CONNECTEAST Annu a l Repo

r ANNUAL REPORT 2010 t 2010

2 Hillcrest Avenue Ringwood VIC 3134 Australia PO Box 804 Ringwood VIC 3134

T 03 9955 1700 F 03 9955 1701 ConnectEast.com.au EastLink.com.au YArrA VAllEY

CiTY NOrTH

OPERATIONAL A CONTENTs HIGHLIGHTS

CiTY SOuTH EastLink Traffic and Revenue EastLink Safety CHAIRmAN’s sTATEmENT 4 B B 600 mANAgINg DIRECTOR’s REPORT 8 2009  Eastlink (2009/10)  7 500 2010 550 Victorian Urban sUsTAINABILITy REPORT 16  7.0  6 Freeways (2006/08) 457 BOARD OF DIRECTORs 24 400 Source: Vic Roads 5 sENIOR mANAgEmENT 26 300 4

CORPORATE gOVERNANCE 28 3 200 FINANCIAL REPORT 37 2 2.8 169 100 146 the eastlink C CORPORATE DIRECTORy 96 1 Casualty accidents per 100 million vehicle kilometres 0.12 0.16 0 0 Average Daily Trips Average Daily Revenue prOFilES Casualty accidents Fatal accidents economic ’000 $’000 (inc GST) A EA sTERN RECREATION PRECINCT 2 ONE OF AuSTRALIA’S development GROWING TRAFFIC AND REvENuE Due for completion in 2011 SAFEST ROADS corridor is D B E AsTLINk sERVICE CENTREs 7 gaining Due for completion in 2011 C sOmERFIELD 11 Toll and Fee Revenue Operating Costs and EBITDA momentum. First residents have already moved in 101% 33%  2009 120  2009 200 ^

D ‘THE kEy’ INDUsTRIAL PARk 14 ^  2010  2010 Launched in July 2010 100 8%^ 150 E PENINsULA LINk 22 80 E Open to traffic by 2013 $ million $ million 100 60

40 Centres designated by the 50 Victorian government for 77% 20 investment and jobs growth. ^ 0 0 Toll Revenue Fee Revenue Operating Costs EBITDA

8% DROP IN OPERATING COSTS TOLL AND FEE REvENuE uP 35% Photography: Blugroove Photography, Heaven Pictures EBITDA 101% HIGHER and Life Through a Lens Photography

NOrTH MOrNiNgTON Design: Night and Day Communications pENiNSulA map: Copyright © melway Publishing Pty Ltd 2007

CONNECTEAST | ANNUAL REPORT | 2010 1 Due for completion in 2011 EASTERN RECREATION PRECINCT

They say location is everything… and in the case of a major new sports and recreation precinct, Knox City EASTLINK Council has found the perfect place. We’re providing a new home for local, regional and State basketball and football (soccer) just off the EastLink – High Street Road interchange in Wantirna South. Stage One of the Eastern Recreation Precinct began in December 2009, earthworks were completed in February 2010, and work is continuing on the key elements of the project. The two soccer pitches and pavilion are expected to be complete by early 2011, while the new basketball stadium will be set for operation during the second half of 2011. Cr Joe Cossari Mayor Positioning this great new asset alongside EastLink puts it Knox City Council within easy reach of many thousands of sports fans, players, and their families.

HIGH STREET RD

2 3 four years. Importantly, the reduction in our financing costs from the repayment of debt, together with the increase in traffic, resulted in ConnectEast becoming cashflow positive during the financial year. CHAIRMAN’S Traffic continues to ramp up on EastLink as more people discover and enjoy the travel time savings and reliability benefits STATEMENT the road delivers for everyday trips, and as the corridor’s population and economic growth rolls on. Significantly, the Average Daily Revenue generated by EastLink from 27 July 2009 (the first anniversary of tolling commencing on EastLink) to 30 June 2010 On behalf of your Board I am On top of the development that was In a year of continuing consolidation, was 20.2 per cent higher than the prior pleased to report on ConnectEast’s already underway, the motorway’s your business has focused on: comparative period. Average Daily Trips ongoing consolidation and development opening in mid-2008 triggered a range • Growing tolling and fee revenue; were 15.4 per cent higher than the prior as a business, and on the impressive of further commercial, retail, residential • Strengthening the Group’s comparative period. operational performance of the Group’s and recreational investments and this has balance sheet; world class asset, the EastLink tollway. culminated in the creation of a distinct • Managing and reducing costs; At the same time, ConnectEast has EastLink economic development corridor • Maintaining a safe road and working continued to pursue initiatives to reduce Against a backdrop of continuing traffic in Melbourne’s east and south-east. environment; operating costs, including measures to and revenue growth, ConnectEast has • Enhancing our tolling and customer encourage customers to use lower cost worked hard to establish a sound and This corridor, along with road network service systems; service channels such as the web, sustainable financial position for the enhancements already underway • Expanding our customer base; and and refinements to the EastLink tolling Group; these efforts have paid off with the (such as Peninsula Link), or on the Victorian • Deepening the Group’s system to reduce technical losses and transition to positive operating cashflow Government’s drawing board (such as community footprint. the requirements for manual processing. by the end of calendar year 2009. North East Link), creates a compelling growth environment in the region. And ConnectEast continues to work Distributions have been paid to date under The net result of these efforts is an asset EastLink has plenty of capacity to cater for cooperatively and constructively with the a Distribution Reinvestment Plan for a fixed experiencing steady growth and an this growth. Victorian Government road agencies, period that ended in April 2010. Following infrastructure operator that is now soundly VicRoads and the Linking Melbourne the transition to positive operating Other Government policy initiatives are positioned to build on the business, Authority, in the interests of a fully sciences and project delivery practice, positioning the Group for the longer term. cashflow and subject to the prudent also encouraging. In April 2010, the to further drive operational efficiencies, integrated road network. On behalf Sinclair Knight Merz (SKM) since 1996, Paul approach we have adopted to managing State released a discussion paper on and to maximise returns for ConnectEast On behalf of the Board and investors of the business I thank them for their brings to the Board his impressive record ConnectEast’s capital structure, future Melbourne’s growing containerised freight investors over the long term. I want to thank Dennis and his team ongoing assistance and support. as a business leader and innovator. distributions will be aligned with operating task which focused on the longer term for their hard work and commitment to In September 2009 we successfully cashflow (together with the progressive establishment of a coordinated rail-road It is also encouraging that rapid progress John Collier also joined the Board in making EastLink one of Melbourne’s safest completed a $421 million pro-rata release of surplus cash reserves), and are intermodal Metropolitan Freight Terminal is being made on the toll-free 27km August 2010 following his nomination by and busiest roads. I am also grateful to entitlement offer. This was offered to all expected to start from the period ending Network. It proposes three principal rail- Peninsula Link project at EastLink’s the Group’s largest unitholder, CP2. John our many investors for their continuing unitholders on a renounceable basis, 31 December 2010. road terminals to the west, north southern end, and on other projects under is an experienced executive in the toll support, particularly through last year’s enabling unitholders unable to participate and south-east of the city, with one the State Government’s Victorian Transport road sector, having worked with the Hills financial challenges. ConnectEast is now Meanwhile, EastLink itself has continued to get some value for their rights. The earmarked for the Dandenong area Plan such as planning for enhancements Motorway in Sydney from 2004 to 2008. well placed to maximise investor returns to impress as a high quality piece of entitlement offer was priced at a 9.2 per within the EastLink region. to Hoddle Street at the city end of the He is currently Chief Financial Officer of the through a well-run asset that is ideally infrastructure with proactive management cent discount to the theoretical ex-rights Eastern Freeway. accounting advisory firm, PKF, and located to benefit from the ongoing of freeway incidents, widely admired Complementing this proposal is the State’s price, with this slim discount reducing we look forward to him making a economic and population growth it urban design and landscaping, and SmartRoads initiative, which is designed the dilutionary impact on any unitholders As I have reported previously, your Board valuable contribution. has helped to foster. a very good environmental record. to enhance the efficiency of Melbourne’s unable to participate in the offer. This has undertaken detailed succession road network by giving priority to different capital raising enabled the first tranche planning, including a review of the I am also pleased to report that We pride ourselves on EastLink’s modes of transport at certain times of of our debt to be fully repaid well ahead competencies of the current Directors ConnectEast’s new Managing Director, exceptional safety record and value safe the day. Under SmartRoads, EastLink of its November 2010 maturity. By fully against the business’ needs over the next Dennis Cliche, has hit the ground running. driving habits. However, in this Annual is designated a preferred traffic route repaying the first tranche of our debt, the three to five years. This has led to the He is applying drive and strategic A.F. (Tony) Shepherd Report we also want to draw your eyes for cars and trucks, thereby confirming low margins we have on the remainder appointment in this financial year of Paul thought to the tasks of accelerating traffic away from the road itself to see what is our motorway’s key role in addressing of our debt were protected and our next Dougas as an additional independent and revenue growth on EastLink, plus happening on either side of it in terms of Victoria’s future transport and freight tasks. refinancing point will not be until 2012, director. As Chief Executive Officer and reducing costs and improving operational investment, construction and economic when the road will have been open for Managing Director of engineering, efficiencies, at all times with a view to development.

4 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 5 Due for completion in 2011 WELLINGTON RD EASTLINK SERVICE CENTRES

Fuel and food service centres are being built on the north and south-bound carriageways of EastLink between Ferntree Gully Road and Wellington Road near the Caribbean Gardens. The service centres are expected to be open by December 2011 and will be delivered at no cost to the community by AA Holdings. The Government is leasing land required for the north-bound centre and delivering the new walking and cycling facilities linking into the EastLink Trail. EASTLINK AA Holdings is a 100 per cent Victorian owned business and we thank ConnectEast for its co-operation and Andreas assistance in the planning and construction process. Andrianopoulos This is a fantastic investment in the safety of the motorists Managing Director who use EastLink as well as the local community who AA Holdings will have an outstanding new destination to visit as they walk or ride to explore the outstanding wetlands at Dandenong Creek.

FERNTREE GULLY RD

6 7 • A strategic marketing approach is helping to build customer loyalty and MANAGING encourage greater usage of EastLink to complement traffic ramp-up. • Continuing focus on maintaining strong DIRECTOR’S stakeholder relations and to leverage our partnerships with the community REPORT to create a positive corporate presence. Much has been achieved over the year to consolidate all elements of the business, with the primary objective being to safeguard and maximise returns for ConnectEast’s investors. We look forward EastLink was built to cater for the for EastLink and ConnectEast are so • Traffic and revenue on EastLink grew to continuing to build on this progress. Graph 1 ConnectEast Total Tags and Accounts rapid population growth and commercial encouraging. In addition, the investment steadily as ramp-up continued development in Melbourne’s eastern and focus on the Victorian Government’s largely in line with our August 2009 400 south-eastern suburbs which, over several four Central Activities Districts (Box Hill, traffic reforecast. Traffic and Revenue Growth 350 years, had resulted in congested roads, Ringwood, Dandenong and Frankston) • The opening in early 2010 of a new Accounts Tags The past 12 months have seen continuing   unreliable travel times and frustrated either in, or close to, the EastLink corridor, connection between Princes Highway 300 steady traffic and revenue growth as drivers. The new motorway has proved continues to attract exciting commercial and Heatherton Road is providing 250 more motorists adjust their regular travel very effective in relieving these transport and residential developments. quicker and easier access to and ’000 200 patterns to use EastLink. More than 61 issues. from EastLink. 150 On top of this, construction works are well million vehicle trips were made on EastLink 100 In addition, EastLink’s opening in June underway for Peninsula Link at EastLink’s • The early repayment of a significant during the year, with an average trip 50 2008 – like Sydney’s M7 tollway and southern end, with the project’s completion portion of our debt has de-levered the length of around 13 kilometres, producing 0 Melbourne’s Western Ring Road before by early 2013 expected to greatly assist balance sheet and leaves the Group 796 million vehicle-kilometres of travel. Jul 08 Oct 08 Jan 09 Apr 08 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 it – served as a catalyst for further local with clearing the peak period traffic with no refinancing requirements until economic development and population bottleneck at Frankston. November 2012. With more than two years of operation growth in this corridor of Melbourne. under our belts we can compare growth Meanwhile, we have been doing • Finalisation of all outstanding Manufacturers, transport and logistics rates against the prior year. For the period We continue to monitor roads across In addition, a new account opening everything in our power to accelerate contractual issues with our construction operators, property and business park 27 July 2009 (the first anniversary of tolling the corridor in which EastLink sits and offer enclosed with all toll invoices has traffic growth on the motorway and contractor, Thiess John Holland. developers and people simply looking commencing on EastLink) to 30 June 2010, analysis shows that from 30 June 2009 been targeting motorists who have used to build on a robust business. • Customer service options such as to set up a home all recognise the there were 168,851 average daily trips on to 30 June 2010, overall traffic grew 3 to EastLink without an account and without our websites have been enhanced to commercial and lifestyle benefits of The topline statistics since EastLink’s EastLink, 15.4 per cent more than in the 8 per cent. Given that some competing buying a trip pass. This offer is delivering improve the cost effectiveness of our being located close to a major free-flow opening in late June 2008 up until 30 June prior comparable period. Average daily routes such as Springvale Road are more than 10 per cent of all new accounts interactions whilst maintaining a high motorway which delivers reliability and 2010 are truly impressive: revenue was $549,805, representing returning to pre-EastLink capacity levels, being opened and these accounts have a quality standard. time savings. EastLink has also significantly • 110,884,803 trips growth of 20.2 per cent compared to the this is a very encouraging sign; future similar usage profile as older accounts. prior comparable period. The growth rates traffic growth will be weighted towards grown the workforce availability for • $354,517,713 in revenue (inc GST) • Seven advertising signs on five We have also recently launched a new indicate EastLink’s continuing ramp-up EastLink and its spare capacity. businesses in the east and south-east • 532,974,573 transactions billboards have been established on marketing program to our growing largely in line with the independent traffic regions of Melbourne. • 227,530 active customer accounts EastLink, with three more to follow. Identifying cost effective and innovative customer base called ‘Let’s Go EastLink’ • 370,416 active tags forecast released in August 2009. Victoria’s Valuer-General recently reported • Contracts have been signed for ways to grow traffic and revenue on which aims to cross promote EastLink that properties in the outer Melbourne development by the State of fuel More favourable economic conditions EastLink while enhancing the customer with popular local events and destinations, 2009/2010 Highlights suburbs neighbouring EastLink and and food service centres to be built have helped, with solid growth in our experience remains a key objective. providing special offers to users of the Peninsula Link had jumped more than Key highlights for ConnectEast and EastLink on each side of EastLink. commercial traffic volumes continuing. For example, based on customer motorway to encourage customer loyalty 20 per cent in value, and were singled over the past 12 months include: • A continuing reduction in operating Commercial traffic on EastLink accounts segmentation analyses and usage and greater usage. for 13 per cent of trips and 24 per cent of patterns, we tested short term marketing out as the city’s prime moving real estate, • EastLink continues to operate smoothly, costs, including the negotiation of an revenue due to the toll multiplier applied initiatives aimed at converting occasional particularly for first home buyers. efficiently and with a very good alliance contract with our operations CashFlow Positive and maintenance contractor, to commercial vehicles. This, coupled with users to frequent users, encouraging The EastLink economic development safety record. Transfield Services. a longer average trip length, helped boost same-day return trips on the road, and Significantly, ConnectEast became corridor is gaining momentum and our • Positive operating cashflow was our average trip toll by 4.6 per cent, promoting increased weekend usage. cashflow positive in the December quarter • Ongoing efforts to refine our business tollway will continue to attract more traffic achieved in the December quarter 0.9 percentage points higher than the Changes in customer behaviour as a following the continued growth in revenue processes and pursue ways to increase as a result. The case studies contained in and is being built up through EastLink’s 3.7 per cent toll increase we implemented result of these trials will be monitored and the sharply reduced financing costs the automation benefits that our this Annual Report demonstrate the trend continuing traffic growth and our close on 1 July 2009. in coming months. that flowed from our September 2009 and underline why the long term prospects attention to operating costs. electronic tolling system can provide.

8 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 9 Over 30 per cent sold by August 2010 ‘SOMERFIELD’

Somerfield sets the benchmark for new residential communities, with leading-edge urban design and the highest levels of environmental sustainability. The new residential community will eventually be home to over 1600 families and almost 20 per cent of the land is dedicated to open space with neighbourhood parks, wetlands, bike trails, boardwalks and established native flora nearby. The first residents have already moved in. David Payes Located in an established area, Somerfield is surrounded Chairman by amenities such as shopping centres, schools, transport, Intrapac Projects Pty Ltd beaches and recreational facilities along with its own shopping precinct. EastLink offers Somerfield residents a reliable and easy journey to destinations such as Frankston and the Mornington Peninsula, Port Phillip Bay, the Dandenong Ranges and the Melbourne CBD.

EASTLINK

DANDENONG BYPASS

10 11 Graph 2 Incidents on EastLink (1/7/09–30/6/10)

The Road Ahead MANAGING Finally, progress is being achieved on a number of fronts covered by the State DIRECTOR’S Government’s Victorian Transport Plan that will benefit EastLink in the longer term. In particular, Peninsula Link when REPORT it opens to traffic by early 2013 will be untolled, thereby effectively adding an extra 27 kilometres of freeway onto the 39 kilometre length of EastLink at no further cost – a compelling value proposition. capital raising. This was a milestone We have moved to a five and a half year Planning for elements of an alternative  Dirt, debris and litter 1901 26.48% for the Group – as it is for any tollway alliance contract with our operations and East-West crossing is progressing as is a  Breakdowns 1776 24.74% company with a CPI-linked revenue stream maintenance supplier, Transfield Services. study of potential improvements to Hoddle Stationary vehicles 1329 18.51% – and symbolised the wisdom of adopting This generated savings of around $1.5  Street and we encourage advances Flat tyres 876 12.20% a proactive and prudent approach million in the second half of this financial  in these areas to provide progressive Out of petrol 574 7.99% towards our capital structure during a year and is expected to yield annual cost  relief to peak period congestion over the challenging economic period globally. savings of $3 million going forward. This  Abandoned vehicles 241 3.35% medium to long term at the city end of Our cashflow positive status positions us outcome demonstrates what can be  Animals, Cyclists, the Eastern Freeway. This will enhance Pedestrians on EastLink 189 2.63% Since the start of tolling on EastLink, the EastLink being Breeze customers, 62 per very strongly as EastLink continues through achieved through hard work, good faith the attractiveness of this route for both Motor vehicle accidents 186 2.59% motorway’s 13 tolling points (26 gantries) cent being CityLink account holders and its traffic ramp-up phase. negotiation and a commitment on all  commuters and commercial operators. have processed an average of 757,066 4 per cent being account holders with sides to maintain an efficient but high  Other 106 1.47% The 2009 capital raising reduced the transactions each day. During the year, interstate operators or road users who Longer term network enhancements quality service. Group’s gearing levels and de-levered the enhancements to our roadside equipment make no arrangement to pay and to include the North–East Link, which would balance sheet. ConnectEast has a robust Ongoing reductions in our cost base and and image viewing screens have whom we send toll invoices. complete the ring road around Melbourne is closer to 15. These statistics rank and sustainable capital structure, with further increases in traffic will continue increased the proportion of trips that are and provide an alternative route for cars EastLink as one of Australia’s safest roads. An increase in the frequency of toll invoices balance sheet gearing of 34 per cent and to reduce our overall cost per trip as billed, and reduced by around 25 per cent and freight from Melbourne’s south-east Regrettably, EastLink did experience its being sent to casual users of EastLink no refinancing requirements until late 2012. we seek to maximise cash returns from the number of images requiring manual to the markets to the north of the city, first fatality – a truck accident in February. is encouraging more people to open the asset. reading. The Group is also in the process particularly Sydney. Early planning for Complementing this outcome was Although the cause of the accident accounts and has resulted in a sharp rise of implementing the latest generation of this important project is underway. management’s ongoing focus on reducing remains unclear, our own careful review in fee revenue. In addition, we completed optical character recognition software that ConnectEast’s cost base. The benefits Road and Tunnel Operations of the circumstances suggests that the a range of marketing and customer It is an exciting time for ConnectEast. will streamline our business processes achievable from the operating leverage motorway itself did not contribute to service initiatives that delivered a welcome The business is much better positioned I am pleased to report that EastLink has and ensure EastLink’s tolling system of the business have become increasingly the accident. increase in the proportion of new tolling now than a year ago, through the maintained its record as a high quality remains at the forefront of the industry. apparent as EastLink’s traffic volumes have culmination of a lot of hard work and asset that is very safe for motorists to accounts opened with fully automatic grown, seeing a 25.6 per cent reduction in innovation. And traffic on EastLink use and for our staff to operate. Due Tolling & Customer Service The past year has seen ongoing growth payment, reducing the cost to ConnectEast the cost per trip from $1.72 to $1.28 during continues to ramp-up. Our focus now in large part to the high standard of in our customer account base, with around to service these accounts. the financial year. Operating costs were As to be expected with complex, fully 5,000 accounts still being opened each is on growing traffic further, leveraging road design coupled with pro-active Other recent actions have enhanced $7 million (8.3 per cent) lower than in electronic tolling systems, some hard work month, and with approximately 10,000 operating efficiencies, and making it traffic management and rapid incident the self service option for casual users financial year 2009. and diligence was required in the first new tags being issued every month. easier for customers to use EastLink response, we have been able to minimise of EastLink so that it is now quicker and 18 months of operations to correct defects New account openings remain a leading and to transact with ConnectEast. At the Cost savings have been achieved through traffic disruption and ensure a safe road easier to purchase a trip pass via the and stabilise our operating systems. These indicator of future demand and new same time, the ongoing investments by a number of initiatives, including relocation with minimal disruptions for motorists. EastLink website rather than having to works, which are now complete, were account holders are spending on average governments, developers, home builders of our contact centre to smaller premises call the ConnectEast contact centre. The safety of EastLink and its twin 1.6km overseen by ConnectEast’s Chief Operating $24 a month following the opening of and businesses across the EastLink to produce rental savings of around This has seen the proportion of trip passes tunnels is demonstrated by achieving Officer, Peter Bentley, who started working their account. economic development corridor augur $400,000 per annum, and consolidating a rate of 2.8 casualty accidents per 100 on the EastLink project bid team back in purchased online rise from 20 per cent well for the Group’s future prospects. our retail outlets, saving $500,000 per million vehicle kilometres travelled. This 2003. Following our successful transition The proportion of tag trips on EastLink last year to 35 per cent. We have also annum. With the intense road opening compares very favourably to the Victorian to day-to-day operations, Peter has moved remains steady at around 85 per cent, improved other aspects of our customer and account set-up phase behind us, we urban freeway average of 7 casualty on to new challenges outside of the Group. which means lower administration website and the interactive voice response now have customer-facing outlets at each accidents per 100 million vehicle kilometres On behalf of the Board and his colleagues and recovery costs for ConnectEast. (IVR) telephone service to provide our end of the motorway – our permanent travelled for the period 2006–2008. On I want to pay tribute to Peter’s substantial Interoperability continues to provide customers with an enhanced but more customer service centre in Ringwood and competing arterial roads in Melbourne’s contribution over many years to the convenience for those using our motorway, cost effective service offering. Dennis Cliche a small outlet co-located in the Frankston east such as Springvale Road, the rate ConnectEast story. with about 34 per cent of motorists on Managing Director Visitor Centre.

12 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 13 Stage one civil works due for completion in 2010 ‘THE KEY’ INDUSTRIAL PARK CBD

When approval to build EastLink was first announced, Australand strategically acquired numerous adjacent parcels of land over several years. We have launched an industrial estate at Keysborough in the south-east of Melbourne which will be developed in five stages. We forecast that ‘The Key’ will attract a broad Michael Hayden workforce with exceptional connectivity to all of the south- General Manager eastern suburbs as well as the traditional neighbouring New Business labour markets. Australand Holdings The stage one civil works incorporating approximately 19 Limited hectares of the 101 hectare estate are due to be completed Commercial and by the end of October. Stage two civil works are due to Industrial Division commence early in 2011. Since EastLink opened, the new motorway has exceeded our expectations. It is now less than 15 minutes by car to Ringwood irrespective of the time of day and less than 30 minutes to Melbourne’s CBD. EastLink has become the gateway to metropolitan Melbourne.

GREENS RD

EASTLINK

14 15 Cardinia, Frankston, Greater Dandenong, Kingston and Mornington Peninsula Shire) in delivering this innovative and targeted road safety program.

Delivered in three phases, it provides players from local football and netball clubs with the knowledge to make good road safety decisions and to become leaders in their peer group. SUSTAINABILITY This year ConnectEast played a key role in the design of Phase 3 of the MPNFL REPORT EastLink Road Safety Program, Don’t Drive Like a Demon, which features a DVD with players from AFL team Melbourne (Tom Scully and Nathan Jones pictured right) as well as Australian netballer Bianca Chatfield and Victoria Police Deputy for users, but it is also enriching the be part of one of Australia’s leading Commissioner Ken Lay, promoting road Overview Social Sustainability Initiatives ‘secure your load’. They complement communities it serves through its tollway operators. safety awareness. the effective work undertaken by Victoria distinctive look and feel. The responsibility for sustainability ConnectEast has committed itself to We have established a culture in which Police, the TAC, VicRoads, RACV and the Don’t Drive Like a Demon also uses strategy and related activities has been playing a positive role in the communities ConnectEast’s support of the Monash our employees can flourish, develop their Victorian Government in promoting good exclusive EastLink CCTV footage which shifted from a stand-alone Sustainability in the east and south-east of Melbourne. Gallery of Art (MGA) since 2005 saw an full potential and enjoy their employment driving behaviour. ConnectEast also used captures stupid and potentially dangerous Committee to ConnectEast’s Senior During construction, great importance increase in overall attendance and school experience. ConnectEast also recognises its Variable Message Signs to promote incidents on the motorway. It demonstrates Management Committee to reflect the was placed on consultation and group visits. According to the most recently that developing an increasingly diverse the TAC’s Shine a Light on Road Trauma that this type of behaviour is unsafe and importance of sustainability to our core ensuring the very best outcomes available figures, visitation increased by workforce is critical in building our initiative held on 10 December 2009. unacceptable. It also highlights road business. The Senior Management for the local community. more than 20 per cent from 55,034 in organisational capability. issues such as tunnel safety, wire rope Committee includes representation from ConnectEast is a corporate supporter of 2004/05 to 66,651 in 2008/09 and school The Group’s community investment safety barriers, choosing safer car options We are committed to offering conditions all departments within the organisation. the L2P Learner Driver Mentor Program. group visits rose by more than 33 per cent activities reflect the ongoing efforts to and tyre care. of employment that assist employees in This program is run by the City of Casey from 56 group programs to 75. In this During the last year, the major progress maintain and strengthen ConnectEast’s achieving a successful work and family life and assists young learner drivers under This innovative education and awareness period, public programs rose by in our sustainability strategy has resulted position as a good neighbour to the balance through choice of work patterns 21 years of age without the appropriate program is now delivered into dozens of 19 per cent. from implementing top-down corporate communities in which we operate. and leave arrangements. A diverse family support to achieve their 120 hours football and netball clubs each year to initiatives, such as initiating a change This is the rationale which underpins ConnectEast is also a partner of the suite of family friendly and flexible work of supervised driving experience. more than 4,000 players and officials. to the waste discharge licence for the ConnectEast’s commitment to supporting National Boys Choir and the Frankston options are available to our employees, EastLink tunnels through agreement with organisations based in, or doing work In addition, as part of ConnectEast’s Arts Centre, two outstanding cultural of benefit to both the individual and the Art and culture EPA Victoria. This has allowed a significant in, the areas immediately surrounding agreement to requests to film on EastLink, organisations based in close proximity organisation. The ConnectEast Health & reduction in the usage of tunnel ventilation EastLink. TV production companies are required to EastLink continues to receive plaudits for to the EastLink motorway. Wellbeing Program is designed to inspire fans at night, with a corresponding make a $1,000 donation to Road Trauma its world-class urban design, architecture our employees to improve their individual In addition, EastLink’s collection of public decrease in electricity usage. Road safety Support Services Victoria – an organisation and landscaping. health and wellbeing. Each month, we artworks and the motorway’s urban based locally that works with the families offer a different initiative across the We acknowledge that further work In light of EastLink’s impressive safety of those affected by road traffic accidents. organisation at no cost to the employee. needs to be done to actively engage with record, ConnectEast is committed to “ There is no question that free entry has had a significant impact employees and contractors to identify encouraging safer driving behaviour ConnectEast is proud to be associated with Currently ConnectEast employs 310 people. and implement smaller scale, bottom-up on the surrounding road network. the EastLink Road Safety Program as the on MGA’s audience, which has grown demonstrably since the initiation Of these, 16 per cent are employed part sustainability improvements, especially of ConnectEast’s sponsorship of the gallery in July 2005.” time and 33 per cent on a casual basis. relating to the environmental impact Our recruitment advertising strategy “May I congratulate the MPNFL on its partnership and delivery of the EastLink Shaune Lakin, MGA Gallery Director of work practices. One such initiative includes targeting working families and underway is aimed at reducing Road Safety Program. We had 45 under 18 players attend the presentation has resulted in 86 per cent of incumbents printer usage. and whilst the content was confronting, the message was invaluable. As a winner in the 2010 Victorian design elements continue to inspire and in part time positions being female. The young men in the room (and parents) received a reality check.” Government’s Premier’s Design Awards capture the interest of local artists and ConnectEast is pleased to provide updates Annualised voluntary attrition in our and in the 2010 Victorian Architecture photographers. on the Group’s environmental and social John Sloan, Mornington FC, Under 18 Coach. Customer Contact Centre based in Awards (Joseph Reed Award for Urban sustainability performance measures. Mount Waverley is more than 20 per cent Design), the motorway receives peer Employees In addition, other key sustainability lower than the contact centre industry recognition for the memorable driving performance metrics are reported and ConnectEast has been running a major lead sponsor in partnership with RoadSafe ConnectEast recognises the importance rates (reported to be between 45 and experience created by Wood Marsh tracked regularly at ConnectEast.com.au. road safety awareness campaign using Victoria, the Eastern Football League (EFL) of the customer service experience 60 per cent). These results suggest that Architecture and the landscape the 14 digital Variable Message Signs and the Mornington Peninsula Nepean and believes our people are essential employees are engaged and satisfied architects, Tract. that are installed on EastLink. These Football League (MPNFL), the RACV, Victoria in building our brand and reputation. with their employment arrangements and safety messages include ‘keep left unless Police, SES, CFA, VicRoads, Melbourne These awards confirm that EastLink is The Group is committed to recruiting, we have implemented contemporary and overtaking’, ‘stay alert, don’t speed’ and Football Club and six local councils (Casey, more than just another road. Not only is it developing and retaining highly dedicated inclusive employment practices. delivering economic and lifestyle benefits and talented individuals who aspire to

16 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 17 SUSTAINABILITY 77 per cent of EastLink mystery shoppers rated their customer service experience 8 or more out of 10, with the product REPORT knowledge and professional manner rated particularly highly. Feedback from these surveys is discussed with staff, training is provided where necessary and suggested improvements are implemented where appropriate. Social Sustainability Initiatives ConnectEast has redeveloped its online (CONTINUED) transaction system and upgraded its Workforce Profile telephone interactive voice response The Victorian Government’s Fair & Flexible system to enable easier use by our Graph 1 ConnectEast headcount Recreation and environment Creek modifications and weed Employer Recognition Award 2010–11 is customers. As a result, for the high volume (as at 30 June 2010) management is also scheduled for welcome recognition for ConnectEast in As part of our community investment trip pass purchase and account payment Dandenong Creek in Rowville, Yarraman implementing innovative programs and activities, ConnectEast’s partnership with transactions, the proportion of trip passes Creek and Mile Creek in Dandenong, and practices that improve the work and family AFL Victoria features the annual EastLink purchased by phone with a customer Banyan wetland (a natural wetland and balance of employees. Cup played between two VFL clubs. In service officer has decreased from remnant of the former Carrum Carrum addition, the EastLink Primary Schools 50 per cent to around 20 per cent. The Swamp). Workplace safety Cup Competition sees 28 primary schools proportion of account payments made in the EastLink corridor compete for an The 35km EastLink Trail is a shared use The safety of our employees is of the by phone with a customer service officer annual trophy, with the final played as a path used by a range of people, including highest priority for ConnectEast. A key has decreased from 44 per cent to around curtain-raiser to a VFL final in September. walkers, runners, in-line skaters, dog corporate objective is that ConnectEast 32 per cent. walkers, people with prams and bike provides a safe and rewarding work ConnectEast is committed to making a Over the past year, we have successfully riders. It has immediately proved to be environment with a goal of no harm to our positive contribution to the many local managed the delivery of stringent Key a significant community asset. Thousands employees, contractors or the community. communities based in or near the EastLink Performance Indicators as specified in of cyclists and pedestrians use the Trail to We achieve this through the continuous Total 310 Part-Time 51 corridor and actively encourages its the Concession Deed. This has ensured   access the extensive network of pathways promotion of workplace safety, ongoing employees to lend their voluntary support the level of service provided to customers  Full-Time 157  Casual 102 that extend from Seaford to the city, taking regular consultation with groups such as safety education and by fostering a culture to programs which provide a local benefit. remains at a very high standard. in many different types of environment, Infrastructure Partnerships Australia, the where employees are encouraged to As part of an employee volunteering including wetlands, parklands, creeks RACV, Roads Australia and the Victorian report all incidents, hazards and near The latest Tolling Customer Ombudsman Graph 2 Average length of service – based program, ConnectEast staff participated and natural bush settings. Transport Association. misses. Report is publicly available for download on service length of existing staff in a tree planting day in support of an at Breeze.com.au. The level of complaints ConnectEast has also moved to establish The ConnectEast safety record rates highly (as at 30 June 2010) initiative to improve the creek banks and Stakeholder engagement remains low and is a reflection of the a high profile signature community event, with only two Lost Time Injuries (LTI) in the waterways alongside EastLink and to ongoing diligent work and attention ConnectEast has continued its high in partnership with a charity, to generate six year history of the company. Our goal create a better habitat for wildlife. by our customer service staff to ensure standard of community consultation extensive excitement and interest, to raise is no harm to our employees. complaints are resolved in a timely The Waterways Alliance, on behalf and stakeholder engagement. funds for a worthy cause and to raise the In the 2010 financial year, one LTI was manner to the satisfaction of all parties of Melbourne Water, completed the profile of ConnectEast and EastLink. We are actively involved in a number recorded. The Lost Time Injury Frequency involved. Active complaints represent revitalisation of a 1.4km section of Mullum of community, industry and economic EastLink will be closed on the morning of Rate (LTIFR) for the 2010 financial year approximately 0.019 per cent of total Mullum Creek between New Street and development groups and forums with 14 November 2010 to host the Hanover was 2.24. accounts issued. Deep Creek Road in Ringwood. The a view to having input to policy and ConnectEast Ride for Home. The event Waterways Alliance was established In addition to quality monitoring of staff decision-making, and to supporting gives both skilled and recreational Customer service by Melbourne Water in June 2008. The and customer interactions, mystery efforts to achieve positive investment cyclists an unprecedented opportunity Mullum Mullum Creek project included During the 2010 financial year, ConnectEast shopper surveys are conducted annually and lifestyle outcomes. ConnectEast also to safely ride the full length of EastLink the control of invasive weeds and the opened 66,357 new Breeze accounts for to assess the quality and knowledge of enjoys ongoing positive relationships on both carriageways, whilst raising revegetation of the area with more than customers; and distributed 123,821 Breeze our call centre and face-to-face service  Total 310  2–3 years 137 with all levels of Government, local MPs funds for Hanover Welfare Services, a 14,000 native plants. The Alliance will tags to new and existing accounts. staff. The most recent survey showed  < 1 year 68  3–4 years 28 and officers at a departmental and leading Melbourne-based agency which maintain the area for a further three years  1–2 years 62  >4 years 15 council level. In addition we play a role in provides services to people experiencing to support the planting. regards to policy development through homelessness or housing crisis.

18 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 19 SUSTAINABILITY REPORT

Environmental Sustainability a positive sustainability outcome by Landscape Landscape improvement works Table 4 Water Usage Initiatives reducing greenhouse gas emissions from During the year, supplementary planting This year 20,000m2 of grass has been the electricity required to run the fans. ConnectEast is committed to operating all of 75,826 plants was conducted, converted to gardenbed along EastLink to Water Source Unit 2009/2010 aspects of EastLink in an environmentally compared to 20,854 plants during the improve the safety of steep or inaccessible Natural gas Potable Water KL 4,422 responsible way. previous year. EastLink orders stock with mowing areas and reduce crew exposure Water Tanks KL 372 Natural gas is only used for heating in the nurseries up to 12 months in advance and to high traffic risk mowing sites. In some Air EastLink Operations Centre. The energy provides seeds collected from EastLink locations, it has introduced a subtle purple Recycled/Reclaimed Water KL 100 Total Water Use KL 4,894 All air quality objectives have been met savings reflect efficiency in running the to ensure provenance stock is available colour theme to the landscape. This with regard to ambient quality. There were system. to supply the large numbers of plants feature is another visual enhancement required. During the planting season, of the roadside environment for drivers. no breaches of the EPA Waste Discharge Water Previously, all water (including Fuel stock is stored at the EastLink depots and Licence and the State Environment groundwater and stormwater from rain) watered with rainwater collected from the Bushfire recovery The primary user of potable water is the Protection Policy (Air Quality Management) There is little scope to reduce fuel usage collected in the EastLink tunnels was sent roofs into a tank. A focus on tree planting EastLink Operation Centre. Where water is intervention levels from the EastLink tunnels given the nature of the incident response During the Black Saturday fires of February to sewer. In March 2010, approval was will see the EastLink landscape transform needed for irrigation the water is sourced were not exceeded. One incident of low task and our commitment to providing 2009, two hectares of the EastLink obtained to discharge the stormwater over time with a higher proportion of trees from the installed water tank or water is severity rating occurred in June related to service levels expected by EastLink landscape was burnt. Extensive re-working collected in the tunnels to a wetland for to other species compared to when the reclaimed from sediment ponds where an equipment fault. During the previous customers. ConnectEast is planning to was required to rehabilitate this area treatment, reducing the volume required road opened. 10 per cent of the planting appropriate. During summer this year the reporting year, one incident of low severity offset the fuel used by EastLink vehicles including ground preparation, mulching to be pumped to sewer. This has a good to date is tree species and 40 per cent dry periods were not as prolonged, and rating also occurred, relating to equipment by participating in the GreenFleet scheme and planting. This area now contains sustainability outcome by reducing the are shrubs. with the plants being more established failure during extreme heat. These for 2011. healthy, growing plants. load on the sewerage system and utilising little watering was required. incidents did not result in any impacts on natural processes in the wetland to treat air quality within or outside the tunnels. the water in accordance with Water Sensitive Urban Design Principles. Energy & Emissions Table 1 Electricity Usage Table 5 Waste 2009/2010 2008/2009 Savings Water quality Electricity Waste type 2009/2010 16,476,527 kwh 17,940,747 kwh 1,464,220 kwh All rainwater run-off from EastLink is The reduction of electricity usage this year General Waste 1,046.26 M3 directed through a natural water treatment can be attributed to improvements in the Street Sweeper Waste 136.38 T system comprising of grass swales, operation of the tunnel ventilation system, Table 2 Natural Gas Usage Recyclables 131.34 M3 sediment ponds and ponded wetlands including the reduction of fan usage Tyres (prescribed waste)* 13 M3 and biofiltration ponds. EastLink conducts between 9pm and 5am. 2009/2010 2008/2009 Savings Green Waste removed off-site** 6 M3 regular water monitoring to ensure the 1,599,657 MJ 2,100,700 MJ 501,043 MJ Approval was received from the Victorian All solid waste streams above total 2,237.73 M3 objective to maintain or improve water EPA to allow air from the tunnels to quality in the creeks which receive EastLink Steel recycling 10 T leave the tunnel at ground level (via the run-off is achieved. Monitoring results Table 3 Fuel Usage portals) at certain low traffic periods after Fluorescent tubes 1000 ea show that this objective is being achieved. air monitoring results demonstrated no 2009/2010` 2008/2009 Difference Tunnel trade waste water 14,518 KL impact on community air quality. This Diesel 133,402 Lt 116,102 Lt + 17,300 Lt Liquid waste (recovered from road incident) 100 LT change to the EPA licence means large Petrol 34,561 Lt 35,161 Lt -600 Lt exhaust fans are not required to be run * Tyres recovered from road and incidents between 9pm and 5am to draw air up the LPG 22,707 Lt 21,649 Lt + 1,058 Lt ** The majority of green waste produced is re-used on-site as mulch. Only unsuitable material is disposed off-site ventilation stacks. This decision has

20 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 21 Due for completion in early 2013 PENINSULA LINK

The $759 million Peninsula Link project will connect with EastLink near Frankston and the Mornington Peninsula Freeway in the south. It will extend for 27 kilometres with two lanes in each direction. The untolled motorway will alleviate significant traffic congestion in EASTLINK Frankston and provide a traffic light free run for vehicles from Melbourne to the Mornington Peninsula. A full trip between Mt Martha and Carrum Downs will be slashed to just 17 David Clements minutes – a saving of up to 40 minutes, in peak periods. General Manager Southern Way has been working closely with ConnectEast Southern Way Pty Ltd to develop the construction sequence, methodology Peninsula Link Project and detailed traffic management plan for the EastLink interchange, aiming to minimise EastLink traffic impacts whilst meeting the anticipated construction timeframes. Peninsula Link will be open to traffic by early 2013.

PENINSULA LINK

Artist’s impression

FRANKSTON

Artist’s impression

22 23 Anthony Shepherd Dennis Cliche Bruce Beeren John Collier Paul Dougas Jim Hall Dr Max Lay AM Mark Snape Yvonne von Hartel AM Mark Lynch

John Collier Jim Hall 1986 to 2008, vice-president and deputy Yvonne von Hartel AM chairman from 1995 to 1999 and president BCom, MBA, ACA, GAICD, F Fin BCom, FCPA, MAICD BArch (Hons) LFAIA BOARD OF from 1999 to 2002. He was also president Non-executive Director Independent Non-executive Director Independent Non-executive Director Chairman of the Audit, Risk & Compliance of the Australian Automobile Association Chair of the Community Investment Committee. John Collier is Chief Financial Officer of PKF, Committee. from 2000 to 2002. Member of the Safety Committee. DIRECTORS Member of the Nomination Committee. a chartered accounting and business advisory firm employing 650 staff The 4th edition of his international Yvonne von Hartel is a founding Principal Jim Hall is a non-executive director of across offices in Melbourne, Sydney textbook, Handbook of Road Technology, of the award winning national architectural Paperlinx Limited, Alesco Limited, Centro and Brisbane. John is responsible for all was published in England in 2009. and urban design practice, peckvonhartel. Properties Limited, Centro Retail Limited financial and fiscal management aspects and a member of the JPMorgan She served as the chair of the Victorian of the firm’s operations, together with Anthony Shepherd Dennis ClichE Advisory Council. Mark Snape Design Advisory Council from 2002 to providing leadership and co-ordination 2004 and as a director of the Tourism BEc, MBA, ACA, FAICD BCom BEng, MBA in administration, business planning, From May 2005 to February 2008 he was and Transport Forum from 2001 to 2004. Non-executive Director Chairman Managing Director accounting and budgeting. also a non-executive director of Symbion Independent Non-executive Director Member of the Safety Committee. Member of the Audit, Risk & Compliance Committee Yvonne is Chair of the Sustainability in Health Limited. Jim was Executive Director Chairman of the Nomination Committee. Member of the Community Investment Committee. Between 2004 and 2008, John worked Member of the Human Resources Committee Buildings Standards Coordination Group Member of the Human Resources Committee. Finance at Orica from January 2002 until of Standards Australia and a Trustee Details on Dennis Cliche are provided in with the Hills M2 motorway in Sydney, a toll Mark is Corporate General Manager, April 2005. of the Melbourne Convention and Tony Shepherd is currently Chairman of the Senior Management section of the road owned and operated by Transurban Infrastructure Finance and Investment Exhibition Centre. Transfield Services Limited and a Trustee Annual Report on page 26. Group. Commencing as the Chief Financial Prior to joining Orica, he was Vice for the John Holland Group, with of the Sydney Cricket Ground Trust. Tony is Officer and Company Secretary in 2004, he President, Group Accounting and responsibility for managing the Group’s Yvonne was awarded a Member of the also a director of the Australian Chamber became Head of Hills M2 in late 2005 with Controller at BHP Billiton Limited. In 32 equity positions. Mark has considerable Order of Australia in the General Division Bruce Beeren Orchestra and is Chairman Elect of Team responsibility for all Hills M2 management, years with BHP, Jim held a range of senior experience in large scale infrastructure in the Queen’s Birthday Honours, 2007. GWS, the new AFL club in Western Sydney. BSc, BCom, MBA, FCPA, FAICD operations, finance and administration. financial management roles. development and project financing. In Independent Non-executive Director addition to ConnectEast he is a director of As an executive of the Transfield Holdings John has been nominated as a director Mark Lynch Chairman of the Human Resources Committee. the BrisConnections Group of Companies, Group in the 1980s and 1990s, he was Member of the Audit, Risk & Compliance by ConnectEast’s largest unitholder, Dr Max Lay AM Connector Motorways Group and Metro BSc, LLB (Hons), LLM, MAICD Committee. CP2 Limited. He was appointed to the responsible for the development of the PhD, BCE, MEngSc, FTSE, HonFIE Aust Alternate Non-executive Director to Mark Snape Member of the Nomination Committee. Trains Melbourne Pty Limited. Sydney Harbour Tunnel project and board on 18 August 2010. Independent Non-executive Director Mark is Executive General Manager, Transfield’s successful tender for the Bruce Beeren has extensive experience Member of the Audit, Risk & Compliance He is a past director of Asia Pacific Committee. Strategy & Development for Thiess Pty ANZAC Warship Project. as a non-executive director on listed Transport Pty Limited, Pacific Hydro Limited, Paul Dougas Chairman of the Safety Committee. Limited, with responsibility for the Thiess company boards in Australia and New Southern Hydro Pty Limited and AEP He was Chief Executive Officer of the BE(Chem), M.ENGSc, FAICD, HonFIEAust Group’s project investments and its Zealand and as a member of listed Max Lay has had a distinguished Resources Australia Pty Limited. Project Development Division at Transfield Independent Non-Executive Director strategic development and project company audit committees. career spanning both civil and transport Holdings Group from 1992 to 2001. Member of the Human Resources Committee. Before joining John Holland Group, Mark finance activities. Member of the Safety Committee. engineering. Max held the role of He has also been a member of held various senior management positions In this position, Tony was responsible for executive director of the Australian Road Mark has considerable experience in senior executive teams of major listed Paul Dougas has an impressive record including as Managing Director Asia the Melbourne CityLink project, as well Research Board from 1975 to 1988 until large scale infrastructure development companies, working in executive roles as a business leader and innovator. Pacific for American Electric Power Co. as a number of other build-own-operate- he joined VicRoads, where he held and project financing as a lawyer and for AGL (CFO), AGL Pipelines (General He has been Chief Executive Officer Inc., Director Deloitte Corporate Finance, transfer projects and the development the positions of director of quality and also as a director of companies involved Manager), VENCorp (CEO) and Origin and Managing Director of engineering, Director County Natwest Corporate Finance of Walsh Bay. technical resources from 1988 to 1994 in the development or operation of major Energy Limited (Finance Director). services and project delivery practice, and Director BZW Corporate Finance. and then director of major projects from infrastructure projects including Aquasure, Tony was formerly a non-executive director Sinclair Knight Merz (SKM), since 1996, Bruce is a non-executive director of Origin 1994 until 1996. These duties included the concessionaire for the Victorian of Transurban for its initial flotation. and is responsible for leading the Group Energy Limited (since 2005 – formerly major planning and review roles leading Desalination Project, and is globally and managing the firm’s strategic executive director from 2000 to 2005), up to the selection of the successful an alternate director of ConnectEast direction. Contact Energy Limited (since October concessionaire for the Melbourne and BrisConnections. 2004), Coal & Allied Industries Limited In addition, he was the Inaugural CityLink project. He is also a director of Perth based (since July 2004) and Equipsuper Pty Chairman of the Centre for Engineering Max was then appointed under the engineering consultancy ProMet Limited (since August 2002). Leadership and Management, and takes Melbourne CityLink Act as the independent Engineers. a particular interest in workplace safety, He is a former director of Envestra Limited reviewer on the Melbourne CityLink project, youth training employment and the (2000-2007) and Baycorp Advantage operating in that role from 1996 to 2003. environment. Limited (2004-2007). Bruce has been Max has had a longstanding involvement a fellow of CPA Australia for more than He has worked in various roles with with the RACV, having been a director from 20 years. SKM since 1978 and before that was with the Melbourne and Metropolitan Board of Works.

24 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 25 Dennis Cliche Nick McKechnie Tony Hudson James Tonkin Shirley Robertson Tom Walker SENIOR MANAGEMENT

Dennis Cliche Nick McKechnie Tony Hudson James Tonkin Shirley Robertson Tom Walker

BEng, MBA BA, CA LLB, BCom, Grad Dip App Corp Gov, MAICD, ACIS General Manager, Corporate Affairs MPA, GradDip Acc, GradDip Fin, PNA, SF Fin General Manager, Information Technology Managing Director Chief Financial Officer General Counsel & Company Secretary General Manager, Human Resources James Tonkin has worked in media and & Operations Tom Walker has been with ConnectEast Dennis Cliche joined ConnectEast from Nick McKechnie was appointed Chief Tony Hudson is an experienced lawyer strategic communications for more than since May 2006, and was responsible Yarra Trams, where he held the position Financial Officer in March 2009. with 19 years experience with the national 28 years, with a focus on stakeholder Shirley Robertson joined ConnectEast for managing the delivery and early of Chief Executive Officer since September law firm, Blake Dawson (1986–2004). He in 2005 from Origin Energy, where she Before his appointment as CFO, Nick was relations and issues management. completion of the Eastlink Tolling System, 2005. He was formerly the company’s was a partner in the firm’s corporate team held the position of National Manager, the Operations Management Control the Group Financial Controller and Investor Following a 10-year career as a Deputy Chief Executive Officer and Chief from 1995 to 2004 and spent five years Customer Support. System and the Mechanical and Electrical Relations Manager for ConnectEast. newspaper journalist, he worked for four Operating Officer from 2003. as resident partner in the firm’s Jakarta Shirley has had over 33 years experience Systems. In September 2009, his role Prior to working at ConnectEast, Nick held associated office. years as a media and policy adviser to the He started his business career with Air in banking, retail, utilities, and transport expanded to include responsibility for all a number of senior finance roles including Victorian Premier and Government. Liquide Canada and spent 22 years At Blake Dawson, Tony advised on infrastructure. She began her career with of ConnectEast’s Information Technology at UK-based Virgin Media (formerly with the Air Liquide Group in a variety of complex mergers and acquisitions, From 1996 until 1999 James was Media ANZ Banking Group Ltd and spent 17 years systems and services. Telewest Global Inc) from 2000 to 2006, executive, sales and technical roles in and helped to negotiate and document Director at Victoria Police where he was in a variety of roles before moving to Coles and before that with professional services He is currently a board member of ITS- Canada, France and Australia. During joint ventures, supply contracts, responsible for managing day-to-day Myer Ltd. in 1994, then Origin Energy in firm, Arthur Andersen & Co (UK). Australia. this time Dennis’ responsibilities included standard terms and conditions, senior issues and providing strategic advice 2003 before being approached to join national sales and marketing and also At Virgin Media, Nick’s primary employment agreements and contracts for to the Chief Commissioner and Senior ConnectEast to establish the customer Tom began his business career with Cubic Group level strategy on information responsibilities included heading up maintenance and other services. He also Command. service function. Corporation and spent 19 years in a variety of executive roles. systems and IT infrastructure. finance for the Consumer Division, Group advised on a range of general corporate James joined ConnectEast in October 2006 Shirley has enjoyed a wide-ranging financial planning and budgeting and and commercial law issues. In May 1998 was appointed as Managing after seven years with communications career spanning start up operations, In 1994 he was appointed Managing corporate strategy. Director of the Australian subsidiary of Tony joined ConnectEast in his current consultancy, Gavin Anderson & Company, complex billing and financial systems in Director of Cubic Transportation Systems Air Liquide in Melbourne, a position he position in August 2005. where he was a Managing Director, high volume transactions environments, Australia, a position he held for 7 years. held for five years. Throughout this period working on a wide range of challenging shared service integrations, electronic During this time, he turned a loss making Dennis drove significant change across briefs involving government relations, crisis payment services, sales, client account business into a profitable venture and was the business and saw profits and sales and issues management and strategic management, project management and responsible for submitting the winning progressively rise. He also established communications. investment consulting. tender for the SouthEast Queensland an impressive internal safety record for Integrated Smartcard Ticketing Project. the business and launched a number of In 2002, he transferred to Cubic’s largest human resources initiatives. subsidiary based in the UK and held a Dennis joined Transdev, SA in May 2003 number of key executive roles, including and was seconded to the Yarra Trams as Director of Projects, Commercial and executive team in July 2003. Finance, prior to returning to Australia.

26 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 27 CORPORATE GOVERNANCE

1. GOVERNANCE AT CONNECTEAST the governance arrangements that apply to listed companies 2.2 Skills, knowledge and experience 2.3 Independence where applicable. For example, the Group has enshrined in The Board aims to maintain among its directors an appropriate The criteria used by the Board to assess whether a director 1.1 Framework its Constitutions requirements to hold an annual meeting of mix of skills, experience, expertise, tenure and diversity (including is independent are set out in the Board Charter. They include unitholders, for directors of CEML to be approved by resolution of ConnectEast has adopted objectives and guiding principles that in age and gender) to enable the Board to be effective in consideration of any other relationships that exist between a unitholders, for directors to retire after no more than three years in underlie our approach to corporate governance and the conduct performing its role of protecting and promoting the interests director and ConnectEast or its substantial holders, consultants, office (subject to a right to submit for approval to be re-appointed) of our daily activities. This includes a commitment to conducting of unitholders. Potential candidate directors are also assessed by suppliers or customers. The overriding considerations are that and for the aggregate remuneration of non-executive directors to our activities ethically and lawfully, and aims to create value for reference to their integrity, communication capabilities, strategic the director: be approved by unitholders. our unitholders while providing accountability and internal control thinking, reputation and commitment to devote time to the role. > is not a member of management, and qualifies as an external systems commensurate with the risks involved. director in accordance with Chapter 5C of the Corporations Act 1.3 Date For these purposes, the Board: > has no interest or relationship that could interfere with the Because ConnectEast is listed on the ASX, we pay particular > maintains a succession plan identifying the mix of skills, This statement reflects ConnectEast’s corporate governance director’s ability to act in the best interests of ConnectEast and attention to the Corporate Governance Principles and experience, expertise, tenure and diversity required for arrangements during the year and up to 18 August 2010. independently of the management of ConnectEast Recommendations published by the ASX Corporate Governance the Board to perform its role effectively and the applicable > is not otherwise prevented from exercising independent Council (ASXCGC). We consider that our corporate governance attributes of the current directors judgment on the Board. arrangements during the year and up to the date of this statement > considers as part of its annual performance review whether 2. THE BOARD are consistent with the ASXCGC’s recommendations. the size and composition of the Board are appropriate, the The Board considers that six of its nine directors are independent. time commitment required from a non-executive director to The independent directors are Tony Shepherd, Bruce Beeren, The key governance policies referred to in this statement are 2.1 Role and responsibilities perform their role effectively and whether directors are devoting Paul Dougas, Dr Max Lay, Jim Hall and Yvonne von Hartel. available on our website (ConnectEast.com.au) under the The Board provides direction and guidance to management, with the required time Dennis Cliche (Managing Director), Mark Snape (nominated by Investor Centre tab, as is a compliance checklist indicating the aims of ensuring that ConnectEast acts in the best interests of > requires non-executive directors to retire after a maximum Thiess John Holland) and John Collier (nominated by CP2 Limited) specifically how our corporate governance arrangements are its unitholders, and at all times with integrity. of 12 years in office are considered not to be independent. Mr Dougas and Mr Collier consistent with the ASXCGC’s recommendations. > has established a Nomination Committee to assist the Board were appointed as additional directors by the Board and will The Board Charter defines the role and responsibilities of the A reference in this statement to the Financial Report, Directors’ achieve its aims regarding its size and composition. submit for approval by unitholders to be re-appointed at the Board (including matters reserved for its authority) and describes Report or Remuneration Report is to those sections Group’s 2010 annual meeting. the processes the Board follows to discharge its role and Where there is a need for a new appointment, the Nomination of ConnectEast’s 2010 Annual Report. responsibilities. Committee will conduct an appropriate search process. The Thiess John Holland’s right to nominate a director stems from its search process will take into account the Board’s aims regarding holding of an aggregate of 130 million units in the Trusts acquired 1.2 Group structure and governance arrangements Beyond the matters reserved for the Board’s authority, the Board its size and composition and the desirable attributes of candidates as part of the arrangements for construction of EastLink. As has delegated to the Managing Director all powers and authority ConnectEast is made up of two Australian unit trusts, ConnectEast for appointment. The Nomination Committee will recommend one part of settlement of various disputes arising out of the EastLink to achieve the Group’s objectives. The Managing Director is Investment Trust and ConnectEast Holding Trust (Trusts). Units in or more candidates to the Board. The search process will include construction contract, it has been agreed that Mr Snape will resign accountable to the Board for the exercise of these delegated the Trusts are stapled together and traded as one on the ASX. opportunities for current directors to meet with recommended as a director of ConnectEast when Thiess John Holland receives powers and authority, and for the performance of ConnectEast. candidates. A decision on appointment of a new director will payment of its bonus for early completion of the construction The Trusts are managed by ConnectEast Management Ltd (CEML), The Managing Director ensures that reporting to the Board be made by the Board. of EastLink (expected in January 2012) or earlier if Thiess John a wholly-owned subsidiary of ConnectEast Holding Trust. CEML’s is effective and addresses material developments affecting Holland disposes of any of its current unitholding. only business is to act as the responsible entity of the Trusts. CEML achievement of the Group’s objectives. An executive search firm may be engaged to assist in identifying holds an Australian Financial Services Licence and assessing candidate directors, whether to fill a current need Mr Snape and Mr Collier do not participate in boardroom discussions (AFSL) issued by the Australian Securities & Investments or for potential future appointment. or vote on matters relating to ConnectEast’s current or proposed Commission (ASIC). dealings with Thiess John Holland or CP2 Limited respectively. The Board considers that its members collectively have the range Some provisions of the Corporations Act and ASX listing rules that of skills, experience and expertise required to govern ConnectEast. The Board has adopted a Related Party Transactions Policy apply to listed companies do not apply to ConnectEast, because Information about each of the directors is available on our website to govern ConnectEast’s involvement in transactions with related of its stapled trust structure. However, the Group seeks to adopt under the About Us tab and in the Annual Report. parties. Related party transactions during the year are reported in note 27 to the Financial Report.

28 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 29 CORPORATE GOVERNANCE

2.4 Terms of appointment The Group does not have a deputy chairman. However, 2.9 Performance evaluation of the Board 3.2 Permanent committees in the absence or inability to act of Mr Shepherd, Jim Hall chaired The Group and each non-executive director enter into a letter of The Chairman leads an annual review of the effectiveness of the The permanent committees of the Board are the Audit, Risk & discussions at a number of Board meetings during the year. appointment containing the terms of the director’s appointment. Board as a whole, each Board Committee, each director (including Compliance Committee, the Human Resources Committee, the The letter includes information about the Group’s corporate the Chairman), and the governance processes that support the Nomination Committee, the Safety Committee and the Community 2.6 Meetings and operating structure, Board processes and the Group’s work of the Board. The Chairman formally discusses the results Investment Committee. expectations of non-executive directors, as well as remuneration, The Chairman sets the agenda for each Board meeting in with individual directors and the Board as a whole. Each committee reports, and recommends appropriate actions, insurance and indemnity arrangements. consultation with the Managing Director and Company Secretary, In 2010, the Board engaged independent expert consultants, to the Board on matters arising from the Committee’s activities. but any director may have a matter added to the agenda. Each new director takes part in an induction program that Baker & Baptist, to facilitate the Board review. Baker & Baptist The minutes of each Committee meeting are considered at the Directors receive comprehensive papers on matters considered provides an understanding of ConnectEast’s financial, strategic, conducted interviews with individual directors and senior next meeting of the Board, and the Committee Chairman reports at Board meetings. The Company Secretary generally distributes operational and risk management position; ConnectEast’s culture managers who have regular dealings with the Board, prepared to the Board on issues of particular relevance to the Board. Papers papers to all directors six days before each meeting. and values; the rights, duties and responsibilities of directors; the a detailed written report and facilitated a discussion of their report for each Committee meeting are made available to all directors roles and responsibilities of senior executives; the role of Board Each Board meeting is also attended by the CFO and Company at a meeting of the Board. The Chairman also discussed the before the relevant meeting. Committees; and meeting arrangements and director interaction. Secretary. Other executives also attend for parts of Board meetings outcomes of the report with individual directors. The Board annually reviews the composition of each Committee. to report on their area of responsibility. The Board also receives A new director appointed by the Board is required to retire and The Board decided to make a number of changes to its It most recently did so in June 2010. presentations from external parties where appropriate. seek approval for re-appointment at the next annual meeting governance arrangements and processes following this year’s Details of attendance at Committee meetings are set out in the of unitholders. The non-executive directors meet separately from executive performance review. These changes include amendments to Directors’ Report. management at the beginning of each Board meeting. the charters of several of the Board’s committees and requiring The Managing Director has entered into a service contract with management to reduce the operational detail and improve the the Group. Key terms of that service contract are described in the Details of attendance at Board meetings are set out in the 3.3 Ad hoc committees business focus in monthly and other reporting to the Board. Remuneration Report. Directors’ Report. The Board occasionally establishes ad hoc committees to deal with particular issues. During the current year, the Board 2.5 Chairman 2.7 Access to information and advice 3. BOARD COMMITTEES established an ad hoc working group with management to The Board selects one of its members as Chairman. Anthony Directors have access to the Group’s records and information and develop the strategy for meeting the Group’s need to refinance Shepherd was appointed as Chairman of ConnectEast Group receive detailed financial and operations reports at each meeting 3.1 Establishment $810 million of its EastLink project finance facility in November on 28 September 2004. of the Board. 2010. Tony Shepherd, Jim Hall and Bruce Beeren participated The Board has established committees to help the Board in in the working group. Jim Hall subsequently acted as a member The Chairman facilitates the workings of the Board, and is The Board and individual directors (with the Chairman’s approval) performing its role. Each committee is made up of the individuals of the due diligence committee established for the purposes of responsible for ensuring that the Board maintains its principles have the right to seek independent professional advice at the best suited for the committee’s role, is chaired by an appropriate the $421 million equity raising conducted in August 2009, the and processes. The Chairman represents the Board to unitholders, expense of ConnectEast on any matter connected with the director, has access to adequate resources, and has a charter proceeds of which were applied towards repaying in full the debt including by chairing meetings of unitholders. discharge of their responsibilities. The Board and individual setting out principles for the composition, authority, responsibilities falling due in November 2010. The other members of the due directors also have access to advice and assistance from the and administration of the committee. Committees from time The Board considers that Mr Shepherd is an independent diligence committee were senior members of management, Company Secretary and General Counsel. to time obtain advice and presentations from external parties director. In reaching that conclusion, the Board has considered and the committee was chaired by the Group’s external relating to issues within their respective areas of focus. The Mr Shepherd’s role as Chairman of Transfield Services Limited legal adviser. 2.8 Remuneration Company Secretary acts as secretary to each committee. (TSL), which provides operation and maintenance services on EastLink. The Human Resources Committee makes recommendations to the Board about the Group’s policies for remuneration of non- The Board is satisfied that Mr Shepherd’s role as Chairman executive independent directors. The director nominated by of TSL does not affect his ability to exercise independent judgment Thiess John Holland is not remunerated by the Group. in the best interests of ConnectEast. Mr Shepherd does not participate in boardroom discussions or vote on matters relating The Group’s remuneration policies and practices are described to ConnectEast’s current or proposed dealings with TSL. in the Remuneration Report.

30 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 31 CORPORATE GOVERNANCE

4. AUDIT, RISK & COMPLIANCE COMMITTEE respects, with applicable regulatory requirements and present of the Group’s management of risks relating to security, > the financial statements are founded on a sound system of a true and fair view, in all material respects, of the Group’s occupational health, safety and environment. Max Lay, who is a risk management and internal compliance and control which, 4.1 Membership financial position and performance. member of the Audit, Risk & Compliance Committee, is Chairman in all material respects, implements the policies adopted by of the Safety Committee. This is to ensure that, in areas of overlap, the Board The members of the Audit, Risk & Compliance Committee are Jim 4.4 External audit the activities of the two committees are effectively coordinated. > the Group’s risk management and internal compliance and Hall (Chairman), Bruce Beeren, Max Lay and Mark Snape. Apart control systems relating to financial reporting, compliance and from Mark Snape, each member is an independent director. The Committee manages the Group’s relationship with the The Board has adopted a risk management plan documenting operations objectives are operating efficiently and effectively external auditor. This includes the procedures for selection and the processes followed by the Group to identify, assess, monitor in all material respects. 4.2 Role and responsibilities appointment of the external auditor, including any requirements and manage risks. The risk management plan follows the for periodic rotation of audit firms or personnel. The current requirements of AS/NZS ISO 31000:2009. Further information about the Group’s management of financial The Audit, Risk & Compliance Committee focuses on the integrity external auditor, PricewaterhouseCoopers, was appointed in risks is set out in note 2 to the Financial Report. of the Group’s financial reports and their audit, as well as the The senior management team is responsible for implementing December 2004. The individual lead auditor rotates at least every effectiveness of the Group’s systems of risk management, internal the risk management plan. Senior managers regularly review five financial years. The current lead auditor, Charles Christie, was 4.6 Internal control and compliance systems control and compliance. with their teams the material business risks in their areas of appointed on 1 July 2009. responsibility and report to the Managing Director on changes in The Committee oversees the development and implementation of Each meeting of the Committee is also attended by the Managing The Committee evaluates the performance of the external auditor, the nature or ratings of those risks. A “risk register” is maintained the Group’s systems for financial and operational internal controls Director, Chief Financial Officer, Group Financial Controller and the taking into account the value delivered to ConnectEast, cost- setting out all risks identified. Based on an analysis of likelihood and compliance, including internal audit. Company Secretary. The Chairman of the Board attends all or effectiveness, and the maintenance of high levels of professional and consequence, each risk is rated low, medium, high or very part of some meetings of the Committee, for example when The Group’s internal audit strategy is coordinated by the Manager integrity, objectivity and independence. These matters are high. An approach is developed for treating each risk rated it considers the Group’s annual and half-yearly results. Risk, Safety & Internal Audit and covers financial and non-financial reviewed in accordance with the Board’s Auditor Independence medium, high or very high, and an assessment of residual risk risks and associated plans and procedures. The internal audit Representatives of the external auditors, PricewaterhouseCoopers, Policy, including by considering: is made after application of those treatments. strategy is based on the use of internal resources, supplemented attended four meetings of the Committee during the year. Each > an annual written statement from the external auditor as to At each of its meetings, the Audit, Risk & Compliance Committee by external expert resources as required. Staff involved in internal of those meetings included an opportunity for a private session its compliance with applicable independence and professional receives a report on actions taken to implement the processes audits have been selected on the basis of their audit qualifications between the Committee and the external auditors without any conduct requirements described in the risk management plan and focusing on a “risk and experience from previous employment. members of management present. In addition, the Committee > the nature and extent of, and the amount of fees charged for, watch list”. This is an extract from the Group’s risk register setting Chairman met independently with PricewaterhouseCoopers’ any non-audit services provided by the external auditor, and With the Committee’s endorsement, a number of changes were out the status of material business risks. The Board also receives audit engagement partner immediately before the meetings at any resulting actual or potential impairment of the objectivity made to the internal audit strategy during the year. These included a report on the risk watch list and other risk management matters which the Group’s annual and half-yearly financial reports were or independence of the external auditor. introduction of a two year internal audit schedule, improved at each of its meetings. discussed. alignment of internal audits with the Group’s material business Fees paid to the external auditor during the year are summarised The Group is subject to specific operating risks, as well as risks risks, a reduction in the number of internal audits, an increase in the Directors’ Report. 4.3 Integrity of financial reports arising from the general business environment. The risk watch list in the scope and depth of individual audits, and enhancements Based on the evaluation by the Committee, the Board is satisfied currently includes risks in the following broad categories: in reporting to the Committee. The Committee evaluates, and makes recommendations to the that the external auditor is independent. > Financial – covering such matters as the cost and availability of Board, about the Group’s accounting policies and practices and Each Trust has registered a compliance plan with ASIC, as finance, tax risk, the accuracy of traffic and cost models, as well the judgments made in the preparation of financial reports. The required by Part 5C.4 of the Corporations Act. The compliance 4.5 Risk management systems as credit risk, liquidity risk and cash flow interest rate risks Committee evaluates and recommends for approval by the Board plans outline the measures undertaken to ensure compliance with > Operations – covering such matters as the operational safety the financial reports and related information to be released to the The Committee oversees the development and implementation the Corporations Act and the constitution of each Trust. of EastLink and the Group’s business continuity and crisis ASX, to unitholders or to the financial community in line with the of the Group’s risk management systems. This includes reviewing management capability. Until 31 December 2009, a separate Compliance Committee semi-annual reporting cycle and applicable laws. and recommending for approval by the Board the Group’s risk monitored and reported on the extent to which each Trust management plan. Before approving the Group’s annual and half-yearly financial Before approval by the Board of the annual and half-yearly complied with its compliance plan and assessed whether the statements, the Board receives a certificate in the terms provided financial reports, the CEO and CFO certify in writing that the The Safety Committee (to be renamed the Health, Safety & compliance plans were adequate. The Compliance Committee by section 295 of the Corporations Act from the CEO and CFO financial statements and associated notes comply, in all material Environment Committee) has principal responsibility for review comprised the Group’s CFO and two external members. The Audit, stating that:

32 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 33 CORPORATE GOVERNANCE

Risk & Compliance Committee monitored the effectiveness of the 6.2 Role and responsibilities During the year, the Committee closely monitored road safety 10. BUSINESS CONDUCT Compliance Committee and the integrity of the compliance plan on EastLink, including the implications of the only fatality to date The Nomination Committee focuses on the following matters: audit process. From 1 January 2010, the Audit, Risk & Compliance on EastLink, which occurred in February 2010. This accident 10.1 Code of Conduct > ensuring that the Board comprises individuals best able to Committee has taken over direct responsibility under the Trusts’ remains subject to a Coroner’s report. Despite this tragic event, discharge its duties and responsibilities having regard to the The Board has approved a Code of Conduct to help directors, compliance plans for the functions formerly performed by the EastLink’s safety record continues to be impressive, reflecting law and the highest standards of governance management and contractors to understand their responsibilities Compliance Committee. the attention paid to safety in the design of the road and its traffic > succession planning for, and appointment of, the to uphold the guiding principles to which ConnectEast aspires and management and safety systems, as well as in operation of PricewaterhouseCoopers acts as auditor of the compliance Managing Director. to conduct business in accordance with those guiding principles. those systems. plans. The audits of the Group’s compliance plans are managed The Code is reflected in and supported by ConnectEast’s other During the year, the Committee, with the assistance of external separately from the audit of ConnectEast’s financial reports. The Group also continues to have a strong focus and an internal policies and procedures. consultants, Heidrick & Struggles, considered the appointments Simon Gray is the audit engagement partner for the compliance impressive record on occupational health and safety. of Paul Dougas and John Collier. The Board reviews the Code at least every two years to be assured plans audits. Security is also within the Committee’s areas of focus. This includes of its effectiveness. The current version of the Code was approved The Committee also worked with external consultants, Russell monitoring compliance with the Terrorism (Community Protection) by the Board in June 2009. Reynolds Associates, in the search for and appointment of the Act 2003 (Vic), under which EastLink is a “declared essential 5. HUMAN RESOURCES COMMITTEE Group’s Managing Director. Dennis Cliche commenced The Code of Conduct incorporates a whistleblower policy that service”. These obligations include maintenance and audit of as Managing Director in November 2009. enables ConnectEast Group staff members to voice genuine specific risk management plans, and the conduct of emergency 5.1 Membership concerns in relation to breaches of guiding principles or applicable simulation exercises under the supervision of the Victorian laws and regulations or inappropriate workplace behaviour. The members of the Human Resources Committee are Bruce Department of Transport. 7. SAFETY COMMITTEE Beeren (Chairman), Tony Shepherd, Mark Snape and Paul Dougas 10.2 Trading in ConnectEast Group securities by directors, (from 22 December 2009). 7.1 Membership officers and employees 8. COMMUNITY INVESTMENT COMMITTEE 5.2 Role and responsibilities The members of the Safety Committee are Max Lay (Chairman), During the year, the Board adopted a new Dealing in Securities Yvonne von Hartel, Paul Dougas (from 22 December 2009) and 8.1 Membership Policy, to replace its previous windows trading policy. The policy The Human Resources Committee focuses on human resources Dennis Cliche (Managing Director from 19 November 2010). The is designed to limit the possibility of insider trading occurring and policies and strategies, including executive remuneration and The members of the Committee are Yvonne von Hartel (Chairman) Board has also appointed Dr Ken Ogden as External Adviser to to maintain confidence in ConnectEast’s practices and corporate succession planning, as well as remuneration of non-executive and Dennis Cliche. Meetings of the Committee are also attended the Safety Committee. reputation in relation to dealings in securities. directors. by the General Manager Corporate Affairs, the Group Financial Meetings of the Safety Committee are also attended by the Controller, the Marketing Manager and the Company Secretary. Directors and employees may deal in ConnectEast securities Meetings of the Committee are also attended by the Managing Manager Risk, Safety & Internal Audit, the Road Operations and at any time except during “black-out periods” leading up to the Director, the General Manager, Human Resources and Asset Manager and the Company Secretary. 8.2 Role and responsibilities release of the Group’s annual or half-yearly results or the Group’s Operations, and the Company Secretary. annual meeting. Directors and senior management require The Committee approves and administers the Group’s Community A summary of the work of the Committee is set out in the 7.2 Role and responsibilities approval before dealing in ConnectEast securities outside a black- Investment Guidelines within a budget approved by the Board. Remuneration Report. out period and a record of their dealings is maintained. The Safety Committee focuses on safety, occupational health and A number of the Group’s community investment activities are security across the Group’s activities and operations, including outlined in the sustainability section of the Annual Report. In all cases, employees are not permitted to deal in ConnectEast compliance with applicable operational legal and regulatory securities when in possession of price-sensitive information that 6. NOMINATION COMMITTEE obligations. Following this year’s Board performance review, is not generally available to the market. environmental matters have been added to the Committee’s areas 9. EXECUTIVE PERFORMANCE AND REMUNERATION 6.1 Establishment and membership of focus and the Committee’s name will be changed to the Health, The Group’s remuneration policies and practices are set out The members of the Nomination Committee are Tony Shepherd Safety & Environment Committee. in the Remuneration Report. (Chairman), Jim Hall and Bruce Beeren.

34 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST | ANNUAL REPORT | 2010 35 CORPORATE GOVERNANCE

Investment trust Group ABN 54 979 279 220

11. mARKET DISCLOSuRE 12. uNITHOLDER COmmuNICATIONS AND PARTICIPATION YEAR ENDED FINANCIAL REPORT 30 JUNE 2010 ConnectEast believes that unitholders and the investment The Group aims to ensure that unitholders have access to community generally should be informed in a factual, timely relevant and timely information about the Group’s activities. and widely available manner of all major business events The Group achieves this aim through direct communications that influence ConnectEast. The Board has approved an with unitholders (such as the Annual Report), periodic briefings External Communications Policy governing how ConnectEast to brokers, analysts and investors, publication of information communicates with its unitholders and the investment community. on the Group’s website, and release of information in accordance with the ASX listing rules. The Company Secretary has primary responsibility for ensuring compliance with continuous disclosure requirements, including Unitholders may elect to receive communications in print or by promoting an understanding of those requirements among electronically. ConnectEast provides a printed copy of the Annual staff. The Chief Financial Officer is responsible for communications Report to unitholders who request it. The default option is for the with investors, analysts, brokers and the wider investment market. Annual Report to be made available electronically. The General Manager Corporate Affairs is responsible for Unitholders are encouraged to participate in the annual meeting overseeing media and government relations. by asking questions about the Group’s activities. All directors The Group publishes on its website information and documents of are expected to attend the annual meeting, and did so in 2009. interest to unitholders and the investment community, including its Unitholders can submit questions in advance of the annual Trust constitutions, corporate governance information, the annual meeting. Answers to frequently asked questions are provided report, releases to the ASX, briefings by the Managing Director in the Chairman’s and Managing Director’s presentations to and other executives, as well as information about our community the annual meeting. The external auditor is invited to attend investment and environmental programs. the annual meeting and is available to answer questions.

Connecteast management Limited (CemL) ABn 68 071 292 647 / AFsL 254 959 is the responsible entity for Connecteast Investment trust (CeIt) Arsn 110 713 481 and its controlled entities and Connecteast Holding trust (CeHt) Arsn 110 713 614 and its controlled entities (collectively, Connecteast Group). CemL is incorporated in Australia and its registered address is 2 Hillcrest Avenue, ringwood, victoria 3134.

this report is not an offer or invitation for subscription or purchase of or a recommendation of securities. It does not take into account the investment objectives, financial situation or particular needs of any investor. Before making an investment in Connecteast Group, the investor or prospective investor should consider whether such an investment is appropriate to their particular investment objectives, financial situation and needs and consult an investment adviser if necessary.

the Connecteast Investment trust Group financial report has been prepared to enable Connecteast management Limited as responsible entity to comply with its obligations under the Corporations Act 2001 to ensure compliance with AsX Listing rules and satisfy the requirements of the Australian accounting standards in relation to stapled structures. the responsibility for preparation of the financial report and any financial information contained in this financial report rests solely with the directors of Connecteast management Limited. the financial report was authorised for issue by the directors on 17 August 2010. CemL has the power to amend and re-issue the financial report.t he financial report is presented in Australian currency. 36 CONNECTEAST | ANNUAL REPORT | 2010 DIRECTORS’ REPORT

In respect of the year ended 30 June 2010, the Directors of ConnectEast Management Limited (CEML) (ABN 68 071 292 647 / AFSL 254 Review of Operations (continued) 959), being the Responsible Entity of ConnectEast Investment Trust (CEIT) and ConnectEast Holding Trust (CEHT) submit the following Settlement during the year of Supreme Court litigation arising out of the EastLink construction contract resolved a risk for the Group and Directors’ Report on the financial report of ConnectEast Investment Trust and its controlled entities (the Group). released management to focus fully on driving EastLink’s performance. Amendments to the EastLink Concession Deed negotiated with The units of CEIT and CEHT are stapled together and quoted as one on the Australian Securities Exchange. the State have clarified the basis for assessment of ConnectEast’s performance under the KPI regime in the Deed. No KPI credits were incurred during the year. The Group financial statements reflect the aggregation of the consolidated financial statements of CEIT and CEHT. For statutory reporting purposes, in accordance with AIFRS, specifically the requirements of AASB 3Business Combinations, CEIT has been identified as the Total revenue from continuing operations was $201.6 million (June 2009: $168.8 million) of which $189.7 million (June 2009: $140.9 million) acquirer in the Stapled Group based on the size of its net assets and its operations and accordingly, it presents the consolidated financial represents tolling revenue and associated fee income. Net loss attributable to unitholders was $53.6 million (June 2009: net loss $531.6 report of the Stapled Group. million, including an impairment of assets of $404.9 million).

Directors Significant Changes in State of Affairs

The following persons were Directors of the Responsible Entity during the year and up to the date of this report: During the year to 30 June 2010, the following units were issued by the Group: > Anthony Shepherd (Chairman) > Dennis Cliche (Managing Director, appointed 19 November 2009) Number of stapled units > Bruce Beeren > Paul Dougas (appointed 22 December 2009) Opening balance – 1 July 2009 2,553,238,059 > Jim Hall Issue of units under institutional pro-rata entitlement offer (9 September 2009) 925,648,052 > Dr Max Lay AM > Mark Snape Issue of units under early retail pro-rata entitlement offer (9 September 2009) 10,221,864 > Mark Lynch (alternate to Mark Snape) Issue of units under retail pro-rata entitlement offer (5 October 2009) 340,743,084 > Yvonne von Hartel AM Issue of units under Distribution Reinvestment Plan (26 October 2009) 43,234,870 > John Gardiner (resigned 19 November 2009) Issue of units under Distribution Reinvestment Plan (23 April 2010) 67,060,022 Principal Activities Closing balance – 30 June 2010 3,940,145,951 In October 2004, ConnectEast Group was awarded the concession to finance, design, build, maintain and operate the EastLink Tollway, which comprises approximately 39km of tolled freeway-standard road connecting Melbourne’s eastern and south-eastern suburbs. The tollway opened toll-free for public use on 29 June 2008, and tolling commenced on 27 July 2008. The concession expires on Matters Subsequent to the End of the Financial Year 30 November 2043. In the opinion of the directors, no matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years. Distributions

Two distributions were made by ConnectEast Investment Trust during the year ended 30 June 2010 of an aggregate of 2.0 cents per Likely Developments and Expected Results of Operations stapled unit totalling $64,263,240. Distributions were paid on 26 October 2009 and on 23 April 2010 in cash and by the issue of units Information on likely developments in the operations of the Group and the expected results of those operations have not been included pursuant to the Distribution Reinvestment Plan. Refer to Note 21 for further details. in this report because the Responsible Entity believes it would be likely to result in unreasonable prejudice to the Group.

Review of Operations Information on Directors and Company Secretary During the year, the Group’s underlying business performed well, with traffic on EastLink growing steadily and substantially in line with Information relating to current Directors’ qualifications, experience and special responsibilities are set out on pages 24 to 27. the independent forecasts obtained in August 2009 from the Group’s traffic consultants, IMIS (Integrated Management Information Systems Pty Ltd). Average Daily Revenue increased by 20.2% in the period 27July 2009 to 30 June 2010 compared to the corresponding Company Secretary period in the previous year. Tolling on EastLink commenced on 27July 2008. The Group has commenced trials of a number of marketing incentive offers with a view to supplementing EastLink’s continuing natural traffic ramp-up. The Company Secretary is: Mr Tony Hudson LLB, BCom, Grad Dip App Corp Gov, MAICD, ACIS A focus on cost management has seen the increase in variable costs associated with EastLink’s traffic growth offset by cost reduction initiatives. The benefits of operating leverage enabled a 25.6% reduction in the cost per trip to $1.28 over the year. Projects completed Tony Hudson is the Company Secretary and General Counsel of ConnectEast Group. Before joining the Group in August 2005, Tony was a during the year included the re-negotiation of the operation and maintenance agreement with Transfield Services to establish an alliance partner for nine years in the national commercial law firm, Blake Dawson. structure. This resulted in annual operating cost savings of $1.5 million in the six months to 30 June 2010 compared to the previous fixed price contract and similar savings are expected in future years. Planned improvements to EastLink’s image processing system are under development and are also expected to produce cost savings in the new financial year.

The $421 million renounceable rights issue conducted in August 2009 enabled the Group to repay in full tranche A of the Group’s debt. ConnectEast now has a robust and sustainable capital structure, with its next refinancing not due until late 2012 when it is expected EastLink’s traffic ramp-up will be complete. The Group produced positive cash flow in the second half of the financial year. This is expected to enable the Group to commence paying distributions from operating cash flow (and surplus cash reserves) from the end of the 2010 calendar year.

38 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 39 DIRECTORS’ REPORT

Directors’ Meetings Fees Paid to the Responsible Entity and Associates

The number of meetings of ConnectEast Group’s Board of Directors and of each Board committee held during the year ended 30 June Fees paid by ConnectEast Pty Limited, a controlled entity of the Group, to the Directors of ConnectEast Management Limited are disclosed 2010, and the number of meetings attended by each Director are set out below. in Note 22.

Interests in the Group held by its directors are disclosed in Note 22. Full Meetings Meetings of Meetings Meetings Meetings of Meetings of of Directors Audit, Risk of Human of Safety Nomination Community & Compliance Resources Committee Committee Investment Environmental Regulation and Performance Committee Committee Committee The operations of EastLink are required to comply with various Acts, including the Victorian Environment Protection Act under which A B A B A B A B A B A B a Waste Discharge Licence (that covers tunnels operations) has been issued, and the Commonwealth Environment Protection and Anthony Shepherd 9 10 2 * 7 7 1 * 2 2 * * Biodiversity Conservation Act. Dennis Cliche+ 663*4*22**11 An Environmental Management Plan has been created and implemented by the Group through its principal contractor Transfield Services Limited. The Environmental Management Representative of the Group audits and inspects the maintenance of the EastLink Bruce Beeren 10 10 6 7 7 7 * * 2 2 * * road reservation in line with this Plan. Paul Dougas& 551*3322**** During the year, the Group was not served with any State or Federal environmental notices of infringement, pollution abatement notices Jim Hall 10 10 7 7 * * 1 * 2 2 * * or any other environmental regulatory sanction. Dr Max Lay AM 10 10 7 7 * * 4 4 * * * * Non-audit Services Mark Snape 9 10 4 7 6 7 * * * * * * In accordance with the Group’s Auditor Independence Policy, the Group will obtain non-audit services from the external auditor only Yvonne von Hartel AM 9 10 1 * * * 3 4 * * 2 2 where the expertise and the experience of the external auditor in relation to the Group are useful to the provision of those services, Mark Lynch 1111------and provision of those services will not adversely affect the professional integrity, objectivity and independence of the external auditor in relation to its audit of the Group. John Gardiner^ 444*3*22**11 The Directors have considered the position and, in accordance with the advice received from the Audit, Risk & Compliance Committee, A Number of meetings attended. are satisfied that the provision by the auditors of those non-audit services is compatible with the general standard of independence B Number of meetings held which the Director was eligible to attend. for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision by the auditor of the non-audit services, - Not eligible to attend. set out below did not contravene the auditor independence requirements of the Corporations Act 2001 for the following reasons: * Not a member of the relevant committee. > all non-audit services have been reviewed and approved by the Audit, Risk & Compliance Committee to ensure they do not affect + Dennis Cliche became a director of the Responsible Entity on 19 November 2009, the independence, integrity and objectivity of the auditor; and and as Managing Director of the Group, is a director of all other companies in the ConnectEast Group. > none of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of Ethics for & Paul Dougas became a director on 22 December 2009. Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making ^ John Gardiner resigned as a director on 19 November 2009. capacity for the Group, acting as advocate for the Group or jointly sharing economic risks and rewards. During the year the following fees were paid or payable for services provided by the auditor of the Group, PricewaterhouseCoopers Retirement, Election and Continuation in Office of Directors Australian firm: The Group’s constitution requires directors to retire by rotation after no more than three years with at least one director to retire each year. The Group’s Managing Director is not subject to the requirement to retire by rotation. 2010 2009 $’000 $’000 Indemnification and Insurance of Directors, Officers and Auditor Audit services

No insurance premiums are paid for out of the assets of the Group in regard to insurance cover provided to the auditor of the Group. Audit and review of financial reports and other audit work under the The Auditor is indemnified by the Group against claims from third parties arising from the provision of audit services except where Corporations Act 2001 450 517 prohibited by the Corporations Act 2001, or due to negligence, fraudulent conduct, dishonesty or breach of trust by the auditor. Other Services During the year ConnectEast Pty Limited has paid an insurance premium to insure directors and officers of the company against certain Related practices 7 35 liabilities. The insurance contract prohibits disclosure of the nature of the insurance cover and the amount of the premium paid. 457 552 The liabilities insured include legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the directors or officers in their capacity as directors or officers of entities in the Group, and any other payments arising from liabilities incurred by the directors or officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the directors or officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Group.

40 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 41 DIRECTORS’ AUDITOR’S INDEPENDENCE REPORT DECLARATION

Value of Scheme Assets

At 30 June 2010, ConnectEast Investment Trust Group had total assets of $3,200.9 million and equity of $1,857.9 million.

Auditor’s Independence Declaration

A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 43.

Rounding of Amounts in the Directors’ Report and the Financial Report

The Group is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report and financial report. Amounts in the Directors’ Report and financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated.

Auditor

PricewaterhouseCoopers continues in office in accordance with Section 327 of theCorporations Act 2001.

This report is made in accordance with a resolution of the Directors of ConnectEast Management Limited.

As lead auditor for the audit of ConnectEast Investment Trust for the year ended 30 June 2010, I declare that to the best of my knowledge and belief, there have been: Anthony F Shepherd a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and Director b) no contraventions of any applicable code of professional conduct in relation to the audit. Melbourne 17 August 2010 This declaration is in respect of ConnectEast Investment Trust and the entities it controlled during the period.

Charles Christie Partner PricewaterhouseCoopers

Melbourne 17 August 2010

Liability limited by a scheme approved under Professional Standards Legislation

42 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 43 INCOME STATEMENT OF STATEMENT COMPREHENSIVE INCOME

For the year ended 30 June For the year ended 30 June

Consolidated Consolidated Notes 2010 2009 Notes 2010 2009 $’000 $’000 $’000 $’000 Revenue from continuing operations 4 201,621 168,846 Net Loss Attributable to Unitholders (53,638) (531,585) Tolling and customer services expenses (43,986) (45,794)

Roadside operations (18,077) (20,161) Other Comprehensive Income / (Expense)

Administrative expenses (16,384) (19,559) Changes in the fair value of cash flow hedges 19 (8,839) (195,248)

Construction costs - (5,803) Amortisation of cash flow hedge 19 11,762 12,123

Repairs and maintenance 15 (6,656) (5,641) Hedge ineffectiveness 19 14,362 12,683

Impairment of assets 5 - (404,875) Other comprehensive income / (expense) for the year, net of tax 17,285 (170,442) Depreciation and amortisation 5 (99,134) (112,263) Finance costs 5 (130,004) (175,825) Total Comprehensive Loss for the Year (36,353) (702,027)

Operating Loss before Income Tax Attributable to Unitholders (112,620) (621,075) Income tax benefit 7 58,982 89,490 Total comprehensive loss for the year is attributable to: Net Loss Attributable to Unitholders (53,638) (531,585) Owners of ConnectEast Investment Trust (36,353) (702,027)

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Earnings Per Stapled Unit for Loss Attributable to Unitholders Cents Cents

Basic earnings per stapled unit 30 (1.49 ) ( 25.43) Diluted earnings per stapled unit 30 (1.49 ) ( 25.43)

The above Income Statement should be read in conjunction with the accompanying notes.

44 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 45 STATEMENT OF STATEMENT OF FINANCIAL POSITION CHANGES IN EQUITY

As at 30 June For the year ended 30 June

Consolidated Contributed Reserves Retained Total Equity Losses Equity Notes 2010 2009 $’000 $’000 $’000 $’000 $’000 $’000 Current Assets Balance at 1 July 2008 1,730,922 75,835 (9,335) 1,797,422 Cash and cash equivalents 8 170,221 623,866

Trade and other receivables 9 14,527 16,596 Loss for the year - - (531,585) (531,585)

Total Current Assets 184,748 640,462 Changes in fair value of cash flow hedges - (195,248) - (195,248) Hedge ineffectiveness transferred to Statement of Comprehensive Income - 12,123 - 12,123 Non-Current Assets Amortisation of cash flow hedges - 12,683 - 12,683 Plant, equipment and tags 10 10,831 10,801 Total comprehensive loss for the year - (170,442) (531,585) (702,027) Intangible assets 11 2,810,988 2,873,253

Other deferred costs 12 35,252 49,955 Transactions with owners in their capacity as owners Deferred tax assets 13 159,040 100,021 Contributions of equity, net of transaction costs 522,786 - - 522,786 Total Non-Current Assets 3,016,111 3,034,030 Distributions (107,933) - - (107,933) Total Assets 3,200,859 3,674,492 Amortisation of deferred financing costs (1,334) - - (1,334)

413,519 - - 413,519 Current Liabilities Trade and other payables 14 25,732 27,257 Balance at 30 June 2009 2,144,441 (94,607) (540,920) 1,508,914 Provisions 15 23,108 40,500

Total Current Liabilities 48,840 67,757 Balance at 1 July 2009 2,144,441 (94,607) (540,920) 1,508,914

Loss for the year - - (53,638) (53,638)

Non-Current Liabilities Changes in fair value of cash flow hedges - (8,839) - (8,839) Derivative financial instruments 16 50,530 68,180 Hedge ineffectiveness transferred to Statement - Provisions 15 29,196 5,641 of Comprehensive Income - 14,362 14,362 Borrowings 17 1,214,400 2,024,000 Amortisation of cash flow hedges - 11,762 - 11,762

Total Non-Current Liabilities 1,294,126 2,097,821 Total comprehensive profit/(loss) for the year - 17,285 (53,638) (36,353)

Total Liabilities 1,342,966 2,165,578 Net Assets 1,857,893 1,508,914 Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs 450,928 - - 450,928

Equity Distributions (64,263) - - (64,263)

Unitholder funds 18 2,529,773 2,144,441 Amortisation of deferred financing costs (1,333) - - (1,333)

Reserves 19 (77,322) (94,607) 385,332 - - 385,332 Retained losses 20 (594,558) (540,920)

Total Equity 1,857,893 1,508,914 Balance at 30 June 2010 2,529,773 (77,322) (594,558) 1,857,893

The above Statement of Financial Position should be read in conjunction with the accompanying notes. The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

46 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 47 CASH FLOW NOTES TO THE STATEMENT FINANCIAL STATEMENTS

For the year ended 30 June

1. Summary of Significant Accounting Policies Consolidated Notes 2010 2009 The significant policies which have been adopted in the preparation of the financial statements are stated to assist in a general $’000 $’000 understanding of this report. Cash Flows from Operating Activities (a) basis of Preparation Receipts from customers 207,902 147,129 This general purpose financial report for the year ended 30 June 2010 has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations, Payments to suppliers and employees (94,002) (91,798) the requirements of the Trust Constitutions and the Corporations Act 2001. 113,900 55,331 Interest received 11,438 21,512 Compliance with International Financial Reporting Standards (IFRS) Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with Financing costs paid (106,908) (144,905) AIFRS ensures that the Group financial statements and notes comply with IFRS. Interest rate swap break costs (26,488) - Historical Cost Convention Net Cash Outflow from Operating Activities 29 (8,058) (68,062) The financial statements are prepared in accordance with the historical cost convention as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through the profit and loss. Cash Flows from Investing Activities Critical Accounting Estimates Payments for plant, equipment and tags (771) (4,295) Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations Payments for intangible assets (21,881) (135,018) of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Acquisition of Responsible Entity - (4,875) The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates Net Cash Outflow from Investing Activities (22,652) (144,188) are significant to the financial statements are disclosed in Note 3.

Cash Flows from Financing Activities (b) principles of Consolidation Proceeds from issue of units 18 421,282 482,438 (i) Stapling The units of ConnectEast Holding Trust (CEHT) and ConnectEast Investment Trust (CEIT) (collectively ConnectEast Investment Trust Group) are Equity raising costs 18 (13,082) (18,373) combined and issued as stapled units on the Australian Securities Exchange. The units of the Trusts cannot be traded separately and can Proceeds from borrowings - 119,000 only be traded as stapled units.

Repayment of borrowings 17 (809,600) (4,000) The Group financial statements reflect the aggregation of the consolidated financial statements of CEIT and CEHT. For statutory reporting purposes, in accordance with AIFRS, specifically the requirements of AASB 3Business Combinations, CEIT has been identified as the Distributions paid to unitholders 21 (21,535) (49,212) acquirer in the Stapled Group based on the size of its net assets and its operations and accordingly, it will present the consolidated Net Cash (Outflow) /I nflow from Financing Activities (422,935) 529,853 financial report of the Stapled Group. Net (Decrease) / Increase in Cash and Cash Equivalents (453,645) 317,603 (ii) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 30 June 2010 and the Cash and cash equivalents at the beginning of the financial year 623,866 306,263 results of all subsidiaries for the year then ended. CEIT and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Cash and Cash Equivalents at the End of the Financial Year 8 170,221 623,866 Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding / unitholding of more than one‑half of the voting rights. The existence and The above Cash Flow Statement should be read in conjunction with the accompanying notes. effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de‑consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to Note 1(f)).

Investments in subsidiaries are accounted for at cost. Such investments include both investments in units issued by the subsidiary and other parent entity interests that in substance form part of the parent entity’s investment in the subsidiary. These include amounts receivable from subsidiaries in the normal course of business, all of which are included in other receivables.

48 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 49 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (CONTINUED) 1. Summary of Significant Accounting Policies (CONTINUED)

(b) principles of Consolidation (continued) (e) income Tax (continued) Intercompany transactions, balances and unrealised gains on transactions between Group entities are eliminated. Unrealised losses are affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries or substantially enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax have been changed where necessary to ensure consistency with the policies adopted by the Group. asset is realised or the deferred income tax liability is settled.

(c) Service Concession Arrangements Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable In November 2004 the Group entered into a service concession arrangement with the State of Victoria to finance, design, construct and amounts will be available to utilise those temporary differences and losses. operate EastLink in return for a right to charge tolls over the life of the Concession, which runs to 2043. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of AASB Interpretation 12 Service Concession Arrangement (AASB-I 12) provides guidance on the accounting by operators of public-to- investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is private service concession arrangements under which private sector entities participate in the development, financing, operation probable that the differences will not reverse in the foreseeable future. and maintenance of infrastructure for the provision of public services. A substantial portion of the Group’s assets are used within the Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and when framework of concession arrangements granted by public sector entities. AASB-I 12 has been applied from 1 July 2008. the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity has a legally In addition to the adoption of AASB-I 12 the Group has also applied AASB Interpretation 129 Service Concession Arrangement: Disclosures enforceable right to offset and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. from 1 July 2008. AASB-I 129 contains specific guidance on the disclosures required for a Service Concession Arrangement, details of Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. which can be found in Note 11.

(d) Revenue Recognition Tax Consolidation Legislation Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of trade As at 30 June 2010 the Group has not implemented the tax consolidation legislation. Consequently the impact of the tax consolidation allowances and amounts collected on behalf of third parties. legislation has not been adopted in this financial report.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will (f) Acquisition of Assets flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, units issued or liabilities Revenue is recognised for the major business activities as follows: incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, (i) toll and fee revenue it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence Toll charges and related fees are recognised when the charge is incurred by the user. and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are (ii) other revenue recognised directly in equity. Other revenue is recognised when the services are rendered or in accordance with contractual arrangements. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair (iii) Interest income values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of Interest income is recognised on a time proportion basis using the effective interest method. the Group’s units of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Income Statement, but only after a reassessment of the (iv) prepaid toll revenue identification and measurement of the net assets acquired. Prepaid toll receipts are recognised as unearned income until a charge is incurred by the user. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value Following the application of AASB-I 12 Service Concession Arrangements the Group has recognised construction revenue in prior periods as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing in accordance with AASB 111 Construction Contracts. As the margin on the construction activities could not be reliably estimated, revenue could be obtained from an independent financier under comparable terms and conditions. was recognised only to the extent of contract costs incurred that it was probable would be recoverable. (g) impairment of Assets (e) income Tax Assets that are subject to amortisation including plant, equipment and tags and intangible assets are reviewed for impairment at least Pursuant to the provisions of Division 6C of the Income Tax Assessment Act 1936 (“the Act”), ConnectEast Holding Trust is treated as a annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment public trading trust and is effectively treated as a company for income tax purposes. loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the Pursuant to the provisions of Division 6A of the Act, ConnectEast Investment Trust is not liable for income tax under the Act, provided that higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the the taxable income of the Trust is fully distributed to unitholders each year. Accordingly, income tax and deferred tax accounting is not lowest levels for which there are separately identifiable cash flows (cash generating units). applied in relation to ConnectEast Investment Trust and subsidiary trusts. (h) plant, Equipment and Tags The income tax expense or revenue for the year is the tax payable on the current year’s taxable income based on the income tax rate Items of plant, equipment and tags are stated at historical cost less depreciation and amortisation. Historical cost includes expenditure adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and that is directly attributable to the acquisition of the items. liabilities and their carrying amounts in the financial statements, and to unused tax losses. The carrying amount of any replaced asset is written off. Non-capital expenditure is charged to the Income Statement during the Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and reporting period in which it is incurred. liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction

50 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 51 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (CONTINUED) 1. Summary of Significant Accounting Policies (CONTINUED)

(h) plant, Equipment and tags (continued) (l) Trade and Other Receivables Trade receivables and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision Depreciation and Amortisation for impairment. Collectability of trade debtors and other receivables is reviewed on an ongoing basis. Debts which are known to be Plant, equipment and tags are depreciated on a straight-line basis at various rates over its expected average useful life for that uncollectible are written off. A provision for doubtful debts is raised when there is objective evidence that the Group will not be able to asset type. collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s Tags 7 years carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows Plant 6 years relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is Furniture, fittings & equipment 3 – 25 years recognised in the Income Statement.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each Statement of Financial Position date. (m) Trade and Other Payables An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. These are included in the Income Statement. (n) Derivative Financial Instruments (i) intangible Assets The Group has entered into derivative financial instruments to manage its exposure to interest rate risk. The Group does not hold or issue EastLink Concession derivative financial instruments for trading purposes. Costs associated with the EastLink Concession, including the construction of the EastLink Project have been capitalised as an intangible Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their asset. The cost of the intangible asset includes: fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated > costs incurred by the Group prior to entering into the Concession Deed with the State of Victoria in relation to the design and as a hedging instrument, and if so, the nature of the item being hedged. construction of the EastLink Project; > costs associated with entering the Concession Deed for the EastLink Project; The Group designates its derivatives as hedges of the cash flows of recognised assets and liabilities and highly probable forecast > all expenditure which is directly attributable to the construction of the assets comprising the EastLink Project; transactions (cash flow hedges). > interest payments on loans up to the date of commencement of operations are offset against interest receipts; The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well > costs incurred in developing products or systems and costs incurred in acquiring software and licences that will contribute to future as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, period financial benefits through revenue generation and/or cost reduction. Costs capitalised include external direct costs both at hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been and will of materials and services and direct payroll and payroll related cost of employees. continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

Amortisation The fair values of various derivative financial instruments used for hedging purposes are disclosed in Note 12. The full fair value The intangible asset is amortised on a straight-line basis over the remaining EastLink Concession period. The EastLink Concession runs of a hedging derivative is classified as a non‑current asset or liability when the remaining maturity of the hedged item is more than to November 2043 with the intangible asset to be amortised over 35 years. 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

An assessment is made at each reporting date as to whether there is any indication that the asset may be impaired. If any such (i) Cash flow hedge indication exists then the recoverable amount of the asset is estimated. An impairment loss is recognised for the amount by which The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised the asset’s carrying amount exceeds its recoverable amount. in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income within other income or other expense. (j) Borrowings Borrowings are initially recognised at fair value. Borrowings are subsequently measured at amortised cost. Any difference between the Amounts accumulated in equity are recycled in the Statement of Comprehensive Income in the periods when the hedged item affects proceeds (net of transaction costs) and the redemption amount is recognised in the Income Statement over the period of the borrowings profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest using the effective interest method. rate swaps hedging variable rate borrowings is recognised in the Income Statement within ‘finance costs’.

Borrowings are classified as current liabilities unless the Group has a right to defer settlement of the liability for at least 12 months after When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any the Statement of Financial Position date. cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was (k) borrowing Costs reported in equity is immediately transferred to the Income Statement . Debt establishment costs incurred for the qualifying road asset are capitalised and amortised on a straight-line basis over the term of the applicable borrowings. Borrowing costs comprise interest and the amortisation of costs incurred in establishing borrowing facilities. (ii) derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not Where borrowings are specifically incurred in relation to qualifying assets, the actual borrowing costs are capitalised into the carrying qualify for hedge accounting are recognised immediately in the Income Statement and are included in other income or other expenses. value of those assets. Where borrowings are not specifically incurred in relation to qualifying assets, the amount of borrowing costs to be capitalised to qualifying assets is determined by applying a capitalisation rate to the weighted average accumulated expenditure relating (o) Offsetting Financial Assets and Liabilities to qualifying assets during the year. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the A financial asset and a financial liability are offset and the net amount presented in the Statement of Financial Position when and only weighted average interest rate applicable to the entity’s outstanding borrowings during the year. Borrowing costs are capitalised up to when, the Group: the date when the asset is substantially complete and ready for use and are subsequently amortised over the useful life of the asset. (i) currently has a legally enforceable right to set off the recognised amounts; and (ii) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

52 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 53 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (CONTINUED) 1. Summary of Significant Accounting Policies (CONTINUED)

(p) Provisions (u) Earnings Per Stapled Unit Provisions for deferred bonuses are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. (i) Basic earnings per stapled unit Basic earnings per stapled unit is determined by dividing net profit after income tax attributable to unitholders of the trust, excluding any Provisions for planned future repairs and maintenance for EastLink which are contractually required under the Concession Deed are costs of servicing equity other than ordinary stapled units, by the weighted average number of ordinary stapled units outstanding during made in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets. the financial year, adjusted for bonus elements in ordinary stapled units issued during the year. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of (ii) diluted earnings per stapled unit money and the risks specific to the liability. Diluted earnings per stapled unit adjusts the figures used in the determination of basic earnings per stapled unit to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary stapled units and the weighted (q) fair Value Estimation average number of stapled units assumed to have been issued for no consideration in relation to dilutive potential ordinary stapled units. The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. (v) Rounding of Amounts The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined The Group is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing ‘rounding off’ of amounts in the Directors’ Report and financial report. Amounts in the Directors’ Report and financial report have been at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. rounded off to the nearest thousand dollars, in accordance with that Class Order. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. (w) Leases Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified (r) Employee Benefits as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income (i) Wages and salaries, annual leave and sick leave Statement on a straight-line basis over the period of the lease. Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and (x) goods and Services Tax (GST) are measured at the amounts expected to be paid when the liabilities are settled. Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. (ii) Long service leave Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected or payable to, the taxation authority is included with other receivables or payables in the Statement of Financial Position. future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are future payments are discounted using interest rates on national government guaranteed bonds with terms to maturity and currency that recoverable from, or payable to the taxation authority, are presented as operating cash flow. match, as closely as possible, the estimated future cash outflows. (y) New Accounting Standards Applied in Current Year (iii) retirement benefit obligation (i) AASB 101 Presentation of Financial Statements Employees of the Group are entitled to benefits on retirement, disability or death from the Group’s superannuation plans if they choose to adopt the Company superannuation fund and elect to subscribe for these benefits from contribution to this fund. The Group has a defined The Group has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised contribution plan. The defined contribution plan receives fixed contributions from Group companies and the Group’s legal or constructive standard requires the separate presentation of a Statement of Comprehensive Income and a Statement of Changes in Equity. obligation is limited to these contributions. All non-owner changes in equity must now be presented in the Statement of Comprehensive Income. As a consequence, the Group had to change the presentation of its financial statements. Comparative information has been re-presented so that it is also in conformity with Contributions made to defined contribution superannuation plans are expensed when incurred. Prepaid contributions are recognised the revised standard. as an asset to the extent that a cash refund or a reduction in the future payments is available.

(z) Australian Accounting Standards Issued but not yet Effective (s) Distributions Provision is made for the amount of any distribution declared, being appropriately authorised and no longer at the discretion of the (i) AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting directors, on or before the end of the financial year but not distributed at balance date. Standards arising from AASB 9 (effective from 1 January 2013)

AASB 9 Financial Instruments addresses the classification and measurement of financial assets and is likely to affect the Group’s (t) Cash and Cash Equivalents accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is yet For cash flow statement purposes, cash and cash equivalents includes cash on hand, deposits at call with financial institutions and other to assess its full impact. The Group has not yet decided when to adopt AASB 9. highly liquid investments with original maturities of 3 months or less that are readily convertible to cash and are subject to an insignificant risk of changes in value.

54 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 55 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (CONTINUED) 2. financial Risk Management

The Group’s activities expose it to a variety of financial risks; including credit risk, liquidity risk and cash flow interest rate risk. The Group’s (z) Australian Accounting Standards Issued but not yet Effective (continued) overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects (ii) Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to Australian on the financial performance of the Group. The Group uses derivative financial instruments such as interest rate swaps to manage Accounting Standards (effective from 1 January 2011) certain risk exposures.

The Group will apply the amended standard from 1 July 2011. When the amendments are applied, the Group will need to disclose Risk management is carried out by management under policies approved by the Board of Directors. any transactions between its subsidiaries and its associates. At the reporting date there were no associate entities of the Group. (a) Credit risk (iii) AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project Credit risk arises from cash and cash equivalents, favourable derivative financial instruments, deposits with banks and financial In May 2009 the AASB issued a number of changes to AASB 5 Non-current Assets Held for Sale and Discontinued Operations, institutions, and outstanding trade debtors. AASB 8 Operating Segments, AASB 101 Presentation of Financial Statements, AASB 101 Statement of Cash Flows, AASB 117 Leases, For derivative counterparties, banks and financial institutions a minimum credit rating of A is required. The Group has policies that limit AASB 118 Revenue, AASB 136 Impairment of Assets and AASB 139 Financial Instruments, Recognition and Measurement. The Group will the amount of credit exposure to any one bank or financial institution. apply the revised Standards from 1 July 2010. The Group does not expect that any adjustments will be necessary as a result of applying the revised rules. Credit risk in trade debtors is managed through setting normal payment terms of 14 days and through continued risk assessment of customers with material balances. Trade debtors relate primarily to users of EastLink who have not purchased a tolling product and (aa) parent Entity Financial Information are unlikely to have an external credit rating. Trade debtors are pursued for payment initially through a notification process and failing The financial information for the parent entity, ConnectEast Investment Trust, disclosed in Note 32 has been prepared on the same basis that through an enforcement process under the EastLink Project Act. as the consolidated financial statements, except as set out below.

(b) liquidity risk (i) Investments in subsidiaries Prudent liquidity risk management implies maintaining sufficient cash and term deposits, the availability of funding through an adequate Investments in subsidiaries are accounted for at cost in the financial statements of ConnectEast Investment Trust. amount of committed credit facilities and the ability to close‑out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. (ii) Taxation Pursuant to the provisions of Division 6A of the Act, ConnectEast Investment Trust is not liable for income tax under the Act, provided that At the reporting date the Group had drawn down cash reserves in accordance with its Loan Note Subscription Agreement with its the taxable income of the Trust is fully distributed to unitholders each year. Accordingly, income tax and deferred tax accounting is not Financiers (see Note 8). These reserves provide liquidity to the Group if required through the traffic ramp-up phase of the road. These applied in relation to ConnectEast Investment Trust. reserves are designed to be released or reduced once the business requirement for the reserves has passed.

Financing Arrangements

The borrowing entity under the financing facilities is ConnectEast Finance Pty Limited, a controlled entity of the Group. ConnectEast Finance Pty Limited has an Onlending Agreement with ConnectEast Asset Trust, a controlled entity of the Group.

Debt financing is provided through a syndicated bank term facility. Details of the facility are included in Note 17.

Access was available at balance date to the following lines of credit:

Consolidated 2010 2009 $’000 $’000 Financing Facilities Total facilities 1,221,900 2,031,500 Used at balance date (1,214,400) (2,024,000)

Unused at balance date 7,500 7,500

The unused finance facilities comprise the following at balance date:

Bond Facility 7,500 7,500

7,500 7,500

The current interest rate on the used component of the Term Facility is 6.32% (2009: 4.40%).

56 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 57 NOTES TO THE FINANCIAL STATEMENTS

2. financial Risk Management (CONTINUED) 2. financial Risk Management (CONTINUED)

(b) liquidity risk (continued) (c) Cash flow and fair value interest rate risk (continued)

The sensitivity analysis to net profit and equity has been determined based on the exposure to interest rates at the reporting date and Maturities of Financial Liabilities assumes that there are concurrent movements in interest rates and parallel shifts in the yield curve. The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. For interest Management has determined that, given historic fluctuations, a +/- 1 percent movement in interest rates is reasonably possible. bearing liabilities the cash flows have been estimated using forward interest rates applicable at the reporting date. At 30 June 2010, if interest rates had been 1 percent higher/lower (30 June 2009: 0.5%) and all other variables were held constant, the impact on the Group would be: 2010 Consolidated

Notes Weighted 1 year 1–2 Over More Total Carrying Consolidated Average or less years 2–5 than Amount Interest years 5 years + 1.0% - 1.0% rate $’000 $’000 $’000 $’000 $’000 $’000 Profit Equity Profit Equity Financial liabilities $’000 $’000 $’000 $’000 2010 1,702 48,561 (1,702) (48,561) Trade creditors and accruals 14 - 25,732 - - - 25,732 25,732 2009 3,119 41,549 (3,119) (41,586) Provisions 15 - 21,436 20,997 - - 42,433 40,007

Interest bearing liabilities 17 6.32% 75,050 76,720 1,297,914 - 1,449,684 1,214,400 Derivative financial instruments 16 7.62% 17,751 15,795 23,237 - 56,783 50,530 (d) foreign exchange risk Foreign exchange risk arises when commercial transactions and recognised assets and liabilities are denominated in a currency that 139,969 113,512 1,321,151 - 1,574,632 1,330,669 is not the entity’s functional currency. Currency risk is measured using sensitivity analysis.

The Group is generally only exposed to foreign exchange movements on the purchase of inventory from a Swedish supplier. 2009 Consolidated The impact of any reasonable movement in the Australian dollar/Swedish Kronor exchange rate on the net profit or net equity would Notes Weighted 1 year 1–2 Over More Total Carrying not be material. Average or less years 2–5 than Amount Interest years 5 years (e) fair value estimation Rate $’000 $’000 $’000 $’000 $’000 $’000 The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Financial liabilities As of 1 July 2009, the Group has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure Trade creditors and accruals 14 - 27,257 - - - 27,257 27,257 of fair value measurements by level of the following fair value measurement hierarchy:

Provisions 15 - 40,500 - - - 40,500 40,500 (i) Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities

Interest bearing liabilities 17 4.40% 92,796 900,320 990,064 415,501 2,398,681 2,024,000 (ii) Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) Derivative financial instruments 16 7.37% 58,114 24,964 (14,813) (1,064) 67,201 68,180 or indirectly (derived from prices), and

218,667 925,284 975,251 414,437 2,533,639 2,159,937 (iii) Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

At 30 June 2010 the Group recognised a liability of $50.5 million in relation to interest rate swaps used for managing interest rate risk, (2009; liability $68.2 million). This is classified as a Level 2 financial instrument. There were no Level 1 or Level 3 financial instruments (c) Cash flow and fair value interest rate risk at 30 June 2010. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the reporting date. The Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The Group raises long-term borrowings at floating rates The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined and swaps them into fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange at specified intervals using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal at each balance date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. amounts. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to The fair value of the swap contracts at 30 June 2010 is a liability of $50.5 million (2009: liability, $68.2 million). their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The Group has swapped all expected borrowings through to November 2014 and cash flows on the swap contracts will occur through this period. Interest rate fair value amounts are recorded in and removed from equity and are disclosed in Note 20. Interest income on cash balances is at floating rates, on an unhedged basis.

58 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 59 NOTES TO THE FINANCIAL STATEMENTS

3. Critical Accounting Estimates and Judgements 5. Expenses

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. Consolidated 2010 2009 The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal $’000 $’000 the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Operating profit/(loss) before income tax attributable (i) tax losses to unitholders includes the following specific expenses: It is deemed probable that there will be future assessable income against which the losses incurred to date will be available for offset. The nature of the tax losses brought to account at balance date principally reflect rental charges, interest on intercompany loans, Employee costs 23,065 28,300 operating costs and costs incurred during the construction phase of the project. Refer to Note 7. Doubtful debts expense 6,902 4,008 (ii) Construction early completion Incentive A provision has been made in respect of the early completion incentive that will be payable to the Construction Contractor for achieving Impairment of Assets the project completion ahead of the scheduled date. If the expected performance of EastLink were to differ by 5% to the assumptions Impairment of intangible asset (refer Note 11) - 400,000 used, the Group would need to increase/decrease the provision recognised by $2.6 million for over and under performance respectively. Refer to Note 15. Excess of consideration paid over net assets relating to acquisition of responsible entity - 4,875 4. Revenue Total impairment of assets - 404,875

Consolidated Depreciation and Amortisation 2010 2009 Plant, equipment and tags depreciation 2,062 5,995 $’000 $’000 Intangible assets amortisation 83,201 94,074 Revenue from continuing operations Deferred costs amortisation 13,871 12,194 Toll revenue 179,132 134,871 Total depreciation and amortisation 99,134 112,263 Fee revenue 10,611 5,985

Interest income 11,843 22,167 Finance Costs Other income 35 20 Interest and finance charges paid or payable on financial liabilities (net of swaps) 103,880 151,019

201,621 163,043 Interest rate swap amortisation(1) 11,762 12,683 Construction contract - 5,803 Hedge ineffectiveness transferred from equity 14,362 12,123

201,621 168,846 Total finance costs 130,004 175,825

1. Interest rate swap amortisation previously included in depreciation and amortisation is now included in finance costs. Following the adoption of AASB-I 12 Service Concession Arrangements, revenue on the construction contract of $5.8 million was recognised for the year ended 30 June 2009 (30 June 2010: nil) reflecting the cost of construction activities in the relevant period. Construction costs of the same amount were recorded in the Income Statement. Refer to Notes 1 (c) and (d).

60 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 61 NOTES TO THE FINANCIAL STATEMENTS

6. Remuneration of Auditors 7. iNCOME Tax (CONTINUED)

During the year the following fees were paid or payable for services provided by the auditor of the Group, PricewaterhouseCoopers (b) Numerical reconciliation of income tax benefit to prima facie tax payable Australian firm:

Consolidated Consolidated 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Loss from continuing operations before income tax expense (112,620) (621,075) Audit services Less profit / plus loss attributable to ConnectEast Investment Trust Group (79,119) 309,834 Audit and review of financial reports and other audit work under the Corporations Act 2001 450 517 (191,739) (311,241) Other Services Tax rate at 30% (57,522) (93,372) Related practices 7 35 Tax effect of amounts which are not deductible/(taxable) in calculating taxable income 457 552 Impairment of assets - 1,462 Other (151) 4,250 The Group may only decide to employ the auditor on assignments additional to their statutory audit duties where the auditors’ expertise and experience with the Group are useful to the provision of those services and do not impact on the independence, integrity and (57,673) (87,660) objectivity of the auditor. Over provision of deferred tax in prior years (1,133) (1,816) 7. iNCOME Tax Previously unrecognised tax losses (145) -

(a) income tax benefit Temporary differences not bought to account (31) (14) Income tax benefit for the year (58,982) (89,490) Consolidated 2010 2009 $’000 $’000 (c) Deferred income tax benefit Current tax 37 11 Deferred income tax benefit : Deferred tax (57,886) (87,685) Increase / (decrease) in deferred tax assets: Over provided deferred tax in prior years (1,133) (1,816) Provision 4,515 1,382 Total income tax benefit (58,982) (89,490) Accruals (701) (3,973) Tax losses 61,608 67,903

65,422 65,312 (Increase) / decrease in deferred tax liabilities:

Receivables (69) - Intangible assets (6,334) 24,190

Total movement in deferred tax balances 59,019 89,502

62 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 63 NOTES TO THE FINANCIAL STATEMENTS

7. iNCOME Tax (CONTINUED) 9. Current Assets – Trade and other receivables

(d) Tax losses Consolidated 2010 2009 ConnectEast Holding Trust and its controlled entities $’000 $’000 Pursuant to the provisions of Division 6C of the Income Tax Assessment Act 1936 (“the Act”), ConnectEast Holding Trust is treated as a Trade receivables 13,230 8,753 public trading trust and is effectively treated as a company for income tax purposes. Accordingly, income tax and deferred tax accounting is applied in relation to ConnectEast Holding Trust and its controlled entities. Accrued revenue 4,335 4,049 Provision for impairment of receivables (Note (a)) (10,136) (4,008)

Consolidated 7,429 8,794 2010 2009 Other receivables 1,042 459 $’000 $’000 Prepayments 6,056 7,343 The Directors estimate that the potential gross deferred tax asset at 30 June 2010 20 581 in respect of tax losses not brought to account is: 14,527 16,596

The benefit from the deduction for these tax losses will only be obtained if: (a) impaired trade receivables (i) the aggregated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the As at 30 June 2010 trade receivables of the Group with a nominal value of $10.8 million (2009: $5.6 million) were impaired. The amount deductions for the losses to be realised; of the provision was $10.1 million (2009: $4.0 million). The individually impaired receivables relate to users of EastLink that have not purchased one of the Group’s toll products (tags/trip pass), and also pre-paid (tag) customers whose accounts have gone into debit. (ii) the aggregated entity continues to comply with the conditions for deductibility imposed by tax legislation; and The aging of these receivables is as follows: (iii) no changes in tax legislation adversely affect the aggregated entity in realising the benefit.

ConnectEast Investment Trust and its controlled entities 1 to 3 months 1,875 1,820

Pursuant to the provisions of Division 6A of the Act, ConnectEast Investment Trust is not liable for income tax under the Act, provided that 3 to 6 months 1,749 2,110 the taxable income of the Trust is fully distributed to unitholders each year. Accordingly, income tax and deferred tax accounting is not Over 6 moths 7,224 1,716 applied in relation to ConnectEast Investment Trust and its controlled entities. 10,848 5,646 8. Current Assets – Cash and cash equivalents Movements in the provision for impairment of receivables are as follows: Consolidated 2010 2009 Opening balance 4,008 - $’000 $’000 Provision for impairment recognised during the year 6,902 4,008 Cash at bank and on hand 15,588 75,662 Receivables written off during the year as uncollectible (774) - Deposits at call 119 324,718 10,136 4,008 Cash reserves 124,014 160,486 Term deposits 30,500 63,000 The creation and release of the provision for impaired receivables has been included in ‘tolling and customer services expenses’ in the 170,221 623,866 Income Statement. Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash.

Cash reserve balances are in place to provide cash flow support during the traffic ramp-up phase of operations. Reserves are available (b) past due but not impaired for use subject to the conditions of the term facility Loan Note Subscription Agreement (LNSA) and notification to the LNSA agent. There are no receivables that are past due that have not been impaired (2009: nil). The cash at bank earns interest of 4.43% (2009: 2.85%). The deposits at call earn interest of 5.18% (2009: 3.42%). The cash reserves currently earn interest of 4.67% (2009: 3.42%). The term deposits are currently held on 30 day periods and currently earn interest of 5.57% (2009: 3.90%).

64 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 65 NOTES TO THE FINANCIAL STATEMENTS

10. Non-Current Assets – Plant, equipment and tags 11. Non-Current Assets – Intangibles

Consolidated Consolidated Plant and Tags Total 2010 2009 equipment $’000 $’000 $’000 $’000 $’000 EastLink Concession At 1 July 2008 At cost 3,389,828 3,368,892

At cost 10,453 4,605 15,058 Less: accumulated amortisation (178,840) (95,639) Less: accumulated depreciation (3,016) - (3,016) Less: impairment (400,000) (400,000)

Net book amount 7,437 4,605 12,042 Total intangibles 2,810,988 2,873,253 Year ended 30 June 2009 Reconciliations Opening balance 7,437 4,605 12,042 Reconciliations of the carrying amounts at the beginning and end of the year are set out below:

Additions 246 4,405 4,651 Intangibles Depreciation (4,739) (1,153) (5,892) Opening balance 2,873,253 3,380,368

Closing net book amount 2,944 7,857 10,801 Additions 4,989 20,224

At 30 June 2009 Movement in provisions (refer Note 15) 15,947 (31,700)

At cost 10,699 9,010 19,709 Less: amortisation (83,201) (95,639) Less: accumulated depreciation (7,755) (1,153) (8,908) Less: impairment - (400,000)

Net book amount 2,944 7,857 10,801 2,810,988 2,873,253 Year ended 30 June 2010 During the year a review of plant, equipment and tags and intangibles asset registers has resulted in a $103,000 reclassification Opening balance 2,944 7,857 10,801 between the asset classes, cost and accumulated depreciation and amortisation. The comparative period has been amended to reflect Additions 297 1,850 2,147 the new classifications.

Disposals (55) - (55) EastLink Concession Depreciation (561) (1,501) (2,062) ConnectEast Group has a Concession Deed with the State of Victoria. The Concession Deed grants ConnectEast Group the right to finance, design, construct and operate the EastLink Project for a period of approximately 39 years from Financial Close (18 November Closing net book amount 2,625 8,206 10,831 2004). Toll charges were set at Financial Close and mechanisms established for the maximum annual increase in toll levels in At 30 June 2010 accordance with CPI. Traffic risk resides with ConnectEast Group. During the life of the Concession, ConnectEast Group must maintain the asset to an agreed level as specified in the Concession Deed, and at the end of the period of the Concession, ConnectEast Group At cost 10,941 10,860 21,801 must return the EastLink Project to the State with individual civil and tolling assets having a residual design life in accordance with the Less: accumulated depreciation (8,316) (2,654) (10,970) Concession Deed. The service arrangement has been recorded as an intangible asset in accordance with AASBI-12 Service Concession Net book amount 2,625 8,206 10,831 Arrangements. At each reporting date, the Group assesses whether there is any indication that the EastLink Concession may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the recoverable amount of the asset. EastLink commenced During the year a review of plant, equipment and tags and intangibles asset registers has resulted in a $103,000 reclassification between tolling on 27 July 2008 and for the first 12 months of operation experienced lower traffic than was forecast in the Group’s 2004 Product the asset classes, cost and accumulated depreciation and amortisation. The comparative period has been amended to reflect the new Disclosure Statement (PDS). This event triggered a review to assess whether the EastLink Concession was impaired, the result of which classifications. was to book an impairment charge of $400 million against the asset for the year ended 30 June 2009.

For the year ended 30 June 2010 the Group has reviewed whether there are any indications of impairment in line with the criteria set out in AASB 136 Impairment of Assets. The assessment has considered for the 12 month period to 30 June 2010 whether: > the market value of the asset is likely to have declined significantly more than expected > there has been a significant technological, market, economic or legal change in the market in which the asset operates > interest rate changes affected the discount rate that would be used to value the asset and cause a material decrease in the recoverable amount > the carrying value of the net assets of the entity are significantly above its market capitalisation > there is evidence of obsolescence or physical damage > there have been significant changes in the way the asset is used or expected to be used > there is evidence that indicates that the economic performance of the asset is or will be worse than expected.

Having considered all of the above, the Group concluded that there were no indications of impairment during the year.

66 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 67 NOTES TO THE FINANCIAL STATEMENTS

12. Non-Current Assets – Other deferred costs 14. Current Liabilities – Trade and other payables

Consolidated Consolidated 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Debt establishment costs 66,479 65,978 Trade creditors and accruals 9,669 15,884 Less: accumulated amortisation (53,871) (40,675) Prepaid tolling revenue 11,118 7,249

12,608 25,303 Income tax payable 28 11 Deferred financing costs 30,000 30,000 Other creditors* 4,917 4,113 Less: accumulated amortisation (7,356) (5,348) 25,732 27,257

22,644 24,652 * Includes employee benefits as disclosed in Note 25. Total other deferred costs 35,252 49,955 15. Provisions

13. Non-Current Assets – Deferred tax assets Consolidated 2010 2009 Consolidated $’000 $’000 2010 2009 (a) Current Liabilities $’000 $’000 Construction early completion incentive 21,436 40,500 The balance comprises temporary differences attributable to: Repair and maintenance obligations 1,672 - Tax losses 183,177 121,569 23,108 40,500 Provisions 6,153 1,638 Accruals 1,783 2,484 (b) Non-Current Liabilities Total deferred tax assets 191,113 125,691 Set-off of deferred tax liabilities pursuant to set-off provisions (see Note 7): Construction early completion incentive 18,571 -

Receivables (69) - Repair and maintenance obligations 10,625 5,641 Intangible asset (32,004) (25,670) 29,196 5,641

Deferred tax assets 159,040 100,021

Construction Early Completion Incentive

Deferred tax liabilities to be recovered within 12 months (39) (3) A provision has been made in respect of the early completion bonus that will be payable to the construction contractor, Thiess John Deferred tax assets to be recovered after more than 12 months 159,079 100,024 Holland (TJH), for completing construction of EastLink 177 days ahead of the scheduled date. The amount of the bonus payable has been estimated based on assumptions of the financial performance of EastLink during the relevant bonus calculation period. Based on the Deferred tax assets 159,040 100,021 independent EastLink traffic projections released on 21 August 2009, traffic ramp-up on EastLink is projected to be complete around June 2011. For the purposes of calculating the early completion bonus, it has therefore been agreed that the bonus calculation period will run for 177 days, starting on 1 July 2011. As part of the settlement with TJH (refer Note 24) it was agreed that the commencement of the bonus calculation period would be changed from 1 October 2009 per the original contract to 1 July 2011. This resulted in an increase in the current year’s provision by $15.9 million.

The early completion bonus is payable in instalments with two payments totalling $16.4 million having been paid in the year to 30 June 2010. The third scheduled payment, on which interest accrues, is payable as and when operating cash flows are available for distributions, which is expected before 31 December 2010. The fourth and final payment will be made following calculation of the final bonus on 31 January 2012. The final payment has been discounted to a present value.

68 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 69 NOTES TO THE FINANCIAL STATEMENTS

15. Provisions (CONTINUED) 16. Non-Current Liabilities – Derivative Financial Instruments (CONTINUED)

Repair and Maintenance Obligations (a) Interest rate swap contracts – cash flow hedges (continued)

The Concession Deed specifies a program of repair and maintenance to maintain asset quality through the life of the Concession The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent and assets that must be returned at the end of the concession in accordance with specified residual design lives. A provision has been that the hedge is effective, and reclassified into the Statement of Comprehensive Income when the hedged interest expense is made to recognise the best estimate of the expenditure required to settle the present obligation at the reporting date. The provision has recognised. On 7 October 2009 the Group terminated $506.8 million of interest rate swap contracts as a result of the repayment been calculated by reference to this forecast repair and maintenance program with the obligation commencing on the completion of of Tranche A of the term facility. The $14.4 million financial impact of this transaction has been recognised in the Statement of asset construction. Comprehensive Income in the period, in line with the hedge accounting requirements of AIFRS.

Movement in Provisions (b) Risk exposures Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in Note 2. The maximum 30 June 2010 30 June 2009 exposure to credit risk at the end of the reporting period is the carrying amount of the interest rate swaps mentioned above. Construction Repair and Construction Repair and 17. Non-current liabilities – Borrowings Early Maintenance Early Maintenance Completion Obligations Completion Obligations Incentive Incentive Consolidated $’000 $’000 $’000 $’000 2010 2009 Opening balance 40,500 5,641 66,000 - $’000 $’000 Provisions recognised in period 15,947 6,656 - 5,641 Secured Amounts paid (16,440) - - - Term facility 1,214,400 2,024,000

Amounts credited in period to intangible assets - - (25,500) - Total non-current borrowings 1,214,400 2,024,000 Closing balance 40,007 12,297 40,500 5,641 (a) Term facility The borrowing entity under the financing facilities is ConnectEast Finance Pty Limited, a controlled entity of the Group. ConnectEast Finance 16. Non-Current Liabilities – Derivative Financial Instruments Pty Limited has an On-lending Agreement with ConnectEast Asset Trust, a controlled entity of the Group.

Consolidated Borrowings for ConnectEast Group are provided through a term facility which comprises medium-term, interest only tranches as follows. > Tranche A: $809,600,000 – repaid in full during the year ended 30 June 2010; 2010 2009 > Tranche B: $809,600,000 – repayable on 18 November 2012; and $’000 $’000 > Tranche C: $404,800,000 – repayable on 18 November 2014. Interest rate swap contracts – cash flow hedges 50,530 68,180 (b) Assets pledged as security Instruments used by the Group The security over the term facility includes: (i) fixed and floating charges over all the assets and undertakings of ConnectEast Finance Pty Limited, ConnectEast Pty Limited The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in and ConnectEast Asset Trust. The charges will include a featherweight floating charge (enforceable only during the appointment interest rates in accordance with the Group’s financial risk management policies (refer to Note 2). of an administrator) over the various trading accounts; (ii) real property mortgages over the EastLink Project Leases; and (a) Interest rate swap contracts - cash flow hedges (iii) a limited recourse third party mortgage granted by ConnectEast Investment Trust 2 and ConnectEast Holding 2 Pty Limited over their The Group’s term bank facility currently bears an average variable interest rate of 6.32% (2009; 4.40%). The Group has hedged all respective units or shares, as applicable, in each of ConnectEast Asset Trust (and its trustee), ConnectEast Pty Limited and ConnectEast borrowings through to November 2014 with cash flows on the swap contracts to occur through this period. Accordingly, the Group has Finance Pty Limited. entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. The benefits of the securities are held by a security trustee on behalf of the Financiers and the providers of interest rate management Swaps in place at 30 June 2010 cover 104% (2009 – 104%) of the term facility outstanding and are timed to expire as the repayment hedging. of each loan tranche falls due. The fixed interest rate for all swaps is 7.62% (2009 – 7.37%) and the variable rate is BBSY which at balance date was 4.80% (2009 – 3.24%).

The contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts are settled on a net basis.

70 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 71 NOTES TO THE FINANCIAL STATEMENTS

18. Unitholder Funds (CONTINUED)

17. Non-current liabilities – Borrowings (CONTINUED) (b) 1 July 2008 to 30 June 2009

(b) Assets pledged as security (continued) Date Details Number of Units Issue Price $’000

The carrying amounts of assets pledged as security for non-current borrowings are: 1 July 2008 Opening balance 1,581,887,895 1,730,922

29 October 2008 Distribution - (83,049) Pledged Assets 29 October 2008 Issue of units under DRP 55,730,471 $0.7578 42,233 2010 2009 $‘000 $’000 29 October 2008 Issue of units to DRP underwriters 33,328,416 $0.7578 25,256

Current 29 October 2008 DRP underwriting commission - (631)

Cash and cash equivalents 154,406 434,093 8 December 2008 Issue of units under a placement 190,909,091 $0.5500 105,000 Trade and other receivables 17,483 14,495 Issue of units under institutional pro-rata 8 December 2008 entitlement offer 342,025,782 $0.5500 188,114 Total current assets pledged as security 171,889 448,588 Issue of units under early retail pro-rata 8 December 2008 Non-current entitlement offer 1,073,858 $0.5500 591

Plant, equipment and tags 10,831 10,801 22 December 2008 Issue of units under retail pro-rata entitlement offer 283,493,025 $0.5500 155,921 Intangible assets 2,810,988 2,873,253 31 December 2008 Equity raising costs - (18,373)

Total non-current assets pledged as security 2,821,819 2,884,054 1 May 2009 Distribution - (24,884) Total assets pledged as security 2,993,708 3,332,642 1 May 2009 Issue of units under DRP 42,926,871 $0.3841 16,488 1 May 2009 Issue of units to DRP underwriters 21,862,650 $0.3841 8,397 Bond facility 1 May 2009 DRP underwriting commission - (210) A Bank Bond Facility to the amount of $7.5 million has been established for the ConnectEast Group to meet certain obligations to the State of Victoria under the Concession Deed. This facility is available to November 2014. 30 June 2009 Amortisation of deferred financing costs - (1,334) 30 June 2009 Closing balance 2,553,238,059 2,144,441 18. Unitholder Funds

Consolidated (c) Ordinary Units (a) 1 July 2009 to 30 June 2010 The units of ConnectEast Investment Trust (CEIT) and ConnectEast Holding Trust (CEHT) are stapled and the number of units issued by each entity is the same, however, their values differ. Their respective values are apportioned 99% (CEIT) and 1% (CEHT). Ordinary units entitle the Date Details Number of Units Issue Price $’000 holder to participate in distributions and the proceeds on a winding up of the stapled entity in proportion to the number of units held.

1 July 2009 Opening balance 2,553,238,059 2,144,441 The Australian Securities Exchange (ASX) reserves the right (but without limiting its absolute discretion) to remove either or both of the Issue of units under institutional pro-rata stapled trusts from the official list if any of the stapled units in the stapled trusts cease to be ‘stapled’ together, or any equity securities 9 September 2009 entitlement offer 925,648,052 $0.3300 305,464 are issued by either of the stapled trusts which are not stapled to equivalent securities in the other entity. Issue of units under early retail pro-rata 9 September 2009 (d) Capital Risk Management entitlement offer 10,221,864 $0.3300 3,373 The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they continue 5 October 2009 Issue of units under retail pro-rata entitlement offer 340,743,084 $0.3300 112,445 to provide returns for unitholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost 5 October 2009 Equity raising costs - (13,082) of capital.

26 October 2009 Distribution - (25,532) In order to maintain or adjust the capital structure, the Group may adjust the amount of distributions paid to unitholders, return capital to unitholders or issue new units. 26 October 2009 Issue of units under DRP 43,234,870 $0.3342 14,449 The Group will continue to monitor its capital structure to ensure it remains suitable for the Group’s operations and enables the Group to 23 April 2010 Distribution - (38,731) adequately service debt. 23 April 2010 Issue of units under DRP 67,060,022 $0.4217 28,279 30 June 2010 Amortisation of deferring financing costs - (1,333)

30 June 2010 Closing balance 3,940,145,951 2,529,773

72 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 73 NOTES TO THE FINANCIAL STATEMENTS

19. Reserves 21. Distributions to Unitholders

Consolidated Consolidated 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Cash flow hedge reserve (77,322) (94,607) Distribution for the 6 months to 30 September 2009 of 1.00 cent per stapled unit paid on 26 October 2009 (2009 – 5.25 cents per stapled unit paid on Movements: 29 October 2009) 25,532 83,049 Opening balance (94,607) 75,835 Distribution for the 6 months to 31 March 2010 of 1.00 cent per stapled unit Change in fair value of the cash flow hedge (8,839) (195,248) paid on 23 April 2010 (2009 – 1.00 cent per stapled unit paid on 1 May 2009) 38,731 24,884 Hedge ineffectiveness transferred to Statement of Comprehensive Income 14,362 12,123 64,263 107,933 Amortisation 11,762 12,683 The distributions paid in cash or satisfied by the issue of units under the (77,322) (94,607) Distribution Reinvestment Plan during the year ended 30 June 2010 were as follows: The hedging reserve is used to record gains or losses on a hedging instrument (e.g. interest rate swaps) in a cash flow hedge that are Paid in cash 21,535 49,212 recognised directly in equity, as described in Note 1(n). Amounts are recognised in the Statement of Comprehensive Income when the Satisfied by issue of stapled units 42,728 58,721 associated hedged transaction affects profit and loss. 64,263 107,933 Hedge ineffectiveness has resulted from equity being raised with the intention of repaying Tranche A of the term facility (refer Note 17). This required the breaking of associated interest rate swap contracts to maintain hedge effectiveness. Interest rate swap contracts that were broken on 2 July 2009 were treated as ineffective in the 2009 financial statements. Distribution Reinvestment Plan 20. Retained Earnings The ConnectEast Group Distribution Reinvestment Plan (DRP) was terminated following the distribution paid on 23 April 2010. Prior to this stapled units allotted under the DRP were issued at a volume weighted average price, less a discount of 5%. Unless unitholders elected otherwise, distributions payable on the stapled units were reinvested in further stapled units under the DRP. Unitholders were able to elect Consolidated not to participate in the DRP. 2010 2009 $’000 $’000 Under the DRP, there were issues of stapled units on 26 October 2009 at a price of $0.3342 per stapled unit and on 23 April 2010 at a price of $0.4217 per stapled unit. Retained Earnings Opening balance (540,920) (9,335) Net loss for the year (53,638) (531,585)

Closing balance (594,558) (540,920)

74 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 75 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures 22. Key Management Personnel Disclosures (CONTINUED)

Remuneration Report Board’s Responsibility for Remuneration (continued)

This report sets out the remuneration framework, policy, performance and outcomes for the year ended 30 June 2010 (FY2010). Human Resources Committee Remuneration details are provided for the following directors and executives. Prior period details for certain former directors and The Board has established a Human Resources Committee with the following areas of focus: executives are also provided in this report. > human resources policies and strategies, including executive remuneration and succession planning > remuneration of non-executive directors. Name Position Date appointed In relation to executive remuneration, the Committee’s role includes developing and recommending to the Board for approval strategies Non-executive Directors and policies for executive remuneration, including the at-risk components of executive remuneration. Anthony Shepherd Independent Chairman 28 September 2004 The Committee received independent advice regarding the remuneration of the CEO and his direct reports from Egan Associates during Bruce Beeren Independent Director 31 March 2009 the year. The Committee also drew on data from external sources for the purposes of benchmarking remuneration levels. Paul Dougas Independent Director 22 December 2009 During the year, those sources included The Hay Group, who performed a job evaluation study across the Group and provided employee remuneration benchmarking data. Employee remuneration benchmarking data was also provided by Hewitt Associates. Jim Hall Independent Director 9 June 2005

Max Lay Independent Director 28 September 2004 Approval of executive remuneration Executive remuneration levels are reviewed annually by reference to market benchmarks, the executive’s performance and any changes Mark Snape Director 26 August 2008 in the executive’s role or responsibilities. Executive remuneration is approved as follows: Yvonne von Hartel Independent Director 7 February 2005 > the remuneration of the CEO is approved by the Board upon the recommendation of the Human Resources Committee and the Executive Director Board Chairman > the remuneration of direct reports to the CEO is approved by the Board upon the recommendation of the CEO and the Human 1 Dennis Cliche Managing Director and CEO 19 November 2009 Resources Committee Current Executives > all other employee remuneration is approved by the CEO. Nick McKechnie Chief Financial Officer 2 March 2009 Overview of group and executive performance Tony Hudson General Counsel and Company Secretary 8 August 2005 Refer also to the Review of Operations on page 38 of the directors’ report.

James Tonkin General Manager, Corporate Affairs 2 October 2006 ConnectEast’s Total Shareholder Return (TSR) over the financial year was 27.38%, ranking 46th among entities in the ASX100 at the Tom Walker General Manager, Information Technology 8 May 2006 beginning of the financial year. The total return of the ASX 100 Index over the year was 25.34%. (TSR is defined as the growth in unit price over the relevant period with distributions notionally reinvested on the ex-distribution date during the period. The unit price is measured Former executives who left employment during FY2010 on a volume-weighted basis for the three months preceding the relevant date.)

1 John Gardiner Former Managing Director and CEO 29 March 2005 Table 1 shows ConnectEast’s performance over a number of key performance indicators in FY2010 and the four preceding Peter Bentley2 Former Chief Operating Officer 19 October 2004 financial years.

1. Dennis Cliche replaced John Gardiner as Managing Director and Chief Executive Officer on 19 November 2009. Table 1 2. Peter Bentley resigned as Chief Operating Officer on 30 June 2010. Year ended 30 June 2007 2008 2009 2010

(3) Board’s Responsibility for Remuneration Net profit after tax ($’000) (66,438) (9,335) (531,585) (53,638)

(1) The Board’s role Earnings per unit (cents) - (0.68) (25.43) (1.49) The Board’s responsibilities, as set out in the Board Charter, include: EBITDA per trip(2) n/a n/a $1.12 $1.82 > appointing, remunerating, reviewing the performance of, and (where applicable) removing the CEO Total Shareholder Returns > approving the appointment, remuneration and (where applicable) removal, and participating in review of the performance of, the CFO, the Company Secretary and senior managers reporting to the CEO ConnectEast 42.6% -18.3% -66.3% 27.4% > ensuring that the structure of remuneration in the ConnectEast Group (including for the CEO) is linked to achievement of the Group ASX100 26.2% -7.0% -26.5% 25.3% objectives and is benchmarked against market for organisations of similar size, operations and complexity

> ensuring that the performance requirements of the CEO and senior management are linked to achievement of the Group objectives, (1) Units were classified as debt at 30 June 2007 due to finite life clauses in the Trust constitutions and that systems for evaluating the performance of the CEO and senior management are based on open and relevant criteria (2) Tolling commenced on 27 July 2008 > monitoring senior management’s performance and implementation of strategy. (3) Includes impairment of $405 million

76 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 77 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (CONTINUED) 22. Key Management Personnel Disclosures (CONTINUED)

Executive Remuneration Executive Remuneration (continued)

General The vesting measures for future grants made under the MTI program will be determined annually by the Board having regard to the Executive remuneration arrangements are designed to reward employees competitively and appropriately for their individual targets for the business each year. performance, including their contribution to the ConnectEast Group’s business performance. During the year ended 30 June 2010, MTI payments will typically be made in September, following preparation, audit and release of the Group’s annual financial report individual remuneration was aligned with contribution towards achievement of strategic goals. Strategic goals are set annually and assessment of the criteria for vesting of MTI entitlements. by the Board and are designed to be measurable and to support achievement of the Group objectives.

Service contracts for senior management, including the CEO, have no fixed term. Each contract can be terminated by the giving Long term incentives of a fixed period of notice. ConnectEast also has the right to terminate the contract immediately, by making a payment in lieu of notice. Long Term Incentives (LTIs) focus on achievement of total shareholder returns (TSR) over a three year period. The entitlements of The contractual period of notice is six months for the CEO and the CFO. It is three months for other senior managers. participating executives will vest according to ConnectEast’s TSR performance relative to the performance of entities included in the ASX100 at the time that a grant is made under the LTI program. Executive remuneration is made up of a fixed component and, for eligible executives, an at-risk component. The first grants under the LTI program were made during the 2010 financial year, and will be eligible for vesting at the end of the 2012 Fixed annual remuneration financial year. LTI grants have been made to five executives. Vesting will occur after three financial years if ConnectEast’s TSR over that Each executive’s fixed annual remuneration (FAR) is structured as a total employment cost package, including cash, voluntary three year period is at least equal to the median TSR of entities included in the ASX100 over that period, as set out in Table 2 below. superannuation and benefits. Fringe benefits tax costs are taken into account in the total employment cost calculation. The FAR is set by reference to the scope and nature of the executive’s role, and the executive’s performance and experience. Table 2 ConnectEast’s TSR rank relative to ASX100 Proportion of CEU units eligible to vest At-risk remuneration – year ended 30 June 2010 th The at-risk component of executive remuneration during FY2010 comprised short, medium and long term incentives. Except as explained Less than 50 percentile (median) 0% below in relation to the long term incentive program, all components of executive remuneration are cash-based. 50th percentile 50% The rules of the medium and long term incentive plan are available on our website. 50% plus 2% for each additional percentile ranking Between 50th percentile and 75th percentile above the 50th percentile Short term incentives At or above the 75th percentile 100% Short term incentives (STIs) allow for payment in cash of a percentage (ranging from 10% to 75%) of the executive’s fixed remuneration each financial year, with higher amounts payable at the discretion of the Board. If some or all of an LTI entitlement has not vested after three financial years, the above TSR performance condition will be re-tested on Individual annual goals for each executive are agreed at the beginning of the financial year and tailored to the accountabilities of the 30 June in the fourth and fifth years. If, on one of these re-testing dates, ConnectEast’s relative TSR ranking is better than the ASX100 executive’s role and the capacity of the executive to affect the Group’s performance. Individual goals may be financial or non-financial median and higher than it was after the previous testing date, then a higher proportion of the original LTI entitlement will vest at that time. and may include “base” and “stretch” performance targets. Annual goals for the CEO are established by the Board Chairman in consultation with the Chairman of the Human Resources Committee. Annual goals for the CEO’s direct reports are set by the CEO and Vested LTI entitlements are payable partly in cash. However, 40% of each vested LTI entitlement must be applied to acquire ConnectEast reviewed by the Human Resources Committee. units. These units are acquired by the Group on-market in the ordinary course of trading on ASX on behalf of the executive. These units will be subject to a trading lock for two years. The trading lock may be released earlier in some circumstances, including death or total The actual level of STI paid to the CEO and other executives is determined at the end of the financial year by assessment of the executive’s and permanent disablement or other circumstances determined by the Board. performance against individual goals and having regard to the Group’s performance. The Group’s performance is reviewed by the Board having regard to the budget and other goals approved at the beginning of the financial year. The performance of the CEO is reviewed by Executives who hold units subject to a trading lock under the LTI program are not permitted to enter into any arrangements for the the Board Chairman in consultation with the Chairman of the Human Resources Committee and approved by the Board. Senior executive purpose of hedging their exposure to risk in respect of those units. The Board may ask executives to certify that they have not entered performance is assessed by the CEO, reviewed by the Human Resources Committee and approved by the Board. into such arrangements.

STI payments are typically paid in September, following preparation, audit and release of the Group’s annual financial report and review LTI payments and acquisition of units will typically occur in September, consistent with the arrangements for payment of STI and of each eligible executive’s performance. MTI entitlements.

Medium term incentives Milestone retention bonus for former CEO Medium Term Incentives (MTIs) focus on achievement of internal corporate performance targets over a two year period. MTIs allow During construction of EastLink, certain executives were eligible for milestone retention bonuses. These allowed for payment of a for payment in cash of a percentage (ranging from 10% to 35%) of the executive’s fixed remuneration upon vesting. The entitlements percentage of the executive’s fixed remuneration according to the achievement of key project milestones. The Group’s former CEO, of participating executives will vest according to the degree of achievement of applicable corporate performance targets. Vested MTI John Gardiner, was entitled to payment of his final milestone retention bonus in November 2009. There were no other milestone retention entitlements are payable in cash. bonuses paid out during the year and none outstanding for future years. The first grants under the MTI program were made during the 2010 financial year, and will be eligible for vesting at the end of the 2011 financial year. MTI grants have been made to 11 employees. Vesting will be determined by reference to the Group’s average EBITDA per trip over the two years.

EBITDA per trip was selected as an appropriate measure because it focuses on the importance of maximising the return from the asset and represents a measure of efficiency as well as overall return. No MTI entitlements will vest unless the Group’s average EBITDA per trip over the two years is at least $1.953. During FY2010, the average EBITDA per trip was $1.82.

78 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 79 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (CONTINUED) 22. Key Management Personnel Disclosures (CONTINUED)

CEO and Senior Executive Remuneration CEO and Senior Executive Remuneration (continued)

Service contracts Remuneration paid to Key Management Personnel in FY2010 The Group has entered into a service contract with the CEO and other senior executives, setting out remuneration and other terms The remuneration of the Key Management Personnel for the years ended 30 June 2010 and 30 June 2009 is set out below in Tables 5 of employment. Each service contract outlines the components of remuneration (including eligibility for at-risk remuneration), but does not and 6 respectively. prescribe the level of remuneration from year to year. Table 5 The service contracts for the Key Management Personnel contain the termination provisions set out below in Table 3. 2010 Short-term employment benefits Long-term employment benefits Post- Table 3 employment Name Notice by Group or employee Termination provisions Name Cash salary Short Term Non-cash Milestone Medium Long Term Super- Total Percentage and fees Incentive benefits Retention Term Incentive2 annuation3 of STI paid Dennis Cliche 6 months Payment of 6 months base salary plus superannuation. Bonus1 Incentive2 / forfeited $ $ $ $ $ $ $ $ % Nick McKechnie 6 months Payment of 6 months base salary plus superannuation Dennis Cliche4 360,154 141,419 - - 52,500 24,600 10,846 589,519 51 / 49 Tony Hudson 3 months Payment of 3 months base salary plus superannuation Nick McKechnie 285,539 103,200 - - 22,500 20,000 14,461 445,700 69 / 31 James Tonkin 3 months Payment of 3 months base salary plus superannuation Tony Hudson 288,000 117,062 - - 23,475 20,867 25,000 474,404 75 / 25 Tom Walker 3 months Payment of 3 months base salary plus superannuation James Tonkin 175,417 47,040 22,122 - 11,200 9,333 26,461 291,573 70 / 30

Tom Walker 229,539 47,580 - - 12,200 10,167 14,461 313,947 65 / 35 At-risk remuneration John Gardiner4 253,408 54,386 15,557 441,831 - - 42,954 808,136 31 / 69 Table 4 below summarises the at-risk components of the remuneration for FY2010 under the service contracts between the Group and the Key Management Personnel in office as at the date of this report. The STI, MTI and LTI amounts shown in Table 4 represent the Peter Bentley5 268,787 140,625 56,213 - - - 50,000 515,625 50 / 50 maximum that would be paid assuming 100% achievement of relevant performance targets. The percentage of remuneration at-risk TOTAL 1,860,844 651,312 93,892 441,831 121,875 84,967 184,183 3,438,904 shown in Table 4 also assumes 100% payment of the at-risk components of remuneration.

Table 6 Table 4 2009 Short-term employee benefits Post- Percentage of Name FAR STI 1 MTI2 LTI 3 employment remuneration at risk $ % $ % $ % $ % Name Cash salary Short Term Non-cash Super- Total Percentage and fees Incentive benefits annuation3 of STI paid / Dennis Cliche4 600,000 75 276,750 35 210,000 40 240,000 60% forfeited $ $ $ $ $ % Nick McKechnie 300,000 50 150,000 30 90,000 40 120,000 55% John Gardiner 520,579 210,529 35,263 100,000 866,371 50 / 50 Tony Hudson 313,000 50 156,500 30 93,900 40 125,200 55% Peter Bentley 216,182 165,000 60,877 100,000 542,059 76 / 24 James Tonkin 224,000 30 67,200 20 44,800 25 56,000 43% Tony Hudson 264,110 106,000 - 50,000 420,110 71 / 29 Tom Walker 244,000 30 73,200 20 48,800 25 61,000 43% Nick McKechnie6 234,618 93,400 - 13,693 341,711 65 / 35

1. The STI opportunity is subject to assessment of the executive’s performance during the year. The actual STI payments awarded for FY2010 are set out in James Tonkin 167,461 44,600 22,122 37,745 271,928 71 / 29 Table 5. 2. The aggregate MTI opportunity in the table is subject to satisfaction of performance conditions over two years. Danny Agnoletto6 268,292 256,333 24,308 65,346 614,279 100 / 0 3. The aggregate LTI opportunity in the table is subject to satisfaction of performance conditions over three years. Graham Gilpin7 176,915 44,000 - 100,000 320,915 100 / 0 4. Dennis Cliche commenced employment on 19 November 2009. The FAR of $600,000 is for a full year of employment. The maximum STI opportunity has been pro-rated for the period of employment. TOTAL 1,848,157 919,862 142,570 466,784 3,377,373

Key Management Personnel STI goals during FY2010 1. The Milestone Retention Bonus earned by John Gardiner in FY2010 applied to the total period of employment from the date of commencement and The STI goals of the CEO for FY2010 were agreed with the Board shortly after his commencement of employment in November 2009. vested according to the extent of achievement of the applicable performance targets. The STI goals of other Key Management Personnel were agreed with the Board at the beginning of the financial year. In each case, 2. The amounts shown in respect of the MTI and LTI entitlements of relevant executives represent the estimated liability for payment of these entitlements. the goals were weighted towards achievement of the Group’s revenue and operating costs targets. This reflects the Group’s focus since Those estimates assume 50% vesting of those entitlements, spread over two years for the MTI program and over three years for the LTI program. No amounts vested or were paid in FY2010 in respect of the MTI and LTI programs. opening EastLink to tolling in July 2008 on building traffic and revenue on EastLink and driving the efficiency of operations. The STI goals 3. Includes statutory and voluntary contributions. for each executive also included achievement of particular projects within their areas of responsibility. 4. John Gardiner resigned as Chief Executive Officer and Managing Director and was replaced by Dennis Cliche on 19 November 2009. 5. Peter Bentley resigned as Chief Operating Officer on 30 June 2010. 6. Danny Agnoletto resigned and was replaced by Nick McKechnie as Chief Financial Officer with effect from 2 March 2009. 7. Graham Gilpin resigned as General Manager Construction on 30 June 2009.

80 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 81 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (CONTINUED) 22. Key Management Personnel Disclosures (CONTINUED)

CEO and Senior Executive Remuneration (continued) Remuneration of Non-Executive Directors (continued)

ConnectEast Group has not provided any loans to executives or directors. Consistent with the recommendations of the external review, the Board has resolved that its fee structure for the year ending 30 June 2011 is as set out below in Table 8. The remuneration of the Key Management Personnel and independent non-executive directors is paid by ConnectEast Pty Limited and ConnectEast Holding 2 Pty Limited, wholly owned subsidiaries of the Group. Table 8 Total fees FY20112 Total fees FY20102 Chief Executive Officer’s remuneration for YF 2011 Committee Role $ $ The Board has approved the remuneration arrangements for the Chief Executive Officer in FY2011 as set out below in Table 7. Chairman 250,0001 240,0001 The STI, MTI and LTI amounts shown in Table 7 represent the maximum that would be paid assuming 100% achievement of relevant Board retainer performance targets. Member 97,500 95,000 Chairman 25,000 20,000 Audit, Risk & Compliance Committee Table 7 Member 12,500 10,000 Name FAR STI MTI LTI Percentage of Chairman 15,000 15,000 Human Resources Committee remuneration Member 8,000 8,000 at risk Chairman 10,000 10,000 $ % $ % $ % $ % Nomination Committee Member 6,000 6,000 Dennis Cliche 630,000 75 472,500 35 220,500 50 315,000 62% Chairman 15,000 15,000 Safety Committee Member 8,000 8,000 Chairman 6,000 6,000 Remuneration of Non-Executive Directors Community Investment Committee Member 4,000 4,000 Basis of remuneration Each independent director is paid a fixed annual fee that takes account of the extent of the director’s involvement at Board and 1 The board retainer fee for the Chairman includes committee obligations. Committee level. The remuneration for non-executive directors is set at a level that takes account of the time commitment required of 2 Inclusive of superannuation guarantee charge. a director and will attract the calibre of director required to contribute to a high-performing Board. For that purpose, the Board obtains If a director is required to commit a material time for work on specific allocated issues outside the normal course of Board and Committee advice from external consultants on benchmarks for remuneration of non-executive directors in comparable organisations. activities, the Board may approve the payment of additional cash remuneration. In the year ended 30 June 2010, Jim Hall received an The fees paid to the non-executive directors are reviewed annually by the Human Resources Committee, which makes recommendations additional payment of $12,000 for additional work in connection with the capital raising completed by the Group in September 2009. to the Board having regard to the matters described above. The aggregate remuneration that will be paid to the independent non-executive directors for the year ending 30 June 2011 (and a During the year, the level of non-executive directors’ fees was reviewed by the Group’s independent external adviser, Egan Associates, comparison to the aggregate remuneration paid for the year ended 30 June 2010) are set out below in Table 9. to determine whether non-executive directors were being remunerated at market rates for a group of ConnectEast’s size and complexity. The independent external review considered market data of a sample of companies listed on the ASX ranking between 50 and 150 by Table 9 market capitalisation and companies with market capitalisation between $807 million and $3,227 million or with total assets between Year Ending 30 June 2011 Year ended 30 June 2010 $1.64 billion and $6.6 billion. $ $ Anthony Shepherd 250,000 240,000

Bruce Beeren 131,000 126,000

Paul Dougas1 113,500 57,913

Jim Hall 128,500 133,0002

Dr Max Lay AM 125,000 120,000 Yvonne von Hartel AM 111,500 109,000

Total 859,500 785,913

1. Paul Dougas was appointed as a director on 22 December 2009. 2. Includes additional payment of $12,000 for work in connection with the Group’s capital raising.

The Group does not pay retirement allowances to non-executive directors nor compensation on early termination of the appointment of non-executive directors.

82 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 83 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (CONTINUED) 22. Key Management Personnel Disclosures (CONTINUED)

Remuneration of Non-Executive Directors (continued) Remuneration of Non-Executive Directors (continued)

Minimum equity holding Table 11 Independent directors have agreed to acquire a minimum of 250,000 ConnectEast units. They may do so by applying 20% of their 2009 Short-term benefits Post-employment remuneration to the purchase of ConnectEast units. Where applicable, the Group purchases these units on-market during the securities trading windows immediately following release of the annual and half-yearly results (in accordance with ConnectEast’s Dealing in Name Cash salary Equity1 Super- Total and fees1 annuation Securities Policy). $ $ $ $ Until they hold at least 250,000 units, the independent directors have agreed not to dispose of any ConnectEast units. The director must Anthony Shepherd 132,885 72,220 13,745 218,850 then maintain a minimum holding of 250,000 units, and may only dispose of units in accordance with ConnectEast’s Dealing in Securities 7 Policy. These restrictions cease to apply after a director leaves office. Bruce Beeren 20,038 5,586 2,306 27,930

6 At the date of this report, Tony Shepherd, Bruce Beeren, Paul Dougas and Max Lay hold at least 250,000 units. Jim Hall 102,800 23,450 - 126,250 Dr Max Lay AM6 93,800 23,450 - 117,250 Thiess John Holland nominee director Mark Snape3 - - - - ConnectEast does not pay any remuneration to Mark Snape, who has been nominated by Thiess John Holland. He is remunerated as an executive of John Holland. ConnectEast does not pay any remuneration to Mark Lynch, who is alternate director for Mark Snape. Yvonne von Hartel AM 2,340 20,850 81,060 104,250 Mark Lynch4 - - - - Maximum aggregate remuneration 5 Under the Group’s Constitutions, the maximum aggregate remuneration payable to non-executive directors is $950,000, or any greater Julian Beaumont - - - - amount approved by unitholders. Andrew Sims5 - - - - Dr Ray Wilson3 - - - - Remuneration of non-executive directors The remuneration paid to the non-executive directors during the years ended 30 June 2010 and 30 June 2009 is set out below in Tables Total 351,863 145,556 97,111 594,530 10 and 11 respectively. 1 The Chairman and Independent Directors allocate 33% and 20% respectively of their remuneration to purchase ConnectEast stapled units, until they Table 10 attain a holding of 250,000 units. 2 Paul Dougas was appointed as a director on 22 December 2009. 2010 Short-term employee benefits Post-employment 3 Mark Snape is nominated by Thiess John Holland. He is an employee of John Holland and is not remunerated by the ConnectEast Group. 4 Mark Lynch is alternate director for Mark Snape. He is an employee of Thiess Pty Limited and is not remunerated by the ConnectEast Group. Cash salary Equity1 Super- Total Name 5 Andrew Sims was an employee of Macquarie Group Limited and was not remunerated by ConnectEast Group. Julian Beaumont was a nominee of and fees1 annuation Macquarie Group Limited and was not remunerated by ConnectEast Group. Messrs Sims and Beaumont resigned as directors on 31 March 2009. $ $ $ $ 6 No statutory superannuation contributions are required. Anthony Shepherd 225,539 - 14,461 240,000 7 Bruce Beeren was appointed as a director on 31 March 2009.

Bruce Beeren 96,696 18,900 10,404 126,000 Total Remuneration of Key Management Personnel and Non-Executive Directors Paul Dougas2 34,663 18,468 4,782 57,913 The total remuneration of the Group’s Key Management Personnel and directors is set out below in Table 12. Jim Hall6 108,800 24,200 - 133,000 Table 12 Dr Max Lay AM6 96,000 24,000 - 120,000 Consolidated Mark Snape3 - - - - 2010 2009 Yvonne von Hartel AM 59,274 21,800 27,926 109,000 $ $ 4 Mark Lynch - - - - Short-term employee benefits 3,334,388 3,408,008 Total 620,972 107,368 57,573 785,913 Long-term employee benefits 648,673 - Post-employment benefits 241,756 563,895

Total 4,224,817 3,971,903

84 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 85 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (CONTINUED) 23. Commitments for Expenditure

Commitments for the cost of various goods and services to be supplied but not recognised as liabilities: Stapled Unit Holdings The numbers of Stapled Units in the ConnectEast Group held during the financial year by each director of ConnectEast Management Limited and each of the Key Management Personnel of the Group, including their personally-related entities, are set out below in Tables Consolidated 13 and 14 respectively. 2010 2009 $’000 $’000 Table 13 Operation and Maintenance Agreement Name Balance Units acquired Balance Value of units During the year ConnectEast Pty Limited has renegotiated its operations and maintenance at the start during the year at the end at the end of the year of the year of the year1 agreement with Transfield Services (Australia) Pty Limited and has entered into a 5 year $ alliance based agreement. Estimated amounts payable are as follows: Non-executive directors of ConnectEast Payable not later than one year 16,353 15,696 Management Limited Later than one year and not later than five years 70,465 46,164 Anthony Shepherd 517,168 465,573 982,741 373,442 86,818 61,860 Bruce Beeren - 261,594 261,594 99,406 Operating Leases Paul Dougas2 168,291 94,943 263,234 100,029 ConnectEast Pty Limited has entered into operating leases for the rental of retail premises. Jim Hall 116,397 117,963 234,360 89,057 Amounts payable are as follows.

Dr Max Lay AM 129,724 134,731 264,455 100,493 Payable not later than one year 195 325

Mark Snape - - - - Later than one year and not later than five years 32 - Yvonne von Hartel AM 110,637 111,322 221,959 84,344 227 325

Table 14 24. Contingent Liabilities

Name Balance Units acquired Balance Value of units ConnectEast and Thiess John Holland (TJH) have settled all outstanding matters under the EastLink Construction Contract. The settlement at the start during the year at the end at the end includes the calculation and timing of the construction early completion bonus, the details of which are set out in Note 15. of the year of the year of the year1 $ ConnectEast’s performance in operating EastLink is measured under a KPI regime set out in the EastLink Concession Deed. Performance Key Management Personnel under the KPI regime is measured annually and commenced on 1 January 2009. Financial penalties apply under the KPI regime where of ConnectEast Group performance benchmarks are not achieved. No KPI penalty was incurred for the 2009 calendar year and it is ConnectEast’s assessment Dennis Cliche - - - - based on performance to date is that no material liability is likely to arise under the KPI regime for the 2010 calendar year.

Nick McKechnie - 14,076 14,076 5,349 25. Employee Benefits Tony Hudson 17,325 9,809 27,134 10,311

James Tonkin - - - - Consolidated Tom Walker 18,508 - 18,508 7,033 2010 2009 $’000 $’000

1. The basis of valuation of the units at year end is the unit price as at 30 June 2010 ($0.38 per stapled unit). Employee benefit and related on-costs liabilities 2. Paul Dougas held 168,291 units at the time of becoming a director on 22 December 2009. Aggregate employee benefit and related on-costs liabilities 3,441 3,559

Employee numbers Number Number

Average number of employees during the financial year 321 361

86 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 87 NOTES TO THE FINANCIAL STATEMENTS

26. Related Party Transactions 28. Segment Information

The consolidated entity operates as one business segment being the EastLink tollway, in one geographic segment being Victoria. Key Management Personnel Disclosures relating to Key Management Personnel are set out in Note 22. 29. Reconciliation of loss from Ordinary Activities after Income Tax benefit to Net Cash outflow from Operating Activities Responsible Entity Fees Under the terms of the ConnectEast Investment Trust Constitution, the Responsible Entity, ConnectEast Management Limited, is entitled to receive fees from ConnectEast Investment Trust and ConnectEast Investment Trust 2. ConnectEast Management Limited became a wholly Consolidated owned subsidiary on 31 March 2009, prior to which Macquarie Group Limited was the ultimate parent. 2010 2009 $’000 $’000 Other Related Parties Loss after income tax benefit (53,638) (531,585) On 30 September 2009 Macquarie Group Limited ceased to be a related party as it is no longer the ultimate parent of ConnectEast Management Limited, the Responsible Entity. Depreciation and amortisation 99,134 123,999 Impairment - 404,875

Consolidated Other non-cash items 18,418 - 2010 2009 Operating cash flow items not impacting working capital (12,126) 18,711 $’000 $’000 Macquarie Group Companies Working capital movements not relating to operations 16,021 73,641 Financial Advisory Fee - 3,909 Decrease / (increase) in trade and other receivables 2,069 (6,321) Underwriting Fees 6,987 7,952 (Increase) in deferred tax asset (59,019) (89,502) (Decrease) in payables and provisions (18,917) (61,880) No amounts have been bought to account in relation to other transactions with other related parties. The above transactions were made Net cash used by operating activities (8,058) (68,062) on normal commercial terms and conditions and at market rates. No amounts are receivable from or payable to other related parties at balance date.

Controlling Entity 30. Earnings Per Stapled Unit ConnectEast Group is a stapled entity and comprises the aggregation of ConnectEast Investment Trust and its wholly-owned controlled entities and ConnectEast Holding Trust and its wholly-owned controlled entities. The Responsible Entity of ConnectEast Investment Trust (a) Reconciliation of earnings used in calculating earnings per stapled unit and ConnectEast Holding Trust is ConnectEast Management Limited. Consolidated Ownership interests in controlled entities are set out in Note 27. 2010 2009

27. iNvestments in Controlled Entities Basic and diluted earnings per stapled unit (cents) (1.49) (25.43) ConnectEast Group comprises the aggregation of ConnectEast Holding Trust Group and ConnectEast Investment Trust Group, Loss attributable to unitholders of the company used in calculating basic and (refer Note 1(b)). diluted earnings per stapled unit ($’000) (53,638) (531,585)

Name of entity Country of Class of Equity holding Equity holding incorporation shares / units 2010 2009 There were no discontinued operations in the year.

The ConnectEast Holding Trust Group comprises: (b) weighted average number of units used as the denominator ConnectEast Holding Trust Australia Ordinary 100% 100% ConnectEast Pty Limited Australia Ordinary 100% 100% Consolidated ConnectEast Nominee Company Pty Limited Australia Ordinary 100% 100% 2010 2009 ConnectEast Finance Pty Limited Australia Ordinary 100% 100% Units Units ConnectEast Holding 2 Pty Limited Australia Ordinary 100% 100% Weighted average number of units used as the denominator ConnectEast Management Limited Australia Ordinary 100% 100% in calculating basic earnings per stapled unit 3,599,002,432 2,090,540,964 Weighted average number of units used as the denominator The ConnectEast Investment Trust Group comprises: in calculating diluted earnings per stapled unit 3,599,002,432 2,090,540,964 ConnectEast Investment Trust Australia Ordinary 100% 100% ConnectEast Investment Trust 2 Australia Ordinary 100% 100% ConnectEast Asset Trust Australia Ordinary 100% 100%

88 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 89 NOTES TO THE STATEMENT OF THE DIRECTORS FINANCIAL STATEMENTS OF THE RESPONSIBLE ENTITY 31. Events Occurring After the Statement of Financial Position Date OF THE TRUST No matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years. In the opinion of the Directors of ConnectEast Management Limited as the Responsible Entity for ConnectEast Investment Trust (the “Trust”)

32. Parent Entity Financial Information (a) the financial statements and notes for the Trust and its controlled entities (the “Group”), set out on pages 44 to 90 are in accordance with the Corporations Act 2001, including:

(a) Summary of financial information (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting 2010 2009 requirements; $’000 $’000 (ii) giving a true and fair view of the Group’s financial position as at 30 June 2010 and of its performance, for the financial year ended Statement of Financial Position on that date. Current assets 9,936 184,251 (b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. Total assets 1,875,550 1,418,502 Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Current liabilities 215 3,699 Accounting Standards Board.

Total liabilities 215 3,699 The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Shareholders’ equity Corporations Act 2001.

Unitholders funds 2,093,420 1,712,578 This statement is made in accordance with a resolution of the Directors of ConnectEast Management Limited. Retained losses (218,085) (297,775)

1,875,335 1,414,803

Profit / (Loss) for the year 79,690 (300,100) Anthony F Shepherd Director Total comprehensive income 79,690 (300,100) Melbourne 17 August 2010 (b) Contingent liabilities of the parent Refer to Note 24 above.

90 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 91 INDEPENDENT AUDIT REPORT

Report on the financial report (continued)

Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion

In our opinion:

(a) the financial report of ConnectEast Investment Trust is in accordance with the Corporations Act 2001, including: to the members of ConnectEast Investment Trust (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year ended on that date; and

Report on the financial report (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations We have audited the accompanying financial report of ConnectEast Investment Trust (the trust), which comprises the statement of financial Regulations 2001; and position as at 30 June 2010, the income statement, statement of comprehensive income, statement of changes in equity and cash flow (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for the ConnectEast Investment Trust Group (the consolidated entity). The consolidated entity comprises the trust and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report PricewaterhouseCoopers

The directors of ConnectEast Management Limited (the responsible entity of the trust) are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting Charles Christie and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, Partner the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial Melbourne statements comply with International Financial Reporting Standards. 17 August 2010

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

Liability limited by a scheme approved under Professional Standards Legislation

92 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 93 UNITHOLDER INFORMATION

The unitholder information set out below was applicable as at 17 August 2010. c. Substantial holders

The only class of equity securities on issue are fully paid ordinary units in ConnectEast Investment Trust and ConnectEast Holding Trust. The names of substantial holders in ConnectEast Group and the number and percentage of stapled units in which each substantial Units in these two trusts are stapled together and trade as ConnectEast Group (CEU) on ASX. All issued stapled units are quoted on ASX. holder and its associates have a relevant interest as disclosed in substantial holder notices given to ConnectEast Group on or before There is no current on-market buy-back. 17 August 2010 are set out in the table below.

A. Distribution of equity securities Name Date of substantial Number of stapled Percentage of holder notice units stapled units The table below provides a summary of the number of unitholders by the size of their holding. Capital Partners Limited 26 May 2010 1,316,994,570 33.43%

Holders Lazard Asset Management Pacific Co 3 May 2010 318,957,130 8.10% 1 – 1,000 2,914 Commonwealth Bank of Australia 14 September 2009 212,330,627 6.09% 1,001 – 5,000 5,650 5,001 – 10,000 4,572 10,001 – 100,000 12,330 D. vOTing rights 100,001 and over 1,190 The voting rights attaching to ConnectEast Group stapled units are as follows: 26,656 • on a show of hands, each unitholder present in person and each other person present as a proxy, attorney or representative of a unitholder, and each unitholder who has duly lodged a valid direct vote in respect of the meeting, has one vote; and There were 3,418 unitholders holding less than a marketable parcel of stapled units, based on the market price of stapled units at close • on a poll, each unitholder present in person has one vote for each dollar of the value of the units held by the unitholder, each person of trading on 17 August 2010. present as proxy, attorney or representative of a unitholder has one vote for each dollar of the value of the stapled units held by the No stapled units on issue are restricted securities or subject to voluntary escrow. unitholder that the person represents, and each unitholder who has duly lodged a valid direct vote in respect of the meeting has one vote for each dollar of the value of the units held by the unitholder. B. Twenty largest quoted equity security holders

The names of the 20 largest holders of quoted stapled units and the number of stapled units and percentage of issued stapled units held by them are set out in the table below.

Name Number of stapled Percentage of stapled units held units held National Nominees Limited 1,280,972,531 32.51% HSBC Custody Nominees (Australia) Limited 709,306,943 18.00% J P Morgan Nominees Australia Limited 278,366,871 7.06% Citicorp Nominees Pty Limited 207,550,550 5.27% RBC Dexia Investor Services Australia Nominees Pty Ltd 96,205,024 2.44% Thiess Infrastructure Nominees Pty Ltd 65,217,391 1.66% John Holland Infrastructure Nominees Pty Ltd 65,217,391 1.66% Citicorp Nominees Pty Limited 63,309,081 1.61% Cogent Nominees Pty Limited 62,896,231 1.60% M F Custodians Ltd 36,671,888 0.93% Australian Reward Investment Alliance 33,876,785 0.86% ANZ Nominees Limited 28,287,970 0.72% Citicorp Nominees Pty Limited 27,000,771 0.69% Tasman Asset Management Ltd 25,120,533 0.64% Woodross Nominees Pty Ltd 17,316,606 0.44% Queensland Investment Corporation 17,210,935 0.44% AMP Life Limited 16,282,951 0.41% Citicorp Nominees Pty Limited 15,119,873 0.38% Sandhurst Trustees Ltd 13,685,886 0.34% Citicorp Nominees Pty Limited 12,982,519 0.32% Total 3,072,598,730 77.98%

94 CONNECTEAST | ANNUAL REPORT | 2010 95 CORPORATE DIRECTORY bOARD Of DiRECTORS REgiSTERED AND pRiNCipAl COMplAiNTS hANDliNg ADMiNiSTRATivE OffiCE ConnectEast has in place a formal Chairman EastLink Operations Centre complaints handling procedure, which Anthony Shepherd 2 Hillcrest Avenue is available on our website at Ringwood VIC 3134 ConnectEast.com.au. Directors Tel (03) 9955 1700 The responsible entity is a member Fax (03) 9955 1701 Dennis Cliche (Managing Director) of the Financial Ombudsman Service. Bruce Beeren Unitholders unable to resolve a dispute RESpONSiblE ENTiTY John Collier† with ConnectEast may contact the Financial Paul Dougas Ombudsman Service on 1300 78 08 08 or ConnectEast Management limited Jim Hall visit its website at fos.org.au. Dr Max Lay AM 2 Hillcrest Avenue Mark Snape Ringwood VIC 3134 pRivACY Yvonne von Hartel AM Tel (03) 9955 1700 ConnectEast honours without reservation Mark Lynch (alternate director for Fax (03) 9955 1701 our obligation to respect and protect Mark Snape) the privacy of the personal information SECURiTiES REgiSTRAR of individuals with whom we deal. Our COMpANY SECRETARY privacy policy is available on our website link Market Services Tony Hudson at www.connecteast.com.au. Level 1, 333 Collins St † appointed on 18 August 2010 ExECUTivE MANAgEMENT Melbourne, VIC 3000 Tel 1300 551 346 or (02) 8280 7704 Dennis Cliche www.linkmarketservices.com.au Managing Director/Chief Executive Officer ADviCE wARNiNg Nick McKechnie This annual report is not an offer or Chief financial Officer invitation for subscription or purchase Tony Hudson of or a recommendation in relation to general Counsel & Company Secretary securities. It does not take into account the objectives, financial situation or James Tonkin needs of any investor. Before making general Manager, Corporate Affairs an investment in ConnectEast Group, Tom Walker the investor or prospective investor should general Manager, information consider whether such an investment is Technology appropriate to their particular objectives, financial situation and needs and consult Shirley Robertson an investment adviser if necessary. general Manager, human Resources & Operations wEbSiTE ADDRESS www.connecteast.com.au

STOCk ExChANgE liSTiNg

ConnectEast Investment Trust and ConnectEast Holding Trust units are stapled and quoted on ASX as ConnectEast Group (ASX Code – CEU)

96 CONNECTEAST | ANNUAL REPORT | 2010 CONNECTEAST Annu a l Repo

r ANNUAL REPORT 2010 t 2010

2 Hillcrest Avenue Ringwood VIC 3134 Australia PO Box 804 Ringwood VIC 3134

T 03 9955 1700 F 03 9955 1701 ConnectEast.com.au EastLink.com.au HOLDING Trust Group ABN 80 480 738 133

YEAR ENDED FINANCIAL REPORT 30 JUNE 2010

ConnectEast Management Limited (CEML) ABN 68 071 292 647 / AFSL 254 959 is the responsible entity for ConnectEast Investment Trust (CEIT) ARSN 110 713 481 and its controlled entities and ConnectEast Holding Trust (CEHT) ARSN 110 713 614 and its controlled entities (collectively, ConnectEast Group). CEML is incorporated in Australia and its registered address is 2 Hillcrest Avenue, Ringwood, Victoria 3134.

This report is not an offer or invitation for subscription or purchase of or a recommendation of securities. It does not take into account the investment objectives, financial situation or particular needs of any investor. Before making an investment in ConnectEast Group, the investor or prospective investor should consider whether such an investment is appropriate to their particular investment objectives, financial situation and needs and consult an investment adviser if necessary.

The ConnectEast Holding Trust Group financial report has been prepared to enable ConnectEast Management Limited as responsible entity to comply with its obligations under the Corporations Act 2001 to ensure compliance with ASX Listing Rules and satisfy the requirements of the Australian accounting standards in relation to stapled structures. The responsibility for preparation of the financial report and any financial information contained in this financial report rests solely with the directors of ConnectEast Management Limited. The financial report was authorised for issue by the directors on 17 August 2010. CEML has the power to amend and re-issue the financial report. The financial report is presented in Australian currency. DIRECTORS’ REPORT

In respect of the year ended 30 June 2010, the Directors of ConnectEast Management Limited (CEML) (ABN 68 071 292 647 / AFSL 254 Review of Operations (continued) 959), being the Responsible Entity of ConnectEast Holding Trust (CEHT) submit the following Directors’ Report on the financial report of The $421 million renounceable rights issue conducted in August 2009 enabled the Group to repay in full tranche A of the Group’s debt. ConnectEast Holding Trust and its controlled entities (the Group). ConnectEast now has a robust and sustainable capital structure, with its next refinancing not due until late 2012 when it is expected The units of ConnectEast Investment Trust (CEIT) and CEHT are stapled together and quoted as one on the Australian Securities Exchange. EastLink’s traffic ramp-up will be complete. The Group produced positive cash flow in the second half of the financial year. This is expected For statutory reporting purposes, in accordance with AIFRS, specifically the requirements of AASB 3Business Combinations, CEIT has been to enable the Group to commence paying distributions from operating cash flow (and surplus cash reserves) from the end of the 2010 identified as the acquirer in the Stapled Group based on the size of its net assets and its operations. calendar year.

Settlement during the year of Supreme Court litigation arising out of the EastLink construction contract resolved a risk for the Group and Directors released management to focus fully on driving EastLink’s performance. Amendments to the EastLink Concession Deed negotiated with the The following persons were Directors of the Responsible Entity during the year and up to the date of this report: State have clarified the basis for assessment of ConnectEast’s performance under the KPI regime in the Deed. No KPI credits were • Anthony Shepherd (Chairman) incurred during the year. • Dennis Cliche (Managing Director, appointed 19 November 2009) Total revenue from continuing operations was $191.9 million (June 2009: $142.5 million) of which $189.7 million (June 2009: $140.9 million) • Bruce Beeren represents tolling revenue and associated fee income. • Paul Dougas (appointed 22 December 2009) Significant Changes in State of Affairs • Jim Hall During the year to 30 June 2010, the following units were issued by the ConnectEast Group: • Dr Max Lay AM • Mark Snape Number of stapled units • Mark Lynch (alternate to Mark Snape) Opening balance – 1 July 2009 2,553,238,059 • Yvonne von Hartel AM • John Gardiner (resigned 19 November 2009) Issue of units under institutional pro-rata entitlement offer (9 September 2009) 925,648,052 Issue of units under early retail pro-rata entitlement offer (9 September 2009) 10,221,864 Principal Activities Issue of units under retail pro-rata entitlement offer (5 October 2009) 340,743,084 In October 2004, the ConnectEast Group was awarded the concession to finance, design, build, maintain and operate the EastLink Issue of units under Distribution Reinvestment Plan (26 October 2009) 43,234,870 Tollway, which comprises approximately 39km of tolled freeway-standard road connecting Melbourne’s eastern and south-eastern suburbs. The tollway opened toll-free for public use on 29 June 2008, and tolling commenced on 27 July 2008. The concession expires Issue of units under Distribution Reinvestment Plan (23 April 2010) 67,060,022 on 30 November 2043. Closing balance – 30 June 2010 3,940,145,951

Distributions

ConnectEast Holding Trust did not make a distribution during the year ended 30 June 2010 but did issue stapled units in accordance with Matters Subsequent to the End of the Financial Year the Distribution Reinvestment Plan. Refer to Note 20 for further details. In the opinion of the directors, no matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years. Review of Operations

During the year, the Group’s underlying business performed well, with traffic on EastLink growing steadily and substantially in line with Likely Developments and Expected Results of Operations the independent forecasts obtained in August 2009 from the Group’s traffic consultants, IMIS (Integrated Management Information Information on likely developments in the operations of the Group and the expected results of those operations have not been included in Systems Pty Ltd). Average Daily Revenue increased by 20.2% in the period 27 July 2009 to 30 June 2010 compared to the corresponding this report because the Responsible Entity believes it would be likely to result in unreasonable prejudice to the Group. period in the previous year. Tolling on EastLink commenced on 27 July 2008. The Group has commenced trials of a number of marketing incentive offers with a view to supplementing EastLink’s continuing natural traffic ramp-up.

A focus on cost management has seen the increase in variable costs associated with EastLink’s traffic growth offset by cost reduction initiatives. The benefits of operating leverage enabled a 25.6% reduction in the cost per trip to $1.28 over the year. Projects completed during the year included the re-negotiation of the operation and maintenance agreement with Transfield Services to establish an alliance structure. This resulted in annual operating cost savings of $1.5 million in the six months to 30 June 2010 compared to the previous fixed price contract and similar savings are expected in future years. Planned improvements to EastLink’s image processing system are under development and are also expected to produce cost savings in the new financial year.

2 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 3 DIRECTORS’ REPORT

Information on Directors and Company Secretary Information on Directors of Responsible Entity (continued)

Information relating to current Directors’ qualifications, experience and special responsibilities are set out on pages 4 to 6. Paul Dougas BE(Chem), M.ENGSc, FAICD, HonFIEAust Anthony Shepherd Independent Non-Executive Director BCom Member of the Human Resources Committee. Chairman Member of the Safety Committee. Independent Non-executive Director Chairman of the Nomination Committee. Paul Dougas has an impressive record as a business leader and innovator. He has been Chief Executive Officer and Managing Director Member of the Human Resources Committee. of engineering, services and project delivery practice, Sinclair Knight Merz (SKM), since 1996, and is responsible for leading the Group globally and managing the firm’s strategic direction. Tony Shepherd is currently Chairman of Transfield Services Limited and a Trustee of the Sydney Cricket Ground Trust. Tony is also a director of the Australian Chamber Orchestra and is Chairman Elect of Team GWS, the new AFL club in Western Sydney. In addition, he was the Inaugural Chairman of the Centre for Engineering Leadership and Management, and takes a particular interest in workplace safety, youth training employment and the environment. As an executive of the Transfield Holding Group in the 1980s and 1990s, he was responsible for the development of the Sydney Harbour Tunnel project and Transfield’s successful tender for the ANZAC Warship Project. He was Chief Executive Officer of the Project He has worked in various roles with SKM since 1978 and before that was with the Melbourne and Metropolitan Board of Works. Development Division at Transfield Holdings Group from 1992 to 2001. Jim Hall In this position, Tony was responsible for the Melbourne CityLink project, as well as a number of other build-own-operate-transfer projects BCom, FCPA, MAICD and the development of Walsh Bay. Tony was formerly a non-executive director of Transurban for its initial flotation. Independent Non-executive Director Chairman of Audit, Risk & Compliance Committee. Dennis Cliche Member of the Nomination Committee. BEng, MBA Managing Director Jim Hall is a non-executive director of Paperlinx Limited, Alesco Limited, Centro Properties Limited, Centro Retail Limited and a member of Member of the Safety Committee. the JPMorgan Advisory Council. Member of the Community Investment Committee. From May 2005 to February 2008 he was also a non-executive director of Symbion Health Limited. Jim was Executive Director Finance at Dennis Cliche joined ConnectEast from Yarra Trams, where he held the position of Chief Executive Officer since September 2005. He was Orica from January 2002 until April 2005. formerly the company’s Deputy Chief Executive Officer and Chief Operating Officer from 2003. Prior to joining Orica, he was Vice President, Group Accounting and Controller at BHP Billiton Limited. In 32 years with BHP, Jim held a He started his business career with Air Liquide Canada and spent 22 years with the Air Liquide Group in a variety of executive, sales and range of senior financial management roles. technical roles in Canada, France and Australia. During this time Dennis’ responsibilities included national sales and marketing and also Group level strategy on information systems and IT infrastructure. Dr Max Lay AM PhD, BCE, MEngSc, FTSE, HonFIE Aust In May 1998 he was appointed as Managing Director of the Australian subsidiary of Air Liquide in Melbourne, a position he held for five Independent Non-executive Director years. Throughout this period Dennis drove significant change across the business and saw profits and sales progressively rise. He also Member of the Audit, Risk & Compliance Committee. established an impressive internal safety record for the business and launched a number of human resources initiatives. Chairman of the Safety Committee. Dennis joined Transdev, SA in May 2003 and was seconded to the Yarra Trams executive team in July 2003. Max Lay has had a distinguished career spanning both civil and transport engineering. Max held the role of executive director of the Australian Road Research Board from 1975 to 1988 until he joined VicRoads, where he held the positions of director of quality and Bruce Beeren technical resources from 1988 to 1994 and then director of major projects from 1994 until 1996. These duties included major planning and BSc, BCom, MBA, FCPA, FAICD review roles leading up to the selection of the successful concessionaire for the Melbourne CityLink project. Independent Non-executive Director Chairman of the Human Resources Committee. Max was then appointed under the Melbourne CityLink Act as the independent reviewer on the Melbourne CityLink project, operating in Member of the Audit, Risk & Compliance Committee. that role from 1996 to 2003. Member of the Nomination Committee. Max has had a longstanding involvement with the RACV, having been a director from 1986 to 2008, vice-president and deputy chairman Bruce Beeren has extensive experience as a non-executive director on listed company boards in Australia and New Zealand and as a from 1995 to 1999 and president from 1999 to 2002. He was also president of the Australian Automobile Association from 2000 to non-executive member of listed company audit committees. 2002. The 4th edition of his international textbook, Handbook of Road Technology, was published in England in 2009.

He has also been a member of senior executive teams of major listed companies, working in executive roles for AGL (CFO), AGL Pipelines (General Manager), VENCorp (CEO) and Origin Energy Limited (Finance Director).

Bruce is a non-executive director of Origin Energy Limited (since 2005 – formerly executive director from 2000 to 2005), Contact Energy Limited (since October 2004), Coal & Allied Industries Limited (since July 2004) and Equipsuper Pty Limited (since August 2002).

He is a former director of Envestra Limited (2000-2007) and Baycorp Advantage Limited (2004-2007). Bruce has been a fellow of CPA Australia for more than 20 years.

4 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 5 DIRECTORS’ REPORT

Information on Directors of Responsible Entity (continued) Directors’ Meetings

The number of meetings of the ConnectEast Group’s Board of Directors and of each Board committee held during the year ended 30 June Mark Snape 2010, and the number of meetings attended by each Director were: BEc, MBA, ACA, FAICD Non-executive Director Full Meetings Meetings of Meetings Meetings Meetings of Meetings of Member of the Audit, Risk & Compliance Committee. of Directors Audit, Risk of Human of Safety Nomination Community Member of the Human Resources Committee. & Compliance Resources Committee Committee Investment Committee Committee Committee Mark is Corporate General Manager, Infrastructure Finance and Investment for the John Holland Group, with responsibility for managing the Group’s equity positions. Mark has considerable experience in large scale infrastructure development and project financing. In A B A B A B A B A B A B addition to ConnectEast he is a director of the BrisConnections Group of Companies, Connector Motorways Group and Metro Trains Anthony Shepherd 9 10 2 * 7 7 1 * 2 2 * * Melbourne Pty Limited. Dennis Cliche+ 6 6 3 * 4 * 2 2 * * 1 1 He is a past director of Asia Pacific Transport Pty Limited, Pacific Hydro Limited, Southern Hydro Pty Limited and AEP Resources Australia Bruce Beeren 10 10 6 7 7 7 * * 2 2 * * Pty Limited. Paul Dougas& 5 5 1 * 3 3 2 2 * * * * Before joining John Holland Group, Mark held various senior management positions including as Managing Director Asia Pacific for American Electric Power Co. Inc., Director Deloitte Corporate Finance, Director County Natwest Corporate Finance and Director BZW Jim Hall 10 10 7 7 * * 1 * 2 2 * * Corporate Finance. Dr Max Lay AM 10 10 7 7 * * 4 4 * * * *

Yvonne von Hartel AM Mark Snape 9 10 4 7 6 7 * * * * * * BArch (Hons) LFAIA Yvonne von Hartel AM 9 10 1 * * * 3 4 * * 2 2 Independent Non-executive Director Mark Lynch 1 1 1 1 ------Chair of the Community Investment Committee. Member of the Safety Committee. John Gardiner^ 4 4 4 * 3 * 2 2 * * 1 1

Yvonne von Hartel is a founding Principal of the award winning national architectural and urban design practice, peckvonhartel. A Number of meetings attended. She has served as the chair of the Victorian Design Advisory Council from 2002 to 2004 and as a director of the Tourism and Transport B Number of meetings held which the Director was eligible to attend. Forum from 2001 to 2004. Yvonne is Chair of the Sustainability in Buildings Standards Coordination Group of Standards Australia and - Not eligible to attend. a Trustee of the Melbourne Convention and Exhibition Centre. * Not a member of the relevant committee. Yvonne was awarded a Member of the Order of Australia in the General Division in the Queen’s Birthday Honours, 2007. + Dennis Cliche became a director of the Responsible Entity on 19 November 2009, and as Managing Director of the Group, is a director of all other companies in the ConnectEast Group. Mark Lynch & Paul Dougas became a director on 22 December 2009. BSc, LLB (Hons), LLM, MAICD ^ John Gardiner resigned as a director on 19 November 2009. Alternate Non-executive Director to Mark Snape Retirement, Election and Continuation in Office of Directors Mark is Executive General Manager, Strategy & Development for Thiess Pty Limited, with responsibility for the Thiess Group’s project investments and its strategic development and project finance activities. The Group’s constitution requires directors to retire by rotation after no more than three years with at least one director to retire each year. The Group’s Managing Director is not subject to the requirement to retire by rotation. Mark has considerable experience in large scale infrastructure development and project financing as a lawyer and also as a director of companies involved in the development or operation of major infrastructure projects including Aquasure, the concessionaire for the Indemnification and Insurance of Directors, Officers and Auditor Victorian Desalination Project, and is an alternate director of ConnectEast and BrisConnections. He is also a director of Perth based engineering consultancy ProMet Engineers. No insurance premiums are paid for out of the assets of the Group in regard to insurance cover provided to the auditor of the Group. The Auditor is indemnified by the Group against claims from third parties arising from the provision of audit services except where Company Secretary prohibited by the Corporations Act 2001, or due to negligence, fraudulent conduct, dishonesty or breach of trust by the auditor.

The Company Secretary is: During the year ConnectEast Pty Limited has paid an insurance premium to insure directors and officers of the company against certain liabilities. The insurance contract prohibits disclosure of the nature of the insurance cover and the amount of the premium paid. Mr Tony Hudson LLB, BCom, Grad Dip App Corp Gov, MAICD, ACIS The liabilities insured include legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the Tony Hudson is the Company Secretary and General Counsel of the ConnectEast Group. Before joining the Group in August 2005, directors or officers in their capacity as directors or officers of entities in the Group, and any other payments arising from liabilities incurred Tony was a partner for nine years in the national commercial law firm, Blake Dawson. by the directors or officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the directors or officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Group.

6 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 7 DIRECTORS’ REPORT

Fees Paid to the Responsible Entity and Associates Auditor’s Independence Declaration

Fees paid by ConnectEast Pty Limited, a controlled entity of the Group, to the Directors of ConnectEast Management Limited are disclosed A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 10. in Note 22. Rounding of Amounts in the Directors’ Report and the Financial Report Interests in the Group held by its directors are disclosed in Note 22. The Group is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the Environmental Regulation and Performance ‘rounding off’ of amounts in the Directors’ Report and financial report. Amounts in the Directors’ Report and financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. The operations of EastLink are required to comply with various Acts, including the Victorian Environment Protection Act under which a Waste Discharge Licence (that covers tunnels operations) has been issued, and the Commonwealth Environment Protection and Auditor Biodiversity Conservation Act. PricewaterhouseCoopers continues in office in accordance with Section 327 of theCorporations Act 2001. An Environmental Management Plan has been created and implemented by the Group through its principal contractor Transfield Services Limited. The Environmental Management Representative of the Group audits and inspects the maintenance of the EastLink road This report is made in accordance with a resolution of the Directors of ConnectEast Management Limited. reservation in line with this Plan.

During the year, the Group was not served with any State or Federal environmental notices of infringement, pollution abatement notices or any other environmental regulatory sanction.

Non-audit Services Anthony F Shepherd In accordance with the Group’s Auditor Independence Policy, the Group will obtain non-audit services from the external auditor only Director where the expertise and the experience of the external auditor in relation to the Group are useful to the provision of those services, Melbourne and provision of those services will not adversely affect the professional integrity, objectivity and independence of the external auditor 17 August 2010 in relation to its audit of the Group.

The Directors have considered the position and, in accordance with the advice received from the Audit, Risk & Compliance Committee, are satisfied that the provision by the auditors of those non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision by the auditor of the non-audit services, set out below did not contravene the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved by the Audit, Risk & Compliance Committee to ensure they do not affect the independence, integrity and objectivity of the auditor; and • none of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Group, acting as advocate for the Group or jointly sharing economic risks and rewards.

During the year the following fees were paid or payable for services provided by the auditor of the Group, PricewaterhouseCoopers Australian firm:

2010 2009 $’000 $’000 Audit services Audit and review of financial reports and other audit work under the Corporations Act 2001 255 255 Other Services Related practices 7 35

232 290

Value of Scheme Assets

At 30 June 2010, ConnectEast Holding Trust Group had total assets of $604.3 million and net liabilities of $335.8 million.

8 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 9 AUDITOR’S INDEPENDENCE STATEMENT OF DECLARATION COMPREHENSIVE INCOME

For the year ended 30 June

Consolidated Notes 2010 2009 $’000 $’000 Income Revenue from continuing operations 4 191,877 144,237

Expenses

Tolling and customer services expenses (43,987) (45,790)

Roadside operations (18,077) (20,161)

Administrative expenses (12,875) (15,190)

Rental expense (174,900) (205,200)

Repairs and maintenance (5,176) (4,386)

As lead auditor for the audit of the ConnectEast Holding Trust for the year ended 30 June 2010, I declare that to the best of my knowledge Impairment of assets - (64,875) and belief, there have been: Construction costs - (1,723) (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and Depreciation and amortisation 5 (12,448) (19,528) (b) no contraventions of any applicable code of professional conduct in relation to the audit. Finance costs (116,153) (68,111) This declaration is in respect of the ConnectEast Holding Trust and the entities it controlled during the period. Net Loss before Income Tax Attributable to Unitholders (191,739) (300,727) Income tax benefit 7 58,982 89,490

Net Loss Attributable To Unitholders (132,757) (211,237) Other comprehensive income for the year, net of tax - - Charles Christie Total Comprehensive Loss for the Year (132,757) (211,237) Partner

PricewaterhouseCoopers Total comprehensive loss for the year is attributable to:

Melbourne Owners of ConnectEast Holding Trust (132,757) (211,237)

17 August 2010 Earnings Per Stapled Unit for Loss Attributable to Unitholders Cents Cents Basic earnings per stapled unit 30 (3.69) ( 10.10)

Diluted earnings per stapled unit 30 (3.69) ( 10.10)

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Liability limited by a scheme approved under Professional Standards Legislation

10 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 11 STATEMENT OF STATEMENT OF CHANGES FINANCIAL POSITION IN EQUITY

As at 30 June For the year ended 30 June

Consolidated Contributed Retained Total Equity Losses Equity Notes 2010 2009 $’000 $’000 $’000 $’000 $’000 Current Assets Balance at 1 July 2008 5,523 (7,094) (1,571) Cash and cash equivalents 8 19,607 28,632 Trade and other receivables 9 13,115 11,338 Loss for the year - (211,237) (211,237)

Total Current Assets 32,722 39,970 Total comprehensive loss for the year - (211,237) (211,237)

Non-Current Assets Transactions with owners in their capacity as owners

Other receivables 10 8,966 3,708 Contributions of equity, net of transaction costs 5,227 - 5,227

Plant, equipment and tags 11 10,831 10,801 Amortisation of deferred financing costs (12) - (12)

Intangible assets 12 392,752 411,255 5,215 - 5,215 Other deferred costs 13 - 13 Balance at 30 June 2009 10,738 (218,331) (207,593) Deferred tax assets 14 159,040 100,021

Total Non-Current Assets 571,589 525,798 Balance at 1 July 2009 10,738 (218,331) (207,593)

Total Assets 604,311 565,768 Loss for the year - (132,757) (132,757)

Total comprehensive loss for the year - (132,757) (132,757) Current Liabilities

Trade and other payables 15 306,948 242,808 Transactions with owners in their capacity as owners

Provisions 16 7,031 10,125 Contributions of equity, net of transaction costs 4,509 - 4,509

Total Current Liabilities 313,979 252,933 Amortisation of deferred financing costs (13) - (13)

4,496 - 4,496 Non-Current Liabilities

Provisions 16 12,533 4,386 Balance at 30 June 2010 15,234 (351,088) (335,854) Payables 17 613,653 516,042

Total Non-Current Liabilities 626,186 520,428 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Total Liabilities 940,165 773,361 Net Liabilities (335,854) (207,593)

Equity

Contributed equity 18 15,234 10,738 Retained losses 19 (351,088) (218,331)

Total Equity (335,854) (207,593)

The above Statement of Financial Position should be read in conjunction with the accompanying notes.

12 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 13 CASH FLOW NOTES TO THE STATEMENT FINANCIAL STATEMENTS

For the year ended 30 June 1. Summary of Significant Accounting Policies

The significant policies which have been adopted in the preparation of the financial statements are stated to assist in a general Consolidated understanding of this report. Notes 2010 2009 $’000 $’000 (a) basis of Preparation

Cash Flows from Operating Activities This general purpose financial report for the year ended 30 June 2010 has been prepared in accordance with Australian Accounting Receipts from customers 207,902 147,129 Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations, the requirements of the Trust Constitutions and the Corporations Act 2001. Payments to suppliers and employees (78,034) (95,967)

Interest received 866 1,315 Compliance with International Financial Reporting Standards (IFRS) Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance Rental payment (130,080) - with AIFRS ensures that the Group financial statements and notes comply with IFRS. Net Cash Inflow from Operating Activities 29 654 52,477 Historical Cost Convention Cash Flows from Investing Activities The financial statements are prepared in accordance with the historical cost convention as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through the profit and loss. Cash acquired from investment in controlled entity - 5,621

Payments for plant, equipment and tags (771) (4,296) Critical Accounting Estimates Payments for intangible assests (8,908) (22,365) Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Net Cash (Outflow) from Investing Activities (9,679) (21,040) The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates Cash Flows from Financing Activities are significant to the financial statements are disclosed in Note 3. Loans to related parties - (21,360) Loans from related parties - 42,647 (b) principles of Consolidation

Net Cash (Outflow) from Financing Activities - (21,287) (i) stapling The units of ConnectEast Holding Trust (CEHT) and ConnectEast Investment Trust (CEIT) (collectively ConnectEast Investment Trust Group) are Net (Decrease) / Increase in Cash and Cash Equivalents (9,025) 10,150 combined and issued as stapled units on the Australian Securities Exchange. The units of the Trusts cannot be traded separately and can only be traded as stapled units.

For statutory reporting purposes, in accordance with AIFRS, specifically the requirements of AASB 3Business Combinations, CEIT has been Cash and cash equivalents at the beginning of the financial year 28,632 18,482 identified as the acquirer in the Stapled Group based on the size of its net assets and its. Cash and Cash Equivalents at the End of the Financial Year 8 19,607 28,632 (ii) subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 30 June 2010 and the The above Cash Flow Statement should be read in conjunction with the accompanying notes. results of all subsidiaries for the year then ended. CEHT and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding / unitholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de‑consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to Note 1(f)).

Investments in subsidiaries are accounted for at cost. Such investments include both investments in units issued by the subsidiary and other parent entity interests that in substance form part of the parent entity’s investment in the subsidiary. These include amounts receivable from subsidiaries in the normal course of business, all of which are included in other receivables.

Intercompany transactions, balances and unrealised gains on transactions between Group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

14 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 15 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

(c) Service Concession Arrangements 1. Summary of Significant Accounting Policies (continued)

In November 2004 the Group entered into a service concession arrangement with the State of Victoria to finance, design, construct and (e) income Tax (continued) operate EastLink in return for a right to charge tolls over the life of the Concession, which runs to 2043. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable AASB Interpretation 12 Service Concession Arrangement (AASB-I 12) provides guidance on the accounting by operators of public-to- amounts will be available to utilise those temporary differences and losses. private service concession arrangements under which private sector entities participate in the development, financing, operation and maintenance of infrastructure for the provision of public services. A substantial portion of the Group’s assets are used within the Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of framework of concession arrangement granted by public sector entities. AASB-I 12 has been applied from 1 July 2008. investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. In addition to the adoption of AASB-I 12 the Group has also applied AASB Interpretation 129 Service Concession Arrangement: Disclosures from 1 July 2008. AASB-I 129 contains specific guidance on the disclosures required for a Service Concession Arrangement, details of Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and when which can be found in Note 12. the deferred tax balances relate to the same taxation authority. Current tax assets and 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. (d) Revenue Recognition Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of trade allowances and amounts collected on behalf of third parties. Tax Consolidation Legislation

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will As at 30 June 2010 the Group has not implemented the tax consolidation legislation. Consequently the impact of the tax consolidation flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates legislation has not been adopted in this financial report. on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (f) Acquisition of Assets Revenue is recognised for the major business activities as follows: The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of (i) Toll and fee revenue whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, units issued or liabilities Toll charges and related fees are recognised when the charge is incurred by the user. incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, (ii) Other revenue it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence Other revenue is recognised when the services are rendered or in accordance with contractual arrangements. and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. (iii) Interest income Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair Interest income is recognised on a time proportion basis using the effective interest method. values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s units of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the (iv) prepaid toll revenue net assets of the subsidiary acquired, the difference is recognised directly in the Statement of Comprehensive Income, but only after Prepaid toll receipts are recognised as unearned income until a charge is incurred by the user. a reassessment of the identification and measurement of the net assets acquired. Following the application of AASB-I 12 Service Concession Arrangements the Group has recognised construction revenue in prior periods Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value in accordance with AASB 111 Construction Contracts. As the margin on the construction activities could not be reliably estimated, revenue as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing was recognised only to the extent of contract costs incurred that it was probable would be recoverable. could be obtained from an independent financier under comparable terms and conditions.

(e) income Tax (g) impairment of Assets Pursuant to the provisions of Division 6C of the Income Tax Assessment Act 1936 (“the Act”), ConnectEast Holding Trust is treated as a Assets that are subject to amortisation including plant and equipment and intangible assets are reviewed for impairment at least public trading trust and is effectively treated as a company for income tax purposes. annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment The income tax expense or revenue for the year is the tax payable on the current year’s taxable income based on the income tax rate loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the liabilities and their carrying amounts in the financial statements, and to unused tax losses. lowest levels for which there are separately identifiable cash flows (cash generating units).

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and (h) plant, Equipment and Tags liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction Items of plant, equipment and tags are stated at historical cost less depreciation and amortisation. Historical cost includes expenditure affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted that is directly attributable to the acquisition of the items. or substantially enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax The carrying amount of any replaced asset is written off. Non-capital expenditure is charged to the Statement of Comprehensive Income asset is realised or the deferred income tax liability is settled. during the reporting period in which it is incurred.

16 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 17 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued) 1. Summary of Significant Accounting Policies (continued)

(h) plant, Equipment and Tags (continued) (k) borrowing Costs (continued)

Depreciation and Amortisation to qualifying assets during the year. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the year. Borrowing costs are capitalised up Plant, equipment and tags are depreciated on a straight-line basis at various rates over its expected average useful life for that to the date when the asset is substantially complete and ready for use and are subsequently amortised over the useful life of the asset. asset type.

Tags 7 years (l) Trade and Other Receivables Plant 6 years Trade receivables and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision Furniture, fittings & equipment 3 – 25 years for impairment. Collectability of trade debtors and other receivables is reviewed on an ongoing basis. Debts which are known to be The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each Statement of Financial Position date. An uncollectible are written off. A provision for doubtful debts is raised when there is objective evidence that the Group will not be able to asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows in the Statement of Comprehensive Income. relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the Statement of Comprehensive Income. (i) intangible Assets (m) Trade and Other Payables EastLink Concession These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are Costs associated with the EastLink Concession, including the construction of the EastLink Project have been capitalised as an intangible unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. asset. The cost of the intangible asset includes:

• costs incurred by the Group prior to entering into the Concession Deed with the State of Victoria in relation to the design and (n) Derivative Financial Instruments construction of the EastLink Project; The Group has entered into derivative financial instruments to manage its exposure to interest rate risk. The Group does not hold or issue • costs associated with entering the Concession Deed for the EastLink Project; derivative financial instruments for trading purposes. • all expenditure which is directly attributable to the construction of the assets comprising the EastLink Project; Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their • interest payments on loans up to the date of commencement of operations are offset against interest receipts; fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated • costs incurred in developing products or systems and costs incurred in acquiring software and licences that will contribute to future as a hedging instrument, and if so, the nature of the item being hedged. period financial benefits through revenue generation and/or cost reduction. Costs capitalised include external direct costs of materials and services and direct payroll and payroll related cost of employees. The Group designates its derivatives as hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges).

Amortisation The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well The intangible asset is amortised on a straight-line basis over the remaining EastLink Concession period. The EastLink Concession runs as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, to November 2043 with the intangible asset to be amortised over 35 years. both at hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. An assessment is made at each reporting date as to whether there is any indication that the asset may be impaired. If any such indication exists then the recoverable amount of the asset is estimated. An impairment loss is recognised for the amount by which The full fair value of a hedging derivative is classified as a non‑current asset or liability when the remaining maturity of the hedged the asset’s carrying amount exceeds its recoverable amount. item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. (j) Borrowings (i) Cash flow hedge Borrowings are initially recognised at fair value. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Statement of Comprehensive Income over the period The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised of the borrowings using the effective interest method. in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income within other income or other expense. Borrowings are classified as current liabilities unless the Group has a right to defer settlement of the liability for at least 12 months after the Statement of Financial Position date. Amounts accumulated in equity are recycled in the Statement of Comprehensive Income in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest (k) borrowing Costs rate swaps hedging variable rate borrowings is recognised in the Statement of Comprehensive Income within ‘finance costs’.

Debt establishment costs incurred for the qualifying road asset are capitalised and amortised on a straight-line basis over the term When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any of the applicable borrowings. Borrowing costs comprise interest and the amortisation of costs incurred in establishing borrowing facilities. cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Statement of Comprehensive Income. When a forecast transaction is no longer expected to occur, the cumulative gain Where borrowings are specifically incurred in relation to qualifying assets, the actual borrowing costs are capitalised into the carrying or loss that was reported in equity is immediately transferred to the Statement of Comprehensive Income. value of those assets. Where borrowings are not specifically incurred in relation to qualifying assets, the amount of borrowing costs to be capitalised to qualifying assets is determined by applying a capitalisation rate to the weighted average accumulated expenditure relating

18 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 19 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued) 1. Summary of Significant Accounting Policies (continued)

(n) Derivative Financial Instruments (continued) (r) Employee Benefits (continued)

(ii) Derivatives that do not qualify for hedge accounting (iii) retirement benefit obligation

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not Employees of the Group are entitled to benefits on retirement, disability or death from the Group’s superannuation plans if they choose to qualify for hedge accounting are recognised immediately in the Statement of Comprehensive Income and are included in other income adopt the Company superannuation fund and elect to subscribe for these benefits from contribution to this fund. The Group has a defined or other expenses. contribution plan. The defined contribution plan receives fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions. (o) Offsetting Financial Assets and Liabilities Contributions made to defined contribution superannuation plans are expensed when incurred. Prepaid contributions are recognised A financial asset and a financial liability are offset and the net amount presented in the Statement of Financial Position when and only as an asset to the extent that a cash refund or a reduction in the future payments is available. when, the Group: (i) currently has a legally enforceable right to set off the recognised amounts; and (s) Distributions (ii) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Provision is made for the amount of any distribution declared, being appropriately authorised and no longer at the discretion of the directors, on or before the end of the financial year but not distributed at balance date. (p) Provisions (t) Cash and Cash Equivalents Provisions for deferred bonuses are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. For cash flow statement purposes, cash and cash equivalents includes cash on hand, deposits at call with financial institutions and other highly liquid investments with original maturities of 3 months or less that are readily convertible to cash and are subject to an insignificant Provisions for planned future repairs and maintenance for EastLink which are contractually required under the Concession Deed are risk of changes in value. made in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation (u) Earnings Per Stapled Unit at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. (i) Basic earnings per stapled unit

Basic earnings per stapled unit is determined by dividing net profit after income tax attributable to unitholders of the trust, excluding any (q) fair Value Estimation costs of servicing equity other than ordinary stapled units, by the weighted average number of ordinary stapled units outstanding during The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. the financial year, adjusted for bonus elements in ordinary stapled units issued during the year.

The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined (ii) Diluted earnings per stapled unit using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Diluted earnings per stapled unit adjusts the figures used in the determination of basic earnings per stapled unit to take into account Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. the after income tax effect of interest and other financing costs associated with dilutive potential ordinary stapled units and the weighted The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. average number of stapled units assumed to have been issued for no consideration in relation to dilutive potential ordinary stapled units.

(r) Employee Benefits (v) Rounding of Amounts

(i) Wages and salaries, annual leave and sick leave The Group is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report and financial report. Amounts in the Directors’ Report and financial report have been Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled rounded off to the nearest thousand dollars, in accordance with that Class Order. within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (w) Leases

(ii) Long service leave Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected of Comprehensive Income on a straight-line basis over the period of the lease. future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using interest rates on national government guaranteed bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

20 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 21 NOTES TO THE FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued) 2. financial Risk Management

The Group’s activities expose it to a variety of financial risks; including credit risk, liquidity risk and cash flow interest rate risk. The Group’s (x) goods and Services Tax (GST) overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the financial performance of the Group. The Group uses derivative financial instruments such as interest rate swaps to hedge certain risk the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. exposures.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, Risk management is carried out by management under policies approved by the Board of Directors. or payable to, the taxation authority is included with other receivables or payables in the Statement of Financial Position. (a) Credit Risk Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. Credit risk arises from cash and cash equivalents, favourable derivative financial instruments, deposits with banks and financial institutions, and outstanding trade debtors. (y) New Accounting Standards Applied in Current Year For derivative counterparties, banks and financial institutions a minimum credit rating of A is required. The Group has policies that limit (i) AASB 101 Presentation of Financial Statements the amount of credit exposure to any one bank or financial institution.

The Group has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised Credit risk in trade debtors is managed through setting normal payment terms of 14 days and through continued risk assessment of standard requires the separate presentation of a statement of comprehensive income and a statement of changes in equity. All customers with material balances. Trade debtors relate primarily to users of EastLink who have not purchased a tolling product and are non-owner changes in equity must now be presented in the statement of comprehensive income. As a consequence, the Group had unlikely to have an external credit rating. Trade debtors are pursued for payment initially through a notification process and failing that to change the presentation of its financial statements. Comparative information has been re-presented so that it is also in conformity with through an enforcement process under the EastLink Project Act. the revised standard. (b) liquidity Risk (z) Australian Accounting Standards Issued but not yet Effective Prudent liquidity risk management implies maintaining sufficient cash and term deposits, the availability of funding through an adequate (i) AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards amount of committed credit facilities and the ability to close‑out market positions. The Group manages liquidity risk by continuously arising from AASB 9 (effective from 1 January 2013) monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

AASB 9 Financial Instruments addresses the classification and measurement of financial assets and is likely to affect the Group’s At the reporting date the Group had drawn down cash reserves in accordance with its Loan Note Subscription Agreement with its accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group Financiers (see Note 8). These reserves provide liquidity to the Group if required through the traffic ramp-up phase of the road. These is yet to assess its full impact. The Group has not yet decided when to adopt AASB 9. reserves are designed to be released or reduced once the business requirement for the reserves has passed.

(ii) Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to Australian Accounting Standards Financing Arrangements (effective from 1 January 2011) The borrowing entity under the financing facilities is ConnectEast Finance Pty Limited, a controlled entity of the Group. ConnectEast Finance The Group will apply the amended standard from 1 July 2011. When the amendments are applied, the group will need to disclose Pty Limited has an Onlending Agreement with ConnectEast Asset Trust, a controlled entity of the Group. any transactions between its subsidiaries and its associates. At the reporting date there were no associate entities of the Group. Debt financing is provided through a syndicated bank term facility. (iii) AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

In May 2009 the AASB issued a number of changes to AASB 5 Non-current Assets Held for Sale and Discontinued Operations, Maturities of Financial Liabilities AASB 8 Operating Segments, AASB 101 Presentation of Financial Statements, AASB 101 Statement of Cash Flows, AASB 117 Leases, The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting AASB 118 Revenue, AASB 136 Impairment of Assets and AASB 139 Financial Instruments, Recognition and Measurement. The Group will date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. For interest apply the revised Standards from 1 July 2010. The Group does not expect that any adjustments will be necessary as a result of applying bearing liabilities the cash flows have been estimated using forward interest rates applicable at the reporting date. the revised rules.

(aa) parent Entity Financial Information 2010 Consolidated Notes Weighted 1 year 1–2 Over 2–5 More Total Carrying The financial information for the parent entity, ConnectEast Holding Trust, disclosed in Note 32 has been prepared on the same basis Average or less years years than Amount as the consolidated financial statements, except as set out below. Interest 5 years rate $’000 $’000 $’000 $’000 $’000 $’000 (i) Investments in subsidiaries Financial liabilities Investments in subsidiaries are accounted for at cost in the financial statements of ConnectEast Investment Trust. Trade creditors and accruals 15 306,948 - - - 306,948 306,948

Interest bearing liabilities 17 10.5% 64,398 64,398 663,503 - 792,299 613,653 Provisions 16 5,359 5,249 - - 10,608 10,002

376,705 69,647 663,503 - 1,109,855 930,603

22 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 23 NOTES TO THE FINANCIAL STATEMENTS

2. financial Risk Management (continued) 2. financial Risk Management (continued)

(b) liquidity Risk (continued) (e) fair Value Estimation (continued)

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due 2009 Consolidated to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual Notes Weighted 1 year 1–2 Over 2–5 More Total Carrying cash flows at the current market interest rate that is available to the Group for similar financial instruments. Average or less years years than Amount Interest 5 years There were no financial instruments requiring disclosure under the fair value measurement hierarch in AASB 7:Financial instruments. rate $’000 $’000 $’000 $’000 $’000 $’000 3. Critical Accounting Estimates and Judgements Financial liabilities Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations Trade creditors and accruals 15 242,797 - - - 242,797 242,797 of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Interest bearing liabilities 17 13.0% 66,606 66,606 199,819 534,559 867,590 516,042 The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal Provisions 16 10,125 - - - 10,125 10,125 the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying 319,528 66,606 199,819 534,559 1,120,512 768,964 amounts of assets and liabilities within the next financial year are discussed below.

(i) Tax losses

(c) Cash Flow and Fair Value Interest Rate Risk It is deemed probable that there will be future assessable income against which the losses incurred to date will be available for offset. The Group’s interest rate risk arises from cash held at floating rates on an unhedged basis. The nature of the tax losses brought to account at balance date principally reflect rental charges, interest on intercompany loans, operating costs and costs incurred during the construction phase of the project. Management has determined that, given historic fluctuations, a 1 percent movement in interest rates is reasonably possible.

At 30 June 2010, if interest rates had been 1 percent higher/lower (30 June 2009: 0.5%) and all other variables were held constant, (ii) Construction early completion incentive the impact on the Group would be: A provision has been made in respect of the early completion incentive that will be payable to the Construction Contractor for achieving the project completion ahead of the scheduled date. If the expected performance of EastLink were to differ by 5% to the assumptions Consolidated used, the Group would need to increase/decrease the provision recognised by $0.7 million for over and under performance respectively. + 1.0% - 1.0% 4. Revenue Profit Equity Profit Equity $’000 $’000 $’000 $’000 Consolidated 2010 (8,529) - 8,529 - 2010 2009 2009 (3,446) - 3,446 - $’000 $’000 Revenue from continuing operations

(d) foreign Exchange Risk Toll revenue 179,132 134,870 Fee revenue 10,611 5,985 Foreign exchange risk arises when commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. Currency risk is measured using sensitivity analysis. Interest income 1,848 1,625

The Group is generally only exposed to foreign exchange movements on the purchase of inventory from a Swedish supplier. The impact Other income 286 34 of any reasonable movement in the Australian dollar/Swedish Kronor exchange rate on the net profit or net equity would not be material. 191,877 142,514

(e) fair Value Estimation Construction contract - 1,723

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. 191,877 144,237

The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the reporting date. Following the adoption of AASB-I 12 Service Concession Arrangements, revenue on the construction contract of $1.7 million was recognised for the year ended 30 June 2009 (30 June 2010: nil) reflecting the cost of construction activities in the relevant period. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined Construction costs of the same amount were recorded in the Statement of Comprehensive Income. Refer to Notes 1 (c) and (d). using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows.

24 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 25 NOTES TO THE FINANCIAL STATEMENTS

5. Expenses 7. iNCOME Tax

Consolidated (a) income Tax Benefit 2010 2009 $’000 $’000 Consolidated 2010 2009 Operating profit/(loss) before income tax attributable to unitholders $’000 $’000 includes the following specific expenses: Current tax 37 11

Employee costs 23,065 28,300 Deferred tax (57,886) (87,685)

Doubtful debts expense 6,902 4,008 Over provided deferred tax in prior years (1,133) (1,816) Total income tax benefit (58,982) (89,490) Depreciation and Amortisation

Plant and equipment depreciation 2,062 5,995 (b) Numerical Reconciliation of Income Tax Expense to Prima Facie Tax Payable

Intangible assets amortisation 10,386 13,519 Profit/(Loss) from continuing operations before income tax expense (191,739) (300,727)

Deferred costs amortisation - 14 Tax rate at 30% (2009: 30%) (57,522) (90,218) Total depreciation and amortisation 12,448 19,528 Tax effect of amounts which are not deductible/(taxable) in calculating taxable income Impairment of Assets Impairment of assets - 1,462 Impairment of intangible asset (refer Note 12) - 60,000 Other (151) 1,100 Excess of consideration paid over net assets relating to acquisition of responsible entity - 4,875 (57,673) (87,656) Total impairment - 64,875

Over provision of deferred tax in prior years (1,133) (1,816)

6. Remuneration of Auditors Previously unrecognised tax losses (145) -

During the year the following fees were paid or payable for services provided by the auditor of the Group, PricewaterhouseCoopers Temporary differences not bought to account (31) (18) Australian firm: Income tax benefit for the year (58,982) (89,490)

Consolidated (c) Deferred Income Tax Benefit 2010 2009 Deferred income tax comprises: $’000 $’000 Increase / (decrease) in deferred tax assets: Audit Services Provisions 4,515 1,382 Audit and review of financial reports and other audit work under 225 255 the Corporations Act 2001 Accruals (701) (3,973) Tax losses 61,608 67,903 Other Services 65,422 65,312 Related practices 7 35 (Increase) / decrease in deferred tax liabilities: 232 290 Receivables (69) - Intangible assets (6,334) 24,190 The Group may only decide to employ the auditor on assignments additional to their statutory audit duties where the auditors’ expertise and experience with the Group are useful to the provision of those services and do not impact on the independence, integrity and Total movement in deferred tax balances 59,019 89,502 objectivity of the auditor.

26 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 27 NOTES TO THE FINANCIAL STATEMENTS

7. iNCOME Tax (continued) 9. Current Assets – Trade and other receivables

(d) Tax Losses Consolidated 2010 2009 ConnectEast Holding Trust and its controlled entities $’000 $’000 Pursuant to the provisions of Division 6C of the Income Tax Assessment Act 1936 (“the Act”), ConnectEast Holding Trust is treated as a Trade receivables 13,230 8,753 public trading trust and is effectively treated as a company for income tax purposes. Accordingly, income tax and deferred tax accounting is applied in relation to the ConnectEast Holding Trust and its controlled entities. Accrued revenue 4,335 4,049 Provision for impairment of receivables (note (a)) (10,136) (4,008)

Consolidated 7,429 8,794 2010 2009 GST receivable 3,272 - $’000 $’000 Other receivables 517 40 The Directors estimate that the potential gross deferred tax asset at 30 June 2010 in respect of tax losses not brought to account is: 20 581 Prepayments 1,897 2,504

13,115 11,338 The benefit from the deduction for these tax losses will only be obtained if: (i) the aggregated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the (a) impaired Trade Receivables deductions for the losses to be realised; As at 30 June 2010 trade receivables of the Group with a nominal value of $10.8 million (2009: $5.6 million) were impaired. The amount (ii) the aggregated entity continues to comply with the conditions for deductibility imposed by tax legislation; and of the provision was $10.1 million (2009: $4.0 million). The individually impaired receivables relate to users of EastLink that have not (iii) no changes in tax legislation adversely affect the aggregated entity in realising the benefit. purchased one of the Group’s toll products (tags/trip pass), and also pre-paid (tag) customers whose accounts have gone into debit. The aging of these receivables is as follows: 8. Current Assets – Cash and cash equivalents 1 to 3 months 1,875 1,820

Consolidated 3 to 6 months 1,749 2,110 2010 2009 Over 6 moths 7,224 1,716 $’000 $’000 10,848 5,646 Cash at bank and on hand 2,314 6,707 Movements in the provision for impairment of receivables are as follows: Cash reserves 12,199 16,217 Deposits at call 5,094 5,708 Opening balance 4,008 -

19,607 28,632 Provision for impairment recognised during the year 6,902 4,008 Receivables written off during the year as uncollectible (774) -

Cash reserve balances are in place to provide cash flow support during the traffic ramp-up phase of operations. Reserves are available 10,136 4,008 for use subject to the conditions of the term facility Loan Note Subscription Agreement (LNSA) and notification to the LNSA agent.

The cash at bank earns interest of 4.43% (2009: 2.85%). The cash reserves currently earn interest of 5.18% (2009: 3.42%). The deposits The creation and release of the provision for impaired receivables has been included in ‘tolling and customer services expenses’ in the at call earn interest of 4.67% (2009: 3.42%). Statement of Comprehensive Income. Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash.

(b) past Due but not Impaired

There are no receivables that are past due that have not been impaired (2009: nil).

28 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 29 NOTES TO THE FINANCIAL STATEMENTS

10. Non-Current Assets – Other receivables 12. Non‑Current Assets - Intangible assets

Consolidated Consolidated 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Loans to related parties 8,966 3,708 EastLink Concession At cost 477,282 485,400 Interest is payable at 9.5% per annum on $8.6 million with the balance of the loans interest free with no fixed repayment terms. Refer to Note 26. Less: accumulated amortisation (24,530) (14,145) Less: impairment (60,000) (60,000) 11. Non-Current Assets - Plant, equipment AND TAGS 392,752 411,255

Consolidated Reconciliations Plant and Tags Total equipment Reconciliations of the carrying amounts at the beginning and end of the year are set out below: $’000 $’000 $’000 Intangibles At 1 July 2008 Opening balance 411,255 477,190 At cost 10,453 4,605 15,058 Additions 4,627 15,509 Less: accumulated depreciation (3,016) - (3,016) Movement in provisions (refer Note 16) 3,987 (7,925) Net book amount 7,437 4,605 12,042 Cost of assets transferred to ConnectEast Asset Trust (16,731) - Year ended 30 June 2009 Less: amortisation (10,386) (13,519) Opening balance 7,437 4,605 12,042 Less: impairment - (60,000) Additions 246 4,405 4,651 392,752 411,255 Depreciation (4,739) (1,153) (5,892)

Closing net book amount 2,944 (7,857) 10,801 During the year there has been a review of the intangibles asset register which has resulted in a transfer of assets with a cost of $16.7 At 30 June 2009 million and a written down value of $15.7 million from ConnectEast Pty Limited to ConnectEast Asset Trust, a wholly owned entity within the ConnectEast Investment Trust Group. At cost 10,699 9,010 19,709

Less: accumulated depreciation (7,755) (1,153) (8,908) EastLink Concession

Net book amount 2,944 7,857 10,801 ConnectEast Group has a Concession Deed with the State of Victoria. The Concession Deed grants the ConnectEast Group the right to Year ended 30 June 2010 finance, design, construct and operate the EastLink Project for a period of approximately 39 years from Financial Close (18 November 2004). Toll charges were set at Financial Close and mechanisms established for the maximum annual increase in toll levels in Opening balance 2,944 7,857 10,801 accordance with CPI. Traffic risk resides with the ConnectEast Group. During the life of the Concession, the ConnectEast Group must Additions 297 1,850 2,147 maintain the asset to an agreed level as specified in the Concession Deed, and at the end of the period of the Concession, the ConnectEast Group must return the EastLink Project to the State with individual civil and tolling assets having a residual design life in Disposals (55) - (55) accordance with the Concession Deed. The service arrangement has been recorded as an intangible asset in accordance with AASBI-12 Depreciation (561) (1,501) (2,062) Service Concession Arrangements.

Closing net book amount 2,625 8,206 10,831 At each reporting date, the Group assesses whether there is any indication that the EastLink Concession may be impaired. Where an At 30 June 2010 indicator of impairment exists, the Group makes a formal estimate of the recoverable amount of the asset. EastLink commenced tolling on 27 July 2008 and for the first 12 months of operation experienced lower traffic than was forecast in the Group’s 2004 Product At cost 10,941 10,860 21,801 Disclosure Statement (PDS). This event triggered a review to assess whether the EastLink Concession was impaired, the result of which Less: accumulated depreciation (8,316) (2,654) (10,970) was to book an impairment charge of $60 million against the asset for the year ended 30 June 2009.

Net book amount 2,625 8,206 10,831

During the year a review of plant, equipment and tags and intangibles asset registers has resulted in $103,000 reclassification between the two asset classes, cost and accumulated depreciation and amortisation. The comparative period has been amended to reflect the new classifications.

30 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 31 NOTES TO THE FINANCIAL STATEMENTS

12. Non‑Current Assets - Intangible assets (CONTINUED) 15. Current Liabilities – Trade and other payables

EastLink Concession (continued) Consolidated For the year ended 30 June 2010 the Group has reviewed whether there are any indications of impairment in line with the criteria set 2010 2009 out in AASB 136 Impairment of Assets. The assessment has considered for the 12 month period to 30 June 2010 whether: $’000 $’000 • the market value of the asset is likely to have declined significantly more than expected Trade creditors and accruals 6,442 9,619 • there has been a significant technological, market, economic or legal change in the market in which the asset operates Prepaid tolling revenue 11,118 7,249

• interest rate changes affected the discount rate that would be used to value the asset and cause a material decrease in the Rent payable to a related party 267,510 205,200 recoverable amount Other related party payables 17,868 16,774 • the carrying value of the net assets of the entity are significantly above its market capitalisation Income tax payable 28 11 • there is evidence of obsolescence or physical damage • there have been significant changes in the way the asset is used or expected to be used Other creditors* 3,982 3,955 • there is evidence that indicates that the economic performance of the asset is or will be worse than expected. 306,948 242,808

Having considered all of the above, the Group concluded that there were no indications of impairment during the year. * Includes employee benefits as disclosed in Note 25. Refer to Note 26 for related party payables. Rent will be paid annually in advance when operating cash flows are positive. Any unpaid amount is charged interest at 2% above the 13. Non-Current Assets – Other deferred costs base lending rate published by the National Australia Bank.

Consolidated 16. Provisions 2010 2009 $’000 $’000 Consolidated Deferred financing costs 60 60 2010 2009 $’000 $’000 Less: accumulated amortisation (60) (47) (a) Current Liabilities - 13 Construction early completion incentive 5,359 10,125 Repair and maintenance obligations 1,672 - 14. Non-Current Assets - Deferred tax assets 7,031 10,125

Consolidated (b) Non-Current Liabilities 2010 2009 Construction early completion incentive 4,643 - $’000 $’000 Repair and maintenance obligations 7,890 4,386 The balance comprises temporary differences attributable to: 12,533 4,386 Tax losses 183,177 121,569

Provisions 6,153 1,638 Repair and Maintenance Obligations Accruals 1,783 2,484 The Concession Deed specifies a program of repair and maintenance to maintain asset quality through the life of the concession and Total deferred tax assets 191,113 125,691 assets that must be returned at the end of the concession in accordance with specified residual design lives. A provision has been made Set-off of deferred tax liabilities pursuant to set-off provisions (refer Note 7) to recognise the best estimate of the expenditure required to settle the present obligation at the reporting date. The provision has been calculated by reference to this forecast repair and maintenance program with the obligation commencing on the completion of asset Receivables (69) - construction. Intangible assets (32,004) (25,670)

Net deferred tax assets 159,040 100,021

Deferred tax assets to be recovered within 12 months (39) - Deferred tax assets to be recovered after more than 12 months 159,079 100,021

159,040 100,021

32 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 33 NOTES TO THE FINANCIAL STATEMENTS

16. Provisions (CONTINUED) 18. Unitholder Funds

Construction Early Completion Incentive Consolidated (a) 1 July 2009 to 30 June 2010 A provision has been made in respect of the early completion bonus that will be payable to the construction contractor, Thiess John Holland (TJH), for completing construction of EastLink 177 days ahead of the scheduled date. The amount of the bonus payable has been Date Details Number of Units Issue Price $’000 estimated based on assumptions of the financial performance of EastLink during the relevant bonus calculation period. Based on the 1 July 2009 Opening balance 2,553,238,059 10,738 independent EastLink traffic projections released on 21 August 2009, traffic ramp-up on EastLink is projected to be complete around June 2011. For the purposes of calculating the early completion bonus, it has therefore been agreed that the bonus calculation period will run 9 September 2009 Issue of units under institutional pro-rata for 177 days, starting on 1 July 2011. As part of the settlement with TJH (refer Note 24) it was agreed that the commencement of the bonus entitlement offer 925,648,052 $0.003300 3,055 calculation period would be changed from 1 October 2009 per the original contract to 1 July 2011. This resulted in an increase in the 9 September 2009 Issue of units under early retail pro-rata entitlement offer 10,221,864 $0.003300 34 current year’s provision by $4.0 million. 5 October 2009 Issue of units under retail pro-rata entitlement offer 340,743,084 $0.003300 1,124 The early completion bonus is payable in instalments with two payments totalling $4.1 million having been paid in the year to 30 June 5 October 2009 Equity raising costs - (131) 2010. The third scheduled payment, on which interest accrues, is payable as and when operating cash flows are available for distributions, which is expected before 31 December 2010. The fourth and final payment will be made following calculation of the 26 October 2009 Distribution final bonus on 31 January 2012. The final payment has been discounted to a present value. 26 October 2009 Issue of units under DRP 43,234,870 $0.003342 144

Movement in Provisions 23 April 2010 Distribution 23 April 2010 Issue of units under DRP 67,060,022 $0.004217 283 Consolidated 30 June 2010 Amortisation of deferring financing costs - (13) 30 June 2010 30 June 2009 30 June 2010 Closing balance 3,940,145,951 15,234 Construction Repair and Construction Repair and Early Maintenance Early Maintenance Completion Obligations Completion Obligations Incentive Incentive (b) 1 July 2008 to 30 June 2009 $’000 $’000 $’000 $’000 Date Details Number of Units Issue Price $’000

Opening balance 10,125 4,386 16,500 - 1 July 2008 Opening balance 1,581,887,895 5,523

Provisions recognised in period 3,987 5,176 - 4,386 29 October 2008 Issue of units under DRP 55,730,471 $0.007579 422

Amounts paid (4,110) 29 October 2008 Issue of units to DRP underwriters 33,328,416 $0.007579 253

Amounts credited in period to intangible assets - - (6,375) - 29 October 2008 DRP underwriting commission - (6)

Closing balance 10,002 9,562 10,125 4,386 8 December 2008 Issue of units under a placement 190,909,091 $0.005500 1,050 8 December 2008 Issue of units under institutional pro-rata entitlement offer 342,025,782 $0.005500 1,881 17. Non-Current Liabilities – Payables 8 December 2008 Issue of units under early retail pro-rata entitlement offer 1,073,858 $0.005500 6

Consolidated 22 December 2008 Issue of units under retail pro-rata entitlement offer 283,493,025 $0.005500 1,559

2010 2009 31 December 2008 Equity raising costs - (184) $’000 $’000 1 May 2009 Issue of units to DRP underwriters 21,862,650 $0.003842 84 Payables to related parties 613,653 516,042 1 May 2009 Issue of units under DRP 42,926,871 $0.003842 165

1 May 2009 DRP underwriting commission - (2) These loans are unsecured and interest is charged at 10.5%. All amounts advanced are repayable in November 2014. 30 June 2009 Amortisation of deferred financing costs - (13) Deficiency of capital 30 June 2009 Closing balance 2,553,238,059 10,738 As at 30 June 2010, the Group had net current liabilities of $281.2 million. Included in the Group’s current and non-current liabilities are amounts totalling $613.3 million owing to ConnectEast Asset Trust, a related party. The directors of ConnectEast Nominee Company Pty Ltd as Trustee of ConnectEast Asset Trust have given an undertaking that repayment of these amounts will be subordinated in favour of all other creditors. The undertaking is provided for a period of twelve months from 17 August 2010.

34 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 35 NOTES TO THE FINANCIAL STATEMENTS

18. Unitholder Funds (CONTINUED) 20. Distributions

ConnectEast Holding Trust did not make a distribution during the year ended 30 June 2010. ConnectEast Investment Trust paid a (c) Ordinary Units distribution on behalf of the stapled entity on 26 October 2009 of $0.01 per stapled unit for the six months to 30 September 2009 and The units of ConnectEast Investment Trust (CEIT) and ConnectEast Holding Trust (CEHT) are stapled and the number of units issued by each a distribution of $0.01 per stapled unit on 23 April 2010 for the six months to 31 March 2010. ConnectEast Holding Trust issued 43,234,870 entity is the same, however, their values differ. Their respective values are apportioned 99% (CEIT) and 1% (CEHT). Ordinary units entitle stapled units and 67,060,022 stapled units in respect of each of these distributions pursuant to the ConnectEast Group’s Distribution the holder to participate in distributions and the proceeds on a winding up of the stapled entity in proportion to the number of units held. Reinvestment Plan (DRP).

The Australian Securities Exchange (ASX) reserves the right (but without limiting its absolute discretion) to remove either or both of the Distribution Reinvestment Plan stapled trusts from the official list if any of the stapled units in the stapled trusts cease to be ‘stapled’ together, or any equity securities are issued by either of the stapled trusts which are not stapled to equivalent securities in the other entity. The ConnectEast Group Distribution Reinvestment Plan (DRP) was terminated following the distribution paid on 23 April 2010. Prior to this stapled units allotted under the DRP were issued at a volume weighted average price, less a discount of 5%. Unless unitholders elected (d) Capital Risk Management otherwise, distributions payable on the stapled units were reinvested in further stapled units under the DRP. Unitholders were able to elect not to participate in the DRP. The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they continue to provide returns for unitholders and benefits for other stakeholders and to maintain an optimal capital structure Under the DRP, there were issues of stapled units on 26 October 2009 at a price of $0.003342 per stapled unit and on 23 April 2010 to reduce the cost of capital. at a price of $0.004217 per stapled unit.

In order to maintain or adjust the capital structure, the Group may adjust the amount of distributions paid to unitholders, return capital 21. financial Assets and Liabilities to unitholders or issue new units. The following financial assets and liabilities have been offset in accordance with AASB 132 Financial Instruments: Disclosure: The Group will continue to monitor its capital structure to ensure it remains suitable for the Group’s operations and enables the Group to adequately service debt. Consolidated 19. Retained Earnings 2010 2009 $’000 $’000 Consolidated Hedge receivable (50,530) (68,180) 2010 2009 Hedge payable 50,530 68,180 $’000 $’000 Interest bearing receivable 1,214,400 2,024,000 Opening balance (218,331) (7,094) Interest bearing payable (1,214,400) (2,024,000) Net loss for the year (132,757) (211,237)

Closing balance (351,088) (218,331) Assets Pledged as Security

The security over the finance facilities includes: (a) fixed and floating charges over all the assets and undertakings of ConnectEast Finance Pty Ltd, ConnectEast Pty Ltd and ConnectEast Asset Trust (Related Party). The charges will include a featherweight floating charge (enforceable only during the appointment of an administrator) over the various trading accounts; (b) real property mortgages over the EastLink Project Leases; and (c) a limited recourse third party mortgage granted by ConnectEast Investment Trust 2 (Related Party) and ConnectEast Holding 2 Pty Ltd over their respective shares or units, as applicable, in each of ConnectEast Asset Trust (Related Party) (and its trustee), ConnectEast Pty Ltd and ConnectEast Finance Pty Ltd.

The benefits of the securities are held by a security trustee on behalf of the Financiers and the providers of interest rate management hedging.

36 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 37 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures 22. Key Management Personnel Disclosures (continued)

Remuneration Report Board’s Responsibility for Remuneration (continued)

This report sets out the remuneration framework, policy, performance and outcomes for the year ended 30 June 2010 (FY2010). Human Resources Committee Remuneration details are provided for the following directors and executives. Prior period details for certain former directors and The Board has established a Human Resources Committee with the following areas of focus: executives are also provided in this report. • human resources policies and strategies, including executive remuneration and succession planning • remuneration of non-executive directors. Name Position Date appointed In relation to executive remuneration, the Committee’s role includes developing and recommending to the Board for approval strategies Non-executive Directors and policies for executive remuneration, including the at-risk components of executive remuneration.

Anthony Shepherd Independent Chairman 28 September 2004 The Committee received independent advice regarding the remuneration of the CEO and his direct reports from Egan Associates during Bruce Beeren Independent Director 31 March 2009 the year. The Committee also drew on data from external sources for the purposes of benchmarking remuneration levels. During the year, those sources included The Hay Group, who performed a job evaluation study across the Group and provided employee Paul Dougas Independent Director 22 December 2009 remuneration benchmarking data. Employee remuneration benchmarking data was also provided by Hewitt Associates. Jim Hall Independent Director 9 June 2005

Max Lay Independent Director 28 September 2004 Approval of executive remuneration

Mark Snape Director 26 August 2008 Executive remuneration levels are reviewed annually by reference to market benchmarks, the executive’s performance and any changes in the executive’s role or responsibilities. Executive remuneration is approved as follows: Yvonne von Hartel Independent Director 7 February 2005 • the remuneration of the CEO is approved by the Board upon the recommendation of the Human Resources Committee and the Board Executive Director Chairman • the remuneration of direct reports to the CEO is approved by the Board upon the recommendation of the CEO and the Human Dennis Cliche1 Managing Director and CEO 19 November 2009 Resources Committee Current Executives • all other employee remuneration is approved by the CEO. Nick McKechnie Chief Financial Officer 2 March 2009 Overview of Group and executive performance Tony Hudson General Counsel and Company Secretary 8 August 2005 Refer also to the Review of Operations on page 2 of the directors’ report. James Tonkin General Manager, Corporate Affairs 2 October 2006 ConnectEast’s Total Shareholder Return (TSR) over the financial year was 27.38%, ranking 46th among entities in the ASX 100 at the Tom Walker General Manager, Information Technology 8 May 2006 beginning of the financial year. The total return of the ASX 100 Index over the year was 25.34%. (TSR is defined as the growth in unit price Former executives who left employment during FY2010 over the relevant period with distributions notionally reinvested on the ex-distribution date during the period. The unit price is measured on a volume-weighted basis for the three months preceding the relevant date.) John Gardiner1 Former Managing Director and CEO 29 March 2005 Peter Bentley2 Former Chief Operating Officer 19 October 2004 Table 1 shows ConnectEast’s performance over a number of key performance indicators in FY2010 and the four preceding financial years.

1. Dennis Cliche replaced John Gardiner as Managing Director and Chief Executive Officer on 19 November 2009. Table 1 2. Peter Bentley resigned as Chief Operating Officer on 30 June 2010. Year ended 30 June 2007 2008 2009 2010

Board’s Responsibility for Remuneration Net profit after tax ($’000) (66,438) (9,335) (531,585)3 (53,638)

1 The Board’s role Earnings per unit (cents) - (0.68) (25.43) (1.49)

2 The Board’s responsibilities, as set out in the Board Charter, include: EBITDA per trip n/a n/a $1.12 $1.82 • appointing, remunerating, reviewing the performance of, and (where applicable) removing the CEO Total Shareholder Returns • approving the appointment, remuneration and (where applicable) removal, and participating in review of the performance ConnectEast 42.6% -18.3% -66.3% 27.4% of, the CFO, the Company Secretary and senior managers reporting to the CEO • ensuring that the structure of remuneration in the ConnectEast Group (including for the CEO) is linked to achievement of the Group ASX100 26.2% -7.0% -26.5% 25.3% objectives and is benchmarked against market for organisations of similar size, operations and complexity 1. Units were classified as debt at 30 June 2007 due to finite life clauses in the Trust constitutions • ensuring that the performance requirements of the CEO and senior management are linked to achievement of the Group objectives, 2. Tolling commenced on 27 July 2008 and that systems for evaluating the performance of the CEO and senior management are based on open and relevant criteria 3. Includes impairment of $405 million • monitoring senior management’s performance and implementation of strategy.

38 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 39 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (continued) 22. Key Management Personnel Disclosures (continued)

Executive Remuneration Executive Remuneration (continued)

General EBITDA per trip was selected as an appropriate measure because it focuses on the importance of maximising the return from the asset and represents a measure of efficiency as well as overall return. No MTI entitlements will vest unless the Group’s average EBITDA per trip Executive remuneration arrangements are designed to reward employees competitively and appropriately for their individual over the two years is at least $1.953. During FY2010, the average EBITDA per trip was $1.82. performance, including their contribution to the ConnectEast Group’s business performance. During the year ended 30 June 2010, individual remuneration was aligned with contribution towards achievement of strategic goals. Strategic goals are set annually by the The vesting measures for future grants made under the MTI program will be determined annually by the Board having regard to the Board and are designed to be measurable and to support achievement of the Group objectives. targets for the business each year.

Service contracts for senior management, including the CEO, have no fixed term. Each contract can be terminated by the giving of a fixed MTI payments will typically be made in September, following preparation, audit and release of the Group’s annual financial report and period of notice. ConnectEast also has the right to terminate the contract immediately, by making a payment in lieu of notice. The assessment of the criteria for vesting of MTI entitlements. contractual period of notice is six months for the CEO and the CFO. It is three months for other senior managers. Long term incentives Executive remuneration is made up of a fixed component and, for eligible executives, an at-risk component. Long Term Incentives (LTIs) focus on achievement of total shareholder returns (TSR) over a three year period. The entitlements of Fixed annual remuneration participating executives will vest according to ConnectEast’s TSR performance relative to the performance of entities included in the ASX 100 at the time that a grant is made under the LTI program. Each executive’s fixed annual remuneration (FAR) is structured as a total employment cost package, including cash, voluntary superannuation and benefits. Fringe benefits tax costs are taken into account in the total employment cost calculation. The FAR is set by The first grants under the LTI program were made during the 2010 financial year, and will be eligible for vesting at the end of the 2012 reference to the scope and nature of the executive’s role, and the executive’s performance and experience. financial year. LTI grants have been made to five executives. Vesting will occur after three financial years if ConnectEast’s TSR over that three year period is at least equal to the median TSR of entities included in the ASX100 over that period, as set out in Table 2 below. At-risk remuneration – year ended 30 June 2010 Table 2 The at-risk component of executive remuneration during FY2010 comprised short, medium and long term incentives. Except as explained below in relation to the long term incentive program, all components of executive remuneration are cash-based. ConnectEast’s TSR rank relative to ASX100 Proportion of CEU units eligible to vest

The rules of the medium and long term incentive plan are available on our website. Less than 50th percentile (median) 0% 50th percentile 50% Short term incentives Between 50th percentile and 75th percentile 50% plus 2% for each additional percentile ranking above the 50th percentile. Short term incentives (STIs) allow for payment in cash of a percentage (ranging from 10% to 75%) of the executive’s fixed remuneration At or above the 75th percentile 100% each financial year, with higher amounts payable at the discretion of the Board.

Individual annual goals for each executive are agreed at the beginning of the financial year and tailored to the accountabilities of the If some or all of an LTI entitlement has not vested after three financial years, the above TSR performance condition will be re-tested executive’s role and the capacity of the executive to affect the Group’s performance. Individual goals may be financial or non-financial on 30 June in the fourth and fifth years. If, on one of these re-testing dates, ConnectEast’s relative TSR ranking is better than the ASX100 and may include “base” and “stretch” performance targets. Annual goals for the CEO are established by the Board Chairman in median and higher than it was after the previous testing date, then a higher proportion of the original LTI entitlement will vest at that time. consultation with the Chairman of the Human Resources Committee. Annual goals for the CEO’s direct reports are set by the CEO and reviewed by the Human Resources Committee. Vested LTI entitlements are payable partly in cash. However, 40% of each vested LTI entitlement must be applied to acquire ConnectEast units. These units are acquired by the Group on-market in the ordinary course of trading on ASX on behalf of the executive. These units The actual level of STI paid to the CEO and other executives is determined at the end of the financial year by assessment of the executive’s will be subject to a trading lock for two years. The trading lock may be released earlier in some circumstances, including death or total performance against individual goals and having regard to the Group’s performance. The Group’s performance is reviewed by the Board and permanent disablement or other circumstances determined by the Board. having regard to the budget and other goals approved at the beginning of the financial year. The performance of the CEO is reviewed by the Board Chairman in consultation with the Chairman of the Human Resources Committee and approved by the Board. Senior executive Executives who hold units subject to a trading lock under the LTI program are not permitted to enter into any arrangements for the performance is assessed by the CEO, reviewed by the Human Resources Committee and approved by the Board. purpose of hedging their exposure to risk in respect of those units. The Board may ask executives to certify that they have not entered into such arrangements. STI payments are typically paid in September, following preparation, audit and release of the Group’s annual financial report and review of each eligible executive’s performance. LTI payments and acquisition of units will typically occur in September, consistent with the arrangements for payment of STI and MTI entitlements. Medium term incentives Milestone retention bonus for former CEO Medium Term Incentives (MTIs) focus on achievement of internal corporate performance targets over a two year period. MTIs allow for payment in cash of a percentage (ranging from 10% to 35%) of the executive’s fixed remuneration upon vesting. The entitlements of During construction of EastLink, certain executives were eligible for milestone retention bonuses. These allowed for payment of a participating executives will vest according to the degree of achievement of applicable corporate performance targets. Vested MTI percentage of the executive’s fixed remuneration according to the achievement of key project milestones. The Group’s former CEO, John entitlements are payable in cash. Gardiner, was entitled to payment of his final milestone retention bonus in November 2009. There were no other milestone retention bonuses paid out during the year and none outstanding for future years. The first grants under the MTI program were made during the 2010 financial year, and will be eligible for vesting at the end of the 2011 financial year. MTI grants have been made to 11 employees. Vesting will be determined by reference to the Group’s average EBITDA per trip over the two years.

40 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 41 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (continued) 22. Key Management Personnel Disclosures (continued)

CEO and Senior Executive Remuneration Remuneration paid to Key Management Personnel in FY2010

Service contracts The remuneration of the Key Management Personnel for the years ended 30 June 2010 and 30 June 2009 is set out below in Tables 5 and 6 respectively. The Group has entered into a service contract with the CEO and other senior executives, setting out remuneration and other terms of employment. Each service contract outlines the components of remuneration (including eligibility for at-risk remuneration), but does Table 5 not prescribe the level of remuneration from year to year. 2010 Short-term employment benefits Long-term employment benefits Post- The service contracts for the Key Management Personnel contain the termination provisions set out below in Table 3. employment

Table 3 Name Cash salary Short Term Non-cash Milestone Medium Long Term Super- Total Percentage and fees Incentive benefits Retention Term Incentive2 annuation3 of STI paid Name Notice by Group or employee Termination provisions Bonus1 Incentive2 / forfeited $ $ $ $ $ $ $ $ % Dennis Cliche 6 months Payment of 6 months base salary plus superannuation. Dennis Cliche4 360,154 141,419 - - 52,500 24,600 10,846 589,519 51 / 49 Nick McKechnie 6 months Payment of 6 months base salary plus superannuation Nick McKechnie 285,539 103,200 - - 22,500 20,000 14,461 445,700 69 / 31 Tony Hudson 3 months Payment of 3 months base salary plus superannuation Tony Hudson 288,000 117,062 - - 23,475 20,867 25,000 474,404 75 / 25 James Tonkin 3 months Payment of 3 months base salary plus superannuation James Tonkin 175,417 47,040 22,122 - 11,200 9,333 26,461 291,573 70 / 30 Tom Walker 3 months Payment of 3 months base salary plus superannuation Tom Walker 229,539 47,580 - - 12,200 10,167 14,461 313,947 65 / 35

John Gardiner4 253,408 54,386 15,557 441,831 - - 42,954 808,136 31 / 69 At-risk remuneration Peter Bentley5 268,787 140,625 56,213 - - - 50,000 515,625 50 / 50 Table 4 below summarises the at-risk components of the remuneration for FY2010 under the service contracts between the Group and TOTAL 1,860,844 651,312 93,892 441,831 121,875 84,967 184,183 3,438,904 the Key Management Personnel in office as at the date of this report. The STI, MTI and LTI amounts shown in Table 4 represent the maximum that would be paid assuming 100% achievement of relevant performance targets. The percentage of remuneration at-risk Table 6 shown in Table 4 also assumes 100% payment of the at-risk components of remuneration. 2009 Short-term employee benefits Post- Table 4 employment

Percentage of Name Cash salary Short Term Non-cash Super- Total Percentage Name FAR STI1 MTI2 LTI 3 remuneration at risk and fees Incentive benefits annuation3 of STI paid / forfeited $ % $ % $ % $ % $ $ $ $ $ % Dennis Cliche4 600,000 75 276,750 35 210,000 40 240,000 60% John Gardiner 520,579 210,529 35,263 100,000 866,371 50 / 50

Nick McKechnie 300,000 50 150,000 30 90,000 40 120,000 55% Peter Bentley 216,182 165,000 60,877 100,000 542,059 76 / 24

Tony Hudson 313,000 50 156,500 30 93,900 40 125,200 55% Tony Hudson 264,110 106,000 - 50,000 420,110 71 / 29

James Tonkin 224,000 30 67,200 20 44,800 25 56,000 43% Nick McKechnie6 234,618 93,400 - 13,693 341,711 65 / 35

Tom Walker 244,000 30 73,200 20 48,800 25 61,000 43% James Tonkin 167,461 44,600 22,122 37,745 271,928 71 / 29

1. The STI opportunity is subject to assessment of the executive’s performance during the year. The actual STI payments awarded for FY2010 are set out in Danny Agnoletto6 268,292 256,333 24,308 65,346 614,279 100 / 0 Table 5. 7 2. The aggregate MTI opportunity in the table is subject to satisfaction of performance conditions over two years. Graham Gilpin 176,915 44,000 - 100,000 320,915 100 / 0 3. The aggregate LTI opportunity in the table is subject to satisfaction of performance conditions over three years. TOTAL 1,848,157 919,862 142,570 466,784 3,377,373 4. Dennis Cliche commenced employment on 19 November 2009. The FAR of $600,000 is for a full year of employment. The maximum STI opportunity has been pro-rated for the period of employment. 1. The Milestone Retention Bonus earned by John Gardiner in FY2010 applied to the total period of employment from the date of commencement and vested according to the extent of achievement of the applicable performance targets. Key Management Personnel STI goals during FY2010 2. The amounts shown in respect of the MTI and LTI entitlements of relevant executives represent the estimated liability for payment of these entitlements. Those estimates assume 50% vesting of those entitlements, spread over two years for the MTI program and over three years for the LTI program. The STI goals of the CEO for FY2010 were agreed with the Board shortly after his commencement of employment in November 2009. The No amounts vested or were paid in FY2010 in respect of the MTI and LTI programs. STI goals of other Key Management Personnel were agreed with the Board at the beginning of the financial year. In each case, the goals 3. Includes statutory and voluntary contributions. were weighted towards achievement of the Group’s revenue and operating costs targets. This reflects the Group’s focus since opening 4. John Gardiner resigned as Chief Executive Officer and Managing Director and was replaced by Dennis Cliche on 19 November 2009. 5. Peter Bentley resigned as Chief Operating Officer on 30 June 2010. EastLink to tolling in July 2008 on building traffic and revenue on EastLink and driving the efficiency of operations. The STI goals for each 6. Danny Agnoletto resigned and was replaced by Nick McKechnie as Chief Financial Officer with effect from 2 March 2009. executive also included achievement of particular projects within their areas of responsibility. 7. Graham Gilpin resigned as General Manager Construction on 30 June 2009.

42 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 43 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (continued) 22. Key Management Personnel Disclosures (continued)

Remuneration paid to Key Management Personnel in FY2010 (continued) Remuneration of Non-Executive Directors (continued)

ConnectEast Group has not provided any loans to executives or directors. Consistent with the recommendations of the external review, the Board has resolved that its fee structure for the year ending 30 June 2011 is as set out below in Table 8. The remuneration of the Key Management Personnel and independent non-executive directors is paid by ConnectEast Pty Limited and ConnectEast Holding 2 Pty Limited, wholly owned subsidiaries of the Group. Table 8

Chief Executive Officer’s remuneration for FY2011 Total fees FY20112 Total fees FY20102 Committee Role $ $ The Board has approved the remuneration arrangements for the Chief Executive Officer in FY2011 as set out below in Table 7. The STI, MTI Chairman 250,0001 240,0001 and LTI amounts shown in Table 7 represent the maximum that would be paid assuming 100% achievement of relevant performance Board retainer targets. Member 97,500 95,000 Chairman 25,000 20,000 Audit, Risk & Compliance Committee Table 7 Member 12,500 10,000 Name FAR STI MTI LTI Percentage of Chairman 15,000 15,000 Human Resources Committee remuneration Member 8,000 8,000 at risk Chairman 10,000 10,000 $ % $ % $ % $ % Nomination Committee Member 6,000 6,000 Dennis Cliche 630,000 75 472,500 35 220,500 50 315,000 62% Chairman 15,000 15,000 Safety Committee Member 8,000 8,000 Chairman 6,000 6,000 Remuneration of Non-Executive Directors Community Investment Committee Member 4,000 4,000 Basis of remuneration 1. The board retainer fee for the Chairman includes committee obligations. Each independent director is paid a fixed annual fee that takes account of the extent of the director’s involvement at Board and 2. Inclusive of superannuation guarantee charge. Committee level. The remuneration for non-executive directors is set at a level that takes account of the time commitment required If a director is required to commit a material time for work on specific allocated issues outside the normal course of Board and Committee of a director and will attract the calibre of director required to contribute to a high-performing Board. For that purpose, the Board obtains activities, the Board may approve the payment of additional cash remuneration. In the year ended 30 June 2010, Jim Hall received an advice from external consultants on benchmarks for remuneration of non-executive directors in comparable organisations. additional payment of $12,000 for additional work in connection with the capital raising completed by the Group in September 2009. The fees paid to the non-executive directors are reviewed annually by the Human Resources Committee, which makes recommendations The aggregate remuneration that will be paid to the independent non-executive directors for the year ending 30 June 2011 (and a to the Board having regard to the matters described above. comparison to the aggregate remuneration paid for the year ended 30 June 2010) are set out below in Table 9. During the year, the level of non-executive directors’ fees was reviewed by the Group’s independent external adviser, Egan Associates, to determine whether non-executive directors were being remunerated at market rates for a group of ConnectEast’s size and complexity. Table 9 The independent external review considered market data of a sample of companies listed on the ASX ranking between 50 and 150 by Year Ending 30 June 2011 Year ended 30 June 2010 market capitalisation and companies with market capitalisation between $807 million and $3,227 million or with total assets between $ $ $1.64 billion and $6.6 billion. Anthony Shepherd 250,000 240,000

Bruce Beeren 131,000 126,000

Paul Dougas1 113,500 57,913

Jim Hall 128,500 133,0002

Dr Max Lay AM 125,000 120,000 Yvonne von Hartel AM 111,500 109,000

Total 859,500 785,913

1. Paul Dougas was appointed as a director on 22 December 2009. 2. Includes additional payment of $12,000 for work in connection with the Group’s capital raising.

The Group does not pay retirement allowances to non-executive directors nor compensation on early termination of the appointment of non-executive directors.

44 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 45 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (continued) 22. Key Management Personnel Disclosures (continued)

Remuneration of Non-Executive Directors (continued) Remuneration of Non-Executive Directors (continued)

Minimum equity holding Table 11 Independent directors have agreed to acquire a minimum of 250,000 ConnectEast units. They may do so by applying 20% of their 2009 Short-term benefits Post-employment remuneration to the purchase of ConnectEast units. Where applicable, the Group purchases these units on-market during the securities trading windows immediately following release of the annual and half-yearly results (in accordance with ConnectEast’s Dealing in Name Cash salary Equity1 Super- Total Securities Policy). and fees1 annuation $ $ $ $ Until they hold at least 250,000 units, the independent directors have agreed not to dispose of any ConnectEast units. The director must Anthony Shepherd 132,885 72,220 13,745 218,850 then maintain a minimum holding of 250,000 units, and may only dispose of units in accordance with ConnectEast’s Dealing in Securities Policy. These restrictions cease to apply after a director leaves office. Bruce Beeren7 20,038 5,586 2,306 27,930

At the date of this report, Tony Shepherd, Bruce Beeren, Paul Dougas and Max Lay hold at least 250,000 units. Jim Hall6 102,800 23,450 - 126,250 Dr Max Lay AM6 93,800 23,450 - 117,250 Thiess John Holland nominee director Mark Snape3 - - - - ConnectEast does not pay any remuneration to Mark Snape, who has been nominated by Thiess John Holland. He is remunerated as an executive of John Holland. ConnectEast does not pay any remuneration to Mark Lynch, who is alternate director for Mark Snape. Yvonne von Hartel AM 2,340 20,850 81,060 104,250 Mark Lynch4 - - - - Maximum aggregate remuneration Julian Beaumont5 - - - - Under the Group’s Constitutions, the maximum aggregate remuneration payable to non-executive directors is $950,000, or any greater Andrew Sims5 - - - - amount approved by unitholders. Dr Ray Wilson3 - - - -

Remuneration of non-executive directors Total 351,863 145,556 97,111 594,530

The remuneration paid to the non-executive directors during the years ended 30 June 2010 and 30 June 2009 is set out in Tables 10 1. The Chairman and Independent Directors allocate 33% and 20% respectively of their remuneration to purchase ConnectEast stapled units, until they and 11 respectively. attain a holding of 250,000 units. 2. Paul Dougas was appointed as a director on 22 December 2009. Table 10 3. Mark Snape is nominated by Thiess John Holland. He is an employee of John Holland and is not remunerated by the ConnectEast Group. 4. Mark Lynch is alternate director for Mark Snape. He is an employee of Thiess Pty Limited and is not remunerated by the ConnectEast Group. 2010 Short-term employee benefits Post-employment 5. Andrew Sims was an employee of Macquarie Group Limited and was not remunerated by ConnectEast Group. Julian Beaumont was a nominee of Macquarie Group Limited and was not remunerated by ConnectEast Group. Messrs Sims and Beaumont resigned as directors on 31 March 2009. Name Cash salary Equity1 Super- Total 6. No statutory superannuation contributions are required. and fees1 annuation 7. Bruce Beren was appointed a director on 31 March 2009. $ $ $ $ Anthony Shepherd 225,539 - 14,461 240,000 Total Remuneration of Key Management Personnel and Non-Executive Directors

Bruce Beeren 96,696 18,900 10,404 126,000 The total remuneration of the Group’s Key Management Personnel and directors is set out below in Table 12.

Paul Dougas2 34,663 18,468 4,782 57,913 Table 12 Jim Hall6 108,800 24,200 - 133,000 Consolidated Dr Max Lay AM6 96,000 24,000 - 120,000 2010 2009 Mark Snape3 - - - - $ $

Yvonne von Hartel AM 59,274 21,800 27,926 109,000 Short-term employee benefits 3,334,388 3,408,008 Mark Lynch4 - - - - Long-term employee benefits 648,673 -

Total 620,972 107,368 57,573 785,913 Post-employment benefits 241,756 563,895 Total 4,224,817 3,971,903

46 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 47 NOTES TO THE FINANCIAL STATEMENTS

22. Key Management Personnel Disclosures (continued) 23. Commitments for Expenditure

Commitments for the cost of various goods and services to be supplied but not recognised as liabilities: Stapled Unit Holdings

The numbers of Stapled Units in ConnectEast Group held during the financial year by each director of ConnectEast Management Limited Consolidated and each of the Key Management Personnel of the Group, including their personally-related entities, are set out below in Tables 13 and 2010 2009 14 respectively. $’000 $’000

Table 13 Operation and Maintenance Agreement ConnectEast Pty Limited has entered into a fixed term alliance based operations and Name Balance Units acquired Balance Value of units at the start during the year at the end at the end maintenance agreement with Transfield Services (Australia) Pty Ltd. Estimated amounts of the year of the year of the year1 payable are as follows: $ Payable not later than one year 16,353 15,696 Non-executive directors of ConnectEast Later than one year and not later than five years 70,465 46,164 Management Limited Anthony Shepherd 517,168 465,573 982,741 373,442 86,818 61,860

Bruce Beeren - 261,594 261,594 99,406 Operating Leases

Paul Dougas2 168,291 94,943 263,234 100,029 ConnectEast Pty Limited has entered into operating leases for the rental of retail premises and the lease of the EastLink Concession from a related party. Amounts payable are as follows: Jim Hall 116,397 117,963 234,360 89,057 Payable not later than one year 175,095 205,525 Dr Max Lay AM 129,724 134,731 264,455 100,493 Later than one year and not later than 5 years 699,632 820,800 Mark Snape - - - - Later than 5 years 4,961,913 6,036,984 Yvonne von Hartel AM 110,637 111,322 221,959 84,344 5,836,640 7,063,309

Table 14 24. Contingent Liabilities Name Balance Units acquired Balance Value of units at the start during the year at the end at the end ConnectEast and Thiess John Holland (TJH) have settled all outstanding matters under the EastLink Construction Contract. The settlement of the year of the year of the year1 includes the calculation and timing of the construction early completion bonus, the details of which are set out in Note 16. $ ConnectEast Group’s performance in operating EastLink is measured under a KPI regime set out in the EastLink Concession Deed. Key Management Personnel Performance under the KPI regime is measured annually and commenced on 1 January 2009. Financial penalties apply under the KPI of ConnectEast Group regime where performance benchmarks are not achieved. No KPI penalty was incurred for the 2009 calendar year and it is ConnectEast’s Dennis Cliche - - - - assessment based on performance to date is that no material liability is likely to arise under the KPI regime for the 2010 calendar year. Nick McKechnie - 14,076 14,076 5,349 25. Employee Benefits Tony Hudson 17,325 9,809 27,134 10,311

James Tonkin - - - - Consolidated Tom Walker 18,508 - 18,508 7,033 2010 2009 $’000 $’000 1. The basis of valuation of the units at year end is the unit price as at 30 June 2010 ($0.38 per stapled unit). 2. Paul Dougas held 168,291 units at the time of becoming a director on 22 December 2009. Employee benefit and related on-costs liabilities Aggregate employee benefit and related on-costs liabilities 3,441 3,559

Employee numbers Number Number

Average number of employees during the financial year 321 361

48 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 49 NOTES TO THE FINANCIAL STATEMENTS

26. Related Party Transactions 26. Related Party Transactions (continued)

Key Management Personnel Controlling Entity Disclosures relating to Key Management Personnel are set out in Note 22. The ConnectEast Group is a stapled entity and comprises the aggregation of ConnectEast Investment Trust and its wholly-owned controlled entities and ConnectEast Holding Trust and its wholly-owned controlled entities. The Responsible Entity of ConnectEast Holding Consolidated Trust and ConnectEast Investment Trust is ConnectEast Management Limited. Loans 2010 2009 $’000 $’000 27. iNvestments in Controlled Entities Loans to related parties2 Name of entity Country of Class of Equity holding Equity holding Beginning of year 3,708 10,061 incorporation shares / units 2010 2009 Loans advanced 4,550 304 ConnectEast Pty Ltd Australia Ordinary 100% 100% Loan repayments - (6,904) ConnectEast Nominee Company Pty Ltd Australia Ordinary 100% 100%

Interest received 708 247 ConnectEast Finance Pty Ltd Australia Ordinary 100% 100%

End of year 8,966 3,708 ConnectEast Holding 2 Pty Ltd Australia Ordinary 100% 100%

ConnectEast Management Ltd Australia Ordinary 100% 100% Loans from related parties1,2

Beginning of year 532,816 488,779

Loans received 1,651 86,416 28. Segment Information

Loan repayments (18,960) (42,647) The consolidated entity operates as one business segment being the EastLink Project, in one geographic segment being Victoria. Interest charged 116,014 268 29. Reconciliation of Loss from Ordinary Activities after Income Tax to Net Cash Inflow from End of year 631,521 532,816 Operating Activities

1. Of the loans from other related parties, $18 million is classified as a current liability. Consolidated 2. All related party movements above were non cash transactions. 2010 2009 Rent Payable to Related Party $’000 $’000 Loss after income tax benefit (132,757) (211,237) Rent of $174.9 million per year is payable by ConnectEast Pty Limited (a subsidiary of ConnectEast Holding 2 Limited) to ConnectEast Asset Trust (CEAT), a related party. Rent of $130.0 million has been paid to CEAT with $267 million outstanding at 30 June 2010. Depreciation and amortisation 12,448 19,528

Impairment - 60,000 Other Related Parties Other non-cash items 121,330 72,005 Aggregate amount of transactions with each class of other related parties incurred in relation to the Group being awarded the concession to finance, design, build, maintain and operate the EastLink Project: Operating items not affecting working capital (617) 4,875 Working capital items not impacting operations - 5,186

Consolidated (Increase) in deferred tax asset (59,019) (89,502) 2010 2009 (Increase)/decrease in trade and other receivables (1,777) (7,402) $’000 $’000 Increase/(decrease) in payables 64,140 188,899 Macquarie Equity Capital Markets Limited (Decrease)/Increase in provisions (3,094) 10,125 Underwriting Fees 70 80 Net cash provided by operating activities 654 52,477 Financial Advisory - 39

Commonly controlled entities

Interest expense 116,014 68,111

No amounts have been brought to account in relation to other transactions with other related parties.

The above transactions were made on normal commercial terms and conditions and at market rates. Ownership interests in controlled entities are set out in Note 27.

50 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 51 NOTES TO THE FINANCIAL STATEMENTS

30. Earnings Per Stapled Unit 32. Parent Entity Financial Information

(a) Reconciliation of Earnings used in Calculating Earnings per Stapled Unit (a) Summary of Financial Information

Consolidated 2010 2009 $’000 $’000 2010 2009 Statement of Financial Position Basic and diluted earnings per stapled unit (cents) (3.69) (10.10) Current assets 174 151 Loss attributable to unitholders of the company used in calculating basic and Total assets 14,417 9,150 diluted earnings per stapled unit ($’000) (132,757) (211,237) Current liabilities 2 387 There were no discontinued operations in the year. Total liabilities 564 387

(b) weighted Average Number of Units used as the Denominator Unitholders’ equity Unitholders funds 25,825 21,339 Consolidated Retained losses (11,972) (12,576) 2010 2009 Units Units 13,853 8,763 Weighted average number of units used as the denominator Profit/(loss) for the year 604 (12,528) in calculating basic earnings per stapled unit 3,599,002,432 2,090,540,964 Total comprehensive income/(loss) 604 (12,528) Weighted average number of units used as the denominator in calculating diluted earnings per stapled unit 3,599,002,432 2,090,540,964

(b) Contingent Liabilities of the Parent

31. Events Occurring After the Statement of Financial Position Date Refer to Note 24.

No matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years.

52 CONNECTEAST | ANNUAL REPORT | 2010 NOTES TO THE FINANCIAL STATEMENTS 53 STATEMENT OF THE DIRECTORS INDEPENDENT OF THE RESPONSIBLE ENTITY AUDIT REPORT OF THE TRUST

In the opinion of the Directors of ConnectEast Management Limited as the Responsible Entity for ConnectEast Holding Trust (the “Trust”): (a) the financial statements and notes for the Trust and its controlled entities (the “Group”), set out on pages 11 to 53 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; (ii) giving a true and fair view of the Group’s financial position as at 30 June 2010 and of its performance, as represented by the results of its operations, changes in equity and its cash flows, for the financial year ended on that date; and (b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

Note 1(a) confirms that the financial statements also comply with International Reporting Financial Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

This statement is made in accordance with a resolution of the Directors of ConnectEast Management Limited. to the members of ConnectEast Holding Trust

Report on the financial report

We have audited the accompanying financial report of ConnectEast Holding Trust (the trust), which comprises the statement of financial Anthony F Shepherd position as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and cash flow statement for Director the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for the ConnectEast Holding Trust Group (the consolidated entity). The consolidated entity comprises the trust and the entities it controlled at the Melbourne year’s end or from time to time during the financial year. 17 August 2010 Directors’ responsibility for the financial report

The directors of ConnectEast Management Limited (the responsible entity of the trust) are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

Liability limited by a scheme approved under Professional Standards Legislation

54 CONNECTEAST | ANNUAL REPORT | 2010 FINANCIAL REPORT YEAR ENDED 30 JUNE 2010 55 INDEPENDENT AUDIT REPORT

Our procedures include reading the other information attached to the financial report to determine whether it contains any material inconsistencies with the financial report.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion

In our opinion: (a) the financial report of ConnectEast Holding Trust is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1.

PricewaterhouseCoopers

Charles Christie Partner

Melbourne 17 August 2010

Liability limited by a scheme approved under Professional Standards Legislation

56 CONNECTEAST | ANNUAL REPORT | 2010 2 Hillcrest Avenue Ringwood VIC 3134 Australia PO Box 804 Ringwood VIC 3134

T 03 9955 1700 F 03 9955 1701 ConnectEast.com.au EastLink.com.au