VICTRACK ANNUAL REPORT 2006 – 2007 CONTENTS

2006-07 Highlights 2 Members of the Board and Board Committees 30 Report from the Chair 4 Executive Team and Organisation Structure 31 Report from the Chief Executive 6 Corporate Governance 32 Improving and Managing Victoria’s Rail Assets 8 Statutory Information 34 Driving Commmercial Services 12 Financial Performance 36 Delivering Innovative Property Solutions 14 Statutory Statement 37 Developing Victoria’s Rail Capacity 18 Independent Audit Report 38 Preserving Victoria’s Rich Rail Heritage 20 Victorian Rail Track Financial Report 40 Supporting Environmental Sustainability 24 Disclosure Index 72 Managing and Developing Our People 28

LETTER TO THE MINISTER

20 September 2007

The Hon Lynne Kosky MP Minister for Public Transport and the Arts Level 26, 80 Collins Street Melbourne Victoria 3000

Dear Minister,

I have much pleasure in submitting the Annual Report for VicTrack for the period of 1 July 2006 to 30 June 2007 for your presentation to Parliament.

Yours sincerely

Elana Rubin Chair

Cover image courtesy of Department of Infrastructure.

Authorised and produced by VicTrack, GPO Box 1681, Melbourne, Vic, 3001 Printed by John Herrod & Associates, 46 Lexton Road, Box Hill, Vic, 3128 Designed by Blenheim Design Partners, www.blenheimdesign.com.au DELIVERING VALUE FOR VICTORIANS

VicTrack is a commercially driven and socially responsible organisation that protects and adds value to Victoria’s public transport infrastructure and land. It manages around $50 million worth of projects each year on behalf of the Victorian community.

Victorian Rail Track (VicTrack) was created on 1 April 1997 under The majority of these assets are leased to the Director of Public Section 8 of the Rail Corporations Act 1996. It is a Government Transport. The Director then sub-leases the assets to various Business Enterprise, reporting to the Minister for Transport. transport operators and track access providers.

VicTrack is the custodian of strategic rail assets including: Under the leases to the Director, VicTrack has the right to undertake • land and interests in the land commercial activities in the areas of telecommunications, property • overhead wiring leasing and licensing, outdoor advertising and commercial property • track development. In undertaking its commercial activities, VicTrack • power substations must not, however, adversely interfere with transport operations. • signals • rolling stock In addition, VicTrack performs a range of important social • buildings and structures and environmental activities including proactive environmental • communications networks management, maintenance of rail heritage assets, and • communications base stations provision of leases to non-profit community organisations at nominal rates.

VICTRACK 2006-07 ANNUAL REPORT | 1 2006-07 HIGHLIGHTS

Image courtesy of Department of Infrastructure.

2 | VICTRACK 2006-07 ANNUAL REPORT DELIVERING 37 passive to active crossing upgrades across the state against a target of 30 for the year.

UPGRADING Horsham and Nhill stations and installing safety fencing at 20 regional stations.

EXTENDING VicTrack’s fibre network between Caulfield and Frankston and Parkville and Clayton, providing additional broadband access and links to participating universities and tertiary institutions.

COMPLETING a state-of-the-art facility to provide back-up services to Metrol, the central control centre for Melbourne’s public transport system.

PROVIDING technical expertise and advice to the state during negotiations with Pacific National to buy-back its lease to the Victorian Regional Rail Network.

COMPLETING five whole-of-municipality land management plans, which provide VicTrack land-use blueprints for the municipalities of Moreland, Wyndham, Yarra Ranges, Brimbank and Moira.

BRINGING the administration of hundreds of rural and community leases in-house to better manage and service the leases.

RELOCATING VicTrack’s head office from Collins Street to 1010 La Trobe Street at Docklands to improve the productivity of staff across the organisation.

VICTRACK 2006-07 ANNUAL REPORT | 3 REPORT FROM THE CHAIR Elana Rubin

VicTrack’s charter is to ensure its assets make a commercial return for the state while at the same time, supporting the Victorian Government’s broader sustainability agenda. I am pleased that over the 2006-07 financial year, the business has again generated financial, social and environmental benefits for the state and for the communities in which it operates. While the Annual Report will outline some of this year’s highlights in detail, I would like to draw out some of the major achievements for 2006-07.

Delivering for the Community Delivering for Government This year, VicTrack’s most important achievement, from a VicTrack continues to make available its resources and expertise community safety perspective, has been the development and in support of state and local government policy, programs and successful implementation of its accelerated level crossing projects. upgrade program. Over the 2006-07 financial year, Rail Business played a critical VicTrack has worked closely with stakeholders, government part in advising the Victorian Government on key elements of departments and the industry to develop a new process for the the buy-back of the Regional Rail Network lease from Pacific Victorian Government’s level crossing program. This ensures all National. the necessary resources are in place to manage the upgrades efficiently and expediently. We also played a significant role in maintaining the strong growth in container traffic through the Port of Melbourne by stepping in As a result of this detailed work, VicTrack was able to complete to manage Dynon Intermodal Terminal after it was divested by 37 pedestrian and rail crossing upgrades during the 2006-07 Toll Holdings. financial year – seven more than the original target and 17 more than in the previous financial year. In addition, works were The Property Group has worked closely with five local councils undertaken on a further six level crossings to make them safer to develop Municipal Strategic Plans to assist local councils pro- for people with disabilities. actively identify and appropriately develop surplus VicTrack land. A reflection of the success of this collaboration is the growth in For the 2007-08 financial year, VicTrack has adopted an ambitious demand for the service, and the division has undertaken to deliver target of 40 upgrades, together with other level crossing a further 15 Municipal Strategic Plans over the next 12 months. works that have been commissioned as part of the Victorian Government’s response to the tragic Kerang level crossing Partnerships with VicUrban, Department of Infrastructure and the accident in June 2007. Department of Human Services have also resulted in identifying, providing and developing VicTrack land to deliver a diverse range VicTrack also continues to provide community benefit through of offerings including light office space, aged care facilities and its Community Leasing program. This year the program has freight terminals. undergone restructuring, placing greater focus on service delivery and making it more flexible and responsive to the varied needs of And, the Commercial Group continues to support a range of state the not-for-profit and community sector. government departments, as well as the private sector, through its provision of world-class telecommunications infrastructure, Seeing Eye Dogs Australia now has a new, accessible exercise including the recent completion of a Fibre to the Node Next area in Kensington for their dogs to use as result of a successful Generation Network. community leasing agreement negotiated with VicTrack. The environmental and social work we have undertaken this year across the business has once again provided an estimated $27 million in community benefits.

4 | VICTRACK 2006-07 ANNUAL REPORT Right: Minister for Public Transport and the Arts, Lynne Kosky, MP (right), with VicTrack Chair, Elana Rubin, at the Minister’s opening of VicTrack’s new offices.

Delivering for the Future With Appreciation VicTrack is an agency that operates very much in the present, with People are VicTrack’s greatest asset and this year in particular, an eye on the future. We take our role as custodians of community our people have really risen to the challenge to meet, and in assets very seriously and aim to ensure they are maintained in many cases exceed, their targets despite participating in a major way that reflects community expectations over the long-term. internal cultural change program – Project Newstart – and moving offices from Collins Street to 1010 La Trobe Street. The assets we protect and manage are diverse – from heritage stations, such as Maryborough, which is undergoing a $1.6 On behalf of the Board, I would like to thank them for their million renovation, and rail and tram rolling stock, through to the commitment and ongoing efforts. rare grassland ecosystems that remain on our land. I would also like to thank VicTrack’s Chief Executive Officer, VicTrack is proud of its initiative to help protect what remains John Sutton, not only for his strong leadership of the organisation of our native grasslands from further destruction. VicTrack’s again this year, but for putting VicTrack in an excellent position Environment division has continued its partnership with Landcare to continue delivering on all its responsibilities – economic, through the “Grassroots” program to fund community initiatives environmental and social – into the future. that specifically support the saving of native grasslands. John retires as Chief Executive Officer of VicTrack this year and Our Environment division is also working to ensure that he does so leaving an organisation that is responsive, responsible contamination on VicTrack properties and land caused by historic and respected. rail use is identified and cleaned up. Finally, the Board is also very appreciative of the support it In addition, over the next 12 months the Environment division receives from the Victorian Government and particularly Minister will lead the development of a major sustainability strategy Kosky, the Minister for Public Transport. I would also like to take across the organisation. The strategy will address all parts of the this opportunity acknowledge Minister Batchelor, who was a great business and all areas of environmental, economic and social supporter of the Board and VicTrack during his time as Minister sustainability. Importantly, it will set targets and Key Performance for Transport from November 1999 until November 2006. Indicators to ensure that we are accountable to our stakeholders and to the community.

It is envisaged that as part of the implementation of the sustainability strategy, VicTrack will move toward publishing an annual Sustainability Report that meets the UN’s Global Reporting Initiative standards.

VICTRACK 2006-07 ANNUAL REPORT | 5 REPORT FROM THE CHIEF EXECUTIVE John Sutton

The 2006-07 financial year has again highlighted VicTrack’s position as a key economic, environmental and social contributor to government and the community through its diverse range of rail-related businesses including: telecommunications and IT, property leasing, development and management, freight facility management and development, asset management including heritage assets, and environmental management and stewardship.

What is particularly pleasing is that VicTrack has not only met and at times exceeded its targets this year, it has done so during a particularly challenging 12 months that included the move from offices in Collins Street to new premises at 1010 La Trobe Street.

Also gratifying is the excellent level of support and range of services that VicTrack has been able to offer the Victorian Government across a number of its portfolios and departments – from the provision of land for the development of aged care facilities and affordable housing through to high-level advice on the buy-back of the Regional Rail Network lease.

The completion of the Fibre to the Node Next Generation Network will provide major benefits across government, particularly in the transport area, as will the new Disaster Recovery Centre and the management and development of the Dynon Intermodal Terminal.

The success of the accelerated level crossing upgrade program is also a great achievement and its ongoing delivery ahead of target and to budget has important implications for community and rail safety.

6 | VICTRACK 2006-07 ANNUAL REPORT Right: Image courtesy of Department of Infrastructure.

Financial Performance Future Performance VicTrack has delivered on its financial responsibilities to the state With its move to Docklands, the ongoing development and with cash surpluses being generated from operating activities implementation of the corporate culture renewal program Project and net assets again increasing this year. Newstart and increasing focus on sustainability, VicTrack is well positioned to maintain its role as a key provider of rail related As owner and custodian of the majority of the state’s rail services to government and the private sector. infrastructure and rolling stock assets, there are associated non-cash expenses that are included in and impact on VicTrack’s I have no doubt that the organisation will be able to achieve this bottom line financial result. while continuing to deliver social and environmental benefits to the communities in which it operates. Social and Environmental Performance The work of VicTrack’s Heritage Panel will enter its fourth The major challenges for the next financial year include year with an audit of the many successful building and rolling maintaining the momentum of the government’s level crossing stock restoration projects it has already funded. This work is a program, developing and maximising benefits of the Dynon fundamental part of VicTrack’s commitment to ensuring that we Intermodal Terminal and supporting significant initiatives such protect our past to benefit future generations. as the introduction of the myki ticketing system through the provision of world-class telecommunications infrastructure. Over the past few years a concerted and strategic approach to identifying and remediating contamination on VicTrack land The ongoing collaboration between VicTrack and local means that the efforts of our Environment division can now be government through the development of Municipal Strategic focused on proactively identifying ways of utilising VicTrack’s Plans will also be a key focus as will managing and developing assets to support the state’s sustainability agenda. VicTrack’s rail-related assets.

In addition, a whole-of-organisation approach to sustainability As I leave VicTrack after a decade of service as its inaugural will be developed over the next six to 12 months, including Chief Executive, I am confident that with the ongoing support of the introduction of internal measures such as a “green” the Board and the Minister, the Executive Management team and purchasing policy. the determined and talented staff at VicTrack, the organisation will continue to deliver for the state and for all Victorians. It is hoped that by the end of 2007-08, VicTrack will be in a position to be one of the first government organisations to publish I would like to take this opportunity thank the Board and an annual Sustainability Report as a means of becoming more Ministers Kosky and Batchelor for their support over the years publicly accountable in this fundamentally important area. and particularly the staff at VicTrack for their focus, loyalty and sustained hard work. It has been a privilege to work for a successful organisation that is driven by not only by financial performance, but by social and environmental imperatives as well.

VICTRACK 2006-07 ANNUAL REPORT | 7 IMPROVING AND MANAGING VICTORIA’S RAIL ASSETS

8 | VICTRACK 2006-07 ANNUAL REPORT Michael O’Connor, Project Inspector, at the Park Street, Moonee Ponds pedestrian crossing upgraded with automatic gates during 2006-07.

VICTRACK 2006-07 ANNUAL REPORT | 9 IMPROVING AND MANAGING VICTORIA’S RAIL ASSETS

As custodian of non-leased rail land and assets across Victoria, VicTrack through its Asset Management group, has responsibility for managing and maintaining 28 kilometres of common access yards and sidings, 139 bridges, buildings and infrastructure. Through its diverse portfolio of works, the group delivers the state’s rail level crossings and rail pedestrian crossings program and a variety of other projects including refurbishment of pedestrian bridges and underpasses, heritage projects, erection of safety fencing, building new stations and station upgrades with associated car parks.

Asset Management provides the research, development and implementation of new technology associated with the state’s crossing upgrade program to deliver improved safety at a reduced cost.

The expertise the Asset Management Group has developed is now also being accessed and utilised by local councils and other government departments to undertake significant works on their behalf.

VicTrack’s Drawing Management System, which is the repository for over 500,000 of the state’s technical rail drawings of Victorian rail infrastructure, is housed within Asset Management.

Finally, the Group is responsible for managing the Australian Level Crossing Assessment Model (ALCAM), which is used to undertake risk assessments of at-grade rail crossings. Outcomes from the model determine the order of crossing upgrades and provide valuable information to road and rail authorities to assist them in effectively managing level crossing risks.

10 | VICTRACK 2006-07 ANNUAL REPORT Far left and left: Extracts of the new web-based Asset Management System.

Middle: Peter Ballantine, Level Crossing Project Manager, at the control box for the newly upgraded pedestrian crossing at Arden Street, North Melbourne.

Right: The Victorian Govenment’s Pedestrian Crossing Upgrade program includes the installation of new fencing, improved signage, tactile markers for people with vision impairment and rubber track panels for easier maintenance.

HIGHLIGHTS

Crossing Upgrades General Projects Delivering 37 passive to active crossing upgrades across the Delivering projects for the state including the upgrade of state against a target of 30 for the year. In addition, civil works Horsham and Nhill stations, the installation of safety fencing at were undertaken on a further seven pedestrian rail crossings to 20 regional stations as part of the Regional Station Safety Fence improve disability access. This was an increase of 24 compared Project, fencing works on the Wodonga Bypass Project and the with the previous financial year and more than three times the demolition of Thornbury Tram Depot. historic delivery rate of 12 to 13 upgrades per year. A further 20 crossings were upgraded under the Regional Fast Rail project. LOOKING FORWARD The level crossing upgrade program is an important part of a Victorian Government initiative to improve the safety of the state’s Crossing Upgrades 2,900 at-grade crossings. In order to achieve this significant Continuing the acceleration of the state’s crossing upgrade increase, the Asset Management group has worked with the program. Forty passive to active upgrades to safety at rail industry, developing new contracts and processes to ensure pedestrian and level crossings and ten civil works level crossing industry commits the required resources to deliver the program. upgrades will be delivered – a further increase of seven upgrades compared with 2006-07. Research and Development Developing new technology for rail crossings aimed at improving In addition, following the tragic accident at the Kerang level safety at these crossings. New technology was developed, crossing in June 2007, VicTrack will deliver $14.1 million in constructed, implemented and trialled at Bentleigh station in further level crossing safety initiatives for the state by December Melbourne’s south-eastern suburbs. The technology included 2009 including 53 active advanced warning signs and addressing an improved emergency gate latch that stops entry onto the rail 75 sighting issues. reserve, a “Red Man” warning light to provide a further visual aid advising pedestrians not to cross and an “Another Train Coming” The trial of new technology will be completed at Bentleigh station, warning light to advise pedestrians when further trains are enabling these improved safety initiatives to be implemented approaching the crossing. Initial results from the trial have shown across the state. these initiatives to be successful. General Projects Asset Management System Completing $20 million of projects on behalf of the state – a Implementing improved asset management principles by significant increase from the $7 million delivered in 2006-07 including a new computer-based Asset Management System. including $3.6 million worth of major bridge works, $1.4 million The computer-based system allows the Asset Management in heritage upgrades and remediation works, delivering a Group to hold a comprehensive asset register, program routine $7 million park and ride facility as part of the Victorian and reactive work, track the work undertaken and monitor Government’s Meeting our Transport Challenges program individual asset performance. To support this approach, a more and $3 million in Country Station Upgrade works. structured inspection regime has been introduced allowing identification of maintenance issues, logging, tracking and resolution of the issues.

Drawing Management System In-sourcing the management of the state’s technical drawings in June 2005, has facilitated continued improvement in this area. An enhanced Drawing Management System (DMS) website introduced to industry in March 2006 has enabled more streamlined access for industry to view drawings on line and request, book in and book out drawings, improving the overall efficiency of the service.

VICTRACK 2006-07 ANNUAL REPORT | 11 DRIVING COMMMERCIAL SERVICES

12 | VICTRACK 2006-07 ANNUAL REPORT DRIVING COMMMERCIAL SERVICES

VicTrack’s Commercial Group is primarily responsible for delivering integrated business-to-business telecommunications services to the public transport sector and across a number of Victorian Government departments.

The extensive fibre and copper cabling and wireless networks that keep our trains, trams and SmartBuses connected and the transmission services that will underpin the new myki ticketing system are all supplied or managed by the Commercial Group.

This part of the VicTrack business is driven by its aim to be a successful niche telecommunications provider, operating a commercially sustainable carrier-grade network and providing innovative communications solutions to government, the public transport sector and commercial entities. In addition, Commercial’s outdoor advertising business continues to make a significant financial contribution to the overall Group.

HIGHLIGHTS

VERNet Finances Extending VicTrack’s fibre network between Caulfield and The Commercial Services Division continues to achieve Frankston and Parkville and Clayton, providing additional year-on-year revenue growth and has made a net contribution broadband access and links to participating universities and of $7 million to the VicTrack business in 2006-07, a 34 percent tertiary institutions as part of the successful ongoing partnership increase on 2005-06. that VicTrack and the Victorian Educational Research Network have established. LOOKING FORWARD Metrol’s Disaster Recovery Site Providing the facility, infrastructure and technology for the myki construction and successful commissioning of a specialist data Finalising the provision of integrated communications services centre. This state-of-the-art facility provides back-up services for the new myki ticketing system. to Metrol, the central control centre for Melbourne’s public transport system. Infrastructure Development Continuing development of telecommunications infrastructure Fibre to the Node Next Generation Network to support the Victorian Government’s ‘Meeting our Transport Upgrading the old copper-based communications network by Challenges’ program. In particular, VicTrack will roll-out putting in place new IP technology to ensure that the state’s extensive fibre optic networks to enable the new Metropolitan communications infrastructure remains relevant, sustainable and Train Safety and Communications System. has world-class capabilities. This upgrade will provide additional broadband capacity and speed to Victoria’s public transport Advertising carriers such as V/Line Passenger, Connex and Yarra Trams. Successfully renegotiating VicTrack’s advertising portfolio contract together with the ongoing rationalisation of the portfolio. New Ticketing System Building a new business opportunity by providing transmission services to Kamco, the consortium that will deliver the Victorian Government’s SmartCard ticketing system, myki. Kamco will be the first major user of VicTrack’s upgraded Fibre to the Node Next Generation Network.

Above left: Kylie Spooner, Data Centre Manager, in the new data centre for the back-up Metrol facility.

Right: VicTrack provides ongoing mobile data services for SmartBus operations. Image courtesy of Department of Infrastructure.

Far right: Inside the new back-up Metrol control centre.

VICTRACK 2006-07 ANNUAL REPORT | 13 DELIVERING INNOVATIVE PROPERTY SOLUTIONS

14 | VICTRACK 2006-07 ANNUAL REPORT David Evangelisti, Manager Commercial Projects, at the Stubbs Street, Kensington office and industrial development.

VICTRACK 2006-07 ANNUAL REPORT | 15 DELIVERING INNOVATIVE PROPERTY SOLUTIONS HIGHLIGHTS

The Property Group has consistently delivered economic, Municipal Strategic Plans environmental and social benefits to VicTrack’s bottom line, Completing five whole-of-municipality land management plans, which has in turn benefited the state as enhanced dividends which provide VicTrack land-use blueprints for the municipalities used to improve the public transport network and community of Moreland, Wyndham, Yarra Ranges, Brimbank and Moira. benefits through its community leasing program. To ensure that These plans, developed with the municipalities, identify triple the division maintains its innovative edge and responsive service bottom line opportunities for surplus rail land in the areas. delivery to commercial, community and government customers, the Property Group has undergone a significant restructure Business Leasing during 2006-07. Bringing the administration of the rural leasing business in- house. Over 500 rural leases are now being managed directly by The Property Management Department has split into separate VicTrack rather than through third-party estate agents. Business Leasing and Community Leasing Units to improve efficiencies and service to customers. A support department West Melbourne Precinct (E-Gate) has been created to provide financial, legal and administrative Taking steps to develop a strategic plan for VicTrack land in West services to both units. Melbourne – an area bounded by Footscray Road, Moonee Ponds Creek, the Spencer Street railway lines and Dudley Street In addition, the Land Assessment Department has become the – known as E-Gate. VicTrack has engaged Major Projects Victoria Strategic Planning Department with a revised charter to enhance (MPV) to prepare a long-term plan for this strategic parcel of its ability to develop plans and strategies to maximise the land that interfaces with the Docklands precinct. As part of commercial and community value of surplus land and rail the development of the strategic plan, MPV will undertake a corridors across the state. comprehensive consultation program with relevant stakeholders including VicUrban, Port of Melbourne, City of Melbourne and The Commercial Development Property Department, Services government departments. and Franchising Department and the GIS Department are unchanged. Stubbs Street, Kensington Development Entering into an agreement with a major property developer and commencing the clean-up and revitalisation of the Stubbs Street site through the construction of modern office and light industrial accommodation. The project will be completed by early 2008 and an agent has been appointed to commence leasing space in the development.

Government Partnerships Completing the new freight facility at Greens Road, Dandenong to enable freight relocation from Dandenong Station. This has enabled the sale of the land at Dandenong Station to VicUrban as part of the Transit Cities program.

In addition, the Coburg Tram depot has been demolished to facilitate the development of either affordable housing or an aged care facility on the site and the conditional sale of VicTrack land in Gertrude Street, Fitzroy will allow the construction of affordable housing. The former Thornbury Tram depot site has also been demolished and the land remediated by VicTrack to facilitate future development.

16 | VICTRACK 2006-07 ANNUAL REPORT Far left: Artist’s impression of the Stubbs Street development.

Middle: Demolition of the former Coburg Tram depot in progress.

Left: The E-Gate precinct.

Right: Seeing Eye Dogs running free on land leased by VicTrack.

SEEING EYE DOGS AUSTRALIA

Community Leasing Since 1960, Seeing Eye Dogs Australia (SEDA) has been helping Bringing Community Leasing management and administration people who are blind or vision impaired. SEDA is Australia’s in-house to better manage and service the leases and allow only national organisation that breeds, trains and provides greater clarity around leasing requirements and processes. seeing eye dogs as a gift of mobility, independence and freedom in day-to-day life. They receive no government funding and The Community Leasing Policy has been reviewed to make can only continue to provide this crucial service through the it more responsive to the varied needs of community groups. philanthropic support of Australians. For example, one of the leases negotiated for VicTrack land in 2006-07 was for Seeing Eye Dogs Australia. While the location One of the challenges that their national facility in Kensington and size of the Kensington land was unsuitable for traditional has faced is finding suitable exercise space for up to 30 dogs uses, it was ideal for use as an ”exercise and free run” area for that are living on site and undertaking their training. A trainee seeing eye dogs. Prior to leasing the land from VicTrack, Community Lease Agreement negotiated with VicTrack in 2006 trainee dogs had to be driven long distances for their exercise. has given SEDA access to a 200 metres by five metres section of land that runs directly behind their building. Carolyn Moorshead Finances is the National Business Development Manager for SEDA. Negotiating the sale of $11.5 million of VicTrack land consisting of 12 disposals, and acquiring eight strategic properties with “Before we had use of this land, our dogs had to be transported a total value of $1.04 million. Overall, the Property Group has off-site by kennel staff to fenced parks to get a decent run, contributed $29.7 million revenue for 2006-07. which meant exposing them to other dogs and the risks associated with that,” Carolyn said.

LOOKING FORWARD “We approached VicTrack about using the section of land that runs behind our and their adjoining properties. With the full Commercial Car Parking support of VicTrack we converted this land into a secure, grass Progressing a new business using VicTrack property to provide run for our precious charges. carparking sites. Research has identified demand for carparking on the fringe of Melbourne where appropriate “The area has been divided in half and we now have two really VicTrack properties are positioned. Work has commenced great agility runs that can take up to eight dogs each at a time. on building two new carparks, which will also be operated by Watching the dogs being able to run in the grass and play VicTrack, in Dudley Street, West Melbourne (300 spaces) and outside is just magical. Batman Avenue, Melbourne (70 spaces). This portfolio will be expanded in the future. “From a cost perspective, the agreement has been exceptional, because we no longer have to pay petrol costs for transporting Municipal Strategic Plans the dogs outside our facility and it has minimised the down time Following the success of the 2006-07 program, the Strategic for kennel staff. The agreement has had a positive impact on Planning Department will work with 15 other councils to our operational costs. produce strategic plans for their municipalities over the next financial year. Of the 15, five will be combined in one major package covering the major inner city municipalities – the Cities “The contact between our of Port Phillip, Melbourne, Yarra, Stonnington and Docklands. organisations has been ongoing which says to me that VicTrack is proud of what they have done. And they should be – it’s made a huge difference to our organisation.”

VICTRACK 2006-07 ANNUAL REPORT | 17 DEVELOPING VICTORIA’S RAIL CAPACITY

18 | VICTRACK 2006-07 ANNUAL REPORT DEVELOPING VICTORIA’S RAIL CAPACITY

Rail Business is responsible for developing and managing VicTrack’s major rail facilities and using the knowledge gained to provide planning advice to the state government and commercial organisations.

VicTrack manages South Dynon, North Dynon and Creek Siding Terminals on behalf of the state, working with companies that lease the facilities, to ensure that the infrastructure supporting these businesses is maintained and fit for purpose. To maximise return to VicTrack and the state, Rail Business also identifies and implements expansion and development opportunities at these facilities.

Rail Business represents VicTrack’s interests on a number of major state and industry planning authorities and groups including Melbourne Port@l, Dynon Port Rail Link and the Victorian Freight and Logistics Council. These and other market development activities benefit from VicTrack’s expertise in transport and logistics and have the return benefit of attracting further business opportunities. VicTrack’s rail safety accreditation and track access business is also managed by Rail Business.

HIGHLIGHTS LOOKING FORWARD

Dynon Intermodal Terminal Dynon Intermodal Terminal Taking responsibility for the management and development of Implementation of long-term arrangements via a lease or Dynon Intermodal Container Terminal as a common access management agreement for the operation and development terminal following an ACCC ruling that required Toll Holdings of the terminal. There is interest by other rail operators to to relinquish it as part of the Patrick Corporation merger. This bring alternate rail freight into the Dynon terminal, including initiative will ensure that the terminal will cater for and encourage Queensland Rail, which commenced operation in August 2007. the expected growth of container freight from regional Victoria, Freight volumes for the terminal are expected to double by the as well as provide terminal services for other interstate carriers. end of December 2007 and triple by next financial year. VicTrack has implemented short-term arrangements to ensure continuity of terminal services, while initiating interest in the Site Development and Expansion longer term management and development of this strategic rail Working with VicTrack Property Services group to identify and asset. plan reinvestment opportunities for various larger rail-based sites where the Rail Business undertakes facilities management. This Victorian Regional Rail Network joint approach between the Property and Business groups will Providing technical expertise and advice to the state during ensure that the commercial potential for VicTrack sites will be negotiations with Pacific National to buy-back its lease to the maximised. Victorian Regional Rail Network. Input was specifically sought on VicTrack and V/Line property and leasing matters, the regional Sustainability infrastructure lease, access and operational and environmental Improving outdated environmental practices undertaken on issues including contamination. some VicTrack sites. At Newport Workshops, for instance, the management of ash from the state’s fleet of steam locomotives has always posed a problem. VicTrack will relocate these activities onsite to a more appropriate facility with more acceptable environmental outcomes.

Above left and right: Tim Guerin, Access Coordinator, at the Dynon Intermodal Container Terminal.

VICTRACK 2006-07 ANNUAL REPORT | 19 PRESERVING VICTORIA’S RICH RAIL HERITAGE

20 | VICTRACK 2006-07 ANNUAL REPORT Kurt Price, Project Manager, overseeing heritage restoration works at Werribee Station.

VICTRACK 2006-07 ANNUAL REPORT | 21 PRESERVING VICTORIA’S RICH RAIL HERITAGE HIGHLIGHTS

VicTrack’s aim is to ensure that Victoria’s rich and vibrant railway Heritage Panel and tramway history is maintained for the appreciation and Continuing to restore and develop heritage structures and enjoyment of all Victorians now and into the future. rolling stock with the support of the Heritage Panel in a way that maintains the value of the assets and provides either a VicTrack uses an independent Heritage Panel to prioritise its commercial return or a community benefit. Projects delivered annual $1 million spend on restoration and remediation. Works in 2006-07 include: are undertaken on around 20 projects each year, mainly on • Werribee and Warrnambool Station remediation works heritage-listed buildings and structures, but with the occasional • Elmore and Wangaratta water tower restoration works special project such as the repair and painting of the Spirit of • Restoration of the Ballan signal box Progress Dining and Parlor Cars. • Korumburra Station restoration works • Little River Station and goods shed remediation works. In keeping with the organisation’s effort to improve the sustainability of the business, VicTrack is planning to incorporate A major upgrade of the Maryborough Station is ongoing: environmentally appropriate improvements to heritage buildings Stage 1 is completed with the restoration of the central clock as part of restorations and upgrades. Including solar power tower. The second stage of works will cover restoration of the infrastructure or providing tanks to catch rain run-off can help two building wings including glazing works for the dining room meet sustainability targets without compromising heritage lanterns at a total project cost of $1.6 million. As a result of the values. works that have been undertaken at Maryborough Station and renewed tourist interest in the site, the local council is proposing VicTrack also provides heritage experts to work with the state and to re-instate the main road up to the station to take advantage transport providers to ensure that when the public transport of the new vista. infrastructure is being upgraded, heritage structures are either maintained appropriately or saved and stored for future display. Spirit of Progress Working with Seymour Rail Heritage Centre to restore the Spirit of Progress, the train that ran the Melbourne to Sydney route from the late 1930s until the 1980s. The Heritage Centre already owned and restored the diesel locomotive and some of the other original cars and VicTrack has now provided them with the Parlor Car and the Dining Car under a custodial arrangement for refurbishment. As a result, a replica of the Spirit of Progress in the original cars will be made available again to the Victorian public and will be run as a tourist attraction by the Seymour Rail Heritage Centre.

22 | VICTRACK 2006-07 ANNUAL REPORT Far left and middle: Restoration of the original Spirit of Progress carriages in progress.

Left: Heritage restoration works at Werribee Station.

Right: Locomotives at the Seymour Railway Heritage Centre.

LOOKING FORWARD SEYMOUR RAIL HERITAGE CENTRE

Heritage Panel Colin Rutledge is President of the Seymour Railway Heritage Following three years of successful operation, the Heritage Centre (SRHC). The SRHC currently holds a large number Panel will undertake a reappraisal of the current program of the state’s rail heritage carriages and engines including a including an audit of completed projects to ascertain their significant collection of Royal Carriages. “Under a custodial ongoing function and assess the benefits of the program. It agreement, VicTrack has recently provided the SRHC with the will also examine projects that remain on the prioritised list of Dining Car and Parlor Car from the Spirit of Progress, the train restoration projects to reassess the scope of the works. that ran the Melbourne to Albury route from 1937 to 1962, then from the completion of the standard gauge line from Melbourne Heritage Rolling Stock to Sydney until the 1980s. Working with local and regional tourist railway and tramway organisations to develop an inventory of the heritage rolling As part of the partnership, funding from VicTrack will allow stock that exists in Victoria, both owned by Government and SRHC to refurbish the carriages, add them to the other Spirit by the organisations, where it is being kept, its state of repair of Progress cars they have already renovated and then run and its potential historic value. This will help ensure an the ‘complete’ replica as part of their regular heritage train understanding of what is of historic importance to the state and services,” Colin said. will minimise the possibility of Victoria’s railway and tramway past being neglected or lost to decay or scrap. “While we have had positive dealings with VicTrack for many years, the last six months have seen us working together very closely on the Spirit of Progress project.

“In working with the Centre, VicTrack has shown that they are both approachable, and understand of the importance of heritage issues, even to the extent of appreciating the finer matters that arise when volunteers are working in a not-for- profit environment.

“Their advice on a range of matters from insurance to conservation principles and their fostering of positive relationships between SRHC and kindred groups has greatly assisted the Centre in achieving its general objectives.

“It’s been a very positive relationship and, with projects like the Spirit of Progress refurbishment, the wider community certainly benefits from it too, now and into the future.”

VICTRACK 2006-07 ANNUAL REPORT | 23 SUPPORTING ENVIRONMENTAL SUSTAINABILITY

24 | VICTRACK 2006-07 ANNUAL REPORT Phil Boyd, Spotswood Site Superviser, at VicTrack’s Spotswood rail precinct, which will undergo a major clean-up and redevelopment into a modern rail freight terminal.

VICTRACK 2006-07 ANNUAL REPORT | 25 SUPPORTING ENVIRONMENTAL SUSTAINABILITY HIGHLIGHTS

The Environment division is working towards changing the Vegetation Management Guidelines balance of VicTrack’s environmental works focus, from cleaning Chairing the Rail Environment Forum, which represents up contamination problems of the past to developing and all Victorian intra- and interstate rail operators, Municipal implementing sustainable activities into the future. Association of Victoria, Country Fire Authority, Department of Sustainability and Environment, Department of Infrastructure As custodian of a considerable area of Victorian land, VicTrack and Department of Primary Industries and helping facilitate the has responsibility for identifying contamination that has occurred formulation of a set of Vegetation Management Guidelines. The as a result of historical rail use and addressing these issues to Guidelines will provide best practice techniques for management ensure any potential risks to the environment and/or human of weeds, fire and native vegetation along rail corridors across health are mitigated as necessary. the state.

A concerted effort over the past few years has put the Ongoing Support of Landcare “Grassroots” Program Environment division in a position where there is now a rigorous Partnering with Landcare to increase the awareness, protection program in place to systematically deal with contamination issues and growth of native grasses through the provision of grants across the asset portfolio. This now provides VicTrack with an for specific projects. In 2006-07 there were 60 applicants for opportunity to proactively seek opportunities to utilise VicTrack the grants, of which 13 were successful. These included a wide assets to contribute to the state’s sustainability targets. range of programs, from developing signage for burning of native grasses, to supporting doctoral research on native vegetation.

Cleaning Up the Past Reducing VicTrack’s contingent liabilities and human health risks through proactively and systematically identifying and addressing land contamination and asbestos management on VicTrack land. Over 2006-07, 60 large sites were investigated for land contamination, and more than 200 asbestos audits were undertaken on buildings across the state, with 12 sites requiring refurbishment and asbestos removal.

Spotswood Freight Terminal An Environmental Improvement Plan (EIP), which sets the framework for the site clean-up program of the Spotswood freight terminal, was finalised and VicTrack entered into a long- term lease with Sadleirs Transport to operate from the site. Site development designs were also finalised and works are now focussed on cleaning up the site in accordance with the EIP in collaboration with the EPA and Sadleirs’ expert consultants.

26 | VICTRACK 2006-07 ANNUAL REPORT Far left: Glen Le Rossignol, Service Delivery Manager with Rail Business Group, inspecting landscaping on the banks of the Moonee Ponds Creek planted with assistance from Friends of the Moonee Ponds Creek, Melbourne City Council and other community groups.

Middle, left, right and far right: VicTrack’s “Grassroots” partnership with Landcare is re-establishing native grasses and other flora across Victoria.

LOOKING FORWARD LANDCARE “GRASSROOTS” PROGRAM

Sustainability Strategy Landcare provides support to local communities and conservation An Environment and Community Sustainability Strategy will be groups to manage and care for their local environments. Given developed for implementation in the 2007-08 financial year. that VicTrack is the second largest landholder in Victoria, a The strategy will take into consideration areas as diverse as water partnership between Landcare and VicTrack makes good sense. savings and solar lighting through to increasing native grasses, Matthew Reddy, Business Manager of Landcare and Rob Youl, and “green” purchasing. The initial work will include a scoping Carbon SMART Project Manager, have both worked closely with and feasibility study across all VicTrack’s landholdings and assets, VicTrack for a number of years to establish “Grassroots”, believed to identify areas and opportunities for VicTrack to contribute to to be one the first grants programs of its kind to specifically the state’s broader agendas on sustainability. The strategy will support saving native grasslands. include setting stretch targets and Key Performance Indicators for the organisation “Prior to the establishment of grazing and cropping in Victoria, one-third of the state was covered in native grasslands. Now, 99.5 Sustainability Projects per cent of these grasslands have been lost – no other ecosystem Implementing a water savings strategy for the Spotswood rail is more threatened in Victoria and given the biodiversity of these depot by investigating the water catchment areas in the site and ecological vegetation communities, people should be incredibly identifying water that can be re-used onsite and what can be concerned, Matthew said. offered for community benefit surplus to the site’s operations. This model will then be rolled out and used at other appropriate “Because of the position of VicTrack’s assets and infrastructure, VicTrack sites. In 2007-08 VicTrack will also identify rural railway much of their land carries strips and patches of traditional native stations that can utilise solar lighting to supplement their existing grassland that have never been grazed or cropped, making lighting. it an excellent source of seed for native grasses and other characteristic plants of the plains. So, in this sense, VicTrack is a Land Management custodian of an incredibly important ecological asset for Victoria,” Identifying more community and local council-based partnerships he said. to support best-use and sustainable land management principles and practices, which assess land use against triple bottom “That they have recognised this and are taking responsibility for line principles, balancing economic, environmental and social protecting this resource on their land is really impressive,” Rob interests. said. But, in working with Landcare to set up the ”Grassroots” program, VicTrack has gone even further, pioneering what is essentially a new conservation ”theme” in land management.

“Throughout the process of consultation, set-up and then implementation of ‘Grassroots’, VicTrack has been actively involved – it’s a real partnership. They deserve respect and recognition for what they are doing in this area.”

VICTRACK 2006-07 ANNUAL REPORT | 27 MANAGING AND DEVELOPING OUR PEOPLE

28 | VICTRACK 2006-07 ANNUAL REPORT MANAGING AND DEVELOPING OUR PEOPLE

VicTrack’s Human Resources department is responsible for the management, training and welfare of a diverse staff of 145 people – from signalling engineers to environmental scientists, IT experts to property managers. This represents a continued growth in the business of 22 people – an increase on the 123 staff employed across VicTrack at the end of the 2005-06 financial year. These staff numbers are supplemented by contractors, where required, to manage work load peaks and provide specialist expertise.

Human Resources is also supporting the organisation’s commitment to quality and sustainability by ensuring it continues to attract and retain the very best people in the industry.

In addition to contributing to VicTrack’s internal cultural change program, Project Newstart, the Human Resources department has continued to work to improve the systems and services that support VicTrack’s people by developing performance management systems, responding to the staff survey and upgrading the payroll system.

HIGHLIGHTS LOOKING FORWARD

Organisational Development Payroll Improvements Organisational development has been progressed as part of Introducing the Employment Manager On-line (EMO) kiosk Project Newstart, including the development of: system, which will enable staff to access their own pay details, • a best practice individual performance management tool print their own pay slips and manage their leave. • a framework for succession planning and knowledge capture and management Organisational Development • the development of an integrated staff training program Continuing to focus on developing and implementing strategic to ensure that we are investing in critical skills across the organisational development initiatives including putting in place organisation to meeting the challenges ahead. This has a workforce planning process for resourcing and reviewing resulted in every member of staff having at least one of their remuneration and classification structures. training requirements completed during the 2006-07 financial year Occupational Health & Safety • an on-line induction program to replace the current manual Expanding the Occupational Health & Safety system to include system. Health & Well-being programs and educational initiatives.

Move to 1010 La Trobe Street Sustainability Following the successful relocation of VicTrack from its Collins Continuing to identify, develop and implement programs that Street offices to Docklands, there has been a focus on utilising differentiate VicTrack as an employer of choice in order to retain the design of VicTrack’s offices to enhance the corporate and attract the best staff. culture of the organisation and improve productivity. The open plan design and mixed use space has facilitated improved staff communication and relationships.

Occupational Health & Safety Working with VicTrack’s elected OH&S committee to develop and implement an OH&S Renewal program. Improvements include: the introduction of an OH&S Management system incorporating a gap analysis of existing policies; reorganisation of designated workgroups by function to incorporate fieldworkers; and movement from a compliance culture to a culture of “Thinking Safety”.

Above left: The new Docklands office features small rooms for tasks better suited to a quiet environment.

Right: Exterior of the new offices.

Far right: A staff break-out area has encouraged greater communication.

VICTRACK 2006-07 ANNUAL REPORT | 29 MEMBERS OF THE BOARD and BOARD COMMITTEES

John Anderson was Elana Rubin was appointed Bruce Cohen was appointed Chris Lovell was appointed From left to right: appointed a Director of a Director of VicTrack in a Director of VicTrack in a Director of VicTrack VicTrack in April 2000 July 2000 and Chair on January 2005 and is Chair in January 2005 and is John Anderson and Deputy Chair in 1 January 2005. She is of the VicTrack Human Chair of the VicTrack Audit Cert EDP, MACS January 2005. He was also Chair of the Victorian Resources Committee. and Risk Management Deputy Chair appointed Chair of the WorkCover Authority Bruce is a barrister and a Committee. Chris is the Heritage Advisory Panel and of AustralianSuper. principal in private practice National Managing Partner Elana Rubin in July 2002. John holds Elana is a Director of the in the area of public policy. of law firm, Holding MA, GAICD, FFin a senior position with Industry Superannuation His previous roles have Redlich, and practices in Chair Unisys and is a Director Property Trust, Hotel Leisure included Treasury Director funds management and of the West Gippsland & Tourism Trust of Australia, for the Office of Premier and on large-scale property John Sutton Healthcare Group. the Transport Accident Treasurer of Victoria, Senior projects. He is a trustee CPEng, MIEA Commission (TAC) and Analyst/Executive Advisor of the MCG, a Director of Chief Executive Bravura Solutions Limited. on regulatory affairs Clemenger Communications with the Australian Limited and the Melbourne Chris Lovell Bankers Association and Community Foundation. BA, LLM (London) Directorships with VENCorp, Director Snowy Hydro Limited and Melbourne Water. Philippa Marshall LLB, FFin Corporate Counsel & Board Secretary

Bruce Cohen PhD (PP), MCom, LLB Director

30 | VICTRACK 2006-07 ANNUAL REPORT EXECUTIVE TEAM and ORGANISATION STRUCTURE

John Sutton Chief Executive Officer

Philippa Marshall Katy McCallum Corporate Counsel Executive Assistant & Board Secretary / HR Coordinator

Nicky Webster Stephen Fitch Manager Media Risk Manager / Public Relations

Geoff Walker Kathryn Pile Mark Scully Don Welsh General Manager General Manager General Manager Finance Director Property Services Asset Management Human Resources

Stephen Hamilton Greg McGann Peter Stagg Manager Environmental General Manager Manager Rail Business Management Commercial

The Executive Team as at the end of the reporting period is shown in the above organisational chart.

A number of changes have occurred within the organisation structure post 30 June 2007. In particular, Mark Scully resigned as General Manager, Finance during July 2007. This role has now been restructured and, as at the date of issue of this report, Russell Thackeray holds the position of Acting General Manager, Business Services.

Sam Andersen, LLB, CPA of Australia and National Member of Audit & Risk Australia Bank. Sam Management Committee was the Chief Financial Officer at Lumacom Sam Andersen was appointed Ltd and Chief Operating to the Audit and Risk and Financial Officer of Management Committee Multi-Emedia.com Ltd. on 12 October 2005. Sam Her previous directorships is Managing Director of include Superpartners Eyecare Partners Limited. Pty Ltd, Victorian Funds She has held senior Management Corporation, positions with the ANZ Multi-Emedia.com Ltd and Bank, Commonwealth Bank Youth at Risk Inc.

VICTRACK 2006-07 ANNUAL REPORT | 31 CORPORATE GOVERNANCE

Role of the Board Chair VicTrack is a statutory corporation established under the Rail VicTrack’s Chair is an independent, non-executive Board member. Corporations Act 1996 Victoria. It has a Board of Directors which is responsible for the management of VicTrack’s affairs, The current Chair is Elana Rubin, who was initially appointed to including corporate governance practices and overall business the role from 1 January 2005 after joining the Board as a Director performance. The Directors are appointed by the Governor-in- in 2000. John Anderson holds the position of Deputy Chair. Council and, as at the end of the reporting period, reported to the Minister for Public Transport. Note, however, that, subsequent Chief Executive to the end of the reporting period, VicTrack was declared by the The Chief Executive (CE) is responsible for the day-to-day Governor-in-Council to be a Government Business Corporation operations of VicTrack and is appointed by the Board of Directors, under the State Owned Enterprises Act 1992, Victoria with effect with approval from the Minister. The CE makes recommendations from 24 July 2007. As a result, for the next reporting period on strategies and policies for Board approval. the requirements of this Act will apply and, to the extent of any inconsistency, prevail over those of the Rail Corporations Act. The CE at the end of the reporting period was John Sutton, who has held the position since VicTrack was established in 1997. The functions of the Board during the reporting period included: John is not a Director of VicTrack, however, he is a Director of • Ensuring appropriate controls, systems and procedures are each company within the Rolling Stock Holdings group. in place to manage business risks and ensure compliance with legislative and government requirements, including Meetings of the Board and Board Committees occupational health and safety, environmental, rail safety and VicTrack holds Board meetings, generally, on a monthly basis. telecommunications regulatory requirements Two committees, the Human Resources Committee (previously • Reviewing and adopting annual financial budgets and called the Remuneration Committee) and the Audit and Risk assessing and monitoring results on a regular basis Management Committee, have also been established to assist the • Approving annual financial statements Board in relation to specific functions. • Preparing a three-year Corporate Plan for the approval of the Minister for Public Transport The Human Resources Committee comprises all the VicTrack • Reviewing and evaluating performance of the Chief Executive Directors. During the reporting period it was responsible for and senior management reviewing and making recommendations to the Board in relation • Considering management’s recommendations on major to remuneration and incentive arrangements for the CE and investments and strategies to achieve VicTrack’s objective of other executive officers, and for reviewing and monitoring creating and adding value to assets under its custodianship. VicTrack’s remuneration policies and procedures. This includes ensuring compliance with government policies and guidelines. Each subsidiary company within the Rolling Stock Holdings group Bruce Cohen is Chair of the Human Resources Committee. The of companies also has its own Board of Directors. Each Board Committee meets on a quarterly basis, with additional meetings is responsible for the management of the relevant company. held as required. Throughout the reporting period, the Board of each company consisted of all of the VicTrack Directors, plus John Sutton, The Audit and Risk Management Committee is chaired by Chris VicTrack’s Chief Executive. Lovell. It comprises all of VicTrack’s Directors, together with an additional independent member, Sam Andersen, who was Board Composition appointed to the Committee on 12 October 2005. The Committee Under the Rail Corporations Act, the VicTrack Board must is responsible for assisting the Board in relation to VicTrack’s comprise between three and five Directors, each generally accounting and reporting responsibilities and identification and appointed for a three-year term. At present, the Board comprises management of risk, including reporting of financial information, four independent, non-executive Directors, including the Chair. internal control systems and the application and amendment of accounting policies. Current Directors of VicTrack are Elana Rubin, John Anderson, Chris Lovell and Bruce Cohen. Each Director has a wide range of experience with other boards and organisations and together they bring a diverse range of knowledge and business expertise to VicTrack. Directors are appointed on the basis of their ability to contribute to meeting VicTrack’s objectives.

32 | VICTRACK 2006-07 ANNUAL REPORT The Committee meets on a quarterly basis, with additional meetings held as required. The Committee has access to both internal and external auditors as required and the CE, General Manager, Business Services (previously known as the General Manager, Finance), General Manager, Legal & Compliance (previously known as the Corporate Counsel) and other VicTrack managers and staff as required, attend meetings at the discretion of the Committee.

The following table summarises members’ attendance at Board and Committee meetings.

VicTrack Board Meetings Audit & Risk Management Human Resources Committee Meetings Committee Meetings Total meetings in 2006-07 financial year 12 6 6 Elana Rubin 12 6 6 John Anderson * 9 4 4 Chris Lovell 12 6 4 Bruce Cohen 11 6 6 Sam Andersen - 5 -

* John Anderson had a leave of absence from the Board during October and November 2006, and did not attend Board or Committee meetings during that time.

The Board is also advised by the Heritage Advisory Panel on the strategic management of assets owned by VicTrack and listed on the Victorian Heritage Register. The Panel is chaired by John Anderson, VicTrack’s Deputy Chair, and includes representatives of the Department of Infrastructure, Heritage Victoria, a heritage architect and another VicTrack Director, Bruce Cohen. The Panel meets quarterly, or as otherwise required.

Independent Professional Advice Enterprise Risk Management Directors are entitled to obtain independent professional advice at During the year, VicTrack further enhanced its Enterprise Risk VicTrack’s expense in relation to matters pertaining to their role Management Framework and strategies. These strategies are as Director, provided prior notification is given to the Chair. designed to strengthen risk management processes throughout all areas of the business. Particular focus was placed on refining Corporate Plan the risk management methodology, implementing, reviewing As at the end of the reporting period, VicTrack was required, and, as necessary, actively managing, risk treatment plans, Risk under the Rail Corporations Act, to prepare a Corporate Plan for management training activities were conducted throughout the Ministerial approval. The purpose of the plan was to establish the organisation to enhance the overall awareness, and focus on framework for business strategies and performance monitoring strategies for the effective management of risk in all VicTrack’s and it was required to be agreed between the Board and the business activities. Minister for Public Transport. The Corporate Plan is prepared annually and covers a three-year period starting from the current VicTrack intends to continue embed risk management processes financial year. through all levels of the organisation to ensure risks associated with its business activities can be systematically identified and Declaration of pecuniary interests managed in a comprehensive and integrated manner, linked to All Directors and nominated officers have completed a the achievement of business plans and strategic objectives. declaration of pecuniary interests.

Ministerial Directions During the reporting period, two directions were given to VicTrack by the Minister for Finance and the Minister for Public Transport. The first direction required VicTrack to release Pacific National (Vic) Pty Ltd from its lease of the Dynon Intermodal Terminal to enable it to fulfil undertakings given to the ACCC in connection with Toll Holdings’ acquisition of Patrick Corporation. The second direction required VicTrack to enter into and undertake the requirements of various documents which related to, and facilitated, transactions whereby the state regained direct control of the Victorian Rural Rail Network.

VICTRACK 2006-07 ANNUAL REPORT | 33 STATUTORY INFORMATION

Statutory Framework Victorian Rail Track, operating under the name of VicTrack, is a Victorian statutory corporation established under and, as at the end of the reporting period, was governed by the Rail Corporations Act 1996, Victoria.

It should be noted that, subsequent to the reporting period, VicTrack was declared a Government Business Corporation under the State Owned Enterprises Act 1992, Victoria with effect from 24 July 2007. This means that VicTrack will come within the governance framework applicable to most other Victorian government business enterprises, with a direct reporting line to the Treasurer as well as to the Minister for Public Transport.

Engagement of Consultants During the 2006-07 financial year, VicTrack commissioned 22 consultancies, individually valued at less than $100,000, at a total cost of $646,209. In particular, this work has supported key property initiatives and strengthened risk and project management capability. VicTrack also commissioned two consultancies, each with an individual value in excess of $100,000 during this period. These were:

• Deloitte, who were engaged to advise on a business transformation and cultural change program, described elsewhere in this Report as Project Newstart. The consultancy has led to improved teamwork and business systems and processes for the long term benefit of rail customers and Victorians generally. Total fees paid during the reporting period for this work was $240,000 (exclusive of GST). Some further work may be undertaken by Deloitte to help conclude the program in the next reporting period.

• Peddle Thorpe Interior Design, who were engaged as architects to design and manage the fit out of the interior of VicTrack’s new head office at 1010 La Trobe Street, Docklands.

Compliance with the Building Act 1993 VicTrack is working towards full compliance with the building and maintenance provisions of the Building Act 1993 in relation to the buildings it owns, and a compliance program has been put in place in order to meet these requirements and relevant guidelines.

The majority of buildings owned by VicTrack were leased out during the 2006-07 financial year. Generally, the contractual responsibility for compliance is transferred to the lessees and sub-lessees.

34 | VICTRACK 2006-07 ANNUAL REPORT Freedom of Information Implementation of the Victorian Industry Participation Policy VicTrack received six Freedom of Information (FOI) requests In October 2003, Victorian Parliament passed the Victorian during the 2006-07 financial year. Industry Participation Policy Act 2003, which requires public bodies and departments to report on the implementation of the Under the Freedom of Information Act 1982, only requests Victorian Industry Participation Policy (VIPP). Departments and made in writing, clearly defining the required documents and public bodies are required to apply VIPP in all tenders over accompanied by a lodgement fee of (as at the end of the reporting $3 million in suburban Melbourne and $1 million in regional period) $21.50, are considered valid (it should be noted that, as Victoria. from 1 July 2007, the lodgement fee for Freedom of Information requests was increased to $22.00). VicTrack’s standard tendering procedures include compliance with the VIPP. Requests should be submitted to: The Freedom of Information Officer Whistleblowers Protection Act 2001 Victorian Rail Track The main purposes of the Whistleblowers Protection Act 2001 are: GPO Box 1681 Melbourne Victoria 3001 a) To encourage and facilitate disclosures of improper conduct by public officers and public bodies. Availability of Information b) To provide protection for In accordance with the requirements of the Ministerial i. Persons who make those disclosures Directions of the Minister for Finance, details in respect to the ii. Persons who may suffer reprisals in relation to those additional items listed in Financial Reporting Direction 22 have disclosures. been prepared and are fully available to the relevant Minister, c) To provide for the matters disclosed to be properly investigated Members of Parliament, and the public on request. The available and dealt with. information includes: VicTrack has procedures for managing any such disclosure • Declarations of pecuniary interests duly completed by the about the organisation or any of its officers. These procedures relevant officers provide for appropriate receipt, assessment, and investigation of • Details of overseas visits undertaken, including a summary of disclosures and action taken after investigation. They also provide the objectives and outcomes of each visit for managing the welfare of the whistleblower and the person • Details of assessments and measures undertaken to improve against whom a disclosure has been made. the occupational health and safety of employees and • A general statement on industrial relations within the Since the Act commenced on 1 January 2002, there have been organisation and details of time lost through industrial no disclosures relating to VicTrack. accidents or disputes.

National Competition Policy The infrastructure leases with the DPT provide for open access to Victoria’s rail infrastructure. The DPT’s sub-leases to Pacific National (and, from 4 May 2007, to V/Line Passenger), Australian Rail Track Corporation Ltd and suburban train and tram franchisees, facilitate the state’s open access regime, fostering competition among intrastate and interstate transport companies.

VicTrack also manages various rail terminals. Critical rail facilities fall within the Victorian Rail Access Regime, and others compete on a commercial basis.

VicTrack has approached its other non-transport opportunities within the framework of maintaining an open access regime. That is, no one party is given exclusive rights to the rail corridor to the detriment of competition.

VICTRACK 2006-07 ANNUAL REPORT | 35 FINANCIAL PERFORMANCE

VicTrack’s consolidated financial performance for the 2006-07 As owner of the state’s rail infrastructure, VicTrack is required to year continued to be strong, recording an operating profit before depreciate the assets in accordance with accounting standards, tax of $51.3 million, a net cash inflow from operating activities of while leasing the majority of these assets to the Director of Public $174.6 million and an increase in net assets of $363.8 million. Transport for nominal consideration. The assets are then sub- leased to rail operators and access providers. These transactions The transactions relating to the Victorian Government buying would normally result in an accounting loss being reported. back the country rail infrastructure lease from Pacific National The leasing arrangements do not impact on VicTrack’s ability to has caused significant distortion to the financial results for the produce a positive cash inflow from operating activities. 2006-07 year. Revenue of $82.9 million was recognised in the form of an operating grant from the Department of Infrastructure. The increase in net assets was mostly driven by improvements to A further $24.1 million was added as capital contributions, and rail infrastructure by sub-lessees and DOI managed projects that both of these items were included under cash inflows from are transferred to VicTrack through either revenue from leasehold operating activities. A write down of $10.9 million of goodwill improvements or capital contributions. recognised on acquisition, and a gain on the transfer of net liabilities to V/Line Passenger of $8.8 million, were also included in the year’s expenditure.

Note 2007 (*)(#) 2006 (*)(#) 2005 (*)(#) 2004 (*) 2003 FIVE YEAR FINANCIAL SUMMARY ($M) ($M) ($M) ($M) ($M) Total Revenue 1 410.8 320.6 257.6 669.2 150.8 Total Expenditure 2 (359.5) (323.9) (294.7) (194.4) (102.2) Net Profit/(Loss) before Income Tax 51.3 (3.3) (37.1) 474.8 48.6 Net Cash Inflow from Operating Activities 174.6 49.9 5.6 24.1 29.8 Total Assets 3 7,169.6 6,834.0 6,583.4 5,855.5 4,496.4 Total Liabilities 4 (1,415.0) (1,443.2) (1,467.7) (922.3) (360.5) Net Assets 5,754.6 5,390.8 5,115.7 4,933.2 4,135.9 Total Staff 145 123 108 103 105

(*) Consolidated results, including Rolling Stock Holdings (Victoria) Pty Limited (RSH). (#) Represents financial results reported in accordance with International Financial Reporting Standards.

Notes 1. Revenue in 2007, 2006 and 2005 includes contributions from Government towards VicTrack’s operating and finance lease commitments enabling the organisation to meet its loan obligations. Revenue in 2004 includes the fair value of existing rolling stock transferred to RSH. Revenue excludes the Victorian Government’s capital asset charge. 2. Expenditure in 2007, 2006 and 2005 includes depreciation/amortisation of rolling stock acquired by the consolidated entity. Expenditure excludes the capital assets charge. 3. Increase in Total Assets represents the transfer of rolling stock and value of leasehold improvements undertaken on assets owned by VicTrack. 4. Increase since 2003 represents liabilities relating to rolling stock, both borrowings for the purchase of new trains and finance lease liabilities.

36 | VICTRACK 2006-07 ANNUAL REPORT STATUTORY STATEMENT

We certify that the attached financial statements for Victorian Rail Track have been prepared in accordance with Standing Direction 4.2 of the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards and other mandatory professional reporting requirements.

We further state that, in our opinion, the information set out in the Operating Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and notes to and forming part of the financial statements, presents fairly the financial transactions during the year ended 30 June 2007 and the financial position of Victorian Rail Track as at 30 June 2007.

We are not aware of any circumstance that would render any particulars included in the financial statements to be misleading or inaccurate.

Signed in accordance with a resolution of the Directors:

John Anderson Dated 23 August 2007 Deputy Chairperson

John Sutton Dated 23 August 2007 Chief Executive Officer

Russell Thackeray Dated 23 August 2007 Acting General Manager, Business Services

VICTRACK 2006-07 ANNUAL REPORT | 37 INDEPENDENT AUDIT REPORT

38 | VICTRACK 2006-07 ANNUAL REPORT VICTRACK 2006-07 ANNUAL REPORT | 39 VICTORIAN RAIL TRACK FINANCIAL REPORT

40 | VICTRACK 2006-07 ANNUAL REPORT CONTENTS

Operating Statement 42 Balance Sheet 43 Statement of Changes in Equity 44 Cash Flow Statement 45 Notes to and forming part of the 2007 Financial Statements 46 Disclosure Index 72

VICTRACK 2006-07 ANNUAL REPORT | 41 OPERATING STATEMENT

For the financial year ended 30 June 2007

Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 REVENUE FROM ORDINARY ACTIVITIES: Customers Telecommunications services 21,346 18,935 21,346 18,935 Property related income 29,680 28,192 29,680 28,192 Leasehold improvements/renewals received 71,050 69,812 71,050 69,812 Government contributions towards capital and related works 226,142 162,604 101,894 38,000 Other revenue 2 62,584 41,078 22,288 16,223 410,802 320,621 246,258 171,162 Capital assets charge 842,338 777,363 842,338 777,363 Total revenue 1,253,140 1,097,984 1,088,596 948,525

EXPENSES FROM ORDINARY ACTIVITIES: Employee benefits 3 12,691 10,584 12,691 10,584 Depreciation and amortisation 4 202,097 179,228 118,256 100,721 Interest expense 101,486 102,664 - - Capital assets charge 842,338 777,363 842,338 777,363 Supplies and services 5 27,063 25,503 27,063 25,503 Assets/liabilities provided free of charge (8,674) - (8,674) - Other operating expenses 6 24,795 5,935 24,746 5,884 Total expenses 1,201,796 1,101,277 1,016,420 920,055 Profit/(loss) from ordinary activities before income tax expense 51,344 (3,293) 72,176 28,470 Tax equivalent (expense)/benefit (18,601) (2,761) (24,842) (10,976) Net profit/(loss) for the reporting period 32,743 (6,054) 47,334 17,494 Net increase/(decrease) in asset revaluation reserve - (116) - - Total changes in equity other than those resulting from transactions 32,743 (6,170) 47,334 17,494 with the Victorian State Government in its capacity as owner

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

42 | VICTRACK 2006-07 ANNUAL REPORT BALANCE SHEET

As at 30 June 2007

Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 CURRENT ASSETS Cash assets 3,575 6,810 2,361 3,303 Other financial assets 7 44,150 54,516 44,150 41,604 Receivables 8(a) 13,188 13,351 10,248 10,777 Inventory 9 25 25 25 25 Prepayments 2,572 439 2,572 439 Total current assets 63,510 75,141 59,356 56,148

NON-CURRENT ASSETS Other financial assets 7 100 100 - - Receivables 8(a) 48 57 129,161 129,170 Property, infrastructure, plant and equipment 10 7,042,539 6,695,286 5,520,198 5,156,651 Intangible assets 63,417 63,417 - - Total non-current assets 7,106,104 6,758,860 5,649,359 5,285,821 Total assets 7,169,614 6,834,001 5,708,715 5,341,969

CURRENT LIABILITIES Payables 8(b) 24,623 18,378 17,212 8,727 Employee benefits 11 1,605 1,479 1,605 1,479 Interest bearing liabilities 12 73,584 70,099 455 385 Total current liabilities 99,812 89,956 19,272 10,591

NON-CURRENT LIABILITIES Employee benefits 11 4,910 4,987 4,910 4,987 Interest bearing liabilities 12 1,115,082 1,171,670 222 314 Deferred tax liability 15 195,235 176,634 225,915 201,073 Total non-current liabilities 1,315,227 1,353,291 231,047 206,374 Total liabilities 1,415,039 1,443,247 250,319 216,965 Net assets 5,754,575 5,390,754 5,458,396 5,125,004

EQUITY Capital 13(a) 4,658,211 4,327,133 4,588,002 4,301,944 Asset revaluation reserve 13(b) 628,967 628,967 628,967 628,967 Accumulated surplus 13(c) 467,397 434,654 241,427 194,093 Total equity 5,754,575 5,390,754 5,458,396 5,125,004

The Balance Sheet should be read in conjunction with the accompanying notes.

VICTRACK 2006-07 ANNUAL REPORT | 43 STATEMENT OF CHANGES IN EQUITY

For the financial year ended 30 June 2007

Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Fair value revaluation of assets - (116) - - Net income recognised directly in equity - (116) - - Net profit/(loss) for the reporting period 32,743 (6,054) 47,334 17,494 Total recognised income and expense for the period 32,743 (6,170) 47,334 17,494 Effects of changes in accounting policy - - - - Effects of correction of errors - - - -

Attributable to: Equity holders of the parent 32,743 (6,170) 47,334 17,494

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

44 | VICTRACK 2006-07 ANNUAL REPORT CASH FLOW STATEMENT

For the financial year ended 30 June 2007

Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) 233,824 219,892 60,175 61,652 Interest received 3,369 3,650 3,232 3,343 Receipts from Victorian Government for: - Capital assets charge (*) 842,338 777,363 842,338 777,363 - Capital and related works (inclusive of GST) 162,486 41,800 133,894 41,800 and termination payments

1,242,017 1,042,705 1,039,639 884,158 Payments to: Suppliers (inclusive of GST) and employees (207,579) (199,487) (48,974) (50,449) Borrowing costs paid (17,550) (15,975) - - Capital assets charge (*) (842,338) (777,363) (842,338) (777,363) (1,067,467) (992,825) (891,312) (827,812) Net cash inflow from operating activities 14 174,550 49,880 148,327 56,346

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from/(payments) for: Investments 10,366 90,252 (2,546) (2,600) Acquisition of property, infrastructure, plant and equipment (207,295) (160,936) (156,730) (51,500) - - - - Proceeds from: Sale of property, infrastructure, plant and equipment 10,007 4,726 10,007 4,263 Net cash outflow from investing activities (186,922) (65,958) (149,269) (49,837)

CASH FLOWS FROM FINANCING ACTIVITIES Payments for: Dividend - (5,000) - (5,000) Proceeds from: Borrowings 9,137 19,420 - - Net cash inflow/(outflow) from financing activities 9,137 14,420 - (5,000) Net increase/(decrease) in cash held (3,235) (1,658) (942) 1,509 Cash at the beginning of the financial year 6,810 8,468 3,303 1,794 Cash at the end of the financial year 3,575 6,810 2,361 3,303

(*) The receipt and payment of the capital assets charge does not represent physical movements of cash between Victorian Rail Track and the Victorian Government. In accordance with the provisions of the Financial Management Act 1994, the capital assets charge is considered a cash equivalent item and is therefore included in the Cash Flow Statement.

The Cash Flow Statement should be read in conjunction with the accompanying notes.

VICTRACK 2006-07 ANNUAL REPORT | 45 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This general-purpose financial report has been prepared on an accruals basis in accordance with the Financial Management Act 1994, Australian Accounting Standards, Statements of Accounting Concepts and other authoritative pronouncements of the Australian Accounting Standards Board, and Urgent Issues Group Consensus Views. Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (A-IFRS). The financial report is prepared in accordance with the historical cost convention, except for certain assets allocated to Victorian Rail Track which were valued by the previous owner at valuations other than historical cost and land which is recorded at independent valuation. The accounting policies adopted, and the classification and presentation of items are consistent with those of the previous year, except where a change is required to comply with an Australian Accounting Standard or Urgent Issues Group Consensus View, or an alternative accounting policy or an alternative presentation or classification of an item, as permitted by an Australian Accounting Standard, is adopted to improve the relevance and reliability of the financial report. Where practicable, comparative amounts are presented and classified on a basis consistent with the current year. Victorian Rail Track and its subsidiary companies provide certain services free of charge or at prices significantly below their cost of production for the collective consumption by the community, which is incompatible with generating profit as a principal objective. Consequently, where appropriate, those paragraphs in Australian Accounting Standards relating to not-for-profit entities are applied. The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2007 and the comparative information presented in the financial statements for the year ended 30 June 2006. Victorian Rail Track has not restated comparative information for financial instruments, including derivatives, as permitted under the first-time adoption transitional provisions. The accounting policies for financial instruments applicable to the comparative information and the impact of the changes in these accounting policies are discussed further in Note 1(y). a) Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Victorian Rail Track (Parent Entity) as at 30 June 2007 and the results of all controlled entities for the year then ended. Victorian Rail Track and its controlled entities together are referred to in this financial report as the Consolidated Entity. The effects of all transactions between entities within the Consolidated Entity are eliminated in full. Where control of an entity is obtained during a financial year, its results are included in the consolidated Operating Statement from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control existed. The following entities are controlled by the Parent Entity as at 30 June 2007: Rolling Stock Holdings (Victoria) Pty Limited Rolling Stock (Victoria–VL) Pty Limited Rolling Stock (VL-1) Pty Limited Rolling Stock (VL-2) Pty Limited Rolling Stock (VL-3) Pty Limited The above-mentioned companies have been established to own various items of rolling stock (passenger trains and trams) that are leased to public transport operators. b) Statement of Compliance The financial report complies with Australian Accounting Standards, which include A-IFRS. Compliance with A-IFRS ensures that the financial report, comprising the financial statements, and notes thereto, complies with International Financial Reporting Standards (IFRS). The financial report of the Consolidated Entity for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the Directors on 23 August 2007. c) Contributed Capital The Consolidated Entity’s contributed capital comprises the value (at the date of transfer) of the majority of the state’s rail and tram fixed infrastructure as well as leasehold improvements undertaken by lessees/sub-lessees.

46 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

c) Contributed Capital continued The major movements of contributed capital (comprising property, rights and liabilities) from the inception of the Consolidated Entity have been as follows:

Financial Year $000’s 1997-1998 Non-electrified rail infrastructure 772,981 1999-2000 Electrified rail infrastructure 2,560,180 2000-2001 Southern Cross Station (formerly Spencer Street Station) infrastructure to (80,528) Southern Cross Station Authority (formerly Spencer Street Station Authority) 2001-2002 Leasehold improvements 62,068 2001-2002 Surrender of land (Birrarung Marr) to the state (64,800) 2002-2003 Leasehold improvements 150,347 2003-2004 Leasehold improvements 327,492 2004-2005 Leasehold improvements 320,414 2005-2006 Leasehold improvements 286,370 2006-2007 Leasehold improvements 338,469 2006-2007 Surrender of land (Appleton Dock) to the state (7,391) d) Acquisitions of Assets All assets acquired, including property, infrastructure, plant and equipment (but excluding goodwill) are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. e) Revenue Recognition Amounts disclosed as revenue are, where applicable, net of returns, allowances, duties and taxes. Revenue for telecommunications services, property related income, advertising and lease of the interstate rail corridors is recognised when services are provided by the Consolidated Entity. Government contributions towards capital and related costs are recognised when the Consolidated Entity gains control of the underlying assets. Leasehold improvements/renewals undertaken by lessees/sub-lessees and assets provided by other parties are recognised as works are performed on the assets/improvements based on confirmations received from the other parties. Proceeds from asset sales are recognised at the time the asset is sold, while interest revenue is brought to account when earned. Rolling stock received free of charge is recognised at its fair value at the time of acquisition. f) Borrowing Costs Borrowing costs represent interest incurred on loans taken out primarily for the purpose of acquiring new passenger rolling stock. Borrowing costs also includes the amortisation of discounts or premiums relating to these borrowings and interest charges on finance leases. In accordance with the Victorian Government’s Department of Treasury and Finance’s Financial Reporting Direction 105, all borrowing costs are expensed as incurred. g) National Tax Equivalent Regime (NTER) By direction of the Treasurer of Victoria under the State Owned Enterprises Act 1992, the Consolidated Entity is subject to the NTER in 2006-07, but limited to the income tax component of the NTER. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the Balance Sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

VICTRACK 2006-07 ANNUAL REPORT | 47 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

g) National Tax Equivalent Regime (NTER) continued Deferred income tax liabilities are recognised for all taxable temporary differences except: • When the liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss • When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled, and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets are reassessed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each Balance Sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. h) Cash Assets For the purposes of the Cash Flow Statement, cash includes short-term deposits that are readily convertible to cash on hand and which are subject to an insignificant risk of changes in value, net of outstanding cheques yet to be presented. i) Other Financial Assets Other financial assets represent fixed term deposits held by the Consolidated Entity and investments with Treasury Corporation of Victoria and are valued at their fair value. Fixed term deposits are subject to draw down restrictions and a fixed rate of return. Investments with Treasury Corporation of Victoria are held on deposits ranging from 30 days to 90 days – these investments are ear-marked for use on future infrastructure improvement projects. j) Receivables All debtors are recognised at the amounts receivable as they are due for settlement at no more than 30 days from the date of recognition. The collectability of debtors is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off. A provision for doubtful debts is raised when some doubt as to collection exists. k) Inventory Items held in stores at the reporting date include spare parts and componentry generally used for the maintenance of rail infrastructure assets. Inventory is stated at the lower of cost and net realisable value. The provision for stock obsolescence relates to inventory that has not moved for three years or more, excluding inventory specifically held for emergency situations. l) Property, Infrastructure, Plant and Equipment All rail infrastructure assets owned by the Consolidated Entity when it commenced operations were transferred from the previous owners, the Public Transport Corporation and the V/Line Freight Corporation, by way of statutory allocation under the Rail Corporations Act 1996, effective from 1 July 1997. The Allocation Statement (as amended) included the carrying value for the rail infrastructure assets to be adopted by the Consolidated Entity. There have been a number of subsequent Allocation Statements since the commencement of operations, having the effect of transferring ownership both to and from the Consolidated Entity. These Allocation Statements also included the carrying value of the rail infrastructure assets adopted by the Consolidated Entity at the time of transfer. The initial Allocation Statement (and amendment) and subsequent Allocation Statements were ratified by the relevant Minister under Section 40 of the Rail Corporations Act 1996 and, as such, the values ascribed to the rail infrastructure assets, apart from land, have been adopted by the Directors of the Consolidated Entity as the appropriate cost for reporting purposes.

At 30 June 2007, in accordance with the Victorian Government’s Department of Treasury and Finance’s Financial Reporting Direction 103B, apart from land, rail infrastructure assets are stated at either Allocation Statement valuation (if allocated to the Consolidated Entity) or at cost if the assets were constructed by the Consolidated Entity or lessees/sub-lessees. In the absence of a formal revaluation being undertaken of the Consolidated Entity’s infrastructure assets the Allocation Statement valuations are deemed to be cost. Plant and equipment, which includes rolling stock, is stated at cost. Each class of assets which are subject to the revaluation model are required to be revalued every five years in accordance with Financial Reporting Direction 103B.

48 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

l) Property, Infrastructure, Plant and Equipment continued Revaluations are undertaken with sufficient regularity to ensure that the carrying amount of each asset does not differ materially from its fair value at the reporting date. Revaluations are conducted in accordance with the Victorian Government’s policy – Revaluation of Non-Current Physical Assets. Revaluation increments are credited directly to the asset revaluation reserve, except to the extent that an increment reverses a revaluation decrement in respect of that class of asset previously recognised as an expense in net result. Where this situation arises, the increment is recognised immediately as revenue in the net result. Revaluation decrements are recognised immediately as expenses in the net result, except to the extent that a credit balance exists in the asset revaluation reserve in respect of the same class of assets. Where this situation arises, the revaluation decrement is debited to the asset revaluation reserve. Revaluation increments and decrements are offset against one another within classes of non-current assets.

Land The Consolidated Entity recognises two major classes of land – rail corridor land and non-rail corridor land. Non-rail corridor land is used for commercial purposes whilst rail corridor land is used as a rail reserve. The Consolidated Entity’s land was revalued with effect from 30 June 2005. The result of this revaluation is disclosed in this financial report. The basis of the valuation of non-rail corridor land is market value, with adjustments being made, where appropriate, for variations in the size and quality of each land parcel. Rail corridor land is based on the assessed market value of the land (effectively the value of the land were it to be sold to adjoining land owners) with discounts being applied to reflect costs that would be incurred in selling the land, i.e. subdivisional, legal, etc.

Lease of infrastructure assets The Consolidated Entity leases the majority of its rail infrastructure assets to the Director of Public Transport (DPT) for the purposes of conducting passenger and freight train and tram operations. The DPT then sub-leases the assets to various transport operators and track access providers. Under the leases, responsibility for conducting transport operations and maintaining the infrastructure assets is effectively transferred to the lessees/sub-lessees. The Consolidated Entity reserves the exclusive right to engage in non-transport activities on its assets and specifically excludes trunk telecommunications infrastructure from the leases. The following table sets out details of the infrastructure leases with the DPT:

Description of Leased Assets Lessee Asset Value Start Date Term Rental Suburban train and tram infrastructure (*) DPT $3,354 M 18 April 2004 4.5 years Nil Country non-electrified intrastate infrastructure DPT $1,905 M 1 May 1999 15 years, plus Nil (excluding certain stations) two 15 year options Country stations (**) DPT Included above 1 Oct 2003 16 years Nil Non-electrified interstate infrastructure (***) DPT $197 M 1 Jul 1999 15 years <1 year $2.4 M 1 to 7 years $16.8 M

(*) In accordance with refranchising arrangements that came into effect in April 2004, the initial lease of the suburban train and tram infrastructure, which commenced in August 1999 for a period of 15 years, was terminated. (**) The original country station lease, that commenced in August 1999 for a period of 20 years, has been terminated. (***) Under the interstate lease, rental is payable to the Consolidated Entity by the DPT’s sub-lessee of the interstate track, the Australian Rail Track Corporation Ltd (ARTC). m) Capital Works in Progress Leasehold improvements Infrastructure improvements undertaken by lessees/sub-lessees have been recorded as assets of the Consolidated Entity in accordance with a direction from the Victorian Government’s Department of Treasury and Finance. Infrastructure improvements undertaken by the ARTC have also been recognised as assets of the Consolidated Entity. These leasehold improvements have been recognised at cost. Significant leasehold improvements recognised as assets during the year include costs incurred on the regional fast rail and Craigieburn train extension projects as well as various other track upgrading works undertaken on the metropolitan train and tram networks.

VICTRACK 2006-07 ANNUAL REPORT | 49 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

m) Capital Works in Progress continued Rolling stock The Consolidated Entity has entered into contracts for the supply and manufacture of new passenger trains. As at 30 June 2007, $40.3 million is recorded as works in progress for these assets. The Consolidated Entity owns the majority of the existing suburban rolling stock fleet (trains and trams) that were transferred as assets received free of charge in April 2004 at a fair value of $448.2 million. This value was adopted as the deemed cost of the assets. The fair value was determined on the basis of depreciated replacement cost. The Consolidated Entity also recognises other suburban rolling stock that is the subject of a number of finance leases, which have a carrying value of $813.4 million as at 30 June 2007. The Consolidated Entity’s works in progress includes rail infrastructure and rolling stock projects underway, but not yet complete or ready for service. The incomplete rail infrastructure projects are recorded at cost. The recorded value of rolling stock works in progress includes payments made to the manufacturer. Borrowing costs incurred to finance the construction of new rolling stock are expensed as they are incurred. n) Intangible Assets (Goodwill) Where an entity or operation is acquired, the identifiable net assets acquired are measured at fair value. The excess of the fair value of the cost of acquisition over the fair value of the identifiable net assets acquired is brought to account as goodwill. Goodwill is required to be tested for impairment on an annual basis, and its value written down to the extent that impairment exists. Goodwill acquired on the acquisition of the Pacific National business was recognised as impaired at 30 June 2007 and written down to zero. As at 30 June 2007, there was no impairment of the goodwill relating to the purchase of Rolling Stock Holdings (Victoria) Pty Ltd. o) Depreciation All non-current assets, including leasehold improvements and renewals but excluding land, have been depreciated using the straight-line method of depreciation over their estimated useful lives to the Consolidated Entity. The range of depreciation rates used for each class of asset is as follows: % • Buildings and structures 1.7 - 5.0 • Track 2.0 - 5.0 • Signals and communications 2.0 - 7.7 • Plant and equipment 2.0 - 33.0 • Rolling stock 3.3 - 50.0 The above rates are the same as those applied in the 2005-06 financial year. p) Leased Assets Operating leases The Consolidated Entity leases certain office equipment, such as photocopiers, under operating leases. Operating lease payments are expensed in the period incurred. Finance leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement, so as to reflect the risks and benefits incidental to ownership. Leases of fixed assets where substantially all of the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the Consolidated Entity are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight-line basis over their estimated useful lives, where it is likely that the Consolidated Entity will obtain ownership of the asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. While the Consolidated Entity has recognised finance leases relating to the introduction of new rolling stock within its financial statements, the risks associated with these leases remains with the Department of Infrastructure. q) Payables These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition.

50 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

r) Employee Benefits Wages, salaries and annual leave Liabilities for wages, salaries and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date and are measured as the amounts expected to be paid when the liabilities are settled. The liability for annual leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefits and is measured in accordance with wages, salaries and annual leave. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. 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 Commonwealth Government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows. Superannuation The amount charged to the Operating Statement in respect of superannuation represents the employers’ contributions made by the Consolidated Entity to superannuation funds of which employees are members. Further details are provided in Note 16. Employee benefit on-costs Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities. s) Interest Bearing Liabilities Secured loans are carried on the Balance Sheet at their fair value at the time the loan was taken out or acquired, net of fair value unwinds. Interest is accrued over the period it becomes due and is recorded as part of Payables at year end. All borrowing costs are expensed as incurred. The finance lease liability is determined in accordance with the requirements of AASB 117 “Leases”. The premium that arose on the secured loans as a result of being recorded at their fair value is being amortised over the repayment period of the secured loans. t) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of GST except where the amount of GST incurred is not recoverable, in which case it is recognised as part of the cost of acquisition of an asset or part of an item of expense. The net amount of GST recoverable from, or payable to, the Australian Taxation Office is included as part of receivables or payables in the Balance Sheet. The GST component of a receipt or payment is recognised on a gross basis in the Cash Flow Statement in accordance with Australian Accounting Standard AASB 107 “Cash Flow Statements”. u) Dividends Section 36 of the Rail Corporations Act 1996, provides for a rail corporation to pay to the state amounts as directed by the Treasurer of Victoria after consultation with the Board of the rail corporation and the Minister. No determination was received from the Treasurer requiring the Consolidated Entity to make a dividend payment respect to the 2006-07 financial year ($5.0 million dividend was directed for 2005-06). v) Capital Assets Charge The capital assets charge is the estimate of the cost of capital investment in Government assets, i.e. the return that could be achieved were the Government to direct its capital towards the next best investment of comparable risk. It is imposed on the Consolidated Entity by the Victorian Government’s Department of Treasury and Finance. The purpose of this notional charge is to increase the awareness of the costs of assets for management to make improved resource allocation and investment decisions. The capital assets charge is shown as both a receipt and an expense from ordinary activities in the Operating Statement, meaning that there is no impact on the operating result for the year, nor on the Balance Sheet as at 30 June 2007. Although the receipt and payment of the capital assets charge does not represent physical movements of cash, the capital assets charge has been disclosed in the Cash Flow Statement as it is considered a cash equivalent item under the provisions of the Financial Management Act 1994. The charge equates to approximately 16 per cent on the Parent Entity’s average net assets for the 2006-07 financial year.

VICTRACK 2006-07 ANNUAL REPORT | 51 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

w) Comparatives Where practicable, comparative amounts are presented and classified on a basis consistent with the current year. x) Rounding All amounts shown in the financial statements are expressed by reference to the nearest thousand dollars unless otherwise specified. y) Financial Instruments In accordance with the Victorian Government’s Department of Treasury and Finance’s Financial Reporting Direction 101, the Consolidated Entity has not restated comparative information for financial instruments within the scope of AASB 132 “Financial Instruments: Disclosure and Presentation” and AASB 139 “Financial Instruments: Recognition and Measurement” as permitted on the first-time adoption of A-IFRS. The accounting policies applied to accounting for financial instruments in the current financial year are detailed in Notes 1 (i), 1 (j), 1 (q), 1 (s). Other Financial Assets Other financial assets represent fixed term deposits held by the Consolidated Entity and investments with Treasury Corporation of Victoria and are valued at their fair value. Fixed term deposits are subject to draw down restrictions and a fixed rate of return. Investments with Treasury Corporation of Victoria are held on deposits ranging from 30 days to 90 days – these investments are ear-marked for use on future infrastructure improvement projects. Receivables All debtors are recognised at the amounts receivable as they are due for settlement at no more than 30 days from the date of recognition. The collectability of debtors is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off. A provision for doubtful debts is raised when some doubt as to collection exists. Payables These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. Interest Bearing Liabilities Secured loans are carried on the Balance Sheet at their fair value at the time the loan was taken out or acquired, net of fair value unwinds. Interest is accrued over the period it becomes due and is recorded as part of Payables at year end. All borrowing costs are expensed as incurred. The finance lease liability is determined in accordance with the requirements of AASB 117 “Leases”. The premium that arose on the secured loans as a result of being recorded at their fair value is being amortised over the repayment period of the secured loans. Effect of changing the accounting policies for financial instruments There are no changes to the Consolidated Entity’s Balance Sheet arising from the adoption of the accounting policies for financial instruments. z) Impairment of Assets The Consolidated Entity assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Consolidated Entity makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases, the asset is tested for impairment as part of the cash-generating unit to which it belongs. There are no indicators of impairment of assets at the current reporting date. aa) Going Concern The financial statements have been prepared on a going concern basis, which contemplates the continuity of normal trading operations and the realisation of assets and settlement of liabilities in the ordinary course of business. The ability of the Consolidated Entity to continue paying its debts as and when they fall due is dependent upon existing contractual arrangements continuing to operate as originally intended. Such agreements ensure sufficient contributions are made by the Victorian Government to cover the Consolidated Entity’s contractual commitments.

52 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

ab) Acquisition Accounting for Pacific National Purchase On 4 May 2007, the Parent Entity purchased the management of the Victorian country rail network and access from Pacific National Pty Ltd. At 30 June 2007, management had not yet completed its assessment of the fair value of the leasehold improvements acquired and therefore the acquisition accounting remains provisional as permitted by AASB 3 “Business Combinations”. It is, therefore, possible that the value of these assets and the related goodwill may change during the 12 month period after the acquisition, during which fair value adjustments are permitted. The provisional accounting for the purchase recognised the following transactions. The purchase price was $106.9 million for which the Parent Entity received the assets listed below. Inventory $2.8 million Plant and equipment $1.6 million Leasehold improvements $104.8 million The Parent Entity also received liabilities in the form of employee entitlements to the value of $13.2 million. The balance of the transaction related to goodwill on the acquisition of the business of $10.9 million. Following acquisition, the operations of the business were transferred to V/Line Passenger for no consideration, with the goodwill subsequently assessed to have zero value and was expensed during the period. The inventory, plant and equipment and the employee entitlements were provided to V/Line Passenger and, as these were in a net liability position, this resulted in a gain on transfer of $8.8 million. ac) Correction of Prior Period Errors Finance Leases Updated information has been provided by the Department of Infrastructure regarding the value of finance lease assets and liabilities recognised by the Consolidated Entity. The correction of information previously reported has necessitated the following adjustments to prior year’s financial information: 1 July 2005 Balance Sheet Increase Property, infrastructure, plant and equipment $3.369 million Decrease Current liabilities – Interest bearing liabilities $0.581 million Increase Non-current liabilities – Interest bearing liabilities $5.204 million Decrease Retained profits $1.254 million Operating Statement – Financial Year ended 30 June 2006 Decrease Other revenue $0.426 million Increase Depreciation and amortisation $0.342 million Increase Interest expense $0.155 million 1 July 2006 Balance Sheet Increase Property, infrastructure, plant and equipment $3.027 million Decrease Current liabilities – Interest bearing liabilities $0.453 million Increase Non-current liabilities – Interest bearing liabilities $5.657 million Decrease Retained profits $2.177 million Provision for Deferred Tax Liability The Consolidated Entity’s deferred tax liability calculation in prior years did not reflect temporary differences between the tax base of accrued annual leave and their carrying amounts for financial reporting purposes. To correct this error for the reporting period ended 30 June 2006, the following adjustment has been made to the 1 July 2005 opening balances: Increase Retained Earnings $0.735 million Decrease Provision for Deferred Tax Liability $0.735 million A further adjustment has been made to the Balance Sheet as at 30 June 2006, being: Decrease Retained Earnings $0.051 million Decrease Provision for Deferred Tax Liability $0.051 million

VICTRACK 2006-07 ANNUAL REPORT | 53 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 2 OTHER REVENUE Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Interest received 3,237 3,347 3,237 3,347 Proceeds from sale of assets 10,007 4,726 10,007 4,263 Lease of the interstate rail corridors 3,050 2,919 3,050 2,919 Rolling stock lease revenue 39,939 24,138 - - Other 6,351 5,948 5,994 5,694 Total Other Revenue 62,584 41,078 22,288 16,223

NOTE 3 EMPLOYEE BENEFITS Salaries and wages 10,239 8,429 10,239 8,429 Associated labour costs: On-costs 1,209 968 1,209 968 Superannuation contributions 959 859 959 859 Sub-total associated labour costs 2,168 1,827 2,168 1,827 Increase/(decrease) in provision for employee entitlements 50 (240) 50 (240) Termination payments 234 568 234 568 Total Employee Benefits 12,691 10,584 12,691 10,584

NOTE 4 DEPRECIATION AND AMORTISATION Buildings and structures 25,062 24,086 25,062 24,086 Track 49,669 44,482 49,669 44,482 Signals and communications 37,054 26,671 37,054 26,671 Plant and equipment 90,312 83,989 6,471 5,482 Total Depreciation and Amortisation 202,097 179,228 118,256 100,721

NOTE 5 SUPPLIES AND SERVICES Property services (including land tax) 7,176 9,021 7,176 9,021 Telecommmunications expenses 8,124 7,286 8,124 7,286 Contract payments 6,157 4,358 6,157 4,358 Other 5,606 4,838 5,606 4,838 Total Supplies and Services 27,063 25,503 27,063 25,503

54 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 6 OTHER OPERATING EXPENSES Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Increase/(decrease) in provision for doubtful debts (4) (459) (4) (459) Bad debts - 312 - 312 Insurance premiums 654 619 654 619 Legal fees 498 478 498 478 Occupancy costs 1,069 987 1,069 987 Written down value of assets sold and costs incurred 8,735 3,262 8,735 3,188 in selling assets Write off of impaired goodwill 10,943 - 10,943 - Other expenses 2,900 736 2,851 759 Total Other Operating Expenses 24,795 5,935 24,746 5,884

NOTE 7 OTHER FINANCIAL ASSETS Funds on deposit – at fair value 100 13,012 - - Investments – Treasury Corporation of Victoria 44,150 41,604 44,150 41,604 Other Financial Assets 44,250 54,616 44,150 41,604

Reported as: Current Funds on deposit – at fair value - 12,912 - - Investments – Treasury Corporation of Victoria 44,150 41,604 44,150 41,604 44,150 54,516 44,150 41,604 Non-current Funds on deposit – at fair value 100 100 - - 100 100 - - Total Other Financial Assets 44,250 54,616 44,150 41,604

Use of funds on deposit is restricted to payments of interest on borrowings and payments to suppliers in relation to the construction of new rolling stock (trains). The amount on deposit is subject to a fixed interest rate of 5.15 per cent with quarterly payments of interest. Funds currently held with Treasury Corporation of Victoria are ear-marked for use on future infrastructure improvement projects.

VICTRACK 2006-07 ANNUAL REPORT | 55 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 8A RECEIVABLES Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Receivables 13,547 13,724 139,720 140,263 Less provision for doubtful debts (311) (316) (311) (316) Receivables 13,236 13,408 139,409 139,947 Reported as: Current Receivables 13,499 13,667 10,559 11,093 Less provision for doubtful debts (311) (316) (311) (316) 13,188 13,351 10,248 10,777 Non-current Receivables 48 57 129,161 129,170 48 57 129,161 129,170 Total Receivables 13,236 13,408 139,409 139,947

NOTE 8B PAYABLES Payables 24,623 18,378 17,212 8,727 Total Payables 24,623 18,378 17,212 8,727

NOTE 9 INVENTORY Stores and materials 856 856 856 856 Less provision for stock obsolescence (831) (831) (831) (831) Total Inventory 25 25 25 25

A provision for stock obsolescence is raised when stock has not moved for a period of three years or more, excluding stock held for emergency situations.

56 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 10 PROPERTY, INFRASTRUCTURE, PLANT AND EQUIPMENT Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Land Rail corridor land – at independent valuation, 30 June 2005 913,992 913,992 913,992 913,992 Non-rail corridor land – at cost 1,063 63 1,063 63 Non-rail corridor land – at independent valuation, 30 June 2005 792,529 805,999 792,529 805,999 Land 1,707,584 1,720,054 1,707,584 1,720,054

Buildings and structures Allocation statement valuation 799,448 799,448 799,448 799,448 Accumulated depreciation (160,712) (141,757) (160,712) (141,757) 638,736 657,691 638,736 657,691

Leasehold improvements/renewals 139,795 126,038 139,795 126,038 Accumulated depreciation (15,977) (11,528) (15,977) (11,528) 123,818 114,510 123,818 114,510

Cost 68,893 51,970 68,893 51,970 Accumulated depreciation (6,013) (4,264) (6,013) (4,264) 62,880 47,706 62,880 47,706

Buildings and structures after depreciation 825,434 819,907 825,434 819,907

Track Allocation statement valuation 895,468 895,468 895,468 895,468 Accumulated depreciation (191,756) (169,633) (191,756) (169,633) 703,712 725,835 703,712 725,835

Leasehold improvements/renewals 780,577 734,455 780,577 734,455 Accumulated depreciation (70,073) (47,199) (70,073) (47,199) 710,504 687,256 710,504 687,256

Cost 180,212 72,177 180,212 72,177 Accumulated depreciation (32,021) (18,312) (32,021) (18,312) 148,191 53,865 148,191 53,865

Track after depreciation 1,562,407 1,466,956 1,562,407 1,466,956

VICTRACK 2006-07 ANNUAL REPORT | 57 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 10 PROPERTY, INFRASTRUCTURE, PLANT AND EQUIPMENT CONTINUED Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Signals and communications Allocation statement valuation 313,028 313,028 313,028 313,028 Accumulated depreciation (96,891) (86,184) (96,891) (86,184) 216,137 226,844 216,137 226,844

Leasehold improvements/renewals 424,796 380,671 424,796 380,671 Accumulated depreciation (43,897) (23,896) (43,897) (23,896) 380,899 356,775 380,899 356,775

Cost 145,210 92,192 145,210 92,192 Accumulated depreciation (18,614) (11,342) (18,614) (11,342) 126,596 80,850 126,596 80,850 Signals and communications after depreciation 723,632 664,469 723,632 664,469 Plant and equipment Allocation statement valuation 801,692 763,179 - - Accumulated depreciation (149,155) (96,493) - - 652,537 666,686 - -

Leasehold improvements/renewals 4,469 2,041 4,469 2,041 Accumulated depreciation (962) (494) (962) (494) 3,507 1,547 3,507 1,547

Finance leases at cost 907,715 907,715 - - Accumulated amortisation (94,287) (63,143) - - 813,428 844,572 - -

Cost 113,317 98,900 113,317 98,900 Accumulated depreciation (29,237) (23,258) (29,237) (23,258) 84,080 75,642 84,080 75,642

Plant and equipment after depreciation 1,553,552 1,588,447 87,587 77,189

Capital works in progress Leasehold improvements/renewals 588,778 391,287 588,778 391,287 Rolling stock under construction 56,376 27,377 - - Other 24,776 16,789 24,776 16,789 Capital works in progress 669,930 435,453 613,554 408,076 Total Property, Infrastructure, Plant and Equipment 7,042,539 6,695,286 5,520,198 5,156,651

58 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 10 PROPERTY, INFRASTRUCTURE, PLANT AND EQUIPMENT CONTINUED 2007 Consolidated Land Buildings & Track Signals & Plant & W.I.P. Total Structure Comms. Equipment

$’000 $’000 $’000 $’000 $’000 $’000 $’000 Carrying amount at 1,720,054 819,907 1,466,956 664,469 1,588,447 435,453 6,695,286 start of year

Additions (*) 3,495 30,589 145,120 96,217 57,237 234,477 567,135 Disposals (15,965) - - - (1,820) - (17,785) Depreciation expense - (25,062) (49,669) (37,054) (90,312) - (202,097) Carrying Amount at the end 1,707,584 825,434 1,562,407 723,632 1,553,552 669,930 7,042,539 of the Financial Year

(*) Includes infrastructure improvements/renewals undertaken by lessees/sub-lessees.

2007 Parent Land Buildings & Track Signals & Plant & W.I.P. Total Structure Comms. Equipment

$’000 $’000 $’000 $’000 $’000 $’000 $’000 Carrying amount at 1,720,054 819,907 1,466,956 664,469 77,189 408,076 5,156,651 start of year

Additions (*) 3,495 30,589 145,120 96,217 18,689 205,478 499,588 Disposals (15,965) - - - (1,820) - (17,785) Depreciation expense - (25,062) (49,669) (37,054) (6,471) - (118,256) Carrying Amount at the end 1,707,584 825,434 1,562,407 723,632 87,587 613,554 5,520,198 of the Financial Year

(*) Includes infrastructure improvements/renewals undertaken by lessees/sub-lessees.

VICTRACK 2006-07 ANNUAL REPORT | 59 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 11 EMPLOYEE BENEFITS Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Long service leave 3,893 3,848 3,893 3,848 Annual leave 2,257 2,317 2,257 2,317 Other 365 301 365 301 Employee Benefits 6,515 6,466 6,515 6,466

Reported as: Current Long service leave 318 309 318 309 Annual leave 990 933 990 933 Other 297 237 297 237 1,605 1,479 1,605 1,479 Non-current Long service leave 3,575 3,539 3,575 3,539 Annual leave 1,267 1,384 1,267 1,384 Other 68 64 68 64 4,910 4,987 4,910 4,987 Total Employee Benefits 6,515 6,466 6,515 6,466

NOTE 12 INTEREST BEARING LIABILITIES Secured loan 407,930 416,768 - - Lease liability 780,736 825,001 677 699 Interest Bearing Liabilities 1,188,666 1,241,769 677 699

Reported as: Current Secured loan 26,475 25,471 - - Lease liability 47,109 44,628 455 385 73,584 70,099 455 385 Non-current Secured loan 381,455 391,297 - - Lease liability 733,627 780,373 222 314 1,115,082 1,171,670 222 314 Total Interest Bearing Liabilities 1,188,666 1,241,769 677 699

60 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 13 EQUITY AND MOVEMENTS IN EQUITY – CONSOLIDATED ENTITY Capital Capital Additional Capital 1 July 2006 Returned Capital 30 June 2007 $’000 $’000 $’000 $’000

(a) Contributed Capital Assets Inventory 205 - - 205 Receivables 2,715 - - 2,715 Land 1,074,458 (7,391) - 1,067,067 Buildings and structures 853,118 - 5,579 858,697 Track 1,325,265 - 29,892 1,355,157 Signals and communications 582,731 - 59,903 642,634 Plant and equipment 116,458 - 2,145 118,603 Works in progress/other assets 379,142 - 240,950 620,092 Total assets 4,334,092 (7,391) 338,469 4,665,170 Liabilities Provision for employee benefits (6,959) - - (6,959) Total liabilities (6,959) - - (6,959) Contributed Capital at the end of the Financial Year 4,327,133 (7,391) 338,469 4,658,211

Consolidated Parent

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 (b) Asset Revaluation Reserve Asset revaluation reserve at the beginning of the financial year 628,967 629,083 628,967 628,967 Decrease in the value of funds on deposit - (116) - - Asset Revaluation Reserve at the end of the Financial Year 628,967 628,967 628,967 628,967

(c) Accumulated Surplus Accumulated surplus at the beginning of the financial year 434,654 445,708 194,093 181,599 Net profit/(loss) for the reporting period 32,743 (6,054) 47,334 17,494 Dividend - (5,000) - (5,000) Accumulated Surplus at the end of the Financial Year 467,397 434,654 241,427 194,093

VICTRACK 2006-07 ANNUAL REPORT | 61 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 14 RECONCILIATION OF NET PROFIT/(LOSS) FOR THE REPORTING PERIOD TO NET CASH INFLOW FROM OPERATING ACTIVITIES 1. Reconciliation of cash assets For the purpose of the Cash Flow Statement, cash includes short-term deposits that are readily convertible to cash on hand and which are subject to an insignificant risk of changes in value, net of outstanding cheques yet to be presented. 2. Non-cash financing and investing facilities The Consolidated Entity has no non-cash financing and investment facilities in place. 3. Credit facilities The Parent Entity does not have any credit facilities in place. 4. Reconciliation of net profit/(loss) for the reporting period to net cash inflow from operating activities:

Consolidated Parent

2007 2006 2007 2006

$’000 $’000 $’000 $’000 Net profit/(loss) for the reporting period 32,743 (6,054) 47,334 17,494 Depreciation/amortisation 201,755 178,885 118,255 100,721 Increase/(decrease) in provisions 45 2,702 45 10,640 Decrease/(increase) in receivables 176 7,454 542 629 Decrease/(increase) in prepayments (2,134) (126) (2,134) (126) Decrease/(increase) in inventory - - - - Receipts recognised as contributed capital 58,689 - 30,098 - Assets received under lease agreements (71,050) (69,812) (71,050) (69,812) Fair value adjustments (3,205) (3,479) - - Increase/(decrease) in payables (41,134) (58,176) 26,572 (2,075) Loss/(profit) on sale of assets (1,335) (1,514) (1,335) (1,125) Net Cash Inflow From Operating Activities 174,550 49,880 148,327 56,346

62 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 15 NATIONAL TAX EQUIVALENT REGIME Consolidated Company

2007 2006 2007 2006

$’000 $’000 $’000 $’000 Current Income Statement Current income tax (expense)/benefit 1,688 22,930 (9,445) 9,353 Deferred income tax (20,289) (25,691) (15,397) (20,329) Income tax (expense)/benefit reported in income statement (18,601) (2,761) (24,842) (10,976) Income Tax Reconciliation Accounting profit/(loss) before tax 51,344 (3,293) 72,176 28,470 At company tax rate of 30% (15,403) 988 (21,653) (8,542) Non-allowable items (3,198) (2,399) (3,189) (2,434) Finance lease addition - (1,350) - - Income tax (expense)/benefit (18,601) (2,761) (24,842) (10,976)

Balance Sheet Income Statement

2007 2006 2007 2006

$’000 $’000 $’000 $’000 Deferred Income Tax Consolidated Deferred Tax Liabilities Accelerated depreciation (256,951) (241,790) (15,161) (20,312) Finance lease asset (244,231) (253,580) 9,349 7,925 Fair value on loan (69) (74) 5 4 Interest receivable (7) (5) (2) (1) (501,258) (495,449) (5,809) (12,384) Deferred Tax Assets Fair value on loan 5,642 6,608 (966) (1,048) Finance lease liability 234,221 247,501 (13,280) (12,257) Losses available for offset 62,980 61,293 - - Prepaid revenue 882 1,129 (248) 194 Accrued leave 1,955 1,940 15 (58) Doubtful debts 94 95 (1) (138) Stock obsolescence 249 249 - - 306,023 318,815 (14,480) (13,307) Net deferred tax asset/(liability) (195,235) (176,634) Deferred tax expense (20,289) (25,691)

VICTRACK 2006-07 ANNUAL REPORT | 63 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 15 NATIONAL TAX EQUIVALENT REGIME CONTINUED Balance Sheet Income Statement

2007 2006 2007 2006

$’000 $’000 $’000 $’000 Company Deferred Tax Liabilities Accelerated depreciation (256,951) (241,790) (15,161) (20,312) Finance lease asset (202) (208) 6 (68) Interest receivable (7) (5) (2) (1) (257,160) (242,003) (15,157) (20,381)

Deferred Tax Assets Finance lease liability 203 210 (7) 54 Losses available for offset 27,862 37,307 - - Prepaid revenue 882 1,129 (247) 194 Accrued leave 1,955 1,940 15 (58) Doubtful debts 94 95 (1) (138) Stock obsolescence 249 249 - - 31,245 40,930 (240) 52 Net deferred tax asset/(liability) (225,915) (201,073) Deferred tax expense (15,397) (20,329)

NOTE 16 EMPLOYEE SUPERANNUATION FUNDS

No liability is recognised in the Balance Sheet for the Consolidated Entity’s share of the State’s unfunded superannuation liability. The state’s unfunded superannuation liability has been reflected in the financial statements of the Victorian Government’s Department of Treasury and Finance. However, the Consolidated Entity’s (i.e. employer) superannuation contributions for the reporting period are included as part of employee benefits in the Operating Statement. The number of employees as at 30 June 2007 was 145 (30 June 2006 – 123). Details of major employee superannuation funds to which the Consolidated Entity contributes are as follows:

Superannuation Fund (*) 2006-07 Contributions 2005-06 Contributions Contributions outstanding Contributions outstanding as as at 30/6/07 $’000 at 30/6/06 $’000 $’000

Transport Superannuation Scheme 283 - 281 - State Superannuation Scheme 303 - 347 - VicSuper Scheme 255 - 169 - Other 118 - 62 9 Total 959 - 859 9

(*) These superannuation contributions relate to Victorian Rail Track as the Parent Entity – Rolling Stock Holdings (Victoria) Pty Limited and its subsidiary companies, which forms the Consolidated Entity with the Parent Entity, do not employ any staff. Employer contributions to the Transport Superannuation Scheme and the State Superannuation Scheme are based on actuarial assessments as advised by the Government Superannuation Office. Employer contributions to the other funds are made in accordance with the Commonwealth Superannuation Guarantee Legislation.

64 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 17 CAPITAL COMMITMENTS Consolidated Parent

2007 2006 2007 2006

$’000 $’000 $’000 $’000 Within one year 30,024 30,970 15,852 8,998 One year or later and not later than five years 16,716 957 - 957 Total Capital Commitments 46,740 31,927 15,852 9,955

NOTE 18 LEASE COMMITMENTS Operating Leases Within one year 66 59 66 59 One year or later and not later than five years 159 66 159 66 Total Operating Lease Commitments 225 125 225 125 Operating lease commitments are for motor vehicles and office equipment – these leases provide for a right of renewal at which time all terms are negotiated.

Finance Leases Within one year 135,509 137,057 455 385 One year or later and not later than five years 521,517 523,434 222 314 Beyond five years 783,135 916,365 - - Total Finance Lease Commitments 1,440,161 1,576,856 677 699 Less: Recoverable GST (130,862) (143,287) - - Future finance lease charges (528,564) (608,568) - - Total Finance Lease Liability 780,735 825,001 677 699

Finance leases relating to the introduction of new rolling stock have an average lease term of 15 years and an average implicit discount rate of 9.97 per cent. There is an option under the Rolling Stock Lease Direct Agreements for the Director of Public Transport (or his nominee) to purchase the rolling stock at the expiry of the leases. The payment of the finance lease liabilities will be funded by the state.

VICTRACK 2006-07 ANNUAL REPORT | 65 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 19 CONTINGENT LIABILITIES

Environmental contingent liabilities Upon the Consolidated Entity’s establishment, and in subsequent asset allocations, the Public Transport Corporation did not grant indemnities in relation to any consequences of environmental contamination of land and property that may have been transferred along with the ownership of the land and property. An action plan has been prepared for the rectification of environmental contamination at a number of high priority sites. The Consolidated Entity has estimated future expenditure levels that are expected to be required to address environmental issues, including remediation activities. However, due to uncertainties regarding the actual quantum of this expenditure, no provision for these costs has been included in the financial statements.

Indemnities Infrastructure Leases with the Director of Public Transport (DPT) The Consolidated Entity has entered into a number of leases with the DPT under which its assets are made available to various transport operators and track access providers. Under these leases the Consolidated Entity provides various indemnities to the DPT, for example in relation to the exercise of certain powers under the leases and pre-existing environmental contamination. In turn, the DPT provides an indemnity to the Consolidated Entity against any losses that may result from the use of the land and infrastructure by its sub-lessees (transport operators and track access providers). Subject to the note below relating to litigation, the Directors of the Consolidated Entity are unaware of any circumstances that would lead them to believe that these contingent liabilities will result in any material actual liability, and consequently no provisions are included in the financial statements in respect of these matters.

Litigation The Consolidated Entity is involved in legal proceedings relating to works undertaken at the Kororoit Creek Bridge. The parties in this matter are Toll Properties Pty Ltd (plaintiff), with Melbourne Water, City West Water, VicTrack and National Rail Corporation (now owned by Pacific National) as defendants. At this stage it is too early to predict the outcome of these actions and whether any significant liabilities will be incurred by the Consolidated Entity as a result.

NOTE 20 MINISTER, THE BOARD OF DIRECTORS AND ACCOUNTABLE OFFICER

The names of persons who were Responsible Persons of the Consolidated Entity at any time during the financial year were: Responsible Minister: The Hon Lynne Kosky MP, Minister for Transport Directors of the Board: Ms Elana Rubin Mr John Anderson Mr Chris Lovell Dr Bruce Cohen Accountable Officer: Mr John Sutton

66 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 20 MINISTER, THE BOARD OF DIRECTORS AND ACCOUNTABLE OFFICER CONTINUED Remuneration paid to Responsible Persons during the year was: Consolidated Parent

2007 2006 2007 2006 Income brand No. No. No. No. $30,000 to $39,999 3 3 3 3 $60,000 to $69,999 1 1 1 1 $330,000 to $339,999 1 - 1 - $350,000 to $359,999 - 1 - 1 Total Remuneration of Responsible Persons: $502,976 ($522,278 in 2005-06)

Responsible Persons’ remuneration shown in aggregate above includes Directors’ fees and superannuation contributions paid on behalf of Directors by the Consolidated Entity. The amount excludes insurance premiums paid by the Consolidated Entity in respect of Directors’ and Officers’ insurance contracts. The Accountable Officer’s remuneration for the 2006-07 year includes the total salary package received during the year as well as a performance bonus relating to the 2006-07 year. The Accountable Officer’s remuneration for the 2005-06 year included the total salary package received during the year as well as performance bonuses relating to the 2005-06 and 2004-05 years. The remuneration of the Minister for Transport is reported in the financial statements of the Department of Premier and Cabinet.

NOTE 21 EXECUTIVE OFFICERS’ REMUNERATION

The number of executive officers of the Consolidated Entity, other than the Accountable Officer, and their total remuneration during the reporting period are shown in the second and third columns in the table below in their relevant income bands. The base remuneration of executive officers is shown in the fourth and fifth columns. Base remuneration is exclusive of performance bonus payments, long service leave payments, redundancy payments and retirement benefits.

Total Remuneration Base Remuneration

2007 2006 2007 2006 Income brand No. No. No. No. $110,000 to $119,999 1 - - - $130,000 to $139,999 1 - 1 1 $150,000 to $159,999 - - 1 2 $160,000 to $169,999 - 1 1 1 $170,000 to $179,999 - 1 1 1 $180,000 to $189,999 1 - 2 - $190,000 to $199,999 1 2 - - $200,000 to $209,999 3 1 - - Total Numbers 7 5 6 5 Total Amount $1,239,178 $932,761 $1,093,076 $771,759

The Executive Officers’ remuneration for the 2006-07 year included the total salary package received during the year as well as performance bonuses relating to the 2006-07 year. The Executive Officers’ remuneration for the 2005-06 year includes the total salary package received during the year as well as performance bonuses relating to the 2005-06 and 2004-05 years.

VICTRACK 2006-07 ANNUAL REPORT | 67 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 22 FINANCIAL INSTRUMENTS

Terms, conditions and accounting policies The Consolidated Entity’s terms, conditions and accounting policies in respect of financial instruments, both recognised and unrecognised, are as follows:

Financial Instrument Accounting Policy Terms and Conditions Financial assets Cash assets Cash deposits are recognised at the account Cash is held at deposit, earning interest at a balance at reporting date, including accrued variable rate. interest. Interest is recorded as revenue as it accrues. Other financial assets Fixed term deposits are recognised at fair The interest earned from fixed term deposits value. Investments are recognised at the is set at 5.15%, whilst investments earn interest nominal face value of the investment. Interest at a variable rate. is recorded as revenue as it accrues. Receivables Receivables are carried at amounts due, less Receivables are on 30-day terms from date of any provision for doubtful debts. invoicing. Where debts become long overdue, e.g. in excess of 90 days, an assessment is made of collectability, and provision is made for any doubtful accounts. Financial liabilities Payables Liabilities are recognised for amounts to Trade liabilities are normally settled within be paid in the future for goods or services 45 days from the date of recognition. received, whether or not billed to the Consolidated Entity. Interest bearing liabilities Secured loans are initially recognised at the fair Secured loans are fixed interest and are value of the consideration received less directly repayable on an agreed plan to September 2021. attributable transaction costs. After initial recognition, they are subsequently measured at amortised cost. Finance leases are recognised at the present Finance leases commenced on 18 April 2004 value of the minimum lease payments, for a term of 15 years. including any guaranteed residual values, less principal amounts repaid.

Interest rate risk exposure The Consolidated Entity is not exposed to any interest rate risk in respect of any financial liabilities as the interest rates are fixed for the term of the borrowings. Interest earned on cash assets is equivalent to the 11.00am cash rate less a fixed premium agreed by the Consolidated Entity and the bank. The weighted average interest rate for 2006-07 was 5.14 per cent (4.53 per cent in 2005-06). Earnings from interest vary according to movements in the 11.00am cash rate. Interest income from funds on deposit is fixed at the rate of 5.15 per cent. Interest income earned on investments is variable. For the year ended 30 June 2007, the Consolidated Entity had interest bearing investments with a weighted average interest rate of 6.23 per cent (5.59 per cent in 2005-06). The Consolidated Entity’s exposure to interest rate risk is set out as follows:

68 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 22 FINANCIAL INSTRUMENTS CONTINUED Note Floating Fixed Interest Fixed Interest Fixed Interest Non-Interest Total Interest Rate Rate Maturing Rate Maturing Rate Maturing Bearing in 1 Year or Over 1 to 5 in More Than Less Years 5 Years $’000 $’000 $’000 $’000 $’000 $’000

2007 Consolidated Financial assets Cash assets 2,361 1,212 - - 2 3,575 Other financial assets 7 44,150 - - 100 - 44,250 Receivables 8(a) - - - - 13,236 13,236 Total Financial Assets 46,511 1,212 - 100 13,238 61,061 Weighted Average Interest Rate 6.15% 6.05% 5.15% Financial liabilities Payables 8(b) - - - - (24,623) (24,623) Interest bearing liabilities 12 - (73,584) (327,306) (787,776) - (1,188,666) Total Financial Liabilities - (73,584) (327,306) (787,776) (24,623) (1,213,289) Weighted Average Interest Rate 8.59% 8.62% 8.71% Net Financial Assets 46,511 (72,372) (327,306) (787,676) (11,385) (1,152,228)

2006 Consolidated Financial assets Cash assets 3,303 3,506 - - 1 6,810 Other financial assets 7 41,604 12,912 - 100 - 54,616 Receivables 8(a) - - - - 13,408 13,408 Total Financial Assets 44,907 16,418 - 100 13,409 74,834 Weighted Average Interest Rate 5.54% 5.21% 5.15% Financial liabilities Payables 8(b) - - - - (18,378) (18,378) Interest bearing liabilities 12 - (70,099) (307,448) (864,222) - (1,241,769) Total Financial Liabilities - (70,099) (307,448) (864,222) (18,378) (1,260,147) Weighted Average Interest Rate 8.58% 8.62% 8.71% Net Financial Assets 44,907 (53,681) (307,448) (864,122) (4,969) (1,185,313)

VICTRACK 2006-07 ANNUAL REPORT | 69 NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 22 FINANCIAL INSTRUMENTS CONTINUED 2007 2006

$’000 $’000 Reconciliation of net financial assets and net assets for the Consolidated Entity: Net financial assets (1,152,228) (1,185,313) Inventory 25 25 Prepayments 2,572 439 Property, infrastructure, plant and equipment 7,042,539 6,695,286 Intangible assets 63,417 63,417 Less: Employee benefits (6,515) (6,466) Deferred tax liability (195,235) (176,634) Net Assets 5,754,575 5,390,754

Credit risk exposure The Consolidated Entity’s maximum exposure to credit risk at the reporting date is the carrying amount of receivables as indicated in the Balance Sheet. The receivables mainly relate to payment for the provision of telecommunications services by the Consolidated Entity and property rentals outstanding. The Consolidated Entity provided a range of telecommunications services under contract to a number of Government controlled and private companies during 2006-07. The nature of the entities, in the opinion of the Directors of the Consolidated Entity, has created a low level of credit risk. The Consolidated Entity’s credit exposure in the real estate industry is characterised by a large and diverse range of lessees and licensees. To this extent, the credit risk exposure is regarded as low. Net fair value of financial assets and liabilities The net fair value of cash, other financial assets, non-interest bearing receivables and payables and interest bearing liabilities of the Consolidated Entity compared to their carrying amount is as follows:

2007 2006

Carrying Net Fair Carrying Net Fair Amount Value Amount Value $’000 $’000 $’000 $’000

Financial assets Cash assets 3,575 3,575 6,810 6,810 Other financial assets 44,250 44,250 54,616 54,616 Receivables 13,236 13,236 13,408 13,408 Total financial assets 61,061 61,061 74,834 74,834 Financial liabilities Payables (24,623) (24,623) (18,378) (18,378) Interest bearing liabilities (1,188,666) (1,163,432) (1,241,769) (1,225,881) Total financial liabilities (1,213,289) (1,188,055) (1,260,147) (1,244,259) Net Financial Assets (1,152,228) (1,126,994) (1,185,313) (1,169,425)

70 | VICTRACK 2006-07 ANNUAL REPORT NOTES TO AND FORMING PART OF THE 2007 FINANCIAL STATEMENTS

For the financial year ended 30 June 2007

NOTE 22 FINANCIAL INSTRUMENTS CONTINUED

The Consolidated Entity determines net fair values in the following manner: Cash assets The carrying amount represents fair value as it equates to the account balance withdrawable by the Consolidated Entity at any time without notice. Other financial assets For investments, the carrying amount represents fair value as it comprises a contractual obligation on the financial institution to repay principal to this value upon maturity. For funds on deposit, the fair value represents the present value of interest and the amount on deposit.

Receivables The carrying amount represents fair value, as it is a contractual obligation on the debtor, usually payable within 30 days of the date of recognition. Payables The carrying amount represents fair value, as it comprises a contractual obligation on the Consolidated Entity, usually payable within 45 days of the date of recognition. Interest bearing liabilities The fair value represents the present value of interest and principal repayments.

NOTE 23 REMUNERATION OF AUDITORS Consolidated Parent

2007 2006 2007 2006 $ $ $ $

Audit fees paid or payable to the Victorian Auditor-General’s Office for the audit of the financial statements: Paid as at 30 June 70,975 79,325 22,275 33,850 Payable as at 30 June 90,575 79,250 42,475 30,550

VICTRACK 2006-07 ANNUAL REPORT | 71 DISCLOSURE INDEX

MINISTERIAL DIRECTIONS The Annual Report of VicTrack is prepared in accordance with all relevant Victorian legislation. This index has been prepared to facilitate identification of the compliance with statutory disclosure requirements.

Legislation Requirement Page Report of Operations Charter and purpose FRD 22 Manner of establishment and the relevant Ministers 1, 66 FRD 22 Objectives, functions, powers and duties 1 FRD 22 Nature and range of services provided 1 Management and structure FRD 22 Organisational structure 31 Financial and other information FRD 22 Statement of workforce data and merit and equity 29 FRD 22 Summary of the financial results for the year 36 FRD 22 Significant changes in financial position during the year 36 FRD 22 Operational and budgetary objectives and performance against objectives 36 FRD 22 Major changes or factors affecting performance 36 FRD 22 Application and operation of Freedom of Information Act 1982 35 FRD 22 Compliance with building and maintenance provisions of Building Act 1993 34 FRD 22 Statement on National Competition Policy 35 FRD 22 Application and operation of the Whistleblowers Protection Act 2001 35 FRD 22 Details of consultancies over $100,000 34 FRD 22 Details of consultancies under $100,000 34 FRD 12 Disclosure of major contracts n/a FRD 22 Occupational health and safety 29 FRD15 Executive officer disclosures 67 FRD 10 Disclosure index 72 FRD 25 Victorian Industry Participation Policy disclosures 35

72 | VICTRACK 2006-07 ANNUAL REPORT Legislation Requirement Page Financial Statements Financial statements required under Part 7 of the Financial Management Act 1994 SD 4.2 (c) Compliance with Australian accounting standards and other authoritative pronouncements 37 SD 4.2 (c) Compliance with Ministerial directions 37 SD 4.2 (d) Rounding of amounts 52 SD 4.2 (c) Accountable officer’s declaration 37 SD 4.2 (f) Model financial report 37 SD 4.2 (b) Operating statement 42 SD 4.2 (b) Balance sheet 43 SD 4.2 (a) Statement of changes in equity 44 SD 4.2 (b) Cash flow statement 45 Other disclosures in notes to the financial statements FRD 9 Departmental disclosure of administered assets and liabilities n/a FRD 11 Disclosure of ex-gratia payments n/a FRD 13 Disclosure of parliamentary appropriations n/a FRD 21 Responsible person and executive officer disclosures 66, 67

Legislation Act Page Freedom of Information Act 1982 35 Building Act 1993 34 Whistleblowers Protection Act 2001 35 Victorian Industry Participation Policy Act 2003 35 Financial Management Act 1994 46 Audit Act 1994 38 VicTrack Head Office Level 8, 1010 La Trobe Street Docklands Vic 3004

Telephone: (03) 9619 8850 Facsimile: (03) 9619 8851

www.victrack.com.au