CBA CAPITAL AUSTRALIA LIMITED

Transcription

1 CBA CAPITAL AUSTRALIA LIMITED ABN Annual Financial Report For the year ended 30 June 2014

2 Contents 1 Directors Report 3 Auditor s Independence Declaration 5 Statement of Comprehensive Income 6 Balance Sheet 7 Statement of Changes in Equity 8 Statement of Cash Flows 9 Notes to the Financial Statements 31 Directors Declaration 32 Independent Auditor s Report to the Members of CBA Capital Australia Limited 34 Statutory Information CBA Capital Australia Limited ABN is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Ground Floor, Tower 1, 201 Sussex St, Sydney NSW 2000, Australia. A description of the principal activities is included in the Directors report on page 1. Share Registrar Computershare Investor Services Limited Private Bag Victoria Street West Auckland 1142 Level Hurstmere Road Takapuna, Auckland 0622 Managing Your Shareholding Online To change your address, update your payment instructions and to view your registered details including transactions, please visit: General enquiries can be directed to: enquiry@computershare.co.nz Private Bag 92119, Victoria Street West, Auckland 1142 Telephone Facsimile Please assist our registrar by quoting your CSN or shareholder number.

3 Directors Report The Directors of CBA Capital Australia Limited (the Company ) submit the following report for the year ended 30 June Directors The names of the Directors of the Company in office during the financial year ended 30 June 2014 and until the date of this report were: C B Millett T L Smith G B Raward Principal activities The Company was incorporated on 23 October 2003 to act as a funding vehicle for Commonwealth Bank of Australia (the Bank ). On 18 May 2005, the Company issued 350 million redeemable preference shares ( RPS ) into the New Zealand retail and wholesale market. The proceeds of issue of the RPS were invested by the Company in redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited. The terms of those redeemable preference shares are identical to the terms of the RPS. Review and results of operations The Company recorded a net profit after tax for the year ended 30 June 2014 of 357 (30 June 2013: 430). The profit mainly represents bank interest income less bank fees expense. Dividends The Directors of the Company have not recommended that a dividend be determined in respect of ordinary shares for the year ended 30 June 2014 (30 June 2013: nil). However, dividends of 8,643,600 (2013: 8,820,000) were paid on the RPS during the financial year. On 15 April 2013, the dividend rate on the RPS for the period 15 April 2013 to 15 April 2014 was reset to 3.43% per annum payable quarterly in arrears. Dividends paid on the RPS during the year were: Date paid Record date Cents per RPS, fully imputed () 15 Jul Jul Oct Sep Jan Dec Apr Apr On 15 April 2014, the dividend rate on the RPS for the period 15 April 2014 to 15 April 2015 was reset to 4.39% per annum payable quarterly in arrears. A dividend of cents per RPS, fully imputed, was paid on 15 July 2014, to holders of RPS on the register at 5.00pm on 1 July Significant changes in the state of affairs In the opinion of the Directors, there were no significant changes in the state of affairs of the Company that occurred during the year under review not otherwise disclosed in this report or the financial report. Environmental regulation The Company s operations are not subject to any particular or significant environmental regulations under Australian Commonwealth, State or Territory Law. 1

4 Likely developments and expected results of operations The Company will continue to act as a funding vehicle and will earn interest on redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited. The Company will make dividend payments on the RPS issued in accordance with the terms of issue. No further developments are anticipated. The RPS issued by the Company will mature on 15 April Directors and officers insurance During the financial year, the Bank, as ultimate parent entity, has paid an insurance premium in respect of an insurance policy for the benefit of the Bank and the directors, secretaries, officers and certain employees of the Bank and related bodies corporate as defined in the insurance policy, which includes the Company. In accordance with commercial practice, the insurance policy prohibits disclosure of the terms of the policy including the nature of the liability insured against and the amount of the premium. Directors and officers indemnity The Constitution of the Company provides for the Company to indemnify each officer on a full indemnity basis and to the full extent permitted by law against all losses, liabilities, costs, charges and expenses ( Liabilities ) incurred by the officer as an officer of the Company. The officers of the Company to whom the indemnity presently applies are any person who is, or has been, a director or secretary or senior manager of the Company. The indemnity is enforceable without the officer having to first incur any expense or make any payment, is a continuing obligation and is enforceable by the officer even though the officer may have ceased to be an officer of the Company. The extent of the indemnity also applies to Liabilities incurred by the officer of the Company both before and after the adoption of the Constitution. The officers of the Company also have the benefit of an indemnity, in similar terms to the indemnity in the Constitution of the Company, under a deed poll executed by the Bank. Matters subsequent to the end of the financial year At the date of this report, the Directors of the Company are not aware of any matters or circumstances that have arisen since the end of the financial year which have significantly affected or may significantly affect the operations of the Company, the results of those operations or the Company s state of affairs, in subsequent financial years. Auditor s independence declaration The auditors, PricewaterhouseCoopers have provided us with a declaration of their independence as required under Section 307C of the Corporations Act 2001, which is set out on page 3. Signed in accordance with a resolution of Directors. Graham Raward Director Sydney, NSW 21 August 2014 Trevor Smith Director Sydney, NSW 21 August

5 Auditor s Independence Declaration As lead auditor for the audit of CBA Capital Australia Limited for the year ended 30 June 2014, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. Marcus Laithwaite Partner Sydney PricewaterhouseCoopers 21 August 2014 PricewaterhouseCoopers, ABN Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 DX 77 Sydney, Australia T , F , Liability limited by a scheme approved under Professional Standards Legislation. 3

6 CBA Capital Australia Limited Financial Statements Contents 5 Statement of Comprehensive Income 6 Balance Sheet 7 Statement of Changes in Equity 8 Statement of Cash Flows

7 Statement of Comprehensive Income For the year ended 30 June 2014 Note Revenue from continuing operations 3 9,157,863 8,786,129 Finance costs 3 (9,154,320) (8,782,760) Expenses 3 (1,725) (1,788) Profit before income tax 1,818 1,581 Income tax expense 4 (1,461) (1,151) Net profit for the year after tax Other comprehensive income Items that may be reclassified to profit or loss Movement on foreign currency translation reserve 10,666 8,101 Income tax relating to these items - - Items that will not be reclassified to profit or loss - - Other comprehensive income for the year, net of tax 10,666 8,101 Total comprehensive income for the year, attributable to the owners of CBA Capital Australia Limited 11,023 8,531 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 5

8 Balance Sheet As at 30 June Note ASSETS Current assets Cash and cash equivalents 6 112, ,207 Loans, advances and other receivables 7 352,335,535 1,824,760 Total current assets 352,448,205 1,935,967 Non-current assets Loans, advances and other receivables 8-350,000,000 Total non-current assets - 350,000,000 Total assets 352,448, ,935,967 LIABILITIES Current liabilities Interest bearing liabilities 9 350,000,000 - Payables 9 2,335,480 1,824,760 Intragroup income tax liability 10 2,180 1,019 Total current liabilities 352,337,660 1,825,779 Non-current liabilities Interest bearing liabilities ,000,000 Total non-current liabilities - 350,000,000 Total liabilities 352,337, ,825,779 Net assets 110, ,188 Equity Share capital Retained earnings 111, ,026 Foreign currency translation reserve (506) 10,160 Total equity attributable to the owners of CBA Capital Australia Limited 110, ,188 The above Balance Sheet should be read in conjunction with the accompanying notes. 6

9 Statement of Changes in Equity For the year ended 30 June 2014 Share Capital Foreign Currency Translation Reserve Retained Earnings Total Equity Balance at 1 July ,261 91, ,758 Profit for the period Other comprehensive income - (8,101) 8,101 - Balance at 30 June , , ,188 Balance at 1 July , , ,188 Profit for the period Other comprehensive income - (10,666) 10,666 - Balance at 30 June (506) 111, ,545 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 7

10 Statement of Cash Flows For the year ended 30 June Note Cash flows from operating activities Bank interest received 3,543 3,356 Interest received from CBA Capital Australia (No 2) Pty Limited 8,643,600 8,820,000 Interest paid to New Zealand investors (8,643,600) (8,820,000) Withholding tax paid (355) (332) Intragroup settlement received - 3,763 Bank fees paid (1,725) (1,788) Net cash inflows from operating activities 18(b) 1,463 4,999 Cash flows from investing activities - - Net cash flows from investing activities - - Cash flows from financing activities - - Net cash flows from financing activities - - Net increase in cash and cash equivalents held 1,463 4,999 Cash and cash equivalents at the beginning of the year 111, ,208 Cash and cash equivalents at the end of the year 18(a) 112, ,207 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 8

11 CBA Capital Australia Limited Notes to the Financial Statements For the year ended 30 June 2014 Contents 10 Note 1 Summary of significant accounting policies 19 Note 2 Segment information 19 Note 3 Revenue and expenses 20 Note 4 Income tax 20 Note 5 Double taxation treaty 20 Note 6 Current assets Cash and cash equivalents 21 Note 7 Current assets Loans, advances and other receivables 21 Note 8 Non-current assets Loans, advances and other receivables 21 Note 9 Current liabilities Payables 22 Note 10 Current liabilities Intragroup income tax liability 22 Note 11 Non-current liabilities Interest bearing liabilities 22 Note 12 Share capital 22 Note 13 Financial risk management 26 Note 14 Disclosures about the fair value of financial instruments 28 Note 15 Remuneration of auditor 28 Note 16 Directors and key management personnel 29 Note 17 Related party transactions 30 Note 18 Notes to the Statement of Cash Flows 30 Note 19 Capital management 30 Note 20 Contingent assets, liabilities and commitments 30 Note 21 Events after the end of the reporting period

12 Notes to the Financial Statements For the year ended 30 June Note 1. Summary of significant accounting policies General information This general purpose Financial Report (the Financial Report ) of CBA Capital Australia Limited (the Company ) for the year ended 30 June 2014 was approved and authorised for issue by the Board of Directors on 21 August The Directors have the power to amend and re-issue the Financial Report, which includes the Financial Statements for the Company for the year ended 30 June The Company is incorporated and domiciled in Australia. It is a company limited by shares. The address of its registered office is Ground Floor, Tower 1, 201 Sussex Street, Sydney NSW 2000, Australia. The ultimate parent entity is Commonwealth Bank of Australia ACN (the Bank ). The functional currency of the Company has been determined to be Australian Dollars ( AUD ) as this currency best reflects the economic substance of the underlying events and circumstances relevant to the Company. The presentational currency of this Financial Report is New Zealand dollars ( ) and is prepared to satisfy the needs of New Zealand investors. The principal accounting policies adopted in the presentation of these Financial Statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. These Financial Statements are the individual financial statements of the Company as an individual entity. (a) Basis of accounting The Financial Statements for the year ended 30 June 2014 have been prepared in accordance with the requirements of the Corporations Act 2001, and Australian Accounting Standards and Interpretations ( AAS ) issued by the Australian Accounting Standards Board ( AASB ). The Company is a for-profit entity for the purposes of preparing the Financial Statements. Compliance with IFRS The Financial Statements of the Company also comply with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations as issued by the IFRS Interpretations Committee ( IFRIC ). Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company s accounting policies. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Statements, are disclosed in Note 1(o).

13 (b) Basis of preparation Historical cost convention The Financial Statements are prepared on the basis of historical cost convention. New and amended standards adopted by the Company During the year, the Company adopted the following revised accounting standards. There was no significant impact on the Company s financial results, or significant changes to the Company s accounting policies, resulting from the adoption of these standards: AASB 13 Fair Value Measurement (effective for reporting periods beginning on or after 1 January 2013) provides guidance on how to measure fair value and aims to enhance fair value disclosures; it does not change the determination of when an entity is required to use fair value to measure an asset or liability. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). It also provides guidance on how fair value should be measured. Entities will need to review their fair value measurements (Note 14 Disclosures about the fair value of financial instruments) and determine whether any of the techniques used may have to change as a result of the new guidance. The Company is required to disclose the fair value of financial instruments that are subsequently measured at amortised cost as per the AASB 7 Financial Instruments: Disclosures. In accordance with the AASB 13, for each class of assets and liabilities not measured at fair value in the balance sheet but for which the fair value is disclosed, the Company must disclose: - the level of the fair value hierarchy within which the fair value measurements are categorised in their entirety, and - for fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy, a description of the valuation technique and the inputs used in the fair value measurement. If the Company has changed the valuation technique, it must disclose that change and the reasons for making it. AASB Amendments to Australian Accounting Standards Disclosures Offsetting Financial Assets and Financial Liabilities (effective for reporting periods beginning on or after 1 January 2013) principally amends AASB 7 Financial Instruments. The amendment introduces more extensive disclosures which focus on quantitative and qualitative information about recognised financial instruments that are offset in the balance sheet, as well as those recognised financial instruments that are subject to master netting or similar arrangements, irrespective of whether they are currently offset on the balance sheet. This standard does not significantly impact the Company. 11

14 Notes to the Financial Statements For the year ended 30 June 2014 AASB Amendments to Australian Accounting Standards arising from Annual Improvements Cycle (effective for reporting periods beginning on or after 1 January 2013) makes amendments resulting from the Annual Improvements Cycle. The Standard addresses a range of improvements, including the following: - repeat application of AASB 1 First-time Adoption of Australian Accounting Standards is permitted (AASB1); - clarification of the comparative information requirements when an entity provides a third balance sheet (AASB 101 Presentation of Financial Statements); - AASB 132 Financial Instruments: Presentation clarifies the treatment of income tax relating to distributions and transaction costs; and - AASB 134 Interim Financial Reporting clarifies the disclosure requirements for segment assets and liabilities in interim financial statements. This standard does not significantly impact the Company. AASB Amendment to AASB 1048 Interpretation of Standards arising from the withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia (effective for reporting periods beginning on or after 1 January 2013). In December 2012, the AASB decided to withdraw Australian Interpretation Substantive Enactment of Major Tax Bills in Australia. The Board felt that the guidance was no longer considered necessary given the issue is not unique to Australia. Further, the withdrawal was in line with its policy on only issuing a domestic interpretation of an IFRS in rare and exceptional circumstances. At the same time, the AASB issued an Agenda Decision, which notes that substantive enactment of a tax Bill would not occur until any significant uncertainty about the outcome of a tax Bill has been removed. In Australia, the Board noted that it would be rare that this would be the case before a non-linked tax Bill has passed through both Houses of Parliament. This standard does not significantly impact the Company. AASB 1053 Application of Tiers of Australian Accounting Standards and AASB Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective for reporting periods beginning on or after 1 July 2013 with early adoption permitted). AASB 1053 introduces a revised two-tier differential reporting regime: - Tier 1 are the Australian Accounting Standards as currently applied; and - Tier 2 is the reduced disclosure regime, which retains the recognition and measurement requirements of Australian Accounting Standards but with reduced disclosure requirements.

15 For-profit private sector entities that are publicly accountable and all Federal, state, territory and local governments must report under tier 1. For-profit private sector entities that are not publicly accountable, not-for-profit entities in the private sector and public sector entities other than those mentioned above can adopt the tier 2 requirements (unless the relevant regulator requires compliance with tier 1). The Company has a debt listing on the New Zealand Stock Exchange and is therefore publicly accountable and must report under tier 1. Therefore no change is expected on adoption. AASB Amendments to AASB 136 arising from Reduced Disclosure Requirements and AASB Amendments to Australian Accounting Standards Reduced Disclosure Requirements and Other Amendments extend the relief for intermediate parent entities from consolidation, equity accounting and proportionate consolidation to parent entities that report under tier 2, where the parent higher up the group is reporting either under tier 1 or tier 2. The reporting entity concept is not affected by these standards. The Company has a debt listing on the New Zealand Stock Exchange and is therefore publicly accountable and must report under tier 1. Therefore no change is expected on adoption. AASB Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective for reporting periods beginning on or after 1 July 2013). The individual KMP disclosure requirements have been removed from AASB 124, and are now provided in the remuneration report under revised CR2M Notes to the financial statements must now provide aggregate information about transactions with KMPs and loans made to KMPs (Note 16 Directors and key management personnel). There were no other new standards, interpretations or amendments that were required to be adopted by the Company during the financial year commencing 1 July Early adoption of standards The Company did not early adopt any standards, interpretations or amendments during the financial year commencing 1 July New accounting standards and interpretations effective after 1 July 2013 Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2014 reporting periods and have not been early adopted by the Company. The Company s assessment of the impact of these new standards and interpretations is set out below. This does not include consequential amendments made to other standards as a result of the release of a revised or new standard. 13

16 Notes to the Financial Statements For the year ended 30 June AASB 9 Financial Instruments, AASB Amendments to Australian Accounting Standards arising from AASB 9, AASB Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) and AASB Amendments to Australian Accounting Standards Mandatory Effective Date of AASB 9 and Transition Disclosures (effective for reporting periods beginning on or after 1 January 2015). AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2017 but is available for early adoption. AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on availablefor-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. There will be no impact on the Company s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Company does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The Company has not yet decided when to adopt AASB 9. It is not yet possible to determine the potential financial impact to the Company from this standard, however it is not expected to significantly change the way the Company accounts for financial instruments. AASB Offsetting financial instruments (effective for reporting periods commencing on or after 1 January 2014). The amendments do not change the current offsetting rules in AASB 132, but they clarify that the right of set-off must be available today (i.e. not contingent on a future event) and must be legally enforceable in the normal course of business as well as in the event of default, insolvency or bankruptcy. This standard is not expected to significantly impact the Company. AASB 1031 Materiality and AASB Part B Materiality (effective for reporting periods commencing on or after 1 January 2014). In line with its policy of not providing unnecessary local guidance on matters covered by International Financial Reporting Standards, the AASB has decided to withdraw AASB 1031 Materiality. As an interim measure, the Board has removed Australian-specific guidance in AASB 1031, and re-issued AASB 1031 as a standard that cross-references to other pronouncements that contain guidance on materiality (e.g. AASB 108 Accounting policies, changes in accounting estimates and errors).

17 Once all the references to AASB 1031 have been removed from other standards AASB 1031 will be withdrawn. The AASB noted it does not expect the withdrawal to change practice regarding the application of materiality in financial reporting. This is not expected to have significant impact to the Company. AASB Recoverable amount disclosures for non-financial assets and AASB Amendments to AASB 136 Arising from Reduced Disclosure Requirements (effective for reporting periods commencing on or after 1 January 2014). The AASB has made amendments to the disclosures required by AASB 136 Impairment of Assets which: - removes the requirement to disclose the recoverable amount of all cash generating units (CGU) that contain goodwill or identifiable assets with indefinite lives if there has been no impairment. This disclosure was introduced with AASB 13 and will become applicable for reporting periods beginning on or after 1 January 2014 with early adoption permitted; - require disclosure of the recoverable amount of an asset or CGU when an impairment loss has been recognised or reversed; and - require detailed disclosure of how the fair value less costs of disposal has been measured when an impairment loss has been recognised or reversed. The Company will apply the amendment when it becomes effective and it is not expected to have significant impact. (c) Cash and cash equivalents Cash and cash equivalents include cash at bank and money at short call with an original maturity of three months or less. They are recognised at the face value or the gross value of the outstanding balance. Interest is taken to profit and loss using the effective interest method when earned. (d) Revenue recognition Revenue is recognised and measured at the fair value of consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The principal source of revenue is interest income. Interest income Interest income is recognised on an accruals basis using the effective interest method. (e) Foreign currency translations All monetary assets and liabilities are revalued at closing rates prevailing at the date of the Balance Sheet. The Statement of Comprehensive Income is translated as at transaction date. Unrealised foreign currency gains and losses arising from these revaluations and gains and losses arising from foreign exchange dealings are included in the Statement of Comprehensive Income. 15

18 Notes to the Financial Statements For the year ended 30 June 2014 (f) Financial instruments Financial assets and financial liabilities are carried at amortised cost. Under AASB 132 and AASB 139, financial instruments are required to be classified into certain categories which determine the accounting treatment of the item. The Company has adopted the following categories: Loans, advances and other receivables (Note 1(g)); and Liabilities at amortised cost. Derecognition of financial instruments The derecognition of a financial instrument takes place when the Company no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party and the risks and rewards have substantially been transferred. (g) Loans, advances and other receivables Loans, advances and other receivables are financial assets with fixed and determinable payments that are not quoted on an active market and are comprised primarily of redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited. Loans, advances and other receivables are initially recognised at fair value including direct and incremental transaction costs. They are subsequently valued at amortised cost using the effective interest method. For more details on revenue recognition refer to Note 1(d). (h) Provisions for impairment Loans, advances and other receivables The Company assesses at each balance date whether there is any objective evidence of impairment. If there is objective evidence that an impairment loss on loans, advances and other receivables has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of the expected future cash flows, discounted at the financial asset s original effective interest rate. Short-term balances are not discounted. Loans, advances and other receivables are presented net of provisions for loan impairment. (i) Income tax Income tax on the profit and loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and 16

19 liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The Commonwealth Bank of Australia Group (the Group ) has elected to be taxed as a single entity under the tax consolidation regime. In addition to the Group electing to be taxed as a single entity, the measurement and disclosure of deferred tax assets and liabilities has been performed in accordance with the principles in AASB 112, and on a stand-alone basis under UIG The Company is part of the Commonwealth Bank of Australia s tax consolidation group. Any current tax liabilities/assets (after the elimination of intragroup transactions) and deferred tax assets arising from unused tax losses assumed by the Bank from the subsidiaries in the tax consolidated group are recognised in conjunction with any tax funding arrangement amounts. Any difference between these amounts is recognised by the Company as an equity contribution from or distributions to the Bank. The members of the tax consolidated group have entered into a tax funding arrangement which sets out the funding obligations of members of the tax consolidated group in respect of tax amounts. (j) Provisions A provision is recognised in the Balance Sheet when the Company has a legal or constructive obligation as a result of a past event, and where it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provision for dividend A provision for dividend payable is recognised when dividends are determined in the period in which they are approved by the Company s Directors. (k) Payables Payables include interest payable which is brought to account at the gross value of the outstanding balance. 17

20 Notes to the Financial Statements For the year ended 30 June 2014 (l) Interest bearing liabilities Interest bearing liabilities include redeemable preference shares ( RPS ) issued by the Company. RPS are initially recognised at fair value including direct and incremental transaction costs. They are subsequently valued at amortised cost using the effective interest method. (m) Redeemable preference shares The Company s RPS are to be redeemed or repurchased by the Company on the maturity date (15 April 2015) for the redemption amount. The RPS offer a cumulative floating rate dividend (dividend reset annually on 15 April each year), payable quarterly in arrears. The RPS have a term of 10 years (maturity date being 15 April 2015). The Company may also call the issue on each annual dividend reset date. The terms of RPS issued by the Company are identical to the investment in redeemable preference shares offered by CBA Capital Australia (No 2) Pty Limited. The RPS are treated as interest bearing liabilities. (n) Shareholders equity Ordinary share capital is the amount of paid up capital from the issue of ordinary shares. (o) Critical accounting policies and estimates These notes to the Financial Statements contain a summary of the Company s significant accounting policies. Certain of these policies are considered to be more important in the determination of the Company s financial position, since they require management to make difficult, complex or subjective judgements, some of which may relate to matters that are inherently uncertain. These policies include judgements as to levels of provisions for impairment for loan balances and assessing the recoverability of deferred tax assets. 18

21 Note 2. Segment information The Company operates predominantly in one geographical area, Australia, and operates predominantly in one business segment. The Company s primary activity is to invest in redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited. Note 3. Revenue and Expenses Revenue from continuing operations Interest income from ultimate parent entity 3,543 3,369 Interest from related parties (CBA Capital Australia (No 2) Pty Limited) 9,154,320 8,782,760 Total revenue from continuing operations 9,157,863 8,786,129 Finance costs Interest expense to New Zealand investors (9,154,320) (8,782,760) Total finance costs (9,154,320) (8,782,760) Expenses Bank fees (1,725) (1,788) Total expenses (1,725) (1,788) 19

22 Notes to the Financial Statements For the year ended 30 June 2014 Note 4. Income tax The major components of the income tax expense are: Statement of Comprehensive Income Current income tax Income tax Withholding tax (1,248) (968) (213) (183) Income tax expense reported in Statement of Comprehensive Income (1,461) (1,151) Reconciliation of income tax expense to prima facie tax payable Profit from ordinary activities before income tax expense 12,484 9,682 Prima facie tax on profit from ordinary activities at 10%* (1,248) (968) Withholding tax expense (213) (183) Total income tax expense (1,461) (1,151) * The Company is an Offshore Banking Unit and as such is concessionally taxed at 10%. Note 5. Double taxation treaty A double taxation treaty exists between Australia and New Zealand. As a result, the only taxation liability due by the Company arises in Australia. Note 6. Current assets Cash and cash equivalents Cash at bank with related party 112, ,205 Cash on hand 2 2 Total current assets Cash and cash equivalents 112, ,207 20

23 Note 7. Current assets Loans, advances and other receivables Redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited 350,000,000 - Interest receivable from related party (CBA Capital Australia (No 2) Pty Limited) 2,335,480 1,824,760 Receivable from ultimate parent entity 55 - Total current assets Loans, advances and other receivables 352,335,535 4,160,295 Note 8. Non-current assets Loans, advances and other receivables Redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited - 350,000,000 Total non-current assets Loans, advances and other receivables - 350,000,000 Note 9. Current liabilities Payables RPS issued to New Zealand investors 350,000,000 - Interest payable to holders of RPS 2,335,480 1,824,760 Total current liabilities Payables 352,335,480 1,824,760 21

24 Notes to the Financial Statements For the year ended 30 June 2014 Note 10. Current liabilities Intragroup income tax liability Intragroup payable to ultimate parent entity: income tax 2,180 1,019 Total current liabilities Intragroup income tax liability 2,180 1,019 Note 11. Non-current liabilities Interest bearing liabilities RPS issued to New Zealand investors - 350,000,000 Total non-current liabilities Interest bearing liabilities - 350,000,000 Note 12. Share capital Shares Shares Authorised, issued and paid up capital Ordinary shares Ordinary shares entitle the holder to receive dividends and the proceeds on winding up of the Company in proportion to the number and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Note 13. Financial risk management Financial risk management is the process of identifying, assessing, reporting and taking action to mitigate risks. The objective is to achieve sustainable earnings and growth potential for investors. The Company may have an exposure to market, liquidity and credit risk. These risks are monitored and reported to relevant parties on a regular basis including key management personnel and ultimately the Board of Directors of the Company. 22

25 Market Risk Market risk is the risk that the future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and prices. The Company s principal source of income is derived from interest received from the investment in the redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited. The redeemable preference shares are New Zealand dollar denominated, unquoted instruments. The Company s main expense is interest payments on the RPS issued by the Company to New Zealand investors. These are also New Zealand dollar denominated. Hence the Company is not exposed to foreign exchange rate or price risk, except for exposure to tax liabilities which are Australian dollar denominated. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cashflows of financial instruments. The interest on redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited and the interest rate on the Company s RPS are calculated with reference to the Benchmark Rate, being the average of the bid and offered swap rate displayed at or about 11am on 15 April each year on page FISSWAP (or any successor page) of the Reuters monitor screen for an interest rate swap with a one year term. Any interest rate risk arising from movement in the benchmark rate is mitigated through the transactional structure of the Company. Interest Rate Risk Re-pricing Table 30 June month 6-12 months Non-interest bearing Total Financial assets Cumulative floating rate (4.39%)* ** Loans and other receivables - 350,000,000 2,335, ,335,480 Floating rate (2.25%) Cash and cash equivalents 112, ,670 Total financial assets 112, ,000,000 2,335, ,448,150 Financial liabilities Cumulative floating rate (4.39%)* ** Interest bearing liabilities - (350,000,000) - (350,000,000) Payables - - (2,335,480) (2,335,480) Total financial liabilities - (350,000,000) (2,335,480) (352,335,480) Net financial assets 112, ,670 * Effective interest rates ** The RPS issued by the Company will mature on 15 April

26 Notes to the Financial Statements For the year ended 30 June 2014 Interest Rate Risk Re-pricing Table 30 June month 6-12 months Non-interest bearing Total Financial assets Cumulative floating rate (3.43%)* Loans and other receivables - 350,000,000 1,824, ,824,760 Floating rate (2.25%) Cash and cash equivalents 111, ,207 Total financial assets 111, ,000,000 1,824, ,935,967 Financial liabilities Cumulative floating rate (3.43%)* Interest bearing liabilities - (350,000,000) - (350,000,000) Payables - - (1,824,760) (1,824,760) Total financial liabilities - (350,000,000) (1,824,760) (351,824,760) Net financial assets 111, ,207 * Effective interest rates Liquidity risk Liquidity risk is the risk of being unable to meet financial obligations as they fall due. The Company has raised its funding through the issuance of RPS. Interest payable to RPS investors will be sourced from interest received on redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited. CBA Capital Australia (No 2) Pty Limited in turn funds the interest payments to the Company from interest received on subordinated notes issued to CBA Capital Australia (No 2) Pty Limited by the Bank. Interest on the redeemable preference shares will only be paid by CBA Capital Australia (No 2) Pty Limited if the Bank pays interest on the subordinated notes. Interest will only be paid by the Company if the Board of the Bank declares or otherwise resolves to pay the interest and if no Deferral Condition exists. Therefore, the Company has no liquidity risk as it is ultimately the Bank s obligation to pay interest to RPS investors. Apart from the expected interest payment to the investors, the Company itself is not subject to any other operational or prudential requirements. 24

27 Maturity analysis of financial liabilities 30 June months 6-12 months Total Financial liabilities RPS - 350,000, ,000,000 Payables 2,335,480-2,335,480 Total 2,335, ,000, ,335,480 Maturity analysis of financial liabilities 30 June 2013 Financial liabilities 0-3 months Over 1 year Total RPS - 350,000, ,000,000 Payables 1,824,760-1,824,760 Total 1,824, ,000, ,824,760 Credit risk Credit risk is the potential of a loss arising from failure of a debtor or counterparty to meet their contractual obligations. The Company s exposure to credit risk arises from the creditworthiness of the Bank. The Bank is a diversified financial services conglomerate with a credit rating of AA- by Standard & Poor s and Aa2 by Moody s for long term debt. The maximum credit risk the Company is exposed to at any given time is equal to the carrying value of assets in the Balance Sheet. Carrying value of total assets as at 30 June 2014 is 352,448,205 (2013: 351,935,967). This exposure to the creditworthiness of the Bank is passed to investors in the RPS. The Company has no obligation to make payments under the RPS if payment is not received on the redeemable preference shares issued by CBA Capital Australia (No 2) Pty Limited. 25

28 Notes to the Financial Statements For the year ended 30 June 2014 Note 14. Disclosures about the fair value of financial instruments Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction. The Company uses various methods in estimating fair value. The methods comprise: Level 1 the fair value is calculated using quoted prices unadjusted in active markets. Level 2 the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 the fair value is estimated using inputs for the asset or liability that are not based on observable market data. Financial assets held by the Company are cash and cash equivalents, and trade and other receivables which are fair valued at levels 1 and 2 respectively. The fair value of the redeemable preference shares issued by CBA Capital (No 2) Pty Limited is the same as the market price of the RPS issued by the Company. The carrying values of cash and other receivables approximate their fair values as they are short term in nature or are receivable on demand. Financial liabilities held by the Company are trade and other payables which are fair valued at level 1 and 2 respectively. The driver of the fair value of the RPS issued by the Company is the market price of the financial instrument at balance date. The carrying value of the payables approximates the net fair value as they are short term in nature. Other provisions including income tax liability are not considered financial instruments. It is the Company s intention to hold its financial instruments to maturity on 15 April 2015 and therefore it is not probable that the fair values shown would be realised. 26

29 Carrying Total Level 1 30 June 2014 Fair Value Level 2 Level 3 Total Financial assets Cash and cash equivalents 112, , ,670 RPS issued by CBA Capital Australia (No 2) Pty Limited 350,000, ,500, ,500,000 Interest receivable from related party (CBA Capital Australia (No 2) Pty Limited) 2,335,480-2,335,480-2,335,480 Receivable from ultimate parent entity Total financial assets 352,448, ,612,670 2,335, ,948,205 Financial liabilities Payables 2,335,480-2,335,480-2,335,480 Interest bearing liabilities 350,000, ,500, ,500,000 Total financial liabilities 352,335, ,500,000 2,335, ,835, June 2013 Carrying Fair Value Total Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents 111, , ,207 RPS issued by CBA Capital Australia (No 2) Pty Limited 350,000, ,900, ,900,000 Interest receivable from related party (CBA Capital Australia (No 2) Pty Limited) 1,824,760-1,824,760-1,824,760 Total financial assets 351,935, ,011,207 1,824, ,835,967 Financial liabilities Payables 1,824,760-1,824,760-1,824,760 Interest bearing liabilities 350,000, ,900, ,900,000 Total financial liabilities 351,824, ,900,000 1,824, ,724,760 27

30 Notes to the Financial Statements For the year ended 30 June 2014 Note 15. Remuneration of auditor Fees for services rendered by the Company s auditor in relation to the statutory audit are borne by the ultimate parent entity. Note 16. Directors and key management personnel The Directors of the Company are determined to be the key management personnel ( KMP ) within the scope of AASB 124: Related Party Disclosures, and there are no other KMP relating to the Company. The names of the persons who were Directors of the Company at any time during the financial year were as follows: C B Millett T L Smith G B Raward There were no changes to KMP after the reporting date and prior to the date the Financial Report was authorised for issue. Compensation of Directors and key management personnel The Company does not pay remuneration to its Directors or secretaries and has no employees. The Directors of the Company have been determined to be the KMP within the scope of AASB 124. The Directors are employees of the Bank and their role as KMP is incidental to their role as an employee of the Bank. All Directors remuneration is borne by the ultimate parent entity and relates solely to other services performed with respect to their employment by the Bank. Loans and other transactions Any loans to Directors and KMP or their related parties are made by the ultimate parent entity, a provider of finance on terms and conditions that apply to similar transactions with other directors and KMP of the parent entity. There are no other transactions with Directors and KMP or their related parties. 28

31 Note 17. Related party transactions All transactions were made on normal commercial terms and conditions and at market rates. Parent company The ultimate parent entity is Commonwealth Bank of Australia. Transactions with related parties The following transactions occurred with related parties: Interest revenue CBA Capital Australia (No 2) Pty Limited 9,154,320 8,782,760 ASB Bank Limited 3,543 3,369 Total interest revenue 9,157,863 8,786,129 Outstanding balances with related parties Investments Redeemable Preference shares issued by CBA Capital Australia (No 2) Pty Limited 350,000, ,000,000 Cash and cash equivalents Bank account with ASB Bank Limited 112, ,205 29