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financial report financial report Document Transcript

  • financial report (from left) Transend’s Lisa Eiszele, financial analyst, and Leanne Stecko, business support officer
  • Income statement For the financial year ended 30 June 2009 2009 2008 Note $’000 $’000 Revenue 2(a) 145,822 131,640 Other income 2(b) 12,797 5,034 Depreciation and amortisation expenses 8,9 (58,552) (51,495) Finance costs 3 (32,413) (10,499) Operating and maintenance costs (47,356) (44,430) Other expenses 2(c) (4,391) (3,713) Profit from operating activities before superannuation actuarial 15,907 26,537 gains / (losses) and gain on acqusition of business Superannuation actuarial gains / (losses) 18 (6,684) 273 Gain on acqusition of business 17 664 - Profit before income tax 9,887 26,810 Income tax equivalent expense 4(a) (2,655) (8,083) Profit for the year 7,232 18,727 The income statement is to be read in conjunction with the accompanying notes to the financial statements set out on pages 33 to 57. Transend Annual Report 09 29
  • Balance Sheet As at 30 June 2009 2009 2008 Note $’000 $’000 Current assets Cash and cash equivalents 26(a) 23,775 21,499 Trade and other receivables 5 24,970 22,943 Inventories 6 423 423 Current tax assets 4(c) 5,260 - Other assets 7 6,084 811 Total current assets 60,512 45,676 Non-current assets Other assets 7 397 - Intangible assets 8 3,869 1,514 Property, plant and equipment 9 1,241,180 1,259,312 Total non-current assets 1,245,446 1,260,826 Total assets 1,305,958 1,306,502 Current liabilities Trade and other payables 10 35,681 24,825 Borrowings 11 - 408,677 Current tax liabilties 4(c) - 2,436 Provisions 12 7,149 9,293 Other liabilities 13 33,037 32,019 Total current liabilities 75,867 477,250 Non-current liabilities Borrowings 11 488,000 - Deferred tax equivalent liabilities 4(d) 181,269 218,390 Provisions 12 35,438 19,496 Total non-current liabilities 704,707 237,886 Total liabilities 780,574 715,136 Net assets 525,384 591,366 Equity Issued capital 14 66,549 66,549 Reserves 15 388,338 452,192 Retained earnings 16 70,497 72,625 Total equity 525,384 591,366 The balance sheet is to be read in conjunction with the accompanying notes to the financial statements set out on pages 33 to 57. 30 Transend Annual Report 09
  • Statement of recognised income and expense For the financial year ended 30 June 2009 2009 2008 Note $’000 $’000 Revaluation of property, plant and equipment 15 (91,364) 132,024 Income tax equivalent on items taken directly to equity 15, 4(b) 27,510 (39,004) Net income recognised directly in equity (63,854) 93,020 Profit for the year 7,232 18,727 Total recognised income and expense for the year (56,622) 111,747 The statement of recognised income and expense is to be read in conjunction with the accompanying notes to the financial statements set out on pages 33 to 57. Transend Annual Report 09 31
  • Cash flow statement For the financial year ended 30 June 2009 2009 2008 Note $’000 $’000 Cash flows from operating activities: Receipts from customers 170,986 166,711 Payment to suppliers and employees (62,922) (62,975) Interest and other costs of finance paid (29,814) (8,376) Income tax equivalents paid (18,610) (19,271) Net cash provided by operating activities 26(b) 59,640 76,089 Cash flows from investing activities: Proceeds from sale of property, plant and equipment 531 279 Payment for property, plant and equipment (124,412) (60,666) Payment for business (15,207) - Net cash used in investing activities (139,088) (60,387) Cash flows from financing activities: Proceeds from borrowings 749,261 115,639 Repayment of borrowings (658,177) (45,000) Return of shareholder's capital - (50,000) Dividends paid (9,360) (15,000) Net cash provided by financing activities 81,724 5,639 Net increase in cash and cash equivalents 2,276 21,341 Cash and cash equivalents at the beginning of the financial year 21,499 158 Cash and cash equivalents at the end of the financial year 26(a) 23,775 21,499 Note: Allocations may not sum to whole dollars due to rounding The cash flow statement is to be read in conjunction with the accompanying notes to the financial statements set out on pages 33 to 57. 32 Transend Annual Report 09
  • notes to the financial statements For the financial year ended 30 June 2009 1. Summary of significant Note Contents Page accounting policies 1 Summary of significant accounting policies 33 The significant accounting policies that have been 2 Profit for the year 42 adopted in the preparation of these financial statements 3 Finance costs 42 are listed below: 4 Income tax equivalents 43 5 Trade and other receivables 45 (a) Statement of compliance and basis of 6 Inventories 45 preparation 7 Other assets 45 The financial report is a general purpose financial report 8 Intangible assets 45 which has been prepared in accordance with Australian 9 Property, plant and equipment 45 Accounting Standards and Interpretations made by the Australian Accounting Standards Board, and the 10 Trade and other payables 47 requirements of the Corporations Act 2001. The financial 11 Borrowings 47 report complies with International Financial Reporting 12 Provisions 47 Standards (IFRS) and Interpretations made by the 13 Other liabilities 47 International Accounting Standards Board. 14 Issued capital 47 The financial statements were authorised for issue by 15 Reserves 48 the directors on 27 August 2009. 16 Retained earnings 48 The financial report has been prepared on the basis of 17 Acquisition of business 48 historical cost except for the revaluation of certain non- 18 Defined benefit superannuation plan 49 current assets and financial instruments. Cost is based 19 Financial instruments 51 on the fair values of the consideration given in exchange 20 Leases 54 for assets. 21 Commitments for expenditure 55 In the application of Transend’s accounting policies, 22 Contingent liabilities and contingent assets 55 as described below, management is required to make 23 Auditor’s remuneration 55 judgments, estimates and assumptions about carrying 24 Key management personnel compensation 55 values of assets and liabilities that are not readily apparent from other sources. The estimates and associated 25 Related party disclosures 55 assumptions are based upon historical experience and 26 Notes to the cash flow statement 56 various other factors that are believed to be reasonable 27 Economic dependency 57 under the circumstance, the results of which form the basis 28 Subsequent events 57 of making the judgments. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation uncertainity and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in note 1 (v). Transend Annual Report 09 33
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant with early application permitted). Revisions to this statement will bring presentation distinctions between accounting policies (continued) comprehensive income and changes in equity, so that equity changes are limited to transactions with The accounting policies set out below have been applied owners such as capital raised and dividends. Although in preparing the financial statements for the financial year other presentation changes will occur, no change to ended 30 June 2009 and the comparative information reported financial results or position are expected. presented in these financial statements for the financial year ended 30 June 2008. • ASB 3 ‘Business Combinations (2008)’, AASB 127 A ‘Consolidated and Separate Financial Statements’ and All values expressed in the financial statements and notes AASB 2008-3 ‘Amendments to Australian Accounting are expressed in Australian dollars, to the nearest thousand Standards arising from AASB 3 and AASB 127’ dollars unless otherwise stated. (effective for annual periods beginning on or after 1 July 2009, with early application permitted). The (b) Acquisition of assets revisions alter the accounting treatment to be used for All assets acquired, including property, plant and equipment, business combinations entered into after the standard are initially recorded at their costs of acquisition at the date is first applied, including the measurement of fair of acquisition, being the fair value of the consideration value, identification of acquired assets and recognition provided plus incidental costs directly attributable to of goodwill attributable to minority interest. the acquisition. Transend capitalises assets that meet the • nterpretation 18 ‘Transfers of Assets from I capitalisation threshold of $1,000 and items under this limit Customers’ provides guidance on the accounting are treated as an expense in the current period. for contributions from customers in the form of transfers of property, plant and equipment (or cash to (c) Adoption of new and revised acquire or construct it). Interpretation 18 will become Accounting Standards mandatory for the 30 June 2010 financial statements, In the current year, Transend has adopted no new or revised therefore will be applied prospectively to transfers Standards and / or Interpretations issued by the Australian of assets from customers received on or after 1 July Accounting Standards Board as these were not considered 2009. Therefore no adjustments will be required on applicable to the operations of Transend. adoption and no changes in accounting policy are expected which will impact future transfers. Transend has not adopted the following pronouncements, which have been issued by the Australian Accounting Standards The following standards are either largely concerned with Board with application dates later than the period covered by disclosures or are not expected to significantly affect any this financial report. The pronouncements which will impact amounts recognised in the financial statements: Transend reporting are discussed below. Transend does not • ASB 2007-10 ‘Further Amendments to Australian A currently believe the adoption of any other pronouncements Accounting Standards arising from AASB 101’ will have a material impact on the consolidated results, financial (effective for annual reporting periods begining on or position, or disclosures of Transend. after 1 January 2009). This amending standard changes • ASB 8 ‘Operating Segments’ (effective for annual A the term ‘general purpose financial report’ to ‘general periods beginning on or after 1 January 2009, with purpose financial statements’ and the term ‘financial early application permitted). Transend would need report’ to ‘financial statements’ where relevant, to adopt this standard for the 30 June 2010 financial in Australian Accounting Standards (including statements as this standard becomes mandatory then. Interpretaions) to better align with International The standard is not expected to significantly impact Financial Reporting Standards (IFRS) terminology. Transend but may change Transend’s disclosure in • ASB 2008-5 ‘Amendments to Australian Accounting A relation to segment information. Standards arising from the annual improvement • ASB 101 ‘Presentation of Financial Statements’ and A project’ (applies retrospectively (with some exceptions) AASB 2007-8 ‘Amendments to Australian Accounting to annual reporting periods beginning on or after Standards arising from AASB 101’ (effective for 1 January 2009). This standard amends 25 different annual periods beginning on or after 1 July 2009, standards and is equivalent to the International 34 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant • ASB 2009-6 and AASB 2009-7 ‘Amendments to A Australian Accounting Standards’ (AASB 2009-6 accounting policies (continued) is applicable to annual reporting periods beginning on or after 1 January 2009 that end on or after Accounting Standards Board (IASB) standard 30 June 2009. AASB 2009-7 is applicable to annual improvements to IFRSs issued in May 2008. reporting periods beginning on or after 1 July 2009). The amendements largely clarify the required The Standards only makes editorial amendments accounting treatment where previous practice has to a range of Australian Accounting Standards and varied, although some new or changed requirements Interpretations, including amendments to reflect are introduced. changes made to the text of IFRSs by the IASB. • ASB 2008-6 ‘Further Amendments to Australian A Accounting Standards arising from the Annual (d) Borrowing costs Improvements Project’ (applies retrospectively to Borrowing costs are recognised on an effective yield basis and annual reporting periods beginning on or after include interest and amortisation of discounts or premiums 1 July 2009). This makes amendemnents to accounting relating to borrowings. Borrowing costs are expensed as standard AASB 1 First-time Adoption of Australian they are incurred unless they relate to qualifying assets. Equivalents to International Financial Reporting Qualifying assets are assets that take more than 12 months Standards and AASB 5 Non-current Assets Held to commission for their intended use. As funds are borrowed for Sale and Discontinued Operations to include generally, borrowing costs are capitalised using a weighted requirements relating to a sale plan involving the loss average capitalisation rate (Note 3). of control of a subsidiary. The amendments require all the assets and liabilities of such a subsidiary to be (e) Cash and cash equivalents classified as held for sale and clarify the disclosures required when the subsidiary is part of a disposal group Cash and cash equivalents comprise cash on hand, cash in that meets the definition of a discontinued operation. banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents are • ASB 2009-2 ‘Amendments to Australian Accounting A carried at face value of the amounts deposited. The carrying Standards - Improving Disclosures about Financial amounts of cash and cash equivalents approximate net fair Instruments (applies to annual reporting periods value. Bank overdrafts are shown within borrowings in beginning on or after 1 January 2009). This standard current liabilities in the balance sheet. amends AASB 7 Financial Instruments: Disclosures to require enhanced disclosures about fair value (f) Comparative amounts measurements and liquidity risk. Where there has been reclassification of items in the • ASB 2009-4 ‘Amendments to Australian Accounting A financial statements, the prior year comparatives have Standards arising from the Annual Improvements also been reclassified to ensure comparability with the Process’ (applies to annual reporting periods current reporting period and details of the reclassification beginning on or after 1 July 2009). Introduces are disclosed, where applicable, in the relevant note to the amendments into Accounting Standards that are financial statements. equivalent to those made by the IASB under its program of annual improvements to its standards. In addition, the comparative income statement has been re-presented to conform with the current year’s presentation. • ASB 2009-5 ‘Further Amendments to Australian A Accounting Standards arising from the Annual (g) Employee benefits Improvements Process’ (applies to annual reporting Provisions made in respect of employee benefits that are periods beginning on or after 1 January 2010). expected to be settled within 12 months are measured at Introduces amendments into Accounting Standards their nominal values using the remuneration rate expected that are equivalent to those made by the IASB to apply at the time of settlement. under its program of annual improvements to its standards. A number of the amendments are largely Provisions made in respect of employee benefits, which are technical, clarifying particular terms, or eliminating not expected to be settled within 12 months, are measured unintended consequences. at the present value of estimated future cash outflows to be Transend Annual Report 09 35
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant net of the fair value of the plan assets. Any asset resulting from this calculation is limited to past service costs, plus the accounting policies (continued) present value of available refunds and reductions in future contributions to the plan (note 18). made in respect of the employees’ services provided up to the balance date. These amounts are discounted using rates Amounts disclosed for key management personnel in post attached to Commonwealth bonds at balance date, which employment benefits relating to defined benefits have been closely match the terms of the related liabilities. allocated based upon the weighted average of annual salaries effective at reporting date. Salaries, annual and long service leave Provision is made for benefits accruing to employees in (h) Financial assets respect of salaries, annual leave and long service leave when Financial assets are classified into the following specific it is probable that settlement will be required and they are categories: ‘Loans and receivables’. capable of being measured reliably. The provision represents The classification depends on the nature and purpose of the amount that Transend has an obligation to pay resulting the financial assets and is determined at time of initial from employees’ services provided up to the balance date. recognition. Adjustments to these provisions are included in the cost of Loans and receivables labour and charged directly to capital jobs or cost centres, and correspondingly, the provisions absorb the cost when Loans and receivables comprise trade receivables, loans and employees utilise their benefits. An annual adjustment is other receivables which are recorded at amortised cost using made to the provisions in order to represent the fair value the effective interest rate method less impairment. Interest of the provision at year-end. income is recognised by applying the effective interest rate. Sick leave Trade receivables are generally settled within prescribed periods. To ensure the carrying amount of accounts No provision for sick leave is allowed for in the financial receivable approximates their fair value, an allowance statements as sick leave is non-vesting and employee benefits for doubtful debts is, if required, raised at year-end after only exist when an employee becomes sick. assessing the collectability of outstanding debts (note 5). Workers compensation Bad debts are written off in the year in which they are Transend is insured by an external organisation for liabilities identified. arising from workers compensation claims. Financial assets, other than those at fair value through profit Superannuation or loss, are assessed for indicators of impairment at each balance date. If, in a subsequent period, the amount of the Contributions to defined contribution superannuation plans impairment loss decreases and the decrease can be related are expensed when incurred. objectively to an event occurring after the impairment was For defined benefit superannuation plans, the cost of recognised, the previously recognised impairment loss is providing benefits is determined using the Projected Unit reversed through profit or loss to the extent the carrying Credit Method, with actuarial valuations being carried out amount of the investment at the date the impairment is at each reporting date. Actuarial gains and losses are reversed does not exceed what the amortised cost would recognised directly in the operating and maintenance have been had the impairment not occurred costs in the period in which they occur and are presented Effective interest method in the income statement. The effective interest method is a method of calculating the Past service cost is recognised immediately to the extent that amortised cost of a financial asset and of allocating interest the benefits are already vested and otherwise is amortised on income over the relevant period. The effective interest rate is a straight-line basis over the average period until the benefits the rate that exactly discounts estimated future cash receipts become vested. (including all fees on points paid or received that form an The defined benefit obligation recognised in the balance integral part of the effective interest rate, transaction costs sheet represents the present value of the defined benefit and other premiums or discounts) through the expected life obligation, adjusted for unrecognised past service costs, of the financial asset, or, where appropriate, a shorter period. 36 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant Compliance with policies and exposure limits are reviewed on an ongoing basis and any breaches are reported in a accounting policies (continued) timely manner to the Board. Compliance is also reviewed by Transend’s internal auditors in accordance with Transend’s (i) Financial instruments issued internal audit program. Debt and equity instruments Transend enters into derivative financial instruments to Debt and equity instruments are classified as either manage its exposure to foreign exchange rate risk via forward liabilities or as equity in accordance with the substance of foreign exchange contracts. Forward foreign currency the contractual arrangement. An equity instrument is any contracts are not entered into for speculative purposes. contract that evidences a residual interest in the assets of an See Note 19 for further detail of the Financial Instruments entity after deducting all of its liabilities. held by Transend at balance date. Financial guarantee contract liabilities (j) Foreign currency transactions Financial guarantee contract liabilities are measured initially at fair value and subsequently at the higher of the amount Foreign currency transactions are translated to Australian recognised as a provision and the amount initially recognised dollars at the rates of exchange ruling at the dates of the less cumulative amortisation in accordance with Transend’s transactions. revenue recognition policy note 1(t). (k) Goods and services tax Other financial liabilities Revenue, expenses and assets are recognised net of the Other financial liabilities, including borrowings, are recorded amount of goods and services tax (GST), except where initially at fair value, net of transaction costs. Subsequent the amount of GST incurred is not recoverable from the to initial recognition, other financial liabilities are measured Australian Taxation Office (ATO). In these circumstances at amortised cost using the effective interest rate method, the GST is recognised as part of the cost of acquisition of with any difference between the initial recognised amount the asset or as part of an item of expense. Receivables and and the redemption value being recognised in the profit payables are stated with the amount of GST included. and loss over the period of the borrowing using the effective interest rate method. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Hedging balance sheet. Transend’s policy is to only enter into designated and effective Cash flows are included in the cash flow statement on a foreign exchange hedging instruments for currency exposures gross basis. The GST components of cash flows arising from which are greater than $500,000 and create an exposure for investing and financing activities, which is recoverable from, 22 days or more. Transend applies hedge accounting and or payable to, the ATO are classified as operating cash flows. accounts for hedges as cash flow hedges where the instrument is initially recorded at fair value and changes in the fair value (l) Impairment of assets of the hedging instrument and hedge item are deferred in equity throughout the hedge term to the extent that the At each reporting date, Transend reviews the carrying hedge is an effective hedge. As the hedged item will relate to amounts of its tangible and intangible assets to determine the recognition of a non-financial asset, the gains and losses whether there is any indication that those assets have suffered previously deferred in equity are transferred from equity and an impairment loss. If an indication of impairment exists, included in the initial measurement of the costs of the asset. the recoverable amount of the asset is estimated to determine the extent of any impairment losses. Where the asset does Hedge accounting is discontinued when the hedging not generate cash flows that are independent from other instrument expires or is sold, terminated, or exercised, or assets, Transend estimates the recoverable amount of the no longer qualifies for hedge accounting. Any cumulative cash-generating unit to which the asset belongs. gain or loss deferred in equity at that time remains in equity, and is recognised when the forecast transaction is ultimately Intangible assets with indefinite useful lives and intangible recognised in profit or loss. When a forecast transaction is no assets not yet available for use are tested for impairment longer expected to occur, the cumulative gain or loss that was annually and whenever there is an indication that the asset deferred in equity is recognised immediately in profit or loss. may be impaired. Transend Annual Report 09 37
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant In principle, deferred tax equivalent liabilities are recognised for all taxable temporary differences. Deferred tax equivalent accounting policies (continued) assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which Recoverable amount is the higher of fair value less costs to deductible temporary differences and tax offsets can be sell and value in use. In assessing value in use, the estimated utilised. However, deferred tax equivalent assets and liabilities future cash flows are discounted to their present value are not recognised if the temporary differences giving rise to using a pre-tax discount rate that reflects current market them arise from the initial recognition of assets and liabilities, assessments of the time value of money and the risk specific which affects neither taxable income nor accounting profit. to the asset for which the estimates of future cash flows have not been adjusted. Deferred tax equivalent assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when If the recoverable amount of an asset (or cash-generating the asset and liability giving rise to them are realised or settled, unit) is estimated to be less than its carrying amount, the based on tax rates and laws enacted at the reporting date. carrying amount of the asset (cash-generating unit) is The measurement of deferred tax equivalent liabilities and reduced to its recoverable amount. An impairment loss is assets reflects the tax consequences that would follow from the recognised in the Income Statement immediately, unless manner in which Transend expects at reporting date to recover the relevant asset is carried at fair value, in which case the or settle the carrying amount of its assets and liabilities. impairment loss is treated as a revaluation decrease. Deferred tax equivalent assets and liabilities are offset when Where an impairment loss subsequently reverses, the carrying they relate to income tax equivalents levied by the same amount of the asset (cash-generating unit) is increased to the taxation authority and where Transend intends to settle its revised estimate of its recoverable amount, but only to the current tax equivalent assets and liabilities on a net basis. extent that the increased carrying amount does not exceed the carrying amount that would have been determined had Current and deferred tax equivalent for the period is no impairment loss been recognised for the asset (cash- recognised as an expense or income in the income statement generating unit) in prior years. A reversal of an impairment except when it relates to items taken directly to equity, in loss is recognised in profit or loss immediately, unless the which case the deferred tax equivalent is also recognised relevant asset is carried at fair value, in which case the reversal directly in equity. of the impairment loss is treated as a revaluation increase. (n) Intangible assets (m) Income tax Computer software identified as intangible assets are Under the National Tax Equivalents Regime (NTER) recorded at cost less accumulated amortisation and Transend is required to make income tax equivalent impairment (note 8). Amortisation is charged on a payments to the State Government. The charge for current straight-line basis over the estimated useful life of three years. income tax expense is based on the profit for the year The estimated useful lives and amortisation methods are adjusted for any non-assessable or disallowed items. It is reviewed annually for appropriateness. calculated using the tax rates that have been enacted or are (o) Inventories substantially enacted by the balance date. Inventories are carried at the lower of cost and net realisable Current tax equivalent is calculated by reference to the value, with, if required, an allowance being maintained for amount of income tax equivalent payable or recoverable loss on disposal of surplus stores (note 6). Inventories are in respect of the taxable profit or loss for the period using not held for resale and are used in the maintenance and the legislated income tax rate. Current tax equivalent is construction of the transmission system. Costs are assigned to recognised as a liability (asset) to the extent that it is inventory by the method most appropriate to each particular unpaid (recoverable). class of inventory, with the majority being valued on a first Deferred tax equivalent is accounted for using the in first out basis. Inventory is valued at net realisable value comprehensive balance sheet liability method in respect where it has been determined that inventory is surplus to of temporary differences arising from differences between requirements. Net realisable value represents the estimated the carrying amount of assets and liabilities in the financial selling price less all estimated costs of completion and costs to statements and the corresponding tax base of those items. be incurred in marketing, selling and distribution. 38 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant Current valuation basis accounting policies (continued) During the year Transend reviewed its basis for estimating the current replacement cost of network assets and adopted (p) Leased assets the use of longer term cost indices to estimate the cost of primary factors that influence the replacement values of Leases are classified as finance leases whenever the terms network assets. Refer note 1 (v). of the lease transfer substantially all the risks and rewards of ownership to Transend. All other leases are classified as The 2006 valuation has been inflated to 30 June 2009 values operating leases. by applying ‘Long-term average annual network asset cost escalation rate (LAACER)’ in Tasmania which was sourced Assets held under finance leases are initially recognised at from SKM. LAACER represents SKM’s recommendation of their fair value or, if lower, at amounts equal to the present appropriate cost escalation components for use within capital value of the minimum lease payments determined at the project cost projections for the period 2004–05 to 2014–15 inception of the lease. The corresponding liability to the inclusive and are specific to the operating environment faced lessor is included in the balance sheet as a finance lease by Transend. The rates are based on the most up-to-date obligation. Lease payments are apportioned between finance information available in April 2009. charges and a reduction of the lease liability to achieve a constant rate of interest during the term of the lease. Finance LAACER charges are charged directly against income, unless they Asset Class Description June 2004 – June 2015 directly relate to a qualifying asset, in which case they are Substations 2.50% capitalised in accordance with Transend’s borrowing costs policy (note 1d). Finance leased assets are amortised on a Switching stations 2.50% straight-line basis over the estimated useful life of the asset. Power transformers 3.30% Operating lease payments are recognised as an expense on Transmission lines 3.60% a straight-line basis as this reflects the pattern in which Underground cables 4.40% economic benefits of the leased asset are consumed. Weather stations 2.90% (q) Payables Strategic spares 3.30% Basslink system protection scheme 2.90% Trade payables and other accounts payable, including accruals for accounts not yet billed, are recognised when an Basslink connection assets at george town 2.50% obligation to make future payment has occurred for goods received or services provided (note 10). Allowance is also made for assets completed and transferred to completed works, assets retired from use, and for (r) Property, plant and equipment depreciation of the assets since the last valuation. Assets Network assets completed and transferred to completed works during the year to 30 June 2009 are valued at cost. The network assets (including transmission lines and substations) are measured at fair value based upon The components of major assets that have materially the depreciated optimised replacement cost (DORC) different useful lives are accounted for as separate assets, methodology. and are depreciated separately. The gross replacement cost of modern equivalent assets The carrying amounts of Transend’s assets are reviewed to is determined for each class of asset and consequentially determine whether they are in excess of their recoverable optimised for over-design, over-capacity and redundant amount at balance date. If the carrying amount of Transend’s assets. The DORC value is derived from the gross optimised assets exceeds the recoverable amount, the assets are replacement cost after allowing for depreciation, which is written down to the lower amount. Fair value, based upon calculated using the remaining useful life and the assigned the DORC methodology, is a reasonable approximation useful life of each class of asset. of recoverable amount and therefore no write down is considered necessary. Management sought an independent valuation of Transend’s network assets in service from Sinclair Knight Merz Pty Ltd The cost of network assets constructed includes the cost (SKM) with an effective date of 30 June 2006. of contracted services, materials, direct labour costs and an Transend Annual Report 09 39
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant Revaluations of non-current assets accounting policies (continued) Any revaluation increase arising on revaluation of network assets or land and buildings is credited to the asset appropriate portion of overhead costs. Costs incurred on revaluation reserve, except to the extent that it reverses a an asset subsequent to the initial acquisition are capitalised revaluation decrease for the same asset previously recognised when the original capacity of an asset has been enhanced, or as an expense in profit or loss, in which case the increase the life of an asset has been extended. is credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount Communications assets arising on the revaluation is charged as an expense in profit The communications assets (including bearer, multiplexers, or loss to the extent that it exceeds the balance, if any, held site infrastructure assets) are measured at fair value based in the asset revaluation reserve in relation to a previous upon the depreciated replacement cost (DRC) methodology. revaluation of that asset. Replacement costs have been established by reference to Useful lives and depreciation the cost of modern equivalent assets and adjusting these to Depreciation is provided on property, plant and equipment reflect current capacity, age, design and estimated remaining and is based on the straight-line method so that assets are useful life. written off over their useful lives (note 9). The estimated Land and buildings useful lives, residual values, depreciation rates and methods Land and buildings are carried in the balance sheet at are reviewed annually for appropriateness. When changes are fair value, less any subsequent accumulated depreciation made, adjustments are reflected prospectively in the current and impairment loss where applicable. In June 2007 and future periods. Depreciation on revalued network assets management sought an independent valuation of land and is charged to profit or loss. buildings by Brothers and Newton Pty Ltd. The valuation The useful lives assigned to Transend’s assets are listed below: was undertaken according to International Valuation Standards which provided a market appraisal valuation at Transmission lines 60 yrs 1 July 2006 based on discounted cash flows or capitalisation Underground cables 40 yrs of net income as appropriate. The valuation has been Substation switch bays 50 yrs inflated to 30 June 2009 values by applying escalation Communications 10–40 yrs factors based upon the Australian Bureau of Statistics Substation establishment 60 yrs Consumer Price Index (weighted average of eight capital Capacitors 45 yrs cities). The escalation factor for the 2009 financial year was Transformers 45 yrs 2.46 per cent (2008: 4.2 per cent). Control and protection schemes 15 yrs Other plant and equipment Buildings 80 yrs Other plant and equipment includes motor vehicles, Other plant and equipment 3–10 yrs computer equipment and non-separable software, office furniture and equipment. These assets are stated at cost less (s) Provisions accumulated depreciation and impairment. Provisions are recognised when Transend has a present Capital works in progress obligation that can be measured reliably and it is probable Capital works in progress are recognised at cost (including that there will be future sacrifice of economic benefits. borrowing costs). The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation. Disposal of assets Where a provision is measured using the cashflows estimated The gain or loss on the disposal of assets is calculated as to settle the present obligation, its carrying amount is the the difference between the carrying amount of the asset at present value of those cashflows. When an amount to settle the time of disposal (less cost of disposal) and the proceeds a provision is expected to be recovered from a third party, on disposal and is included in the net profit in the year the receivable is recognised when it is virtually certain that of disposal. Any revaluation surplus remaining in the the recovery will be received and the amount can be revaluation reserve is transferred directly to retained earnings. measured reliably. 40 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant (v) Critical accounting judgements, accounting policies (continued) estimates and assumptions As noted in note 1 (a), the preparation of the financial (t) Revenue recognition statements requires management to make judgements, estimates and assumptions that affect the reported amounts Revenues are recognised at fair value of the consideration in the financial statements. Management has identified received or receivable net of the amount of GST payable to the following critical accounting policies for which the ATO. significant judgements, estimates and assumptions are made. Rendering of prescribed services Actual results may differ from these estimates under different assumptions and conditions and may materially Prescribed services are recognised in the income affect the financial results or the financial position reported statement at the amount allowed by Transend’s revenue in future periods. cap determination. Any amounts received in excess of this allowance are deferred as a liability on the basis that the Defined benefits plan amount is effectively returned to customers at large Various acturial assumptions are required when determining through future price reductions and recognised as income Transend’s post employment obligations. These assumptions in future periods. and the relative carrying amounts are disclosed in note 18. Rendering of non-prescribed services Employee entitlements Revenue is recognised in the income statement in proportion Management judgement is applied in determining the to the stage of completion of the transaction at balance date following key assumptions used in the calculation of long where appropriate. service leave at reporting date: Interest - future increases in salaries and wages; Interest revenue is recognised as it accrues on a time - future oncost rates; and proportionate basis that takes into account the effective yield - experience of employee departures and periods of service. on the financial asset. Asset sales Recovery of deferred tax assets Profit or loss on sale is recognised in the income statement Deferred tax assets are recognised for deductible temporary when significant risks and rewards of ownership of the goods differences as management considers that it is probable have been passed to the buyer. that future taxable profits will be available to utilise those temporary differences. Rental income Revaluation of property, plant and equipment Rental income is recognised in the income statement on a straight-line basis over the term of the lease. As described in note 1(r), the replacement cost of network assets is influenced by the cost of primary factors such as Customer contributions price of oil, labour, metals, construction costs and foreign Transend’s policy is to treat contributions from customers exchange rates. Transend has adopted the use of longer term that relate to capital projects as revenue. Where capital indices (LAACER) to estimate the current replacement works are incomplete, the portion of customer contributions cost of network assets. In prior years, short-term indices received in advance for the incomplete works is included as a were used for this purpose. The change has been recognised liability in the balance sheet. prospectively as a change in accounting estimate. As a result of this change, the carrying values of networks (u) Segment reporting assets were revalued downwards by $93 million on Transend owns and operates the electricity transmission 1 July 2008. This has reduced the depreciation charges in system in Tasmania. Revenue earned and costs incurred the current financial year by approximately $4.5 million and are associated with the performance of that function. it is expected that the reduction in depreciation would be The reporting of information by segment is not required similar in future years. for the 2009 financial year as Transend operates within a single business and single geographic segment. Transend Annual Report 09 41
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 1. Summary of significant 2009 2008 accounting policies (continued) $’000 $’000 (d) Employee benefits Impairment expenses * Transend assesses impairment of all assets at each reporting Post employment benefits: date. If an impairment trigger exists, an estimate of the recoverable amount of each of the cash generating units is Defined benefit plan 9,266 1,785 made. Further details on the value in use calculations and efined contribution plan D 1,549 1,181 adjustments for impairment are disclosed in note 1 (l). 10,815 2,966 Termination Benefits 696 424 2. Profit for the year ther employee benefits O 23,049 17,704 2009 2008 34,560 21,094 $’000 $’000 * These benefits are split between the income statement line item operating and maintenance costs and amounts capitalised as property, plant and equipment. (a) Revenue Revenue consists of the 3. Finance costs following items: Prescribed services 144,223 130,120 Note Interest received – bank Borrowing costs incurred deposits 44 9 during the financial year 33,887 11,502 Rental and lease income 1,555 1,511 Borrowing costs capitalised 145,822 131,640 during the financial year 9 (1,474) (1,003) Net financing costs 32,413 10,499 (b) Other income Other income consists of the Weighted average following items: capitalisation rate on Income from external work 12,786 4,947 funds borrowed 7.86% 7.15% Other 11 87 12,797 5,034 (c) Other expenses Profit/(loss) before income tax equivalents has been arrived at after charging/(crediting) the following expenses: (Gain)/loss on disposal of property, plant and equipment (53) 63 Insurance 785 746 Inventory expensed - 65 Operating lease rental expenses 554 250 Cost of external work 3,105 2,589 4,391 3,713 42 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 4. Income tax equivalents 2009 2008 2009 2008 $’000 $’000 Note $’000 $’000 (a) Recognised in profit (b) Deferred tax or loss equivalent recognised Income tax equivalent directly in equity expense/(income) comprises: Property revaluations 15 27,510 (39,004) Current income tax expense 10,941 16,622 (c) Current tax Adjustments recognised in equivalent assets the current year in relation to and liabilities the current tax equivalent of prior years 288 (20) Current tax equivalent payable (receivable) (5,260) 2,436 Net increase/(decrease) in deferred tax equivalent (d) Deferred tax liability (8,574) (8,519) equivalent balances Total income tax equivalent Deferred tax equivalent expense/(income) 2,655 8,083 assets comprise: Numerical reconciliation between income tax Temporary differences 12,839 8,640 equivalent expense and pre-tax net profit Deferred tax equivalent Profit before income tax liabilities comprise: equivalent 9,887 26,810 Temporary differences 194,109 227,030 Income tax equivalent calculated at 30% (2008: Net deferred tax equivalent 30%) 2,966 8,043 liabilities 181,269 218,390 Decrease in income tax equivalent expense due to: Investment allowance (52) - Adjustment to tax base of assets (565) - Superannuation - (29) Increase in income tax equivalent expense due to: Non-deductible expenses 18 103 Under/over provided in prior years 288 (34) Income tax equivalent expense on pre-tax net profit 2,655 8,083 Transend Annual Report 09 43
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 4. Income tax equivalents (continued) (e) Movement in temporary differences during the financial year Prior year On Balance under/over Recognised Recognised acquisition Balance 1 July 08 provision in income in equity of business 30 June 09 $’000 $’000 $’000 $’000 $’000 $’000 Gross deferred tax equivalent liabilities: Property, plant and equipment (227,030) (284) 7,220 27,510 - (192,584) Accrued Revenue - - (1,524) - - (1,524) (227,030) (284) 5,696 27,510 - (194,108) Gross deferred tax equivalent assets: Employee benefits 8,267 - 3,083 - 1,353 12,703 Provisions - - - - - - Other items 372 (31) (205) - - 136 8,640 (31) 2,878 - 1,353 12,839 Net deferred tax equivalent liabilities: (218,390) (315) 8,574 27,510 1,353 (181,269) Prior year Balance under/over Recognised Recognised Balance 1 July 07 provision in income in equity 30 June 08 $’000 $’000 $’000 $’000 $’000 Gross deferred tax equivalent liabilities: Property, plant and equipment (196,155) 5 8,124 (39,004) (227,030) (196,155) 5 8,124 (39,004) (227,030) Gross deferred tax equivalent assets: Employee benefits 8,156 2 110 - 8,268 Provisions 2 - (2) - - Other items 92 - 280 - 372 8,250 2 388 - 8,640 Net deferred tax equivalent liabilities: (187,905) 7 8,512 (39,004) (218,390) 44 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 5. Trade and other receivables 9. Property, plant and equipment 2009 2008 2009 2008 $’000 $’000 $’000 $’000 Current Network Assets Trade receivables 23,362 22,379 Transmission lines – Goods and services tax at fair value 969,868 923,389 recoverable 1,608 564 Accumulated depreciation (489,952) (373,461) 24,970 22,943 Depreciated optimised replacement cost 479,916 549,928 The average credit period for trade receivables is 25 days. No interest is charged on trade receivables and no trade Transmission substations – receivable amounts are impaired or aged past due date. at fair value 1,146,751 985,308 Accumulated depreciation (580,146) (412,071) 6. Inventories Depreciated optimised Current replacement cost 566,605 573,237 Stores (valued at cost) 423 423 Communications Assets 7. Other assets Communications assets – at fair value 14,462 - Current Accumulated depreciation (1,022) - Prepayments 894 706 Depreciated replacement cost 13,440 - Other 203 105 TUOS under recoveries 4,987 - Easements – at fair value 59,803 58,079 6,084 811 Non-current Land Prepayments 397 - Land at fair value 14,894 12,611 6,481 811 Buildings 8. Intangible assets Buildings at fair value 9,981 9,351 Accumulated depreciation (830) (512) Computer software – at cost Depreciated value 9,151 8,839 Gross carrying amount Balance at 1 July 9,983 8,562 Other plant and equipment Additions 5,009 1,421 Other plant and equipment – at cost 24,119 21,660 Balance at 30 June 14,992 9,983 Accumulated depreciation (14,571) (14,755) Amortisation and Depreciated value 9,548 6,905 impairment losses Balance at 1 July (8,469) (8,209) Capital works in progress – at cost 87,823 49,713 Amortisation expense * (2,654) (260) Balance at 30 June (11,123) (8,469) 1,241,180 1,259,312 Carrying amount Balance at 30 June 3,869 1,514 * Amortisation expense is included in the line item depreciation and amortisation expenses in the income statement. Transend Annual Report 09 45
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 9. Property, plant and equipment (continued) Reconciliation of the movement in property, plant and equipment during the financial year ended 30 June 2009: Other Capital Transmission Transmission plant & works in lines at fair substations Easements Land at Communications Buildings at equipment progress at value at fair value at fair value fair value at fair value fair value at cost cost Total Note $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Carrying amount at beginning of financial year 549,928 573,237 58,079 12,611 - 8,839 6,905 49,713 1,259,312 Additions during the year - - - - - - - 108,459 108,459 Finance costs capitalised 3 - - - - - - - 1,474 1,474 Acquisitions through purchase of business 17 - - - 1,080 14,462 - 568 3,961 20,071 Disposals - (11) - - - - (470) - (481) Transfers to non-current assets 13,193 56,241 289 851 - 385 4,825 (75,784) - Net revaluation increments/ (decrements) (58,861) (34,923) 1,435 352 - 240 - - (91,757) Depreciation charge for the year (24,344) (27,939) - - (1,022) (313) (2,280) - (55,898) Carrying amount at end of financial year 479,916 566,605 59,803 14,894 13,440 9,151 9,548 87,823 1,241,180 Carrying amount of assets had they been recognised under the cost model Balance at 30 June 2009 285,588 436,908 9,968 8,979 13,440 6,445 Reconciliation of the movement in property, plant and equipment during the financial year ended 30 June 2008: Other Capital Transmission Transmission plant & works in lines at fair substations Easements Land at Buildings at equipment progress at value at fair value at fair value fair value fair value at cost cost Total Note $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Carrying amount at beginning of financial year 461,770 522,711 58,478 12,026 8,296 6,502 40,669 1,110,452 Transfers between classes 8,168 (4,521) (3,647) - - - - - Additions during the year - - - - - - 66,052 66,052 Finance costs capitalised 3 - - - - - - 1,003 1,003 Disposals - - - - - (294) - (294) Transfers to non-current assets 19,285 33,935 945 76 244 3,526 (58,011) - Net revaluation increments/(decrements) 82,648 47,560 2,303 509 314 - - 133,334 Depreciation charge for the year (21,943) (26,448) - - (15) (2,829) - (51,235) Carrying amount at end of financial year 549,928 573,237 58,079 12,611 8,839 6,905 49,713 1,259,312 Carrying amount of assets had they been recognised under the cost model Balance at 30 June 2008 283,790 397,090 9,679 7,048 6,247 46 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 10. Trade and other payables 12. Provisions 2009 2008 2009 2008 $’000 $’000 Note $’000 $’000 Current Current Annual leave 3,390 2,516 Trade payables 21,344 23,170 Long service leave 2,475 1,810 Accrued expenses 1,309 957 Defined benefits Refundable advances 11,761 - superannuation 18 1,035 4,613 Accrued interest 1,267 698 Employee bonus 249 354 35,681 24,825 7,149 9,293 Non-current The average credit period for trade payables is 13 days. Long service leave 1,322 1,004 11. Borrowings Defined benefits All loans are secured by assets of the company. Transend’s superannuation 18 34,116 18,492 long-term debt matures in July 2014. 35,438 19,496 For more information about Transend’s exposure to risk 42,587 28,789 in relation to Financial Instruments, see notes 1(i) and 19. For details on Transend’s undrawn financing facilities, 13. Other liabilities see note 19. Current Current Income received in advance 33,037 31,206 At amortised cost TUOS over recoveries Overnight borrowings - 13,677 (Residues) - 813 Term borrowings - 395,000 33,037 32,019 - 408,677 14. Issued capital Non-current Balance at beginning of At amortised cost financial year 66,549 336,549 Term borrowings 488,000 - Distributions to shareholders 488,000 - by way of reduction in equity - (270,000) Four ordinary shares, Total Borrowings 488,000 408,677 fully paid 66,549 66,549 No shares were issued during the 2009 (2008: Nil) financial year. Fully paid ordinary shares have no par value and carry one vote per share and equal right to dividends. Transend does not have a limited amount of authorised capital and all shares currently issued are held in trust for the Crown in Right of the State of Tasmania. In 2008, Shareholder’s equity was reduced as a result of a return to shareholders in December 2007 ($50,000,000) and the transfer of debt in June 2008 originating with Hydro Tasmania ($220,000,000) treated as a return to shareholders in accordance with AASB Interpretation 1038. Transend Annual Report 09 47
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 15. Reserves 16. Retained earnings 2009 2008 2009 2008 $’000 $’000 $’000 $’000 Asset revaluation reserve Balance at beginning of Balance at beginning of financial year 72,625 68,898 financial year 452,192 359,172 Net profit for the year 7,232 18,727 Revaluation increment/ Dividends paid during (decrement) (91,364) 132,024 the year * (9,360) (15,000) Deferred tax liability arising Balance at end of on revaluations 27,510 (39,004) financial year 70,497 72,625 Balance at end of * Relating to dividends declared and paid for the previous financial year. financial year 388,338 452,192 Refer to note 28 for details in respect to dividends for 2008–09 financial year. The revaluation reserve relates to revaluation increments and decrements arising from property, plant and equipment, measured at fair value in accordance with applicable Australian Accounting Standards. The reserve can be used to pay dividends only in limited circumstances. 17. Acqusition of business On 1 November 2008, Transend acquired all of the business operations of Hydro Tasmania Telecommunications Business (HTTB) for $15.8 million and named it Transend Communications Services (TCS). TCS operates the telecommunications assets that provide communications services to the Tasmanian Electricity Supply Industry and various external parties. In the eight months to 30 June 2009, TCS contributed $0.7 million profit. If the acqusition had occurred on 1 July 2008, management estimates that the total external revenue for TSC would have been approximately $ 6.2 million and the net profit of approximately $1 million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acqusition would have been the same if the acqusition occurred on 1 July 2008. The following net assets were acquired: Pre-acqusition Fair value Fair value carrying amounts adjustments on acquisition Note $’000 $’000 $’000 Property, plant and equipment 9 19,764 307 20,071 Other assets 140 - 140 Deferred tax equivalents assets 4 1,353 - 1,353 Other liabilities (611) - (611) Provisions (4,508) - (4,508) Total fair value at acquisition date 16,138 307 16,445 § Consideration paid 15,781 Discount on acquisition 664 § Includes due dilligence and other costs, directly attributable to the acqusition amounting to $0.4 m and stamp duty charges of $0.6 m payable on reporting date to the State Revenue Office. Pre-acquisition carrying amounts were determined based upon applicable accounting standards immediately before the acqusition. The values of assets and liabilties on acquisition are their estimated fair values (see note 1 for methods used in determining fair values). 48 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 18. Defined benefit superannuation plan The Retirement Benefits Fund (RBF) is a defined benefit Amounts included in the balance sheet fund which pays lump sum and pension benefits to members arising from Transend’s obligation in respect upon retirement (which are calculated as a multiple of the of its defined benefit plan member’s final average salary). The RBF has contributory members, compulsory preserved members and pensioners. 2009 2008 Note $’000 $’000 The key assumptions that were used to determine these amounts are set out in a report prepared by the State’s Present value of Actuary (Mercer), dated 8 July 2009. Comparative figures defined benefit for 2008 are based on the valuation report prepared by the obligations 46,510 28,992 previous State Actuary. The key assumptions were: Contributions tax 2009 2008 liability * 3,317 % % Total defined benefit obligation 46,510 32,309 Discount rate (net of tax) 5.70 6.50 RBF contributory Salary rate 4.50 4.50 scheme assets (11,359) (9,204) Expected return on plan Deficit/(surplus) 35,151 23,105 assets (net of tax) 7.00 7.00 Inflation (pensions) 2.50 2.50 Movements in net liabilities Tax rate for employer Net liability/(asset) in contributions * 14.36 balance sheet at end of Tax rate for discount rate * 2.25 prior year 23,105 22,230 The expected return on plan assets (net of tax) has been Increase in liability based on the expected long-term returns for each of the through purchase of major asset classed in which the plan invests. business 3,619 - Employee benefits The plan assets comprise: expense recognised in income statement # 2(d) 9,266 1,785 Australian equities 20 25 Actual employer Overseas equities 13 20 contributions (839) (910) Fixed interest securities 11 12 Net liability/(asset) 35,151 23,105 Property 31 38 Other 25 7 Current net liability 12 1,035 4,613 Note: Allocations may not sum to 100% due to rounding Non-current net liability 12 34,116 18,492 * The previous State Actuary included an allowance for contributions tax liability, on the basis that it was required by the accounting standard AASB 119. The currect 35,151 23,105 Actuary (Mercer) view this as not required due to; The employer share of the benefits is untaxed, so very little, if any, contributions tax is expected to be payable # Employee benefits expense is included in the operating and maintenance cost in respect of employer contributions; and the current version of AASB 119 does and superannuation actuarial gains/(losses) line items in the income statement. not make any mention of contributions tax. Accordingly, Mercer have made no allowance for contributions tax. Transend Annual Report 09 49
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 18. Defined benefit superannuation plan (continued) Profit and loss results Defined benefit obligations inclusive of contributions tax for disclosure purposes 2009 2008 $’000 $’000 2009 2008 $’000 $’000 Employer service cost 1,383 909 Contribution tax expense * 164 Total defined benefit obligation at Total employer service cost 1,383 1,073 end of prior year 32,309 31,733 Interest cost 1,842 1,643 Increase in liability through purchase of business 3,619 - Expected return on plan assets (643) (658) Employer service costs plus Recognised actuarial operating costs 1,383 1,073 (gains)/losses 6,684 (273) Interest costs 1,842 1,643 Expense recognised 9,266 1,785 Actual participants’ contributions 524 386 * The previous State Actuary included an allowance for contributions tax liability, on Actual operating costs (admin the basis that it was required by the accounting standard AASB 119. The currect and insurance) (103) (103) Actuary (Mercer) view this as not required due to; The employer share of the benefits is untaxed, so very little, if any, contributions tax is expected to be payable Actual benefit payment plus in respect of employer contributions; and the current version of AASB 119 does (1,306) (1,392) contributions tax not make any mention of contributions tax. Accordingly, Mercer have made no allowance for contributions tax. Expected defined benefit obligation at year end 38,268 33,340 Employee benefits expense is included in the operating and maintenance cost and superannuation actuarial gains / Actuarial (gain)/loss on liabilities 8,242 (1,031) (losses) line items in the income statement. Actual total defined benefit obligations at year end 46,510 32,309 Fair value of plan assets The funded status: Fair value of plan assets at end of prior year 9,204 9,503 Funded 11,359 9,843 Estimated employer Unfunded 35,151 22,466 contributions 839 910 Total 46,510 32,309 Estimated participant contributions 524 386 Estimated operating costs (103) (103) Estimated benefits payments (1,306) (1,392) Expected return on assets 643 658 Expected assets at year end 9,801 9,962 Actuarial gain/(loss) on assets 1,558 (758) Fair value plan assets at year end 11,359 9,204 Estimated actual return on plan assets 643 (506) 50 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 18. Defined benefit superannuation plan (continued) 2009 2008 2007 2006 2005 2004 History $’000 $’000 $’000 $’000 $’000 $’000 As determined under AASB 119 Defined benefit obligation at financial year end 46,510 32,309 31,733 26,098 24,868 19,182 Actual assets at financial year end (11,359) (9,204) (9,503) (7,881) (6,652) (5,337) Deficit/(surplus) 35,151 23,105 22,230 18,217 18,216 13,845 Experience adjustment on liabilities (1,558) 1,686 974 1,397 828 - Experience adjustment on assets 10,429 758 (1,087) (696) (681) - 19. Financial instruments 2009 2008 Note $’000 $’000 Financial risk management objectives Gearing ratio Exposures to market, interest rate and liquidity risks arise Debt (borrowings) 11 488,000 408,677 in the normal course of Transend’s business. Financial instruments and management policies are used by Transend Cash and cash to manage these risks in a manner that is consistent with equivalents 26(a) (23,775) (21,499) the long-term cash flow stability and the interest rate Net debt 464,225 387,178 management strategy of Transend. Equity (including all 14, Capital Management capital and reserves) 15, 16 525,384 591,366 Transend manages its capital to ensure that it is able to Net Debt to equity continue as a going concern. The capital structure consists ratio 88% 65% of debt and equity. Transend’s shareholders have the capacity to compel equity transactions in accordance with the Derivatives Electricity Companies Act 1997 (ECA 1997) and as a result Derivative contracts are marked to market. Transend’s gearing ratio is ultimately at the discretion of the shareholders. In the year ended 30 June 2008, $220,000,000 Risk Management was returned to the shareholders under AASB interpretation 1038 as directed under ECA 1997. Until the point at which Transend does not enter into financial instruments for Transend is involved in the decision to make such an equity speculative purposes. Other risks arising from Transend’s transfer, it is unable to incorporate the effects of similar Financial Instruments are recognised and managed in the transactions into its risk management processes. It is assumed following ways: that Transend will be consulted regarding future equity transfers to ensure that there is not a negative impact on Market Risk working capital. Operating cash flows are used to maintain Interest Rate Risk is the risk that the value of a financial Transend’s assets, along with borrowings as detailed below instrument will fluctuate as a result of changes in market under liquidity risk management. interest rates. Borrowings issued at fixed rates expose Transend to fair value interest rate risk, while borrowings issued at variable rates expose Transend to cash flow interest rate risk. Due to its regulatory environment, Transend’s borrowings are projected under the Transend Revenue Determination (TRD). Revenue under each successive TRD incorporates a Transend Annual Report 09 51
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 19. Financial instruments (continued) WACC (weighted average cost of capital) component, Forward foreign exchange contracts which is based on prevailing market interest rates. It follows Transend did not enter into any forward foreign exchange that risk arising from increases (or decreases) in the fair value contracts in the year to 30 June 2009 and 2008. of borrowings is mitigated by future increase (or decrease) in revenue received by Transend. Liquidity analysis Foreign Exchange (Forex) Risk is the risk that the value of a financial instrument will fluctuate as a result of changes in All current borrowings maturing on 15 June 2009 were foreign currency exchange rates. Transend’s Forex risk arises rolled over into a five year fixed term loan with TASCORP. from the purchase of goods and services from overseas parties. Un-drawn borrowing facilities at balance date Transend enters into derivative financial instruments to manage its exposure to Forex risk by entering into forward 2009 2008 foreign exchange contracts. $’000 $’000 Credit Risk Unsecured bank overdraft facility 1,000 1,000 Credit risk represents the loss at reporting date able to Unsecured tape negotiation be recognised due to the failure of counterparties to authority 100 100 meet contractual obligations arising from the sale of Corporate MasterCard 1,085 934 Transend services. TASCORP master loan facility 108,000 81,322 Transend minimises counterparty risk by assessing and Transend’s TASCORP borrowings are capped at monitoring the creditworthiness of counterparties. $596,000,000 (2008; $490,000,000). Transend’s Debt The carrying amount of financial assets recorded in the Management policy guides the allocation of this balance financial statements, net of any allowances for losses, between fixed-term and overnight borrowings. represents Transend’s maximum exposure to credit risk. Where collateral (eg cash deposit) is held by Transend on behalf of counterparties, a corresponding liability is recognised. Due to the nature and volume of Transend’s regulated income from Aurora Energy Pty Ltd, Transend does not bear a material credit risk. Liquidity Risk Liquidity risk arises from the possibility of Transend being unable to settle a transaction on its due date. Cash flow forecasts for capital and operating expenditure are monitored to ensure that Transend has the capacity to settle transactions as and when required. Liquidity risk can also arise when a financial instrument requires exiting, but there is no market to trade the instrument. To minimise liquidity risk, Transend executes all financial instrument transactions with TASCORP. Working capital is maintained by way of overnight borrowings from TASCORP capped at $15,000,000 in accordance with Transend’s Debt Management policy. 52 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 19. Financial instruments (continued) Interest rate exposures Transend’s exposure to interest rate risk on financial instruments and contractual maturity thereof for financial liabilities and expected maturity for financial assets as at 30 June 2009 was as follows: Floating Fixed interest maturing in interest Non-interest 0 to 1 year 0 to 1 year 1 to 2 years 2 to 5 years bearing Total Note $’000 $’000 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 26(a) 1.50% 1,332 - - - - 1,332 Other Deposits 26(a) 5.12% 22,443 - - - - 22,443 Trade and other receivables 5 n/a - - - - 24,970 24,970 Total financial assets 23,775 - - - 24,970 48,745 Financial liabilities Trade and other payables 10 n/a - - - - 35,681 35,681 Borrowings 11 7.11% - - - 488,000 - 488,000 Total financial liabilities - - - 488,000 35,681 523,681 Net financial assets/(liabilities) 23,775 - - (488,000) (10,711) (474,936) Interest rate exposures Transend’s exposure to interest rate risk on financial instruments and contractual maturity thereof for financial liabilities and expected maturity for financial assets as at 30 June 2008 was as follows: Floating Fixed interest maturing in interest Non-interest 0 to 1 year 0 to 1 year 1 to 2 years bearing Total Note $’000 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 26(a) 5.75% 747 - - - 747 Other Deposits 26(a) 7.03% 20,752 - - - 20,752 Trade and other receivables 5 n/a - - - 22,943 22,943 Total financial assets 21,499 - - 22,943 44,442 Financial liabilities Trade and other payables 10 n/a - - - 24,825 24,825 Borrowings 11 7.17% 13,677 395,000 - - 408,677 Total financial liabilities 13,677 395,000 - 24,825 433,502 Net financial assets/(liabilities) 7,822 (395,000) - (1,882) (389,060) Transend Annual Report 09 53
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 19. Financial instruments (continued) 20. Leases Interest rate sensitivity analysis Operating leases as lessee Non-cancellable operating lease rentals are payable as follows: A 100 bps movement in official interest rates would not affect the profit of Transend at reporting date (2008: 2009 2008 Increase – $3,578,000 or decrease – $3,627,000) because $’000 $’000 all financial liabilties are either non-interest bearing or have fixed interest rate. Less than one year 457 204 Between one and five years 633 204 A significant portion of Financial Assets held by Transend are either non-interest bearing or are deposits 1,090 408 by customers. Transend is not entitled to the interest Transend leases a warehouse, two office buildings and land earned on customer deposits. under an operating lease. The lease on the warehouse runs for a further one year. The leases on the office buildings run Forward start loans for a period between two and three years and do not include contingent rental. Transend does not have any forward start loan agreements at reporting date (2008: $220,000,000 due within 1 year). During the financial year ended 30 June 2009, $554,000 was recognised as an expense in the income statement in respect Estimation of fair values of operating leases (2008: $250,000). Except as detailed in the following table, the directors Operating leases as lessor consider that the carrying amount of financial assets and Transend leases out part of its business premises and financial liabilities recorded in the financial statements Transmission Lines under operating leases. The future approximates their fair values. Where not otherwise disclosed minimum lease payments under non-cancellable leases under note 1(i), the major methods and assumptions used are as follows: in estimating the fair values of financial instruments are as follows: Less than one year 1,424 1,480 Borrowings Between one and five years 5,699 5,922 Greater than five years 33,875 23,404 Fair value disclosed is the market value provided by 40,998 30,806 Transend’s external borrowings provider TASCORP. The market value is determined as the discounted cash flows During the financial year ended 30 June 2009, $1,555,000 of the instruments using the applicable yield curve. was recognised as lease and rental income in the income statement (2008: $1,511,000). The fair values together with the carrying amounts shown in the balance sheet are as follows: Finance leases Carrying Fair Carrying Fair Transend has no finance lease liabilities. amount value amount value 2009 2009 2008 2008 $’000 $’000 $’000 $’000 Borrowings 488,000 495,251 408,677 408,733 54 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 21. Commitments for expenditure 24. Key management personnel compensation 2009 2008 $’000 $’000 Transactions with key management Capital expenditure personnel commitments The key management personnel compensation included Plant and equipment in operating and maintenance costs and superannuation Within one year 89,199 45,130 actuarial gains/losses are as follows: One year or later and no 2009 2008 later than five years 24,270 17,111 $ $ 113,469 62,241 Short-term employee benefits 1,942,503 2,347,788 * Operating expenditure Post-employment benefits 143,479 123,750 * commitments Other long-term benefits 36,024 23,031 Other expenses (excluding Termination benefits 277,467 424,482 leases disclosed in note 20) 2,399,473 2,919,051 Within one year 2,326 6,350 Apart from the details disclosed in this note, no director One year or later and no or executive has entered into a material contract with the later than five years 2,204 8 company since the end of the previous financial year and 4,530 6,358 there were no material contracts involving directors’ or executives’ interests subsisting at year end. Other operating expenditure commitments relate to * The 2008 comparatives have been amended to reflect the reclassification of procurement of maintenance and facilities related services. $282,108 from post-employment benefits to short-term employee benefits in order to correct its categorisation. 22. Contingent liabilities and 25. Related party disclosures contingent assets Transend is unaware of any claims, or potential claims Mr Ray Brown had an to be made against counterparties or to be brought by interest as a Consultant in counterparties. the legal firm Page Seager. The total amount billed to 23. Auditor’s remuneration Transend by Page Seager during the financial year was: 530 46,390 2009 2008 $ $ In the current financial year payments to Page Seager related to professional fees associated with acqusition of an The fee for auditing easement. In 2008, Mr Brown was a partner in Page Seager, the financial statements and the payments to the firm related to the directorship held and regulatory financial by Mr Brown. statements required by the All transactions with Page Seager were conducted on an Australian Energy Regulator, arm’s length basis in the normal course of business and on and payable to the Auditor– commercial terms and conditions. General by Transend was: 95,093 90,270 At balance date no amounts remained unpaid to Page Seager. Transend Annual Report 09 55
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 25. Related party 26. Notes to the cash flow disclosures (continued) statement (continued) Mr Brown is the chairman of Hazell Brothers Group Pty Ltd (b) Reconciliation of profit for the year to net (HBGPL). During the financial year ended 30 June 2009, cash flows from operating activities Transend contracted HBGPL to construct a stores building. In addition, the company provided a number of civil works 2009 2008 to Transend. Total amount billed by HBGPL was $’000 $’000 $5,210,081 (2008: nil) of which $258,947 was payable at the reporting date. Profit for the year 7,232 18,727 Depreciation and amortisation HBGPL sucessfully tendered to construct the stores and of non-current assets 58,552 51,495 Mr Brown did not participate in either the tendering process Borrowing & payroll costs or the selection process. capitalised (8,967) (6,123) The terms and conditions of transactions between Transend (Gain)/loss on sale of and HBGPL were no more favorable than those available, property, plant and equipment (53) 63 or which might reasonably be expected to be available on (Gain)/loss on revaluation of similar transactions to non-director related entities on an non-current assets 393 (1,329) arm’s length basis. Gain on acqusition of business (664) - Mr Brown is a director of Kemp & Denning Ltd (K&D). Changes in other assets/ During the financial year ended 30 June 2009, Transend did liabilties acquired on purchase not transact with K&D. In 2008, Transend purchased land of business (471) - from K&D on an arm’s length basis in the normal course of business and on commercial terms and conditions. Increase/(decrease) in current tax equivalent liabilities (15,954) (11,245) Apart from the details disclosed in this note, no director Increase/(decrease) in accrued or executive has entered into a material contract with the interest payable 569 279 company since the end of the previous financial year and there were no material contracts involving directors’ or Increase/(decrease) in executives’ interests subsisting at year end. refundable advances 11,761 - (Increase)/decrease in 26. Notes to the cash flow receivables (983) (4,687) statement (Increase)/decrease in inventories - 64 (a) Reconciliation of cash and cash Increase/(decrease) in creditors equivalents and accrued expenses (1,826) 5,242 For the purposes of the cash flow statement, cash and cash Increase/(decrease) in equivalents includes cash on hand and in banks and 11 am provisions and employee cash (investments), net of outstanding bank overdrafts. benefits 15,907 3,410 Cash and cash equivalents at the end of the financial year, Increase/(decrease) in other as show in the cash flow statement is reconciled to the related liabilities (3,969) 21,096 items in the balance sheet as follows: Changes in other assets/ liabilities (1,887) (903) 2009 2008 Net cash provided by $’000 $’000 operating activities 59,640 76,089 Cash and cash equivalents 1,332 747 Other deposits 22,443 20,752 23,775 21,499 56 Transend Annual Report 09
  • Notes to the financial statements for the financial year ended 30 June 2009 (continued) 26. Notes to the cash flow 28. Subsequent events statement (continued) Dividends (c) Non-cash financing activities Subsequent to the end of the financial year, the board There were no non-cash financing activities during 2008–09. recommended a dividend of $3.6m in respect to the current In 2007–08 financial year, $220,000,000 of debt was financial year (2008: $9,360,000). This equates to a dividend transferred from Hydro Tasmania (see note 14), which was of $0.9m per share (2008: $2,340,000). The financial effect not reflected in the cash flow statement. of this recommended dividend has not been brought to account in the financial statements for the financial year 27. Economic dependency ended 30 June 2009. No other dividends were paid or A significant volume of Transend’s revenue is received from declared during the year to 30 June 2009. Aurora Energy Pty Ltd as determined by Transend’s Revenue Determination and the Transmission Pricing section of the National Electricity Rules. directors’ declaration The directors declare that: (a) in the directors’ opinion, there are reasonable grounds to believe that Transend Networks Pty Ltd 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 Transend Networks Pty Ltd. Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the directors John Lord Chairman Launceston 27 August 2009 Transend Annual Report 09 57