INTERIM FINANCIAL REPORTS

Transcription

1 ASX ANNOUNCEMENT 24 February 2016 APA Group (ASX: APA) (also for release to APT Pipelines Limited (ASX: AQH)) INTERIM FINANCIAL REPORTS The following announcements are attached for release to the market: Australian Pipeline Trust Appendix 4D Australian Pipeline Trust Interim Financial Report APT Investment Trust Interim Financial Report Nevenka Codevelle Company Secretary & General Counsel Australian Pipeline Limited For further information please contact: Investor enquiries: Media enquiries: Yoko Kosugi Louise Watson Telephone: Telephone: (02) Mob: Mob: yoko.kosugi@apa.com.au lwatson@symbolstrategic.com.au About APA Group (APA) APA is Australia s largest natural gas infrastructure business, owning and/or operating around $19 billion of energy infrastructure assets. Its gas transmission pipelines span every state and territory on mainland Australia, delivering approximately half of the nation s gas usage. APA has direct management and operational control over its assets and the majority of its investments. APA also holds minority interests in a number of energy infrastructure enterprises including SEA Gas Pipeline, Energy Infrastructure Investments, GDI Allgas Gas Networks and Diamantina and Leichhardt Power Stations. APT Pipelines Limited is a wholly owned subsidiary of Australian Pipeline Trust and is the borrowing entity of APA Group. For more information visit APA s website,

2 Australian Pipeline Trust Results For Announcement To The Market For the Half Year Ended 31 December 2015 Appendix 4D Statutory Results Percentage Change % Amount $ 000 Revenue including significant items up 41.7 to 1,049,081 EBITDA including significant items down 21.4 to 667,567 EBIT including significant items down 45.2 to 417,086 Profit after tax and non-controlling interests including significant items down 78.7 to 99,544 Operating cash flow including significant items up 64.8 to 462,134 Operating cash flow per security including significant items up 9.6c to 41.5c Earnings per security including significant items down 44.3c to 8.9c Normalised Results Revenue excluding significant items up 41.7 to 1,049,081 EBITDA excluding significant items up 65.9 to 667,567 EBIT excluding significant items up 32.9 to 417,086 Profit after tax and non-controlling interests excluding significant items down 10.5 to 99,544 Operating cash flow excluding significant items up 75.6 to 462,134 Operating cash flow per security excluding significant items up 11.5c to 41.5c Earnings per security excluding significant items down 3.8c to 8.9c EBIT = Earnings before interest and tax EBITDA = EBIT before depreciation and amortisation

3 Australian Pipeline Trust Results For Announcement To The Market For the Half Year Ended 31 December 2015 Appendix 4D Dividends (Distributions) Distributions paid and proposed in relation to the half year ended 31 December 2015 Australian Pipeline Trust: Amount per security Franked Amount per security Distributions paid in relation to the half year ended 31 December Interim distributions proposed a - profit distribution capital distribution - - Total distributions proposed - APT Distributions paid and proposed in relation to the half year ended 31 December 2015 APT Investment Trust: Distributions paid in relation to the half year ended 31 December Interim distributions proposed a - profit distribution - capital distribution Total distributions proposed APTIT Total APA Group distributions in relation to the half year ended 31 December a The interim distributions have not been recorded in the financial report as required by AASB 137 Provisions, Contingent Liabilities and Contingent Assets. Record date for determining entitlements to the unrecognised interim distribution in respect of the year ended 30 June 2016 interim distribution 31 December 2015 Distribution information is presented on an accounting classification basis. The APA Group Annual Tax Statement and Annual Tax Return Guide (released in September) provide the classification of distribution components for the purposes of preparation of securityholder income tax returns.

4 Australian Pipeline Trust Results For Announcement To The Market For the Half Year Ended 31 December 2015 Appendix 4D Brief Explanation of Revenue, Net Profit/(Loss) and Dividends (Distributions) Refer Directors Report. The Directors have proposed an interim distribution of cents per unit, unfranked, to be paid on 16 March The Directors also note that APT Investment Trust has proposed an interim distribution of 3.88 cents per unit (refer above), also to be paid on 16 March Total distribution for the APA Group stapled security for the December 2015 half year is cents per stapled security. Reporting Period Current Reporting Period: Half year ended 31 December 2015 Previous Corresponding Period: Half year ended 31 December 2014 Distribution Reinvestment Plan The dividend or distribution plans shown below are in operation. The Directors have reviewed APA Group s financial position and funding requirements and have decided to retain the suspension of the Distribution Reinvestment Plan, which initially came into effect on 19 June 2013, until further notice. Details of Businesses Over Which Control Has Been Gained or Lost Nil Net Asset Backing $ $ Net tangible asset backing per security Net asset backing per security

5 Australian Pipeline Trust Results For Announcement To The Market For the Half Year Ended 31 December 2015 Appendix 4D Compliance Statement Information on Audit or Review (a) The half year report is based on accounts to which one of the following applies. The accounts have been audited. The accounts are in the process of being audited or subject to review. The accounts have been subject to review. The accounts have not yet been audited or reviewed. (b) Description of likely dispute or qualification if the accounts have not yet been audited or subject to review or are in the process of being audited or subjected to review. - N/A - (c) Description of dispute or qualification if the accounts have been audited or subjected to review. - N/A - (d) The entity has a formally constituted audit committee. Sign here: February Chairman Date Print name: Leonard Bleasel AM

6 Australian Pipeline Trust ARSN Interim Financial Report For the half year ended 31 December 2015

7 Directors Report for the half year ended 31 December 2015 DIRECTORS... 3 PRINCIPAL ACTIVITIES... 3 STATE OF AFFAIRS... 3 SUBSEQUENT EVENTS... 3 FINANCIAL AND OPERATIONAL REVIEW Financial highlights Business segment performances and operational review Energy Infrastructure Asset Management Energy Investments Corporate Costs Restatement of historical segment EBITDA Capital and investment expenditure Financing Activities Capital management Borrowings and finance costs Credit ratings Income tax Distributions Guidance for the 2016 financial year Regulatory matters AUDITOR S INDEPENDENCE DECLARATION ROUNDING OF AMOUNTS

8 Directors Report for the half year ended 31 December 2015 The Directors of Australian Pipeline Limited ( Responsible Entity ) submit their interim financial report of Australian Pipeline Trust ( APT ) and its controlled entities (together APA or Consolidated Entity ) for the half year ended 31 December This report refers to the consolidated results of APT and APT Investment Trust ( APTIT ). DIRECTORS The names of the Directors of the Responsible Entity during the half year period and since the half year end are: Leonard Bleasel AM Michael McCormack Steven Crane John Fletcher Chairman Chief Executive Officer and Managing Director Michael Fraser Appointed 1 September 2015 Debra (Debbie) Goodin Appointed 1 September 2015 Russell Higgins AO Patricia McKenzie Robert Wright Retired 22 October 2015 The Company Secretary of the Responsible Entity during and since the current period is as follows: Nevenka Codevelle Appointed 31 October 2015 Mark Knapman Retired 30 October 2015 PRINCIPAL ACTIVITIES The principal activities of APA during the course of the year were the ownership and operation of energy infrastructure assets and businesses, including: energy infrastructure, primarily gas transmission businesses located across Australia; asset management and operations services for the majority of APA s energy investments and for third parties; and energy investments in listed and unlisted entities. STATE OF AFFAIRS No significant change in the state of affairs of APA occurred during the half year. SUBSEQUENT EVENTS Except as disclosed elsewhere in this report, the Directors are unaware of any matter or circumstance that has occurred since the end of the year that has significantly affected or may significantly affect the operations of APA, the results of those operations or the state of affairs of APA in future years. 3

9 Directors Report for the half year ended 31 December 2015 FINANCIAL AND OPERATIONAL REVIEW 1. Financial highlights Profit after tax and non-controlling interests, earnings before interest and tax ( EBIT ) and EBIT before depreciation and amortisation ( EBITDA ) excluding significant items are financial measures not prescribed by Australian Accounting Standards ( AIFRS ) and represent the profit under AIFRS adjusted for specific significant items. The Directors consider these measures to reflect the core earnings of the Consolidated Entity, and these are therefore described in this report as normalised measures. For the period to 31 December 2015 APA reported EBITDA of $667.6 million, an increase of 65.9% or $265.2 million on the previous corresponding period EBITDA of $402.3 million (excluding significant items of $447.2 million relating mainly to profit on the sale of APA s shareholding in Australian Gas Networks Limited). Revenue (excluding pass-through revenue) increased by $289.8 million to $812.5 million, an increase of 55.5% on the previous corresponding period (1H FY2015: $522.7 million). Increased revenues and EBITDA were primarily attributable to: a full 6 months contribution from the Wallumbilla Gladstone Pipeline; a full 6 months contribution from the expanded East Coast Grid (South West Queensland Pipeline in particular) compared to the previous corresponding period; continued solid contributions from APA s Western Australian assets including Mondarra Gas Storage Facility and Emu Downs Wind Farm; commissioning of the Eastern Goldfields Pipeline towards the end of the period; and an increase in earnings from both the Asset Management and Energy Investments businesses. These increases were partially offset by an increase in corporate costs, driven mainly by the North East Gas Interconnect project and APA s bid for the Iona gas storage facility during the period as well as ongoing compliance costs relating to a number of inquiries into the gas market. Depreciation, amortisation and interest costs each increased significantly year on year, as a result of the acquisition of the Wallumbilla Gladstone Pipeline, adding further significant fixed and intangible assets that are depreciated and amortised for the full six month period and due to the increased amount of debt included in the funding of the acquisition. Profit after tax and non-controlling interests decreased by 10.5% to $99.5 million (1H FY2015: $111.2 million, excluding the aforementioned significant items of $356.0 million, after tax). Operating cash flow was $462.1 million for the period. This was an increase of 75.6% or $198.9 million over the previous corresponding period (1H FY2015: $263.2 million), with operating cash flow per security increasing by 38.3%, or 11.5 cents, to 41.5 cents per security (1H FY2015: 30.0 cents per security) on a normalised basis. On a statutory basis, the operating cash flow increased by $181.7 million or 64.8% from $280.4 million. APA s interim distribution of 19.0 cents per security, represents an increase of 8.6%, or 1.5 cents, over the previous corresponding period (FY2015 interim: 17.5 cents). The distribution payout ratio of 45.8% for the current period based on normalised operating cash flow is lower than the 55.6% ratio from the previous corresponding period. APA continues to fully fund its distributions out of operating cash flows whilst also retaining appropriate levels of cash in the business to support ongoing growth. 4

10 Directors Report for the half year ended 31 December 2015 The following table provides a summary of key financial data for the period and includes key reconciling items between statutory profit after tax attributable to APA securityholders and the normalised financial measures. Half year ended Statutory 31 December 2015 ($000) Significant items Normalised Statutory 31 December 2014 ($000) Changes in Statutory accounts Changes in Normalised accounts Significant (2) Normalised $000 % $000 % items Total revenue 1,049,081-1,049, , , , % 308, % Pass-through revenue (1) 236, , , ,429 19, % 19, % Total revenue excluding pass-through 812, , , , , % 289, % EBITDA 667, , , , ,323 (181,996) (21.4%) 265, % Depreciation and amortisation expense (250,481) - (250,481) (88,477) - (88,477) (162,004) (183.1%) (162,004) (183.1%) EBIT 417, , , , ,846 (344,000) (45.2%) 103, % Finance costs and interest income (253,307) - (253,307) (151,294) - (151,294) (102,013) (67.4%) (102,013) (67.4%) Profit before income tax and non-controlling interests 163, , , , ,552 (446,013) (73.1%) 1, % Income tax (expense) / benefit (64,234) - (64,234) (142,530) (91,222) (51,308) 78, % (12,926) (25.2%) Non-controlling interests (1) - (1) (1) - (1) Profit after income tax and non-controlling interests 99,544-99, , , ,243 (367,717) (78.7%) (11,699) (10.5%) Operating cash flow (3) 462, , ,406 17, , , % 198, % Operating cash flow per security (cents) (4) % % Earnings per security (cents) (4) (44.3) (83.3%) (3.8) (29.9%) Distribution per security (cents) % % Distribution payout ratio (5) 45.8% 45.8% 52.2% 55.6% (6.4%) (12.3%) (9.8%) (17.6%) Weighted average number of securities (000) 1,114,307 1,114, , , , % 236, % Notes: Numbers in the table may not add up due to rounding. (1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited ( AGN ) and GDI (EII) in respect of, the operation of the AGN and GDI assets respectively. (2) Significant items: For the period to 31 December 2014, these relate to net proceeds realised from the sale of APA s investment in AGN as well as successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited. (3) Operating cash flow = net cash from operations after interest and tax payments. (4) Between 23 December 2014 and 28 January 2015, APA issued a total of 278,556,562 new ordinary securities, resulting in total securities on issue as at 30 June 2015 of 1,114,307,369. The issue was offered at $6.60 per security, a discount to APA s closing market price of $7.67 per security on 9 December 2014, the last trading day before the record date of the entitlement offer of 15 December The weighted average number of securities for the prior period has been adjusted in accordance with the accounting principles of AASB 133: Earnings per Share, for the discounted rights issue. (5) Distribution payout ratio = total distribution payments as a percentage of normalised operating cash flow. 5

11 Directors Report for the half year ended 31 December Business segment performances and operational review Statutory reported revenue and EBITDA performance of APA s business segments is set out in the table below. Half year ended 31 Dec Dec 2014 Changes $000 $000 $000 % Revenue (continuing businesses) Energy Infrastructure East Coast Grid: Queensland 448, , , % East Coast Grid: New South Wales 72,884 71, % East Coast Grid: Victoria 83,266 93,309 (10,043) (10.8%) East Coast Grid: South Australia 1,393 1, % Northern Territory 14,458 13, % Western Australia 120, ,025 (9,414) (7.2%) Energy Infrastructure total 740, , , % Asset Management 55,403 38,420 16, % Energy Investments 13,973 7,647 6, % Total segment revenue 810, , , % Pass-through revenue 236, ,429 19, % Unallocated revenue (interest income) (1) 2,218 3,767 (1,549) (41.1%) Divested business (2) (992) (100.0%) Total revenue 1,049, , , % EBITDA (continuing businesses) Energy Infrastructure East Coast Grid: Queensland 426, , , % East Coast Grid: New South Wales 63,315 63,677 (362) (0.6%) East Coast Grid: Victoria 68,542 75,014 (6,472) (8.6%) East Coast Grid: South Australia 1,212 1, % Northern Territory 9,882 9, % Western Australia 101, ,241 (4,785) (4.5%) Energy Infrastructure total 671, , , % Asset Management 27,850 24,861 2, % Energy Investments 13,973 7,647 6, % Corporate costs (45,381) (33,193) (12,188) (36.7%) Total segment EBITDA 667, , , % Divested business (2) (992) (100.0%) Total EBITDA before significant items 667, , , % Significant items (3) - 447,240 (447,240) (100.0%) Total EBITDA 667, ,563 (181,996) (21.4%) Notes: Numbers in the table may not add up due to rounding. (1) Interest income is not included in calculation of EBITDA, but nets off against interest expense in calculating net interest cost. (2) Investment in Australian Gas Networks Limited ( AGN ) sold in August (3) Significant items: For half year to 31 December 2014, these relate to net proceeds realised from the sale of APA s investment in AGN as well as successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited. 6

12 Directors Report for the half year ended 31 December 2015 APA s financial performance during the period reflects solid operations and continued investment in our assets. EBITDA in APA s continuing businesses for the period, increased by $266.2 million, or 66.3%, to $667.6 million, over the previous corresponding period (1H FY2015: $401.3 million). APA derives its revenue through a mix of regulated revenue, long-term negotiated revenue contracts, asset management fees and investment earnings. Earnings are underpinned by strong cash flows generated from high quality, geographically diversified assets and a portfolio of highly creditworthy customers. A national regulatory regime provides mechanisms for regulatory pricing amongst other things, and is encapsulated in the National Gas Law and National Gas Rules. The economic regulation aspects of the regime apply to most gas distribution networks and a number of gas transmission pipelines in Australia. The regime provides for two forms of regulation based on a pipeline s relative market power full regulation and light regulation. For assets under full regulation, the regulator approves price and other terms of access for standard ( reference ) services as part of an access arrangement process, such that the asset owner has a reasonable opportunity to recover at least the efficient costs of owning and operating the asset to provide the reference services. Access arrangement periods usually run for five years. For assets under light regulation, contractual terms (including price) are negotiated between the service provider and customer with recourse to arbitration by the regulator in the absence of agreement. Contracted revenues are sourced from unregulated assets and assets under light regulation as well as assets under full regulation. Contracts generally entitle customers to capacity reservation, with the majority of the revenue fixed over the term of the relevant contract. There is typically a small portion of the contract subject to throughput volume. The split between capacity charge and throughput charge differs between contracts and ranges from 85%/15% to 100%/0%. During the period, approximately 15% of Energy Infrastructure revenue (excluding pass-through) was subject to prices determined under full regulation, 64% was from capacity reservation charges, 7% from storage and other contracted revenues and 11% from throughput charges. Given the dynamic east coast gas market, there were additional revenues from provision of flexible short term services, accounting for around 2% of 1H FY2016 Energy Infrastructure revenue. 1H FY2016 Revenues by Contract Type APA* Pipelines by Regulation Type * Owned and/or operated by APA APA continues to focus on the operation, development and enhancement of our gas transmission and distribution assets, and energy investments across mainland Australia. 7

13 Directors Report for the half year ended 31 December Energy Infrastructure The Energy Infrastructure segment includes gas transmission, gas compression and storage assets and the Emu Downs Wind Farm. Revenue from these assets is derived from either regulatory arrangements or capacity-based contracts. Regulatory arrangements on major assets are reviewed every five years. The Energy Infrastructure segment contributed 91.4% of revenue (for continuing businesses, excluding passthrough) and 94.1% of EBITDA (for continuing businesses, before corporate costs) during the period. Revenue (excluding pass-through revenue) was $740.9 million, an increase of 57.0% on the previous corresponding period (1H FY2015: $471.8 million). EBITDA (for continuing businesses, before corporate costs) increased by 66.9% on the previous corresponding period to $671.1 million (1H FY2015: $402.0 million). The Wallumbilla Gladstone Pipeline, acquired on 3 June 2015, delivered $235 million in EBITDA and was the main contributor to the increase in earnings. In addition, APA commissioned the Eastern Goldfields Pipeline towards the end of the period and slightly ahead of plan. The expanded East Coast Grid delivered further organic growth, as did the solid performance from assets such as the Mondarra Gas Storage Facility and the Emu Downs Wind Farm. Energy Infrastructure Revenue by State Energy Infrastructure EBITDA by State Energy Infrastructure EBITDA by Pipeline Note: The charts above exclude discontinued operations previously accounted for within Energy Infrastructure, including earnings from Allgas Networks and Moomba Adelaide Pipeline. Over 97% of revenue during the period was received from investment grade counterparties. Revenues were received from the following customer categories during the period: 57% from energy sector customers; 28% from customers in the utility sector; 11% from resources sector customers; and 2% from industrial customers. 8

14 Directors Report for the half year ended 31 December 2015 Revenues by customer industry segment changed from majority Utility customers to Energy customers, given the impact of the long term contract entered into on the Wallumbilla Gladstone Pipeline. 1H FY2016 Revenues by Counterparty Credit Rating 1H FY2016 Revenues by Customer Industry Segment Geographically, Energy Infrastructure assets are managed as the East Coast Grid plus Northern Territory (Queensland, New South Wales, Victoria, South Australia and the Northern Territory) and Western Australia. East Coast Grid + Northern Territory APA s 7,500 plus kilometres of integrated pipeline grid on the east coast of Australia has the ability to transport gas seamlessly from multiple gas production facilities to gas users across four states and the ACT, as well as to the export LNG market which has developed out of Gladstone. With the construction of a pipeline connecting the Northern Territory to the East Coast Grid, APA expects that eventually its Northern Territory assets will also form part of an expanded East Coast Grid. During this period, APA has continued to invest in capacity expansions across its unique grid. In September and October 2015, APA commenced provision of bi-directional services on the Moomba Sydney Pipeline and the Roma Brisbane Pipeline respectively, as a result of installing bi-directional capability on these two pipelines. This completes the major bi-directional pipeline projects connecting the Gippsland, Otway, Cooper and Surat gas basins. The development of the East Coast Grid has been transformational in enabling APA to increase the flexibility of services to our customers. In December 2015, the Moomba Sydney Pipeline physically flowed gas in the northerly direction towards Moomba for the first time. This was a landmark event as the Moomba Sydney Pipeline has flowed in a southerly direction since it was built in The pipeline is an integral part of APA s East Coast Grid, which is now able to better respond to the dynamic changes in gas supply and demand on the east coast of Australia due to changes in customer demand requirements (impacted by the commissioning of the LNG facilities in Gladstone) and seasonal variation. The interconnected, bi-directional grid, together with its numerous receipt (~30) and delivery points (~100), provides the hardware for APA s customers to move their gas where and as they need it. APA has also invested in software and systems, which provide the commercial and operational framework to maximise the network for the benefit of our customers. A wide range of services, including multi-asset services, bidirectional services, capacity trading and gas storage and loan facilities, are managed by our APA Grid system. Together with APA s Integrated Operations Centre ( IOC ) in Brisbane, which houses commercial, technical and operational resources in the one location managing APA s pipeline infrastructure nationally, APA is able to holistically manage and quickly respond to changes in operational and market conditions. During the period, the control rooms from Melbourne, Young and Perth were all transitioned to the IOC. During the period, APA saw increased activity on each of the Queensland assets connected to the Wallumbilla hub, especially during the commissioning of a number of LNG trains at Gladstone, where APA s flexible agreements were required to support the gas portfolio management of the LNG proponents. This compared with the previous corresponding period where excess gas was being shipped southward to Victoria and New South Wales markets to support summer loads in those markets. 9

15 Directors Report for the half year ended 31 December 2015 This increase in demand in Queensland, to which APA was able to respond, given the commissioning of capacity upgrades on its Queensland assets as well as the addition of the Wallumbilla Gladstone Pipeline ( WGP ), saw the East Coast Grid as a whole increase EBITDA by 95.5% over the previous corresponding period. Excluding the contribution from WGP, there was 13.5% organic growth in EBITDA on the East Coast Grid. For this period, APA s assets in the Northern Territory continue to perform steadily. Western Australia West Coast Grid In Western Australia, APA s assets serve a variety of customers in the resources, industrial and utility sectors, mainly in the Perth, Pilbara and Goldfields regions. EBITDA from APA s West Coast Grid assets for the period decreased 4.5% compared with the previous corresponding period. This reduction is primarily due to revenue on the Goldfields Gas Pipeline ( GGP ) for the current period reflecting tariff reductions proposed in the draft decision by the Economic Regulation Authority ( ERA ) on proposed revisions to the access arrangement for the GGP in anticipation of the ERA s final decision becoming operative (expected June 2016). APA has submitted a full response rejecting the ERA s draft decision refer to section 5. Regulatory Matters. Strong performances from the other assets on the West Coast Grid helped to partly offset the GGP revenue reduction, including Emu Downs Wind Farm, Pilbara Energy Pipeline and the Mondarra Gas Storage Facility, against the backdrop of falling commodity prices. In November 2015, APA commissioned the 293 kilometre Eastern Goldfields Pipeline ( EGP ). The pipeline is underwritten by two gas transportation agreements executed between AngloGold Ashanti ( AngloGold ) and APA for the transportation of natural gas to AngloGold s Sunrise Dam Operations, and the Tropicana Operations jointly owned by AngloGold and Independence Group NL, and located in the eastern Goldfields region. The EGP connects APA s existing infrastructure, the Goldfields Gas Pipeline and the Murrin Murrin Lateral, to the respective mine site locations. Under the agreements, APA will transport gas across a total distance of 1,800 kilometres to the mines through APA s three interconnected pipelines. The completion of the EGP provided APA with the opportunity to secure an agreement for the transportation of natural gas to the Gold Fields Limited owned Granny Smith gold mine. This agreement will commence in February APA is working to secure other opportunities in the region associated with this new EGP infrastructure. 2.2 Asset Management APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are Australian Gas Networks Limited ( AGN ), Ethane Pipeline Income Fund, Energy Infrastructure Investments and GDI (EII). Asset management services are provided to these customers under long term contracts. Revenue (excluding pass-through revenue) from asset management services increased by $17.0 million or 44.2% to $55.4 million (1H FY2015: $38.4 million) and EBITDA (for continuing businesses, excluding corporate costs) also increased by $3.0 million or 12.0% to $27.9 million (1H FY2015: $24.9 million). Asset Management Revenue Asset Management EBITDA 10

16 Directors Report for the half year ended 31 December 2015 This increase in revenue and EBITDA is due to organic growth, reflecting increases in volume and asset management fees. Over the last few years, the distribution businesses in particular have seen solid connection growth and continued investments in new housing estates and high rise apartment developments particularly in Queensland and Victoria. Natural gas continues to be the fuel of choice for cooking, hot water and heating in many of these market segments. Revenue was also affected by additional one-off works at certain assets, mainly in Queensland. Customer contributions were in-line with the previous corresponding period. As can be seen in the graph below, there continue to be annual swings in customer contributions, as these are driven by our customers work programmes and requirements. Over a number of years, the long term annual average revenue received for this work has been approximately $10 million per annum. Customer Contributions APA sold its 33.05% stake in AGN in August 2014, however, the operating and maintenance agreements remain on foot until maturity in Energy Investments APA has interests in a number of complementary energy investments across Australia, including SEA Gas Pipeline, Energy Infrastructure Investments ( EII ), Ethane Pipeline Income Fund, EII2, GDI (EII) and Diamantina and Leichhardt Power Stations (collectively DPS ). APA holds a number of roles in respect of most of these investments, in addition to its ownership interests. All investments are equity accounted, with the exception of APA s 6% interest in Ethane Pipeline Income Fund, which is accounted for as an available-forsale investment. EBITDA from continuing investments increased by 82.7% to $14.0 million (1H 2015: $7.6 million), driven mainly by the positive contribution from DPS during the period. There were increased contributions across APA s investment portfolio, including from EII, GDI (EII) and SEA Gas Pipeline. Energy Investment Revenue & EBITDA Note: Divested & transferred investments relate mainly to AGN sold in FY Corporate Costs Corporate costs for the period increased by $12.2 million over the previous corresponding period to $45.4 million (1H FY2015: $33.2 million). The increase was due to a number of one-off items including costs related to APA s investment in the Northern Territory s NEGI process and APA s unsuccessful bid for the Iona Gas Storage, as well as costs incurred in relation to a number of ongoing governmental enquiries into the gas market (refer below to Section 5. Regulatory matters). 11

17 Directors Report for the half year ended 31 December 2015 Nonetheless, corporate costs have trended down as a proportion of revenue and total EBITDA over the last few years. Moreover, as can be seen in the graphs below, as the business has grown significantly both in terms of investor returns and balance sheet, APA s corporate costs have remained relatively steady, demonstrating the efficient scalability of APA. Corporate Costs to Continuing Businesses EBITDA Corporate Costs vs Business Growth 2.5 Restatement of historical segment EBITDA From the FY2015 reporting period, APA commenced reporting its segment EBITDA exclusive of corporate costs to provide a clearer picture of the performance of the underlying assets within the business. As this is the first half year reporting in this format, the following table restates segment EBITDA for the last 5 years for prior year comparison purposes. Half year ended 31 Dec Dec Dec Dec 2012 (1) 31 Dec 2011 $000 $000 $000 $000 $000 EBITDA (continuing businesses) Energy Infrastructure Queensland 426, , ,850 69,793 45,679 New South Wales 63,315 63,677 65,131 61,773 63,601 Victoria 68,542 75,014 68,042 82,653 72,634 South Australia 1,212 1,143 1,201 1, Northern Territory 9,882 9,393 7,375 6,464 5,003 Western Australia 101, ,241 91,177 71,209 66,336 Energy Infrastructure total 671, , , , ,206 Asset Management 27,850 24,861 39,901 17,603 16,541 Energy Investments 13,973 7,647 8,690 7,472 2,424 Corporate costs (45,381) (33,193) (30,152) (26,154) (26,448) Total segment EBITDA 667, , , , ,723 Divested business (2) ,679 29,922 42,604 Total EBITDA before significant items 667, , , , ,327 Significant items (3) - 447,240-99,191 (10,435) Total EBITDA 667, , , , ,892 Notes: Numbers in the table may not add up due to rounding. (1) APA adopted revised AASB 119 during FY2014. As the revised standard must be applied retrospectively, comparative numbers have been restated. (2) Australian Gas Networks Limited sold in FY2015, Moomba Adelaide Pipeline System sold in FY2013, APA Gas Network Queensland (Allgas) sold into GDI (EII) Pty Ltd in FY2012. (3) Significant items: For the period to 31 Dec 2014, these relate to net proceeds realised from the sale of APA s investment in Australian Gas Networks Limited as well as the successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited. Dec 2012 relates primarily to one-off items associated with the HDF acquisition. Dec 2011 relates to the profit less transaction costs on the sale of Allgas. 12

18 Directors Report for the half year ended 31 December Capital and investment expenditure Capital expenditure (including stay-in-business capital expenditure) for the period totalled $173.5 million compared with $191.7 million in the previous corresponding period. Growth project expenditure of $147.2 million (1H FY2015: $162.0 million) was mainly in respect of the construction of the Eastern Goldfields Pipeline in Western Australia, which was completed during the period ahead of schedule. During the period, bi-directional projects on Moomba Sydney Pipeline and Roma Brisbane Pipeline were also completed. Additional expansion works are also being conducted at the Mondarra Gas Storage Facility, on the back of an extension and additional contract with an existing customer. APA s growth capital expenditure continues to generally be either fully underwritten through long-term contractual arrangements or have regulatory approval through a relevant access arrangement. Capital and investment expenditure for the period is detailed in the table below. Capital and investment expenditure (1) Description of major projects 31 Dec Dec 2014 $ million $ million Growth expenditure Regulated VNIE looping and compression; various upgrades Major projects Queensland RBP Reverse flow, SWQP expansion New South Wales Culcairn Compressor and MSP Reverse Flow Western Australia Eastern Gas Pipeline and Mondarra expansion Other VIC LNG & Metering, NT Pipelines, Asset Management Systems Total growth capex Stay-in-business capex Customer contributions Mainly pipe relocations for councils Total capital expenditure Acquisitions WGP final acquisition adjustments around working capital and contract intangibles, stamp duty, etc Energy Investments Total investment expenditure Total capital and investment expenditure Notes: Numbers in the table may not add up due to rounding. (1) The capital expenditure shown in this table represents actual cash payments as disclosed in the cash flow statement, and excludes accruals brought forward from the prior period and carried forward to next period. 13

19 Directors Report for the half year ended 31 December 2015 Based on projects that are currently under construction or under discussion, APA continues to expect that FY2016 growth capital expenditure will fall within the guidance range of $300 million to $400 million. Actual and Committed Growth Capital Expenditure 4. Financing Activities 4.1 Capital management As at 31 December 2015, APA had 1,114,307,369 securities on issue, which was unchanged from 30 June During the period, APA extended the term to maturity on its syndicated and bilateral bank facilities by between 12 and 24 months and repaid the $185.6 million (US$122.0 million) of US Private Placement Notes that matured in September APA s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 8.2 years 1 at 31 December APA s gearing 1, 2 of 63.7% at 31 December 2015 was slightly higher than the 63.4% at 30 June APA remains well positioned, at this level, to fund its planned organic growth activities from available cash and committed resources. APA debt maturity profile and diversity of funding sources 1 For the purpose of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of for Euro and GBP MTN issuances and for US144A notes at respective inception dates. 2 Gearing ratio determined in accordance with covenants in certain senior debt facilities as net debt to net debt plus book equity. 14

20 Directors Report for the half year ended 31 December 2015 As at 31 December 2015, APA had around $1,058.5 million in cash and committed undrawn facilities available to meet the continued capital growth needs of the business. APA has a prudent treasury policy which requires conservative levels of hedging of interest rate exposures to minimise the potential impacts from adverse movements in interest rates. Other than noted below, all interest rate and foreign currency exposures on debt raised in foreign currencies have been hedged. The majority of the revenues to be received over the next 20 years from the foundation contracts on the Wallumbilla Gladstone Pipeline will be received in USD. The US$3.7 billion of debt raised in March 2015 is considered to be a designated hedge for these revenues and therefore has been kept in USD. Net USD cashflow after servicing the USD interest costs that is not part of that designated relationship will continue to be hedged on a rolling basis for an appropriate period of time, in line with APA s treasury policy. To date, the following hedging has been undertaken: Period Average forward USD/AUD exchange rate FY FY FY H FY2019 (to Dec 2018) APA also enters into interest rate hedges for a proportion of the interest rate exposure on its floating rate borrowings. As at 31 December 2015, 93.9% (30 June 2015: 94.0%) of interest obligations on gross borrowings was either hedged into or issued at fixed interest rates for varying periods extending out in excess of 19 years. 4.2 Borrowings and finance costs As at 31 December 2015, APA had borrowings of $8,454.4 million 3 ($8,642.8 million at 30 June 2015) from a mix of syndicated bank debt facilities, US Private Placement notes, Medium Term Notes in several currencies, Australian Medium Term Notes, United States 144A Notes and APA Group Subordinated Notes. Net finance costs increased by $102.0 million, or 67.4%, to $253.3 million (1H FY2015: $151.3 million). The increase is primarily due to the additional US$3.7 billion of debt issued in March 2015 for the acquisition of the Wallumbilla Gladstone Pipeline. The average interest rate (including credit margins) 3 applying to drawn debt was 5.69% for the current period (1H FY2015: 7.19%). APA s interest cover ratio for the current period was 2.52 times (Dec 2014: 2.48 times 4 ). This remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times. 4.3 Credit ratings APT Pipelines Limited, the borrowing entity of APA, maintained the following two investment grade credit ratings during the period: BBB long-term corporate credit rating (outlook Stable) assigned by Standard & Poor s (S&P) in June 2009, and last confirmed on 20 December 2015; and Baa2 long-term corporate credit rating (outlook Stable) assigned by Moody s Investors Service (Moody s) in April 2010, and last confirmed on 5 November For the purpose of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of for Euro and GBP MTN issuances and for US144A notes at respective inception dates. 4 For the calculation of interest cover, significant items are excluded from the EBITDA used. 15

21 Directors Report for the half year ended 31 December Income tax Income tax expense for the current period of $64.2 million results in an effective income tax rate of 39.2%, compared to 23.4% for the previous corresponding period (statutory basis) and 31.6% for the previous corresponding period on a normalised basis. The increase is due to the significant increase in amortisation charges relating to contract intangibles acquired with the Wallumbilla to Gladstone pipeline which are not deductible for tax purposes. Following completion of the FY2015 group tax return, it is expected that cash tax will now only be payable in respect of FY2016 profits in the second half of FY Distributions On 24 February 2016, the Directors declared an interim distribution for APA for the current period of 19.0 cents per security. This includes an APT distribution of 15.1 cents per security comprised of an unfranked profit distribution, and an APTIT distribution of 3.9 cents per security comprised of an unfranked profit distribution. The interim distribution is payable on 16 March The Distribution Reinvestment Plan remains suspended. 4.6 Guidance for the 2016 financial year Based on current operating plans and available information, APA expects EBITDA for the full year to 30 June 2016 to be in a range of $1,275 million to $1,310 million. This represents an increase by approximately 55% to 60% on the 2015 financial year, on a normalised, continuing businesses basis. This includes a contribution of around A$470 million from the Wallumbilla Gladstone Pipeline plus growth across the remainder of the APA portfolio of between 3% and 7%. APA has entered into forward exchange contracts for FY2016, for the net USD cashflow from the gas transportation agreements for the Wallumbilla Gladstone Pipeline ( WGP ), after servicing USD denominated debt. In forecasting the AUD equivalent EBITDA contribution from WGP, we have used the forward exchange rates for these hedged revenues. Any differences in the hedged rate and the actual rate will be accounted for in the hedge reserve account within the equity portion of APA s balance sheet. Net interest cost is expected to be in a range of $500 million to $510 million. Growth capital expenditure is expected to be in the range of $300 million to $400 million for FY2016. Distributions per security for the 2016 financial year are expected to be in the order of 41.5 cents per security, being a 9.2% increase on the previous year, based on increased cash flows arising from APA s investment in the Wallumbilla Gladstone Pipeline and the commissioning of a number of expansions over the past 12 months. As per current APA distribution policies, all distributions will be fully covered by operating cash flows. Year ended 30 June 2016 guidance 2015 actual Changes $000 $000 $000 % EBITDA from continuing businesses 1,275 to 1, (normalised) 454 to % to 60% Net interest cost 500 to to % to 57% Growth capital expenditure 300 to Distribution per security In the order of 41.5 cents 38.0 cents 3.5 cents 9% 16

22 Directors Report for the half year ended 31 December Regulatory matters Key regulatory matters addressed during the period included: Goldfields Gas Pipeline access arrangement In December 2015, the Western Australian Economic Regulation Authority ( ERA ) issued a draft decision on proposed revisions to the access arrangement for the Goldfields Gas Pipeline ( GGP ), which APA had submitted for approval in August In its draft decision, the ERA proposed a reduction in the reference tariff and amendments to the access terms and conditions. The ERA proposed reduction in tariff stems mainly from a change in methodology to calculate depreciation; a change in the methodology to allocate costs between regulated and unregulated services; a reduction in the rate of return; and a clawback of revenues arising from higher tariffs prevailing due to the ERA s delay in reaching a decision. APA has submitted a full response rejecting the ERA s position on each of these aspects. The draft decision is currently open for public submissions, with a final decision expected in June The current tariffs are applicable until the regulator s final decision becomes operative. Amadeus Gas Pipeline access arrangement A response to the draft decision by the AER for the Amadeus Gas Access Arrangement was submitted on 6 January The regulator is expected to make a final decision in April 2016 with application from 1 July The final decision will have minimal impact on APA s revenue as the vast majority of service is provided at rates determined under contract with the main shipper, Power and Water Corporation. The diagram below outlines the scheduled regulatory reset dates for pipelines owned and operated by APA. As mentioned previously, during the period approximately 15% of APA s revenues were subject to regulatory resets. Regulatory reset schedule Gas Policy developments The Eastern Australian gas market has been subject to ongoing unprecedented change with the recontracting of expiring long term gas supply agreements and the commencement of production at the three LNG facilities at Gladstone. Numerous governmental reviews and inquiries have considered appropriate policy settings. APA has been an active participant in these reviews, highlighting the significant contribution that our portfolio of pipeline assets coupled with our responsive customer services has made to the development of the gas market. In December 2015, the Australian Energy Market Commission ( AEMC ) issued its draft reports from its East Coast Wholesale Gas Market and Pipeline Frameworks Review (the Frameworks Review Report ) and the Review of the Victorian Declared Wholesale Gas Market (the DWGM Review Report ). 17

23 Directors Report for the half year ended 31 December 2015 To further the development of liquid gas trading markets, the Frameworks Review Report proposed three principal changes to gas pipeline transportation arrangements: the introduction on fully contracted pipelines of a day ahead auction of un-nominated capacity; the mandatory creation of capacity trading platforms, to lower the transaction costs and to provide greater information regarding all trades would be published; and publication of actual prices and the terms and conditions of all primary capacity sales. The AEMC is expected to finalise the Frameworks Review Report in May 2016, to allow consideration of the findings from the Australian Competition and Consumer Commission s East Coast Gas Inquiry (which is expected in April 2016). The ACCC s East Coast Gas Inquiry is considering the competitiveness of the wholesale gas prices and the structure of the upstream processing, transportation, storage and marketing segments of the gas industry. In the DWGM Review Report, the AEMC recommends transitioning from the current Declared Wholesale Gas Market (where gas trading occurs on a mandatory, operator-led basis and there is an implicit allocation of transportation capacity) to a new model in which gas supply and transport are traded separately. The AEMC recommends that access to transportation capacity in Victoria be provided through an Entry-Exit system under which shippers book firm transportation capacity rights for each entry and exit point they wish to utilise. The AEMC is expected to finalise the DWGM Review Report in mid APA continues to engage with the relevant regulatory and policy agencies and other stakeholders on these enquiries. APA s position is that industry-led solutions are best able to achieve the objectives of policymakers whilst encouraging market based solutions, that enhance investment, innovation and efficiency. Environmental reporting In October 2015, APA complied with Australia s National Greenhouse and Energy Reporting ( NGER ) obligations for FY2015. Energy reporting for FY2016 will be submitted in October APA s main sources of emissions are from the combustion of natural gas in compressor stations and from fugitive emissions associated with natural gas pipelines. NGER compliance reporting applied to assets under APA s operational control, which include the Roma Brisbane Pipeline, the Moomba Sydney Pipeline, the South West Queensland Pipeline, the Northern Territory Natural Gas Distribution Network, the Goldfields Gas Pipeline (88.2% ownership), the Diamantina Power Station (50% equity ownership) and the GDI (EII) gas distribution network(20% equity ownership). APA s summary of Scope 1 emissions and energy consumption for the 2015 financial year are set out in the following table: Financial year Change Scope 1 CO 2 emissions (tonnes) 350, ,421 39, % Energy consumption (GJ) 4,633,613 4,078, , % The variation is largely related to an increase in compressor use which resulted in increased gas consumption. A 2-year Environmental Strategy and Improvement Plan was endorsed by the APA Board in April The strategy is focused on the delivery of 12 initiatives to provide a corporate governance framework for environmental management across all business areas. The strategy is progressing according to project schedules. 18