and equipment 11 9,691,666 9,150,165Goodwill 12 1,183,604 1,183,604Other intangible assets 12 2,992,431 3,174,282Other 15 33,502 31,415


Total assets 15,227,226 15,045,948






Net assets 4,126,827 3,978,183


– II-178 –

2018 2017Note $000 $000



Non-controlling interests:APT Investment Trust:Issued capital 1,030,176 976,284Retained earnings 34,228 34,198




Total equity 4,126,827 3,978,183



– II-179 –

AU

ST

RA

LIA

N P

IPE

LIN

E T

RU

ST

AN

D I

TS

CO

NT

RO

LL

ED

EN

TIT

IES

CO

NS

OL

IDA

TE

D S

TA

TE

ME

NT

OF

CH

AN

GE

S I

N E

qU

ITY

Fo

r th

e fi

na

nci

al

yea

r en

ded

30

Ju

ne

20

18 Au

strali

an Pi

peline

Trust

APT I

nvest

ment

Trust

Other

non-c

ontro

lling i

nteres

t

Issued

Capit

al

Asset

Reval

uatio

nRe

serve

Hedg

ingRe

serve

Other

Reser

veRe

tained

earnin

gs

Attri

butab

leto

owner

sof

thepa

rent

Issued

Capit

alRe

tained

earnin

gs

APT

Invest

ment

Trust

Issued

Capit

alOt

herRe

tained

earnin

gs

Other

non–

contro

lling

intere

stTo

tal$0

00$0

00$0

00$0

00$0

00$0

00$0

00$0

00$0

00$0

00$0

00$0

00$0

00$0

00

Balan

ce at 1

July

2016

3,195

,445

8,669

(404,0

04)

–18

2,062

2,982

,172

1,005

,074

41,81

21,0

46,88

64

148

534,0

29,11

1Pro

fit for

the y

ear–

––

–16

3,879

163,8

79–

72,96

772

,967

––

––

236,8

46Ot

her co

mpreh

ensive

incom

e–

–26

7,916

–5,4

5227

3,368

––

––

––

–27

3,368

Incom

e tax r

elatin

g to c

ompo

nents o

f othe

r

compre

hensiv

e incom

e–

–(80

,354)

–(1,

636)

(81,99

0)–

––

––

––

(81,99

0)

Total

comp

rehens

ive in

come f

or the

year

––

187,5

62–

167,6

9535

5,257

–72

,967

72,96

7–

––

–42

8,224

Paym

ent of

distr

ibutio

ns (N

ote 8)

(80,82

8)–

––

(288,9

53)

(369,7

81)

(28,79

0)(80

,581)

(109,3

71)

––

––

(479,1

52)

Balan

ce at 3

0 Jun

e 201

73,1

14,61

78,6

69(21

6,442

)–

60,80

42,9

67,64

897

6,284

34,19

81,0

10,48

24

148

533,9

78,18

3

Balan

ce at 1

July

2017

3,114

,617

8,669

(216,4

42)

–60

,804

2,967

,648

976,2

8434

,198

1,010

,482

41

4853

3,978

,183

Profit

for th

e year

––

––

196,7

9019

6,790

–68

,049

68,04

9–

––

–26

4,839

Other

comp

rehens

ive in

come

––

(176,2

98)

–1,5

88(17

4,710

)–

––

––

––

(174,7

10)

Incom

e tax r

elatin

g to c

ompo

nents o

f othe

r

compre

hensiv

e incom

e–

–52

,906

–(47

6)52

,430

––

––

––

–52

,430

Total

comp

rehens

ive in

come f

or the

year

––

(123,3

92)

–19

7,902

74,51

0–

68,04

968

,049

––

––

142,5

59

Paym

ent of

distr

ibutio

ns (N

ote 8)

(201,3

85)

––

–(15

3,294

)(35

4,679

)(67

,597)

(68,01

9)(13

5,616

)–

––

–(49

0,295

)Se

curitie

s issue

d und

er ent

itleme

nt off

er38

0,782

––

––

380,7

8212

4,234

–12

4,234

––

––

505,0

16Iss

ue cos

t of se

curitie

s(8,

415)

––

––

(8,41

5)(2,

745)

–(2,

745)

––

––

(11,16

0)Ta

x rela

ting t

o secu

rity iss

ue cos

ts2,5

24–

––

–2,5

24–

––

––

––

2,524

Balan

ce at

30 Ju

ne 201

83,2

88,12

38,6

69(33

9,834

)–

105,4

123,0

62,37

01,0

30,17

634

,228

1,064

,404

41

4853

4,126

,827

Th

e ab

ov

e co

nso

lid

ated

sta

tem

ent

of

chan

ges

in

eq

uit

y s

ho

uld

be

read

in

co

nju

nct

ion

wit

h t

he

acco

mp

any

ing

no

tes.


– II-180 –


2018 2017Note $000 $000

Cash flows from operating activitiesReceipts from customers 2,635,344 2,508,269Payments to suppliers and employees (1,111,969) (1,065,473)Dividends received from associates and joint ventures 18,841 22,411Proceeds from repayment of finance leases 1,774 2,290Interest received 9,967 5,755Interest and other costs of finance paid (473,243) (481,427)Income tax paid (49,087) (17,889)

Net cash provided by operating activities 1,031,627 973,936

Cash flows from investing activitiesPayments for property, plant and equipment (875,030) (340,753)Proceeds from sale of property, plant and equipment 663 693Payments for equity accounted investments – (35,250)Payments for controlled entities net of cash acquired – (760)Payments for intangible assets (1,161) (1,456)


Cash flows from financing activitiesProceeds from borrowings 309,718 2,144,576Repayments of borrowings (761,733) (1,944,932)Loans advance to related parties (282) –Proceeds from issue of securities 505,016 –Payments of security issue costs (10,554) –Payment of debt issue costs (1,581) (8,446)Release of restricted cash – 2,149Distributions paid to: Unitholders of APT (354,679) (369,781) Unitholders of non-controlling interests – APTIT (135,616) (109,371)


Net (decrease)/increase in cash and cash equivalents (293,612) 310,605Cash and cash equivalents at beginning of financial year 394,501 84,506Unrealised exchange losses on cash held (246) (610)




– II-181 –


2018 2017Note $000 $000

Profit for the year 264,839 236,846Acquisition costs from business combinations – (101)(Profit)/loss on disposal of property, plant and equipment (466) (311)Share of net profits of joint ventures and associates using the equity method (21,924) (21,793)Dividends/distributions received from equity accounted investments 18,841 22,411Depreciation and amortisation expense 578,916 570,021Finance costs 15,569 13,926Unrealised foreign exchange loss 1,966 28Realised hedging loss 6,904 7,514Changes in assets and liabilities: Trade and other receivables 18,894 (16,766) Inventories (3,177) (371) Other assets (1,695) 266 Trade and other payables 20,115 27,286 Provisions (11,303) (562) Other liabilities 28,167 3,943 Income tax balances 115,981 131,599

Net cash provided by operating activities 1,031,627 973,936



– II-182 –









4. Revenue

5. Expenses

6. Income tax


8. Distributions

9. Receivables

10. Payables




14. Provisions



17. Leases


18. Net debt



21. Issued capital



24. Subsidiaries









– II-183 –




The financial report represents the consolidated financial statements of APT and APTIT (together the “Trusts”), their respective subsidiaries and their share of joint arrangements and associates (together “APA Group”). For the purposes of preparing the consolidated financial report, APA Group is a for-profit entity.



APT’s registered office and principal place of business is as follows: Level 25580 George StreetSYDNEY NSW 2000Tel: (02) 9693 0000


This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.


working capital position

The working capital position as at 30 June 2018 for APA Group is that current liabilities exceed current assets by $505.9 million (2017: current assets exceeded current liabilities by $74.1 million) primarily as a result of current borrowings of $329.2 million and $139.4 million (AUD equivalent) of cash flow hedge liabilities.


– II-184 –

APA Group has access to sufficient available committed, un-drawn bank facilities of $868.8 million as at 30 June 2018 (2017: $1,068.8 million) to meet the repayment of current borrowings on due date.

The Directors continually monitor APA Group’s working capital position, including forecast working capital requirements and have ensured that there are appropriate refinancing strategies and adequate committed funding facilities in place to accommodate debt repayments as and when they fall due.







• Energy Infrastructure, which includes all wholly or majority owned pipelines, gas storage and processing assets, and power generation assets;

• Asset Management , which provides commercial services, operating services and/or asset maintenance services to APA Group’s energy investments and Australian Gas Networks Limited for appropriate fees; and


Reportable segments

Energy Asset EnergyInfrastructure Management Investments Other Consolidated

2018 $000 $000 $000 $000 $000

Segment revenue (a)





– II-185 –


2018 $000 $000 $000 $000 $000






Segment assets and liabilitiesSegment assets 13,995,163 212,521 10,967 – 14,218,651Carrying value of investments using the equity method – – 271,597 – 271,597Unallocated assets (c) 736,978


Segment liabilities 440,276 64,829 – – 505,105Unallocated liabilities (d) 10,595,294







– II-186 –


2017 $000 $000 $000 $000 $000

Segment revenue (a)









Segment assets and liabilitiesSegment assets 13,670,034 210,449 10,662 – 13,891,145Carrying value of investments using the equity method – – 259,882 – 259,882Unallocated assets (c) 894,921


Segment liabilities 376,220 55,626 – – 431,846Unallocated liabilities (d) 10,635,919







– II-187 –


Included in revenues arising from energy infrastructure of $1,802.5 million (2017: $1,771.3 million) are revenues of approximately $689.4 million (2017: $704.8 million) which arose from sales to APA Group’s top three customers.

4. REvENUE


2018 2017$000 $000

Energy Infrastructure revenue 1,801,962 1,770,794Pass-through revenue 44,265 48,646

Energy Infrastructure revenue 1,846,227 1,819,440

Asset Management revenue 108,537 86,424Pass-through revenue 401,042 389,494

Asset Management revenue 509,579 475,918


Interest income 5,851 4,482Interest income on redeemable preference shares (GDI) (a) 1,144 2,589Finance lease income 1,454 1,643


Rental income 543 555

Total revenue 2,364,798 2,304,627


2,386,722 2,326,420

(a) 2017 includes interest on redeemable ordinary shares (EII)


• Operating revenue, which is earned from the transportation, processing and storage of gas, generation of electricity and other related services and is recognised when the services are provided net of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority;



– II-188 –




5. EXPENSES

2018 2017$000 $000



Energy infrastructure costs – pass-through 44,265 48,646Asset management costs – pass-through 401,042 389,494




509,764 514,345Gain on derivatives 743 (152)Unwinding of discount on non-current liabilities 5,008 4,056



Post-employment benefits 14,697 14,341Termination benefits (4,221) 2,295Cash settled security-based payments (b) 20,915 25,993Other employee benefits 166,154 155,118



– II-189 –

(a) The average interest rate applying to drawn debt is 5.65% p.a. (2017: 5.56% p.a.) excluding amortisation of borrowing costs and other finance costs.


6. INCOME TAX


2018 2017$000 $000

Income statementCurrent tax expense in respect of the current year (54,536) (34,518)Adjustments recognised in the current year in relation to current tax of prior years 612 456Deferred tax expense relating to the origination and reversal of temporary differences (111,131) (115,426)


Tax reconciliationProfit before tax 429,894 386,334

Income tax expense calculated at 30% (128,968) (115,900)Non-assessable trust distribution 20,415 21,891Non deductible expenses (58,319) (59,263)Non assessable income 19 319

(166,853) (152,953)

Franking credits received – 708Previously unbooked losses now recognised 690 533Adjustments recognised in the current year in relation to the current tax of prior years 612 456R&D tax incentive 496 1,768

(165,055) (149,488)


Income tax expense for the year is $165.1 million (2017: $149.5 million). An income tax provision of $33.8 million (2017: $28.9 million) has been recognised after utilisation of all available group tax losses and partial utilisation of available transferred tax losses (refer to Note 10).


– II-190 –



2018Openingbalance

Charged toincome

Charged toequity

Closingbalance

$000 $000 $000 $000

Gross deferred tax liabilitiesProperty, plant and equipment (810,121) (93,648) – (903,769)Deferred expenses (56,480) 1,677 – (54,803)Defined benefit obligation (68) 47 (476) (497)Other (1,054) 821 – (233)

(867,723) (91,103) (476) (959,302)

Gross deferred tax assetsProvisions 45,891 (2,500) – 43,391Cash flow hedges 87,819 (118) 53,534 141,235Security issue costs 3,624 (2,317) 2,524 3,831Deferred revenue 4,406 9,342 – 13,748Investments equity accounted 2,441 (108) (628) 1,705Tax losses 221,277 (24,327) – 196,950

365,458 (20,028) 55,430 400,860

Net deferred tax liability (502,265) (111,131) 54,954 (558,442)

2017

Gross deferred tax liabilitiesProperty, plant and equipment (724,525) (85,596) – (810,121)Deferred expenses (54,563) (1,917) – (56,480)Defined benefit obligation 1,383 185 (1,636) (68)Other (730) (324) – (1,054)

(778,435) (87,652) (1,636) (867,723)

Gross deferred tax assetsProvisions 45,723 168 – 45,891Cash flow hedges 165,027 (305) (76,903) 87,819Security issue costs 5,443 (1,819) – 3,624Deferred revenue 5,811 (1,405) – 4,406Investments equity accounted 6,445 (553) (3,451) 2,441Tax losses 245,137 (23,860) – 221,277

473,586 (27,774) (80,354) 365,458

Net deferred tax liability (304,849) (115,426) (81,990) (502,265)


– II-191 –


2018 2017$000 $000








Tax consolidation








– II-192 –



20172018 (Restated)cents cents



2018 2017$000 $000


2018No. of

securities

2017(Restated)

No. ofsecurities

000 000

Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security 1,136,875 1,118,522

During March 2018, APA Group issued 65,586,479 new ordinary securities on completion of the fully underwritten pro-rata accelerated institutional tradeable renounceable entitlement offer (Entitlement Offer). The Entitlement Offer was offered at $7.70 per security, a discount to APA Group’s closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26 February 2018. The number of securities used for the current and prior period calculation of earnings per security have been adjusted for the discounted rights issue. An adjustment factor of 1.0038 has been calculated, being the closing market price per security on 23 February 2018, divided by the theoretical ex-rights price (TERP) of $8.23 per security.


– II-193 –

8. DISTRIBUTIONS



Recognised amountsFinal distribution paid on 13 September 2017(2017: 16 September 2016)Profit distribution – APT (a) 5.46 60,803 16.34 182,063Capital distribution – APT 10.78 120,183 1.78 19,869Profit distribution – APTIT (a) 3.07 34,198 3.75 41,811Capital distribution – APTIT 3.69 41,107 0.63 6,976

23.00 256,291 22.50 250,719

Interim distribution paid on 14 March 2018(2017: 15 March 2017)Profit distribution – APT (b) 8.30 92,491 9.59 106,890Capital distribution – APT 7.29 81,202 5.47 60,959Profit distribution – APTIT (a) 3.03 33,821 3.48 38,770Capital distribution – APTIT 2.38 26,490 1.96 21,814

21.00 234,004 20.50 228,433

Total distributions recognisedProfit distributions 19.86 221,313 33.16 369,534Capital distributions 24.14 268,982 9.84 109,618

44.00 490,295 43.00 479,152


(2017: 13 September 2017)Profit distribution – APT (d) 8.93 105,412 5.46 60,803Capital distribution – APT 9.03 106,513 10.78 120,183Profit distribution – APTIT (a) 2.90 34,228 3.07 34,198Capital distribution – APTIT 3.14 37,022 3.69 41,107

24.00 283,175 23.00 256,291


(b) Interim profit distributions were 5.83 cents per security franked and 2.47 cents per security unfranked (2017: 4.67 cents per security franked and 4.92 cents per security unfranked).


(d) Final profit distributions are to be fully franked (2017: 4.67 cents per security franked and 0.79 cents per security unfranked).


– II-194 –


2018 2017$000 $000



9. RECEIvABLES

2018 2017$000 $000


Trade receivables 224,821 273,211Receivables from associates and related parties 25,252 13,028Finance lease receivables (Note 17) 1,480 1,787Interest receivable 88 1,605Other debtors 79 78

Current 251,720 289,709

Finance lease receivables (Note 17) 14,030 15,496


Trade receivables are non-interest bearing and are generally on 30 day terms. There are no material trade receivables past due and not provided for.


10. PAYABLES

Trade payables (a) 41,392 40,827Income tax payable 33,754 28,914Other payables 306,530 242,870

Current 381,676 312,611





– II-195 –





Freehold landand buildings

– at cost

Leaseholdimprovements

– at cost

Plant andequipment

– at cost

work inprogress– at cost Total

$000 $000 $000 $000 $000

Gross carrying amountBalance at 1 July 2016 234,838 5,072 10,059,642 195,132 10,494,684Additions 2,280 – 5,150 340,309 347,739Disposals (24) – (9,089) – (9,113)Transfers 5,639 5,095 295,300 (306,034) –

Balance at 30 June 2017 242,733 10,167 10,351,003 229,407 10,833,310Additions 702 – 31,278 905,622 937,602Disposals – – (4,071) – (4,071)Transfers 5,282 493 272,876 (278,651) –

Balance at 30 June 2018 248,717 10,660 10,651,086 856,378 11,766,841

Accumulated depreciationBalance at 1 July 2016 (32,015) (2,279) (1,271,303) – (1,305,597)Disposals 24 – 8,707 – 8,731Depreciation expense (Note 5) (7,430) (750) (378,960) – (387,140)Transfers 260 – (260) – –Reclassification to inventories – – 861 – 861

Balance at 30 June 2017 (39,161) (3,029) (1,640,955) – (1,683,145)Disposals – – 3,874 – 3,874Depreciation expense (Note 5) (7,184) (923) (387,797) – (395,904)

Balance at 30 June 2018 (46,345) (3,952) (2,024,878) – (2,075,175)


As at 30 June 2018 202,372 6,708 8,626,208 856,378 9,691,666



– II-196 –








• buildings 30 – 50 years;• compressors 10 – 50 years;• gastransportationsystems 10 – 80 years;• meters 20 – 30 years;• powergenerationfacilities 3 – 25 years; and• otherplantandequipment 3 – 20 years.


2018 2017$000 $000

GoodwillBalance at beginning of financial year 1,183,604 1,184,588Finalisation of provisional purchase price accounting – (984)




The East Coast Grid is an interconnected pipeline network that includes, inter alia, the Wallumbilla Gladstone, Moomba Sydney, Roma Brisbane, Carpentaria Gas and South West Queensland pipelines and the Victorian Transmission System. Since the acquisition of the South West Queensland Pipeline to complete the formation of APA’s East Coast Grid in December 2012, APA has installed facilities to enable bi-directional transportation of gas to meet the demand of our major customers who now typically operate portfolios of gas supply and demand. Through the provision of multi-asset services, bi-directional transportation, capacity trading and gas storage and parking facilities, APA’s East Coast Grid delivers options for customers to choose from, and move gas between, more than 40 receipt points and over 100 delivery points on the east coast of Australia. The East Coast Grid is categorised as an individual cash-generating unit.


– II-197 –


2018 2017$000 $000

Asset Management business 21,456 21,456Energy Infrastructure East Coast Grid 1,060,681 1,060,681 Diamantina Power Station 43,104 43,104 Other energy infrastructure (a) 58,363 58,363

1,183,604 1,183,604



2018 2017$000 $000

Contract and other intangiblesGross carrying amountBalance at beginning of financial year 3,589,799 3,604,143Acquisitions/additions 1,161 1,456Write-offs – (15,800)


Accumulated amortisation and impairmentBalance at beginning of financial year (415,517) (248,436)Amortisation expense (Note 5) (183,012) (182,881)Write-offs – 15,800


2,992,431 3,174,282



Amortisation is recognised on a straight-line basis over the estimated useful life of each asset. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effects of any changes in estimate being accounted for on a prospective basis.


– II-198 –

13 IMPAIRMENT OF NON-FINANCIAL ASSETS








For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected contract renewals with a resulting average annual growth rate of 1.0% p.a. (2017: 1.1% p.a.). These expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the cash generating unit operates.







– II-199 –

14. PROvISIONS

2018 2017$000 $000


Current 83,629 93,773



Employee benefitsIncentives 28,153 29,357Cash settled security-based payments 8,299 8,857Leave balances 41,981 39,976Termination benefits – 5,597

Current 78,433 83,787






Provision is made for benefits accruing to employees in respect of wages and salaries, incentives, annual leave and long service leave when it is probable that settlement will be required. Provisions made in respect of employee benefits expected to be settled within 12 months, are recognised for employee services up to reporting date at the amounts expected to be paid when the liability is settled. Provisions made in respect of employee benefits which are not expected to be wholly settled within 12 months are measured as the present value of the estimated future cash outflows using a discount rate based on the corporate bond yield in respect of services provided by employees up to reporting date.


– II-200 –


2018 2017$000 $000


33,502 31,415

16 EMPLOYEE SUPERANNUATION PLANS




2018 2017$000 $000

Amounts recognised in the statement of profit or loss and other comprehensive incomeCurrent service cost 2,234 2,842Net interest expense 46 191


Amounts recognised in the statement of financial position

Fair value of plan assets 135,620 135,029Present value of benefit obligation (133,959) (134,804)


Opening defined benefit obligation 134,804 143,101Current service cost 2,234 2,842Interest cost 5,369 4,599Contributions from plan participants 786 1,001Actuarial loss 5,138 1,550Benefits paid (13,873) (17,665)Administrative expenses, taxes and premiums paid (499) (624)



– II-201 –


2018 2017$000 $000

Opening fair value of plan assets 135,029 138,488Interest income 5,323 4,408Actual return on plan assets excluding interest income 6,726 7,002Contributions from employer 2,128 2,419Contributions from plan participants 786 1,001Benefits paid (13,873) (17,665)Administrative expenses, taxes and premiums paid (499) (624)








Key actuarial assumptions used in the determination of the defined benefit obligation is a discount rate of 4.1% gross of tax (2017: 4.1%), based on the corporate bond yield curve published by Milliman, an expected salary increase rate of 3.0% (2017: 3.0%), and pension indexation rate of 2.0% (2017: 2.0%). The sensitivity analysis below has been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant:

– If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $5,722,000 (increase by $6,321,000);

– If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $1,813,000 (decrease by $1,715,000); and

– If the expected pension indexation rate increases (decreases) by 0.5%, the defined benefit obligation would increase by $4,313,000 (decrease by $3,932,000).




– II-202 –

APA Group expects to pay $2.0 million in contributions to the defined benefit plans during the year ending 30 June 2019.

17. LEASES



2018 2017$000 $000






15,510 17,283








– II-203 –



2018 2017$000 $000


72,565 81,092


CAPITAL MANAGEMENT


APA Group’s overall capital management strategy is to continue to target BBB/Baa2 investment grade ratings through maintaining sufficient flexibility to fund organic growth and investment from internally generated and retained cash flows, equity and, where appropriate, additional debt funding.


Operating cash flows are used to maintain and expand APA Group’s assets, make distributions to securityholders and to repay maturing debt.

Controlled entities are subject to externally imposed capital requirements. These relate to the Australian Financial Services Licence held by Australian Pipeline Limited, the Responsible Entity of APA Group, and were adhered to for the entirety of the 2018 and 2017 periods.

APA Group’s capital management strategy remains unchanged from the previous year.

APA Group’s Board of Directors reviews the capital structure on a regular basis. As part of the review, the Board considers the cost of capital and the state of the markets. APA Group targets gearing in a range of 65% to 68%. Gearing is determined as the proportion of net debt to net debt plus equity. APA Group balances its overall capital structure through equity issuance, new debt or the redemption of existing debt and through a disciplined distribution payment policy.

18. NET DEBT

Cash and cash equivalents comprise of cash on hand, at call bank deposits and investments in money market instruments that are readily convertible to known amounts for cash. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows are reconciled to the related items in the statement of financial position detailed in the table below.



– II-204 –

2018 2017$000 $000

Cash at bank and on hand 99,277 43,087Short-term deposits 1,366 351,414

Cash and cash equivalents 100,643 394,501

Guaranteed senior notes (a) (318,373) (115,738)Other financial liabilities (10,846) (11,120)

Current borrowings (329,219) (126,858)

Guaranteed senior notes (a) (9,089,991) (9,022,710)Bank borrowings (b) (200,000) –Subordinated notes (c) – (515,000)Other financial liabilities (73,458) (82,059)Less: unamortised borrowing costs 42,072 45,862

Non-current borrowings (9,321,377) (9,573,907)

Total borrowings (9,650,596) (9,700,765)

Net debt (9,549,953) (9,306,264)

(a) Represents USD denominated private placement notes of US$384 million, CAD medium term notes (MTN) of C$300 million, GBP MTNs of £950 million, EUR MTN of €1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date, and A$211 million of AUD denominated private placement notes and AUD MTN of A$500 million (2017: Includes JPY MTN of ¥10,000 million). Refer to Note 19 for details of interest rates and maturity profiles.




– II-205 –

Reconciliation of net debt

Cash andcash

equivalents

Borrowingsdue within

1 year

Borrowingsdue after

1 year Net debt$000 $000 $000 $000

Net debt as at 1 July 2016 84,506 (409,829) (9,314,373) (9,639,696)Cash movements 310,605 392,437 (592,081) 110,961Foreign exchange movements due to fair value changes (610) 27,519 196,360 223,269Transfer from due after 1 year to due within 1 year – (136,985) 136,985 –Amortisation of deferred borrowing costs – – (798) (798)

Net debt as at 30 June 2017 394,501 (126,858) (9,573,907) (9,306,264)

Net debt as at 1 July 2017 394,501 (126,858) (9,573,907) (9,306,264)Cash movements (293,612) 137,015 315,000 158,403Foreign exchange movements due to fair value changes (246) (13,298) (384,758) (398,302)Transfer from due after 1 year to due within 1 year – (326,078) 326,078 –Amortisation of deferred borrowing costs – – (3,790) (3,790)

Net debt as at 30 June 2018 100,643 (329,219) (9,321,377) (9,549,953)

2018 2017$000 $000

Financing facilities availableTotal facilitiesGuaranteed senior notes (a) 9,408,364 9,138,448Bank borrowings (b) 1,068,750 1,068,750Subordinated notes (c) – 515,000

10,477,114 10,722,198

Facilities used at balance dateGuaranteed senior notes (a) 9,408,364 9,138,448Bank borrowings (b) 200,000 –Subordinated notes (c) – 515,000

9,608,364 9,653,448

Facilities unused at balance dateGuaranteed senior notes (a) – –Bank borrowings (b) 868,750 1,068,750Subordinated notes (c) – –

868,750 1,068,750


– II-206 –

(a) Represents USD denominated private placement notes of US$384 million, CAD medium term notes (MTN) of C$300 million, GBP MTNs of £950 million, EUR MTN of €1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date, and A$211 million of AUD denominated private placement notes and AUD MTN of A$500 million (2017: Includes JPY MTN of ¥10,000 million). Refer to Note 19 for details of interest rates and maturity profiles.




APA Group’s corporate Treasury department is responsible for the overall management of APA Group’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee (“ARMC”) approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. APA Group’s ARMC ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting to the Board from the Treasury department.




(c) Liquidity risk.

Treasury as a centralised function provides APA Group with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost and manages risks through the use of natural hedges and derivative instruments. APA Group does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the ARMC approved Treasury Risk Management Policy.

(a) Market risk





• interestrateswapstomitigateinterestraterisk.

APA Group is also exposed to price risk arising from its forward purchase contracts over listed equities and electricity price risk arising from the electricity contract for difference.


– II-207 –


APA Group’s foreign exchange risk arises from future commercial transactions (including revenue, interest payments and principal debt repayments on long-term borrowings and the purchases of capital equipment). Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts, cross currency swap contracts and foreign currency denominated borrowings. All foreign currency exposure was managed in accordance with the Treasury Risk Management Policy.


Cash & cashequivalents Receivables

Totalborrowings

Crosscurrency

swaps

Foreignexchangecontract

Net foreigncurrencyposition

2018 $000 $000 $000 $000 $000 $000

US Dollar (USD) 3,143 – (4,576,684) (433,791) (109,807) (5,117,139)Japanese Yen (JPY) – – – – – –Canadian Dollar (CAD) – – (308,496) 308,496 – –British Pound (GBP) – – (1,694,493) 1,694,493 – –Euro (EUR) – – (2,129,801) 2,129,801 18,911 18,911Swedish Krona (SEK) – – – – 43,344 43,344Danish Krona (DKK) – – – – 4,102 4,102

3,143 – (8,709,474) 3,698,999 (43,450) (5,050,782)

2017

US Dollar (USD) 3,393 40,002 (4,406,537) (417,663) (347,362) (5,128,167)Japanese Yen (JPY) – – (115,738) 115,738 – –Canadian Dollar (CAD) – – (301,230) 301,230 – –British Pound (GBP) – – (1,610,280) 1,610,280 – –Euro (EUR) – – (2,007,377) 2,007,377 45,024 45,024Swedish Krona (SEK) – – – – 61,196 61,196Danish Krona (DKK) – – – – 104,038 104,038

3,393 40,002 (8,441,162) 3,616,962 (137,104) (4,917,909)



It is the policy of APA Group to hedge 100% of all foreign exchange exposures in excess of US$1 million equivalent that are certain. Forecast foreign currency denominated revenues and interest payments will be hedged by forward exchange contracts on a rolling basis with the objective being to lock in the AUD gross cash flows and manage liquidity.


– II-208 –


Cash flow hedges

ForeignAverage

exchange rate < 1 yearContract value

1 – 2 years 2 – 5 years Fair value2018 currency $ $000 $000 $000 $000

Forecast revenue and associated receivablePay USD/receive AUD USD 0.6528 137,462 – – 15,957

Forecast capital purchasesPay AUD/receive USD USD 0.7596 (27,515) (140) – 734Pay AUD/receive EUR EUR 0.6821 (17,039) (77) (1,795) 1,706Pay AUD/receive SEK SEK 5.7572 (2,087) (7,045) (34,212) (3,142)Pay AUD/receive DKK DKK 5.1321 (4,102) – – 387

86,719 (7,262) (36,007) 15,642

ForeignAverage

exchange rate < 1 yearContract value

1 – 2 years 2 – 5 years Fair value2017 currency $ $000 $000 $000 $000

Forecast revenue and associated receivablePay USD/receive AUD USD 0.7082 306,474 146,605 – 33,119

Forecast capital purchasesPay AUD/receive USD USD 0.7507 (92,269) (13,308) (140) (2,113)Pay AUD/receive EUR EUR 0.6884 (26,461) (16,691) (1,872) 2,153Pay AUD/receive SEK SEK 5.8684 (18,108) (1,831) (41,257) (2,129)Pay AUD/receive DKK DKK 5.2308 (99,936) (4,102) – 6,543

69,700 110,673 (43,269) 37,573



APA Group enters into cross currency swap contracts to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from foreign currency borrowings. APA Group receives fixed amounts in the various foreign currencies and pays both variable interest rates (based on Australian BBSW) and fixed interest rates for the full term of the underlying borrowings. In certain circumstances borrowings are retained in the foreign currency, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency.


– II-209 –


Cash flow hedges

ForeignExchange

rate Less than


5 years2018 currency $ $000 $000 $000 $000

Pay AUD/receive foreign currency2003 USPP Notes AUD/USD 0.6573 (95,847) – – –2007 USPP Notes AUD/USD 0.8068 (151,215) – (153,694) –2009 USPP Notes AUD/USD 0.7576 – (98,997) – –2012 CAD Medium Term Notes AUD/CAD 1.0363 – (289,494) – –2012 US144A AUD/USD 1.0198 – – (735,438) –2012 GBP Medium Term Notes AUD/GBP 0.6530 – – – (535,988)2017 US144A AUD/USD 0.7668 – – – (1,108,503)


(247,062) (388,491) (1,884,033) (3,766,638)

2017Pay AUD/receive foreign currency2003 USPP Notes AUD/USD 0.6573 – (95,847) – –2007 USPP Notes AUD/USD 0.8068 – (151,215) (153,694) –2009 USPP Notes AUD/USD 0.7576 – – (98,997) –2012 JPY Medium Term Notes AUD/JPY 79.4502 (125,865) – – –2012 CAD Medium Term Notes AUD/CAD 1.0363 – – (289,494) –2012 US144A AUD/USD 1.0198 – – – (735,438)2012 GBP Medium Term Notes AUD/GBP 0.6530 – – – (535,988)2017 US144A AUD/USD 0.7668 – – – (1,108,503)


(125,865) (247,062) (1,500,099) (4,423,181)




– II-210 –


The analysis below shows the effect on profit and total equity of retranslating cash, receivables, payables and interest-bearing liabilities denominated in USD, CAD, GBP and EUR into AUD, had the rates been 20 percent higher or lower than the relevant year end rate, with all other variables held constant, and taking into account all underlying exposures and related hedges. A sensitivity of 20 percent has been selected and represents management’s assessment of the possible change in rates taking into account the current level of exchange rates and the volatility observed both on an historical basis and on market expectations for possible future movements.


• Equity reserves would decrease by $1,272.0 million with a 20 percent depreciation of theA$ or increase by $849.4 million with a 20 percent increase in foreign exchange rates (2017: decrease by $1,255.0 million or increase by $839.8 million respectively).

Interest rate risk




Cross currency swap and interest rate swap contracts have the economic effect of converting borrowings from floating to fixed rates and/or fixed rate foreign currency to fixed or floating AUD rates on agreed notional principal amounts enabling APA Group to mitigate the risk of cash flow exposures on variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at reporting date. The average interest rate is based on the outstanding balances at the end of the financial year.


weighted averageinterest rate

Notionalprincipal amount Fair value

2018 2017 2018 2017 2018 2017% p.a. % p.a. $000 $000 $000 $000

Cash flow hedges – Pay fixed AUD interest – receive floating AUD or fixed foreign currencyLess than 1 year 7.30 6.80 247,062 125,865 1,036 (14,249)1 year to 2 years 8.05 7.30 388,491 247,062 11,950 (9,706)2 years to 5 years (a) 5.14 5.18 1,884,033 1,500,099 338,786 85,0065 years and more (a) 5.11 5.38 3,766,638 4,423,181 24,031 81,206

6,286,224 6,296,207 375,803 142,257

(a) This amount includes a notional amount of USD2.3 billion (2017: USD2.3 billion) which is subject to USD interest rate risk.


– II-211 –

The cross currency swap and interest rate swap contracts settle on a quarterly or semi-annual basis. The floating rate benchmark on the interest rate swaps is Australian BBSW. APA Group will settle the difference between the fixed and floating interest rate on a net basis.




• net profit would decrease by $2,000,000 or increase by $2,000,000 (2017: decreaseby $5,150,000 or increase by $5,150,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings; and

• equity reserves would increase by $40,738,000 with a 100 basis point decrease in interestrates or decrease by$31,154,000 with a 100 basis point increase in interest rates (2017: increase by $31,379,000 or decrease by $27,772,000 respectively). This is due to the changes in the fair value of derivative interest instruments.

APA Group’s profit sensitivity to interest rates has decreased during the current year due to the overall decrease in the level of APA Group’s unhedged floating rate borrowings. The increase/decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. The increase in sensitivity in equity is due to the impact of the 1.00% change in interest rates on the higher derivative fair value this year, which has been partially offset by the reduction in the tenor of the derivatives.

Price risk – equity price



– II-212 –




• there isnoeffectonequity reserves asAPAGroupholdsnoavailable-for-sale investments(2017: $nil).

Price risk – electricity price

APA Group is exposed to electricity price risk arising from a contract for difference in an electricity agreement with a customer. The contract guarantees the Group a fixed price for electricity offtake. The sensitivity of the contract for difference to changes in the electricity price is provided in the fair value of financial instrument section.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to APA Group. APA Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating the risk of loss. For financial investments or market risk hedging, APA Group’s policy is to only transact with counterparties that have a credit rating of A– (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the Board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above APA Group’s minimum threshold. APA Group’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the ARMC. These limits are regularly reviewed by the Board.



Cross guarantee


(c) Liquidity risk



– II-213 –


The table below shows the undiscounted Australian dollar cash flows associated with the AUD and foreign currency denominated notes, cross currency interest rate swaps and fixed interest rate swaps in aggregate.

MaturityAverage



5 years% p.a. $000 $000 $000

2018Unsecured financial liabilitiesTrade and other payables – 381,676 – –Unsecured bank borrowings (a) 3.07 6,114 204,419 –Denominated in A$Other financial liabilities (b) 7,903 29,578 29,367Guaranteed Senior Notes (c)

Denominated in A$2007 Series E 15–May– 19 7.40 73,214 – –2007 Series G 15–May– 22 7.45 6,002 98,588 –2007 Series H 15–May– 22 7.45 4,617 75,837 –2010 AUD Medium Term Notes 22–Jul–20 7.75 23,250 334,875 –2016 AUD Medium Term Notes 20–Oct–23 3.75 7,500 30,000 203,750Denominated in US$2003 Series D 9–Sep–18 6.02 99,360 – –2007 Series D 15–May– 19 5.99 162,324 – –2007 Series F 15–May– 22 6.14 11,354 187,787 –2009 Series B 1–Jul–19 8.86 11,761 104,797 –2012 US 144A 11–Oct–22 3.88 49,123 907,572 –2015 US 144A (b) 23–Mar–25 4.20 62,483 249,932 1,612,8322015 US 144A (b) 23–Mar–35 5.00 20,287 81,147 649,4002017 US 144A 15–Jul–27 4.25 58,523 235,087 1,371,999Denominated in stated foreign currency2012 CAD Medium Term Notes 24–Jul–19 4.25 19,529 299,179 –2012 GBP Medium Term Notes 26–Nov–24 4.25 39,351 157,727 595,4462015 GBP Medium Term Notes (b) 22–Mar–30 3.50 53,726 215,008 1,574,4232015 EUR Medium Term Notes (b) 22–Mar–22 1.38 36,341 1,103,923 –2015 EUR Medium Term Notes (b) 22–Mar–27 2.00 40,615 162,458 1,086,471

1,175,053 4,477,914 7,123,688

(a) Bank facilities mature or expire on 2 July 2018 ($518.75 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($150 million limit), 19 December 2020 ($100 million limit) and 18 July 2022 ($150 million limit). A new $1,000 million syndicated bank facility came into effect on 2 July 2018. The two tranches of this facility mature on 30 June 2023 and 31 December 2023 respectively.




– II-214 –

MaturityAverage



5 years% p.a. $000 $000 $000

2017Unsecured financial liabilitiesTrade and other payables – 312,611 – –Unsecured bank borrowings (a) – – – –2012 Subordinated Notes (b) 1–Oct–72 6.30 32,221 142,361 2,567,692Denominated in A$Other financial liabilities (c) 7,609 30,436 33,927Guaranteed Senior Notes (d)

Denominated in A$2007 Series E 15–May–19 7.40 5,045 73,214 –2007 Series G 15–May–22 7.45 6,002 104,590 –2007 Series H 15–May–22 7.45 4,617 80,454 –2010 AUD Medium Term Notes 22–Jul–20 7.75 23,250 358,125 –2016 AUD Medium Term Notes 20–Oct–23 3.75 7,500 30,000 211,250Denominated in US$2003 Series D 9–Sep–18 6.02 6,930 99,360 –2007 Series D 15–May–19 5.99 11,111 162,324 –2007 Series F 15–May–22 6.14 11,354 199,141 –2009 Series B 1–Jul–19 8.86 5,897 116,558 –2012 US 144A 11–Oct–22 3.88 49,123 196,627 760,0682015 US 144A (c) 23–Mar–25 4.20 60,160 240,641 1,613,0332015 US 144A (c) 23–Mar–35 5.00 19,533 78,130 644,7902017 US 144A 15–Jul–27 4.25 48,046 235,087 1,430,522Denominated in stated foreign currency2012 JPY Medium Term Notes 22–Jun–18 1.23 134,424 – –2012 CAD Medium Term Notes 24–Jul–19 4.25 19,529 318,708 –2012 GBP Medium Term Notes 26–Nov–24 4.25 39,783 157,619 634,9052015 GBP Medium Term Notes (c) 22–Mar–30 3.50 51,729 207,013 1,567,6172015 EUR Medium Term Notes (c) 22–Mar–22 1.38 34,990 1,097,872 –2015 EUR Medium Term Notes (c) 22–Mar–27 2.00 39,105 156,419 1,085,184

930,569 4,084,679 10,548,988

(a) Undrawn bank facilities mature on 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).

(b) The first call date is 31 March 2018.

(c) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2017. These amounts are fully hedged by forward exchange contracts or future US$ revenues.

(d) Rates shown are the coupon rate.


– II-215 –





• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in activemarkets for identical assets or liabilities.

• Level2 fair valuemeasurements are thosederived from inputsother thanquotedprices includedwithin Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputsfor the asset or liability that are not based on observable market data (unobservable inputs).

Transfers between levels of the fair value hierarchy occur at the end of the reporting period. There have been no transfers between the levels during 2018 (2017: none). Transfers between level 1 and level 2 are triggered when there are changes to the availability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.



• the fair values of available-for-sale financial assets and financial liabilities with standard termsand conditions and traded on active liquid markets are determined with reference to quoted market prices. These instruments are classified in the fair value hierarchy at level 1;

• thefairvaluesofforwardforeignexchangecontractsincludedinhedgingassetsandliabilitiesarecalculated using discounted cash flow analysis based on observable forward exchange rates at the end of the reporting period and contract forward rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• the fair valuesof interest rate swaps, cross currency swaps, equity forwards andotherderivativeinstruments included in hedging assets and liabilities are calculated using discounted cash flow analysis using observable yield curves at the end of the reporting period and contract rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;


– II-216 –

• thefairvaluesofotherfinancialassetsandfinancialliabilities(excludingderivativeinstruments)are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

• thefairvalueoffinancialguaranteecontracts isdeterminedbasedupontheprobabilityofdefaultby the specified counterparty extrapolated from market-based credit information and the amount of loss, given the default. These instruments are classified in the fair value hierarchy at level 2; and

• the carrying value of financial assets and liabilities recorded at amortised cost in the financialstatements approximate their fair value having regard to the specific terms of the agreements underlying those assets and liabilities.

Contract for difference

The financial statements include a contract for difference arising from an electricity agreement with a customer that guarantees the Group a fixed price for electricity offtake for the agreed term which is measured at fair value. The fair value of the contract for difference is derived from internal discounted cash flow valuation methodology, which includes some assumptions that are not able to be supported by observable market prices or rates.

In determining the fair value, the following assumptions were used:

• estimated long term forecast electricity pool prices are applied as market prices are not readilyobservable for the corresponding term;

• forecastelectricityvolumesareestimatedbasedonaninternalforecastoutputmodel;

• the discount rates are based on observable market rates for risk-free instruments of theappropriate term;

• credit adjustments are applied to the discount rates to reflect the risk of default by either theGroup or a specific counterparty. Where a counterparty specific credit curve is not observable, an estimated curve is applied which takes into consideration the credit rating of the counterparty and its industry; and


Changes in any of the aforementioned assumptions may be accompanied by changes in other assumptions which may have an offsetting impact.


– II-217 –




– 623,419 – 623,419

Financial liabilities measured at fair valueInterest rate swaps used for hedging – 800 – 800Cross currency interest rate swaps used for hedging – 215,641 – 215,641Forward foreign exchange contracts used for hedging – 13,486 – 13,486Contract for difference used for hedging (a) – – 6,536 6,536

– 229,927 6,536 236,463

(a) This represents the fair value change during the year. There were no settlements during the year.



– 484,414 – 484,414


– 301,908 – 301,908


– II-218 –




2018 2017 2018 2017$000 $000 $000 $000

Financial liabilitiesUnsecured long term Private Placement Notes 730,049 710,742 768,992 774,803Unsecured Australian Dollar Medium Term Notes 500,000 500,000 528,646 534,030Unsecured Japanese Yen Medium Term Notes – 115,738 – 116,681Unsecured Canadian Dollar Medium Term Notes 308,496 301,230 312,539 308,490Unsecured US Dollar 144A Medium Term Notes 4,057,344 3,906,504 3,992,019 4,008,505Unsecured British Pound Medium Term Notes 1,694,492 1,610,281 1,768,993 1,721,799Unsecured Euro Medium Term Notes 2,129,801 2,007,377 2,108,339 1,976,924

9,420,182 9,151,872 9,479,528 9,441,232



– II-219 –



Derivatives at fair value: Equity forward contracts 1,236 1,484 – – Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges 29,101 32,991 10,656 14,267 Interest rate swaps – cash flow hedges – – 2,100 4,214 Cross currency interest rate swaps – cash flow hedges 24,903 17,574 120,551 127,287 Contract for difference – cash flow hedges – – 6,094 –Financial item carried at amortised cost: Redeemable preference share interest 285 285 – –

Current 55,525 52,334 139,401 145,768

Financial items carried at amortised cost: Redeemable preference shares 10,400 10,400 – –Derivatives – at fair value: Equity forward contracts 809 1,189 – – Indexed revenue contracts – – 3,767 –Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges 29 32,494 2,830 13,645 Interest rate swaps – cash flow hedges – – – 2,072 Cross currency interest rate swaps – cash flow hedges 580,249 414,690 121,471 166,370 Contract for difference – cash flow hedges – – 442 –

Non-current 591,487 458,773 128,510 182,087



– II-220 –


Hedge accounting


At the inception of the hedge relationship, APA Group formally designates and documents the hedge relationship, including the risk management strategy for undertaking the hedge. This includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and they are regularly assessed to ensure they continue to be effective.




Cash flow hedges


Amounts recognised in equity are transferred to the profit or loss when the hedged transaction affects profit or loss, such as when the hedged income or expenses are recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.





– II-221 –


With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss, to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income.

21. ISSUED CAPITAL

2018 2017$000 $000

Units1,179,893,848 securities, fully paid (2017: 1,114,307,369 securities, fully paid)(a) 3,288,123 3,114,617

2018No. ofunits 2018

2017No. ofunits 2017

000 $000 000 $000

MovementsBalance at beginning of financial year 1,114,307 3,114,617 1,114,307 3,195,445Securities issued under entitlement offer 65,586 380,782 – –Capital distributions paid (Note 8) – (201,385) – (80,828)Issue costs of securities – (8,415) – –Tax relating to security issue costs – 2,524 – –





– II-222 –

GROUP STRUCTURE




2018 2017$000 $000


Total assets 1,064,482 1,010,495



Net assets 1,064,404 1,010,482


Financial performance

Revenue 68,061 72,979Expenses (12) (12)



Cash flowsNet cash provided by operating activities 68,852 75,570Net cash (used in)/provided by investing activities (54,725) 33,801Distributions paid to non-controlling interests (135,616) (109,371)Net cash used in financing activities (14,127) (109,371)




– II-223 –

2018 2017$000 $000


1,064,457 1,010,535

APT Investment TrustIssued capital:Balance at beginning of financial year 976,284 1,005,074Issue of securities under entitlement offer 124,234 –Distribution – capital return (Note 8) (67,597) (28,790)Issue costs of units (2,745) –

1,030,176 976,284

Reserves: – –


34,228 34,198


53 53


– II-224 –



Name of entity Principal activityCountry ofincorporation

Ownership interest %2018 2017

Joint ventures: SEA Gas Gas transmission Australia 50.00 50.00 SEA Gas (Mortlake) Gas transmission Australia 50.00 50.00 Energy Infrastructure Investments

Energy infrastructure Australia 19.90 19.90

EII 2 Power generation (wind) Australia 20.20 20.20


2018 2017$000 $000


Joint venturesAggregate carrying amount of investment 242,768 229,693APA Group’s aggregated share of: Profit from continuing operations 17,105 17,175 Other comprehensive income 9,039 8,007


AssociatesAggregate carrying amount of investment 28,829 30,189APA Group’s aggregated share of: Profit from continuing operations 4,819 4,618 Other comprehensive income (407) 2,914






– II-225 –
















– II-226 –

24. SUBSIDIARIES


Name of entity

Country ofregistration/incorporation


% %


SubsidiariesAgex Pty. Ltd.(b),(c) Australia 100 100Amadeus Gas Trust (e) – 96 96APA (BWF Holdco) Pty Ltd (b),(c) Australia 100 100APA (EDWF Holdco) Pty Ltd (b),(c) Australia 100 100APA (EPX) Pty Limited (b),(c) Australia 100 100APA (NBH) Pty Limited (b),(c) Australia 100 100APA (Pilbara Pipeline) Pty Ltd (b),(c) Australia 100 100APA (SWQP) Pty Limited (b),(c) Australia 100 100APA (WA) One Pty Limited (b),(c) Australia 100 100APA AIS 1 Pty Limited (b),(c) Australia 100 100APA AIS 2 Pty Ltd (b),(c) Australia 100 100APA AIS Pty Limited (b),(c) Australia 100 100APA AM (Allgas) Pty Limited (b),(c) Australia 100 100APA BIDCO Pty Limited (b),(c) Australia 100 100APA Biobond Pty Limited (b),(c) Australia 100 100APA Country Pipelines Pty Limited (b),(c) Australia 100 100APA DPS Holdings Pty Limited (b),(c) Australia 100 100APA DPS2 Pty Limited (b),(c) Australia 100 100APA East Pipelines Pty Limited (b),(c) Australia 100 100APA EE Australia Pty Limited (b),(c) Australia 100 100APA EE Corporate Shared Services Pty Limited (b),(c) Australia 100 100APA EE Holdings Pty Limited (b),(c) Australia 100 100APA EE Pty Limited (b),(c) Australia 100 100APA Ethane Pty Limited (b),(c) Australia 100 100APA Facilities Management Pty Limited (b),(c) Australia 100 100APA Midstream Holdings Pty Limited (b),(c) Australia 100 100APA Operations (EII) Pty Limited (b),(c) Australia 100 100APA Operations Pty Limited (b),(c) Australia 100 100APA Orbost Gas Plant Pty Ltd (c),(d) Australia 100 –APA Pipelines Investments (BWP) Pty Limited (b),(c) Australia 100 100APA Power Holdings Pty Limited (b),(c) Australia 100 100APA Power PF Pty Limited (b),(c) Australia 100 100APA Reedy Creek Wallumbilla Pty Limited (b),(c) Australia 100 100APA SEA Gas (Mortlake) Holdings Pty Ltd (b),(c) Australia 100 100APA SEA Gas (Mortlake) Pty Ltd(b) Australia 100 100APA Services (Int) Inc. United States 100 100APA Sub Trust No 1 (b),(e) – 100 100APA Sub Trust No 2 (b),(e) – 100 100APA Sub Trust No 3 (b),(e) – 100 100APA Transmission Pty Limited (b),(c) Australia 100 100APA VTS A Pty Limited (b),(c) Australia 100 100


– II-227 –

Name of entity



% %

APA VTS Australia (Holdings) Pty Limited (b),(c) Australia 100 100APA VTS Australia (NSW) Pty Limited (b),(c) Australia 100 100APA VTS Australia (Operations) Pty Limited (b),(c) Australia 100 100APA VTS Australia Pty Limited (b),(c) Australia 100 100APA VTS B Pty Limited (b),(c) Australia 100 100APA Western Slopes Pipeline Pty Limited (b),(c) Australia 100 100APA WGP Pty Ltd (b),(c) Australia 100 100APT (MIT) Services Pty Limited (b),(c) Australia 100 100APT AM (Stratus) Pty Limited (b),(c) Australia 100 100APT AM Employment Pty Limited (b),(c) Australia 100 100APT AM Holdings Pty Limited (b),(c) Australia 100 100APT Facility Management Pty Limited (b),(c) Australia 100 100APT Goldfields Pty Ltd (b),(c) Australia 100 100APT Management Services Pty Limited (b),(c) Australia 100 100APT O&M Holdings Pty Ltd (b),(c) Australia 100 100APT O&M Services (QLD) Pty Ltd (b),(c) Australia 100 100APT O&M Services Pty Ltd (b),(c) Australia 100 100APT Parmelia Holdings Pty Ltd (b),(c) Australia 100 100APT Parmelia Pty Ltd (b),(c) Australia 100 100APT Parmelia Trust (b),(e) – 100 100APT Petroleum Pipelines Holdings Pty Limited (b),(c) Australia 100 100APT Petroleum Pipelines Pty Limited (b),(c) Australia 100 100APT Pipelines (NSW) Pty Limited (b),(c) Australia 100 100APT Pipelines (NT) Pty Limited (b),(c) Australia 100 100APT Pipelines (QLD) Pty Limited (b),(c) Australia 100 100APT Pipelines (SA) Pty Limited (b),(c) Australia 100 100APT Pipelines (WA) Pty Limited (b),(c) Australia 100 100APT Pipelines Investments (NSW) Pty Limited (b),(c) Australia 100 100APT Pipelines Investments (WA) Pty Limited (b),(c) Australia 100 100APT Pipelines Limited (b),(c) Australia 100 100APT Sea Gas Holdings Pty Limited (b),(c) Australia 100 100APT SPV2 Pty Ltd (b) Australia 100 100APT SPV3 Pty Ltd (b) Australia 100 100Australian Pipeline Limited (b) Australia 100 100Central Ranges Pipeline Pty Ltd (b),(c) Australia 100 100Darling Downs Solar Farm Pty Ltd (b),(c) Australia 100 100Diamantina Holding Company Pty Limited (b),(c) Australia 100 100Diamantina Power Station Pty Limited (b),(c) Australia 100 100East Australian Pipeline Pty Limited (b),(c) Australia 100 100EDWF Holdings 1 Pty Ltd (b),(c) Australia 100 100EDWF Holdings 2 Pty Ltd (b),(c) Australia 100 100EDWF Manager Pty Ltd (b),(c) Australia 100 100Epic Energy East Pipelines Trust (b),(e) – 100 100EPX Holdco Pty Limited (b),(c) Australia 100 100EPX Member Pty Limited (b),(c) Australia 100 100EPX Trust (b),(e) – 100 100Ethane Pipeline Income Financing Trust (b),(e) – 100 100Ethane Pipeline Income Trust (b),(e) – 100 100Gasinvest Australia Pty Ltd (b),(c) Australia 100 100GasNet A Trust (e) – 100 100GasNet Australia Investments Trust(e) – 100 100


– II-228 –

Name of entity



% %

GasNet Australia Trust (b),(e) – 100 100GasNet B Trust (b),(e),(f) – – 100Goldfields Gas Transmission Pty Ltd (b) Australia 100 100Gorodok Pty. Ltd.(b),(c) Australia 100 100Griffin Windfarm 2 Pty Ltd (b) Australia 100 100Moomba to Sydney Ethane Pipeline Trust.(b),(e) – 100 100N.T. Gas Distribution Pty Limited (b),(c) Australia 100 100N.T. Gas Easements Pty. Limited (b),(c) Australia 100 100N.T. Gas Pty Limited Australia 96 96Roverton Pty. Ltd. (b),(c) Australia 100 100SCP Investments (No. 1) Pty Limited (b),(c) Australia 100 100SCP Investments (No. 2) Pty Limited (b),(c) Australia 100 100SCP Investments (No. 3) Pty Limited (b),(c) Australia 100 100Sopic Pty. Ltd. (b),(c) Australia 100 100Southern Cross Pipelines (NPL) Australia Pty Limited (b),(c)

Australia 100 100

Southern Cross Pipelines Australia Pty Limited (b),(c) Australia 100 100Trans Australia Pipeline Pty Ltd (b),(c) Australia 100 100Votraint No. 1606 Pty Limited (b) Australia 100 100Votraint No. 1613 Pty Limited (b) Australia 100 100Western Australian Gas Transmission Company 1 Pty Ltd (b),(c)

Australia 100 100

Wind Portfolio Pty Ltd (b),(c) Australia 100 100



(c) These wholly-owned subsidiaries have entered into a deed of cross guarantee with APT Pipelines Limited pursuant to ASIC Corporations Instrument 2016/785 and are relieved from the requirement to prepare and lodge an audited financial report.


(e) These trusts are unincorporated and not required to be registered. In respect of APT Parmelia Trust, the governing law of the trust deed was changed from Cayman Islands to New South Wales, Australia on 7 August 2017.

(f) APA GasNet B trust terminated on 17 May 2018.


– II-229 –

OTHER


2018 2017$000 $000


289,799 586,085






2018 2017$ $






Remuneration of senior executives (a),(b)

The aggregate remuneration of senior executives of APA Group is set out below:Short-term employment benefits 7,748,591 7,509,920Post-employment benefits 95,049 135,000Cash settled security-based payments 2,822,148 2,849,270


(a) The remuneration for the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.

(b) The FY2017 total remuneration differs from the amount disclosed in the prior year due to the review of the composition of Executive KMP, refer to the remuneration report for further details.


– II-230 –


2018 2017$ $

Amounts received or due and receivable by Deloitte Touche Tohmatsu for:Auditing the financial report 734,800 654,900Compliance plan audit 19,300 18,900Other assurance services (a) 544,915 263,700Other non-audit, non-assurance services (b) 9,091 –

1,308,106 937,500

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services mainly comprise assurance services in relation to the AER financial reporting guideline for Non-Scheme pipelines, security related transactions (equity and debt raisings) and procedures in relation to ASIC Regulatory Guide 231 requirements (2017: Consisted of 2017 144A debt issuance and procedures in relation to ASIC Regulatory 231 requirements).

(b) Services provided were in accordance with the external auditor independence policy. Other non-audit, non-assurance services comprise the facilitation of an industry charter workshop.








• dividends;

• assetleaserentals;

• loansadvancedandpaymentsreceivedonlong-terminter-entityloans;

• managementfees;

• operationalservicesprovidedbetweenentities;

• paymentsofdistributions;and

• equityissues.





– II-231 –






Dividendsfrom

relatedparties

Sales torelatedparties

Purchasesfrom

relatedparties

Amountowed by

relatedparties

Amountowed torelatedparties

2018 $000 $000 $000 $000 $000

SEA Gas 5,975 3,853 – 311 –Energy Infrastructure Investments 3,841 46,671 – 15,486 –EII 2 3,253 764 – 47 –GDI (EII) 5,772 62,053 – 7,417 –

18,841 113,341 – 23,261 –

2017SEA Gas 10,357 3,717 – 96 –Energy Infrastructure Investments 4,689 26,553 – 5,792 –EII 2 3,244 752 – 46 –GDI (EII) 4,121 51,711 99 7,094 –

22,411 82,733 99 13,028 –

At year end, APA Group had a shareholder loan receivable from SEA Gas of $0.3 million (2017: $nil).


– II-232 –



2018 2017$000 $000


Total assets 3,427,832 3,255,167



Net assets 3,295,519 3,127,898

EquityIssued capital 3,288,123 3,114,616Retained earnings 7,396 13,282

Total equity 3,295,519 3,127,898

Financial performanceProfit for the year 147,408 283,264




Due to the contingent nature of these financial guarantees no liability has been recorded (2017: $nil).




– II-233 –











• AASB 9 ‘F inanc ia l Ins t ruments ’ , and therelevant amending standards 1 January 2018 30 June 2019

• A A S B 1 5 ‘ R e v e n u e f r o m C o n t r a c t s w i t hCustomers’, and AASB 2015–8 ‘Amendments to Australian Accounting Standards-Effective date of AASB 15’ 1 January 2018 30 June 2019


As per the table above a number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2018 with earlier adoption permitted. APA Group has chosen not to early adopt the new or amended standards in preparing these consolidated financial statements.

The expected impacts of the new standards on APA Group include:

AASB 9 ‘Financial Instruments’

AASB 9 ‘Financial Instruments’ (AASB 9) is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. APA Group will apply this new standard from 1 July 2018 (financial year ended 30 June 2019). AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

APA Group has completed an assessment of the potential impact of the adoption of AASB 9 on the consolidated financial statements and does not expect the new standard to affect the classification and measurement of its financial assets or financial liabilities. The new hedge accounting rules will align the accounting for hedging instruments more closely with APA Group’s risk management practices. AASB 9 will expand the range of eligible hedging instruments, and allow for a portfolio management approach to hedge accounting. Changes in the fair value of foreign exchange forward contracts attributable to forward points, and basis spread in relation to cross currency swaps, provide the option to be deferred in a new cost of hedging reserve within equity. The deferred amounts are to be recognised against the related hedge transaction when it occurs. APA Group confirms that its current hedge relationships will qualify as continuing hedges upon the adoption of AASB 9.

AASB 9 requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as is the case under AASB 139. Based upon this assessment, aside from the additional disclosure requirements, it is not expected that AASB 9 will have any material impact on APA Group’s accounts.


– II-234 –

APA Group will apply the new rules retrospectively, except for hedge accounting which is applied prospectively, with practical expedients permitted under the standard, although no material changes are expected. A review of the current classification and measurement of financial assets and liabilities has been undertaken to see if any changes are required. However due to the nature of instruments held, no changes were identified. A detailed assessment of all current hedge relationships has been undertaken to ensure they comply under the new rules and confirm if any of the new concepts could be employed to better manage the existing risks. Once again nothing has been identified. New hedge documentation has been completed for each type of current hedge relationship and regression testing completed in the Treasury Management System for a sample of relationships to ensure no system errors or constraints result, and that effectiveness results are as expected. Recognition of impairment is also not expected to change. The history of collection rates shows that APA Group does not have an expected loss on collection of debtors or loans.

AASB 15 ‘Revenue from Contracts with Customers’

AASB 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. APA will apply this new standard from 1 July 2018 (financial year ended 30 June 2019).

APA Group has completed an assessment of the impact of the adoption of AASB 15 on the consolidated financial statements.

The key components of the assessment project included stratification of revenue streams, data gathering, review of contracts, and assessment and quantification of the expected impact.

APA Group’s approach to assessing the impact of the transition to AASB 15 centred on detailed reviews of the major contracts covering each of the revenue streams, contracts were selected based on their representativeness of and significance for that revenue stream. Each contract reviewed was assessed against the AASB 15 five-step model and other considerations under the standard. A comparison was also made against APA Group’s current accounting policies to quantify the impact. The key judgements and assumptions made have been reviewed by internal stakeholders.

Apart from providing more extensive disclosures on the Group’s revenue transactions, APA Group does not anticipate that the application of AASB 15 will have a significant impact on the financial position and/or financial performance of the Group.

AASB 16 ‘Leases’

AASB 16 ‘Leases’ (AASB 16) is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply AASB 15 at or before the date of initial application of AASB 16. APA will apply AASB 16 in the financial year beginning 1 July 2019 (financial year ended 30 June 2020).

Under AASB 16, the Group’s accounting for leases as a lessee will result in the recognition of a right-of-use (ROU) asset and an associated lease liability in the Consolidated Statement of Financial Position. The lease liability represents the present value of future lease payments, with the exception of short-term leases. An interest expense will be recognised on the lease liabilities and a depreciation charge will be recognised for the ROU assets. There will also be additional disclosure requirements under the new standard. The Group’s accounting for leases as a lessor remains unchanged under AASB 16.

APA Group has completed an initial assessment of the impact of the adoption of AASB 16 on the consolidated financial statements. This assessment covered a variety of scenarios based on the various transition options and practical expedients applied. At this stage no decision has been made as to the transition option to be taken. The key judgements and assumptions made to date have been reviewed by internal stakeholders.


– II-235 –

APA Group’s approach to assessing the impact of the transition to AASB 16 centred on data gathering, discount rate determination, detailed reviews of each lease contract, and evaluation under the requirements of AASB16.

The impact on the Group’s consolidated statement of Profit or Loss as a result of the adoption of AASB 16 will depend on, inter alia, the transition method chosen, discount rates applied, the extent to which APA Group uses the practical expedients and recognition exemptions, and any additional leases that APA Group enters into prior to 1 July 2019.

As at 30 June 2018, APA Group had non-cancellable undiscounted operating lease commitments of $72.6 million as disclosed in Note 17 of the 2018 APA Group consolidated financial statements. These commitments predominantly relate to commercial offices, motor vehicles and Crown leases which will require recognition as ROU assets and associated lease liabilities. The implementation of AASB 16 is not expected to result in the recognition of ROU assets or lease liabilities each totalling more than the reported commitments as at 30 June 2018, nor does APA Group expect the adoption of AASB 16 to materially affect its financial results or to impact its ability to comply with any of its loan covenants.


On 2 July 2018 a new $1,000 million syndicated bank facility came into effect. This new facility has two tranches maturing on 30 June 2023 and 31 December 2023 respectively.

On 13 August 2018, APA announced that it had entered into a conditional Implementation Agreement with CK Infrastructure Holdings Limited (CKI), CK Asset Holdings Limited (CKA), Power Assets Holdings Limited (PAH) and CKM Australia Bidco Pty Ltd (Bidder) under which Bidder (a wholly owned subsidiary of CKA) will acquire all of the stapled securities in APA under trust schemes (Schemes). If the Schemes are implemented, APA Securityholders will receive A$11.00 cash per stapled security. The transaction does not affect APA’s final distribution for the 2018 financial year. If the Schemes are implemented at any time after 31 December 2018, APA Securityholders will receive an additional distribution of 4.0 cents per APA stapled security for each full month in calendar 2019 which elapses prior to implementation of the Schemes (up to, and including, March 2019). Implementation of the Schemes is subject to certain conditions, including regulatory and shareholder approvals.

On 22 August 2018, the Directors declared a final distribution of 24.00 cents per security ($283.2 million) for APA Group. This is comprised of a distribution of 17.96 cents per unit from APT and a distribution of 6.04 cents per unit from APTIT. The APT distribution represents a 8.93 cents per unit fully franked profit distribution and 9.03 cents per unit capital distribution. The APTIT distribution represents a 2.90 cent per unit profit distribution and a 3.14 cents per unit capital distribution. Franking credits of 3.83 cents per security will be allocated to the franked profit distribution. The distribution will be paid on 12 September 2018.



– II-236 –









Michael FraserChairman

Debra GoodinDirector



– II-237 –


2018 2017Note $000 $000




Other comprehensive income – –



68,049 72,967


2018 2017(Restated)

Earnings per unitBasic and diluted (cents per unit) 6 6.0 6.5



– II-238 –


2018 2017Note $000 $000




Total assets 1,064,482 1,010,495



Net assets 1,064,404 1,010,482

EquityIssued capital 13 1,030,176 976,284Retained earnings 34,228 34,198

Total equity 1,064,404 1,010,482



– II-239 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESConsolidated Statement of Changes in EquityFor the financial year ended 30 June 2018

NoteIssued

capitalRetained earnings Total

$000 $000 $000

Balance at 1 July 2016 1,005,074 41,812 1,046,886Profit for the year – 72,967 72,967

Total comprehensive income for the year – 72,967 72,967Distributions to unitholders 7 (28,790) (80,581) (109,371)

Balance at 30 June 2017 976,284 34,198 1,010,482

Balance at 1 July 2017 976,284 34,198 1,010,482Profit for the year – 68,049 68,049

Total comprehensive income for the year – 68,049 68,049Issue of capital (net of issue costs) 13 121,489 – 121,489Distributions to unitholders 7 (67,597) (68,019) (135,616)

Balance at 30 June 2018 1,030,176 34,228 1,064,404



– II-240 –


2018 2017$000 $000

Cash flows from operating activitiesTrust distribution – related party 27,979 28,610Interest received – related parties 39,349 45,531Proceeds from repayment of finance leases 1,167 1,167Receipts from customers 369 274Payments to suppliers (12) (12)


Cash flows from investing activitiesProceeds from transfer of financial asset to related party – 32,566(Advances to)/receipts from related parties (54,725) 1,235

Net cash (used in)/provided by investing activities (54,725) 33,801

Cash flows from financing activitiesProceeds from issue of units 124,234 –Payment of unit issue costs (2,745) –Distributions to unitholders (135,616) (109,371)







– II-241 –

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the financial year ended 30 June 2018









5. Income tax


7. Distributions

8. Receivables

9. Payables

10. Leases




13. Issued capital









– II-242 –






Level 25580 George StreetSYDNEY NSW 2000Tel: (02) 9693 0000



This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), and also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.







– II-243 –



2018 2017$000 $000

RevenueDistributionsTrust distribution – related party 27,979 28,610

27,979 28,610

Finance incomeInterest – related parties 39,350 44,141Loss on financial asset held at fair value through profit or loss – (510)Finance lease income – related party 430 464

39,780 44,095



ExpensesAudit fees (12) (12)






5. INCOME TAX



– II-244 –


2018 2017(Restated)

cents cents



2018 2017$000 $000


2018 2017(Restated)

No. of units No. of units000 000

Adjusted weighted average number of ordinary units used in the calculation of basic and diluted earnings per unit 1,136,875 1,118,522

During March 2018, APA Group issued 65,586,479 new ordinary securities on completion of the fully underwritten pro-rata accelerated institutional tradeable renounceable entitlement offer (Entitlement Offer). The Entitlement Offer was offered at $7.70 per security, a discount to APA Group’s closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26 February 2018. The number of securities used for the current and prior period calculation of earnings per security has been adjusted for the discounted rights issue. An adjustment factor of 1.0038 has been calculated, being the closing market price per security on 23 February 2018, divided by the theoretical ex-rights price (TERP) of $8.23 per security.


– II-245 –

7. DISTRIBUTIONS


unit $000 unit $000

Recognised amountsFinal distribution paid on 13 September 2017(2017: 16 September 2016)Profit distribution (a) 3.07 34,198 3.75 41,811Capital distribution 3.69 41,107 0.63 6,976

6.76 75,305 4.38 48,787

Interim distribution paid on 14 March 2018(2017: 15 March 2017)Profit distribution (a) 3.03 33,821 3.48 38,770Capital distribution 2.38 26,490 1.96 21,814

5.41 60,311 5.44 60,584

Total distributions recognisedProfit distributions (a) 6.10 68,019 7.23 80,581Capital distributions 6.07 67,597 2.59 28,790

12.17 135,616 9.82 109,371

Unrecognised amountsFinal distribution payable on 12 September 2018 (b)

(2017: 13 September 2017)Profit distribution (a) 2.90 34,228 3.07 34,198Capital distribution 3.14 37,022 3.69 41,107

6.04 71,250 6.76 75,305

(a) Profit distributions unfranked (2017: unfranked).(b) Record date 29 June 2018.



– II-246 –


8. RECEIvABLES

2018 2017$000 $000

Finance lease receivable – related party (Note 10) 774 738

Current 774 738





9. PAYABLES





– II-247 –

10. LEASES

Finance leases

Leasing arrangements – receivablesFinance lease receivables relate to the lease of a pipeline lateral.There are no contingent rental payments due.

2018 2017$000 $000






8,511 9,249






– II-248 –

CAPITAL MANAGEMENT


2018 2017$000 $000

Non-currentAdvance to related party 948,592 893,867

Investments carried at cost:Investment in related party (a) 107,379 107,379

1,055,971 1,001,246


Financial assets are classified into the following specified categories: ‘available-for-sale’ financial assets and ‘loans and receivables’.









– II-249 –


APA Group’s corporate Treasury department is responsible for the overall management of the Consolidated Entity’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee (“ARMC”) approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. The Consolidated Entity’s ARMC ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting to the Board from the Treasury department.




(c) Liquidity risk.

Treasury as a centralised function provides the Consolidated Entity with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost, and minimises risks through the use of natural hedges and derivative instruments. The Consolidated Entity does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the Audit and Risk Management Committee approved Treasury Risk Management Policy.

(a) Market risk

The Consolidated Entity’s activities exposure is primarily to the financial risk of changes in interest rates. There has been no change to the Consolidated Entity’s exposure to market risk or the manner in which it manages and measures the risk from the previous year.


The sensitivity analysis below has been determined based on the exposure to interest rates on loans with related parties. A 100 basis points increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates within a given period of time. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were constant, the Consolidated Entity’s net profit would increase by $6,023,000 or decrease by $5,968,000 (2017: increase by $6,431,000 or decrease by $6,372,000 respectively). This is mainly attributable to the Consolidated Entity’s exposure to interest rates on its variable rate inter-entity balances. The sensitivity has decreased due to lower weighted average inter-entity balances.


– II-250 –

(b) Credit risk



(c) Liquidity risk

The Consolidated Entity’s exposure to liquidity risk is limited to other payables of $78,000 (2017: $13,000), all of which are due in less than 1 year (2017: less than 1 year).

13. ISSUED CAPITAL

2018 2017$000 $000

Units1,179,893,848 units, fully paid (2017: 1,114,307,369 units, fully paid) (a) 1,030,176 976,284

2018 2017No. of units 2018 No. of units 2017

000 $000 000 $000

MovementsBalance at beginning of financial year 1,114,307 976,284 1,114,307 1,005,074Issue of units under entitlement offer 65,586 124,234 – –Capital distributions paid (Note 7) – (67,597) – (28,790)Issue cost of units – (2,745) – –

Balance at end of financial year 1,179,893 1,030,176 1,114,307 976,284




– II-251 –

GROUP STRUCTURE

14. SUBSIDIARIES


Ownership interest

Name of entityCountry ofregistration 2018 2017

% %

Parent entityAPT Investment Trust

SubsidiaryGasNet Australia Investments Trust Australia 100 100

OTHER






2018 2017$ $




Total remuneration: Executive Director(a) 5,143,336 5,109,714



– II-252 –

Remuneration of senior executives(a),(b)


2018 2017$ $



(a) The remuneration of the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.

(b) The FY2017 total remuneration differs from the amount disclosed in the prior year due to the review of the composition of Executive KMP, refer to the remuneration report for further details.


Amounts received or due and receivable by Deloitte Touche Tohmatsu for:

Auditing the financial report 6,000 5,900Compliance plan audit 5,700 5,600Other assurance services(a) 15,990 –

27,690 11,500

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services comprise assurance services in relation to security related transactions (equity raising).


– II-253 –



















Management fees of $1,152,000 (2017: $943,000) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APTIT. No amounts were paid directly by APTIT to the Directors of the Responsible Entity.


Management fees of $1,152,000 (2017: $943,000) were reimbursed by APT.


– II-254 –



2018 2017$000 $000


Total assets 1,064,482 1,010,495



Net assets 1,064,404 1,010,482

EquityIssued capital 1,030,176 976,284Retained earnings 34,228 34,198Reserves – –

Total equity 1,064,404 1,010,482

Financial performanceProfit for the year 68,049 72,967Other comprehensive income – –







– II-255 –







Effective for annual reporting periods


Expected to be initially applied in the



• AASB15‘RevenuefromContractswithCustomers’, and AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective date of AASB 15’ 1 January 2018 30 June 2019


As per the table above a number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2018 with earlier application permitted. The Consolidated Entity has not chosen to early adopt the new or amended standards in preparing these consolidated financial statements.

The expected impacts of the new standards on the Consolidated Entity include:

AASB 9 ‘Financial Instruments’

AASB 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Consolidated Entity will apply this new standard from 1 July 2018 (financial year ended 30 June 2019). AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

The Consolidated Entity has completed an assessment of the potential impact of the adoption of AASB 9 on the consolidated financial statements and does not expect the new standard to affect the classification and measurement of its financial assets or financial liabilities. The new hedge accounting rules will align the accounting for hedging instruments more closely with APA Group’s risk management practices. The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as is the case under AASB 139. Based upon the Consolidated Entity’s assessment, aside from the additional disclosure requirements, it is not expected that AASB 9 will have any material impact to the Consolidated Entity’s accounts.


– II-256 –

Due to the nature of instruments held, no changes are required to the current classification and measurement of financial assets and liabilities. The Consolidated Entity currently has not entered into any hedge relationships, and as a result will not be impacted by the hedge accounting changes in AASB 9. Recognition of impairment is not expected to change, with historic collection rates demonstrating that the Consolidated Entity does not have an expected loss on collection of debtors or loans.

AASB 15 ‘Revenue from Contracts with Customers’

AASB 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Consolidated Entity will apply this new standard from 1 July 2018 (financial year ended 30 June 2019).

The Consolidated Entity has completed an assessment of the potential impact of the adoption of AASB 15. As the revenue of the Consolidated Entity is limited to interest earnt on inter-entity loans, distribution revenue and finance lease income, AASB 15 does not have any impact on the Consolidated Entity.

AASB 16 ‘Leases’

AASB 16 is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply AASB 15 at or before the date of initial application of AASB 16. The consolidated entity will apply AASB 16 in the financial year beginning 1 July 2019 (financial year ended 30 June 2020).

The Consolidated Entity has completed an assessment of the potential impact of the adoption of AASB 16. As the Consolidated Entity is a lessor only, the new standard will not have a material impact on the consolidated financial statements.


On 13 August 2018, APA announced that it had entered into a conditional Implementation Agreement with CK Infrastructure Holdings Limited (CKI), CK Asset Holdings Limited (CKA), Power Assets Holdings Limited (PAH) and CKM Australia Bidco Pty Ltd (Bidder) under which Bidder (a wholly owned subsidiary of CKA) will acquire all of the stapled securities in APA under trust schemes (Schemes). If the Schemes are implemented, APA Securityholders will receive A$11.00 cash per stapled security. The transaction does not affect APA’s final distribution for the 2018 financial year. If the Schemes are implemented at any time after 31 December 2018, APA Securityholders will receive an additional distribution of 4.0 cents per APA stapled security for each full month in calendar 2019 which elapses prior to implementation of the Schemes (up to, and including, March 2019). Implementation of the Schemes is subject to certain conditions, including regulatory and shareholder approvals.

On 22 August 2018, the Directors declared a final distribution for the 2018 financial year of 6.04 cents per unit ($71.3 million). The distribution represents a 2.90 cents per unit unfranked profit distribution and 3.14 cents per unit capital distribution. The distribution will be paid on 12 September 2018.



– II-257 –









Michael FraserChairman

Debra GoodinDirector



– II-258 –

B. REPORTS FROM THE AUDITORS ON THE AUDITED FINANCIAL INFORMATION OF THE TARGET GROUP OF EACH OF THE THREE YEARS ENDED 30 JUNE 2016, 2017 AND 2018

1. The fol lowing is the text of the repor t f rom Deloi t te Austra l ia , Char tered Accountants, Australia, in respect of the audited financial information of the Target Group as of and for the year ended 30 June 2016 issued on 24 August 2016.


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Deloitte Touche TohmatsuABN 74 490 121 060

Grosvenor Place225 George StreetSydney NSW 2000PO Box N250 Grosvenor PlaceSydney NSW 1220 Australia

DX: 10307SSETel: +61 (0) 2 9322 7000Fax: +61 (0) 2 9322 7001www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORTTO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST

REPORT ON THE FINANCIAL REPORT

We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the statement of financial position as at 30 June 2016, the statement of profit or loss and other comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the Trust and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 65 to 126.

Directors’ Responsibility for the Financial Report

The directors of Australian Pipeline Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 2, 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.

Liability limited by a scheme approved under Professional Standards LegislationMember of Deloitte Touche Tohmatsu Limited


– II-260 –

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Australian Pipeline Limited as responsible entity for Australian Pipeline Trust would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In our opinion:

(a) the f inancial report of Austral ian Pipel ine Trust is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and

(ii) complying with Austral ian Accounting Standards and the Corporations Regulations 2001; and

(b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.

REPORT ON THE REMUNERATION REPORT

We have audited the Remuneration Report included in pages 44 to 64 of the directors’ report of Australian Pipeline Limited as responsible entity for Australian Pipeline Trust for the year ended 30 June 2016. The directors have voluntarily prepared and presented the Remuneration Report in accordance with the requirements of 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.


– II-261 –

Opinion

In our opinion the Remuneration Report of Australian Pipeline Limited for the year ended 30 June 2016, has been prepared in accordance with the requirements of section 300A of the Corporations Act 2001.

DELOITTE TOUCHE TOHMATSU

A v GriffithsPartnerChartered AccountantsSydney, 24 August 2016


– II-262 –




INDEPENDENT AUDITOR’S REPORTTO THE UNITHOLDERS OF APT INvESTMENT TRUST

We have audited the accompanying financial report of APT Investment Trust, which comprises the statement of financial position as at 30 June 2016, the statement of profit or loss and other comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the Trust and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 135 to 154.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORT

The directors of Australian Pipeline Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 2, 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.



– II-263 –

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

AUDITOR’S INDEPENDENCE DECLARATION

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Australian Pipeline Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

OPINION

In our opinion:

(a) the financial report of APT Investment Trust is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and

(ii) complying with Austral ian Accounting Standards and the Corporations Regulations 2001; and


– II-264 –

(b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.




– II-265 –



– II-266 –





REPORT ON THE AUDIT OF THE FINANCIAL REPORT

Opinion

We have audited the financial report of Australian Pipeline Trust (the “Trust”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our r e spons ib i l i t i e s unde r t hose s t anda rds a r e f u r t he r de sc r i bed i n t he Aud i to r ’ s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.



– II-267 –

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust, would be in the same terms if given to the directors as at the time of this auditor’s report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.


– II-268 –

key Audit Matter How the scope of our audit responded to the key Audit Matter

Carrying value of Property, Plant and Equipment, Goodwill and Other Intangible Assets

As disclosed in Notes 11 and 12, at 30 June 2017 the Group’s balance sheet includes property, plant and equipment of $9.2 billion, goodwill of $1.2 billion and other intangible assets of $3.2 billion, which are allocated across several cash generating units (CGUs).

The assessment of the recoverable amount of the Group’s property, plant and equipment, goodwill and other intangible asset balances requires the exercise of significant judgement in respect of factors such as discount rates, future contract renewals, contracting of spare capacity, as well as economic assumptions such as inflation.

The outcome of this assessment could vary significantly if different assumptions were applied and as a result the evaluation of the carrying value of property, plant and equipment, goodwill and other intangible assets is a key audit matter.

Our procedures included, amongst others:

• Assessingmanagement’sdeterminationoftheGroup’s CGUs based on our understanding of the business. We also analysed the internal reporting to assess how earning streams are monitored and reported

• Understandingtheappropriatenessofmanagement’s controls over the evaluation of the carrying value of the Group’s property, plant and equipment, goodwill and other intangible assets to determine any asset impairments

• Inconjunctionwithourcorporatefinancespecialists, challenging the Group’s assumptions and estimates used to determine the recoverable amount of a sample of CGUs, including those relating to:

o forecast revenue by reference to:

• futurecontractrenewals

• contractingofsparecapacity

o operating and maintenance expenses with reference to actual costs incurred in the current period and approved budgets for forecast periods

o discount rates with reference to:

• externaldata

• Deloittedevelopeddiscountrates.

• Assessinghistoricalaccuracyofbudgetingand forecasting of the Group

• Testing,onasamplebasis,themathematicalaccuracy of the cash flow models and agreeing relevant data to approved budgets and latest forecasts

• Performingsensitivityanalysisinrelationto key assumptions, with particular focus on the discount rate and assumptions relating to contract renewals and contracting of spare capacity; and

• Assessingtheadequacyofthedisclosuresinthe financial statements.


– II-269 –


Derivative transactions and balances including the application of hedge accounting

As disclosed in Note 19, the Group has variable and fixed rate borrowings totalling $9.7 billion extending through to 2035. These borrowings are denominated in Australian, US and Canadian dollars as well as Japanese Yen, British Pounds and Euros. As a result the Group is exposed to interest rate and foreign exchange rate movements and enters into the following types of derivative financial instruments to manage those exposures:

• Interestrateswapstomitigatetheriskof rising interest rates

• Crosscurrencyinterestrateswapstomanage the currency risk associated with foreign currency denominated borrowings.

In addition, as disclosed in Note 20, revenue for the Wallumbilla Gladstone Pipeline (WGP) is denominated in US dollars. In order to manage the currency risk the Group designates US dollar borrowings (which acts as a natural hedge of the forecast US dollar denominated revenue) against a portion of the US dollar revenue stream. The Group also uses forward exchange contracts to hedge that portion of the exchange rate risk not covered by the US dollar borrowings. The Group applies hedge accounting in respect of these arrangements.

The Group’s hedging arrangements and accounting for these arrangements are complex.

In conjunction with our Treasury specialists, we performed procedures including:

• Understandingmanagement’scontrolsoverthe recording of derivative transactions and application of hedge accounting

• Testingtheaccuracyandcompletenessofderivative transactions and balances by agreeing to third-party confirmations

• Evaluatingtheappropriatenessofthevaluationmethodologies applied and testing the valuation of the derivative financial instruments on a sample basis

• Testingtheapplicationofhedgeaccountingonasample basis (including hedge effectiveness and measurement of ineffectiveness), in particular for WGP, and validating that the derivative financial instruments qualified for hedge accounting in accordance with AASB 139; and

• Assessingtheadequacyofthedisclosuresinnotes 19 and 20.


– II-270 –

Other Information

The directors of Australian Pipeline Limited (“the directors”) as responsible entity of Australian Pipeline Trust are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the Financial Report

The directors are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.


– II-271 –

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial report,whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basisof accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial report,including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial informationof the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all re la t ionships and other mat ters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.


– II-272 –

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust included in pages 48 to 66 of the directors’ report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust for the year ended 30 June 2017.

In our opinion, the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust for the year ended 30 June 2017, has been prepared in accordance with section 300A of the Corporations Act 2001.

Responsibilities

The directors have voluntarily presented the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust in accordance with the requirements of section 300A of the Corporations Act 2001. We conducted our audit in accordance with Australian Auditing Standards.




– II-273 –






Opinion

We have audited the accompanying financial report of APT Investment Trust (the “consolidated entity”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration.

In our opinion the accompanying financial report of the consolidated entity is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the year then ended; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and

The financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited


– II-274 –

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our r e spons ib i l i t i e s unde r t hose s t anda rds a r e f u r t he r de sc r i bed i n t he Aud i to r ’ s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the consolidated entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report.


Other Information

The directors of Australian Pipeline Limited (“the directors”) as responsible entity for the consolidated entity are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon.



Responsibilities of the Directors for the Financial Report



– II-275 –

In preparing the financial report, the directors are responsible for assessing the ability of the consolidated entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so.





• Obtain an understanding of internal control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the consolidated entity’s internal control.


• Conclude on the appropriateness of the directors’ use of the going concern basisof accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern.


– II-276 –




A v GriffithsPartnerChartered Accountants Sydney, 23 August 2017


– II-277 –



– II-278 –






Opinion

We have audited the financial report of Australian Pipeline Trust (the “Trust”) and its controlled entities (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our r e spons ib i l i t i e s unde r t hose s t anda rds a r e f u r t he r de sc r i bed i n t he Aud i to r ’ s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited


– II-279 –

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Australian Pipeline Limited (the “Responsible Entity”), would be in the same terms if given to the directors as at the time of this auditor’s report.


key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

key Audit MatterHow the scope of our audit responded to the key Audit Matter

Carrying value of Property, Plant and Equipment, Goodwill and Other Intangible Assets

As at 30 June 2018 the Group’s balance sheet includes property, plant and equipment (PPE) of $9.7 billion, goodwill of $1.2 billion and other intangible assets of $3.0 billion, which are allocated across several cash generating units (CGUs) as disclosed in Notes 11 and 12.

The assessment of the recoverable amount of the Group’s PPE, goodwill and other intangible asset balances requires the exercise of significant judgement in respect of factors such as discount rates, future contract renewals, contracting of spare capacity, as well as economic assumptions such as inflation.

Our procedures included, but were not limited to:

• Assessingmanagement’sdeterminationoftheGroup’s CGUs based on our understanding of the business. We have also analysed the internal reporting to assess how earning streams are monitored and reported,

• Understandingtheappropriatenessofmanagement’s controls over the evaluation of the carrying value of the Group’s PPE, goodwill and other intangible assets to determine any asset impairments,

• Challenginginconjunctionwithourcorporatefinance specialists the Group’s assumptions and estimates used to determine the recoverable amount of a sample of CGUs, including those relating to:

o forecast revenue by reference to:

• futurecontractrenewals

• contractingofsparecapacity

o operating and maintenance expenses with reference to actual costs incurred in the current period and approved budgets for forecast periods


– II-280 –

key Audit MatterHow the scope of our audit responded to the key Audit Matter

o discount rates with reference to:

• externaldata

• Deloittedevelopeddiscountrates.

• Assessinghistoricalaccuracyofmanagementsbudgeting and forecasting of the Group,

• Testingonasamplebasis,themathematicalaccuracy of the cash flow models and agreeing relevant data to approved budgets and latest forecasts, and

• Performingsensitivityanalysisinrelationtokeyassumptions, with particular focus on the discount rate and assumptions relating to contract renewals and contracting of spare capacity; and

We also assessed the appropriateness of the disclosures in Notes 11 and 12 to the financial statements.


– II-281 –


Derivative transactions and balances including the application of hedge accounting

As at 30 June 2018 the Group has variable and fixed rate borrowings totalling $9.7 billion extending through to 2035. These borrowings are denominated in Australian, US and Canadian dollars as well as British Pounds and Euros as disclosed in Note 18.

As a result, the Group is exposed to interest rate and foreign exchange rate movements and enters into the following types of derivative financial instruments to manage those exposures:

• Interestrateswapstomitigatetheriskof rising interest rates, and

• Crosscurrencyinterestrateswapstomanage the currency risk associated with foreign currency denominated borrowings.

In addition, as disclosed in Note 19, revenue for the Wallumbilla Gladstone Pipeline (WGP) is denominated in US dollars. In order to manage the currency risk the Group designates US dollar borrowings (which acts as a natural hedge of the forecast US dollar denominated revenue) against a portion of the US dollar revenue stream. The Group also uses forward exchange contracts to hedge that portion of the exchange rate risk not covered by the US dollar borrowings. The Group applies hedge accounting in respect of these arrangements which are complex.

Our procedures included, but were not limited to, engaging our Treasury specialists to assist with:

• Understandingmanagement’scontrolsoverthe recording of derivative transactions and the application of hedge accounting,

• Testingtheaccuracyandcompletenessofderivative transactions and balances by agreeing to third-party confirmations,

• Evaluatingtheappropriatenessofthevaluationmethodologies applied and testing on sample basis the valuation of the derivative financial instruments, and

• Testingonasamplebasistheapplicationofhedgeaccounting (including hedge effectiveness and measurement of ineffectiveness), in particular for WGP, and validating that the derivative financial instruments qualified for hedge accounting are in accordance with the relevant accounting standards.

We also assessed the appropriateness of the disclosures in Notes 18 and 19 to the financial statements.


– II-282 –

Other Information

The directors of the Responsible Entity (“the Directors”) are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon.





In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.





– II-283 –


• Obtain an understanding of internal control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.


• Conclude on the appropriateness of the directors’ use of the going concern basisof accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.


• Obtain sufficient appropriate audit evidence regarding the financial informationof the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.


We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all re la t ionships and other mat ters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.


– II-284 –

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report of the Responsible Entity of Australian Pipeline Trust included in pages 54 to 70 of the Directors’ Report for the year ended 30 June 2018.

In our opinion, the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust for the year ended 30 June 2018, has been prepared in accordance with section 300A of the Corporations Act 2001.

Responsibilities

The directors have voluntarily presented the Remuneration Report of the Responsible Entity of Australian Pipeline Trust in accordance with the requirements of section 300A of the Corporations Act 2001. We conducted our audit in accordance with Australian Auditing Standards.




– II-285 –






Opinion

We have audited the accompanying financial report of APT Investment Trust (the “consolidated entity”), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration.

In our opinion the accompanying financial report of the consolidated entity is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the year then ended; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and

The financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.

Basis for Opinion

We conducted our audi t in accordance with Austral ian Audit ing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the consolidated entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.



– II-286 –

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report.


Other Information

The directors of Australian Pipeline Limited (“the directors”) as responsible entity for the consolidated entity are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon.





In preparing the financial report, the directors are responsible for assessing the ability of the consolidated entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so.


– II-287 –





• Obtain an understanding of internal control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the consolidated entity’s internal control.


• Conclude on the appropriateness of the directors’ use of the going concern basisof accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern.



– II-288 –





– II-289 –

C. RECONCILIATION

The following is a line-by-line reconciliation of the consolidated statements of financial position of the Target Group (for the financial years ended 30 June 2016, 2017 and 2018) to address the differences in the Target Group’s financial information had it been prepared in accordance with the Company’s accounting policies.

The process applied in the preparation of this reconciliation is set out in the “Basis of Preparation” and “Reconciliation Process” sections below.


– II-290 –

(i)

Lin

e-b

y-li

ne

reco

nci

lia

tio

n

As at

30 Ju

ne 20

16As

at 30

June

2017

As at

30 Ju

ne 20

18

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

ted

Finan

cial

Infor

matio

n of

the

Targ

et Gr

oup

unde

r the

Comp

any’s

polic

ies

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

tedFin

ancia

l In

forma

tion

of the

Targ

et Gr

oup

unde

r the

Co

mpan

y’s

polic

ies

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

ted

Finan

cial

Infor

matio

n of

the

Targ

et Gr

oup

unde

r the

Co

mpan

y’s

polic

iesAU

D’00

0AU

D’00

0(N

ote)

AUD’

000

AUD’

000

AUD’

000

(Note

)AU

D’00

0AU

D’00

0AU

D’00

0(N

ote)

AUD’

000

Curre

nt ass

etsCa

sh an

d cash

equiv

alents

84,50

684

,506

394,5

0139

4,501

100,6

4310

0,643

Trad

e and

othe

r rece

ivable

s26

3,232

263,2

3228

9,709

289,7

0925

1,720

251,7

20Ot

her f

inanc

ial as

sets

35,14

035

,140

52,33

452

,334

55,52

555

,525

Inven

tories

24,89

124

,891

25,26

025

,260

28,53

428

,534

Othe

r13

,023

13,02

310

,527

10,52

712

,487

12,48

7

Curre

nt ass

ets42

0,792

420,7

9277

2,331

772,3

3144

8,909

448,9

09

Non-c

urren

t asse

tsCa

sh on

depo

sit2,1

492,1

49–

––

–Tr

ade a

nd ot

her r

eceiva

bles

17,28

317

,283

15,49

615

,496

14,03

014

,030

Othe

r fina

ncial

asset

s44

7,070

447,0

7045

8,773

458,7

7359

1,487

591,4

87Joi

nt ve

ntures

–17

0,408

(i)17

0,408

–22

9,693

(i)22

9,693

–24

2,768

(i)24

2,768

Assoc

iates

–26

,777

(ii)26

,777

–30

,189

(ii)30

,189

–28

,829

(ii)28

,829

Invest

ments

acco

unted

for u

sing t

he eq

uity

me

thod

197,1

85(19

7,185

)(i)

& (ii

)–

259,8

82(25

9,882

)(i)

& (ii

)–

271,5

97(27

1,597

)(i)

& (ii

)–

Prope

rty, p

lant a

nd eq

uipme

nt9,1

89,08

79,1

89,08

79,1

50,16

59,1

50,16

59,6

91,66

69,6

91,66

6Go

odwi

ll1,1

84,58

81,1

84,58

81,1

83,60

41,1

83,60

41,1

83,60

41,1

83,60

4Ot

her I

ntang

ible a

ssets

3,355

,707

3,355

,707

3,174

,282

3,174

,282

2,992

,431

2,992

,431

Othe

r28

,814

28,81

431

,415

31,41

533

,502

33,50

2

Non-c

urren

t asse

ts14

,421,8

8314

,421,8

8314

,273,6

1714

,273,6

1714

,778,3

1714

,778,3

17

Total

asset

s14

,842,6

7514

,842,6

7515

,045,9

4815

,045,9

4815

,227,2

2615

,227,2

26


– II-291 –

As at

30 Ju

ne 20

16As

at 30

June

2017

As at

30 Ju

ne 20

18

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

ted

Finan

cial

Infor

matio

n of

the

Targ

et Gr

oup

unde

r the

Comp

any’s

polic

ies

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

tedFin

ancia

l In

forma

tion

of the

Targ

et Gr

oup

unde

r the

Co

mpan

y’s

polic

ies

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

ted

Finan

cial

Infor

matio

n of

the

Targ

et Gr

oup

unde

r the

Co

mpan

y’s

polic

iesAU

D’00

0AU

D’00

0(N

ote)

AUD’

000

AUD’

000

AUD’

000

(Note

)AU

D’00

0AU

D’00

0AU

D’00

0(N

ote)

AUD’

000

Curre

nt lia

bilitie

sTr

ade a

nd ot

her p

ayab

les25

2,661

(13,84

8)(iii

)23

8,813

312,6

11(28

,914)

(iii)

283,6

9738

1,676

(33,75

4)(iii

)34

7,922

Othe

rs–

114,6

74(iv

)11

4,674

–14

5,768

(iv)

145,7

68–

139,4

01(iv

)13

9,401

Borro

wing

s40

9,829

409,8

2912

6,858

126,8

5832

9,219

329,2

19Ot

her f

inanc

ial lia

bilitie

s11

4,674

(114,6

74)

(iv)

–14

5,768

(145,7

68)

(iv)

–13

9,401

(139,4

01)

(iv)

–Pro

vision

s93

,033

93,03

393

,773

93,77

383

,629

83,62

9Un

earne

d rev

enue

13,73

513

,735

19,22

519

,225

20,92

220

,922

Provis

ion fo

r taxa

tion

–13

,848

(iii)

13,84

8–

28,91

4(iii

)28

,914

–33

,754

(iii)

33,75

4

Curre

nt lia

bilitie

s88

3,932

883,9

3269

8,235

698,2

3595

4,847

954,8

47

Non-c

urren

t liab

ilities

Trad

e and

othe

r pay

ables

3,007

3,007

4,984

4,984

5,089

5,089

Borro

wing

s9,3

14,37

39,3

14,37

39,5

73,90

79,5

73,90

79,3

21,37

79,3

21,37

7De

rivati

ve fin

ancia

l instr

umen

ts–

194,5

91(v)

194,5

91–

182,0

87(v)

182,0

87–

128,5

10(v)

128,5

10Ot

her f

inanc

ial lia

bilitie

s19

4,591

(194,5

91)

(v)–

182,0

87(18

2,087

)(v)

–12

8,510

(128,5

10)

(v)–

Defer

red ta

x liab

ilities

304,8

4930

4,849

502,2

6550

2,265

558,4

4255

8,442

Provis

ions

70,91

7(7,

017)

(vi)

63,90

069

,051

(4,64

5)(vi

)64

,406

71,95

1(5,

032)

(vi)

66,91

9Un

earne

d rev

enue

41,89

541

,895

37,23

637

,236

60,18

360

,183

Pensi

on ob

ligati

ons

–7,0

17(vi

)7,0

17–

4,645

(vi)

4,645

–5,0

32(vi

)5,0

32

Non-c

urren

t liab

ilities

9,929

,632

9,929

,632

10,36

9,530

10,36

9,530

10,14

5,552

10,14

5,552

Total

liabil

ities

10,81

3,564

10,81

3,564

11,06

7,765

11,06

7,765

11,10

0,399

11,10

0,399

Net a

ssets

4,029

,111

4,029

,111

3,978

,183

3,978

,183

4,126

,827

4,126

,827


– II-292 –

As at

30 Ju

ne 20

16As

at 30

June

2017

As at

30 Ju

ne 20

18

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

ted

Finan

cial

Infor

matio

n of

the

Targ

et Gr

oup

unde

r the

Comp

any’s

polic

ies

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

tedFin

ancia

l In

forma

tion

of the

Targ

et Gr

oup

unde

r the

Co

mpan

y’s

polic

ies

Unad

justed

Fin

ancia

l In

forma

tion

of the

Ta

rget

Grou

pRe

classi

ficati

on

Adjus

ted

Finan

cial

Infor

matio

n of

the

Targ

et Gr

oup

unde

r the

Co

mpan

y’s

polic

iesAU

D’00

0AU

D’00

0(N

ote)

AUD’

000

AUD’

000

AUD’

000

(Note

)AU

D’00

0AU

D’00

0AU

D’00

0(N

ote)

AUD’

000

Equit

yAu

strali

an Pi

pelin

e Trus

t equ

ity:

Issue

d cap

ital

3,195

,445

3,195

,445

3,114

,617

3,114

,617

3,288

,123

3,288

,123

Reser

ves

(395,3

35)

(395,3

35)

(207,7

73)

(207,7

73)

(331,1

65)

(331,1

65)

Retai

ned e

arning

s18

2,062

182,0

6260

,804

60,80

410

5,412

105,4

12

Equit

y attri

butab

le to

unith

olders

of th

e pare

nt2,9

82,17

22,9

82,17

22,9

67,64

82,9

67,64

83,0

62,37

03,0

62,37

0

Non-c

ontro

lling i

nteres

ts:AP

T Inv

estme

nt Tr

ust:

Issue

d cap

ital

1,005

,074

1,005

,074

976,2

8497

6,284

1,030

,176

1,030

,176

Retai

ned e

arning

s41

,812

41,81

234

,198

34,19

834

,228

34,22

8

Equit

y attri

butab

le to

unith

olders

of A

PT

Inv

estme

nt Tr

ust1,0

46,88

61,0

46,88

61,0

10,48

21,0

10,48

21,0

64,40

41,0

64,40

4

Othe

r non

-contr

olling

inter

est53

5353

5353

53

Total

non-c

ontro

lling i

nteres

ts1,0

46,93

91,0

46,93

91,0

10,53

51,0

10,53

51,0

64,45

71,0

64,45

7

Total

equit

y4,0

29,11

14,0

29,11

13,9

78,18

33,9

78,18

34,1

26,82

74,1

26,82

7


– II-293 –

Note: The following reclassifications are to align the classifications of the respective amounts of the relevant financial line items shown in the consolidated statement of financial position of the Target Group to those of the consolidated statement of financial position of the Group:

(i) from “Investments accounted for using equity method” of the Target Group to “Joint ventures” of the Group for joint ventures of the Target Group;

(ii) from “Investments accounted for using equity method” of the Target Group to “Associates” of the Group for associates of the Target Group;

(iii) from “Trade and other payables” of the Target Group to “Provision for taxation” of the Group for income tax payable of the Target Group;

(iv) from “Other financial liabilities (current)” of the Target Group to “Others” of the Group for derivatives of the Target Group;

(v) from “Other financial liabilities (non-current)” of the Target Group to “Derivative financial instruments” of the Group for derivatives of the Target Group; and

(vi) from “Provisions” of the Target Group to “Pension obligations” of the Group for defined benefit liability of the Target Group.

Other than the reclassification adjustments set out in the Reconciliation above, there are no material differences between the Target Group’s consolidated financial statements for each of the three years ended 30 June 2016, 2017 and 2018, compared to such financial statements had they been prepared applying the accounting policies presently adopted by the Company.

A line-by-line reconciliation of the consolidated statements of profit or loss of the Target Group for the financial years ended 30 June 2016, 2017 and 2018 has not been included in this circular as there are no differences between the accounting policies of the Target Group and the Company in respect of those statements.

Your attention is drawn to the fact that the work carried out in accordance with HKSAE 3000 is different in scope from an audit or a review conducted in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA and consequently, Deloitte Hong Kong did not express an audit opinion nor a review conclusion on the Reconciliation.

(ii) Basis of Preparation

The Reconciliation above for each of the three years ended 30 June 2016, 2017 and 2018 was prepared by restating the “Unadjusted Financial Information of the Target Group” as if it had been prepared in accordance with the accounting policies presently adopted by the Company, if any.


– II-294 –

(iii) Reconciliation Process

The Reconciliation above has been prepared by the Directors of the Company by comparing the differences between the accounting policies adopted by the Target Group for each of the three financial years ended 30 June 2016, 2017 and 2018 respectively on the one hand, and the accounting policies presently adopted by the Company on the other hand and in accordance with the basis of preparation in respect of each of the three years ended 31 December 2015, 2016 and 2017, as appropriate, and quantifying the relevant material financial effects of such differences, if any. Your attention is drawn to the fact that the Reconciliation above has not been subject to an independent audit.

Accordingly, no opinion is expressed by an auditor on whether it presents a true and fair view of the Target Group’s financial positions as at 30 June 2016, 2017 and 2018, nor its results for the years ended under the accounting policies presently adopted by the Company.

Deloi t te Hong Kong was engaged by the Company to conduct work in accordance with the Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” (“HkSAE 3000”) issued by the HKICPA on the Reconciliation above. The work consisted primarily of:

(i) comparing the “Unadjusted Financial Information of the Target Group” as set out in the Reconciliation above with the audited consolidated financial statements of the Target Group, as appropriate;

(ii) c o n s i d e r i n g t h e a d j u s t m e n t s m a d e a n d e v i d e n c e s u p p o r t i n g t h e adjustments made in arriving at the “Adjusted Financial Information of the Target Group under the Company’s Policies” also set out above in the Reconciliation, which included examining the differences between the Target Group’s accounting policies and the Company’s accounting policies; and

(iii) checking the arithmetic accuracy of the computation of the “Adjusted Financial Information of the Target Group under the Company’s Policies” in the Reconciliation above. Deloitte Hong Kong’s engagement did not involve independent examination of any of the underlying financial information. The work carried out in accordance with HKSAE 3000 is different in scope from an audit or a review conducted in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA and consequently, Deloitte Hong Kong did not express an audit opinion nor a review conclusion on the Reconciliation.


– II-295 –

Deloitte Hong Kong’s engagement was intended solely for the use of the Directors of the Company in connection with this Circular and may not be suitable for another purpose. Based on the work performed, Deloitte Hong Kong has concluded that:

(i) the “Unadjusted Financial Information of the Target Group” as set out in the Reconciliation above is in agreement with the audited consolidated financial statements of the Target Group;

(ii) the adjustments reflect, in all material respects, the differences between the Target Group’s accounting policies and the Company’s accounting policies; and

(iii) the computation of the “Adjusted Financial Information of the Target Group under the Company’s Policies” in the Reconciliation above is arithmetically accurate.


– II-296 –

D. SUPPLEMENTAL FINANCIAL INFORMATION OF THE TARGET GROUP

1. The Company sets out the following supplemental f inancial information of the Target Group, which was not included in the Target’s audited consolidated financial statements for the three financial years ended 30 June 2016, 2017 and 2018.

TRADE RECEIvABLES

Ageing analysis of trade receivables

The following is an ageing analysis of trade receivables net of allowance for doubtful debts presented based on invoices.


AUD’000 AUD’000 AUD’000

0-30 days 247,245 255,211 223,86831-60 days 648 1,662 63061-90 days 311 124 26891-120 days 2 2,102 51Over 120 days 11 14,112 4

248,217 273,211 224,821

TRADE PAYABLES

Ageing analysis of trade payables

The following is an ageing analysis of trade payables presented based on invoices.


AUD’000 AUD’000 AUD’000

0-30 days 23,934 39,189 32,09631-60 days 2,176 1,254 6,86261-90 days 474 (16) 1,37391-120 days 180 212 449Over 120 days 546 188 612

27,310 40,827 41,392

The average credit period on purchases of goods was 30 days from the end of the month in which the invoice was dated.


– II-297 –

BORROwINGS

The carrying amounts of borrowings are repayable


AUD’000 AUD’000 AUD’000

Within one year 409,829 126,858 329,219Within a period of more than one year but not exceeding two years 447,084 317,253 619,257Within a period of more than two years but not exceeding five years 1,443,383 1,026,635 2,751,321Within a period of more than five years 7,423,906 8,230,019 5,950,799

9,724,202 9,700,765 9,650,596

2. The Company sets out the following supplemental information of the Target Group, which was not included in the management discussion and analysis of the results of the Target Group for the years ended 30 June 2016, 2017 and 2018 from the 2016, 2017 and 2018 annual reports of the Target.

(a) Number and remuneration of employees, remuneration policies, bonus and share options schemes and training schemes

At year end 30 June 2016, 2017 and 2018, the Target Group (including its subsidiaries) employed, respectively, approximately 1,537, 1,535 and 1,575 employees and remuneration for the year (excluding directors’ emoluments) amounted to, respectively, approximately AUD246 million, AUD250 million and AUD260 million.

The Target Group ensures that the pay levels of its employees are competitive. Approximately 1,200 of its employees as at 30 June 2018 were rewarded on an individual performance related basis, together with reference to the profitability of the Target Group, remuneration benchmarks in the industry, and prevailing market conditions within the general framework of the Target Group’s salary and bonus system.

The remaining approximately 500 employees as at 30 June 2018 are employed under industrial instruments that are structured along a framework of skill based pay, with no bonuses applicable.

App 16 para 32(7)


– II-298 –

(b) Charges on assets

There were no charges on the assets of the Target Group for the years ended 30 June 2016, 2017 and 2018.

(c) Gearing ratio

The following table sets forth the Target Group’s net debt, net debt plus equity and gearing ratio for the years ended 30 June 2016, 2017 and 2018:


Net debt AUD’000 9,637,547 9,306,264 9,549,953

Net debt plus equity AUD’000 13,666,658 13,284,447 13,676,780

Gearing ratio % 66.4 67.4 65.4

App 16 para 32(8)

App 16 para 32(10)


– II-299 –

E. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

For the purpose of this section only, unless the context requires otherwise, references to the “Company”, “we”, “us” and “our” refer to the Target and references to “$” and “cent” refer to AUD and Australian cent.

1. The following is an extract of the management discussion and analysis of the results of the Target Group for the year ended 30 June 2016, from the 2016 annual report of the Target issued on 24 August 2016.

LR14.67(7)


– II-300 –

FINANCIAL OvERvIEw

Earnings before interest and tax (“EBIT”) and EBIT before depreciation and amortisation (“EBITDA”) excluding significant items are financial measures not prescribed by Australian Accounting Standards (“AIFRS”) and represent the profit under AIFRS adjusted for specific significant items. The Directors consider these measures to reflect the core earnings of the Consolidated Entity, and these are therefore described in this report as ‘normalised’ measures.

For the financial year to 30 June 2016 APA reported EBITDA of $1,330.5 million, an increase of 61.8% or $508.3 million on the previous corresponding period normalised EBITDA of $822.3 million1.

Revenue (excluding pass-through revenue) increased by $533.0 million to $1,656.0 million, an increase of 48.0% on the previous corresponding period (FY2015: $1,119.2 million).

Increased revenues and EBITDA were primarily attributable to:

• afullyearcontributionfromtheWallumbillaGladstonePipeline;

• ful l year contr ibution from the expanded East Coast Grid (South WestQueensland Pipeline in particular);

• part-year contributions from the Ethane Pipeline and the Diamantina andLeichhardt Power Stations acquired during the year; and

• commissioningoftheEasternGoldfieldsPipelineinNovember2015.

These increases were partially offset by an increase in corporate costs, driven mainly by the North East Gas Interconnect project and APA’s bid for the Iona gas storage facility during the financial year. Ongoing compliance costs relating to a number of inquiries into the gas market and costs associated with an externally facilitated strategy and planning review undertaken during the year also contributed to the increase.

Depreciation, amortisation and interest costs each increased by 150.2% and 56.6% respectively, as a result of the acquisition of the Wallumbilla Gladstone Pipeline, adding further significant fixed and intangible assets that are depreciated and amortised for the full year and due to the increase in debt as part of the funding of the acquisition. This resulted in a decrease of profit after tax by 12.0% to $179.5 million (FY2015 (normalised): $203.9 million).

App 16para 32(5)

1 Excluding significant i tems of $447.2 mill ion relating mainly to profit on the sale of APA’s shareholding in Australian Gas Networks Limited, previously Envestra Limited.


– II-301 –

An important primary measure of the success of APA’s business and the execution of its strategy is that of operating cash flow, which was $862.4 million for FY2016. This represents an increase of 58.2% or $317.4 million over the previous year (FY2015 (normal ised) : $545.0 mil l ion) , wi th operat ing cash f low per security increasing by 41.2%, or 22.6 cents, to 77.4 cents per security (FY2015 (normalised): 54.8 cents per security).

The following table provides a summary of key financial data for FY2016 and includes key reconciling items between statutory results and the normalised financial measures.

30 June 2016($000)

Significant

30 June 2015($000)

SignificantChanges in

Statutory accountsChanges in

Normalised accounts Statutory items Normalised Statutory items (2) Normalised $000 % $000 %

Total revenue 2,094,304 – 2,094,304 1,553,615 – 1,553,615 540,689 34.8% 540,689 34.8% Pass-through revenue(1) 438,330 – 438,330 434,382 – 434,382 3,948 0.9% 3,948 0.9%

Total revenue excluding pass-through 1,655,974 – 1,655,974 1,119,233 – 1,119,233 536,741 48.0% 536,741 48.0%

EBITDA 1,330,543 – 1,330,543 1,269,490 447,240 822,250 61,053 4.8% 508,293 61.8% Depreciation and amortisation expenses (520,890) – (520,890) (208,200) – (208,200) (312,690) (150.2%) (312,690) (150.2%)

EBIT 809,653 – 809,653 1,061,290 447,240 614,050 (251,637) (23.7%) 195,603 31.9% Finance costs and interest income (507,658) – (507,658) (324,162) – (324,162) (183,496) (56.6%) (183,496) (56.6%)

Profit before income tax 301,995 – 301,995 737,128 447,240 289,888 (435,133) (59.0%) 12,107 4.2% Income tax (expense) / benefit (122,524) – (122,524) (177,198) (91,222) (85,976) – 30.9% – (42.5%)

Profit after income tax 179,471 – 179,471 559,930 356,018 203,912 (380,307) (67.9%) (24,441) (12.0%)

Operating cash flow (3) 862,435 – 862,435 562,190 17,201 544,989 300,245 53.4% 317,446 58.2% Operating cash flow per security (cents) 77.4 77.4 56.5 54.8 20.9 37.0% 22.6 41.2% Earnings per security (cents) 16.1 16.1 56.3 20.5 (40.2) (71.4%) (4.4) (21.5%) Distribution per security (cents) 41.5 41.5 38.0 38.0 3.5 9.2% 3.5 9.2% Distribution payout ratio (4) 53.6% 53.6% 66.6% 68.8% (13.0%) (19.5%) (15.1%) (22.0%) Weighted average number of securities (000) 1,114,307 1,114,307 995,245 995,245 119,062 12.0% 119,062 12.0%


– II-302 –

Notes: Numbers in the table may not add up due to rounding.

(1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited (“AGN”, formerly Envestra Limited) and GDI in respect of the operation of the AGN and GDI assets respectively.

(2) Significant items: 2015 relates to a net gain realised from the sale of APA’s investment in AGN as well as the successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited.

(3) Operating cash flow = net cash from operations after interest and tax payments.

(4) Distribution payout ratio = total distribution payments as a percentage of normalised operating cash flow.

BUSINESS SEGMENT PERFORMANCES AND OPERATIONAL REvIEw

Statutory reported revenue and EBITDA performance of APA’s business segments is set out in the table below.

30 June2016

30 June2015 Changes

$000 $000 $000 %

Revenue (continuing businesses) Energy Infrastructure East Coast Grid: Queensland 939,963 388,916 551,047 141.7% East Coast Grid: NSW 143,427 137,998 5,429 3.9% East Coast Grid: Victoria 152,991 163,592 (10,601) (6.5%) East Coast Grid: South Australia 2,871 2,725 146 5.4% Northern Territory 28,843 27,877 966 3.5% Western Australia 260,481 265,972 (5,491) (2.1%)

Energy Infrastructure total 1,528,576 987,080 541,496 54.9% Asset Management 95,430 85,056 10,374 12.2% Energy Investments 28,271 21,784 6,487 29.8%

Total segment revenue 1,652,277 1,093,920 558,357 51.0% Pass-through revenue 438,330 434,382 3,948 0.9% Unallocated revenue (1) 3,697 24,322 (20,625) (84.8%) Divested business (2) – 991 (991) (100.0%)

Total revenue 2,094,304 1,553,615 540,689 34.8%

App 16para 32(3),App 16para 32(4),App 16para 32(6)


– II-303 –

30 June2016

30 June2015 Changes

$000 $000 $000 %

EBITDA (continuing businesses) Energy Infrastructure East Coast Grid: Queensland 855,753 340,131 515,622 151.6% East Coast Grid: NSW 121,709 120,808 901 0.7% East Coast Grid: Victoria 120,583 130,170 (9,587) (7.4%) East Coast Grid: South Australia 2,536 1,940 596 30.7% Northern Territory 17,460 17,954 (494) (2.8%) Western Australia 217,558 212,604 4,954 2.3%

Energy Infrastructure total 1,335,599 823,607 511,992 62.2% Asset Management 53,858 49,448 4,410 8.9% Energy Investments 27,796 21,783 6,012 27.6% Corporate costs (86,710) (73,579) (13,131) 17.8%

Total segment EBITDA 1,330,543 821,259 509,284 62.0% Divested business (2) – 991 (991) (100.0%)

Total EBITDA before significant items 1,330,543 822,250 508,293 61.8% Significant items (3) – 447,240 (447,240) (100.0%)

Total EBITDA 1,330,543 1,269,490 61,053 4.8%


(1) Interest income is not included in calculation of EBITDA, but nets off against interest expense in calculating net interest cost.

(2) Investment in Australian Gas Networks Limited (“AGN”) sold in August 2014.

(3) Significant items: For FY2015, these relate to net proceeds realised from the sale of APA’s investment in AGN as well as successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited.

APA’s financial performance during the financial year reflects solid operations and continued investment in our assets.

Total segment EBITDA, which is earnings from APA’s continuing businesses, increased by $509.3 million, or 62.0%, to $1,330.5 million, over FY2015 figure of $821.3 million).

APA derives its revenue through a mix of regulated revenue, long-term negotiated revenue contracts, asset management fees and investment earnings. Earnings are underpinned by solid cash flows generated from high quality, geographically diversified assets and a portfolio of highly creditworthy customers.


– II-304 –

(a) Energy Infrastructure

The Energy Infras t ructure segment includes the in terconnected energy infrastructure footprint across the mainland of Australia and includes gas transmission, gas compression and storage assets and a number of other wholly owned energy infrastructure assets. During the financial year, the Ethane Pipeline and the Diamantina and Leichhardt Power Stations were transferred into this segment from the Energy Investment segment, as APA gained full ownership of these assets. These acquisitions were in line with APA’s strategy to continue to invest in energy infrastructure that is underpinned by long term contracts from highly creditworthy counterparties.

This segment contributed 92.5% of group revenue (for continuing businesses, exc luding pass- through) and 94 .2% of group EBITDA (for cont inuing businesses and before corporate costs) during the financial year. Revenue (excluding pass-through revenue) was $1,528.6 million, an increase of 54.9% on the previous year (FY2015: $987.1 million). EBITDA (for continuing businesses, before corporate costs) increased by 62.2% on the previous year to $1,335.6 million (FY2015: $823.6 million). The majority of revenues in the Energy Infrastructure segment is derived from either regulatory arrangements or long term capacity-based contracts.

Regulatory arrangements on regulated assets are reviewed every five years. A national regulatory regime includes mechanisms for regulatory pricing and is encapsulated in the National Gas Law and National Gas Rules. The economic regulation aspects of the regime apply to most gas distribution networks and a number of gas transmission pipelines in Australia.

The regime provides for two forms of regulation based on a pipeline’s relative market power – full regulation and light regulation. For assets under full regulation, the regulator approves price and other terms of access for standard (“reference”) services as part of an access arrangement process, such that the asset owner has a reasonable opportunity to recover at least the efficient costs of owning and operating the asset to provide the reference services. Access arrangement periods usually run for five years. For assets under light regulation, contractual terms (including price) are negotiated between the service provider and customer with recourse to arbitration by the regulator in the absence of agreement.

Contracted revenues are sourced from unregulated assets and assets under light regulation as well as assets under full regulation. Contracts generally entitle customers to capacity reservation, with the majority of the revenue fixed over the term of the relevant contract. There is typically a small portion of the contract subject to throughput volume. The split between capacity charge and throughput charge differs between contracts and generally ranges from 85%/15% to 100%/0%.

App 16para 32(5)


– II-305 –

During the financial year, 75% of Energy Infrastructure revenue (excluding pass-through) was from capacity reservation charges from term contracts, 6% from other contracted fixed revenues and 7% from throughput charges and other variable components. Given the dynamic east coast gas market, there were additional revenues from provision of flexible short term services, accounting for around 2.0%. The portion of APA’s revenue that is regulated has decreased to about 10% of FY2016 Energy Infrastructure revenue.

The increase in FY2016 earnings for Energy Infrastructure was primarily due to the full year contribution of the Wallumbilla Gladstone Pipeline (acquired June 2015), approximately seven months’ contribution from the Eastern Goldfields Pipeline (commissioned November 2015), three months’ EBITDA contribution from the Diamantina and Leichhardt Power Stations (acquired March 2016) and approximately two and a half months’ EBITDA contribution from the Ethane Pipeline (acquisi t ion completed June 2016) as well as contributions from various other expansions that commissioned during the period.

APA manages its counterparty risk in a variety of ways. One aspect is to consider customers’ credit ratings. During FY2016, around 94% of revenue was received from investment grade counterparties. Diversification of customer base is another – during FY2016, 56% from energy sector customers (includes BG Group, on the Wallumbilla Gladstone Pipeline in particular); 29% of revenue was from customers in the utility sector; 12% from resources sector customers; and 3% from industrial customers. Revenues by customer industry segment changed from the majority sourced from utility customers in FY2015 to the majority coming from energy customers in FY2016, reflecting the impact of the long term contracts on the Wallumbilla Gladstone Pipeline.

APA’s Integrated Operations Centre (“IOC”) in Brisbane is now the operations control centre for APA’s transmission pipeline assets across the country. Centralised control at APA’s IOC, which houses a multi-disciplinary team of pipeline controllers, engineers, technicians and commercial operations specialists, has enabled more agile implementation of customer needs and allows APA to ensure that gas is moved to where it is required by customers in the most timely and efficient manner. The IOC, coupled with our unique customer management system, APA Grid, allows APA to offer innovative services to customers.

East Coast Grid + Northern Territory

APA’s 7,500 plus kilometre integrated pipeline grid on the east coast of Austral ia has the abil i ty to transport gas seamlessly from mult iple gas production facilities to gas users across four states and the ACT, as well as to the export LNG market which has developed out of Gladstone. With the proposed construction of the Northern Gas Pipeline, APA’s Northern Territory assets will in the future be connected to the East Coast Grid.


– II-306 –

During FY2016, APA purchased the remaining 50% stake in the Diamantina and Leichhardt Power Stations, adding further complementary assets to the East Coast Grid that will continue to enhance our service offering to our customers on the east coast of Australia.

Bi-directional and multi-asset services across our interconnected East Coast Grid have meant that APA is now a “one-stop shop” for many energy producers and users. Customers have the flexibility to access 40 receipt points and approximately 100 delivery points across the East Coast Grid.

APA has continued to invest in pipeline assets and services, commencing hub services at the Moomba gas hub, in addition to the Wallumbilla hub, and providing enhanced information transparency to the market via APA’s website.

FY2016 saw a material increase in earnings from assets in Queensland. This was largely driven by acquisitions (full year benefit from Wallumbilla Gladstone Pipeline and three months contribution from Diamantina and Leichhardt Power Stations). This was partially offset by a slight reduction in volumes on the Carpentaria Gas Pipeline due to reduced deliveries to power generators off the pipeline, given that the Diamantina Power Station is a more efficient power station than the previous incumbent, Mica Creek.

Contracts from phase 1 of the Victoria Northern Interconnect expansion project contributed for the full financial year. Revenue generated from these contracts was recorded across NSW and Victoria. Revenue and EBITDA in Victoria decreased in FY2016 compared to last year, partially due to weaker volumes and non-recurrence of a one-off item during FY2015.

APA also purchased the remaining 94% of the Ethane Pipeline Income Fund that it did not own during FY2016. The Ethane Pipeline now forms part of the Energy Infrastructure segment.

During the financial year, APA’s assets in the Northern Territory continued to perform to expectations.

Western Australia

In Western Australia, APA’s assets serve a variety of customers in the resources, industrial and utility sectors, mainly in the Perth, Pilbara and Goldfields regions.

EBITDA from APA’s western assets for the financial year was up slightly by 2.3% compared with the previous corresponding period.

App 16para 32(5)


– II-307 –

The Eastern Goldf ie lds Pipel ine (“EGP”) , which was commissioned in November 2015, contributed seven months earnings from gas transportation agreements with AngloGold Ashanti. A new agreement to transport gas to the Gold Fields Limited owned Granny Smith gold mine commenced in April 2016 and contributed three months earnings. With over 1,800km of pipeline infrastructure able to securely and reliably transport gas to the Goldfields mining region, APA continues to work with interested parties on other opportunities in the region.

Further, earnings from the Mondarra Gas Storage Facility increased due to addi t ional capaci ty genera ted through an in jec t ion/wi thdrawal wel l enhancement project that was contracted to an existing customer. There continues to be interest from the market for gas storage services, which enables customers to manage their gas portfolios effectively.

These increases were partially offset by a reduction in revenue from the Goldfields Gas Pipeline (“GGP”) for the current period, reflecting tariff reductions contained in the f inal decision by the Economic Regulat ion Authority (“ERA”) on the access arrangement for the GGP that was announced on 30 June 2016. Whilst cash flow was not impacted during the year due to the timing of the final decision, the ultimate outcome has been provided for in the FY2016 results.

(b) Asset Management

APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are Australian Gas Networks Limited (“AGN”), Energy Infrastructure Investments and GDI (EII). Asset management services are provided to these customers under long term contracts.

Revenue (excluding pass-through revenue) from asset management services increased by $10.4 million or 12.2% to $95.4 million (FY2015: $85.1 million) and EBITDA (for continuing businesses, excluding corporate costs) increased by $4.4 million or 8.9% to $53.9 million (FY2015: $49.4 million).

This increase in revenue and EBITDA is due to organic growth, reflecting increases in connections and asset management fees. This was partially offset by low gas volumes in the second half of FY2016, mainly due to a milder winter, which affects management fees earnt.

The gas distribution businesses of the bulk of AGN and GDI have seen solid connection growth through continued investment in new housing estates and high rise apartment developments as natural gas continues to be a fuel of choice for cooking, hot water and heating in these markets.


– II-308 –

C u s t o m e r c o n t r i b u t i o n s w e r e i n - l i n e w i t h t h e l o n g t e r m a v e r a g e o f approximately $10 million per annum. APA continues to expect annual swings in customer contributions, as these are driven by customers’ work programmes and requirements.

APA sold its 33.05% stake in AGN in August 2014, however, the operating and maintenance agreements remain on foot until 2027.

(c) Energy Investments

APA has interests in a number of complementary energy investments across Australia.

APA’s ability to manage these investments and provide operational and/or corporate support services gives it flexibility in the way it grows the business and harnesses expertise in-house. It provides options depending on opportunities available, energy market conditions and capital markets environment.

During the year, two of the assets that were previously managed under Energy Investments were acquired in full and transferred to Energy Infrastructure as wholly owned assets of APA.

• On31March2016,APAcompleted the acquisitionof the50% interest inDiamantina and Leichhardt Power Stations that it did not already own.

• On 16 June 2016, APA completed the acquisition of the 94% interest inthe Ethane Pipeline Income Trust that it did not already own, by way of an off-market takeover.

Both acquisitions fit with APA’s growth strategy to build out its energy i n f r a s t r u c t u r e b u s i n e s s a n d t o l e v e r a g e i n - h o u s e a s s e t m a n a g e m e n t , development and operational capabilities. Both of these transactions are earnings per security accretive and make sense to APA, in light of market conditions and strategic benefit to APA.

In August 2016, APA acquired a 50% interest in the Mortlake Pipeline via a stake in the newly established SEA Gas (Mortlake) Partnership. The pipeline was commissioned in January 2011, and provides gas to the 550MW open cycle gas turbines at Mortlake Power Station. SEA Gas (Mortlake) Partnership and Origin have entered into long term contracts for the provision of transmission and storage services on the pipeline.

In terms of numbers, EBITDA from continuing investments increased by 4.8% to $22.8 million (FY2015: $21.8 million).

App 16para 32(5)

App 16para 32(5)

App 16para 32(5)


– II-309 –

(d) Corporate Costs

Corporate costs for the financial year increased by $13.3 million over the previous corresponding period to $86.7 million (FY2015: $73.6 million). This increase was primarily due to a number of one-off items including costs related to APA’s involvement in the Northern Territory’s NEGI process, APA’s unsuccessful bid for the Iona Gas Storage Facility, costs incurred in relation to a number of ongoing governmental enquiries into the gas market as well as an externally facilitated strategy and planning review undertaken during the year.

CAPITAL AND INvESTMENT EXPENDITURE

Capital and investment expenditure for FY2016 totalled $673.6 million. Of this, investment expenditure of $339.9 million related to the acquisitions during the year of Diamantina and Leichhardt Power Stations and the Ethane Pipeline, which have been described above.

Total capital expenditure (including stay-in-business capital expenditure but excluding acquisitions and other investing cash flows) for FY2016 was $333.7 million compared with $396.3 million last year. Growth project expenditure of $281.0 million (FY2015: $343.1 million) was related to the following projects during the year:

• construction of the Eastern Goldfields Pipeline in Western Australia, whichwas completed during the financial year ahead of schedule;

• completion of a further connection to Granny Smith gold mine on the EasternGoldfields Pipeline in February 2016;

• completion of bi-directional projects on Moomba Sydney Pipeline and RomaBrisbane Pipeline, with the main pipelines on APA’s East Coast Grid now all bi-directional;

• continued works on the Victorian-Northern Interconnect expansion project,which will, when complete, expand the interconnect to 200 TJ/day in a northerly direction; and

• completion of an injection/withdrawal enhancement project at the MondarraGas Storage Facility, on the back of an extension and additional contract with an existing customer.

APA’s g rowth cap i t a l expend i tu r e con t i nues t o gene ra l l y be e i t he r f u l l y underwritten through long-term contractual arrangements or have regulatory approval through a relevant access arrangement.

App 16para 32(9)


– II-310 –

Capital and investment expenditure for the financial year is detailed in the table below.

Capital and investment expenditure (1) Description of major projects 30 June 2016 30 June 2015

($ million) ($ million)

Growth expenditureRegulated VNI looping and compression; various upgrades 130.9 136.1

Non-regulated Queensland RBP bi-directional flow, SWQP easternhaul,

Wallumbilla compression 14.0 104.4 New South Wales Culcairn compressor, MSP reverse flow 4.8 12.1 Western Australia EGP, Mondarra additional well, Granny Smith

metering 97.6 64.2 Other 33.7 29.0

Sub-total unregulated capex 150.1 209.7

Total growth capex 281.0 345.8

Stay-in business capex 52.7 50.6

Total capital expenditure 333.7 396.3

Acquisitions WGP stamp duty, DPS, EPX 340.3 5,866.8 Other investing cash flows Proceeds from sale of PP&E (0.4) 21.2

Total investment expenditure 339.9 5,888.0

Total capital and investment expenditure 673.6 6,284.3


(1) The capital expenditure shown in this table represents actual cash payments as disclosed in the cash flow statement, and excludes accruals brought forward from the prior period and carried forward to next period.

APA conducted an externally facilitated strategy and planning review during FY2016 and identified significant and ongoing opportunities for growth over the longer term.

As par t of th is review, APA has ident i f ied around $1.5 bi l l ion of organic opportunities in the near term, across pipeline extensions and expansions (circa $700 million), expansion of its renewables and generation foot print (circa $500 million) and expansion of its midstream asset foot print (circa $300 million).


– II-311 –

APA’s growth strategy will continue to be considered with the same principles and criteria that APA has always adhered to:

• ensureappropriatefundingandcapitalstructure;

• enteringintocontractswithstrongcounterparties;

• maintainappropriateriskstructure;and

• leveragein-houseoperationalexpertise.

APA will also continue to assess the appropriateness of international opportunities.

FINANCING ACTIvITIES

(a) Capital Management

As at 30 June 2016, APA had 1,114,307,369 securities on issue. This was unchanged from 30 June 2015.

During the financial year, APA extended the term to maturity on its syndicated and bilateral bank facilities by between 12 and 24 months and entered into five new bilateral bank facilities for terms of between two and five years providing $350 million of further committed debt funding. APA repaid the $185.6 million (US$122.0 million) of US Private Placement Notes that matured in September 2015. This has resulted in the reduction of the proportion of fixed or hedged interest rate exposures within APA’s drawn debt portfolio, which is outlined further below.

APA’s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 7.4 years at 30 June 2016. APA’s gearing2 of 66.4% at 30 June 2016 was up on the 63.4% at 30 June 2015 due primarily to the acquisition of the Ethane Pipeline and the Diamantina and Leichhardt Power Stations. APA remains well positioned to fund its planned organic growth activities from available cash and committed resources.

As at 30 June 2016, APA had over $754 million in cash and committed undrawn facilities available to meet the continued capital growth needs of the business.

APA has a prudent treasury policy which requires conservative levels of hedging of interest rate exposures to minimise the potential impacts from adverse movements in interest rates. Other than noted below, all interest rate and foreign currency exposures on debt raised in foreign currencies have been hedged.

App 16 para 32(1)App 16 para 32(2)

App 16 para 32(9)

App 16 para 32(11)

2 For the purpose of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at respective inception dates.


– II-312 –

The majority of the revenues to be received over the next 20 years from the foundation contracts on the Wallumbilla Gladstone Pipeline will be received in USD. The US$3.7 billion of debt raised to fund that acquisition is being managed as a “designated hedge” for these revenues and therefore has been retained in USD. Net USD cash flow (after servicing the USD interest costs) that is not part of that “designated relationship” will continue to be hedged into AUD on a rolling basis for an appropriate period of time, in-line with APA’s treasury policy. To date, the following net USD cash flow hedging has been undertaken:

PeriodAverage forward

USD/AUD exchange rate

FY2017 0.7381FY2018 0.72821H FY2019 (to Dec 2018) 0.6716

A large portion of the net revenue from March 2019 is in that designated hedge relationship with the USD debt and as such, when that revenue is receivable, will be recognised in the P&L at an average rate of around 0.78.

APA also enters into interest rate hedges for a proportion of the interest rate exposure on its floating rate borrowings. As at 30 June 2016, 86.5% (30 June 2015: 94.0%) of interest obligations on gross borrowings was either hedged into or issued at fixed interest rates for varying periods extending out to 2035.

(b) Borrowings and finance costs

As at 30 June 2016, APA had borrowings of $9,037.3 million ($8,642.8 million at 30 June 2015) from a mix of syndicated and bilateral bank debt facilities, US Private Placement Notes, Medium Term Notes in several currencies, Australian Medium Term Notes, United States 144A Notes and APA Group Subordinated Notes.

Net finance costs increased by $183.5 million, or 56.6%, to $507.7 million (FY2015: $324.2 mil l ion). The increase is primari ly due to having the addit ional US$3.7 bi l l ion of debt issued in March 2015 to support the acquisition of the Wallumbilla Gladstone Pipeline for the full 2016 financial year. The average interest rate (including credit margins)3 applying to drawn debt was 5.64% for the current period (FY2015: 6.76%).

APA’s interest cover ratio for the current period was 2.6 times4 (June 2015: 2.6 times). This remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times.


4 For the calculation of interest cover, significant items are excluded from the EBITDA used.


– II-313 –



– II-314 –

FINANCIAL OvERvIEw

Earnings before interest and tax (EBIT) and EBIT before depreciat ion and amortisation (EBITDA) excluding significant items are financial measures not prescribed by Australian Accounting Standards (AIFRS) and represent the profit under AIFRS adjusted for specific significant items. The Directors consider these measures to reflect the core earnings of the Consolidated Entity, and therefore these are described in this report as ‘normalised’ measures.

For the financial year to 30 June 2017 APA reported EBITDA of $1,470.1 million, an increase of 10.5% or $139.6 million on the previous corresponding period EBITDA of $1,330.5 million.

Total revenue (excluding pass-through revenue) increased by $232.3 million to $1,888.3 million, an increase of 14.0% on the previous corresponding period (FY2016: $1,656.0 million).


• a full year contribution from the Eastern Goldfields Pipeline, Ethane Pipelineand the Diamantina and Leichhardt Power Stations (DPS);

• contributions from various new contracts that commenced on the East CoastGrid; and

• a decrease in corporate costs, where the FY2016 results included certain one-off items.

Most significantly, during FY2017, APA announced in excess of $1.2 billion of new growth projects to be commissioned over the next 2 years.

All of these projects will contribute to future operating cash flow, which in FY2017 was $973.9 million. This represents an increase of 12.9% or $111.5 million over the previous year (FY2016: $862.4 million), with operating cash flow per security increasing by 12.9%, or 10 cents, to 87.4 cents per security (FY2016: 77.4 cents per security).

App 16 para 32(3)


– II-315 –

The following table provides a summary of key financial data for FY2017.

30 June2017

30 June2016 Changes

$000 $000 $000 %

Total revenue 2,326,420 2,094,304 232,116 11.1%Pass-through revenue (1) 438,140 438,330 (190) –

Total revenue excluding pass-through 1,888,280 1,655,974 232,306 14.0%

EBITDA 1,470,122 1,330,543 139,579 10.5%Depreciation and amortisation expenses (570,021) (520,890) (49,131) (9.4%)

EBIT 900,101 809,653 90,448 11.2%Finance costs and interest income (513,767) (507,658) (6,109) (1.2%)

Profit before income tax 386,334 301,995 84,339 27.9%Income tax (expense)/benefit (149,488) (122,524) (26,964) (22.0%)

Profit after income tax 236,846 179,471 57,375 32.0%

Operating cash flow (2) 973,936 862,435 111,501 12.9%Operating cash flow per security (cents) 87.4 77.4 10.0 12.9%Earnings per security (cents) 21.3 16.1 5.2 32.3%Distribution per security (cents) 43.5 41.5 2.0 4.8%Distribution payout ratio (3) 49.8% 53.6% (3.8%) (7.1%)Weighted average number of securities (000) 1,114,307 1,114,307 – –


(1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited (AGN) and GDI in respect of the operation of the AGN and GDI assets respectively.


(3) Distribution payout ratio = total distribution applicable to the financial year as a percentage of operating cash flow.


– II-316 –



30 June2017

30 June2016 Changes

$000 $000 $000 %

RevenueEnergy Infrastructure East Coast: Queensland 1,114,428 939,963 174,465 18.6% East Coast: NSW 176,000 143,427 32,573 22.7% East Coast: Victoria 156,946 152,991 3,955 2.6% East Coast: South Australia 2,958 2,871 87 3.0% Northern Territory 30,932 28,843 2,089 7.2% Western Australia 291,728 260,481 31,247 12.0%

Energy Infrastructure total 1,772,992 1,528,576 244,416 16.0%Asset Management 86,424 95,430 (9,006) (9.4%)Energy Investments 24,382 28,271 (3,889) (13.8%)

Total segment revenue 1,883,798 1,652,277 231,521 14.0%Pass-through revenue 438,140 438,330 (190) –Unallocated revenue (1) 4,482 3,697 785 21.2%

Total revenue 2,326,420 2,094,304 232,116 11.1%

EBITDAEnergy Infrastructure East Coast: Queensland 925,366 855,753 69,613 8.1% East Coast: NSW 149,484 121,709 27,775 22.8% East Coast: Victoria 123,008 120,583 2,425 2.0% East Coast: South Australia 2,319 2,536 (217) (8.6%) Northern Territory 18,771 17,460 1,311 7.5% Western Australia 234,724 217,558 17,166 7.9%

Energy Infrastructure total 1,453,672 1,335,599 118,073 8.8%Asset Management 58,719 53,858 4,861 9.0%Energy Investments 24,382 27,796 (3,414) (12.3%)Corporate costs (66,651) (86,710) 20,059 23.1%

Total EBITDA 1,470,122 1,330,543 139,579 10.5%



App 16 para 32(3),App 16para 32(4),App 16para 32(6)


– II-317 –

APA’s financial performance during the financial year reflects solid operations and continued investment in our assets.

Total segment EBITDA increased by $139.6 million, or 10.5%, to $1,470.1 million, over the FY2016 result of $1,330.5 million.

APA derives its revenue through a mix of regulated revenue, long-term negotiated revenue contracts, asset management fees and investment earnings. Earnings are underpinned by solid cash flows generated from high quality, geographically diversified assets and a portfolio of highly creditworthy customers.


The Energy Infras t ructure segment includes the in terconnected energy infrastructure footprint across the mainland of Australia and includes gas transmission, gas compression, processing and storage assets, renewable energy power generation, and gas-fired power generation.

This segment contributed 94.1% of group revenue (excluding pass-through) and 94.6% of group EBITDA (before corporate costs) during the financial year. Revenue (excluding pass-through revenue) was $1,773.0 million, an increase of 16% on the previous year (FY2016: $1,528.6 million). EBITDA (before corporate costs) increased by 8.8% on the previous year to $1,453.7 million (FY2016: $1,335.6 million).

The increase in FY2017 earnings for Energy Infrastructure was primarily due to the full year contribution from the Eastern Goldfields Pipeline, the Diamantina and Leichhardt Power Stations (DPS) and the Ethane Pipeline.

The majority of revenues in the Energy Infrastructure segment are derived from either regulatory arrangements or long term capacity-based contracts. Regulatory arrangements on regulated assets are usually reviewed every five years. A national regulatory regime includes mechanisms for regulatory pricing and is encapsulated in the National Gas Law and National Gas Rules. The economic regulation aspects of the regime apply to most gas distribution networks and a number of gas transmission pipelines in Australia.

The regime provides for two forms of regulation based on a pipeline’s relative market power – full regulation and light regulation. For assets under full regulation, the regulator approves price and other terms of access for standard (“reference”) services as part of an access arrangement process, such that the asset owner has a reasonable opportunity to recover at least the efficient costs of owning and operating the asset to provide the reference services. Access arrangement periods usually run for five years. For assets under light regulation, contractual terms (including price) are negotiated between the service provider and customer with recourse to dispute resolution by the regulator in the absence of agreement.


– II-318 –

During FY2017, the COAG Energy Council accepted the recommendations from Dr Michael Vertigan to increase information disclosure and implement a commercial arbitration framework for unregulated pipelines. These and other gas market regulatory reform initiatives have now moved to further development and implementation.

Contracted revenues are sourced from unregulated assets and assets under light regulation as well as assets under full regulation. Contracts generally entitle customers to capacity reservation, with the majority of the revenue fixed over the term of the relevant contract. There is typically a small portion of the contract subject to throughput volume. The split between capacity charge and throughput charge differs between contracts and generally ranges from 85%/15% to 100%/0%.

During the financial year, 74.2% of Energy Infrastructure revenue (excluding pass-through) was from capacity reservation charges from term contracts, 4.6% from other contracted fixed revenues and 9.9% from throughput charges and other variable components. Given the dynamic east coast gas market, there were additional revenues from provision of flexible short term services, accounting for around 1.7%. The portion of APA’s regulated revenue is 9.4% of FY2017 Energy Infrastructure revenue.

APA manages its counterparty risk in a variety of ways. One aspect is to consider customers’ credit ratings. During FY2017, more than 92% of Energy Infrastructure revenue was received from investment grade counterparties. Diversification of customer base is another strength of APA’s business, with our customers split across the energy, utility, resources and industrial sectors.

APA’s Integrated Operations Centre in Brisbane has continued to generate operational, safety and financial benefits from having real-time visibility across transmission assets throughout Australia. Integrating the elements of engineering, commercial and system operation in daily decision making has enabled better outcomes for our customers under both normal operating conditions as well as unplanned plant, market or customer disruption periods. Knowledge around individual customer requirements and nuances are captured to improve and customise services to APA’s customers, as well as to enhance operational risk management across the national platform.


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East Coast and Northern Territory

APA’s 7,500 plus kilometre integrated pipeline grid on the east coast of Austral ia has the abil i ty to transport gas seamlessly from mult iple gas production facilities to gas users across four states and the ACT, as well as to the export LNG market which has developed out of Gladstone.

EBITDA from APA’s assets on the eastern states increased by 9% during the year.

During FY2017, NSW earnings were boosted by a full year contribution from the Ethane Pipeline. The Victorian-Northern Interconnect expansion was also completed, and new contracts progressively contributed to additional earnings across both Victorian and NSW pipeline systems, including the multi-services contract with AGL that commenced on 1 January 2017. Victoria’s EBITDA also benefited from a colder winter and spring, earlier in the financial year.

In Queensland, FY2017 saw the first full year contribution from DPS, the remaining 50% of which was acquired during FY2016. Whilst the Queensland results also benefited from a number of multi-asset contracts which commenced during the period, this was partially offset by a reduction in short term revenues seen during LNG projects ramping up in FY2016.

APA continues to develop new opportunities for its assets on the east coast of Australia. Growth projects announced during the year were:

• the Reedy Creek Wallumbilla Pipeline, which will connect AustraliaPacific LNG’s coal seam gas fields directly to APA’s East Coast Grid. Construction is on track and commissioning is expected mid-2018, at which time, APLNG will have the capability to move up to 300TJ per day of gas into and out of the East Coast Grid, helping to balance domestic gas supply and demand.

• the Orbost Gas Processing Plant, for which works have also commencedlate in FY2017. The plant will be connected to Cooper Energy’s Sole gas field and bring in much needed additional gas supply to the eastern markets.

• the 110MW Darling Downs Solar Farm project, which APA purchasedfrom Origin Energy. It has a 12 year offtake contract with Origin Energy and is expected to start producing electricity by late 2018.

During the financial year, APA’s assets in the Northern Territory continued to perform to expectations.


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Western Australia

In Western Australia, APA’s assets serve a variety of customers in the resources, industrial and utility sectors, mainly in the Perth, Pilbara and Goldfields regions.

EBITDA from APA’s Western Australian assets for the financial year was up by 7.9% compared with FY2016.

Full year earnings from the Eastern Goldfields Pipeline contributed to the increased earnings for APA’s Western Australian assets. The additional transaction announced during the year to connect the Gruyere Gold Project to reliable energy across 1,500 km using APA’s Goldfields Gas Pipeline, Murrin Murrin Lateral, Eastern Goldfields Pipeline and the to be constructed Yamarna Gas Pipeline further underwrites the value of our interconnected gas infrastructure into the minerals rich region of Goldfields and Pilbara. Both the pipeline and the power station have commenced construction with a target commissioning date of late 2018.

In APA’s energy precinct nor th of Per th , earnings f rom the Mondarra Gas Storage and Processing Facility increased year on year, due to a well enhancement project in FY2016. The Emu Downs Wind Farm benefited from better wind resource. This site will be further enhanced as APA is erecting solar panels with a capacity of 20MW (Emu Downs Solar Farm) and expanding its wind farm footprint to an adjacent site at Badgingarra with the construction of a 130MW wind farm (Badgingarra Wind Farm). All three renewable energy power generation assets will share existing infrastructure and on-the-ground resources, and generate additional revenues for APA once completed.

The increase in revenue from Mondarra Gas Storage and Processing Facility were partially offset by a reduction in revenue from the Goldfields Gas Pipeline for the current period, reflecting tariff reductions contained in the new access arrangement that came into effect during the period.


APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are Australian Gas Networks Limited (AGN)1, Energy Infrastructure Investments and GDI (EII). Asset management services are provided to these customers under long-term contracts.

1 APA sold its 33.05% stake in AGN in August 2014, however, the operating and maintenance agreements remain on foot until 2027.


– II-321 –

Revenue (excluding pass-through revenue) from asset management services decreased by $9.0 million or 9.4% to $86.4 million (FY2016: $95.4 million) and EBITDA (excluding corporate costs) increased by $4.9 million or 9.0% to $58.7 million (FY2016: $53.9 million).

Customer contributions, which are payments received from a third party for APA to undertake work on the assets it manages to accommodate that third party’s project, remains in-line with the long term average of approximately $10 million per annum. APA continues to expect annual swings in customer contributions, as these are driven by customers’ requirements.

Excluding customer contributions, both revenue and EBITDA decreased slightly for the Asset Management business. Whilst a colder winter contributed to higher network volumes this was offset by lower tariffs on AGN’s South Australian distribution network, given the new access arrangement that took effect from the beginning of FY2017, as well as the transfer of the Ethane Pipeline and Diamantina and Leichhardt Power Stations to full ownership by APA, and now included under Energy Infrastructure. The Australian Energy Regulator is expected to hand down its final decision on the Access Arrangement for AGN’s Victorian distribution network during 1H FY2018, with the new tariffs applying from January 2018.

The gas distribution businesses of AGN and GDI have seen solid connection growth through continued investment in new housing estates and high rise apartment developments as natural gas continues to be a fuel of choice for cooking, hot water and heating in these markets.



APA’s ability to manage these investments and provide operational and/or corporate support services gives it flexibility in the way it grows the business and harnesses expertise in-house.

EBITDA from Energy Investments was $24.4 million (FY2016: $27.8 million). The reduction is due to DPS and the Ethane Pipeline being transferred to the Energy Infrastructure segment from Energy Investments segment, partly offset by increased income from our investment in GDI(EII).


– II-322 –

(d) Corporate Costs

Corporate costs for the financial year decreased by $20.0 million over the previous corresponding period to $66.7 million (FY2016: $86.7 million). This reflects the one-off nature of certain costs incurred in the previous corresponding period (around $13 million) and ongoing cost control within the business.


Capital and investment expenditure for FY2017 totalled $377.5 million.

Total capital expenditure (including stay-in-business capital expenditure but excluding acquisitions and other investing cash flows) for FY2017 was $340.7 million compared with $333.7 million last year. Growth project expenditure of $271.9 million (FY2016: $281.0 million) was related to the following projects during the year:

• completionofthelateststageoftheVictorian-NorthernInterconnectexpansionproject, which has expanded the bi-directional interconnect;

• Moomba Interconnect project,which, forminimal capital spend, has increasedthe efficiency of the operation of APA’s East Coast Grid, facilitating gas flows through Moomba; and

• commencementofgrowthprojectsannouncedduringtheyear, includingReedyCreek Wallumbilla Pipeline, Emu Downs Solar Farm, Badgingarra Wind Farm, Darling Downs Solar Farm and the Orbost Gas Processing Plant.

APA’s growth capital expenditure continues to be fully underwritten through long-term contractual arrangements or to have regulatory approval through a relevant access arrangement. Capital and investment expenditure for the financial year is detailed in the table below.

App 16 para 32(9)


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Capital and investmentexpenditure (1) Description of major projects 30 Jun 2017 30 Jun 2016

($ million) ($ million)

Growth expenditureRegulated Victorian-Northern Interconnect expansion 106.1 130.9

Non-regulated Queensland Darling Downs Solar Farm, Reedy Creek

Wallumbilla Pipeline 78.3 14.0 New South Wales 0.4 4.8 Western Australia Badgingarra Wind Farm, Emu Downs Solar Farm,

Yamarna Pipeline & Power Station 30.6 97.6 Other 56.5 33.7

Sub-total unregulated capex 165.8 150.1



Total capital expenditure 340.7 333.7Investment and acquisitions (2) 36.8 339.9

Total capital and investment expenditure 377.5 673.6


(1) The capital expenditure shown in this table represents net cash used in investing activities as disclosed in the cash flow statement, and excludes accruals brought forward from the prior period and carried forward to next period.

(2) Investments & acquisitions capital expenditure is net of gains on disposals.

APA announced at its FY2016 annual results presentation last August that it had identified around $1.5 billion of organic opportunities in the near term.

During the course of FY2017, APA announced in excess of $1.2 billion of projects in the areas of pipeline extensions and expansions, renewables and mid-stream assets that will require in the order of $800 million of growth capital investment in FY2018, with revenues to be received from early FY2019.

Beyond FY2018 APA expects $300 to $400 million per annum over the next two to three years in growth projects coming to fruition across all of those sectors, as we continue to engage with our customers on what their needs are within that timeframe. These projects are underwritten by long term contracts with our customers and will increase APA’s earnings base as they are commissioned.


– II-324 –

Major projects announced to date are:

• The Reedy Creek Wal lumbi l la Pipel ine is a 50km, 300TJ per day, b i -directional pipeline connected to APA’s East Coast Grid that will provide a key link to the Wallumbilla Gas Hub for Australia Pacific LNG Marketing Pty Limited, at an estimated cost of $80 million and scheduled to complete around the middle of 2018. APA has entered into a 20-year contract with APLNG.

• TheEmuDownsSolarFarmisa20MWsolarfarm,beingbuiltnexttotheEmuDowns Wind Farm site. Synergy, the Western Australian energy provider has entered into a 13-year offtake agreement for both the energy and the Large-scale Renewable Generation Certificates (LGCs), commencing January 2018. The estimated $50 million project will be partially funded with a $5.5 million grant from the Australian Renewable Energy Agency (ARENA).

• TheBadgingarraWindFarmisa130MWwindfarm,tobebuiltatanestimatedcost of $315 million, on the site adjacent to the existing Emu Downs Wind Farm (final condition precedent expected to be met in August 2017). Alinta Energy has entered into a 12-year offtake agreement for both the energy and the LGCs, commencing January 2019.

• The Orbost Gas Processing Plant is (subject to conditions precedent) beingacquired and upgraded by APA for an estimated cost of $270 million and upon completion of the refurbishment, will process raw natural gas from Cooper Energy’s offshore Sole gas field under a multi-year Gas Processing Agreement from mid-2019.

• The Darling Downs Solar Farm is a 110MW solar farm, to be built at anestimated cost of $200 million (partially funded with a $20 million grant from ARENA). Origin Energy has entered into a 12-year offtake agreement for both the energy and the LGCs from late 2018.

• TheYamarnaGasPipeline(YGP)andtheYamarnaPowerStation(YPS)whichwill deliver energy to the Gruyere Gold Project in Western Australia. The YGP is a 198km pipeline that will deliver gas to the 45MW YPS across 1,500km, connecting through the Goldfields Gas Pipeline, Murrin Murrin Lateral and the Eastern Goldfields Pipeline. A 15-year gas transportation agreement and a 15-year electricity supply agreement have been entered into with the Gruyere Gold Project, a 50:50 joint venture between ASX listed Gold Road Resources Ltd and the global miner Gold Fields Limited. Commissioning is expected in late 2018, and total project cost is estimated to be $180 million.

In addition to these committed projects, APA continues to develop opportunities with our customers to deliver more energy to users, including the Western Slopes Pipeline, which, subject to Santos’ FID, will connect the proposed Narrabri Gas Project to APA’s Moomba Sydney Pipeline and feasibility study to connect Northern Queensland gas basins to APA’s East Coast Grid.

App 16 para 32(5)


– II-325 –

APA’s growth strategy will continue to be considered using the same principles and criteria that APA has always adhered to, which are to:

• maintainanappropriateriskandreturnstructure;

• ensureanappropriatefundingandcapitalstructure;

• enterintocontractswithhighlycreditworthycounterparties;and


Stay- in bus iness capex inc reased f rom $52 .7 mi l l ion in FY2016 to $68 .8 million during this financial year. This was in line with both the long term asset management planning cycle across our assets and the increasing scale of the business.



As at 30 June 2017, APA had 1,114,307,369 securities on issue. This was unchanged from 30 June 2016.

During the financial year, APA issued A$200 million of 7-year fixed-rate Australian dollar Medium Term Notes in October 2016 and US$850 million (A$1,109 million) of 10.3-year senior guaranteed notes into the US 144A market in March 2017. APA repaid $85.8 million (US$65.0 million) and $295.0 million (US$154.0 million and A$104.2 million) of US Private Placement Notes when they matured in July 2016 and May 2017 respectively.

APA’s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 7.5 years at 30 June 2017. APA’s gearing2 of 67.4% at 30 June 2017 was marginally higher than the 66.4% at 30 June 2016. APA remains well positioned to fund its planned growth activities with over $1,460 million in cash and committed undrawn facilities, as well as ongoing access to a broad range of debt capital markets available as at 30 June 2017.

APA has a prudent treasury policy which requires conservative levels of hedging of interest rate exposures to minimise the potential impacts from adverse movements in interest rates. Other than noted below, all interest rate and foreign currency exposures on debt raised in foreign currencies have been hedged.

App 16 para 32(1),App 16para 32(2)

App 16 para 32(9)

App 16 para 32(11)



– II-326 –

The majority of the revenues to be received over the remaining 18.5 years of the foundation contracts on the Wallumbilla Gladstone Pipeline will be in USD. The US$3.7 billion of debt raised to fund that acquisition is being managed as a “designated hedge” for these revenues and therefore has been retained in USD. Net USD cash flow (after servicing the USD interest costs) that is not part of that “designated relationship” will continue to be hedged into AUD on a rolling basis for an appropriate period of time, in-line with APA’s treasury policy. To date, the following net USD cash flow hedging has been undertaken:



FY2017 0.7381FY2018 0.72821H FY2019 (to Dec 2018) 0.6716

A large portion of the net revenue from March 2019 is in that designated hedge relationship with the USD debt and as such, when that revenue is receivable, will be recognised in the P&L at an average rate of around 0.78.

APA also enters into hedges to manage its interest rate exposure on its floating rate and other non-Australian dollar borrowings. As at 30 June 2017, 94.5% (30 June 2016: 86.5%) of interest obligations on gross borrowings was either hedged into or issued at fixed interest rates for varying periods extending out to March 2035.


As at 30 June 2017, APA had borrowings of $9,249.7 million ($9,037.3 million at 30 June 2016) from a mix of US Private Placement Notes, Medium Term Notes in several currencies, United States 144A Notes and APA Group Subordinated Notes. APA also had $1,068.8 million of undrawn committed syndicated and bilateral bank facilities.

Net finance costs increased by $6.1 million, or 1.2%, to $513.8 million (FY2016: $507.7 million). The increase is primarily due to having a higher level of drawn debt in FY17 relative to FY16. The average interest rate (including credit margins)3 applying to drawn debt was 5.56% for the current period (FY2016: 5.78%).

APA’s interest cover ratio for the current period was 2.8 times (June 2016: 2.6 times). This remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times.



– II-327 –



– II-328 –

FINANCIAL OvERvIEw

Earnings before interest and tax (EBIT) and EBIT before depreciat ion and amortisation (EBITDA) excluding significant items are financial measures not prescribed by Australian Accounting Standards (AIFRS) and represent the profit under AIFRS adjusted for specific significant items. The Directors consider these measures to reflect the core earnings of the Consolidated Entity, and therefore these are described in this report as ‘normalised’ measures.

For the financial year to 30 June 2018, APA reported EBITDA of $1,518.5 million, an increase of 3.3% or $48.4 million on the previous corresponding period EBITDA of $1,470.1 million. This is slightly above the upper level of APA’s guidance range of $1,475 million to $1,510 million, as advised at the announcement of our FY2017 results and reconfirmed at our 1HFY18 results.

Total revenue (excluding pass-through revenue) increased by $53.1 million to $1,941.4 million, an increase of 2.8% on the previous corresponding period (FY2017: $1,888.3 million).


• part year contributions from newly commissioned organic growth assetsincluding the Reedy Creek Wallumbilla Pipeline (QLD), Mt Morgans Gas Pipeline (WA) and the Emu Downs Solar Farm (WA). Less than $5 million in revenue in FY2018 was from the new growth projects, with the full accretive impact from these projects to flow from FY2019;

• newgas transportationcontractsacrossAPA’sEastandWestCoastGrids,anda new mining customer for the Diamantina Power Station; and

• US CPI escalation and favourable USD/AUD exchange rates in relation to theWallumbilla Gas Pipeline.

The solid FY2018 results endorse APA’s prudent and consistent strategy of pursuing secure and sustainable growth opportunities that earn fair commercial returns. The astute investments, acquisitions and organic growth developments over the last 18 years, continue to sustain the business as it undertakes the largest growth expansion capital spend in the Group’s history. Across the three-year period of FY2017 to FY2019, APA will spend in excess of $1.4 billion on committed growth projects, all of which will contribute to future operating cash flow.

In FY2018, operating cash flow was $1,031.6 million. This represents an increase of 5.9% or $57.7 million over the previous year (FY2017: $973.9 million), with operating cash flow per security increasing by 4.1%, or 3.6 cents, to 90.7 cents per security (FY2017: 87.11 cents per security).

App 16 para 32(3)

1 Operating cash flow per security has been adjusted for the Entitlement Offer completed on the 23 March 2018. An adjustment factor of 1.0038 has been calculated, being the closing market price per security on 23 February 2018, divided by the theoretical ex-rights price (TERP) of $8.23 per security.


– II-329 –

The following table provides a summary of key financial data for FY2018.

30 June 2018 30 June 2017 Changes$000 $000 $000 %

Total revenue 2,386,722 2,326,420 60,302 2.6%Pass-through revenue (1) 445,307 438,140 7,167 1.6%

Total revenue excluding pass-through 1,941,415 1,888,280 53,135 2.8%

EBITDA 1,518,474 1,470,122 48,352 3.3%Depreciation and amortisation expenses (578,916) (570,021) (8,895) (1.6%)

EBIT 939,558 900,101 39,457 4.4%Finance costs and interest income (509,664) (513,767) 4,103 0.8%

Profit before income tax 429,894 386,334 43,560 11.3%Income tax (expense)/benefit (165,055) (149,488) (15,567) (10.4%)

Profit after income tax 264,839 236,846 27,993 11.8%

Operating cash flow (2) 1,031,627 973,936 57,691 5.9%Operating cash flow per security (cents) 90.7 87.1 3.6 4.1%Earnings per security (cents) 23.3 21.2 2.1 9.9%Distribution per security (cents) 45.0 43.5 1.5 3.4%Distribution payout ratio (3) 51.5% 49.8% 1.7% 3.4%Weighted average number of securities (000) (4) 1,136,875 1,118,523 18,352 1.6%


(1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited (AGN) and GDI in respect of the operation of the AGN and GDI assets respectively.


(3) Distribution payout ratio = total distribution applicable to the financial year as a percentage of operating cash flow.

(4) On the 23 March 2018, APA Group issued 65,586,479 new ordinary securities on completion of the fully underwritten pro-rata accelerated institutional tradeable renounceable entitlement offer (Entitlement Offer), resulting in total securities on issue as at 30 June 2018 of 1,179,893,848. The Entitlement Offer was offered at $7.70 per security, a discount to APA Group’s closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26 February 2018. The number of securities used for FY2018 and FY2017 calculation of earnings per security and operating cash flow per security have been adjusted.


– II-330 –



30 June 2018 30 June 2017 Changes$000 $000 $000 %

RevenueEnergy Infrastructure East Coast: Queensland 1,153,214 1,114,428 38,786 3.5% East Coast: New South Wales 166,506 176,000 (9,494) (5.4%) East Coast: Victoria 153,699 156,946 (3,247) (2.1%) East Coast: South Australia 2,998 2,958 40 1.4% Northern Territory 32,861 30,932 1,929 6.2% Western Australia 294,681 291,728 2,953 1.0%

Energy Infrastructure total 1,803,959 1,772,992 30,967 1.7%Asset Management 108,537 86,424 22,113 25.6%Energy Investments 23,068 24,382 (1,314) (5.4%)

Total se gment revenue 1,935,564 1,883,798 51,766 2.7%Pass-through revenue 445,307 438,140 7,167 1.6%Unallocated revenue (1) 5,851 4,482 1,369 30.5%

Total revenue 2,386,722 2,326,420 60,302 2.6%

EBITDAEnergy Infrastructure East Coast: Queensland 962,231 925,366 36,865 4.0% East Coast: New South Wales 147,095 149,484 (2,389) (1.6%) East Coast: Victoria 124,631 123,008 1,623 1.3% East Coast: South Australia 2,577 2,319 258 11.1% Northern Territory 22,923 18,771 4,152 22.1% Western Australia 237,639 234,724 2,915 1.2%

Energy Infrastructure total 1,497,096 1,453,672 43,424 3.0%Asset Management 66,204 58,719 7,485 12.7%Energy Investments 23,068 24,382 (1,314) (5.4%)Corporate costs (67,894) (66,651) (1,243) (1.9%)

Total EBITDA 1,518,474 1,470,122 48,352 3.3%



App 16 para 32(3),App 16para 32(4),App 16para 32(6)


– II-331 –

APA has delivered a solid result in FY2018 reflecting sustainable operations and the intrinsic value of the business, which is more than the sum of its individual assets. APA’s diversity of expertise, asset type and geographic spread all contribute to APA’s business sustainability.

Total EBITDA increased by $48.4 million, or 3.3%, to $1,518.5 million, over the FY2017 result of $1,470.1 million. APA derives its revenue through a mix of regulated revenue, long-term negotiated revenue contracts, asset management fees and investment earnings. Earnings are underpinned by solid cash flows generated from high quality, geographically diversified assets and a portfolio of highly creditworthy customers.


The Energy Infrastructure segment consists of all APA’s interconnected energy infrastructure footprint across mainland Australia including gas transmission, gas compression, processing and storage assets, renewable energy power generation, and gas-fired power generation.

This segment is the largest contributor to group revenue, contributing 93.2% (excluding pass-through) and 94.4% of group EBITDA (before corporate costs) during the financial year. Revenue (excluding pass-through revenue) was $1,804.0 million, an increase of 1.7% on the previous year (FY2017: $1,773.0 million). EBITDA (before corporate costs) increased by 3.0% on the previous year to $1,497.1 million (FY2017: $1,453.7 million).

This segment is characterised by the East Coast Gas Grid and the West Coast Gas Grid, the nature of which will result in both positive and negative swings over the longer term in revenue and EBITDA on the individual assets that make up each of those grids. In FY2018, for example, increased revenue and EBITDA in Queensland offset reductions in New South Wales and Victoria as customers with more flexible multi-asset, multi service contracts determined their respective needs, period on period, for gas sourcing and delivery.

During the report ing period, new earnings were real ised from recent ly completed and commissioned assets including the Reedy Creek Wallumbilla Pipeline, the Mt Morgans Gas Pipeline and the Emu Downs Solar Farm. FY2018 earnings for Energy Infrastructure also benefit ted from the US CPI increase on the Wallumbilla Gladstone Pipeline contract, along with a favourable USD/AUD exchange rate as the majority of contract revenues are in USD.

The majority of revenues in the Energy Infrastructure segment derive from either regulatory arrangements or long term capacity-based contracts. Contracts generally have the majority of the revenue fixed over the term of the relevant contract.


– II-332 –

During FY2018, APA refreshed its suite of gas pipeline services, to provide customers with more options and additional flexibility making it simpler for customers to better manage their gas portfolios. The refreshed services and approach provide additional clarity and ease of access for customers to APA’s infrastructure, which will help promote gas market liquidity.

During the reporting period, APA announced several significant new or renewal contracts including: a new $40 million revenue contract over three years for gas transportation and storage from Queensland into southern markets; a $38 million contract extension over two years for an East Coast Grid customer; and a new gas transportation agreement with Incitec Pivot to transport gas over 3,300 km from the Northern Territory to their Gibson Island fertilizerplantnearBrisbane.

Changes to Part 23 of the National Gas Rules during the reporting period provide a commercial arbitration framework in the event parties cannot agree a negotiated contract. APA has continued to successfully negotiate all new contracts and contract renewals with its customers.

During the financial year, 78.7% of Energy Infrastructure revenue (excluding pass-through) was from capacity reservation charges from term contracts, 4.3% from other contracted fixed revenues and 6.8% from throughput charges and other variable components. Given the dynamic east coast gas market, there were additional revenues from the provision of flexible short term services, accounting for around 1.0%. The regulated portion of APA’s revenue makes up 9.0% of total FY2018 Energy Infrastructure revenue. Given the take-or-pay nature of the majority of APA’s Energy Infrastructure contracts, APA had direct oversight of 92.0% of its revenue earning for this business segment during the reporting period.

As part of APA’s product refresh of gas transportation services during the period, many of APA’s standard service offerings and tariffs are now effectively 100% capacity reservation.

APA manages i ts counterparty risk in a variety of ways. One aspect is to consider customers’ credit ratings. During FY2018, 95.6% of Energy Infrastructure revenue was received from investment grade counterparties. Diversification of customer base is another strength of APA’s business, with our customers split across the energy, utility, resources and industrial sectors.

APA strives to continually enhance the service offerings available to customers to better address their increasingly complex and dynamic gas portfolio needs. Significant investment by APA has been made in energy infrastructure in the last decade to support customers’ needs. The state-of-the-art Integrated Operations Centre (IOC) is one of those customer focused initiatives that APA has invested in to deliver seamless and reliable services for the benefit of the Australian energy market.


– II-333 –

APA’s IOC in Brisbane has dramatically improved Australia’s gas transmission operations, providing customers access to greater operating flexibility and smarter gas portfolio management. It improves market resilience significantly by utilising the breadth of the Grid to respond to contingencies. The facility continues to evolve its services and functions to meet the growing and changing needs of both our customers and APA’s operations.

The IOC plays a major role in APA being able to provide the benefits of system flexibility, efficiencies, cost effective solutions and safety from having real-time visibility across transmission assets throughout Australia, 24 hours a day, seven days a week.

Engineering, commercial and systems operation skills integrate into daily decision making to give the business both big picture and detailed oversight of operations. Gas market opportunities for customers can be quickly realised as can immediate response and management to periods of unplanned plant, market or customer disruption.

The IOC also plays a key role in keeping our remote employees safe by monitoring and managing the In-Vehicle Monitoring System (IVMS) thereby bet ter managing APA’s operat ional r isk. More important ly, i t provides employees and their families with a high level of comfort that someone knows where they are at all times whilst they travel between remote locations.

East Coast and Central Region

APA’s 7,500 plus kilometre integrated pipeline grid on the east coast of Austral ia has the abil i ty to transport gas seamlessly from mult iple gas production facilities to gas users across four states and the ACT, as well as to the export LNG market which has developed out of Gladstone in Queensland.

EBITDA from APA’s assets on the east coast increased by 3.0% during the financial year.

In NSW and Victoria, continued demand for bi-directional services due to dynamic southern and northern gas markets contributed to the earnings increase. The Moomba Sydney Pipeline continues to play a critical role to the operation of the East Coast Grid as both a bi-directional gas transmission highway and gas storage facility.

In Queensland, the South West Queensland Pipeline and its bi-directional capability played a key role in gas moving both east and west. APA’s newest Queensland pipeline and extension to the East Coast Grid – the 49km Reedy Creek Wallumbilla Pipeline – was completed and commissioned in May 2018. An official opening by the Queensland Premier, The Honourable Annastacia Palaszczuk, the Minis ter for Natural Resources , Mines andEnergy, the Honourable Dr Anthony Lynham, and the Mayor for Maranoa Regional Council, Tyson Golder was held in June 2018, at APA’s Wallumbilla operations site.


– II-334 –

APA’s Diamantina gas-fired power station in Mount Isa, Queensland benefitted from a new mining customer during the period. Capricorn Copper operates the Capricorn Copper mine, north of Mount Isa and was in ramp-up mode for the first seven months of FY2018, and is now at full contract capacity. The mine is a restart of prior mining operations, which recommenced in 2017.

During the financial year, APA’s assets in the Northern Territory recorded an uplift in earnings from additional contracting achieved on the Amadeus Gas Pipeline. South Australian earnings were in line with expectations.

Western Australia

APA services a range of customers in Western Australia within the resources, industrial and utility sectors. In recent years, interconnections off the main Goldfields pipel ine to mining s i tes has not only extended the Western Australian Grid, but also reinforced the importance of the Goldfields Gas Pipeline in moving gas from the north into the south-eastern region of Western Australia.

EBITDA from APA’s Western Australian assets for the financial year increased by 1.2% compared with FY2017.

The Eastern Goldfields Pipeline continues to contribute to increased earnings for APA’s Western Australian assets. During the period, the new Mt Morgans Gas Pipeline was completed to supply gas to Dacian Gold mining operations. APA has a 10.5 year gas transportation agreement with Dacian Gold and the pipeline commenced generating earnings in the second half of the reporting period.

In June 2017, APA announced the Yamarna Gas Pipeline and Power Station greenfield projects on behalf of the Gruyere Joint Venture mine project. Construction and commissioning of the 198 km pipeline was completed during the reporting period, with the power station construction completed recently in August. Commissioning of the Yamarna Power Station will take place between August and October. First gold pour is scheduled for the FY2019 June quarter.

With the addition of the Gruyere mine in June 2019, the Eastern Goldfields Pipeline will have five mines using approximately 1,700 kms of interconnected pipelines to the eastern goldfields region in Western Australia. APA expects further opportunities for growth in this area as miners are seeking reliable and economical energy solutions to ensure their operations are viable for the life of the mines.

APA is developing a significant renewable energy precinct in the West and during FY2018 completed and commissioned the 20 MW Emu Downs Solar Farm which was underpinned by a 13 year power purchase agreement with Synergy. The project received $5.5 million funding from the Australian Renewable Energy Agency (ARENA).

App 16 para 32(9)


– II-335 –

The site is co-located with APA’s 80 MW Emu Downs Wind Farm, taking advantage of shared transmission connection infrastructure. The wind and solar generation profiles at this location are largely predictable and complementary, enabling APA to leverage the combined wind and solar resources and transmit renewable energy through a single infrastructure network. During the period, there was a minor impact on earnings for the Emu Downs Wind Farm due to the cut-in of the Solar Farm, this was more than offset by the contribution of the Solar Farm, in the latter part of the financial year.

In FY2017, APA announced construction of the 130 MW Badgingarra Wind Farm after entering into a long term offtake agreement with Alinta to satisfy its renewable energy requirements. Construction was advanced during the reporting period and is due for completion in early 2019. During FY2018, APA agreed with Alinta to extend the original 12 year power purchase agreement for the Badgingarra Wind Farm by five years, and undertake a new 17.5 MW co-located Solar Farm on the Badgingarra site, which is adjacent to the Emu Downs renewables farm. Both Badgingarra Wind and Solar farms will also share transmission connection infrastructure.

When complete, APA will have an energy precinct in Western Australia d e l i v e r i n g o v e r 2 4 5 M W o f r e n e w a b l e e n e r g y c a p i t a l i s i n g o n t h e complementary wind and solar relationship in this region.


APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are Australian Gas Networks Limited (AGN)2, Energy Infrastructure Investments and GDI (EII). Asset management services are provided to these customers under long-term contracts.

APA has the expert ise and diversif ied skil lset to provide whole-of-l ife asset management and operational services for high voltage power, power genera t ion , gas ro ta t ing p lan t and equipment , s t a t ionary eng ines , gas transmission pipelines and gas distribution pipelines. These services also include asset inspection, vegetation management, aerial patrols, metering services and specialist utility asset services.

Revenue (excluding pass-through revenue) from asset management services increased by $22.1 million or 25.6% to $108.5 million (FY2017: $86.4 million) and EBITDA (excluding corporate costs) increased by $7.5 million or 12.7% to $66.2 million (FY2017: $58.7 million).

2 APA sold its 33.05% stake in AGN in August 2014, however, the operating and maintenance agreements remain on foot until 2027.


– II-336 –

Customer contributions are payments received from a third party for APA to undertake work on the assets it manages to accommodate that third party’s project. Customer contributions have increased in FY2018 moving the long term average per annum to approximately $12 million from $10 million per annum average over the last five years. APA continues to expect annual swings in customer contributions, as these are driven by customer requirements.

Excluding customer contributions, both revenue and EBITDA increased for the Asset Management business due to tariff adjustments in line with regulatory approvals. Solid connection growth for the gas distribution businesses of AGN and GDI continues through ongoing investment in new housing estates and high-rise apartment developments, with natural gas continuing to be a fuel of choice for cooking, hot water and heating in these markets.



APA’s ability to manage these investments and provide operational and/or corporate support services gives it flexibility in the way it grows the business and harnesses expertise in-house, thereby delivering services from a lower cost base due to portfolio synergies.

EBITDA from Energy Investments was marginally reduced for the reporting period to $23.0 million (FY2017: $24.4 million).

(d) Corporate Costs

Corporate costs of $67.9 million for the financial year were slightly above the previous corresponding period (FY2017: $66.7 million) due to additional costs associated with the new Part 23 compliance requirements. Excluding those additional compliance costs, APA has kept corporate costs contained during the largest organic growth cycle that the business has undertaken.


Capital and investment expenditure for FY2018 totalled $875.5 million. Total capital expenditure (including stay-in-business capital expenditure but excluding acquisitions and other investing cash flows) for FY2018 was $855.5 million compared with $340.7 million last year. Growth project expenditure of $742.9 million (FY2017: $271.9 million) was largely related to the following projects during the year:

• C o n s t r u c t i o n o f t h e D a r l i n g D o w n s S o l a r F a r m a n d c o m p l e t i o n a n dcommissioning of the Reedy Creek Wallumbilla Pipeline in Queensland;

• Construction and completion of Western Australia projects including theYamarna Gas Pipeline, Mt Morgans Gas Pipeline and Emu Downs Solar Farm;

App 16 para 32(9)


– II-337 –

• Construction of the Murrin Compressor Station. Yamarna Power Station andBadgingarra Wind Farm are also well underway, and will be completed in FY2019;

• Commencementof theupgradeof theOrbostGasProcessingPlant inVictoria;and

• Pre-investigative and preliminary l icense approval undertakings for theproposed Western Slopes Pipeline and Crib Point Pakenham Pipeline.

APA’s growth capital expenditure continues to be fully underwritten through long-term contractual arrangements or to have regulatory approval through a relevant access arrangement. Capital and investment expenditure for FY2018 is detailed in the table below.

Capital and investmentexpenditure (1) Description of major projects 30 Jun 2018 30 Jun 2017

($ million) ($ million)Growth expenditureRegulated Victorian-Northern Interconnect expansion, South

West Pipeline Westernhaul Expansion 33.0 106.1

Non-regulated Queensland Darling Downs Solar Farm, Reedy Creek

Wallumbilla Pipeline 199.2 78.3 Victoria Orbost Gas Processing Plant, early works on Crib

Point to Pakenham Pipeline 116.7 - New South Wales Western Slopes Pipeline early works 10.7 0.4 Western Australia and Northern Territory

Yamarna Gas Pipeline and Power Station, Emu Downs Solar Farm, Badgingarra Wind Farm, Mt Morgans Gas Pipeline, Murrin Compressor Station 369.1 30.6

Other VIC Metering 14.2 56.5

Sub-total non-regulated capex 709.9 165.8



Total capital expenditure 855.5 340.7Investment and acquisitions 20.0(2) 36.8

Total capital and investment expenditure 875.5 377.5


– II-338 –


(1) The capital expenditure shown in this table represents net cash used in investing activities as disclosed in the cash flow statement, and excludes accruals brought forward from the prior period and carried forward to next period.

(2) Represents the share purchase price for the Orbost Gas Processing Plant.

As part of the FY2016 results, APA announced that it had identified around $1.5 billion of organic growth opportunities across FY2017 to FY2019. APA continues to successfully pursue organic growth opportunities. To-date across FY2017 and FY2018, APA has spent in excess of $1.0 billion on these growth projects in the areas of pipeline extensions and expansions, renewables and mid-stream assets.

In FY2018, growth capex expenditure was $742.9 million, which is almost double the average annual growth capex spend of previous years. The FY2018 actual spend is lower than the approximate $850 million figure indicated to the market in May 2018. This is due to finessing of project timings for procurement contracts as projects have progressed to ensure materials are better timed to arrive when required. This has resulted in some committed capital expenditure moving from FY2018 into FY2019. APA expects to spend in the order of $425 million during FY2019 on the in-flight committed organic growth projects.

Some of the new projects completed in FY2018 have now commenced generating revenues. These revenues will increase in FY2019 as more projects are completed and the projects completed in FY2018 provide a full year of earnings. The full benefit of the now $1.4 billion plus of growth projects will be received from FY2020 onwards.

Beyond the approximately $425 mill ion guidance for FY2019, APA expects growth capital expenditure in the order of $300 to $400 million per annum over the next two to three years as further growth projects come to fruition across all energy infrastructure sectors. All projects will continue to be underwritten by long term contracts with customers and will increase APA’s earnings base as they are commissioned.

Progress on the remaining major committed projects is as follows:

• TheBadgingarraWindFarm(130MWwind farm)projectwasextendedduringthe reporting period to include a co-located 17.5 MW solar farm that will share transmission connection infrastructure with the wind farm. Badgingarra is located adjacent to APA’s operational 100 MW Emu Downs Wind and Solar Farm in Western Australia. Alinta Energy also extended the offtake agreement for another 5 years for both the energy and the Large Scale Generation Certificates, commencing January 2019 through to end CY2035. The wind farm will consist of 37 turbines each with a total blade and tower height of 150 metres and the solar farm will have approximately 61,800 solar tracking panels. Both projects are on track for commissioning in December 2018 for contract commencement in January 2019.


– II-339 –

• The Orbost Gas Processing Plant acquired by APA in FY2018 will process raw natural gas from Cooper Energy’s offshore Sole gas field under a multi-year Gas Processing Agreement from mid-2019. When complete, up to 70TJ per day of gas will be available for the east coast gas market from this new source of supply. APA is undertaking an upgrade of the site, whilst also adding a hydrogen sulphide treatment plant to the facility. During the reporting period, APA undertook extensive stakeholder engagement with the surrounding community, as well as providing local sponsorship and opportunities for employment of local contractors. In March 2018, The Hon. Lily D’Ambrosio, Minister for Energy, Environment and Climate Change toured the site and congratulated both APA and Cooper Energy for working together to deliver more gas into Victoria and the East Coast gas market and jointly creating more than 800 jobs during construction of onshore and offshore facilities.

• The Darling Downs Solar Farm near Dalby in Queensland is a 110MW solarfarm, being built at a cost of around $200 million (partially funded with a $20 million grant from ARENA). Origin Energy has entered into a 12-year offtake agreement for both the energy and the Large Scale Generation Certificates. The project is on track for completion in September 2018. Over 423,000 fixed solar panels will be installed over a 250 hectare site, connecting to the existing Braemar Substation. The Queensland Premier, The Hon. Annastacia Palaszczuk toured the site in January 2018, along with The Hon. Dr AnthonyLynham, Minister for Mines and Energy; The Hon. Mark Furner, Minister for Agricultural Industry Development and Natural Resources; Paul McVeigh, Mayor of the Western Downs Regional Council; and Deputy Mayor, Andrew Smith.

• APA announced the new build Yamarna Gas Pipeline (YGP) and the YamarnaPower Station (YPS) projects in FY2017. APA will transport gas a total of almost 1,600 kms over four APA interconnected pipelines, including the greenfield YGP that will connect to the YPS, to deliver energy to the Gruyere Gold Project in Western Australia. The 198 km YGP was fully constructed during FY2018 and has now been commissioned to allow the constructed 45MW YPS to be commissioned, which is expected to be complete in between August and October 2018. A 15-year gas transportation agreement and a 15- year electricity supply agreement have been entered into with the Gruyere Gold Project, a 50:50 joint venture between ASX listed Gold Road Resources Ltd and the global miner Gold Fields Limited. Total project cost is estimated to be $180 million.

APA’s growth strategy will continue to be considered using the same principles and criteria that APA has always adhered to, which are to:

• maintainanappropriateriskandreturnstructure;

• ensureanappropriatefundingandcapitalstructure;

App 16 para 32(5)


– II-340 –

• enterintocontractswithhighlycreditworthycounterparties;and


APA continues to talk with customers to develop new opportunities and help them manage their energy portfolio requirements including the potential projects of the Western Slopes Pipeline, the Crib Point Pakenham Pipeline, future mining connection opportunities in Western Australia and connecting Northern Queensland gas basins to APA’s East Coast Grid.

In FY2017, APA announced that it had contracted with a subsidiary of Santos Limited to commence development of a new 450 km Western Slopes Pipeline connecting the proposed Narrabri Gas Project (NGP) to APA’s East Coast Grid through the Moomba Sydney Pipeline. The project is subject to FID of the NGP by Santos. During the report ing period, APA commenced engagement with stakeholders along a possible pipeline route.

During FY2018, APA announced that it had entered into a Development Agreement and an associated 20 Year gas transportation agreement with AGL Energy to develop and construct a new 60 km pipeline with a capacity of at least 550TJ/day. The Crib Point Pakenham Pipeline would connect AGL’s proposed floating LNG regasification plant at Crib Point, to APA’s East Coast Grid via the Victorian Transmission System at Pakenham. APA’s potential capital expenditure investment would be in the range of $160 million to $200 million. Since announcing the project in June 2018, APA has been undertaking engagement with local communities and environmental reviews to determine the best possible route for the pipeline. The project is subject to Final Investment Decision by AGL during FY2019.

Stay-in business capex increased to $112.6 million in FY2018 from $68.8 million in FY2017. This remains in line with both the long term asset management planning cycle across our assets and the increasing scale of the business and did reflect in FY18 ongoing business and technology spend of in the order of $22.4 million – reflecting the continuing growth of the business.



As at 30 June 2018, APA had 1,179,893,848 securities on issue. This changed from 30 June 2017, with 65,586,479 new stapled securities issued following the $500 million capital raise (Entitlement Offer) announced on 21 February 2018 and completed on 23 March 2018. This additional equity strengthened APA’s balance sheet enabling it to efficiently and prudently fund the approximately $1.4 billion plus of committed growth capex projects, due for completion through the period to June 2019.

App 16 para 32(1),App 16para 32(2)


– II-341 –

Over many years, APA has consistently maintained the process of funding its growth from a mix of cash generated from within the business and appropriate levels of debt and equity.

Significant debt transactions during FY2018 were the redemption of the $515 million of Subordinated Notes at their first-call date of 31 March 2018 and the repayment of $125.8 million (JPY 10 billion) Japanese Medium Term Notes at maturity on 22 June 2018. Committed bank debt funding was increased and extended with the execution in May 2018 of a two tranche 5 and 5.5 year $1,000 million Syndicated Bank Facility, to replace the $518.8 million of syndicated facilities maturing in September 2018 and 2020. Maturity dates of a number of existing bilateral bank facilities with commitments totalling $250 million, were also extended during the year.

APA’s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 6.9 years at 30 June 2018. APA’s gearing3 of 65.4% at 30 June 2018 was lower than the 67.4% at 30 June 2017 due to the $500 million equity raised through the Entitlement Offer. APA remains well positioned to fund its planned growth activities with around $1,400 million in cash and committed undrawn facilities post completion of the 2 July 2018 syndicated debt facility, as well as ongoing access to a broad range of debt capital markets.

APA’s appetite for foreign currency and interest rate risk is low. This is reflected in the Treasury Risk Management Policy that requires conservative levels of hedging of interest rate and foreign currency exposures to minimise the potential impacts from adverse movements in markets. Other than as noted below, all interest rate and foreign currency exposures on debt raised in foreign currencies have been hedged.

The majority of the revenues to be received over the remaining 17 years of the foundation contracts on the Wallumbilla Gladstone Pipeline will be in received USD. The US$3.7 billion of debt raised to fund that acquisition is being managed as a “designated hedge” for these revenues and therefore have been retained in USD. Net USD cash flow (after servicing the USD interest costs) that is not part of that “designated relationship” will continue to be hedged into AUD on a rolling basis for an appropriate period of time, in-line with APA’s treasury policy. To date, the following net USD cash flow hedging has been undertaken:



FY2019 (to Feb 2019) 0.6927

App 16 para 32(9)

App 16 para 32(11)

3 For the purposes of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at their respective inception dates.


– II-342 –

A large portion of the net revenue from March 2019 is in a designated hedge relationship with the USD debt and as such, when that revenue is receivable, will be recognised in the P&L at an average rate of around 0.78.

APA also enters into hedges to manage its interest rate exposure on its floating rate and other non-Australian dollar borrowings. As at 30 June 2018, 97.7% (30 June 2017: 94.5%) of interest obligations on gross borrowings was either hedged into or issued at fixed interest rates for varying periods extending out to March 2035.


As at 30 June 2018, APA had borrowings of $8,810.4 million ($9,249.7 million at 30 June 2017) from a mix of US Private Placement Notes, Medium Term Notes in several currencies, United States 144A Notes and committed bank facilities.

Net finance costs decreased by $4.1 million, or 0.8%, to $509.7million (FY2017: $513.8 million). The decrease is primarily due to having a lower level of net drawn debt in FY18 relative to FY17. The average interest rate (including credit margins)4 applying to drawn debt was 5.65% for the current period (FY2017: 5.56%).

APA’s interest cover ratio for the current period was 2.7 times (June 2017: 2.8 times). This remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times.

4 For the purposes of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at their respective inception dates.

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGEDGROUP

In connection with the Acquisition, the Company, CKI and PAH, being the ConsortiumMembers, have (among others) entered into the Consortium Formation Agreementpursuant to which, subject to the fulfilment of certain conditions, the relevantConsortium Members will enter into the Joint Venture Transaction to, among otherthings, form the Consortium, enter into the Shareholders’ Agreement and indirectlyfund the Acquisition by Bidco according to the Respective Proportions of 60%, 20%and 20% or the Revised Respective Proportions (as the case may be) in accordancewith the Consortium Formation Agreement.

The Group’s, CKI’s and PAH’s participation in the Joint Venture Transaction aresubject to, among other conditions, obtaining the necessary JV TransactionShareholders’ Approvals. If such conditions are not fulfilled, the Joint VentureTransaction will not proceed and the Group will, subject to obtaining the necessaryapproval by the shareholders of the Company and the fulfilment of certain otherconditions, proceed with the Acquisition alone. If the necessary JV TransactionShareholders’ Approvals in respect of only one of CKI’s or PAH’s participation in theJoint Venture Transaction is obtained, the composition of the consortium shall be variedaccordingly.

Assuming satisfaction of the other conditions:

(i) if the JV Transaction Shareholders’ Approvals in respect of the Company, CKIand PAH are all obtained, the Joint Venture Transaction will proceed among theGroup, CKI and PAH as to 60%, 20% and 20% respectively;

(ii) if the JV Transaction Shareholders’ Approvals in respect of the Company and CKIare both obtained, but the JV Transaction Shareholders’ Approval in respect ofPAH is not obtained, the Joint Venture Transaction will proceed between theGroup and CKI as to 80% and 20% respectively; and

(iii) if the JV Transaction Shareholders’ Approvals in respect of the Company andPAH are both obtained, but the JV Transaction Shareholders’ Approval in respectof CKI is not obtained, the Joint Venture Transaction will proceed between theGroup and PAH as to 80% and 20% respectively.

If none of the necessary JV Transaction Shareholders’ Approvals are obtained orcertain other conditions are not fulfilled, the Joint Venture Transaction will not proceedand the Group will, subject to obtaining approval by the shareholders of the Companyand the fulfilment of other conditions, proceed with the Acquisition alone.

The unaudited pro forma financial information (the “Unaudited Pro Forma FinancialInformation”) presented below is prepared to illustrate the financial effect on thefinancial position of the Group as if the Acquisition had been completed on 30 June2018, assuming:

APPENDIX III UNAUDITED PRO FORMA FINANCIALINFORMATION OF THE ENLARGED GROUP

– III-1 –

(i) the completion of the Acquisition and the Target Group as a joint venture of 60%equity interest held by the Group;

(ii) the completion of the Acquisition and the Target Group as a joint venture of 80%equity interest held by the Group (under the scenario that the JV TransactionShareholders’ Approval of the Group and only one of the JV TransactionShareholders’ Approvals of CKI or PAH are obtained and other conditions beingfulfilled); and

(iii) the completion of the Acquisition and the Target Group as a wholly ownedsubsidiary of the Group (under the scenario that none of the necessary JVTransaction Shareholders’ Approvals are obtained or certain other conditions asset out in the Implementation Agreement are not fulfilled and the Group proceedswith the Acquisition alone, subject to fulfilment of all necessary conditions).

The Unaudited Pro Forma Financial Information has been prepared by the directors ofthe Company for illustrative purposes only and because of its hypothetical nature, itmay not purport to present the true picture of the financial effect on the financialposition of the Group upon the completion of the Acquisition as at 30 June 2018 or atany future dates.

The Unaudited Pro Forma Financial Information has been prepared in accordance withRule 4.29 of the Listing Rules for the purpose of illustrating the effect of theAcquisition as if the Acquisition had been completed on 30 June 2018.

The Unaudited Pro Forma Financial Information is prepared based on the unauditedconsolidated statement of financial position of the Group as at 30 June 2018 extractedfrom the published interim report of the Group for the period ended 30 June 2018 andthe audited consolidated statement of financial position of the Target Group as at 30June 2018 as extracted from the reports set out in Appendix II to this Circular, aftermaking pro forma adjustments relating to the Acquisition that are (i) directlyattributable to the Acquisition and (ii) factually supportable, as if the Acquisition hadbeen completed on 30 June 2018.

The Unaudited Pro Forma Financial Information should be read in conjunction withother financial information included elsewhere in this Circular.


– III-2 –

2. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS ANDLIABILITIES

(i) The completion of the Acquisition and the Target Group as a joint venture of60% equity interest held by the Group

The Groupas at

30 June 2018

Effect ofacquisition of

60% of theTarget Group

Unauditedpro forma

statement ofassets and

liabilities ofthe Enlarged

Group

(Note 1)HK$ Million HK$ Million HK$ Million

Non-current assetsFixed assets 37,074 37,074Investment properties 121,057 121,057Joint ventures 64,029 45,897 (Note 2) 109,926Associates 7,486 7,486Investment in securities 6,825 6,825Long term receivables and others 11,072 11,072Deferred tax assets 2,723 2,723

250,266 45,897 296,163- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assetsStock of properties 137,445 137,445Short term loan receivable 10,230 10,230Debtors, prepayments and others 5,476 5,476Bank balances and deposits 55,222 (45,897) (Note 3) 9,325

208,373 (45,897) 162,476

Current liabilitiesBank and other loans 1,889 1,889Creditors, accruals and others 13,546 13,546Customers’ deposits received 41,361 41,361Provision for taxation 1,474 1,474

58,270 – 58,270

Net current assets 150,103 (45,897) 104,206- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current liabilitiesBank and other loans 59,347 59,347Deferred tax liabilities 10,951 10,951Derivative financial instruments 146 146Pension obligations 137 137

70,581 – 70,581- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net assets 329,788 – 329,788


– III-3 –

Notes:

(1) The balances have been extracted from the unaudited consolidated statement of financialposition of the Group as at 30 June 2018 contained in the Group’s published 2018 interimreport.

(2) The amount represents 60% of the Scheme Consideration and transaction costs and estimatedstamp duty payable by the Group pursuant to the Implementation Agreement dated 12 August2018.

Australian dollar is translated into Hong Kong dollar at the rate of AUD1: HK$5.81 as at 30June 2018.

(3) The Scheme Consideration and transaction costs and estimated stamp duty are assumed to besatisfied by bank balances and deposits of the Group for illustrative purposes.


– III-4 –

(ii) The completion of the Acquisition and the Target Group as a joint venture of80% equity interest held by the Group

The Groupas at

30 June 2018

Effect ofacquisition of

80% of theTarget Group

Unauditedpro forma



Group

(Note 1)HK$ Million HK$ Million HK$ Million

Non-current assetsFixed assets 37,074 37,074Investment properties 121,057 121,057Joint ventures 64,029 61,196 (Note 2) 125,225Associates 7,486 7,486Investment in securities 6,825 6,825Long term receivables and others 11,072 11,072Deferred tax assets 2,723 2,723

250,266 61,196 311,462- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assetsStock of properties 137,445 137,445Short term loan receivable 10,230 10,230Debtors, prepayments and others 5,476 5,476Bank balances and deposits 55,222 (55,222) (Note 3) –

208,373 (55,222) 153,151

Current liabilitiesBank and other loans 1,889 1,889Creditors, accruals and others 13,546 5,974 (Note 3) 19,520Customers’ deposits received 41,361 41,361Provision for taxation 1,474 1,474

58,270 5,974 64,244

Net current assets 150,103 (61,196) 88,907- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current liabilitiesBank and other loans 59,347 59,347Deferred tax liabilities 10,951 10,951Derivative financial instruments 146 146Pension obligations 137 137

70,581 – 70,581- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net assets 329,788 – 329,788


– III-5 –

Notes:


(2) The amount represents 80% of the Scheme Consideration and transaction costs and estimatedstamp duty payable by the Group pursuant to the Implementation Agreement dated 12 August2018.

Australian dollar is translated into Hong Kong dollar at the rate of AUD1: HK$5.81 as at 30June 2018.

(3) The Scheme Consideration and transaction costs and estimated stamp duty are assumed to besatisfied firstly by bank balances and deposits of the Group and the remaining amounts arepresented as payables for illustrative purposes.


– III-6 –

(iii) The completion of the Acquisition and the Target Group as a wholly ownedsubsidiary of the Group

The Groupas at

30 June 2018

The TargetGroup as at

30 June 2018

The TargetGroup as at

30 June 2018Re-

classifications Adjustments

Unauditedpro forma



Group

(Note 1) (Note 2) (Note 3) (Note 4)HK$ Million AUD’000 HK$ Million HK$ Million HK$ Million HK$ Million

Non-current assetsFixed assets 37,074 9,691,666 56,309 93,383Investment properties 121,057 121,057Goodwill 1,183,604 6,877 – 51,432 (Notes 3, 5) 58,309Other intangible assets 2,992,431 17,386 17,386Joint ventures 64,029 1,410 (i) 65,439Associates 7,486 168 (ii) 7,654Investments accounted for

using equity method 271,597 1,578 (1,578) (i), (ii) –Investment in securities 6,825 6,825Long term receivables and

others 11,072 47,532 276 11,348Other financial assets 591,487 3,437 3,437Deferred tax assets 2,723 2,723

250,266 14,778,317 85,863 – 51,432 387,561- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assetsStock of properties 137,445 137,445Short term loan receivable 10,230 10,230Debtors, prepayments and

others 5,476 264,207 1,535 7,011Other financial assets 55,525 323 323Inventories 28,534 166 166Bank balances and deposits 55,222 100,643 585 (55,222) (Note 6) 585

208,373 448,909 2,609 – (55,222) 155,760

Current liabilitiesBank and other loans 1,889 329,219 1,913 3,802Creditors, accruals and

others 13,546 381,676 2,218 614 (iii), (iv) 21,272 (Note 6) 37,650Customers’ deposits

received 41,361 41,361Other financial liabilities 139,401 810 (810) (iii) –Provisions 83,629 486 486Unearned revenue 20,922 122 122Provision for taxation 1,474 196 (iv) 1,670

58,270 954,847 5,549 – 21,272 85,091

Net current assets 150,103 (505,938) (2,940) – (76,494) 70,669- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current liabilitiesBank and other loans 59,347 9,321,377 54,157 113,504Trade and other payables 5,089 30 30Deferred tax liabilities 10,951 558,442 3,245 14,196Derivative financial

instruments 146 747 (v) 893Other financial liabilities 128,510 747 (747) (v) –Provisions 71,951 418 (29) (iv) 389Unearned revenue 60,183 350 350Pension obligations 137 29 (iv) 166

70,581 10,145,552 58,947 – – 129,528- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net assets 329,788 4,126,827 23,976 – (25,062) 328,702


– III-7 –

Notes:


(2) The balances have been extracted from the audited consolidated statement of financial positionof the Target Group as at 30 June 2018 contained in the Target Group’s published 2018 annualreport.

(3) Australian dollar is translated into Hong Kong dollar at the rate of AUD1: HK$5.81 as at 30June 2018.

(4) Reclassifications are to align the classifications of the respective amounts of financial lineitems as shown on the consolidated statement of financial position of the Target Group to thoseof the consolidated statement of financial position of the Group:

(i) from “Investments accounted for using equity method” of the Target Group to “Jointventures” of the Group for joint ventures of the Target Group;

(ii) from “Investments accounted for using equity method” of the Target Group to“Associates” of the Group for associates of the Target Group;

(iii) from “Other financial liabilities (current)” of the Target Group to “Creditors, accrualsand others” of the Group for derivatives of the Target Group;

(iv) from “Creditors, accruals and others” of the Target Group to “Provision for taxation” ofthe Group for income tax payable of the Target Group;

(v) from “Other financial liabilities (non-current)” of the Target Group to “Derivativefinancial instruments” of the Group for derivatives of the Target Group; and

(vi) from “Provisions” of the Target Group to “Pension obligations” of the Group for definedbenefit liability of the Target Group.

(5) The goodwill of the Target Group is not recognised as it is not considered as identifiable assetsacquired in accordance with International Financial Reporting Standard 3 “BusinessCombinations” (“IFRS 3”). The excess of Scheme Consideration over the book value of netassets of the Target Group amounting to approximately HK$58,309 million as at 30 June 2018is recognised as goodwill for illustrative purposes. Transaction costs and estimated stamp dutyare accounted for as expenses.

Pursuant to IFRS 3, the fair values of identifiable assets acquired and liabilities assumed of theTarget Group at the date of completion of the Acquisition shall be recognised and any excessof Scheme Consideration over the net of the acquisition date amounts of the identifiable assetsacquired and the liabilities assumed measured in accordance with IFRS 3 of the Target Groupshall be recognised as goodwill. As the fair values of the identifiable net assets of the TargetGroup may be different from the book values of the net assets of the Target Group as at 30June 2018, actual excess of Scheme Consideration over the fair values of the identifiable netassets of the Target Group and the final amounts of assets and liabilities of the Target Grouprecognised may be different from the amounts above.

(6) The Scheme Consideration and transaction costs and estimated stamp duty are assumed to besatisfied firstly by bank balances and deposits of the Group and the remaining amounts arepresented as payables for illustrative purposes.


– III-8 –

The following is the text of a report received from Deloitte Hong Kong, Certified PublicAccountants, Hong Kong, for inclusion in this circular, in respect of the unaudited pro formafinancial information of the Enlarged Group.

3. REPORT FROM THE REPORTING ACCOUNTANTS ON THE UNAUDITEDPRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

To the Directors of CK Asset Holdings Limited

We have completed our assurance engagement to report on the compilation ofunaudited pro forma financial information of CK Asset Holdings Limited (the“Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”)by the directors of the Company (the “Directors”) for illustrative purposes only. Theunaudited pro forma financial information consists of the unaudited pro formaconsolidated statement of assets and liabilities as at 30 June 2018 and related notes asset out on pages III-3 to III-8 of Appendix III of the circular issued by the Companydated 10 October 2018 (the “Circular”). The applicable criteria on the basis of whichthe Directors have compiled the unaudited pro forma financial information aredescribed on pages III-1 to III-2 of the Appendix III of the Circular.

The unaudited pro forma financial information has been compiled by the Directors toillustrate the impact of the proposed acquisition by CKM Australia Bidco Pty Ltd, byway of certain trust schemes, of all of the stapled securities in issue of APA which arelisted on the Australian Securities Exchange (the “Acquisition”) on the Group’sfinancial position as at 30 June 2018 as if the Acquisition had taken place at 30 June2018. As part of this process, information about the Group’s financial position has beenextracted by the Directors from the Group’s financial statements for the period ended30 June 2018, on which no auditor’s report or review report has been published.

Directors’ Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the unaudited pro forma financialinformation in accordance with paragraph 4.29 of the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) andwith reference to Accounting Guideline 7 “Preparation of Pro Forma FinancialInformation for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong KongInstitute of Certified Public Accountants (the “HKICPA”).

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the “Codeof Ethics for Professional Accountants” issued by the HKICPA, which is founded onfundamental principles of integrity, objectivity, professional competence and due care,confidentiality and professional behaviour.


– III-9 –

Our firm applies Hong Kong Standard on Quality Control 1 “Quality Control for Firmsthat Perform Audits and Reviews of Financial Statements, and Other Assurance andRelated Services Engagements” issued by the HKICPA and accordingly maintains acomprehensive system of quality control including documented policies and proceduresregarding compliance with ethical requirements, professional standards and applicablelegal and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of theListing Rules, on the unaudited pro forma financial information and to report ouropinion to you. We do not accept any responsibility for any reports previously given byus on any financial information used in the compilation of the unaudited pro formafinancial information beyond that owed to those to whom those reports were addressedby us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on AssuranceEngagements 3420 “Assurance Engagements to Report on the Compilation of ProForma Financial Information Included in a Prospectus” issued by the HKICPA. Thisstandard requires that the reporting accountants plan and perform procedures to obtainreasonable assurance about whether the Directors have compiled the unaudited proforma financial information in accordance with paragraph 4.29 of the Listing Rules andwith reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing anyreports or opinions on any historical financial information used in compiling theunaudited pro forma financial information, nor have we, in the course of thisengagement, performed an audit or review of the financial information used incompiling the unaudited pro forma financial information.

The purpose of unaudited pro forma financial information included in an investmentcircular is solely to illustrate the impact of a significant event or transaction onunadjusted financial information of the Group as if the event had occurred or thetransaction had been undertaken at an earlier date selected for purposes of theillustration. Accordingly, we do not provide any assurance that the actual outcome ofthe event or transaction at 30 June 2018 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro formafinancial information has been properly compiled on the basis of the applicable criteriainvolves performing procedures to assess whether the applicable criteria used by theDirectors in the compilation of the unaudited pro forma financial information provide areasonable basis for presenting the significant effects directly attributable to the eventor transaction, and to obtain sufficient appropriate evidence about whether:

� the related pro forma adjustments give appropriate effect to those criteria; and


– III-10 –

� the unaudited pro forma financial information reflects the proper application ofthose adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regardto the reporting accountants’ understanding of the nature of the Group, the event ortransaction in respect of which the unaudited pro forma financial information has beencompiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited proforma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to providea basis for our opinion.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled on thebasis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purposes of the unaudited pro formafinancial information as disclosed pursuant to paragraph 4.29(1) of the ListingRules.

Deloitte Touche TohmatsuCertified Public AccountantsHong Kong, 10 October 2018


– III-11 –

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept fullresponsibility, includes particulars given in compliance with the Listing Rules for thepurpose of giving information with regard to the Company. The Directors, having madeall reasonable enquiries, confirm that to the best of their knowledge and belief theinformation contained in this circular is accurate and complete in all material respectsand not misleading or deceptive, and there are no other matters the omission of whichwould make any statement herein or this circular misleading.

2. INTERESTS OF DIRECTORS

2.1 Interests in shares, underlying shares and debentures of the Company and itsassociated corporations

As at the Latest Practicable Date, the interests or short positions of the Directorsand chief executives of the Company in the Shares, underlying shares anddebentures of the Company or any of its associated corporation(s) (within themeaning of Part XV of the SFO) which were notified to the Company and theStock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (includinginterests or short positions which they were taken or deemed to have under suchprovisions of the SFO), or which were recorded in the register required to be keptby the Company under Section 352 of the SFO, or which were required, pursuantto the Model Code for Securities Transactions by Directors adopted by theCompany (the “Model Code”) to be notified to the Company and the StockExchange, were as follows:

Long Position in Shares

(i) The Company

Number of Ordinary Shares

Name of Director CapacityPersonal

interestFamily

interestCorporate

interestOther

interest Total

Approximate% of

shareholding

Li Tzar Kuoi, Victor Beneficial owner,interest of child orspouse, interest ofcontrolledcorporations &beneficiary of trusts

220,000 405,200 53,688,850(Note 1)

1,160,195,710(Note 2)

1,214,509,760 32.88%

Kam Hing Lam Beneficial owner &interest of child orspouse

51,040 57,360 – – 108,400 0.0029%

Chow Nin Mow, Albert Beneficial owner 66 – – – 66 �0%

Hung Siu-lin, Katherine Beneficial owner 43,256 – – – 43,256 0.0012%

Donald Jeffrey Roberts Beneficial owner 167,396 – – – 167,396 0.0045%

APPENDIX IV GENERAL INFORMATION

– IV-1 –

(ii) Associated Corporations

Number of Ordinary Shares

Name of CompanyName ofDirector Capacity

Personalinterest

Familyinterest

Corporateinterest

Otherinterest Total

Approximate% of

shareholding

Precise ResultGlobal Limited

Li Tzar Kuoi,Victor

Beneficiary of trusts – – – 15(Note 3)

15 15%

Jabrin Limited Li Tzar Kuoi,Victor

Beneficiary of trusts – – – 2,000(Note 3)

2,000 20%

Mightycity CompanyLimited

Li Tzar Kuoi,Victor

Beneficiary of trusts – – – 168,375(Note 3)

168,375 1.53%

Notes:

(1) The 53,688,850 shares of the Company comprise:

(a) 35,728,850 shares held by certain companies of which Mr. Li Tzar Kuoi, Victor isentitled to exercise or control the exercise of one-third or more of the voting power attheir general meetings.

(b) 17,960,000 shares held by the Li Ka Shing Foundation Limited (“LKSF”). By virtue ofthe terms of the constituent documents of LKSF, Mr. Li Tzar Kuoi, Victor may beregarded as having the ability to exercise or control the exercise of one-third or more ofthe voting power at general meetings of LKSF.

(2) The 1,160,195,710 shares of the Company comprise:

(a) 1,003,380,744 shares held by Li Ka-Shing Unity Trustee Company Limited (“TUT1”) astrustee of UT1 and its related companies in which TUT1 as trustee of UT1 is entitled toexercise or control the exercise of one-third or more of the voting power at their generalmeetings (“TUT1 related companies”). Mr. Li Ka-shing is the settlor of each of DT1and DT2. Each of TDT1 and TDT2 holds units in UT1 but is not entitled to any interestor share in any particular property comprising the trust assets of the said unit trust. Thediscretionary beneficiaries of each of DT1 and DT2 are, inter alia, Mr. Li Tzar Kuoi,Victor, his wife and children, and Mr. Li Tzar Kai, Richard.

The entire issued share capital of TUT1, TDT1 and TDT2 are owned by Li Ka-ShingUnity Holdings Limited (“Unity Holdco”). Mr. Li Ka-shing and Mr. Li Tzar Kuoi,Victor are respectively interested in one-third and two-thirds of the entire issued sharecapital of Unity Holdco. TUT1 is only interested in the shares of the Company byreason only of its obligation and power to hold interests in those shares in its ordinarycourse of business as trustee and, when performing its functions as trustee, exercises itspower to hold interests in the shares of the Company independently without anyreference to Unity Holdco or any of Mr. Li Ka-shing and Mr. Li Tzar Kuoi, Victor as aholder of the shares of Unity Holdco as aforesaid.

As Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary of each of DT1 and DT2, andby virtue of the above, Mr. Li Tzar Kuoi, Victor is taken to have a duty of disclosure inrelation to the said shares of the Company held by TUT1 as trustee of UT1 and TUT1related companies under the SFO as a Director of the Company.


– IV-2 –

(b) 72,387,720 shares held by Li Ka-Shing Castle Trustee Company Limited (“TUT3”) astrustee of UT3 and its related companies in which TUT3 as trustee of UT3 is entitled toexercise or control the exercise of one-third or more of the voting power at their generalmeetings (“TUT3 related companies”). Mr. Li Ka-shing is the settlor of each of DT3and DT4. Each of TDT3 and TDT4 holds units in UT3 but is not entitled to any interestor share in any particular property comprising the trust assets of the said unit trust. Thediscretionary beneficiaries of each of DT3 and DT4 are, inter alia, Mr. Li Tzar Kuoi,Victor, his wife and children, and Mr. Li Tzar Kai, Richard.

The entire issued share capital of TUT3, TDT3 and TDT4 are owned by Li Ka-ShingCastle Holdings Limited (“Castle Holdco”). Mr. Li Ka-shing and Mr. Li Tzar Kuoi,Victor are respectively interested in one-third and two-thirds of the entire issued sharecapital of Castle Holdco. TUT3 is only interested in the shares of the Company byreason only of its obligation and power to hold interests in those shares in its ordinarycourse of business as trustee and, when performing its functions as trustee, exercises itspower to hold interests in the shares of the Company independently without anyreference to Castle Holdco or any of Mr. Li Ka-shing and Mr. Li Tzar Kuoi, Victor as aholder of the shares of Castle Holdco as aforesaid.

As Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary of each of DT3 and DT4, andby virtue of the above, Mr. Li Tzar Kuoi, Victor is taken to have a duty of disclosure inrelation to the said shares of the Company held by TUT3 as trustee of UT3 and TUT3related companies under the SFO as a Director of the Company.

(c) 84,427,246 shares held by a company controlled by TDT3 as trustee of DT3.

(3) These are subsidiaries of the Company and such shares are held through TUT1 as trustee ofUT1. By virtue of Mr. Li Tzar Kuoi, Victor’s deemed interests as described in Note (2)(a)above, Mr. Li Tzar Kuoi, Victor is taken to have a duty of disclosure in relation to such sharesunder the SFO as a Director of the Company.

Save as disclosed in this circular, as at the Latest Practicable Date, none of theDirectors or chief executives of the Company had or was deemed to have anyinterests or short positions in the Shares, underlying shares and debentures of theCompany or any of its associated corporations (within the meaning of Part XV ofthe SFO) which would have to be notified to the Company and the StockExchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including theinterests or short positions which they were taken or deemed to have under suchprovisions of the SFO), or which were required, pursuant to Section 352 of theSFO, to be entered in the register maintained by the Company referred to therein,or which were required to be notified to the Company and the Stock Exchangepursuant to the Model Code.

2.2 Interests in assets, contracts or arrangements of the Group

As at the Latest Practicable Date, none of the Directors had any direct or indirectinterests in any assets which have been acquired or disposed of by, or leased to,or which were proposed to be acquired or disposed of by, or leased to, anymember of the Group or the Target Group since 31 December 2017, being thedate to which the latest published audited accounts of the Group were made up.


– IV-3 –

As at the Latest Practicable Date, there was no contract or arrangement subsistingin which any of the Directors was materially interested and which was significantin relation to the businesses of the Group or of the Target Group taken as awhole.

2.3 Competing Businesses

2.3.1 Principal Business Activities of the Group

The principal business activities of the Group comprise the following:

(1) property development and investment;

(2) hotel and serviced suite operation;

(3) property and project management;

(4) interests in Real Estate Investment Trusts;

(5) ownership and leasing of movable assets; and

(6) joint ventures in infrastructure and utility asset operation.

2.3.2 Interests in Competing Businesses

As at the Latest Practicable Date, the interests of Directors in the businesseswhich compete or are likely to compete, either directly or indirectly, with thebusinesses of the Group (the “Competing Businesses”), as required to bedisclosed pursuant to the Listing Rules, were as follows:

Name of Director Name of Company Nature of Interest

CompetingBusinesses(Note)

Li Tzar Kuoi, Victor CK Hutchison HoldingsLimited

Chairman andGroup Co-ManagingDirector

(6)

CK Infrastructure HoldingsLimited

Chairman (5) & (6)

CK Life Sciences Int’l.,(Holdings) Inc.

Chairman (1)

HK Electric Investmentsand HK ElectricInvestments Limited

Non-executive Directorand Deputy Chairman

(6)

Husky Energy Inc. Co-Chairman (6)Power Assets Holdings

LimitedNon-executive Director (6)


– IV-4 –

Name of Director Name of Company Nature of Interest

CompetingBusinesses(Note)

Kam Hing Lam CK Hutchison HoldingsLimited

Deputy ManagingDirector

(6)

CK InfrastructureHoldings Limited

Group ManagingDirector

(5) & (6)


President and ChiefExecutive Officer

(1)

Hui Xian AssetManagement Limited

Chairman (1), (2), (3)& (4)

Ip Tak Chuen,Edmond

CK Hutchison HoldingsLimited

Deputy ManagingDirector

(6)

CK InfrastructureHoldings Limited

Deputy Chairman (5) & (6)


Senior Vice Presidentand Chief InvestmentOfficer

(1)

Hui Xian AssetManagement Limited

Non-executive Director (1), (2), (3)& (4)

Chiu Kwok Hung,Justin

ARA Asset ManagementLimited

Director (3), (4) &(6)

ARA Asset Management(Fortune) Limited

Non-executive Director (3) & (4)

ARA Asset Management(Prosperity) Limited

Chairman (3) & (4)

Chow Wai Kam AVIC International Holding(HK) Limited

Non-executive Director (1)

Note: Such businesses may be conducted through subsidiaries, associated companiesor by way of other form of investments. Please refer to “2.3.1 PrincipalBusiness Activities of the Group” above for the types of the CompetingBusinesses.

As at the Latest Practicable Date, save as disclosed above, none of theDirectors or their respective close associates (as if each of them was treatedas a controlling shareholder under Rule 8.10 of the Listing Rules) had anyinterest in a business which competes or is likely to compete, either directlyor indirectly, with the businesses of the Group.


– IV-5 –

2.4 Common directors

As at the Latest Practicable Date, the following Directors are also directors ofcertain companies which have an interest or short position in the Shares orunderlying shares of the Company which would fall to be disclosed to theCompany under the provisions of Divisions 2 and 3 of Part XV of the SFO (the“Relevant Companies”):

Name ofDirector Relevant Companies in which the Director is also a director

Li Tzar Kuoi,Victor

Li Ka-Shing Unity Trustee Company Limited as trustee of TheLi Ka-Shing Unity Trust

Li Ka-Shing Unity Trustee Corporation Limited as trustee ofThe Li Ka-Shing Unity Discretionary Trust

Li Ka-Shing Unity Trustcorp Limited as trustee of anotherdiscretionary trust

Pau Yee Wan,Ezra

Li Ka-Shing Unity Trustee Company Limited as trustee of TheLi Ka-Shing Unity Trust

Li Ka-Shing Unity Trustee Corporation Limited as trustee ofThe Li Ka-Shing Unity Discretionary Trust

Li Ka-Shing Unity Trustcorp Limited as trustee of anotherdiscretionary trust

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposedservice contracts with any member of the Group and/or the Target Group (excludingcontracts expiring or determinable by the relevant member of the Group and/or theTarget Group within one year without payment of compensation (other than statutorycompensation)).

4. MATERIAL CONTRACTS

No material contracts (not being a contract entered into in the ordinary course ofbusiness) have been entered into by members of the Group and/or of the Target Groupwithin the two years immediately preceding the Latest Practicable Date.

5. MATERIAL LITIGATION

As at the Latest Practicable Date, no members of the Group or the Target Group wereengaged in any litigation of material importance and there was no litigation or claim ofmaterial importance known to the Directors to be pending or threatened by or againstany member of the Group or the Target Group.


– IV-6 –

6. EXPERTS

6.1 Qualification of experts

The following are the names and qualification of the experts who have given itsopinion or advice which are contained in this circular:

Name Qualifications

Deloitte Touche TohmatsuHong Kong

Certified Public Accountants, Hong Kong

Deloitte Touche TohmatsuAustralia

Chartered Accountants, Australia

Anglo Chinese CorporateFinance, Limited

A licensed corporation permitted to carry outtype 1 (dealing in securities), type 4(advising on securities), type 6 (advising oncorporate finance) and type 9 (assetmanagement) regulated activities under theSFO

6.2 Interests of experts

As at the Latest Practicable Date, neither Deloitte Hong Kong, Deloitte Australianor Anglo Chinese was interested in any securities of any member of the Groupor of the Target Group or any right (whether legally enforceable or not) tosubscribe for or to nominate persons to subscribe for any securities in anymember of the Group or of the Target Group, and neither Deloitte Hong Kong,Deloitte Australia nor Anglo Chinese had any direct or indirect interest in anyassets which had been, since 31 December 2017 (being the date to which thelatest published audited consolidated financial statements of the Group were madeup), acquired or disposed of by, or leased to, or were proposed to be acquired ordisposed of by, or leased to, any member of the Group or of the Target Group.

7. CONSENTS

Each of Deloitte Hong Kong, Deloitte Australia and Anglo Chinese has given and hasnot withdrawn its written consent to the issue of this circular with the inclusion of itsletter and/or references to its name in the form and context in which they respectivelyappear in this circular.

8. MISCELLANEOUS

(i) The registered office of the Company is situated at PO Box 309, Ugland House,Grand Cayman, KY1-1104, Cayman Islands and the principal place of business ofthe Company in Hong Kong is situated at 7th Floor, Cheung Kong Center,2 Queen’s Road Central, Hong Kong.


– IV-7 –

(ii) The Company’s Hong Kong share registrar and transfer office is ComputershareHong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor, HopewellCentre, 183 Queen’s Road East, Hong Kong.

(iii) The Company’s principal share registrar and transfer office is Maples FundServices (Cayman) Limited, PO Box 1093, Boundary Hall, Cricket Square, GrandCayman, KY1-1102, Cayman Islands.

(iv) The company secretary of the Company is Ms. Eirene Yeung. Ms. Eirene Yeung isa solicitor of the High Court of the Hong Kong Special Administrative Regionand a non-practising solicitor of the Senior Courts of England and Wales.Ms. Eirene Yeung is also a fellow member of The Hong Kong Institute of CharteredSecretaries and The Institute of Chartered Secretaries and Administrators.

(v) The English text of this circular shall prevail over the Chinese text in the event ofany inconsistency.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office ofFreshfields Bruckhaus Deringer at 55th Floor, One Island East, Taikoo Place, QuarryBay, Hong Kong during normal business hours from 9:00 a.m. to 5:00 p.m. on anyweekday, except Saturdays, Sundays and public holidays, during the period of 14 daysfrom the date of this circular:

(i) the amended and restated Memorandum and Articles of Association of theCompany;

(ii) the Implementation Agreement;

(iii) the Consortium Formation Agreement;

(iv) the Respective Proportions Determination Side Letter;

(v) the letter from the Board, the text of which is set out in the Letter from theBoard;

(vi) the letter from the Independent Board Committee to the Independent Shareholders,the text of which is set out in the Letter from the Independent Board Committee;

(vii) the letter from the Independent Financial Adviser to the Independent BoardCommittee and the Independent Shareholders, the text of which is set out in the“Letter from the Independent Financial Adviser” to this circular;

(viii) the annual reports of the Company for each of the financial years ended31 December 2015, 2016 and 2017;

(ix) the interim report of the Company for the six months ended 30 June 2018;


– IV-8 –

(x) the audited financial information of the Target Group for each of the financialyears ended 30 June 2016, 2017 and 2018 prepared in accordance with theAustralian Accounting Standards, as set out in Appendix II to this circular;

(xi) the report from Deloitte Hong Kong in relation to the unaudited pro formafinancial information of the Enlarged Group as set out in Appendix III to thiscircular;

(xii) the written consents referred to in the section headed “7. Consents” in thisAppendix; and

(xiii) this circular.


– IV-9 –


NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “Meeting”) ofCK Asset Holdings Limited (the “Company”) will be held at the Grand Ballroom, 1st Floor,Harbour Grand Hong Kong, 23 Oil Street, North Point, Hong Kong on Tuesday,30 October 2018 at 10:15 a.m. (or, in the event that a black rainstorm warning signal ortropical cyclone warning signal no. 8 or above is in force in Hong Kong at 8:00 a.m. on thatday, at the same time and place on Wednesday, 31 October 2018) for the purpose ofconsidering and, if thought fit, passing, with or without amendments, the followingresolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “THAT:

(a) the major transaction that is contemplated by the Company proceeding with theAcquisition alone, through CKM Australia Bidco Pty Ltd as its wholly-ownedsubsidiary, pursuant to the terms of the Implementation Agreement (a copy of thecircular of the Company dated 10 October 2018 (the “Circular”) marked “A”together with a copy of the Implementation Agreement marked “B” having beentabled before the Meeting and initialled by the Chairman of the Meeting for thepurpose of identification) be and is hereby approved, subject to the Joint VentureTransaction being terminated in accordance with its terms and not proceeding(including, without limitation, due to the ordinary resolution 2 below not beingapproved by the shareholders of the Company); and

(b) the directors of the Company, acting collectively and individually, be and arehereby authorised to take all such steps, do all such acts and things and to sign,execute, seal (where required) and deliver all such documents which he/she mayin his/her absolute discretion, consider necessary, appropriate, desirable orexpedient in connection with or to implement or give effect to the aboveresolution and all of the transactions contemplated thereunder.”


– N-1 –

2. “THAT:

(a) both:

(1) the connected and major transactions that are contemplated between theCompany and its subsidiaries with:

(i) CK Infrastructure Holdings Limited and its subsidiaries; and/or

(ii) Power Assets Holdings Limited and its subsidiaries,

pursuant to, and in connection with, the Consortium Formation Agreement (acopy of the Consortium Formation Agreement marked “C” having beentabled before the Meeting and initialled by the Chairman of the Meeting forthe purpose of identification), including, but not limited to, the formation ofa consortium with the Company, CK Infrastructure Holdings Limited (ifapplicable) and Power Assets Holdings Limited (if applicable) in relation tothe Joint Venture Transaction; and

(2) the major transaction that is contemplated by the Company proceeding withthe Joint Venture Transaction pursuant to the Implementation Agreement,

be and are hereby approved; and

(b) the directors of the Company, acting collectively and individually, be and arehereby authorised to take all such steps, do all such acts and things and to sign,execute, seal (where required) and deliver all such documents which he/she mayin his/her absolute discretion, consider necessary, appropriate, desirable orexpedient in connection with or to implement or give effect to the aboveresolutions and all of the transactions contemplated thereunder.”

By Order of the Board

Eirene YEUNGExecutive Committee Member &Company Secretary

Hong Kong, 10 October 2018


– N-2 –

Notes:

1. Unless otherwise defined in this notice or the context requires otherwise, terms defined in the Circular shallhave the same meanings when used in this notice.

2. At the Meeting, the Chairman of the Meeting will put each of the above resolutions to be voted by way ofa poll under Article 81 of the Company’s Amended and Restated Articles of Association.

3. Any member entitled to attend and vote at the Meeting is entitled to appoint more than one proxy inaccordance with the relevant provisions of the Amended and Restated Articles of Association of theCompany to attend and on a poll, vote in his/her stead. A proxy need not be a member of the Company.

4. To be valid, the proxy form together with any power of attorney or other authority (if any) under which itis signed or a notarially certified copy of such power or authority must be deposited at the Company’sprincipal place of business in Hong Kong at 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, HongKong not less than 48 hours before the time appointed for the holding of the Meeting or any adjournmentthereof (as the case may be).

5. Completion and return of the proxy form will not preclude a member from attending and voting in personat the Meeting or any adjournment thereof (as the case may be) should the member so desire and, in suchevent, the proxy form shall be deemed to be revoked.

6. For the purpose of determining the entitlement to attend and vote at the Meeting, the Register of Membersof the Company will be closed from Thursday, 25 October 2018 to Tuesday, 30 October 2018 (orWednesday, 31 October 2018 in the event that the Meeting is to be held on Wednesday, 31 October 2018because of a black rainstorm warning signal or tropical cyclone warning signal no.8 or above is in force inHong Kong (as detailed in note 7 below)), both days inclusive, during which period no transfer of Shareswill be effected. In order to be entitled to attend and vote at the Meeting, all share certificates withcompleted transfer forms, either overleaf or separately, must be lodged with the Company’s Hong KongShare Registrar, Computershare Hong Kong Investor Services Limited, at Rooms 1712-1716, 17th Floor,Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. onWednesday, 24 October 2018.

7. The Meeting will be held at the Grand Ballroom, 1st Floor, Harbour Grand Hong Kong, 23 Oil Street,North Point, Hong Kong on Tuesday, 30 October 2018 at 10:15 a.m. as scheduled regardless of whether ornot an amber or red rainstorm warning signal or a tropical cyclone warning signal no. 3 or below is in forcein Hong Kong at any time on that day.

However, if a black rainstorm warning signal or a tropical cyclone warning signal no. 8 or above is in forcein Hong Kong at 8:00 a.m. on Tuesday, 30 October 2018, the Meeting will not be held on that day but willbe automatically postponed and, by virtue of this notice, be held at the same time and place on Wednesday,31 October 2018 instead.

Members who have any queries concerning these arrangements, please call the Company at (852) 2128 8888during business hours from 9:00 a.m. to 5:00 p.m. on Mondays to Fridays, excluding public holidays.

Members should make their own decision as to whether they would attend the Meeting under bad weatherconditions at their own risk having regard to their own situation and if they should choose to do so, theyare advised to exercise care and caution.

8. In the case of joint holders of a share of the Company, any one of such joint holders may vote at theMeeting, either personally or by proxy, in respect of such share as if he/she/it was solely entitled thereto. Ifmore than one of such joint holders are present at the Meeting, the more senior shall alone be entitled tovote in respect of the relevant joint holding. For this purpose, seniority shall be determined by reference tothe order in which the names of the joint holders stand on the Register of Members of the Company inrespect of the relevant joint holding.

9. The translation into Chinese language of this notice is for reference only. In case of any inconsistency, theEnglish version shall prevail.


– N-3 –

This circular is available in both English and Chinese versions (“Circular”).Shareholders who have received either the English or the Chinese version of this Circularmay request a copy in the other language by writing to the Company c/o the Company’sHong Kong Share Registrar, Computershare Hong Kong Investor Services Limited, at17M Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong or by email [email protected].

This Circular (both English and Chinese versions) has been posted on the Company’swebsite at www.ckah.com. Shareholders who have chosen (or are deemed to haveconsented) to read the Company’s corporate communications (including but not limited tothe Circular) published on the Company’s website in place of receiving printed copiesthereof may request the printed copy of the Circular in writing to the Company c/o theCompany’s Hong Kong Share Registrar or by email to [email protected].

Shareholders who have chosen (or are deemed to have consented) to receive thecorporate communications using electronic means through the Company’s website andwho for any reason have difficulty in receiving or gaining access to the Circular postedon the Company’s website will upon request in writing to the Company c/o theCompany’s Hong Kong Share Registrar or by email to [email protected] be sent the Circular in printed form free of charge.

Shareholders may at any time choose to change their choice as to the means of receipt(i.e. in printed form or by electronic means through the Company’s website) and/or thelanguage of the Company’s corporate communications by reasonable prior notice inwriting to the Company c/o the Company’s Hong Kong Share Registrar or sending anotice to [email protected].

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