ANI STATEMENT OF CORPORATE INTENT. A: 61 Veitch Road, Osborne SA 5017 W: ani.com.au. P: PO Box 2404, Port Adelaide SA 5015 P:

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1 A: 61 Veitch Road, Osborne SA 5017 W: ani.com.au P: PO Box 2404, Port Adelaide SA 5015 P: ANI STATEMENT OF CORPORATE INTENT ABN

2 ANI STATEMENT OF CORPORATE INTENT Contents 1. Introduction 2 2. Purpose 3 3. Environment 7 4. Performance 8 5. Risk Oversight and Management 9 Page 1

3 1. Introduction Australian Naval Infrastructure (ANI or the Company) is a Commonwealth Company, which was established through the separation of ASC Engineering Pty Ltd (as ANI was formerly known) from ASC Pty Ltd on 26 March The creation of ANI followed a strategic review of the ASC Group conducted in 2015 and updated in The review sought to identify the best possible corporate, capital and governance arrangements to help maximise the future success of the Australian naval shipbuilding industry. On 11 October 2016, the Government announced that it would separate Government Business Enterprise ASC Pty Ltd into three individual Government-owned companies to support the key capabilities of: Infrastructure (ANI); Shipbuilding; and Submarine sustainment. The Government announced that the restructure of ASC would ensure that it is best placed to support Australia s future shipbuilding needs, including through delivery of a more flexible approach to managing the investment required in shipbuilding infrastructure to support the Government s continuous shipbuilding program. From 1 July 2017, ANI was prescribed as a Government Business Enterprise (GBE) within the definitions outlined in the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act). ANI s shareholders are the Minister for Finance and the Minister for Defence Industry. ANI does not have any subsidiaries or ownership interests in related bodies corporate. This Statement of Corporate Intent has been prepared for the purposes of section 95(1) of the PGPA Act for the four year period 1 July 2017 to 30 June 2021, and has been prepared as soon as practicable following the standing up of the Company and the commencement of its first major project to expand the Osborne South Shipyard. Page 2

4 2. Purpose 2.1 Governance ANI has adopted a Constitution, the key features of which include: A statement of objects; A limitation on the powers of ANI by reference to Australian Government Policy and the contents of the Commercial Freedoms Framework (CFF); Express restrictions on the power of ANI to take specified actions without prior written consent of the Minister for Finance and the Minister for Defence Industry; A corporate indemnity for Directors; A provision deeming that Directors are considered to act in good faith and in the best interests of ANI if they act in good faith, in the best interests of the Commonwealth, within the power of ANI and the law and the company remains solvent; A provision deeming that Directors are considered to act in the best interests of the Commonwealth if they act in accordance with the instructions, directions or expectations of the Commonwealth; The ability for the Shareholder Ministers to communicate expectations of the Commonwealth to inform the view of Directors; and The ability for the Shareholder Ministers to direct Directors to exercise the powers of the Company in a specified manner. 2.2 Objects ANI s primary and secondary objects are defined in the Constitution. Primary Object To support the Commonwealth s continuous naval shipbuilding program through: i) acquiring, holding, managing and developing the infrastructure, and related facilities used in connection with this program; ii) efficiently and effectively managing this infrastructure (including providing access) in a manner that ensures an integrated and coordinated approach to the delivery of all aspects of this program; and Secondary Object To undertake commercial activities related to the primary object, while not compromising achievement of the primary object. 2.3 Assets ANI has been created by a series of transfers and consolidations of critical infrastructure assets formerly held within the ASC Group, followed by a legal and financial separation of the ANI entity from the ASC Group. Separation Assets Assets held within ANI following the separation include: Page 3

5 Osborne North Shipyard, SA: The location for the full-cycle docking and maintenance of the Royal Australian Navy s six existing Collins Class submarines by ASC; Osborne South Shipyard, SA: The location for the Air Warfare Destroyer (AWD) program being undertaken by the AWD Alliance (ASC, Raytheon Australia and the Commonwealth) for the delivery of three vessels by In addition, as announced by the Commonwealth on 24 November 2017, it is expected that two Offshore Patrol Vessels (OPVs) will be constructed in the existing facilities by Lurssen and ASC from 2018 as the AWD program nears completion; and Henderson Shipyard (WA): ANI owns minor assets in support of Collins Class sustainment mid-cycle docking by ASC. Defence SA Asset Acquisition In May 2017 the Commonwealth entered into a Memorandum of Understanding with the South Australian Government which amongst other things contemplated the staged acquisition of further assets at Osborne, as follows: Tranche 1 vacant land and the existing Maritime Skills Centre for $20 million (acquisition completed on 10 August 2017); Tranche 2 the Common User Infrastructure (CUF) including wharf, dry berth, transfer system and shiplift for $210 million (acquisition completed on 30 November 2017); and Tranche 3 various land and fixtures for nominal consideration (to be completed during 2018). Osborne South Shipyard Expansion and Refurbishment On 12 October 2017, ANI entered into a Managing Contractor Contract (MCC) with Lendlease for the expansion and refurbishment of the Osborne South shipyard on land acquired under the Tranche 1 acquisition described above. This project, to be delivered in 2020, is estimated to cost approximately $535 million, and is in support of the Commonwealth s proposed Future Frigate (SEA 5000) program. 2.4 Interim Strategy As a newly formed organisation, ANI s interim strategy focusses on positioning the Company to meet the Objects and to deliver outcomes as defined in the Statement of Expectations (SoE). This will be achieved by: 1. Establishing and maintaining world class shipbuilding facilities which will be leased to shipbuilding tenants. This includes the expansion and refurbishment of the Osborne South Shipyard; 2. Leasing the existing Maritime Skills Centre to the proposed Naval Shipbuilding College; 3. Operating the CUF and associated facilities; and 4. Developing precinct services including perimeter physical security, internal physical security between leased areas, site catering, site cleaning, site medical services and site emergency response services. 2.5 Operating Model ANI s operating model centres on the provision of critical infrastructure to builders of naval vessels in return for lease charges for the use of that infrastructure. Page 4

6 Present Leasing Arrangements ANI presently has two tenants, namely ASC (Osborne North), and ASC AWD Shipbuilder Pty Ltd and the Commonwealth as tenants in common (Osborne South). The present commercial lease arrangements are defined in a Transition Services Agreement (TSA) which was agreed between ASC Group companies including ASC Engineering (now ANI) prior to the separation of ANI taking effect. Under this agreement, ANI is able to charge the respective tenants a) a capital charge based on the asset value, plus b) a depreciation charge, plus c) a utilities charge. These arrangements provide ANI with positive returns and sufficient cashflows to fund ANI s corporate and overhead costs. At this time, ANI does not provide precinct services as contemplated in item 4 of the strategy outlined in Section 2.4 above. Common User Facility Areas of the CUF are licenced to ASC AWD Shipbuilder Pty Ltd and the Commonwealth by Defence SA under arrangements agreed between the parties at the time the CUF was constructed in These arrangements were novated to ANI at the time of the Tranche 2 acquisition on 30 November The licence costs are based on a fixed rate with annual escalation. Future Leasing Arrangements ANI is presently preparing model leasing contracts, and expects to commence negotiations with new and prospective tenants in early calendar The lease charges are expected to reflect the capital cost of the infrastructure, as well as fees for other services which will be provided by ANI. Key principles in developing the leasing arrangements will include: Generating sufficient shareholder returns to meet the expectations as defined in the SoE; Generating sufficient returns from operating assets such that the book value is supported; Seeking to ensure value for money for Defence in terms of the arrangements with shipyard users; Ensuring that ANI delivers on its Primary Object. 2.6 ANI as a Government Business Enterprise ANI is prescribed as a GBE, reflecting the following key characteristics: Significant business undertakings at arm s length from the Government; Operating in an established private sector market (infrastructure development and providing facilities for shipbuilding and maintenance); Consistent with the GBE Guidelines, earning commercial returns at least sufficient to justify the long-term retention of assets in the business; An independent board to enable the Company to make commercial decisions about its operations; and Staffed by appropriately experienced and skilled employees. Page 5

7 2.7 Procurement Approach As a GBE, the Commonwealth Procurement Rules do not apply to ANI. ANI s procurement policy and approach is as follows: Philosophy At ANI we believe delivering value for money is critical in the way we conduct our business and manage key business relationships. As a GBE, we are committed to transparency, efficiency and encouraging competition in our procurement activity. Policy ANI will pursue value for money on a whole of life basis. ANI will select an appropriate process for undertaking procurement activity, having regard to the nature of the goods and services being procured, the expenditure and risk profile, and the objectives of the procurement. ANI will aim to achieve high levels of Australian content in all procurement, and in major infrastructure projects, will encourage contractors to pursue opportunities for local industry participation, including indigenous owned businesses and indigenous employment. Governance All procurement activity will be undertaken in compliance with ANI s Code of Conduct and Delegation of Authority policies. All procurement contracts will be reviewed by Legal, prior to execution. Under the MCC with Lendlease for the expansion and refurbishment of the Osborne South shipyard, Lendlease has prepared a comprehensive Procurement Strategy Plan which is consistent with the Philosophy and Policies outlined above. Under this contract, ANI will have full visibility to all project procurement activities, and as such will be able to ensure that the Procurement Strategy Plan is consistently applied. 2.8 Shareholder Returns and Dividend Policy Consistent with the GBE Guidelines, ANI will earn commercial returns at least sufficient to justify the long-term retention of assets in the business. It is expected that ANI will deliver positive returns to shareholders over the long term. Page 6

8 3. Environment 3.1 Internal Environment As at 30 June 2017, ANI comprised the Managing Director and interim CEO (now Managing Director and CEO) as the only employee. Since the start of the financial year, ANI has focussed on building organisational capability, in terms of recruiting additional and relevant personnel and the establishment of business systems and governance frameworks. ANI is presently operating in an environment which has been conducive to creating momentum as the Company establishes itself. 3.2 Community Service Obligations ANI does not operate under any specific community services obligations. 3.3 Industry and Strategic Environment The Naval Shipbuilding Plan, including the commitment to continuous build of major surface combatants is a key enabler in support of ANI s business objectives. Within South Australia, the outlook for Defence Industries, driven in part by the Naval Shipbuilding Plan, has broad support as the state looks to create job opportunities to compensate for the recent closure of the Holden manufacturing facility. 3.4 Macro Conditions Low interest rates, a conducive investment climate and government policy are combining to create a buoyant outlook for infrastructure development in the eastern states, including NSW, Victoria, Queensland and South Australia. Anecdotal evidence from the construction sector suggests that this growing demand for services and equipment may result in some stress becoming evident in the supply chain (particularly steel fabrication) which may lead to mild inflationary pressures in In a South Australian context, the ramp-up of construction at ANI s Osborne South project is expected to coincide with the completion of several significant projects (new RAH, O-Bahn extension, Brompton rail upgrade, South Road Torrens to Torrens upgrade). Page 7

9 4. Performance In the short term, ANI will measure its performance against the achievement of the following key indicators. 4.1 Short Term Priorities (FY18) Complete the stand-up of ANI as an independent commercial entity Complete the Tranche 1 and 2 acquisitions from Defence SA Award the MCC and commence construction of the Osborne South shipyard expansion and refurbishment project Develop leasing arrangements for new users of the Osborne shipyard facilities Provide additional infrastructure related support to Defence as required 4.2 Medium Term Priorities (FY19-20) Complete the Osborne South shipyard project safely, on schedule and within budget Establish additional precinct services as contemplated by the SoE 4.3 Long Term Priorities (2020+) Build Australian capability and intellectual property to support the continuous build of combatants. Page 8

5. Risk Oversight and Management The risk approach used by ANI to identify, analyse, assess, evaluate, treat, monitor and report on risks is based on practices outlined by the ISO31000 Risk

Risk management provides decision makers and responsible parties with an improved understanding of risks that could affect the achievement of objectives, and the adequacy and effectiveness of

10 5. Risk Oversight and Management The risk approach used by ANI to identify, analyse, assess, evaluate, treat, monitor and report on risks is based on practices outlined by the ISO31000 Risk Management Guidelines and Principles. Risk management provides decision makers and responsible parties with an improved understanding of risks that could affect the achievement of objectives, and the adequacy and effectiveness of controls in place. This provides a basis for decisions about the most appropriate approach to be used to treat the risks. The following diagram is reproduced from the risk management standards and provides a general overview of the risk management methodology for ANI. ANI maintains a risk register to capture and document risks and controls as well as their ratings. The ANI risk register is reviewed and monitored by the Audit and Risk Committee periodically as part of the overall Risk Governance Framework. Page 9

CONTENTS. Page. Transmittal Letter 1. Chairman and CEO s Letter 2. About Us 4. Corporate Governance Statement 10. Board and Management 14

CONTENTS. Page. Transmittal Letter 1. Chairman and CEO s Letter 2. About Us 4. Corporate Governance Statement 10. Board and Management 14 ANNUAL REPORT 2016 2017 CONTENTS Page Transmittal Letter 1 Chairman and CEO s Letter 2 About Us 4 Corporate Governance Statement 10 Board and Management 14 Directors Report 24 Auditor s Independence Declaration