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Nov 04, 2014
(from left) Transend’s Lisa Eiszele, financial analyst, and Leanne Stecko, business support officer
financial report
Income statementFor the financial year ended 30 June 2009
Note2009 $’000
2008 $’000
Revenue 2(a) 145,822 131,640
Other income 2(b) 12,797 5,034
Depreciation and amortisation expenses 8,9 (58,552) (51,495)
Finance costs 3 (32,413) (10,499)
Operating and maintenance costs (47,356) (44,430)
Other expenses 2(c) (4,391) (3,713)
Profit from operating activities before superannuation actuarial gains / (losses) and gain on acqusition of business
15,907 26,537
Superannuation actuarial gains / (losses) 18 (6,684) 273
Gain on acqusition of business 17 664 -
Profit before income tax 9,887 26,810
Income tax equivalent expense 4(a) (2,655) (8,083)
Profit for the year 7,232 18,727
Theincomestatementistobereadinconjunctionwiththeaccompanyingnotestothefinancialstatementssetoutonpages33 to 57.
Transend Annual Report 09 29
Balance SheetAs at 30 June 2009
Note2009 $’000
2008 $’000
Current assets
Cash and cash equivalents 26(a) 23,775 21,499
Trade and other receivables 5 24,970 22,943
Inventories 6 423 423
Current tax assets 4(c) 5,260 -
Other assets 7 6,084 811
Total current assets 60,512 45,676
Non-current assets
Other assets 7 397 -
Intangible assets 8 3,869 1,514
Property, plant and equipment 9 1,241,180 1,259,312
Total non-current assets 1,245,446 1,260,826
Total assets 1,305,958 1,306,502
Current liabilities
Trade and other payables 10 35,681 24,825
Borrowings 11 - 408,677
Current tax liabilties 4(c) - 2,436
Provisions 12 7,149 9,293
Other liabilities 13 33,037 32,019
Total current liabilities 75,867 477,250
Non-current liabilities
Borrowings 11 488,000 -
Deferred tax equivalent liabilities 4(d) 181,269 218,390
Provisions 12 35,438 19,496
Total non-current liabilities 704,707 237,886
Total liabilities 780,574 715,136
Net assets 525,384 591,366
Equity
Issued capital 14 66,549 66,549
Reserves 15 388,338 452,192
Retained earnings 16 70,497 72,625
Total equity 525,384 591,366
Thebalancesheetistobereadinconjunctionwiththeaccompanyingnotestothefinancialstatementssetoutonpages33 to 57.
30 Transend Annual Report 09
Statement of recognised income and expenseFor the financial year ended 30 June 2009
Note2009 $’000
2008 $’000
Revaluation of property, plant and equipment 15 (91,364) 132,024
Income tax equivalent on items taken directly to equity 15, 4(b) 27,510 (39,004)
Net income recognised directly in equity (63,854) 93,020
Profitfortheyear 7,232 18,727
Total recognised income and expense for the year (56,622) 111,747
Thestatementofrecognisedincomeandexpenseistobereadinconjunctionwiththeaccompanyingnotestothefinancialstatements set out on pages 33 to 57.
Transend Annual Report 09 31
Cash flow statementFor the financial year ended 30 June 2009
Note2009 $’000
2008 $’000
Cash flows from operating activities:
Receipts from customers 170,986 166,711
Payment to suppliers and employees (62,922) (62,975)
Interestandothercostsoffinancepaid (29,814) (8,376)
Income tax equivalents paid (18,610) (19,271)
Net cash provided by operating activities 26(b) 59,640 76,089
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 531 279
Payment for property, plant and equipment (124,412) (60,666)
Payment for business (15,207) -
Net cash used in investing activities (139,088) (60,387)
Cashflowsfromfinancingactivities:
Proceeds from borrowings 749,261 115,639
Repayment of borrowings (658,177) (45,000)
Return of shareholder's capital - (50,000)
Dividends paid (9,360) (15,000)
Net cash provided by financing activities 81,724 5,639
Net increase in cash and cash equivalents 2,276 21,341
Cashandcashequivalentsatthebeginningofthefinancialyear 21,499 158
Cash and cash equivalents at the end of the financial year 26(a) 23,775 21,499
Note: Allocations may not sum to whole dollars due to rounding
Thecashflowstatementistobereadinconjunctionwiththeaccompanyingnotestothefinancialstatementssetoutonpages33 to 57.
32 Transend Annual Report 09
notes to the financial statementsFor the financial year ended 30 June 2009
Note Contents Page
1 Summaryofsignificantaccountingpolicies 33
2 Profitfortheyear 42
3 Finance costs 42
4 Income tax equivalents 43
5 Trade and other receivables 45
6 Inventories 45
7 Other assets 45
8 Intangible assets 45
9 Property, plant and equipment 45
10 Trade and other payables 47
11 Borrowings 47
12 Provisions 47
13 Other liabilities 47
14 Issued capital 47
15 Reserves 48
16 Retained earnings 48
17 Acquisition of business 48
18 Definedbenefitsuperannuationplan 49
19 Financial instruments 51
20 Leases 54
21 Commitments for expenditure 55
22 Contingent liabilities and contingent assets 55
23 Auditor’s remuneration 55
24 Key management personnel compensation 55
25 Related party disclosures 55
26 Notes to the cash flow statement 56
27 Economic dependency 57
28 Subsequent events 57
1. Summary of significant accounting policies
Thesignificantaccountingpoliciesthathavebeenadoptedinthepreparationofthesefinancialstatementsare listed below:
(a) Statement of compliance and basis of
preparation
Thefinancialreportisageneralpurposefinancialreportwhich has been prepared in accordance with Australian Accounting Standards and Interpretations made by the Australian Accounting Standards Board, and the requirements of the Corporations Act 2001.Thefinancialreport complies with International Financial Reporting Standards (IFRS) and Interpretations made by the International Accounting Standards Board.
Thefinancialstatementswereauthorisedforissueby the directors on 27 August 2009.
Thefinancialreporthasbeenpreparedonthebasisofhistorical cost except for the revaluation of certain non-currentassetsandfinancialinstruments.Costisbased on the fair values of the consideration given in exchange for assets.
In the application of Transend’s accounting policies, as described below, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based upon historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Inparticular,informationaboutsignificantareasofestimation uncertainity and critical judgements in applying accountingpoliciesthathavethemostsignificanteffectontheamountrecognisedinthefinancialstatementsaredescribed in note 1 (v).
Transend Annual Report 09 33
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
The accounting policies set out below have been applied inpreparingthefinancialstatementsforthefinancialyearended 30 June 2009 and the comparative information presentedinthesefinancialstatementsforthefinancialyearended 30 June 2008.
Allvaluesexpressedinthefinancialstatementsandnotesare expressed in Australian dollars, to the nearest thousand dollars unless otherwise stated.
(b) Acquisition of assets
All assets acquired, including property, plant and equipment, are initially recorded at their costs of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. Transend capitalises assets that meet the capitalisationthresholdof$1,000anditemsunderthislimitare treated as an expense in the current period.
(c) Adoption of new and revised
Accounting Standards
In the current year, Transend has adopted no new or revised Standards and / or Interpretations issued by the Australian Accounting Standards Board as these were not considered applicable to the operations of Transend.
Transend has not adopted the following pronouncements, which have been issued by the Australian Accounting Standards Board with application dates later than the period covered by thisfinancialreport.ThepronouncementswhichwillimpactTransend reporting are discussed below. Transend does not currently believe the adoption of any other pronouncements willhaveamaterialimpactontheconsolidatedresults,financialposition, or disclosures of Transend.
• AASB8‘OperatingSegments’(effectiveforannualperiods beginning on or after 1 January 2009, with early application permitted). Transend would need toadoptthisstandardforthe30June2010financialstatements as this standard becomes mandatory then. ThestandardisnotexpectedtosignificantlyimpactTransend but may change Transend’s disclosure in relation to segment information.
• AASB101‘PresentationofFinancialStatements’andAASB2007-8‘AmendmentstoAustralianAccountingStandards arising from AASB 101’ (effective for annual periods beginning on or after 1 July 2009,
with early application permitted). Revisions to this statement will bring presentation distinctions between comprehensive income and changes in equity, so that equity changes are limited to transactions with owners such as capital raised and dividends. Although other presentation changes will occur, no change to reportedfinancialresultsorpositionareexpected.
• AASB3‘BusinessCombinations(2008)’,AASB127‘ConsolidatedandSeparateFinancialStatements’andAASB2008-3‘AmendmentstoAustralianAccountingStandards arising from AASB 3 and AASB 127’ (effective for annual periods beginning on or after 1 July 2009, with early application permitted). The revisions alter the accounting treatment to be used for business combinations entered into after the standard isfirstapplied,includingthemeasurementoffairvalue,identificationofacquiredassetsandrecognitionof goodwill attributable to minority interest.
• Interpretation18‘TransfersofAssetsfromCustomers’ provides guidance on the accounting for contributions from customers in the form of transfers of property, plant and equipment (or cash to acquire or construct it). Interpretation 18 will become mandatoryforthe30June2010financialstatements,therefore will be applied prospectively to transfers of assets from customers received on or after 1 July 2009. Therefore no adjustments will be required on adoption and no changes in accounting policy are expected which will impact future transfers.
The following standards are either largely concerned with disclosuresorarenotexpectedtosignificantlyaffectanyamountsrecognisedinthefinancialstatements:
• AASB2007-10‘FurtherAmendmentstoAustralianAccounting Standards arising from AASB 101’ (effective for annual reporting periods begining on or after 1 January 2009). This amending standard changes theterm‘generalpurposefinancialreport’to‘generalpurposefinancialstatements’andtheterm‘financialreport’to‘financialstatements’whererelevant,in Australian Accounting Standards (including Interpretaions) to better align with International Financial Reporting Standards (IFRS) terminology.
• AASB2008-5‘AmendmentstoAustralianAccountingStandards arising from the annual improvement project’ (applies retrospectively (with some exceptions) to annual reporting periods beginning on or after 1 January 2009). This standard amends 25 different standards and is equivalent to the International
1. Summary of significant accounting policies (continued)
34 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
Accounting Standards Board (IASB) standard improvements to IFRSs issued in May 2008. The amendements largely clarify the required accounting treatment where previous practice has varied, although some new or changed requirements are introduced.
• AASB2008-6‘FurtherAmendmentstoAustralianAccounting Standards arising from the Annual Improvements Project’ (applies retrospectively to annual reporting periods beginning on or after 1 July 2009). This makes amendemnents to accounting standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards and AASB 5 Non-current Assets Held for Sale and Discontinued Operations to include requirements relating to a sale plan involving the loss of control of a subsidiary. The amendments require all the assets and liabilities of such a subsidiary to be classifiedasheldforsaleandclarifythedisclosuresrequired when the subsidiary is part of a disposal group thatmeetsthedefinitionofadiscontinuedoperation.
• AASB2009-2‘AmendmentstoAustralianAccountingStandards - Improving Disclosures about Financial Instruments (applies to annual reporting periods beginning on or after 1 January 2009). This standard amends AASB 7 Financial Instruments: Disclosures to require enhanced disclosures about fair value measurements and liquidity risk.
• AASB2009-4‘AmendmentstoAustralianAccountingStandards arising from the Annual Improvements Process’ (applies to annual reporting periods beginning on or after 1 July 2009). Introduces amendments into Accounting Standards that are equivalent to those made by the IASB under its program of annual improvements to its standards.
• AASB2009-5‘FurtherAmendmentstoAustralianAccounting Standards arising from the Annual Improvements Process’ (applies to annual reporting periods beginning on or after 1 January 2010). Introduces amendments into Accounting Standards that are equivalent to those made by the IASB under its program of annual improvements to its standards. A number of the amendments are largely technical, clarifying particular terms, or eliminating unintended consequences.
• AASB2009-6andAASB2009-7‘AmendmentstoAustralian Accounting Standards’ (AASB 2009-6 is applicable to annual reporting periods beginning on or after 1 January 2009 that end on or after 30 June 2009. AASB 2009-7 is applicable to annual reporting periods beginning on or after 1 July 2009). The Standards only makes editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB.
(d) Borrowing costs
Borrowing costs are recognised on an effective yield basis and include interest and amortisation of discounts or premiums relating to borrowings. Borrowing costs are expensed as they are incurred unless they relate to qualifying assets. Qualifying assets are assets that take more than 12 months to commission for their intended use. As funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate (Note 3).
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents are carried at face value of the amounts deposited. The carrying amounts of cash and cash equivalents approximate net fair value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
(f) Comparative amounts
Wheretherehasbeenreclassificationofitemsinthefinancialstatements,theprioryearcomparativeshavealsobeenreclassifiedtoensurecomparabilitywiththecurrentreportingperiodanddetailsofthereclassificationare disclosed, where applicable, in the relevant note to the financialstatements.
In addition, the comparative income statement has been re-presented to conform with the current year’s presentation.
(g) Employee benefits
Provisionsmadeinrespectofemployeebenefitsthatareexpected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.
Provisionsmadeinrespectofemployeebenefits,whicharenot expected to be settled within 12 months, are measured at the present value of estimated future cash outflows to be
1. Summary of significant accounting policies (continued)
Transend Annual Report 09 35
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
made in respect of the employees’ services provided up to the balance date. These amounts are discounted using rates attached to Commonwealth bonds at balance date, which closely match the terms of the related liabilities.
Salaries, annual and long service leave
Provisionismadeforbenefitsaccruingtoemployeesinrespect of salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. The provision represents the amount that Transend has an obligation to pay resulting from employees’ services provided up to the balance date.
Adjustments to these provisions are included in the cost of labour and charged directly to capital jobs or cost centres, and correspondingly, the provisions absorb the cost when employeesutilisetheirbenefits.Anannualadjustmentismade to the provisions in order to represent the fair value of the provision at year-end.
Sick leave
Noprovisionforsickleaveisallowedforinthefinancialstatementsassickleaveisnon-vestingandemployeebenefitsonly exist when an employee becomes sick.
Workers compensation
Transend is insured by an external organisation for liabilities arising from workers compensation claims.
Superannuation
Contributionstodefinedcontributionsuperannuationplansare expensed when incurred.
Fordefinedbenefitsuperannuationplans,thecostofprovidingbenefitsisdeterminedusingtheProjectedUnitCredit Method, with actuarial valuations being carried out at each reporting date. Actuarial gains and losses are recognised directly in the operating and maintenance costs in the period in which they occur and are presented in the income statement.
Past service cost is recognised immediately to the extent that thebenefitsarealreadyvestedandotherwiseisamortisedonastraight-linebasisovertheaverageperioduntilthebenefitsbecome vested.
Thedefinedbenefitobligationrecognisedinthebalancesheetrepresentsthepresentvalueofthedefinedbenefitobligation, adjusted for unrecognised past service costs,
net of the fair value of the plan assets. Any asset resulting from this calculation is limited to past service costs, plus the present value of available refunds and reductions in future contributions to the plan (note 18).
Amounts disclosed for key management personnel in post employmentbenefitsrelatingtodefinedbenefitshavebeenallocated based upon the weighted average of annual salaries effective at reporting date.
(h) Financial assets
Financialassetsareclassifiedintothefollowingspecificcategories:‘Loansandreceivables’.
Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedattimeofinitialrecognition.
Loans and receivables
Loans and receivables comprise trade receivables, loans and other receivables which are recorded at amortised cost using the effective interest rate method less impairment. Interest income is recognised by applying the effective interest rate.
Trade receivables are generally settled within prescribed periods. To ensure the carrying amount of accounts receivable approximates their fair value, an allowance for doubtful debts is, if required, raised at year-end after assessing the collectability of outstanding debts (note 5). Bad debts are written off in the year in which they are identified.
Financialassets,otherthanthoseatfairvaluethroughprofitor loss, are assessed for indicators of impairment at each balance date. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversedthroughprofitorlosstotheextentthecarryingamount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not occurred
Effective interest method
The effective interest method is a method of calculating the amortisedcostofafinancialassetandofallocatinginterestincome over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life
ofthefinancialasset,or,whereappropriate,ashorterperiod.
1. Summary of significant accounting policies (continued)
36 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
(i) Financial instruments issued
Debt and equity instruments
Debtandequityinstrumentsareclassifiedaseitherliabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Financial guarantee contract liabilities
Financial guarantee contract liabilities are measured initially at fair value and subsequently at the higher of the amount recognised as a provision and the amount initially recognised less cumulative amortisation in accordance with Transend’s revenue recognition policy note 1(t).
Other financial liabilities
Otherfinancialliabilities,includingborrowings,arerecordedinitially at fair value, net of transaction costs. Subsequent toinitialrecognition,otherfinancialliabilitiesaremeasuredat amortised cost using the effective interest rate method, with any difference between the initial recognised amount andtheredemptionvaluebeingrecognisedintheprofitand loss over the period of the borrowing using the effective interest rate method.
Hedging
Transend’s policy is to only enter into designated and effective foreign exchange hedging instruments for currency exposures whicharegreaterthan$500,000andcreateanexposurefor22 days or more. Transend applies hedge accounting and accounts for hedges as cash flow hedges where the instrument is initially recorded at fair value and changes in the fair value of the hedging instrument and hedge item are deferred in equity throughout the hedge term to the extent that the hedge is an effective hedge. As the hedged item will relate to therecognitionofanon-financialasset,thegainsandlossespreviously deferred in equity are transferred from equity and included in the initial measurement of the costs of the asset.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or nolongerqualifiesforhedgeaccounting.Anycumulativegain or loss deferred in equity at that time remains in equity, and is recognised when the forecast transaction is ultimately recognisedinprofitorloss.Whenaforecasttransactionisnolonger expected to occur, the cumulative gain or loss that was deferredinequityisrecognisedimmediatelyinprofitorloss.
Compliance with policies and exposure limits are reviewed on an ongoing basis and any breaches are reported in a timely manner to the Board. Compliance is also reviewed by Transend’s internal auditors in accordance with Transend’s internal audit program.
Transendentersintoderivativefinancialinstrumentstomanage its exposure to foreign exchange rate risk via forward foreign exchange contracts. Forward foreign currency contracts are not entered into for speculative purposes.
See Note 19 for further detail of the Financial Instruments held by Transend at balance date.
(j) Foreign currency transactions
Foreign currency transactions are translated to Australian dollars at the rates of exchange ruling at the dates of the transactions.
(k) Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the AustralianTaxationOffice(ATO).Inthesecircumstancesthe GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investingandfinancingactivities,whichisrecoverablefrom,orpayableto,theATOareclassifiedasoperatingcashflows.
(l) Impairment of assets
At each reporting date, Transend reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If an indication of impairment exists, the recoverable amount of the asset is estimated to determine the extent of any impairment losses. Where the asset does not generate cash flows that are independent from other assets, Transend estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangibleassetswithindefiniteusefullivesandintangibleassets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired.
1. Summary of significant accounting policies (continued)
Transend Annual Report 09 37
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessmentsofthetimevalueofmoneyandtheriskspecificto the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the Income Statement immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment lossisrecognisedinprofitorlossimmediately,unlesstherelevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.
(m) Income tax
Under the National Tax Equivalents Regime (NTER) Transend is required to make income tax equivalent payments to the State Government. The charge for current incometaxexpenseisbasedontheprofitfortheyearadjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance date.
Current tax equivalent is calculated by reference to the amount of income tax equivalent payable or recoverable inrespectofthetaxableprofitorlossfortheperiodusingthe legislated income tax rate. Current tax equivalent is recognised as a liability (asset) to the extent that it is unpaid (recoverable).
Deferred tax equivalent is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between thecarryingamountofassetsandliabilitiesinthefinancialstatements and the corresponding tax base of those items.
In principle, deferred tax equivalent liabilities are recognised for all taxable temporary differences. Deferred tax equivalent assets are recognised to the extent that it is probable that sufficienttaxableamountswillbeavailableagainstwhichdeductible temporary differences and tax offsets can be utilised. However, deferred tax equivalent assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities, whichaffectsneithertaxableincomenoraccountingprofit.
Deferred tax equivalent assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates and laws enacted at the reporting date. The measurement of deferred tax equivalent liabilities and assets reflects the tax consequences that would follow from the manner in which Transend expects at reporting date to recover or settle the carrying amount of its assets and liabilities.
Deferred tax equivalent assets and liabilities are offset when they relate to income tax equivalents levied by the same taxation authority and where Transend intends to settle its current tax equivalent assets and liabilities on a net basis.
Current and deferred tax equivalent for the period is recognised as an expense or income in the income statement except when it relates to items taken directly to equity, in which case the deferred tax equivalent is also recognised directly in equity.
(n) Intangible assets
Computersoftwareidentifiedasintangibleassetsarerecorded at cost less accumulated amortisation and impairment (note 8). Amortisation is charged on a straight-line basis over the estimated useful life of three years. The estimated useful lives and amortisation methods are reviewed annually for appropriateness.
(o) Inventories
Inventories are carried at the lower of cost and net realisable value, with, if required, an allowance being maintained for loss on disposal of surplus stores (note 6). Inventories are not held for resale and are used in the maintenance and construction of the transmission system. Costs are assigned to inventory by the method most appropriate to each particular classofinventory,withthemajoritybeingvaluedonafirstinfirstoutbasis.Inventoryisvaluedatnetrealisablevaluewhere it has been determined that inventory is surplus to requirements. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
1. Summary of significant accounting policies (continued)
38 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
(p) Leased assets
Leasesareclassifiedasfinanceleaseswheneverthetermsof the lease transfer substantially all the risks and rewards ofownershiptoTransend.Allotherleasesareclassifiedasoperating leases.
Assetsheldunderfinanceleasesareinitiallyrecognisedattheir fair value or, if lower, at amounts equal to the present value of the minimum lease payments determined at the inception of the lease. The corresponding liability to the lessorisincludedinthebalancesheetasafinanceleaseobligation.Leasepaymentsareapportionedbetweenfinancecharges and a reduction of the lease liability to achieve a constant rate of interest during the term of the lease. Finance charges are charged directly against income, unless they directly relate to a qualifying asset, in which case they are capitalised in accordance with Transend’s borrowing costs policy (note 1d). Finance leased assets are amortised on a straight-line basis over the estimated useful life of the asset.
Operating lease payments are recognised as an expense on a straight-line basis as this reflects the pattern in which economicbenefitsoftheleasedassetareconsumed.
(q) Payables
Trade payables and other accounts payable, including accruals for accounts not yet billed, are recognised when an obligation to make future payment has occurred for goods received or services provided (note 10).
(r) Property, plant and equipment
Network assets
The network assets (including transmission lines and substations) are measured at fair value based upon the depreciated optimised replacement cost (DORC) methodology.
The gross replacement cost of modern equivalent assets is determined for each class of asset and consequentially optimised for over-design, over-capacity and redundant assets. The DORC value is derived from the gross optimised replacement cost after allowing for depreciation, which is calculated using the remaining useful life and the assigned useful life of each class of asset.
Management sought an independent valuation of Transend’s network assets in service from Sinclair Knight Merz Pty Ltd (SKM) with an effective date of 30 June 2006.
Current valuation basis
During the year Transend reviewed its basis for estimating the current replacement cost of network assets and adopted the use of longer term cost indices to estimate the cost of primary factors that influence the replacement values of network assets. Refer note 1 (v).
The 2006 valuation has been inflated to 30 June 2009 values byapplying‘Long-termaverageannualnetworkassetcostescalation rate (LAACER)’ in Tasmania which was sourced from SKM. LAACER represents SKM’s recommendation of appropriate cost escalation components for use within capital project cost projections for the period 2004–05 to 2014–15 inclusiveandarespecifictotheoperatingenvironmentfacedby Transend. The rates are based on the most up-to-date information available in April 2009.
Asset Class DescriptionLAACER
June 2004 – June 2015
Substations 2.50%
Switching stations 2.50%
Power transformers 3.30%
Transmission lines 3.60%
Underground cables 4.40%
Weather stations 2.90%
Strategic spares 3.30%
Basslink system protection scheme 2.90%
Basslink connection assets at george town 2.50%
Allowance is also made for assets completed and transferred to completed works, assets retired from use, and for depreciation of the assets since the last valuation. Assets completed and transferred to completed works during the year to 30 June 2009 are valued at cost.
The components of major assets that have materially different useful lives are accounted for as separate assets, and are depreciated separately.
The carrying amounts of Transend’s assets are reviewed to determine whether they are in excess of their recoverable amount at balance date. If the carrying amount of Transend’s assets exceeds the recoverable amount, the assets are written down to the lower amount. Fair value, based upon the DORC methodology, is a reasonable approximation of recoverable amount and therefore no write down is considered necessary.
The cost of network assets constructed includes the cost of contracted services, materials, direct labour costs and an
1. Summary of significant accounting policies (continued)
Transend Annual Report 09 39
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
appropriate portion of overhead costs. Costs incurred on an asset subsequent to the initial acquisition are capitalised when the original capacity of an asset has been enhanced, or the life of an asset has been extended.
Communications assets
The communications assets (including bearer, multiplexers, site infrastructure assets) are measured at fair value based upon the depreciated replacement cost (DRC) methodology. Replacement costs have been established by reference to the cost of modern equivalent assets and adjusting these to reflect current capacity, age, design and estimated remaining useful life.
Land and buildings
Land and buildings are carried in the balance sheet at fair value, less any subsequent accumulated depreciation and impairment loss where applicable. In June 2007 management sought an independent valuation of land and buildings by Brothers and Newton Pty Ltd. The valuation was undertaken according to International Valuation Standards which provided a market appraisal valuation at 1 July 2006 based on discounted cash flows or capitalisation of net income as appropriate. The valuation has been inflated to 30 June 2009 values by applying escalation factors based upon the Australian Bureau of Statistics Consumer Price Index (weighted average of eight capital cities).Theescalationfactorforthe2009financialyearwas2.46 per cent (2008: 4.2 per cent).
Other plant and equipment
Other plant and equipment includes motor vehicles, computerequipmentandnon-separablesoftware,officefurniture and equipment. These assets are stated at cost less accumulated depreciation and impairment.
Capital works in progress
Capital works in progress are recognised at cost (including borrowing costs).
Disposal of assets
The gain or loss on the disposal of assets is calculated as the difference between the carrying amount of the asset at the time of disposal (less cost of disposal) and the proceeds ondisposalandisincludedinthenetprofitintheyearof disposal. Any revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings.
Revaluations of non-current assets
Any revaluation increase arising on revaluation of network assets or land and buildings is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised asanexpenseinprofitorloss,inwhichcasetheincreaseis credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount arisingontherevaluationischargedasanexpenseinprofitor loss to the extent that it exceeds the balance, if any, held in the asset revaluation reserve in relation to a previous revaluation of that asset.
Useful lives and depreciation
Depreciation is provided on property, plant and equipment and is based on the straight-line method so that assets are written off over their useful lives (note 9). The estimated useful lives, residual values, depreciation rates and methods are reviewed annually for appropriateness. When changes are made, adjustments are reflected prospectively in the current and future periods. Depreciation on revalued network assets ischargedtoprofitorloss.
The useful lives assigned to Transend’s assets are listed below:
Transmission lines 60 yrs
Underground cables 40 yrs
Substation switch bays 50 yrs
Communications 10–40 yrs
Substation establishment 60 yrs
Capacitors 45 yrs
Transformers 45 yrs
Control and protection schemes 15 yrs
Buildings 80 yrs
Other plant and equipment 3–10 yrs
(s) Provisions
Provisions are recognised when Transend has a present obligation that can be measured reliably and it is probable thattherewillbefuturesacrificeofeconomicbenefits. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows. When an amount to settle a provision is expected to be recovered from a third party, the receivable is recognised when it is virtually certain that the recovery will be received and the amount can be measured reliably.
1. Summary of significant accounting policies (continued)
40 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
(t) Revenue recognition
Revenues are recognised at fair value of the consideration received or receivable net of the amount of GST payable to the ATO.
Rendering of prescribed services
Prescribed services are recognised in the income statement at the amount allowed by Transend’s revenue cap determination. Any amounts received in excess of this allowance are deferred as a liability on the basis that the amount is effectively returned to customers at large through future price reductions and recognised as income in future periods.
Rendering of non-prescribed services
Revenue is recognised in the income statement in proportion to the stage of completion of the transaction at balance date where appropriate.
Interest
Interest revenue is recognised as it accrues on a time proportionate basis that takes into account the effective yield onthefinancialasset.
Asset sales
Profitorlossonsaleisrecognisedintheincomestatementwhensignificantrisksandrewardsofownershipofthegoodshave been passed to the buyer.
Rental income
Rental income is recognised in the income statement on a straight-line basis over the term of the lease.
Customer contributions
Transend’s policy is to treat contributions from customers that relate to capital projects as revenue. Where capital works are incomplete, the portion of customer contributions received in advance for the incomplete works is included as a liability in the balance sheet.
(u) Segment reporting
Transend owns and operates the electricity transmission system in Tasmania. Revenue earned and costs incurred are associated with the performance of that function. The reporting of information by segment is not required forthe2009financialyearasTransendoperateswithinasingle business and single geographic segment.
1. Summary of significant accounting policies (continued)
(v) Critical accounting judgements,
estimates and assumptions
Asnotedinnote1(a),thepreparationofthefinancialstatements requires management to make judgements, estimates and assumptions that affect the reported amounts inthefinancialstatements.Managementhasidentified the following critical accounting policies for which significantjudgements,estimatesandassumptionsaremade.Actual results may differ from these estimates under different assumptions and conditions and may materially affectthefinancialresultsorthefinancialpositionreportedin future periods.
Defined benefits plan
Various acturial assumptions are required when determining Transend’s post employment obligations. These assumptions and the relative carrying amounts are disclosed in note 18.
Employee entitlements
Management judgement is applied in determining the following key assumptions used in the calculation of long service leave at reporting date:
- future increases in salaries and wages;
- future oncost rates; and
- experience of employee departures and periods of service.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable thatfuturetaxableprofitswillbeavailabletoutilisethosetemporary differences.
Revaluation of property, plant and equipment
As described in note 1(r), the replacement cost of network assets is influenced by the cost of primary factors such as price of oil, labour, metals, construction costs and foreign exchange rates. Transend has adopted the use of longer term indices (LAACER) to estimate the current replacement cost of network assets. In prior years, short-term indices were used for this purpose. The change has been recognised prospectively as a change in accounting estimate.
As a result of this change, the carrying values of networks assetswererevalueddownwardsby$93millionon 1 July 2008. This has reduced the depreciation charges in thecurrentfinancialyearbyapproximately$4.5millionandit is expected that the reduction in depreciation would be similar in future years.
Transend Annual Report 09 41
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
Impairment
Transend assesses impairment of all assets at each reporting date. If an impairment trigger exists, an estimate of the recoverable amount of each of the cash generating units is made. Further details on the value in use calculations and adjustments for impairment are disclosed in note 1 (l).
2. Profit for the year
2009 $’000
2008 $’000
(a) Revenue
Revenue consists of the following items:
Prescribed services 144,223 130,120
Interest received – bank deposits 44 9
Rental and lease income 1,555 1,511
145,822 131,640
(b) Other income
Other income consists of the following items:
Income from external work 12,786 4,947
Other 11 87
12,797 5,034
(c) Other expenses
Profit/(loss)beforeincometaxequivalents has been arrived at after charging/(crediting) the following expenses:
(Gain)/loss on disposal of property, plant and equipment (53) 63
Insurance 785 746
Inventory expensed - 65
Operating lease rental expenses 554 250
Cost of external work 3,105 2,589
4,391 3,713
1. Summary of significant accounting policies (continued)
2009 $’000
2008 $’000
(d) Employee benefits
expenses *
Postemploymentbenefits:
Definedbenefitplan 9,266 1,785
Definedcontributionplan 1,549 1,181
10,815 2,966
TerminationBenefits 696 424
Otheremployeebenefits 23,049 17,704
34,560 21,094
* These benefits are split between the income statement line item operating and maintenance costs and amounts capitalised as property, plant and equipment.
3. Finance costs
Note
Borrowing costs incurred duringthefinancialyear 33,887 11,502
Borrowing costs capitalised duringthefinancialyear 9 (1,474) (1,003)
Netfinancingcosts 32,413 10,499
Weighted average capitalisation rate on funds borrowed 7.86% 7.15%
42 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
4. Income tax equivalents
2009 $’000
2008 $’000
(a) Recognised in profit
or loss
Income tax equivalent expense/(income) comprises:
Current income tax expense 10,941 16,622
Adjustments recognised in the current year in relation to the current tax equivalent of prior years 288 (20)
Net increase/(decrease) in deferred tax equivalent liability (8,574) (8,519)
Total income tax equivalent expense/(income) 2,655 8,083
Numerical reconciliation between income tax equivalent expense and pre-tax net profit
Profitbeforeincometaxequivalent 9,887 26,810
Income tax equivalent calculated at 30% (2008: 30%) 2,966 8,043
Decrease in income tax equivalent expense due to:
Investment allowance (52) -
Adjustment to tax base of assets (565) -
Superannuation - (29)
Increase in income tax equivalent expense due to:
Non-deductible expenses 18 103
Under/over provided in prior years 288 (34)
Income tax equivalent expenseonpre-taxnetprofit 2,655 8,083
Note2009 $’000
2008 $’000
(b) Deferred tax
equivalent recognised
directly in equity
Property revaluations 15 27,510 (39,004)
(c) Current tax
equivalent assets
and liabilities
Current tax equivalent payable (receivable) (5,260) 2,436
(d) Deferred tax
equivalent balances
Deferred tax equivalent assets comprise:
Temporary differences 12,839 8,640
Deferred tax equivalent liabilities comprise:
Temporary differences 194,109 227,030
Net deferred tax equivalent liabilities 181,269 218,390
Transend Annual Report 09 43
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
4. Income tax equivalents (continued)
(e) Movement in temporary differences during the financial year
Balance 1 July 08
$’000
Prior year under/over
provision $’000
Recognised in income
$’000
Recognised in equity
$’000
On acquisition of business
$’000
Balance 30 June 09
$’000
Gross deferred tax equivalent liabilities:
Property, plant and equipment (227,030) (284) 7,220 27,510 - (192,584)
Accrued Revenue - - (1,524) - - (1,524)
(227,030) (284) 5,696 27,510 - (194,108)
Gross deferred tax equivalent assets:
Employeebenefits 8,267 - 3,083 - 1,353 12,703
Provisions - - - - - -
Other items 372 (31) (205) - - 136
8,640 (31) 2,878 - 1,353 12,839
Net deferred tax equivalent liabilities: (218,390) (315) 8,574 27,510 1,353 (181,269)
Balance 1 July 07
$’000
Prior year under/over
provision $’000
Recognised in income
$’000
Recognised in equity
$’000
Balance 30 June 08
$’000
Gross deferred tax equivalent liabilities:
Property, plant and equipment (196,155) 5 8,124 (39,004) (227,030)
(196,155) 5 8,124 (39,004) (227,030)
Gross deferred tax equivalent assets:
Employeebenefits 8,156 2 110 - 8,268
Provisions 2 - (2) - -
Other items 92 - 280 - 372
8,250 2 388 - 8,640
Net deferred tax equivalent liabilities: (187,905) 7 8,512 (39,004) (218,390)
44 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
5. Trade and other receivables
2009 $’000
2008 $’000
Current
Trade receivables 23,362 22,379
Goods and services tax recoverable 1,608 564
24,970 22,943
The average credit period for trade receivables is 25 days. No interest is charged on trade receivables and no trade receivable amounts are impaired or aged past due date.
6. Inventories
Current
Stores (valued at cost) 423 423
7. Other assets
Current
Prepayments 894 706
Other 203 105
TUOS under recoveries 4,987 -
6,084 811
Non-current
Prepayments 397 -
6,481 811
8. Intangible assets
Computer software – at cost
Gross carrying amount
Balance at 1 July 9,983 8,562
Additions 5,009 1,421
Balance at 30 June 14,992 9,983
Amortisation and impairment losses
Balance at 1 July (8,469) (8,209)
Amortisation expense * (2,654) (260)
Balance at 30 June (11,123) (8,469)
Carrying amount
Balance at 30 June 3,869 1,514
* Amortisation expense is included in the line item depreciation and amortisation expenses in the income statement.
9. Property, plant and equipment
2009 $’000
2008 $’000
Network Assets
Transmission lines – at fair value 969,868 923,389
Accumulated depreciation (489,952) (373,461)
Depreciated optimised replacement cost 479,916 549,928
Transmission substations – at fair value 1,146,751 985,308
Accumulated depreciation (580,146) (412,071)
Depreciated optimised replacement cost 566,605 573,237
Communications Assets
Communications assets – at fair value 14,462 -
Accumulated depreciation (1,022) -
Depreciated replacement cost 13,440 -
Easements – at fair value 59,803 58,079
Land
Land at fair value 14,894 12,611
Buildings
Buildings at fair value 9,981 9,351
Accumulated depreciation (830) (512)
Depreciated value 9,151 8,839
Other plant and equipment
Other plant and equipment – at cost 24,119 21,660
Accumulated depreciation (14,571) (14,755)
Depreciated value 9,548 6,905
Capital works in progress – at cost 87,823 49,713
1,241,180 1,259,312
Transend Annual Report 09 45
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
9. Property, plant and equipment (continued)
Reconciliation of the movement in property, plant and equipment during the financial year
ended 30 June 2009:
Note
Transmission lines at fair
value $’000
Transmission substations at fair value
$’000
Easements at fair value
$’000
Land at fair value
$’000
Communications at fair value
$’000
Buildings at fair value
$’000
Other plant &
equipment at cost $’000
Capital works in
progress at cost
$’000Total $’000
Carrying amount at beginning of financial year 549,928 573,237 58,079 12,611 - 8,839 6,905 49,713 1,259,312
Additions during the year - - - - - - - 108,459 108,459
Finance costs capitalised 3 - - - - - - - 1,474 1,474
Acquisitions through purchase of business 17 - - - 1,080 14,462 - 568 3,961 20,071
Disposals - (11) - - - - (470) - (481)
Transfers to non-current assets 13,193 56,241 289 851 - 385 4,825 (75,784) -
Net revaluation increments/(decrements) (58,861) (34,923) 1,435 352 - 240 - - (91,757)
Depreciation charge for the year (24,344) (27,939) - - (1,022) (313) (2,280) - (55,898)
Carrying amount at end of financial year 479,916 566,605 59,803 14,894 13,440 9,151 9,548 87,823 1,241,180
Carrying amount of assets had they been recognised under the cost model
Balance at 30 June 2009 285,588 436,908 9,968 8,979 13,440 6,445
Reconciliation of the movement in property, plant and equipment during the financial year
ended 30 June 2008:
Note
Transmission lines at fair
value $’000
Transmission substations at fair value
$’000
Easements at fair value
$’000
Land at fair value
$’000
Buildings at fair value
$’000
Other plant &
equipment at cost $’000
Capital works in
progress at cost
$’000Total $’000
Carrying amount at beginning of financial year 461,770 522,711 58,478 12,026 8,296 6,502 40,669 1,110,452
Transfers between classes 8,168 (4,521) (3,647) - - - - -
Additions during the year - - - - - - 66,052 66,052
Finance costs capitalised 3 - - - - - - 1,003 1,003
Disposals - - - - - (294) - (294)
Transfers to non-current assets 19,285 33,935 945 76 244 3,526 (58,011) -
Net revaluation increments/(decrements) 82,648 47,560 2,303 509 314 - - 133,334
Depreciation charge for the year (21,943) (26,448) - - (15) (2,829) - (51,235)
Carrying amount at end of financial year 549,928 573,237 58,079 12,611 8,839 6,905 49,713 1,259,312
Carrying amount of assets had they been recognised under the cost model
Balance at 30 June 2008 283,790 397,090 9,679 7,048 6,247
46 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
10. Trade and other payables
2009 $’000
2008 $’000
Current
Trade payables 21,344 23,170
Accrued expenses 1,309 957
Refundable advances 11,761 -
Accrued interest 1,267 698
35,681 24,825
The average credit period for trade payables is 13 days.
11. BorrowingsAll loans are secured by assets of the company. Transend’s long-term debt matures in July 2014.
For more information about Transend’s exposure to risk in relation to Financial Instruments, see notes 1(i) and 19. FordetailsonTransend’sundrawnfinancingfacilities, see note 19.
Current
At amortised cost
Overnight borrowings - 13,677
Term borrowings - 395,000
- 408,677
Non-current
At amortised cost
Term borrowings 488,000 -
488,000 -
Total Borrowings 488,000 408,677
12. Provisions
Note
2009 $’000
2008 $’000
Current
Annual leave 3,390 2,516
Long service leave 2,475 1,810
Definedbenefitssuperannuation 18 1,035 4,613
Employee bonus 249 354
7,149 9,293
Non-current
Long service leave 1,322 1,004
Definedbenefitssuperannuation 18 34,116 18,492
35,438 19,496
42,587 28,789
13. Other liabilities
Current
Income received in advance 33,037 31,206
TUOS over recoveries (Residues) - 813
33,037 32,019
14. Issued capital
Balance at beginning of financialyear 66,549 336,549
Distributions to shareholders by way of reduction in equity - (270,000)
Four ordinary shares, fully paid 66,549 66,549
Noshareswereissuedduringthe2009(2008:Nil)financialyear. Fully paid ordinary shares have no par value and carry one vote per share and equal right to dividends. Transend does not have a limited amount of authorised capital and all shares currently issued are held in trust for the Crown in Right of the State of Tasmania.
In 2008, Shareholder’s equity was reduced as a result of a returntoshareholdersinDecember2007($50,000,000)andthe transfer of debt in June 2008 originating with Hydro Tasmania($220,000,000)treatedasareturntoshareholdersin accordance with AASB Interpretation 1038.
Transend Annual Report 09 47
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
17. Acqusition of business
On 1 November 2008, Transend acquired all of the business operations of Hydro Tasmania Telecommunications Business (HTTB) for$15.8millionandnameditTransendCommunicationsServices(TCS).TCSoperatesthetelecommunicationsassetsthatprovide communications services to the Tasmanian Electricity Supply Industry and various external parties. In the eight months to30June2009,TCScontributed$0.7millionprofit.Iftheacqusitionhadoccurredon1July2008,managementestimatesthatthetotalexternalrevenueforTSCwouldhavebeenapproximately$6.2millionandthenetprofitofapproximately$1million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acqusition would have been the same if the acqusition occurred on 1 July 2008.
The following net assets were acquired:
Note
Pre-acqusition carrying amounts
$’000
Fair value adjustments
$’000
Fair value on acquisition
$’000
Property, plant and equipment 9 19,764 307 20,071
Other assets 140 - 140
Deferred tax equivalents assets 4 1,353 - 1,353
Other liabilities (611) - (611)
Provisions (4,508) - (4,508)
Total fair value at acquisition date 16,138 307 16,445
Consideration paid§ 15,781
Discount on acquisition 664
§ Includes due dilligence and other costs, directly attributable to the acqusition amounting to $0.4 m and stamp duty charges of $0.6 m payable on reporting date to the State Revenue Office.
Pre-acquisition carrying amounts were determined based upon applicable accounting standards immediately before the acqusition. The values of assets and liabilties on acquisition are their estimated fair values (see note 1 for methods used in determining fair values).
15. Reserves
2009 $’000
2008 $’000
Asset revaluation reserve
Balance at beginning of financialyear 452,192 359,172
Revaluation increment/(decrement) (91,364) 132,024
Deferred tax liability arising on revaluations 27,510 (39,004)
Balance at end of financialyear 388,338 452,192
The revaluation reserve relates to revaluation increments and decrements arising from property, plant and equipment, measured at fair value in accordance with applicable Australian Accounting Standards. The reserve can be used to pay dividends only in limited circumstances.
16. Retained earnings
2009 $’000
2008 $’000
Balance at beginning of financialyear 72,625 68,898
Netprofitfortheyear 7,232 18,727
Dividends paid during the year * (9,360) (15,000)
Balance at end of financialyear 70,497 72,625
* Relating to dividends declared and paid for the previous financial year. Refer to note 28 for details in respect to dividends for 2008–09 financial year.
48 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
Amounts included in the balance sheet
arising from Transend’s obligation in respect
of its defined benefit plan
Note2009 $’000
2008 $’000
Present value of definedbenefitobligations 46,510 28,992
Contributions tax liability * 3,317
Totaldefinedbenefitobligation 46,510 32,309
RBF contributory scheme assets (11,359) (9,204)
Deficit/(surplus) 35,151 23,105
Movements in net liabilities
Net liability/(asset) in balance sheet at end of prior year 23,105 22,230
Increase in liability through purchase of business 3,619 -
Employeebenefitsexpense recognised in income statement # 2(d) 9,266 1,785
Actual employer contributions (839) (910)
Net liability/(asset) 35,151 23,105
Current net liability 12 1,035 4,613
Non-current net liability 12 34,116 18,492
35,151 23,105
# Employee benefits expense is included in the operating and maintenance cost and superannuation actuarial gains/(losses) line items in the income statement.
18. Defined benefit superannuation plan
TheRetirementBenefitsFund(RBF)isadefinedbenefitfundwhichpayslumpsumandpensionbenefitstomembersupon retirement (which are calculated as a multiple of the member’sfinalaveragesalary).TheRBFhascontributorymembers, compulsory preserved members and pensioners.
The key assumptions that were used to determine these amounts are set out in a report prepared by the State’s Actuary(Mercer),dated8July2009.Comparativefiguresfor 2008 are based on the valuation report prepared by the previous State Actuary. The key assumptions were:
2009 %
2008 %
Discount rate (net of tax) 5.70 6.50
Salary rate 4.50 4.50
Expected return on plan assets (net of tax) 7.00 7.00
Inflation (pensions) 2.50 2.50
Tax rate for employer contributions * 14.36
Tax rate for discount rate * 2.25
The expected return on plan assets (net of tax) has been based on the expected long-term returns for each of the major asset classed in which the plan invests.
The plan assets comprise:
Australian equities 20 25
Overseas equities 13 20
Fixed interest securities 11 12
Property 31 38
Other 25 7
Note: Allocations may not sum to 100% due to rounding
* The previous State Actuary included an allowance for contributions tax liability, on the basis that it was required by the accounting standard AASB 119. The currect Actuary (Mercer) view this as not required due to; The employer share of the benefits is untaxed, so very little, if any, contributions tax is expected to be payable in respect of employer contributions; and the current version of AASB 119 does not make any mention of contributions tax. Accordingly, Mercer have made no allowance for contributions tax.
Transend Annual Report 09 49
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
Defined benefit obligations inclusive of
contributions tax for disclosure purposes
2009 $’000
2008 $’000
Totaldefinedbenefitobligationatend of prior year 32,309 31,733
Increase in liability through purchase of business 3,619 -
Employer service costs plus operating costs 1,383 1,073
Interest costs 1,842 1,643
Actual participants’ contributions 524 386
Actual operating costs (admin and insurance) (103) (103)
Actualbenefitpaymentpluscontributions tax (1,306) (1,392)
Expecteddefinedbenefitobligation at year end 38,268 33,340
Actuarial (gain)/loss on liabilities 8,242 (1,031)
Actualtotaldefinedbenefitobligations at year end 46,510 32,309
The funded status:
Funded 11,359 9,843
Unfunded 35,151 22,466
Total 46,510 32,309
Profit and loss results
2009 $’000
2008 $’000
Employer service cost 1,383 909
Contribution tax expense * 164
Total employer service cost 1,383 1,073
Interest cost 1,842 1,643
Expected return on plan assets (643) (658)
Recognised actuarial (gains)/losses 6,684 (273)
Expense recognised 9,266 1,785
* The previous State Actuary included an allowance for contributions tax liability, on the basis that it was required by the accounting standard AASB 119. The currect Actuary (Mercer) view this as not required due to; The employer share of the benefits is untaxed, so very little, if any, contributions tax is expected to be payable in respect of employer contributions; and the current version of AASB 119 does not make any mention of contributions tax. Accordingly, Mercer have made no allowance for contributions tax.
Employeebenefitsexpenseisincludedintheoperatingand maintenance cost and superannuation actuarial gains / (losses) line items in the income statement.
Fair value of plan assets
Fair value of plan assets at end of prior year 9,204 9,503
Estimated employer contributions 839 910
Estimated participant contributions 524 386
Estimated operating costs (103) (103)
Estimatedbenefitspayments (1,306) (1,392)
Expected return on assets 643 658
Expected assets at year end 9,801 9,962
Actuarial gain/(loss) on assets 1,558 (758)
Fair value plan assets at year end 11,359 9,204
Estimated actual return on plan assets 643 (506)
18. Defined benefit superannuation plan (continued)
50 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
18. Defined benefit superannuation plan (continued)
History2009 $’000
2008 $’000
2007 $’000
2006 $’000
2005 $’000
2004 $’000
As determined under AASB 119
Definedbenefitobligationatfinancialyearend 46,510 32,309 31,733 26,098 24,868 19,182
Actualassetsatfinancialyearend (11,359) (9,204) (9,503) (7,881) (6,652) (5,337)
Deficit/(surplus) 35,151 23,105 22,230 18,217 18,216 13,845
Experience adjustment on liabilities (1,558) 1,686 974 1,397 828 -
Experience adjustment on assets 10,429 758 (1,087) (696) (681) -
19. Financial instruments
Financial risk management objectives
Exposures to market, interest rate and liquidity risks arise in the normal course of Transend’s business. Financial instruments and management policies are used by Transend to manage these risks in a manner that is consistent with the long-term cash flow stability and the interest rate management strategy of Transend.
Capital Management
Transend manages its capital to ensure that it is able to continue as a going concern. The capital structure consists of debt and equity. Transend’s shareholders have the capacity to compel equity transactions in accordance with the Electricity Companies Act 1997 (ECA 1997) and as a result Transend’s gearing ratio is ultimately at the discretion of the shareholders.Intheyearended30June2008,$220,000,000was returned to the shareholders under AASB interpretation 1038 as directed under ECA 1997. Until the point at which Transend is involved in the decision to make such an equity transfer, it is unable to incorporate the effects of similar transactions into its risk management processes. It is assumed that Transend will be consulted regarding future equity transfers to ensure that there is not a negative impact on working capital. Operating cash flows are used to maintain Transend’s assets, along with borrowings as detailed below under liquidity risk management.
Note2009 $’000
2008 $’000
Gearing ratio
Debt (borrowings) 11 488,000 408,677
Cash and cash equivalents 26(a) (23,775) (21,499)
Net debt 464,225 387,178
Equity (including all capital and reserves)
14, 15, 16 525,384 591,366
Net Debt to equity ratio 88% 65%
Derivatives
Derivative contracts are marked to market.
Risk Management
Transenddoesnotenterintofinancialinstrumentsforspeculative purposes. Other risks arising from Transend’s Financial Instruments are recognised and managed in the following ways:
Market Risk
Interest Rate Riskistheriskthatthevalueofafinancialinstrument will fluctuate as a result of changes in market interestrates.BorrowingsissuedatfixedratesexposeTransendto fair value interest rate risk, while borrowings issued at variable rates expose Transend to cash flow interest rate risk.
Due to its regulatory environment, Transend’s borrowings are projected under the Transend Revenue Determination (TRD). Revenue under each successive TRD incorporates a
Transend Annual Report 09 51
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
19. Financial instruments (continued)
WACC (weighted average cost of capital) component, which is based on prevailing market interest rates. It follows that risk arising from increases (or decreases) in the fair value of borrowings is mitigated by future increase (or decrease) in revenue received by Transend.
Foreign Exchange (Forex) Risk is the risk that the value of afinancialinstrumentwillfluctuateasaresultofchangesinforeign currency exchange rates. Transend’s Forex risk arises from the purchase of goods and services from overseas parties.
Transendentersintoderivativefinancialinstrumentstomanage its exposure to Forex risk by entering into forward foreign exchange contracts.
Credit Risk
Credit risk represents the loss at reporting date able to be recognised due to the failure of counterparties to meet contractual obligations arising from the sale of Transend services.
Transend minimises counterparty risk by assessing and monitoring the creditworthiness of counterparties. Thecarryingamountoffinancialassetsrecordedinthefinancialstatements,netofanyallowancesforlosses,represents Transend’s maximum exposure to credit risk.
Where collateral (eg cash deposit) is held by Transend on behalf of counterparties, a corresponding liability is recognised. Due to the nature and volume of Transend’s regulated income from Aurora Energy Pty Ltd, Transend does not bear a material credit risk.
Liquidity Risk
Liquidity risk arises from the possibility of Transend being unable to settle a transaction on its due date. Cash flow forecasts for capital and operating expenditure are monitored to ensure that Transend has the capacity to settle transactions as and when required. Liquidity risk can also arise when a financialinstrumentrequiresexiting,butthereisnomarketto trade the instrument.
Tominimiseliquidityrisk,Transendexecutesallfinancialinstrument transactions with TASCORP. Working capital is maintained by way of overnight borrowings from TASCORP cappedat$15,000,000inaccordancewithTransend’sDebtManagement policy.
Forward foreign exchange contracts
Transend did not enter into any forward foreign exchange contracts in the year to 30 June 2009 and 2008.
Liquidity analysis
All current borrowings maturing on 15 June 2009 were rolledoverintoafiveyearfixedtermloanwithTASCORP.
Un-drawn borrowing facilities at balance date
2009 $’000
2008 $’000
Unsecured bank overdraft facility 1,000 1,000
Unsecured tape negotiation authority 100 100
Corporate MasterCard 1,085 934
TASCORP master loan facility 108,000 81,322
Transend’s TASCORP borrowings are capped at $596,000,000(2008;$490,000,000).Transend’sDebtManagement policy guides the allocation of this balance betweenfixed-termandovernightborrowings.
52 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
19. Financial instruments (continued)
Interest rate exposures
Transend’sexposuretointerestrateriskonfinancialinstrumentsandcontractualmaturitythereofforfinancialliabilitiesandexpectedmaturityforfinancialassetsasat30June2009wasasfollows:
Note
Floating interest
0 to 1 year $’000
Fixed interest maturing inNon-interest
bearing $’000
Total $’000
0 to 1 year $’000
1 to 2 years $’000
2 to 5 years $’000
Financial assets
Cash and cash equivalents 26(a) 1.50% 1,332 - - - - 1,332
Other Deposits 26(a) 5.12% 22,443 - - - - 22,443
Trade and other receivables 5 n/a - - - - 24,970 24,970
Total financial assets 23,775 - - - 24,970 48,745
Financial liabilities
Trade and other payables 10 n/a - - - - 35,681 35,681
Borrowings 11 7.11% - - - 488,000 - 488,000
Total financial liabilities - - - 488,000 35,681 523,681
Net financial assets/(liabilities) 23,775 - - (488,000) (10,711) (474,936)
Interest rate exposures
Transend’sexposuretointerestrateriskonfinancialinstrumentsandcontractualmaturitythereofforfinancialliabilitiesandexpectedmaturityforfinancialassetsasat30June2008wasasfollows:
Note
Floating interest
0 to 1 year $’000
Fixed interest maturing in Non-interest
bearing $’000
Total $’000
0 to 1 year $’000
1 to 2 years $’000
Financial assets
Cash and cash equivalents 26(a) 5.75% 747 - - - 747
Other Deposits 26(a) 7.03% 20,752 - - - 20,752
Trade and other receivables 5 n/a - - - 22,943 22,943
Total financial assets 21,499 - - 22,943 44,442
Financial liabilities
Trade and other payables 10 n/a - - - 24,825 24,825
Borrowings 11 7.17% 13,677 395,000 - - 408,677
Total financial liabilities 13,677 395,000 - 24,825 433,502
Net financial assets/(liabilities) 7,822 (395,000) - (1,882) (389,060)
Transend Annual Report 09 53
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
20. Leases
Operating leases as lessee
Non-cancellable operating lease rentals are payable as follows:
2009 $’000
2008 $’000
Less than one year 457 204
Betweenoneandfiveyears 633 204
1,090 408
Transendleasesawarehouse,twoofficebuildingsandlandunder an operating lease. The lease on the warehouse runs forafurtheroneyear.Theleasesontheofficebuildingsrunfor a period between two and three years and do not include contingent rental.
Duringthefinancialyearended30June2009,$554,000wasrecognised as an expense in the income statement in respect ofoperatingleases(2008:$250,000).
Operating leases as lessor
Transend leases out part of its business premises and Transmission Lines under operating leases. The future minimum lease payments under non-cancellable leases are as follows:
Less than one year 1,424 1,480
Betweenoneandfiveyears 5,699 5,922
Greaterthanfiveyears 33,875 23,404
40,998 30,806
Duringthefinancialyearended30June2009,$1,555,000was recognised as lease and rental income in the income statement(2008:$1,511,000).
Finance leases
Transendhasnofinanceleaseliabilities.
19. Financial instruments (continued)
Interest rate sensitivity analysis
A100bpsmovementinofficialinterestrateswouldnot affecttheprofitofTransendatreportingdate(2008: Increase–$3,578,000ordecrease–$3,627,000)because allfinancialliabiltiesareeithernon-interestbearingorhavefixedinterestrate.
AsignificantportionofFinancialAssetsheldby Transend are either non-interest bearing or are deposits by customers. Transend is not entitled to the interest earned on customer deposits.
Forward start loans
Transend does not have any forward start loan agreements at reportingdate(2008:$220,000,000duewithin1year).
Estimation of fair values
Except as detailed in the following table, the directors considerthatthecarryingamountoffinancialassetsandfinancialliabilitiesrecordedinthefinancialstatementsapproximates their fair values. Where not otherwise disclosed under note 1(i), the major methods and assumptions used inestimatingthefairvaluesoffinancialinstrumentsareasfollows:
Borrowings
Fair value disclosed is the market value provided by Transend’s external borrowings provider TASCORP. The market value is determined as the discounted cash flows of the instruments using the applicable yield curve.
The fair values together with the carrying amounts shown in the balance sheet are as follows:
Carrying amount
2009 $’000
Fair value 2009 $’000
Carrying amount
2008 $’000
Fair value 2008 $’000
Borrowings 488,000 495,251 408,677 408,733
54 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
24. Key management personnel compensation
Transactions with key management
personnel
The key management personnel compensation included in operating and maintenance costs and superannuation actuarial gains/losses are as follows:
2009 $
2008 $
Short-termemployeebenefits 1,942,503 2,347,788 *
Post-employmentbenefits 143,479 123,750 *
Otherlong-termbenefits 36,024 23,031
Terminationbenefits 277,467 424,482
2,399,473 2,919,051
Apart from the details disclosed in this note, no director or executive has entered into a material contract with the companysincetheendofthepreviousfinancialyearandthere were no material contracts involving directors’ or executives’ interests subsisting at year end.
* The 2008 comparatives have been amended to reflect the reclassification of $282,108 from post-employment benefits to short-term employee benefits in order to correct its categorisation.
25. Related party disclosures
Mr Ray Brown had an interest as a Consultant in thelegalfirmPageSeager.The total amount billed to Transend by Page Seager duringthefinancialyearwas: 530 46,390
InthecurrentfinancialyearpaymentstoPageSeagerrelated to professional fees associated with acqusition of an easement. In 2008, Mr Brown was a partner in Page Seager, andthepaymentstothefirmrelatedtothedirectorshipheldby Mr Brown.
All transactions with Page Seager were conducted on an arm’s length basis in the normal course of business and on commercial terms and conditions.
At balance date no amounts remained unpaid to Page Seager.
21. Commitments for expenditure
2009 $’000
2008 $’000
Capital expenditure
commitments
Plant and equipment
Within one year 89,199 45,130
One year or later and no laterthanfiveyears 24,270 17,111
113,469 62,241
Operating
expenditure
commitments
Other expenses (excluding leases disclosed in note 20)
Within one year 2,326 6,350
One year or later and no laterthanfiveyears 2,204 8
4,530 6,358
Other operating expenditure commitments relate to procurement of maintenance and facilities related services.
22. Contingent liabilities and contingent assets
Transend is unaware of any claims, or potential claims to be made against counterparties or to be brought by counterparties.
23. Auditor’s remuneration
2009 $
2008 $
The fee for auditing thefinancialstatementsandregulatoryfinancialstatements required by the Australian Energy Regulator, and payable to the Auditor–General by Transend was: 95,093 90,270
Transend Annual Report 09 55
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
26. Notes to the cash flow statement (continued)
(b) Reconciliation of profit for the year to net
cash flows from operating activities
2009 $’000
2008 $’000
Profitfortheyear 7,232 18,727
Depreciation and amortisation of non-current assets 58,552 51,495
Borrowing & payroll costs capitalised (8,967) (6,123)
(Gain)/loss on sale of property, plant and equipment (53) 63
(Gain)/loss on revaluation of non-current assets 393 (1,329)
Gain on acqusition of business (664) -
Changes in other assets/liabilties acquired on purchase of business (471) -
Increase/(decrease) in current tax equivalent liabilities (15,954) (11,245)
Increase/(decrease) in accrued interest payable 569 279
Increase/(decrease) in refundable advances 11,761 -
(Increase)/decrease in receivables (983) (4,687)
(Increase)/decrease in inventories - 64
Increase/(decrease) in creditors and accrued expenses (1,826) 5,242
Increase/(decrease) in provisions and employee benefits 15,907 3,410
Increase/(decrease) in other liabilities (3,969) 21,096
Changes in other assets/liabilities (1,887) (903)
Net cash provided by operating activities 59,640 76,089
25. Related party disclosures (continued)
Mr Brown is the chairman of Hazell Brothers Group Pty Ltd (HBGPL).Duringthefinancialyearended30June2009,Transend contracted HBGPL to construct a stores building. In addition, the company provided a number of civil works to Transend. Total amount billed by HBGPL was $5,210,081(2008:nil)ofwhich$258,947waspayable at the reporting date.
HBGPL sucessfully tendered to construct the stores and Mr Brown did not participate in either the tendering process or the selection process.
The terms and conditions of transactions between Transend and HBGPL were no more favorable than those available, or which might reasonably be expected to be available on similar transactions to non-director related entities on an arm’s length basis.
Mr Brown is a director of Kemp & Denning Ltd (K&D). Duringthefinancialyearended30June2009,Transenddidnot transact with K&D. In 2008, Transend purchased land from K&D on an arm’s length basis in the normal course of business and on commercial terms and conditions.
Apart from the details disclosed in this note, no director or executive has entered into a material contract with the companysincetheendofthepreviousfinancialyearandthere were no material contracts involving directors’ or executives’ interests subsisting at year end.
26. Notes to the cash flow statement
(a) Reconciliation of cash and cash
equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and 11 am cash (investments), net of outstanding bank overdrafts. Cashandcashequivalentsattheendofthefinancialyear, as show in the cash flow statement is reconciled to the related items in the balance sheet as follows:
2009 $’000
2008 $’000
Cash and cash equivalents 1,332 747
Other deposits 22,443 20,752
23,775 21,499
56 Transend Annual Report 09
Notes to the financial statements for the financial year ended 30 June 2009 (continued)
26. Notes to the cash flow statement (continued)
(c) Non-cash financing activities
Therewerenonon-cashfinancingactivitiesduring2008–09. In2007–08financialyear,$220,000,000ofdebtwastransferred from Hydro Tasmania (see note 14), which was not reflected in the cash flow statement.
27. Economic dependency
AsignificantvolumeofTransend’srevenueisreceivedfromAurora Energy Pty Ltd as determined by Transend’s Revenue Determination and the Transmission Pricing section of the National Electricity Rules.
28. Subsequent events
Dividends
Subsequenttotheendofthefinancialyear,theboardrecommendedadividendof$3.6minrespecttothecurrentfinancialyear(2008:$9,360,000).Thisequatestoadividendof$0.9mpershare(2008:$2,340,000).Thefinancialeffectof this recommended dividend has not been brought to accountinthefinancialstatementsforthefinancialyearended 30 June 2009. No other dividends were paid or declared during the year to 30 June 2009.
The directors declare that:
(a) in the directors’ opinion, there are reasonable grounds to believe that Transend Networks Pty Ltd will be able to pay its debts as and when they become due and payable;
(b)inthedirectors’opinion,theattachedfinancialstatementsandnotestheretoareinaccordancewiththeCorporations Act 2001,includingcompliancewithaccountingstandardsandgivingatrueandfairviewofthefinancialpositionandperformance of Transend Networks Pty Ltd.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the directors
John Lord Chairman
Launceston 27 August 2009
Transend Annual Report 09 57
directors’ declaration