The following persons were Directors of Envestra Ltd during the whole of the fi nancial year and up to the date of this report:
John Geoffrey Allpass (Chairman) Ivan Kee Ham Chan Ian Bruce Little (Managing Director) Ross Murray Gersbach
Eric Fraser Ainsworth AM Michael Joseph McCormack
Charles Christopher Agar Binks Olaf Brian O’Duill
Dominic Loi Shun Chan
Details of the Directors’ and Company Secretary’s qualifi cations, experience and special responsibilities appear on pages 20 to 22 of the annual report. Directors’ shareholdings are disclosed on page 39 of this report.
PRINCIPAL ACTIVITIES
During the year the principal continuing activities of the Group consisted of:
• provision of natural gas haulage services to retailers through the transmission pipelines and distribution networks it owns and manages;
• development of the business through expansion of the existing networks and construction of new networks.
REVIEW OF OPERATIONS
The review of operations of the Group and the results of those operations are discussed in detail in the Chairman’s and Managing Director’s Review of Operations on pages 6 to 11 of the Annual Report.
CONSOLIDATED RESULTS
For the year ended 30 June 2009, revenue/income was $389.1 million, profi t before interest on loan notes and tax was $54.7 million and profi t after tax was $40.3 million. The aggregate of cash fl ows decreased cash on hand at 30 June 2009 by $4.6 million leaving a cash balance of $6.2 million at 30 June 2009.
Directors’ report
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 26 February 2009, the consolidation of debt packages for Envestra Ltd and Envestra Victoria Pty Ltd became effective. Under the debt consolidation, all fi nanciers in both companies have equal security over all secured assets of the Group, and all debt covenants will be measured on a consolidated basis.
Upon payment of the May 2009 distribution, the principal of Envestra Ltd’s Loan Notes was fully repaid. This resulted in the transition of Envestra’s securities from stapled securities to ordinary shares.
No other changes have occurred during the year which signifi cantly changed the state of affairs of the Group.
ENVIRONMENTAL REGULATION
The Group’s operations are conducted under the relevant Environmental Protection Acts and Regulations and associated legislation in the States of South Australia, New South Wales, Queensland and Victoria and in the Northern Territory.
Through an Operating and Management Agreement, environmental management is exercised by APA Asset Management (“APA”). Envestra holds all required environmental licences and permits. There have been no material breaches of the Company’s environmental obligations during the reporting period.
The Victorian Environmental Protection Authority (“Victorian EPA”) has requested Vic Gas Distribution Pty Ltd (a wholly-owned subsidiary of Envestra Victoria Pty Ltd) to provide Remediation Action Plans on sites owned by the Company that were formerly used for the manufacture of town gas. Investigations and assessments are currently in process in conjunction with auditors appointed by the Victorian EPA. Provision has been made for the Company’s estimated cost of possible remediation.
The NSW Environmental Protection Authority (“NSW EPA”) has notifi ed The Albury Gas Company Limited (a wholly-owned subsidiary of Vic Gas Distribution Pty Ltd) that it is required to provide a Remediation Action Plan in respect to land formerly owned by the Company and used for the manufacture of town gas. The plan has been provided to the NSW EPA and provision has been made for the estimated remediation costs. The NSW EPA is currently in the process of considering the proposed remediation plan.
The APA Group has a system to manage environmental issues. Auditing, action plan development, implementation, training, and reporting are integral parts of this system.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
Information regarding future prospects and likely developments has been included in the Chairman’s and Managing Director’s Review of Operations on pages 6 to 11 of the Annual Report, and the Financial Review on pages 14 to 15 of the Annual Report.
DISTRIBUTIONS – ENVESTRA LTD
The following distributions were paid during the year covered by this report:
Cents per stapled security Total distribution
$M
Distribution on 30 November 2008 4.50 40.1
Distribution / dividend on 31 May 2009 2.75 35.7
Total distributions for 2008-09 7.25 75.8
The Company announced on 22 December 2008 that as a consequence of the 2:5 Rights Issue launched on that date, that annual distributions for 2009-10 were expected to be 5.5 cents per security, with two equal payments of 2.75 cents per security.
INDEMNITY AND INSURANCE OF OFFICERS
Each Director and Executive Offi cer of Envestra is indemnifi ed against liability as such an offi cer, to another person (except Envestra and its related bodies corporate), unless the liability arises out of conduct involving a lack of good faith. They are also indemnifi ed for costs of defending proceedings in which judgement is given in their favour or in which they are acquitted or the claim is withdrawn. The Directors are also indemnifi ed under Deeds of Access, Insurance and Indemnity.
The Company has paid a premium during the period of this report under a contract which insures the offi cers, Directors and executives.
A condition of the insurance is that the nature of the liability indemnifi ed, the premium payable and certain other details of the policy not be disclosed.
NON-AUDIT SERVICES
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out in note 30.
The Board of Directors has considered the position and, in accordance with advice received from the Audit and Risk Committee, is satisfi ed that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfi ed that the provision of non-audit services by the auditor, as set out in note 30, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor;
• none of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
On 8 July 2009, Envestra announced that it had executed agreements with a syndicate of fi ve banks for a three-year $280 million bank facility. The facility is to be used to re-fi nance a $125 million bank loan and
$175 million of Medium Term Notes due for repayment in the fi rst half of 2009-10. Both these maturing facilities are held in Envestra Victoria Pty Ltd.
In addition, the Company also announced that it had reached agreement with ANZ to convert an undrawn, one-year, $50 million working capital facility held with Envestra Victoria Pty Ltd, to a three-year, $75 million term facility.
The Directors are not aware at the date of this report of any other matter of circumstance which has arisen since 30 June 2009 that has signifi cantly affected, or may signifi cantly affect:
• the Group’s operations in future fi nancial years; or
• the results of those operations in future fi nancial years; or
• the Group’s state of affairs in future fi nancial years.
MEETINGS OF DIRECTORS
The number of Directors meetings and meetings of committees of Directors held during the period for which each Director held offi ce during the period 1 July 2008 to 30 June 2009, and the number of meetings attended by each Director were: Held Attended Held Attended Held Attended Held Attended
J G Allpass 7 7 1 1 - - 1 1
The Remuneration Report is set out under the following main headings:
A) Principles used to determine the nature and amount of remuneration;
B) Details of remuneration;
C) Service agreements; and D) Additional information.
The information provided under headings A – D includes remuneration disclosures that are required under the Corporations Act 2001 and the Corporations Regulations 2001.
The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001.
A) PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION
The objective of the Group’s executive reward framework is to ensure that reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market practice for delivery of reward.
In consultation with an external remuneration consultant, the Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation.
The framework is aligned to shareholders’ interests in that it:
• has economic performance as a core component of plan design;
• balances both short and long-term returns to shareholders; and
• attracts and aims to retain high calibre executives.
The framework is aligned to participants’ interests in that it:
• rewards capability and experience;
• refl ects competitive reward for contribution to growth in shareholder wealth and/or Group earnings;
• provides a clear structure for earning rewards; and
• provides recognition for contribution.
The Board has established a Remuneration Committee which provides advice on remuneration and incentive policies and practices and specifi c recommendations on remuneration packages and other terms of employment for executive Directors, other senior executives and non-executives. The Corporate Governance Statement provides further information on the role of this Committee.
Non-executive Directors
Fees and payments to non-executive Directors refl ect the demands which are made on, and the responsibilities of, the Directors. Non-executive Directors’ fees and payments are reviewed annually by the Board. The Chairman’s fee has been set at twice the fees of non-executive Directors. The Board has received advice from independent remuneration consultants on these fees.
Directors’ fees
The current base remuneration was last increased with effect from 1 July 2006. The non-executive Director who chairs the Audit and Risk Committee receives additional fees and additional fees are also payable to Directors who are members of the Committee.
Non-executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $750,000.