APA Group SECURITY AND GROWTH ANNUAL REPORT 2009 TABLE OF CONTENTS 2 Performance Highlights 4 APA Group Pro le 6 Chairman’s Report 8 Managing Director’s Report 11 Commercial Report 14 Operations Report 8 16 APA People and Sustainability 18 Board of Directors 20 Leadership Team 21 Corporate Governance Statement Australian Pipeline Trust 30 Directors’ Report 51 Financial Report 14 11 APT Investment Trust IMAGES: Opposite page 123 Directors’ Report (from top) Nick Duivesteyn; 126 Financial Report Joe Schiavone checking serial numbers on our meters; 152 Additional Information Matthew Chisholm and IBC APA Assets and Investments Rowland Schreier at Brooklyn city gate, Victoria; Ian Wheeler and Kidman Ho, Dandenong 16 Operations control room. Annual Meeting Date 30 October 2009 Venue Amora Hotel 11 Jamison St Sydney NSW 2000, Australia Time 10:30am Registration commences at 10:00am APA Group APA GROUP ANNUAL REPORT 2009 2009 REPORT ANNUAL GROUP APA ON THE COVER SECURITY AND GROWTH ANNUAL REPORT 2009 Main Image: Michael Mann maintaining a turbine at Brooklyn compressor station, Victoria. Inset images: Philip Botha at Brooklyn city gate; You can view the APA Group aann viewview tthehe AAPAPA Group 2009 al Report on our website w.apa.com.au Michael Noonan and Keith Jones monitoring the 2009 Annual Report Victorian Transmission System. on our website nual Report in printed on Lynx Opaque. aque is made from elemental chlorine free d pulp sourced from well-managed forests and ed sources. www.apa.com.au AUSTRALIAN PIPELINE LTD ACN 091 344 704 AUSTRALIAN PIPELINE TRUST ARSN 091 678 778 APT INVESTMENT TRUST ARSN 115 585 441 The fi nancial benefi ts of the growth projects undertaken this year will fl ow into next year and beyond A BRIGHT FUTURE IN UNCERTAIN TIMES APA is Australia’s largest natural gas infrastructure business, owning and/or operating more than $8 billion of gas transmission and distribution assets WE HAVE THE POWER TO SUSTAIN, DELIVER AND GROW APA ANNUAL REPORT 09 1 PERFORMANCE HIGHLIGHTS • Achieved 9th consecutive year of record 2009 2008 Change underlying nancial performance, reporting increases on all key nancial measures Revenue ($m) 958.8 897.8 6.8% Revenue excluding 687.4 614.9 11.8% • Increased full-year distributions by 5.1%, pass-through ($m) achieving guidance EBITDA ($m) 458.7 430.5 6.5% • Completed re nance of $1 billion debt due Operating cash fl ow ($m) 233.6 192.1 21.6% in 2010 Net profi t after tax ($m) 110.1 82.2 34.0% • Af rmed as an investment grade company Reported NPAT ($m) 78.8 67.2 17.2% – Standard & Poor’s assigned a BBB long term Operating cash fl ow 48.2 42.7 12.8% corporate credit rating per security (cents) Distribution per security (cents) 31.0 29.5 5.1% • Established Energy Infrastructure Investments – APA sold its annuity-style assets, and Underlying results before signi cant items and AIFRS adjustments retained a 19.9% equity interest together with the management and operation of the assets under a long term agreement Up 7% 1000 Up 22% 250 Up 7% 500 800 200 400 600 150 300 400 100 200 200 50 100 0 0 0 0405 06 07 08 09 0405 06 07 08 09 0405 06 07 08 09 TOTAL REVENUE ($m) OPERATING EBITDA ($m) CASH FLOW ($m) Down Up 13% 50 Up 5% 32 22% 5000 28 40 4000 24 20 3000 30 16 2000 20 12 8 1000 10 4 0 0 0 0405 06 07 08 09 0405 06 07 08 09 0405 06 07 08 09 1 2 TOTAL ASSETS ($m) OPERATING CASH FLOW DISTRIBUTIONS (CPS ) 2 PER SECURITY (CPS ) (1) Reduction in total assets primarily due to the sale of assets to Energy Infrastructure Investments (2) Cents per security 2 APA ANNUAL REPORT 09 • Constructed two additional compressor stations, APA enhanced its portfolio Ned’s Creek and Wyloo West on the Gold\ elds of natural gas transmission Gas Pipeline in Western Australia • Constructed an additional compressor station, and distribution assets to Davenport Downs on the Carpentaria Gas meet increased demand for Pipeline in Queensland gas transportation and • Continued investment in the Moomba Sydney Pipeline to increase winter capacity storage services • Constructed the Bonaparte Gas Pipeline and Wickham Point Pipeline in the Northern Territory • Completed construction of the Brooklyn Lara Pipeline in Victoria • Acquired the Central Ranges Pipeline and Central Ranges Network in northern New South Wales • Increased equity interest in Envestra to 30.4% Bonaparte Gas Pipeline Carpentaria Gas Pipeline Central Ranges Pipeline Goldfi elds Gas Pipeline Brooklyn Lara Pipeline Moomba Sydney Pipeline APA ANNUAL REPORT 09 3 APA GROUP PROFILE Unique among its peers, APA has direct management and operational “control over its assets and investments.” APA is Australia’s largest natural gas infrastructure business, owning and/or operating more than $8 billion of gas transmission and distribution assets. Its pipelines span every state and territory in mainland Australia, delivering more than 50% of the nation’s gas usage. Unique among its peers, APA has direct management and operational control over its assets and investments. Our strengths Our strategy Unrivalled natural gas infrastructure portfolio Maximise value for securityholders by • largest transporter of natural gas across Australia Focusing on gas infrastructure assets in Integrated portfolio of natural gas pipeline Australia’s growing gas market and assets further enhancing APA’s portfolio of assets • providing revenue and operating synergies Capturing revenue and operational Attractive growth opportunities synergies from APA’s signifi cant asset base • enhancing capacity in APA’s existing pipelines serving major growth markets Pursuing opportunities that leverage across Australia APA’s knowledge and skills base Stable cash fl ow Maintaining a strong balance sheet • regulated and contracted revenue Internally managed and operated business • highly skilled and experienced workforce, extracting greater value from the business and responding to a dynamic energy market 4 APA ANNUAL REPORT 09 Gas Asset Transmission Management and Distribution Australia’s largest natural gas pipeline APA provides commercial and operating owner services and/or asset maintenance APA manages and operates all of services to all its investment enterprises its major gas transmission and under long term arrangements distribution assets Gas transmission pipelines: • 10,000 km of high pressure natural gas transmission pipelines across mainland Energy Australia Investments • Major pipelines include Carpentaria Gas Pipeline, Roma Brisbane Pipeline, Moomba Sydney Pipeline, Victorian Transmission System and Gold elds Gas Pipeline • Transporting more than half of the natural gas used in Australia annually Envestra Limited (30.4%) Gas distribution networks: • Natural gas distribution company; 20,100 km • 2,800 km of distribution network in of networks, 1,100 km of pipelines and south east Queensland and in northern 1.1 million gas users New South Wales SEA Gas Pipeline (33.3%) • More than 75,000 gas users • 680 km natural gas pipeline Gas storage: Energy Infrastructure • Pipeline storage services Investments Pty Limited (19.9%) • Mondarra gas storage facility, • Infrastructure assets Western Australia Ethane Pipeline Income Fund (6.1%) • Dandenong LNG storage facility, Victoria • 1,375 km ethane pipeline “APA has a highly skilled and experienced workforce, extracting greater value from You can view the APA Group 2009 the business and responding Annual Report on our website to a dynamic energy market” www.apa.com.au APA ANNUAL REPORT 09 5 CHAIRMAN’S REPORT In the midst of a period of global uncertainty, we adhered to our strategy of growing the business sustainably and profi tably, and strengthening our balance sheet. Driven by the strong performance and growth of our gas transportation and distribution business, and a full year’s positive impact from internalising our operational and asset management activities, I am pleased to report that APA Group delivered a record underlying nancial result for the 12 months to 30 June 2009. This represents our ninth successive year of record performance. 22% In the midst of a period of global uncertainty, we adhered to our strategy INCREASE IN of growing the business sustainably and pro\ tably, and strengthening our UNDERLYING balance sheet. OPERATING We declared a nal distribution for the \ nancial year of 16.0 cents per security CASH FLOW (‘cps’) taking the total distribution for the year to 31.0 cps – a 5.1% increase on the previous year, achieving the guidance provided at the interim results of increasing distributions by at least 5% for the year. Financial performance “The increase APA achieved a 7% increase in underlying revenue to $959 million and a 7% in operating increase in underlying earnings before interest, tax, depreciation and cash fl ow amortisation (EBITDA) to $459 million. provides the APA is a strong cash-generating business and the increase in operating cash ] ow provides the basis for increasing distributions to securityholders. During the year basis for APA reported a 22% increase in underlying operating cash ] ow to $234 million, and a 13% increase in operating cash ] ow per security to 48.2 cps. increasing True to strategy, distributions continued to be well covered by operating cash distributions” ] ow. Cash remaining after distribution payouts was used to fund business growth, as was the $79 million capital raised through the Distribution Reinvestment Plan and the Security Purchase Plan which operated during the year. Key achievements Our strategic focus for the year has been to continue to enhance APA’s portfolio of gas assets and strengthen our balance sheet. We delivered on this strategy, with several key achievements. We established an unlisted investment vehicle, Energy Infrastructure Investments (EII), in December 2008, selling a number of APA’s annuity-style assets to EII and attracting international industry experts, Marubeni Corporation and Osaka Gas Company, as co-investors.